Greetings and welcome to the Frequency Electronics Third Quarter Fiscal 2015 Earnings Release Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] 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 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 General Joseph Franklin. Please, go ahead sir.

Thank you very much, [indiscernible] and thank you all for joining us this afternoon. We appreciate you taking this time out of your schedules busy as you are to be with us. And we look forward to your questions when we finish. This of course is our third quarter fiscal year results. And I’m joined of course by Martin Bloch, our Chairman.

No, President.

Our President; and Alan Miller, our Chief Financial Officer. Alan will start the conversation folks. So hang on and we’ll look forward to your questions.

Thank you, Joe. For the third quarter of fiscal 2015, revenues were $18.4 million, compared to $18.2 million in the year-ago fiscal 2014 third quarter. Satellite revenues continue to represent approximately 60% of consolidated revenues, similar to the ratio in the prior year. Revenues from non-space U.S. Government/DOD programs including sales by FEI-Elcom and FEI-Zyfer accounted for one-fourth of consolidated revenues and roughly about 25% over the third quarter of last year. This growth in revenues reflects FEI-Zyfer’s continuing sales related to the U.S. Government’s critical secure communication program to prevent GPS jamming and multi-path. All Government end-use revenues, which include U.S. Government/DOD non-space and U.S. Government satellite programs, account for more than half of third quarter revenues and approximately 45% of consolidated revenues year-to-date. Revenues from network infrastructure another commercial products that are recorded in FEI-New York, Gillam-FEI and FEI-Zyfer were 15% of consolidated revenues for the quarter and approximately 20% for the nine months year-to-date which is about the same rate as the prior year. Overall, we anticipate that total consolidate revenues for fiscal 2015 will exceed the revenues at fiscal 2014 primarily due to strength in our space and U.S. Government non-space business areas. Our gross margin was $5.9 million, compared to $6.1 million last year yield in a gross margin rate, 32% in fiscal 2015 third quarter, compared to 34% last year. During third quarter, we incurred increased cost associated with further expanding our production capacity along with product mix these costs reduced our gross margin and our gross margin rates. After this current fourth quarter, we expect these additional cost to be reduced as we achieve our capacity objectives and this investment should result in fiscal 2016’s gross margin rates that are closer to our target. SG&A expenses were $3.6 million as compared to last…

Good afternoon everybody, I want to start out by what was the challenge for FEI in fiscal 2014 so far. The most important item that we had to demonstrate is that we have increased our capacity to deliver hardware because that was concern of all our main satellite customers. And we have done this by investing an automated test equipment and capital equipment in thermal vacuum to simulate space and other electronic test equipment. Trained NASA skilled assemblers, which is a key important building block on it, added five engineers to our fab [ph] to be able to respond test to the cycle time demands and this has drastically put enormous amount of stress from typical cycles of 26 months to 36 months both of the new commercial satellites have a cycle time of 13 months to 15 months. We’ve also added a night shift, which helps enormously in throughput, because testing can continue 24/7. For space we have developed this year some exciting new products, this one of a state-of-the-art [indiscernible] us later, which has outstanding short-term stability to fulfill very challenging missions for military, as well as scientific satellite programs. We improved our EPCs for manufacturability and reliability completed almost all the work on a Ku-Band Ka-Band converter product line, which we’re now trying to market very aggressively to all of the satellite manufacturers. We developed and delivered space synthesizers with enormous reduction in size to address in addition to the geosynchronous market than large emerging camp, earth satellites where size and weight is a premium and performance is just as important as in geosatellites. We have also completed the development of the GPS III atomic clock to address the GPS satellite program and we’re going through the final validation with all the necessary paper work that requires…

Thank you. [Operator Instructions]

All right, operator, could you please ask that them to address the question to either General Joe Franklin, Martin Bloch or Alan Miller. So we know who will answer it.

[Operator Instructions] Our first question comes from Tristan Thomas with Sidoti & Company. Please proceed with your question.

Hi Martin [ph] can you hear me?

Hi, Christian.

