Executive Summary

Q3 FY2025 revenue increased 24% YoY to $2,972,137, but gross margin fell to 21% and EPS declined to $(0.17), driven by poor margins on CRAFT test set deliveries and a ~$260K Navy CRAFT ECP margin true-up as engineering hours exceeded projections .
Sequential revenue rebounded sharply vs Q2 ($1,777,342 → $2,972,137), while operating loss narrowed to $(574,946); however, profitability remained pressured by higher component costs and elevated engineering spend .
Backlog rose to $8.4M, supported by SDR-OMNI/MIL orders (~$1.8M combined SDR-OMNI backlogs) and a $1.55M MADL contract progressing to full-rate production in Q4; management expects CRAFT ECP production to add ~$5M per year once ramped .
No Wall Street consensus estimates were available via S&P Global for Q3 FY2025; comparison to estimates is not possible (values unavailable via S&P Global).
Near-term catalysts: AIMSPO certification expected in March, request for LRIP on CRAFT ECP in early next fiscal year, full-rate MADL production in Q4, and accelerating SDR-OMNI/MIL adoption, which could drive revenue growth and margin recovery .

What Went Well and What Went Wrong

What Went Well

SDR-OMNI traction: Initial Airbus units shipped; SDR-OMNI/MIL units shipped to domestic and overseas customers; backlog of SDR-OMNI/MIL grew, and Boeing authorized SDR-OMNI on its approved supplier list .
Backlog strength: Bookings backlog increased to $8.4M at Q3 end, including ~$900K for SDR-OMNI/MIL; nine-month revenue rose to $7.6M vs $6.8M YoY .
Strategic pipeline: MADL $1.55M moving to full-rate production in Q4; CRAFT AIMSPO testing completed, with certification expected in March and LRIP requested thereafter, targeted to add ~$5M annual revenue in full-rate production .

“While DOD procurement for new test sets is normally an extended process, the SDR-OMNI/MIL has the potential to generate millions of dollars of annual revenues… We are also looking to add Mode 5 IFF to the SDR-OMNI/MIL which could create another attractive high margin revenue stream.” — Jeffrey O’Hara, CEO .

What Went Wrong

Margin compression: Gross margin fell to 21% versus 40% YoY due to higher CRAFT component costs and accounting adjustments for excess labor hours on the CRAFT ECP program (~$260K margin true-up) .
Elevated OpEx: Operating expenses rose $488K (+68% YoY) on SDR-OMNI sales headcount additions and loss of CRAFT engineering funding to offset employee costs; engineering expense nearly doubled YoY in Q3 .
Profitability decline: Net income of $133,809 in Q3 FY2024 swung to a net loss of $(456,483) and EPS of $(0.17), with line-of-credit interest also contributing to other expense .

Financial Results

Metric (USD)	Q3 FY2024 (Dec 31, 2023)	Q1 FY2025 (Jun 30, 2024)	Q2 FY2025 (Sep 30, 2024)	Q3 FY2025 (Dec 31, 2024)
Revenue ($)	$2,403,099	$2,842,176	$1,777,342	$2,972,137
Gross Margin ($)	$968,118	$745,902	$206,940	$634,401
Gross Margin (%)	40.0%	26.2%	12.0%	21.3%
SG&A ($)	$414,458	$542,340	$550,468	$601,187
R&D ($)	$306,546	$131,638	$656,086	$608,160
Total OpEx ($)	$721,004	$673,978	$1,206,554	$1,209,347
Operating Income ($)	$247,114	$71,924	$(999,614)	$(574,946)
Net Income ($)	$133,809	$42,248	$(814,594)	$(456,483)
Basic EPS ($)	$0.01	$(0.02)	$(0.28)	$(0.17)
Diluted EPS ($)	$0.02	$(0.02)	$(0.28)	$(0.17)

Segment breakdown (Q3 FY2025):

Segment (Q3 FY2025)	Net Sales ($)	Cost of Sales ($)	Gross Margin ($)
Avionics Government	$2,236,189	$1,760,802	$475,387
Avionics Commercial	$735,948	$576,934	$159,014
Total	$2,972,137	$2,337,736	$634,401

KPIs and Mix:

KPI	Q1 FY2025	Q2 FY2025	Q3 FY2025
Backlog ($)	$7.0M	$7.9M	$8.4M
US Revenue ($)	$2,569,844	$1,438,289	$2,567,439
International Revenue ($)	$272,332	$339,053	$404,698
Cash ($)	$149,550	$242,366	$192,783
Line of Credit Outstanding ($)	$1,000,000	$965,000	$1,000,000

