Frequency Electronics(FEIM) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter - The financial statements are unaudited and prepared in conformity with U.S. GAAP, reflecting normal recurring adjustments, and should be read with the annual consolidated financial statements in the Company's Form 10-K for the fiscal year ended April 30, 2025[21] Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and related notes, prepared under U.S. GAAP Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Table: Condensed Consolidated Balance Sheets | Metric (in thousands) | July 31, 2025 | April 30, 2025 | | :-------------------- | :------------ | :------------- | | Total assets | $93,203 | $93,737 | | Total current assets | $52,343 | $53,106 | | Cash and cash equivalents | $4,512 | $4,720 | | Total liabilities | $36,884 | $38,117 | | Total stockholders' equity | $56,319 | $55,620 | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income over specific periods Table: Condensed Consolidated Statements of Operations | Metric (in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Revenues | $13,812 | $15,077 | | Gross margin | $5,082 | $6,698 | | Operating income | $364 | $2,365 | | Net income | $634 | $2,430 | | Basic and diluted income per share | $0.07 | $0.25 | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Table: Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $1,161 | $(1,458) | | Net cash used in investing activities | $(776) | $(327) | | Net cash used in financing activities | $(583) | $(62) | | Net decrease in cash and cash equivalents and restricted cash | $(198) | $(1,847) | | Cash and cash equivalents and restricted cash at end of period | $5,887 | $17,418 | Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in the company's equity accounts, including retained earnings and treasury stock Table: Condensed Consolidated Statements of Changes in Stockholders' Equity | Metric (in thousands) | July 31, 2025 | April 30, 2025 | | :-------------------- | :------------ | :------------- | | Total stockholders' equity | $56,319 | $55,620 | | Retained earnings | $4,293 | $3,659 | | Treasury stock (at cost) | $(814) | $(231) | - Net income for the three months ended July 31, 2025, was $634 thousand, contributing to the increase in retained earnings[20] - The Company contributed 12,405 shares of common stock to its 401(k) plan during the three months ended July 31, 2025, compared to 26,457 shares in the prior year period[20][27] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements NOTE A – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This note describes the basis of presentation and accounting policies for the interim financial statements - The unaudited condensed consolidated interim financial statements reflect all normal recurring adjustments necessary for fair presentation and are prepared in conformity with U.S. GAAP, and should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2025[21] - Certain prior year amounts have been reclassified for consistency, with no effect on previously reported net assets[22] NOTE B – EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share Table: Earnings Per Share Metrics | Metric | Three months ended July 31, 2025 | Three months ended July 31, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Basic EPS shares outstanding (weighted average) | 9,723,165 | 9,538,339 | | Diluted EPS shares outstanding | 9,723,165 | 9,538,339 | - For the three months ended July 31, 2025, there were no shares excluded from the calculation of dilutive securities, while for the same period in 2024, 76,000 exercisable shares were excluded as their inclusion would be antidilutive[23] - On July 22, 2024, the Board declared a special cash dividend of $1.00 per share, totaling approximately $9.6 million, paid on August 29, 2024[24] NOTE C – CONTRACT ASSETS AND LIABILITIES This note explains the nature and recognition of contract assets and liabilities - Contract assets represent rights to consideration for work completed but not yet billed, while contract liabilities are advance payments for which revenue has not yet been recognized[25] - During the three months ended July 31, 2025, $4.1 million of contract liabilities from April 30, 2025, were recognized as revenue, compared to $7.7 million in the prior year period[25] NOTE D – EMPLOYEE BENEFIT PLANS This note provides information on the company's 401(k) plan and deferred compensation arrangements - The Company contributed 12,405 shares of common stock to its 401(k) plan during the three months ended July 31, 2025, a decrease from 26,457 shares in the same period of 2024[27] - Deferred compensation expense was approximately $133,000 (including $23,000 interest) for the three months ended July 31, 2025, with payments of $183,000, compared to $143,000 expense (including $27,000 interest) and $179,000 payments in the prior year[28] - Life insurance policies on deferred compensation participants are held in a Trust, amounting to $7.0 million at July 31, 2025 and April 30, 2025, with assets valued at Level 1 and Level 2 bases[29] NOTE E – INVENTORIES This note details the composition of the company's inventory at different stages of production Table: Inventory Composition | Inventory Category (in thousands) | July 31, 2025 | April 30, 2025 | | :-------------------------------- | :------------ | :------------- | | Raw materials and component parts | $14,765 | $14,668 | | Work in progress | $9,500 | $8,444 | | Finished goods | $507 | $375 | | Total Inventories | $24,772 | $23,487 | NOTE F – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES This note provides information on the company's operating leases, including right-of-use assets and lease liabilities - The Company's operating leases primarily cover offices, warehouses, vehicles, manufacturing, and R&D facilities, expiring through 2030, with ROU assets and lease liabilities recorded based on the present value of future lease payments[31] Table: Lease Metrics | Lease Metric (in thousands) | July 31, 2025 | April 30, 2025 | | :-------------------------- | :------------ | :------------- | | Right-of-use assets - operating leases | $8,249 | $8,659 | | Total lease liabilities | $8,359 | $8,756 | - Total operating lease expense was $0.6 million for the three months ended July 31, 2025, up from $0.5 million in the prior year, with a weighted-average remaining lease term of 4.30 years and a weighted average discount rate of 6.86% at July 31, 2025[34][36] NOTE G – SEGMENT INFORMATION This note presents financial information for the company's two reportable operating segments - The Company operates in two reportable segments: FEI-NY (precision time and frequency control products for communication satellites, terrestrial telecom, U.S. military) and FEI-Zyfer (GPS technologies for secure communications and locator applications, including US5G products)[39] Table: Segment Performance | Segment Performance (in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | FEI-NY Revenues | $10,354 | $10,975 | | FEI-Zyfer Revenues | $3,718 | $4,272 | | Consolidated Revenues | $13,812 | $15,077 | | FEI-NY Operating Income | $166 | $1,377 | | FEI-Zyfer Operating Income | $300 | $1,140 | | Consolidated Operating Income | $364 | $2,365 | Table: Revenue by Product Line | Revenue by Product Line (in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :------------------------------------- | :------------------------------- | :------------------------------- | | Satellite revenue | $6,514 | $8,263 | | Government non-space revenue | $6,859 | $6,270 | | Other commercial & industrial revenue | $439 | $544 | | Consolidated revenues | $13,812 | $15,077 | NOTE H – INVESTMENT IN MORION, INC. This note discusses the company's investment in Morion, Inc. and the impact of geopolitical events - The Company's 4.6% investment in Morion, Inc., a Russian company, was entirely written off in fiscal year 2022 due to the Russia-Ukraine conflict and sanctions, resulting in a carrying value of $0[49] - Following Morion's designation as a Specially Designated National on October 30, 2024, the Company terminated all commercial relationships, including technology licensing and product purchases, and has established alternate supply sources and in-house crystal blank fabrication capabilities[51] NOTE I – RESTRICTED CASH This note provides details on restricted cash balances and their purpose - Restricted cash was approximately $1.4 million at both July 31, 2025, and April 30, 2025, primarily related to a letter of credit for contractual restrictions[52] Table: Cash Reconciliation | Cash Reconciliation (in thousands) | July 31, 2025 | April 30, 2025 | | :--------------------------------- | :------------ | :------------- | | Cash and cash equivalents | $4,512 | $4,720 | | Restricted cash | $1,375 | $1,365 | | Total cash and cash equivalents and restricted cash | $5,887 | $6,085 | NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS This note outlines the impact of recently adopted accounting standards on the financial statements - The Company adopted ASU No. 2023-09, 'Improvements to Income Tax Disclosures,' as of July 31, 2025, with no material impact on the interim financial statements[54] NOTE K – DEFERRED INCOME TAXES This note explains the components of deferred income taxes and the valuation allowance - Deferred income taxes arise from temporary differences between tax and financial statement amounts, and the Company maintains a valuation allowance of $1.4 million against certain deferred tax assets[56][58][59] - The 'One Big Beautiful Bill Act' (OBBBA), signed into law on July 4, 2025, allows full deduction of domestic research expenditures, 100% bonus depreciation, and restores EBITDA for interest deduction limitation calculation, but did not have a material impact on the provision or effective tax rate as of July 31, 2025[57][58] NOTE L – PRODUCT WARRANTIES This note describes the company's product warranty policy and related accruals - The Company provides a one-year warranty and establishes reserves based on product history, repair costs, and sales levels[60] Table: Warranty Accrual | Warranty Accrual (in thousands) | July 31, 2025 | April 30, 2025 | | :------------------------------ | :------------ | :------------- | | Balance at beginning of year | $567 | $542 | | Warranty costs incurred | $(72) | $(253) | | Product warranty accrual | $68 | $278 | | Balance at end of year | $563 | $567 