Q3 2025 Frequency Electronics Inc Earnings Call
Speaker Change: Greetings and welcome to the Frequency Electronics Third Quarter Physical 25 Earnings Release Conference Call.
Speaker Change: At this time, all participants are in a listen-only mode. If anyone should acquire operator assistance during the conference, please press star zero on your telephone keypad as a reminder this conference is being recorded.
Speaker Change: 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 Security's litigation reform act of 1995.
Speaker Change: Such statements inherently involve uncertainties that could cause actual results to differ materially from the forward looking statements.
Speaker Change: Factors that would calls 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.
Speaker Change: 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.
Good afternoon, everyone.
Speaker Change: The third quarter of our fiscal year was another excellent financial quarter for the company. For both the quarter and the year-to-date revenue, gross margin, and operating income have grown substantially.
Speaker Change: The results reflect continued solid growth in our core businesses which show every indication of continuing with our backlog still at a historically high level. In fact, this was the highest revenue quarter for FII in 10 years.
Speaker Change: The increase relative to recent quarters which have also shown an uptrend as compared to recent years is partially due to the progress made on deliveries related to a specific program.
Speaker Change: as well as conversion of our historically high backlog into revenue in this quarter.
Speaker Change: That specific program has expected to contribute additionally over the next few quarters as we deliver additional units and we anticipate similar successor programs.
Speaker Change: While we do not expect every near-term quarter to look exactly like this, especially given some of the uncertainty in Washington, we do believe that we have demonstrated meaningful revenue and profitability improvement over the past few years.
Speaker Change: Any given quarter can show variability, but we believe our upward trajectory will continue and based on anticipated future wins may do so at a faster pace in the medium term than what we have recently experienced. [inaudible]
Speaker Change: In other words, while the market focuses on near-term industry clouds, we see a future that is bright and actually getting brighter
Speaker Change: I have discussed in the past the changes occurring in the space industry in particular the proliferated satellite concept where lower cost, faster delivery and higher volume are paramount.
Speaker Change: Some of our current satellite programs have challenged FEI to demonstrate the ability to deliver a space hardware in less than half the time that would historically have been required.
Speaker Change: We have enthroned, attempted to inspire our workforce to meet these challenges.
Speaker Change: As it turns out, there's a good chance that over the next few months will not only meet, but meet some of these expectations.
Speaker Change: But what has truly impressed me is the level of engagement and dedication to meeting these goals that exhibited by our employees on a daily basis.
Speaker Change: In all honesty, I'm more proud of this than the financial results because I believe it's so important to our continued success.
Speaker Change: Success, breed success, and an engaged and motivated workforce not only allows us to meet our customer's expectation, but also creates an environment which allows us to attract the most talented and capable scientists and engineers.
Fueling our growth and future success.
Speaker Change: We've established an environment where our people share in our success as a company and will work hard to continue this going forward.
Speaker Change: Our Financial Projectory is buoyed by the talent, dedication and motivation of our workforce, and this magnifies our confidence in the financial growth we're projecting.
Speaker Change: I'll now turn things over to our CFO's Steve Bernstein, who will fill you in on the financial details.
Steve, thank you, Tom, in good afternoon.
Steve Bernstein: For the nine months ended January 31st, 2025, consolidated revenue was $49.8 million compared to $39.7 million for the same period of the prior fiscal year.
Steve Bernstein: The components of revenue are as follows. Revenue from commercial and U.S. government satellite programs was approximately 28.8 million or 58 percent compared to 16.3 million or 41 percent in the same period of the prior fiscal year.
Steve Bernstein: Revenues on satellite payload contracts are recognized primarily under the percentage of completion method and are reported only in the FBI New York segment.
Steve Bernstein: Revenues from Non-Space, US Government, and DOD Customers, which are recorded in both the FBI New York and FBI's eye for segments.
Steve Bernstein: We're 19.5 million compared to 21.1 million in the same period of the prior fiscal year and accounted for approximately 39% of consolidated revenue compared to 53% for the prior fiscal year.
Steve Bernstein: Other commercial industrial revenues were 1.5 million and 2.3 million for the nine months ending January 31st, 2025 and 2024 respectively.
Steve Bernstein: The Signification Revenue for the Period was primarily related to an increase in U.S. Government Customer Sales for Satellite Programs.
Steve Bernstein: The 9-month ending January 31, 2025, Gross Margin and Gross Margin rate increased as compared to the same period in fiscal year 2024. This is partially due to a large space program that completed major milestones during the 9-month ended January 31, 2005, as well as other legacy programs performing well.
