Greetings. Welcome to RF Industries Third Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Margaret Boyce, Investor Relations at RF Industries. Margaret, you may begin.

Thank you, Paul. Good afternoon, everyone, and welcome to RF Industries third quarter fiscal 2024 earnings call. With me on today's call are RF Industries' Chief Executive Officer, Rob Dawson; President and COO, Ray Bibisi; and CFO, Peter Yin. We issued our Q3 earnings release after market today. That release is available on our website at rfindustries.com. I'd like 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 under the Securities Exchange laws. 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. 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 the risks and uncertainties discussed in the company's reports on Form 10-K and 10-Q and other filings with the SEC. 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 10-K describe the differences between our GAAP and non-GAAP reporting. With that said, I'll now turn the conference over to our CEO, Rob Dawson. Rob, please go ahead.

Thank you, Margaret, and welcome to our third quarter fiscal 2024 conference call. I'm here today with Ray Bibisi, our President and COO; and Peter Yin, our CFO. I'll start with our third quarter highlights and some comments on our market opportunity. Ray will discuss our sales progress, and what we're hearing from customers, and Peter will cover our financials before we open the call to your questions. We're pleased that our third quarter results continue to build on the momentum that we reported in the second quarter. Net sales of $16.8 million were up almost 5% sequentially and 8% year-over-year. Our gross profit margin for the third quarter was 29.5%, a 510 basis point improvement versus the comparable period last year and roughly in line with the prior quarter. Importantly, for two quarters in a row, we're very close to our 30% near-term target for gross margin, which reflects the product mix shift to our higher value, higher margin solutions. Our adjusted EBITDA was in positive territory for two quarters in a row, a sharp reversal from the losses we experienced during a challenging 2023. As mentioned before, I believe our business is at an inflection point where we can continue to deliver meaningful progress now and tap into even greater future potential. The Tier 1 wireless carrier ecosystem had major cutbacks in their 2023 capital spending over the last several quarters, and this created a considerable hardship for RF Industries and other downstream vendors. We continue to see major telecom companies being cautious about spending for large CapEx projects, but they continue to allocate significant resources to address critical needs in operations and maintenance. Regardless of overall CapEx spend, telecom companies always want to ensure their infrastructure is upgraded with next generation technologies that are cost-effective and sustainable. Fortunately, our Direct Air Cooling or DAC product line meets the required standards for the replacements and upgrades they need to future-proof their cooling infrastructure. As we've discussed previously, networking equipment can generate substantial heat inside the small buildings, enclosures and boxes at the edge of networks. And with the huge impact that AI is having on data centers, more equipment is being pushed to the edges of the network. This equipment must be cooled to operate effectively and consistently, and our DAC systems offer high efficient, climate durable cooling that is both eco-friendly and lower cost than traditional systems. These patented systems are built to stand the rigor of outdoor environments, plus they have state-of-the-art technology that can reduce operating expenses by up to 70% over conventional HVAC systems and can help companies achieve their green initiatives. Our team continues to work hard on evolving our business to make us more diverse in our end markets and applications and therefore, less reliant on CapEx spend. While it has taken some time and foresight, I think we finally arrived at the point when the market is meeting us where our products are. As we prepared for this moment, we executed a series of expense reduction initiatives that has created significant operating leverage in our business. As demand increases, we have capacity to serve our customers and scale our business with little to no material incremental investment. With a portfolio of high-value products, we've been able to build stronger customer relationships at higher decision-making levels within large and complex organizations. This has given RF Industries much greater visibility and relevance than we've ever had. In fact, some key customers are now asking us to partner with them to help solve challenges with new solutions. In some cases, they're coming directly to me or Ray or the team and telling us exactly how we can help, which is definitely a new and much welcome reversal of roles. After performing well for these customers, they're now beginning to treat us as an incumbent, giving us insight into the amount and timing of future orders, which improves our ability to forecast, control our supply chain and a clearer pathway to improving margins. As CapEx continues on the densification of much needed 4G and 5G networks, I believe our small cell solutions, along with our overall bill of materials, will give us an additional level of opportunity. Densification and bandwidth continue to be real issues in wireless coverage. And while lower CapEx spending for large deployments has impacted some product lines, like our Microlab RF passives offering, we look forward to a recovery. Microlab products have had some wild swings in quarterly performance since we acquired them two years ago, and the carrier spending pause definitely had a negative impact on potential sales, and we hope to see improved performance in 2025. Microlab has an industry-leading RF passives bill of materials that we can leverage as anticipated demand increases for venue wireless deployment in stadiums and other critical wireless densification activities. Looking ahead, I believe our company is in a great position to answer our customers' current and future needs. We're a leaner, more efficient company with strong and relevant product and solution offerings and a talented team totally focused on execution to deliver improved results and value creation for our stakeholders. With what we know today, we expect our current fiscal fourth quarter to deliver another quarter of increased sales compared to Q3. I'd like to now turn the call over to Ray to share what he's hearing from our customers. Ray?

