RF Industries, Ltd.

Greetings. Welcome to the RF Industries Second Quarter Fiscal 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jim Byers of MKR Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon. and welcome to RF Industries' second quarter fiscal 2021 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 second quarter fiscal 2021 financial results. That release is available on the company's website at RFIndustries.com. This call is 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 the 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 of 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 and 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 described the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release. Now, with that said, I'll turn the conference over to Rob Dawson, President and CEO. Rob?

Thank you, Jim. Good afternoon, everyone. Welcome to our second quarter fiscal 2021 earnings conference call. I'd like to start with a brief review of our second quarter results and discuss what we're seeing now and expect going forward before turning the call over to Peter to give more commentary on the financials. We're pleased to report sequential growth in both sales and profits in the second quarter. Sales for the fiscal second quarter came in just above $11 million, a sequential increase of 11% over the first quarter and up 6% from the prior year second quarter. We're starting to see signs of recovery in the wireless carrier ecosystem spend, as evidenced by the two sizable orders we received over the past couple of months, which brought our backlog to nearly $24 million at one point last month, the highest in the company's history. Not all this backlog will ship immediately, but it certainly supports our expectations for a strong back half of the year. These two multimillion-dollar orders at our Cables Unlimited division in Long Island were for our OptiFlex hybrid fiber solution for use in the build-out of wireless tower sites and came from a new Tier 1 wireless carrier customer we had never done direct business with before. These orders represent a significant win for us and highlight the increasing demand for our product offerings as wireless carriers accelerate their 5G build out and the related network densification. As I've noted before, significant project wins like this, layered on top of our higher run rate through both our core OEM customers and our strong distribution partners, give us confidence that our combined product platform is a springboard for future revenue growth. Historically, we've had just one Tier 1 customer on the hybrid side, so we're very pleased to add a second. As we've noted before, our OptiFlex hybrid fiber solution has been one of the key components of our growth in the last few years. These solutions underscore our capabilities in supporting carrier tower site builds, and we feel that along with our small cell and DAC thermal cooling solutions, we're building a more complete set of products for the wireless carrier market. We've developed a strong reputation in the market. Our ability to deliver is great, and we continue to build on this proven track record. We are a strong and reliable vendor for any carrier, and the market is recognizing this more and more. We now have product of various types actively shipping into every wireless Tier 1 carrier's network. We're doing business on one product or another, or multiple products, with every one of the companies in the wireless Tier 1 ecosystem. Much of that product will go through our distribution partners, or it might go direct, and to some we're selling various product types through both channels. Looking at our product areas and market segments, our distribution business remains solid. Our RF coaxial cable and connector products and our C-Enterprise's fast-turn fiber products together make up our primary offer sold through distribution. As I've noted before, during the past few years, we've successfully strengthened and increased distribution channels, and this business continues to provide a solid, increasing baseline of sales. As the business climate continues to improve, particularly around tower and general technical crews being able to get out and do work on both outdoor and indoor sites, we expect our distribution business will continue to grow. Moving on to small cell, nothing has changed. Small cell is still a huge opportunity, which we expect will increase sales in the second half of the year and beyond. spending is beginning to slowly improve, definitely more than where it was six or nine months ago. But we still have not seen it unlock like we're starting to see on the macro side with things like hybrid fiber. Part of the delay in small cell spend has been the carriers reexamining their deployment plans due to certain performance issues and a new spectrum from the C-band auctions. But these seem to have come down to tweaks and designs. We believe that the recent C-band auction the spend related to the C-Bend auction is going to drive the need for infrastructure to make it all work, and that a significant increase in spend is not a matter of if, but rather a matter of when. And with both our offer and our customer relationships, we are more strongly positioned now for long-term growth once the widespread rollout does occur. Our sales activities continue to increase, and we have a strong backlog of small-sell orders. We have product actively shipping to anyone who's deploying small cells, as well as ongoing discussions regarding future deployments. So as spend normalizes and increases like it's going to do, we can scale rapidly once the carriers are ready and we believe we're well positioned to benefit. In addition to the substantial opportunity we see within small cell, we see a significant opportunity for our DAC thermal cooling offering, which plays in both traditional wireline and wireless carriers. as well as in market segments like cable operators and mobile edge computing providers. Our thermal cooling solutions enable us to offer a definitive value proposition centered around a better design and clear cost and energy savings. And it's allowing us to initiate a different kind of sales conversation with a new set of customers. We've discussed and quoted some major potential projects and some significant upgrades that we think are going to start to break free in the coming handful of quarters. We believe these are going to have to happen around the 5G spend and will likely come in waves as more and more new or replacement equipment is added to sites. To give an example of these discussions, we've been in conversations with a company that has a wireless coverage footprint that is not cellular, but more like broadband for high-speed connectivity. This customer reached out to us seeking a unique DAC cooling solution for their rooftop sites, which would potentially represent a multimillion-dollar opportunity. This one example shows how our DAC products can go beyond the traditional carriers and open opportunities with new kinds of companies, like cable MSOs and utilities. We believe we're going to see DAC begin to gain momentum in the coming quarters, and we feel very good about the opportunities for this product, both in the carrier space and in all these alternative markets. One final point on the recovery in our markets. Our industrial OEM and defense customers, which are primarily serviced out of our Northeast facilities, are returning to more normalized levels, and we anticipate sales expansion in these segments. This again is part of our increasing baseline of revenue that we can build on top of with large long-term project wins. Turning to M&A, as I've said before, we're committed to driving consolidation in our industry, and our plan is to make an acquisition of a much more meaningful size. As we announced during the quarter, we've set up a board committee specifically focused on helping our M&A strategy. and we remain committed to M&A activity this year. We continue to add to a growing pipeline of potential candidates, and while I have no specific update to share today, there's certainly no shortage of conversations going on. So to conclude, it looks like the world is getting back to some normalcy here, and we expect the wireless carrier spend to continue to recover and grow. We see a growing opportunity to expand further into this market with our hybrid fiber, small cell, and DAC offerings, all of which give us a strong foundation for growth going forward on top of our core run rate product lines. We believe we're getting back to normal sequential growth, and with our strong existing backlog and solid pipeline of opportunities, we feel confident that we will return to year-over-year revenue growth in fiscal 21. While it's tough to predict timing on certain larger orders and the related fulfillment, with what we know today, we expect to see a steady increase over the back half of the year, with continued sequential revenue growth in both Q3 and Q4. With that, I'll now turn the call over to Peter for a review and discussion of the financial results for the quarter. Peter?

