Earnings Transcript for FEIM - Q3 Fiscal Year 2023
Operator:
Greetings, and welcome to the Frequency Electronics Q3 Fiscal '23 Earnings Release Conference Call. [Operator Instructions] 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 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 release 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 turn the floor over to your host, Thomas McClelland, President and Chief Executive Officer.
Thomas McClelland :
Thank you. With the Q3 results, we began to see the impact of the cost-cutting efforts and management reorganization, which has taken place over the last 7 months. Revenue and gross margin have increased substantially quarter-over-quarter, and the company is reporting an operating profit for the third quarter not only for the consolidated company, but also for each segment individually. Many factors contributed to this. But I think importantly, we initiated an effort to recognize and promote talent within our existing workforce. To this end and with encouragement from our Board of Directors, we have established a broad-based equity incentive program that rewards individuals who meet key performance metrics and aligns employee performance with both customer satisfaction and shareholder interest. We see a market improvement in the overall morale of our workforce and have a sense that everyone is pulling together to achieve a common goal. FEI's backlog remains strong at quarter end, substantiating our confidence in the growth of our primary markets. Both commercial and government satellite businesses continue to show signs of sustained double-digit growth, going forward. At this time, we anticipate the imminent award of several significant contracts. Although we still are experiencing supply chain issues and the effects of inflation, we do see a definite easing of these problems. Continued vigilance is required to navigate the changing economic and geopolitical environment, but we're nonetheless confident that we're progressing in a positive direction and look forward to more improvement in results. The company is committed to moving towards sustained profitability and cash generation, going forward. I appreciate the Board of Directors support in naming me permanent President and CEO, and I believe the Board has taken meaningful steps to enhance the company's value for its shareholders, customers and employees and that our best days are ahead. We have truly unique technical and manufacturing capabilities, which are particularly well suited to the needs of the U.S. government and our other customers in the years ahead. At this point, I'd like to turn things over to our CFO, Steve Bernstein, who will fill you in on some details.
Steven Bernstein :
Thank you, Tom, and good afternoon. Before I go through the financial results, it's important to mention that even though we are not presenting FY '23 Q2, the company has made significant improvements from FY '23 Q2 compared to FY '23 Q3. Sales increased $1.6 million or 18.6%. Gross margin went from 3.9% to 32.6%, and operating profit loss went from a loss of $2.28 million to income of $325,000. These are substantial improvements, and we continue to strive to make changes to keep this trend continuing. The 3 months ended January 31, '23 consolidated revenue was $10.6 million compared to $12.2 million for the same period of the prior fiscal year. The components of revenue are as follows
Thomas McClelland :
Okay? At this point, we can open things up to Q&A.
Operator:
[Operator Instructions] We did have a question come from [Michael Eisner], Michael is a private investor.
Unidentified Analyst:
Great job there. Revenue increased a nice amount. A couple of questions. Even after the dividend, am I correct that you still gain like $3 million in cash after paying out like $10 million?
Steven Bernstein :
The actual cash went up about $1 million, but we don't have any marketable securities anymore.
Unidentified Analyst:
So it's up. All right. But it did go up $1 million?
Steven Bernstein :
Yes, a little over $1 million.
Unidentified Analyst:
Which is nice. All right.
Steven Bernstein :
Yes.
Unidentified Analyst:
Last time, you -- GPS IIIF, I think you completed the qualifications on -- delivered the engineering, and they would -- I think they were testing it?
Thomas McClelland :
Yes, that's almost correct. We completed the qualification. And we delivered a second unit, which has been installed in an experimental slot on one of the satellites that is slated to be launched in the near future. We don't know the exact schedule, but probably within the next 2 years, certainly maybe a lot sooner than that. So that's on target, and we are currently in the process of finishing what's called the live test unit, which eventually will go under long-term testing at Naval Research Laboratory.
