Franklin Wireless Corp. Sees Share Decline Despite Revenue Growth
Shares of Franklin Wireless Corp. (FKWL) have dropped 10.4% since the company released its third-quarter results for fiscal 2025. This decline contrasts sharply with the S&P 500 index’s 0.8% gain over the same period. In the past month, Franklin’s stock has fallen by 14.3%, while the S&P 500 has risen 10.3%, indicating investor concerns about its operational performance and market trends.
Mixed Revenue and EPS Trends
For the quarter ending March 31, 2025, Franklin Wireless reported a revenue increase of 29.7%, amounting to $8.01 million, up from $6.18 million in the same quarter last year. Despite the revenue boost, the company recorded a wider net loss.
The net loss attributable to shareholders was $644,786, or 5 cents per share, which is an improvement from a loss of $1.18 million, or 10 cents per share, reported a year earlier. This better performance stemmed from stronger gross profit margins and additional income streams. However, operating losses widened due to rising selling, general, and administrative expenses.
Over the first nine months of the fiscal year, revenues surged 58.7% to $39.16 million from $24.68 million. The company achieved a net income of $99,141, recovering from a $2.2 million loss a year prior. Diluted earnings per share (EPS) improved to 1 cent from negative 19 cents, reflecting a modest return to profit.
Price Trends and EPS Surprises
Franklin Wireless Corp. price-consensus-eps-surprise-chart | Franklin Wireless Corp. Quote
Gross Margins and Financial Metrics
Gross profit nearly tripled during the fiscal third quarter, reaching $1.35 million, compared to $517,000 the previous year. Gross margins improved to 16.9% from 8.4%, driven by sales of higher-margin products. For the nine months ending March 31, 2025, gross margin also rose to 17% from 11.6% year-over-year.
Despite these gains, operating expenses spiked by 60.2% year-over-year, hitting $3.32 million in the third quarter. This increase included a $1.25 million incentive bonus for president O.C. Kim related to a joint venture deal, along with higher shipping and administrative costs.
Operating cash flow remained negative at $490,000 for the nine-month period, although this marked a significant improvement from a $7 million outflow a year earlier. By the end of the quarter, the company reported $38.1 million in cash and short-term investments, which management believes is sufficient to sustain operations for at least the next 12 months.
Management Insights and Strategic Changes
Management noted that shifting consumer behaviors, exacerbated by the post-pandemic decline in remote education and remote work, have negatively impacted demand for mobile device management services. In response, Franklin is investing in advanced software capabilities and expanding its higher-margin hardware product lines.
The company also highlighted positive foreign exchange movements and a $1 million legal settlement receivable from its CEO as contributors to a positive other income of $1.33 million, a significant turnaround from a loss of $68,000 in the same quarter last year.
Performance Fluctuation Factors
Sales growth was primarily driven by North America, which accounted for nearly all revenues. Asia contributed only $2,582 in the fiscal third quarter, a stark decline from over $96,000 during the same timeframe last year. This variability was linked to fluctuations in Wi-Fi router sales from Franklin’s South Korea-based R&D subsidiary, Franklin Technology Inc.
Increased general and administrative costs, along with rising R&D investments, pressured profitability. Although R&D expenditure slightly decreased in the fiscal third quarter, year-to-date expenses rose by 8.5% due to ongoing product development initiatives.
Recent Developments
During the quarter, Franklin Wireless finalized a joint venture, Sigbeat Inc., with EMS partner Forge International, in which Franklin holds a 60% stake. Forge contributed $2 million to this initiative. Sigbeat will focus on global sales and marketing of telecommunications modules, adding a new revenue stream and enhancing non-controlling interests on the balance sheet.
On May 8, 2025, the company entered an agreement to repurchase 200,000 fully vested stock options from president O.C. Kim for $746,067. This followed a forbearance agreement allowing Mr. Kim to defer a $1 million legal settlement in exchange for deferring a $1.25 million bonus.
Overall, while Franklin Wireless reported robust revenue growth and early signs of earnings recovery, investor sentiment remains cautious due to ongoing operational challenges and elevated executive compensation expenses.
