RF Industries' Backlog Seasonality and Margin Sustainability Claims Clash in 2026 Q1 Earnings Call

Date of Call: Mar 16, 2026

Financials Results

• Revenue: $19 million, relatively flat year-over-year ($19.2M prior year), down 16% sequentially from $22.7M
• EPS: GAAP: $0.00 per diluted share (vs. net loss of $0.02 prior year); Non-GAAP: $0.06 per diluted share (vs. $0.04 prior year)
• Gross Margin: 32.3%, up 250 basis points year-over-year from 29.8%
• Operating Margin: 0.9% (Operating income of $177,000 on $19M sales), up from $56,000 prior year

Guidance:

• Revenue growth expected to accelerate through the back half of the year, similar to the trajectory seen in fiscal 2025.
• Expect acceleration in Q2 vs. Q1, continuing thereafter.

Business Commentary:

Revenue and Profitability:

• RF Industries reported net sales of $19 million for Q1 2026, slightly below the previous year's record quarter but with increased diversity in products, customers, and end markets.
• Gross margin improved by 250 basis points to 32.3%, and operating income tripled to $177,000 compared to Q1 2025.
• The profitability expansion was driven by a diversified sales base, operational leverage, and a capital-light approach that allowed scaling without significant overhead or CapEx increases.

Backlog and Growth Expectations:

• The company's backlog increased to $18.6 million, up over $6 million since the last report, indicating strong order flow.
• Management expects revenue growth to accelerate in the back half of the year, supported by the backlog and diversification across markets.
• The backlog growth was fueled by new opportunities in various sectors, including integrated systems, custom cabling, and new end markets like edge data centers.

Gross Margin Sustainability:

• Gross margin improved to 32.3%, with expectations for it to remain durable.
• The improvement was attributed to effective pricing strategies, product mix, and operational efficiencies.
• Higher sales volumes and better cost control are expected to sustain the margins above 30%.

Product and Market Diversification:

• RF Industries saw strong performance in the Custom Cable segment, which helped offset delays in integrated systems.
• The company is expanding into new verticals such as wireline, cable, and edge data centers, reducing reliance on cyclical CapEx spending.
• This diversification is a strategic effort to broaden the addressable market and mitigate concentration risks.

Operational and Supply Chain Strength:

• The company strengthened its supply chain with redundant manufacturing sources, both domestic and international.
• This strategic diversification allows for flexibility in scaling production without significant overhead costs.
• Steps were taken to mitigate tariff risks and reduce single-source dependencies, enhancing operational resilience.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'I'm pleased to report that we're off to a great start in fiscal 2026.' CFO said: 'Overall, we are excited to start fiscal 2026 with an upbeat quarter that builds upon the operational momentum...' Management highlighted 'meaningful expansion in profitability,' a 250 bps gross margin improvement, tripled operating income, and a significant backlog increase of over $6 million.

Q&A:

• Question from Matthew Maus (B. Riley Securities): How are you thinking about the full year growth trajectory for fiscal '26? And where do you see the meaningful drivers?
  Response: Expect similar quarter-to-quarter movement as last year, with acceleration through the year, driven by a diversified product base that smooths seasonality.

• Question from Matthew Maus (B. Riley Securities): Gross margin came in especially strong this quarter. How durable are the factors driving that improvement?
  Response: Margin drivers are seen as sustainable, supported by strong pricing, product mix, and operating leverage, with higher sales further improving margins.

• Question from Matthew Maus (B. Riley Securities): Can you give an idea on the composition of the backlog and what's driving most of that replenishment?
  Response: Backlog increase driven by a healthy mix across integrated systems and custom cabling, including small cell, DAC thermal cooling, and aerospace/industrial applications.

• Question from Matthew Maus (B. Riley Securities): Any update on DAC thermal cooling progress, specifically the NEMA 4 product?
  Response: DAC thermal cooling is seeing significant growth and customer interest, with installations and trials in edge data centers showing strong performance and expected to be a meaningful growth part in coming years.

