Executive Summary / Key Takeaways

• RF Industries is successfully executing a strategic transformation from a component supplier to an integrated solutions provider, diversifying its revenue streams beyond traditional wireless carrier CapEx into areas like OpEx, aerospace, and industrial OEMs.
• Recent financial results demonstrate this pivot's impact, with significant year-over-year revenue growth in Q2 and YTD fiscal 2025, a return to operating profitability, and expanding gross margins driven by a favorable product mix, particularly high-value solutions like Direct Air Cooling (DAC) systems.
• Key technological differentiators, such as the energy-efficient DAC systems offering up to 70% operating expense reduction, and integrated small cell solutions, are proving critical in securing new customer wins and positioning the company as a valued partner in high-growth areas like network densification and edge data centers.
• Management anticipates fiscal 2025 revenue will be significantly higher than fiscal 2024 and is laser-focused on achieving an adjusted EBITDA margin of 10% or greater, supported by operational efficiencies, a stronger backlog, and improved visibility into customer project timelines.
• While facing risks from market cyclicality and potential tariff impacts, RF Industries' increasing customer and product diversity, coupled with a focus on OpEx-funded solutions and a strengthened sales team, enhances its resilience and positions it for continued progress.

Setting the Scene: RF Industries' Evolution and Strategic Pivot

RF Industries, Ltd. (NASDAQ:RFIL) operates within the dynamic interconnect products and systems market, providing essential components and solutions for telecommunications, industrial, and OEM customers. Founded in 1979, the company has grown and evolved, notably through strategic acquisitions like Cables Unlimited, Rel-Tech, C Enterprises, Schrofftech, and Microlab. These additions expanded its capabilities from core RF connectors and cable assemblies into custom cabling, hybrid fiber solutions, and specialized systems like energy-efficient cooling and integrated small cell enclosures.

This history of expansion laid the groundwork for a critical strategic pivot. Recognizing the cyclical nature of traditional capital expenditures (CapEx) from Tier 1 wireless carriers, which caused significant hardship in fiscal 2023, RF Industries embarked on a deliberate transformation. The goal: to move beyond being solely a component provider and become an integrated solutions partner, diversifying its revenue base and tapping into more stable operating and maintenance (OpEx) budgets. This strategic shift aimed to add greater value, gain more control over the bill of materials in key applications, and build deeper relationships with customers across a broader range of end markets.

Today, RF Industries operates through two main segments: the RF Connector and Cable Assembly segment, primarily focused on standardized products sold through distribution, and the Custom Cabling Manufacturing and Assembly segment, which handles custom solutions, hybrid cables, and integrated systems like DAC and small cells, selling through both distribution and direct channels. The Custom Cabling segment, being more project-based, has historically seen more revenue volatility, but it is also the engine driving the company's push into higher-value, differentiated solutions.

Technological Edge and Differentiated Solutions

Central to RF Industries' strategic pivot is its portfolio of differentiated technologies, particularly within the Custom Cabling segment. The company's Direct Air Cooling (DAC) thermal cooling systems stand out as a key innovation. These patented systems are designed to provide high-efficiency, climate-durable cooling for wireless base stations and remote equipment shelters. A significant quantifiable benefit highlighted by management is their ability to reduce operating expenses by up to 70% compared to conventional HVAC systems, offering a compelling value proposition for customers focused on cost savings and green initiatives. The recent launch of a next-gen DAC system with advanced control capabilities and NEMA four certification further enhances its appeal for rugged outdoor environments. This technology is strategically important as it targets applications in wireline telecom, edge data centers, energy, and transportation, and is often funded by OpEx budgets, providing a revenue stream less correlated to carrier CapEx cycles.

Integrated small cell solutions are another critical technology for RF Industries. As wireless carriers focus on network densification to meet increasing demand for high-speed connectivity everywhere, small cell deployments are becoming increasingly important. RF Industries provides custom-designed, pole-ready 4G and 5G small cell integrated enclosures and the necessary interconnects. While the timing of large-scale small cell deployments has fluctuated, management sees gaining momentum and views this as a significant growth opportunity, particularly in venues and high-traffic areas.

