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spk08: Greetings and welcome to the RF Industries first quarter fiscal 2024 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Margaret Boyce, Investor Relations for RF Industries. Margaret, you may begin.
spk00: Thank you, Paul, and welcome everyone to RF Industries first quarter fiscal 2024 earnings conference call. With me on today's call are RF Industries CEO Rob Dawson, President and Chief Operating Officer Ray Bibisi, and CFO Peter Yin. Before I turn the call over to Rob and Peter, I'd like to cover a few quick items. We issued our Q1 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 statements on the call today may constitute forward-looking statements with 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 10-K describe the differences between our GAAP and non-GAAP reporting. With that said, I'll now turn the conference over to CEO Rob Dawson. Rob, please go ahead.
spk02: Thank you, Margaret. Welcome to our first quarter fiscal 2024 conference call. I also want to welcome Ray Babisi's participation in our call. Recently promoted to president, Ray will play a key role in shaping the next generation of our business strategy and operations, and as such, will be a valuable addition to our quarterly calls. For the first quarter, we reported net sales of $13.5 million, down 27% year over year. While the first quarter has always been our seasonally slowest period, sales were lower than anticipated, largely due to more than $2 million of customer shipments and orders that were delayed in the quarter. Importantly, these orders were not canceled, and we expect they will be shipped over the next few quarters. Fortunately, our lower cost structure helped us weather this rough period. When the market recovers, our cost reduction initiatives will yield even greater benefit and help us return to profitable growth. Turning to the overall market, it feels like the ice might be thawing on the low CapEx spend and sluggish activity we experienced for over a year. We're finally starting to see some early signs of reversal from the CapEx downturn that made fiscal 23 so challenging. As a welcome relief from the dramatic 17% decline in CapEx spending last year, telecom companies' guidance for 2024 indicated a CapEx spend increase of up to 5%, and we're seeing this reflected in our business. Important to RFI, more of the 2024 CapEx is related to densification of wireless networks. which aligns nicely with our expanded product offering. We're encouraged that many projects, which have been in the sales pipeline for several quarters, began to convert into purchase orders in February. Even better, this increase in new orders is primarily high-value products like our DAC thermal cooling solutions and small cell shrouds that are being purchased by multiple customers in the Tier 1 wireless carrier ecosystem. This has led to a substantial increase in our quarterly backlog, which now stands at $19.3 million, up $3.1 million compared to January 31st. The progress we made in 2023 to become a leaner and more efficient operation will have a meaningful impact on profitability as this carrier capex spending normalizes and our top-line growth resumes. We believe this recovery will be gradual but has staying power. Our backlog growth is comprised of multiple orders across a variety of customers and diverse geographies, not just one large order that's moving the needle. With several customers, we have signed long-term master agreements. This means that as long as we continue to execute, we'll remain part of their build plans, not just for 2024, but for the long term. One customer in particular is beginning the first phase of a multi-year program of 5G deployment and infrastructure updates. With a master agreement in place with this customer, we're optimistic this will result in repeatable business for RFI. We have also positioned RFI to benefit from diversification that isn't CapEx and end market specific. It's important to know that a portion of our products and solutions align well with operating and maintenance budgets versus CapEx. We believe that solutions like our DAC thermal cooling systems are helping us smooth out the peaks and valleys of carrier CapEx. by addressing annual updates and upgrades that are part of a carrier's maintenance budget. We've been working hard to successfully build strong relationships and a greater presence with our carrier customers, and capturing some of their maintenance budget is another source of funding separate from CapEx projects. It's also important to note that last year, 57% of our sales came from diverse end markets outside of wireless carrier applications, such as manufacturing, public safety, energy, hospitality, education, and medical. In addition, we're continuing to explore