Frequency Electronics Issues a Clarification to Yesterday’s Earnings Call
Frequency Electronics, Inc. (FEIM) reported program charges impacting gross margins in Q4 2023 but expects revenue recovery of $1.2 million in 2024, leading to normal or higher gross margins.
The mention of program charges impacting Frequency Electronics' gross margins indicates a notable financial event for the company. This scenario, where costs are recognized upfront while revenue recognition is deferred, is a result of percentage of completion accounting . This accounting method is common in industries where contracts span multiple periods, such as construction or defense contracting, which may be relevant to FEI's operations.
Investors should note that the expected recovery of $1.2 million in revenue could provide a positive bump to the company's financial performance within the current calendar year. However, it is important to consider the company's historical margin trends and the nature of the charges to fully understand the potential impact. The assertion that margins will be at or above average upon revenue realization suggests management confidence, but it also hinges on the company's ability to manage costs effectively going forward.
Understanding the competitive landscape is vital when evaluating the implications of FEI's gross margin fluctuations. If FEI operates in a highly competitive market, temporary setbacks in margin performance can affect its market positioning . Investors should assess whether FEI's margin recovery is in line with industry benchmarks and how this might influence its stock valuation.
Furthermore, the company's ability to recover the $1.2 million in revenue and improve gross margins could signal operational resilience. This could potentially lead to a reevaluation of FEI's market prospects, especially if the recovery is faster or more significant than what is common among its peers. An analysis of industry trends and FEI's past performance in similar situations would provide valuable context for stakeholders.
Percentage of completion accounting can often lead to volatility in reported earnings, as seen with FEI's recent earnings call. The temporary reversal of revenue and subsequent conservative cost estimation may reflect an attempt to adhere to the prudence concept in accounting, which dictates that uncertain income should not be recorded until it is realized. This approach can lead to fluctuations in financial reporting from quarter to quarter.
Stakeholders should also consider the tax implications of such accounting practices. If FEI is able to recover the revenue within the same fiscal year, the impact on the annual financial statements may be smoothed out, mitigating concerns of investors and analysts. However, if the recovery spans into the next fiscal year, it could result in a more complex financial analysis for both the company and its investors.
03/15/2024 - 09:14 AM
MITCHEL FIELD, N.Y., March 15, 2024 (GLOBE NEWSWIRE) -- Frequency Electronics, Inc. (“FEI” or the “Company”) (NASDAQ-FEIM). On yesterday’s earnings call, the Company discussed program charges that adversely affected its gross margins for the quarter ended January 31, 2024. As a result of percentage of completion accounting, these charges included a temporary reversal of revenue. The Company expects to recover approximately $1.2 million of this revenue during this calendar year. Because the costs have been conservatively estimated and already charged, when this revenue is realized, the Company estimates that it will be at normal or higher than average corporate gross margins.
About Frequency Electronics
Frequency’s Mission Statement: “Our mission is to provide precision time and low phase noise frequency generation systems from 1 Hz to 50 GHz, for space and other challenging environments.”
Subsidiaries and Affiliates: FEI-Zyfer provides GPS and secure timing ("SAASM") capabilities for critical military and commercial applications; FEI-Elcom Tech provides Electronic Warfare (“EW”) sub-systems and state-of-the-art RF microwave products. Additional information is available on the Company’s website: www.frequencyelectronics.com
Forward-Looking Statements
The statements in this press release regarding future earnings and operations and other statements relating to the future constitute “forward-looking” statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, other supply chain related issues, increasing costs for materials, operating related expenses, competitive developments, changes in manufacturing and transportation costs, the availability of capital, the outcome of any litigation and arbitration proceedings, and failure to maintain an effective system of internal controls over financial reporting. The factors listed above are not exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the Securities and Exchange Commission. The Company’s Annual Report on Form 10-K fiscal year ended April 30, 2023, filed on July 27, 2023 with the Securities and Exchange Commission, includes additional factors that could materially and adversely impact the Company’s business, financial condition and results of operations, as such factors are updated from time to time in our periodic filings with the Securities and Exchange Commission, which are accessible on the Securities and Exchange Commission’s website at www.sec.gov. Moreover, the Company operates in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible for management to predict the impact of all these factors on the Company’s business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this press release and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Contact information: Dr. Thomas McClelland, President and Chief Executive Officer; TELEPHONE: (516) 794-4500 ext.5000 WEBSITE: www.freqelec.com
What company discussed program charges affecting gross margins on its recent earnings call?
Frequency Electronics, Inc. (FEIM) discussed program charges impacting gross margins on its recent earnings call.
What was the amount of revenue expected to be recovered by Frequency Electronics, Inc. in 2024?
Frequency Electronics, Inc. expects to recover approximately $1.2 million of revenue in 2024.
How did the program charges impact Frequency Electronics, Inc.'s gross margins for the quarter ended January 31, 2024?
The program charges adversely affected Frequency Electronics, Inc.'s gross margins for the quarter ended January 31, 2024.
What accounting method led to the temporary reversal of revenue for Frequency Electronics, Inc.?
The percentage of completion accounting method led to the temporary reversal of revenue for Frequency Electronics, Inc.
What is the Company's expectation regarding its gross margins once the revenue is realized?
The Company estimates that once the revenue is realized, it will be at normal or higher than average corporate gross margins.
