Frequency Electronics, Inc. (NASDAQ:FEIM) reported revenues for the
third quarter of fiscal 2018, which ended January 31, 2018, of
$10.6 million as compared to $11.4 million in the same quarter of
fiscal 2017. Revenues for the first nine months of fiscal
2018 were $31.9 million compared to $34.4 million recorded in the
same period of the prior year.
The Company recorded an operating loss of $7.3
million for the quarter ended January 31, 2018, compared to an
operating loss of $904,000 in the third quarter of fiscal
2017. Operating loss for the first nine months of fiscal year
2018 was $9.0 million compared to an operating loss of $2.5 million
in the first nine months of fiscal year 2017. For the nine months
ended January 31, 2018 the Company incurred approximately $8.3
million of non-cash charges compared to $3.8 million of non-cash
charges in the same period of the previous fiscal year.
Net loss for the third quarter of fiscal 2018
was $10.4 million or ($1.15) per diluted share compared to net
income of $338,000 or $0.04 per diluted share for the third quarter
of the prior year. Included in the $10.4 million loss are
miscellaneous charges of approximately $300,000 and a non-cash
charge for additional inventory write-down, reflected in cost of
goods sold for the quarter, of $5.0 million. Also, reductions in
tax rates associated with the recent tax law change reduced the
valuation of FEI’s previously booked deferred tax asset by $5
million, which resulted in an approximately $5 million (non-cash)
charge. This was offset by a $2.2 million tax benefit (tax
reduction) resulting from the operating loss in the quarter, for a
net tax related change of $2.8 million. For the year to date, net
loss was $11.3 million or ($1.20) per diluted share, compared to
$1.4 million or ($0.09) per diluted share for the same period of
the prior year.
Commenting on these results and the business
outlook, Chairman of the Board Joel Girsky said:
“While the last three and nine months results continued to be
impacted by previously discussed delays in satellite related
orders, change is underway at FEI. We expect over $50 million
of new satellite related contract awards this current 2018 calendar
year, compared to under $3 million of such awards for all of
calendar 2017. We anticipate an imminent award of a
particular contract that would be significant not only in terms of
financial value, but also would result in the development of a key
new timing technology which will be broadly applicable for future
space and terrestrial systems. Despite the challenging
environment, FEI generated positive cash flow from operations for
the last three and nine-month periods.
The tax asset write-down is the result of the new income tax
regulation of December 2017. The inventory write-down is
primarily due to recent government mandates which impose age limits
on the use of certain space qualified parts and recent
technological advances in our designs which limited the utility of
some of our existing parts inventory.
FEI CEO, Martin Bloch, commented: “In addition to being at an
inflection point in the satellite business, I am particularly
encouraged by the number of opportunities we see in our US
Government/DOD non-space market, including secure
communication/command and control and electronic warfare
applications where our advanced technology provides critical
performance advantages. We are pursuing a number of these
opportunities presently.”
Stanton Sloane, FEI’s COO, added: “I am pleased with the
progress we have made in restructuring manufacturing and inventory
control, and am very excited about the new technologies we will be
developing on the upcoming contracts. These will move us into a new
era of frequency and timing standards.”
Fiscal 2018 Selected Financial
Metrics and Other Items:
- For the nine months ended January
31, 2018, satellite payload revenues both US Government/DOD and
Commercial were $11.4 million and accounted for approximately 36%
of consolidated revenues compared to $16.8 million and 49% of
consolidated revenues for the same prior year period, a $5.4
million decline, principally in commercial communication
satellites.
- For the nine months ended January
31, 2018, sales for U.S. Government/DOD, non-space end use were
$13.9 million and accounted for approximately 44% of consolidated
revenues compared to $12.9 million and 37% of revenues for the same
period last year.
- For the nine months ended January
31, 2018, sales for other commercial and industrial applications
were $6.6 million comparable to the $4.8 million for the same
period last year.
- Gross margin rate for the nine
months ended January 31, 2018 decreased to 12.1% as compared to
31.4% during the nine months of the same period last year. The
gross margin and gross margin rate decrease is primarily due to a
$5.0 million inventory write-down. Absent the inventory write down,
the gross margin would be 28%. The inventory write-down was
taken in anticipation of the enforcement of recent mandates by
European and U.S. space governing agencies restricting, except for
limited exceptions the use of older space qualified
materials. In addition, the Company anticipates the rate of
use of other identified legacy space parts will decline due to
obsolescence and evolution of current designs which require reduced
size and weight as well as lower power consumption.
- Research and development expense
for the nine months and three months ended January 31, 2018 was
$5.1 million and $1.7 million compared to $4.8 million and $1.3
million respectively during the same period in the prior year. In
response to new business opportunities and satellite payload
systems innovation which requires technology development, FEI has
increased its investments in R&D to ensure competitiveness for
anticipated industry requirements.
- Cash provided by operations for the
nine months ended January 31, 2018 was $2.8 million compared to
$1.5 million in the comparable fiscal year 2017 period. The
increase in cash for the fiscal year 2018 period resulted primarily
from an increase in accounts receivable collections, compared to
the balances as of the end of the previous fiscal year.
- Liquidity remained at high levels
with $58 million of working capital at January 31, 2018. Cash
increased to $13.2 million at the end of the period compared to $10
million at the beginning of the fiscal year.
