Frequency Electronics(FEIM) - 2025 Q4 - Annual Report

Part I Business Overview Frequency Electronics, Inc. leads in precision time and frequency technology for space and defense, with most sales to the U.S. Government - The company is a world leader in precision time and frequency generation technology for commercial and U.S. Government satellites, C4ISR, and Electronic Warfare (EW) systems[14] - The business is organized into two reportable segments: FEI-NY (including FEI-Elcom) and FEI-Zyfer, primarily based on geographic location[20][27] Segment Revenue Contribution (FY2025 vs FY2024) | Segment | FY2025 Revenue % | FY2024 Revenue % | | :--- | :--- | :--- | | FEI-NY | 76% | 73% | | FEI-Zyfer | 27% | 33% | Note: Percentages sum to over 100% due to intersegment sales. - Sales to U.S. Government programs accounted for approximately 94% of total sales in fiscal 2025, a decrease from 98% in fiscal 2024[42] - Consolidated backlog was approximately $70 million as of April 30, 2025, with about 64% expected in fiscal year 2026[41] - In fiscal 2025, Northrop Grumman was the sole customer exceeding 10% of consolidated revenues[42][43] Company-Funded R&D Expenditures | Fiscal Year | Amount (in millions) | | :--- | :--- | | 2025 | $6.1 | | 2024 | $3.4 | Risk Factors Significant risks stem from U.S. Government contract reliance, customer concentration, fixed-price contracts, and workforce retention - Heavy reliance on U.S. Government programs, accounting for 94% of sales in fiscal 2025, creates risks from funding changes or contract terminations[59] - Dependence on a small number of large customers, like Northrop Grumman, poses a material business risk[61] - Fixed-price contracts, comprising 96% of sales in fiscal 2025, carry inherent financial risks from cost overruns and inflation[64] - The company faces substantial competition from larger firms and the in-house capabilities of major customers[67] - Dependence on a highly skilled, aging workforce with a median age of 51 creates talent retention and retirement risks[70] - A material weakness in internal control over financial reporting for loss provision calculations was identified in FY2024, but management believes it was remediated by April 30, 2025[76][79] - As a defense contractor, the company is a target for significant cybersecurity attacks risking intellectual property theft and operational disruption[81] Cybersecurity Cybersecurity is integrated into risk management, protecting CUI under DFARS and CMMC, with Board oversight and no material threats - The cybersecurity framework includes risk-based controls, an incident response plan, employee training, and third-party assessments[92] - Adherence to Defense Federal Acquisition Regulation Supplement (DFARS) and Cybersecurity Maturity Model Certification (CMMC) is critical for protecting Controlled Unclassified Information (CUI)[89] - The full Board of Directors oversees cybersecurity, with the Chief Information Officer (CIO) leading the program and reporting to the CEO[91][93] - To date, no cybersecurity threats have materially affected the company's business, operations, or financial condition[90] Other Part I Items (Properties, Legal Proceedings) The company leases primary facilities in NY, CA, and NJ, reporting no material legal proceedings or unresolved staff comments - The company leases its main facilities in New York, California, and New Jersey[94] - As of July 18, 2025, the Company was not a party to any material pending legal proceedings[98] - There are no unresolved staff comments or mine safety disclosures to report[85][99] Part II Market for Common Equity and Related Matters Common stock trades on Nasdaq 'FEIM'; a $1.00 per share special dividend was declared, with an ongoing stock repurchase program - A special cash dividend of $1.00 per share, totaling approximately $9.4 million, was paid on August 29, 2024[103] - The company has a $5 million stock repurchase program, with approximately $1.1 million remaining authorized as of April 30, 2025[105][106] Management's Discussion and Analysis (MD&A) FY2025 revenues grew 26.3% to $69.8 million, gross margin expanded to 43.1%, and net income reached $23.7 million due to a tax benefit Results of Operations Consolidated Revenues by Segment (in thousands) | Segment | FY 2025 | FY 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | FEI-NY | $53,269 | $40,261 | $13,008 | 32.3% | | FEI-Zyfer | $18,660 | $18,138 | $522 | 2.9% | | Intersegment | ($2,118) | ($3,125) | $1,007 | (32.2)% | | Total | $69,811 | $55,274 | $14,537 | 26.3% | - The $14.5 million