Greetings ladies and gentlemen, welcome to the RF Industries Third Quarter Fiscal 2022 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It’s now my pleasure to turn the floor over to your host, Jim Byers of MKR Investor Relations. Sir, the floor is yours.

Thank you, operator. Good afternoon and welcome to RF Industries’ third quarter fiscal 2022 financial results conference call. With me on today’s call are RF Industries’ President and CEO, Rob Dawson; and Senior Vice President and Chief Financial Officer, Peter Yin. Before I turn the call over to Rob and Peter, I’d like to cover a few quick items. This afternoon, RF Industries issued a press release announcing its third quarter fiscal 2022 financial results. That release is available on the Company’s website at rfindustries.com. This call is also being broadcast live over the internet for all interested parties and the webcast will be archived on the Investor Relations page of the Company’s website. I want to remind everyone that during today’s call management will make forward-looking statements that involve risks and uncertainties. Please note that except for the historical statements, statements on this call today may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When used the words anticipate, believe, expect, intend, future, and other similar expressions, identify forward-looking statements. These forward-looking statements reflect management’s current views with respect to future events and financial performance and are subject to risks and uncertainties, and actual results may differ materially from outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results, include delays in development, marketing, or sales or products, and other risks and uncertainties discussed in the Company’s periodic reports, on Form 10-K and 10-Q and other filings with the Securities Exchange Commission. RF Industries undertakes no obligation to update or revise any forward-looking statements. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today’s earnings release and the related current report on Form 8-K describe the differences between our GAAP and non-GAAP reporting and present the reconciliation between the two for the periods reported in the earnings release. With that said, I will now turn the conference over to Rob Dawson, President and Chief Executive Officer.

Thank you, Jim. Good afternoon, everyone. And welcome to our third quarter fiscal 2022 earnings conference call. I’d like to start with a brief review of our third quarter results, and then discuss what we’re seeing now in the market and what we expect going forward, before turning the call over to Peter to give more commentary on the financials. Starting with the third quarter, we’re pleased to report our highest quarterly revenue in company history, reflecting another great quarter of strong revenue growth along with the continued margin improvement. Sales for the quarter were a record $23.8 million, up 11% sequentially from Q2 and up 56% over the third quarter last year. This strong growth reflects both, an organic increase in our overall business and higher margin revenue contribution from our successful acquisition of Microlab, which performed very well in the quarter. As a side note, $23.8 million in sales is when RF Industries delivered in all of fiscal 2017, the year that I joined the Company just prior to the fourth quarter. We’re pleased to be making progress in our growth story. On the bottom line in Q3, we reported GAAP net income of $771,000, non-GAAP net income of $1.2 million, adjusted EBITDA of $2.1 million. And we’re pleased to see our gross margins back up over 30%, one of our key near term goals, reflecting continued improvement in our organic margins, as well as increases from the addition of the Microlab business. While we’re certainly pleased with all these fantastic results, I have to admit that we still haven’t begun to hit on all cylinders. While achieving these new record levels of sales, we’ve also been working very hard in the background to continue transforming the Company and many of our key initiatives around consolidation, operational efficiencies,…

Thank you, Rob, and good afternoon, everyone. We are pleased to report our highest quarterly sales on record, reflecting solid growth on both, the sequential and year-over-year basis, along with improved margins and profitability. Sales in the third quarter were a record $28.3 million, (sic) [$23.8 million] up 11% sequentially from the second quarter and up 56% from the third quarter last year. Our gross profit margin was 30%, which is up sequentially from 28% in the second quarter and up from 28% in the third quarter last year, which excludes the impact of the employee retention tax credit recognized in last year’s Q3. Our improved gross margins for the third quarter reflect improvement in our core business, along with the full quarter of higher revenue -- of higher margin revenue contribution from Microlab, which contributed $6.5 million in sales in Q3. As we have noted previously, we have experienced a series of cost headwinds primarily related to the states of the supply chain that have put pressure on our margins. We have been taking steps to address these headwinds, which includes working with both, our vendors and our customers, whether it’s placing larger orders sooner to lock in current prices or updating -- or updated pricing with our customers. As Rob touched upon, we are also looking internally for synergies and efficiencies through consolidation efforts where it makes sense and automating -- or semi-automating what has traditionally been a very labor intensive environment. We are just beginning -- we are just in the beginning stages and look forward to being able to share some progress and updates in the coming quarters. Turning to our balance sheet. Our current inventory is at $19.2 million, up over 80% or $8.7 million from Q3 last year. The addition of Microlab accounted for…

[Operator Instructions] First question is coming from Josh Nichols with B. Riley. Josh, your line is live.

