Frequency Electronics Inc. (NASDAQ:FEIM) Q2 2018 Earnings Conference Call - Final Transcript

Jul 25, 2018 • 04:30 pm ET

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Frequency Electronics Inc. (NASDAQ:FEIM) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Greetings, and welcome to the Frequency Electronics Year-End 2018 Earnings Release Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

(Forward-Looking Cautionary Statements)

It is now my pleasure to introduce your host, Martin Bloch, Executive Chairman of the Board of Frequency Electronics. Please go ahead, sir.

Executive
Martin Bloch

Thank you. Welcome, everybody. I have with me, Steve Bernstein and Stan Sloane. And I will first turn over the agenda to Steve Bernstein to give us the financial highlights for fiscal 2018. Steve, please proceed.

Executive
Steven Bernstein

Thank you, Martin. Good afternoon. In our 2018 10-K and financial reports, the results of Gillam-FEI for fiscal years ending April 30, 2018 and 2017 are presented as discontinued operations. Unless otherwise stated, financial results discussed in this call refer to continuing operations. Fiscal 2018 revenues were 39.4 million compared to 50.4 million in the previous fiscal year, a decline of 11 million over the same period of fiscal 2017, which was largely due to the reduced revenue from commercial and US Government satellite programs.

Revenues from the satellite market are recorded in the FEI-New York segment and represents approximately 36% of consolidated revenues compared to approximately 45% in fiscal 2017. Revenues from non-space US Government/DOD customers, which are recorded in both the FEI-New York and FEI-Zyfer segments, accounted for approximately 45% of consolidated revenues compared to approximately 38% in fiscal 2017. Other commercial and industrial revenues in the fiscal year 2018 period accounted for approximately 19% of consolidated revenues compared to 17% in the prior year.

For the year ended April 30, 2018, gross margin and gross margin rate both decreased compared to the prior year. The lower gross profit and percentage is the result of lower revenues, increased repair charges, unabsorbed manufacturing overhead costs and a $5.6 million of inventory adjustments. In the fiscal years ended April 30th, 2018 and '17, selling and administrative expenses decreased from 11.9 million to 10.6 million and were approximately 27% and 24% respectively of consolidated revenues. The majority of the reduction occurred in corporate, deferred comp expense, professional fees and stock option expense.

During fiscal 2018, the Company continued its accelerated research and development activity. As a percentage of consolidated revenue, R&D spending for the years ended April 30th, 2018 and '17 were approximately 18% and 14%, respectively. These R&D efforts address large business opportunities in secure communication, command and control, and satellite systems that require advanced technologies and capabilities going forward. The Company believes it enjoys a competitive edge and has a head start in the development of these technologies.

The operating loss was approximately 12.4 million compared to 7.5 million last year, for the most part due to the decline in revenues. Other income generally consists of investment income, offset by interest and other expenses. Other income included a gain of approximately 1.1 million recognized in the first quarter of fiscal '18, in which the Company divested its holdings in equity securities. Prior year other income included 577,000 of income from interest and dividends compared to