Greetings. Welcome to the RF Industries First Quarter Fiscal 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to Jack Drapacz, Senior Vice President. You may begin.

Thank you, operator. Good afternoon, and welcome to RF Industries' first quarter fiscal 2023 financial results conference call. With me on today's call are RF Industries' President and Chief Executive Officer, Rob Dawson; and Senior Vice President and Chief Financial Officer, Peter Yin. Before I turn the call over to Rob and Peter, I'd like to cover a few quick items. This afternoon, RF Industries issued a press release announcing its first fiscal 2023 financial results. That release is available on the company's website. This call is also being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties. Please note that except for the historical statements, statements on this call today may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When used, the words anticipate, believe, expect, intend, future and other similar expressions identify forward-looking statements. These forward-looking statements reflect management's current views with respect to future events and financial performance and are subject to risks and uncertainties and actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales of products, and other risks and uncertainties discussed in the company's periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. RF Industries undertakes no obligation to update or revise any forward-looking statements. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our GAAP and non-GAAP reporting and present the reconciliation between the two for the periods reported in the earnings release. With that said, I will now turn the conference over to Rob Dawson, President and Chief Executive Officer.

Thank you, Jack. Good afternoon, everyone. Thank you for joining RF Industries' first quarter fiscal 2023 conference call. While we delivered net sales of 18.3 million in the first quarter, which is an 8.4% increase year-over-year, we expect it to do better. I'll explain why. Even though our first quarter is our seasonally slowest period, we anticipated shipping an additional 1.4 million in orders that were delayed due to customer requests and timing of shipments, which will be recognized in future quarters. That additional revenue would have made a significant difference to our margins and bottom line. As the quarter progressed, we saw some definite signs of slowing in CapEx spending from wireless carriers. Coming off a record year for us, we've sized our operations to handle higher capacity levels. With carriers now announcing cost-cutting plans and tightening budgets, we took steps to realign our own cost structure. To that end, and with the full support of our Board of Directors, we've accelerated our 2023 strategic plan to consolidate and streamline operations and reduce operating expenses. These additional savings, along with our healthy and diverse run rate business will allow us to continue to deliver a solid performance in the near term and to sustain any extended challenging macro market conditions. The big question for suppliers like us is how and when the revised carrier CapEx will be deployed. While we're seeing steady growth in our core interconnect products, wireless carriers are slowing larger site build-outs of their planned 4G and 5G networks. This directly affects our project-based business. Sales of small cells, DAC thermal cooling systems, hybrid fiber cables, and in-venue wireless deployments, all of which are directly related to carrier CapEx. By now, I've been through at least four major wireless build-out cycles, and there are always some unexpected delays and pauses. The COVID lockdown was especially brutal when it stopped projects in their tracks. Eventually, we get on the right side of what the carriers need to do to stay competitive and keep their customers happy while also leveraging the benefits of new advancements in radios and other technologies. However, with the current macro factors of inflation and high interest rates, the timeline has certainly become more unpredictable. That's all beyond our control. And that said, each time we run into obstacles, we've been able to fight our way through and get better. It starts with focusing on what's in our control and what levers we can pull to become a more cost-efficient business. To that end, as I mentioned, we are now accelerating our plan to streamline our operations and reduce operating expenses. Today, Peter and I are speaking to you from our New San Diego facility that now houses our corporate headquarters and several production lines. We've already moved our coaxial cable operations with no production downtime, which is pretty amazing considering the complexity of a move like that. Other product lines like our fast-turn fiber will follow in the next few months. When completed, our West Coast operations will be fully consolidated in an efficient state-of-the-art facility, manufacturing built-in America specialty interconnect products. On our fourth quarter call in January, we mentioned our plans to consolidate some of our East Coast operations this year. We've now pushed that timeline forward for certain product lines. We're also looking at operating expenses with an eye towards shaving expenses wherever we can without hindering our ability to serve our customers and continue to grow. With inflation, everything is more expensive—wages, materials, insurance, you name it. Plus logistics and especially scheduling of transportation remains a challenge. Most of our cost savings will come from consolidating operations and streamlining our operations, but we will also continue to carefully manage operating expenses across the board. Through all these focus areas, we expect to realize more than $2 million of annualized savings this year and add at least another $1 million of cost savings next year. Regarding guidance for fiscal year 2023, with what we see today, it's difficult to predict with much certainty what to expect in the near term. Judging by what our customers are saying, we are cautiously optimistic that larger projects should gradually pick up with greater momentum in the back half of the year. While the first half of the year will be impacted by the changes in the carrier market, we expect second-quarter sales to increase sequentially from the first quarter and that sales and profitability in the second half of the year will improve significantly over the first half. Notwithstanding the headwinds we're experiencing, we remain committed to our long-term strategy that has helped us profitably grow sales from $23 million to $85 million over the last five years. Our core run rate business continues to benefit from a steady and diverse customer base and tends to be less project-centric, driven mostly by day-to-day orders. Wireless carriers will continue to invest in 4G and 5G build-outs over the next several years, and the acquisitions we have made over the past few years, especially Microlab, are game changers. We have a compelling business model, an outstanding team, and a dynamic and prudent approach to managing our business to meet changing market conditions and customer demand. I'm confident that we are well-positioned to manage near-term volatility, respond to pent-up customer demand when the market normalizes, and to deliver profitable growth and returns to our shareholders over time. With that, I'll now turn the call over to Peter to discuss our financials.

