Q4 2025 Earnings Call: Contradictions Emerge on Gross Margin Trajectory, Profitability Drivers, and Refinancing Timelines

Date of Call: Jan 14, 2026

Financials Results

• Revenue: Q4: $22.7M, up 23% YOY and 15% sequentially. Full Year: $80.6M, up 24% YOY.
• EPS: Q4: GAAP $0.02 per diluted share vs loss of $0.02 YOY; Non-GAAP $0.20 per diluted share vs $0.04 YOY. Full Year: GAAP $0.01 per diluted share vs loss of $0.63 YOY; Non-GAAP $0.40 per diluted share vs loss of $0.09 YOY.
• Gross Margin: Q4: 37%, up 600 bps YOY. Full Year: 33%, up 400 bps YOY.
• Operating Margin: Q4: Operating income $903,000 vs $96,000 YOY. Full Year: Operating income $1.8M vs loss of $2.8M YOY.

Business Commentary:

Revenue and Profitability Growth:

• RF Industries reported net sales of $22.7 million for Q4, up 23% year-over-year, and $80.6 million for the full fiscal year 2025, an increase of 24% compared to fiscal 2024.
• The company's gross profit margin increased to 37% from 31% year-over-year in Q4, and adjusted EBITDA was 11.5% of net sales, above the target of 10%.
• The growth was driven by strategic transformation, strong sales growth, favorable product mix, and operational leverage.

Diversification of End Markets:

• RF Industries has seen a shift in revenue distribution, with wireless and telecom market share decreasing from 70% to about 50%, while transportation, aerospace, and defense, and industrial markets are contributing more significantly.
• This diversification is attributed to innovation in product applications into new end markets and engaging new customers to mitigate risk concentration.

Operational Excellence and Cost Management:

• The company reported a significant reduction in net debt by $4.6 million compared to last year, with improved liquidity and reduced inventory levels.
• Operational excellence was achieved through disciplined cost reduction initiatives, improved forecast accuracy, and better inventory management.

Backlog and Seasonality:

• The backlog stood at $15.5 million on bookings of $18.5 million as of October 31, 2025, and is expected to follow normal seasonal patterns, with Q1 typically being the lowest quarter.
• Seasonal fluctuations and timing of shipments impact the backlog, but the company expects to accelerate growth throughout the fiscal year.

Strategic Partnerships and New Opportunities:

• RF Industries is expanding its value proposition with channel partners and has partnered with a major manufacturer for thermal cooling systems, opening new opportunities in edge data center installations.
• These partnerships are aimed at leveraging RFI's product approvals and technological expertise to penetrate new markets and drive sustainable growth.

Sentiment Analysis:

Overall Tone: Positive

• CEO states 'fiscal ’25 felt like a breakout year for RFI' and 'Our goal is to prove what our operating model is capable of producing.' CFO adds 'We enter fiscal 2026 with strong momentum, and we are optimistic about the future.'

Q&A:

• Question from Matthew Maus (B. Riley Securities, Inc., Research Division): How should we think about the growth trajectory for fiscal ’26, especially now that rolls through the first quarter of your fiscal ’26? So I'm just wondering how things are tracking?
  Response: Expect another year of growth with a trajectory similar to fiscal ’25, starting from a Q1 platform that is seasonally low before accelerating through the year.

• Question from Matthew Maus (B. Riley Securities, Inc., Research Division): Can you break down how much of the gross margin expansion was mix versus operating leverage or pricing?
  Response: Combination of product/solution mix and higher sales volumes driving significant operating leverage as fixed costs are absorbed.

• Question from Matthew Maus (B. Riley Securities, Inc., Research Division): Is there sort of like a new target that you think you can hit for EBITDA margin?
  Response: No specific new target; goal is to keep profitability above the 10% threshold achieved in Q4 despite cost increases and sales growth.

• Question from Matthew Maus (B. Riley Securities, Inc., Research Division): Can you expand on those cost increases you mentioned? And how much of those increases do you think can be mitigated with new products and solutions?
  Response: Nominal increases in labor and benefits; managed through pricing and, more importantly, by overcoming them with better sales and product mix.

• Question from Matthew Maus (B. Riley Securities, Inc., Research Division): Can you maybe give us, in terms of those new products and solutions, like maybe a couple that you think are going to be the most impactful this year?
  Response: Integrated systems (DAC, small cell), custom cabling for aerospace/defense, and legacy product lines are key contributors expected to drive growth.

• Question from Unknown Analyst (Howard Root, private investor): Can you give a quick explanation of what those were [income taxes and noncash onetime charges] in the fourth quarter?... what's your tax rate going forward?
  Response: Tax related to a valuation allowance; forward tax rate likely in the mid-20s. Noncash items relate to an accrual for a settlement, not part of tax provision.

