FREQUENCY ELECTRONICS INC
For the period ended Jul 31, 2024. Filed Sep 13, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jul 31, 2024 · Filed Sep 13, 2024
FEIM$60.22+11.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-01-31; filed 2024-03-18.
0001185185-24-000269
Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-07-31; filed 2024-09-13.
0001185185-24-000882
Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 43 previous paragraphs and 39 current paragraphs.
20 unchanged; 13 reworded; 6 added; 8 removed; 2 previous and 0 current paragraphs rearranged.
Tables are not compared: 9 previous and 9 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (6)
Current report
For the three months ended July 31, 2024, gross margin (“GM”) increased and GM Rate increased compared to the same period in the prior fiscal year. The GM increased mainly due to increased revenue and the GM Rate increased due to revenue from newer programs with higher margins as older programs with lower margins are near completion. Additionally, during the three months ended July 31, 2024, there were a greater number of smaller jobs that were completed at higher margins, as compared to the prior fiscal year period.
Current report
Selling, general, and administrative (“SG&A”) expenses were approximately 19% of consolidated revenues for both the three months ended July 31, 2024 and 2023. The increase in SG&A expense during the three months ended July 31, 2024 was related to an increase in payroll related expenses.
Current report
Operating Income
Current report
For the three months ended July 31, 2024, operating income increased due to higher revenue and GM percentage, partially offset by higher R&D expenses.
Current report
For the three months ended July 31, 2024, the Company recorded an income tax provision of $132,930 which includes a discrete tax income expense of $5,355. The calculation of the overall income tax provision consists of current U.S. federal and state income taxes. For the three months ended July 31, 2023, the Company recorded an income tax provision of $6,894.
Current report
On July 22, 2024 the Company’s Board of Directors declared a special cash dividend of $1.00 per share of common stock. The special dividend was paid on August 29, 2024, to stockholders of record as of the close of business on August 8, 2024. The total amount of the special dividend payment was approximately $9.6 million.
Removed paragraphs (8)
Previous report
For the three months ended January 31, 2024, gross margin (“GM”) decreased and GM Rate decreased compared to the same period in the prior fiscal year. The GM dollars and the GM Rate decreased due to un-anticipated costs associated with fixed price and customer funded new product development. For the nine months ended January 31, 2024, GM and GM Rate increased compared to the same period in the prior fiscal year. Despite the issue noted above with respect to the new product development costs during the quarter ended January 31, 2024, the increase in GM and GM Rate during the nine months ended January 31, 2024 were due to the fact that many of the technical challenges faced in the prior fiscal year period have been resolved and, as a result, the related programs are now moving forward and running more efficiently. Previous programs that sustained lower margins due to technical issues are near completion, or have been completed.
Previous report
For the three months ended January 31, 2024 and 2023, selling, general, and administrative (“SG&A”) expenses were approximately 19% and 22%, respectively, of consolidated revenues. The percentage of consolidated revenue decreased 3% due to an increase in sales for the three months ended January 31, 2024 as compared to the three months ended January 31, 2023. Similarly, the absolute increase in SG&A expenses for the three months ended January 31, 2024, as compared to the prior year period, was driven by increased bid/proposal costs associated with the increased sales.
Previous report
For the nine months ended January 31, 2024 and 2023, SG&A expenses were approximately 19% and 23%, respectively, of consolidated revenues. The percentage of consolidated revenue decreased 4% due to an increase in sales for the nine months ended January 31, 2024 as compared to the nine months ended January 31, 2023. Similarly, the absolute increase in SG&A expenses for the nine months ended January 31, 2024 as compared to the prior year period was largely due to bid/proposal cost associated with increased sales and an increase in professional fees and payroll associated costs.
Previous report
Operating Income (Loss)
Previous report
For the three months ended January 31, 2024, operating income decreased due to the design issue relating to a new product development. For the nine months ended January 31, 2024, operating income increased despite the temporary design issue, due to a combination of increased revenue and GM, and the effects of certain cost cutting measures instituted by management that began in fiscal year 2023.
Previous report
For the three months ended January 31, 2024, the Company recorded an income tax provision of $6,000 primarily related to state income taxes and discrete income tax provision related to an accrual of interest for unrecognized tax benefits. For the three months ended January 31, 2023, the Company recorded an income tax provision of $3,000.
Previous report
For the nine months ended January 31, 2024, the Company recorded an income tax provision of $19,000 primarily related to state income taxes and discrete income tax provision related to an accrual of interest for unrecognized tax benefits. For the nine months ended January 31, 2023, the Company recorded an income tax provision of $6,000.
