FEIM

This article first appeared on GuruFocus. Revenue: Record $23.5 million in Q1 fiscal 2027, up 70% year over year and 52% sequentially. Gross Margin: 45.8% in Q1 fiscal 2027, a 9% improvement in gross rate year over year. Operating Margin: 22% in Q1 fiscal 2027. Operating Income: $5.2 million in Q1 fiscal 2027, up from $364,000 in the prior-year period. Net Income: Approximately $4.2 million, or $0.41 per share, in Q1 fiscal 2027, compared to $635,000, or $0.07 per share, in the prior-year period. Pre-Tax Income: Approximately $5.2 million in Q1 fiscal 2027, compared to approximately $557,000 in the prior-year period. SG&A Expenses: Approximately 18% of consolidated revenues in Q1 fiscal 2027, down from 26% in the prior-year period; actual expenditures increased by $0.5 million. Satellite Revenue: $11.8 million from commercial and US government communication satellite programs, approximately 50% of consolidated revenue, compared to $6.5 million (approximately 47%) in the prior-year period. Non-Space US Government Revenue: $11.1 million from non-space US government Department of Defense customers, approximately 47% of consolidated revenue, compared to $6.9 million (approximately 50%) in the prior-year period. Other Commercial Industrial Revenue: $605,000, approximately 3% of consolidated revenue, compared to $439,000 in the prior-year period. Backlog: Record funded backlog of approximately $129 million at end of July, up approximately 82% year over year and 16% sequentially. Working Capital: Approximately $90 million, with a current ratio of approximately 5.3 to 1. Debt: Debt-free. Capital Raise: Secondary offering of common stock in July raised approximately $14 million, with the green shoe exercised after quarter end. Is FEIM fairly valued? Test your thesis with our free DCF calculator. Release Date: September 10, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Record first quarter revenue of $23.5 million, up 70% year over year and 52% sequentially. Gross margin improved to 45.8% and operating margin to 22%, showing significant progress toward long-term targets. Backlog reached a new record of $129 million, up 82% year over year and 16% sequentially, with book-to-bill of 1.76:1. Debt-free balance sheet with strong working capital of $90 million and current ratio of 5.3, further strengthened by a $14 million green shoe exercise. Growth opportunities in space, defense, quantum sensing, and alternative PNT, with new products like DRAFS atomic clock and mercury ion clocks for naval applications. Production ramp faces challenges in meeting customer schedules, requiring careful allocation of orders and potentially turning down business. Gross margin may not continue to improve linearly, with potential pressure from proliferated satellite programs that may require lower margins. Internal R&D expenses are expected to remain under 10% of revenue, but fluctuations may occur and could impact profitability. No current plans for a cash dividend, which may deter some institutional investors. Success with new defense tech companies is limited so far, with most traction in space rather than defense. Q: Jeff Van Rhee of Craig-Hallum asked for an update on the Turbo product line, including bookings strength, revenue trajectory, and use cases.A: CEO Thomas McClelland said FEI is beginning to deliver production-rate Turbo units in relatively small quantities, with volumes expected to pick up soon. Current applications are all manned aircraft, though the company is in discussions regarding drone applications, which he called one of the most exciting areas. FEI has also started development work to radiation-harden Turbo units for space use. Q: Jeff Van Rhee asked how much of the backlog is funded versus visible but unfunded, and what portion falls within the next 12 months.A: CFO Steven Bernstein clarified that the reported $129 million backlog is fully funded, and that the unfunded portion of visible business is "multiple times" that amount. He estimated roughly 65% of the backlog is scheduled for the next 12 months. Q: Jeff Van Rhee asked about the volume production ramp, whether FEI is hitting throughput goals, and how it is managing the challenge of keeping up with growth.A: CEO Thomas McClelland called the ramp one of the company's biggest challenges, saying FEI is ramping successfully on a number of fronts but faces real limits. He said management must "thread the needle" between taking on business and delivering on time, and that FEI is declining some "ridiculously optimistic" customer schedules it does not believe are achievable. Q: Jeff Van Rhee asked for an update on the proliferated LEO opportunity and whether the last 90 days have changed FEI's conviction.A: CEO Thomas McClelland said opportunities are very good, with classified satellites aggressively moving to a proliferated architecture. FEI is transitioning from demonstrating capabilities to initial production on those programs and getting involved in more programs every day. He was more cautious on space data centers, calling talk of 2027 deployment probably overly optimistic, and noted FEI is also involved in lunar missions that require smaller, cheaper, faster production. Q: Jeff Van Rhee asked whether the order book points to upward or downward pressure on gross margin over the next few quarters, given the strong 45.8% print.A: CEO Thomas McClelland said he sees no particular upward or downward pressure. He said FEI's strategy is to stay disciplined and bid for profitable work, and to be willing to lose programs where competition is extreme and required margins are too low. He noted FEI will accept somewhat lower margins in early-stage proliferated satellite programs, but that meaningful margin pressure has not yet materialized. Q: Jonathan Siegmann of Stifel asked about penetration and success with new defense tech companies versus traditional primes.A: CEO Thomas McClelland said most success in that arena is in the space environment, with conversations across a number of newer space companies including Intuitive Machines and Astranis. In the defense arena, FEI does not yet have much success, though it is pursuing opportunities with several companies, including Anduril. Q: Jonathan Siegmann asked how much FEI's business could increase if Patriot and THAAD production rates triple, noting FEI is more on the battery side than the interceptor side.A: CEO Thomas McClelland said the impact is very significant. While new batteries are not built every time missiles are fired, FEI is seeing tremendous business for both THAAD and Patriot, and more missiles fired tends to mean batteries are needed in additional locations, translating into more business. Q: Stephen Levenson of Big Rock Research asked whether automation could enhance margins, or whether it is impractical for FEI's assemblies.A: CEO Thomas McClelland said automation is not out of the question and is being examined carefully, especially in quartz crystal manufacturing, which is vertically integrated from raw quartz material. FEI is looking at higher-throughput equipment, though production will remain relatively small versus consumer quartz. He also cited thermal vacuum test equipment as another area needing added capacity. Q: Stephen Levenson asked whether the quantum sensor could gather data for the World Magnetic Model from space, or whether it is mainly terrestrial.A: CEO Thomas McClelland said meaningful measurements can definitely be made from space and there is interest in doing so, though overall quantities would likely remain relatively small. He said FEI is interested in pursuing it. Q: Michael Eisner, a private investor, asked whether there is a specific area of space expected to drive the most revenue or opportunity.A: CEO Thomas McClelland said revenue is increasing from a variety of directions, which he called the exciting and unique part of this period. He noted launches have exploded from roughly 100 objects a year a decade ago to about 3,700 objects launched by the United States in the last year. Traditional satellite activity is booming while proliferated satellite work is also very active, and success on those programs is bringing more business in the front door. Q: Michael Eisner asked for the current book-to-bill ratio.A: CFO Steven Bernstein said book-to-bill was approximately 1.76 to 1 for the quarter. Q: Robert Smith of Center of Performance Investing asked for the current R&D figure and how R&D as a percent of revenue should trend given the growth targets.A: CEO Thomas McClelland said a key strategy is to secure as much external funding for R&D as possible, since the primary customer is the US government and government funding aligns research with customer needs. He said internal R&D funding is expected to stay under 10% of revenue, with absolute R&D spending likely rising over the next couple of years as revenue grows, though quarterly figures will fluctuate. Q: Robert Smith asked whether FEI would consider initiating a small cash dividend to attract institutions that require a cash payment.A: CEO Thomas McClelland said FEI has paid dividends in the recent past and will certainly consider it going forward, though he made no promises. He said it is definitely on the table. Q: Jeff Van Rhee asked about the capital raise and how it may affect long-term guidance.A: CEO Thomas McClelland said FEI previously had sufficient capital for the minimum $150 million revenue target by fiscal 2029, but customers are asking for more, faster. The July secondary offering raised capital and brought in long-term oriented institutional investors For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Image source: The Motley Fool. Thursday, Sept. 10, 2026 at 4:30 p.m. ET President and Chief Executive Officer - Thomas McClelland Chief Financial Officer - Steven L. Bernstein Operator: And welcome to the Frequency Electronics First Quarter Fiscal 27 Earnings Release Conference Call. At this time, participants are in a listen-only mode. 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 2000. Such statements inherently involve uncertainties that could cause actual results to differ materially from the forward looking statements. Factors that would cause or contribute to such different are included in the company's press releases and are further detailed in the company's periodic report filings with the Securities and Exchange Commission. By making these forward looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this conference call. It is now my pleasure to introduce your host, Thomas McClelland, President and Chief executive officer. Thomas McClelland: Thank you, Paul. Good afternoon, and thank you for joining Frequency Electronics First quarter fiscal year 27 earnings call. With me today is our Chief Financial Officer, Steven L. Bernstein. I am very pleased to report first quarter revenue of $23.5 million an all time record for FEI, up 70% year over year and up 52% sequentially. As we told you on our fourth quarter 2026 earnings call in July, we expected to return to growth starting in the current fiscal 2027. And this first quarter is a strong proof point of that. Further, this performance gives us increasing confidence in our ability to meet or exceed the $150 million or more in annual revenue that we guided to by fiscal 29 which ends 04/30/2029. I will have more to say about that target shortly. Steven will provide additional financial comments later in the call but I would like to highlight a few items. On our July call, we established 3-year minimum margin targets of 50% for gross margin and 30% for operating margin again, by fiscal 29. In the fiscal first quarter we are reporting today, we generated gross margin of 45.8% and operating margin of 22%. Substantial improvements and solid progress on our path towards our minimum targets. As I have mentioned numerous times over the past few years, we did not expect our progress to be perfectly linear on a quarterly basis, whether in revenue or profitability. But the trends we see in revenue backlog and pipeline as well as the internal improvements we have made that we discussed last quarter and the operating leverage we should generate with increasing revenue. Position us well to meet or exceed those minimum targets. As for backlog, it grew to a new record of $129 million up approximately 82% year over year and 16% sequentially. This continued increase in backlog gives further support to our ability to add meaningful growth to FEI in the years to come. As we have discussed before, we expect continued growth in our core space and defense markets. While also seeing additional growth coming from new markets such as space, defense, proliferated satellites, quantum sensing, space exploration, and alternative position navigation and timing. Today, I would like to provide some additional color on several of these markets. All of which build