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
CRAFT ECP AIMSPO Certification	March (post-Q3 FY2025)	Not specified	Expect certification in March	New milestone
CRAFT ECP Production	Next fiscal year (early)	Not specified	LRIP requested; full-rate production expected to add ~$5.00M/year revenue	New quantitative expectation
MADL Test Set	Q4 FY2025	Not specified	Full-rate production to commence	New milestone
SDR-OMNI/MIL Backlog	Ongoing	Not specified	SDR-OMNI/MIL backlog $837k–$900k referenced; combined SDR-OMNI backlogs ~$1.8M	Building backlog
Mode 5 IFF on SDR-OMNI/MIL	Future	Not specified	Exploring addition; potential high-margin revenue stream	Strategic initiative

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY2025)	Previous Mentions (Q2 FY2025)	Current Period (Q3 FY2025)	Trend
Supply chain/parts	Delays impacted production; improving; CRAFT parts constrained	Major component delays (battery, PCB) constrained shipments; improvement expected in 2H	Higher component costs pressured margins; parts received; production building	Improving availability; cost pressure persists
CRAFT ECP	TRR completed; production projected; ~$5M/year expected	AIMS/platform testing; LRIP targeted; ~$5M/year	AIMSPO testing completed; certification expected in March; LRIP requested	Advancing toward certification/production
MADL (F-35)	Negotiating sizable production	$1.55M order received; full-rate in Q4	Full-rate production to commence Q4	Converting to production
SDR-OMNI (Commercial)	Airbus selection after technical eval	Airbus follow-on orders; Boeing authorization	Initial Airbus units shipped; backlog building	Adoption accelerating
SDR-OMNI/MIL (Defense)	First unit shipped in July; positive DoD reviews	Initial U.S. DOD orders; only Class 1 multipurpose test set	Backlog ~$837k–$900k; shipments to domestic and overseas customers	Building orders
Margins	26.2% GM; CRAFT ECP margin true-up noted	12% GM; fixed costs over decreased volumes	21% GM; CRAFT costs + ECP true-up (~$260K)	Recovery vs Q2 but below prior year

Management Commentary

“The third quarter showed improved revenues, but the gross margins were negatively impacted by poor margins on our CRAFT test set deliveries and CRAFT ECP engineering expenses running well over budgeted levels… Once full-rate production commences, this is expected to increase revenues by around $5 million per year.” — Jeffrey O’Hara, CEO .
“We began shipping the initial Airbus units late last quarter as well as SDR-OMNI/MIL units to both domestic and overseas customers… SDR-OMNI/MIL… has the potential to generate millions of dollars of annual revenues.” .
“The $1.55 million MADL contract will commence full-rate production in the fourth quarter of this fiscal year.” .

Q&A Highlights

No public Q3 FY2025 earnings call transcript was available; management’s MD&A clarified key drivers: gross margin erosion driven by higher CRAFT component costs and ~$260K Navy CRAFT ECP margin true-up; elevated engineering and sales expenses linked to SDR-OMNI expansion and completion of funded projects .

Estimates Context

Wall Street consensus estimates from S&P Global for Q3 FY2025 EPS and revenue were unavailable; comparison to estimates is not possible. Values retrieved from S&P Global were unavailable due to access limitations.

Key Takeaways for Investors

Sequential rebound with revenue up to $2.97M and operating loss narrowing; however, margins remain depressed due to CRAFT cost issues and ECP true-up, keeping EPS at $(0.17) .
Backlog strength ($8.4M) and imminent catalysts (AIMSPO certification, LRIP, MADL full-rate production) support near-term revenue visibility and potential margin recovery as updated PCB costs lower CRAFT production costs .
SDR-OMNI/MIL is positioned as a differentiator (Class 1 military spec), with growing backlog and international traction; Airbus and Boeing validations increase commercial pipeline credibility .
Watch operating expense normalization: Q3 SG&A and R&D elevated vs prior year; scaling production (CRAFT/MADL/SDR) should improve absorption and margins in subsequent quarters .
Liquidity remains tight (cash $193K; line of credit fully drawn at $1.0M); execution on backlog conversion and progress billing (e.g., MADL) are critical to cash flow .
Without consensus coverage, stock reactions may hinge on operational milestones and margin trajectory; monitoring AIMSPO certification timing and Q4 production ramp is key for short-term trading .
Longer-term, adding Mode 5 IFF to SDR-OMNI/MIL could expand TAM and margins; sustained SDR-OMNI adoption across commercial and defense customers underpins the medium-term thesis .

TEL INSTRUMENT ELECTRONICS CORP (TIKK)·Q3 2025 Earnings Summary