opportunities with new customer segments, including cable companies, wireline telecom carriers, and industrial markets that could develop into meaningful business over time. As I've said before, we felt strongly that our wireless carrier customers could only stay on sidelines for so long. To stay competitive, they need to continuously improve the telecom infrastructure to meet customers' expectations for speed and coverage. Not only are they focused on the 4G and 5G macro towers, but also on network densification. To meet both new and pent-up demand in the telecom market, we made significant investments in our integrated systems product line and can now offer a broad selection of high-quality interconnect products and next-generation integrated systems. This positions us to gain a larger percentage of our customers' bill of materials by having the leading-edge products they need for key applications. In addition to expanding our portfolio of high-value products, over the last year we executed our plan to control costs and drive further synergies by consolidating our facilities. While the work we did in 2023 reduced our annual expenses by $2.5 million, we have other initiatives underway to potentially reduce annual expenses by another $3 million by the end of fiscal year 2024. Ray will provide more details during his remarks. In 2023, we accomplished a great deal through the hard work and dedication of our outstanding team, and Ray, as Chief Operating Officer, was very instrumental in achieving this progress. Recognizing his leadership, in February, we promoted him to President and Chief Operation Officer. This promotion expands his leadership role at RFI beyond operations to include greater oversight on our go-to-market strategies. I'm confident that Ray will make significant contributions to shaping our business strategy, go-to-market, and operations for the next phase of our strategic plan. Looking ahead to 2024, we're optimistic about our future prospects. We have a strong competitive position with a highly attractive product portfolio, a capital-light business model, and substantial operating leverage. As you heard me say before, as 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, a better product mix shift, or both. Plus, as we reduce expenses, any incremental sales should flow to the bottom line. With what we know today, we expect Q2 sales to increase sequentially over Q1 as we begin to benefit from the substantial new order flow that I discussed earlier. I want to thank our employees who've worked diligently to improve our operations and set the company up for future success. I also want to thank our shareholders who've been patient through the downturn. We appreciate all of your support. I'll now turn the call over to Ray Babisi to speak about our operations. Ray?
spk06: Thank you, Rob. I'm truly honored to assume the role of President of RF Industries and excited to speak with you today about the opportunities that lie ahead. In my capacity, I will be leading RFI's sales, product management, engineering, and operations teams across all business units and product areas. Our goal is to closely align these teams with our go-to-market strategy that will facilitate enhanced cross-selling of our diverse portfolio and solutions. This strategic alignment is designed to establish a more cohesive and efficient organizational structure that will help us capitalize on significant market opportunities. I am confident that fostering greater integration within our market-facing team will give us a competitive edge as we pursue these opportunities. As mentioned by Rob earlier, our initiative to drive further cost reductions will continue through 2024. We see opportunities for improvement in several areas, such as direct material, facilities and equipment, product design and development, along with the benefits of applying lean principles company-wide to improve operation efficiencies. In addition to our ongoing cost reduction initiative, We have organized the Tiger Team focused on cash generation. While this initiative will examine several best practices to strengthen our business, its immediate priority will focus on minimizing excess and obsolete inventory. The potential benefits from both cost reduction and cash generation programs will enhance our financial strength of our organization. Furthermore, I am very excited about the collaborative spirit and enthusiasm of my new team. Together, we've engaged in discussions around sales strategy, market diversification, market share, as well as product roadmap and rationalization. We are totally aligned in maximizing the opportunities ahead that will contribute to a bright future for RFI. It's an exciting time for our company, And with that, I will now turn it over to Peter to discuss our financial results. Peter?