upon our core timing and frequency generation capabilities. So I am sure you are all familiar with GPS satellites. Part of the traditional space business we have sold into. On April 20 first of this year, the final GPS 3 satellite was launched, which included FEI's newly developed digital rubidium atomic frequency standard or DRAFS atomic clock. This enhanced DRAFS clock is currently operational on the GPS satellite, is on order for use on other global navigation satellite systems and is targeted at future GPS satellites including the upcoming GPS 3F or follow-on launches. This advanced atomic clock is an example of the company's important capabilities not just to provide the precision time and frequency devices, that we have been delivering for the last 65 years, but also our capability to deliver state of the art products with capabilities fueling future technological innovations. You have no doubt seen the news flow over the past several months about the critical need for missile replenishment. With government plans to significantly expand production by 30%. And we have spoken with you before about our content that goes into missile batteries for programs such as Patriot and THAAD. We expect to generate revenue from those programs in 2027 and for years beyond that coming from existing orders. More orders to come and additional orders to meet the needs of allied countries. In addition to this missile battery related work, we are also now bidding on additional missile programs. With components that go directly onto the missiles themselves. In some cases, we are being asked to bid on these on missile programs in order to potentially displace incumbents. There is a secured communication program for the military that we are producing that is a good example of both the higher rate production programs we have spoken about and the push by our customers to deliver more sooner. In this case, we are working on a production contract for over 1 thousand systems. In addition, the customer on this program is now asking us to increase monthly production by more than 50% while also promising additional follow on orders. In other words, we are expanding the total size of an already high rate production program. For another example of our ability to use internally developed technology, for expanded use cases, we are currently exploring potential uses of our mercury ion atomic clock for naval applications. For example, strategic submarines are a potential use case for advanced atomic clocks because they need to be underwater for months at a time and their timing cannot be updated from GPS satellites. while they are underwater. So they will need a different technology for certain use cases that require very highly accurate timing. And our advanced mercury ion clocks may be the solution. We believe this is also a good example of our ability to participate in long term programs for higher price systems and to do so with external funding. In quantum sensing, we are making rapid progress in the development of advanced sensors for magnetic navigation in GPS denied environments. We just recently delivered a sensor and associated electronics to the army research laboratory for additional testing. Development is ongoing at FEI, to make smaller, more capable magnetic sensing systems for alt-PNT applications. Finally, I would like to discuss the capital raise that we completed right at the end of the first quarter and how that may impact our long term guidance. We have told you previously that we have sufficient capital in place to meet the minimum of a $150 million revenue target by fiscal 29. Numerous customers, however, are asking us to do more for them and to do it more quickly. To meet this customer driven business expansion, we decided to pursue a secondary offering of our common stock in July, which raised approximately $73 million and also brought several excellent long term oriented new institutional investors into our shareholder base Approximately $14 million of the total came in after the quarter ended as the green shoe was exercised. We remain debt free with a very strong cash position, and we anticipate being a free cash flow generative on an annual basis going forward. We would like to thank Morgan Stanley, our lead bankers on the offering, and Craig-Hallum, who served as book running managers. For their hard work on this successful transaction. The capital we raised will allow us to pursue expansion to help meet these additional customer requests, which may have the effect of our both reaching the $150 million minimum target sooner and making that target a substantially larger number, by fiscal 29. We also expect that some of our customers will pay for capacity expansion in certain cases. We expect this additional revenue growth that derives from capacity expansion to be organic and it is likely that if we were to make any acquisitions, they would be small tuck ins to add to our vertical manufacturing capabilities. In other words, we do not intend to buy revenue. Frankly, because we do not need to given the strength of our backlog pipeline, order book, and prospects. there is an exceptional amount of growth and value creation to be gained by focusing on what is in front of us. Without getting distracted by a larger acquisition. We should be able to super serve our customers with this extra capital resulting in additional profitable growth that should benefit our shareholders as well. With that, I will turn it over to Steven for some financial commentary, and I look forward to taking your questions in the Q and A portion. Of the call. Steven? Steven L. Bernstein: Thank you, Tom. And good afternoon. As Tom highlighted, it is a great start to our fiscal 27 and a strong start to achieving our 3-year targets. For the 3 months ended July 31, 2026, revenue from commercial and US government communication satellite programs was $11.8 million and accounted for approximately 50% of consolidated revenue compared to $6.5 million and approximately 47% of consolidated revenue during the same period in the prior fiscal year. Revenue is recognized primarily over time under the percentage of completion method. Revenue from the satellite market, are recorded in the FEI-New York segment. Revenue from non space US government Department of Defense customers, which are recorded in both the FBI New York and FEI-Zyfer segments, were $11.1 million and accounted for approximately 47% of consolidated revenue for the 3 months ended 07/31/2026, compared to $6.9 million and approximately 50% of consolidated revenue during the same period in the prior fiscal year. Other commercial industrial revenue for the 3 months ended 07/31/2026 and 2025, accounted for approximately 3% of consolidated revenue and were $605 thousand and $439 thousand respectively. The revenue for the 3 months ending 07/31/2026 was significantly higher in both segments and in consolidation by approximately 70% or $9.6 million over the same quarter of the prior fiscal year. Revenue from commercial and U. S. Government communications satellite programs increased $5.2 million over 80% revenue from nonspace US government Department of Defense customers increased $4.2 million and over 61% over the same period in the prior fiscal year. For the 3 months ended 07/31/2026, both gross margin and gross margin rate increased compared to the same period in the prior fiscal year. The increase in gross margin is attributable to the $9.6 million increase in revenue compared to the same period in the prior fiscal year. The 9-point improvement in gross margin rate is attributable to higher production levels driving efficiencies in labor, overhead allocation, product mix, and also partially due efficiencies recognized as programs mature. For the 3 months ended July 31, 2026 and 2025, selling, general, and administrative expenses were approximately 18%, 26%, respectively, of consolidated revenues a decrease of approximately 8% However, the actual expenditures increased by $500 thousand The increase in SG&A expenses during the 3 months ended July 31, 2026 related mostly to compensation expenses. SG&A as a percentage of revenue decreased 8% over the same period in the prior fiscal year, demonstrating positive operating leverage given the higher revenue base and because the prior year included strategic headcount additions and process optimizations that were implemented to support growth in fiscal 27 and beyond, which caused SG&A as a percentage of revenue to be higher in fiscal 26. Research and development expenditures represent investments intended to keep the company's products at the leading edge of time and frequency technology enhanced future competitiveness. Fluctuations in R&D expenditures will occur in some periods due to current operational needs supporting ongoing programs. Company plans to continue to invest in R&D in the future to keep its products at the state of the art. For the 3 months ended July 31, 2026, operating income was $5.2 million or 22% of revenue and increased significantly compared to the prior fiscal year period's $364 thousand operating income due to the higher revenue, gross margin and operational efficiencies as described above. The majority of the approximate $100 thousand of investment income for the 3 months ended 07/31/2026 was from interest income and unrealized gains on assets held in the Frequency Electronics deferred compensation trust. This yields a pretax income of approximately $5.2 million for the 3 months ending 07/31/2026 compared to approximately $557 thousand pretax income for the 3 months ended July 31, 2025. Consolidated net income for the 3 months ended July 31, 2026, is approximately $4.2 million or $0.41 per share compared to $634 thousand or $0.07 per share for the same period in the prior fiscal year. Our fully funded backlog at the end of July was approximately $129 million, a new company high compared to approximately $111 million for the previous fiscal year ending April 30, 2026 and compared to $71 million in the year ago period. The company's balance sheet continues to reflect a strong working capital position of approximately $90 million and a current ratio of approximately 5.3-to-1, helped by the company's stock offering and which increased further following the exercise of the green shoe after the quarter ended. Additionally, the company is debt free. The company believes that its liquidity is adequate to meet its operating needs for the next 12 months and the foreseeable future. I will turn the call back to Tom, and we look forward to your questions. Thomas McClelland: Thanks, Steven. We are now ready to take questions. Operator: Thank you. At this time, we will be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. 1 moment please while we poll for questions. The first question today will be from Jeff Van Rhee from Craig-Hallum. Jeff, your line is live. Jeff Van Rhee: Great. Thanks. Thanks for taking the questions, guys, and congrats across the board. Just looks like a fantastic quarter here. Maybe a few for me. Tom, maybe touch on Turbo. I know, obviously, you know, interesting form factor, a lot of useful applications. Could you just give us a little update in terms of what you are seeing there, in particular from the new bookings side, strength of bookings? Any quantify of where revenue is going, maybe insights into the use cases just how it is being deployed. Just sort of a broader update on Turbo would be great. Thomas McClelland: Yes. Yes. Sure, Jeff. We are just starting to. Beginning to deliver production rate turbo units at this point in time. Relatively, small quantities still. But we anticipate things will be picking up in the near future. We Currently, the applications are all aircraft applications. Manned aircraft applications. Although, we have discussions with some companies, regarding drone applications, which is 1 of the areas that we are most excited about. We are also starting some initial efforts in terms of updating the development of the turbo units for use in space, primarily that involves radiation hardening of those devices. Jeff Van Rhee: Got it. that is helpful. And then maybe just a couple quick on the numbers front, Steven. The percent of the backlog that is 12 months and then if you could just any color around funded. I know you only report in total backlog, the portion that is funded. I am wondering how the ratio of funded to total has changed maybe compared to, say, a year-ago quarter? Steven L. Bernstein: Well, I will answer the first question. The reported backlog is fully funded. We do not report the nonfunded part. Of the options or things Tom has explained numerous times we get a contract, just for, like, $10 million, maybe 10 or 20% of it is funded, so only a $1 million or $2 million would go into backlog. We do not report that other $8 million or $9 million until it becomes funded. Jeff Van