revenue increase in FY2025 was primarily driven by a $17.7 million (76%) increase in satellite program sales due to contract efficiencies[118] Gross Profit Performance (in thousands) | Metric | FY 2025 | FY 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Gross Profit | $30,097 | $18,583 | $11,514 | 62.0% | | Gross Margin % | 43.1% | 33.6% | - | - | - The gross margin percentage increased significantly due to strong performance and favorable cumulative catch-up adjustments on FEI-NY space programs[120] - R&D expenses increased by 79.8% to $6.1 million in FY2025, representing 9% of consolidated revenue[122] - Operating income increased 133.8% to $11.7 million in FY2025, driven by higher revenue and gross margin[124] - The company recorded an income tax benefit of $11.5 million in FY2025, primarily due to the reduction of the valuation allowance on deferred tax assets[126][127] Liquidity and Capital Resources Key Liquidity Metrics (as of April 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Working Capital | $29.7 million | $27.3 million | | Cash and Cash Equivalents | $4.7 million | $18.3 million | | Current Ratio | 2.3 to 1 | 1.9 to 1 | - Net cash used in operations was $1.4 million in FY2025, a significant shift from $8.7 million provided in FY2024[129] - Net cash used in financing activities was $9.9 million in FY2025, primarily due to a $9.6 million special cash dividend payment[132] - Management believes existing cash and cash flows from operations will be sufficient to meet short-term and long-term operating needs[135] Other Matters (Morion Investment) - The company's investment in Morion, a Russian company, was fully impaired in fiscal year 2022 due to the Russia-Ukraine conflict and sanctions[141] - Morion's designation as a Specially Designated National by the U.S. Treasury led to termination of commercial relationships and establishment of alternate supply sources[142] Financial Statements and Supplementary Data Audited consolidated financial statements for FY2025 and FY2024 are presented with an unqualified opinion, noting revenue recognition as a critical audit matter Consolidated Statement of Operations Highlights (in thousands) | Line Item | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Revenues | $69,811 | $55,274 | | Gross Margin | $30,097 | $18,583 | | Operating Income | $11,732 | $5,019 | | Net Income | $23,686 | $5,594 | | Basic EPS | $2.46 | $0.59 | Consolidated Balance Sheet Highlights (in thousands) | Line Item | April 30, 2025 | April 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $53,106 | $58,121 | | Total Assets | $93,737 | $83,253 | | Total Current Liabilities | $23,455 | $30,796 | | Total Liabilities | $38,117 | $43,437 | | Total Stockholders' Equity | $55,620 | $39,816 | Consolidated Cash Flow Highlights (in thousands) | Line Item | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($1,428) | $8,708 | | Net cash used in investing activities | ($1,808) | ($1,492) | | Net cash used in financing activities | ($9,944) | $0 | | Net (decrease) increase in cash | ($13,180) | $7,216 | - The independent auditor identified revenue recognition using the percentage-of-completion method as a critical audit matter due to significant estimates[154][155] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective, remediating a prior material weakness - Management concluded that disclosure controls and procedures were effective as of April 30, 2025[276] - A material weakness in internal control over loss provision accrual calculations, identified in FY2024, is believed remediated by April 30, 2025[278] - Remediation involved updating loss provision calculation methods and implementing enhanced review and monitoring controls[281] - Management assessed internal control over financial reporting as effective as of April 30, 2025, based on the COSO 2013 framework[280] Part III Directors, Executive Compensation, and Corporate Governance Information on directors, executive compensation, and corporate governance is incorporated by reference from the forthcoming 2025 Proxy Statement - Information on directors, executive officers, corporate governance, executive compensation, security ownership, and principal accountant fees is incorporated by reference from the forthcoming 2025 Proxy Statement[286][288][290] Part IV Exhibits and Financial Statement Schedules This section provides an index of financial statements and a list of all exhibits filed with the Form 10-K - This section contains the index to financial statements and a list of exhibits filed with the annual report[292]