Q4 2023 RF Industries Ltd Earnings Call
© BF-WATCH TV 2021
Good day and welcome to the RF Industries fourth quarter and full year 2023 earnings conference call and webcast.
Good day and welcome to the RF industries fourth quarter and full year 2023 earnings conference call and webcast all participants will be in a listen only mode.
All participants will be in a listen-only mode.
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On today's call, management will provide prepared remarks and then we'll open up the call for your questions.
On today's call management will provide prepared remarks, and then we'll open up the call for your questions.
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Please note this call is being recorded.
Please note this call is being recorded I would now.
I would now like to turn the conference over to Margaret Boyce, Investor Relations for RF Industries. Please go ahead, ma'am.
I would like to turn the conference over to Margaret Boyce Investor Relations for RF Industries. Please go ahead ma'am.
Margaret Boyce: thank you matthew good afternoon everyone and welcome to rf industries fourth quarter and full year fiscal 2023 earnings conference call with me today on the call are rf industries president and ceo rob dawson and cfo peter yin before the i turn the call over to robin peter i'd like to cover a few quick guides
Margaret Boyce: Thank you Matthew good afternoon, everyone and welcome to RF industries fourth quarter and full year fiscal 2023 earnings conference call with me today and the call our RF industries, President and CEO, Rob Dawson and CFO, Peter yet before I turn the call over to Rob.
Margaret Boyce: And Peter I'd like to cover a few quick items, we issued our earnings release after market today. It is available on our website at RF industries Dotcom 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.
Margaret Boyce: We issued our earnings release after market today. It's available on our website at rfindustries.com.
Margaret Boyce: 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 statement, statements on this call today may constitute forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934.
Margaret Boyce: Nickel statement.
On this call today may constitute forward looking statements within the meaning of section 21 E of the Securities Exchange Act of $19 34.
Margaret Boyce: When used, the words anticipate, believe, expect, intend, future, and other similar expressions identify forward-looking statements. These statements reflect management's current views with respect to future events and financial performance and are subject to risks and uncertainty and actual results may differ materially from the outcomes contained in any forward-looking statement.
Margaret Boyce: When used the words anticipate believe expect intend future and other similar expressions identify forward looking statements. These statements reflect management's current views with respect to future events and financial performance and are subject to risks and uncertainty and actual results may differ materially from the outcomes.
Change in any forward looking statements.
Margaret Boyce: Factors that could cause these forward-looking statements to differ from actual results include the 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.
Factors that could cause these forward looking statements to differ from actual results include the risks and uncertainties discussed in the company's periodic reports on Form 10-K, and thank you.
Margaret Boyce: Other filings with the Securities and Exchange Commission.
Margaret Boyce: RF Industries undertakes no obligation to update or revise any forward-looking statements.
Margaret Boyce: RF industries undertakes no obligation to update or revise any forward looking statements.
Margaret Boyce: Additionally, throughout this call, we will be discussing certain non-GAAP financial measures.
Margaret Boyce: 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, but that said I will now turn the conference over to Rob <unk> CEO Rob. Please go ahead.
Margaret Boyce: Today's earnings release and the related current report on Form 8 described the differences between our GAAP and non-GAAP reporting.
Margaret Boyce: With that said, I'll now turn the conference over to Rob Doffman, CEO. Rob, please go ahead.
Rob Doffman: Thank you, Margaret, and thanks, everyone, for joining our fourth quarter and fiscal 2023 year end earnings call.
Rob Dawson: Thank you Margaret and thanks, everyone for joining our fourth quarter and fiscal 2023 year end earnings call.
Margaret Boyce: Fiscal 2023 was a tough year to navigate for RFI, and frankly, for any supplier downstream from Tier 1 wireless and telecom companies.
Rob Dawson: Fiscal 2023 was a tough year to navigate for RFID and frankly for any supplier downstream from tier one wireless and telecom companies are significantly cut back their capital spending and our financial performance reflects that.
Margaret Boyce: that significantly cut back their capital spending and our financial performance reflects that.
Margaret Boyce: That said, we're pleased to report that in Q4 we saw a 400 basis point uptick in our gross profit margin sequentially from Q3, even though revenue remained relatively flat.
Rob Dawson: That said, we're pleased to report that in Q4, we saw 400 basis point uptick in our gross profit margin sequentially from Q3, even though revenue remained relatively flat.
Margaret Boyce: Improvements in gross margin are a direct reflection of our cost cutting and efficiency initiatives as well as a better mix of higher margin products in the quarter.
Rob Dawson: The improvement in gross margin are a direct reflection of our cost cutting and efficiency initiatives as well as a better mix of higher margin products in the quarter.
Margaret Boyce: While we don't expect the current environment to radically improve in the near term, we are seeing some encouraging signs.
Rob Dawson: While we don't expect the current environment to radically improve in the near term we are seeing some encouraging signs.
Margaret Boyce: Our backlog of $16.1 million as of October 31st was healthy as we entered fiscal 2024, and backlog currently stands at $16.6 million as of today.
Rob Dawson: Our backlog of $16 1 million as of October 31 was healthy as we entered fiscal 2024 and backlog currently stands at $16 $6 million as of today.
Margaret Boyce: Importantly, we're now having meaningful conversations with customers around bigger project opportunities that were put on hold in 2023.
Rob Dawson: Importantly, we're now having meaningful conversations with customers around bigger project opportunities that were put on hold in 2023 and.
Margaret Boyce: and we're seeing our sales pipeline progress and some of these deals are finally closing.
Rob Dawson: And we're seeing our sales pipeline progress and some of these deals are finally closing.
Margaret Boyce: Many of these opportunities are for new, higher margin, higher value products like DAC thermal cooling and small cell shrouds.
Rob Dawson: Many of these opportunities are for new higher margin higher value products like that thermal cooling and small cells.
Margaret Boyce: Winning a handful of these projects would have a big impact on our financial performance, especially with our reduced cost structure.
Rob Dawson: Within a handful of these projects would have a big impact on our financial performance, especially with our reduced cost structure.
Margaret Boyce: It's been a six year journey to strategically transform a 40 year old business into a sustainable growth company by offering a broader mix of key communications products while diversifying our customer base.
Rob Dawson: It's been a six year journey to strategically transform a 40 year old business into a sustainable growth company by offering a broader mix of communications products, while diversifying our customer base.
Margaret Boyce: We continue to offer our long-standing portfolio of world-class core interconnect products while adding technologically advanced next-generation solutions that fulfill a higher percentage of customers' bill of materials
Rob Dawson: We continue to offer our longstanding portfolio of World class core interconnect products, while adding a technologically advanced next generation solutions that fulfill a higher percentage of customers bill of materials.
Margaret Boyce: and Command Higher Martin.
Rob Dawson: And command higher margins.
Margaret Boyce: executing against that long-term strategy now sets us up for profitable growth in several ways.
Executing against that long term strategy now sets us up for profitable growth in several ways.
Margaret Boyce: First, we have an impressive list of logos for a company of any size, with all the tier one wireless carriers, AT&T, Verizon, T-Mobile, DISH,
Rob Dawson: First we have an impressive list of logos for a company of any size with all the tier one wireless carriers AT&T Verizon T mobile dish.
Margaret Boyce: In addition, we provide products and solutions to some of the nation's largest providers of communications infrastructure, including Crown Castle, American Tower, and many others.
Rob Dawson: In addition, we provide products and solutions to some of the nation's largest providers of communications infrastructure, including Crown Castle American tower and many others.
Margaret Boyce: We service many of these customers both directly and through our large national distributors.
Rob Dawson: We service many of these customers both directly and through our large national distributors what's.
Margaret Boyce: What's important is that we didn't have many of these logos a few years ago
Rob Dawson: What's important is that we didn't have many of these logos a few years ago.
Margaret Boyce: to get us a seat at the table with these customers. It took significant business development effort, along with transformative acquisitions that offer high-value differentiated products.
Rob Dawson: To get US a seat at the table with these customers. It took significant business development effort, along with transformative acquisitions that offer high value differentiated products and solutions that address more of their current needs and future needs.
Margaret Boyce: and solutions that address more of their current needs and future
Margaret Boyce: for example.
Rob Dawson: For example.
Margaret Boyce: Six years ago, many of the tier one wireless customers didn't want to talk to us about products like coax jumpers, but they were interested in more advanced items like our OptiFlex Hybrid FiberOp,
Rob Dawson: Six years ago, many of the tier one wireless customers.
Rob Dawson: Want to talk to us about products like coax jumpers that they were interested in more advanced items like our off the flex hybrid fiber offerings.
Margaret Boyce: To drive consistent long-term and profitable growth, we needed to add more key solutions like that.
Rob Dawson: Drive consistent long term profitable growth, we needed to add more key solutions like that.
Margaret Boyce: As we began to add more leading edge products like DAC thermal cooling and small cell shrouds, we found that these new offerings got us involved in design discussions sooner and pulled through many of our other product lines.
Rob Dawson: As we began to add more leading edge products like <unk> thermal cooling and small cell trials. We found that these new offerings got us involved in design discussions sooner and pull through many of our other product lines.
Margaret Boyce: These products became a tip of the spear for RFI to become a qualified vendor and deepen our relationships throughout the organization.
Rob Dawson: These products became a tip of the spear for RFID to become a qualified vendor and deepen our relationships throughout the organization.
Margaret Boyce: even to the point of now providing some of those coax and fiber jumpers.
Even to the point of now providing some of those coax and fiber jumpers.
Margaret Boyce: Second, there is a real value in building strong and lasting relationships. Over our history, RFI has been customer-centric and we have a stellar reputation for being great to work with, attentive to details, and committed to on-time delivery.
Rob Dawson: Second there is a real value in building strong and lasting relationships over our history <unk> has been customer centric and we have a stellar reputation for being great to work with attendant the details and committed to on time delivery cut.
Margaret Boyce: customers gravitate to no drama partners.
Rob Dawson: Customers gravitate, a no drama partners.
Margaret Boyce: Satisfying customers is part of our DNA and it provides the foundation to leverage our existing customer relationships as well as attracting new ones
Rob Dawson: Satisfying customers as part of our DNA and it provides the foundation to leverage our existing customer relationships as well as attracting new ones.
Margaret Boyce: Third, we take pride in our reputation for delivering quality products.
Third we take pride in our reputation for delivering quality products.
Margaret Boyce: we've gone to great lengths to ensure our products are top quality and that means producing finished goods right here in the USA.
Rob Dawson: We've gone to great lengths to ensure our products are top quality and that means producing finished goods right here in the USA like.
Margaret Boyce: Like most companies, we source globally, but there's a reason we have almost 300 people in the United States building our cable assemblies and integrated products. It's about quality control.
Rob Dawson: Like most companies we source globally, but there is a reason we have almost 300 people in the United States building, our cable assembly that integrated products, it's about quality control.
Margaret Boyce: In the past, we tested out other locations but decided that for certain products, the quality risk was too great and ultimately too costly if it meant losing customers that we fought so hard to win.
Rob Dawson: In the past, we have put out other locations, but decided that for certain products. The quality risk was too great and ultimately too costly if it meant losing customers that we fought so hard to win.
Margaret Boyce: Now there's a major trend underway to reshore manufacturing back to the US.
Rob Dawson: Now there is a major trend underway to reassure manufacturing back to the U S.
Margaret Boyce: We just saw the benefits of employing a skilled local workforce earlier than some others
Rob Dawson: We just saw the benefits of employing a skilled local workforce earlier than some others.
Margaret Boyce: So when I look at the big picture, I'm excited about our future.
Rob Dawson: So when I look at the Big picture I am excited about our future while fiscal 2023 results did not meet our expectations. The decline in carrier Capex spending was more severe than expected and beyond our control.
