Q3 2023 Frequency Electronics Inc Earnings Call
[music].
Greetings and welcome to the frequency electronics Q3 fiscal 'twenty three earnings release conference call.
At this time all participants are in a listen only mode. There will be an opportunity to ask questions on today's call. After the presentation. Please press star one on your telephone keypad at any time to enter the Q&A queue.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Any statements made by the company during this conference call regarding the future constitute forward looking statements pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Such statements inherently involved I'm, sorry involve uncertainties that could cause actual results to differ materially from the forward looking statements.
Factors that would cause or contribute to such differences are included in the company's press release and are further detailed in the company's periodic report filings with the Securities and Exchange Commission.
By making these forward looking statements and the company undertakes no obligation to update these statements for revisions or changes after the date of this conference call.
It is now my pleasure to turn the floor over to your host Thomas Mcclelland, President and Chief Executive Officer.
Yeah.
Thank you.
With the Q3 results, we began to see the impact of their cost cutting efforts and management reorganization, which has taken place over the last seven months.
Revenue and gross margin have increased substantially quarter over quarter and the company is reporting an operating profit for the third quarter not only for the consolidated company, but also for each segment individually.
Many factors contributed to this but I think importantly.
We initiated an effort to recognize on pro promote talent within our existing workforce.
So this N and with encouragement from our board of directors, we have established a broad based equity incentive program that rewards individuals who meet key performance metrics and aligns employee performance with both customer satisfaction and shareholder interests.
We see a market improvement in the overall morale of our workforce and have a sense that everyone is pulling together to achieve a common goal.
<unk> backlog remains strong at quarter end substantiating, our confidence in the growth of our primary markets.
Both commercial and government satellite businesses continue to show signs of sustained double digit growth going forward.
At this time, we anticipate the imminent award of several significant contracts.
Although we still are experiencing supply chain issues and the effects of inflation.
We do see a definite easing of these problems.
Did you vigilance as required to navigate the challenge the changing economic and geopolitical environment.
But nonetheless confident that we're progressing in a positive direction.
And look forward to more improvement in results there.
Company is committed to moving towards sustained profitability and cash generation going forward.
I appreciate the board of directors supports and naming a permanent president and C E O.
And I believe the board has taken meaningful steps to enhance the company's value for its shareholders customers and employees.
And that our best days are ahead.
We have truly unique technical and manufacturing capabilities.
Are particularly well suited to the needs of the U S government and our other customers in the years ahead.
At this point I'd like to turn.
Turn things over to <unk>.
Our CFO Steve Bernstein.
We'll fill you in on some details.
Thank you Tom and good afternoon.
Before I go through the financial results. It is important to mention that even though we are not presenting FY 'twenty. Three Q2. The company has made significant improvements from FY 'twenty, three Q2 compared to FY 'twenty.
23, Q3 sales increased $1 6 million or 18, 6%.
Gross margin went from three 9% to 32, 6% and operating profit loss went from a loss of 2.28 million to income of 325000.
These are substantial improvements and we continue to strive to make changes to keep this trend continuing.
For the three months ended January 31, 'twenty three consolidated revenue was $10 6 million compared to $12 2 million for the same period of the prior fiscal year.
The components of revenue are as follows revenue from commercial and U S. Government satellite programs was approximately $5 million or 47% compared to $7 5 million or 62% in the same period of the prior fiscal year.
Revenue on satellite payload contracts are recognized primarily under the percentage of completion method and are recorded only in the New York segment revenues from non space U S government Dod customers, which are recorded in both the FBI, New York and <unk> segments were $5 million compared to $4 three.
$3 million in the same period of the prior fiscal year and accounted for approximately 47% of consolidated revenue compared to 35% for the prior fiscal year.
Other commercial and industrial revenue were approximately 650000 compared to approximately 400000 in the prior fiscal year.
The decrease in revenue for the three months ended January 31, 23 was mainly due to the timing of the various production phases for our products in the satellite market.
For the three months ended January 31, 23, gross margin and gross margin rate increased as compared to the same period in fiscal year 'twenty two.
The increase in gross margin and gross margin rate was due to higher engineering cost associated with programs in the development phase and the prior year period versus the production phase during the current year period.
For the three months ended January 31, 23, and 22, SG&A expenses were approximately 22% and 23% respectively. Our consolidated revenues the decrease in SG&A expense for the three months ending January 31, 23 as compared to prior year period was largely due to decrease in <unk>.
Payroll and associated costs.
Related to the previously announced workforce reduction.
The company continues to monitor expenses looking for additional cost effective reductions going forward.
R&D expense for the three months ended January 31, 'twenty three decreased to approximately 780000 from $1 1 million for the three months ending January 31, 'twenty two a decrease of approximately 345000 and were approximately 7% and 9% respectively of consolidated.
Revenue.
R&D decreased for the three months ending January 31, 'twenty three are related to <unk>.
Resolution of fiscal year 'twenty, two technical challenges to projects that are now in production phase the company plans to continue to invest in R&D in the future to keep its products at the state of the art.
For the three months ending January 31, 23, the company reported operating income of approximately 325000 compared to an operating loss of approximately 720000 in the prior year.
Operating income increased due to a combination of increase in sales over the three months ending October 31, 22 increased gross margin and effects of the changes management has instituted.
Other income consists primarily of investment activity derived from the company's holding of marketable securities. During the three months ending January 31, 'twenty three the company liquidated its holdings and as a result, there was a loss recognized.
This yields a pretax loss of approximately 313000 compared to approximately $734000 pre tax loss for the prior fiscal year. It is important to mention as a result of the liquidation of the company's holdings of marketable securities and the associated loss to pretax loss would have been pre tax income.
