Full Year 2024 Frequency Electronics Inc Earnings Call
Yeah.
Speaker Change: Greetings and welcome to the frequency electronics year in fiscal 2024 earnings release Conference call.
Speaker Change: At this time all participants are in a listen only mode.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: 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 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 and are further 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.
Thomas McClelland: Good afternoon, everyone.
We have a very positive story to tell regarding the fiscal year that ended April 30th.
Thomas McClelland: Revenues have grown consistently throughout the year and we expect that to continue in the near term going forward.
Backlog of $78 million is a historic high for the company and we anticipate the backlog will remain strong based on a very healthy new business outlook.
The company is reporting an operating profit for the year of $5 million.
The operating loss in the third quarter being followed by profitable fourth quarter.
We anticipate continued long term growth in our primary end markets of space navigation secure communication and timing.
Our proven heritage technical expertise in these disciplines.
Mao's us to continue to win new business, while maintaining healthy gross margins.
This puts us on a very solid footing going forward and gives us some reason growth to develop new technologies and products in these markets.
Thomas McClelland: As they evolve over the next decade.
We've discussed in the past there is a growing concern.
And the ability of satellite assets.
And thus a move.
Thomas McClelland: Two lower cost easily replaceable satellites hardware.
The company continues to respond to new business opportunities in this arena.
Thomas McClelland: Some cases these programs involve higher risk and potentially lower gross margins.
But are essential for the long term strength of the company.
Our very healthy backlog of traditional satellite programs, incorporating our legacy technologies allows us to participate in these more risky programs, while maintaining growth and profitability overall.
I would like to add a few words about our other press release today.
Thomas McClelland: As you've hopefully seen.
The board of directors authorized a $1 per share special dividend.
And I encourage you to read the press release for the details regarding the record and payment dates coming up in August.
This is the second such dividend the board has authorized an approximately a year and a half.
I am proud of the continued progress we have made on profitability and cash generation, which allows us to reward our shareholders in this fashion.
Well, we're not committing to a certain cadence or amount of such dividends in the future.
Its reasonable that should we continue to make progress the board will consider a similar capital plans in the future.
We're able to do this while maintaining a debt free balance sheet and continuing to invest in next generation programs.
We are winning and are poised to continue to win.
As we've seen over just the past two quarters.
Past the path to improved profitability is not always going to be perfectly linear, especially given some of the bleeding edge technology that we're working on.
But as I said earlier business is booming and we believe it is prudent to return excess cash to shareholders, so that future gains and profitability cannot crew and a more pronounced manner to equity holders.
I'll now turn things over to our CFO, Steve Bernstein, who will fill you in on the financial details.
Thank you Tom and good afternoon.
Before we jump into the details of the Companys results for the fiscal year ended April 32004, I would like to remind everyone that as mentioned on previous calls there will be times. The companys results will fluctuate quarter over quarter and that a single quarter is not indicative of future results as an example.
Thomas McClelland: Sometimes the effect of changes.
Any one quarter can reverse and another quarter as engineering problems are solved its revenue and profitability flow through.
Speaker Change: For an accurate view of the company's performance, it's important to review the entire year and other significant items.
For the fiscal year ended April 32024, consolidated revenue was $55 3 million compared to $40 7 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 23.
Speaker Change: $2 million or 42% compared to $17 9 million or 44% in 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 New York settlement.
Revenue from non space U S government and Doj customers, which are recorded in both the New York and <unk> segments were $29 million compared to $20 3 million in the same period of the prior fiscal year and accounted for approximately 52% of consolidated revenue compared to 50%.
The prior fiscal year.
Other commercial and industrial revenue was $3 1 million and $2 $6 million for the fiscal years ended April 30 to 24 and 23, respectively.
The significant increase in revenue for the period was primarily related to increase in the U S government orders.
For the fiscal year ended April 32 for gross margin and gross margin rate as compared to the same period in fiscal year 'twenty three the gross margin dollars increased as a direct result of the increase in revenue.
Gross margin rate increased significantly due to the fact that many of the technical challenges faced in the prior fiscal year have been resolved and as a result, the related programs are now moving forward and running more efficiently.
Previous programs that sustained lower margins due to technical issues are near completion or have been completed.
For the fiscal year, ending April 32423, SG&A expenses were approximately 18% and 23% respectively of consolidated revenue.
