Q3 2025 Earnings Summary
- The company is bullish about the medium and long-term markets for its products, especially in space and quantum sensors, and anticipates a growth environment in these sectors.
- The non-space DoD and government business sales have turned around in the third quarter, and the company expects this trend to continue for the next year and potentially longer.
- The company is actively involved in proliferated satellite programs, including classified satellite projects and bidding on contracts with the Space Development Agency (SDA), which represent a huge potential market and could lead to significant growth.
- Decreasing Backlog: The company's backlog decreased from approximately $78 million at the previous fiscal year-end to $73 million at the end of January 31, 2025, indicating a potential slowdown in future sales.
- Uncertainty in Government Contracts: The CEO expressed concerns about political uncertainties, stating that they don't have a "good crystal ball over what's going on in Washington over the next few months," and anticipates some programs may be "pushed out a little bit in time," which could delay revenue recognition.
- No Current Products in Quantum Sensing: The company does not have any products in quantum sensing yet and is only anticipating development contracts over the "next year or two," which may delay expected revenue generation from this area.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Up approximately 38% YoY (from $13.71M to $18.93M) | The increase reflects strong underlying business performance with new contracts and improved operational efficiencies driving revenue growth while building on prior period challenges that were effectively resolved, leading to a higher revenue base. |
Operating Income | Turned positive from a loss of $473K to $3.47M | Improved cost control, operational turnaround, and enhanced execution of key programs contributed to reversing a prior loss into a $3.47M profit, indicating effective management and process improvements compared to Q3 2024. |
Net Income | Rose dramatically from $130K to $15.405M | This significant jump is largely driven by markedly improved operational performance together with a substantial tax benefit (a tax provision reduction of –$11.824M), reflecting both better profitability and fiscal management in the current period. |
Gross Margin | Increased from $3.104M to $8.285M | The gross margin improvement is due to enhanced production efficiencies, a more favorable product mix, and cost reductions that have amplified profitability on a growing revenue base compared to the previous period. |
FEI-NY Segment Revenue | Recorded at $14.46M in Q3 2025 | The FEI-NY segment maintained its dominant role in overall revenue, driven by strong sales to key markets such as U.S. Government space customers and commercial satellite programs, highlighting strategic market positioning built upon prior period successes. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue Growth | Q3 2025 | no prior guidance | The company anticipates continued revenue growth driven by its backlog and strategic importance in industries such as proliferated satellites and quantum sensing. They expect additional contributions from a specific satellite program over the next few quarters and potential successor programs. | no prior guidance |
Non-Space DoD and Government Business | Q3 2025 | no prior guidance | Sales in this segment are expected to continue improving for at least the next year and potentially longer. | no prior guidance |
Quantum Sensing | Q3 2025 | no prior guidance | The company expects to secure several development contracts in the next 1–2 years, which will generate revenue. However, no specific revenue guidance for quantum sensing in calendar year 2025 was provided. | no prior guidance |
R&D Investments | Q3 2025 | no prior guidance | The company plans to continue investing in R&D to modernize its products, though quarterly spending may vary. | no prior guidance |
Tax Rate | Q3 2025 | no prior guidance | The company expects a lower-than‑normal tax rate due to the utilization of net operating loss carryforwards, with California taxes being the primary expense. | no prior guidance |
Cash and Liquidity | Q3 2025 | no prior guidance | The company expects cash to fluctuate quarter‑to‑quarter but trend higher over time. They believe their liquidity is adequate to meet operating and investing needs for the next 12 months and beyond. | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Space Business Growth and Satellite Programs | Q1 discussions noted significant revenue increases from satellite contracts with initial wins and a $70M backlog. Q2 emphasized strong U.S. government contributions, record backlog reaching $81M, and accelerated growth in the proliferated small satellite market. | Q3 highlighted record revenue from satellite programs ($28.8M for 9 months) and reinforced their strategic positioning in the proliferated satellite market, with detailed initiatives against competitors and renewed focus on government deals. | Consistently bullish with stronger revenue and strategic emphasis over time. |
Quantum Sensor Technology Development | Q1 called out early-stage development with initial progress on magnetometer applications and collaboration with national labs. Q2 built on that by hosting a Quantum Sensor Summit, pursuing CRADAs, and anticipating government funding to advance development. | Q3 focused on two key sensors – the magnetometer for navigation and the Rydberg sensor for compact antenna solutions – with expectations of near-term development contracts and revenue contributions. | Continued development with a shift to near-term revenue prospects while maintaining strategic R&D partnerships. |
Backlog Trends and Order Intake Variability | Q1 reported a $70M backlog with variability in order intake, noting the challenge of unpredictable government contract starts. Q2 further noted an all-time high backlog of $81M while acknowledging quarter-to-quarter variability in non-space government business. | Q3 reported a decline to a $73M backlog compared to earlier highs, with ongoing order intake variability attributed mainly to uncertainties in government programs and funding timelines. | Fluctuating backlog levels reflect persistent order intake variability, yet overall stability remains. |