For the three months ending January 31, 23, the company recorded a tax provision of $3000 compared to 1000 for the same period of the prior fiscal year.
Consolidated net loss for the three months ending January 31, 23 was approximately 316000 or <unk> <unk> per share compared to an approximate $735000 net loss or <unk> <unk> per share in the previous fiscal year.
Our fully funded backlog at the end of January 23 was approximately $54 million compared to $40 million for the previous fiscal year ending April 32002. In addition, this is the second consecutive quarter in which backlog is greater than $50 million levels of the company Hasnt seen in years, while some of this will turn into <unk>.
Revenue and thus come out of backlog. This year, we expect additional significant contracts awards to be added to backlog in the coming quarters.
The company's balance sheet continues to reflect the strong working capital position of approximately $20 million at January 31, 'twenty, three and a current ratio of approximately one 7% to one Additionally, the company's debt free.
Company believes that its liquidity is adequate to meet its operating investing needs for the next 12 months in the foreseeable future.
I will turn the call back to Tom and we look forward to your questions.
Okay.
Uh huh.
At this point, we can open things up to Q&A.
Thank you at this time, we will be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
You May press Star two.
If you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Once again, please press star one on your phone if you have a question at this time.
One moment, while we poll for questions.
Once again, ladies and gentlemen, please press star one on your phone at this time, if you wish to ask a question.
And we did have a question come from Michael Eisner.
Michael is a private investor Michael your line of lives.
Oh, hi, great a great job there.
Yeah, Hi, Michael revenue what was that sorry.
Hi.
Revenue increased a nice amount.
A couple of questions.
Even though even after the dividend am I correct that you still gain like $3 million in cash.
You have to pay out like $10 million.
The actual cash went up about $1 million, but we don't have any marketable securities anymore. So.
So it's up in all right.
But it did go up a million.
Yes, a little over $1 million, which is nice alright, yes last time you are.
Uh huh.
GPS three F. I think you completed the qualifications.
On delivered the engineering and they would I think they were testing it.
Yeah, that's almost correct.
We completed the qualification and we delivered a second.
Second unit, which has been installed.
On the experimental slot.
One of the satellites that is slated to be launched in the near future. We don't know the exact schedule.
Probably within the next two years, certainly may be a lot sooner than that.
So that's on target and we are currently.
In the process of finishing what's called a life test unit, which.
Eventually we'll go onto a long term testing at the Naval Research Laboratory.
Okay was that one of your satellites I think that the GPS three you were able to get one EUR <unk> <unk>.
Talks on it.
Oh, not though I thought.
Well youre actually right its not GPS III F.
The one that I just talked about is is one of the GPS III satellite, which is slated to be launched sometime in the relatively near future.
Yeah, all right. So that that's that was good because you didn't think you're going to get on that.
Alright.
Are they a company as you mentioned that some of these big companies.
Buying more parts upfront so if something goes wrong they have the parts.
Are they are they still doing that.
Well I.
I think that's a general strategy, we're still doing that.
Some extent, but oh, we do see that holds.
No supply chain situation improving at this point and so we're we're trying to be just as efficient as we can.
In terms of managing our inventory of parts.
Alright are there any more overruns or anything like that.
Okay.
No nothing.
Theres no new programs, where we have any significant concerns regarding overruns.
Alright, and you kept your backlog about even from last quarter.
And your book to Bill ratio I think Steve mentioned it was was it one seven to one.
Yes, its now for the year 151.
One five to one.
Yes for the year.
You mean, the year for the first nine months, Yeah, that's correct.
Alright.
I think.
Last time, you gave that number you with 2.841 was that for the quarter always after the hours that was just that one quarter, yes, alright, but deal while it was for the.
For the year at that time.
I don't have last quarter's number in front of me now, but I can get it to you yet, but you're happy with the one five to one.
Yes.
Alright and.
So both syndicates.
Significant contracts you mentioned in the coming quarters.
Do you feel comfortable that they're going to have to come to you and buy them.
Yes.
We do a we have seen in several cases things have moved out.
From what we anticipated last quarter, but we believe me we are monitoring this pretty closely and we see no indication that.
Any of these things won't happen they move out a little it's a it's a pretty common thing in this business, but they're not going away.
You know there there are some significant new things on anticipated, even a quarter ago that we do anticipate coming in.
Some of them actually with them.
Potentially within the next couple of weeks.
When you say pushed out you've been pushed to the right.
But you still got pushed to the right yeah that was it.
<unk> always used.
Yeah.
So you you should keep your backlog got up then.
Yes continue.
And these are these.
Can you comment which are the government are they what type of the can you comment what type of contracts.
Are they classified.
Uh huh.
So so most of our contracts arent directly with the government in fact, I don't think we anticipate that any directly with the government, but in general if the government. The U S. Government is the ultimate end customer.
And I and I think the things we've.
We're talking about.
You know over the next year or so are mostly.
Fit into that category.
Yeah cause that'd be one you may get stuff from morale or some place like that.
These are all necessary contracts is where I'm getting.
Yeah, I think you can say that.
Alright.
If you can't comment than something just say you know we can't comment alright. Thank you great job and you have been used went up nicely.
Okay. Thank you Mike.
Welcome.
Thank you had there were no other questions in queue. At this time I would now like to hand, the call back over to Thomas Mckennon for some closing remarks.
Okay.
Thank God I, just like to thank everybody that has participated in this call and I'd like to make it clear that if.
Anybody has any remaining questions. Please.
Please feel free to contact us frequency electronics tronox by telephone at any time, we welcome your calls.
Thank you for participating.
Have a nice afternoon.
Thank you. This concludes today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.