While total SG&A expenses increased in fiscal year, 'twenty four as compared to the prior fiscal year SG&A expenses decreased as a percentage of revenues to scale 24, due to an increased revenue as well as the accompanying successfully monitoring costs given the current economic conditions.
R&D expense for the fiscal year ended April 32000, and for increased to $3 4 million from $3 1 million for the fiscal year ended April 30 to 23.
Speaker Change: An increase of 300000 and were approximately 6% and 8% respectively of consolidated revenue.
The company funded R&D amount was slightly higher in fiscal year 'twenty four as compared to the previous fiscal year, reflecting the companys commitment to maintaining its technical excellence.
Company expects future R&D investment to be in line with or even potentially above historic commitments.
For the fiscal year, ending April 32000, and for the company recorded operating income of $5 million compared to an operating loss of $4 7 million in the prior fiscal year.
The change from an operating loss to operating income year over year is attributable to the company a significant increase in revenue and margin during the fiscal year 'twenty four along with the positive effects of cost cutting measures instituted by management.
Speaker Change: Other income can be derived from reclaiming of metals refunds interest on deferred trust assets, while the sale of fixed assets interest expenses related to the deferred compensation payments made to retired employees.
This yields pre tax income of approximately $5 5 million compared to $5 4 million pre tax loss for the prior fiscal year.
But its fiscal year ended April 32000, and for the company recorded a tax benefit of 130000 compared to a tax provision of 74000 for the same period of the prior fiscal year.
Solidago net income for the fiscal year ended April 32004 was $5 6 million or <unk> 59 per share compared to a five 5 million net loss or negative <unk> 59 per share in the previous fiscal year.
Our fully funded backlog at the end of day April 24 was approximately $78 million compared to approximately $56 million for the previous fiscal year ended April 32003.
Company's balance sheet continues to reflect strong working capital position of approximately $27 million at April 32004, and a current ratio of approximately $1 eight 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 months in the foreseeable future I will turn the call back to Tom and we look forward to your questions.
Tom: Okay. Thank you Steve.
Speaker Change: We're now prepared to take questions.
Certainly everyone at this time be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
We do ask about posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone. Please hold while we poll for questions.
Your first question is coming from Brett Reece from Janney Montgomery Scott Your line is live.
Hi, gentlemen, can you hear me cause I'm, calling from home.
Speaker Change: Yes, we can hear you.
Great great.
Congrats on a spectacular quarter to you know to ultra deal in the AR and the team.
Speaker Change: The dollar special dividend you know.
Fantastic.
Speaker Change: I'm not going to give it back but yeah.
Tom: Yeah.
Right.
This is booming and there were so many.
You know the secular tailwind in the satellite business.
How did you arrive at the dollar you know why not 50.
Retained 50 cents and to reinvest in the growth opportunities in the business. If you could give me your thoughts on that I'd appreciate it.
Yeah, well I think that's primarily board this.
The session.
Thank a third of the arguments are.
An infinite number of arguments for different levels of dividend there I think.
You know this is a it is a one time dividend and I think the feeling is that we can do that we can afford that at this point in time.
And Oh.
Yeah, we'll evaluate going forward.
Whether there are additional dividends in the future if some of the tail winds that you talk about.
Occur or become more pronounced than we can always back off from that but at this point in time. The feeling is that this is something that we can afford and yeah.
Great Great no one more one more if I may and then I'll drop back in queue, because I'm sure. There's a line.
You know, there's tremendous momentum and business opportunity going forward.
What.
Tom: Keep you up at night that could.
Well you know the.
<unk>, taking advantage of the opportunity that lies before us.
Well.
Certainly plenty to keep me awake at night.
Thank a couple of things that stand out.
And in my earlier words I tried to.
Tom: Hit on it we do see changes in the satellite industry.
And exactly how best to to deal with those changes and how best to position ourselves relative to those changes is something that we give an awful lot of thought to certainly.
Oh, you know it is.
You know that Oh.
Particularly with government customers we.
You see there's kind of a desire to have the best of all worlds they want a smaller cheaper faster satellite hardware.
And they don't want to invest anything in order to get there.
Tom: So so how how exactly to be able to do that is certainly a challenge.
Hmm.
