Frequency Electronics, Inc. (NASDAQ:FEIM) reported revenues of
$50.3 million for fiscal 2017, which ended April 30, 2017, compared
to revenues of $55.4 million for fiscal 2016. Operating loss
for fiscal 2017 was $7.5 million compared to operating profit of
$2.5 million for fiscal 2016. Net loss for fiscal 2017 was
$4.8 million or ($0.55) per diluted share compared to net income of
$1.0 million or $0.11 per diluted share for fiscal 2016. Fiscal
2017 results include the effects of $4.9 million of one-time
non-cash charges related to the Company’s previously reported phase
out from its wire-line network infrastructure business.
It is no secret that the satellite industry has
been facing stiff headwinds. As a result, various levels of
the supply chain have suffered and remain challenged today.
Over the past two years our major customers have seen certain parts
of their satellite business decline by half. Some of this
decline is cyclical in nature, while a portion is driven by
technological innovation that, while ultimately of benefit to FEI,
in the near term is merely a contributor to further delays in
revenue. FEI’s satellite payload business has encountered
negatively impacted revenue and bookings in the most recent
quarters, however, we have taken aggressive action internally to
mitigate the financial impact of the end market weakness while
positioning the Company to maximize value in the future.
Moreover, our most recent results in FEI-NY are not indicative of
the going forward potential of that business area and do not tell
the whole story of Frequency Electronics.
Our largest customers in FEI’s satellite
business still indicate an improving outlook for the balance of
calendar 2017 and into 2018, suggesting a potential for an upturn
in contract awards that would manifest in accelerating bookings and
revenue for FEI.
Additionally, this past year, FEI-Zyfer achieved
strong revenue growth of over 20% driven by traction in our secure
communications business, a key driver of the future value of
Frequency as a whole. As we have articulated in the past, the
addressable opportunity in secure communications is vast and
dovetails well with our engineering capabilities and proven
expertise in GPS applications. FEI’s expertise in precision time
technology is key to success in this market.
We believe the long-term prospects of Frequency
Electronics are bright. We are optimistic that the cyclical
downturn in the satellite payload business has run its course and
that FEI will begin to reap more than its fair share of the overdue
recovery. Secure communications will prove to be a forceful
driver of future revenue and profitability for the Company.
With that said we are not standing idly by and
waiting for business to walk in the door. Management has
taken and will continue to take aggressive action to best position
the company to maximize value for our shareholders. As
detailed below, we have initiated certain actions internally to
optimize the operations and the balance sheet assets.
Internal Restructuring
Initiatives
InventoryIn the most recent quarter we took the
following actions to better position FEI for future value
creation—
- $4.9 million of inventory reserves at FEI-Zyfer
related to the Company’s phase out of the wire-line, predominately
copper, network infrastructure business area and the intended sale
of its Gillam-FEI (“Gillam”) subsidiary.
- $2 million of inventory reserves at FEI-NY
The above reserves have been recorded in cost of
goods sold.
GillamAs previously announced, we are actively
working to effect a sale of FEI’s Gillam subsidiary to an external
buyer. Gillam is being reported as a “held for sale/
discontinued operation”. The Company anticipates concluding
the disposition of its interest in Gillam by the end of this fiscal
2018.
The results of Gillam for fiscal years ended
April 30, 2017 and 2016, are presented as discontinued operations
herewith and in our Consolidated Balance Sheets and Consolidated
Statements of Operations and Comprehensive (Loss) Income included
in the Company’s 10-K to be filed for fiscal 2017.
FEI-ElcomWe are working to consolidate certain
of FEI-Elcom’s capabilities with other FEI-NY operations in an
effort to reduce costs and improve working capital
management. This should have the collateral benefit of
providing engineering efficiencies and better customer
coverage.
FEI-NY Cost Reduction & Inventory Management
InitiativesWe continue to right-size the FEI-NY subsidiary in
response to the end market weakness while at the same time best
positioning FEI to capture the eventual recovery in business.
