RF Industries(RFIL) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q2 2022 was $21.5 million, a 27$503,000, non-GAAP net income was $1.3 million, and adjusted EBITDA was$2 million [10] - Gross profit margin improved to 28%, up from 24% in Q1 and 27% in Q2 2021 [39] - Inventory increased by 42% sequentially and 71% year-over-year, with $3.9 million attributed to the Microlab acquisition [42] Business Line Performance - The Microlab acquisition contributed$3.4 million in sales over two months, with an annualized revenue potential exceeding $20 million [11] - The custom cabling segment, including Optiflex hybrid fiber products, received a multi-million dollar order from a new customer, contributing to a backlog of over$34 million [19][21] - Small cell and DAC thermal cooling offerings showed strong potential, with a growing pipeline and backlog [26][27] Market Performance - The company saw organic growth across all divisions, with significant contributions from the Microlab acquisition [9][39] - The North American wireless market, particularly 4G and 5G infrastructure builds, continues to drive demand for hybrid fiber solutions [20][22] Strategic Direction and Industry Competition - The integration of Microlab is complete, and the company is focusing on organic growth and strategic acquisitions to expand its product portfolio and market reach [32][33] - The company aims to achieve gross margins of 30% or higher and adjusted EBITDA of 10% or more of sales in the near term [34][35] - The launch of the TruField small cell concealment solution is expected to enhance market positioning and meet the growing demand for 5G networks [28][29] Management Commentary on Operating Environment and Future Outlook - Management highlighted the positive impact of the Microlab acquisition and the strong performance of the custom cabling segment [10][19] - The company expects continued growth in adjusted EBITDA and profitability, driven by higher sales and improved margins [37][48] - Supply chain challenges and cost pressures are being managed through strategic inventory increases and customer pricing adjustments [41][43] Other Important Information - The company increased its fiscal 2022 revenue guidance from $75 million to$80 million, reflecting the strong performance and contributions from Microlab [37][48] - Cash and cash equivalents stood at $3.8 million, with working capital of$27 million at the end of Q2 [44] Q&A Session Summary Question: Backlog and Revenue Flow - Approximately 50% of the $34 million backlog is expected to be realized in the short term, with the remainder likely to flow into the next fiscal year [52][53] Question: Hybrid Fiber Order from New Customer - The new hybrid fiber order was the result of long-term relationship management and collaboration across sales teams, not directly tied to the Microlab acquisition [56][57] Question: Small Cell and DAC Thermal Cooling Opportunities - Small cell revenue is expected to grow by 30$6 million to $10 million annually [62][64] Question: Microlab's Growth Potential - Microlab's revenue is expected to normalize around$20 million to $22 million annually, with potential upside from venue and small cell projects [67][68] Question: Inventory and Cash Flow - Inventory levels are expected to stabilize, with no significant additional cash required for operations [70][72] Question: R&D Expenses - R&D expenses have increased due to the Microlab acquisition but remain a reasonable percentage of revenue [79][80] Question: TruField and Partnership with Saint-Gobain - The TruField product, developed in partnership with Saint-Gobain, addresses the need for RF-transparent materials in small cell deployments [85][86] Question: SG&A as a Percentage of Revenue - SG&A is expected to stabilize around 25% of revenue, with potential reductions as one-time charges are eliminated [89] Question: Seasonality and Revenue Guidance - The company expects similar revenue performance in the next two quarters, with seasonality impacting Q1 due to slower outdoor builds [98][102] Question: Gross Margin and Cost Pressures - Gross margins improved organically, with further upside expected from Microlab's higher margins [107][108] - Copper price fluctuations impact about 25%-30% of sales, with no immediate significant effect on margins [128][129] Question: DAC Thermal Cooling Product - The company has active tests and deployments of DAC thermal cooling products, with confidence in future growth opportunities [120][122]