RF Industries' Q3 2025: Contradictions Emerge on DAC Revenue, Backlog Diversification, and Gross Margin Projections

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $19.8M, up 17.5% YOY and up 4.7% sequentially
• EPS: $0.04 per diluted share, compared to ($0.07) in the prior year
• Gross Margin: 34%, up 450 bps from 29.5% in the prior year
• Operating Margin: Approximately 3.6% (operating income of $0.72M on $19.8M revenue), versus an operating loss in the prior year

Guidance:

• Q4 FY25 net sales expected to be similar to Q3 (~$19.8M).
• Continued strength anticipated in small cell concealment, DAC thermal cooling, aerospace, venues, and broadband.
• Management expects gross margin to remain north of 30%, with variability based on mix.
• Monitoring tariff impacts and supply chain; inventory levels increased to mitigate risk.
• Backlog currently $16.1M after working through post-quarter shipments.
• Company aims to finish FY25 strong and carry momentum into 2026.

Business Commentary:

* Strong Financial Performance: - RF Industries Ltd reported a 17.5% year-over-year increase in net sales to $19.8 million in Q3 FY2025, with a 34% gross profit margin, a 450 basis point improvement from the previous year. - The improvement was driven by enhanced product mix, higher sales, and operational efficiencies.

• Diversification and Growth in New Markets:
• RF Industries expanded its reach into aerospace, transportation, and data centers, contributing to its sales pipeline.

• The diversification reduced reliance on traditional wireless carrier CapEx spending and led to an increase in sales from new, higher-value product lines.

• Increased Backlog and Bookings:

• The company ended Q3 with a backlog of $19.7 million on bookings of $24.5 million, demonstrating strong demand and future growth potential.

• The increase in backlog and bookings was attributed to a diverse range of new product lines and customers across multiple markets.

• Operational Efficiency and Margin Improvement:

• Adjusted EBITDA rose to 8% of net sales, reflecting operational efficiency and cost management.
• The improvement was driven by a combination of higher sales, a better product mix, and ongoing efforts to reduce costs and enhance operational efficiencies.

Sentiment Analysis:

• “Revenue grew 17.5% YOY to $19.8 million and 4.7% sequentially.” “Gross profit margin was 34%, a 450 bps improvement.” “Operating income was $720,000 vs an operating loss of $419,000 last year.” “Adjusted EBITDA was $1.6 million (8% of sales).” “Backlog stood at $19.7M; currently $16.1M.” “We expect fiscal fourth quarter net sales will be similar to Q3.” Management highlighted diversification and strong pipelines across aerospace, venues, DAC cooling, and broadband.

Q&A:

• Question from Matthew (B. Riley Securities): What drove the 34% gross margin—DAC thermal cooling and small cells or overall mix?
  Response: Higher mix of high-value products (DAC, small cells, aerospace) plus operating leverage from higher sales lifted margins.

• Question from Matthew (B. Riley Securities): Should Q4 gross margins be similar to Q3 given stable revenue, and how might this trend into FY26?
  Response: Mix can swing margins, but management expects margins north of 30%, potentially low-to-mid 30s, without committing to a specific figure.

• Question from Matthew (B. Riley Securities): How are bookings split between traditional wireless and newer markets like aerospace, transportation, and data centers?
  Response: Growth is diversified across markets, products, and customers, reducing concentration and adding marquee accounts alongside steady core business.

• Question from Matthew (B. Riley Securities): Timing for venue/Olympics/World Cup pipeline—meaningful bookings in early 2026 or sooner?
  Response: Sales cycles are long and multi-quarter; expect contributions into FY26 and beyond as large deployments phase in over several quarters.

• Question from Matthew (B. Riley Securities): Path to 10% EBITDA—mostly higher sales or more operational improvements?
  Response: Both: ongoing efficiency gains plus higher sales and favorable mix; better predictability aids supply-chain efficiencies to reach 10%.