Margaret Boyce: while fiscal 2023 results did not meet our expectations.
Margaret Boyce: the declining carrier capex spending was more severe than expected and beyond our control.
Margaret Boyce: However, continuing to streamline operations to drive profitable growth was within our control.
Rob Dawson: However, continuing to streamline operations to drive profitable growth was within our control.
Margaret Boyce: by consolidating our production facilities and reducing redundancies from acquisition.
By consolidating our production facilities and reducing redundancies from acquisitions, we decreased the annual operating expenses by approximately $2 $5 million.
Margaret Boyce: we decreased annual operating expenses by approximately two and a half million dollars.
Margaret Boyce: We believe there's still room for improvement given our ongoing effort to offset inflationary costs like insurance logistics and material costs
Rob Dawson: We believe there is still room for improvement given our ongoing effort to offset inflationary costs like insurance logistics and material costs, which are significant expenses to keep climbing.
Margaret Boyce: which are significant expenses that keep climbing.
Margaret Boyce: RF Industries is now a leaner and more efficient operation that positions us to reap future benefits of our transformation.
Rob Dawson: RF industries is now a leaner and more efficient operations.
Rob Dawson: That positions us to reap future benefits of our transformation.
Margaret Boyce: As I mentioned earlier, we're seeing increased discussions for larger projects deploying our higher margin solutions.
Rob Dawson: As I mentioned earlier, we're seeing increased discussions for larger projects deploying our higher margin solutions with our lower cost structure and a related increase operating leverage EBIT, a small shift to a higher margin product mix would generate improved results, especially on a year over year comparable basis.
Margaret Boyce: with our lower cost structure and the related increased operating leverage, even a small shift to a higher margin product mix would generate improved results, especially on a year-over-year comparable basis.
Margaret Boyce: While this current environment is not going to change overnight, and our fiscal first quarter is seasonally our most challenging,
Rob Dawson: While this current environment is not going to change overnight in our fiscal first quarter is seasonally our most challenging we can foresee momentum building in 2024 and beyond for several reasons.
Margaret Boyce: we can foresee momentum building in 2024 and beyond for several reasons.
Margaret Boyce: We have the right products at the right time.
Rob Dawson: We have the right products at the right time.
Margaret Boyce: Densification continues to be a significant challenge in 4G and 5G build-out.
Rob Dawson: <unk> continues to be a significant challenge in <unk> and <unk> build outs and wireless carriers are recognizing our next generation small cell trials and our micro lab RF passes for their advanced technology reliability and ease of use.
Margaret Boyce: and wireless carriers are recognizing our next generation small cell shrouds and our micro lab RF passes for their advanced technology, reliability and ease of use.
Margaret Boyce: All communications installations require some approach to cooling the equipment, and we believe that our DAC systems are far superior in performance and cost efficiency than other approaches.
All communications installations required subtle approach to cooling the equipment and we believe that our das systems are far superior in performance and cost efficiency than other approaches.
Margaret Boyce: As communications companies cycle through their operations and maintenance schedules, replacing yesterday's cooling systems with next-gen products is a sound business decision.
Rob Dawson: As communications companies cycle through their operations and maintenance schedules, replacing yesterday's cooling systems with next Gen product is a sound business decisions.
Margaret Boyce: We continue to see interest in OptiFlex, our high quality and innovative line of hybrid fiber and power cable.
Rob Dawson: We continue to see interest and also flex our high quality and innovative line of hybrid fiber and power cables.
Margaret Boyce: which have been key contributors to our growth over the last few years.
Rob Dawson: Which have been key contributors to our growth over the last few years.
Margaret Boyce: We're working hard to diversify the customer base and end markets that we serve.
Rob Dawson: We're working hard to diversify the customer base and end markets that we serve in fiscal 2023, 43% of our total sales came from wireless carrier applications, while 57% of our sales came from customer applications across diverse end markets like manufacturing public safety energy hospitality.
Margaret Boyce: In fiscal 2023, 43% of our total sales came from wireless carrier applications.
Margaret Boyce: while 57% of our sales came from customer applications across diverse end markets like manufacturing, public safety, energy, hospitality, education, and medical.
Rob Dawson: Education and medical.
Margaret Boyce: and roughly 50% of our sales were through our distribution channels.
And roughly 50% of our sales were through our distribution channels.
Margaret Boyce: we continue to explore opportunities with new customer segments
Rob Dawson: We continue to explore opportunities with new customer segments, such as the major cable companies right.
Margaret Boyce: such as the major cable companies.
Margaret Boyce: Right now we have a pilot program for our DAC system
Rob Dawson: Right now we have a pilot program for our <unk> system on a dozen or so cable company sites. This could develop into a meaningful piece of business over time and they can also open the door to more cross selling opportunities.
Margaret Boyce: on a dozen or so cable company sites. This could develop into a meaningful piece of business over time, and it can also open the door to more cross-selling opportunities.
Margaret Boyce: Our core interconnect products with high quality and fast turnaround times continue to build our strong reputation with our channel partners.
Rob Dawson: Our core interconnect products with high quality and fast turnaround times continue to build our strong reputation with our channel partners. This standard and custom interconnect offering is sold to a diverse set of customers and provides a steady base of business and.
Margaret Boyce: This standard and custom interconnect offering is sold to a diverse set of customers and provides a steady base of business
Margaret Boyce: and I don't want to leave out the steady resilience of our custom cabling and wire harness products and solutions.
Rob Dawson: And I don't want to leave out the steady resilience of our custom cabling and wire harness products and solutions, which we sell into many industrial and manufacturing applications with blue chip customers.
Margaret Boyce: which we sell into many industrial and manufacturing applications with blue chip
Margaret Boyce: When you combine our cutting edge products and capabilities with our core coaxial and fiber interconnect solutions, our custom cabling products, and our integrated systems,
Rob Dawson: When you combine our cutting edge products and capabilities with our core coaxial and fiber interconnect solutions are custom cabling products and our integrated systems, we've carefully and strategically developed a pretty amazing portfolio of leading edge products and solutions for multiple market segments beyond the communications industry.
Margaret Boyce: We've carefully and strategically developed a pretty amazing portfolio of leading edge products and solutions for multiple market sites.
Margaret Boyce: beyond the communications industry.
Margaret Boyce: heading into 2024, given our expected additional operating efficiencies and expenditure reductions and the ability to increase revenue.
Rob Dawson: Heading into 2024, given our expected additional operating efficiencies and expenditure reductions and the ability to increase revenues, we are well positioned to enter a new phase of solid organic growth.
Margaret Boyce: We are well positioned to enter a new phase of solid organic growth.
Margaret Boyce: We will also continue to manage our working capital to solidify our liquidity, cash position, and overall capital structure.
Rob Dawson: We will also continue to manage our working capital to solidify our liquidity cash position and overall capital structure.
Margaret Boyce: While our first quarter is seasonally our most challenging, and timing of orders in the related supply chain isn't always predictable, I'm excited and optimistic about our opportunity to deliver the margin expansion and cash flow throughout the year that will create long-term value for our customers.
Rob Dawson: While our first quarter is seasonally our most challenging and timing of orders and the related supply chain isn't always predictable I'm excited and optimistic about our opportunity to deliver the margin expansion and cash flow throughout the year that will create long term value for our customers.
Margaret Boyce: In closing,
Rob Dawson: In closing.
Margaret Boyce: I'd like to express my sincere appreciation to every member of our team for their efforts and contributions in serving our customers and building our company as we continue to execute our long-term growth plan.
I'd like to express my sincere appreciation to every member of our team for their efforts and contributions and serving our customers and building our company as we continue to execute our long term growth plan.
Margaret Boyce: I also want to acknowledge the ongoing support of our shareholders. 2023 was a rough year for RFI and for microcap investors overall, but we're starting to hear more positive sentiment for 2024.
Rob Dawson: I also want to acknowledge the ongoing support of our shareholders 2023 was a rough year for RFID and for Microcap investors overall, but we're starting to hear more positive sentiment for 2024.
Margaret Boyce: The valuation differential against the broader market is becoming more compelling.
Rob Dawson: The valuation differential against the broader market is becoming more compelling.
Margaret Boyce: especially with inflation finally cooling and interest rates stabilizing.
Rob Dawson: Especially with the with inflation and finally cooling and interest rates stabilizing.
Speaker Change: to paraphrase the late, great Charlie Munger,
Rob Dawson: To paraphrase the late great Charley longer base.
Speaker Change: basically all investment is value investment in the sense that you're always trying to get better prospects than what you're paying for them.
Rob Dawson: Basically all investment is value investment in the sense that you're always trying to get better prospects than what youre paying for that.
Speaker Change: I'm proud of the work our team did this year in managing through a challenging year and significantly improving our future prospects for profitable growth and value creation.
Rob Dawson: I'm proud of the work our team did this year in managing through a challenging year and significantly improving our future prospects for profitable growth and value creation.
Speaker Change: I remain confident that we have the right business model, the right products, and the right team to capitalize on momentum as carrier spending returns.
Rob Dawson: I remain confident that we have the right business model, the right products and the right team to capitalize on momentum as carrier spending returns.
Speaker Change: Now I'll turn the call over to Peter to discuss our financial
Rob Dawson: Now I'll turn the call over to Peter to discuss our financials Peter.
Speaker Change: Peter
Peter Yin: Thank you, Rob. And good afternoon, everyone. As Rob mentioned, we're pleased that our actions to streamline operations and reduce expenses are having a meaningful impact. As a leaner and more efficient operation, we are well positioned to drive profitability as the demand environment
Peter: Thank you Rob and good afternoon, everyone as Rob mentioned, we're pleased that our actions to streamline operations and reduce expenses are having a meaningful impact.
Peter: As a leaner and more efficient operations, we are well positioned to drive profitability as the demand environment improves.
Peter Yin: As I move through our financial results, I will highlight where we saw significant improvement from Q3 to Q4, which we view as a positive indicator for better performance in fiscal 2024, with the caveat that first quarter has historically been our seasonally slowest period.
As I move through our financial results I will highlight where we saw significant improvement from Q3 to Q4, which we view as a positive indicator for better performance in fiscal 2024 with the caveat that first quarter has historically been our seasonally slowest period.
Peter Yin: Fourth quarter sales were $15.9 million,
Peter: Fourth quarter sales were $15 9 million.
Peter Yin: a decrease of 7.1 million or 31% decrease year-over-year and flat on a sequential basis.
A decrease of $7 1 million or 31% decrease year over year and flat on a sequential basis.
Peter Yin: for the full fiscal year, sales decreased $13.1 million or 15% to $72.2 million.
Peter: For the full fiscal year sales decreased $13 1 million or 15% to $72 2 million.
Peter Yin: Fourth quarter gross profit margin decreased to 28.4% from 31.1% year over year. The 270 basis point decrease reflected the impact of lower sales and less leverage to cover certain fixed costs.
Peter: Fourth quarter gross profit margin decreased to 28, 4% from 31, 1% year over year to 270 basis point decrease reflected the impact of lower sales and less leverage to cover certain fixed costs.
Peter Yin: Fourth quarter operating loss was $1.1 million compared to operating income of $715,000 in the prior year period.
Peter: Fourth quarter operating loss was $1 1 million compared to operating income of 715000 in the prior year period or.
Peter Yin: Our net loss was $851,000 or $0.08 per diluted share and our non-GAAP net loss was $68,000 or $0.01 per diluted share compared to a net income of $451,000 or $0.04 per diluted share and our non-GAAP net income of $1.5 million or $0.15 per diluted share for Q4 2022.
Peter: Our net loss was 851000 or <unk> <unk> per diluted share and our non-GAAP net loss was 68000 or <unk> <unk> per diluted share compared to a net income of 451000 or four cents per diluted share and our non-GAAP net income of $1 5 million or <unk>.
