Frequency Electronics (NASDAQ:FEIM) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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The full earnings call is available at https://www.webcaster5.com/Webcast/Page/2231/54512
Summary
Frequency Electronics reported record first-quarter revenue of $23.5 million, up 70% year-over-year, indicating a strong return to growth.
The company achieved a gross margin of 45.8% and an operating margin of 22%, progressing towards their 2029 targets of 50% and 30%, respectively.
Backlog reached a new high of $129 million, up 82% year-over-year, driven by growth in core space and defense markets and emerging sectors like quantum sensing and space exploration.
A $73 million capital raise was completed to support customer-driven business expansion and potential capacity increases.
Management highlighted the successful deployment of their digital Rubidium Atomic Frequency Standard on GPS satellites and ongoing efforts in missile and secure communication programs.
The company remains debt-free, with a strong cash position, and anticipates being free cash flow generative going forward.
Operational highlights include ramping up production and exploring automation to enhance manufacturing efficiency.
Full Transcript
OPERATOR
Greetings and welcome to the Frequency Electronics First Quarter Fiscal 2027 earnings release conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. Any statements made by the Company during this conference call regarding the future constitute forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements inherently involve uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences are included in the Company’s press releases and are further detailed in the Company’s periodic report filings with the Securities and Exchange Commission. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this conference call.
It is now my pleasure to introduce your host, Thomas McClelland, President and Chief Executive Officer.
Thomas McClelland, President and CEO
Thank you. Good afternoon and thank you for joining Frequency Electronics’ first quarter fiscal year 2027 earnings call. With me today is our Chief Financial Officer, Steve Bernstein. I’m very pleased to report first quarter revenue of $23.5 million, an all-time record for FEI, up 70% year over year and up 52% sequentially. As we told you on our fourth quarter 2026 earnings call in July, we expected to return to growth starting in the current fiscal 2027 and this first quarter is a strong proof point of that.
Further, this performance gives us increasing confidence in our ability to meet or exceed the $150 million or more in annual revenue that we guided to by fiscal 2029, which ends April 30, 2029. I’ll have more to say about that target shortly. Steve will provide additional financial commentary later in the call, but I’d like to highlight a few items. On our July call, we established three-year minimum margin targets of 50% for gross margin and 30% for operating margin again by fiscal 2029.
In the fiscal first quarter we’re reporting today, we generated gross margin of 45.8% and operating margin of 22%. Substantial improvements and solid progress on our path towards our minimum targets. As I’ve mentioned numerous times over the past few years, we did not expect our progress to be perfectly linear on a quarterly basis, whether in revenue or profitability, but the trends we see in revenue backlog and pipeline as well as the internal improvements we’ve made that we discussed last quarter and the operating leverage we should generate with increasing revenue position us well to meet or exceed those minimum targets.
As for backlog, it grew to a new record of $129 million, up approximately 82% year over year and 16% sequentially. This continued increase in backlog gives further support to our ability to add meaningful growth to FEI in the years to come. As we’ve discussed before, we expect continued growth in our core space and defense markets, while also seeing additional growth coming from new markets such as space defense plan, proliferated satellites, quantum sensing, space exploration, and alternative position navigation and timing.
Today, I’d like to provide some additional color on several of these markets, all of which build upon our core timing and frequency generation capabilities. So I’m sure you’re all familiar with GPS satellites, part of the traditional space business we have sold into. On April 21st of this year, the final GPS 3 satellite was launched which included FEI’s newly developed digital Rubidium Atomic Frequency Standard, or DRAFS, atomic clock. This enhanced DRAFS clock is currently operational on the GPS satellite, is on order for use on other global navigation satellite systems, and is targeted at future GPS satellites including the upcoming GPS 3F, or follow-on, launches. This advanced atomic clock is an example of the company’s important capabilities not just to provide the precision time and frequency devices that we’ve been delivering for the last 65 years, but also our capability to deliver state-of-the-art products with capabilities fueling future technological innovations. You’ve no doubt seen the news flow over the past several months about the critical need for missile replenishment with government plans to significantly expand production by 2030.
