Wireless Telecom Group, Inc.

Good morning, ladies and gentlemen, and welcome to the Wireless Telecom Group third quarter earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mike Kandel. Sir, the floor is yours.

Thank you, Operator. Good morning, everyone, and thank you for joining us on today's conference call to discuss Wireless Telecom Group's third quarter 2021 financial results. With me today is Tim Whalen, the company's CEO. Before we begin, I would like to remind everyone on the call that our remarks today could include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as believe, expect, seek, may, will, intend, project, anticipate, plan, estimate, or similar words as well as statements that do not relate strictly to historical or current facts. The company's forward-looking statements are based on management's current expectations and assumptions regarding the company's business and performance, the economy, and other future conditions and forecasts of future events, circumstances, and results. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results. Important factors that could cause the company's actual results to differ materially from those in its forward-looking statements include those risk factors set forth in the company's 2020 annual report on Form 10-K as supplemented and revised by the risks and uncertainties set forth in the company's subsequent reports filed with the SEC. The company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise. Also, we want to point out that in addition to GAAP information, we will provide information relating to certain non-GAAP measures. We believe that presenting these non-GAAP or adjusted measures provides additional meaningful information to investors, which reflect how management views the business. Detailed reconciliations of GAAP measures to non-GAAP measures are set forth in a reconciliation table in our press release issued earlier today and furnished with the Form 8-K filed today with the SEC. With that, it's now my pleasure to turn the call over to Tim Whalen. Thank you, Mike, and good morning, everyone.

We are very pleased with our third quarter results and the continued sequential revenue growth through the first nine months of 2021. We are encouraged by improving market conditions, but more importantly, pleased with continued performance of our organic growth initiatives and the success of our recent acquisitions. There are four highlights I want to cover on our results before Mike goes through the quarter in more detail. First, consolidated revenue increased both sequentially as well as year over year. This improvement included sequential and year over year increases, in both RF components and test and measurement, and it included year-over-year improvements to our RBS business. So we are seeing signs not just related to market conditions, but more important to underlying themes of growth and investment in 5G deployment, semiconductor ATE environments, defense sector spend, and network densification. I am particularly proud of our third quarter sales performance as we continue to successfully navigate the current disrupted state of supply chain challenges. Second, we realized our sixth straight quarter of gross margins above 50%. This is a critical goal we have accomplished as part of our long-term strategy, reflecting what we believe to be a sustained growth in higher margin products and revenues. we have made a significant debt prepayment representing almost half of our outstanding term loan based upon the strength of our free cash flow and ability to control costs and spending. We have noted to you previously our focus on managing our cash flow and our debt balance, and this is evident of our success, which is also expected to decrease our future interest expense and contribute to improved cash flow. And last, we recorded another strong quarter of bookings at $12.8 million and a one-to-one book-to-bill ratio, maintaining a backlog of $12.7 million and our highest backlog in over four years. Turning to additional highlights across our three product groups, in RF components, our revenues returned to $5 million plus in the quarter. This reflects improvements across large projects such as stadiums and amusement parks, increased orders from our distribution partners, and higher orders for our ultra-wideband products. We have previously discussed that our ultra-wideband products are aligned to spectrum rollout as part of broadband network densification. Our expectation is that these increases will be sustained, and we will see quarterly bookings and revenues return to these levels for the foreseeable future. In test and measurement, we realized an almost 20% increase in nine-month revenues as compared to the first nine months of last year. This reflects continued increased demand from defense contractors, semiconductor companies, and satellite providers, as well as the overperformance of our Holtsworth acquisition. In the third quarter of 2021, we also experienced higher international order flow, as well as increased delivery of instruments under our US Navy contracts. Holtsworth continues to perform exceptionally well, and we continue to remain excited about their new multichannel RF synthesis products and the interest they are generating in the semiconductor automated test equipment, or ATE, markets, as well as the continued expansion of our Boonton USB RF power sensors. We expect to continue investments in our T&M brands as well as working on driving closer operational and go-to-market synergies across the various brands. Overall, we believe our investments and expanded focus on new products and solutions designed into larger, more complex devices is expanding our addressable markets and paying dividends with increased bookings and revenues. Within our radio, baseband, and software business, we are very pleased that revenue has increased by 130% or $3.7 million for the nine months ending September compared to the same period last year. The increase included a return of demand for digital signal processing hardware cards, as well as revenue increases from the delivery of software and services. Our success signing new software customers continued in Q3, including a win of a new customer for specialized 5G small-cell solution deployment. Our funnel remains strong for a variety of 5G technology development projects, including private network deployments, 5G research projects, and ruggedized small-cell projects. As we think about the future for our RBS solutions, we believe 2022 will continue to demonstrate improved demand for our software and services, We expect this will be driven by increased 5G private network and specialized small cell trials and pilots, which will then move to higher levels of adoption and volume deployments in 2023. To summarize, we realize continued sequential improvements to the business in our third quarter with increased revenues, improved profitability, and increased free cash flow. We were exceptionally pleased to complete our prepayment of almost half of our term debt as evidence of the improving conditions and improving expectations for the future. Our record high backlog gives us confidence about our future and continued growth in the business.