Rhee: Yeah. No. Understood. What I am asking is, know, you have got visibility to what the rest of that unfunded backlog is. I am asking the ratio of what is visible to total and how it is changed. And then the second part of the question is what portion is for the next 12 months? Steven L. Bernstein: Well, I think it is multiple times of it. it is-- the unfunded portion of it And as for the 12 months, it is about 60 some odd percent, 65% approximately. Jeff Van Rhee: Okay. Tom, the, you referenced again on this call, you talked about it last call as well. I mean, obviously, the order book is full, and you have got to figure out how to allocate and which orders to take. But 1 of the responses has been to ramp production. Just talk a little bit about where you are in that volume production ramp, that build out. Are you hitting your throughput goals? it is a challenge to keep up with this level of growth. Curious how you are doing on that volume production shift. Thomas McClelland: Yeah. it is a really good question, Jeff. I think that is certainly 1 of our biggest, challenges at this point. We are ramping successfully, ramping up our production on a number of fronts at this point. But we. You know, there are some challenges and limits to what we are able to achieve in that regard. And I think 1 of the management challenges is being able to thread the needle appropriately so that we, know, of course, we never like to, turn down additional, business. On the other hand, it is very important for us to deliver what we say we are gonna deliver and to do it on time. So in some cases, we are not signing up to some of the more ridiculously optimistic schedules that some of our customers are asking for. Because it is. We do not feel that it is possible. And I think you know, it is important for us to stand firm on that kind of a thing. But that is a we are we are walking a tightrope in this regard at this point. Let's just put it that way. Yep. Understood. Jeff Van Rhee: And then maybe 2 other quick I could. On the proliferated LEO, opportunity, I mean, I think you commented last quarter 90% win rates in the space. And in particular, we have seen some real interesting, call it, green shoots in terms of proliferated LEO and the ability to win. Just curious, any updates there last 90 days, things that have influenced your conviction, what you are seeing in the pipeline there, observations on PLEO would be great. Thomas McClelland: Yeah. Yeah. I think the, opportunity opportunities are really good. I think that, you know, big arena for us is, the classified satellites which the architecture is very aggressively moving to the proliferated satellite model. It is still in the early stages of that transition. But we are. We are kind of at the point where we are moving from demonstrating capabilities to initial production on those programs. We are getting involved in more programs every day at this point. So that is really, pretty exciting. But I think there is a tremendous amount more to come in the future We hear a lot of talk about data centers in space but that has not materialized quite yet. I know there is talk about that happening in 2027. But, we. I think that is probably a little bit, overly, optimistic. But it. But the proliferated satellite is that concept is definitely happening and we are in the thick of it and, very excited about that. Sort of a variant of that We are, of course, actively involved in some of the lunar missions. That you get a lot of press at this point in time. And in some ways, it is similar to the proliferated satellites In some ways, it is different. We are not really talking about hundreds or thousands of devices heading toward the moon, But I think, a lot of the approach is similar to the proliferated satellites where we are looking for a lot smaller, cheaper, faster production of things. And so I think that is important involvement for us because it helps to get our feet wet in this smaller, cheaper, faster arena. Mhmm. Very helpful. Jeff Van Rhee: Last 1 maybe on gross margin. Tom, I know you I know you pay a lot of attention to which contracts you take and which you do not, and there are a lot of variables that can affect your gross margins, whether they are follow on orders, versus new and a variety of other things. Just as you look at the order book and what is to come over the next few quarters, any notable callouts in terms of, you put up a great gross margin print here this quarter, quite a bit ahead of us. Things that would drive it higher or lower. I know you are not going to call a specific quarter, but as you look out over the next 2 or 3, anything to call out about what is in that pipe and gonna turn into revenue and whether those are in particular, upward or downward pressure on gross margin? Thomas McClelland: Yes. I do not see any particular either upward or downward pressure on things at this point in time. I guess what I would say is it is really part of our strategy at this point. We have talked about it before. You know, there is so much growth in our basic markets that, it puts us in a really strong position. We can be a little bit picky. So I think For us, the strategy is to be disciplined, to make sure that we bid things you know, such that, we can be very profitable and maintain our high margins And, of course, part of that strategy is being willing to lose some things if the you know, the competition is extreme and the margins that we would necessarily need to accept, in order to get those programs are a little bit lower. So we are in a really good position, and, we are staying disciplined. And I think we have talked about it previously. The, proliferated satellites, especially in the early stages, are ones where we are willing to accept, somewhat lower margins in order to get involved in those programs. But, at this point, you know, we you know, there is not a major move in that direction in the sense of having to accept lower margins. We are seeing activity in the proliferated satellites, but we have not really seen a lot of pressure on our margins. So I think it is pretty optimistic on the margin front But, yeah, I will say that you know, we should not interpret that as a straight line upward necessarily. As we go. Jeff Van Rhee: Yep. Yep. Got it. Congrats and understood. And, obviously, your years of decision making, good decision making getting you guys to this point. So congrats to the whole team. Thomas McClelland: Thanks, Jeff. Operator: Thank you. The next question will be from John Sigmund from Stifel. John, your line is live. John Sigmund: Hey, good afternoon. Thank you very much for taking my question and congratulations on the momentum in the business. Thomas McClelland: Yeah, thanks. John Sigmund: So the company's got a long history of relationships with the larger traditional companies. You have made reference in earlier calls about bidding with some of these new companies. Clearly, success sounds like it is percolating on the space side. Can you talk a little bit about any penetration and success you have had with the new defense tech companies? Thank you. Thomas McClelland: Very good question. Yes. I think it is true that at this point in time, most of our success in this arena is in the space environment. We have I have to be very careful about talking about specific programs, but, we have had conversations with a number of the newer space companies, on a variety of different programs intuitive machines, Stennis, and a number of others. In the defense arena, we do not have a whole lot of success in this area yet, although we are certainly pursuing things with a number of different companies. Of course, Anduril in particular is 1 that we have had, communications with. Yeah. Let me just leave it at that. John Sigmund: that is great. And then maybe just on traditional side, the Patriot and THAAD, production increases. Understand you are more on the battery side versus the interceptor side. But is there any way to frame how much increases that could be for your business if we are tripling production rates for those programs? Thank you again. Thomas McClelland: Yeah. it is very, you know, it is very significant, obvious that you do not, build new batteries every time you shoot off a couple of missiles. But, I think we. We are the bottom line is we are seeing a tremendous amount of business for both THAAD and, Patriot. And I think, to put that into context, I think you know, there is a lot of activity in Ukraine talking about additional missile batteries and things And I think that the more missiles are shot off, it tends to mean that batteries are needed in additional locations, and this translates into more business for us. and needs in these applications. So, yeah, for whatever reason, I think the bottom line is it is a thriving business for us at this point. Thank you. Operator: Thank you. The next question will be from Steven Levinson from Big Rock Research. Steven, your line is live. Steve Levinson: Thank you very much. Good afternoon. Yeah. Hi, Steven. I have enjoyed watching your progress over the last few years, and I am curious about a few things. Thomas McClelland: You talked about using some of your new capital to expand manufacturing. And I imagine a lot of your work is sort of manual bench work. And I am wondering if there is an opportunity to enhance margins by using some automation, or is that impractical? Steve Levinson: For the sort of assemblies you make? Thomas McClelland: Well, it is a very good question. it is it is certainly not out of the question. In fact, we are looking at that very carefully, especially in, you know, quartz crystal manufacturing is an important part of, what we do. And, the, quantities, the are required And I guess I should emphasize that, all the you know, this is part of our vertical integration. We do all of manufacturing of quartz resonators starting from, raw quartz crystal material. And, so the production, there is certainly 1 of the challenges that we face at this point in time, and we are looking at putting in place additional equipment that has higher throughput capabilities. We tend to think of our production facility as sort of a boutique facility, because in general, we. The quantities that we work with are relatively small for space applications and so forth and so on. And you know, relative to quartz crystal manufacturing for, consumer watches and things of that sort our production will remain relatively small going forward. But it is nonetheless increasing. And so we are looking at putting in place equipment that can increase the throughput. In addition to that, though, the. You know, there is a lot of equipment that is needed just in general, you know, most of the, products that go into space need to be tested in a space like environment. So called thermal vacuum, vacuum environment where we can modify the temperature to be similar to what units experience in space. And, so, obviously, that is an environment which is normally not encountered on Earth, and there is a lot of test equipment in order to be able to test them in those kind of environments. So we you know, that is an. Another thing that we are looking at as a additional capacity for And, of course, there is a lot of lot of other things that we are looking at this point in time. Those are just kind of a couple of straightforward examples. Steve Levinson: Great. that is helpful. Thank you. My other question would be, in terms of proliferated satellite constellations, is there an application for the quantum sensor to gather data for the world magnetic model. Is that something that can be done using that device from space, or is that more a terrestrial item? Thomas McClelland: Well, it definitely is something that meaningful measurements can be made from space. And I know there is definitely some talk and some ideas for doing just that. I think that, in terms of overall quantities, I think that would remain relatively small, but it is definitely something that we are interested in pursuing. Steve Levinson: Great. Thank you very much. I will be watching your progress along the way. Thomas McClelland: Thanks. Okay. Great. Operator: Thank you. Thank you. The next question will be coming from Michael Eisner, and Michael is a private investor. Michael, your line is live. Michael Eisner: Hey. Great job. 1 quick question or 2. In space, is there a specific area you see the most revenue coming from? Or opportunity? Thomas McClelland: Well, I think no, the simple answer is I think we are seeing increasing revenue from just a variety of different directions, and that is really what is so exciting and unique about this time. Michael Eisner: Relative certainly to a decade or 2 decades ago. it is just-- I think we have commented on it recently Whereas, you know, a decade ago, there were something like 100 launches in a year. Thomas McClelland: I think