Unidentified Analyst:
Okay. Was that -- one of your satellites, I think the GPS III, you were able to get one of your clocks on it? Not the IIIF, I thought...
Thomas McClelland :
You're actually right. It's not GPS IIIF. The one that I just talked about is one of the GPS III satellites, which is slated to be launched sometime in the relatively near future.
Unidentified Analyst:
Yes. All right. So that was good because you didn't think you're going to get on that.
Thomas McClelland :
Yes.
Unidentified Analyst:
All right. Are they -- are companies -- you mentioned that some of these big companies are buying more parts upfront. So if something goes wrong, they have the parts. Are they still doing that?
Thomas McClelland :
Well, I think that's a general strategy. We're still doing that to some extent. But we do see that holds the supply chain situation improving at this point. And so we're trying to be just as efficient as we can in terms of managing our inventory of parts.
Unidentified Analyst:
All right. Are there any more overruns or anything like that?
Thomas McClelland :
No, nothing. There's no new programs where we have any significant concerns regarding overruns.
Unidentified Analyst:
All right. And you kept your backlog about even from last quarter. And your book-to-bill ratio, I think Steve mentioned it, was it 1.7
Steven Bernstein :
Yes. It's now, for the year, 1.5
Unidentified Analyst:
1.5
Steven Bernstein :
Yes.
Unidentified Analyst:
For the year?
Steven Bernstein :
For the year.
Unidentified Analyst:
You mean the -- for the first 9 months?
Steven Bernstein :
Yes, that's correct.
Unidentified Analyst:
All right. I think last time you gave that number, you were 2.8
Steven Bernstein :
That was just that one quarter, yes.
Unidentified Analyst:
All right. But do you know what it was for the year at that time?
Steven Bernstein :
I don't have last quarter's number in front of me. No, but I can get it to you.
Unidentified Analyst:
Yes. But you're happy with the 1.5
Steven Bernstein :
Yes.
Unidentified Analyst:
All right. And several significant contracts you mentioned in the coming quarters, do you feel comfortable that they're going to have to come to you and buy them?
Thomas McClelland :
Yes, we do. We have seen in several cases, things have moved out from what we anticipated last quarter, but we -- believe me, we're monitoring this pretty closely, and we see no indication that any of these things won't happen. They move out a little. It's a pretty common thing in this business, but they're not going away. And there are some significant new things unanticipated even a quarter ago that we do anticipate coming in. Some of them actually within -- potentially within the next couple of weeks.
Unidentified Analyst:
When you say pushed out, you've been pushed to the right just...
Thomas McClelland :
Pushed to the right.
Unidentified Analyst:
Yes. And that was a time I always used -- all right. So you should keep your backlog up then to continue?
Thomas McClelland :
Yes.
Unidentified Analyst:
Are these -- can you comment which -- are they government? Are they -- what type of -- can you comment what type of contracts? Are they classified?
Thomas McClelland :
So most of our contracts aren't directly with the government. In fact, I don't think we anticipate any directly with the government. But in general, the government -- the U.S. government is the ultimate end customer. And I think the things we've -- we're talking about over the next year or so are mostly fit into that category.
Unidentified Analyst:
Yes, because everyone -- you may get stuff from all around or some place like that. These are all necessary contracts is where I'm getting.
Thomas McClelland :
Yes, I think you can say that.
Unidentified Analyst:
All right. I don't know -- if you can't comment on something, just say, we can't comment. All right. Thank you. Great job. Your revenues went up nicely.
Operator:
Thank you. And there are no other questions in queue at this time. I would now like to hand the call back over to Thomas McClelland for some closing remarks.
Thomas McClelland :
Okay. I think I'd just like to thank everybody that has participated in this call. And I'd like to make it clear that if there -- anybody has any remaining questions, please feel free to contact us, Frequency Electronics, by telephone at any time. We welcome your calls. Thank you for participating, and have a nice afternoon.
Operator:
Thank you. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.