Peter: <unk> per diluted share for Q4 2022.
Peter Yin: Fourth quarter adjusted EBITDA was negative 108,000 compared to positive adjusted EBITDA of 1.9 million for Q4 2022.
Peter: Fourth quarter, adjusted EBITDA was negative $108000 compared to positive adjusted EBITDA of $1 9 million for Q4 2022.
Peter Yin: On a positive note, sequential gross profit margin increased 400 basis points to 28.4% in the fourth quarter, even on flat sales. Our operating loss improved by $900,000 from a loss of $2 million.
Peter: On a positive note sequential gross profit margin increased 400 basis points to 28, 4% in the fourth quarter, even on flat sales our operating loss improved by 900000 from a loss of $2 million due.
Peter Yin: due to favorable mix of higher margin products and reflects our efforts to drive cost savings and operating efficiency.
Peter: Due to favorable mix of higher margin products and reflects our efforts to drive cost savings and operating efficiencies.
Peter Yin: Full fiscal year adjusted EBITDA was $460,000 versus $6.6 million in fiscal year 2022. The decrease was primarily due to lower sales value and a less favorable product mix that we experienced throughout fiscal 2023.
Peter: Full fiscal year, adjusted EBITDA was $460000 versus $6 6 million in fiscal year 2022. The decrease was primarily due to lower sales volume and a less favorable product mix that we experienced throughout fiscal 2023.
Peter Yin: moving to the balance sheet as of October 31, 2023.
Peter: Moving to the balance sheet as of October 31, 2023.
Peter Yin: We had a total of $4.9 million in cash and cash equivalents and we had working capital of $23.5 million and a current ratio of approximately 2.9 to 1 with current assets of $36 million and current liabilities of $12.5 million.
Peter: We had a total of $4 9 million in cash and cash equivalents and we had working capital of $23 $5 million and a current ratio of approximately $2 nine to one with current assets of $36 million and current liabilities of $12 5 million.
Peter Yin: As of October 31, 2023, we had borrowed $13.1 million under our term loan and $1 million from our revolving credit facility.
Peter: As of October 31, 2023, we had borrowed $13 1 million under our term loan and $1 million from our revolving credit facility.
Peter Yin: Our credit facility is secured by certain assets of the company and subject to certain loan covenants, including financial covenants.
Peter: Our credit facility is secured by certain assets of the company and subject to certain loan covenants, including financial covenants in the past, we successfully negotiated amendments to the credit facility relating to such financial Covenant.
Peter Yin: In the past, we successfully negotiated amendments to the credit facility relating to such financial
Peter Yin: As Rob mentioned, we continue to manage our working capital to solidify our liquidity, cash position, and overall capital structure.
Peter: As Rob mentioned, we continue to manage our working our working capital to solidify our liquidity cash position and overall capital structure. We continue to explore our best options for overall financing and a related credit facility.
Peter Yin: We continue to explore our best options for overall financing and our related credit facilities.
Peter Yin: Our inventory was $18.7 million, down from $21.1 million last year. The decrease in inventory reflected our continued rationalization and right-sizing of our inventory to address the lower demand level we experienced in 2023.
Peter: Our inventory was $18 $7 million down from $21 $1 million last year. The decrease in inventory reflected our continued rationalization and right sizing of our inventory to address the lower demand level, we experienced in 2023.
Peter Yin: We believe our current inventory level supports our strategic business model of inventory availability and we continue to manage this closely as we expect to see increased demand in 2024 as CapEx spending gradually normalizes over the coming year.
Peter: We believe our current inventory level supports our strategic business model of inventory availability and we continue to manage this closely as we expect to see increased demand in 2024.
Peter: Capex spending gradually normalizes over the coming year.
Peter Yin: while we believe there is room for us to continue to rationalize our inventory to help our cash flow and liquidity, there may be opportunities for us
Peter: While we believe there is room for us to continue to rationalize our inventory to help our cash flow and liquidity there may be opportunities for us.
Peter Yin: to take market share and win new business by increasing certain inventory levels that have much longer lead times. Additionally, any supply chain delays around some of these long lead time items may impact certain projects timely.
Peter: To take market share and win new business by increasing certain inventory levels that have much longer lead time additions.
Peter: Additionally, any supply chain delays around some of these long lead time items may impact certain project timeliness.
Peter Yin: Moving on, we are seeing momentum build around new business. As Rob mentioned, our backlog as of October 31 was $16.1 million, on fourth quarter bookings of $14.8 million, and as of today, our current backlog stands at $16.6 million. Thank you.
Peter: Moving on we are seeing momentum build around new business as Rob mentioned, our backlog as of October 31 was $16 $1 million on fourth quarter bookings of $14 8 million and as of today. Our current backlog stands at $16 6 million.
Peter Yin: as we begin our new fiscal year.
Peter: As we begin our new fiscal year.
Peter Yin: we are seeing encouraging signs. We anticipate that the market will continue to recover as tier one wireless and telecom companies increase their capital spend and we continue to diversify our offering and our customer base.
Peter: We are seeing encouraging signs, we anticipate that the market will continue to recover at tier one wireless and telecom companies increased their capital spend and we continue to diversify our offering and our customer base.
Peter Yin: We're excited about our ability to drive top line growth and generate profitability through larger projects and higher margin solutions.
Peter: We're excited about our ability to drive topline growth and generate profitability through larger projects and higher margin solutions.
Peter Yin: This concludes our comments.
Peter: This concludes our comments.
Speaker Change: Operator we are ready to open the line for questions
Operator: BF-WATCH TV 2021 Good day, and welcome to the RF Industries fourth quarter and full year 2023 earnings conference call and webcast. All participants will be in a listen-only mode.
Speaker Change: Operator, we are ready to open the line for questions.
Speaker Change: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time.
Certainly every.
Speaker Change: At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time, we do ask that while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Speaker Change: We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. On today's call, management will provide prepared remarks, and then we'll open up the call to your questions. To ask a question, analysts may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. And to withdraw your question, please press star, then two. Please note this call is being recorded. I would now like to turn the conference over to Margaret Boyce, Investor Relations for RF Industries.
Speaker Change: Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while you poll for questions.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone. Please hold while we poll for questions.
Speaker Change: Your first question is coming from Josh Nichols from D. Reilly. Your line is live.
Speaker Change: Your first question is coming from Josh Nichols from B Riley Your line is live.
Josh Nichols: Thanks for taking my question and good to see the healthy sequential improvement in the gross margin. I know you talked a lot about how the company's been optimizing some of the OPEC spend. Is this fiscal fourth quarter kind of a good run rate for how we should be thinking about this coming year? Are there additional kind of cuts to make that you think could further drive the bottom line? Yeah. Hey, Josh. Good question. Thank you. Yeah, I think you can use Q4 as sort of a gauge of what we're going to look like going forward. I think there was a handful of one-time compensation-related charges in the quarter that are not going to recur, but at the same time, we're continuing to look for other ways to take out additional costs, and we're trying to offset things like
Speaker Change: Yes.
Josh Nichols: Yeah. Thanks for taking my question and good to see the healthy sequential improvement in the gross margin I know you've talked a lot about how the company has been optimizing some of the Opex spend is this fiscal fourth quarter kind of a good run rate for how we should be thinking about this coming year or are there additional kind of cuts to make that you think could further.
Margaret Boyce: Please go ahead, ma'am, thank you Matthew. Good afternoon, everyone, and welcome to RF Industries' fourth quarter and full year fiscal 2023 earnings conference call. With me today on the call are RF Industries president and CEO Rob Dawson and CFO Peter Yin. Before I turn the call over to Robin Peter, I'd like to cover a few quick guidelines. We issued our earnings release after the market today. It's available on our website at rfindustries.com.
Drive the bottom line.
Speaker Change: Yeah, Hey, Josh Good question. Thank you.
Speaker Change: I think you can use Q4 as sort of a gauge of what we're going to look like going forward I think there was some a handful of onetime.
Speaker Change: Compensation related charges in the quarter that are not going to recur, but at the same time, we're continuing to look for other ways to take out additional cost and we're trying to offset things like just general inflation on things like insurance. So.
Speaker Change: just general inflation on things like insurance. So it's, you know, give or take, you're kind of in the right spot there. I think we expect our quarterly OpEx to move in the, you know, call it from five, between 5.2 and 5.5-ish is sort of the range that I would expect it to move around in depending on the quarter.
Margaret Boyce: I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties.
Speaker Change: Give or take you are kind of in the right spot. There I think we expect our quarterly opex to move in the I'll call. It from five between five two and $505 ish is sort of the range that I would expect it to move around and depending on the quarter.
Margaret Boyce: Please note that, except for the historical statement, statements on this call today may constitute forward-looking statements within the meaning of Section 21 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 statements reflect management's current views with respect to future events and financial performance and are subject to risks and uncertainty, and actual results may differ materially from the outcomes contained in any forward-looking statement. Factors that could cause these forward-looking statements to differ from actual results include the 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.
Speaker Change: Great. And good to hear. I know some of these like higher margin items, you know, DAC, small cells, things like that, that's kind of been pushed out for the last couple years, just as like a frame of reference, like any idea, like, was that a material piece of revenue in 23? Or what gives you confidence that you think that you're going to see a nice pickup there, because that could definitely drive the gross margin and the bottom line materially higher given the margin profile that of those items? Yeah, I think in 23, I wouldn't call the contribution from those product lines material. It was a, you know, there was a reinvention of some of those product lines over the last few years and getting them back into the market. And then the timing of carrier spend related to that just slowed way down or stopped depending on the carrier. So I think part of it is, you know, we used the last few years to get in position with the right products and get the right approvals and on the right spec lists with what we think the right customers and we've already seen indications
Speaker Change: Great and good to hear I know some of these like higher margin.
Speaker Change: Items that small cells things like that that's kind of been pushed out for last couple of years, just as a frame of reference like any idea like was that a material piece of revenue and 23 are but what gives you confidence that you think that you're going to see a nice pick up there because that could definitely drive the gross margin and the bottom line materially.
Speaker Change: A higher given the margin profile of that of those items.
Speaker Change: Yeah, I think in 'twenty, three I wouldn't call the contribution from those product lines material.
Speaker Change: It was a there was a reinvention of some of those product lines over the last few years and getting them back into the market.
Speaker Change: And then the timing of carrier spend related to that just slowed way down or stop depending on the carriers. So I think part of it is yes.
Margaret Boyce: 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 describe the differences between our GAAP and non-GAAP reporting. With that said, I'll now turn the call over to Rob Doffman, CEO. Rob, please go ahead.
Speaker Change: We used the last few years to get in position with the right products and get the right approvals and on the right spec lists with what we think the right customers and we've already seen indications.
Speaker Change: of those product lines moving forward with, you know, some of these proposals that have been out there in the pipeline for a long time have, in some cases, moved. In other cases, they've moved far enough that it's actually closed business, and we've added that to our backlog or shipped some in a few cases. So, just the indication of that is better than what we were feeling over the last year. I think the telling part for us will be, you know, our expectation that our backlog should go up in coming months here with some of these larger projects finally hitting. So, the confidence for us is less about being hopeful and more about seeing the actual tangible sales pipeline and those conversations with the customers materializing into purchase orders.
Speaker Change: Of those product lines moving forward with.
Speaker Change: Some of these these proposals that have been out there in the pipeline for a long time in some cases move that other cases, they've moved far enough that is actually closed business and we've added that to our backlog or ship. Some in a few cases so.