Great. Great to see second consecutive quarter of revenue north of $20 million and the backlog at the end the of the quarter actually increasing sequentially. On that note, I’m just kind of curious, like how long do you think it’s going to take you to work through that backlog? And if you could talk a little bit longer about the visibility that you have into next fiscal year, given where the backlog is today?

Yes. Hey Josh. Thanks for those questions. So, the backlog for us, I mean, it’s -- obviously, we disclosed it in as many ways as we can to try to tell the story. But I think the healthy part of it is, even with these bigger sales results, our bookings have outpace that, which allows that backlog to grow this quarter and sit up there in the low-30 millions. That’s a mix of things that we can predict sort of in the next 90 to 180 days that’ll go out the door. That also includes some things that’ll be a little longer than that in some of our more integrated cabling products in particular. So, we -- obviously it’s great to have that high backlog. We’d be fine if our backlog was sitting at $20 million or $22 million or $18 million. Those numbers all support us putting up significant sales on a quarterly basis, because what rarely shows up in that backlog is the book and ship business that comes from our distribution center kinds of products. That’s a -- it’s a snapshot in time that we try to give those numbers. And so, it gives us great visibility, I think, in the next 90ish days. The other thing I’ll say on that is, when we talk about the fourth quarter and expecting it to be a similar looking quarter to what we did in Q3, a day or two difference and an order or two being pushed or pulled in or pushed out a couple days can make a big difference in numbers of ours, especially when we’re sitting on some of these larger orders. So, we’re optimistic about the fourth quarter. We feel great about it with what we know today halfway through the quarter and with…

Thanks. And then, you talked about margins, both on the gross margin front and then EBITDA margins. Is it fair that you think gross margins would be up sequentially in 4Q? And you mentioned a 10% EBITDA margin target. Do you think that you’d be able to hit that target in 4Q or do you think that’s more of a fiscal year ‘23 goal to be at or above that level for the full year?

Yes. So, good question. So, on the gross profit line, I think, we’ve stabilized our mix fairly well at the moment. We’re able to predict it a lot better when you’re putting up -- Peter mentioned in his comments, when the sales numbers move between the low-20s or high-teens, and then $12 million or $15 million, it’s really difficult for us to get that number nailed, because we’ve got to absorb the labor that we have building a lot of this stuff. And so I think, we feel good about where we sit on that today, just above that 30% number. We absolutely believe there’s upside to it, more driven in the short term by mix, than anything else. We have some initiatives that we both spoke about around streamlining operations and other synergies that over time will help us with that gross margin. But I think we’re comfortable where we sit today, getting to that 30% number that was great to see that -- both organically and with the addition of Microlab, and now it’s maintaining that and finding ways to drive further growth, which is certainly a doable kind of thing in the short-term. On the adjusted EBITDA number, getting to 10%, it’s not out of the question to get there in the short term. I think, we have -- with odds and ends of additional implementation charges and other things, some of which you can add back and some of you can’t. So, getting close to that 9% number felt good. I do believe that it’s not out of the question for it to happen in the short-term, but we start looking at next year and we would absolutely expect to get above 10% and with some runway to do even better as some of these initiatives start to print through.

And then, a very strong quarter, looking at the free cash flow, right? I mean, -- I think $2.6 million or so for the quarter, especially concerning the Company’s market cap or enterprise value around $80 million here. Do you expect that staying at around that $2 million-plus of free cash flow is sustainable in the near term? And what do you plan to use that for, besides M&A, potential debt pay-downs or thoughts on that?

Hey Josh, it’s Peter. Thanks for the question. A lot of the cash flow there is due to timing of just the collections of how AR falls, right? And as we talked about, there’s initiatives that that are going on that will require some cash outlay from us. But we’re servicing the debt fine with the Microlab acquisition there. And assuming there were no big initiatives, these types of cash flow, I think it’s something you can expect. But what we have kind of coming down just a little bit of in the positive is kind of something I would expect.

