Frequency Electronics, Inc.

Greetings and welcome to the Frequency Electronics Second Quarter Fiscal Year 2021 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 insurgencies 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 our further details 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, Mr. Stanson Sloan, President and CEO. Sir, you may begin.

Thank you, Laura. Good afternoon, everyone. Thank you for joining us on our Q2 fiscal year 2021 call. Steve will walk us through financial details in a minute. Let me kick things off with a couple of highlights. We had what I consider to be a very good quarter. Revenue was up about a million dollars quarter to quarter, but also up significantly, about 25%, from the comparable periods of fiscal year 2020. We generated net income for the quarter of $329,000, also a significant improvement, and this despite extraordinary legal expenses. Backlog was up to $42 million, a $6 million increase from the end of fiscal year 2020, reflecting the robust set of new business opportunities we have mentioned on the last couple of calls. We generated about $2 million in cash, and we've hired about 18 people in order to meet increasing workloads. I'm pleased with the improvement in financial performance this quarter. I should make a few comments about the COVID-19 situation, as I know it's on everybody's mind. We've managed to maintain production and delivery schedules throughout the pandemic. While we've had some employees who were potentially exposed to COVID-19 through being in close proximity to someone who tested positive, We have had only three employees in our New York facility and two at our Zephyr facility actually test positive. In an abundance of caution, whenever any employee has been potentially exposed, they are excused from work and must quarantine pending negative test results. Of course, employees who actually test positive are required to follow the CDC guidelines regarding quarantine and subsequent return to work. As before, we have maintained production and delivery schedules through the second wave, but we remain vigilant to impacts. Now, let me have Steve take us through financial details. Steve?

Thank you, Stan, and good afternoon. With the six months ending October 31st in 2020, consolidated revenue was $26.9 million, up 25% compared to $21.6 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 $14.2 million compared to $9.4 million for the same period of the prior fiscal year and accounted for approximately 53% of consolidated revenue compared to 44% 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 FDI New York segment. Revenues from non-SPACE U.S. government and DOD customers, which are recorded in both the FDI New York and FDI Zephyr segments, were $10.9 million compared to $9 million in the same period of the prior fiscal year and accounted for approximately 40% of consolidated revenue compared to 42% for the prior fiscal year. Other commercial and industrial revenues were $1.9 million compared to $3.2 million in the prior fiscal year. Intersegment revenues are eliminated in consolidation. With the six-month period ending October 31, 2020, gross margin and gross margin rate increased significantly as compared to the same period in fiscal year 20. The increase in gross margin and gross margin rate was due to several programs identified in prior periods that had higher engineering costs incurred during the development phase and which are now completed or are near completion. For the six months ending October 31, 2020 and 19, selling and administrative expenses were approximately 27% and 22% respectively of consolidated revenue. The increase in SG&A expenses is mainly due to an increase in professional fees relating to litigation for which we expect insurance reimbursement for a portion of the legal fees and some additional insurance costs. R&D expense for the six-month ending October 31st, 2020 and 2019 decreased 2.2 million from 3.7 million, a decrease of 1.5 million and were 8% and 17% of consolidated revenue. The company's R&D expense decreased year over year as previous R&D efforts have ended and turned into production. However, the company plans to continue to invest in R&D to keep its products state-of-the-art. For the six months ending October 31, 2020, the company reported an operating loss of $119,000 compared to $5.7 million in the prior year. Operating loss has made a significant improvement from the same period of the prior fiscal year and reflects improvements in revenue, gross margin, and gross margin rate. Based upon our bookings and backlog, we are expecting the improving trend to continue. Other income consists primarily of investment income derived from the company's holdings of marketable securities. For the six-month period ending October 31, 2020, investment income includes a $105,000 dividend from Morion compared to $125,000 dividend from Morion in the same period in fiscal 20. This yields pre-tax income of approximately $93,000 compared to a pre-tax loss of approximately $5.5 million for the prior year. For the six months ending October 31, 2020, the company recorded a tax provision of $25,000 compared to $29,000 for the same period of fiscal 20. Consolidated net income for the six-month ending October 31, 2020, was $67,000, or $0.01 per diluted share, compared to a net loss of $5.5 million, or $0.61 per diluted share, in the previous year. Our fully funded backlog at the end of October 2020 was approximately $42 million, up approximately $6 million from the previous year end to April 30, 2020, The company's balance sheet continues to reflect a strong working capital position of approximately $40 million at October 31, 2020, and a current ratio of approximately 4.5 to 1. 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 call back to Stan, and we look forward to your questions later.