Steve Bernstein: For the nine months ending January 31st, 2025 and 2024, SGNA expenses were approximately 19% of consolidated revenues in each period.
Steve Bernstein: The increase in estrogen expenses during the nine months ending January 31st, 2025, was mainly related to an increase in payroll-related expenses, including stock compensation, incentive of rules based on company performance, [inaudible]
Steve Bernstein: Costs from the realignment of employees from overhead to SGNA and the cost related to frequency electronics, 1st Quantum Summit in October , 2020-24.
Steve Bernstein: The company believes the cost related to SGNA will remain fairly constant throughout the remainder of the fiscal year 2025.
Steve Bernstein: R&D expense for the nine-month ending January 31, 2025 increased to 4.5 million from 2.3 million and increased to 2.2 million and were approximately 9% and 6% respectively of the consolidated revenue.
Steve Bernstein: The change in R&D expenditures to the 9 months ending January 31, 2025, as compared to prior year periods, was primarily due to a focus on advances and modernization of products. The company plans to continue to invest in R&D in the future to keep its products at the state of the arts. However, we expect the actual quarterly spend to vary.
Steve Bernstein: For the 9-month ending January 2025, the company recorded an operating income of 8.5 million compared to an operating income of 2.5 million in the prior year.
Steve Bernstein: The increases partially due to a large space program that completed major milestones in this production during the nine months ending January 31st, 2025 as discussed above.
Steve Bernstein: However, the increase also is the result of successful efforts of the company to complete complex programs and to work more efficiently in bidding, building and testing our products.
Steve Bernstein: The company believes the improved operating income results for the first nine months of the fiscal year are a tangible outcome of these efforts The company seeks to continue to implement changes to further improve its performance
Steve Bernstein: Other income can be derived from reclaiming of metals, refunds, interest on deferred trust assets or sale of fixed assets, interest expenses related to the deferred compensation payments made to retired employees.
Steve Bernstein: This year's pre-tax income of approximately 8.9 million compared to 3 million for the prior fiscal year.
Steve Bernstein: As for the tax provision, the company weighed all available positive and negative evidence and it's more likely than not Q3 2025 deferred tax-asset realization assessment.
Steve Bernstein: Frequency no longer has cumulative losses in recent years and is earning in the three and nine months and the January 31st, 2025. The company is utilizing its operating loss recovery forwards and is reducing its net deferred tax asset.
Steve Bernstein: For the nine months ending January 31st, 2025, the company recorded an income tax benefit of 11.6 million, which includes a discrete tax benefit of 11.9 million.
Steve Bernstein: The calculation of the overall income tax provision consists of a discrete tax benefit for the release of the valuation allowance, was set by current U.S. federal and state income taxes.
Steve Bernstein: For the nine months ending January 31, 2024, the company recorded an income tax provision of 19,000.
Steve Bernstein: Consolidated net income for the 9-month ending January 31st, 2025, was 20.5 million, or $2.18 per share compared to 3 million or 32 cents per share in the previous fiscal year.
Steve Bernstein: Our fully funded backlog at the end of January 2025 was approximately 73 million compared to approximately 78 million to the previous fiscal year end April 30th, 2024.
Steve Bernstein: The company's balance sheet continues to reflect a strong working capital position of approximately 27 million at January 31st, 2025, and a current ratio of approximately 2.2 to 1.
Thank you.
Steve Bernstein: Cash went down by approximately 12.8 million since year end of this decrease the dividend paid in Q2 accounted for approximately 9.6 million. The additional $3.2 million decrease was related to timing of Billings and Revenue.
Steve Bernstein: Contract liabilities went down 7.4 million, quarter over quarter, and 6.4 million since your end. Contract liabilities are generated as part of the 606 accounting when the billings are an excess of revenue taken on specific programs.
Steve Bernstein: We expect that cash will fluctuate quarter to quarter, however we expect it to trend higher over time.
Steve Bernstein: 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 and the foreseeable future. I will turn the poll back to Tom and we look forward to your questions.
Thanks, Steve. We're now ready to take any questions.
Steve Bernstein: Thank you, at this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad.
Steve Bernstein: The confirmation tone will indicate your line is in the question queue.
Steve Bernstein: You may press star 2 if you would like to remove your questions in the queue.
Steve Bernstein: 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 at this time if you wish to ask a question.
Please hold while we pull for questions.
Steve Bernstein: And again, that will be star one on your phone if you wish to ask a question. First question today is coming from George Narema, from Pareto Ventures, George, Your Line
Thanks for taking the call, hi Tim.