- Funded backlog at January 31, 2018
was $16 million compared to $28 million at year end of the prior
fiscal year. The Company anticipates a significant increase in
bookings during the balance of the current and ensuing fiscal
year.
Investor Conference Call
As previously announced, the Company will hold a
conference call to discuss these results on Thursday, March 15,
2018, 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 June 15, 2018. The archived call may also be
retrieved at 1-877-481-4010 (domestic) or 1-919-882-2331
(international) using Conference ID #: 13677685.
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 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: Gillam-FEI provides
expertise in network synchronization and monitoring; FEI-Zyfer
provides GPS and secure timing ("SAASM") capabilities for critical
military and commercial applications; FEI-Asia provides cost
effective manufacturing capabilities; FEI-Elcom Tech provides added
resources for state-of-the-art RF microwave products.
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.
Contact information: Martin B. Bloch, President and CEO:
TELEPHONE: (516)
794-4500
WEBSITE: www.frequencyelectronics.com
Frequency Electronics, Inc. and
SubsidiariesCondensed Consolidated Statement of
Operations(in thousands except per share
data)
|
|
Nine Months endedJanuary 31, |
|
|
Quarter EndedJanuary 31, |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
Revenues |
$ |
31,932 |
|
$ |
34,411 |
|
$ |
10,572 |
|
$ |
11,383 |
|
Cost of Revenues |
|
28,060 |
|
|
23,590 |
|
|
13,424 |
|
|
8,116 |
|
Gross
Margin |
|
3,872 |
|
|
10,821 |
|
|
(2,852 |
) |
|
3,267 |
|
Selling and
Administrative |
|
7,796 |
|
|
8,483 |
|
|
2,749 |
|
|
2,834 |
|
Research and
Development |
|
5,071 |
|
|
4,832 |
|
|
1,708 |
|
|
1,337 |
|
Operating
Loss |
|
(8,995 |
) |
|
(2,494 |
) |
|
(7,309 |
) |
|
(904 |
) |
Interest and Other,
Net |
|
1,179 |
|
|
309 |
|
|
50 |
|
|
96 |
|
Loss before Income
Taxes |
|
(7,816 |
) |
|
(2,185 |
) |
|
(7,259 |
) |
|
(808 |
) |
Provision (benefit) for
income taxes |
|
2,750 |
|
|
(1,392 |
) |
|
2,848 |
|
|
(1,188 |
) |
Net (Loss) Income from
Continuing Operations |
|
(10,566 |
) |
|
(793 |
) |
|
(10,107 |
) |
|
380 |
|
Loss from Discontinued
Operations, net of tax |
|
(697 |
) |
|
(599 |
) |
|
(289 |
) |
|
(42 |
) |
Net
(Loss) Income |
$ |
(11,263 |
) |
$ |
(1,392 |
) |
$ |
(10,396 |
) |
$ |
338 |
|
|
|
|
|
|
Basic
and Diluted Net (Loss) Income per Share: |
|
|
|
|
(Loss)
Income from Continued Operations |
$ |
(1.20 |
) |
$ |
(0.09 |
) |
$ |
(1.15 |
) |
$ |
0.04 |
|
(Loss)
Income from Discontinued Operations |
$ |
(0.07 |
) |
$ |
(0.07 |
) |
$ |
(0.03 |
) |
$ |
0.00 |
|
(Loss)
Income per Share |
$ |
(1.27 |
) |
$ |
(0.16 |
) |
$ |
(1.18 |
) |
$ |
0.04 |
|
Average Shares
Outstanding |
|
|
|
|
Basic |
|
8,836 |
|
|
8,780 |
|
|
8,846 |
|
|
8,797 |
|
Diluted |
|
8,836 |
|
|
8,780 |
|
|
8,846 |
|
|
8,980 |
|
Frequency Electronics, Inc. and
SubsidiariesCondensed Consolidated Balance
Sheets
|
|
January 31,2018 |
|
|
April 30,2017 |
|
|
(unaudited) |
|
|
(audited) |
|
|
(in thousands) |
ASSETS |
|
|
|
|
|
Cash
& Marketable Securities |
$ |
13,224 |
|
$ |
9,978 |
Accounts Receivable |
|
7,835 |
|
|
10,986 |
Costs
and Estimated Earnings |
|
|
in Excess of Billings, net |
|
4,122 |
|
|
7,964 |
Inventories |
|
25,899 |
|
|
29,051 |
Other
Current Assets |
|
3,253 |
|
|
3,711 |
Current Assets Held for Sale |
|
8,477 |
|
|
8,165 |
Property, Plant & Equipment |
|
13,868 |
|
|
14,813 |
Other
Assets |
|
27,132 |
|
|
28,082 |
Non-Current Assets Held for Sale |
|
531 |
|
|
569 |
|
$ |
104,341 |
|
$ |
113,319 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current Liabilities |
$ |
6,792 |
|
$ |
5,862 |
Current Liabilities Held for Sale |
|
2,121 |
|
|
2,249 |
Other
Long-term Obligations |
|
14,982 |
|
|
14,661 |
Non-Current Liabilities Held for Sale |
|
1,795 |
|
|
1,215 |
Stockholders’ Equity |
|
78,651 |
|
|
89,332 |
|
$ |
104,341 |
|
$ |
113,319 |
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