Thank you, Rob, and good afternoon. While we're pleased that our top line is headed in the right direction, we know there's more work ahead to optimize our potential. As Rob mentioned, we have had some significant wins with our DAC product line across multiple customers and regions, and we're gaining momentum in our small cell offering. For both solutions, we are now involved in our customers' planning process, which is giving us improved visibility into their long-term project timelines. This reflects the value that our products bring to the table and our focused efforts to strengthen relationships with key customers as well as cultivating new opportunities that expand our market potential. Right now, two large Tier 1 customers are deploying our technology forward products in several regional programs that have a strong probability of becoming turnkey national programs. For example, one of these customers is a top-tier wireless carrier that has been testing small quantities of DAC systems over a few years, mostly in markets where there are major heat challenges. Last month, we announced $2.7 million in DAC orders from this customer, and we continue to have meaningful discussions on deploying DAC into other regions. As we win orders in new regions, we believe there can be a cascade effect into increasing bookings with a better mix of high-margin contributions. Now that we are involved in the planning process with some key customers, we have the opportunity to weigh in on new solutions that are mutually beneficial. Fortunately, we have an outstanding team of engineers who can enhance or develop new product lines quickly and cost-effectively in response to specific customer requests or overall market trends. Through some of these customer conversations, we have identified an opportunity for a potential complementary new product line. We believe these solutions can give us another unique and powerful offering. And we look forward to sharing more of these new products in the coming quarters. On the operations side, our continuous improvement efforts are identifying more cost savings opportunities as we continue to streamline our production functions through better and more efficient utilization of our facilities. This will continue to deliver greater operating leverage to our current infrastructure. I'll now turn the call over to Peter for an update on our financials. Peter?