Thank you, Rob, and good afternoon, everyone. Before I get into the comparisons, please note when comparing to prior year fiscal 2022, our numbers in fiscal 2023 include the results of Microlab, which we acquired in March of 2022. As Rob mentioned, sales in the first quarter, which seasonally is our lowest quarter of the year, were $18.3 million and included a $5.1 million contribution from Microlab products. This represents a year-over-year increase of $1.4 million or 8.3%. We experienced lower sales in our project business to wireless carriers as compared to the prior year relating to our hybrid fiber, small cell, and DAC products. First-quarter gross profit margins increased to 27.7% from 24.1% in the same quarter last year. The 360 basis point increase was primarily due to the contribution of Microlab’s higher margin sales. Net loss was $1.2 million for the first quarter or $0.11 per diluted share, compared to a net loss of $277,000 in the first quarter of 2022 or $0.03 per diluted share. Non-GAAP net loss was $25,000 or $0.00 per diluted share for the first quarter, compared to non-GAAP net income of $691,000 or $0.07 per diluted share for the first fiscal quarter of 2022. Adjusted EBITDA for the first quarter was $78,000, compared to $691,000 in the first quarter of 2022. The decrease when comparing to the prior year for GAAP, non-GAAP, and adjusted EBITDA relates to the lower than expected sales during our first quarter fiscal 2023. Due to the lower sales, we were unable to fully absorb our operating expenses. I do want to note that in our balance sheet, there is a deferred revenue line of $1.1 million, which we historically do not have. This relates to the accounting for revenue recognition on one order. We expect to recognize the majority if not all of this revenue in our second quarter. Had we recognized this $1.1 million revenue in our first quarter, our gross margin profits would have increased approximately 100 basis points with a contribution to our operating income of approximately $500,000. As Rob also touched on, we are accelerating our efforts to consolidate and streamline operations and to reduce expenses. We expect to benefit from these savings in future quarters, with some savings beginning as early as our current fiscal second quarter. While we are cautiously optimistic about our outlook, these expense reductions will position RF to better navigate the unpredictable macroeconomic environment. At the end of the first quarter, our balance sheet remained strong with cash and cash equivalents of $3.8 million, working capital of $25.1 million, and the full $3 million available under our revolver. Inventory was $20.9 million, up from $13.5 million last year, with $5.4 million of the increase related to Microlab. We are carefully monitoring and managing our inventory levels to meet near-term customer requirements while staying true to our customer value proposition of delivering products reliably and quickly. We believe there is an opportunity for us to rationalize our current inventory position, which would help free up cash and build upon our overall cash position for other investments. As we move through the year, we'll have a clear line of sight on what the lower carried inventory looks like. Our backlog remains healthy going into the second quarter at $24.5 million on first-quarter bookings of $15 million, and as of today, our backlog stands at $24 million. This concludes my comments. Operator, we are ready to open the line for questions.

Thank you. First question comes from Josh Nichols with B. Riley. Please proceed.