And I think that's something that we're working on.
The trick is to do that on the one hand, we are.
We absolutely have to participate.
On the other hand, we don't want to to start giving things away for nothing and and go back into a situation where for potentially losing money out of these programs. So this is a certainly perhaps.
The biggest challenge that keeps us awake at night at this point.
Thank you for taking my questions I appreciate it.
Thank you. Your next question is coming from Richard Johns Your line is live.
Good afternoon, and thanks very much for the dollar and the great job you're doing.
Richard Johns: I just had one question I'm wondering what the.
Size of the tax loss carry forward is as of the end of April.
I believe the Nols were roughly in the low $20 million range.
They're not all 100% some will be used obviously this year and then it'll be recalculated. After we file our tax return.
Okay. Thank you.
Speaker Change: Thank you. Your next question is coming from George Marina from Burrito Adventures you're line is live.
Hey, good afternoon Tom.
George Marema: Hi, Hi.
Okay.
So this quarter your gross margin was.
About 40%.
Your backlog increased substantially here.
A couple of questions on there so how do you see it.
Is there any revision to your gross margin outlook over the long term or if you look into fiscal 'twenty five.
How should we think about gross margin and the cadence of that and then I'll.
Speaker Change: Wanted to talk a little bit about your about the seasonality of that.
Okay.
It's actually a really good question.
Speaker Change: Thank God, we've talked about it on the last few calls a little bit.
Thank.
You know I I.
Divide things into two categories, you know we have the traditional.
Uh huh.
Programs that we've dealt with particularly in the satellite tens or a street and I think there we really can push to keep the the gross margin as high as we've said previously we target a 50% gross margin on those.
Speaker Change: Kind of programs.
But then we have what we were just discussing a little bit earlier. These new programs, where there is a tremendous pressure on costs.
And you know of.
Of course, we have a concern is it is it a if we don't get involved in some of those programs. We may lose out in the long run.
Speaker Change: In some cases, we are we have to take on some additional.
Additional risk and and effectively that means that the gross margins. We can expect from those programs is a little bit lower so so.
Thank God.
That realistically.
I think we can expect the gross margins to stay where they are.
We we may be able to push them higher.
In some cases, but I think oh not.
Overall basis.
I don't see them going a lot higher in the near.
And their future.
Yes.
Okay, and then in terms of backlog.
Is there it looks like there's generally.
Seasonality, where you win the bigger contracts in the fall, which I imagine is somewhat tied to the government fiscal year.
Speaker Change: So I was a little surprised to see in the springtime here. The backlog go up so dramatically is there any seasonality to this.
Well I I don't really think so maybe there was a one time, but you know the government fiscal year, there's a little bit the started at this point since our you know the <unk>.
Fiscal year starts October 1st and last year, we didn't have a budget for six months after that.
I think.
I don't think we're really too tightly.
Correlated with the government fiscal year I mean, there are some aspects of our business that definitely are but I think most of most of our work is not direct government contracts, but sub contracts with.
The major prime contractors as our government and so there is usually a lag between.
When they're under contract and when we get to our contract.
That I think that any appearance of a seasonality over the past year or so is a more coincidental than anything else frankly.
Yeah did you win any I mean, because your your backlog last quarter was 67 and now its 78 in your books. You know you did 16 million in revenue, let's call. It round. It off so that's about 27 28 million net net positive where there any large contracts that are a bunch of small ones or how does that what was the makeup of that.
Speaker Change:
Right.
We've had a we.
I don't think there are any.
Uh huh.
Excessively large contracts during that time, but a number of I guess medium sized contracts is best way to put it.
Okay. Thank you I'll get back in the queue.
Thank you. Your next question is coming from Michael Eisner. Your line is live hey, great job.
Michael Eisner: Thank you.
Michael Eisner: When you said, 40% gross margins was that going forward for the year.
Yeah, I think so.
Roughly roughly yes.
Yes.
Michael Eisner:
The contracts we received in November of last year.
Yes.
It how will they come and how is that coming along is that no problems.
Well, there's never a case, where we have no problems, but I would say everything is very positive at this point in time.
Yeah, you know if it if it was a no problem kind of a contract they wouldn't be coming to frequency electronics, but.
If we don't have that kind of a technical problems that are caused difficulties in the past not yet on these contracts.
