Frequency Electronics, Inc. (FEIM)

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Frequency Electronics, Inc. (FEIM)

F1Q09 Earnings Call

September 15, 2008 2:00 pm ET

Executives

Joseph P. Franklin - Chairman

Martin B. Bloch - President, Chief Executive Officer, Director

Alan Miller - Chief Financial Officer, Treasurer

Analysts

[Sam Bergman - Mayberry Asset Management]

[Robert Smith - Center for Performance Investing]

[Sam Robowsky - SER Asset Management]

[David Starkey - Smith Barney]

David Shapiro - Aegis Financial

[Robert Lepperd]

Larry Litton - Second Line Capital

Presentation

Operator

Welcome to the Frequency Electronics, Inc. fiscal 2009 first quarter earnings call. (Operator Instructions)

Statements in this release which are not historical facts are forward looking and involve risks and uncertainties including but not limited to the impact of competitive products and pricing, increased investment to support product introductions, market acceptance of products, product transitions by the company and its competitors, currency fluctuations, changes in product sales mix and other risks described in the company’s registration statement and other Securities and Exchange Commission filings.

At this time for opening comments and introductions, I’ll turn the call over to General Joseph Franklin, Chairman of the Board.

Joseph P. Franklin

We’re pleased to be able to present this to you this afternoon. I regret that I’ve had to miss our last conference call a time or two. I’ve been speaking to a lot of other audiences actually on the future of our national defense. And as you know, national defense is of central importance to us here at Frequency Electronics. We have a long and rewarding history in that arena. We’ll be doing even more of that as we move ahead. So let me turn to our latest quarterly report for the first quarter of fiscal 2009 to discuss that.

I reported to you that we made “hard progress” during this last quarter and that ended on 31 July. What that means is that we’ve been changing our business procedures, our engineering and our manufacturing from what I could say colloquially were our old ways, and they were good ways for the smaller volumes of our business but not for the large volumes that we’re ramping up to. We’ve been doing this now for some time while we were still meeting the commitments of our existing contracts. It’s somewhat akin to trying to change the engines of an airplane while you’re still in a flight pattern. But as a result of that in the ramping up and the improving, we’re just about there. The expenses are now largely behind us and we see continuing improvements as we go forward.

What I’d like to do now is introduce our two other participants Alan Miller, who’s our Chief Financial Officer, and Martin Bloch, our Chief Executive Officer. They’ll go ahead with discussions of the finances and operations, and then we’ll have a period for questions and answers. So Alan, please go ahead.

Alan Miller

Revenues for the first quarter of fiscal year 2009 were $13.1 million compared to $15.6 million in the year ago period. As we noted in July our first quarter revenues were impacted by the lower level of new satellite bookings during fiscal year 2008. First quarter satellite payload revenues were comparable to the fourth quarter of fiscal 08 and make up over 30% of total revenues. Telecommunication infrastructure revenue was comparable to the year ago quarter and comprises about 40% of revenues. Non-space government and DOD revenues were slightly lower year-over-year and make up approximately 20% of total revenues.

Our cost of sales for the period were $9.9 million compared to $11.1 million a year ago, which yields a gross margin of $3.2 million or 24% as compared to $4.5 million a year ago or 29%. The gross margin rate of 24% still represents a sequential improvement from the 16% rate in the fourth quarter of last year. As we noted previously higher engineering and manufacturing costs and a few satellite programs kept margins at this lower-than-targeted level. We will complete these programs during the second quarter of this year and expect to see improved gross margins over the balance of fiscal 2009.

SG&A of $3.1 million is comparable to the prior year and is also 15% lower than the expense reported in the fourth quarter of fiscal 2008. R&D spending was $1.4 million compared to $2.2 million a year ago. During the fiscal 2008 period we were still spending considerable research and development resources on improved designs for satellite payloads. That effort was largely completed last year; hence the lower level of R&D spending in fiscal 2009. Note also that the new cost-plus programs that we have won involve a high degree of development but this effort will be funded by our customers. Consequently we anticipate the internal research and development spending will be lower than in prior years and expect it to be less than 10% of revenues going forward.

Our operating loss for the quarter was $1.3 million compared to an $800,000 loss last year. Sequentially this first quarter loss is substantially less than the $3 million loss realized in the fourth quarter last year. Other income comprising of investment income and other expenses was $200,000 compared to $3 million a year ago. Last year you may recall that a reduction on Morion investment resulted in the $3 million pre-tax gain. Our net loss for the quarter was $772,000 and $0.09 a share as compared to $1.4 million net income or $0.16 per share again as a result of the gain on the morion investment.

Read the rest of this transcript for free on seekingalpha.com