I know you hit on some of the carrier spending impacts, but just looking at the other piece of business like the RF connector and cable assembly business has been pretty consistent at over $9 million for the two quarters. Is there – can you give a little bit more detail on the variability of that segment? And do you think that that segment is going to be able to, kind of pick up and still see some decent year-over-year growth, excluding the Microlab business this year?

Yes. Thanks, Josh. So, yes, the daily run rate business that we have, which we call our core or run rate business, largely runs through distribution. It's been steadily growing, really the whole five years that I've been here since we pivoted harder into more distribution. We've added some other product lines to that. It continues to be healthy, diverse, solid margins, and growing. So, even with project downturns, as I talked about in my comments, it's not uncommon for carriers to pull back on larger projects, but the daily run rate stuff still has to go on, and that's really where that business plays. So, we feel good about that and several product lines. I think the ones that are the most impacted by large CapEx projects—whether you're talking venues or traditional tower sites or small cells—are our small cell offering, our DAC thermal cooling offering, our hybrid fiber cable, and then occasionally some of the big bill-of-materials into large venues like stadiums. While we still feel good about those, I think those are slower than we expected them to be in the short term.

Thanks. And then just focusing in a little bit more. I know you've really built up the company's inventory over the past 12 months or so, that was essentially flat, right, down modestly quarter-over-quarter. With the second quarter expected to be up, do you think it's going to be more of a second-half weighted fiscal 2023? Do you expect it to use some of that inventory to help cash flow generation over the next couple of quarters or what's the trajectory for inventory look like from here?

Yes, good question. So, I think Peter touched on this a little bit in his comments. I think we do expect inventory to come down over the course of time. That was already part of the plan. We had to get ahead of some supply chain issues over the last year or two. We added Microlab, and we took their inventory up from historical levels again to address some growth in that business from where it had been, but as we start to work through these, not only things in our backlog but just getting our arms around the Microlab business has helped us get smarter about the inventory too. So, we expect to turn that into cash and free up some cash flow from that over the next few quarters. I don't know, Peter, if you have any other color that you want to add to that?

No. Rob, you touched on most of that. I think we are, Josh, looking at it closely from just a turns perspective, right, and seeing that we're making sure to turn our inventory. So, we're having the best use of our cash. That's something we're looking at. We'll be better able to speak to that in future quarters as we monitor the supply chain and then see what's needed and not and the new lead times and build that into a new model going forward.

Perfect. Thank you. Then just looking a little bit more into some of the business lines. I guess if you could provide a little bit more context or color. I guess like the decrease in carrier spending, what you're seeing like pretty broad based among the U.S. carriers? I know that ATT and Verizon looks like there's some slowdown there for the CapEx spend. And I guess what's the biggest opportunity for upside if you think about the back half of the year? Is there still these timelines that they're trying to hit and that should be more favorable for the company's hybrid fiber deck and other small cell offerings?

Yes. I think you just hit the three big ones there, which is great. So, with hybrid fiber, we still have a lot of that in our backlog. The team has done a great job getting that out the door. When there's a slowdown, carriers may take less truckloads of that showing up on sites to go build. We do believe that that will start to get better, and those shipments will become a little more normal as we get through the year. The bigger opportunity, though, is the sales levels of both DAC thermal cooling and the small cell product lines are lower than they should be—certainly lower than we expected them to be and really lower than the historical levels over the last few years since that acquisition was made. So, those two product areas are both areas that we expect to have meaningful increases in the back half of this year. Small cells are one where it's been out there for a long time. It's still a bit of a wild west getting nailed down and seeing consistent site counts and designs around these builds. We're getting better at it, and the pipeline looks good. We’ve booked some nice orders, but some of the stuff sitting in the backlog for the last quarter and a half hasn’t moved at all. So, those are the areas we see the biggest opportunities, coupled with larger sales of Microlab products and the full bill-of-materials for venue-based DAS, large buildings, and large venues like stadiums. Those are the bigger ticket sales for us that we think will improve in the back half as things normalize a bit.

Thanks. And then last question for me. Good to hear the company's got some cost savings initiatives and you're pushing ahead with the consolidation and integration efforts here. I know there was around 500,000 of one-time and kind of non-cash costs. Any comments about the level that you're going to see in 2Q and when are those going to be over and how quickly that $2 million of annualized cost savings is going to be coming out of the OpEx line items?