George Narima: I was curious, I was curious, I congrats on the quarter, I was curious on quantum sensing, a little bit more color on that, and also...
And your need in presentation, you kind of presented.
George Narima: Several different products kind of being feathered out over the next several years. So the first thing is quantum sensing sort of the first product set.
George Narima: You anticipate any revenue in 2025, calendar year at all.
George Narima: So we do not have any products at this point in time.
George Narima: However, we're anticipating several development contracts over the next year or two, and those will be generating some revenue.
George Narima: I think there are a couple of specific products that we're pretty excited about. I think I have mentioned them in the past.
George Narima: But just to recount that the first thing that we see on the horizon is a
Magnetometer
George Narima: and we are investigating a couple of approaches to building these devices.
George Narima: The magnetometer is a device to measure the magnetic field and that is getting a lot of interest at this point in time because it can be used.
in GPS denied environments to perform navigation.
One by measuring the magnetic field precisely. One can navigate.
George Narima: with a certain resolution on the surface of the earth. Another major use of magnetometers is in so called Magnetic Anomaly Detection or Mad.
George Narima: and one of the main purposes for this is detection of submarines.
Another quantum sensor that we're interested in.
is so-called Rydberg-Sensor.
And by doing that, one can create a receiving antenna
George Narima: associated with the signals that they're trying to detect. And so those antennas can be very large, typical wave links.
George Narima: Long, and so the antennas are large, but with the Rydberg sensor, the size of the antenna is completely decoupled from the wavelength, and so we can use a small cell just as we use in our atomic clocks.
Maybe one centimeter, Q. You.
George Narima: in order to detect the signals. So there's the potential of making very small compact antennas which is a very very attractive for many applications.
George Narima: So those are the two primary quantum sensors in the near term that we're looking at.
George Narima: But there are quite a few variations on those ideas that are at interest and of course there are other sensors also.
that we'll consider as we go forward.
Is that part of the-
George Narima: The, in the press release that you mentioned, you see plenty of new business opportunities anticipate all the next several few quarters. Is that is that part of
George Narima: What I'm sensing is that more than the legacy business that's referring to.
George Narima: It's potentially a little of both. The only I put just a little bit of a qualification on that. I think none of us have a really good crystal ball over what's going on in Washington.
over the next few months.
George Narima: But we're cautiously optimistic that both in both the case of our legacy systems and the quantum sensors that we'll have some new business coming our way.
Thank you, Tom.
Speaker Change: Thank you. Once again, it is Star One if you wish to ask a question. The next question is coming from Michael Eisner. Michael is a private investor. Michael, your line is live.
Hey, great job!
Thanks, Mark, thank you Mike.
Speaker Change: Thank you. In the backlog of 73 million, is any of that from the 11 million dollar contract I think you're on November or December of last year.
Yes.
Yes, definitely. Some of it is in that number.
Yes. All right, all right.
You know, actually, my correct R&D went down from last quarter.
Percentagewise
I just want to try with my numbers. I think maybe 1% but yeah.
All right
Speaker Change: Are we working with all four prime contractors on Astramas on the last quarter? We're working with three.
So, I think you're referring to Resilient GPS.
Yes, our GPS.
Speaker Change: But yeah, RGPS. Actually, we understand that there are only three at this point in time. One
urrrr
Speaker Change: Cutoff has been discontinued from the effort. And of the three remaining, we are actively participating with two of them.
and we believe that we are under consideration.
Speaker Change: For the third, although we haven't had any active communication on that one. The team that was discontinued is one that we did not have any communication with whatsoever.
Speaker Change: Maybe at the same point as last call, or maybe drop ahead since you made contract with the third contract. Yeah, yeah. Now, do you see at this time?
Speaker Change: Have you seen any change from the government at this time, or did no change yet?
Because I know you can't tie them [inaudible]
Yeah, well, well, we have seen nothing specific.
You know, certainly know nothing specific in the negative sense.
Speaker Change: Regarding government activity at this point in time, I think we continue to believe based on the information that we have at this point.
that we were anticipating that…
Speaker Change: We expect to get in the near term may get pushed out a little bit in time, but we don't anticipate that any of the programs that are of interest to us will be eliminated.
Speaker Change: So that's kind of our worst case view of things at this point in time.
Speaker Change: But a lot of things going on, and as we all know, that could change one way or the other tomorrow.
Speaker Change: Alright, anything could change in this time of work, but eventually they're going to have to go forward with all these new things they're working on.
