Sign in

You're signed outSign in or to get full access.

FE

FREQUENCY ELECTRONICS INC (FEIM)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY2025 was FEIM’s highest revenue quarter in 25 years at $19.99M, with diluted EPS of $0.34; FY25 revenue rose to $69.81M and net income to $23.80M, aided by a Q3 valuation allowance release on deferred tax assets .
  • Against S&P Global consensus, Q4 beat on revenue by ~21.8% ($19.99M vs $16.41M*) and on EPS by $0.07 ($0.34 vs $0.27*) as execution pulled forward program revenue; management cautioned near-term variability despite a positive medium-term trajectory .
  • Mix shifted toward satellite payloads (60% of Q4 revenue vs 44% YoY), while backlog ended at ~$70M (down from $78M at FY24-end and $73M at Q3-end) reflecting conversion of backlog to revenue and timing of awards .
  • Management targets gross margin “~40% or more” going forward (Q4 was ~37.5% vs FY25 ~43%); SG&A ~18% of revenue and R&D 6–9% are expected, with taxes remaining single-digit due to NOLs utilization .
  • Product catalysts include the new TURbO compact rubidium atomic clock (initial FY26 orders of ~$1–$2M referenced on call; company clarified a larger TAM, estimating a $20M+ opportunity by FY27), and externally funded quantum sensing programs (magnetometer, Rydberg sensor) .

What Went Well and What Went Wrong

  • What Went Well

    • Record quarterly revenue (25-year high) on strong execution and accelerated milestone completions; CEO: “In fact, the fourth quarter was the highest revenue quarter for the company in the past twenty-five years!” .
    • Mix/pricing: Satellite payload revenue rose to ~$12.1M (60% mix) in Q4 vs ~$6.9M (44%) a year ago, supporting strong FY gross margins (~43%) despite Q4 mix normalization .
    • New product momentum: TURbO compact rubidium atomic clock launched with initial orders and a clarified $20M+ FY27 market opportunity; management also highlighted externally funded quantum sensor development (magnetometer, Rydberg) .

  • What Went Wrong

    • Near-term variability: Management emphasized “lumpiness” and timing changes in government procurement; not every quarter will replicate Q4’s performance despite an upward medium-term trend .
    • Backlog softened to ~$70M at FY-end vs $73M in Q3 and $78M at FY24-end, reflecting conversions and timing of new awards (and a rethinking of SDA transport/data layer) .
    • Cash declined to $4.72M, largely due to a $9.6M special dividend paid in Q2 FY25 and timing of billings; management expects cash to fluctuate quarter to quarter .

Financial Results

Quarterly performance vs prior periods and consensus

MetricQ4 2024Q2 2025Q3 2025Q4 2025
Revenue ($USD)$15.58M $15.82M $18.93M $19.99M
Diluted EPS ($)$0.28 $0.28 $1.60 (includes discrete tax benefit in Q3) $0.34
Gross Margin ($)$6.28M $7.62M $8.29M $7.49M
Gross Margin (%)40.3% (6.28/15.58) 48.2% (7.62/15.82) 43.8% (8.29/18.93) 37.5% (7.49/19.99)
Operating Income ($)$2.49M $2.62M $3.47M $3.28M
Net Income ($)$2.63M $2.65M $15.41M (driven by valuation allowance release in Q3) $3.31M

Q4 vs S&P Global consensus

MetricActualConsensusDelta
Revenue ($USD)$19.99M $16.41M*+$3.58M (~+21.8%)
Diluted EPS ($)$0.34 $0.27*+$0.07

Consensus values marked with * are from S&P Global.

Segment breakdown (Q4 2025 vs Q4 2024)

SegmentQ4 2025 ($)MixQ4 2024 ($)Mix
Satellite payloads~$12.1M 60% ~$6.9M 44%
Non-space U.S. Gov/DoD~$7.0M 35% ~$7.9M 51%
Other commercial/industrial~$0.9M 4% ~$0.8M 5%

KPIs and balance sheet snapshots

KPIQ2 2025Q3 2025Q4 2025
Backlog~$81M ~$73M ~$70M
Cash & equivalents$9.70M $5.52M $4.72M
Contract assets$12.09M $14.01M $17.91M
R&D ($, %)$1.61M, ~10.2% $1.44M, ~7.6% $1.54M, ~7.7%
SG&A ($, %)$3.39M, ~21.4% $3.38M, ~17.9% $2.68M, ~13.4%

Guidance Changes

FEIM does not provide formal revenue/EPS guidance. Management provided directional commentary and targets.