The company also offers complex hybrid fiber optic and power solution cables and electromechanical wiring harnesses. These custom cabling solutions, while perhaps less overtly "technology systems" than DAC or small cell enclosures, represent a significant capability in providing tailored, high-precision interconnects for demanding industries like aerospace and industrial OEM, where quality and reliability are paramount.

RF Industries continues to invest in R&D, albeit at a lower percentage of revenue compared to larger competitors, focusing on enhancing existing product lines and developing new ones. Recent efforts include the next-gen DAC system and the identification of a potential complementary new product line through customer conversations. The strategic intent behind these initiatives is to add to the portfolio of high-value offerings, address specific customer pain points, and further expand market potential. The "so what" for investors is clear: these technological differentiators provide RF Industries with a competitive moat, enabling it to command better margins on certain products (like DAC), access new customer budgets (OpEx), and position itself as a solutions partner rather than just a supplier, which is crucial for long-term growth and stability.

Competitive Landscape and Positioning

RF Industries operates in a competitive market with a mix of large global players and smaller, niche specialists. Key publicly traded competitors include giants like Amphenol (APH) and TE Connectivity (TEL), as well as other significant players like CommScope (COMM) and Belden (BDC). These larger competitors often possess advantages in scale, global distribution networks, and R&D investment.

Comparing RFIL to these larger rivals reveals both challenges and strategic positioning. Financially, RFIL operates at a significantly smaller scale, with TTM revenue of $64.86 million compared to billions for APH, TEL, COMM, and BDC. This smaller scale can translate to higher per-unit manufacturing costs compared to the economies of scale enjoyed by larger firms, potentially impacting margins. RFIL's TTM Gross Profit Margin of 29.25% is generally lower than the 30-37% range seen in competitor data, reflecting this scale difference and potentially product mix variations. Similarly, RFIL's TTM Operating Profit Margin of -0.82% and Net Profit Margin of -7.76% highlight the recent period of recovery and investment compared to the positive margins of its larger peers, although RFIL has recently returned to quarterly operating profitability.

Despite the scale difference, RFIL leverages specific competitive advantages. Its proprietary energy-efficient DAC technology offers a quantifiable benefit (up to 70% OpEx reduction) that differentiates it from standard cooling solutions offered by others. This technology, along with its integrated small cell and custom cabling capabilities, allows RFIL to compete effectively in niche, high-value applications where tailored solutions and performance matter more than sheer volume. The company's in-house manufacturing, particularly for custom and complex assemblies, can offer faster production cycles, providing an edge in responsiveness for certain customer needs.

Strategically, RFIL positions itself by focusing on becoming a dependable and collaborative partner, particularly with Tier 1 carriers and large OEMs. By moving up the "food chain" and engaging directly with key decision-makers, as noted by management, RFIL aims to secure a larger share of customers' total purchases and gain insight into future needs. The focus on OpEx-funded solutions like DAC is a direct response to the CapEx cyclicality that impacts competitors like CommScope, which has significant exposure to telecommunications infrastructure spending. While larger players like APH and TEL have broad, diversified portfolios and robust R&D, RFIL aims to carve out its space by excelling in specific high-value solutions and providing attentive customer support that larger firms may struggle to replicate at a smaller scale. The acquisition of Microlab, with its approved product set and established market currency, provided RFIL with a "seat at the table" with major carriers globally, offering opportunities to displace competitors within the bill of materials, such as in small cell deployments.

Overall, RFIL is a niche player competing against larger, more diversified companies. Its competitive strategy hinges on technological differentiation in specific product areas (DAC, small cell), providing high-quality custom solutions, building strong customer relationships, and targeting less CapEx-dependent revenue streams. Success depends on its ability to continue innovating, execute efficiently despite scale disadvantages, and capitalize on market trends like network densification and the push for energy efficiency.

