Q1 2024 Frequency Electronics Inc Earnings Call
Good afternoon, ladies and gentlemen, and thank you for your patience. Your conference will begin shortly once again. Thank you for your patience that conference will begin shortly.
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Okay.
Greetings and welcome to the frequency electronics first quarter 2024 earnings release Conference call.
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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 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 releases or wherever they are detailed in the company's periodic report filings with the Securities and Exchange Commission.
By making these forward looking statements. 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 introduce your host Thomas Mcclelland, President and Chief Executive Officer.
Good afternoon, everyone.
I have a very positive message for shareholders today.
From a financial point of view, we have very encouraging numbers to report.
But even more importantly, there are a number of signs that we're on a sustainable paths of growth and profitability.
We have a lot of exciting new business as well as several very exciting programs, which we anticipate in the.
Near future.
In fact, we're really transitioning from a challenging period and its cost cutting and reorganization.
Periods of growth than.
And then we see the very real potential for acceleration of that growth over the next year.
We now begin to face a different and frankly more pleasant challenge.
Effectively managing this growth.
Such that we maintain profitability and positive momentum over the long term.
We've transitioned out of a period.
Workforce reduction and are now beginning to hire at all our facilities.
And in fact, when you face a particular challenge of a very tight labor market, especially in advanced engineering fields.
Which are very important for our future.
But let me briefly highlight the financial results before Steve Filton, So you're right on the details.
So revenue and gross margin have increased substantially compared to the first quarter of fiscal 2023, and the company is reporting an operating profit.
212 million compared to an operating loss of over 3 million in the same quarter of last year.
Although the offer at operating profit for the quarter is affected by several onetime items, even without these items. The company would have reported an operating profit of slightly over $1 million.
The backlog of $51 8 million at the end of Q1.
Uh huh.
It is close to the historic high at the end.
Fiscal 2023, and is up dramatically compared to $39 7 million at the end of Q1 last year.
More importantly bookings are expected to increase.
Backlog significantly over the next two quarters.
So in summary, I believe our efforts have put us on a sustainable positive trajectory of growth in our core.
<unk> business the company remains committed to achieving sustained profitability and cash generation going forward.
So at this time I'd like to turn things over to Steve Bernstein, who will go through the financial details.
Steve.
Thank you Tom and good afternoon.
For the three months ended July 31, 2023, consolidated revenue was $12 4 million compared to $8 2 million for the same period of the prior fiscal year.
Revenues on satellite payload contracts are recognized primarily under the percentage of completion method and are recorded only in the FBI New York segment.
Revenues from non space U S government and Dod customers, which are recorded in both the FBI, New York and <unk> segments were $6 9 million compared to $4 1 million in the same period of the prior fiscal year and accounted for approximately 55% of consolidated revenue compared to <unk>.
<unk>, 50% for the prior fiscal year.
Other commercial industrial revenues were approximately 672000 compared to approximately 664000 in the prior fiscal year. The increase in revenue for the three months ending July 31, 2003 was mainly due to government non space programs.
For the three months ended July 31, 23, gross margin and gross margin rate increased compared to the same period in the prior fiscal year. The gross margin dollars increased as a direct result of the increase in revenue the gross margin rate increased significantly due to two main factors first.
Many of the technical challenge just phased in early part of last fiscal year had been resolved and as a result, the related programs are now moving forward.
Second during the three months ended July 31, 23, there were onetime contractual and other adjustments that also benefit the gross margin rate by approximately 8%.
So the three months ending April .
In July 'twenty, three and 'twenty, two SG&A expenses were approximately 19% and 24% respectively of consolidated revenues. The consolidated decrease in SG&A expense of 5% for the three months ending July 31, 23 as compared to prior year periods was largely due to the.
The increase in revenue.
R&D expense for the three months ending July 31, 23 decreased to approximately 506000 from $1 1 million for the three months ending July 31, 22, a decrease of approximately 604000 and were approximately 4% and 14% respectively.
<unk> of consolidated revenue.
R&D decreased for the three months ending July 31, 2003 were due to dedicate your R&D resources working on production orders to meet schedule deadlines. The company plans to continue to invest in R&D in the future and keep its products that the state of the art.
