Frequency Electronics, Inc.

Greetings. Welcome to the Frequency Electronics Q3 Fiscal 24 Earnings Release Conference Call. At this time, all participants are in 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 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 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 McClellan, President and Chief Executive Officer.

Good afternoon, everyone. We have a mixed story to tell this quarter. On the one hand, we're experiencing continued revenue growth an all-time record backlog and continued growing demand for our products. On the other hand, we're reporting a loss for the quarter of $473K, attributable to technical challenges primarily on a single new development program. In order to remain competitive in the long run, it's necessary to take on programs requiring challenging new technology development, and such temporary setbacks are an inevitable part of the equation. In this case, we are aggressively managing the program in question, conservatively assessing its progress, and are confident that the overruns are largely behind us and that, overall, we will still generate a material operating profit for the fiscal year. Furthermore, the knowledge base and lessons learned from such setbacks help position us for improved performance on new business incorporating the new technologies. This quarter highlights the importance of higher gross margins on new business as we've discussed on previous earnings calls. We're fortunate that currently there is considerable demand for our products, which allows us to successfully achieve higher gross margins and sometimes to pass on opportunities in which this is not possible. We'll continue to approach our business with this strategy. We anticipate continued long-term growth in our primary and markets, of space, navigation, secure communication, and timing. Our proven heritage technical expertise in these disciplines allows us to continue to win new business as evidenced by the continued growth in backlog and new bookings. Coupled with a disciplined management approach in which problems are identified early, addressed aggressively, and conservatively accounted for, I strongly believe the company is on a trajectory of sustained growth, profitability, and cash flow, albeit with some inevitable wiggles going forward. I'll now turn things over to our CFO, Steve Bernstein, who will fill you in on the financial details.

Thank you, Tom, and good afternoon. Before I get into the nine-month financial results, I wanted to add a comment regarding the results for the three months ending January 31st, 2024. As Tom mentioned, during the third quarter of fiscal year 24, the company had a temporary setback on one of our programs. As of today, the issue has been almost fully resolved with the majority of the related costs having been accounted for during the third quarter of fiscal year 24. We look forward to reporting more favorable results next quarter as the program continues. Despite the setback, there was positive news from the quarter. Fully funded backlog is approximately 67 million. Sales continue to increase. Our balance sheet remains strong, and we expect covetous cash flow going forward. For the nine months ending January 31, 24, consolidated revenue was $39.7 million compared to $27.8 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 $16.3 million, or 41%, compared to $12.8 million, or 46%, in the same period of the prior fiscal year. Revenues on satellite payload contracts are recorded 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 21.1 million compared to 13 million in the same period of the prior fiscal year and accounted approximately for 53% of consolidated revenue compared to 47 percent for the prior fiscal year. Other commercial and industrial revenues were $2.3 million and $2 million for the nine months ending January 31st, 24, and 23, respectively. The significant increase in revenue for the period was primarily related to increases in U.S. government customer sales both for space and commercial orders. For the nine months ending January 31st, 24, gross margin and gross margin rate increased as compared to the same period in fiscal year 23. The gross margin dollars increased as a direct result of the increase in revenue. The gross margin rate increased significantly due to the fact that many of the technical challenges faced in the prior fiscal year have been resolved, and as a result, the relating programs are now moving forward and running more efficiently. Previous programs that sustained lower margins due to technical issues are near completion or have been completed. For the nine months ending January 31st, 24 and 23, SFNA expenses were approximately 19% and 23%, respectively, of consolidated revenue. The percentage of consolidated revenue decreased 4% due to an increase in sales for the nine months ending January 31st, 24, as compared to the nine months ending January 31st, 23. Similarly, the absolute increase in SG&A expenses for the nine months ending January 31st, 24 as compared to the prior year's period was largely due to bid and proposal costs associated with increased sales and increase in professional fees and payroll associated costs. R&D expense for the nine months ending January 31st, 24 decreased to 2.3 million from 2.5 million for the nine months ending January 31st, 23. a decrease of 200,000, and were approximately 6% and 9%, respectively, of consolidated revenue. R&D decrease to the nine months ending January 31, 24, was primarily due to a temporary shift of R&D staff. The company plans to continue to invest in R&D in the future to keep its products at the state of the art. For the nine months ending January 31, 24, the company recorded operating income of $2.5 million compared to an operating loss of $5.1 million in the prior year. Operating income increased due to combination of increased revenue, gross margin, and the effects of certain cost-cutting measures instituted by management that begun in fiscal 23. Other income can be derived from reclaiming of metals, refunds, interest on deferred trust assets, or the sale of fixed assets, interest expenses related to deferred compensation payments made to retired employees. This yields pre-tax income of approximately $3 million compared to a $5.7 million pre-tax loss for the prior fiscal year. For the nine months ending January 31, 24, the company recorded a tax provision of $19,000 compared to $6,000 for the same period of the prior fiscal year. Consolidated net income for the nine months ended January 31, 24 was $3 million or $0.32 per share compared to a $5.7 million net loss or negative $0.62 per share in the previous fiscal year. Our fully funded backlog at the end of January 24 was approximately $67 million compared to approximately $56 million for the previous fiscal year end April 30, 23. The company's balance sheet continues to reflect strong working capital position of approximately $24 million at January 31, 2024, 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 soon. Thanks, Steve.