Frequency Electronics (FEIM) 13 Mar 202020 Q3 Earnings call transcript

Greetings and welcome to the Frequency Electronics Third Quarter Fiscal Year 2020 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

Any statements made by the Company during this conference call regarding the future, constitute forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. uncertainties the cause forward-looking involve differ results inherently from materially statements. statements that actual could to Such Factors that are would the are the included cause periodic Securities or contribute the Company’s press to and Company’s Exchange releases filings and report further Commission. in in detailed with such differences obligation changes making date after By no of forward-looking statements these the the statements, update these call. the for undertakes conference Company to revisions or

sir. pleasure my and to introduce Stanton host, President proceed, now your CEO. Sloane, Please is It

Thank Thank today. you, everyone. us operator. for joining Welcome, you

me off Let start comments with about a operations. few

issues. financials quarter were Third impacted principally by two

instituted avoid Firstly, program That has glad put source issues. practices, the of the in by months a a of the future. and us. up to said, now Cleaning best termination have from some companies a also aerospace am been this we well-run that have I has to financial my I technical some persistent problem taken behind focus ensure sort been couple problem experience this I for which in of it problem of and

On in issue supplier contractors the or of been have programs, extended revenue a systems. Revenue space currently total the but and future is second $XXX opportunities supplier of prime prime where some on several leading part a of course, around matter profit grow that government funding for million. in position generation of not is and the On we growth. quarter, are add these to the funded simply indicator programs, contractors of business technical sub-contract large or resulted programs are is there impact choice we these of negotiations That pursuing and strongest in which continues from of decreases, to frequency the would new resulting I have contracts, value of as yet baselines, slippages timing FEI awarded strong potential the been our delays the us, they timing. in U.S. to the fully revenues. the of awards a either it’s very were conversion of regarding

resources R&D the Company more am and will share opportunities position We of and to confident and in infrastructure products, deliver do these invested fair our that I have significant than both. we win to

Overall, I optimism a feel. at assure you I the how certainly renewed a sense I spirit FEI growing and can about that’s future.

these canceling or I should on also coronavirus have days. employees to restricting is screening work issue, comment you comfort, have taken give business and I mind travel, on visitors, arranging home. may including from which here, precautions the exposed know we for some everyone’s And appropriate to been who

had discussions there of with flow supply a U.S., involvement not outside are well parts chain the disruptions that in any as we also our We’re year. have and Belgium operations no with the China like to than or Remember more materials. in ensure for

So, moment, our foresee at any impact the we operations. not do to

the Bernstein will let turn with to questions that. come Now, things Steve after to back and through us me I for financial details take quarter, over

afternoon. Stan, you, Thank and good

and months fiscal three January consolidated million year. and million million compared XX, nine $XX.X million For prior ending $XX.X the XXXX, was and the for $XX.X $X.X revenue to

the million fiscal of U.S. of the commercial revenue for consolidated compared programs follows. for from accounted nine $XX.X and the year. for to approximately same fiscal compared period prior period XX% government are million Revenues months to same prior for $XX.X XX% the of components the as and was of year, The satellite revenue period

which government from revenue in DOD payload percentage and satellite accounted and primarily compared $XX.X on in completion and to year. the recorded of the for customers, consolidated prior are the prior are XX% method are contracts $XX.X Revenues non-space, to approximately compared York FEI-New segments recognized year million FEI-New the Revenue York and fiscal of million XX% fiscal FEI-Zyfer in both, are for only recorded under U.S. segment.

were to are in compared revenues revenues industrial year. consolidation. commercial $X.X $X Other million million the in fiscal eliminated prior Inter-segment

by has technical and impacted conclusion been of was revenue of quarter consistent source that program a the the cost Third issues.

agreement customer, during a terminated, quarter. Following with this a the mutual was of revenue end approximately to program reduction $XXX,XXX incurring this

year. the the For and rate compared million Gross margin XXXX, periods as to same XX.X% and decreased months previous and for $X.X XX.X% nine periods same $X.X XXXX. fiscal compared XX, $X.X to periods in three ending of million and the and for was to million gross million the January $X.X fiscal XX.X% XX.X% margin

gross the rate due principally the the compared described remains same periods XX, comparable in charge, rate as above detailed ending previous charges three quarters. quarter period margin for January rates current months decreased months ending relatively and in the The XXXX. gross as gross three gross XX, well the period the to the program for to XXXX XXXX, January margin the Despite to margin margin fiscal as

three and period fiscal ending nine to the increased administrative period selling XX, For and January XXXX, same in general compared expenses XXXX. months the

