RF Industries, Ltd.

Greetings, ladies and gentlemen, and welcome to the RF Industries Third Quarter Fiscal 2022 Financial Results Conference 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, Jim Byers of MKR Investor Relations. Sir, the floor is yours.

Thank you, Operator. Good afternoon, and welcome to RF Industries Third Quarter quarter fiscal 2022 financial results conference call. With me on today's call are RF Industries President and CEO 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 third quarter fiscal 2022 financial results. That release is available on the company's website at RFIndustries.com. 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 8K 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, Jim. Good afternoon, everyone, and welcome to our third quarter fiscal 2022 earnings conference call. I'd like to start with a brief review of our third quarter results and then discuss what we're seeing now in the market and what we expect going forward before turning the call over to Peter to give more commentary on the financials. Starting with the third quarter, we're pleased to report our highest quarterly revenue in company history, reflecting another great quarter of strong revenue growth along with the continued margin improvement. Sales for the quarter were a record $23.8 million, up 11% sequentially from Q2, and up 56% over the third quarter last year. This strong growth reflects both an organic increase in our overall business and higher margin revenue contribution from our successful acquisition of Microlab, which performed very well in the quarter. As a side note, $23.8 million in sales is what RF Industries delivered in all of fiscal 2017, the year that I joined the company just prior to the fourth quarter. We're pleased to be making progress in our growth story. On the bottom line in Q3, we reported gap net income of $771,000, non-gap net income of $1.2 million, and adjusted EBITDA of $2.1 million. and we're pleased to see our gross margins back up over 30%, one of our key near-term goals, reflecting continued improvement in our organic margins as well as increases from the addition of the micro lab business. While we're certainly pleased with all these fantastic results, I have to admit that we still haven't begun to hit on all cylinders. While achieving these new record levels of sales, We've also been working very hard in the background to continue transforming the company, and many of our key initiatives around consolidation, operational efficiencies, and technology improvements, as well as sales channel and product roadmap expansion, are still in varying stages of completion. We believe that these strategic initiatives will provide a huge help in the next phase of our company's growth. As I mentioned earlier, Microlab is performing extremely well, and sales of Microlab products were strong during the quarter. This acquisition is exactly what we thought it would be, or maybe even better. As we announced when we closed the deal, MicroLab sales in the previous 12 months prior to the acquisition were roughly $17 million, and we just delivered sales of $6.5 million in MicroLab products in the third quarter alone. We love the business and are pleased to include the team as part of RF Industries. As we've integrated MicroLab into our operations and go-to-market approach, We're finding opportunities to increase Microlab purchases from our distributors by making it easy for them to do business with us. And we're benefiting from the strong positioning of Microlab on bills of material in key wireless bills. This broader inclusion in the bill of materials has been a key focus for our approach to M&A over the last few years. It's working. And importantly, we're seeing this sales increase before completing the major new initiatives that we believe could help drive additional increased sales including new product development and expanded channels to market. Now let me quickly comment on our other product areas and market segments and how they performed during the quarter. Our strong core distribution business continues to perform well and grow. Our RF coaxial cable and connector products and our C-Enterprise's fast-turn fiber products together make up our primary offer sold through distribution. Both of these major product areas showed meaningful year-over-year growth during the quarter. and we expect to see continued steady growth here throughout the remainder of our fiscal year as we continue to build the baseline of core revenue. Microlabs fits nicely with these product areas, and we're benefiting from shared customers and processes. Our custom cabling segment, including our OptiFlex hybrid fiber products, continues to have strong sales results. Our initial Tier 1 wireless carrier customer continues to draw against their existing purchase orders. We had another solid quarter of shipments with them in Q3, and we received new smaller orders from them during the quarter. We also continue to pursue new