in the in the last year, The United States had something like. Launched something like 3.7 thousand objects into space. So a 100 objects launched into space, objects being satellites and things like that. And now 3.7 thousand. So tremendous growth any way you look at it. The traditional satellite activity is booming We have a lot of work going on right now. But the new proliferated satellite stuff is also very active, and, we have a lot of, programs that we are getting involved in. And, as we demonstrate success on those programs, we see more and more coming in the front door. So it is pretty exciting. Michael Eisner: that is a good. I like the answer. what is the book-to-bill this at this time? Steven L. Bernstein: Steven, have you got those kind of numbers? The book to bill is about 1.76-to-1 for the quarter. Michael Eisner: 1.76-to-1. Alright. Excellent. Thank you for your time. Thomas McClelland: No problem. Thanks, Mike. Operator: Thank you. And the next question will be from Robert Smith from the Center of Performance Investing. Robert, your line is live. Robert Smith: Thank you for taking my questions. Congratulations on the ramp. it is superb to see. Thomas McClelland: Thank you. My question is could you give me the current R and D figure? Robert Smith: And how do you see R&D as a percent of revenue going forward, considering the large targets that you have for growth? Thomas McClelland: So a good question. I think a couple of qualitative statements first. I think. And we have talked about this in the past, but 1 of the overall strategies for the company is to try to get as much external funding for R&D, as possible. I think this is really important in, the kind of, products that, we specialize in. Because, you know, our. The primary customer for our products is really the US government And, you know, when the US government funds research, it is it is always because they are they are funding applications that they are interested in. And, of course, that is what we wanna focus our research and development on what our customers are interested in as opposed to stuff that might be intellectually interesting, but not necessarily. Does not necessarily lead to profitable products down the road. So that is the first thing is to try to get external funding for as much research and development as possible but talking about the internal R&D, I think that like, a lot of things that you have to understand that there will be fluctuations and so I do not wanna make statements that will be held to on a quarter to by quarter basis. But I think that we anticipate the end R&D funding to stay under, 10%, revenue at this point in time. It we. I think that we will see in an absolute sense some additional R&D expenditure over the next couple of years as our revenue grows. I hope that gives at least a bit of an answer to your question. Robert Smith: It does. And my second question is would you at all consider the initiation of a small cash dividend to attract the. Any number of institutions that will not will not buy the security without a cash payment. Thomas McClelland: Well, we have had done so in the recent past and I think we certainly will consider that going forward. I am not making any promises at this point. But, yes. Definitely something that is on the table. Robert Smith: Thanks very much. Good luck. Thomas McClelland: Thank you. Operator: Thank you. Thank you. And there were no other questions at this time. I would now like to hand the call back to Thomas McClelland for closing remarks. Thomas McClelland: Thank you. Thanks for taking the time to listen and participate in today's earnings call. And we look forward to providing further updates in the coming months. Thanks. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation. 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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Frequency Electronics. The Motley Fool has a disclosure policy. Frequency Electronics (FEIM) Q1 2027 Earnings Call Transcript was originally published by The Motley Fool

Interested in Frequency Electronics, Inc.? Here are five stocks we like better. Record first-quarter performance: Fiscal Q1 2027 revenue rose 70% year over year to $23.5 million, while operating income increased to $5.2 million and net income reached $4.2 million, or $0.41 per share. Demand and backlog strengthened: Funded backlog climbed 82% year over year to a record $129 million, with a 1.76-to-1 book-to-bill ratio and approximately 65% of backlog expected to convert within 12 months. Growth was led by satellite, U.S. government and defense programs. Capital will fund expansion: A July stock offering raised approximately $73 million, supporting added production capacity, automation and testing capabilities. Management said the funding could help FEIM reach its $150 million annual revenue target before fiscal 2029. Frequency Electronics (NASDAQ:FEIM) reported record fiscal first-quarter 2027 revenue of $23.5 million, up 70% from a year earlier and 52% sequentially, as growth in satellite and U.S. government and defense programs lifted profitability and backlog to new highs. President and Chief Executive Officer Thomas McClelland said the quarter provided a “strong proof point” for the company’s expectation of returning to growth in fiscal 2027. The company said the results increased its confidence in meeting or exceeding its previously stated goal of at least $150 million in annual revenue by fiscal 2029, which ends April 30, 2029. → Morgan Stanley Eyes Good Things Ahead for Meta After $18 Billion Legal Settlement Frequency Electronics recorded gross margin of 45.8% and operating margin of 22% in the quarter, advancing toward its three-year minimum targets of 50% gross margin and 30% operating margin. McClelland cautioned that progress in revenue and profitability may not follow a linear quarterly path, but said trends in backlog, pipeline, operational improvements and expected operating leverage support those longer-term objectives. Funded backlog rose to a record $129 million at the end of July, up approximately 82% from the year-ago period and 16% from the prior quarter. Chief Financial Officer Steven Bernstein said the reported backlog is fully funded, while the company does not include unfunded contract options in its reported backlog figures. About 65% of the backlog is expected to convert within the next 12 months, he said. → Tesla’s Robotaxi Launch Wasn’t the Moment Investors Expected The company reported a quarterly book-to-bill ratio of approximately 1.76-to-1. Revenue from commercial and U.S. government communications satellite programs totaled $11.8 million, or about 50% of consolidated revenue, compared with $6.5 million in the prior-year period. Revenue from non-space U.S. government and Department of Defense customers reached $11.1 million, or about 47% of revenue, compared with $6.9 million a year earlier. Other commercial and industrial revenue was $605,000, representing about 3% of total revenue. → Despite Post-Earnings Drop, Wall Street Analysts Eye New Highs for Broadcom Stock Bernstein said the 9 percentage-point improvement in gross-margin rate reflected higher production levels, labor and overhead efficiencies, product mix and efficiencies as programs mature. Selling, general and administrative expense rose by about $500,000, primarily due to compensation, but fell to 18% of revenue from 26% a year earlier as revenue growth generated operating leverage. Operating income increased to $5.2 million, or 22% of revenue, from $364,000 in the prior-year quarter. Net income was approximately $4.2 million, or $0.41 per share, compared with $634,000, or $0.07 per share, a year earlier. McClelland highlighted demand across the company’s traditional space and defense businesses as well as newer markets including proliferated satellites, quantum sensing, space exploration and alternative positioning, navigation and timing applications. The final GPS III satellite, launched April 21, includes Frequency Electronics’ Digital Rubidium Atomic Frequency Standard, or DRAFS, atomic clock. McClelland said the enhanced clock is operational on the satellite, has been ordered for other global navigation satellite systems and is being targeted for future GPS launches, including the planned GPS IIIF follow-on program. In defense, the company expects revenue during fiscal 2027 and beyond from existing orders tied to missile battery programs including Patriot and THAAD. McClelland said Frequency Electronics is also bidding on additional missile programs involving components installed directly on missiles, in some cases seeking to displace incumbent suppliers. The company is producing more than 1,000 systems under a secure military communications production contract. McClelland said the customer has requested that Frequency Electronics increase monthly output by more than 50% and has indicated that additional follow-on orders could be forthcoming. Frequency Electronics is also evaluating potential naval uses for its mercury-ion atomic clock, including applications on strategic submarines that require highly accurate timing while operating underwater and unable to update timing through GPS signals. For quantum sensing, McClelland said the company recently delivered a magnetic-navigation sensor and associated electronics to the U.S. Army Combat Capabilities Development Command Army Research Laboratory for further testing. The company continues to develop smaller and more capable magnetic sensing systems for alternative positioning, navigation and timing applications in GPS-denied environments. The company completed a secondary stock offering in July that raised approximately $73 million, including about $14 million received after quarter-end when the underwriters’ overallotment option was exercised. McClelland said the proceeds will support capacity expansion in response to customer requests for higher and faster production. Frequency Electronics remained debt-free and reported working capital of approximately $90 million and a current ratio of about 5.3-to-1. Bernstein said the company believes its liquidity is sufficient to meet operating and investing needs for at least the next 12 months and the foreseeable future. McClelland said the new capital could enable the company to reach its $150 million annual revenue target earlier than fiscal 2029 and potentially make that target “a substantially larger number.” He added that some customers may help fund capacity additions in certain cases. The company expects the expansion-driven growth to be organic and said any acquisitions would likely be small tuck-in deals intended to add vertical manufacturing capabilities. The company is examining additional production equipment and automation opportunities, particularly in quartz crystal manufacturing, as well as expanded thermal-vacuum testing capacity for space-qualified products. McClelland said management is balancing demand with delivery commitments and is not accepting schedules it considers unrealistic. McClelland said classified satellite programs are shifting aggressively toward proliferated satellite architectures and that Frequency Electronics is moving from demonstrating capabilities to initial production on those programs. He said the company is becoming involved in more programs and sees substantial future opportunity. The company has also held discussions with newer space companies, including Intuitive Machines and Astranis, according to McClelland. In defense technology, he said Frequency Electronics has communicated with several companies, including Anduril, though he said the company has not yet had significant success in that market. McClelland said the company is participating in lunar missions and views them as another opportunity to gain experience in producing smaller, lower-cost products more quickly. He said internal research and development spending is expected to remain below 10% of revenue, while the company seeks external funding for as much R&D as possible. Frequency Electronics, Inc (NASDAQ:FEIM) is a U.S.-based designer and manufacturer of precision frequency control products and timing solutions. The company's portfolio includes oven-controlled crystal oscillators (OCXOs), atomic frequency standards such as rubidium oscillators, GPS-disciplined oscillators (GPSDOs), microwave synthesizers, and integrated timing subsystems. These products are used to provide stable and accurate frequency and time references for applications that demand high performance and reliability. FEI serves a broad range of markets, including telecommunications, aerospace and defense, satellite and space systems, test and measurement equipment, and critical infrastructure. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Frequency Electronics Q1 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for September 2026.

