RF Industries, Ltd. (NASDAQ:RFIL) Q1 2023 Earnings Call Transcript
RF Industries, Ltd. (NASDAQ:RFIL) Q1 2023 Earnings Call Transcript March 13, 2023
Operator: Greetings. Welcome to the RF Industries First Quarter Fiscal 2023 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. Please note, this conference is being recorded. I will now turn the conference over to Jack Drapacz, Senior Vice President. You may begin.
Jack Drapacz: Thank you, operator. Good afternoon, and welcome to RF Industries' first quarter fiscal 2023 financial results conference call. With me on today's call are RF Industries' President and Chief Executive Officer, 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 first fiscal 2023 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 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 over to Rob Dawson, President and Chief Executive Officer.
asharkyu/Shutterstock.com
Rob Dawson: Thank you, Jack. Good afternoon, everyone. Thank you for joining RF Industries first quarter fiscal 2023 conference call. While we delivered net sales of 18.3 million in the first quarter, which is an 8.4% increase year-over-year, we expect it to do better. And I'll explain why. Even though our first quarter is our seasonally slowest period, we anticipated shipping an additional $1.4 million in orders that were delayed due to customer requests and timing of shipments, and will be recognized in future quarters. That additional revenue would have made a big difference on our margins and bottom line. As the quarter went down, we saw some definite signs of slowing in CapEx spending from wireless carriers. Coming off of a record year for us, we've sized our operations to handle higher capacity levels.
With carriers now announcing cost cutting plans and tightening budgets, we took steps to realign our own cost structure. To that end and with the full support of our Board of Directors, we've accelerated our 2023 strategic plan to consolidate and streamline operations and reduce operating expenses. These additional savings along with our healthy and diverse run rate business will allow us to continue to deliver a solid performance in the near term and to sustain any extended challenging macro market conditions. The big question for suppliers like us is how and when the revised carrier CapEx will be deployed. While we're seeing steady growth in our core interconnect products, wireless carriers are slowing larger site build-outs of their planned 4G and 5G networks.
This directly affects our project based business. Sales of small cells, DAC thermal cooling systems, hybrid fiber tables, and in-venue wireless deployments. All of which are directly related to carrier CapEx. By now, I've been through at least four major wireless build-out cycles. And there are always some unexpected delays and pauses. The COVID lockdown was especially brutal when it stopped projects in their tracks. Eventually, we get on the right side of what the carriers need to do to stay competitive and keep their customers happy, while also leveraging the benefits of new advancements in radios and other technologies. However, with the current macro factors of inflation and high interest rates, the timeline has certainly become more unpredictable.
That's all beyond our control. And that said, each time we run into obstacles, we've been able to fight our way through and get better. It starts with focusing on what's in our control and what levers we and become a more cost efficient business. To that end, as I mentioned, we are now accelerating our plan to streamline our operations and reduce operating expenses. Today, Peter and I are speaking to you from our New San Diego facility that now houses our corporate headquarters and several production lines. We've already moved our coaxial cable operations with no production downtime, which is pretty amazing considering the complexity of a move like that. Other product lines like our fast turn fiber will follow in the next few months. When completed, our West Coast operations will be fully consolidated in an efficient state of the art facility, manufacturing built-in America specialty interconnect products.
On our fourth quarter call in January, we mentioned our plans to consolidate some of our East Coast operations this year. We've now pushed that timeline forward for certain product lines. We're also looking at operating expenses with an eye towards shaving expenses wherever we can without repeating our ability to serve our customers and continue to grow. With inflation, everything is more expensive, wages, materials, insurance, you name it. Plus logistics and especially scheduling of transportation remains a challenge. Most of our cost savings will come from consolidating operations and streamlining operations, but we will also continue to carefully manage operating expenses across the board. Through all these focus areas, we expect to realize more than $2 million of annualized savings this year and add at least another $1 million of cost savings next year.
