Frequency Electronics Inc. (NASDAQ:FEIM) Q2 2019 Earnings Conference Call - Final Transcript

Dec 12, 2018 • 04:30 pm ET

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Frequency Electronics Inc. (NASDAQ:FEIM) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Greetings and welcome to the Frequency Electronics' Second Quarter Fiscal Year 2019 Earnings Release Conference Call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (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. Thank you. You may begin.

Executive
Martin Bloch

Good afternoon, everybody. I have here with me are Stan Sloane, our CEO of Frequency Electronics and Steve Bernstein, CFO and we'll set it up that Steve will give the factual down run and after that, I will -- Martin Bloch and Stan Sloane will make some appropriate comments and then open the floor for questions-and-answers. When you do ask your question, it would be very helpful if you address it to either me, Martin Bloch, Stan Sloane or Steve Bernstein.

Now without further ado, Stan Sloane will walk you through the factual part about Frequency.

Executive
Steve Bernstein

Thank you, Martin and good afternoon. For the six months ended October 31, 2018, revenues from commercial and US government satellite programs increased to $11.3 million compared to $9 million for the same period of fiscal 2018 and accounted for approximately 49% of consolidated revenues compared to approximately 42% during the same period in fiscal 2018.

Revenues on these contracts are recognized primarily on the percentage of completion method and are recorded only in the FEI New York segment.

Revenues from non-space US Government DOD customers, which are recorded in both the FEI-New York and FEI-Zyfer segments were $10.4 million compared to $7.7 million in the same period of fiscal 2018 and accounted for approximately 45% of consolidated revenues compared to approximately 36% last year.

Other commercial and industrial revenues declined to $1.4 million compared to $4.7 million in the prior fiscal year and accounted for approximately 6% of consolidated revenues compared to 22% for the same period from the prior year. Intersegment revenues are eliminated in consolidation.

For the six-month period ended October 31, 2018, the gross margin rate increased to 35.8% from 31.5% over the same period in fiscal 2018. The increase of both the gross margin and gross margin rate was due to the increased revenues, lower repair costs and favorable product mix.

For the six months ended October 31, 2018, and 2017, selling and administrative expenses were approximately 22% and 24% respectively of consolidated revenues. Increase in SG&A expenses during the six months ended October 31. 2018, primarily consisted of additional personnel-related expenses and professional fees, partially offset by reductions in other SG&A accounts.

Research and development expenditures represent investments intended to keep the Company's products at the leading edge of time and frequency technology and enhance future competitiveness. R&D expenses were $3.3 million and $3.4 million for the six months ended October 31, 2018 and 2017 respectively.

The R&D rate for the six-month period ending October 31, 2018 was 14% compared to 16% of sales for the same