· Announces Record Quarterly Revenue of $23.5 Million, Up 70% Year-over-Year and 52% Sequentially · Announces Record $129 Million Funded Backlog, up 82% Year-over-Year and 16% Sequentially · Strong Operating Leverage Demonstrated, with Operating Margin North of 22% MITCHEL FIELD, N.Y., Sept. 10, 2026 (GLOBE NEWSWIRE) -- Frequency Electronics, Inc. (“FEI,” “Frequency,” the “Company,” “we” or “us”) (NASDAQ-FEIM) today announced its financial results for the first quarter of fiscal year 2027. FEI President and CEO, Tom McClelland, commented, “I am very pleased to report first quarter revenue of $23.5 million, an all-time record for FEI, up 70% year-over-year and up 52% sequentially. As we told you on our fourth quarter 2026 earnings call in July, we expect to return to growth starting in this current fiscal 2027, and this first quarter is a strong proof point of that. Further, this performance gives us increasing confidence in our ability to meet or exceed the $150 million or more in annual revenue that we previously guided to by Fiscal 2029, which ends April 30, 2029. “Further growth is supported by our funded backlog, which reached a record $129 million at the end of our fiscal first quarter, up 82% year-over-year and 16% sequentially, as well as by our growing order book and the significantly larger end-markets that we are now selling into, all of which are based on technology that leverages our long-standing market leadership in space and defense applications. I look forward to sharing more color on exciting developments in our end-markets on our earnings call this afternoon. “The strong revenue growth this quarter also allowed FEI to demonstrate significant profitability improvement, with gross margin expanding to approximately 46% and operating margin exceeding 22%. Further, we were cash-generative and expect to be so on annual basis going forward. We remain debt-free and our balance sheet was also significantly enhanced by the secondary offering we completed during the quarter, which added approximately $73 million in cash, of which approximately $14 million came in after the quarter ended. We will have more to say about this on the earnings call as well. “In short, business is booming for FEI. We have many attractive organic growth opportunities that leverage our core strengths, and we look forward to continuing to demonstrate our ability to generate more profitable, cash-generative revenue growth for years to come.” Reported Results and Adjusted Levels Revenue for the three months ended July 31, 2026, was approximately $23.5 million, compared to $13.8 million reported for the same period of fiscal year 2026. Operating income for the three months ended July 30, 2026 was $5.2 million, compared to an operating income of $0.4 million reported for the same period of the previous fiscal year. Net income from operations for the three months ended July 31, 2026, was $4.2 million or $0.41 per diluted share, compared to a net income from operations for the three months ended July 31, 2025 of $0.6 million or $0.07 per diluted share. Net cash provided by operating activities was approximately $3.0 million in the three months of fiscal year 2027, compared to net cash used in operations of $1.2 million for the same period of fiscal year 2026. Backlog at July 31, 2026 was approximately $129 million compared to $111 million at April 30, 2026. Investor Conference Call As previously announced, the Company will hold a conference call to discuss these results on Thursday, September 10, 2026, at 4:30 PM Eastern Time. Investors and analysts may access the call by dialing 1-888-506-0062. International callers may dial 1-973-528-0011. Callers should provide participant access code: 582877 or ask for the Frequency Electronics conference call. The archived call may be accessed by calling 1-877-481-4010 (domestic), or 1-919-882-2331 (international), for one week following the call (replay passcode: 54512). Subsequent to that, the call can be accessed via a link available on the Company’s website through December 10, 2026. About Frequency Electronics Frequency Electronics, Inc. (FEI) is a world leader in precision time and frequency generation technology, which is incorporated into commercial and U.S. Government satellites, Command, Control, Communication, Computer, Intelligence, Surveillance and Reconnaissance (“C4ISR”), and Electronic Warfare (“EW”) systems. Its technology is used for a wide range of space and non-space applications. FEI has received over 100 awards of excellence for achievements in providing high performance electronic assemblies for over 150 space and DOW programs. The Company invests significant resources in research and development to expand its capabilities and markets. FEI’s Mission Statement: “Our mission is to transform discoveries and demonstrations made in research laboratories into practical, real-world products. We are proud of a legacy which has delivered precision time and frequency generation products, for space and other world-changing applications that are unavailable from any other source. We aim to continue that legacy while adapting our products and expertise to the needs of the future. With a relentless emphasis on excellence in everything we do, we aim, in these ways, to create value for our customers, employees, and stockholders.” Forward-Looking Statements The statements in this press release regarding future earnings and operations, including statements regarding our three-year gross margin target, our three-year operating margin target, our three-year revenue target and similar targets or objectives, and other statements relating to the future constitute “forward-looking” statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, the risks associated with reliance on key customers, including the U.S. government, the Company’s use of estimates when accounting for contracts, actions by significant customers or competitors, competitive factors, new products and technological changes, continued acceptance of the Company’s products in the marketplace, dependence upon third-party vendors, product prices and raw material costs, the Company’s ability to attract and retain key employees, general domestic and international economic conditions, health epidemics and pandemics, external disruptions to the Company’s facilities or supply chain, the Company’s operations in a highly regulated industry, the outcome of any litigation and arbitration proceedings, cybersecurity attacks, noncompliance with any of the covenants in the credit agreement, volatility in the Company’s stock price, including due to the relatively low trading volume of its common stock, and failure to maintain an effective system of internal controls over financial reporting. The factors listed above are not exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the Securities and Exchange Commission. The Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2026, filed on July 17, 2026 with the Securities and Exchange Commission includes additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations, as such factors are updated from time to time in our periodic filings with the Securities and Exchange Commission, which are accessible on the Securities and Exchange Commission’s website at www.sec.gov. Moreover, the Company operates in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible for management to predict the impact of all these factors on the Company’s business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this press release and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

MITCHEL FIELD, N.Y., Sept. 03, 2026 (GLOBE NEWSWIRE) -- Frequency Electronics, Inc. (NASDAQ: FEIM), will hold a conference call to discuss results for the first quarter of its fiscal year 2027, ended July 31, 2026, on Thursday, September 10, 2026, at 4:30 PM Eastern Time. This call is being webcast by Issuer Direct Corporation and can be accessed in the Investor Relations section of Frequency’s web site at www.freqelec.com. Investors and analysts may also access the call by dialing 888-506-0062. International callers may dial 973-528-0011. Callers should provide participant access code: 582877 or ask for the Frequency Electronics conference call. A telephone replay of the archived call will be available at 877-481-4010 (domestic), or 919-882-2331 (international), for one week following the call (replay passcode: 54512). Subsequent to that, the call can be accessed via a link available on the company’s website through September 10, 2027. About Frequency Electronics Frequency Electronics, Inc. (FEI) is a world leader in the design, development and manufacture of high precision timing, frequency generation and RF control products for space and terrestrial applications. FEI’s products are used in satellite payloads and in other commercial, government and military systems including C4ISR and electronic warfare, missiles, UAVs, aircraft, GPS, secure communications, energy exploration and wireline and wireless networks. FEI-Zyfer provides GPS and secure timing capabilities for critical military and commercial applications; FEI-Elcom Tech provides Electronic Warfare (“EW”) sub-systems and state-of-the-art RF and microwave products. FEI has received over 100 awards of excellence for achievements in providing high performance electronic assemblies for over 150 space and DOD programs. The Company invests significant resources in research and development to expand its capabilities and markets. www.frequencyelectronics.com FEI’s Mission Statement: “Our mission is to transform discoveries and demonstrations made in research laboratories into practical, real-world products. We are proud of a legacy which has delivered precision time and frequency generation products, for space and other world-changing applications that are unavailable from any other source. We aim to continue that legacy while adapting our products and expertise to the needs of the future. With a relentless emphasis on excellence in everything we do, we aim, in these ways, to create value for our customers, employees, and stockholders.” Forward-Looking Statements The statements in this press release regarding future earnings and operations and other statements relating to the future constitute “forward-looking statements” pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, including the U.S. government, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, other supply chain related issues, increasing costs for materials, operating related expenses, competitive developments, changes in manufacturing and transportation costs, the availability of capital, the outcome of any litigation and arbitration proceedings, and failure to maintain an effective system of internal controls over financial reporting. The factors listed above are not exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the Securities and Exchange Commission. The Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2025, filed on July 18, 2025 with the Securities and Exchange Commission includes additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations, as such factors are updated from time to time in our periodic filings with the Securities and Exchange Commission, which are accessible on the Securities and Exchange Commission’s website at www.sec.gov. Moreover, the Company operates in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible for management to predict the impact of all these factors on the Company’s business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this press release and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Contact information: Dr. Thomas McClelland, President and Chief Executive Officer; Steven Bernstein, Chief Financial Officer; TELEPHONE: (516) 794-4500 ext.5000 WEBSITE: www.freqelec.com