And we’ve spoken with you before about our content that goes into missile batteries for programs such as Patriot and THAAD. We expect to generate revenue from those programs in 2027 and for years beyond that, coming from existing orders, more orders to come, and additional orders to meet the needs of allied countries. In addition to this missile battery-related work, we’re also now bidding on additional missile programs with components that go directly onto the missiles themselves.
In some cases we’re being asked to bid on these on missile programs in order to potentially displace incumbents. There is a secure communication program for the military that we’re producing that is a good example of both the higher-rate production programs we have spoken about and the push by our customers to deliver more sooner. In this case, we’re working on a production contract for over 1,000 systems. In addition, the customer on this program is now asking us to increase monthly production by more than 50% while also promising additional follow-on orders.
In other words, we’re expanding the total size of an already high-rate production program. For another example of our ability to use internally developed technology for expanded use cases, we’re currently exploring potential uses of our mercury ion atomic clock for naval applications. Strategic submarines are a potential use case for advanced atomic clocks because they need to be underwater for months at a time and their timing cannot be updated from GPS satellites while they’re underwater.
So they’ll need a different technology for certain use cases that require very highly accurate timing and our advanced mercury ion clocks may be the solution. We believe this is also a good example of our ability to participate in long-term programs for higher-priced systems and to do so with external funding. In quantum sensing, we’re making rapid progress in the development of advanced systems sensors for magnetic navigation in GPS-denied environments.
We just recently delivered a sensor and associated electronics to the Army Research Laboratory for additional testing. Development is ongoing at FEI to make smaller, more capable magnetic sensing systems for Alt PNT applications. Finally, I’d like to discuss the capital raise that we completed right at the end of the first quarter and how that may impact our long-term guidance. We told you previously that we have sufficient capital in place to meet the minimum $150 million revenue target by fiscal 2029.
Numerous customers, however, are asking us to do more for them and to do it more quickly. To meet this customer-driven business expansion, we decided to pursue a secondary offering of our common stock in July which raised approximately $73 million and also brought several excellent long-term oriented new institutional investors into our shareholder base. Approximately $14 million of the total came in after the quarter ended as the green shoe was exercised.
We remain debt free with a very strong cash position and we anticipate being free cash flow generative on an annual basis going forward. We would like to thank Morgan Stanley, our lead bankers on the transaction, and Craig Hallam, who served as book-running managers, for their hard work on this successful transaction. The capital we raised will allow us to pursue capacity expansion to help meet these additional customer requests which may have the effect of both reaching the $150 million minimum target sooner and making that target a substantially larger number by fiscal 2029.
We also expect that some of our customers will pay for capacity expansion in certain cases. We expect this additional revenue growth that derives from capacity expansion to be organic and it is likely that if we were to make any acquisitions they would be small tuck-ins to add to our vertical manufacturing capabilities. In other words, we do not intend to buy revenue frankly because we don’t need to. Given the strength of our backlog, pipeline, order book and prospects, there’s an exceptional amount of growth and value creation to be gained by focusing on what is in front of us without getting distracted by a larger acquisition.
We should be able to superserve our customers with this extra capital, resulting in additional profitable growth that should benefit our shareholders as well. With that, I’ll turn it over to Steve for some financial commentary and I look forward to taking your questions in the Q&A portion of the call.
Steve Bernstein (Chief Financial Officer)
Thank you, Tom, and good afternoon. As Tom highlighted, it’s a great start to our fiscal ’27 and a strong start to achieving our three-year targets. For the three months ended 26-7-31, revenue from commercial and U.S. government communication satellite programs was 11.8 million and accounted for approximately 50% of consolidated revenue, compared to 6.5 million and approximately 47% of consolidated revenue during the same period in the prior fiscal year.
