Executive Summary

Q2 FY2025 delivered strong top-line and profitability: revenue $15.8M, gross margin 48%, operating income $2.6M, EPS $0.28; backlog reached an all-time high of $81M, up from $70M in Q1 and $78M at FY2024 year-end .
Mix shift toward U.S. government space programs and execution of large space milestones drove margin expansion; management expects continued profitability but notes quarterly variability from program mix .
R&D stepped up to ~10% of revenue to pursue proliferated small satellites and quantum sensing; SG&A run-rate guided to ~$3M per quarter with ~25% non-cash components (stock comp and 401(k)) .
No formal revenue/EPS guidance or consensus estimates available from S&P Global for Q2 at time of writing; comparisons vs estimates are not possible due to data unavailability.

What Went Well and What Went Wrong

What Went Well

Record backlog and strong execution: “The backlog is also holding strong; at $81 million (an all-time high)” and margins 48% for the quarter reflecting successful delivery and program mix .
Space program milestone impact: CFO highlighted a “large space program that completed a major milestone” boosting gross margin rate and operating income; older low-margin programs completing also helped .
Strategic investment and positioning: CEO emphasized pursuit of proliferated small satellite domain and quantum sensing, with R&D at ~10% of revenue to build future product pipeline: “We should make it back in spades” .

What Went Wrong

Non-space U.S. Government/DOD revenue softened YoY in 1H: $12.1M (39% of total) vs $15.1M (58%) prior year; management cited variability and continuing resolution delays affecting timing .
Elevated SG&A from realignment and event costs: SG&A was ~20% of revenue YTD; increases driven by payroll-related expenses and the Quantum Summit .
Quantum sensing revenue not yet a contributor: Management clarified “there’s not a significant amount of revenue this quarter from quantum sensors,” indicating longer ramp for this vector .

Financial Results

Summary vs Prior Quarters

Metric	Q4 FY2024	Q1 FY2025	Q2 FY2025
Revenue ($USD Millions)	$15.576	$15.077	$15.820
Operating Income ($USD Millions)	$2.494	$2.365	$2.618
Net Income ($USD Millions)	$2.625	$2.430	$2.654
Diluted EPS ($USD)	$0.28	$0.25	$0.28
Gross Margin ($USD Millions)	$6.281	$6.698	$7.619
Gross Margin %	40.3%	44.4%	48.0%

Notes: Q2 gross margin rate explicitly disclosed at 48% . Q1 and Q4 gross margin rates are derived from cited revenue and gross margin dollars .

Q2 YoY Comparison (vs Q2 FY2024)

Metric	Q2 FY2024	Q2 FY2025	YoY Change
Revenue ($USD Millions)	$13.575	$15.820	+$2.245M (+16.5%)
Diluted EPS ($USD)	$0.08	$0.28	+$0.20
Operating Income ($USD Millions)	$0.938	$2.618	+$1.680M
Gross Margin ($USD Millions)	$4.330	$7.619	+$3.289M

Segment Revenue Mix

Segment	Q4 FY2024	Q1 FY2025	Q2 FY2025
Satellite Payloads ($USD Millions, %)	$6.9 (44%)	$8.3 (55%)	$9.4 (59%)
Non-space U.S. Gov/DOD ($USD Millions, %)	$7.9 (51%)	$6.3 (42%)	$5.8 (37%)
Other Commercial/Industrial ($USD Millions, %)	$0.8 (5%)	$0.5 (4%)	$0.6 (4%)

Key KPIs

KPI	Q4 FY2024	Q1 FY2025	Q2 FY2025
Backlog ($USD Millions)	$78	$70	$81
Cash & Equivalents ($USD Millions)	$18.320	$16.201	$9.698
Operating Cash Flow (period-to-date)	FY2024: $8.7M	Q1 FY2025: -$1.5M	1H FY2025: +$2.4M
Working Capital ($USD Millions)	N/A	N/A	~$23
Current Ratio	N/A	N/A	~1.8:1
Debt Status	Debt-free	Debt-free	Debt-free
Contract Liabilities ($USD Millions)	$24.025	$20.854	$22.659

Actual vs Estimates (Q2 FY2025)

Metric	Actual	Consensus	Surprise
Revenue ($USD Millions)	$15.820	N/A	N/A
Diluted EPS ($USD)	$0.28	N/A	N/A

