Shares of Frequency Electronics, Inc. (FEIM Quick QuoteFEIM - Free Report) have gained 10.4% since the company reported its earnings for the quarter ended Jan. 31, 2025. This compares to the S&P 500 index’s 0.7% growth over the same time frame. Over the past month, the stock has declined 7.5% compared with the S&P 500’s 8.5% decrease.

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Frequency Electronics delivered a robust financial performance for its third quarter of fiscal 2025, with net income of $1.60 per share, a significant increase from 1 cent in the prior-year quarter.  

Revenues reached $18.9 million, a 38% increase from $13.7 million in the prior-year period. 

The company reported operating income of $3.5 million in the fiscal third quarter, a significant improvement from the $0.5 million operating loss in the prior year. Net income saw an even more substantial increase, reaching $15.4 million in the fiscal third quarter compared to $0.1 million in the year-ago period.

Key Business Metrics

Gross margin improved substantially, climbing to 44% for the quarter from 23% in the prior-year quarter. This improvement was largely driven by revenue growth in the company’s core business areas and the successful execution of high-margin contracts.

Revenues from satellite payloads surged to $11.2 million (59% of total revenue) in the third quarter of fiscal 2025, up from $6.8 million (50%) in the year-ago period. In contrast, non-space U.S. Government and Department of Defense revenues declined to $7.4 million in the fiscal third quarter from $6 million a year earlier. Commercial and industrial revenue also saw a decline, totaling $0.4 million in the fiscal third quarter, down from $0.9 million in fiscal 2024.

The company’s backlog stood at $73 million as of Jan. 31, 2025, compared to $78 million at the end of fiscal 2024, indicating continued demand for its products.

Management Commentary and Strategic Outlook

CEO Thomas McClelland expressed optimism about the company’s trajectory, highlighting strong growth in core businesses and continued demand for FEIM’s technology. He noted that the quarter marked FEIM’s highest revenues in a decade, driven by the completion of key program milestones and the conversion of a historically high backlog into revenues.

Looking ahead, the company remains focused on expanding its presence in proliferated satellite programs and quantum sensing. Management anticipates additional contract wins over the next few quarters, though it acknowledged potential delays in government funding and contract awards due to federal workforce reductions.

Investment in R&D and Competitive Positioning

Research and development (R&D) spending increased significantly, reaching $1.4 million for the third quarter of fiscal 2025, up from $1 million in the prior year. This represented 8% of revenues compared to 7% in the prior-year quarter. The increased R&D investment supports the company’s initiatives in proliferated satellites and quantum sensing, positioning it for future growth in high-tech defense and space applications.

FEIM is developing quantum sensors, including magnetometers for GPS-denied navigation and submarine detection and Rydberg sensors for advanced radio frequency applications. These new technologies are expected to generate meaningful revenues over time, though no products have been commercialized yet.

Financial Position and Liquidity

FEIM maintained a strong financial position, remaining debt-free with a working capital of approximately $27 million as of Jan. 31, 2025. The company’s cash balance declined to $5.5 million from $18.3 million at fiscal year-end, primarily due to the payment of a $9.6 million special dividend in the second quarter of fiscal 2025 and the timing of billings and revenue collection.

Despite the cash decline, management expressed confidence in the company’s liquidity, emphasizing that it has sufficient resources to support ongoing operations and strategic investments.

Other Developments

During the quarter, FEIM continued to strengthen its workforce and technological capabilities. Management noted an improving talent acquisition environment, particularly in government-related research roles, as federal uncertainty has led some scientists to explore private-sector opportunities.

The company is also actively engaged in bidding for contracts with the Space Development Agency and is working to adapt its existing technology for use in radiation-heavy space environments. While FEIM faces competition from industry players such as Microchip’s Chip-Scale Atomic Clock, management believes that its expertise in high-stability, high-performance timing solutions gives it a competitive edge in the proliferated satellite market.