Thank you, Ray, and good afternoon, everyone. We're pleased with our third quarter operating results and are encouraged to see continued positive demand trends. Starting with the income statement. Third quarter net sales increased 4.5% sequentially to $16.8 million and were up 7.6% year-over-year. Third quarter gross profit margin increased 510 basis points to 29.5%, an improvement from 24.4% year-over-year. The increase in gross margin was primarily the result of a more favorable product mix, along with increased efficiencies from facility consolidation and cost reduction initiatives. Operating loss was $419,000, a significant improvement from a $2 million loss year-over-year. Consolidated net loss was $705,000 or $0.07 per diluted share compared to a loss of $1.6 million or $0.16 per diluted share in the prior year. Non-GAAP net loss was $95,000 or $0.01 per diluted share, an improvement from a non-GAAP net loss of $1.3 million or $0.12 per diluted share year-over-year. Third quarter adjusted EBITDA was positive $460,000 versus an adjusted EBITDA loss of $940,000 year-over-year. We're excited to see significant improvement year-over-year. Moving to the balance sheet. As of July 31, 2024, we had a total of $1.8 million of cash and cash equivalents and had a working capital of $11 million and a current ratio of approximately 1.6:1, with current assets of $29.4 million and current liabilities of $18.4 million. As we mentioned last quarter, in March, we entered into a line of credit that has a three-year term that will allow up to $15 million depending on our borrowing base. However, due to the structure of the loan, the outstanding balance has been classified as a current liability. During the third quarter, we paid our line of credit down $1.8 million. As of July 31, 2024, our outstanding borrowings were $8.7 million compared to $10.5 million as of April 30, 2024, from the line of credit. We believe the amount of liquidity available to us will be sufficient to fund our anticipated operational needs. On the inventory front, we've been right-sizing our inventory as we continue to improve processes and system capabilities around our supply chain. At the end of the third quarter, our inventory was approximately $15 million, a decrease of $1.4 million sequentially and a decrease of $3.4 million from year-end. Even with the reduced inventory level, we believe that supports our strategic business model of inventory availability. We continue to manage this closely as we expect to see increased demand as spending in key markets gradually normalizes over the coming year. Moving on, we are seeing momentum build around new businesses. Our backlog as of July 31, 2024 was $20.1 million on third quarter bookings of $18.9 million. As of today, our backlog currently stands at $19.5 million. In summary, we delivered a solid third quarter. We paid down our line of credit, managed our inventory level, and reduced expenses. As we go forward, we believe our model has substantial operating leverage, and we look forward to delivering improving financial results for our stakeholders. With that, I'll open up the call for your questions.

Thank you. At this time, we will be conducting a question-and-answer session. The first question for today is coming from Josh Nichols from B. Riley. Josh, your line is live.

Yeah. Thanks for taking my questions. Good to see the margins bumping up against that 30% level, and it sounds like you're expecting a bigger contribution from these higher-margin product lines going forward. If you would look at the margin profile over the next couple of quarters and the backlog overall, is that a fair assessment that you think that they're going to be staying at or around this 29% plus level or do you think they could continue to expand from where they are currently?

Yeah. Thanks, Josh. I think we feel pretty comfortable that we're at a decent spot there. We do have that goal of getting it to 30%, which really is just going to be a function of the mix of what ships out in a given quarter. So I think if you, with the announcements we've made over the last few months with some new orders coming in, those are some of the higher-margin products. They're starting to build a substantial portion of our backlog around those product lines. So I think our expectation is, while we're comfortable, we're in a good spot today, we recognize there's room for more, and we do think there's room for that to expand. Again, a higher sales number just sort of automatically has a positive impact on our margins as well. So at the end of my comments, I shared that we expect Q4 to be another sequential growth from a sales perspective, which should also give us some help around just margin expansion overall.

Yeah. Could you just dig into that a little bit further? Could you provide a little bit more color? Nice to see that the backlogs have been trending favorably or close to $20 million today. When you look at what's the net backlog and like higher-margin versus lower-margin offerings, I'm just wondering if you could provide a little bit of context around how you see the backlog today?

Yeah. Sure. So I think it's finally moving. I guess that's one thing that if you look at our last probably four or five quarters, we had certain things that sat in our backlog for a long time and certain customers that were asking us to hold back shipments as they work through their own set of challenges around just the market conditions and overall interest rates and otherwise. So I think we've started to see in this last quarter an evolution of that, where we're shipping out some of those items and replacing them with some of the newer product lines that should help us on the margin side. So I think it's roughly stable. I mean you look at it kind of moving between the mid-19s, whether it's 19.5 or 20.9 or 21, it kind of in that range. Keeping it around $20 million while seeing sales increase, I think, is helpful. And the $18 million plus that we booked during the third quarter showed some growth. Obviously, that's a couple of million dollars higher than what we shipped out. So we did see some help there, but it should give us an opportunity to see higher sales numbers coming out of that, and I think we're starting to see that backlog freshen up from some of the things that have been sitting in it for some time.

