R&D and Innovation - The company expended $3.4 million in fiscal year 2024 and $3.1 million in fiscal year 2023 on R&D for satellite and terrestrial communication systems[31] - The Company engages in R&D activities to improve existing products and manufacturing processes, with costs expensed as incurred[170] - Research and development expenses increased slightly to $3.4 million in 2024, up 7.3% from $3.1 million in 2023[139] Revenue and Sales - Approximately 98% of the company's sales in fiscal 2024 and 95% in fiscal 2023 were derived from U.S. Government contracts or subcontracts[42] - 87% of the company's sales in fiscal 2024 were derived from fixed-price contracts, which carry higher financial risk[49] - The company's major customers include Lockheed Martin, Northrop Grumman, Office of Naval Research, and BAE Systems, each accounting for more than 10% of consolidated revenues in fiscal 2024[45] - Revenue increased to $55.3 million in 2024, up 35.6% from $40.8 million in 2023[139] - Consolidated revenues for the fiscal year ended April 30, 2024 were $55.3 million, compared to $40.8 million in 2023[169] - Consolidated revenues increased from $40.8 million in 2023 to $55.3 million in 2024, driven by growth in both FEI-NY and FEI-Zyfer segments[228] - FEI-NY segment revenues grew from $32.3 million in 2023 to $40.3 million in 2024, while FEI-Zyfer segment revenues increased from $9.9 million to $18.1 million over the same period[228] - Approximately 98% of the company's sales in 2024 were made under contracts to the U.S. Government or subcontracts for U.S. Government end-use, up from 95% in 2023[230] - Foreign sales increased from $1.2 million in 2023 to $2.1 million in 2024, representing a small portion of total revenues[234] Financial Performance - Gross margin improved significantly to $18.6 million in 2024, compared to $7.8 million in 2023, reflecting a 136.8% increase[139] - Net income turned positive at $5.6 million in 2024, a substantial improvement from a net loss of $5.5 million in 2023[139] - Operating income reached $5.0 million in 2024, reversing from an operating loss of $4.7 million in 2023[139] - Basic and diluted earnings per share were $0.59 in 2024, compared to a loss of $0.59 per share in 2023[139] - Operating income improved significantly, with FEI-NY reporting $2.4 million in 2024 compared to a loss of $4.2 million in 2023, and FEI-Zyfer reporting $3.3 million in 2024 versus a loss of $0.2 million in 2023[228] Cash Flow and Liquidity - The company's cash and cash equivalents increased to $18.32 million in 2024 from $12.05 million in 2023, reflecting a 52% growth[138] - Cash and cash equivalents increased to $19.3 million at the end of 2024, up 59.9% from $12.0 million in 2023[141] - Net cash provided by operating activities was $8.7 million in 2024, a 641.1% increase from $1.2 million in 2023[141] - The company declared a special cash dividend of $1.00 per share, totaling approximately $9.4 million based on current shares outstanding[238] Assets and Liabilities - Accounts receivable remained stable at $4.61 million in 2024 compared to $4.62 million in 2023[138] - Contract assets grew by 5% to $10.52 million in 2024 from $10.01 million in 2023[138] - Inventories increased by 14% to $23.43 million in 2024 from $20.53 million in 2023[138] - Total current assets rose by 20% to $58.12 million in 2024 from $48.31 million in 2023[138] - Contract liabilities increased by 16% to $21.64 million in 2024 from $18.59 million in 2023[138] - Total assets grew by 12% to $83.25 million in 2024 from $74.50 million in 2023[138] - The company's accumulated deficit improved to ($20.03 million) in 2024 from ($25.62 million) in 2023, a 22% reduction[138] - Total stockholders' equity increased to $39.8 million at the end of 2024, up 21.1% from $32.9 million in 2023[145] - Contract assets increased to $10.5 million in 2024 from $10.0 million in 2023, while contract liabilities increased to $21.6 million from $18.6 million[185] - Inventories increased to $23.4 million in 2024 from $20.5 million in 2023, with inventory reserves of $9.1 million and $8.1 million respectively[187] - Property, plant and equipment decreased to $6.4 million in 2024 from $7.1 million in 2023, with depreciation expense of $2.1 million and $2.4 million respectively[189] - Total operating lease liabilities decreased to $6.2 million in 2024 from $7.6 million in 2023, with total lease payments of $7.3 million over the next five years[191][193] - Accrued liabilities increased to $4.8 million in 2024 from $3.9 million in 2023, primarily due to higher incentive compensation[197] - Restricted cash as of April 30, 2024 was $945,000, related to a letter of credit for contractual restrictions, with no restricted cash in the prior fiscal year[200] Workforce and Compensation - The company employs 207 employees (200 full-time and 7 part-time) with high retention rates and increasing average length of service[37] - The company's workforce has an average tenure of 15 years and a median age of 53, raising concerns about potential retirements and challenges in attracting and retaining skilled replacements[58] - Stock-based compensation expense increased to $822,000 in 2024, up 317.3% from $197,000 in 2023[141] - The company contributed 58,987 and 61,897 shares of common stock to the profit-sharing plan in fiscal years 2024 and 2023, valued at $514,000 and $413,000 respectively[201] - The incentive bonus for the fiscal year ended April 30, 2024 was $489,000, compared to $175,000 in the prior fiscal year[202] - As of April 30, 2024, eligible employees and directors had been granted SARs representing approximately 2,385,000 shares, with 86,000 shares exercisable at a weighted average exercise price of $13.01[205] - Stock-based compensation costs for RSUs and PSUs included in cost of revenues were $487,000 and $186,000 for fiscal years 2024 and 2023 respectively[210] - Deferred compensation expense charged to selling and administrative expenses was $219,000 for fiscal year 2024, compared to $643,000 in the prior fiscal year[213] Risks and Challenges - The company faces competition from larger firms with greater financial resources and larger R&D and marketing staffs[33] - The company's products are technologically complex and require state-of-the-art