Frequency Electronics, Inc.

Greetings and welcome to the Frequency Electronics third 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 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 release 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, Stanton Sloan, President and CEO.

Thank you. Hello, everyone. Thank you for joining us today. I'd like to make a few comments about the quarter and the state of the business, and then we'll turn things over to Steve to take you through the financial details. Following that, we'll take some questions. Let me start by saying that I'm very pleased with the general direction of the business, and in particular, our significant success capturing new contracts for space systems. FEI's unique capability to deliver high performance and high reliability timing and frequency generation systems that can operate in this difficult environment is our core competency. U.S. government investments in new space programs are producing an increasing number of opportunities for FEI, resulting in a growing backlog and improving revenues that we're seeing in the New York operation. We did see some customer and supply chain COVID-related issues in our Elcom and Zyphus subsidiaries in Q3, which impacted their revenues and gross margins. We had a very solid quarter for new business at FEI New York, with backlog up by $5 million to date from the end of last fiscal year, and we have won several key opportunities, not to mention the $17 million contract award we announced on February 24th after the end of the quarter. Bookings in our New York operation through the end of Q3 were $53 million, one of the best year-to-date performance new business wins in company history. This amount is not fully funded, but it is on contract. Consistent with our past practices, we only report funded amounts in our backlog. Our performance on new business bodes well for increasing revenue going forward, and as we've said before, increasing revenue is a very good leading indicator for improving margins. We also generated significant cash of $9 million through Q3 and are debt free. Hiring is continuing as we ramp up to meet anticipated engineering and production commitments associated with these new contracts. Space represents a rapidly expanding opportunity for us, and ensuring we deploy shareholders' capital towards continually improving operational efficiency and advancing our product technologies will continue to remain a focus for us. We will also continue to monitor and address the COVID situation And I want to thank our employees for their extraordinary efforts in maintaining FEI's customer commitments over this past year. With that, let me turn it over to Steve, and we'll go through some financial details, and then we'll take your questions. Steve?

Thank you, Stan, and good afternoon. For the nine months ended January 31, 2021, consolidated revenue was $38.6 million, up 24% compared to $31.3 million for the same period of the prior period. The components of revenue are as follows. Revenue from commercial and U.S. government satellite programs was $20.1 million compared to $14.7 million for the same period of the prior fiscal year and accounted for approximately 52% of consolidated revenue compared to 47% for the same period of the prior fiscal year. Revenue on satellite payload contracts are recognized primarily under the percentage of completion method and are recorded only in the New York segment. Revenues from non-SPACE, U.S. government, and DoD customers, which are recorded in both the FEI New York and FEI Zephyr segments, were $16.3 million compared to $12.7 million in the same period of the prior fiscal year and accounted for approximately 42% of consolidated revenue compared to 41% for the prior fiscal year. Other commercial and industrial revenues were $2.2 million compared to $3.9 million in the prior fiscal year. Intersegment revenues are eliminated in consolidation. For the nine-month period ending January 31, 2021, gross margin and gross margin rate increased significantly as compared to the same period in fiscal year 2020. The increase in gross margin and gross margin rate was due to several programs identified in prior periods that had higher engineering costs incurred that were in development phase that have since been completed or are near completion. For the nine months ending January 31st, 21 and 20, selling and administrative expenses were approximately 25% and 27% respectively of consolidated revenues. The increase in SG&A expense was mainly due to an increase in professional fees relating to litigation. R&D expense for the nine months ending January 31st, 21 and 20 decreased to $3.5 million from $4.8 million, a decrease of $1.3 million and were 9% and 15% 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 at the state of the art. For the nine months ended January 31st, 2021, the company recorded an operating loss of $1.1 million compared to $7.3 million in the prior year. Operating loss has made a significant improvement from the same period of the prior fiscal year and reflects improvement in revenues, gross margin and gross margin rate. Based upon our bookings and backlog, we are expecting this improving trend to continue. Other income consisted primarily investment income derived from the company's holdings of marketable securities. For the nine-month period ending January 31, 2021, investment income included a $105,000 dividend from Morion compared to a $250,000 dividend from Morion in the same period in fiscal 20. This yields pre-tax loss of approximately $695,000 compared to a pre-tax loss of approximately $7 million for the prior year. For the nine months ending January 31st, 2021, the company recorded a tax provision of $37,000 compared to $48,000 for the same period of fiscal 20. Consolidated net loss for the nine months ending January 31st, 2021 was $732,000 or $0.08 per diluted share compared to a consolidated net loss of $7.1 million or $0.78 per diluted share in the previous year. Our fully funded backlog at the end of January 2021 was approximately $41 million, up approximately $5 million from the previous year end, April 30, 2020. The company's balance sheet continues to reflect a strong working capital position of approximately $39 million at January 31, 2021, and a current ratio of approximately 6.6 to 1. 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 call back to Stan, and we look forward to your questions.