RF Industries, Ltd. Q3 FY2025 earnings call

• The team delivered strong results for the third consecutive quarter of fiscal 2025 with net sales growth, improved gross margin, and positive operating profit. • Focus on diversification in products, customers, and end markets, including growth in aerospace, transportation, data centers, and stadium/venue build-outs. • Success in aerospace with repeat orders from a market leader, progress in transportation including a major airport terminal infrastructure order, and momentum in data centers with the DAC system. • Disciplined operations with increased inventory in certain categories to mitigate tariff impacts, ongoing cost reduction programs, and process/IT improvements for scalability. • Engineering focus on small cell concealment, direct air cooling, and RF passive solutions, aligning output with market demand through improved processes.

Third quarter net sales grew 17.5% year-over-year to $19.8 million. Gross profit margin was 34%, an improvement of 450 basis points over Q3 last year and 400 basis points above the target margin goal of 30%. Operating profit was $719,000 versus a loss of $419,000 in the comparable period. Adjusted EBITDA was $1.6 million, which is 8% of net sales. The company ended the quarter with a backlog of $19.7 million on third quarter bookings of $24.5 million, and as of today, the backlog stands at $16.1 million.

• Expect fiscal fourth quarter net sales to be similar to Q3. • Focus on maintaining profitability and executing the strategy to grow profitably, leveraging diversification and strong customer relationships. • Confidence that the goal of at least 10% adjusted EBITDA is within reach as they continue to improve operational efficiency.

• Uncertainty related to evolving tariff landscape, which has led to nominal price increases on certain products. • Potential supply chain constraints that could impact operations.

Q: How much of the 34% gross margin improvement is driven by DAC systems, small cells versus mix?

A: The mix including DAC systems, small cells, and other high-value items is increasing. The higher sales number also helps due to operating leverage as fixed costs are spread over higher sales.

Q: Expectations for Q4 gross margin?

A: Mix will fluctuate quarter-to-quarter, but they expect margins to be north of 30%.

Q: Composition of bookings between traditional wireless and newer end markets?

A: Contributions from various areas including traditional business, aerospace, transportation, data centers, with diversity across customers and product lines.

Q: Timing of bookings from Olympics and World Cup build-outs?

A: Sales cycle for these can be lengthy, with contribution expected into fiscal '26, as these are multiyear deployments.

Q: Bridge to 10% adjusted EBITDA target?

A: A mix of higher sales base and operational improvements to streamline operations and find efficiencies, leveraging product mix and long-term customer relationships.