And Josh, from a use perspective of what do we want to do with the cash, the initiatives we have ahead of us are not small to real estate related. There are things that we need to do in order to take some synergies in this business and really start to drive some of these major opportunities to get dollars to fall through to the bottom-line. So, in the immediate, there are some organic things we’re doing internal to the business to invest, to make it stronger and a lot of the integration work that we’re now able to do that we haven’t been. As cash builds and we get back to that level, then it’s a different discussion of should we be paying down debt, should we be looking at other opportunities to deploy that capital? But I think in the short-term, we’ve got organic initiatives that make sense for us. And we’re not really looking at little tiny acquisitions where that level of cash would do us much good. So, it’s probably not a focus point for that, at least as it stands today.

Thanks. I don’t want to monopolize the mic. So, I just have one question here that kind of close off on. It seems like the Company’s doing quite well when you look at the backlog. But I do want to touch on the small cell and DAC opportunities, because those have not been big drivers this year, but maybe it sounds like they could next year. If you could help quantify, like how much of the revenue guidance for this year is related to small cell and DAC, and how could that compare to what type of revenue opportunities that could be next year, based on what you’re seeing, to give people a little bit of an opportunity for the upside there?

Yes. Good question and well informed on sort of how it fits with us. I think, if you look at our guidance throughout this year and even with what we’ve talked about for the fourth quarter and the full-year, a very small piece of total sales come from small cell and DAC, at least our expectation there in those goals or in those projections. More of that starts to become material we believe next year, both with the small cell market returning and starting to grow again and with -- the team’s done some great work to revamp the DAC offering, I think to make it a little easier to market and a little more current in specific needs that are happening in the world. We believe around green initiatives and cost reduction for operating lines for major carriers and others that have equipment on the edge of their network. That’s obviously hot and needs to be cooled. We believe that is a gigantic opportunity and the pipeline of opportunities for both. While small cell’s been a little funky from its timing of things closing, it continues to grow, thermal cooling on the DAC side doing the same thing. Those opportunities have been growing and growing and growing as we’ve reworked the offer. So, we start looking at next year, and even when I talk about growth next year, I’m not including massive numbers from small cell and DAC. Those would be adders to really anything we’re talking about today. When I start saying, hey, we expect next year to grow again, to get more specific on that, we’re hoping to have a little clearer sense of some items that are hanging out there right now that in Q4 we can talk about on our December call to give some more insight in what that could be from an adder, but I would categorize nearly all of those two product areas to be upside for us on annual sales.

[Operator Instructions] Next, we have Orin Hirschman with AIGH Investment Partners. Orin, your line is live.

HI. Thank you. I try to do a quick back of the envelope with the best data we can on estimates, but was there progress on the gross margin and the rest of the business, if you pull out the Micro business, it looks like there is...

Yes. There was organic margin growth on our legacy business, and then the adder of Microlab helps -- pushes up over that 30% number.

Okay, great. And what’s it really going to take in order for the cooling business to take off? It’s obviously a real problem. People are noting it. When does it become really, really -- really real?

Yes. Our expectation is during fiscal ‘23, we’re going to have some really real numbers to talk about and the contribution from it. We’re selling it now, it’s happening, even this week we’ve seen some pretty meaningful orders from a large carrier based on West Coast heat needs. Okay, cool. So, we’re seeing that happen. It’s not out of the question to have some things to talk about in the very short term around that. But these orders are in the tens or hundreds of thousands. We think that opportunity obviously is way larger than that as we start to break into some of the more nationwide footprint opportunities. But in ‘23, we’d be disappointed if there was not a material contribution from that business.

Okay, great. And that carries very good gross margins, correct?

It does. Yes.

Okay. Thanks so much.

Thanks, Orin.

[Operator Instructions] Okay. We have no further questions in queue at the moment. I’d like to turn the call back to management for closing remarks.

Thanks, John. Yes. I’ll make a final comment. That sounds good. So, thanks everyone for joining our call today. We appreciate your support of RF Industries. I’d like to thank our team for their hard work in helping us achieve these new levels of performance and our customers for allowing us to partner with them. We’re excited about our continued positive momentum as we move toward year end and the significant opportunities that lie ahead. Peter and I look forward to reporting our fiscal 2022 fourth quarter and full-year results in December. Thank you again. And have a great day.

Thank you. Ladies and gentlemen, this does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.