Previous report
The Inflation Reduction Act of 2022 (the “Act”) was signed into U.S. law on August 16, 2022. The Act includes various tax provisions, including an excise tax on stock repurchases, expanded tax credits for clean energy incentives, and a corporate alternative minimum tax that generally applies to U.S. corporations with average adjusted annual financial statement income over a three-year period in excess of $1 billion. The Company does not expect the Act to materially impact its consolidated financial statements.
Reworded paragraphs (13)
Previous wording
The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts and the valuation of inventory. Both of these areas require the Company to make use of reasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory and the market value of its products. Changes in estimates can have a material impact on the Company’s financial position and results of operations. The Company’s significant accounting policies did not change during the three and nine months ended January 31, 2024.
Current wording
The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts and the valuation of inventory. Both of these areas require the Company to make use of reasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory and the market value of its products. Changes in estimates can have a material impact on the Company’s financial position and results of operations. The Company’s significant accounting policies did not change during the three months ended July 31, 2024.
Previous wording
The table below sets forth for the three and nine months ended January 31, 2024 and 2023, respectively, the percentage of consolidated revenues represented by certain items in the Company’s condensed consolidated statements of operations or notes to the condensed consolidated financial statements:
Current wording
The table below sets forth for the three months ended July 31, 2024 and 2023, respectively, the percentage of consolidated revenues represented by certain items in the Company’s condensed consolidated statements of operations or notes to the condensed consolidated financial statements:
Previous wording
For the three months ended January 31, 2024, revenues from commercial and U.S. Government communication satellite programs accounted for approximately 50% of consolidated revenues compared to approximately 47% of consolidated revenues during this same period in the prior fiscal year. Revenues are recognized primarily over time under the percentage-of-completion (“POC”) method. Revenues from the satellite market are recorded in the FEI-NY segment. Revenues from non-space U.S. Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 44% of consolidated revenues for the three months ended January, 31, 2024 compared to approximately 47% of consolidated revenue during the same period in the prior fiscal year. Other commercial and industrial revenues for the three months ended January 31, 2024 accounted for approximately 7% of consolidated revenue compared to 6% in the same period of the prior fiscal year. The significant increase in revenue for this quarter, compared to the same quarter in the previous fiscal year, was reflected in both segments and primarily related to increases in government space of approximately $1.8 million in sales from space U.S. Government customers and approximately $1.0 million in sales from non-space U.S. government customers.
Current wording
For the three months ended July 31, 2024, revenues from commercial and U.S. Government communication satellite programs accounted for approximately 55% of consolidated revenues compared to approximately 39% of consolidated revenues during this same period in the prior fiscal year. Revenues are recognized primarily over time under the percentage-of-completion (“POC”) method. Revenues from the satellite market are recorded in the FEI-NY segment. Revenues from non-space U.S. Government/Department of Defense (“DOD”) customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 42% of consolidated revenues for the three months ended July, 31, 2024 compared to approximately 55% of consolidated revenue during the same period in the prior fiscal year. Other commercial and industrial revenues for the three months ended July 31, 2024 accounted for approximately 3% of consolidated revenue compared to 5% in the same period of the prior fiscal year. The significant increase in revenue for this quarter, compared to the same quarter in the previous fiscal year, was reflected in both segments and primarily related to an increase of approximately $3.4 million in sales from space U.S. Government customers, partially offset by a decrease of approximately $0.5 million in sales from non-space U.S. government customers.
Previous wording
Research and Development (“R&D”) expenditures represent investments intended to keep the Company’s products at the leading edge of time and frequency technology and enhance future competitiveness. The change in R&D expenditures for the three and nine months ended January 31, 2024, as compared to the prior year quarter, was primarily due to a temporary shift of R&D focus. The Company plans to continue to invest in R&D in the future to keep its products at the state of the art.
Current wording
Research and Development (“R&D”) expenditures represent investments intended to keep the Company’s products at the leading edge of time and frequency technology and enhance future competitiveness. The change in R&D expenditures for the three months ended July 31, 2024, as compared to the prior year quarter, was primarily due to a focus on advances and modernization of products. The Company plans to continue to invest in R&D in the future to keep its products at the state of the art, however we expect the actual quarterly spend to vary.