Yes. Maybe I'll tackle that first and let Peter add some specifics. I think the two million in total has already a chunk—not quite half of that. I think we've been able to get in place earlier in this year. So, we will start to recognize that in the current quarter and go forward. The remaining amount we're taking out is in the process over the next quarter and a half. All of fiscal 2024 should have the benefit of those savings. Maybe more if we can find them. We’re getting really specific at certain line items where there’s money to be saved. The remaining million that we call out for fiscal 2024 will be once we fully consolidate locations; we think there's room to get even better technologically and just find efficiencies in production. Some of what we're going to see right away, but the big impact of that I think will be seen later in the year.

Yes, Josh. So, related to the 500,000 that you mentioned, we should see that depending on the timing of the move on the East Coast. There will be some of that still ongoing, and there may be items related to our cost initiatives that may show up as one-time charges. We wouldn’t expect to see that heavy in Q2 and some into Q3, but by Q4, a lot of that should have gone away.

Thanks, Rob and Peter. I'll pass the mic. Thanks.

Thank you.

The next question comes from David Wright with Henry Investment Trust. Please proceed.

Hey, Rob. Hey, Peter. Good afternoon.

Hi, David.

Excuse me. You mentioned getting going in the New San Diego facility. What's going on with New Jersey? For example, is Microlab out of the legacy Microlab facility and kind of what's the timeline for the new combined New Jersey facility?

Yes. Thanks, David. Good question. So, we're still in the same facility where they've been operating for about a year since we made that acquisition. That change and move to a new location is scheduled for July. So, it will include Microlab and some other product lines, but that will all take place in July.

And then does that have you completely consolidated with what you want to move into the new New Jersey facility?

I think it does in the near term, yes. The great thing about that location is we do a lot of small cell business and thermal cooling business in the Mid-Atlantic and Northeast. The Greater New York area is one of the largest CapEx markets there is in the United States for obvious reasons. So, it's centrally located and allows us to not only do a good job with the Microlab offer, but also to handle some of the other product lines like small cells and related products in that location to service those more localized customers. I think there’ll be more over time, more opportunities for us to get even better, but the way we've allocated it today gives us some space for growth and to balance some inventory from East Coast to West Coast as well as we get better at that.

Right, right. So, you're—does that mean you have everything presently contemplated as you hope to have done by July?

Yes, I would say as we get into August, we expect to have the majority, if not all of that completed.

Okay. And then kind of staying with the relocation. Josh touched on it, the 444,000 in non-cash charges. Is any of that related to facilities consolidation?

No. I'll take that one. David, the $444,000 there is basically a non-cash rent charge related to the new facility. We weren't occupying the space yet. We entered into the space in February, so there were still charges related to lease expense on our books, and that's what you're seeing there as the $444,000.

Okay. Well, have you given quite an idea—have you given an idea of kind of the cost of these facility relocations overall?

Yes. I think a lot of what we did here was paid for by tenant improvements like a normal real estate move. So, taken care of, I think all in, by the time we're said and done it's probably about $1 million when we've moved multiple facilities into this one. We still have a facility in Vista that needs to move in here. But from a West Coast perspective, there’s some meaningful investment to do that, which will also allow us to take out, over the long term, the operating savings. Just to get in here, it’s probably give or take $1 million.

But that's for the West Coast?

Correct. And a much smaller number, East Coast, will be a fraction of that.

Okay. So, in the next quarters, are we going to see any kind of non-GAAP add back for these lease charges? Are you going to carve them out that way or not?

Yes, it's a one-time charge on the non-GAAP side. We will add it back. It's going to become less material fairly quickly here. You'll start to see some more normalized easier to understand comparisons as well. We’ve got a lot going on obviously, and as we start seeing the number of moving pieces around accounting rules and one-time expenses, it'll start to get a lot more understandable as we get through Q2 into Q3. But yes, there will be a little bit of non-GAAP add backs.

Great. Okay. Thanks for taking my questions.

Thanks, David.

Okay. It looks like we have no further questions. We've reached the end of the question-and-answer session. I will now turn the call back over to Rob Dawson for closing remarks.

That's great. Thank you, John, and thanks everyone for joining our call today. If you're attending the 35th Annual Roth Conference tomorrow, we hope to see you there. We look forward to sharing our fiscal second-quarter results in June. Have a good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.