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three months ended July 31, 2025, compared to the prior year - Forward-looking statements are subject to risks and uncertainties, including integration challenges, customer actions, economic conditions, and technological changes, and should not be relied upon as predictions of actual results[62] Critical Accounting Policies and Estimates This section highlights the accounting policies and estimates that require significant judgment and can materially impact financial results - The most critical accounting policies are revenue recognition and costs on production contracts, and the valuation of inventory, both requiring significant estimates that can materially impact financial results[63] - The Company's significant accounting policies did not change during the three months ended July 31, 2025[63] Revenue Recognition This section describes the company's methods for recognizing revenue from contracts - Revenues are predominantly recognized over time using the cost-to-cost method, based on the ratio of incurred costs to total estimated contract costs, with management continuously reviewing and adjusting estimates[64] - Provisions for anticipated contract losses are made in full when determinable[64] Inventories This section explains the accounting for inventoried costs and write-downs - Inventoried costs include amounts for contracts with long production cycles, and write-downs are established for slow-moving or obsolete items based on usage and management's estimates for future business[66] Income Taxes This section discusses the judgments involved in determining the provision for income taxes and deferred tax assets - Significant judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance, with the Company monitoring the realizability of deferred tax assets based on various factors[67] - Interim income tax provision/benefit is determined using an estimate of the annual effective tax rate, adjusted for discrete items, and updated quarterly[68] RESULTS OF OPERATIONS This section provides a detailed analysis of the company's financial performance for the period Revenues This section analyzes the company's revenue performance by segment and product line Table: Segment Revenues | Segment (in thousands) | 2025 | 2024 | Change | % Change | | :--------------------- | :---------- | :---------- | :---------- | :------- | | FEI-NY | $10,354 | $10,975 | $(621) | (5.7)% | | FEI-Zyfer | $3,718 | $4,272 | $(554) | (13.0)% | | Intersegment revenues | $(260) | $(170) | $(90) | 52.9% | | Total Revenues | $13,812 | $15,077 | $(1,265) | (8.4)% | - Consolidated revenues decreased by 8.4% to $13.8 million for the three months ended July 31, 2025, primarily due to customer-imposed program delays expected to be realized in upcoming quarters[70][71] - Revenues from commercial and U.S. Government communication satellite programs accounted for approximately 47% of consolidated revenues (down from 55% in prior year), while non-space U.S. Government/DOD customers accounted for approximately 50% (up from 42%)[70] Gross Margin This section examines the company's gross margin and its contributing factors Table: Gross Margin Performance | Metric (in thousands) | 2025 | 2024 | Change | % Change | | :-------------------- | :------ | :------ | :-------- | :------- | | Gross Margin | $5,082 | $6,698 | $(1,616) | (24.1)% | | GM Rate | 36.8% | 44.4% | | | - Both gross margin and gross margin rate decreased due to lower revenue and quarterly fluctuations in the mix of business activity between higher and lower margin programs, including cumulative catch-up adjustments[72] Selling, General, and Administrative Expenses This section analyzes changes in selling, general, and administrative expenses Table: SG&A Expenses | Metric (in thousands) | 2025 | 2024 | Change | % Change | | :-------------------- | :------ | :------ | :----- | :------- | | SG&A Expenses | $3,585 | $2,845 | $740 | 26.0% | - SG&A expenses increased by 26.0% to $3.6 million, representing 26% of consolidated revenues (up from 19% in prior year), driven by higher payroll-related expenses and investments in future growth[73] Research and Development Expenses This section discusses the company's investment in research and development Table: R&D Expenses | Metric (in thousands) | 2025 | 2024 | Change | % Change | | :-------------------- | :------ | :------ | :------ | :------- | | R&D Expenses | $1,133 | $1,488 | $(355) | (23.9)% | - R&D expenditures decreased by 23.9% to $1.1 million, though the Company plans to continue investing in R&D to maintain product leadership in time and frequency technology[74] Operating Income This section analyzes the company's operating income and its drivers Table: Operating Income Performance | Metric (in thousands) | 2025 | 2024 | Change | % Change | | :-------------------- | :---- | :---- | :-------- | :------- | | Operating Income | $364 | $2,365 | $(2,001) | (84.6)% | - Operating income decreased significantly by 84.6% to $0.36 million, primarily due to lower revenue, reduced gross margin, and increased SG&A expenses[76] Other Income (Expense), net This section details non-operating income and expenses, including investment income and interest