Revenue is recognized primarily over time under the percentage-of-completion method. Revenue from the satellite market is recorded in the Frequency Electronics New York segment. Revenue from non-space U.S. Government Department of Defense customers, which are recorded in both the Frequency Electronics New York and FEI-Zyfer segments, were 11.1 million and accounted for approximately 47% of consolidated revenue for the three months ended 26-7-31, compared to 6.9 million and approximately 50% of consolidated revenue during the same period in the prior fiscal year.
Other commercial industrial revenue for the three months ended July 31, ’26 and ’25 accounted for approximately 3% of consolidated revenue and were 605,000 and 439,000, respectively. The revenue for the three months ending July 31, ’26 was significantly higher in both segments and in consolidation by approximately 70%, or 9.6 million, over the same quarter of the prior fiscal year. Revenue from commercial and U.S. government communications satellite programs increased 5.2 million and over 80%, and revenue from non-space U.S. Government Department of Defense customers increased 4.2 million and over 61% over the same period in the prior fiscal year. For the three months ended 26-7-31, both gross margin and gross margin rate increased compared to the same period in the prior fiscal year. The increase in gross margin is attributable to the 9.6 million increase in revenue compared to the same period in the prior fiscal year. The 9% improvement in gross margin rate is attributable to higher production levels driving efficiencies in labor overhead allocation, product mix, and also partially due to efficiencies recognized as programs mature.
For the three months ended July 31, ’26 and ’25, selling, general and administrative expenses were approximately 18% and 26%, respectively, of consolidated revenues, a decrease of approximately 8%. However, the actual expenditures increased by half a million. The increase in SG&A expenses during the three months ending 6-31-26 related mostly to compensation expenses. SG&A as a percentage of revenue decreased 8% over the same period in the prior fiscal year, demonstrating positive operating leverage given the higher revenue base and because the prior year included strategic headcount additions and process optimizations that were implemented to support growth in fiscal ’27 and beyond, which caused SG&A as a percentage of revenue to be higher in fiscal ’26. Research and development expenditures represent investments intended to keep the Company’s products at the leading edge of time and frequency technology and enhance future competitiveness. Fluctuations in R&D expenditures will occur in some periods due to current operational needs supporting ongoing programs. The Company plans to continue to invest in R&D in the future to keep its products at the state of the art.
For the three months ending 6-31-26, operating income was 5.2 million, or 22% of revenue, and increased significantly compared to the prior fiscal-year period’s 364,000 operating income due to the higher revenue, gross margin, and operational efficiencies described above. The majority of the approximately 0.1 million of investment income for the three months ended 26-7-31 was from interest income and unrealized gains on assets held in the Frequency Electronics Deferred Compensation Trust.
This yields a pretax income of approximately 5.2 million for the three months ending 26-7-31, compared to approximately 557,000 pretax income for the three months ending 26-8-31. Consolidated net income for the three months ending 26-7-31 is approximately 4.2 million, or $0.41 per share, compared to 634,000, or $0.07 per share, for the same period in the prior fiscal year. Our fully funded backlog at the end of July was approximately 129 million, a new company high compared to approximately 111 million for the previous fiscal year ending April 30th, ’26, and compared to approximately 71 million in the year-ago period.
The Company’s balance sheet continues to reflect a strong working capital position of approximately 90 million and a current ratio of approximately 5.3 to 1, helped by the Company’s stock offering, which increased further following the exercise of the green shoe after the quarter ended. Additionally, the Company is debt free. The Company believes that its liquidity is adequate to meet its operating and investing needs for the next 12 months and the foreseeable future.
I’ll turn the call back to Tom, and we look forward to your questions.
Thomas McClelland, President and CEO
Thanks, Steve. We’re now ready to take questions.
OPERATOR
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
And the first question today will be from Jeff Van Rhee from Craig-Hallum. Jeff, your line is live.