opportunities with other customers in the market. As I've noted before, we now have multiple concurrent large customers deploying our OptiFlex hybrid fiber solution in next-generation wireless builds. Last week, we announced multimillion-dollar follow-on orders from our newest North American Tier 1 wireless carrier customer. for our hybrid fiber solution in support of their 4G and 5G wireless infrastructure build. We've received more than $11 million in total orders related to this customer for hybrid fiber. These orders are further validation of our increasing value in the market, and our OptiFlex hybrid fiber solution continues to gain market share in the North American wireless marketplace. The team at our Cables Unlimited operation in Long Island is performing extremely well with these increased sales and production levels of OptiFlex. I can't say that the supply chain and logistics environment has gotten any easier lately, but the team is really doing a terrific job of exceeding customer expectations. With our increasingly strong product and solutions offer and our unique value proposition in the market, we're well positioned to benefit as the overall spend on 4G and 5G deployments continues to increase. Our other custom cabling products continue to be a healthy piece of our business. And with our broad set of specialty products and value proposition of fast turn, very specialized cable assemblies, we're finding additional new opportunities with our increased sales and marketing effort to scale our business through expansion with our existing customers, as well as new business with some mid-tier players beyond the carrier market. Turning to some of our other offerings, small cell and DAC thermal cooling continue to be huge opportunities. While small cell spending is not at the level that we expect it to be for all the reasons that we've talked about in the past, we're hearing from many of our customer discussions a shared expectation that next year there should finally be an increased spend around small cell. While the small cell market continues to drag behind where we all expect it to be by now, it's only a matter of time before it breaks loose. Small cell projections from all the key players in the wireless ecosystem point to significant increases. In its second quarter 2022 earnings call, Crown Castle said it will double the number of new small cell installations in 2023 from 5,000 to 10,000 as their mobile network operator tenants complete the majority of their network upgrades on macro towers and shift their focus to densifying their networks, including using small cells. Verizon also hinted that it will accelerate its small cell build-out in 2023, after carriers slowed down in prior years to focus on the build-out of new mid-band spectrum holdings using traditional macro cell sites. As we discussed last quarter, we've also introduced an innovative next-generation small cell concealment solution called TruField that expands our market opportunity with a proprietary new product we can sell to our growing customer base in the wireless carrier ecosystem to meet the growing demands for densification of 4G and 5G networks. We now have Truefields Shrouds actively deployed in the field and are servicing a growing pipeline of opportunities. With our increased capabilities and product offerings, we believe we're in a stronger position to get built into future small cell deployments, and we see significant upside opportunity for us going forward as spending increases. With our DAC thermal cooling product offering, we continue to pursue a growing pipeline of opportunities here as well. We've been engaged in discussions with Tier 1 carriers and others about our DAC offerings and expect to see those conversations come to a head in the next quarter or two. As the DAC market opportunity has emerged and we've gotten our unique product offering out in the market, we think it has the potential to be a big chunk of our next phase of growth. We've already seen some increased spend from our Tier 1 wireless customers, and with the rising heat we've been experiencing, particularly in the West, we're seeing increasing interest in these kinds of solutions. We've made a lot of progress on product redesigns and some long-term projects, and we expect to be able to announce some information related to that progress very soon. Turning to the topic of acquisitions, as we focus on our organic growth plans, we believe there are opportunities to layer in additional strategic acquisitions. We're continuing to look for larger acquisitions that fit our strategic plan, and while nothing is imminent, we see a strong deal flow and have some good discussions ongoing. As I've noted before, we're looking to acquire quality companies with passive components that allow us to offer more of the bill of materials in key applications like wireless deployments, and add-ons that will provide us with access to new products that we can sell both through our new channels and our