Frequency Electronics' Q1 2026: Contradictions Emerge on Quantum Sensing Timelines, Atomic Clock Production, Revenue Growth, and Quantum Computing Focus

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $13.8M, down 8.6% YOY (vs $15.1M prior year)
• EPS: $0.07 per share, down from $0.25 in the prior year
• Operating Margin: 2.6%, down from 15.9% in the prior year

Guidance:

• Q1 revenue shortfall from customer-driven delays is expected to be made up in upcoming quarters, predominantly in FY26.
• Six weeks into Q2, the delay issues are behind the company; progressing toward a larger book of business.
• Expect at least one affected program to be meaningfully increased in total contract value.
• Boulder, CO facility anticipated to contribute positively to the bottom line by Q3 FY26.
• Actively bidding on larger programs with long-term follow-on potential; funded backlog ~$71M as of July 31, 2025.
• Authorized a $20M share repurchase.

Business Commentary:

• Revenue and Earnings Performance:
• Frequency Electronics, Inc. reported consolidated revenue of $13.8 million for Q1 FY2026, down from $15.1 million in the same period last year.

• The decrease was primarily due to external customer-driven delays on key programs, pushing revenue recognition out of the quarter.

• Gross Margin and Expenses:

• Both gross margin and gross margin rate decreased compared to the same period in the previous fiscal year.

• The decrease was due to the decrease in revenue and fluctuations in the mix of business activity between higher and lower margin programs. SG&A expenses increased to 26% of consolidated revenue due to investments in future growth and payroll-related expenses.

• Backlog and Future Growth:

• The company's funded backlog remained at historically high levels, at approximately $71 million.

• Future growth is anticipated from active bidding on new programs, with significant follow-on potential over the next decade, and the opening of a new engineering facility in Boulder, Colorado.

• Quantum Sensing and R&D Investments:

• The company continues to invest in quantum sensing, hosting its second annual Quantum Sensing Summit in October, and expanding its workforce with expertise from the National Institute of Standards and Technology.
• R&D expenses decreased to 8% of consolidated revenue, with plans to continue investing in R&D to maintain state-of-the-art products.

Sentiment Analysis:

• Management noted delayed Q1 revenue will be earned in coming quarters and predominantly this fiscal year, and that delay issues are now behind them. They cited a historically high funded backlog and said the Boulder facility should contribute positively by Q3. However, revenue and earnings declined, and profitability was temporarily lower due to lower revenue and mix.

Q&A:

• Question from George Marema (Pareto Ventures): Can you update progress, productization, and timelines for your clock technologies (Rubidium Vapor, Mercury Ion), quantum sensing, and the Envi Diamond magnetometer?
  Response: GPS satellite-grade atomic clocks are already in production; Mercury Ion prototypes are underway with JPL targeting low-rate production in ~1 year; Envi Diamond magnetometer prototypes expected by mid next calendar year, with next-gen higher-performance devices about a year thereafter.

• Question from George Marema (Pareto Ventures): Are you applying your quantum sensing expertise beyond space, such as toward quantum computing?
  Response: Not investing directly in quantum computing now; focusing on near-term quantum sensing applications while building Colorado-based talent to preserve future optionality.