For the three months ending July 31, 23, the company recorded operating income of approximately $2 1 million compared to an operating loss of approximately $3 1 million in the prior year operating income increased due to combination of increase in revenue over the three months ended July 31.
22 increased gross margin and the effects of certain cost cutting measures instituted by management beginning of fiscal year 'twenty three.
Other income expense net is derived from various sources. The income can come from reclaiming of metal refunds interest on deferred trust assets or the sale of fixed assets and interest expenses related to the deferred compensation payments made to retired employees.
This yields pre tax income of approximately $2 million for the three months ended July 31, 2003, compared to an approximately $3 1 million pre tax loss for the three months ended July 31 2002.
For the three months ended July 31, 23, the company recorded a tax provision of $7000 compared to a $1000 provision for the same period.
Prior fiscal year.
Consolidated net income for the three months ending July 31, 23 was approximately $2 million or 22 per share compared to an approximate $3 1 million loss or negative <unk> 33 per share for the same period of the previous fiscal year.
Our fully funded backlog at the end of July 23 was approximately $52 million compared to $56 million for the previous fiscal year ended April 32003.
In addition, this is the fourth consecutive quarter in which backlog is greater than $15 million levels.
A level the company has not seen in over 10 years, while some of this will turn into revenue and thus came out of backlog. This year, we expect additional significant contract 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 $23 million at July 31, 2000, <unk> rate and a current ratio of approximately one 9% to one. Additionally, the company is debt free the company believes that its liquidity is adequate to meet its operating and investing needs for the next 12.
Modest in the foreseeable future I will.
I'll turn the call back to Tom and we look forward to your questions later.
Okay.
Steve.
Yes.
I'd like to now open.
Two questions.
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One moment, please while we poll for questions.
Your first question is coming from Brett Reiss from Janney Montgomery Scott. Please proceed with your question.
Hi, Tom Hi, Steve another good quarter.
Hi, Tobey.
Hi.
We.
Your statement that you expect additional contract awards can you give us.
I feel for you know what youre seeing that.
That that gives you this confidence that we will see these additional awards.
Yeah.
Well, let me talk to that alright. Thank you.
We have.
A lot of things frankly, several that we thought would come in in.
The first quarter, but haven't.
We are somewhat frustrated by delays in initiating some of these programs.
We see no indication that they're not going to happen I think primarily.
And being a sort of a slowness on the part of our federal government primarily.
But but you know these.
These are.
Programs that are definitely going to happen.
You know we were just.
Very positive Unfortunately, I can't make any specific statements.
About the specific programs, but yeah.
It.
It looks quite good.
I think.
Or is it a period of time, where we're frankly kind of inundated with.
New a request for proposals and so forth.
Yeah.
Why is there this year.
Briskness of.
Of new proposals what.
What is going on in your world that that things are percolating. If you can describe it too to us laymen out here.
Yes.
Rob.
Alright, I think.
On the mentally.
Yeah.
Our long term growth in the space market.
I think that Oh, that's the the real fundamental thing.
And you know.
More specifically I think there's just a.
A fair amount of activity I think to some extent.
The the startup.
Global events.
The challenges with the.
Ukraine and thanks.
Yeah.
Stimulated the interest is there.
In space and.
It's the.
There are some classified programs.
And sort of.
Yes.
Because of concerns about.
The ability of satellites and so forth and so on so.
Hum.
A number of things, but I think fundamentally its long term growth.
Space.
Great one last one.
The head.
Excuse me the headwinds.
You face with a tight labor market for advance engineering talent.
How much of a headwind is that and is there maybe a way around it yeah since things are going a long so swimmingly.
Could you do a small.
Bolt on acquisition to not only get a you know a good accretive business, but kill two birds with one stone and acquire some of this advanced engineering talent you need.
Yeah, well were or are pursuing us several paths in parallel and in this regard of course, we are trying to directly hire people.
I think as important in the long run because we really want to sustain.
A really talented.
Capable workforce.
In the short run we're also we are.
Are investigating working with outside sources of engineering talent.
We can utilize.
Particular programs.
And of course, where we're.
For our manufacturing activities. We're also looking at outsourcing.
Some of them some of that work.
Uh huh.
Yeah, So I think.