Yes we can hear you loud and clear.

Perfect. First question directed for Martin. Could you maybe provide a new timeline when you expect to win new contracts, some of your new products? And then also, second part, if it has may be – been pushed back is that on the government and is that on satellite manufactures and maybe give us a little contracts and what’s going on unchanged [ph]?

Well, we have many outstanding proposals and we expect to negotiate new satellite contracts pretty much on a monthly basis with our major forecast commercial customers and government. So the timeline is – continues. It’s not something that we’re waiting for like, as an example, we’re right now negotiating contracts on three satellites to do the basic development and we hope to conclude this negotiation before the end of March.

Okay. And now, hypothetically if you do conclude negotiations by the end of March, how soon would you begin recognizing some revenues there, hypothetically?

How soon we would get revenue?

Yes, just try to give maybe a little bit of context from…

Well, typically, I’m just on present complete, Alan we would actually get revenues in a first four, start getting in a first quarter of fiscal 2016.

Okay.

And by the way, this the proposal that we have outstanding addresses our existing product line plus our new products especially then Ku-Band, Ka-Band up down converters and those specialized synthesizers for their earth-orbiting environment.

Okay, great. Again I had a I got a sort of a hypothetical question on that. And I know you mentioned FEI-Zyfer was quarter. What is it going to take to get Gillam back to a similar level that’s actually possible?

Again, Gillam, a miracle, what basically is they have a couple of exciting product and that’s what we are watching to see, if we take traction and this is basically they developed on RPUs for the French electricity companies and that has a large market potential and this is, they are like 60 to 100s and 50,000 slots for adjustments in France. And they one another large Schneider are the only two people that have so far submitted acceptable remote terminal units for that program. And the other is the build up of the wireless network by French telecom, that a two big opportunities and if this and doesn’t happen soon, we’ll have to do something more drastic.

Okay two questions for Alan, I may have missed this I think you mentioned it SG&A do you expect that to [indiscernible] in the fourth quarter are we still looking for more cost related to some of the production build out.

As far as SG&A is concerned it’s been running, right around the $3.5 million quarter and I don’t know…

Okay, I’ll talk to it, and then gross margin [indiscernible].

And then gross margin okay, okay, that makes more sense. Yes, I think we anticipate that our gross margin rate we probably somewhat similar to what you’ve seen for the first nine months of year, we open for it an improvement as some of these costs get behind us, but I can’t predict that we will be 100% finished.

Okay, and then just one questions regarding the tax rate.

Yes.

You mentioned your R&D credit is that something we should model [ph] moving forward or is that a one time in that?

Well, again somewhat is depended upon the amount of gains and losses that are incurred in our foreign subsidiaries, which don’t get tax effected, but I would say some price in the 32% to 35% rate would be the effect of rate for the full year.

Okay, got it thanks.

Our next question comes from Marcel Herbst with Herbst Capital Management. Please proceed with your questions.

Hi, good afternoon and thanks for take my question. Martin, in the PR you spoke about rationalizing our segment assets and operations, can you talk a little bit about what exactly that means and give more color on how you’re doing that?

Again, I’m sorry I’m a little bit [indiscernible] mode, could you’re repeat the question.

Yes, in the PR you spoke about rationalizing our segment assets and operations, I was wondering what that means and maybe get a little bit more color on how you are doing that.

Well, we’re examining our subsidiary especially, Gillam and see how they fit in into our future and see if we can uphold [ph] their assets to a better benefits of shareholders value and we’re examining get at very carefully to see and see or what to do about it.

Oh I see, okay. On the last call, you gave it about seven or eight likelihood to get a Ku, Ka band contracts before April 30…

Yes.

I was wondering how do you see that now.

At any minute, we’re in negotiation right now.

Alright, that’s good to hear. Regarding your small earth-orbit payload opportunity that you mentioned earlier…

Yes.

Can you tell us how close are you to adding to the backlog on this and what kind of annual revenue potential does this product line have?