Jeff Van Rhee, Analyst at Craig-Hallum
Great, thanks. Thanks for taking the questions, guys, and congrats across the board. Just looks like a fantastic quarter here. Maybe a few for me. Tom, maybe touch on Turbo. I know, obviously, interesting form factor, a lot of useful applications. Could you just give us a little update in terms of what you’re seeing there? In particular from the new bookings side, strength of bookings, any quantification of where revenue is going, maybe insights into the use cases, just how it’s being deployed.
Just sort of a broader update on Turbo would be great.
Thomas McClelland, President and CEO
Yeah, sure, Jeff. We’re just starting to beginning to deliver production-rate Turbo units at this point in time. Relatively small quantities still, but we anticipate things will be picking up in the near future. We currently—the applications are all aircraft applications, manned aircraft applications, although we have discussions with some companies regarding drone applications, which is one of the areas that we’re most excited about. We are also starting some initial efforts in terms of updating the development of the Turbo units for use in space.
Primarily, that involves radiation hardening of those devices.
Jeff Van Rhee, Analyst at Craig-Hallum
Got it. That’s helpful. And then maybe just a couple quick on the numbers front, Steve: the percent of the backlog that’s 12 months. And then also, if you could, just any color around funded. I know you only report in total backlog the portion that’s funded. I’m wondering how the ratio of funded to total has changed maybe compared to, say, a year-ago quarter.
Steve Bernstein (Chief Financial Officer)
Well, I’ll answer the first question. The reported backlog is fully funded, so that is fully funded. We don’t report the non-funded portion, the options or things. Tom has explained numerous times, like we get a contract for, like, 10 million—maybe 10 or 20% of it’s funded—so only a million or two would go into backlog. We don’t report that other 8 million or 9 million until it becomes funded.
Jeff Van Rhee, Analyst at Craig-Hallum
Yeah, no, understood. What I’m asking is, you know, you’ve got visibility to what the rest of that backlog is, but you’re only reporting funding. I’m asking the ratio of what’s visible to total and how it’s changed. And then the second part of the question is what portion is the next 12 months?
Steve Bernstein (Chief Financial Officer)
Well, I think it’s multiple times of it going, you know, the unfunded portion of it. And as for the 12 months, it’s about 60-some-odd percent, 65% approximately.
Jeff Van Rhee, Analyst at Craig-Hallum
Okay. Tom, you referenced again on this call, and you talked about it last call as well—I mean, obviously the order book is full and you’ve got to figure out how to allocate and which orders to take. But one of the responses has been to ramp production. Just talk a little bit about, you know, where you are in that volume production ramp. Are you hitting your throughput goals? It’s a challenge to keep up with this level of growth. Curious how you’re doing on that volume production shift.
Thomas McClelland, President and CEO
Yeah, it’s a really good question, Jeff. I think that’s certainly one of our biggest challenges at this point. We are ramping—successfully ramping up our production on a number of fronts at this point. But we, you know, there are some challenges and limits to what we are able to achieve in that regard. And I think one of the management challenges is being able to thread the needle appropriately so that we, you know, of course, we never like to turn down additional business.
On the other hand, it’s very important for us to deliver what we say we’re going to deliver and to do it on time. So in some cases, we are not signing up to some of the more ridiculously optimistic schedules that some of our customers are asking for because we don’t feel that it’s possible. And I think, you know, it’s important for us to stand firm on that kind of a thing. But yeah, we’re walking a tightrope in this regard at this point. Let’s just put it that way.
Jeff Van Rhee, Analyst at Craig-Hallum
Yep, understood. And then maybe two other quick, if I could, on the proliferated LEO opportunity. I mean, I think you commented last quarter 90% win rates in space, and in particular we’ve seen some real interesting—call it green shoots—in terms of proliferated LEO and the ability to win. Just curious, any updates there? Last 90 days, things that have influenced your conviction, what you’re seeing in the pipeline there—observations on the PLEO opportunity would be great.
