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- **Temporary Revenue Dip**: Q1 FY2026 revenue down 8% YoY due to customer delays, but $71M backlog ensures future growth.
- **Strategic Investments**: $20M share repurchase, Boulder quantum sensing R&D hub, and Quantum Sensing Summit 2025 highlight long-term vision.
- **Tech Progress**: Mercury ion clocks in prototype phase, NV Diamond magnetometers targeting mid-2026 deployment.
- **Resilient Timing Leader**: Positioned to benefit from global investment in GPS alternatives, with atomic clocks critical to mission assurance.

**【CEO Summary Section】**
- Q1 FY2026 revenue was $13.8M, down 8% YoY, due to customer-driven delays on key programs. These delays pushed revenue recognition into later quarters, with no overall program reductions expected.
- Fundamentals remain strong: fully funded backlog of $71M (stable vs prior quarter), debt-free balance sheet, and $30M working capital.
- Strategic investments: new Boulder, CO facility for quantum sensing R&D, hiring top scientists from NIST, and $20M share repurchase authorization announced.
- Quantum Sensing Summit 2025 in NYC this October to showcase emerging tech in resilient timing and PNT (Positioning, Navigation, Timing).
- Long-term growth drivers include Golden Dome, Patriot missile, B-2 bomber, and THAAD programs, plus quantum sensing follow-on contracts over the next decade.

**【CFO Financial Commentary】**
- Revenue breakdown: 47% from satellite programs ($6.5M), 50% from non-space gov/DOD ($6.9M), and 3% other ($0.4M). Non-space share increased 8ppt YoY.
- Gross margin decreased due to lower revenue and mix shift toward lower-margin development projects.
- SG&A expenses rose 26% of revenue (vs 19% prior year) due to Boulder facility expansion and quantum sensing investments.
- R&D expenses decreased to $1.1M (8% of revenue) but remain a focus for state-of-the-art product development.
- Net income was $0.07 per share vs $0.25 prior year, reflecting temporary profitability pressure from delayed programs.

**【Q&A Key Highlights】**
- **Atomic Clocks**: Mercury ion clock prototypes in development with JPL, targeting low-rate production in ~1 year. NV Diamond magnetometer prototypes expected by mid-2026 calendar year.
- **Quantum Sensing Strategy**: Focused on space applications (e.g., resilient timing for GPS alternatives) but monitoring potential non-space uses like quantum computing. No direct investment in quantum computing, but building expertise through Boulder facility.
- **Customer Demand**: Strong interest in alternative PNT solutions amid global threats to satellite systems. U.S., U.K., France, and Sweden accelerating investments in resilient timing infrastructure, aligning with FEI's core competencies.


Frequency Electronics, Inc. (FEIM) Q1 2026 Earnings Call Transcript

- **Record Revenue Growth**: Q3 FY25 revenue hit a 10-year high, driven by a large space program and backlog conversion.
- **Quantum Sensing Momentum**: Developing magnetometers and Ridberg sensors; expects contracts within 1-2 years.
- **Profitability Surge**: Operating income up 260% YoY to $8.5M, net income at $20.5M ($2.18 EPS).
- **Backlog Strength**: $73M fully funded backlog reflects ongoing program momentum.
- **Investment in Innovation**: R&D spending increased 98% YoY to $4.5M, fueling quantum sensor and space product advancements.

**【CEO Opening Remarks】**
- Q3 FY25 revenue reached a 10-year high, driven by a large space program and conversion of backlog into revenue.
- Backlog remains historically high at $73 million, with expectations for continued program contributions.
- Emphasis on quantum sensing (e.g., magnetometers, Ridberg sensors) and proliferated satellites as growth opportunities.
- Workforce engagement and efficiency improvements are key to meeting customer demands.

**【CFO Financial Highlights】**
- 9M FY25 revenue: $49.8M (+25.4% YoY), with 58% from satellite programs vs. 41% prior year.
- Gross margin improved due to program milestones and legacy program performance.
- R&D expenses increased to $4.5M (9% of revenue) to advance state-of-the-art products.
- Operating income: $8.5M (+260% YoY), driven by program execution and cost control.
- Net income: $20.5M ($2.18 EPS) vs. $3M ($0.32 EPS) prior year.
- Fully funded backlog: $73M (down from $78M at FY24 end).

**【Q&A Key Points】**
- **Quantum Sensing**: No products yet, but development contracts expected over next 1-2 years. Magnetometers and Ridberg sensors are top priorities.
- **Proliferated Satellites**: Actively bidding on SDA programs; adapting existing products for space radiation challenges.
- **Market Competition**: Competing with Microchip's CSAC in space, but FEI's radiation-hardened solutions offer differentiation.
- **Financial Resources**: Adequate cash ($27M working capital) to invest cautiously in growth initiatives.
- **Government Uncertainty**: Cautiously optimistic about new business, despite Washington policy risks.

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