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FE

FREQUENCY ELECTRONICS INC (FEIM)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 revenue was $13.8M and diluted EPS was $0.07, down from $15.1M and $0.25 YoY and from Q4 FY25’s $20.0M and $0.34 QoQ, driven by pulled-forward shipments in Q4 and customer-driven program delays in Q1 that management says are timing-related, not cancellations .
  • Against S&P Global consensus, revenue missed ($13.8M vs $16.5M*) and EPS missed ($0.07 vs $0.36*), with only one estimate on each metric; management emphasized backlog strength and timing normalization in coming quarters (Values retrieved from S&P Global)* .
  • Backlog remains historically high at ~$71M (vs $70M at FY-end), and FEI announced a $20M share repurchase authorization, signaling confidence and capital return alongside growth investments .
  • Strategic initiatives advanced: opening of Boulder engineering facility staffed with former NIST scientists, expected to be accretive by Q3 FY26; continued pursuit of externally funded R&D in quantum sensing; ongoing bids on larger, multi-year defense programs .
  • Narrative catalysts: near-term resolution of delayed programs, potential expansion of at least one program’s total contract value, Boulder ramp by Q3, and new program wins in space/non-space defense; investor-day style visibility via October Quantum Sensing Summit .

What Went Well and What Went Wrong

What Went Well

  • Backlog resilience: funded backlog was ~$71M at quarter-end, slightly up from ~$70M at April 30, 2025, supporting visibility into revenue conversion .
  • Strategic hiring and footprint expansion: Boulder engineering facility opened, staffed with NIST veterans; management expects positive bottom-line contribution by Q3 FY26 .
  • Capital return: new $20M share repurchase authorization alongside a debt-free balance sheet and prior special dividends, signaling confidence and balanced capital allocation .
  • Quote: “Make no mistake, this is not your grandfather’s Frequency Electronics, Inc. We have fundamentally transformed this business... to be a larger, more profitable, more cash-generative company... for years to come.” .

What Went Wrong

  • Revenue/EPS miss vs estimates and YoY/QoQ declines: revenue was $13.8M and EPS $0.07 vs consensus $16.5M and $0.36*, largely due to customer-driven delays and Q4 pull-forward (Values retrieved from S&P Global)*.
  • Gross margin rate compression to ~36.8% (from 44.4% YoY) on mix shift and lower volume; SG&A ratio stepped up to ~26% (from ~19%) on growth investments (Colorado/quantum) and payroll .
  • Limited coverage (one estimate per metric) likely amplified perceived surprise; investors may scrutinize timing cadence and dependency on government program cycles .

Financial Results

Consolidated P&L and Margins (YoY and QoQ)

MetricQ1 FY25Q4 FY25Q1 FY26
Revenue ($USD)$15,077 $19,986 $13,812
Gross Margin ($USD)$6,698 $7,493 $5,082
Gross Margin %44.4% 37.5% 36.8%
Operating Income ($USD)$2,365 $3,278 $364
Operating Margin %15.7% 16.4% 2.6%
Net Income ($USD)$2,430 $3,312 $634
Net Income Margin %16.1% 16.6% 4.6%
Diluted EPS ($)$0.25 $0.34 $0.07

Estimates vs Actuals (S&P Global)

MetricConsensus*Actual
Revenue ($USD)$16,500,000*$13,812,000
EPS ($)$0.36*$0.07
# of Estimates (Revenue)1*—
# of Estimates (EPS)1*—
Values retrieved from S&P Global*

Segment Mix and Revenue

SegmentQ1 FY25 Revenue ($USD)Q1 FY25 Mix (%)Q1 FY26 Revenue ($USD)Q1 FY26 Mix (%)
Satellite (FEI NY)~$8.3M 55% ~$6.5M 47%
Non-space U.S. Gov/DOD (NY + Xipher)~$6.3M 42% ~$6.9M 50%
Other Commercial/Industrial~$0.544M 4% ~$0.439M 3%

Key KPIs and Balance Sheet Highlights

KPIQ1 FY25Q4 FY25Q1 FY26
Backlog ($USD)—$70,000,000 $71,000,000
Cash from Operations ($USD)$(1,500,000) $(1,400,000) (FY) $1,200,000
Working Capital ($USD)——~$30,000,000
Current Ratio (x)——~2.3x
Cash & Equivalents ($USD)—$4,720,000 $4,512,000
Contract Assets ($USD)—$17,914,000 $14,213,000
Inventories ($USD)—$23,487,000 $24,772,000
Debt—None (debt-free) None (debt-free)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal Financial Guidance (Revenue, EPS, Margins, OpEx, Tax)FY26/Q2 onwardNone providedNone providedMaintained (no guidance)
Share Repurchase AuthorizationOngoingPrior authorization with ~$0.55M remaining New $20M authorization, no expiry Raised/Expanded
DividendsOngoingTwo prior special dividends referenced No new dividend announcedMaintained (no new dividend)

Management reiterated a non-guidance stance due to lumpy contract timing; they expect delayed program revenue to be recognized predominantly within FY26 .