Rob Dawson: Thank you, Margaret, and thanks, everyone, for joining our fourth quarter and fiscal 2023 year-end earnings call. Fiscal 2023 was a tough year to navigate for RFI and, frankly, for any supplier downstream from Tier 1 wireless and telecom companies that significantly cut back their capital spending, and our financial performance reflects that. That said, we're pleased to report that in Q4 we saw a 400 basis point uptick in our gross profit margin sequentially from Q3, even though revenue remained relatively flat. These improvements in gross margin are a direct reflection of our cost cutting and efficiency initiatives as well as a better mix of higher margin products in the quarter. While we don't expect the current environment to radically improve in the near term, we are seeing some encouraging signs.
Speaker Change: Just the indication of that is better than what we were feeling over the last year I think the telling part for us will be our expectation that our backlog should go up in coming months here with some of these larger projects finally, hitting so the confidence for us is less about being hopeful and more about seeing the actual.
Speaker Change: Tangible sales pipeline in those conversations with the customers.
Speaker Change: Materializing into purchase orders.
Speaker Change: and you kind of mentioned it in the release and also on the call but I mean so it kind of sounds like you're incrementally more optimistic that you're going to see carrier spend go up a bit this year but also spend in some of the higher margin areas so while sales are probably down quarter over quarter in the first quarter just because seasonality effects but you expect for the full year that organically you have sales growth for this coming year. Fair. Yeah I think that's right. It's it's hard to I mean it's hard to predict our first quarter even with a week to go because so much of our business is book and ship and that can turn on a dime. Projects can be shipments can be delayed or accelerated also and it doesn't take a large amount of money to shift our results fairly materially in a quarter so yeah we as the year kind of moves on we feel like starting to deploy some of that you know almost 17 million in backlog it's been sitting there for a while a lot of that stuff has not moved out of the backlog in several quarters so I think our expectation that we've got that solid backlog will help us and the new orders flowing in we certainly feel better as the year gets going and you know again our first quarter November December January is three tough months to throw into a fiscal quarter especially when a large part of the recovery for us is around carrier spend which generally doesn't
Speaker Change: And you kind of mentioned it in the release and also on the call, but I mean, it's kind of it sounds like you're incrementally more optimistic that you can see carrier spend go up a bit this year, but also spend in some of the higher margin area.
Rob Dawson: Our backlog of $16.1 million as of October 31st was healthy as we entered fiscal 2024, and our backlog currently stands at $16.6 million as of today. Importantly, we're now having meaningful conversations with customers around bigger project opportunities that were put on hold in 2023, and we're seeing our sales pipeline progress, and some of these deals are finally closing. Many of these opportunities are for new, higher margin, higher value products like DAC thermal cooling and small cell shrouds. Winning a handful of these projects would have a big impact on our financial performance, especially with our reduced cost structure. It's been a six-year journey to strategically transform a 40-year-old business into a sustainable growth company by offering a broader mix of key communications products while diversifying our customer base. We continue to offer our long-standing portfolio of world-class core interconnect products while adding technologically advanced next-generation solutions that fulfill a higher percentage of customers' bills of materials. Command Higher Martin, executing against that long-term strategy now sets us up for profitable growth in several ways.
Speaker Change: So while sales are probably down quarter over quarter in the first quarter, just because seasonality effects, but you expect for the full year that organically you have sales growth for this coming year.
Speaker Change: Yes, I think thats right, it's hard to it's hard to predict our first quarter, even with a weeks ago, because so much of our business is book and ship and that can turn on a dime.
Speaker Change: <unk> can be shipments can be delayed or accelerated also in it doesn't take a large amount of money to shift our our results fairly materially in a quarter. So yes, we get kind of moves on we feel like starting to deploy some of that almost $17 million in backlog.
Speaker Change: Been sitting there for a while a lot of that stuff has not moved out of the backlog in several quarters. So I think our expectation that we've got that solid backlog will help us and the new orders flowing in and we certainly feel better as the year gets going and again, our first quarter November December January as <unk>, III tough months to throw into our fiscal quarter.
Speaker Change: Specially when a large part of the recovery for US is around carrier spend which generally doesn't usually doesn't start right away in on January one do you see them, placing orders in December and January for shipments to occur a little a little later into the typical build season, which would be early spring kind of beginning time. So that's why.
Speaker Change: usually doesn't start right away on January 1. You see them placing orders in December and January for shipments to occur a little later into the typical build season, which would be early spring, kind of beginning time. So that's why we feel better about overall, kind of as the year goes on, but just generally that's kind of the cycle for these kinds of product lines.
Rob Dawson: First, we have an impressive list of logos for a company of any size, with all the tier one wireless carriers, AT&T, Verizon, T-Mobile, DISH. In addition, we provide products and solutions to some of the nation's largest providers of communications infrastructure, including Crown Castle, American Tower, and many others. We service many of these customers both directly and through our large national distributors. What's important is that we didn't have many of these logos a few years ago to get us a seat at the table with these customers.
Speaker Change: We feel better about.
Speaker Change: Overall kind of as the year goes on but just generally that's kind of a cycle for these kinds of product lines.
Speaker Change: Thanks, and then last question for me I guess, if you had to kind of handicap. It based on what Youre seeing for the increased interest in some of the higher margin products, because that's been kind of on the come for a bit now like what would you expect at least like five or 10% of revenue to hopefully come from that or do you think it could be materially higher for this year I know, it's not an easy question to.
Speaker Change: Thanks. And then last question for me, I guess, if you had to kind of handicap it based on what you're seeing for the increased interest in some of the higher margin products, because that's been kind of on the come for a bit now, like, what would you expect at least like five or 10% of revenue to hopefully come from that? Or do you think it could be materially higher for this year? I know it's not an easy question to handicap, but
Rob Dawson: It took significant business development efforts, along with transformative acquisitions that offered high-value differentiated products and solutions that addressed more of their current needs and future, for example. Six years ago, many of the Tier One wireless customers didn't want to talk to us about products like coax jumpers, but they were interested in more advanced items like our OptiFlex Hybrid FiberOp. To drive consistent long-term and profitable growth, we needed to add more key solutions like that. As we began to add more leading-edge products like DAC thermal cooling and small cell shrouds, we found that these new offerings got us involved in design discussions sooner and pulled through many of our other product lines. These products became a tip of the spear for RFI to become a qualified vendor and deepen our relationships throughout the organization, even to the point of now providing some of those coax and fiber jumpers. Second, there is real value in building strong and lasting relationships.
Speaker Change: Handicap, but if you want to.
Speaker Change: Yeah, I think we'd be disappointed if it wasn't materially higher than that.
Speaker Change: Yes, I think.
Speaker Change: I think we'd be disappointed if it wasn't materially higher than that.
Speaker Change: Great. Thanks. I'll hop back in the queue. Okay. Thank you.
Speaker Change: Great. Thanks, I'll hop back in the queue.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Your next question is coming from David Wright from Henry Investment Trust. Your line is live.
Speaker Change: Thank you. Your next question is coming.
Speaker Change: Coming from David Wright from Henry Investment Trust Your line is live.
David Wright: Rob, Peter, good afternoon.
Rob Dawson: Rob Peter Good afternoon.
David Wright: Hi, David. Hey, David.
Rob Dawson: Hi, David.
David Wright: Hey, just can you put a kind of quantify what large prospective order larger products?
Rob Dawson: Hey.
Rob Dawson: Just can you put it kind of quantify what large perspective order of larger projects that you mentioned in the press release.
David Wright: give us a range of
Rob Dawson: Give us a range of.
No.
David Wright: what a large
What a large.
David Wright: a larger order value
Rob Dawson: A larger order values.
Speaker Change: Sure. Yeah. So I think that the product lines that drive that, you know, we have our OptiFlex hybrid fiber, which is, you know, those items are call it $3,000 to $6,000 per unit. That's kind of the same range that you would see with a DAC and a small cell offer as well. You're looking at per unit, you know, $3,000 to $6,000 or $7,000 each. Could be a little higher depending on the configuration. A large order there is something, you know, for us, order a magnitude of, you know, call it $300,000. Could be an order all the way up to $2 or $3 million at a time. Really dependent upon how a customer decides to order. If they place a blanket order for a full year worth of deployments, you'll see something more in the few million dollars. If they're placing a regional and or, you know, first quarter, second quarter, third quarter sort of placed independently, you'll see orders that are more broken up into, you know, call it $200,000 to $500,000 at a clip.
Rob Dawson: Sure Yeah, So I think the product lines that drive that.
Rob Dawson: In our history, RFI has been customer-centric, and we have a stellar reputation for being great to work with, attentive to details, and committed to on-time delivery. Customers gravitate to no drama partners. Satisfying customers is part of our DNA, and it provides the foundation to leverage our existing customer relationships as well as attract new ones. Third, we take pride in our reputation for delivering quality products. We've gone to great lengths to ensure our products are top quality, and that means producing finished goods right here in the USA. Like most companies, we source globally, but there's a reason we have almost 300 people in the United States building our cable assemblies and integrated products. It's about quality control.
Rob Dawson: We have our optic after black fiber fiber, which is those items that are call. It 3000 to $6000 per unit. That's kind of the same range that you would see with a DAC in our small cell offer as well youre looking at per unit.
Rob Dawson: Three to six or is that a $1000 each could be a little higher depending on the configuration.
Rob Dawson: A large order there is something that for us order of magnitude of call. It $300000 could be an order all the way up to two or $3 million at a time.
Rob Dawson: Really dependent upon how a customer decides to order if they place a blanket order for a full year worth of deployments youll see something more than a few million dollars, if theyre, placing a regional and or first quarter second quarter third quarter sort of placed independently youll see orders that are more broken up.
Rob Dawson: In the past, we tested out other locations but decided that for certain products, the quality risk was too great and ultimately too costly if it meant losing customers that we fought so hard to win. Now there's a major trend to reshore manufacturing back to the US.
Rob Dawson: Call it 2% to $500000 at a clip.
Speaker Change: okay well thanks for for putting some context there are a couple for Peter in the in the non gap reconciliation you've got the one category you know that is acquisition related and other one-time charges I noticed you had something in the fourth quarter and and the question is do you have are you still having any acquisition related charges and if so what are they
Speaker Change: Okay, well, thanks for for putting some context.
Rob Dawson: We just saw the benefits of employing a skilled local workforce earlier than some others, so when I look at the big picture, I'm excited about our future. While fiscal 2023 results did not meet our expectations, the declining carrier capex spending was more severe than expected and beyond our control. However, continuing to streamline operations to drive profitable growth was within our control; by consolidating our production facilities and reducing redundancies from acquisition, we decreased annual operating expenses by approximately two and a half million dollars. We believe there's still room for improvement given our ongoing effort to offset inflationary costs like insurance logistics and material costs, which are significant expenses that keep climbing. RF Industries is now a leaner and more efficient operation that positions us to reap future benefits from our transformation.
Speaker Change: Context, there are couple for Peter.
Speaker Change: Yes.
Speaker Change: And the non-GAAP reconciliation, you've got the one category that.
It is.
Speaker Change: Acquisition related and other onetime charges I noticed you had something in the fourth quarter and the question is do you have are you still having any acquisition related charges and if so what are they.
Speaker Change: Those are more one-time related charges related to move than such the acquisition and related other one-time charges probably more for the 2022 timeframe and 2023 was more one-time charges related to our move and there were some as we went into the move due to timing of when we took possession of the building there were some accounting lease that we had to do some expensing for.
Speaker Change: Those are.
Speaker Change: More one time related charges related to moves in such the acquisition and related other onetime charges, probably more for the 2022 timeframe in 2023 was more one time charges related to <unk>.
Speaker Change: Our move in there.
Speaker Change: There were some as we went into the move.
Speaker Change: The timing of when we took possession of the buildings there were some accounting lease that we have to do some expensing four.
Speaker Change: Okay.
Speaker Change: and so you were pretty much through this.
