Frequency Electronics NASDAQ: FEIM reported record fiscal first-quarter 2027 revenue of $23.5 million, up 70% from a year earlier and 52% sequentially, as growth in satellite and U.S. government and defense programs lifted profitability and backlog to new highs.
President and Chief Executive Officer Thomas McClelland said the quarter provided a “strong proof point” for the company’s expectation of returning to growth in fiscal 2027. The company said the results increased its confidence in meeting or exceeding its previously stated goal of at least $150 million in annual revenue by fiscal 2029, which ends April 30, 2029.
Frequency Electronics recorded gross margin of 45.8% and operating margin of 22% in the quarter, advancing toward its three-year minimum targets of 50% gross margin and 30% operating margin. McClelland cautioned that progress in revenue and profitability may not follow a linear quarterly path, but said trends in backlog, pipeline, operational improvements and expected operating leverage support those longer-term objectives.
Backlog Reaches Record Level
Funded backlog rose to a record $129 million at the end of July, up approximately 82% from the year-ago period and 16% from the prior quarter. Chief Financial Officer Steven Bernstein said the reported backlog is fully funded, while the company does not include unfunded contract options in its reported backlog figures. About 65% of the backlog is expected to convert within the next 12 months, he said.
The company reported a quarterly book-to-bill ratio of approximately 1.76-to-1.
Revenue from commercial and U.S. government communications satellite programs totaled $11.8 million, or about 50% of consolidated revenue, compared with $6.5 million in the prior-year period. Revenue from non-space U.S. government and Department of Defense customers reached $11.1 million, or about 47% of revenue, compared with $6.9 million a year earlier. Other commercial and industrial revenue was $605,000, representing about 3% of total revenue.
Bernstein said the 9 percentage-point improvement in gross-margin rate reflected higher production levels, labor and overhead efficiencies, product mix and efficiencies as programs mature. Selling, general and administrative expense rose by about $500,000, primarily due to compensation, but fell to 18% of revenue from 26% a year earlier as revenue growth generated operating leverage.
Operating income increased to $5.2 million, or 22% of revenue, from $364,000 in the prior-year quarter. Net income was approximately $4.2 million, or $0.41 per share, compared with $634,000, or $0.07 per share, a year earlier.
Space, Defense and Alternative Timing Markets
McClelland highlighted demand across the company’s traditional space and defense businesses as well as newer markets including proliferated satellites, quantum sensing, space exploration and alternative positioning, navigation and timing applications.
The final GPS III satellite, launched April 21, includes Frequency Electronics’ Digital Rubidium Atomic Frequency Standard, or DRAFS, atomic clock. McClelland said the enhanced clock is operational on the satellite, has been ordered for other global navigation satellite systems and is being targeted for future GPS launches, including the planned GPS IIIF follow-on program.
In defense, the company expects revenue during fiscal 2027 and beyond from existing orders tied to missile battery programs including Patriot and THAAD. McClelland said Frequency Electronics is also bidding on additional missile programs involving components installed directly on missiles, in some cases seeking to displace incumbent suppliers.
The company is producing more than 1,000 systems under a secure military communications production contract. McClelland said the customer has requested that Frequency Electronics increase monthly output by more than 50% and has indicated that additional follow-on orders could be forthcoming.
Frequency Electronics is also evaluating potential naval uses for its mercury-ion atomic clock, including applications on strategic submarines that require highly accurate timing while operating underwater and unable to update timing through GPS signals.
For quantum sensing, McClelland said the company recently delivered a magnetic-navigation sensor and associated electronics to the U.S. Army Combat Capabilities Development Command Army Research Laboratory for further testing. The company continues to develop smaller and more capable magnetic sensing systems for alternative positioning, navigation and timing applications in GPS-denied environments.
Capacity Expansion Following Stock Offering
The company completed a secondary stock offering in July that raised approximately $73 million, including about $14 million received after quarter-end when the underwriters’ overallotment option was exercised. McClelland said the proceeds will support capacity expansion in response to customer requests for higher and faster production.
Frequency Electronics remained debt-free and reported working capital of approximately $90 million and a current ratio of about 5.3-to-1. Bernstein said the company believes its liquidity is sufficient to meet operating and investing needs for at least the next 12 months and the foreseeable future.
McClelland said the new capital could enable the company to reach its $150 million annual revenue target earlier than fiscal 2029 and potentially make that target “a substantially larger number.” He added that some customers may help fund capacity additions in certain cases. The company expects the expansion-driven growth to be organic and said any acquisitions would likely be small tuck-in deals intended to add vertical manufacturing capabilities.
The company is examining additional production equipment and automation opportunities, particularly in quartz crystal manufacturing, as well as expanded thermal-vacuum testing capacity for space-qualified products. McClelland said management is balancing demand with delivery commitments and is not accepting schedules it considers unrealistic.
Proliferated Satellite Activity Builds
McClelland said classified satellite programs are shifting aggressively toward proliferated satellite architectures and that Frequency Electronics is moving from demonstrating capabilities to initial production on those programs. He said the company is becoming involved in more programs and sees substantial future opportunity.
The company has also held discussions with newer space companies, including Intuitive Machines and Astranis, according to McClelland. In defense technology, he said Frequency Electronics has communicated with several companies, including Anduril, though he said the company has not yet had significant success in that market.
McClelland said the company is participating in lunar missions and views them as another opportunity to gain experience in producing smaller, lower-cost products more quickly. He said internal research and development spending is expected to remain below 10% of revenue, while the company seeks external funding for as much R&D as possible.
About Frequency Electronics (NASDAQ:FEIM)
Frequency Electronics, Inc NASDAQ: FEIM is a U.S.-based designer and manufacturer of precision frequency control products and timing solutions. The company's portfolio includes oven-controlled crystal oscillators (OCXOs), atomic frequency standards such as rubidium oscillators, GPS-disciplined oscillators (GPSDOs), microwave synthesizers, and integrated timing subsystems. These products are used to provide stable and accurate frequency and time references for applications that demand high performance and reliability.
FEI serves a broad range of markets, including telecommunications, aerospace and defense, satellite and space systems, test and measurement equipment, and critical infrastructure.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider Frequency Electronics, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Frequency Electronics wasn't on the list.
While Frequency Electronics currently has a Buy rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
The space race is growing fast, and you don’t have to have gotten in early on SpaceX to profit. This report shows seven space stocks you can buy today that may grow as rockets, satellites, defense, space internet, and new space technology become more important.
Get This Free Report
Continue following MarketBeat
Add MarketBeat as your preferred source on Google to see our latest stories in your feed.
