Shares of Franklin Wireless Corp. (FKWL Quick QuoteFKWL - Free Report) have declined 10.4% since reporting results for the third quarter of fiscal 2025. This compares with the S&P 500 index’s 0.8% rise over the same time frame. Over the past month, the stock has lost 14.3% against the S&P 500’s 10.3% rally, reflecting investor concern over operational results and market trends impacting the company’s performance.

Revenue & EPS Trends Show Mixed Progress

For the quarter ended March 31, 2025, Franklin Wireless reported a 29.7% revenue increase to $8.01 million from $6.18 million in the prior-year period. However, top-line growth was offset by a wider net loss.

The company posted a net loss attributable to shareholders of $644,786, or 5 cents per share, narrower than a loss of $1.18 million, or 10 cents per share, in the prior-year quarter. This improvement in bottom-line results was largely driven by stronger gross profit margins and other income sources, though operating losses widened due to a substantial increase in selling, general and administrative expenses.

On a nine-month basis, revenues soared 58.7% to $39.16 million from $24.68 million. Net income turned positive at $99,141 from a loss of $2.2 million a year earlier. Diluted EPS was 1 cent versus negative 19 cents, marking a modest recovery in the earnings performance.

Gross Margins & Other Financial Metrics

Gross profit nearly tripled in the fiscal third quarter to $1.35 million from $517,000 a year ago, as the gross margin improved to 16.9% from 8.4%. Management attributed this to sales of higher-margin products. For the nine months ended March 31, 2025, gross margin also rose to 17% from 11.6% in the same nine-month period last year.

Despite improved gross profits, operating expenses surged 60.2% year over year in the fiscal third quarter, reaching $3.32 million. This increase was largely due to a $1.25-million incentive bonus accrued for president O.C. Kim tied to a joint venture deal, as well as higher shipping and administrative costs.

Operating cash flow remained negative at $490,000 for the nine months, although this was a significant improvement from the $7-million outflow a year earlier. The company ended the quarter with $38.1 million in combined cash and short-term investments, which management views as sufficient to fund operations through at least the next 12 months.

Management Commentary Highlights Strategic Shifts

Franklin Wireless’s management acknowledged that shifting consumer demand following the post-pandemic slowdown in remote education and work-from-home setups has pressured demand for mobile device management services. In response, the company is investing in enhanced software capabilities and expanding its higher-margin hardware offerings.

The firm also pointed to favorable foreign exchange movements and a $1-million legal settlement receivable from its CEO as contributors to the quarter’s positive other income of $1.33 million, reversing a loss of $68,000 in the prior-year quarter.

Factors Behind Performance Fluctuations

Sales growth in the quarter was concentrated in North America, which accounted for nearly all revenues. Asia contributed a negligible $2,582 in the fiscal third quarter, although it had generated more than $96,000 in the same period last year. The volatility in regional contributions was linked to fluctuations in Wi-Fi router sales from the company’s South Korea-based R&D subsidiary, Franklin Technology Inc.

Higher general and administrative costs, along with rising R&D investment, weighed on profitability. While R&D spending declined slightly in the fiscal third quarter, year-to-date expenses rose 8.5% due to the timing and scope of ongoing product development projects.

Other Developments

In the quarter, Franklin Wireless finalized the formation of a new joint venture, Sigbeat Inc., with its EMS partner, Forge International. Franklin holds a 60% stake and Forge contributed $2 million to the venture. Sigbeat will focus on global sales and marketing of telecommunications modules. This move significantly boosted non-controlling interests on the balance sheet and represents a strategic effort to diversify revenue streams.

On May 8, 2025, the company entered an agreement to repurchase 200,000 fully vested stock options from president O.C. Kim for $746,067. This follows the earlier forbearance agreement in which Mr. Kim deferred a $1-million legal settlement payment in exchange for the deferral of a $1.25-million bonus.

Overall, while Franklin Wireless delivered solid revenue growth and showed early signs of earnings recovery, investor sentiment remains cautious amid unresolved operational challenges and heightened executive compensation expenses.