Rob Dawson: As I mentioned earlier, we're seeing increased discussions for larger projects deploying our higher margin solutions. With our lower cost structure and the related increased operating leverage, even a small shift to a higher margin product mix would generate improved results, especially on a year-over-year comparable basis. While this current environment is not going to change overnight, and our fiscal first quarter is seasonally our most challenging, we can foresee momentum building in 2024 and beyond for several reasons. We have the right products at the right time.
Speaker Change: And so you were pretty much through that now.
Speaker Change: Correct.
Speaker Change: Correct.
Speaker Change: and then the other question is I noticed you are into the line of credit here at your end um
Speaker Change: Okay and then the other question is I noticed you are into the line of credit here at year end.
Speaker Change: Can you talk about how you look at the interplay between cash and the balance?
Speaker Change: Can you talk about how you look at the interplay between cash on the balance sheet.
Speaker Change: said the line and what makes those two
Speaker Change: Use of the lineup.
Speaker Change: What makes those to fluctuate.
Speaker Change: Sure. Yeah, this is just maintaining a certain level of cash to operate the business from a week to week basis. You know, we're always considering kind of paying down the revolver versus keeping cash on the books to minimize the interest charge. But it's a
Speaker Change: Sure. Yes. This is just maintaining a certain level of cash to operate the business from a week to week basis.
Speaker Change: We're always considering kind of paying down the revolver versus keeping cash on the books to minimize the interest charge, but.
Rob Dawson: Densification continues to be a significant challenge in 4G and 5G build-out, and wireless carriers are recognizing our next generation small cell shrouds and our micro lab RF passes for their advanced technology, reliability, and ease of use. All communications installations require some approach to cooling the equipment, and we believe that our DAC systems are far superior in performance and cost efficiency than other approaches. As communications companies cycle through their operations and maintenance schedules, replacing yesterday's cooling systems with next-gen products is a sound business decision. We continue to see interest in OptiFlex, our high-quality and innovative line of hybrid fiber and power cable, which have been key contributors to our growth over the last few years. We're working hard to diversify the customer base and end markets that we serve.
Speaker Change: Sure.
Speaker Change: it's a dynamic
Speaker Change: That's a dynamic.
Speaker Change: kind of topic that we look at and we assess that kind of week to week, month to month to determine if there's anything we can
Kind of topics that we looked at and we assess that kind of week to week month to month.
Speaker Change: To determine if there is anything we can.
Speaker Change: used to pay that down to help save some of the interest versus, you know, keeping cash on hand and just operating the business.
Speaker Change: Use of pay that down and help save some of the interest versus keeping cash on hand, which is operating the business.
Speaker Change: So based on kind of your outlook for the year, do you anticipate using much more of the line of credit?
Speaker Change: So based on kind of your outlook for the year or do you anticipate using much more of a line of credit.
Speaker Change: we
Speaker Change: current cash on hand right now, I don't think we have any
Speaker Change: Current cash on hand, right now and I don't think we have any.
Speaker Change: Plans to draw against the revolver.
Speaker Change: plans to draw against the revolver.
Speaker Change: in the near future.
Speaker Change: In the near future.
Speaker Change: Okay, well thanks for taking my questions and good luck here in your
Speaker Change: Okay, Okay, well, thanks for taking my questions and good.
Speaker Change: Good luck here in your new fiscal year.
Speaker Change: Thanks David. Thank you.
Rob Dawson: In fiscal 2023, 43% of our total sales came from wireless carrier applications, while 57% of our sales came from customer applications across diverse end markets like manufacturing, public safety, energy, hospitality, education, and medical, and roughly 50% of our sales were through our distribution channels. We continue to explore opportunities with new customer segments such as major cable companies. Right now, we have a pilot program for our DAC system on a dozen or so cable company sites. This could develop into a meaningful piece of business over time, and it could also open the door to more cross-selling opportunities. Our core interconnect products, with high quality and fast turnaround times, continue to build our strong reputation with our channel partners.
Speaker Change: Thanks, David Thank you.
Speaker Change: Thank you. Once again, everyone, if you have any questions or comments, please press star, then 1 on your phone. Your next question is coming from Ethan Starr. Your line is live.
Speaker Change: Thank you once again, everyone. If you have any questions or comments. Please press Star then one on your phone. Your next question is coming from Ethan Starr Your line is live.
Ethan Starr: Thank you. As you work to diversify your customer base, are you primarily focused on selling existing products to new customers or developing new products to sell to both existing and new customers?
Ethan Starr: Thank you as you work to diversify your customer base are you primarily focused on selling existing products to new customers or developing new products to sell to both existing and new customers.
Speaker Change: Yeah, thanks, Ethan. So a little bit of both. I think we're probably more at this point focused on the existing portfolio of products into not just our existing customers, but expanding our customer base market-wise and also in the markets where we already play. We've spent a lot of time and money over the last few years redeveloping and or relaunching the product line. So while we always have some new products coming to market, I think the expectation of our offer today is that it's the right offer, and we've got to get it in front of not just our existing customers, but additional as well.
Speaker Change: Yeah, Thanks, Peter so.
Speaker Change: A little bit of both I think we are probably more at this point focused on the existing portfolio of products into not just our existing customers, but expanding our customer base market wise and also.
Speaker Change: In the markets, where we already play we've spent a lot of time and money over the last few years Redeveloped being <unk> re launching the product line. So while we always have some new products coming to market I think the expectation of our offer today is that it's the right offer and we got to get it in front of not just our existing customers.
Rob Dawson: This standard and custom interconnect offering is sold to a diverse set of customers and provides a steady base of business, and I don't want to leave out the steady resilience of our custom cabling and wire harness products and solutions, which we sell into many industrial and manufacturing applications with blue chip When you combine our cutting edge products and capabilities with our core coaxial and fiber interconnect solutions, our custom cabling products, and our integrated systems, We've carefully and strategically developed a pretty amazing portfolio of leading edge products and solutions for multiple market sites, beyond the communications industry, heading into 2024, given our expected additional operating efficiencies and expenditure reductions and the ability to increase revenue. We are well positioned to enter a new phase of solid organic growth.
Speaker Change: But additional as well.
Speaker Change: Okay, I think if I heard correctly in your introductory remarks, you said it's about a 57% to 43% split with, I guess, 43% being roughly telecom. Do you have a goal in mind to at least further reduce your telecom dependency?
Speaker Change: Okay. So I think if I heard correctly.
Speaker Change: Got your remarks, you said, it's about a 57% to 43% split with the I guess the 43.
Speaker Change: 43% being roughly telecom.
Speaker Change: Goal in mind to where at least.
Speaker Change: Further reduced your ER telecom dependency.
Speaker Change: It's a fair question. It's an interesting interplay between those results. I think our biggest upside from a large CapEx spend is generally the wireless or telecom marketplace. Large orders coming in will likely be in that bucket, which will drive it up even more into the wireless carrier space. I think we're going after both new market segments and we play a lot of market segments that don't get as much notice because their CapEx isn't as clear and as obvious in these wild upswings that we see when there's large carrier spend. So we don't necessarily have a specific goal. We do have goals by account and by region that we go after that are more diversified across the customer base that include all the different applications.
Speaker Change: Yes, it's a fair question is an interesting interplay between those those results I think our biggest upside from a large capex spend is generally the wireless telecom marketplace. So large orders coming in will likely be in that bucket, which will drive it up.
Speaker Change: Even more into the in the wireless carrier space I think were.
Rob Dawson: We will also continue to manage our working capital to solidify our liquidity, cash position, and overall capital structure. While our first quarter is seasonally our most challenging, and timing of orders in the related supply chain isn't always predictable, I'm excited and optimistic about our opportunity to deliver the margin expansion and cash flow throughout the year that will create long-term value for our customers. In closing, I'd like to express my sincere appreciation to every member of our team for their efforts and contributions in serving our customers and building our company as we continue to execute our long-term growth plan. I also want to acknowledge the ongoing support of our shareholders. 2023 was a rough year for RFI and for microcap investors overall, but we're starting to hear more positive sentiment for 2024.
Speaker Change: Going after both new market segments that we play a lot of market segments that don't get as much notice.
Speaker Change: Because their capex isn't as clear and as obvious it needs. These wild upswings that we see when there's large carrier spent so we don't necessarily have a specific goal. We do have goals by account and by region that we go after that are more diversified across the customer base that include all the different applications.
Speaker Change: Okay, that's helpful. Are you seeing any indications that Tier 1 wireless and telecom companies will be increasing capital spending?
Speaker Change: Okay. That's helpful.
Speaker Change: Are you seeing any indications that tier one wireless and telecom companies will be increasing capital spending.
Speaker Change: I think, so increasing in total is probably flat year over year. I think increasing in the areas of opportunity where we're much more relevant, like densification in particular, is really what we're seeing. So I think, yes, we're seeing that shift from the large macro site spend that usually is at the beginning of the cycle. There'll usually be a pause, which has been, in this case, a little longer, a little steeper of a pause than what we might like. As it's coming back, we're seeing more of that spend dedicated to things like small cell and other more street-level densification. So, yeah, we're certainly seeing that both in conversation around what that CapEx looks like, but also in the kinds of products that are being ordered.
Speaker Change: I think so.
Speaker Change: <unk> increasing in total is probably flat year over year, I think increasing in the areas of opportunity, where we're much more relevant like densification in.
Speaker Change: In particular is really what we're seeing so I think yes, we're seeing that shift from the larger macro site spend that usually is at the beginning of the cycle. They will usually be a pause which has been in this case, a little longer hauls deeper of a pause than what we might like.
Rob Dawson: The valuation differential against the broader market is becoming more compelling, especially with inflation finally cooling and interest rates stabilizing. To paraphrase the late, great Charlie Munger, basically all investment is a value investment in the sense that you're always trying to get better prospects than what you're paying for them. I'm proud of the work our team did this year in managing through a challenging year and significantly improving our future prospects for profitable growth and value creation. I remain confident that we have the right business model, the right products, and the right team to capitalize on momentum as carrier spending returns.
Speaker Change: It's coming back we're seeing more of that spend.
Speaker Change: Dedicated to things like small cell and in other more street level Densification. So yes, we're certainly seeing that both in conversation around what that Capex looks like but also in the kinds of products that are being ordered.
Speaker Change: Okay, and my last question, to what extent will the $2.5 million reduction in operating expenses drop to the bottom line in 2024?
Speaker Change: Okay and my last question to what extent will the $2 $5 million reduction in operating expenses dropped to the bottom line in 2024.
Now I'll turn the call over to Peter to discuss our finances. Peter Thank you, Rob. And good afternoon, everyone. As Rob mentioned, we're pleased that our actions to streamline operations and reduce expenses are having a meaningful impact. As a leaner and more efficient operation, we are well positioned to drive profitability as the demand environment changes. As I move through our financial results, I will highlight where we saw significant improvement from Q3 to Q4, which we view as a positive indicator for better performance in fiscal 2024, with the caveat that the first quarter has historically been our season
Speaker Change: Yeah, so during 23, I would have told you it was all going to drop through. I think we've had to offset some inflationary pressure on certain things, specifically things like insurance and some logistics costs. So we think probably 75% or 80% of it should fall through, but we are offsetting some things that have kind of shown up over the course of that year, which is why we're very focused on not having it be a one-time effort. We're driving additional opportunities to take out more costs in some of the same places we already hit, but also some new and additional kind of ongoing places as well to help us get as much of that falling through as possible.
Speaker Change: Yes, so during 'twenty three I would've told you. It was all going to drop through I think we've we've had to offset some inflationary pressure on certain things.
Speaker Change: Specifically things like insurance and some logistics costs, So, we think probably 75% or 80% of it should fall through.
Speaker Change: But we are offsetting some things that have kind of shown up over the course of that year, which is why we're very focused on not having it be a onetime effort, where we're driving additional opportunities to take out more cost in some of the same places we already hit but also.