Image source: The Motley Fool. Wednesday, July 15, 2026, at 4:30 p.m. ET President and Chief Executive Officer - Thomas McClelland Chief Financial Officer - Steven Bernstein Operator: As a reminder, this conference is being recorded. Any statements made by the companies 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. Such statements inherently involve uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences are included in the company's press releases and are further detailed in the company's periodic report filings with the Securities and Exchange Commission. By making these forward-looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this conference call. It is now my pleasure to introduce your host, Thomas McClelland, President and Chief Executive Officer. Thomas McClelland: Good afternoon, everybody, and thanks for joining Frequency Electronics' Fourth Quarter fiscal year 2026 Earnings Call. With me today is our Chief Financial Officer, Steven Bernstein. I want to start with a very clear statement. After a year of digestion, we're returning to growth now. This quarter, which ends in two weeks, will be the beginning of a multi-year ascent to a much bigger Frequency Electronics. On this call, we'll provide additional color on our end markets, talk about our new margin targets, and discuss the decisions we made during the year to better position the company to take advantage of the enormous growth opportunities in front of us. First, I want to share why we feel so confident in this pending upturn in our business. We've described over the past year how fiscal 2026 was a year of digestion for Frequency after we pulled forward some revenue into the prior fiscal year. Despite that, our backlog continued to build throughout the year. Two quarters ago, we told you that we believed it was reasonable that we could see a backlog north of $100 million in the not-too-distant future. Today, I'm pleased to report a record-funded backlog of $111 million as of the end of our fiscal year. This backlog gives us a lot of visibility into coming revenue, and so do several other key data points. We don't usually discuss our book-to-bill ratio, but it was nearly 3x in the fourth quarter. Book-to-bill, like revenue, can proceed for us in a nonlinear fashion, but a number this high is a strong indication of the kind of demand we're seeing. Further, fiscal 2026 was the single biggest year of bookings in company history. Recall that the backlog we report is our funded backlog, and the total contract value of signed deals is multiples of our funded backlog. We had some very significant contract wins during 2026, especially in the fourth quarter, and those wins will contribute to revenue in fiscal 2027. We believe we can see multiple new quarterly revenue records established for Frequency in the quarters ahead. We expect to announce a number of additional meaningful contracts in fiscal 2027. Looking ahead over the next two years, there are some very exciting opportunities that we're bidding on, including a number of sole-source opportunities on proliferated satellite programs, each of which is bigger than anything we've previously won. Our traditional satellite business also holds promise, and we're bidding on several large geostationary orbit programs. We're also embedded in multiple classified satellite programs, and as they see growth, so will we. On the defense side, we've discussed previously the replenishment opportunities for missile systems like Patriot and Terminal High Altitude Area Defense, for which we provide content in the missile batteries. These bookings are hitting now. Over the next few years, that same technology will be part of programs in both Golden Dome and SHIELD. We'll win that Golden Dome and SHIELD business because we're embedded in those missile programs. Ours is a multi-domain business with opportunities in space, air, land, and sea. We're pursuing additional timing applications in naval programs and bidding on important quantum sensor programs today. We're still growing our traditional business while also expanding into new markets. For instance, we continued to produce atomic clocks for GPS satellites while also developing solutions for contested environments in which GPS is denied. On previous calls, we've described the much larger total addressable markets we're going after, all of which are predicated on our existing competitive strengths. These larger TAMs include proliferated satellite programs, quantum sensing, space defense, and space exploration, alternative PNT. These are multibillion-dollar markets we're selling into with high projected growth rates. Critically, we've already won business in all of these areas, and we anticipate winning much more business in all of these markets. It's worth emphasizing that the contracts we're winning today are a combination of these new markets we're selling into, as well as new and follow-on orders from our traditional markets. We anticipate announcing more wins in both new and traditional markets as the year goes on. Just in the past few months, we won very important contracts in high-growth new markets, and I'd like to spend a few minutes discussing two of these. First, we won a contract for approximately $7 million for compact, highly precise atomic clocks to support position, navigation, and timing for a lunar space mission. We anticipate winning additional awards of greater magnitude to support similar programs in the future and to expand beyond the lunar environment into deep space missions. This win is an excellent example of FEI's ability to leverage our long-standing market leadership in space-qualified atomic clocks to service exciting new and potentially very large markets. Second, we won a contract in the burgeoning area of space defense, the next major frontier of our country's defense. Space defense involves countering space-based threats, this award leveraged the company's expertise in terrestrial secured communications in a new domain, space, opens up significant new opportunities for FEI. The space defense win included not just hardware, but also internally developed software, which expands the solution set we can provide. There's an increasing need amongst our U.S. government customers for space-qualified hardware that can provide secure communications from satellites to ground stations and via satellite cross links. FEI is uniquely positioned to provide such solutions given our heritage in both space systems and terrestrial secured communication systems. Space is more important than ever, and we're very encouraged to see generational levels of investment going into our end markets and increased government funding in all of our markets. The environment is robust, and so is our win rate, which validates the significant capital investments we've made over the past several years. We are meeting the customer where they are and more importantly, where they're going. We're the best at what we do, and for many of our customers and products, there is simply no substitute. All of these factors combined gave us the confidence to establish a three-year revenue target of at least $150 million, which we announced on April 30th at the end of our fiscal year. This level is a minimum target and represents 34% compound annual growth from fiscal 2026 forward. Frequency has not historically provided guidance because our business can be nonlinear on a quarterly or even annual basis. We feel increasingly confident in our ability to project our growth on a multi-year basis because of the continuing expansion of our backlog and order book, as well as the significantly larger end markets that we're selling into. All of which are based on technology that leverages our long-standing market leadership in space and defense applications. We expect that additional revenue to drive substantial incremental profitability. Today we're announcing for the first time, three-year margin targets for Frequency. In fiscal 2027, we'll begin demonstrating a multi-year path to higher margins. We're today establishing a minimum gross margin target of 50% and a minimum operating margin target of 30% by fiscal 2029. In addition, our depreciation and amortization expenses have historically been in the low to mid-single range as a percentage of revenue, and we anticipate that trend to continue. The path to these higher margins is largely in our control and is a direct result of the significant business shift we're undertaking. On the gross margin side, we anticipate seeing meaningful improvement from two significant levers. The first is the much higher revenue base we're targeting, as we've previously discussed, and which is well supported by our backlog, order book, industry trends, and government funding. In addition, due to customer demand, we're moving from a bespoke manufacturer of exquisite products with more episodic production schedules to a high-rate production company, making many more units of similar products on a more consistent basis. This higher rate production will be more predictable, allow for better overhead absorption, and feature less non-recurring engineering as a percentage of total business, all of which should drive gross margins to at least 50%. We also anticipate seeing gross margin benefit from some pricing initiatives. In addition, we believe we will demonstrate very strong operating leverage in the business, such that as revenue increases sharply, we should gain meaningful efficiencies on our research and development and selling and administrative expenses. Based on the gross margin target outlined above and those operating expense efficiencies in R&D and SG&A, we believe we'll then be able to generate minimum operating margins of 30%, with depreciation and amortization in the low to mid-single range as a percentage of revenue. We invested significantly in the business during fiscal 2026 in order to better prepare the company for the strong growth ahead. The majority of this investment was focused on hiring engineering talent in advance of the large ramp-up in production and revenue that we're expecting. This had near-term dampening effects on gross margin as engineering costs flow through the manufacturing overhead portion of our cost of goods sold, raising this expense before the revenue is generated. A second meaningful investment was a business process improvement investment, which should allow us to improve turnaround time. This investment also flowed through overhead and had a similar dampening impact on gross margins. With the orders and demand coming in, we think it is prudent long-term decision to be ready for that business and to super serve our customers who increasingly want more work done more quickly. We believe this should meaningfully benefit our shareholders as well as we increasingly provide higher levels of mission-critical products that perform to the highest standards in the harshest environments, and will do so with high incremental margins. The investments we made in our new Colorado facility and team are already opening opportunities in quantum sensing and very low-noise microwave sources. This is just one example of the many ways we expect our fiscal 2026 investments to pay off in spades. With these investments now made, we do not need to make additional meaningful investments in order to achieve our three-year revenue target. We simply need to execute. It's also worth noting that these investments were made entirely with cash on hand generated from operations. Further, we've increased our internal focus on our largest and most profitable market opportunities and de-emphasized or discontinued products with lower growth potential and lower margin profiles that have historically been part of our business. Specifically, we chose to restructure our FEI-Elcom manufacturing business in New Jersey in the fourth quarter because it simply did not have the growth or margin potential of our core space and defense markets, nor those of the much larger addressable markets we're starting to sell into. Though we sacrificed some near-term revenue in the fourth quarter through this restructuring, we believe it's the right long-term decision to better align our capital and talent towards their highest and best use and potential returns. Quite simply, we're playing for much larger stakes. The FEI-Elcom restructuring included a $3.8 million inventory write-down, a non-cash charge, which flowed through cost of goods sold and further depressed gross margins for this reported period, but which is not reflective of ongoing business trends. Additional severance costs flowed through selling and administrative expenses. Further, the restructuring yielded over $9 million in future tax benefits, which will benefit the company going forward as we turn to profitable growth this year. Lastly, we had several non-recurring charges that flowed through operating expenses this quarter. The majority of which was a non-cash charge for an accrual related to a one-time change in employee sick/paid time off policies. Most of this charge flowed through cost of goods sold, impacting gross margins, and the balance flowed through selling and administrative. Steve will provide further detail on the impact of these charges. As a result of all of these charges this quarter, our as-reported results do not appropriately reflect the core strength of our underlying business, which will pave the path towards the much higher revenue and margin levels we described earlier. We decided to take the pain now so that we can focus on our highest return opportunities going forward. In short, this quarter and year were preparation for the improvements we're about to see, including in the current quarter. We've historically been conservative in our accounting presentation, and today's reporting of charges does not reflect any intended change in that regard. We'll not become a company with constant adjustments that seek to flatter financials rather than inform investors. In this case, however, we thought it was cleanest to clear the decks now as we head into fiscal 2027, the beginning of a multi-year acceleration phase, which should allow FEI to demonstrate both strong growth and operating leverage in the years to come. We know that there will be no substitute for our demonstrating these results, and we look forward to doing so starting this year. Now I'll turn the call over to Steven to provide a few more financial details, and I look forward to taking your questions during the Q&A following Steven's remarks. Steven? Steven Bernstein: Thank you, Thomas, and good afternoon. As we have discussed, 2026 was a year of revenue digestion for us, and this quarter made for a particularly difficult comparison as the prior year's fourth quarter was the highest revenue quarter in 25 years for the company. That said, we are confident that we are