Although these actions include headcount reductions, we have taken
steps to ensure that these reductions will have no effect on the
Company’s ability to provide on time delivery for present
contractual obligations and to fully achieve its internal research
and development objectives. We are also in the process of
implementing a variety of improved operating disciplines designed
to optimize the organization and better position the Company to
generate larger margins and enhanced inventory turns when our
satellite end markets recover.
The above initiatives are beginning to take
effect at this time and will continue to roll out during the
balance of the current and next fiscal year. Cost reductions
already put in place during this past year permitted the Company to
generate positive cash flow from operations for fiscal 2017 despite
the large cyclical decline in satellite business. While it is
difficult to provide a precise estimate due to the variability of
the revenue line, we are targeting over $5 million of additional
cost reductions during fiscal 2018.
Fiscal 2017 Selected Financial Metrics
and Other Items:
- Net positive cash flow from operations increased to $3.5
million in fiscal 2017 compared to $2.8 million in the prior
year.
- For the year ended April 30, 2017, revenues from satellite
payloads were approximately 45% of consolidated revenues compared
to 60% for the prior year. Fiscal 2017 revenues from satellite
programs, the Company’s largest business area, decreased by $10.5
million, or 32%, compared to the prior fiscal year. This
decrease is in line with the protracted industry wide slowdown in
commercial communications satellite procurement, and reflects
reductions in orders received from satellite service providers by
the Company’s major customers.
- Sales revenues from non-space U.S. Government/DOD customers
increased by approximately $3.8 million or 24% compared to prior
fiscal year. These revenues accounted for approximately 38% and 28%
of consolidated revenues for fiscal years 2017, and 2016,
respectively.
- For the year ended April 30, 2017, other commercial and
industrial sales, accounted for approximately 17% of consolidated
revenues compared to approximately 12% for fiscal year 2016.
Sales in this business area were $8.6 million for the year ended
April 30, 2017 compared to $6.9 million for the preceding
year.
- Total sales for U.S. Government/DOD end-use, including revenues
on U.S. Government satellite programs, were approximately 59% of
consolidated revenues in fiscal 2017 compared to 65% in fiscal year
2016.
Investor Conference Call
As previously announced, the Company will hold a
conference call to discuss these results on Thursday, July 27,
2017, at 4:30 PM Eastern Time. Investors and analysts may
access the call by dialing 1-877-407-9205. International
callers may dial 1-201-689-8054. Ask for the Frequency
Electronics conference call.
The call will be archived on the Company’s
website through October 27, 2017. The archived call may also
be retrieved at 1-877-481-4010 (domestic), or 1-919-882-2331
(international), using Conference ID #13667787
About Frequency Electronics
Frequency Electronics, Inc. is a world leader in
the design, development and manufacture of high precision timing,
frequency control and synchronization products for space and
terrestrial applications. Frequency’s products are used in
satellite payloads and in other commercial, government and military
systems including C4ISR and EW markets, missiles, UAVs, aircraft,
GPS, secure radios, energy exploration and wireline and wireless
communication networks. Frequency 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
and strategic acquisitions world-wide to expand its capabilities
and markets.
Frequency’s Mission Statement: “Our mission is
to provide precision time and low phase noise frequency generation
systems from 1 Hz to 46 GHz, for space and other challenging
environments.”
Subsidiaries and Affiliates: FEI-Zyfer provides
GPS and secure timing ("SAASM") capabilities for critical military
and commercial applications; FEI-Elcom Tech provides sub-systems
for the Electronic Warfare (“EW”) and added resources for
state-of-the-art RF microwave products, FEI-Asia provides cost
effective manufacturing capabilities. Frequency's Morion
affiliate supplies high-quality, cost effective oscillators and
components. Additional information is available on the
Company’s website: www.frequencyelectronics.com
Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995:
The Statements in this press release regarding
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, inability to integrate operations and personnel,
actions by significant customers or competitors, general domestic
and international economic conditions, consumer spending trends,
reliance on key customers, 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, competitive developments,
changes in manufacturing and transportation costs, the availability
of capital, and other risks 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 release.