Yeah. So I think things are looking.
Pretty good in that respect.
And as I said back on schedule.
Zipper is are back on schedule, yes, and where we're.
That's manage men the efforts to a b.
Pretty disciplined in that regard and.
Make sure that that remains the case going forward.
Alright.
In the first quarter of last year.
Michael Eisner: 12, and a half million second quarter third 13, and a half.
Third quarter like $13 seven this quarter at $15 five.
But your backlog actually went up by 26 million.
During this period.
Period.
So.
I guess how.
How much of this backlog do you expect to see in 2025 fiscal year.
Oh.
All right.
Steve why don't you.
Tackle that one so.
Talking of how much of the backlog, we expect to use yeah.
Yeah, I think to terna is yeah years ago. It was like 60 or 75% somewhere in there I can't remember that that's approximately where it'll be.
It's based on the length of the programs in backlog and everything else.
It seems like backlogs going up a lot more than revenues.
That's what I basically I'm getting.
Uh Huh alright, that's it for me great job.
Thank you.
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 Jason <unk> from him shutter Holdings. Your line is live.
Hey, good afternoon, Thanks for taking my questions and congratulations on a great quarter.
Just had a couple of I guess additional questions on the margin. So the press release from Master last quarter. The $1 2 million revenue was that did that get recovered in fiscal Q4, and if it did what kind of margin was that.
Yeah.
Michael Eisner: Go ahead, Steve some of it was recognized.
In this quarter not all of it just some of it.
Okay, and then maybe just try to explain it again, so there there's one dynamic where you're kind of chasing business that that I would say kind of significantly above corporate average margin, that's the 50% ish.
Fish gross margin if you could maybe explain that piece more and then the part where it sounds like there's some pushback on price I think you were saying, yes, everybody wants it smaller cheaper once things for free kind of that piece. It sounds like it's maybe below the corporate average of this 40% level for next year kind of just.
Maybe a little more detail on what the dynamic is between those two.
Kind of lines of business, and and and where those are at looking ahead to next year.
Speaker Change: Okay sure.
Speaker Change: That you know the one of the things we really pride ourselves on is that we have technologies and capabilities to provide a really high precision products that are nobody else can provides.
In those cases, we really don't have any competition.
So many of the traditional satellite programs when they require the absolute best to phase noise and performance requirements of the sword, they come to frequency electronics.
And in those cases, we are we we are.
You know don't need to give anything away and are we kind of obtain vary.
Speaker Change: Desirable our gross margins on those programs.
Speaker Change: In some cases you know we.
It just shows so that's what I would call the traditional markets that we have dealt and but we also do see that the times are changing as they always do.
And and so.
Take hiller in the space business to assess move to smaller cheaper satellites and some sometimes that means that people are figuring out ways to perform the same tasks.
With hardware that that does not perform as well, but has a lower cost in particular, what we see in the satellites is that instead of something designed to operate within requirements for 15.
Yes. The goal is for it to operate within those requirements or maybe even relaxed requirements for only three years.
And so this is a new kind of business for us and and.
The.
They're just.
Speaker Change: Inherently a lot of risk associated with that.
The requirements are in a state of flux I think 10 years from now the.
Where all of that ends up will be a much more.
Concrete than it is right now.
People are trying things just the the Elon Musk you know try it and if it breaks you fix it.
But you know when things break there there are costs that go along with that so in those cases we.
We are we do still want to participate because if we don't.
I think our the traditional market will be there for us, but there's the danger that gradually over time.
Those are our traditional satellite programs disappear assuming they these are novel new approaches to things at least some of them are successful.
And so so we need to participate in that process and we need to take some calculated risks along the way.
And and we will.
Speaker Change: But you know we want to be pretty careful about that and I think that the thing that.
It's really it goes for us at this point in time is that we we still have a very very healthy business and the traditional satellite programs.
And so we can afford.
To to to take on.
Some of these riskier programs as long as we don't get a.
Two are out in front of our skis on those so to speak and so that's really the approach that we're looking at at this point in time.
Gotcha, and then to the extent some of those are kind of more novel approaches work. The idea is that those would also be potentially higher volume down. The road is it mostly the lower orbit stuff when you're talking about space in some of these approaches or is it more broad well it's it's.