Okay. I’ll tell you what is right now and why outcast that nobody can fully define. Right now, we’re participating on about a half a dozen military classified earth-orbiting satellites. Plus of course, we’re supplying all the up-down converters and timing for radio mix as you probably know, on that best. And those earth-orbiting satellites for DOD and classified mission are becoming more urgent and more numerous in the area. And at that time, they require better performance on timing and frequency and phase noise, at the same time, significant reduction in size and weight because the satellites are smaller and they are more numerous and we have developed and demonstrated some key building blocks for that arena. So we’re starting to get business and we probably have a couple of million dollars right now in the backlog for developing for these military earth-orbiting satellites. And some significant contract on, they are still considered earth-orbiting, but in a slightly different orbit which are for military and secure end-use. The most time, the most wild card is that new – a view earth opportunity that we’re all looking at, if that goes that’s going to be 920 satellites, it’s a new Teledesic and we have a submitted proposals…

World view, that name of it.

And they’re listed as VU.

Okay.

And it’s well funded and this now if it goes we’ll have significant opportunity in satellite space. The challenge over there is to build something very liable and very inexpensive, but the opportunity is there.

So there is a $2 million in for development contract?

Yes at least $2 million.

How long is the development phase until you go top qualification and production orders?

This is very, it’s a very fast track and very similar you know that the new earth military satellite have the same type of urgency as their GEO commercial, they went from cradle-to-grave to get down between 12 months to 18 months cycle.

So it sounds like that this is an opportunity in the eight figure type of size once this gets going?

Very true, it’s a very exciting market because the quantity is large and good or bad the earth satellite don’t last long in orbit.

Okay, thank you so much, that’s all from me.

Thank you.

Our next question comes from Michael Esner, a private investor. Please proceed with your question.

This question is for Martin Bloch. You mentioned in your…

Hi Michael.

Yes, you go hot. How are you?

Okay, Michael.

You mentioned in the press release to get towards your capacity objected, what is that objective?

I don’t know what you’re referring to?

What is the objective?

To what type of volume?

What type of volume can we handle?

Well, we’re looking for infinity, but our immediate goal is to be able to handle approximately one and a half to two times our present satellite volume.

Okay, and how many people do you have in the night shift now?

We have dozen plus but we’re actually shifting, we have been reasonable successful in shifting some of the day operators in at night whenever we need them, so we can test satellites, hardware twenty-four-seven, which is very important to reduce the cycle time.

And do you think by the end of the fiscal year you would be ready to meet all your capacity?

There is no such thing as meeting all the capacity because hopefully it’s a continuously increasing cycle. We are trying to demonstrate very successfully to our major customers that we can meet the present demands for capacity and sorter cycle time. It’s a two head sword, not only as to more hardware but the cycle time is significantly reduced. Which means in addition to the equipment and training and people, we are also investing in long-lead paths because sometimes a $10 parts can be 70 weeks and it screws your whole schedule on a $1 million or $2 million box. So, all of this is being put in place to meet the response time. Response time is number one, two and three.

Okay, and can you say, it’s good to be noted here, are going to be able to announce any of these contracts or they, I think, you can get something by year-end or fiscal year-end?

Well, I’ll have to check on this. Some of these earth-orbiting satellites are sensitive and our customers really don’t want any publicity. So, I’ll have to check Michael. Whatever we can announce, we will announce.

Or at the Ku, Ka, that’s up you can?

On the Ka, Ku we definitely can and will because those are negotiation on commercial satellites.

Alright, thank you very much.

You are very welcome.

Our next question comes from Sam Robowsky with SER Asset Management. Please proceed with you question.

Yeah. Good afternoon Martin, Joseph and Alan.

Good afternoon.

Good afternoon.

And so, it looks like you said in the new year April 1, we should have the up down in everything going. Are we negotiating with more than one contractor?

Yes.

Okay, okay. And so, we expect say by the end of March one contract or two contractors?

