RF Industries, Ltd. Q2 FY2025 earnings call

• Second quarter was very successful with net sales growth, exceeding gross profit target, and delivering operating profit for the third consecutive quarter.
• Repositioning from a products company to an integrated solutions provider is reflecting in financial results, with more diverse products and customers.
• Growth in wireless, aerospace, public safety, industrial OEM, and other markets; repeat and new customer wins across product categories.
• Won a large custom cabling project from a leading aerospace company with repeat orders; small cell solutions gaining momentum with over 100 opportunities in sales pipeline.
• Direct air cooling systems gaining momentum with new innovations, including a next-gen system with advanced controls and NEMA four certification.
• Actively working to diversify supply chain, with majority of products domestically sourced, but managing tariffs and supply chain adjustments.
• Consolidated footprint, streamlined the company, and continued identifying efficiency pockets; focused on profitability and executing well.

Fiscal second quarter net sales grew 17% to $18,900,000 year over year. Gross profit was 31.5%, exceeding the target goal of 30%. Operating profit was $106,000 versus an operating loss of $415,000 in the second quarter of 2024. Adjusted EBITDA was more than $1,100,000 with a 6% margin. Backlog ended the quarter at $15,000,000 and stood at $18,400,000 as of today. Sales increased 17.4% to $18,900,000 year over year, slightly decreased 1.6% sequentially. Gross profit margin increased to 31.5% from 29.9% year over year. Operating income was $106,000 vs. an operating loss of $415,000 last year. Consolidated net loss was $245,000 or $0.02 per diluted share, while non-GAAP net income was $701,000 or $0.07 per diluted share. Inventory was $12,600,000 down from $14,700,000 last year. Backlog as of April 30 was $15,000,000 on bookings of $18,700,000 and currently at $18,400,000.

• Expect fiscal 2025 third quarter sales to be roughly in line with second quarter sales, a significant increase over the third quarter last year.

• Tariffs impacting supply chain, though majority of products are domestically sourced, but still managing potential cost pressures from tariffs.

Q: What would you credit for the backlog growth and how much of it will be recognized in the next year?

A: Increased backlog is spread across several product areas, not concentrated in one large order. Backlog is a mix of short and long-term opportunities across many customers and product areas, with some projects spread over a few quarters and some book and ship business.

Q: Between cell tower, small cells, and revenue, how is it split and what's the runway?

A: Growth is attributed to larger wins and a list of several customers every quarter putting up a million bucks in sales. Concentration is not an issue with diverse customers and product areas.

Q: About over 100 opportunities in the sales pipeline for distributed antenna systems, what's the expected rate and when will it contribute meaningfully?

A: Distributed antenna systems opportunities are contributing all the time, with a healthy number of them. Backlog increase is driven by success in this market, with opportunities in various venues like stadiums, offices, etc.

Q: About the wireless provider A making up 11% of revenue, how much runway is there?

A: Growth is attributed to larger wins and repeat purchases from customers. There's a list of several customers every quarter with significant sales, showing a diverse customer base.

Q: About credit facility, when could another agreement be in place and savings?

A: Expect to have a new credit facility in current Q3 or by year end, expecting interest rate decrease and meaningful savings.

Q: How to get from 6% to 10% adjusted EBITDA margin?

A: Key levers include mix improvement, cost reduction in production/manufacturing, managing SG&A commensurate with sales growth, and working on credit facility and other levers to bolster profitability.

Q: About DAC and small cell growth, is there good growth and multiple end customers?

A: Both DAC and small cell are meaningful contributors to sales, with growth happening across several customers and regions, facilitated by regional budgets and localized management overseeing deployments.