It's mostly lower with all of it but not a not exclusively the GPS program is looking at medium Earth orbit satellites are along this same same sort of mindset that we're looking at.
Speaker Change: At some.
Procuring a small number at this point of satellites, but still be in medium Earth orbit, but would fit into this model of a low cost satellites that would be replaced every three to five years. So so it's not it's mostly the lower authority.
Speaker Change: But but not exclusively at the lower as her but I think that's our model.
It is just looks very attractive to everybody you know it really starts with the fact that that.
The reality is our satellites are vulnerable and it doesn't really cost very much to the Australia satellite and if it takes 10 plus years to replace a satellite that makes our country very vulnerable and so so.
Speaker Change: It really puts a lot of pressure to come up with an approach that allows those satellites to be replaced.
Much more quickly than 10 years, and going along with that it needs to be able to be done for a lot less than a $1 billion every time.
That happens so so oh.
Yeah, that's kind of the.
The name of the game all the way around and.
You know the question really just becomes where's the sweet spot.
Speaker Change: So if you you you.
I'll make a million dollar of satellites and launch it but it fails before you can get it operational.
That doesn't buy anybody anything.
So so you know if it's too cheap.
It's not as good on the other hand, if it's too expensive it's not good either so there's a lot of work and where that ends up in the end is still an open question.
Got it appreciate it appreciate all those details I'll jump back in the queue. Thank you.
Thank you. Your next question is coming from George Merrimack from Burrito Adventures you're line is live.
George Marema: Yeah, Thanks, Tom for taking a couple more.
I want a little more color a little bit about your technologies and capabilities in terms of commercial business.
What is your outlook in the future of going after our commercial business with either existing or new technology and also there's been.
George Marema: A heightened worry.
With GPS being taken down.
And I Wonder if you could give a little color on your GPS capabilities, both present and future stuff.
George Marema: Okay.
Okay.
A couple of things I think are we are going after a number of things in terms of commercial technologies.
We are very interested in that and I think that's one where we're actively pursuing external funding, we're doing a little bit with the internal R&D funds, but we have some really good prospects for external funding.
George Marema: Some of these things.
Speaker Change: We are looking at Oh.
Magnetic magnetometers, primarily one of the things to augment our G. P. S. A navigation is looking at magnetic anomalies.
Speaker Change: And so so.
There are a lot of interesting magnetometer ideas that are part of that equation and we were looking at that.
We are also looking at.
At some other quantum sensors rydberg sensors in particular, which is a novel way of one of the applications for that technology is a receiving antennas that are disconnected from the.
Wavelength or the frequency of the signals that are received.
That's one that's actually technology very close to our atomic clock technologies and it's one that we feel that we can contribute to very successfully.
Speaker Change:
So the other part of your question had to do with.
G P S and stuff I guess at least in part the vulnerability of GPS.
We are active actively participating in G. P. S. We are currently providing oscillators for the G. P. S satellites and we of course have developed.
Roberti I'm atomic clock for the GPS satellites.
We are a qualified second source at this point in time for the rebellion.
Rubidium atomic clocks for the GPS satellites, and we are pursuing.
We have some potential customers for that technology are with other navigation systems that are being considered and deployed around the world.
Speaker Change: Okay.
<unk>.
Speaker Change: So.
We are we certainly are are very involved in G. P. S. But we also are very aware of the the vulnerability and I think we are also actively involved in some of these programs we talked about it a little bit.
This resilient G P S.
Which is a new set of satellites.
At our combat compatible signal lies with our the existing satellites and are in similar orbits to the GPS satellites.
But hopefully it will be a much lower cost.
And.
Have a shorter lifetime.
And part of the idea with the shorter lifetime is to just be continually.
Launching new satellites and are introducing new technologies.
Along with the every every time additional satellites are launched one of the big things that we see and a lot of satellite programs.
I think it's pretty important for G. P S.
Is cross links between the satellites the current GPS satellites do not have a cross links.
Speaker Change: And so so each satellite has to.
Gets its a time and frequency updated.
From the ground.
Which can only occur when the satellites are in contact with a ground station. Once cross links are introduced then updates can be transmitted from satellite to satellite.
And so each satellite is not constrained to get updates only when it is in view of a ground station.
