Frequency Electronics, Inc.

and welcome to the Frequency Electronics second quarter fiscal year 22 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. Welcome to our second quarter fiscal 22 earnings call. Thanks for joining us. Before I turn the call over to Steve to take us through the financial details, let me offer a few comments on Q2. First of all, I'd say I'm very pleased with the improvement in operating income and net income for the quarter. Cash generation also very positive. It's the highest it's been with the current cash marketable securities balance now at approximately 20.6 million. Of course, we continue to be debt-free also. While the revenues were a bit lower for the quarter, principally in our Zephyr operation, those bookings are just delayed, and we do anticipate that they will come in, so it's timing. Moreover, we've had some significant opportunities that we've been pursuing related to advanced technology developments, for which we hope to announce contract awards in the near term. In Q1 and Q2, we ramped up our internal R&D investments in some of these new technologies related to atomic clocks and low-noise oscillators, and we expect these to produce long-term increases in revenue and position the company to compete in the marketplace with next-generation products. If you recall, I mentioned those R&D investments also on our last call and said that I was hopeful of important contract awards. That was followed by the POPRAFS contract from the Office of Naval Research, which we announced last quarter. We're working hard to continue that trend, And I'm optimistic that we'll see some additional awards in the near term. I believe we have the right focus on technology. I'm very optimistic that we will receive additional contracts for truly groundbreaking product developments. The research and development investments we've made are clearly starting to pay off, but obviously we're not going to stop there. We'll continue to push FEI into the forefront of precision time generation products for government space and telecom applications. With that, I'm going to turn it over to Steve for some comments, and then I'll be back with you.

Steve? Thank you, Stan, and good afternoon. For the six months ended October 31, 2021, consolidated revenue was $26 million compared to $27 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 $13.3 million or 51 percent compared to 14.2 million or 53 percent 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 FEI 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 $10.6 million compared to $10.9 million in the same period of the prior fiscal year and accounted for approximately 41% of consolidated revenue compared to 40% for the prior fiscal year. Other commercial and industrial revenues were $2 million compared to $1.8 million in the prior fiscal year. Intersegment revenues are eliminated in consolidation. For the six months ended October 31st, 2021, gross margin and gross margin rate decreased as compared to the same period in fiscal year 21. The decrease in gross margin and gross margin rate was due to increased engineering costs on development phase programs that experience particularly complex technical challenges, as well as cost impacts on several programs resulting from supply chain problems. lack of availability of parts and material, and or quality problems with traditional vendors, resulting in the need to redesign certain electronic units to replace unavailable parts with different parts that were available in order to maintain contract delivery schedules. In several cases, re-procurement of circuit boards and mechanical parts was necessitated by quality issues in the supply chain, further contributing to increased costs. For the six months ended October 31st, 2021 and 2020, selling and administrative expenses were approximately 26% and 27% respectively of consolidated revenues. The decrease in SG&A expense is mainly due to the decrease in professional fees. We expect this trend to continue as expenses normalize. R&D expense for the six months ended October 31st, 2021 and 2020 increased to 2.7 million from 2.2 million, an increase of 500,000 and were 11% and 8% of consolidated revenue. R&D increases in the first and second quarters of fiscal 22 were due to higher than usual levels of internal R&D associated with investments the company is making in new technology developments related to atomic clocks and low noise oscillators that are intended to produce long-term increases in revenue and position the company to compete in the marketplace with next generation products. The company plans to continue to invest in R&D to keep its products at the state of the art. For the six months ended October 31st, 2021, the company recorded an operating loss of $1.4 million compared to an operating loss of $120,000 in the prior year. The factors cited above in the gross margin discussion are applicable to operating income as well. It is important to mention that for the three-month period ending October 31, 2021, the company reported an operating profit of $303,000, a significant improvement from the first quarter. Other income, I'm sorry, for the six months ended October 31st, 2021, the company recorded an operating loss of 1.4 million compared to an operating loss of 120,000 in the prior year. Other income consisted primarily on investment income derived from the company's holdings of marketable securities. Earnings on securities may vary based on fluctuating interest rates, dividend payout levels, and the timing of purchases, sales, redemptions, or maturities of securities. For the six-month ended October 31st, 2021, investment income included $123,000 dividend from Morion compared to $105,000 dividend from Morion in the same period in fiscal 21. This yields a pre-tax loss of approximately $1.1 million compared to $92,000 of pre-tax income for the prior year. For the six months ending October 31st, 2021, the company recorded a tax provision of $2,000 compared to 25,000 for the prior fiscal year. Consolidated net loss for the six months ending October 31st, 2021 was 1.1 million or 12 cents per share compared to 67,000 of net income or 1 cents per share in the previous fiscal year. Our fully funded backlog at the end of October 21 was approximately $38 million, down approximately $2 million from the previous fiscal year ended, April 30th, 2021. The company's balance sheet continues to reflect a strong working capital position of approximately $40 million at October 31st, 2021, and a current ratio of approximately 5 to 1. Additionally, the company is debt-free. The company believes that its liquidity is adequate to meet its operating investing needs for the next 12 months and foreseeable future. I will turn the call back to Stan, and we look forward to your questions.