Speaker Change: Some new and additional kind of ongoing places as well to help us get as much of that falling through as possible.
Speaker Change: Great, thank you very much Thank you
Speaker Change: Great. Thank you very much thank you.
Fourth quarter sales were $15.9 million, a decrease of 7.1 million or 31% decrease year-over-year and flat on a sequential basis. For the full fiscal year, sales decreased $13.1 million or 15% to $72.2 million. Fourth quarter gross profit margin decreased to 28.4% from 31.1% year over year. The 270 basis point decrease reflected the impact of lower sales and less leverage to cover certain fixed costs. Fourth quarter operating loss was $1.1 million compared to operating income of $715,000 in the prior year period. Our net loss was $851,000 or $0.08 per diluted share, and our non-GAAP net loss was $68,000 or $0.01 per diluted share compared to a net income of $451,000 or $0.04 per diluted share and our non-GAAP net income of $1.5 million or $0.15 per diluted share for Q4 2022. Fourth quarter adjusted EBITDA was negative 108,000 compared to positive adjusted EBITDA of 1.9 million for Q
Speaker Change: Thank you. Your next question is coming from Steve Cole from Mangrove. Your line is live.
Speaker Change: Thank you. Your next question is coming from Steve Cole from mangrove your line is live.
Steve Cole: Good afternoon, guys.
Steve Cole: Good afternoon guys.
Steve Cole: I see
Speaker Change: I see.
Steve Cole: Hi, Rob. A couple of quick questions. If you look at the backlog that we have now, can you provide a little bit of color on what the margin, the booked-in margin is?
Steve Cole: Rob a couple of quick questions. If you look at the backlog that we have now can you provide a little bit of color on what the margin. The books end margin is of that backlog forgetting about fixed cost absorption when it comes out.
Rob: of that backlog, forgetting about fixed cost absorption when it comes out.
Speaker Change: Yeah, I think it's hard to be specific on that because in many cases we don't see the final margin until we've finished building some of those products and gotten them out the door. But I think the blend there, a lot of that's been sitting there for a while too, Steve. So I think the blend in there is going to kind of be in line with our historical levels. As we add to that, we expect the margin profile of the things being added to be a higher margin.
Speaker Change: Yes, I think it's those.
Speaker Change: It's hard to be specific on that because in many cases, we don't see the final margin until we've finished building some of those products have gotten them out the door, but I think the blend there a lot of that's been sitting there for a while too Steve. So I think the blend and there is going to kind of be in line with our historical levels.
Speaker Change: We add to that we expect the margin profile of the things being added to be higher margin.
Speaker Change: Okay. And just turning back, I saw Microlab, you provided a year number of 17 and change. Can you maybe turn the clock back a little bit and tell us how is that acquisition?
Speaker Change: Okay.
Speaker Change: Just turning back to so called micro lab, you provided a year number.
Speaker Change: 17 unchanged can you maybe turn the clock back a little bit and tell us how is that acquisition.
Speaker Change: performed from when you bought it to where we are today. And if I remember right, we have a reasonable project-oriented component that moves that number up and down. Is that still the case? And that's why it flexes from that 20-ish level onto the high team.
Speaker Change: Form from when you bought it to where we are today and if I remember right, we have a reasonable projects.
Speaker Change: It's a component right that moves that number up and down is that still the case and that's why it flexes.
Speaker Change: Twentyish level under the highest.
Speaker Change: Yeah, I think what you see is when we bought it, the trailing 12 months was a little under $17 million. We ran that up sort of immediately. There were some great things that they had in their pipeline and some new things we landed. They pushed that business up over the next three or four quarters to a higher level, north of $20 million annualized. Then you're right with what you said around the project-based portion of that business, large venues in particular, so stadiums and other large venues where there's wireless deployments happening. It's a pretty meaningful upside for that business, and that was caught up in the same reduced spend that kind of hit some of our other product areas in the last year. So I think it's performed, I'll say, wildly depending on the quarter. Some are great and some are a little under our expectations. We expect that to get back. With carrier spend recovering, we expect some of that to –
Speaker Change: Yes, I think what you'll see is when we bought at the trailing 12 months was a little under $17 million. We ran that up sort of immediately there was some great things that they had in their pipeline and some new things we landed that pushed that business up over the next three or four quarters to higher levels north of $20 million annualized.
On a positive note, sequential gross profit margin increased 400 basis points to 28.4% in the fourth quarter, even on flat sales. Our operating loss improved by $900,000 from a loss of $2 million, due to a favorable mix of higher-margin products and reflects our efforts to drive cost savings and operating efficiency. Full fiscal year adjusted EBITDA was $460,000 versus $6.6 million in fiscal year 2022. The decrease was primarily due to lower sales value and a less favorable product mix that we experienced throughout fiscal 2023. Moving to the balance sheet as of October 31, 2023. We had a total of $4.9 million in cash and cash equivalents, and we had working capital of $23.5 million and a current ratio of approximately 2.9 to 1, with current assets of $36 million and current liabilities of $12.5 million.
Speaker Change: Then the Youre right with what you said around the project based portion of that business large venues in particular, so stadiums and other large venues where there is wireless deployments happening is a pretty meaningful upside for that business and that was caught up in.
The same reduce spend that kind of hit some of our other product areas in the last year. So I think it's performed I'll say wildly depending on the quarter. Some are great and some are little under our expectations, we expect that to get back with carrier spend recovering we expect some of that too.
Speaker Change: to benefit us on the micro lab side. And we have added some additional products there as well that are more focused on small cell deployments and some more enterprise level deployments that are not so carrier focused and carrier backed from a spending perspective. So trying to diversify that product line a bit as well to address some sort of parallel markets at the same time.
Speaker Change: To benefit us on the on the micro lab side and we have added some additional products there as well that are more focused on small cell deployments and some more enterprise level deployments that are not so carrier focused in.
As of October 31, 2023, we had borrowed $13.1 million under our term loan and $1 million from our revolving credit facility. Our credit facility is secured by certain assets of the company and subject to certain loan covenants, including financial covenants. In the past, we successfully negotiated amendments to the credit facility relating to such financial instruments. As Rob mentioned, we continue to manage our working capital to solidify our liquidity, cash position, and overall capital structure. We continue to explore our best options for overall financing and our related credit facilities. Our inventory was $18.7 million, down from $21.1 million last year. The decrease in inventory reflected our continued rationalization and right-sizing of our inventory to address the lower demand level we experienced in 2023.
Speaker Change: And carrier back from a spending perspective, so trying to diversify that product line.
Speaker Change: As well to address some sort of parallel markets at the same time.
Speaker Change: We don't want to leave out Peter, but just a quick question on free cash flow. When you're looking at the forecast for this year, I would expect, given the cost reductions and the margin shift, even on lower revenues, we should be free cash flow positive this fiscal year. Is that right?
Speaker Change: And then we went up we don't want to leave out Peter but just a quick question on free cash flow when you're looking at the forecast for this year I would expect given the cost reductions in the margins.
Speaker Change: Even on lower revenues, we should be free cash flow positive.
Speaker Change: This fiscal year is that right.
Speaker Change: Yes, it depends on the sales level but
Speaker Change: Yes, it depends on the sales level.
Speaker Change: we expect cash flow to be on the positive side if things pan out the way we expect.
Speaker Change: We expect cash flow to be on the positive side of this.
Speaker Change: Things Pan out the way we expect.
Speaker Change: Thank you very much guys, appreciate the time Thank you Steve
Speaker Change: Okay. Thank you very much guys. Appreciate the time, thank you Steve.
Speaker Change: Thank you. Once again, everyone, if you have any questions or comments, please press star, then one on your phone. Please hold while we poll for questions.
Speaker Change: Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone. Please hold while we poll for questions.
We believe our current inventory level supports our strategic business model of inventory availability, and we continue to manage this closely as we expect to see increased demand in 2024 as CapEx spending gradually normalizes over the coming year. While we believe there is room for us to continue to rationalize our inventory to help our cash flow and liquidity, there may be opportunities for us to take market share and win new business by increasing certain inventory levels that have much longer lead times.
Speaker Change: Thank you. That concludes our Q&A session. I will now hand the conference back to Robert Dawson, CEO, for closing remarks. Please go ahead.
Speaker Change: Thank you that concludes our Q&A session I will now hand, the conference back to Robert Dawson CEO for closing remarks. Please go ahead.
Robert Dawson: Thank you Matthew and thanks, everybody for participating on our call today, I think that might be the most number of questions by the most number of people that we've had in six and a half years. So I don't know if thats a win or not but I appreciate everybody asking the questions and the interaction.
Robert Dawson: Thank you, Matthew, and thank everybody for participating in our call today. I think that might be the most number of questions by the most number of people that we've had in six and a half years, so I don't know if that's a win or not, but I appreciate everybody asking the questions and the interaction. Please feel free to reach out if we can answer any additional questions, and we look forward to speaking to you again in a few months to release our first quarter fiscal 24 results. Have a good day.
Robert Dawson: Please feel free to reach out if we can answer any additional questions and we look forward to speaking to you again in a few months to release, our first quarter fiscal 'twenty four results have a good day.
Additionally, any supply chain delays around some of these long lead time items may impact certain projects in a timely manner. Moving on, we are seeing momentum build around new business. As Rob mentioned, our backlog as of October 31 was $16.1 million, on fourth quarter bookings of $14.8 million, and as of today, our current backlog stands at $16.6 million. Thank you. As we begin our new fiscal year, we are seeing encouraging signs. We anticipate that the market will continue to recover as tier one wireless and telecom companies increase their capital spend, and we continue to diversify our offering and our customer base. We're excited about our ability to drive top-line growth and generate profitability through larger projects and higher-margin solutions.
Speaker Change: Thank you everyone, this concludes today's event You may disconnect at this time and have a wonderful day Thank you for your participation
Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day.
Robert Dawson: Thank you for your participation.
Operator: This concludes our comments.
Operator: Operator, we are ready to open the line for questions.
Operator: Everyone will be conducting a question and answer session at this time. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while you're posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while you poll for questions. Your first question is coming from Josh Nichols from D. Reilly.
Josh Nichols: Your line is live. Thanks for taking my question and good to see the healthy sequential improvement in the gross margin. I know you talked a lot about how the company's been optimizing some of the OPEC spend. Is this fiscal fourth quarter kind of a good run rate for how we should be thinking about this coming year?
Rob Dawson: Are there additional kinds of cuts to make that you think could further drive the bottom line?
Josh Nichols: Yeah. Hey, Josh. Good question.
Josh Nichols: Thank you. Yeah, I think you can use Q4 as sort of a gauge of what we're going to look like going forward.
I think there were a handful of one-time compensation-related charges in the quarter that are not going to recur, but at the same time, we're continuing to look for other ways to take out additional costs, and we're trying to offset things like just general inflation on things like insurance.
So it's, you know, give or take; you're kind of in the right spot there. I think we expect our quarterly OpEx to move in the, you know, call it from five. Between 5.2 and 5.5-ish is sort of the range that I would expect it to move around in depending on the quarter. Great.
Josh Nichols: And good to hear. I know some of these higher-margin items, you know, DAC, small cells, things like that, that've kind of been pushed out for the last couple years, just as a frame of reference, like any idea, like, was that a material piece of revenue in 23?
Speaker: Or what gives you confidence that you think that you're going to see a nice pickup there because that could definitely drive the gross margin and the bottom line materially higher given the margin profile of those items? Yeah, I think in 23, I wouldn't call the contribution from those product lines material. It was a, you know, there was a reinvention of some of those product lines over the last few years and getting them back into the market. And then the timing of carrier spend related to that just slowed way down or stopped, depending on the carrier. So I think part of it is, you know, we used the last few years to get in position with the right products and get the right approvals and on the right spec lists with what we think are the right customers, and we've already seen indications of those product lines moving forward with, you know, some of these proposals that have been out there in the pipeline for a long time have, in some cases, moved.