And I think that's something that a tremendous amount of effort is going into at this point in time and and is something that will pet potentially dramatically change the requirements for the precision clocks on the satellites.
Okay, I am not sure I completely answered quite all of them.
Yeah.
That's great. That's a very thorough answer excellent I want to keep my Uber eats working here.
<unk>.
Speaker Change: Well, one more thing I'm gonna drilling again on margins again, so did you guys.
For operating expenses SG&A for 25, do you expect that to stay relatively steady or any any material change there.
I think we expect that to retain a pretty steady no no expectations of anything.
Unusual.
Yeah, and I suspect you're being very conservative on the gross margin, but is there any production efficiencies as you kind of have a higher production rates.
Speaker Change: Squeeze a few more points out of that just from production.
Well potentially but of course a R.
Speaker Change: You know we generally in the certainly in the space business, we don't deal with <unk>.
Large quantities now as we get into some of these programs.
With the lower cost satellites of course, they are we would be looking at larger volumes.
And I think eventually we are we should have a very attractive margins.
Because of that but I think in the initial phases.
Speaker Change: I think that's a lot less likely there's just so.
So much uncertainty as to how those programs are going to evolve and I think especially to the extent that these are government programs.
It's just a you know to the trying to predict the.
Does the time frame in which the government does things is.
Just.
Frustrating as can be and are you know, we've we've seen and several of these programs where the the predicted schedules are given we provide to proposals based on those schedules and a couple of months later those schedules change.
It's just a a very tricky.
A part of this business at this point in time.
Thank you Tom.
Thank you. Your next question is coming from Michael Eisner. Your line is live.
Michael Eisner: Just one follow up question.
When you're talking about the.
Clarkson uptake in the classes.
After like three years, he kept on saying riskier he loved way to produce them more.
Someone can now do you.
Well, okay. So so I think you know on the surface of it you look well we've been producing our clocks that are designed to last 15 years in space. So what's the risk here about making a clock that only has to last for three years well if everything.
Else was equal our debt with the.
What you would expect it to be a less risky, but the reality is that were expected to be able to build those those clocks much much faster and for much less money.
And that's really where the risk comes in and and so so there's a lot of discussion with the government at this point as to what so one of the really big things that drives are there costs in our business is.
How reliable the the individual electronic components that go into these devices need to be there's a tremendous amount of testing.
That is in a traditional satellite business tremendous amount of testing that's required on the individual parts of one dollar part for commercial applications becomes a.
A 200 or 300 or 400 dollar car by the time has gone through all of the screening tests that are required on a traditional satellite programs. So the one of the questions is when you go from a 15 year expected life to a three year expected life.
Michael Eisner: Can you.
Get the.
Gotta be acceptable to use that $1 apart or is it kind of be a 400 dollar parts or is it going to be something in between and in general it's something in between.
But this is where the the risk comes in because it is pretty much an unknown what we what we see from they are.
The government our customers at this point in time is that they sort of waufle unknown, what the expectations are.
For these parts.
So I think this is where we see a lot of risk.
And and you know there's the other aspect of it is conceptually.
There's the you know does this spirit of well you know we tried to use really good parts, but if.
If we have some challenges with that that's a that the supply chain doesn't work out, we'll we're willing to adapt and accept a.
Lesser quality parts when we have to.
But again this is where risk comes in because will people be adaptable will they take that kind of an attitude.
In some cases in the past we've seen people get very strict about these requirements and we can be left with some pretty high cost trying to adapt on these programs when we can't get a part when we need it.
The programs get delayed over you know one of our devices. That's maybe has thousands of parts, we get delayed by several months over one or two parts that require can't acquire on time.
So.
Hopefully that gives you a little bit of a flavor. Michael those are the kind of things that are risks that we have to deal with.
These programs.
One final thing.
All the companies that make these part they are going to have the same issue that you have.
The same garanti.
Well.
Let's see if youre talking about our competitors.
Certainly true okay, Yes, that's true.
Absolutely everyone has the same exact to ask.
So yes. It is what it is.
Guys are you guys.
None to make the type of parts and to get this stuff done.
So when you you talked about is basically everyone's going to have the same exact issue.
Yeah.
Think.
That's correct I think it's not that the frequency electronics and some special position in this regard, but I think it's where we're really disciplined management comes into play you know we.