MetricPeriodPrevious GuidanceCurrent Guidance/CommentaryChange
Gross MarginFY26 and forwardNot specifiedTargeting “40% or more,” with discipline; Q4 was ~37.5% and FY25 ~43% New qualitative target
SG&A % of RevenueFY26~18%Expect similar to FY25 (~18%) Maintained
R&D % of RevenueFY266%–10%Expect 6%–9% going forward Refined
Tax RateFY26Low due to NOLsSingle-digit effective rate expected; California taxes apply due to NOL suspension Maintained
RevenueFY26NoneNo formal guidance; near-term variability from procurement timing; medium-term more positive N/A
BacklogNear term$73M at Q3 FY25~$70M at FY-end; backlog “pretty solid” though timing variability affects future awards N/A
ProductsFY26–FY27TURbO introducedTURbO FY26 initial orders ~$1–$2M referenced; clarified $20M+ TAM potential in FY27 Positive update
DividendsN/APrior special dividendsNo new guidance; $9.6M paid in Q2 FY25 noted N/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY25)Previous Mentions (Q3 FY25)Current Period (Q4 FY25)Trend
Proliferated satellites (LEO/MEO)Internal R&D to adapt products for smaller, lower-power space use; radiation hardening challenge; <10% backlog but expected growth Highest revenue in 10 years; continued focus; investment needed; competitive positioning vs CSAC/rad-tolerance Execution ahead of schedule on traditional space; expanding bids incl. next-gen defense companies Positive, investment ongoing
Quantum sensingPursuing externally funded dev; CRADAs; magnetometer and Rydberg sensor roadmaps Anticipated dev contracts; use cases MAD/nav in GPS-denied env Less than 10% of FY26 revenue; products ~5 years out; active collaborations (MIT LL, NIST) Building pipeline
TURbO atomic clockNot launchedNot a focusProduct available within next fiscal year; FY26 orders ~$1–$2M referenced; clarified $20M+ FY27 potential New product ramp
Government budgets/SDAHopes for timely budget; CRs delay timing Expect delays not cancellations; resilient GPS engagement with primes Administration rethinking space architecture; SDA transport/data layer being reimagined; timing variability near term Variable near term; constructive medium term
Margins/CostsGM targeted high-40s ideal; R&D ~10% near term Strong GM from milestone completions; SG&A ~19% YTD Target GM ~40%+; SG&A ~18%; R&D 6–9% Normalizing from very high quarter levels
Backlog/CashBacklog $81M; debt-free; working capital strong Backlog $73M; cash down due to dividend/timing Backlog $70M; cash $4.72M; expect fluctuations Converting to revenue; awaiting new awards

Management Commentary

  • “The fourth quarter was the highest revenue quarter for the company in the past twenty-five years!... it is unreasonable to expect every quarter in the near-term to replicate this performance, though in the medium and longer term I am confident it is where we are headed.” — CEO Tom McClelland .
  • “Targeting 40 or more [gross margin], and where we end up, we’ll see… timing of things… always comes into play.” — CEO Tom McClelland .
  • “The valuation allowance decreased by approximately $13.9 million… due to releasing the majority of the valuation allowance recorded against the deferred tax asset… in Q3 FY2025.” — CFO Steve Bernstein .
  • “We’ve also already been actively submitting bids alongside next-generation defense companies… positions FEI extremely well to benefit from industry trends… over the next 5–10+ years.” — CEO Tom McClelland .
  • “TURbO… opening up much larger end-market exposure… DoD’s announcement… expanding the use of drones… represents a potential growing market… $20M or more in FY2027.” — Company clarification press release .

Q&A Highlights

  • Variability vs uncertainty: Management emphasized contract timing variability over the next ~year; backlog viewed as “pretty solid,” with medium-term growth 2–5 years .
  • Margin outlook: Target GM ~40%+ with disciplined pricing; Q4 GM ~37.5% vs FY25 ~43% .
  • R&D and funding: R&D expected 6–9% of revenue; confident cash is adequate, supplemented by external funding (e.g., Leidos on development program) .
  • Tax rate: Single-digit effective tax rate expected near term given NOLs and state dynamics (California NOL suspension) .
  • Program updates: GPS IIIF active with deliveries; SDA transport/data layer being reimagined; resilient GPS engagement ongoing .

Estimates Context

  • Coverage is thin (one estimate) but Q4 FY25 results beat on both revenue ($19.99M vs $16.41M*) and EPS ($0.34 vs $0.27*). The magnitude of the beat reflects accelerated execution and milestone timing; management cautioned near-term lumpiness despite positive medium-term demand from space/defense budgets .
  • Prior quarter (Q3 FY25) EPS was elevated by a large tax benefit due to the valuation allowance release, a non-operational tailwind not expected to recur each quarter .

Consensus values marked with * are from S&P Global.

Key Takeaways for Investors

  • FEIM delivered a significant Q4 revenue/EPS beat on strong execution, but management explicitly expects near-term variability; focus on medium-term backlog conversion and award cadence as catalysts .
  • Mix shift toward satellite payloads and disciplined pricing support the long-run gross margin target (~40%+), though quarter-to-quarter margins will reflect program mix/timing .
  • TURbO presents a nearer-term product revenue ramp (FY26 initial orders referenced on call) with a clarified FY27 opportunity of $20M+ in drones and radar—monitor order momentum and production scaling .
  • Quantum sensing (magnetometer, Rydberg sensors) is a multi-year option supported by external funding; expect <10% contribution near term and productization around 5 years out .
  • Backlog at ~$70M provides visibility, but awards timing under a rethought space architecture (incl. SDA) is the swing factor—watch contract announcements and sector budget progress .
  • Cash fluctuations stem from special dividends and billings timing; company remains debt-free and indicates adequate liquidity to fund R&D and growth initiatives .
  • Stock reaction catalysts: new award announcements (SDA, resilient GPS, GEO upgrades), margin performance vs ~40% target, TURbO orders/shipments, and evidence of backlog rebuild as procurement normalizes .