existing customers and growing distribution channel. We've effectively completed our integration of Microlab, and they're operating as part of our teams. At the same time, with the significant potential synergies we see in our business, we've been undertaking some big initiatives to combine and integrate our operations to further improve our efficiencies and capabilities from an operations perspective. Now that we can fully function with most of the constraints of COVID behind us, we're integrating and combining C Enterprises and the RF cable and connector business into one building in Southern California in January 2023. We're also preparing to move the micro lab operation to a new facility in New Jersey later in 2023 and are looking for ways to consolidate operations there too. With the significant potential synergies we see in our business, we've been investing in new facilities, new systems, and new equipment to build out our scale, to build out and scale our organization in order to see bigger opportunities, increase our pipeline, and streamline our operations. We believe these strategic initiatives will allow us to fully realize the increased earning potential of our business. In the meantime, with all that happening, we've managed to keep our operating expenses almost flat other than the addition of Microlab while still delivering record sales results. Let me take a moment to revisit some of our goals for the rest of the year and going forward in future fiscal years, which I talked about on our last call. As I noted, because we have a lot of operating leverage in our business, we can deliver higher sales numbers with very little additional investments at SG&A. We're obviously pleased that in the third quarter we reached our internal target of getting our gross margins above 30% and believe we have the ability to grow margins further going forward as we add higher margin revenue from some of our bigger ticket products in addition to the Microlab offering. And with our record sales and gross margin improvement this quarter, our adjusted EBITDA margin was just about 9%, moving closer to our goal of getting our adjusted EBITDA to 10% of sales or greater in the near term. Looking out three to five years, we believe that we can continue to grow profitably through both organic and inorganic initiatives and take our adjusted EBITDA to even higher levels. As we end our fiscal year, We've had solid bookings and maintain a backlog of $31 million as of today, setting us up for a strong fourth quarter to finish the year. With what we know today, we expect Q4 to be our third quarter in a row with sales in the low $20 million as we start to smooth out our historically volatile or lumpy sales results. Peter will have more on this in a moment. Based on that, for the full year, we expect total net sales of $83 to $85 million. And as we start looking toward fiscal 2023, we have strong momentum in all product areas while we pursue additional projects in strategic higher margin product areas. In addition, as I mentioned, we remain committed to further M&A activity as we continue to be strategic and focused with our capital allocation as another avenue of driving investor returns with increased revenue, scale, and profitability. Lastly, earlier this week, we announced some changes to our board of directors. We added two new directors that bring broad experience that align with our strategic growth strategies. I'm pleased to welcome Kay Tidwell, who is Executive Vice President, General Counsel, and Chief Risk Officer of Hudson Pacific Properties, a real estate solutions provider for tech and media tenants. Kay brings extensive public company legal experience that will be a huge help in corporate governance matters. I'm also pleased to welcome Jason Cohenauer, who joins the board with many years of executive leadership, sales, marketing, operations, and international M&A experience. Jason previously served as President, CEO, and Director at Sierra Wireless, where he led a successful business turnaround. resulting in revenue growth of nearly 800% to an annualized run rate of $800 million in sales. With his successful growth and leadership track record and deep understanding of the wireless and related industries, Jason will be a valuable contributor to our strategic guidance. At the same time, we also announced that our former chairman of the board and longtime board member, Marvin Fink, has retired from the board following more than 20 years of dedicated service. Marv was instrumental in the long-term growth of the company, and we're very thankful for his huge contributions over the years that were an important part of the company's success. On a personal note, I've enjoyed his steady and stable approach and will miss his sharp wit. It's been a privilege to serve with him on the board. It's the end of an era, and I wish him well. With that, I'll now turn the call over to Peter for a review and discussion of the financial results for the quarter. Peter?