Well, you know I didn’t say end of March, I said in this quarter of this item. Again though I don’t control the exact date. We are in the process right now negotiating with a couple of contractors on the Ku, Ka band and other type of up-down converters. And its eminent it should happens in a week or three weeks, that I have the control of.

Okay, okay.

But it’s short term.

Okay. So, do you need to get more inventory or do you have plenty inventory to ship?

We have plenty of inventory and so we need those few critical parts which we have put on order of the long lead electrical parts that are hard to get and require a lot of screening, but that’s peanuts and this is inner works.

Alright, so with at this point, everything seems to be ready to go. And all these contracts that you are bidding on are funded, and how much do you expect to do per satellite now in the new year?

More than we did.

Yes.

We did it in the past and you know that our policy is not to give guidance on exact numbers.

No, but did you’re doing $5 million to $10 million now you’ve been talking about doing $25 million.

You’ve been per satellite.

Per satellite.

Yes, we are proposing assistant that in the $20 million range.

$20 million range, alright. Look you should get a couple of orders soon.

Well, that’s objective.

Yes, and start shipping.

We hope, first you got the get the order, then you have to do the crèche [ph] development and then you ship.

Alright, good work, Martin. I’m waiting for the audience.

Thank you.

Okay, thanks.

Our next question comes from Ryan Levenson from Privet Fund. Please proceed with your question.

Good afternoon, gentlemen. I’ve a question about…

Good afternoon.

Thanks, Martin. In the press release, the statement about backlog, there is [indiscernible] of the satellite backlog to date but not include orders for the company’s do satellite payload microwave receivers do a lot of those product line. If you were to include that where would the $41 million backlog number go to?

Well, we try to emphasize Ryan we haven’t received those orders yet.

So then, why are you including that statement on there.

Because people were anticipating that we for the last call that we would have some by now, but we have not received any orders at this point. As Martin, indicated we’re still negotiating with our potential customers on that. So at this point, the backlog is not including anything for new orders, for new products I should say.

Okay. So I’m just confused as to how the backlog has declined so much over the last couple of quarters.

I’m sorry, could you repeat the question. I didn’t understand it.

I can move on. So a trust in your first caller, mentioned something about three satellite and I’m guess asked theoretical question and Martin you comment not to respond to something a little more tangible. I’m just wondering the size of the three satellites that you’re – the contract size of those three satellites are you talking about that…

That we’re negotiating? I am sorry about that. Those are very sensitive and both the hardware and the dollar value are not disclosable for public domain, but they are great starts and those satellites have lots of tails. So we are very excited about that opportunity.

Okay. Can you give us an order of magnitude on that? I think your last caller…

Yes, it’s about in the $5 million to $10 million range.

Okay. Then that bucket that you’ve been bidding for last three quarters.

Then the last thing I want to ask about is a timeline on Gillam. You mentioned it would be a miracle for Gillam just turn around it. I’m just wondering what internal action is being taken and what aside from examining it, what kind of timeline we can get on that?

Okay well, me and Oleandro Mancini are planning due diligence trip to Gillam, sometimes this summer and we will examine, I will again stop buy at French Electric Company and try to obtain a timeline from them because less time when I talked to them a year ago, they said that they would start ordering production in calendar year 2015, but we haven’t seen any orders. So that’s one of my missions and the authors also to meet with French telecom and see what their plan is for building up. And at the same time we will see if there are any alternative solutions for Gillam. If those products wants are not going, then they don’t have a mission anymore in our family and we are obligated to deploy those assets in a better direction.

Okay, so what’s the drop that day?

2015.

Calendar or fiscal?

Calendar. Fiscal is only six weeks.

I know. And just the last I have to just one more about the General’s acquisition comment. Can you maybe elaborate on that a little bit? Looking ahead or focus will remain on potential corporate transaction opportunities?

Well, its something we’ve talked about it at various conferences as well, as that is where we’re looking potentially for other acquisitions that to be tuck-ins for frequency. But are also open to other avenues of approaching partners that could help us to enhance our products, so we’re looking that potential so to partner up.

This is a…

Merge the company with another company or a joint venture of some kind.