Thomas McClelland, President and CEO
Yeah, yeah. I think the opportunities are really good. I think that a big arena for us is the classified satellites, which—the architecture is very aggressively moving to the proliferated satellite model. It is still in the early stages of that transition, but we’re kind of at the point where we’re moving from demonstrating capabilities to initial production on those programs. We’re getting involved in more programs every day at this point, so that’s really pretty exciting.
But I think there’s a tremendous amount more to come in the future. We hear a lot of talk about data centers in space, but that hasn’t materialized quite yet. I know there’s talk about that happening in 2027, but I think that’s probably a little bit overly optimistic. But the proliferated satellite—that concept is definitely happening, and we are in the thick of it and very excited about that. Sort of a variant of that, we’re of course actively involved in some of the lunar missions that get a lot of press at this point in time.
In some ways it’s similar to the proliferated satellites; in some ways it’s different. We’re not really talking about hundreds or thousands of devices heading toward the moon. But I think a lot of the approach is similar to the proliferated satellites, where we’re looking for a lot smaller, cheaper, faster production of things. And so I think that’s important involvement for us because it helps to get our feet wet in this smaller, cheaper, faster arena.
Jeff Van Rhee, Analyst at Craig-Hallum
Very helpful. Last one maybe on gross margin. Tom, I know you pay a lot of attention to which contracts you take and which you don’t. And there are a lot of variables that can affect your gross margins, whether they’re follow-on orders versus new and a variety of other things. Just as you look at the order book and what is to come over the next few quarters, any notable callouts in terms of, you know, you put up a great gross margin print here this quarter, quite a bit ahead of us.
Things that would drive it higher or lower. I know you’re not going to call a specific quarter, but as you look out over the next, you know, two or three, anything to call out about what’s in that pipe and going to turn into revenue and whether those are in particular upward or downward pressure on gross margin.
Thomas McClelland, President and CEO
Yeah, you know, I don’t see any particular either upward or downward pressure on things at this point in time. I guess what I’d say is it’s really part of our strategy at this point, and we’ve talked about it before, you know, there’s so much growth in our basic markets that it puts us in a really strong position. We can be a little bit picky. So I think for us, the strategy is to be disciplined, to make sure that we bid things, you know, such that we can be very profitable and maintain our high margins.
And of course, part of that strategy is being willing to lose some things if the competition is extreme and the margins that we would necessarily need to accept in order to get those programs are a little bit lower. So we’re in a really good position and we are staying disciplined. And yeah, I think we’ve talked about it previously. The proliferated satellites, especially in the early stages, are ones where we are willing to accept somewhat lower margins in order to get involved in those programs.
But at this point, there’s not a major move in that direction in the sense of having to accept lower margins. We are seeing activity in the proliferated satellites, but we haven’t really seen a lot of pressure on our margins. So I think it’s pretty optimistic on the margin front. But, yeah, I will say that we shouldn’t interpret that as a straight line upward necessarily as we go.
Jeff Van Rhee, Analyst at Craig-Hallum
Yep, yep, got it. Congrats and understood. And obviously years of decision making, good decision making, getting you guys to this point. So congrats to the whole team.
Thomas McClelland, President and CEO
Thanks, Jeff.
OPERATOR
Thank you. The next question will be from John Sigman from Stifel. John, your line is live.
John Sigman, Analyst at Stifel
Hey, good afternoon. Thank you very much for taking my question. And congratulations on the momentum in the business.
Thomas McClelland, President and CEO
Yeah, thanks.
John Sigman, Analyst at Stifel
So the company’s got a long history of relationships with the larger traditional companies. You’ve made reference in earlier calls about bidding with some of these new companies. Clearly some success sounds like it’s percolating on the space side. Can you talk a little bit about any penetration and success you’ve had with the new defense tech companies? Thank you.