Thank you, Rob, and good afternoon, everyone. we are pleased to report our highest quarterly sales on record, reflecting solid growth on both a sequential and year-over-year basis, along with improved margins and profitability. Sales in the third quarter were a record $28.3 million, up 11% sequentially from the second quarter and up 56% from the third quarter last year. Our gross profit margin was 30%, which is up sequentially from 28% in the second quarter and up from 28% in the third quarter last year, which excludes the impact of the employee retention tax credit recognized in last year's Q3. Our improved gross margins for the third quarter reflect improvements in our core business, along with a full quarter of higher revenue, of higher margin revenue contribution from Microlab, which contributed $6.5 million in sales in Q3. As we have noted previously, we have experienced a series of cost headwinds primarily related to the state of the supply chain that have put pressure on our margins. We have been taking steps to address these headwinds, which includes working with both our vendors and our customers, whether it's placing larger orders sooner to lock in current prices or updating or updated pricing with our customers. As Rob touched upon, we are also looking internally for synergies and efficiencies. through consolidation efforts where it makes sense and automating or semi-automating what has traditionally been a very labor-intensive environment. We are just beginning. We are just in the beginning stages and look forward to being able to share some progress and updates in the coming quarters. Turning to our balance sheet, our current inventory is at $19.2 million, up over 80% or $8.7 million from Q3 last year. The addition of Microlab accounted for $4 million of inventory increase. The increase in inventory supports our value proposition of availability, but also is in line with our Q3 sales growth of 56% over the third quarter last year, or 14% excluding Microlab. We believe that inventory availability is extremely important in our markets, especially in times of supply chain volatility and as our sales are increasing. Our approach of targeted inventory increases allows us to better support our customers' needs and stay ahead of some of the delays and extended lead times we are seeing in similar product areas from some of our competitors. At the end of the third quarter, cash and cash equivalents were $5.1 million up from $3.7 million the previous quarter, and working capital was $30.1 million at the end of the third quarter. As of Q3, Our term loan balance is $16,192,000 from the initial balance of $17 million. The interest rate on this term loan is 3.76%. We have not drawn from our $3 million revolving credit facility that we secured as part of our micro lab acquisition. Adjusted EBITDA in Q3 was $2.1 million, up from adjusted EBITDA of $1 million in the third quarter last year. Our adjusted EBITDA margin for the quarter was 8.7%, reflecting our progress at moving towards our short-term goal of getting to 10% of sales or greater. During the quarter, we continued to incur some one-time related charges totaling $250,000, which are acquisition-related in nature, from ERP implementation efforts to synergy-related expenses. Included in that amount is a non-cash rent expense related to ASC 842 for our new corporate headquarters in San Diego as we obtained possession of the building during the quarter to start construction and renovation. The non-cash rent expense incurred during the quarter was $135,000. We will continue to add back this expense to our adjusted EBITDA number until the lease commence December 1st, 2022. In the fourth quarter, We expect approximately $390,000 in non-cash rent expense to impact our earnings. But as noted, this will be accounted for in the adjusted EBITDA number. Backlog was $30.6 million at July 31st, 2022 on third quarter bookings of $26.8 million. This is up from $27.6 million at Q2. As of today, backlog stands at a healthy $31 million. This shows that even as we deliver record sales results, we are booking and replenishing our backlog with new orders. Some recently announced orders to note are follow-on orders for our hybrid fiber solution from our newest North American Tier 1 wireless carrier, totaling $3.5 million. Turning to our outlook, as Rob mentioned, we expect our Q4 net sales to be in the low $20 million. This would mean This would mean that this would be our third consecutive quarter with sales over $20 million. And as we begin to deliver more consistent sales quarter over quarter, we will be better able to plan and project what is needed operationally, enabling us to gain efficiencies and look into synergies that we can implement and execute on that will help further improve our profitability. We expect full year net sales of between $83 to $85 million. which would represent growth of at least 45% year-over-year, which includes eight months of microlab revenue this fiscal year. Additionally, we expect gross margin improvement for the full year as we continue to drive margin improvement opportunities and a better product mix, as we expect growth in our adjusted EBITDA as our profitability continues to improve throughout the remainder of the year, with the goal of getting to 10% of sales dropping through to adjusted EBITDA. I also want to send a warm welcome to both Kay and Jason, who recently joined our board. I look forward to working with them and am excited about their contributions to come. Finally, thank you to Marvin Fink for his many years of service at RF Industries. Marvin played a significant role in the company's growth and transformation. We will miss him. That concludes my discussion. Operator, we're ready to take the first question.