Previous wording
Other income (expense), net is derived from various sources. The income can come from reclaiming of metal, refunds, interest on deferred trust assets, or the sale of a fixed asset. Interest expense is related to the deferred compensation payments made to retired employees. The majority of the approximately $0.6 million of investment income for the three months ended January 31, 2024 was from the proceeds from a life insurance plan. The increase in investment income for the nine months ended January 31, 2024, likewise reflected the proceeds from this same life insurance plan.
Current wording
Other income (expense), net is derived from various sources. The income can come from reclaiming of metal, refunds, interest on deferred trust assets, or the sale of a fixed asset. Interest expense is related to the deferred compensation payments made to retired employees. The majority of the approximately $0.2 million of investment income for the three months ended July 31, 2024 was from unrealized gains on assets held in the Frequency Electronics, Inc. Deferred Compensation Trust .
Previous wording
The estimated annual effective tax rate for the fiscal year ending April 30, 2024 is 0.4%. This calculation reflects estimated income tax expense based on our current year annual pretax income forecast which is offset by the estimated change in the current year valuation allowance. The Company maintains a full valuation allowance against its deferred tax assets.
Current wording
The estimated annual effective tax rate for the fiscal year ending April 30, 2025 is 4.98%. This calculation reflects estimated income tax expense based on our current year annual pretax income forecast which is offset by the estimated change in the current year valuation allowance. The Company maintains a full valuation allowance against its deferred tax assets. It is reasonably possible the existing valuation allowance will be reduced within the next 12 months.
Previous wording
The effective tax rate for the three months ended January 31, 2024 was an income tax provision of 4.4% on pretax income of $0.1 million compared to an income tax provision of (1.1)% on pretax loss of $0.3 million in the comparable prior fiscal year period. The effective tax rate for the three months ended January 31, 2024 differs from the U.S. federal statutory rate of 21% primarily due to domestic losses for which the Company is not recognizing an income tax benefit.
Current wording
The effective tax rate for the three months ended July 31, 2024 was an income tax provision of 5.19% on pretax income of $2.6 million compared to an income tax provision of .3% on pretax income of $2.0 million in the comparable prior fiscal year period. The effective tax rate for the three months ended July 31, 2024 differs from the U.S. federal statutory rate of 21% primarily due to the valuation allowance, permanent differences, a change in the uncertain tax position liability and state income taxes.
Previous wording
The Company’s consolidated balance sheets continue to reflect a strong working capital position of approximately $24.1 million at January 31, 2024 and $21.0 million at April 30, 2023. Included in working capital at January 31, 2024 and April 30, 2023 was $11.7 million and $12.0 million, respectively, of cash and cash equivalents. The Company’s current ratio was 1.9 to 1 at January 31, 2024 compared to 1.8 to 1 as of April 30, 2023.
Current wording
The Company’s consolidated balance sheets continue to reflect a strong working capital position of approximately $20.5 million at July 31, 2024 and $27.3 million at April 30, 2024. Included in working capital at July 31, 2024 and April 30, 2024 was $16.2 million and $18.3 million, respectively, of cash and cash equivalents. The Company’s current ratio was 1.5 to 1 at July 31, 2024 compared to 1.9 to 1 as of April 30, 2024.
Previous wording
Net cash provided by operating activities for the nine months ended January 31, 2024 and 2023 was approximately $1.2 million and $1.9 million, respectively. The decrease in net cash provided by operating activities in the first nine months of fiscal 2024 as compared to the prior fiscal year period was mainly due to operating income, offset by an increase in inventories. For the nine months ended January 31, 2024 and 2023, the Company incurred approximately $3.1 million and $2.7 million, respectively, of non-cash operating expenses including amortization of ROU assets, depreciation and amortization, inventory net realizable value adjustments, deferred compensation, and accruals for employee benefit programs.
Current wording
Net cash used in operating activities for the three months ended July 31, 2024 and 2023 was approximately $1.5 million and $2.8 million, respectively. The decrease in net cash used in operating activities in the first three months of fiscal 2025 as compared to the prior fiscal year period was mainly due to increase in inventories partially offset by increased operating income. For the three months ended July 31, 2024 and 2023, the Company incurred approximately $1.3 million and $1.5 million, respectively, of non-cash operating expenses including amortization of ROU assets, depreciation and amortization, inventory net realizable value adjustments, deferred compensation, and accruals for employee benefit programs.
Previous wording
Net cash used in investing activities for the nine months ended January 31, 2024 was approximately $0.7 million compared to net cash provided by investing activities of approximately $8.7 million for the nine months ended January 31, 2023. During the nine months ended January 31, 2024, no marketable securities were sold or redeemed compared to $11.0 million for the same period of fiscal year 2023. During the nine months ended January 31, 2024, no marketable securities were purchased compared to $1.4 million for the same period of fiscal year 2023. The Company acquired property, plant, and equipment in the amount of approximately $0.7 million and $0.9 million for the nine month periods ended January 31, 2024 and 2023, respectively.