Thomas McClelland, President and CEO
Very good question. Yes, I think it’s true that at this point in time, most of our success in this arena is in the space environment. I have to be very careful about talking about specific programs, but we’ve had conversations with a number of the newer space companies on a variety of different programs, Intuitive Machines, Astranis, and a number of others. In the defense arena, we don’t have a whole lot of success in this area yet, although we are certainly pursuing things with a number of different companies.
Of course, Anduril in particular is one that we’ve had communications with. Let me just leave it at that.
John Sigman, Analyst at Stifel
That’s great. And then, well, maybe just on the traditional side, the Patriot and THAAD production increases. Understand you’re more on the battery side versus the interceptor side, but is there any way to frame how much increases that could be for your business if we’re tripling production rates for those programs? Thank you again.
Thomas McClelland, President and CEO
Yeah, it’s very, you know, it’s very significant. Obviously, you don’t build new batteries every time you shoot off a couple of missiles. But I think the bottom line is we’re seeing a tremendous amount of business for both THAAD and Patriot. And I think, to put that into context, I think, you know, there’s a lot of activity in Ukraine talking about additional missile batteries and things. And I think the more missiles are shot off, it tends to mean that batteries are needed in additional locations, and this translates into more business for us in these applications.
So, yeah, for whatever reason, I think the bottom line is it’s a thriving business for us at this point.
John Sigman, Analyst at Stifel
Thank you.
OPERATOR
Thank you. And once again, it will be a star one if you wish to ask a question today. The next question will be from Steve Levinson from Big Rock Research. Steve, your line is live.
Steve Levinson, Analyst at Big Rock Research
Thank you very much. Good afternoon.
Thomas McClelland, President and CEO
Yeah, hi, Steve.
Steve Levinson, Analyst at Big Rock Research
I’ve enjoyed watching your progress over the last few years, and I’m curious about a few things. You talked about using some of your new capital to expand manufacturing, and I imagine a lot of your work is sort of manual bench work, and I’m wondering if there’s an opportunity to enhance margins by using some automation or is that impractical for the sort of assemblies you make.
Thomas McClelland, President and CEO
Well, that’s a very good question. It’s certainly not out of the question. In fact, we are looking at that very carefully, especially in, you know, quartz crystal manufacturing is an important part of what we do and the quantities that are required. I guess I should emphasize that all the quantities, you know, this is part of our vertical integration. We do all of the manufacturing of quartz resonators, starting from raw quartz crystal material. And so the production there is certainly one of the challenges that we face at this point in time.
And we are looking at putting in place additional equipment that has higher throughput capabilities. We tend to think of our production facility as sort of a boutique facility because in general, the quantities that we work with are relatively small for space applications and so forth and so on. And, you know, relative to quartz crystal manufacturing for consumer watches and things of that sort, our production will remain relatively small going forward, but it is nonetheless increasing.
And so we are looking at putting in place equipment that can increase the throughput. In addition to that, though, there’s a lot of equipment that is needed. Just in general, most of the products that go into space need to be tested in a space-like environment, so-called thermal vacuum, vacuum environment, where we can modify the temperature to be similar to what units experience in space. So obviously that’s an environment which is normally not encountered on Earth.
And there’s a lot of special test equipment in order to be able to test in those kinds of environments. So that’s another thing that we’re looking at adding additional capacity for. And of course, there’s a lot of other things that we’re looking at at this point in time. Those are just kind of a couple of straightforward examples.
Steve Levinson, Analyst at Big Rock Research
Great, that’s helpful. Thank you. My other question would be, in terms of proliferated satellite constellations, is there an application for the quantum sensor to gather data for the World Magnetic Model? Is that something that can be done using that device from space or is that more a terrestrial item?
Thomas McClelland, President and CEO
Well, it definitely is something that meaningful measurements can be made from space. And I know there is definitely some talk and some ideas for doing just that. I think that in terms of overall quantities, I think that would remain relatively small. But it is definitely something that we’re interested in pursuing.
Steve Levinson, Analyst at Big Rock Research
Great. Thank you very much. I’ll be watching your progress along the way. Thanks.