Note: S&P Global consensus data was unavailable at time of writing due to provider limits; therefore, estimate comparisons cannot be shown.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
SG&A Run-Rate	FY2025 (ongoing)	None disclosed	~$3M per quarter; ~25% non-cash (stock comp, 401(k))	New disclosure
R&D Spend (% of Revenue)	FY2025 (ongoing)	~6% (FY2024 baseline)	~10% of revenue near-term; expected to remain ~10%	Raised
Gross Margin Outlook	FY2025 (mix-dependent)	Targeting higher, more consistent margins	Delivering high-40s GM (48% in Q2); variability by program mix	Maintained trajectory
Revenue/EPS Guidance	FY2025	None	None	Maintained (no formal guidance)
Tax Rate	FY2025	None	None	N/A
Dividends	FY2025	Special dividend $1.00 declared July 22, 2024; paid Aug 29, 2024	No new dividend announcements in Q2	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2024)	Previous Mentions (Q1 FY2025)	Current Period (Q2 FY2025)	Trend
Backlog strength	$78M and a historical high	$70M; still historically high	$81M all-time high	Strengthening
Proliferated small satellites strategy	Focus on future mix and capability	Continuing growth anticipated	Actively developing smaller, lower-power variants; ~10% R&D of revenue	Accelerating investment
Quantum sensing initiative	Strategic vector highlighted	—	Summit hosted; external funding expected within 2 quarters; minimal current revenue	Building pipeline; revenue lag
Margins	Steady improvement and positive trajectory	Profits/margins should continue to increase	48% GM in Q2; milestone execution drove rate up	Improved execution
Non-space U.S. Gov/DOD	51% of Q4 revenue	42% of Q1 revenue	37% of Q2 revenue; timing variability	Mixed; timing headwinds
SG&A and non-cash	—	—	~$3M/qtr run-rate; ~25% non-cash	Higher due to investments/events
Federal budget/CR constraints	—	—	Cautiously optimistic for budget passage; CRs delay awards	Timing risk persists
Zyfer unit	—	—	Performing “pretty good”; R&D on smaller packages and non-GPS nav	Stable; innovation focus
Resilient GPS (R‑GPS)	—	—	Engaging 3 of 4 prime contractors; MEO focus; no contracts yet	Strategic positioning

Management Commentary

CEO qualitative overview: “By all financial metrics the second quarter of fiscal year 2025 performance was excellent… our gross margins (48% for the quarter, and 46% for the first half of FY2025) reflect our successful efforts to obtain work, and deliver it successfully… we anticipate continued profitability going forward, though the mix in any given quarter could potentially cause variability” .
Strategic vectors: “Quantum sensors is a rapidly developing market… we are actively pursuing as an avenue to continued growth… internal R&D expenditures are up significantly (10% of revenue)” .
Call prepared remarks: “The U.S. government space business is responsible for more than half the revenue and operating income for the first half… R&D expenditures are up… approximately 10% of revenue… anticipated to remain steady” .
CFO detail: SG&A expected ~$3M per quarter; ~25% of SG&A increase is non-cash; operating income benefited from a large space program milestone and improved bidding/building/testing discipline .

Q&A Highlights

Proliferated small satellites: Management aims for a “sweet spot” between very low-cost and high-performance, adapting terrestrial products for space with radiation tolerance; LEO is part of strategy but not exclusive (GEO/MEO also targeted) .
Technology readiness: Evaluating radiation-hardened FPGAs for cost/performance trade-offs; extensive testing to ensure reliability in low-earth-orbit lifetimes (3–5 years) .
Budget environment: CRs delay program starts, but management expects eventual budget resolution post-inauguration; demand seen as delay rather than elimination .
Zyfer outlook: Performing well; R&D priorities include smaller packages and navigation capabilities in GPS-denied environments; cybersecurity is central across offerings .
Resilient GPS (Space Force): FEIM is working with three of four prime teams; no contract awarded yet; program targets MEO .

Estimates Context

S&P Global consensus estimates for Q2 FY2025 were unavailable at time of writing due to provider limits; therefore, revenue/EPS comparisons to Street consensus cannot be provided. Future estimate checks recommended once access is restored.

Key Takeaways for Investors

Backlog strength and margin execution are the near-term stock drivers; Q2 GM at 48% and $81M backlog underscore operational momentum and visibility .
Mix shift toward U.S. government space programs and milestone completions are elevating profitability; watch program timing and mix for quarterly variability .
Strategic R&D at ~10% of revenue is building optionality in proliferated satellites and quantum sensing; expect near-term OpEx headwinds but medium-term revenue diversification .
Non-space U.S. Gov/DOD demand remains solid but timing-challenged due to CRs; sequential/YoY fluctuations likely until budget clarity improves .
SG&A run-rate guidance (~$3M/qtr, ~25% non-cash) provides better operating expense predictability; monitor for normalization post-event costs .
Balance sheet remains conservative and debt-free with healthy working capital and current ratio, enabling continued investment and flexibility .
Watch for contract wins (GEO upgrades, R‑GPS involvement) and potential external funding for quantum programs over the next 1–2 quarters as catalysts .

Additional Q2 period details

Segment mix: Satellite payload revenue $9.4M (59%), non-space U.S. Gov/DOD $5.8M (37%), other $0.6M (4%) .
Cash flow: 1H FY2025 operating cash flow +$2.4M, vs -$3.0M prior year 1H .
Balance sheet: Cash $9.698M; contract liabilities $22.659M; stockholders’ equity $36.193M .

FREQUENCY ELECTRONICS INC (FEIM)·Q2 2025 Earnings Summary