returning to growth in the current fiscal first quarter and for fiscal 2027 in general. In fact, we can start setting multiple new quarterly revenue records in the coming quarters. For the three months ended April 30th, 2026, consolidated revenue was $15.4 million compared to $19.9 million for the same period of the prior fiscal year. The components of revenue are as follows. Revenue from commercial and U.S. government satellite programs was approximately $7.7 million, or 50%, compared to $12 million, or 60%, in the same period of the prior fiscal year. Revenue on satellite payload contracts are recognized primarily under the percentage of completion method and are recorded only in the FEI-NY segment. Revenue from non-space U.S. government and Department of Defense customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, were $6.8 million compared to $7 million in the same period of the prior fiscal year and accounted for approximately 44% of consolidated revenue, compared to 35% for the prior fiscal year. Other commercial and industrial revenues were approximately $908,000, compared to approximately $890,000 in the prior fiscal year. For the fiscal year ended April 30th, 2026, revenue decreased by approximately $6.6 million, or 9%, compared to the prior fiscal year. Fiscal 2026 was a year of digestion from a revenue standpoint as the company pulled forward some revenue into last year, fiscal 2025. Satellite program revenues for the government end use were 31% and 53% of total revenues for the fiscal year 2026 and 2025, respectively. Satellite program revenue for commercial end use were 6% of total revenues for both fiscal years 2026 and 2025. Revenue from non-space U.S. government and DoD customers increased by approximately $11.5 million or 43.2% in fiscal 2026 compared to fiscal year 2025. These revenues accounted for approximately 60% and 38% of consolidated revenues for the fiscal years 2026 and 2025, respectively. Other commercial and industrial sales accounted for approximately 3% of consolidated revenue for both fiscal years 2026 and 2025. Sales in the other commercial industrial sales were $2.1 million and $2.4 million for the fiscal years ended April 30th, 2026 and the fiscal year ending April 30th, 2025, respectively. For the three months ending April 30th, 2026 and the fiscal year ending April 30th, 2026, the gross profit and gross profit percentage decreased as a result of several pre-revenue investments and non-recurring factors as Tom mentioned. Similarly, there were several non-recurring items that impacted operating expenses, specifically selling and administrative expenses, causing operating profit and operating margins to decrease. We have provided tables in the press release so that investors can better understand the impact of these items and see what our margins would've been without these growth-oriented investments in advance of revenue and without these non-recurring charges. Adjusted for the charges and investments, our gross margin and operating margins would've been approximately 36% and 1%, respectively, for the quarter and approximately 41% and 11%, respectively, for the fiscal year. These are levels we anticipate growing meaningfully in the years to come, as Tom stated earlier, starting in the current fiscal year. Lastly, the company made significant cash investments during fiscal 2026 but expect to return to normal cash generation in fiscal 2027, beginning in our current fiscal quarter. Thomas McClelland: We encourage you to read our upcoming 10-K for further details. John, we can open the line now for Q&A. Operator: Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Once again, please press star one if you have a question or a comment. The first question comes from Brian Kinstlinger with Alliance Global Partners. Please proceed. Brian Kinstlinger: Well, great. Thank you for taking my questions. We've heard a lot about space and satellites. However, GPS jamming and time jamming in the battlefield has become a major problem. Can you talk about how both the war with Iran as well as the Ukraine-Russia war are impacting demand for frequencies, precision timing clocks, if at all? Thomas McClelland: I think those war environments are impacting our products and our markets in several different ways. One of the things that we have talked about previously is the fact that GPS, which is important for a lot of military applications, is frequently jammed in those areas and also spoofed. In other words, in place of the normal GPS signals, there are artificial signals which indicate the untrue location information. Those things going on have made it very clear to everybody that for defense applications in particular, but even for a lot of commercial applications, GPS cannot be relied on for position navigation and timing applications. That's just expanded tremendously our accessible market. When we provide more precise atomic clocks, this allows better timing in all of these applications, even during those periods when GPS or other navigation systems are not available. The other thing, of course, there are a lot of applications that are being envisioned at this point, which will provide that same kind of information that's provided from the satellite navigation systems, but in other ways. Since ultimately those navigation systems rely on precision timing, our products are very important there. The other application, which we are in the early stages of, is as an alternate means of navigation, magnetic navigation, in which by measuring the magnetic field in one's location and with an accurate map of the magnetic field on the surface of the Earth, one can navigate without depending on any external signals from navigation satellites or anything else. This, of course, is very important in these battlefield kind of situations that are being experienced in the Middle East at this point in time. Maybe I'll leave it at that. These are just a few of the important things that are coming out of the war situation in the Mid East. I think maybe the other big thing that we should talk about is, of course, a lot of missiles have been expended there's a huge replacement activity for those missiles. Although in most cases, we don't have hardware on the missiles themselves, we do have a lot of hardware in the missile batteries, and we're seeing a tremendous uptick in those markets also. Brian Kinstlinger: Great. That's super helpful. I have one follow-up. You gave long-term gross margin targets. Thank you. As it relates to the $111 million backlog, how much of that is expected to convert to revenue in the current fiscal year? What is the average gross margin in that backlog? Thomas McClelland: Yeah, I have to be a little bit careful about providing specific numbers on that. Let me just say that I think what we typically see is that the programs that we work on typically take place over a period of one to three years. We expect that backlog to be worked off over the next three years completely. We do expect the gross margins to increase significantly over the course of this fiscal year. Brian Kinstlinger: When you say over one to three years, that's the funded backlog, not the total backlog? The funded backlog, $111 million, is over one to three years. Yes? Thomas McClelland: That's actually primarily the total backlog. Brian Kinstlinger: Yeah. Right. That's what I would thought. Thomas McClelland: We report only the funded backlog. Yeah. Brian Kinstlinger: The funded presumably should be on the shorter end of that one to three years, I would assume. Is that accurate, or should I not think that way necessarily? Thomas McClelland: That's reasonable. Brian Kinstlinger: Okay, great. Look, thanks for taking my questions. Appreciate it. Operator: Next question comes from Jeff Van Rhee with Craig-Hallum. Please proceed with your question. Jeff Van Rhee: Great. Thanks for taking the questions, a lot to love about that forward model and congrats on the backlog growth. Obviously, you're right in front of some very large demand drivers. Tom, if you look at the bookings you're putting to the tape now and what's in the pipeline, you called out a bunch of drivers and it's a blessing of riches. You've got so many things working here. Can you just help us prioritize, though, what are the biggest needle movers right now in terms of the surge we've seen thus far in the backlog growth? Based on pipeline, what's going to drive backlog growth next six to 12 months if they're different? Thomas McClelland: Well, you actually hit the nail on the head. One of the reasons that we're so optimistic, Jeff, is that there are so many different arenas that we're acting in that all look really are just growing tremendously at this point. That being said, I think, actually over this last fiscal year, non-space played a big role in the revenue that we did generate. I think, in the coming year, space is going to be forefront. We're really excited about the activity related to the lunar activity, the movement toward repopulating the moon, so to speak. I think there are a number of very large space programs that we're working on at this point. I think an important thing that I'd like to talk about, in most cases in the space arena, we really have very little competition. We've looked at it, Over the last couple of years in space, we've had a 90% win rate on the contracts that we have bid on. We're in a really strong position there. Space is booming. I think that's the one that I'd emphasize, but we do have to keep in mind that we've had a tremendous amount of activity in non-space defense-related things also. Jeff Van Rhee: Yeah. That's great. Thank you for the color. Steven, just one for you. You commented on the quarter, You said you're gonna have several new record revenue quarters, quote, "In the coming quarters." That's pretty vague. That could be years. That could be this year. Were you specifically trying to say over the next four quarters, the next fiscal year, we should see several all-time record quarters? I just wanna be clear what you're trying to say there. Steven Bernstein: Yes. I believe in fiscal 2027, we should have. Jeff Van Rhee: Okay. All right. That's helpful. Then, Tom, from the manufacturing front, first of all, fantastic to see the trajectory to 50% gross margins based on mix a number of other things that you're working through. One of the underpinnings there, obviously, is scale, you talked about moving from bespoke manufacturing to process-driven manufacturing. Those are different mindsets, skill sets, your facility setups, equipment. Sounds like you've been working on that a lot during this fiscal year. I think you've referenced that. Just talk about where you think you are now in terms of readiness to go into that, I would say, different mindset and different way of operating. Thomas McClelland: Yeah. I think we're very much in the last couple of quarters of fiscal 2026, we were in a transition period, and I think we are really ready for this at this point in time. I think it's something that we've been working on very hard. I think we have a very clear roadmap on what we need to do over the next three years. I think we have a lot of work at this point in time. We're very focused on executing. I think we have the basic items in place in order to be able to achieve what we've talked about. Interestingly, we are going to do that without any significant facility expansion. We're going to do that within our current facilities. Internal to those facilities, of course, there's already been significant expansion taking place. As I mentioned earlier, of course, we've been adding significantly to the labor force. I think that although, as you say, there is some transition to more of a production kind of environment, we should keep in mind that we're not going from making one or two to making hundreds of thousands. We are still in the satellite business. Although it's more continuous production and at a significantly higher rate, we're not talking about manufacturing cell phones or anything like that. Jeff Van Rhee: Yep. Got it. Maybe one more, and I'll let somebody else jump in. Just a housekeeping, on the FEI-Elcom exit, you referenced some lost revenue in Q4, certainly sounds like it's going to be some headwind to fiscal 2027. Can you quantify what the revenue impact was in the quarter and what you expect it to be for the coming fiscal, for fiscal 2027? Thomas McClelland: Yeah. Steve, do you want to? Steven Bernstein: Well, I think the revenue forgone was about $1 million roughly for Q4. Jeff Van Rhee: Okay. In terms of additional rundown of a revenue stream that you're walking away from in FY 2027, how do we think about the rest of the headwind from exiting FEI-Elcom? Steven Bernstein: We think we'll make it up in multiples with what we have, and it'll improve our performance, not hinder our performance in any way. Jeff Van Rhee: Okay. All right. I'll come back to that one offline. I appreciate it. Thanks for the questions, guys, and congrats. I mean, just really seems like you've got the business right-sized here and ready to pounce on some great opportunities coming through the doors, and love that target model. Thanks, appreciate it. Thomas McClelland: Thank you. Steven Bernstein: Thanks, Jeff. Operator: Next question is from Michael Eisner. He is a private