Both, both of these basically involved. We have a great strategic asset in this time and secure communication and we are looking very carefully, to see if we can explore it or opt with somebody that has more muscles than we do. And that’s what is getting a lot of attention.

Okay. Thank you.

You’re welcome.

Our next question comes from George Marima Private Investor. Please proceed with your question.

Yes, hi, thanks. I’ll ask my question to Joe, not to be lonely over there. If you could in the call, you talked about 2015 versus 2014 that you expect revenue to be higher. But that implies, all that implies as more than $14.2 million in the fourth fiscal quarter. I’m assuming and expecting a big drop of over this quarter, are you?

No.

I think Alan has a details, I think he’s more qualify to answer it, go ahead Alan.

Well I don’t see in my notes, I refer to anything about our revenues for the next quarter.

Go ahead Alan.

No, no, but you said you expect the, have you said expect revenue in 2015 to be greater than 2014, but that doesn’t say much.

No, we appreciate that $25 million [ph] ahead of last years run rate…

Right.

And we expect to see that maintain, last year, we did $71.5 million we’re certainly on record on track to well exceed that number.

Okay, so expect somewhat of a sequentially similar quarter. I assume all way around.

Well, we don’t comment on specifics, but yes in general.

Give or take that’s what it got to be.

No, it’s a good assumption.

Okay, not a big drop anyway okay.

No, no, we don’t expect that it drop.

No.

Got it, okay. So the director capacity, well we first of all, are you still hoping for two to three sort of Ku deals in 2015, is that the hope.

We have the hope.

In calendar or fiscal?

Yes, well, no, calendar 2015.

Definitely.

Okay. It sounds like your capacity why you said 1.5, two times is – you could be a $100 million to $150 million revenues size company. As you look behind, I know a lot of these things are time, these things have to move in and out of the shop quickly, if you look out I guess the only way to expand, will be is to do it through an acquisition either you buy somebody or someone buys you to get about that level yet?

Well, there’s quite a few ways and that we’re exploring on this. One of things is that we are working quite a few companies to out sourcing because that’s a big portion on this are now some qualified people that do assembly and test for space and we are working with them to see if they can handle our product line. And we are doing the lot of automatic testing in order to get the throughput to give you an example, on the radio mixed [ph] the automatic test equipment that we have instituted reduce the test time from a 108 touch hours to 24 touch hours. So automation is a big part of increasing throughput and putting machines to work, which are more accurate and of course they don’t take coffee brakes and they work 24/7. So that’s the areas both outsourcing and additional automatic equipment at FEI and the night shift, which is key because of the continuous test time you don’t want to interrupt the test time, which is imperative to achieve good cycle time.

Okay. And on this new military government satellite opportunity is that project, the government project, is that called WorldView?

No, WorldView is commercial, WorldView is if you are old enough to remember about 15 years ago was it Teledesic?

Yes.

I think 15 years or 20 years ago, Teledesic was formed and they acquired them the bandwidth in an earth-orbiting satellite to supply basically Internet to every place on the globe. And that program at that time could not be implemented because there wasn’t enough gallium arsenide in the process to be able to do it. And the satellites were too expensive to do. Right now this program is getting rejuvenated and it’s been funded with the couple of billion dollars to see if it can be done and VU is the one of the companies that is hand showing that they bought the Teledesic bandwidth and they are right now out for proposals from three or four of the major satellite manufacturers to see what they can come in at a cost to be able to build about 900 to 1,000 satellites.

This means this is military program, what – is there a name for it?

Yes, there is, but that’s not something that I’m at liberty to tell you.

Okay.

And if I told you, you wouldn’t recognize it, because it has, the military programs are being given funny names just to make sure that are difficult to identify.

Or something couldn’t follow the news of product, okay, got it, okay. On Zyfer, the cyber security opportunity is there I’m not quite clear, I understand on this cyber threat if you get the name of the product, but on the cyber threat solution you have, is there an opportunity for increasing revenue in 2015 calendar versus 2014?

