Frequency Electronics, Inc.

Greetings, and welcome to the Frequency Electronics First Quarter 2024 Earnings Release Conference Call. At this time, all participants are on a listen-only mode. 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 acts 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 or 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, Thomas McLelland, President and Chief Executive Officer.

Good afternoon, everyone. I have a very positive message for shareholders today. From a financial point of view, we have very encouraging numbers to report. But even more importantly, there are a number of signs that we're on a sustainable path of growth and profitability. We have a lot of exciting new business, as well as several very exciting programs, which we anticipate in the near future. In fact, we're really transitioning from a challenging period of cost cutting and reorganization to a period of growth. then we see the very real potential for acceleration of that growth over the next year. We now begin to face a different and, frankly, more pleasant challenge of effectively managing this growth such that we maintain profitability and positive momentum over the long term. We've transitioned out of a period of workforce reduction and are now beginning to hire at all our facilities. And in fact, we face the particular challenge of a very tight labor market, especially in advanced engineering fields, which are very important for our future. But let me briefly highlight the financial results before Steve fills you in on the details. So revenue and gross margin have increased substantially compared to the first quarter of fiscal 2023. and the company is reporting an operating profit of $2.12 million compared to an operating loss of over $3 million in the same quarter of last year. Although the operating profit for the quarter is affected by several one-time items, even without these items, the company would have reported an operating profit of slightly over $1 million. The backlog of $51.8 million at the end of Q1 is close to the historic high at the end of fiscal 2023 and is up dramatically compared to $39.7 million at the end of Q1 last year. More importantly, bookings are expected to increase the backlog significantly over the next two quarters. So in summary, I believe our efforts have put us on a sustainable, positive trajectory of growth in our core business. The company remains committed to achieving sustained profitability and cash generation going forward. So at this time, I'd like to turn things over to Steve Bernstein, who will go through the financial details. Steve?

Thank you, Tom, and good afternoon. For the three months ended July 31, 2023, consolidated revenue was $12.4 million compared to $8.2 million for the same period of the prior fiscal year. The components of revenue were as follows. Revenue from partial and U.S. government satellite programs was approximately $5.1 million, or 39%, compared to $5.2 million, or 51%, 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 $6.9 million compared to $4.1 million in the same period of the prior fiscal year and accounted for approximately 55% of consolidated revenue compared to 50% for the prior fiscal year. Other commercial industrial revenues were approximately 672,000 compared to approximately 664,000 in the prior fiscal year. The increase in revenue for the three months ending July 31st, 23 was mainly due to government non-space programs. For the three months ending July 31st, 23, gross margin and gross margin rate increased compared to the same period in the prior fiscal year. The gross margin dollars increased as a direct result of the increase in revenue. The gross margin rate increased significantly due to two main factors. First, many of the technical challenges faced in early part of last fiscal year have been resolved, and as a result, the related programs are now moving forward. Second, during the three months ending July 31st, 23, there were one-time contractual and other adjustments that also benefited the gross margin rate by approximately 8 percent. For the three months ending April, July 23 and 22, SG&A expenses were approximately 19 percent and 24 percent respectively of consolidated revenues. The consolidated decrease in SG&A expense of 5% for the three months ending July 31, 23 as compared to prior year period was largely due to the increase in revenue. R&D expense for the three months ending July 31, 23 decreased to approximately $506,000 from $1.1 million for the three months ending July 31, 22, a decrease of approximately $604,000 and were approximately 4% and 14% respectively of consolidated revenue. R&D decrease to the three months ending July 31st, 23 were due to dedicated R&D resources working on production orders to meet scheduled deadlines. The company plans to continue to invest in R&D in the future and keep its products at the state of the art. For the three months ending July 31st, 23, the company recorded operating income of approximately $2.1 million compared to an operating loss of approximately $3.1 million in the prior year. Operating income increased due to combination of increase in revenue over the three months ended July 31st, 22, increased gross margin, and the effects of certain cost-cutting measures instituted by management beginning in fiscal year 23. Other income expense net is derived from various sources. The income can come from reclaiming of metal, refunds, interest on deferred trust assets, or the sale of fixed assets. Interest expense is related to the deferred compensation payments made to retired employees. This yields pre-tax income of approximately $2 million for the three months ended July 31st, 23 compared to an approximately 3.1 million pre-tax loss for the three months ended July 31st, 22. For the three months ended July 31st, 23, the company recorded a tax provision of $7,000 compared to a $1,000 provision for the same period in prior fiscal year. Consolidated net income for the three months ending July 31st, 23 was approximately 2 million or 22 cents per share compared to an approximate 3.1 million loss or negative 33 cents per share for the same period of the previous fiscal year. Our fully funded backlog at the end of July 23 was approximately $52 million compared to $56 million for the previous fiscal year end, April 30th, 23. In addition, this is the fourth consecutive quarter in which backlog is greater than $50 million levels, a level the company has not seen in over 10 years. While some of this will turn into revenue and thus come out of backlog this year, we expect additional significant contract awards to be added to backlog in the coming quarters. The company's balance sheet continues to reflect the strong working capital position of approximately 23 million at July 31st, 23, and a current ratio of approximately 1.9 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 Tom, and we look forward to your questions later.