Yeah, we believed it in the long run.
Speaker Change: You know that we still see growth environment for space.
Well, that's the industry you're in, basically.
I think I had, I think that was it.
Speaker Change: All right. Good job. And that's it. Thank you. All right.
Speaker Change: Thank you, and the next question is coming from Frank Wiesneski, Frank is a prize investor.
Frank Wisniewski: Hi, thanks for taking my call, my questions. First, you will mention quite a bit about the
The engineering strength and your...
Well, I think that...
Speaker Change: You know, for the last year or so, I think we've seen a pretty tight market and it's a challenge to attract talented scientists and engineers.
But in particular, with the U.S. government, we have...
Speaker Change: Of course we work very closely with a number of government labs and we have seen there's of course more than anything else a lot of confusion.
Speaker Change: But we even fact had several scientists at government labs say that they would be willing to make a move at this point in time.
So, I think that...
Speaker Change: The way we're looking at it is we think there's potential for opportunities depending on what goes on with some of the government labs.
and I think we're trying to be prepared.
Speaker Change: to act aggressively if and when opportunities show themselves in this regard.
Speaker Change: Yeah, that's good news, I know you also emphasized how you rewarding your current employees, which is important.
Second question.
Speaker Change: I was glad to see that the non-space DOD in government business sales.
Speaker Change: Turned around in the third quarter. Is that a trend that's likely to continue now?
Speaker Change: I, we do anticipate that that's going to continue. I think for the certainly for the next year and potentially longer.
Great.
Speaker Change: And finally, could you bring this up to date and what's up, what you're doing in the proliferated satellites? You mentioned it, and that's obviously a huge potential market. You mentioned your turn around time going lower or decreasing. Could you refresh that out a little bit for me please?
Yeah, so I think, um...
Speaker Change: There are several things that were involved in at this point in time.
Speaker Change: So probably the biggest thing for us is in the classified satellite world. Obviously there's a limit to what we can talk about in that regard but we're involved in several programs.
Speaker Change: and those are very much in the proliferated satellite vein. The emphasis is on smaller, cheaper and fast delivery.
Speaker Change: You know, with the idea that the space assets, instead of having a lifetime of 15 years, will [inaudible]
Three to five years.
Speaker Change: and obviously when the assets have a lifetime of three to five years, we need to be able to replace them.
is with SDA, the Space Development Agency.
Speaker Change: And we're actually in the process of bidding on some activity on this one as we speak.
We feel that this is pretty important going forward.
Speaker Change: We need to adapt some of our smaller products that we typically sell for terrestrial applications. We need to adapt those for the space environment.
Speaker Change: Survive the radiation environment in space, the lifetime in space is anticipated to be less, but they still have to survive.
Speaker Change: Inherently sensitive to radiation, so there's a pretty tricky development process that we have to go through to ensure that we have reliable
Speaker Change: for those applications. But anyway, those are activities that were currently involved in.
Speaker Change: Are there commercial opportunities in the proliferated satellite? There are two programs that you mentioned that sounded both government.
Speaker Change: Well, there are certainly a number of commercial satellite programs. There's the potential for us to get involved in those.
Speaker Change: But in general, where we shine is when there are high stability, high performance kind of requirements.
Speaker Change: So, I think that, you know, we certainly consider those programs.
Speaker Change: But I think at this point in time our ability to compete for the absolute lowest cost products where there's no kind of high performance requirement.
Speaker Change: But we have to be pretty careful about venturing into that territory.
Speaker Change: In the high reliability area that you specialize in, particularly in the proliferated satellite area, who is your competition?
Ah!
Certainly, I think...
A product family called the Chipscale, Atomic Clock, CSAC.
Speaker Change: and this is being thrown at a number of this proliferated satellite programs.
Speaker Change: But I think we have heard and I think have reason to believe that there is some...
Speaker Change: Significant limitations of that product family in the radiation environment of space and that's something that we're trying to address.
Uh, pretty carefully.
Speaker Change: Good. Well, thank you very much. I look forward to talking to you next quarter.
Okay, thank you.
Michael Eisner: Thank you, and next we have a follow-up question coming from Michael Eisner. Michael, your line is live.
Hi, at this time.
Michael Eisner: And all over the years, we have the most opportunities going forward.
I'm not quite sure I understand. We certainly do.
I'm sorry. Move.
Michael Eisner: We certainly do have plenty of opportunities at this point in time.
Speaker Change: Well, it sounds like the company is getting into more stuff than years ago, different product lines and all this. So I'm saying it's a more possible contract for you going forward.