Earnings Call Themes & Trends

TopicQ3 FY25 (Jan 31, 2025)Q4 FY25 (Apr 30, 2025)Q1 FY26 (Jul 31, 2025)Trend
Quantum sensing initiativesElevated R&D (9% of revenue), pursuing externally funded quantum sensor work; products for proliferated satellites Continued build-out; preview of October Quantum Sensing Summit Boulder facility opened with ex-NIST scientists; Summit in October; government funding pursued Accelerating execution and talent build
Supply chain / customer delaysVigilance on timing due to federal funding changes and workforce reductions Noted strong execution pulling forward revenue into Q4 Customer-driven delays halted Q1 work on some programs; timing issue, not cancellations Temporary headwind; normalization expected
U.S. budget / procurement architectureFlagged potential timing impact; diversification via proliferated satellites/quantum Administration rethinking space architecture/procurement; FEI prepared Q1 delays tied to late congressional allocations finalized in early July Structural shift; FEI adapting
Backlog / pipelineBacklog ~$73M; active bids Backlog $70M at FY-end Backlog ~$71M; bids on larger, multi-year programs (Golden Dome, Patriot, B-2, THAAD) Historically high; pipeline broadening
Margin profileGM 44% in Q3; mix variability noted Historically high margins in Q4 GM rate decreased on mix/volume; SG&A ratio up on growth investments Near-term compression; investment-led
Shareholder returnsTwo recent special dividends Reinforced capital return alongside growth New $20M repurchase authorization Sustained capital return optionality

Management Commentary

  • Prepared remarks emphasized timing issues over structural demand: “This quarter... is simply a timing issue... customer-driven delays... neither cancellations, nor contract reductions... we expect at least one of these programs to be expanded significantly...” .
  • Strategic positioning: “We have fundamentally transformed this business... to be a larger, more profitable, more cash-generative company...” and “our opportunity set is... the best in our industry” .
  • Mission-critical relevance: “Time is the invisible utility that keeps the world running... Our technologies in alternative PNT and quantum-enhanced timing are designed precisely to close these vulnerabilities” .
  • Capital allocation: “$20 million authorization for the repurchase of shares... committed to both investing for the future and returning cash to shareholders” .
  • Boulder ramp: “We anticipate that the Boulder facility will contribute positively to the bottom line by the third quarter of this fiscal year” .

Q&A Highlights

  • Productization timelines: Mercury Ion atomic clock prototypes with JPL; low-rate production anticipated in ~1 year; NV Diamond magnetometer prototypes targeted by mid-next calendar year, with next-gen devices ~1 year after .
  • Quantum computing scope: Not directly investing; focusing on quantum sensing with potential future applicability; Colorado hiring to build workforce with relevant expertise .
  • Tone: Confident, focused on near-term resolution of delays and medium-term product pipeline; limited Q&A depth given single analyst participant .

Estimates Context

  • Results vs consensus: Revenue $13.8M vs $16.5M*; EPS $0.07 vs $0.36*, both misses on limited coverage (one estimate each) (Values retrieved from S&P Global)*.
  • Expected estimate revisions: Likely downward near term on Q1 reset, with potential upward bias later in FY26 if delayed programs convert and Boulder contributions begin in Q3 .

Key Takeaways for Investors

  • Q1 underperformance was timing-related, not demand-related; management expects revenue to be recognized predominantly in FY26 as customer-driven delays abate .
  • Backlog and pipeline are strong, including larger, multi-year defense programs (Golden Dome, Patriot, B-2, THAAD), supporting revenue visibility and diversification .
  • Investment phase and mix shifts drove near-term margin compression; watch SG&A intensity and GM rate as volumes normalize .
  • Boulder facility and quantum sensing initiatives are strategic growth vectors; profitability contribution targeted by Q3 FY26—track milestones and external funding wins .
  • Capital return remains an incremental positive: $20M buyback authorization on a debt-free balance sheet provides downside support and signals confidence .
  • Trading implications: Near-term sentiment may reflect the miss vs consensus; potential rebound catalysts include new awards, resolution of delayed programs, and October Summit visibility .
  • Medium-term thesis: Mission-critical PNT/quantum timing solutions with increased geopolitical relevance; improved execution cadence and productization could drive sustained revenue growth and margin uplift over FY26-27 .