Brett Reiss

Brett Reiss asked whether Frequency Electronics' identified growth opportunities are insulated from potential changes in political party control of Congress and the presidency.

Answer

President and CEO Thomas McClelland expressed that, to a large extent, the growth opportunities are independent of politics. He cited strong, technology-driven growth in the space business and the current global situation, which makes a dramatic decrease in defense spending unlikely regardless of the political administration, as fundamental reasons for this optimism.

Brett Reiss with Janney Montgomery Scott asked about the independence of Frequency Electronics' growth opportunities from political party control in Congress and the presidency.

Answer

President and CEO Thomas McClelland expressed his belief that growth in space business is largely technology-driven and independent of politics, similar to AI. He also noted that defense spending, while government-dominated, is unlikely to decrease dramatically given the current global situation, regardless of the administration, providing fundamental optimism.

Brett Reiss of Janney Montgomery Scott inquired about Frequency Electronics' strategy for allocating resources to its key growth areas, which of these opportunities holds the most potential, and whether the company has sufficient cash to fund the necessary increase in R&D.

Answer

CEO Thomas McClelland explained that the company is actively pursuing proposals in all growth areas. He identified the Quantum Sensor area as particularly promising due to the large addressable market for GPS alternatives. McClelland also affirmed confidence in the company's cash position, stating that internal funds are being used cautiously and supplemented by external funding opportunities.

Brett Reiss of Janney Montgomery Scott asked for a deeper analysis of the risks associated with the new Bitcoin-backed loans, focusing on the maturity of hedging markets and the security of the cold storage and UCC lien process. He also questioned the cash flow resilience of the hedged energy business, the current M&A environment for private equity assets, and whether more information could be disclosed to help value the legacy patent business.

Answer

CEO MJ McNulty addressed the Bitcoin loan risks by stating the market is deep enough for effective hedging and that the collateral is highly secure, with the UCC lien embedded directly in the Bitcoin's code via a multi-signature cold storage vault. He affirmed it would be 'highly improbable' for the energy business to turn cash flow negative through 2027 due to the 70% hedge. On M&A, he noted that opportunities are emerging as the bid-ask spread closes. McNulty concluded that disclosing more on the patent business would compromise negotiating positions with counterparties.

Brett Reiss asked about the likelihood of allocating capital to new patent portfolios, the possibility of spinning off the patent business, and whether the recent large settlement could pressure the defendant in a separate, appealed case to settle.

Answer

Executive Martin McNulty (MJ) stated that capital allocation to new IP portfolios is weighed against all other opportunities and the company is focused on high-grading its IP assets with standards-essential patents. Regarding a potential spin-off, McNulty affirmed that the company constantly evaluates if any business is worth more to another party, in which case a sale or spin-off would be considered. On the appealed judgment, he expressed hope the recent settlement would encourage a resolution but could not be certain of the defendant's strategy.

Brett Reiss asked for clarification on the role of operating partner Clay Kiefaber in improving Deflecto's operations, requesting specific examples. He also sought to reconcile the company's cash balance after recent acquisitions and buybacks, and inquired about deal flow from the private equity market and a sensitivity metric for Benchmark's unhedged production.

Answer

CEO Martin McNulty confirmed Clay Kiefaber's integral role, likening his approach to the Danaher business system and citing examples like divisionalizing the business and enhancing cash flow management. Interim CFO Kirsten Hoover provided the cash figure from the Arix monetization to complete the reconciliation. McNulty noted they see unique deal flow that private equity might miss but declined to provide a specific cash flow sensitivity metric for Benchmark's unhedged assets.

Brett Reiss of Janney Montgomery Scott inquired about Deflecto's historical business transformation, Acacia's strategic plans for its three segments, the potential cash flow return on the investment, and the reason for lower-than-expected IP revenue.

Answer

Executive Martin McNulty explained that Deflecto was previously a larger, less focused business that was streamlined to its current high-margin portfolio. He confirmed Acacia likes all three segments and sees two as potential growth platforms. McNulty affirmed the investment provides an attractive yield while owning the business. On IP revenue, he reiterated that it is inherently lumpy and difficult to predict quarterly, but the overall asset portfolio remains very attractive.

Asked about the origin and future potential of a large $10 million silicon carbide order, the outlook for the PVT product line given Chinese competition, the company's relationships with major aerospace engine manufacturers, the potential for hiring engineering talent, and the company's strategy for managing potential tariffs.

Answer

The $10M order came from a customer in the industrial market who saw the company's advertised capabilities developed for aerospace; future similar orders depend on market expansion. The PVT market is very uncertain due to overcapacity and price cutting from China. The company has relationships with 3 of the 4 major gas turbine engine manufacturers. They are not currently looking to hire more engineers but are managing tariff risks by buying safety stock and note that some Chinese components remain cheaper even with tariffs.

Brett Reiss of Janney Montgomery Scott inquired about the origin and delivery timeline of a significant $10 million industrial order, the potential for similar deals, and the outlook for the PVT product line amid intense competition from China. He also asked about the company's relationships with major aerospace engine manufacturers, its strategy for managing potential tariffs, and its engineering hiring plans.

Answer

Executive Emmanuel Lakios explained the $10 million order originated from a customer who discovered the company's advertised large-volume silicon carbide system, which was initially developed for aerospace applications. He clarified that deliveries for this multi-system order are staggered and will extend into early 2026. While the technology is applicable to other industrial customers, new orders are contingent on market expansion. Lakios expressed significant uncertainty regarding new PVT system orders due to Chinese overcapacity and wafer price undercutting, suggesting the market needs 1-2 quarters to stabilize. He also highlighted that the company has now sold products to three of the four key gas turbine engine manufacturers. Regarding tariffs, Lakios noted the company is managing its supply chain and has not yet seen a severe impact, though it remains a risk for fiscal 2025.

Inquired about the potential sales level and realistic sales run rate for the Yalos product in the next two years.

Answer

The company is optimistic about Yalos sales, citing positive farmer feedback and successful expansion to the soybean market. They anticipate sales will become significant and material to Evogene's revenues within two years.

Brett Reiss asked if the InteropONE software could serve as a solution to prevent communication failures between agencies, such as the one seen during the recent presidential assassination attempt, and whether this event has led to increased inquiries.

Answer

Executive John Suzuki confirmed that InteropONE is designed precisely for such scenarios by creating a unified communication platform for local, state, and federal agencies. He noted that since the tragic event, there has been a noticeable increase in unprompted recognition from public safety agencies at trade shows about the product's applicability and value in preventing such communication breakdowns.

Brett Reiss of Janney Montgomery Scott asked about the strategy for exiting leases on the pre-licensure campuses, whether current rents are at market rate, the conditions for releasing the remaining restricted cash, and the status of the convertible notes held by two investors.

Answer

CEO Michael Mathews explained that the company is actively working to sublet four campus locations by January 2024, while the Phoenix campus will be repurposed for USU immersions. He confirmed the leases are at fair market rates. Mathews clarified that only the $1.5 million cash release is imminent, with any further releases subject to future discussions with the bond provider. Regarding the convertible notes, he stated there are no compliance issues, interest payments are current, and conversion is unlikely at the current share price.