Current wording
Net cash used in investing activities for the three months ended July 31, 2024 was approximately $0.3 million compared to net cash provided by investing activities of approximately $0.2 million for the three months ended July 31, 2023. The Company acquired property, plant, and equipment in the amount of approximately $0.3 million and $0.2 million for the three month periods ended July 31, 2024 and 2023, respectively.
Previous wording
There were no financing activities for the nine months ended January 31, 2024. Net cash used in financing activities for the nine months ended January 31, 2023 was approximately $9.4 million related to a dividend payout.
Current wording
There were no financing activities for the three months ended July 31, 2024 or the three months ended July 31, 2023.
Previous wording
The Company has been authorized by its Board of Directors to repurchase up to $5.0 million worth of shares of its common stock when appropriate opportunities arise. As of January 31, 2024, the Company has repurchased approximately $4.0 million of its common stock out of the $5 million authorization, the majority of which has since been reissued. For the nine months ended January 31, 2024 and 2023, there were no repurchases of shares.
Current wording
The Company has been authorized by its Board of Directors to repurchase up to $5.0 million worth of shares of its common stock when appropriate opportunities arise. On July 31, 2024, the Company repurchased 4,569 shares of outstanding common stock at $13.60 per share. As of July 31, 2024, the Company has repurchased approximately $4.0 million of its common stock out of the $5 million authorization, the majority of which has since been reissued. For the three months ended July 31, 2023, there were no repurchases of shares.
Previous wording
As of January 31, 2024, the Company’s consolidated funded backlog was approximately $67 million compared to $57 million at April 30, 2023, the end of fiscal year 2023. Approximately 74% of this backlog is expected to be realized in the next twelve months. The Company excludes from backlog any contracts or awards for which it has not received authorization to proceed. On fixed price contracts, the Company excludes any unfunded portion. Over time, as partially funded contracts become fully funded, the Company will add the additional funding to its backlog. The backlog is subject to change for various reasons, including possible cancellation of orders, change orders, terms of the contracts and other factors beyond the Company’s control. Accordingly, the backlog is not necessarily indicative of future revenues or profits (losses) which may be realized when the results of such contracts are reported.
Current wording
As of July 31, 2024, the Company’s consolidated funded backlog was approximately $70 million compared to approximately $78 million at April 30, 2024. Approximately 65% of the backlog, as of July 31, 2024, is expected to be realized in the next twelve months. The Company excludes from backlog any contracts or awards for which it has not received authorization to proceed. On fixed price contracts, the Company excludes any unfunded portion. Over time, as partially funded contracts become fully funded, the Company will add the additional funding to its backlog. The backlog is subject to change for various reasons, including possible cancellation of orders, change orders, terms of the contracts and other factors beyond the Company’s control. Accordingly, the backlog is not necessarily indicative of future revenues or profits (losses) which may be realized when the results of such contracts are reported.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
For the nine months ended January 31, 2024, revenues from commercial and U.S. Government communication satellite programs accounted for approximately 41% of consolidated revenues compared to approximately 46% of consolidated revenues during this same period in the prior fiscal year. Revenues are recognized primarily over time under the POC method. Revenues from the satellite market are recorded in the FEI-NY segment. Revenues from non-space U.S. Government/DOD customers, which are recorded in both the FEI-NY and FEI-Zyfer segments, accounted for approximately 53% of consolidated revenues for the nine months ended January, 31, 2024 compared to approximately 47% of consolidated revenue during the same period in the prior fiscal year. Other commercial and industrial revenues for the nine months ended January 31, 2024 accounted for approximately 6% of consolidated revenue compared to 7% in the same period of the prior fiscal year. The significant increase in revenue for this period, compared to the same period in the previous fiscal year, was reflected in both segments and primarily related to contract awards from prior periods that have moved into production.
Previous report — wording carried elsewhere
The effective tax rate for the nine months ended January 31, 2024 was an income tax provision of 0.6% on pretax income of $3.0 million compared to an income tax provision of (0.1)% on pretax loss of $5.7 million in the comparable prior fiscal year period. The effective tax rate for the nine months ended January 31, 2024 differs from the U.S. federal statutory rate of 21% primarily due to domestic losses for which the Company is not recognizing an income tax benefit.