RF Industries, Ltd.

Good day, everyone, and welcome to the RF Industries Second Quarter Fiscal 2023 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, Jack Drapass. Sir, the floor is yours.

Thank you, Operator. Good afternoon and welcome to RF Industries second quarter fiscal 2023 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 Yen. 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 second quarter fiscal 2023 financial results. That results excuse me, 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 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 call over to Rob Dawson, President and Chief Executive Officer.

Thank you, Jack. Good afternoon, everyone. Thanks for joining our second quarter fiscal 2023 conference call. We had a solid quarter and delivered net sales of $22.3 million, a 3.7% increase against a strong Q2 last year. As anticipated, we shipped several customer orders that were delayed in the first quarter, and our OptiFlex hybrid fiber cable and interconnect products performed well. I think our Q2 results show what's possible in our business, even with a challenging backdrop. Over the last few years, we've achieved significant growth, yet there's always some volatility quarter to quarter, which makes it difficult to take a snapshot every 90 days for a company our size, especially in a market like this. Our growth trend hasn't been a perfect hockey stick up into the right chart every year, but directionally, we're doing the right things, and our number one focus right now is getting back to higher profitability. While we had a nice second quarter, the overall environment in the wireless carrier market hasn't really changed since our last call when we discussed a spending pause in wireless carrier CapEx and project delays. While our core interconnect offer, including custom cabling, is performing well, DAC and small cell, our higher margin and future growth drivers, are being impacted by the sluggish CapEx spending. That's pressuring the consolidated gross margins and EBITDA in the short term. We expect a few more quarters of slower project spending and the related delays, but are optimistic that carriers will resume their build-outs, and we stand to benefit from that with our differentiated new higher value solutions. Having navigated through several wireless spending cycles, We know how this works, and slow spots like this are normal. We also know how to prepare for an upturn and feel strongly that the investments we made in our business will kick into gear when carriers refocus their attention on the 4G and 5G builds. Additionally, many of our products have applications beyond wireless, and we're thinking strategically about diversifying into other industries where we have a smaller presence that could grow much larger over time, including wireline, utilities, transportation, and aerospace and defense. Let me just say we're executing well and showing progress on what's in our control. In the second quarter, we continued to make progress on our strategic transformation of RF Industries. One key element to imprinting a growth mindset throughout the company is redefining our value proposition in the market. To that end, we launched a rebranding initiative to better connect RF's well-established reputation to the current market. After 45 years in operation, we now have a new logo and fresh brand identity that embraces both our history and the significant evolution of the company and our product offerings. This was unveiled in early May at the Connectivity Expo event, and when fully completed by year end, we'll have a new corporate image, redesign of the website, and a new investor presentation. This rebranding reflects our strategy to target both current and new markets with a more cohesive corporate identity that connects our powerful product portfolio to our roots. On our last call, I touched on our 2023 strategic plan to reduce operating expenses by consolidating and streamlining operations. I'm pleased to report that we're making solid progress. Last quarter, we moved our coaxial cable operation to our new San Diego facility with no production downtime. And this week, we're adding our faster and fiber optic lines to that same facility. In July, we're consolidating some of our East Coast operations. which includes moving the micro lab production operation and then combining our small cell and DAC product lines later this summer. Moving production lines is a heavy lift, but so far everything has gone smoothly without any disruption to our customers. The money that we're investing in consolidations will lead to significant efficiency gains and ultimately cost savings. We expect these moving expenses will be largely behind us at the end of our third quarter. At the same time, as I mentioned previously, We've been investing in product development, primarily within our integrated systems product offering. This spending has resulted in some higher operating expenses, which in turn has created a short-term drag on earnings until sales from these product lines ramp up as we expect in coming quarters. This important development cycle that keeps us competitive in the market is largely completed. As we strip out these costs and look to increase sales, We expect to be a much more profitable business in future quarters, so it's difficult to give specific timing in the short term. Now I'd like to take a few minutes to expand a bit on the current operating environment. We believe we'll see a few more quarters of the capital expenditure downturn among wireless carriers for the reasons I discussed earlier. Based on our experience, these down cycles usually last three to four quarters. Once capital expenditures pick up, we see significant leverage in our P&L that can have a favorable impact on gross margins, either from higher sales or product mix shifts or both. Plus, as we reduce expenses, any incremental sales should flow to the bottom line. To better understand our business, the math is fairly straightforward. If we do $20 million in quarterly sales at 30% gross margin, we would deliver $6 million in gross profit. our operating expenses have been hovering around $6 million per quarter. So that puts us roughly at gap break-even around the $20 million sales level. Higher or lower sales will obviously change the operating profit number. So as we increase our focus on selling higher margin products, the mix alone in a quarter can take our profitability up. Looking at it from the expense side, we anticipate lower operating costs based on our facility consolidations and other initiatives. and are also working hard to rationalize our inventory position while being careful to maintain our core business proposition of availability and fast turn. Lower op-ex and inventory would obviously also help us deliver higher profits. So far, fiscal 2023 has served up some new market challenges that are pressuring our top-line growth. As I said earlier, based on our experience, we think these are near-term hurdles. Regardless, our focus on improving profitability is our top priority and we've set a goal of achieving an adjusted EBITDA above 10% of sales through our margin improvement and expense reduction initiatives. Regarding M&A, as a growth-oriented team, we'll be looking at potential acquisitions to complement our business. Right now, deal flow is relatively slow, but there are opportunities out there, and valuations seem to be normalizing. While we continue to focus on organic growth with our existing infrastructure, Some specialty sectors like aerospace and defense may require strategic M&A to make an impact. The overall environment remains challenging, but we're not standing still. We see tremendous growth opportunity ahead once the CapEx faucet turns on. Our core business is strong and sustaining us, and we're starting to see some green shoots of interest in our higher-value products and solutions, something that's been lacking over the last few quarters. In fact, some recent orders that we booked early in the third quarter give us more confidence that we're gaining traction with new products as we move through the rest of our fiscal year and into fiscal 2024. We think we're in a great position to generate solid returns for investors over the long term, and we're grateful for the ongoing support of our shareholders. With that, I'll turn the call over to Peter to discuss our financials.