Financial Performance: A Story of Recovery and Leverage

RF Industries' recent financial performance paints a picture of a company emerging from a challenging period and beginning to realize the benefits of its strategic transformation and cost-cutting initiatives. The fiscal year 2024 saw improving performance, culminating in a return to operating profitability in the fourth quarter. This momentum accelerated into fiscal year 2025.

For the second quarter ended April 30, 2025, net sales increased significantly by 17.4% year-over-year to $18.9 million, following a strong first quarter with sales of $19.2 million (up 42.7% YoY). For the six months ended April 30, 2025, net sales totaled $38.1 million, a substantial 28.7% increase compared to the same period in the prior year. This growth was primarily driven by the Custom Cabling segment, which saw an 83.5% increase in sales for the six-month period, fueled by demand for DAC systems from Tier 1 carriers and new market penetration, particularly through the Cables Unlimited division. The RF Connector segment experienced a slight decrease in sales (down 3.2% YTD), attributed mainly to the timing of small cell applications and deployment.

Profitability metrics also showed marked improvement. Gross profit for Q2 2025 was $6.0 million, resulting in a gross margin of 31.5%. This compares favorably to a gross margin of 29.9% in Q2 2024. For the six-month period, gross profit was $11.7 million, with a gross margin of 30.6%, up from 27.5% in the prior year. These improvements were driven by the overall increase in sales, a more favorable product mix skewed towards higher-margin solutions like DAC, and ongoing efforts to drive cost savings and operating efficiencies.

The return to operating profitability is a key highlight. RF Industries reported operating income of $106,000 in Q2 2025 and $162,000 for the six months ended April 30, 2025. This is a significant turnaround from operating losses of $415,000 and $2.5 million in the comparable prior year periods. This improvement reflects the leverage inherent in the business model as sales increase against a more streamlined cost structure resulting from prior expense reductions and facility consolidation. Adjusted EBITDA also saw significant improvement, reaching $1.1 million in Q2 2025 and $867,000 in Q1 2025, a sharp contrast to losses in the prior year.

Despite the operational improvements, the company reported a consolidated net loss of $245,000 in Q2 2025 and $490,000 for the six months ended April 30, 2025. These losses were significantly smaller than the $4.3 million and $5.7 million net losses in the comparable prior year periods, which were heavily impacted by income tax provisions. The effective tax rate remains volatile due to factors like changes in valuation allowance, R&D credits, and permanent differences.

Liquidity and the balance sheet have also strengthened. Cash and cash equivalents increased from $839,000 at October 31, 2024, to $3.6 million at April 30, 2025. Working capital stood at $12.1 million with a current ratio of 1.6:1, indicating a solid short-term financial position.

The company successfully delevered its balance sheet in fiscal 2024, reducing outstanding borrowings by approximately $6 million. As of April 30, 2025, outstanding borrowings under the revolving credit facility were $7.99 million.

Net cash provided by operating activities was a healthy $2.8 million for the six months ended April 30, 2025, driven by improved profitability and better working capital management, particularly a reduction in inventory ($12.6 million at Q2 2025 vs. $14.7 million at FY2024 end) due to improved supply chain processes. Management believes current liquidity is sufficient and is exploring opportunities for more advantageous financing structures to reduce borrowing costs.

Outlook and Growth Trajectory

Management's outlook for RF Industries is optimistic, projecting continued growth and a strong focus on enhancing profitability. They anticipate fiscal year 2025 revenue will be significantly higher than fiscal year 2024, building on the strong performance in the first half. Specifically, they expect fiscal third quarter sales to be roughly in line with the second quarter's $18.9 million, which would represent a significant increase over the $16.8 million reported in Q3 2024.

A key financial target is to achieve an adjusted EBITDA margin of 10% or greater. Management believes this is attainable over the next several quarters through a combination of factors: pushing sales higher, particularly above the $18 million quarterly threshold where operating leverage significantly accelerates profitability; maintaining and improving the favorable product mix towards higher-margin solutions like DAC; and realizing further efficiencies from a redesigned operational infrastructure.