spk01: Thank you, Ray, and good afternoon, everyone. As Rob mentioned, our first quarter results were lower than we expected. However, we are excited to see spending improving and having a positive impact on our backlog. First quarter sales were $13.5 million, a decrease of $4.9 million, or a 27% decrease year over year and down 15% on a sequential basis. First quarter gross profit margin decreased to 24.5% from 27.7% year over year. The 320 basis points decrease reflected the impact of lower sales and less leverage to cover certain fixed costs. First quarter operating loss was $2.1 million compared to an operating loss of $1.2 million in the prior year period. The operating loss was primarily due to lower sales value and lower contribution from higher margin products offset by lower operating expenses in the first quarter of 2024. Our net loss was $1.4 million or 13 cents per diluted share and our non-GAAP net loss was 590,000, or 6 cents per diluted share, compared to a net loss of 1.2 million, or 11 cents per diluted share, and a non-GAAP net loss of 25,000, or 0 cents per diluted share for Q1 2023. First quarter adjusted EBITDA was negative 1.1 million, compared to positive adjusted EBITDA of 78,000 in Q1 2023. Moving to the balance sheet, As of January 31, we had a total of $4.5 million of cash and cash equivalents and had working capital of $21.6 million and a current ratio of approximately 2.9 to 1, with current assets of $32.9 million and current liabilities of $11.3 million. As of July 31, we borrowed $12.5 million under our term loan and $500,000 the revolving credit facility. Related to the credit facility, as you saw in the Third Amendment filed at the end of February, we have been working over the last several months to ensure we have access to liquidity and flexibility needed to support the recovery of our business. As of today, we have refinanced the term loan that was put in place in 2022 with a new asset-based revolver with a new lender. This revolver will support our next phase while giving us the working capital flexibility to handle potentially uneven deployments in customer orders. Our inventory was 18 million down from 18.7 million last year. The decrease in inventory reflected our continued rationalization and right-sizing of our inventory to address the lower demand level we experienced in 2023. We believe our current inventory level supports our strategic business model of inventory availability, and we continue to manage this closely as we expect to see increased demand in 2024 as CapEx spending gradually normalizes over the coming year. Moving on, we are seeing momentum build around new business. Our backlog as of January 31 was 16.2 million on first quarter bookings of 13.6 million. Subsequent to Q1, we've seen an increase in order flow, and as of today, our backlog currently stands at $19.3 million. As we look ahead, we're optimistic the positive trend we are seeing with our customers will continue and benefit our sales. We're excited about our opportunity to drive top line growth and generate profitability through key customer projects and higher value solutions. With that, I'll open up the call for your questions.
spk08: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star 1 on your phone at this time if you wish to ask a question. And please hold while we poll for questions. And the first question today is coming from Josh Nichols from B. Reilly. Josh, your line is live.
spk03: Yeah, thanks for taking my question. I know the carrier CapEx market has obviously been tough specifically for last year, and the first quarter is a little bit of a seasonally lull for you guys. But Good to hear that the revenue is expected to pick up in 2Q. Just given what we're seeing for the decent backlog jump, I'm just kind of curious, do you think that there's going to be more of an incremental or material sequential pickup in 2Q, or do you think a lot of that backlog is going to be coming in like the fiscal second half of this year when we just think of the cadence of the acceleration over the next few quarters?
spk02: Yeah, hey, Josh, thanks. Good question. I think I'll give kind of two two reactions to the question or two answers to the question. So one is, with what we've been through in the last four quarters, I have a hard time predicting exact timing on the way these orders are going to flow. So I'll give that caveat kind of to begin. But I think the broader piece is we expect some of the orders we've been seeing to help us in Q2. Not going to give specific guidance on a Q2 revenue number, but we certainly expect nice recovery starting to show in the second quarter. and then through the rest of the year. I mean, these orders that we've seen to take the backlog up, as I said in some of my prepared remarks, it's not a one-time thing. You know, we have scenarios occasionally where we get a large order and we draw against it for some period of time. This is several recurring orders around several different projects with multiple customers that are not just, you know, the month of February was great from a bookings perspective, but it's not just that. I think we've continued to see those into March. Helping that backlog and we expect there to be you know more sort of continuing as the year goes on so hard to give exact timing But we certainly expect to sort of accelerate from here And Josh any more questions Yeah, one more question, sorry
spk03: just looking at the, the OpEx structure, you guys have gotten pretty lean and mean over the last 12 months, I'd say, and I had two and a half million of annualized operating savings. And you mentioned on the call that you could be potentially another 3 million of additional savings. Could you just maybe elaborate on where those are potentially coming from specifically, uh, what the company plans to do or any expenses associated with achieving those?
spk02: Sure. Yeah, maybe I'll give a kind of a first pass on and then I'll let Ray add some of the specific initiatives at a high level that the team's driving. So generally, it's a sort of a continuation of the things that we began and had planned going into fiscal 23 with the combining of locations to allow us to get started on some of these streamlining opportunities. So it's sort of the next phase of that and continuing down the path of the good, diligent, various work streams that the team has been driving. So, Ray, maybe you want to mention some of the specific items. I know you had a few in your prepared remarks, but maybe just, you know, recap those at a high level, what the items are that some of the initiatives the team's driving.
