Frequency Electronics Swung to Loss as Restructuring Crushed Margins
Funded backlog reached a record $111 million, up 59% from a year earlier.
Frequency Electronics (FEIM), the aerospace and defense electronics maker, swung to a fourth-quarter operating loss as restructuring charges and investment ahead of an expected production ramp weighed on profitability.
The reversal interrupted improving results earlier in the year. Gross margin had risen from about 36.8% in the first quarter to 39.2% in the third before dropping to 1.0% in the fourth quarter.
Fourth-quarter revenue fell 23% from a year earlier to $15.4 million and declined 8.8% sequentially. The company reported a net loss of $4.9 million, or $0.50 a diluted share, compared with net income of $3.2 million, or $0.33 a share, a year earlier.
Frequency recorded a $6.3 million operating loss, compared with operating income of $3.3 million in the year-earlier quarter. Excluding nonrecurring items and investment for future growth, the company calculated operating income of $206,000 and a 1.3% margin, while gross margin would have been 36.1%.
The largest restructuring item was a $3.8 million inventory write-down at the lower-growth, lower-margin FEI-Elcom manufacturing operation. Frequency also recorded severance costs, a noncash accrual tied to changes in employee sick-time and paid-time-off policies, and additional overhead from engineering hiring and manufacturing-efficiency investments.
For fiscal 2026, revenue declined 9.4% to $63.2 million, reversing the prior year's 26.3% growth. The company posted a $903,000 net loss, or $0.09 a diluted share, compared with net income of $23.7 million, or $2.46 a share, in fiscal 2025.
Frequency expects revenue growth to begin in the first quarter of fiscal 2027 and reaffirmed a minimum fiscal 2029 revenue target of $150 million. It also introduced fiscal 2029 minimum targets of 50% gross margin and 30% operating margin as it shifts toward higher-rate production and concentrates resources on alternative positioning, navigation and timing, quantum sensing, space programs and proliferated satellites.
Operating cash flow turned positive at $1.3 million for the year, though cash declined to $1.6 million from $4.7 million. The backlog increase left Frequency entering the production transition with more contracted demand and less cash on hand.