Frequency Electronics(FEIM) - 2025 Q1 - Quarterly Report

Part I. Financial Information Financial Statements For Q1 FY2025, the company reported increased revenues and net income, with total assets slightly up and liabilities significantly rising due to a declared special cash dividend Condensed Consolidated Balance Sheets As of July 31, 2024, total assets slightly increased to $84.3 million, while total liabilities significantly rose to $51.1 million, primarily due to a $9.6 million dividend payable Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | July 31, 2024 | April 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $16,201 | $18,320 | | Total current assets | $59,225 | $58,121 | | Total assets | $84,264 | $83,253 | | Total current liabilities | $38,693 | $30,796 | | Dividend payable | $9,567 | $0 | | Total liabilities | $51,062 | $43,437 | | Total stockholders' equity | $33,202 | $39,816 | Condensed Consolidated Statements of Operations and Comprehensive Income For Q1 FY2025, revenues increased 21.5% to $15.1 million, with operating income rising to $2.4 million and net income reaching $2.4 million, or $0.25 per share Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | | :--- | :--- | :--- | | Revenues | $15,077 | $12,408 | | Gross Margin | $6,698 | $4,868 | | Operating Income | $2,365 | $2,060 | | Net Income | $2,430 | $2,042 | | Basic and Diluted EPS | $0.25 | $0.22 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $1.5 million for Q1 FY2025, with $0.3 million used in investing activities, ending the period with $17.4 million in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,520) | ($2,801) | | Net cash used in investing activities | ($327) | ($187) | | Net cash used in financing activities | $0 | $0 | | Net decrease in cash | ($1,847) | ($2,988) | | Cash at end of period | $17,418 | $9,061 | Notes to Condensed Consolidated Financial Statements Notes detail a $9.6 million special cash dividend, segment performance with FEI-NY as the largest contributor, the write-off of a Russian investment, and ongoing remediation of a material weakness in internal controls - On July 22, 2024, the Board of Directors declared a special cash dividend of $1.00 per share, totaling approximately $9.6 million, paid on August 29, 2024[12] - The company operates under two reportable segments: FEI-NY (precision time and frequency control products) and FEI-Zyfer (GPS technology systems), with FEI-NY being the larger segment by revenue and assets[18][19] Revenues by Segment (in thousands) | Segment | Q1 FY2025 (ended Jul 31, 2024) | Q1 FY2024 (ended Jul 31, 2023) | | :--- | :--- | :--- | | FEI-NY | $10,975 | $9,490 | | FEI-Zyfer | $4,272 | $3,267 | Revenues by Product Line (in thousands) | Product Line | Q1 FY2025 (ended Jul 31, 2024) | Q1 FY2024 (ended Jul 31, 2023) | | :--- | :--- | :--- | | Satellite revenue | $8,263 | $4,858 | | Government non-space revenue | $6,270 | $6,878 | | Other commercial & industrial | $544 | $672 | - The investment in Morion, a Russian company, was written off in fiscal year 2022 due to the Russia-Ukraine conflict and sanctions, with a carrying value of $0[24] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 21.5% revenue increase to U.S. Government sales, with gross margin improving to 44.4% and R&D expenses tripling, while maintaining a $20.5 million working capital and $70 million backlog Results of Operations Q1 FY2025 revenues rose 21.5% to $15.1 million, driven by satellite programs, with gross margin improving to 44.4% and R&D expenses significantly increasing due to product modernization Revenue Change by Segment (in thousands) | Segment | Q1 FY2025 Revenue | Q1 FY2024 Revenue | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | FEI-NY | $10,975 | $9,490 | $1,485 | 15.6% | | FEI-Zyfer | $4,272 | $3,267 | $1,005 | 30.8% | | Total | $15,077 | $12,408 | $2,669 | 21.5% | - The increase in revenue was primarily due to a $3.4 million increase in sales from space U.S. Government customers[38] - Gross margin rate increased to 44.4% from 39.2% year-over-year, due to revenue from newer programs with higher margins and the completion of smaller, high-margin jobs[40] - R&D expenses increased by $982,000 (194%) to $1.5 million, primarily due to a focus on advances and modernization of products[42] Liquidity and Capital Resources Working capital decreased to $20.5 million as of July 31, 2024, with a current ratio of 1.5 to 1, and the funded backlog was approximately $70 million, which management deems adequate for future liquidity Liquidity Metrics | Metric | July 31, 2024 | April 30, 2024 | | :--- | :--- | :--- | | Working Capital | $20.5 million | $27.3 million | | Cash and cash equivalents | $16.2 million | $18.3 million | | Current Ratio | 1.5 to 1 | 1.9 to 1 | | Funded Backlog | ~$70 million | ~$78 million | - A special cash dividend of $1.00 per share, totaling approximately $9.6 million, was paid on August 29, 2024[50] - Approximately 65% of the $70 million backlog as of July 31, 2024, is expected to be realized in the next twelve months[53] - The company believes its liquidity is adequate to meet its needs through at least September 16, 2025[54] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Disclosure is not applicable to smaller reporting companies[54] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of July 31, 2024, due to a material weakness in loss provision accrual calculations, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of July 31, 2024[55] - A material weakness was identified in internal control over the calculation of loss provision accruals in contracts with customers, as controls did not sufficiently capture previously recognized contract losses[59] - The company is remediating the weakness by updating its calculation methods and implementing enhanced review, reconciliation, and monitoring controls[61] Part II. Other Information Risk Factors No material updates or changes to the company's risk factors have occurred since the last Form 10-K filing - There are no material updates or changes to the Company's risk factors since the filing of the Form 10-K[64] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[65] Exhibits This section lists filed exhibits, including CEO and CFO certifications and XBRL financial data - Filed exhibits include CEO and CFO certifications (31.1, 31.2, 32) and XBRL financial data (101, 104)[66]