RF Industries Q3 Earnings Call Highlights

Key Points

• Record quarterly performance: Fiscal Q3 revenue reached $24 million, up 21% year over year, while adjusted EBITDA rose 71% to $2.7 million. Gross margin expanded to 35.6% and adjusted EBITDA margin exceeded the company’s 10% target at 11.1%.
• Improving financial position and demand: Backlog increased to $19.8 million, cash rose to $4.5 million, and revolver borrowings declined to $5.7 million. Management expects continued positive cash flow and further net-debt reduction.
• Growth outlook remains positive: Management expects fourth-quarter sales to be roughly equal to or above Q3 levels, with momentum in small-cell products and direct air-cooling. The company is also pursuing opportunities in edge data centers, AI infrastructure, aerospace and defense, and other diversified markets.

RF Industries NASDAQ: RFIL reported record fiscal third-quarter revenue of $24 million, up 21% from the prior-year period and 16% sequentially, as higher-value integrated systems and custom cabling offerings contributed to growth and profitability.

Chief Executive Officer Rob Dawson said the quarterly sales result established a new high-water mark for the company. He said revenue above $20 million is producing the operating leverage management has discussed, with more revenue flowing through to profitability.

“Fiscal year 2026 is unfolding as we anticipated and communicated to you,” Dawson said. “Our third quarter results continued to demonstrate the earnings power we have been building across RF Industries.”

Margins and Profitability Improve

Gross profit rose 27% year over year to $8.5 million, while gross margin expanded 160 basis points to 35.6% from 34.0% a year earlier, according to Senior Vice President and Chief Financial Officer Peter Yin. The company said it has exceeded its 30% gross-margin objective in six of the past seven quarters.

Operating income increased to $1.8 million, compared with $720,000 in the third quarter of fiscal 2025, and operating margin rose to 7.3% from 3.6%.

• GAAP net income was $1.4 million, or $0.12 per diluted share.
• Non-GAAP net income was $2.2 million, or $0.19 per diluted share, compared with $1.1 million, or $0.10 per diluted share, a year earlier.
• Adjusted EBITDA increased about 71% to $2.7 million from $1.6 million.
• Adjusted EBITDA margin reached 11.1%, above the company’s long-stated 10% target, versus 7.9% in the prior-year quarter.

For the first nine months of fiscal 2026, sales increased 10% to $63.6 million. Gross profit climbed 19% to $21.9 million, with gross margin rising to 34.5% from 31.8%. Operating income reached $3 million, up from $882,000, while adjusted EBITDA rose 61% to $5.7 million.

Bookings, Backlog and Balance Sheet

Third-quarter bookings were $22.5 million, representing a book-to-bill ratio of approximately 0.94x. President and Chief Operating Officer Ray Bibisi said year-to-date bookings exceeded year-to-date sales, reflecting demand across the company’s end markets.

Backlog stood at $18.6 million as of July 31 and had increased to $19.8 million as of the date of the call. Yin said the backlog and opportunity pipeline provide a foundation entering the company’s fiscal fourth quarter, while noting that backlog can fluctuate based on order timing and fulfillment.

RF Industries ended the quarter with $4.5 million in cash and cash equivalents, working capital of $18.3 million and a current ratio of about 2.0-to-1. Revolving-credit-facility borrowings declined to $5.7 million from $6.1 million at the end of the second quarter. Inventory fell to $13.2 million from $14.4 million at the end of the prior quarter.

Yin said cash increased by approximately $1.1 million during the quarter while revolver borrowings decreased by approximately $400,000, improving the company’s net debt position. Management said it expects to reduce net debt to a level it considers immaterial relative to the balance sheet as it generates positive cash flow.

Diversification and Product Strategy

Management attributed the quarter’s performance to contributions across custom cabling, interconnect and integrated systems. Bibisi said custom cabling continued to lead results, interconnect improved from the second quarter, and integrated systems gained traction.

The company said its customer mix included meaningful contributions from aerospace and defense, telecommunications, industrial customers and distribution channels. Dawson said RF Industries is seeking to diversify end markets and now supports aerospace, edge data centers, artificial intelligence infrastructure, industrial manufacturing, medical imaging, transportation and public safety applications.

During the quarter, the company unified engineering and product-line management under one structure for its interconnect and integrated systems segments. Bibisi said the change is intended to speed product launches, improve accountability and support execution on more complex programs.

RF Industries also said it is expanding the use of artificial intelligence as a business tool. Bibisi said the initial effort is focused on sales and customer-facing functions, with plans to extend AI use to engineering, operations and supply chain activities in future quarters.

Outlook and Growth Areas

Dawson said the company expects fiscal fourth-quarter sales to be roughly equal to or above the third-quarter level, based on current information.

In response to analyst questions, Dawson said the company’s small-cell business began to perform as expected during the third quarter after delays earlier in the fiscal year. While delivered revenue remains below management’s expectations at the start of the year, he said the business is gaining momentum heading into the fourth quarter and fiscal 2027.

He also described the company’s direct air-cooling, or DAC, business as a major growth engine. Dawson said the business, which was relatively immaterial a few years ago, is now generating millions of dollars in quarterly revenue. Management expects DAC sales to exceed $10 million and continue accelerating, although the company does not provide product-line-specific revenue figures.

Dawson said opportunities involving NEMA 4 products and edge-network deployments are expected to become more material in fiscal 2027 rather than in the current year. He said RF Industries is participating in more discussions related to edge data-center, wireline telecommunications and AI-related deployments, where the company believes its cooling approach can be substantially more cost-effective than alternatives.

Regarding carrier spending, Dawson said industry projections indicate wireless carrier capital expenditures will likely remain largely flat, though conditions vary by carrier and project. He said the company does not view carrier capital expenditure trends as a one-for-one measure of its opportunity because RF Industries serves multiple applications, including operating-expense-related needs, and is expanding into new markets and product categories.

About RF Industries (NASDAQ:RFIL)

RF Industries, Inc NASDAQ: RFIL is a manufacturer and supplier of connectivity products and solutions for the wireless, broadcast, cable television, data networking, defense and aerospace markets. The company specializes in both standard and custom coaxial and fiber-optic cable assemblies, connectors, adapters and test accessories designed to withstand demanding environmental conditions. Through its product portfolio, RF Industries supports applications ranging from RF signal transmission and satellite communications to industrial automation and instrumentation.

The company's offerings include premade and build-to-print coaxial cables and assemblies, field-installable connectors, power distribution components and calibration-grade test equipment.

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