Contradiction Point 1

Backlog Level and Seasonality Outlook

Contradictory statements on Q1 backlog levels and the seasonal pattern affecting it impact expectations for business continuity and revenue recognition.

Matthew Maus (B. Riley Securities, Inc.) - Matthew Maus (B. Riley Securities, Inc.)

2026Q1: The backlog increase is healthy... It includes significant orders across four product lines... This mix supports confidence in future growth. - Robert Dawson(CEO)

What is the composition of the backlog and what factors are driving most of the replenishment, particularly post-quarter? - Howard Root (Private Investor)

20260115-2025 Q4: Backlog is expected to hit a low in Q1 and then rebuild as project budgets are finalized. - Robert Dawson(CEO)

Contradiction Point 2

Gross Margin Sustainability

Conflicting guidance on the sustainability and drivers of high gross margins creates uncertainty about future profitability and financial health.

Matthew Maus (B. Riley Securities, Inc.) - Matthew Maus (B. Riley Securities, Inc.)

2026Q1: The factors driving strong gross margins... are durable... The company sees no reason why margins above 30% should not be sustained... especially as sales increase. - Robert Dawson(CEO)

How durable are the factors driving the strong gross margin improvement, and how will they impact performance for the rest of the year? - Steve Kohl (Mangrove)

20260115-2025 Q4: A combination of product/solution mix and operating leverage... Even with the same mix, higher sales volume would improve margins, though not necessarily to 37%. - Robert Dawson(CEO)

Contradiction Point 3

Growth Drivers and Backlog Composition

Inconsistent characterization of the primary drivers for growth and backlog increases affects understanding of the company's core strengths and future growth areas.

Matthew Maus (B. Riley Securities, Inc.) - Matthew Maus (B. Riley Securities, Inc.)

2026Q1: The backlog increase is healthy and diversified. It includes significant orders across four product lines: integrated systems (e.g., small cell configurations), custom cabling (e.g., for aerospace and industrial markets), and new applications in edge data centers and cable markets. - Robert Dawson(CEO)

What is the composition of the backlog and what factors are driving replenishment, especially after the quarter? - Matthew Maus (B. Riley Securities, Inc.)

2025Q3: Strength is coming from a diverse set of customers and product lines across all mentioned markets. This diversification is a key positive trend... on top of the core business. - Robert Dawson(CEO)

Contradiction Point 4

Outlook on Credit Facility Refinancing

The timing for refinancing is projected later in 2026Q1 than previously stated, which could affect the company's financial flexibility and cost structure.

Matthew Maus (B. Riley Securities, Inc.) - Matthew Maus (B. Riley Securities, Inc.)

2026Q1: DAC thermal cooling systems are seeing significant growth and increasing interest. The NEMA 4 product and other versions are performing well in trials and installations... This is expected to be a meaningful part of growth in the coming years. - Robert Dawson(CEO)

Is there an update on customer interest in the NEMA 4 product for DAC thermal cooling? - Steven Kohl (Mangrove)

2025Q2: A refinancing is expected to be finalized in Q3, or at the latest by year-end. - Peter Yin(CFO)

Contradiction Point 5

Backlog Composition and Growth Drivers

The 2026Q1 call highlights new growth drivers not mentioned in 2025Q2, indicating a shift in the company's growth strategy and market focus.

Matthew Maus (B. Riley Securities, Inc.) - Matthew Maus (B. Riley Securities, Inc.)

2026Q1: The backlog increase is healthy and diversified. It includes significant orders across four product lines: integrated systems (e.g., small cell configurations), custom cabling (e.g., for aerospace and industrial markets), and new applications in edge data centers and cable markets. - Robert Dawson(CEO)

What is the composition of the backlog and what factors are driving replenishment, particularly post-quarter? - Matthew Maus (B. Riley)

2025Q2: The backlog growth is due to several orders across different product lines... The backlog is a good health indicator... Additional 'book and ship' sales are not in backlog but also material. - Robert Dawson(CEO)