Yeah. And you talked about having better visibility now, right, that some of the CapEx headwinds have been alleviated, and you're seeing small cell densification rollout finally take place, which has been long time coming. Is it fair to say that you kind of expect backlog to remain around this $19 million, $20 million level, or based on what you're seeing in some of these conversations with carriers, do you think that there's a good chance that could increase significantly from here with the continued flow of large orders?

I think regarding our backlog, I've mentioned before that while it isn’t a flawless predictor of our future, it is a reliable measure of our current health, showing that we have a solid number of orders in hand. In previous discussions, I indicated that amounts around $14 million to $15 million are acceptable; it doesn’t necessarily need to be in the $20 million range, but I don’t foresee a major decline based on what we know now. As orders start to align with our expectations for the 2025 budget, which I’ve discussed and Ray has echoed, we're gaining better visibility. We do encourage our customers to place orders as soon as possible, even if fulfillment is spread over several quarters, to ensure our supply chain operates smoothly. There is potential for a spike, and while maintaining $20 million would be fantastic, I wouldn’t be concerned if it fluctuated a couple of million below that. Naturally, we’d appreciate it being higher, but that can result from orders being delayed—customers might place an order but request not to receive it for several months. Such situations can sometimes give a misleading sense of demand, and we want to highlight that when it occurs. Currently, we perceive our backlog as consistently poised for the short to mid-term, with the majority expected to be shipped over the coming quarters, supplemented by new orders.

Thanks. And then last question, just thinking about the fourth quarter. Good to see you expect sales to be up again sequentially. Anything in terms of, I guess, like the last year or so have been a little bit of anomalies, just given some of the CapEx constraints. But as things start to normalize, and we think about like seasonal patterns and ordering and shipping with the carriers, is there anything, I guess, that you're thinking about for fiscal Q4 overall that would impact the magnitude of the sales increase?

I believe we are going to see an increase in sales again, though the exact amount will depend on a couple of factors: customer requests for order adjustments and the timely supply of materials, some of which come from customers for key applications we need to integrate. The timing of these can significantly affect our sales. This year has been unusual regarding carrier seasonality, as we did not experience the typical uptick in late spring and early summer. However, I expect 2025 to return to a more typical pattern that many of us are familiar with. Additionally, our backlog remains strong, but historically, the first quarter poses challenges due to fewer business days. If we continue to receive more operational orders, we may be able to mitigate some of these seasonal impacts. For Q4, I don't foresee anything that would significantly alter our outlook.

Appreciate. Thanks. I’ll hop back in the queue.

Thank you, Josh.

Thank you. The next question will be coming from Steve Kohl from Mangrove. Steve, your line is live.

Good afternoon, everyone. It was a good quarter. I have a couple of questions, Rob. The positive news is that we’re seeing margins rise to 30%, but we still haven’t reached the tipping point for leverage where a larger portion starts contributing to the bottom line. Can you elaborate on what you’re observing regarding when we might start seeing an acceleration in profitability? I understand that revenue growth will support that, and it’s good to see the mix working in your favor. Is this something you anticipate for the near and medium term, or what should we be looking for? I realize you don’t provide guidance for 2025, but I’m curious if you can offer any insights on that.

Good question. In the past, we needed to reach over $18 million in revenue to break even, after which we expected to see improved numbers. We've reduced this threshold from $20 million to the point where we are now seeing leverage at around $16 million to $16.8 million. While sales increase hasn't been substantial, the margin impact is significant. We believe that if sales can rise above $18 million, we will see a notable effect on our bottom line. Between $16.8 million and $18 million, we do see some acceleration, but the real momentum occurs once we surpass the $18 million mark. If we can achieve quarterly sales of $20 million, it will drastically change the conversation, as our product mix will improve and we will have covered our fixed costs. Our financial structure is straightforward when it comes to operating expenses; we have minimal R&D and CapEx. Essentially, it hinges on covering labor and facility costs for production. Once that is achieved, we can enjoy better affordability and leverage. Therefore, I believe that surpassing the $18 million milestone will lead to a markedly improved overall performance.