January nine respectively SG&A consolidated XX% expenses and of XXXX, approximately XX, months revenues. the ending For were XXXX XX%, and

months XX, XXXX and respectively ended January XXXX, XX%, and three SG&A consolidated of approximately revenues. XX% the expenses For were

during expenses. due and amounts The insurance expense, was payroll-related percentage increase, XX, increases large three both depreciation, January to and months the XXXX ending in fees, professional dollar period

to months Company’s and at months same R&D to period nine keep Research XX, year. The rate for sales for year. leading The of XX% sales competitiveness. XX% frequency XXXX enhance products investments of rate for sales the and as fiscal same time represent future for the ended January the of the expenditures intended sales, XX% of the was the previous period edge XX, the compared and of to development compared XX% was technology the previous of three XXXX ended January fiscal R&D of

the and fiscal and three XX, losses to ended for prior and For the compared XXXX, recorded $XXX,XXX operating million of nine January million, Company the months $X.X year. $X.X $XXX,XXX

securities. derived income Company’s of primarily investment Other marketable income of consists holdings from the

insurance XXXX, expense also proceeds XXXX $XXX,XXX ending dividend the For income included XX, of of in certain the other an January miscellaneous Morion, fiscal a year. nine-month from and to income the in compared include Other $XXX,XXX a fiscal months prior million yields period policy. period income three the the XXXX, loss approximately and XX, $X.X pretax to for and of nine compared for ending January year. loss pre-tax months of a million This $XXX,XXX $X prior $XXX,XXX and approximately

period ending compared XXXX. months nine $XX,XXX XXXX, a the fiscal the recorded of tax of For January $XX,XXX the Company XX, to same for provision

the ended the previous For share diluted year. or net period XX, loss consolidated or share, $X.XX to the same $X.X fiscal of compared per million XXXX, $XXX,XXX, months was diluted $X.XX per January nine for

ended same loss net share, million diluted $X.X year. $X.XX of months previous three fiscal January XX, or for the the compared or $XXX,XXX consolidated XXXX, per the share period For to $X.XX was diluted per

backlog quarter. funded from the million of the $X fully Our January end XXXX at approximately previous approximately down was million, $XX

next $X.X approximately to received capital over January additional two programs. subsequent million $XX Company that XX, XXXX, quarter-end, on the and to X. and the ratio However, operation to foreseeable existing future. debt-free liquidity for strong believes current balance needs position to Company’s working million The funding at the at of investing continues reflect sheet meet of months its and XX the X.X The adequate is over Company

we Stan, forward call the to later. back questions your look and to turn will I

Thank you, Steve.

then, to limit get trying of please With in you And one, going your for the to it back Q&A. questions ask interest to to the for me have in to that, the We’re call you everybody. another questions. get queue. let back would if that We operator question, turn

proceed [Operator question-and-answer this Our you. Management. session. Please will Instructions] we time, with a comes question At conduct Thank your Rebotsky with question. from Sam SER Asset first

and that this the and professional charges any charged million Good quarter, in the presumably future quarters? additional addition we’re the to special in The the $XX finished Stan that afternoon, you the we was revenue, the Steve. the with $XXX,XXX -- quantify fees, $XXX,XXX, And fees? current in in professional previous additional and could

I’ll answer XXX for dollars. -- part on first. The the professional $XXX,XXX hundred contract. termination is of of The was based the couple for fees accounting a thousand one of a easier

of remaining basically at to the it’s point So, on was the reverse what books termination. to

million that related quarter? to other the is have should million… from $X we $X the been previous and But, In $X.X million words, have

that contract this $X in no. wasn’t that million. no, on we the programs losses took of The piece No,

question. Our next a investor. proceed your private with Please Eisner, from Michael question comes

Congratulations the on as Board. of Chairman any IIIF, to My that? Russell update question is, GPS

No.

program the through qual progressing going It’s pretty are We well.

fact, other reviewed today. I than not going In report. There’s well. And it just to [ph] much it’s Stony, else

with is Instructions] Sam Our your question. Rebotsky SER. [Operator follow-up proceed Please question next with a from

is of million into million in And funded? Your there months? the more. sizable the some is three was any any million the of the soon $XXX the $X.X next chance about $XXX this? months, six million, What timing $XXX And $X.X of to million is coming place part relative

with press release. very Well, predict that reasons the for precision the the cited, I I difficult timing can that you in tell in is fact to

So, we things don’t negotiation government’s cycles like that. control the and

So, a in of that precision. single position. difficulty it’s tell those with believe two that a you source to But, -- on bit I’ll we predict programs, are a of

think is or So, I definitized, the tell was, are when what are months. think to. they’re press contracts when that your The to that the the That awarded then Those part government The over question. the two referring next them, you’re negotiates is best I to contracts. in you funded. they’re expect had those play we contractor when can those prime get the will I X.X, out few would of we release

Yes.