We need to monitor this very carefully we need to be responsible about what kind of what level of risks we take on going forward.
And so forth and so on.
Okay.
I appreciate that.
Michael Eisner: Okay.
Thank you. Your next question is coming from Brett Richards Your line is live.
Hey, guys congrats on a great quarter.
Also appreciate the dollar.
One basic question on the cadence of those contracts are the big ones that you signed in November I think you were looking at about a two year delivery time for the most part kind of slightly front weighted is it delivery cadence changed anyway or what you expect.
Not really where we're and at least one of those programs, we have a very aggressive delivery schedule.
Speaker Change: And at this point in time, we're on target to meet the delivery requirements and.
It's it's challenging but I think for us.
Speaker Change: That program is going very well at this point in time.
Good to hear and backlog I did want to ask you. So.
Of that backlog and that you had this this quarter how much of that was related to the release of backlog from those contracts versus other new business that you guys signed.
Oh, Steve can you address that one I don't have the exact number of how much came from those I would say like I said it was.
Steve: Mix of both.
From older and some from newer.
Okay, Yeah, I think the thing to keep in mind is that.
Then.
When we get to a.
New program.
The full.
Full contract amount doesn't show up as our backlog is solely as a as.
We get funded.
Steve: That.
Steve: So that shows up as a backlog so I think it's.
You know I don't remember the exact percentage, but it's.
A significant amount of new business, but also a very significant amount of just the funding of existing contracts.
Okay.
Helpful and the other one was about the commercial customer it was kind of that same batch of contracts yet it's more the smaller ones, but I think 99 million in the commercial customer and I think you guys had hopes that.
That might grow into something much larger later I'm assuming at this point just based on the commercial wherever you guys. You guys have been recognizing that probably have been a whole lot of work on a contract yet, but I'm wondering if you could provide any color kind of on where that outlook is for that business.
Yeah.
Okay.
Yeah.
Yeah, I think that.
We have several contracts that fit into this category, but a we have one in particular a satellite program.
We it's a it's going quite well at this point in time, but I think that one in particular.
Is a really a sort of a three year timeframe and are actually that stretched out a little bit because in this case the customer has added some additional features.
And.
Which.
Which.
So ultimately a very positive, but it is extending out to the delivery dates on that contract.
Speaker Change: Got that.
That is.
As a very promising program and we think that there is a.
The tremendous potential beyond the existing contract.
In that case yeah.
Gotcha.
Okay.
You hear us essentially haggling over snacks at this point.
Well, it's not so much haggling is that are there.
The initial contract was for a very precise.
Hardware.
And there just been some add ons.
Is that the customer has asked for some additional features and things. So it's really add ons to the contract.
Yeah.
Well anyway, guys, a great quarter, congrats are talking two months.
Okay great.
Thank you. Your next question is coming from Jason or isn't there for them, but I'm sure. They're holdings. Your line is live.
Alright, thanks for taking the follow up just on the I guess, the alternatives and the low cost satellite.
It sounded like it's a cost versus reliability question, but there isn't an alternative on the cost that's just trying to educate the customer on how much I.
I guess, they're valuing the reliability or is there.
Is it a trade off where there is some lesser technology, that's significantly cheaper where they're trying to get more reliable and you obviously have the reliability, but youre trying to get cost out.
Is it kind of a mix or is there no alternative right now and it's just I'm trying to get costs down on a on a timeline that works for them.
Well I.
I think a good way to describe this is with an analogy you know in the early in my career.
The electronics our circuitry.
Made a changeover from from what we call through whole electronics. This is Lee there's electronic components that were soldered onto printed circuit boards through holes in the printed circuit boards and those components were replaced with surface Mount components.
Which are made much much smaller than that through whole components and that now of course. Many years later, we're all used to the surface Mount components, but in the early days there was a period, where the there was a state of flux over just.
How small you could make things and the details of how those parts those individual parts had to be manufactured so that they would be reliable.
And in the applications that they were being used in and there were some some cases, where things didn't work out so well there are parts surface Mount parts that are failed very quickly.
And gradually over time those are in the sort of in the school of hard knocks those kind of problems.
We're uncovered and gradually solved and I think it's kind of a similar thing that is going to take place over the next to a decade or so in the satellite industry.
You know there's this new model comes about which really makes a tremendous amount of sense you know make.