• Question from Unknown Analyst (Howard Root, private investor): Could you put some numbers around on what percentage of your revenue is coming from transportation, aerospace, stadium, data centers vs. telecommunications?
  Response: Approximately half of sales now come from telecom/wireless, down from ~70% historically; the other half comes from transportation, aerospace, defense, industrial, and other OEM/public safety markets.

• Question from Unknown Analyst (Howard Root, private investor): In the backlog, just to kind of explain what part of that is seasonal... what part of that might be from the transformation of the business?
  Response: Backlog drop is due to normal seasonal booking patterns and intentional efforts to move older backlog out the door; expects it to hit a low in Q1 then rebuild as project budgets finalize.

• Question from Steven Kohl (Mangrove): How is [net debt reduction] changing our priorities on capital allocation?... Has the thought changed at all on that? Or what is the thinking today on capital allocation?
  Response: Priority remains paying down net debt; M&A and other shareholder returns are considered but secondary unless a strategic acquisition opportunity arises.

• Question from Steven Kohl (Mangrove): How much of the improvement of margins coming on the book to inside versus just volume running through the plant?
  Response: Both better product mix and higher sales volumes contribute; significant margin improvement can come from sales growth alone even with historical mix.

• Question from Steven Kohl (Mangrove): Are we seeing... how is the regulatory landscape [for public safety] changed? Is this still a local thing?... is that market becoming more lucrative?
  Response: Market remains fragmented with localized ordinances that are hard to enforce; opportunity exists in new building construction but overall decision-making environment is challenging.

Contradiction Point 1

Expected Gross Margin Trajectory

Guidance on near-term gross margin consistency versus room for fluctuation.

What is the growth trajectory for fiscal '26? - Matthew Maus (B. Riley Securities, Inc.)

2025Q4: The expectation for fiscal '26 is another year of growth... Profitability is expected to accelerate throughout the year... - Robert Dawson(CEO)

Will Q4 gross margins be similar to Q3, and how might they evolve in fiscal 2026? - Matthew Maus (B. Riley Securities, Inc.)

2025Q3: Margins can fluctuate quarter-to-quarter due to minor sales variations. The company expects to consistently operate above 30% gross margin. - Robert Dawson(CEO)

Contradiction Point 2

Factors Driving Profitability

Emphasis on mix versus volume as the primary driver for reaching margin targets.

What portion of the 37% gross margin expansion was due to mix, operating leverage, or pricing? - Matthew Maus (B. Riley Securities, Inc.)

2025Q4: The improvement is a combination of product/solution mix... and operating leverage. A key factor is sales exceeding $20 million per quarter... - Robert Dawson(CEO)

Achieving an 8% EBITDA margin with revenue near $20 million, can you explain the bridge to your 10% target? - Matthew Maus (B. Riley Securities, Inc.)

2025Q3: The path to 10% EBITDA involves a mix of higher sales volumes and ongoing operational improvements... a more predictable product mix... - Robert Dawson(CEO)

Contradiction Point 3

Refinancing Credit Facility Timeline

Inconsistent statements on when the new credit facility will be finalized.

What was the reduction in the interest rate for the new revolving credit facility? - Unknown Analyst (Private Investor)

2025Q4: The refinancing is expected to result in at least $0.5 million in interest savings for the next year. - Peter Yin(CFO)

Can you provide details on the timing and expected savings impact of the credit facility? - Steven Kohl (Mangrove)

2025Q2: The company expects to finalize a new credit facility agreement in Q3 fiscal 2025, with certainty by year-end. - Peter Yin(CFO)

Contradiction Point 4

Backlog Health and Management

Inconsistent characterization of backlog levels as a health indicator.

What caused the seasonal Q3 to Q4 backlog drop and the $18.5 million Q4 bookings? - Unknown Analyst (Private Investor)

2025Q4: Backlog is a health indicator... The $18.5 million bookings in Q4 were around plan... The overall pipeline remains very healthy. - Robert Dawson(CEO)

What's the status of the lower-margin hybrid product backlog for the remainder of the year? - Matthew [Moss] (B. Riley)

2025Q1: A backlog between $10-20 million is considered healthy and provides visibility, but it is not the only indicator of success. - Robert Dawson(CEO)

Contradiction Point 5

Capital Allocation Priorities

Shift in stated priority for using cash from debt paydown to potential share buybacks/acquisitions.

How is the reduction in net debt to ~$3 million affecting capital allocation priorities, particularly regarding share buybacks, acquisitions, or dividends? - Steven Kohl (Mangrove)

2025Q4: The current priority is to pay down net debt further. Acquisitions are possible if a strategic opportunity arises, but the focus is on debt service and improving the balance sheet. - Robert Dawson(CEO)

What are the cash flow and debt paydown expectations this year? - Steven Kohl (Mangrove)

2025Q1: As performance improves, cash on hand will build. The company will then look to take advantage of that improved performance by seeking cheaper financing alternatives. - Peter Yin(CFO)