million? and we the million, is another $XX $XX if So, backlog had $X million

X.X I Well, gave sales. to it you’re but -- that million included not you. yes, $XX from away got the But in take that then, you’ve yes, was

any in Okay. ask should the Can get or I queue? back more I questions

Sam. ahead, Go

Okay.

do companies, the doing and government key them Northrop they that why do we need something Grumman, or with know is that have there to see -- year, million, of we for would So, -- could we up is we going be government to the And to that Lockheed as it we they’re know it’s has fund what is end it? the far profitable or going the it the before we next large say freeing be see do it’s the expect $XXX as whether of or this couple that something see months, April, forward. the something, which would do allocate on

it work is supplier of a Most of tier the big second a bulk but is as one aerospace That’s companies. that of not the way. XXX%, to our

couple large aerospace So, negotiate to to has to large things aerospace the prime their companies award definitize to contracts to contracts government the companies. One happen. government. the have and revenue, us get is, for The have those with

till from government weeks, few a time as it requirements, It Then time prime as negotiate with contract So a well are the technical could those actually of announces periods short anywhere can be that be could on months. the contractors to also months. as -- the a time. the can extended entails selection to have weeks typically as the from prime contractors few a the cost. That few us finalizing take be

of So, control first of part responsible don’t the that -- we part. control part -- that, for, second the we but the not we’re part

so Well, good Hopefully come that into luck. these contracts of some All be could right. profitable. play, you

appears and luck. make some to to if even. it it million nice course, $XX even you close could profits. be Good break you soon Of would break need And pretty

I Thank absolutely agree you. with you. Yes.

next Richard your Investor. a with question. Please comes question Our Private from proceed Jones,

do R&D, the your XX% for that would it give And pretax. when be the of management profit? talked that? First, $XXX really little for I’d XX% expand And And coming end one doorstep think -- number. back, selling of like in -- leaving quarter like gross and was question. a about $XXX response that. me management you’re sales what the the point on on year, Stan’s years promising the on of to in XX% -- at you seem you you’d to numbers a a the for future in It’s vision may pot to maybe I rainbow, a administrative, would don’t report XX% bids. a then, margins, to know when think million guidance, million to you A like significant you What’s of the but I’d it’s congratulate few getting

of because you let So, all, of first me covered a -- couple things.

in starting immediate spending, heard to million, lot pursuing. takes that the we going effort thing expand but that the business for number we’re important a of One a followed last is But, types not that you’ve up. $XXX that numbers of -- new I and focused And it increases few And the see so from That’s think, the result quarters, work. of and On And opportunities the number, to what’s couple about is more you’ve whatever do. us things. of to think here an that’s than that consistently the a we’re I trend. numbers increase. easy of rather benefit the number see if defense

encouraged want I $X $X if very I’m into $XXX I the that billion, by so. or do billion So, can XXX. to turn million

there, I terms much you’re because not more think In is could number is is on and bottom to off. watch grow on order, trying trend to the that’s growth, would going we say we’re is want The wrong. My up predictions But top always I line $XXX of end the that business to don’t million again, what line to the organic then important. both XX% objective focus get to going your growth. and far predict I trend. do being you to when If

it to tell the whole that pulling there. tomorrow. to that’s But, is us team take I’m do my here I’m to objective want to do you So, hard going that. don’t I And by that. working

So, standby.

Okay, Bloch’s Company My what’s at okay. now? other Good question role is luck. Martin the

Director. a is Martin

Okay. All right.

Thank Okay. you.

You bet.

Our a next from Eisner, question private your investor. question. proceed with comes Please Michael

Are contracts? to the comment two on the able you value sole-sourced guys of

about? you are contracts two talking Which

mentioned two for be waiting are would two sole-sourced it You large defense contracts, -- you company? on sole

Yes. negotiated because not they’re yet. No, definitized or

to want as don’t obviously will on make as releases prematurely. I that’s So, we do those. But, that press soon done,

of months think couple a take will you It said. I

we’re probably could precise, be I would, If about. about more but I that’s what talking

And any on Elcom? update

the and has U.S. their new do that’s warfare Elcom through And delivered going products electronic initial for some We’ve going well, the evaluation. products. big And have doing systems they’re programs well. one is Navy. they with EW of pretty to

the -- comes, moment, at full called that we’re for initial low then follow-on would So, we’re production. what’s once rate waiting be production. a the rate And

out So, the that’s next a going year to process or that’s two. over play

or two a that? will take year It for

Yes, that. Yes. all to of through get

the to Thank you. back like turn for At management this closing call time, I comments. would to

optimism Great. We quarter. that. next Thank to forward share and look us. Thank hope increasing with you. future talking to for joining to you forward look Again, thanks we everybody you. the We’ll to

you. This Thank does today’s conclude teleconference.

your may this a lines time. great disconnect And You day. at have