Absolutely. Thank you. Ladies and gentlemen, the floor is open for questions. If you have any questions or comments, please press star 1 on your touchtone phone at this time. Pressing star 2 will remove you from the queue should your question be answered. And lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Once again, that's star 1 if you have a question or a comment. First question is coming from Josh Nichols with B. Reilly. Josh, your line is live.

Great. Great to see, you know, second consecutive quarter revenue north of 20 million and the backlog at the end of the quarter actually increasing sequentially. On that note, I'm just kind of curious, like, how long do you think it's going to take you to work through that backlog? And if you could talk a little bit longer about the visibility that you have into next fiscal year, given where the backlog is today.

Yeah, hey, Josh, thanks for the questions. So the backlog for us, I mean, obviously we disclose it in as many ways as we can to try to tell the story, but I think that the healthy part of it is Even with these bigger sales results, our bookings have outpaced that, which allows that backlog to grow this quarter and sit up there in the low 30 millions. That's a mix of things that we can predict sort of in the next 90 to 180 days that will go out the door. That also includes some things that will be a little longer than that in some of our more integrated cabling products in particular. So obviously it's great to have that high backlog. We'd be fine if our backlog was sitting at $20 million or $22 million or $18 million. Those numbers all support us putting up significant sales on a quarterly basis because what rarely shows up in that backlog is the book and ship business that comes from our distribution-centric kinds of products. It's a snapshot in time that we try to give those numbers. So it gives us great visibility, I think, in the next 90-ish days The other thing I'll say on that is when we talk about the fourth quarter and expecting it to be a similar-looking quarter to what we did in Q3, a day or two difference and an order or two being pushed or pulled in or pushed out a couple days can make a big difference in numbers of ours, especially when we're sitting on some of these larger orders. So we're optimistic about the fourth quarter. We feel great about it with what we know today halfway through the quarter and with what we expect. It's hard to get really specific until we know exactly which orders certain customers want to take. So that's really for the remainder of this year. As we look at next year, we've got to keep booking at the level that we have been and keep these larger opportunities flowing. I also mentioned that the small cell and DAC worlds haven't contributed the amount that we expect them to, small cell being because the market's been a little funky recently. On the DAC side, it's really more us revamping the product set and going to market in a pretty intense way to drive opportunities. We think both are going to be successful for us in the coming couple of quarters. We start looking at next year, and we'll talk a lot more about this in another three months, but we're certainly expecting continuing to grow. That's just the way we look at every year. Regardless of where we end up, we expect to continue putting up organic growth and the micro lab business as a nice addition overall should give us some additional upside, we think, to next year. I mean, that business has been forming extremely well. I'm not going to say I expect every quarter to look like Q3 did because that was a spectacular quarter, but it's not out of the question for us to perform at those levels the more time we have with that business as part of RF Industries.

Thanks. And then you talked about margins, both on the gross margin front and then EBITDA margins. Is it fair that you think gross margins would be up sequentially in 4Q? And you mentioned the 10% EBITDA margin target. Do you think that you'd be able to hit that target in 4Q? Or do you think that's more of a fiscal year 23 goal to be at or above that level for the full year?

Yeah, so good question. So on the growth profit line, I think we've stabilized our mix fairly well at the moment. You know, we're able to predict it a lot better when you're putting up, you know, Peter mentioned his comments, when the sales numbers move between the low 20s or high teens and then, you know, 12 or 15 million, it's really difficult for us to get that number nailed because we've got to absorb the labor that we have building a lot of this stuff. And so I think, you know, we feel good about where we sit on that today, just above that 30% number. We absolutely believe there's upside to it. more driven in the short term by mix than anything else. We have some initiatives that we both spoke about around streamlining operations and other synergies that over time will help us with that gross margin. But I think we're comfortable where we sit today. Getting to that 30% number, that was great to see that both organically and with the addition of Microlab. And now it's maintaining that and finding ways to drive further growth, which is certainly a doable kind of thing in the short term. On the adjusted EBITDA number getting to 10%, it's not out of the question to get there in the short term. I think we have odds and ends of additional implementation charges and other things, some of which you can add back and some you can't. So getting close to that 9% number felt good. I do believe that it's not out of the question for it to happen in the short term, but we start looking at next year and we would absolutely expect to get above 10% and with some runway to do even better as some of these initiatives start to print through.

And then a very strong quarter looking at the pre-cash flow, right? I mean, I think 2.6 million or so. Per quarter, especially considering the company's market cap or enterprise value of around $80 million here, do you expect that staying at around that $2 million plus of free cash flow is sustainable in the near term? And what do you plan to use that for besides M&A, potential debt pay downs or thoughts on that?

Hey, Josh, it's Peter. Thanks for the question. A lot of the cash flow there is due to timing of just the collections of how AR falls. And as we talked about, there's initiatives that are going on that will require some cash outlay from us. But we're servicing the debt fine with the micro lab acquisition there. And assuming there were no big initiatives, these types of cash flow I think is something you can expect. But what we have kind of coming down Just a little bit in the positive is kind of something I would expect.