Absolutely, absolutely.

And how do I look at that opportunity, I’m not quite clear on that?

Well, what happens there, a lot of it depends on a government schedule. We are going to demonstrate this equipment as some matter of fact next week to the government. And this point in this schedule, the program the initial phase of the program is funded. How fast are you go to move up unfortunately I don’t have a control of it. But it’s a major breakthrough to be able to operate for many, many hours in case GPS disappears jam goes spoofed. So that significantly increases the security of critical communication assets.

Is your solution the only one or you competing with others for this deal?

At this time, we’re fortunate that we have been given that task of sole source. I eventually, when this program gets expanded to land, ship and air, I’m sure that the government will insist on having some other major players because the quantities will be very significant.

On the…

Being on the ground floor, gives us a lot of traction.

I’m not quite clear if you look say the next six months a miracle happens, and you land the French deal, and you land this government deal and you land three or four Ku, Ka are you using…

I’ll be very busy.

Are you may be able to handle that all?

Say that again.

Are you will be able to handle that kind of rush of capacity if it all comes at once.

It’s going to be painful, but we will handle it and this we were like – we are looking right now to see if we can affiliate ourselves with partners that will be able – to enable us to do it. It’s going to be a job, but it’s going to be a lot of funs.

Okay, go, get, done. Thank you.

Okay.

Thank you, George.

Our next question is a follow-up from Ryan Levenson with Privet Fund. Please proceed with your question.

Hi, Ryan.

Hi, just one more.

Okay.

Could you just elaborate on what you mean that you are looking for partners to affiliate yourself with, I mean if you just provide a little bit more color around that statement.

Well, I give you and this we’re looking to – for people that can add to our technology. And also for people that have a lot more capacity and visibility that our technology can enhance their product line and the ability to push those programs forward and bigger. We’re just – we have a great technology but we are a small company. And we don’t have the muscles to push some of these programs to the next giant level on this. You’re talking about critical assets that need to be upgraded and the first in a 100s and the next level is in 1,000s and the third level is in 10,000s. So we will need to partner up with people that have a lot more muscle is the best way to describe it, or merge with them. Our technology has great strategic value.

Okay. I’ll leave aside with that answer. Thanks.

Okay, done. I’m surprised.

Our next question is a follow-up from George Marima with Private Investor. Please proceed with your question.

Yes, George.

Yes, hi, again. That last caller prompted a further question about this. I don’t know your space very well. What are some like names or types of firms that would quote unquote have muscles to align yourselves with? Who would be some examples of it?

Well, the major DOD contractors would be the list that you know there are about ten of them that are considered as the major contractors and define and our starting on the top of Lockheed Martin to on the down list is probably, I can’t mention – that’s the name occurred to me. But people that are in the business and supplying this major type of systems and integrators.

Okay. To say this slightly as I can the management team FEI is not exactly spring chickens. I can see how it makes sense for an exist strategy would be to sell through a larger company that you guys provided a strong, some strong things you bring to the table along with some big muscle partner. That does make a lot of sense.

I want to comment on this spring chicken.

Okay.

I went recently to, I won’t mention the company, but it’s a $2 billion operation run by maybe two-year old if somebody had some works [ph] as of succession plan, and he says, what do you think I’m ready to die?

Okay.

And this, no, we have a very diversified team, it’s true that some of the senior people are not spring chickens. But we have a lot of life left in us and we have a very active next-generation team that is being groomed and are doing a great job so…

Excellent, okay, thank you.

You’re welcome.

There are no further questions in queue at this time. I’d like to turn the call back over to management for closing comments.

Okay, thank you very much for the team here we really appreciate, you taking care of us today. And thanks to all of you who listened in and for your questions, which we most appreciate to, which we wanted to be clear as possible to everyone who is looking at us. What we’re doing, where we’re looking and what our potential is get there. Thank you all for tuning in, we’ll be back again at the end of the next quarter in July. And I hope you all have a very pleasant start to your summer. God bless you.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a great day.