Speaker: In other cases, they've moved far enough that it's actually closed business, and we've added that to our backlog or shipped some in a few cases. So, just the indication of that is better than what we were feeling over the last year. I think the telling part for us will be, you know, our expectation that our backlog should go up in coming months here with some of these larger projects finally hitting. So, the confidence for us is less about being hopeful and more about seeing the actual tangible sales pipeline and those conversations with the customers materializing into purchase orders, and you kind of mentioned it in the release and also on the call but I mean so it kind of sounds like you're incrementally more optimistic that you're going to see carrier spend go up a bit this year but also spend in some of the higher margin areas so while sales are probably down quarter over quarter in the first quarter just because seasonality effects but you expect for the full year that organically you have sales growth for this coming year.
Speaker: Fair. Yeah I think that's right. It's it's hard to I mean it's hard to predict our first quarter even with a week to go because so much of our business is book and ship and that can turn on a dime. Projects can be shipments can be delayed or accelerated also and it doesn't take a large amount of money to shift our results fairly materially in a quarter so yeah we as the year kind of moves on we feel like starting to deploy some of that you know almost 17 million in backlog it's been sitting there for a while a lot of that stuff has not moved out of the backlog in several quarters so I think our expectation that we've got that solid backlog will help us and the new orders flowing in we certainly feel better as the year gets going and you know again our first quarter November December January is three tough months to throw into a fiscal quarter especially when a large part of the recovery for us is around carrier spend which generally doesn't usually doesn't start right away on January 1. You see them placing orders in December and January for shipments to occur a little later into the typical build season, which would be early spring, kind of beginning time.
Speaker: So that's why we feel better about overall, kind of as the year goes on, but just generally that's kind of the cycle for these kinds of product lines.
Josh Nichols: And then last question for me, I guess, if you had to kind of handicap it based on what you're seeing for the increased interest in some of the higher margin products, because that's been kind of on the up for a bit now, like, what would you expect at least like five or 10% of revenue to hopefully come from that? Or do you think it could be materially higher for this year?
Speaker: I know it's not an easy question to handicap, but yeah, I think we'd be disappointed if it wasn't materially higher than that.
Josh Nichols: Thanks. I'll hop back in the queue.
Speaker: Okay.
Speaker: Thank you.
Speaker: Thank you.
David Wright: Your next question is coming from David Wright from Henry Investment Trust. Your line is live.
David Wright: Rob, Peter, good afternoon.
Rob Dawson: Hi David.
Hey David,
David Wright: Hey, just can you put a kind of quantify what the large prospective order for larger products? Give us a range of what the large order value would be, Sure.
Speaker: Yeah. So I think that the product lines that drive that, you know, we have our OptiFlex hybrid fiber, which is, you know, those items are called $3,000 to $6,000 per unit. That's kind of the same range that you would see with a DAC and a small cell offer as well. You're looking at per unit, you know, $3,000 to $6,000 or $7,000 each. Could be a little higher depending on the configuration. A large order there is something, you know, for us, order a magnitude of, you know, call it $300,000. Could be an order all the way up to $2 or $3 million at a time. It is really dependent upon how a customer decides to order. If they place a blanket order for a full year's worth of deployments, you'll see something more in the few million dollars.
Speaker: If they're placing a regional and or, you know, first quarter, second quarter, third quarter sort of placed independently, you'll see orders that are more broken up into, you know, call it $200,000 to $500,000 at a clip, okay well thanks for for putting some context there are a couple for Peter in the in the non gap reconciliation you've got the one category you know that is acquisition related and other one-time charges I noticed you had something in the fourth quarter and and the question is do you have are you still having any acquisition related charges and if so what are they, Those are more one-time related charges related to move than such the acquisition and related other one-time charges probably more for the 2022 timeframe and 2023 was more one-time charges related to our move and there were some as we went into the move due to timing of when we took possession of the building there were some accounting lease that we had to do some expensing for, and so you were pretty much through this.
Correct, and then the other question is I noticed you are into the line of credit here at your end. Can you talk about how you look at the interplay between cash and the balance?
David Wright: said the line, and what makes those two sure.
Yeah, this is just maintaining a certain level of cash to operate the business on a week to week basis.
David Wright: You know, we're always considering kind of paying down the revolver versus keeping cash on the books to minimize the interest charge.
But it's a, it's a dynamic kind of topic that we look at and we assess that kind of week to week, month to month to determine if there's anything we can use to pay that down to help save some of the interest versus, you know, keeping cash on hand and just operating the business.
David Wright: So based on your kind of outlook for the year, do you anticipate using much more of the line of credit?
We currently have cash on hand right now, so I don't think we have any plans to draw against the revolver in the near future.
David Wright: Okay, well, thanks for taking my questions and good luck here in your country. Thanks, David.
Speaker: Thank you.
Speaker: Thank you.
Operator: Once again, everyone, if you have any questions or comments, please press star, then 1 on your phone.
Ethan Starr: Your next question is coming from Ethan Starr.
Ethan Starr: Your line is live.
Ethan Starr: Thank you.
Speaker: As you work to diversify your customer base, are you primarily focused on selling existing products to new customers or developing new products to sell to both existing and new customers?
Ethan Starr: Yeah, thanks, Ethan.
Speaker: So a little bit of both. I think we're probably more focused at this point on the existing portfolio of products for not just our existing customers but expanding our customer base in new markets and also in the markets where we already play. We've spent a lot of time and money over the last few years redeveloping and or relaunching the product line.
Ethan Starr: So while we always have some new products coming to market, I think the expectation of our offer today is that it's the right offer, and we've got to get it in front of not just our existing customers but new ones as well.
Speaker: Okay, I think if I heard correctly in your introductory remarks, you said it's about a 57% to 43% split with, I guess, 43% being roughly telecom.
Ethan Starr: Do you have a goal in mind to at least further reduce your telecom dependency?
Speaker: It's a fair question, and there is an interesting interplay between those results. I think our biggest upside from a large CapEx spend is generally the wireless or telecom marketplace. Large orders coming in will likely be in that bucket, which will drive it up even more into the wireless carrier space.
Speaker: I think we're going after both new market segments, and we play a lot of market segments that don't get as much notice because their CapEx isn't as clear and as obvious in these wild upswings that we see when there's large carrier spend. So we don't necessarily have a specific goal.
Speaker: We do have goals by account and by region that we go after that are more diversified across the customer base that include all the different applications. Okay, that's helpful.
Ethan Starr: Are you seeing any indications that Tier 1 wireless and telecom companies will be increasing capital spending?
Speaker: I think that increasing in total is probably flat year over year. But I think increasing in the areas of opportunity where we're much more relevant, like densification in particular, is really what we're seeing. So I think, yes, we're seeing that shift from the large macro site spend that usually is at the beginning of the cycle. There'll usually be a pause, which has been, in this case, a little longer, a little steeper of a pause than we might like. As it's coming back, we're seeing more of that spend dedicated to things like small cells and other more street-level densification. So, yeah, we're certainly seeing that both in the conversation around what that CapEx looks like, but also in the kinds of products that are being ordered.
Ethan Starr: Okay, and my last question: to what extent will the $2.5 million reduction in operating expenses drop the bottom line in 2024?
Speaker: Yeah, so during 23, I would have told you it was all going to drop through. I think we've had to offset some inflationary pressure on certain things, specifically things like insurance and some logistics costs. So we think probably 75% or 80% of it should fall through, but we are offsetting some things that have kind of shown up over the course of that year, which is why we're very focused on not having it be a one-time effort. We're driving additional opportunities to take out more costs in some of the same places we already hit, but also some new and additional kind of ongoing places as well to help us get as much of that falling through as possible
Speaker: Great, thank you very much. Thank you, Thank you.
Steve Cole: Your next question is coming from Steve Cole from Mangrove. Your line is live. Good afternoon, guys.
Rob Dawson: I see. Hi Rob.
Speaker: A couple of quick questions.
Steve Cole: If you look at the backlog that we have now, can you provide a little bit of color on what the margin, the booked-in margin, is?
Speaker: of that backlog, forgetting about fixed cost absorption when it comes out.
Steve Cole: Yeah, I think it's hard to be specific on that because, in many cases, we don't see the final margin until we've finished building some of those products and gotten them out the door.
Speaker: But I think the blend there, a lot of that's been sitting there for a while too, Steve. So I think the blend in there is going to kind of be in line with our historical levels. As we add to that, we expect the margin profile of the things being added to be higher. Okay.
Steve Cole: And just turning back, I saw Microlab. You provided a year number of 17 and change.
Steve Cole: Can you maybe turn the clock back a little bit and tell us how that acquisition went?
Speaker: performed from when you bought it to where we are today. And, if I remember right, we have a reasonable project-oriented component that moves that number up and down. Is that still the case? And that's why it flexes from that 20-ish level onto the high team. Yeah, I think what you see is when we bought it, the trailing 12 months was a little under $17 million. We ran that up sort of immediately. There were some great things that they had in their pipeline and some new things that we landed. They pushed that business up over the next three or four quarters to a higher level, north of $20 million annualized. Then you're right with what you said around the project-based portion of that business, large venues in particular, so stadiums and other large venues where there are wireless deployments happening.
Speaker: It's a pretty meaningful upside for that business, and that was caught up in the same reduced spend that kind of hit some of our other product areas in the last year. So I think it's performed wildly, I'll say, depending on the quarter. Some are great, and some are a little under our expectations. We expect that to get back. With carrier spend recovering, we expect some of that to benefit us on the micro lab side. And we have added some additional products there as well that are more focused on small cell deployments and some more enterprise level deployments that are not so carrier focused and carrier backed from a spending perspective. So we are trying to diversify that product line a bit as well to address some sort of parallel markets at the same time.
Steve Cole: We don't want to leave out Peter, but just a quick question on free cash flow.
When you're looking at the forecast for this year, I would expect, given the cost reductions and the margin shift, even on lower revenues, we should be free cash flow positive this fiscal year.
Steve Cole: Is that right?
Yes, it depends on the sales level, but we expect cash flow to be on the positive side if things pan out the way we expect.
Steve Cole: Thank you very much guys, I appreciate the time. Thank you, Steve.
Steve Cole: Once again, everyone, if you have any questions or comments, please press star, then one on your phone.
Operator: Please hold while we poll for questions.
Operator: Thank you.
Rob Dawson: That concludes our Q&A session.
Rob Dawson: I will now hand the conference back to Robert Dawson, CEO, for closing remarks.
Operator: Please go ahead.
Rob Dawson: Thank you, Matthew, and thank everybody for participating in our call today.
Rob Dawson: I think that might be the most number of questions by the most number of people that we've had in six and a half years, so I don't know if that's a win or not, but I appreciate everybody asking the questions and the interaction. Please feel free to reach out if we can answer any additional questions, and we look forward to speaking to you again in a few months to release our first quarter fiscal 24 results. Have a good day!
Operator: Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Operator: are ready to open the line for questions. Everyone, at this time, will be conducting a question and answer session. We do ask that while you're posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Josh Nichols on D. Reilly. Your line is live.
Josh Nichols: Yeah, thanks for taking my question and good to see the healthy sequential improvement in the gross margin. I know you've talked a lot about how the company's been optimizing some of the OPEX spend. Is this fiscal fourth quarter kind of a good run rate for how we should be thinking about this coming year? Are there additional cuts to make that you think could further drive the bottom line? Yeah, hey, Josh, good question.