expense Table: Other Income (Expense), net | Metric (in thousands) | 2025 | 2024 | Change | % Change | | :-------------------- | :---- | :---- | :----- | :------- | | Investment income, net | $218 | $224 | $(6) | (2.7)% | | Interest expense | $(23) | $(26) | $3 | (11.5)% | | Other expense, net | $(2) | $- | $(2) | -% | | Total | $193 | $198 | $(5) | (2.5)% | - Other income (expense), net, remained relatively stable at $0.19 million, with the majority of investment income derived from interest income and unrealized gains on assets held in the Deferred Compensation Trust[77] (Benefit) Provision for Income Tax This section discusses the company's income tax provision or benefit and effective tax rate Table: Income Tax Metrics | Metric (in thousands) | 2025 | 2024 | Change | % Change | | :-------------------- | :----- | :---- | :------- | :------- | | Income Tax | $(77) | $133 | $(210) | (157.9)% | | Effective tax rate | -13.9% | 5.2% | | | - The Company recorded an income tax benefit of $77,270 for the three months ended July 31, 2025, including a discrete benefit of $193,919 primarily from stock compensation windfall tax benefits, contrasting with an income tax provision of $132,930 in the prior year[81] - The effective tax rate for the period was a benefit of 13.89% on pretax income of $0.6 million, differing from the U.S. federal statutory rate of 21% due to non-deductible expenses, state income taxes, R&D credits, and discrete items[82] - The estimated annual effective tax rate for fiscal year ending April 30, 2026, is 20.96%[80] LIQUIDITY AND CAPITAL RESOURCES This section assesses the company's ability to meet its financial obligations and fund operations - The Company maintains a strong working capital position of approximately $29.6 million at July 31, 2025, with a current ratio of 2.3 to 1[83] Table: Cash Flow Activity | Cash Flow Activity (in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $1,161 | $(1,458) | | Net cash used in investing activities | $(776) | $(327) | | Net cash used in financing activities | $(583) | $(62) | - The increase in net cash provided by operating activities was primarily due to the timing of billings and cash collections, while investing activities increased due to higher purchases of fixed assets, and financing activities increased due to higher treasury stock purchases[84][85] - The Company repurchased 21,910 shares of common stock for $583 thousand during the three months ended July 31, 2025, primarily for RSU tax withholdings, with approximately $0.56 million remaining under the $5.0 million share repurchase authorization[86][99] - The consolidated funded backlog was approximately $71 million at July 31, 2025, with about 64% expected to be realized in the next twelve months, and the Company believes its liquidity is adequate for short-term and foreseeable long-term needs[88][89] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to smaller reporting companies - This section is not applicable to smaller reporting companies[91] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of July 31, 2025[92] - The Company acknowledges inherent limitations in any system of disclosure controls, including human error and circumvention, meaning they can only provide reasonable assurance[93] Changes in Internal Control Over Financial Reporting This section reports on any material changes to the company's internal control over financial reporting - There have been no changes in the Company's internal control over financial reporting during the fiscal quarter ended July 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[94] PART II. OTHER INFORMATION This section provides additional information including risk factors, equity sales, and exhibit listings Item 1A. Risk Factors This section refers to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - There are no material updates or changes to the Company's risk factors since the filing of the Form 10-K[97] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's share repurchase activity for the quarter ended July 31, 2025 Table: Share Repurchase Activity | Period | Total number of shares purchased | Average price paid per share | | :---------------- | :------------------------------- | :--------------------------- | | May 1 - 31, 2025 | - | - | | June 1 - 30, 2025 | - | - | | July 1 - 31, 2025 | 21,910 | $26.60 | | Total | 21,910 | | - The shares purchased in July 2025 represent shares withheld for stock-based awards to satisfy required tax withholding obligations, and as of July 31, 2025, approximately $555,912 worth of shares may yet be purchased under the authorized plan[99] Item 5. Other Information This section confirms that no Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended July 31, 2025[100] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL-formatted financial data - Exhibits include certifications by the CEO and CFO (31.1, 31.2, 32) and XBRL-formatted financial statements (101, 104)[101] Signatures This section contains the required signatures for the Form 10-Q - The report was signed on September 15, 2025, by Thomas McClelland, President and Chief Executive Officer, and Steven L. Bernstein, Chief Financial Officer, Secretary and Treasurer[104][105]