Josh, from a use perspective of what do we want to do with the cash, the initiatives we have ahead of us are not small to real estate related. There are things that we need to do in order to take some synergies in this business and really start to drive some of these major opportunities to get dollars to fall through to the bottom line. So in the immediate, there's some organic things we're doing internal to the business to invest to make it stronger and a lot of the integration work that we're now able to do that we haven't been. As cash builds and we get back to that level, then it's a different discussion of should we be paying down debt? Should we be looking at other opportunities to deploy that capital? But I think in the short term, we've got organic initiatives that make sense for us. And we're not really looking at little tiny acquisitions where that level of cash would do us much good. So it's probably not a focus point for that, at least as it stands today.

Thanks. I don't want to monopolize the mic, so I just have one question here that I'll kind of close off on. It seems like the company is doing quite well when you look at the backlog, but I do want to touch on the small cell and DAC opportunities because those have not been big drivers this year, but maybe it sounds like they could next year. If you could help quantify like how much of the revenue guidance for this year is related to small cell and, And, Dak, how could that compare to what type of revenue opportunities that could be next year based on what you're seeing to give people a little bit of an opportunity for the upside there?

Yeah, good question and well informed on sort of how it fits with us. I think if you look at our guidance throughout this year and even with what we've talked about for the fourth quarter and the full year, a very small piece of total sales come from small cell and DAC, at least our expectation there in those goals or in those projections. More of that starts to become material, we believe, next year, both with the small cell market returning and starting to grow again. And the team's done some great work to revamp the DAC offering, I think, to make it a little easier to market and a little more current in specific needs that are happening in the world. We believe around green initiatives and cost reduction for operating lines for major carriers and others that have equipment on the edge of their network that's obviously hot and needs to be cooled, we believe that that is a gigantic opportunity. And the pipeline of opportunities for both, while small sales have been a little funky from its timing of things closing, it continues to grow. Thermal cooling on the DAC side, doing the same thing. Those opportunities have been growing and growing and growing as we've reworked the offer. So we start looking at next year, and even when I talk about growth next year, I'm not including massive numbers from small cell and DAC. Those would be adders to really anything we're talking about today. When I start saying, hey, we expect next year to grow again, to get more specific on that, we're hoping to have a little clearer sense of some items that are hanging out there right now that in Q4 we can talk about on our December call to give some more insight on what that could be from an adder. But I would categorize nearly all of those two product areas to be upside for us on annual sales.

Great. Thanks. I'll hop back in the queue. Thanks, Josh.

Once again, if there are any remaining questions or comments, please press star 1 on your touchtone phone. Up next, we have Oren Hirschman with AIGH Investment Partners. Oren, your line is live.

Hi. Thank you. I tried to do a quick back of the envelope with the best data we can on estimates, but was there progress on the gross margin on the rest of the business if you pull out the micro business? It looks like there is. Yes.

There was organic margin growth on our legacy business, and then the adder of Microlab helped push us up over that 30% number.

Okay, great. And what's it really going to take in order for the cooling business to take off? It's obviously a real problem. people are noting it, when does it become really, really, really real?

Yeah, our expectation is during fiscal 23, we're going to have some really real numbers to talk about and a contribution from it. What we're selling it now is happening. Even this week, we've seen some pretty meaningful orders from a large carrier that based on West Coast heat needs. Okay, cool. So we're seeing that happen. It's not out of the question to have some things to talk about in the very short term around that. But these orders are in the tens or hundreds of thousands. We think that opportunity obviously is way larger than that as we start to break into some of the more nationwide footprint opportunities. But in 23, we'd be disappointed if there was not a material contribution from that business.

Okay, great. And that carries very good gross margins, correct?

It does, yep. Okay, thanks so much. Thanks, Oren.

If there are any remaining questions or comments, please press star 1 on your touchtone phone at this time. Once again, that's star 1 if you have a question or a comment. There will be any final questions or comments. Please indicate so now by pressing star one on your touch-tone phone. Okay, we have no further questions in queue at the moment. I'd like to turn the call back to management for closing remarks.

Thanks, John. Yeah, I'll make a final comment. That sounds good. So thanks, everyone, for joining our call today. We appreciate your support of RF Industries. I'd like to thank our team for their hard work in helping us achieve these new levels of performance and our customers for allowing us to partner with them. We're excited about our continued positive momentum as we move toward year end and the significant opportunities that lie ahead. Peter and I look forward to reporting our fiscal 2022 fourth quarter and full year results in December. Thank you again and have a great day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.