investor. Michael, please proceed. Michael Eisner: Hi. Nice backlog. FEI-Elcom is closed right now completely? Thomas McClelland: Well, we have some ongoing activities there. We have some commitments that we have to honor going forward. The plan is to completely shut down those activities over the course of this year. Michael Eisner: Oh, will it take a year to close completely? Thomas McClelland: Well, it's not 100% determined. We have some commitments that we had made prior to the decision to shut down FEI-Elcom that we have to honor, some open quotes, et cetera. Yeah, we have to play that by ear to some extent. Roughly over the next fiscal year, we should wind down all of that activity. Michael Eisner: It shouldn't be too bad on the cost. Thomas McClelland: Yeah. That's correct. Michael Eisner: Besides FEI-Elcom, most of the write-downs are done? Thomas McClelland: Yes. Michael Eisner: All right. I'm just trying to get an idea of the big picture with the margins. How many employees did we end up at year-end? Thomas McClelland: At year-end, we have about 250 employees. Michael Eisner: All right. That's why your expenses went up. Hypothetically, if you're growing at 34% CAGR, how many more employees are you going to need in one year? Thomas McClelland: Yeah, I'm not really in a position to answer that at this point. I don't think we're going to have to add. We've already added a significant amount in preparation for this, so I don't anticipate a huge additional workforce. Beyond that, I can't say anything specific. Michael Eisner: All right. Most of them are the 250 year-end is the big amount. Thomas McClelland: Mm-hmm. Yes. Michael Eisner: All right. I'm just trying to get to where we're getting the gross margins and the operating margins from. Are we the only ones that do space defense? Do we have competition in that? Thomas McClelland: Well, I think space defense covers a lot of things. I think in the portion of that arena that we participate in, we have very little competition. Michael Eisner: All right. Let me just think. Are we working with SpaceX or anything? You can't comment? Thomas McClelland: Well, at this point, we don't have any active programs with SpaceX, but SpaceX and a number of other companies, we're pursuing all sorts of things. Michael Eisner: All right, the new revenue growth should make up for the tailwinds. How should I word this? Should make up for the problems with FEI-Elcom. Thomas McClelland: Yes, absolutely. Michael Eisner: All right. Thank you very much. Thomas McClelland: Okay. Bye. Operator: The next question is from Chris Bakosky, Private Investor. Please proceed. Chris Bakosky: Hello. Congratulations on the great orders. Steven Bernstein: Thank you. Thomas McClelland: Thank you. Chris Bakosky: Just generally speaking, you talked a lot about communications when you talked about the orders. Can you generally tell us about technologically-wise why precision timing is important for communications, and are there any new things in satellite communications that require new, higher-precision timers? Thomas McClelland: I think especially for military applications where secure communication is required, precision timing is important. There are, of course, a number of different means of communication in these arenas, one of the key things is to only communicate during predefined time intervals, in order to do that, need very careful synchronization between the communicating parties. That's just one very specific example. Yeah. Short of going into a long-winded technical discussion, maybe I'll leave it at that. Chris Bakosky: Okay. I don't mind your long-winded technical discussions, that's all right. Would you say that your influx of orders is partly due to the higher required security in satellite communication? Thomas McClelland: I'm not sure I caught all of that. Could you maybe just repeat? Chris Bakosky: Yeah. Would you say that your influx of new orders is at least partially caused by the higher required security in satellite communications? Thomas McClelland: Oh, yes. Well, definitely. I think that's an important aspect of it. I think, yes. Chris Bakosky: As far as the record quarters go, did you say that the next quarter will be a record quarter or that the next year will have multiple record quarters? Thomas McClelland: Well, I hesitate to make specific statements about individual quarters. Over the course of fiscal 2027, there will be record quarters. Chris Bakosky: All right. That's good to hear. Congratulations again. Good luck. Thomas McClelland: Thank you. Steven Bernstein: Thank you. Operator: Okay, we have no further questions in the queue. We have reached the end of the question-and-answer session. I will now turn the call over to management for closing remarks. Thomas McClelland: Okay. Thank you, everybody, for taking the time to listen and to participate in today's earnings call. We look forward to providing further updates in the coming months. Once again, thanks, everybody. All right. Bye. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Before you buy stock in Frequency Electronics, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Frequency Electronics wasn’t one of them. The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years. 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As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Frequency Electronics. The Motley Fool has a disclosure policy. Frequency Electronics (FEIM) Q4 2026 Earnings Call Transcript was originally published by The Motley Fool

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Management characterizes fiscal 2026 as a 'year of digestion' following revenue pull-forwards into the prior year, but notes the period was used to build a record funded backlog of $111 million. The company is transitioning from a bespoke manufacturer of 'exquisite products' to a high-rate production model to improve overhead absorption and reduce non-recurring engineering as a percentage of business. Performance was impacted by intentional investments in engineering talent and business process improvements ahead of a projected multi-year revenue ramp-up. Strategic focus has shifted toward high-growth, high-margin markets including proliferated satellite programs, quantum sensing, and space defense, while de-emphasizing lower-margin legacy products. The restructuring of the FEI-Elcom business in New Jersey was driven by its inability to meet core growth and margin profiles, leading to a $3.8 million inventory write-down. Management attributes a 90% win rate in space contracts to a lack of direct competition for their specialized atomic clock and timing solutions. Established a three-year revenue target of at least $150 million by fiscal 2029, representing a 34% compound annual growth rate from fiscal 2026 levels. Targeting minimum gross margins of 50% and operating margins of 30% by fiscal 2029, driven by higher revenue scale, pricing initiatives, and operational efficiencies. Expects to establish multiple new quarterly revenue records during fiscal 2027 as the record backlog begins to convert. Anticipates returning to normal cash generation in fiscal 2027, starting in the first fiscal quarter, following a year of heavy internal investment. Guidance assumes continued government funding and generational levels of investment in space-qualified hardware and secure communication systems. A $3.8 million non-cash inventory write-down related to the FEI-Elcom restructuring significantly depressed reported gross margins in the fourth quarter. A non-cash charge for an accrual related to a one-time change in employee sick and paid time off policies impacted both cost of goods sold and SG&A. The FEI-Elcom restructuring yielded over $9 million in future tax benefits that the company expects to utilize as it returns to profitability. Management explicitly stated they 'cleared the decks' with these charges to ensure fiscal 2027 reflects the core strength of the underlying business. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management noted that GPS jamming and spoofing in Ukraine and the Middle East have expanded the market for atomic clocks that provide timing when GPS is unavailable. The company is seeing a 'tremendous uptick' in demand for hardware in missile batteries, such as Patriot and THAAD, due to replenishment needs. The $111 million funded backlog is expected to be fully worked off over the next one to three years. Management expects gross margins to increase significantly over the course of fiscal 2027 as production rates stabilize. The company believes it is ready for the shift to process-driven manufacturing without requiring significant facility expansion. The current workforce of approximately 250 employees is largely sufficient for the projected growth, as hiring was front-loaded in fiscal 2026. Approximately $1 million in revenue was foregone in Q4 due to the restructuring. Management expects to wind down remaining commitments over the next fiscal year but believes new high-margin business will more than offset the lost revenue.

This article first appeared on GuruFocus. Revenue: $15.4 million for the quarter, down from $19.9 million in the prior year. Funded Backlog: Record $111 million at the end of fiscal year 2026. Book-to-Bill Ratio: Nearly three times in the fourth quarter. Satellite Program Revenue: $7.7 million, 50% of total revenue, down from $12 million, 60% in the prior year. Non-Space US Government and DoD Revenue: $6.8 million, 44% of total revenue, up from 35% in the prior year. Other Commercial and Industrial Revenue: $908,000, slightly up from $890,000 in the prior year. Gross Margin (Adjusted): Approximately 36% for the quarter and 41% for the fiscal year. Operating Margin (Adjusted): Approximately 1% for the quarter and 11% for the fiscal year. Inventory Write-Down: $3.8 million due to Elcom restructuring. Future Tax Benefits: Over $9 million from restructuring. Warning! GuruFocus has detected 5 Warning Signs with FEIM. Is FEIM fairly valued? Test your thesis with our free DCF calculator. Release Date: July 15, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Frequency Electronics Inc (NASDAQ:FEIM) reported a record funded backlog of $111 million, providing strong visibility into future revenue. The company achieved the single biggest year of bookings in its history during fiscal 2026, indicating robust demand. FEIM is targeting a three-year revenue goal of at least $150 million, representing a 34% compound annual growth rate from fiscal 2026. The company is expanding into high-growth markets such as space defense and quantum sensing, with significant contract wins in these areas. FEIM has set ambitious margin targets, aiming for a minimum gross margin of 50% and an operating margin of 30% by fiscal 2029. Revenue for the fourth quarter decreased to $15.4 million from $19.9 million in the same period of the prior year, reflecting a challenging comparison. The company experienced near-term gross margin pressure due to pre-revenue investments and non-recurring charges. FEIM restructured its Elcom manufacturing business, resulting in a $3.8 million inventory write-down and additional severance costs. The transition from bespoke manufacturing to high-rate production presents operational challenges and requires significant internal adjustments. The closure of the Elcom business is expected to result in some revenue loss, although the company anticipates offsetting this with new growth opportunities. Q: How are the wars with Iran and Ukraine-Russia impacting demand for Frequency Electronics' precision timing clocks? A: Thomas Mcclelland, President and CEO, explained that these conflicts highlight the unreliability of GPS due to jamming and spoofing, expanding the market for precise atomic clocks. These clocks are crucial for timing in military applications when GPS is unavailable. Additionally, there's increased demand for missile battery hardware due to missile replenishment needs. Q: Regarding the $111 million backlog, how much is expected to convert to revenue in the current fiscal year, and what is the average gross margin? A: Thomas Mcclelland stated that the backlog is expected to be worked off over the next one to three years, with significant gross margin improvements anticipated during the fiscal year. Q: What are the biggest drivers of the backlog growth, and what will drive it in the next 6 to 12 months? A: Thomas Mcclelland highlighted that space-related activities, particularly lunar missions and large space programs, are major growth drivers. The company has a 90% win rate in space contracts, indicating strong positioning in this booming sector. Q: Can you clarify the timeline for achieving record revenue quarters? A: Steven Bernstein, CFO, confirmed that Frequency Electronics expects to achieve several record revenue quarters within fiscal 2027. Q: How is Frequency Electronics transitioning from bespoke to process-driven manufacturing, and are they ready for this shift? A: Thomas Mcclelland stated that the company is prepared for this transition, having worked hard on it during fiscal 2026. They plan to achieve this without significant facility expansion, focusing on executing within current facilities. For the complete transcript of the earnings call, please refer to the full earnings call transcript.