Speaker Change: Okay, that's something I haven't tried to evaluate quantitatively in terms of the number of contracts, but I think our strategy is to, we want to be successful.
Speaker Change: a decade into the future and more, and we feel that in order to do that we need to...
Speaker Change: Update our existing product line and potentially expand into other things quantum sensors and so forth and so on as we discussed.
Speaker Change: and so in the process of doing that, yes, we're getting into different product lines and there are certainly additional opportunities that show themselves in those areas.
All right. Thank you.
Speaker Change: Thank you, and the next question is coming from Robert Smith from the Center of Performance Investing. Robert Earline is last.
Robert Smith: Thank you. Good afternoon. Thanks for taking my questions and thanks for your leadership, Tom.
Robert Smith: Looked toward an increasing investment in these areas, so to speak, of harming. Does the company have the financial resources to do this at the present time?
Robert Smith: Good question. We do have adequate resources. Obviously, they're finite. But I think, you know,
Robert Smith: That could change in the future, but I think we actually have a concern.
Robert Smith: You know that we we want to be careful and thoughtful in how we invest our resources and you know we
We are all watching all sorts of changes in Washington.
Robert Smith: and as we look at proliferated satellites and things like that, the requirements are changing and the approach that the government is using is changing on a regular basis.
Robert Smith: So, we want to be a little bit cautious and I think, Kurt.
Robert Smith: You know, if we had infinite resources at this point.
Robert Smith: I think it is likely that we would squander a significant amount of those resources given the environment. So I think we feel that we're...
Robert Smith: We're in a good position financially. We have the resources to invest cautiously and responsibly. And in the near term, you know, that's the approach that we're trying to follow.
Mm-hmm.
Speaker Change: Is the complexion of the business? Is that provide opportunities for collaboration?
Speaker Change: Well, it certainly does, and we're pursuing those rather aggressively at the moment.
Speaker Change: We are in contact with a lot of government labs and several other companies and we are actively pursuing
Speaker Change: Teaming Agreements, I think, our feeling is that we can tap into the technical expertise.
at some of the national laboratories.
Speaker Change: and very effectively learn from the knowledge in those places, which is really state of the earth with respect to atomic clocks and quantum sensors.
Speaker Change: and there are companies that we're actively pursuing teaming arrangements in order to wear a buttress or a product line.
Speaker Change: Can you characterize the bidding environment? What kind of this is? It is.
Douglas Goldstein: Well, it's a little of both. It kind of depends on the program. I think...
Douglas Goldstein: Certainly for the proliferated satellite, in that arena, I think that it...
The part of the goal certainly were involved in...
Douglas Goldstein: As I've described earlier in the government programs in this arena, and I think the government has made it clear that they are actively pursuing non-traditional
Players in terms of the prime contractors.
Douglas Goldstein: And those, I think, are much more the usual cast of characters that were used to over the last couple of decades.
Douglas Goldstein: Well thanks again and good luck going for it again on your leadership which has been outstanding.
No, thanks.
Speaker Change: Thank you, and we have a follow-up coming next from George Marema from Parade of Ventures. George, your line is live.
George Maroma: Thanks, quick one for Steve. But this quarter is a fully diluted adjusted earnings per share. Is it a lot of 36 cents? Is that correct?
or something different.
George Maroma: Not to this quarter, I don't have this quarter in front of me, I can get it for you, I only have the nine months to date right now.
Speaker Change: Okay. And then for calendar 25, what sort of tax rate are you modeling out?
von Ford.
Speaker Change: It's hard to say because of all the adjustments that we just made with the valuation of everything else and we still do have NOLs. So I don't think it's going to be a normal tax rate yet.
Speaker Change: If I model for a 10-15-ish, is that kind of warm? You think or? No, no, I don't think so. I think to be lower. I think the only major place for paying taxes right now is some federal but the larger portion is California because they suspended the utilization of NOLs.
So that as year-to-date our expenses are approximately 300K.
Speaker Change: Okay, so technically whatever we're subject to for California will have to pay, but the remaining oven is pretty much covered by NOLs.
Speaker Change: Okay, thanks for that detail Steve. I'll follow up on that.
Father, thank you.
Okay, not a problem.
Thank you.
Speaker Change: Thank you, there were no other questions at this time. I would now like to hand the call back to Thomas McClelland for closing remarks.
Thomas Mcclelland: Okay, I think I don't have anything further to say, but I'd like to thank everybody for participating and until next time, thanks.
Speaker Change: Thank you this dose conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.