Frequency Electronics, Inc.

Greetings and welcome to the Frequency Electronics fourth quarter fiscal year 2020 earnings release conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. 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 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 reports filed 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, Martin Block, Executive Chairman of the Board of Frequency Electronics. Sir, the floor is yours.

Martin Block Thank you. As usual, I will turn the first part of this presentation to Steve Bernstein who will give you the detailed update and then Dan Sloan will give you the update from his view and I'll summarize some other thoughts for everybody and then open the discussions to every one of you. So Steve, go ahead.

Thank you, Martin, and good afternoon. For the three months ended July 31, 2019, consolidated revenue was $12.6 million, up 14% from $11 million for the prior fiscal year. The components of revenue are as follows. Revenue from commercial and US government satellite programs was $3.9 million compared to $5.5 million for the same period of the prior fiscal year and accounted for approximately 31% of consolidated revenue compared to approximately 50% in fiscal 2019. Revenues on satellite payload contracts are recognized primarily under the percentage of completion method and are recorded only in the FDI New York segment. Revenues from non-space U.S. government and DoD customers which are recorded in both the FEI New York and FEI Zipher segments rose to $6.7 million compared to $4.8 million in the prior fiscal year. Other commercial industrial revenues was $1.9 million compared to $700,000 in the prior fiscal year. Intersegment revenues are eliminated in consolidation. For the three-month period ended July 31, 2019, the gross margin and gross margin rate both decreased over the same period in fiscal 2019. The decrease is primarily due to higher engineering costs on several current programs which relate to products that are pushing state-of-the-art technology. For the three months ended July 31, 2019 and 2018, Selling and administrative costs were approximately 20% and 23% respectively of consolidated revenue. There were no accounts or type of expense that represented a significant portion of the change in expense. R&D expense for the three months ended July 31, 2019 and 2018 increased to $2.3 million from $1.6 million, an increase of $700,000 and were approximately 18% and 15% of consolidated revenue. The company expects to maintain a high level of internally funded activity relating to R&D through the balance of the current year and beyond to address new large opportunities in secure communication, command and control applications, next generation satellite payload products and additional DoD and commercial applications. For the three months ended July 31st, 2019, the company recorded an operating loss of $780,000 compared to an operating profit of $85,000 in the prior year. The operating loss reflects improvements in revenue offset by both lower gross margin and increased research and development costs compared to the same period of fiscal 2019. Other income consisted primarily of investment income derived from the company's holdings of marketable securities. For the three-month period ending July 31, 2019, investment income included $125,000 dividend for Morion. Other income included the sale of a fixed asset for a gain of $50,000. This yields a pre-tax loss of approximately $570,000 compared to a pre-tax income of approximately $38,000 for the prior year. For the three months ended July 31, 2019, the company recorded a tax provision of $20,000 compared to $7,000 for the same period of fiscal 2019. Consolidated net loss for the three months ended July 31, 2019 was $591,000 or $0.07 per share compared to income of $31,000 or a fraction of a cent per diluted share compared to previous year. For the period just ended, the company generated positive cash flow from operations of $153,000. Our fully funded backlog at the end of July 2019 was $35 million. The company's balance sheet continues to reflect a strong working capital position of approximately $45 million as of July 31, 2019, and a current ratio of over 8.5 to 1. The company believes that its liquidity is adequate to meet its operating and investing needs for the next 12 months and foreseeable future. I return the call back to Martin, and we look forward to your questions later.