Frequency Electronics, Inc. Maintains Strong Financial Position Despite Challenges

Frequency Electronics, Inc., a leading provider of advanced time and frequency control products, has released its financial results for the three and six months ended October 31, 2025. While the company faced some headwinds, it continues to demonstrate financial strength and resilience.

Revenue and Profit Trends

Frequency Electronics’ revenues for the three-month period ending October 31, 2025 increased by 8.3% compared to the same period in the prior year, reaching $17.1 million. However, for the six-month period, revenues remained relatively flat at $30.9 million, a 0.1% increase from the previous year.

The company’s revenue mix shifted during the reporting period. Revenues from commercial and U.S. government communication satellite programs decreased, accounting for 27% of consolidated revenues in the three-month period, compared to 59% in the prior year. In contrast, revenues from non-space U.S. government and Department of Defense (DOD) customers increased, representing 70% of consolidated revenues in the three-month period, up from 37% in the previous year.

Despite the revenue growth, the company’s gross margin and gross margin rate declined in both the three-month and six-month periods compared to the prior year. The gross margin for the three-month period was $6.5 million, a 14.2% decrease, while the gross margin rate decreased from 48.2% to 38.2%. For the six-month period, the gross margin was $11.6 million, an 18.9% decrease, and the gross margin rate declined from 46.3% to 37.5%.

The decrease in gross margin and gross margin rate was primarily attributable to a change in the mix of high-margin production satellite programs in the prior year periods versus lower-margin programs with significant non-recurring engineering (NRE) efforts during the current reporting periods.

Selling, general, and administrative (SG&A) expenses increased by 6.9% in the three-month period and 15.6% in the six-month period, primarily due to fluctuations in various expense accounts and investments in the company’s future growth, including expansion into Colorado and quantum sensing. Research and development (R&D) expenses decreased by 25.7% and 24.8% in the three-month and six-month periods, respectively, as the company adjusted its investments to support ongoing programs.

As a result of the lower gross margins and increased SG&A expenses, operating income decreased by 34.5% in the three-month period and 58.3% in the six-month period compared to the prior year.

Strengths and Weaknesses

One of Frequency Electronics’ key strengths is its strong financial position. The company’s consolidated balance sheet continues to reflect a robust working capital position, with approximately $31.3 million in working capital as of October 31, 2025, up from $29.7 million as of April 30, 2025. The company’s current ratio, a measure of liquidity, improved from 2.3 to 1 as of April 30, 2025 to 2.6 to 1 as of October 31, 2025.

The company’s cash flow from operating activities, however, decreased from $2.4 million in the first six months of the prior fiscal year to $0.6 million in the current reporting period, primarily due to the timing of billings and cash collections, as well as a decrease in net income.

Frequency Electronics’ consolidated funded backlog, a measure of future revenue, increased from approximately $70 million as of April 30, 2025 to $82 million as of October 31, 2025, with approximately 69% of the backlog expected to be realized in the next twelve months. This backlog provides the company with a solid foundation for future growth.

The company’s management team has also demonstrated its commitment to shareholder value by authorizing a new $20 million share repurchase program, which replaced the previous $5 million authorization. During the three-month period ended October 31, 2025, the company acquired $0.4 million worth of its common stock under the new program.

One potential weakness for Frequency Electronics is the volatility in its revenue mix, with a significant shift from high-margin satellite programs to lower-margin non-space DOD products. This change in product mix has had a direct impact on the company’s gross margin and profitability. The company will need to carefully manage its product portfolio and cost structure to maintain its competitive edge.

Outlook and Future Prospects

Despite the challenges faced during the reporting period, Frequency Electronics remains optimistic about its future prospects. The company believes its liquidity is adequate to meet its short-term operating and investment needs through at least December 12, 2026, and its long-term operation and investment needs for the foreseeable future.

The company plans to continue investing in R&D to develop, improve, and acquire products for space applications, guidance and targeting systems, and communication systems, which management believes will result in future growth and profitability. The company expects to secure additional customer funding for a portion of its R&D activities and will allocate internal funds depending on market conditions and the identification of new opportunities.

Frequency Electronics also remains open to pursuing acquisitions to expand its range of products, potentially using internally generated cash and external funding to support such initiatives.

The company’s management team is closely monitoring the realizability of its deferred tax assets, taking into account factors such as historical income (loss), volatility in actual earnings, excess tax benefits related to stock-based compensation, and projected future results of business operations. The company’s valuation allowance assessment is based on its best estimate of future results, considering all available information.

Conclusion

Frequency Electronics, Inc. has demonstrated its financial resilience despite facing some challenges during the reporting period. The company’s strong balance sheet, growing backlog, and commitment to strategic investments in R&D and potential acquisitions position it well for the future. While the shift in revenue mix has impacted profitability, the company’s management team is actively addressing these issues and remains optimistic about the company’s long-term prospects. Investors and stakeholders can take comfort in Frequency Electronics’ financial strength and its focus on driving innovation and growth in the advanced time and frequency control market.