RF Industries, Ltd. (NASDAQ:RFIL) is a national manufacturer and marketer of interconnect products and systems, including high-performance components such as RF connectors and adapters, dividers, directional couplers and filters, coaxial cables, data cables, wire harnesses, fiber optic cables, custom cabling, energy-efficient cooling systems and integrated small cell enclosures. The company operates through two reporting segments: the RF Connector and Cable Assembly ("RF Connector") segment and the Custom Cabling Manufacturing and Assembly ("Custom Cabling") segment.

Financials

In the second quarter of fiscal 2024, RF Industries reported net sales of $16.1 million, a 19.7% sequential increase from the first quarter, but a 27.8% year-over-year decline from $22.3 million in the prior year period. For the first six months of fiscal 2024, the company reported net sales of $29.6 million, a 27.1% decrease compared to $40.6 million in the same period of fiscal 2023. The decline in revenue was primarily due to lower sales in the RF Connector segment, which decreased 23% year-over-year, as well as a 33.1% drop in the Custom Cabling segment.

Despite the revenue decline, RF Industries reported a significant improvement in profitability. Gross profit margin in the second quarter increased 540 basis points to 29.9% compared to 24.5% in the first quarter and 27.4% in the prior year period. The increase in gross margin was primarily the result of a more favorable product mix, along with increased efficiencies from facility consolidation and cost reduction initiatives. For the first six months of fiscal 2024, gross profit margin remained relatively consistent at 27.5% compared to 27.6% in the same period of fiscal 2023.

Strategic Transformation

The company's strategic transformation of its product portfolio towards higher-value solutions has been a key driver of the margin expansion. RF Industries has been positioning itself to benefit from major market trends, such as the densification of 5G wireless infrastructure, the growing demand for data and AI-driven applications, the government's focus on universal high-speed internet access, and opportunities in the defense and aerospace markets.

The company's newer product offerings, including integrated small cell solutions, energy-efficient DAC thermal cooling systems, and custom cabling for various end markets, have been gaining traction and contributing to the improved product mix. In the second quarter, these higher-margin products accounted for a greater portion of the revenue mix, helping to drive the significant increase in gross margins.

Cost Reduction Initiatives

RF Industries has also been successful in reducing its operating expenses, which decreased by $0.4 million year-over-year in the second quarter. The company has implemented various cost-cutting measures, including facility consolidation and headcount reductions, which have resulted in greater operating leverage. For the first six months of fiscal 2024, operating expenses decreased by $0.8 million compared to the same period in the prior year.

Net Income and Non-GAAP Results

Despite the revenue decline, RF Industries reported a net loss of $4.3 million, or $0.41 per diluted share, in the second quarter, compared to net income of $0.6 million, or $0.06 per diluted share, in the prior year period. The net loss was primarily driven by a $3.6 million tax provision related to a valuation allowance on the company's deferred tax assets, which is a non-cash event. For the first six months of fiscal 2024, the company reported a net loss of $5.7 million, or $0.54 per diluted share, compared to a net loss of $0.6 million, or $0.06 per diluted share, in the same period of fiscal 2023.

On a non-GAAP basis, RF Industries reported second quarter net income of $0.1 million, or $0.01 per diluted share, an improvement from a non-GAAP net loss of $1.4 million, or $0.14 per diluted share, in the first quarter of fiscal 2024. In the prior year period, the company reported non-GAAP net income of $1.2 million, or $0.11 per share. For the first six months of fiscal 2024, the company reported a non-GAAP net loss of $1.3 million, or $0.13 per diluted share, compared to non-GAAP net income of $0.6 million, or $0.06 per diluted share, in the same period of fiscal 2023.

Adjusted EBITDA for the second quarter was $0.6 million, an improvement from an adjusted EBITDA loss of $1.1 million in the first quarter of fiscal 2024, but down from $1.4 million in the prior year period. For the first six months of fiscal 2024, adjusted EBITDA was a loss of $0.5 million, compared to income of $0.7 million in the same period of fiscal 2023.

Liquidity

As of April 30, 2024, RF Industries had $1.4 million in cash and cash equivalents, and $10.9 million in working capital, with a current ratio of 1.6. The company entered into a new $15 million credit facility in March 2024, which it used to repay its previous credit agreement. The new facility provides the company with additional liquidity to support its operations and growth initiatives.

Backlog and New Orders

RF Industries' backlog as of April 30, 2024, was $18 million, up from $16.1 million at the end of fiscal 2023. Subsequent to the second quarter, the company announced a $4 million increase in new orders, bringing the current backlog to $20 million. This growing backlog, along with the company's expanding product portfolio and cost-reduction efforts, positions RF Industries for improved financial performance in the second half of fiscal 2024 and beyond.

Outlook

Looking ahead, the company remains optimistic about the recovery in its core markets and the opportunities presented by its transformed product offerings. RF Industries expects to see sequential revenue growth and continued margin expansion in the second half of the fiscal year, driven by the ramp-up of its higher-value solutions, such as small cell infrastructure and energy-efficient cooling systems. The company is also exploring new market segments outside of its traditional wireless carrier customer base, further diversifying its revenue streams.

Conclusion

Overall, RF Industries' strategic pivot towards a more diverse and higher-margin product portfolio, combined with its operational efficiency initiatives, have positioned the company for a stronger financial performance in the coming quarters. As the company continues to execute on its transformation, investors can expect to see the benefits of these efforts reflected in the company's financial results.