Unnamed Speaker: Thank you. Yeah, I think you can use Q4. It's sort of a gauge of what we're going to look like going forward. I think there were a handful of one-time compensation related charges in the quarter that are not going to recur. But at the same time, we're continuing to look for other ways to take out additional costs, and we're trying to offset things like just general inflation on things like insurance. So it's give or take; you're kind of in the right spot there. I think we expect our quarterly OPEX to move in the call it between 5.2 and 5.5 ish is sort of the range that I would expect it to move around in depending on the quarter.
Unnamed Speaker: Great. And good to hear. I know some of these higher-margin items, you know, DAC, small cells, things like that, that've kind of been pushed out for the last couple years, just as a frame of reference, like any idea, like, was that a material piece of revenue in 23? Or what gives you confidence that you think that you can see a nice pickup there?
Unnamed Speaker: Because that could definitely drive the gross margin and the bottom line materially higher given the margin profile of those items? Yeah, I think in 23, I wouldn't call the contribution from those product lines material. It was a, you know, a reinvention of some of those product lines over the last few years and getting them back into the market.
Unnamed Speaker: And then the timing of carrier spend related to that just slowed way down or stopped, depending on the carrier. So I think part of it is, you know, we used the last few years to get in position with the right products and get the right approvals and on the right spec lists with what we think are the right customers, and we've already seen indications of those product lines moving forward with some of these proposals that have been out there in the pipeline for a long time have, in some cases, moved. In other cases, they've moved far enough that it's actually closed business, and we've added that to our backlog or shipped some in a few cases. So, just the indication of that is better than what we were feeling over the last year.
Unnamed Speaker: I think the telling part for us will be our expectation that our backlog should go up in the coming months here with some of these larger projects finally hitting. So, the confidence for us is less about being hopeful and more about seeing the actual tangible sales pipeline and those conversations with the customers materializing into purchase orders. And you kind of mentioned it in the release and also on the call, but I mean, it kind of sounds like you're incrementally more optimistic that you're going to see carrier spend go up a bit this year, but also spend in some of the higher margin areas. So, well, sales are probably down quarter over quarter in the first quarter just because of seasonality effects, but you expect for the full year that organically you have sales growth for this coming year. Yeah, I think that's right.
Unnamed Speaker: It's hard to predict our first quarter, even with a week to go, because so much of our business is book and ship, and that can turn on a dime. Projects can be, shipments can be delayed or accelerated, also, and it doesn't take a large amount of money to shift our results fairly materially in a quarter. So, yeah, as the year kind of moves on, we feel like starting to deploy some of that almost $17 million in backlog. It's been sitting there for a while. A lot of that stuff has not moved out of the backlog in several quarters. So, I think our expectation that we've got that solid backlog will help us, and the new orders flowing in. We certainly feel better as the year gets going.
Unnamed Speaker: And, you know, again, our first quarter, November, December, January, are three tough months to throw into a fiscal quarter, especially when a large part of the recovery for us is around carrier spend, which generally doesn't happen, usually doesn't start right away on January 1. You see them placing orders in December and January for shipments to occur a little later into the typical build season, which would be an early spring kind of beginning time. So that's why we feel better about overall as the year goes on, but just generally that's kind of the cycle for these kinds of product lines. Thanks, last question for me. I guess if you had to kind of handicap it based on what you're seeing for the increased interest in some of the higher margin products, because that's been kind of on the up for a bit now, like, what would you expect at least like five or 10% of revenue to hopefully come from that? Or do you think it could be materially higher for this year? I know it's not an easy question to handicap, but yeah, I think we'd be disappointed if it wasn't materially higher than that.
Josh Nichols: Great. Thanks. I'll hop back in the queue.
Operator: Okay. Thank you. Thank you. Your next question is coming from David Wright from Henry Investment Trust. Your line is live. Rob, Peter, good afternoon. Hi David.
David Wright: Hey, um, just can, can you put a kind of quantify on what, uh, a large perspective order of larger products that... give us a range of. What is a large..., a larger order value? Sure. Yeah, so I think that the product lines that drive that, you know, we have our OptiFlex hybrid fiber, which is, you know, those items are called $3,000 to $6,000 per unit. That's kind of the same range that you would see with a DAC and a small cell offer as well. You're looking at per unit, you know, $3,000 to $6,000 or $7,000 each. It could be a little higher depending on the configuration.
Unnamed Speaker: A large order there is something, you know, for us, an order of magnitude of, you know, call it $300,000. It could be an order all the way up to $2 or $3 million at a time. It is really dependent upon how a customer decides to order. If they place a blanket order for a full year's worth of deployments, you'll see something more in the few million dollars. If they're placing a regional and or, you know, first quarter, second quarter, third quarter, sort of placed independently, you'll see orders that are more broken up into, you know, call it $200,000 to $500,000 at a clip. Okay. Well, thanks for putting some context there. A couple for Peter.
Unnamed Speaker: In the non-GAAP reconciliation, you've got the one category still that is acquisition-related and other one-time charges. I noticed you had something in the fourth quarter. And the question is, do you have, are you still having any acquisition-related charges? And if so, what are they?
Unnamed Speaker: Those are more one-time related charges related to MOVE than such acquisition and related other one-time charges, probably more for the 2022 time frame and 2023 were more one-time charges related to our MOVE, and there were some as we went into the move due to the timing of when we, you know, took possession of the building, there were some accounting leases that we had to do some expensing for. And so you were pretty much through this. Correct. And then the other question is I noticed you are into the line of credit here at your end. Can you talk about how you look at the interplay between cash on the balance? use of the line and what makes those two fluctuate.
Unnamed Speaker: Sure, yeah, this is just maintaining a certain level of cash to operate the business on a week-to-week basis. You know, we're always considering kind of paying down the revolver versus keeping cash on the books to minimize the interest charge, but it's a... It's a dynamic topic that we look at week to week, month to month to determine if there's anything we can use to pay that down to help save some of the interest versus, you know, keeping cash on hand and just operating the business. So based on kind of your outlook for the year, do you anticipate using much more of the line of credit? We have current cash on hand right now, but I don't think we have any plans to draw against the revolver in the near future.
David Wright: Okay, well, thanks for taking my questions and good luck here. Thank you, David. Thank you. Thank you. Once again, everyone, if you have any questions or comments, please press star, then one on your phone. Your next question is coming from Ethan Starr. Your line is live.
Ethan Starr: Thank you. As you work to diversify your customer base, are you primarily focused on selling existing products to new customers or developing new products to sell to both existing and new customers? Yeah, thanks, Ethan. So, a little bit of both.
Unnamed Speaker: I think we're probably more at this point focused on the existing portfolio of products for not just our existing customers but expanding our customer base in the market-wise and also in the markets where we already play. We've spent a lot of time and money over the last few years redeveloping and or relaunching the product line. So while we always have some new products coming to market, I think the expectation of our offer today is that it's the right offer, and we've got to get it in front of not just our existing customers but additional ones as well. Okay, I think if I heard correctly in your introductory remarks, you said it's about a 57% to 43% split with, I guess, the 43% being roughly telecom. Do you have a goal in mind to at least further reduce your telecom dependency? Yeah, it's a fair question.
Unnamed Speaker: It's an interesting interplay between those results. I think our biggest upside from a large CapEx spend is generally the wireless or telecom marketplace. So large orders coming in will likely be in that bucket, which will drive it up even more into the wireless carrier space. I think we're going after both new market segments, and we play a lot of market segments that don't get as much notice because their CapEx isn't as clear and as obvious in these wild upswings that we see when there's large carrier spend. So we don't necessarily have a specific goal. We do have goals by account and by region that we go after that are more diversified across the customer base that include all the different applications. Okay, that's helpful.
Unnamed Speaker: Are you seeing any indications that Tier 1 wireless and telecom companies will be increasing capital spending? I think it's so increasing in total, it's probably flat year over year, but I think increasing in the areas of opportunity where we're much more relevant, like densification, in particular, is really what we're seeing. So I think, yes, we're seeing that shift from the large macro site spend that usually is at the beginning of the cycle. There'll usually be a pause, which has been, in this case, a little longer, a little steeper of a pause than we might like. But as it's coming back, we're seeing more of that spend. Dedicated to things like small cells and other more street level densification.
Unnamed Speaker: So, yeah, we're certainly seeing that both in the conversation around what that capex looks like, but also in the kinds of products that are being ordered. Okay, and my last question: to what extent will the $2.5 million reduction in operating expenses drop to the bottom line in 2024? Yeah, so during 23, I would have told you it was all going to drop through. I think we've had to offset some inflationary pressure on certain things, specifically things like insurance and some logistics costs. So we think, you know, probably 75 or 80% of it should fall through.
Unnamed Speaker: But we are offsetting some things that have kind of shown up over the course of that year, which is why we're very focused on not having it be a one-time effort. We're, you know, driving additional opportunities to take out more cost. And some of the same places we've already hit, but also some new and additional kind of ongoing places as well to help us get as much of that falling through as possible. Great, thank you very much.
Steve Cole: Thank you. Your next question is coming from Steve Cole from Mangrove. Your line is live. Good afternoon, guys. Awww. Hi, Rob.
Steve Cole: A couple quick questions. If you look at the backlog that we have now, can you provide a little bit of color on what the margin, the booked-in margin, is? That backlog, forgetting about fixed cost absorption when it comes out. Yeah, I think it's hard to be specific on that because, in many cases, we don't see the final margin till we've finished building some of those products and gotten them out the door. But I think the blend there, a lot of that's been sitting there for a while too, Steve. So I think the blend in there is going to kind of be in line with our historical levels.
Unnamed Speaker: As we add to that, we expect the margin profile of the things being added to be higher margin. Okay, and just turning back, I saw Microlab. You provided a year number of 17 and change. Can you maybe turn the clock back a little bit and tell us how that acquisition went?
Unnamed Speaker: performed from when you bought it to where we are today. And if I remember correctly, we have a reasonable project-oriented component, right, that moves that number up and down. Is that still the case? And that's why it flexes kind of from that 20-ish level, you know, under the high teens.
Unnamed Speaker: Yeah, I think what you're seeing is, when we bought it, the trailing 12 months was a little under $17 million. We ran that up sort of immediately. There were some great things that they had in their pipeline and some new things we landed. They pushed that business up over the next, you know, three or four quarters to higher levels, you know, north of $20 million annualized. Then you're right with what you said around the project-based portion of that business, large venues in particular, so stadiums and other large venues where there are wireless deployments happening. It's a pretty meaningful upside for that business, and that was caught up in the same reduced spend that kind of hit some of our other product areas in the last year. So I think it's performed wildly, I'll say, depending on the quarter; some are great, and some are a little under our expectations.
Unnamed Speaker: We expect that to get back with carrier spend recovering. We expect some of that to benefit us on the Microlab side. And we have added some additional products there as well that are more focused on small cell deployments and some more enterprise level deployments that are not so carrier focused and carrier back from a spending perspective. So trying to diversify that product line a bit as well to address some sort of parallel markets at the same time.
Steve Cole: And we don't want to leave out Peter, but just a quick question on free cash flows. When you're looking at the forecast for this year, I would expect, given the cost reductions and the margin shift, even on low revenues, we should be free cash flow positive this fiscal year. Is that right? Yes, it depends on the sales level, but we expect cash flow to be on the positive side, and things panned out the way we expected.
Steve Cole: Thank you very much, guys; I appreciate the time. Thank you. Once again, everyone, if you have any questions or comments, please press star and then one on your phone. Please hold while we poll for questions. Thank you. That concludes our Q&A session. I will now hand the conference back to Robert Dawson, CEO, for closing remarks. Please go ahead, thank you Matthew and thank everybody for participating in our call today. I think that might be the most number of questions by the most number of people that we've had in six and a half years, so I don't know if that's a win or not, but I appreciate everybody asking the questions and the interaction. Please feel free to reach out if we This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.