Government Contract and Political Uncertainty | Q1 mentioned the unpredictable nature of government contract starts and the associated risks due to phased funding in satellite programs. Q2 expanded on the impact of funding delays and continuing resolutions while noting strategic positioning for future government programs. | Q3 continued to acknowledge uncertainties in Washington and political delays, with management explicitly noting challenges in some programs but staying cautiously optimistic and engaging strategically through teaming arrangements. | Persistent uncertainty is managed through cautious optimism and strategic risk management. |
Non-Satellite Business Performance and Diversification | Q1 showed mixed non-satellite results with declining revenue share but highlighted potential growth in the Zyfer segment and diversification through quantum sensor technology. Q2 similarly noted challenges in non-space U.S. government business alongside positive performance in the Zyfer unit and ongoing diversification efforts. | Q3 reported an improvement in non-space DoD sales; however, the revenue share from non-satellite business declined, even as the company continued wider diversification into areas such as advanced quantum technologies. | Ongoing diversification efforts remain key despite continued revenue pressure in non-satellite segments. |
Operational Efficiency and Gross Margin Trends | Q1 stressed record-high gross margins—the highest in 24 years—as a result of resolving technical challenges and improved production efficiency. Q2 reinforced that impressive gross margins (around 48%) were maintained through efficient project execution and milestone completions. | Q3 continued the narrative with higher operating income driven by major milestone completions and efficient operations, further boosting gross margins and overall profitability. | Consistent improvement in operational efficiency and margins, reinforcing strong financial performance over the periods. |
Technical Challenges in Small Satellite Market Adaptation | Q1 briefly mentioned the risks related to low-cost synchronization systems for proliferated satellites. Q2 provided detailed insights on challenges such as radiation effects, the need for radiation-hardened components, and the balance between cost and performance. | Q3 reiterated technical challenges in adapting terrestrial products for the harsh space radiation environment and ensuring reliability of smaller, cheaper satellites, underscoring the complexity of the development process. | Ongoing technical challenges persist, with detailed attention to overcoming radiation effects and cost-performance trade-offs. |
Zyfer Unit Advancements and R&D Investments | Q1 projected growth in the Zyfer unit as part of a diversification strategy along with a significant uptick in R&D spending (with expenses rising notably compared to the previous fiscal year). Q2 reported that the Zyfer unit was performing well, with R&D investments increased to about 10% of revenue to support product modernization and integration of new capabilities. | Q3 did not offer explicit updates on Zyfer unit advancements, although overall R&D spending continued to grow (with increased investments targeting product modernization). | A reduced explicit focus on Zyfer unit advancements in Q3, though R&D investments remain a key underpinning for broad product innovation. |
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Quantum Sensing Revenue and Products
Q: Do you expect quantum sensing revenue in 2025?
A: We do not have products yet, but we anticipate several development contracts over the next year or two, which will generate some revenue. We're excited about two primary quantum sensors: a magnetometer for GPS-denied navigation and submarine detection, and a Rydberg sensor for creating small, wide-frequency antennas. -
Proliferated Satellites Involvement
Q: What are your updates on proliferated satellites projects?
A: We are involved in several classified satellite programs focusing on smaller, cheaper, and fast-delivery satellites with lifespans of 3–5 years. We're also bidding on projects with the Space Development Agency, which require adapting our terrestrial products for the space environment. This offers significant potential but requires investment to ensure our products survive radiation in space. -
Backlog Composition
Q: Is the $11 million contract included in the $73 million backlog?
A: Yes, the $11 million contract from November or December last year is definitely included in the $73 million backlog. -
Competition and Product Adaptation
Q: Who are your competitors in high-reliability proliferated satellites?
A: Microchip, with their Chip Scale Atomic Clock (CSAC), is a prominent competitor. However, we've heard there are significant limitations of their product in the radiation environment of space. We're addressing this carefully by adapting our smaller products to be radiation-hardened for space applications. -
Financial Resources for Investment
Q: Do you have the financial resources to invest in these areas?
A: Yes, we have adequate resources to invest cautiously and responsibly. While our resources are finite, we feel we're in a good position financially to invest as needed. This approach aligns with the changing environment and helps avoid squandering resources. -
Non-space DoD Sales Outlook
Q: Will non-space DoD sales continue to improve?
A: We anticipate that the improvement in non-space DoD and government business sales will continue for at least the next year and potentially longer. -
Tax Rate Expectations
Q: What tax rate are you modeling for calendar 2025?
A: It's hard to say due to recent adjustments and our net operating losses. We don't expect a normal tax rate yet. The only major taxes we're paying are federal and California, with year-to-date expense approximately $300,000. The remaining is covered by NOLs, so the effective tax rate will be lower than 10–15%.