And instead of the idea being that you build a satellite that is just never going to fail you build redundancy into that satellite. If you have a part that's not so reliable you'll put two or three or four of them on the satellite side.
That if one of them fails. The next one takes over instead of doing that.
You you make a much lower cost satellite.
And the idea is if if instead of having multiple parts on that satellite that are redundant one takes over one another one fails.
Hugh you have redundant satellite so to speak so if one satellite sales you have a second one there that can take over.
But but there is this period, where you you know you try things.
And you'll find out sometimes they work tremendously well and sometimes you maybe made a mistake and you went a little bit too far and.
Every everything sort of fails. So I think that's the period that we're going to go through and you know sometimes people will get lucky.
The sort of take a risk on something and it'll turn out that that's not a problem and they get away with it and there'll be other examples where just the opposite takes place.
And so so if you think of it as just kind of a random you know you have a a couple of dozen companies like frequency electronics out there the tire manufacturing things and trying randomly different things and some.
Of them work and some of them don't.
You know and from from that point of view, it's sort of a random chance. Some of those companies are successful because they randomly got lucky and some of them are not but I think obviously, we would like to to make the probabilities are little bit.
Speaker Change: Better than just a random and so we need to be a little bit careful about how we approach things and we we have to take some risks.
But we.
We don't want to just to leave everything to chance in this regard so.
Sure.
No I guess, but longer term if I think if if leo.
Orbit is tremendously successful in between Star.
Starlink, one web and project hyper I mean, youre going to have thousands and thousands of these satellites in lower orbit and if it's a five year replacement cycle or something I mean, it's still.
2000, and satellites, a year or something is it what what kind of magnitude.
Cost reduction you probably need to be in the ball game and mobile like being the solution for that market long term.
Well, that's the part that's really difficult to say at this point because you know we.
Don there, there's going to be a variety of different things. We're already looking at you know some some satellite applications where.
The the numbers in some cases the numbers of satellites are huge sterling, there's tens of thousands.
Of satellites.
That Oh are are supposed to be available eventually but there are other cases, where we're looking at a couple of hundred in some cases, where.
Where some of the G O'shea synchronous satellites that exists today.
Where there's maybe one are those will be replaced it.
And potentially in the future with maybe half a dozen instead of one so there's there's kind of a broad spectrum of things and then again I think it.
It does.
The economics are just going to kind of have to play out in terms of what really makes sense I think there there will be a sweet spot the develops and people will figure out that.
What kind of things you can get away with and what you cannot one of the big important things is radiation in space.
So one of the desirable things as part of this it well let me back up just a little bit one frustration in his face is that are you know it takes 10 years to develop and launch a new satellite by the time, it launches and guests into operation in space.
<unk> is 10 year old technology, that's being used on that satellite. So we all know that the the electronics technology computer technology from 10 years ago is kind of ancient history, and so we have the situation that in space the technology.
These are used tend to be pretty old by the time, they get there as people would like to change that so that's one of the advantages. If you can launch satellites more quickly every every year, you're launching new satellites you can introduce a newer attack.
Knowledge is.
On the other hand, one of the problems in spaces radiation and as you one of the ways that our electronics technologies.
Computer technology digital technologies improve is by making things smaller, but when you make them smaller they become more sensitive to a radiation in space single event upsets become a problem and so.
This is going to be one of the challenges is to figure out what you can get away with it in in space in this regard.
And a couple of thousand satellites that are already in orbit furlough or are they using.
Either yours or technology similar to frequency for timing and just not happy about the cost are or have they just not address the timing.
Issues and maybe that's why but it's becoming more of an issue and.
In terms of failure rates.
Well some of those applications don't require that kind of precision timing that we provided on our devices.
So I think that's the case for the Starlink satellites.
A utilize Ah Ah Ah Ah there their requirements in terms of our performance in this regard is significantly less than what we typically provide.
But are there are other cases, where a particular applications that need some of our technologies and our I think there's a lot of work to trying to figure out how to provide that.
Those technologies at a lower cost.
We're of course participating in that process, but we're not alone we do have competition.
Okay I appreciate all the all the detail thanks, a lot Tom.
Thank you that completes our Q&A session everyone. This concludes today's event you may disconnect at this time and have a wonderful day.
You for your participation.