spk06: Sure. Thanks, Rob. And Josh, like I kind of mentioned in my dialogue, we're looking at multiple facets of the business, direct materials, is one element, as Rob mentioned, facilities, the consolidation of facilities and the synergies that we can benefit from those consolidations. We're also looking very heavily into product design, manufacturability of new product design. And then the other big element is the lean principles, eliminating waste in our operation, our manufacturing processes, And our process is across the board. So we kick this off in 2023. We see other opportunities moving into 2024. And we think that there's more that can be accomplished as we move into this year.
spk03: Thanks. And then last question for me, I guess I can. Given the anticipated upswing in revenue throughout the rest of the year and the fact that you talked about you're probably going to be getting some higher margin revenue from small cell and DAC, things like that, how should investors be thinking about the potential margin expansion over the coming quarters for the company?
spk02: Yeah, maybe I'll give a first pass and let Peter add some specifics there. So I think the general summary is you know, we need there to be a specific sales number to allow us to cover fixed charge, right? That was one of the things that Peter mentioned in his comments. And I think that just at a high level, as we see product mix get better, we've brought our break even way down. But as we see, you know, the product mix get better around these higher margin items, I think that is one key area where we should see the, you know, the margin expansion start to happen. Peter, do you want to add some specifics there?
spk01: Sure. Hey, Josh. Thanks, Rob. So as the year, you know, continues and we see the improvements in the top line and the product mix getting better, I think we can expect us to get closer to 30% range where we've been, Josh, you know, coming off a 13.5 at 24.5. That, you know, Not a great number for us, but I think with the sales improving and kind of the synergies we've worked on last year and continuing on to this year, as we see the sales from the higher kind of margin stuff start to ship out, I think you'll see a quicker improvement to our gross margins with some sales increase here.
spk03: Great. That's all for me. Thanks, guys.
spk01: Thanks, Josh.
spk08: Thank you. And once again, it will be star one if there were any other questions at this time. Once again, star one if you wish to ask a question at this time. And once again, that's star one. if you wish to ask a question at this time. The next question is coming from Greg Graves. Greg is a private investor.
spk04: Gentlemen, I just have one simple question relative to the activities with the U.S. and China. Could you give us a rough idea of how much you are relying on China for some of the components that go into our parts?
spk02: Yeah, thanks, Greg. Good question. So, Small, as in less than 10% of our inventory has a direct connection there. Now, that's direct. That doesn't mean that U.S.-based suppliers that we're purchasing from aren't also sourcing something, but our exposure that we're aware of is, I would say, less than 10% of our inventory.
spk04: Thank you. That's very reassuring.
spk02: Thanks, Greg.
spk08: Thank you. And the next question is coming from Ethan Starr. Ethan is also a private investor.
spk07: Yes, thank you. There was some mention of some obsolete or out-of-date inventory in your inventory figure. I'm wondering roughly can you give some guidance as to the percentage or dollar figure roughly about the inventory and what your hopes are for moving it out the door?
spk02: Yeah, thanks, Ethan. So we're not going to give a specific number on it. I can tell you it's a small percentage of our total. And in some cases, it's not actually obsolete. It's just been slow moving. And we've made the decision to turn that into cash, to move some stuff out of there. So it's not going to have a massive material change to our inventory level. But some of the decline that you saw in our current inventory, I think it's $18 million as we reported, and it was $18.9 million. prior quarter. So part of that is selling through some inventory, but part of that is also reducing those numbers. So it's not, you know, I don't want to overstate the obsolete word. We certainly want to say, yeah, there is some in there that we needed to move out. But it's more about, I think, just rationalizing and turning it to cash if it hasn't been moving.
spk07: Okay. Well, thanks for correcting me on the improper use of obsolete. And I look forward to next quarter's results.
spk02: Thanks, Ethan. I think we said the word obsolete, so that's on us, not you. Thank you.
spk07: Okay.
spk08: Thank you. There were no other questions at this time, and I would now like to hand the call back to Rob Dawson, CEO at Aurif Industries, for closing remarks.
spk02: Thanks, Paul, and thanks, everyone, for joining our call today. We look forward to reporting our second quarter results in June. Have a good day.
spk08: Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.
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