Regarding guidance for fiscal year 2023, with what we see today, it's difficult to predict with much certainty what to expect in the near term. Judging by what our customers are saying, we are cautiously optimistic that larger projects should gradually pick-up with greater momentum in the back half of the year. While the first half of the year will be impacted by the changes in the carrier market, we expect second quarter sales to increase sequentially from the first quarter and that sales and profitability in the second half of the year will improve significantly over the first half. Notwithstanding the headwinds we're experiencing, we remain committed to our long-term strategy that has helped us profitably grow sales from $23 million to $85 million over the last 5 years.
Our core run rate business continues to benefit from a steady and diverse customer base and tends to be less project centric and driven mostly by day-to-day orders. Wireless carriers will continue to invest in 4G and 5G build-outs over the next several , and the acquisitions we have made over the past few years, especially Microlab, are game changers. We have a compelling business model, an outstanding team, and a dynamic and prudent approach to managing our business to meet changing market conditions and customer demand. I'm confident that we are well-positioned to manage near-term volatility, respond to pent-up customer demand when the market normalizes, and to deliver profitable growth and returns to our shareholders over time. With that, I'll now turn the call over to Peter to discuss our financials.
Peter?
Peter Yin: Thank you, Rob, and good afternoon, everyone. Before I get into the comparisons, please note when comparing to prior year fiscal 2022, our numbers in fiscal 2023 include the results of Microlab, which we acquired in March of 2022. As Rob mentioned, sales in the first quarter, which seasonally is our lowest quarter of the year were $18.3 million and included a $5.1 million contribution from Microlab products. This represents a year-over-year increase of $1.4 million or 8.3%/ We experienced lower sales in our project business to wireless carriers as compared to the prior year relating to our hybrid fiber, small cell, and DAC products. First quarter gross profit margins increased to 27.7% from 24.1% in the same quarter last year.
The 360 basis point increase was primarily due to the contribution of Microlab's higher margin sales. Net loss was $1.2 million for the first quarter or $0.11 per diluted share, compared to a net loss of $277,000 in the first quarter of 2022 or $0.03 per diluted share. Non-GAAP net loss was $25,000 or $0.00 per diluted share for the first quarter, compared to non-GAAP net income of $691,000 or $0.07 per diluted share for the first fiscal quarter of 2022. Adjusted EBITDA for the first quarter was $78,000, compared to $691,000 in the first quarter of 2022. The decrease when comparing to the prior year for GAAP, non-GAAP, and adjusted EBITDA relates to the lower than expected sales during our first quarter fiscal 2023. Due to the lower sales, we were unable to fully absorb our operating expenses.
I do want to note that in our balance sheet, there is a deferred revenue line of $1.1 million, which we historically do not have. This relates to the accounting for revenue recognition on one order. We expect to recognize the majority if not all of this revenue in our second quarter. Had we recognized this $1.1 million revenue in our first quarter, our gross margin profits would have increased approximately 100 basis points with a contribution to our operating income of approximately $500,000. As Rob also touched on, we are accelerating our efforts to consolidate and streamline operations and to reduce expenses. We expect to benefit from these savings in future quarters with some savings beginning excuse me, with some savings being recognized as early as our current fiscal second quarter.
While we are consciously optimistic about our outlook, these expense reductions will position RF to better navigate the unpredictable macroeconomic environment. At the end of the first quarter, our balance sheet remained strong with cash and cash equivalents of $3.8 million, working capital of $25.1 million, and the full 3 million available under our revolver. Inventory was $20.9 million, up from $13.5 million last year, 5.4 million of the increase was related to Microlab. We are carefully monitoring and managing our inventory levels to meet near-term customer requirements, while staying true to our customer value proposition of delivering products reliably and quickly. We believe there is opportunity for us to rationalize our current inventory position, which would help free up cash and build upon our overall cash position for other investments.
As we move through the year, we'll have a clear line of sight on what the lower carried inventory looks like. Our backlog remains healthy going into the second quarter at $24.5 million on first quarter bookings of $15 million, and as of today, our backlog stands at $24 million. This concludes my comments. Operator, we are ready to open the line for questions.
See also 12 Best Lithium and Battery Stocks to Buy and 11 Best Long-term Growth Stocks for Strong Returns.
To continue reading the Q&A session, please click here.
