Frequency Electronics(FEIM) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the nine months ending January 31, 2020, consolidated revenue was $31.3 million, down from $36.3 million in the prior fiscal year, while for the three months, revenue was $9.6 million compared to $13.2 million previously [10] - Gross margin for the nine months was $5.9 million with a margin rate of 18.9%, down from 34.1% in the prior year, and for the three months, gross margin was $3.1 million with a margin rate of 30.3%, compared to 31.1% previously [14] - The company recorded operating losses of $7.3 million for the nine months and $1.6 million for the three months, compared to losses of $540,000 and $394,000 in the prior year [19] Business Line Data and Key Metrics Changes - Revenue from commercial and U.S. government satellite programs was $14.7 million, down from $17.3 million, accounting for approximately 47% of consolidated revenue [11] - Revenue from non-space U.S. government and DOD customers was $12.7 million, down from $17.1 million, representing about 41% of consolidated revenue [12] - Other commercial industrial revenues increased to $3.9 million from $2 million in the prior fiscal year [13] Market Data and Key Metrics Changes - The company is pursuing new business opportunities valued at approximately $660 million, which is a significant increase and a strong leading indicator of future revenue growth [6] - The fully funded backlog at the end of January 2020 was approximately $36 million, down $4 million from the previous quarter, but the company received over $3.5 million in additional funding on two existing programs post-quarter [22] Company Strategy and Development Direction - The company has instituted best practices from aerospace experience to avoid past technical and financial issues [5] - There is a focus on organic growth, aiming to increase both top-line and bottom-line growth, with a goal to turn the $660 million in bids into $1 billion or $2 billion [36][37] - The company is investing significantly in R&D to enhance competitiveness and maintain product leadership in time and frequency technology [18] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, noting a renewed spirit within the company [7] - The company has taken precautions regarding the coronavirus, ensuring no disruptions in operations and supply chain [8] - Management indicated that predicting the timing of contract awards is difficult due to government negotiation cycles, but they are in a strong position as a supplier [30][33] Other Important Information - Selling and general administrative expenses increased significantly, accounting for approximately 35% of consolidated revenues for the three months, up from 20% in the prior year [16] - The company maintains a strong working capital position of approximately $40 million, debt-free, with a current ratio of over 6.1 to 1 [22] Q&A Session Summary Question: Can you quantify the additional professional fees and clarify the $725,000 charge? - The additional professional fees were a couple of hundred thousand dollars, and the $725,000 charge was related to the termination of a contract [25] Question: Is the $7.2 million backlog funded, and when can we expect contracts from the $660 million? - The $7.2 million is funded, and while timing is difficult to predict, management believes they are in a strong position for upcoming contracts [30] Question: What is the status of the GPS IIIF program? - The program is progressing well, and management is optimistic about its development [28] Question: When do you expect to report significant profit? - Management refrained from providing specific guidance but emphasized the importance of trends and organic growth [37] Question: What is Martin Bloch's current role? - Martin Bloch is currently a Director at the company [38] Question: Can you comment on the value of the two sole-sourced contracts? - Management did not provide specific values as the contracts are not yet definitized or negotiated [39] Question: What is the status of Elcom? - Elcom is performing well with new electronic warfare products and is awaiting low rate initial production [39]