And could you give us maybe just a quick update. I know you talked about facility consolidation spend, you mentioned, what do we have today? I know we have the West Coast and East Coast, so is there two major hubs and is there some other stuff that I’m missing or maybe you can just give me a quick snapshot of where we are on the consolidation of the facility?

Sure. Yeah. So we have a total of four facilities of size. We have the San Diego facility, which is our headquarters and the primary work that goes on in the facility where Peter and I are sitting right now, RF cable assemblies, fiber cable assemblies, and data cables. So it's more the cable assembly side of things, largely distribution influenced. We have a facility in New Jersey that was the legacy Microlab business that we moved to a facility and combined with what was the legacy Schroff Tech business. So out of that facility is our RF passives as well as the both small cell and DAC product lines being produced out of there and location-wise servicing a pretty key market for us in the New York Metro area. We then have in Milford, Connecticut and in Yaphank, New York on Long Island, we have custom assembly. So custom work with two businesses we've owned for quite some time and more regionalized product lines with the exception of hybrid fiber, which is made in our Long Island facility as well. So we have those four facilities overall.

And last question is, when you talked about volatility kind of the Microlab and the venue market, I know the venue market can help you in some other areas too. But what are you seeing? Obviously, I'm sure you look at the landscape closer than we do on a day-to-day basis, but are you getting some encouragement when we look at the likes of CommScope kind of turning the corner a bit, being more positive? We see the fiber guys being more positive, they're laying the cable. Is the ecosystem getting better? I know you still mentioned there's still some cautious optimism, but what needs to happen for that to kind of move us into a better macro state from what you'd expect?

Yeah. I think the companies that you referenced, we certainly watch as key indicators. CommScope made the decision to divest a key piece of its legacy kind of wireless focused business, the old Andrew product lines and some related in the last few months. And I think that's an interesting decision on their part. But strategically, that's still a critical product line that we view as complementary and competitive both. But I think overall, when you look at the market, whether it's rural carrier spending and the BEAD spending that's supposed to bring Internet to all locations, whether that's data centers increasing in their capacity and the equipment being pushed to the edges or just general densification of wireless, I think interest rate cuts will certainly help with the carriers wanting to spend more or whoever is financing those. Those are largely debt-based spending kinds of patterns. So if interest rates do come down, like the predictions are, I think that's a help. And I think just generally, while we don't have specifics from every customer on, hey, here's what 2025 looks like from a CapEx perspective, we are hearing that the market is starting to look a little more normalized. And again, that word is probably overused, but I think to us, what that means is maybe the cycle will make more sense. There's always a pause in carrier spending in any build cycle. I think the densification piece is still a critical one and needs to continue happening, and we're positioned well for that. So on the venue side, I understand why there was a pause. It's sort of the experience within venues or within large facilities has certainly gotten better, but there needs to be another step in that. If you've been to any large events, whether that's concerts or sporting events or otherwise, where there's a lot of people that show up in a place for a short period of time and then go away. You got to have coverage in there that exceeds really the capacity that's put on it. And some places have done better than others, but there's still a lot of things on the docket that need to happen. During '24, we didn't see a lot of that. There weren't a lot of the large venues being touched up. There were smaller sort of enterprise-level venues, office buildings and otherwise. Clearly, public safety is one that we believe is a heavy push as we get forward in locations like education environments, campus environments like that. So I think we're hearing that it's going to be a little better. Going forward, that doesn’t guarantee anything, but we’re hopeful for some of that all boats rise piece that can bring up some of the product areas that have been a little more distressed for us.

Sounds good. Thank you very much. And I’ll get back in the queue.

Thanks, Steve.

Thank you. There were no other questions at this time. I would now like to hand the call back to Rob Dawson, CEO at RF Industries for closing remarks.

Great. Thank you, Paul, and thank you, everyone for joining us today. We look forward to sharing our Q4 results here in a few months. Have a good day.

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