The confidence in future growth is supported by several factors. The company's backlog stood at $15.0 million at the end of Q2 2025 and increased to $18.4 million as of the Q2 earnings call date, indicating continued order flow. Management notes that this backlog is "fresher," consisting of more current bookings across a diverse product mix, unlike prior periods where older hybrid fiber orders dominated. The momentum in key growth areas like DAC and small cell, driven by wins with multiple Tier 1 carriers and new market penetration (aerospace, industrial), is expected to continue into fiscal 2026. The increasing involvement in customers' planning processes for these solutions provides improved visibility into future project timelines, enhancing forecasting ability.

While the timing of large CapEx deployments by carriers remains somewhat cautious, RF Industries' strategic focus on OpEx-funded solutions and diversification into other end markets provides a more stable foundation for growth. The bolstered sales team is actively pursuing opportunities in areas like wireless DAS build-outs in stadiums and venues, where a pipeline of over 100 opportunities exists. The expectation is that successful regional deployments of solutions like DAC will cascade into larger, potentially national programs with key customers.

Risks and Challenges

Despite the positive momentum and strategic progress, RF Industries faces several risks and challenges that could impact its performance and outlook.

A significant and currently dynamic risk is the impact of changes to trade policies, tariffs, and import/export regulations. Recent U.S. actions, including proposed tariffs on imports from various countries, create uncertainty. While a 90-day pause and temporary reductions have been implemented, the situation is fluid, and it is uncertain if these tariffs will be maintained or escalated. If maintained, tariffs could increase the cost of products and components sourced from affected regions, potentially leading to higher cost of goods sold and reduced gross margins if these costs cannot be fully passed on to customers. Adapting to these changes may require modifying supply chains or foregoing business opportunities. Management notes that the majority of production is domestic, limiting exposure, but some exposure exists through certain suppliers in Asia. They are actively working to diversify the supply chain and adjust pricing policies.

Market cyclicality, particularly within the telecommunications sector, remains a risk. While RF Industries is diversifying and targeting OpEx budgets, a significant portion of its business is still tied to wireless carrier spending, which can fluctuate based on macroeconomic conditions and capital allocation decisions. A reduction, delay, or cancellation of orders from significant customers, who often do not have minimum purchase obligations, could significantly impact revenues and profits.

Competition is intense, with larger, well-funded players capable of leveraging scale and extensive R&D. While RFIL has niche advantages, it must continuously innovate and execute efficiently to maintain its competitive position and pricing power.

Finally, increasing operating costs outside of the company's direct control, such as wage pressures and escalating insurance expenses, could pressure profitability if not offset by higher sales volumes, improved margins, or further cost reduction initiatives.

Conclusion

RF Industries is undergoing a significant and, based on recent results, increasingly successful transformation. By strategically pivoting from a component-centric model to an integrated solutions provider focused on diversified end markets and higher-value offerings like energy-efficient DAC systems and small cell solutions, the company is building a more resilient and profitable business. The return to operating profitability, expanding gross margins, and strong revenue growth in the first half of fiscal 2025 demonstrate that this strategy is gaining traction and reaching an inflection point.

While challenges remain, including navigating potential tariff impacts and market cyclicality, RF Industries' focus on capturing OpEx spend, leveraging technological differentiators, and strengthening customer relationships positions it favorably. The outlook for significantly higher revenue in fiscal 2025 and the clear target of achieving a 10%+ adjusted EBITDA margin underscore management's confidence in the company's trajectory. Investors should watch for continued execution on operational efficiencies, the expansion of DAC and small cell deployments, and the company's ability to maintain momentum in new markets as key indicators of its potential to unlock further value. The story of RF Industries is one of strategic adaptation and operational improvement, aiming for sustainable growth and enhanced profitability in a dynamic market.