Thomas McClelland, President and CEO
Okay, great. Thank you.
OPERATOR
Thank you. The next question will be coming from Michael Eisner, and Michael is a private investor. Michael, your line is live.
Michael Eisner, Private Investor
Great job. One quick question or two. In space, is there a specific area you see the most revenue coming from or opportunity?
Thomas McClelland, President and CEO
Well, I think. No, the simple answer is I think we are seeing increasing revenue from just a variety of different directions. And that’s really what’s so exciting and unique about this time, you know, relative certainly to a decade or two decades ago. It’s just, you know, I think we’ve commented on it recently. Whereas a decade ago there were something like 100 launches in a year. I think in the last year the United States had something like launched something like 3,700 objects into space.
So 100 objects launched into space, objects being satellites and things like that, and now 3,700. So tremendous growth any way you look at it. The traditional satellite activity is booming. We have a lot of work going on right now. But the new proliferated satellite stuff is also very active. And we have a lot of programs that we’re getting involved in. And as we demonstrate success on those programs, we see more and more coming in the front door.
So pretty exciting.
Michael Eisner, Private Investor
I like the answer. What’s the book-to-bill at this time?
Thomas McClelland, President and CEO
Steve, you got those kind of numbers?
Steve Bernstein (Chief Financial Officer)
The book-to-bill is about 1.76 to 1 for the quarter.
Michael Eisner, Private Investor
1.76 to 1. All right, excellent. Thank you for your time.
Thomas McClelland, President and CEO
No problem. Okay, thanks, Michael.
OPERATOR
Thank you. And the next question will be from Robert Smith from the Center for Performance Investing. Robert, your line is live.
Robert Smith, Center for Performance Investing
Thank you for taking my questions. Congratulations on the ramp. It’s superb to see.
Thomas McClelland, President and CEO
Thank you.
Robert Smith, Center for Performance Investing
My first question is, could you give me the current R&D figure and how do you see R&D as a percent of revenue going forward considering the large targets that you have for growth?
Thomas McClelland, President and CEO
So, a good question. I think a couple of qualitative statements. First, I think we’ve talked about this in the past, but one of the overall strategies for the company is to try to get as much external funding for R&D as possible. I think this is really important in the kind of products that we specialize in because, you know, the primary customer for our products is really the U.S. government. And you know, when the U.S. government funds research, it’s always because they’re funding applications that they’re interested in.
And of course, that’s what we want to focus our research and development on, what our customers are interested in, as opposed to stuff that might be intellectually interesting but doesn’t necessarily lead to profitable products down the road. So that’s the first thing is to try to get external funding for as much research and development as possible. But talking about the internal R&D, I think that like a lot of things, you have to understand that there will be fluctuations.
And so I don’t want to make statements that will be held to on a quarter-by-quarter basis, but I think that we anticipate the internal R&D funding to stay under 10% of revenue at this point in time. I think that we will see in an absolute sense some additional R&D expenditures over the next couple of years as our revenue grows. I hope that gives at least a bit of an answer to your question.
Robert Smith, Center for Performance Investing
It does. And my second question is, would you at all consider the initiation of a small cash dividend to attract any number of institutions that won’t buy a security without a cash payment?
Thomas McClelland, President and CEO
Well, we have done so in the recent past, and I think we certainly will consider that going forward. I’m not making any promises at this point, but yes, definitely something that’s on the table.
Robert Smith, Center for Performance Investing
Thanks very much. Good luck.
Thomas McClelland, President and CEO
Thank you.
OPERATOR
Thank you. Thank you. And there were no other questions at this time. I would now like to hand the call back to Thomas McClelland for closing remarks.
Thomas McClelland, President and CEO
Thank you. Thanks for taking the time to listen and participate in today’s earnings call. And we look forward to providing further updates in the coming months. Thanks.
OPERATOR
Thank you. This does conclude today’s conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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