FREQUENCY ELECTRONICS INC Q2 FY2025 earnings call

• Second quarter of fiscal year 2025 performance was excellent in terms of revenue, gross margin, and operating income. - Backlog is at an all-time high of $81 million. - U.S. government space business is a primary growth driver, responsible for over half the revenue and operating income in the first half of the fiscal year. - Looking to expand into proliferated small satellites domain, with R&D spend up to 10% of revenue. - Hosted Quantum Sensor Summit in New York City, which was well attended and received positive feedback. - Zyfer unit is performing well, with R&D activity focused on smaller, cheaper products and navigation in absence of GPS.

For the six months ended October 31, 2024, consolidated revenue was $30.9 million, compared to $26 million for the same period of the prior fiscal year. Revenue from commercial and U.S. government satellite programs was approximately $17.7 million or 57%, compared to $9.5 million, or 37% in the same period of the prior fiscal year. Revenue from non-space U.S. government and DOD customers was $12.1 million compared to $15.1 million in the same period of the prior fiscal year and accounted for approximately 39% of consolidated revenue compared to 58% for the prior fiscal year. Gross margin dollars increased due to revenue growth, and gross margin rate increased due to a large space program completing a milestone. R&D expense for the six months ending October 31st 2024 increased to $3.1 million from $1.3 million, being approximately 10% of consolidated revenue compared to 5% prior. Backlog was $81 million at the end of October 2024, an all-time high.

• R&D is anticipated to remain steady at approximately 10% of revenue for the foreseeable future. - Cautiously optimistic about government fiscal year 2025 budget being passed expeditiously and funding becoming available. - Anticipate continued business in GEO contracts within the next six to nine months.

• Uncertainty in government funding timing which can impact program progress. - Challenges in developing products for smaller satellites due to radiation tolerance and testing requirements. - Variability in non-space U.S. government and DOD business with programs getting pushed out.

Q: How is Zyfer unit performing?

A: Doing pretty good, with R&D activity on smaller products and navigation in absence of GPS.

Q: Prospects for GEO contracts?

A: Anticipate significant work within next six to nine months with proposals out to multiple primes.