Frequency Electronics' Q1 2026: Contradictions Emerge on Quantum Sensing Timelines, Government Revenue Expectations, and Space Applications

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

Date of Call: September 11, 2025

Financials Results

• Revenue: $13.8M, down 8.6% YOY (vs $15.1M prior year)
• EPS: $0.07 per share, down 72% YOY (vs $0.25 prior year)
• Gross Margin: Decreased YOY; exact rate not disclosed
• Operating Margin: Approximately 2.6%, down from approximately 15.9% in the prior year

Guidance:

• Q1 revenue shortfall expected to be made up in coming quarters, predominantly within FY26.
• Customer-driven delays are resolved; progressing toward a larger book of business.
• Funded backlog remains historically high (~$71M) with active bids on larger programs and meaningful near-term awards expected.
• At least one delayed program expected to increase in total contract value.
• Boulder, CO engineering facility expected to contribute positively to the bottom line by Q3 FY26.
• Pursuing external government funding for R&D, particularly in quantum sensing.
• Announced $20M share repurchase authorization.

Business Commentary:

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

• The decline was primarily due to customer-driven delays on key programs, which pushed revenue recognition out of the fiscal first quarter.

• Funded Backlog and Future Growth:

• The company's fully funded backlog remained at historically high levels, with approximately $71 million at the end of July 2025, up from $70 million the previous fiscal year.

• This is indicative of continued healthy growth in core markets and the potential for meaningful new business in the near term.

• Investment in Quantum Sensing and Boulder Facility:

• The company opened an engineering facility in Boulder, Colorado, and hired senior scientists to support ongoing programs and new technology efforts.

• This investment is expected to contribute positively to the bottom line by the third quarter of this fiscal year, showcasing the company's commitment to emerging markets like quantum sensing.

• Strategic Initiatives and Market Positioning:

• Frequency Electronics is actively bidding on new programs, with some being larger than typical contract wins, and have significant follow-on potential over the next decade.
• The company's strong fundamentals and leadership in position, navigation, and timing are driving its strategic importance in the industry.

Sentiment Analysis:

• “The revenue shortfall from the first quarter…is expected to be made up in the upcoming quarters, predominantly in this fiscal year.” “The issues…are now behind us.” “Our funded backlog remains at historically high levels.” Management also noted “a temporary decline in revenue and earnings.”

Q&A:

• Question from George Marema (Pareto Ventures): Update on progress and productization timelines for rubidium vapor clock, mercury ion clock, and NV diamond magnetometer.
  Response: FEI is already producing satellite-grade GPS atomic clocks; mercury ion clock prototypes with JPL are underway with low-rate production targeted in ~1 year; NV diamond magnetometer prototypes expected by mid next calendar year with next-gen, higher-performance devices about a year later.

• Question from George Marema (Pareto Ventures): Status of quantum sensing for space and potential applications beyond space, including quantum computing.
  Response: FEI is not directly investing in quantum computing now; it’s focusing on near-term quantum sensing applications while building talent (Colorado facility) that could enable future quantum computing contributions.