FEIM's Q1 Earnings Fall Y/Y on Program Delays, Stock Down 16%

Core Insights - Frequency Electronics, Inc. (FEIM) experienced a 16% decline in shares following the earnings report for the quarter ended July 31, 2025, contrasting with a 1.4% growth in the S&P 500 index during the same period [1] - The company reported a fiscal first quarter 2026 net income of $0.07 per diluted share, a significant decrease of 72% from $0.25 per share in the same quarter last year [1] Financial Performance - Revenues for the quarter were $13.8 million, reflecting an 8.4% decline from $15.1 million in the previous year [2] - Net income fell sharply to $0.6 million, down nearly 74% from $2.4 million in the comparable quarter last year [2] - Operating income dropped to $0.4 million from $2.4 million a year earlier, with gross margin contracting due to a shift from higher-margin to lower-margin programs [3] Business Metrics - The fully funded backlog was approximately $71 million as of July 31, 2025, slightly up from $70 million at the end of the previous quarter [4] - Revenue from U.S. government satellite programs decreased to $6.5 million from $8.3 million, while revenue from non-space U.S. government and DOD contracts increased to $6.9 million from $6.3 million year-over-year [4] - Other commercial and industrial revenues totaled around $0.4 million, showing improvement from $0.5 million last year [5] Management Commentary - CEO Tom McClelland characterized the revenue and income decline as a timing issue rather than a sign of weakening fundamentals, noting that some revenue was pulled forward and others deferred due to customer delays [6] - Management expressed optimism about strong customer demand and potential expansions of delayed programs, reinforcing confidence in long-term growth [7] Factors Behind the Numbers - Quarterly results were impacted by program delays and timing mismatches in defense funding allocations, which were finalized by Congress in early July [8] - Gross margin pressure was exacerbated by a revenue mix skewed towards lower-margin development programs [8] Expense Management - Selling, general and administrative expenses rose to 26% of revenue from 19% a year earlier, primarily due to payroll increases and investments in the Colorado facility and quantum sensing initiatives [9] - R&D expenditure decreased to $1.1 million from $1.5 million, now comprising 8% of revenues versus 10% previously [9] Other Developments - The company announced a $20 million share repurchase authorization, reflecting confidence in financial stability and a desire to return value to shareholders [10] - An expansion of the company's footprint with a new engineering facility in Boulder, CO, staffed with senior scientists from the National Institute of Standards and Technology, is expected to contribute to profitability beginning in the third quarter [11]