Frequency Electronics (NASDAQ:FEIM) said it expects to return to growth in fiscal 2027 after what management described as a year of “digestion,” citing a record funded backlog, strong bookings and expanding demand across space and defense markets.
On the company’s fourth-quarter fiscal 2026 earnings call, President and Chief Executive Officer Thomas McClelland said Frequency Electronics ended the fiscal year with a funded backlog of $111 million, the highest in company history. He said bookings in fiscal 2026 were also the largest annual total the company has recorded, with the fourth-quarter book-to-bill ratio nearly three times.
Management Sets Three-Year Revenue and Margin Targets
Frequency Electronics said it is targeting at least $150 million in revenue within three years, a level McClelland said represents a 34% compound annual growth rate from fiscal 2026. He said the company has not historically provided guidance because its business can be nonlinear by quarter or year, but management is more confident in projecting multi-year growth due to the expansion of its backlog and order book.
The company also introduced three-year margin targets. McClelland said Frequency Electronics is establishing minimum targets of 50% gross margin and 30% operating margin by fiscal 2029. He said depreciation and amortization expenses have historically been in the low- to mid-single digits as a percentage of revenue, and management expects that trend to continue.
McClelland said the path to higher margins is tied to a shift in the company’s operating model. Frequency Electronics is moving from what he described as a “bespoke manufacturer of exquisite products with more episodic production schedules” to a higher-rate production company making more units of similar products on a more consistent basis. He said that should improve overhead absorption and reduce non-recurring engineering as a percentage of the total business.
Fourth-Quarter Revenue Falls, But Executives Point to Growth Ahead
Chief Financial Officer Steven Bernstein said consolidated revenue for the three months ended April 30, 2026, was $15.4 million, down from $19.9 million in the same quarter a year earlier. Bernstein noted that the year-earlier fourth quarter was the company’s highest revenue quarter in 25 years, making for a difficult comparison.
For the quarter, revenue from commercial and U.S. government satellite programs was approximately $7.7 million, or 50% of consolidated revenue, compared with $12 million, or 60%, in the prior-year period. Revenue from non-space U.S. government and Department of Defense customers was $6.8 million, or 44% of consolidated revenue, compared with $7 million, or 35%, a year earlier. Other commercial and industrial revenue was about $908,000, versus about $890,000 in the prior-year quarter.
For fiscal 2026, total revenue declined by approximately $6.6 million, or 9%, compared with fiscal 2025. Bernstein said the decline reflected the company pulling some revenue into fiscal 2025. However, non-space U.S. government and DoD revenue increased by approximately $11.5 million, or 43.2%, in fiscal 2026 from fiscal 2025.
Bernstein said adjusted gross margin and operating margin, excluding certain charges and growth-related investments, would have been approximately 36% and 1%, respectively, for the quarter, and approximately 41% and 11%, respectively, for the fiscal year.
Space, Defense and Alternative Navigation Drive Demand
Management highlighted multiple growth areas, including proliferated satellite programs, quantum sensing, space defense, space exploration and alternative position, navigation and timing, or PNT. McClelland said the company has already won business in each of those areas and expects additional wins in both new and traditional markets during fiscal 2027.
McClelland pointed to a contract of approximately $7 million for compact, highly precise atomic clocks to support PNT for a lunar space mission. He said the company expects additional awards of greater magnitude for similar programs and potentially deep space missions. He also cited a space defense contract that included both hardware and internally developed software for secure communications applications.
In response to an analyst question about GPS jamming and spoofing in conflict zones, McClelland said those developments have increased the need for systems that can operate when GPS is unavailable or unreliable. He said more precise atomic clocks can support timing during GPS-denied periods, and he also discussed early-stage work related to magnetic navigation.
McClelland also said the company is seeing demand from missile replenishment activity, including systems such as Patriot and Terminal High Altitude Area Defense, where Frequency Electronics provides content in missile batteries. He said the same technology is expected to be part of Golden Dome and SHIELD programs over the next few years.
FEI-Elcom Restructuring Weighs on Reported Results
Frequency Electronics said it restructured its FEI-Elcom manufacturing business in New Jersey during the fourth quarter because management determined it did not have the growth or margin potential of the company’s core space and defense markets. McClelland said the move sacrificed some near-term revenue but aligns capital and talent with higher-return opportunities.
The restructuring included a $3.8 million non-cash inventory write-down that flowed through cost of goods sold and depressed gross margin for the reported period. McClelland said the company also incurred severance costs in selling and administrative expenses, while the restructuring generated more than $9 million in future tax benefits.
Bernstein said the revenue forgone in the fourth quarter from the FEI-Elcom decision was about $1 million. During the question-and-answer session, McClelland said the company has some commitments to honor, but expects to wind down the activity roughly over the next fiscal year.
McClelland said the company made significant investments in fiscal 2026, primarily in engineering talent and business process improvements, to prepare for anticipated production and revenue growth. He said those investments were funded with cash generated from operations and that the company does not need additional meaningful investments to reach its three-year revenue target.
“We simply need to execute,” McClelland said.
Management said it expects growth to resume in the current fiscal first quarter and said fiscal 2027 should include record revenue quarters, though McClelland declined to make a specific statement about any individual quarter.
About Frequency Electronics (NASDAQ:FEIM)
Frequency Electronics, Inc (NASDAQ:FEIM) is a U.S.-based designer and manufacturer of precision frequency control products and timing solutions. The company’s portfolio includes oven-controlled crystal oscillators (OCXOs), atomic frequency standards such as rubidium oscillators, GPS-disciplined oscillators (GPSDOs), microwave synthesizers, and integrated timing subsystems. These products are used to provide stable and accurate frequency and time references for applications that demand high performance and reliability.
FEI serves a broad range of markets, including telecommunications, aerospace and defense, satellite and space systems, test and measurement equipment, and critical infrastructure.