That's the basic strategy.
And.
Yeah.
Let me read it at that.
Thank you I'll drop back in queue. Thank.
Thank you very much.
Okay.
Brian .
Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.
Your next question is coming from Michael Eisner. Please proceed with your question.
Oh, great job, Tom and Steve.
If things go well.
Thank you Paolo.
Good question.
If you are.
Use temporary people for engineering.
They will have they will have on your books. So you wouldn't have to pay all the.
The overhead like health insurance and all that.
Yeah.
That's correct.
So that could work out nicely.
Frozen.
Yeah cause when you you could need them in the future.
Have to pay more.
The office of Naval research.
Some grants from them.
We have.
Several contracts Oh, R&D contracts with the office of Naval Research.
So.
They're going to cover the expenses.
We'll keep the technology.
Oh, that's correct.
Hi, that's nice.
And you mentioned something about.
Patented low acceleration.
<unk> technology.
Which is 100 times improvement in performance.
We the only ones that make this.
Oh, we're not the only ones that make it but I think Oh, you know what.
It's not.
Let's see.
We understand and execute better than anybody else I think it's like most of our.
Technology.
Yeah.
It's very specialized and it's not so much.
A question of having patents, but it's a question of.
Having the expertise to.
Implement these technologies effectively.
Alright.
The gross margins I think you at 39% do you feel your <unk>.
Last quarter, you kind of mentioned that you're going to try to keep the 35% to 48%.
Gross profit level do you think you'll be able to do that through 'twenty four.
Well, that's certainly the goal.
Alright.
He is a go there was inventory write downs because it wasn't accounted for properly.
Is everything go good with that.
Okay.
And Oh.
And our space business inventory is a challenge.
Because.
In order to meet schedules, we need to have.
<unk> inventory.
But.
That being said I think.
Or is it something.
We're actively monitoring and Oh, yeah, I think we have adequately.
Adequately under control.
Hi.
Just had that goes back years.
Just wondering about that.
What's the current book to Bill.
After this quick win this quarter was <unk> 67.
But that you can't really look at it one core and Perry can you rank.
You should look more like go back one.
It won't complete year.
I assume correct.
Yes.
Right now yes.
But you're gonna say, sorry did I cut you off I'm sorry.
No.
Alright, I think.
I look forward to hearing about the Oh.
Come in contracts, how are you going to be able to if you get something will you be able to release.
Release that or some of its top secret.
Yeah, I think in it there might be some exceptions, but in general.
We will at least be able to release sort of generics crooks public statements and well do that.
Just like a dollar amount.
Yeah Yeah.
Yeah without identifying specific customer.
Or application.
No that would that would be fine I.
I would just like to say you know yeah, there's some things going on.
And.
One final question, how many people you think you need this time throughout the whole company.
Well, it's hard to put a.
Number on that and you know, we don't want to get a little ahead of our skis so to speak.
Yeah.
But where we're.
We're trying to build some key positions and at least to be out there looking.
With some potential candidates are so that when we get some of these contracts that we're anticipating over the next couple of quarters, we can move out aggressively.
And we've also initiated some some work with some outside engineering sources and to some extent.
That's sort of on an experimental basis, but I think it's pretty important when do we need to develop a good working relationship with the some of these groups. So that when we do get new contracts and we can get things moving quicker.
<unk>.
I think that.
You know we are in terms of a specific number.
Does it take to really say anything in this regard.
Workforce, perhaps a 10, 15% increase.
But we'll have to wait and see how things develop in that regard.
Alright, I was going to say hypothetically, if you've got work from morale I'm just using taken that company would you be able to use some of them at their engineers is that what you're trying to do.
No no.
No I don't think.
We have any.
Thought that we would be able to do that kind of a thing but there are some.
Resources out there some companies with.
Engineering talent for higher.
And we're working with several of those at this point in time.
Right great job really in the last year, you've turned the company around.
Thanks.
Thank you we have reached the end of the question and answer session. I will now turn the call over to Thomas Mcclelland, President and Chief Executive Officer for closing remarks.
Okay.
Well I just like to thank everybody participating in this call and since there are no further questions I think we'll end at this time.
Once again, thanks, everybody for participating.
Yes.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.