Frequency Electronics, Inc. and
Subsidiaries |
Condensed Consolidated Statements of
Operations |
|
|
|
|
|
|
|
|
|
Year Ended April 30, |
|
|
|
2017 |
|
|
2016 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(in thousands except per share data) |
|
Revenues |
$ |
50,351 |
|
$ |
55,416 |
|
Cost of
Revenues |
|
39,102 |
|
|
36,141 |
|
Gross
Margin |
|
11,249 |
|
|
19,275 |
|
Selling
and Administrative |
|
11,898 |
|
|
11,379 |
|
Research
and Development |
|
6,876 |
|
|
5,428 |
|
Operating (Loss) Profit |
|
(7,525 |
) |
|
2,468 |
|
Interest
and Other, Net |
|
486 |
|
|
806 |
|
(Loss)Income before Income Taxes |
|
(7,039 |
) |
|
3,274 |
|
Income
Tax (Benefit) Provision |
|
(2,115 |
) |
|
1,070 |
|
Net
(Loss) Income from continuing operations |
|
(4,924 |
) |
|
2,204 |
|
Income
(Loss) from discontinued operations, net of tax |
|
103 |
|
|
(1,199 |
) |
Net
(Loss) Income |
$ |
(4,821 |
) |
$ |
1,005 |
|
|
|
|
|
|
|
|
Net
(loss) Income per Share: |
|
|
|
|
|
|
Basic
(loss) earnings from continued operations |
$ |
(0.56 |
) |
$ |
0.25 |
|
Basic
earnings (loss) from discontinuedoperations |
$ |
0.01 |
|
$ |
(0.13 |
) |
Basic
(loss) earnings per share |
$ |
(0.55 |
) |
$ |
0.12 |
|
Diluted
(loss) earnings from continued operations |
$ |
(0.56 |
) |
$ |
0.24 |
|
Diluted
earnings (loss) from discontinued operations |
$ |
0.01 |
|
$ |
(0.13 |
) |
Diluted
(loss) earnings per share |
$ |
(0.55 |
) |
$ |
0.11 |
|
Average
Shares Outstanding |
|
|
|
|
|
|
Basic |
|
8,787 |
|
|
8,728 |
|
Diluted |
|
8,787 |
|
|
8,937 |
|
Frequency Electronics, Inc. and
Subsidiaries |
Condensed Consolidated Balance
Sheets |
|
|
|
|
|
|
|
|
April 30, 2017 |
|
|
April 30,2016 |
|
|
(unaudited) |
|
|
(unaudited) |
|
(in thousands) |
ASSETS |
|
|
|
|
|
Cash
& Marketable Securities |
$ |
9,978 |
|
$ |
16,929 |
Accounts Receivable |
|
10,986 |
|
|
7,166 |
Costs
and Estimated Earnings |
|
|
in Excess
of Billings, net |
|
7,964 |
|
|
12,377 |
Inventories |
|
29,051 |
|
|
36,280 |
Other
Current Assets |
|
3,711 |
|
|
4,272 |
Current Assets Held for Sale |
|
8,165 |
|
|
8,838 |
Property, Plant & Equipment |
|
14,813 |
|
|
12,314 |
Other
Assets |
|
28,082 |
|
|
23,229 |
Non-Current Assets Held for Sale |
|
569 |
|
|
772 |
|
$ |
113,319 |
|
$ |
122,177 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
Current Liabilities |
$ |
5,862 |
|
$ |
7,644 |
Current Liabilities Held for Sale |
|
2,249 |
|
|
2,664 |
Long-term Debt |
|
- |
|
|
6,000 |
Other
Long-term Obligations |
|
14,661 |
|
|
11,876 |
Non-Current Liabilities Held for Sale |
|
1,215 |
|
|
641 |
Stockholders’ Equity |
|
89,332 |
|
|
93,352 |
|
$ |
113,319 |
|
$ |
122,177 |
Contact information: Martin Bloch, President, Chief Executive Officer:
TELEPHONE: (516) 794-4500
WEBSITE: www.frequencyelectronics.com
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