technology and manufacturing expertise, with potential risks of system failure[52] - The company is dependent on numerous suppliers for parts, materials, and services, with potential risks of delays or failures in procurement[55] - The company's operating income can be adversely affected by increased estimated contract costs due to design issues, production challenges, and supplier issues[48] - The company faces significant supply chain risks, including potential disruptions from supplier quality issues, industry consolidation, and the need for alternate suppliers, which could result in increased costs and delays[56] - Global economic and geopolitical conditions, including inflation and recessionary pressures, could increase costs and reduce demand for the company's products[60] - Health epidemics and pandemics, such as COVID-19, could lead to workforce absenteeism, facility cleaning costs, and significant impacts on contract schedules and costs[62] - Cybersecurity attacks pose a significant risk, potentially leading to operational disruptions, intellectual property theft, and reputational damage[74] - The company's common stock has a relatively low trading volume of approximately 18,000 shares per day, which may limit shareholders' ability to sell shares at desired prices[76] - Approximately 43.6% of the company's outstanding common stock is held by 5 individuals or entities, and large sales by these holders could significantly depress the stock price[77] - The company maintains a comprehensive cybersecurity framework, including risk-based controls, incident response plans, and third-party assessments, to mitigate cybersecurity risks[79][80] Internal Controls and Financial Reporting - The company has identified a material weakness in internal control over financial reporting related to the calculation of loss provisions, which could result in future financial misstatements[68][69] - The company is implementing remediation plans to address the material weakness and aims to complete testing of remediated controls by April 30, 2025[71] - The company identified a material weakness in internal control over the calculation of loss provision accruals in customer contracts, which has been corrected but could impact future financial statements if not remediated[245] - The company's internal control over financial reporting was not effective as of April 30, 2024, due to the identified material weakness[244] - The company is actively remediating the material weakness by improving controls over loss provision accruals and implementing enhanced review and monitoring processes[247] - The company's disclosure controls and procedures were not effective at a reasonable assurance level as of April 30, 2024, due to the material weakness[241] - The company's management believes the audited consolidated financial statements fairly present the financial position, results of operations, and cash flows in conformity with GAAP, despite the material weakness[246] - The company has updated its method of calculating loss provision accruals to include previously recognized contract losses[247] - No changes in internal control over financial reporting, other than the identified material weakness, occurred during the fiscal quarter ended April 30, 2024[249] Investments and Marketable Securities - The company fully impaired its investment in Morion due to the Russia-Ukraine conflict and resulting sanctions[125] - No marketable securities were held during the fiscal year ended April 30, 2024, and all holdings related to marketable securities were liquidated in the fiscal year ended April 30, 2023[151] - The company liquidated all marketable securities holdings in fiscal year 2023, with proceeds of $10.97 million and gross realized losses of $784,000[194] - The company's investment in Morion, Inc. was written off in fiscal year 2022, with purchases from Morion decreasing to $89,000 in 2024 from $196,000 in 2023[198] Taxes and Deferred Tax Assets - The Company recognizes deferred tax liabilities and assets based on expected future tax consequences, using enacted tax rates[171] - The total income tax provision for fiscal year 2024 was a benefit of $130,000, compared to a provision of $74,000 in the prior fiscal year[215] - Total deferred tax asset decreased from $19.2 million in 2023 to $17.8 million in 2024, primarily due to a decrease in net operating loss carryforwards[218] - Valuation allowance decreased by approximately $1.1 million in 2024 compared to 2023, reflecting a reduction in net deferred tax assets[219] - The company has U.S. federal net operating losses of $24.2 million, with $8.5 million expiring between 2025 and 2038, and $15.7 million with an indefinite carry-forward period[220] Contracts and Revenue Recognition - Revenue recognition using the percentage-of-completion cost-to-cost method was identified as a critical audit matter due to significant estimates and assumptions[130] - Total revenue recognized over time using the POC method was approximately $52.1 million and $39.1 million for the years ended April 30, 2024 and 2023, respectively[168] - The company recognized $15.8 million of contract liabilities as revenue in fiscal year 2024, compared to $7.1 million in fiscal year 2023[186] - Total contract losses were $3.1 million in fiscal year 2024, up from $429,000 in fiscal year 2023[186] - The company recorded an out of period adjustment of $0.9 million, decreasing cost of revenues and loss provision accrual, with no impact on cash flows[182] Product Warranty and Legal Matters - Product warranty accrual increased from $529,000 in 2023 to $542,000 in 2024, reflecting changes in repair costs and sales levels[235] - The company was not involved in any litigation with probable unfavorable outcomes or material claims as of April 30, 2024[237] Other Financial Metrics - The company had no Accumulated Other Comprehensive Income (AOCI) as of April 30, 2024, and no change in AOCI during the fiscal year[236] - The cost of employee services received in exchange for equity awards is based on the grant-date fair value of the award[178] - The Company's fair value hierarchy prioritizes unadjusted quoted prices in active markets (Level 1) and unobservable inputs (Level 3)[176]
Frequency Electronics(FEIM) - 2024 Q4 - Annual Report