Thank you, Rob, and good afternoon, everyone. In Q2, we started to see increased demand and positive momentum as business activity in our markets is starting to return to more normal levels. Sales in the second quarter at $11.1 million were up 11% sequentially, and up 6% year over year. The increase is primarily related to the project revenue from the Tier 1 carrier customer for our hybrid fiber cable offering. As we noted in our earnings press release, our second quarter financial results include the impact of the loan forgiveness we received from the Paycheck Protection Program of $2.8 million and $2.6 million in employee retention credits. Of the $2.6 million in employee retention credit that we recognized, $1.77 million of this credit positively impacted our cost of goods sold as they related to our production workforce, and the remaining $873,000 fell to our G&A line. We do expect to receive another $800,000 in employee retention credits that will have a positive impact in the current third quarter. Gross margin for Q2 was 43%, which includes the positive impact of the employee retention credits recognized in the quarter, as mentioned earlier. Excluding the impact of the tax credits, gross profit margin was 27%, which is up 100 basis points from 26% in the preceding first quarter. This sequential improvement is a result of the increase in sales of $1 million as compared to Q1 and having certain costs being spread over a higher sales number and are continuing to do a good job operationally to manage our expenses. Rather than continue to go through all the comparisons one by one, whether looking at net income, EPS, or adjusted EBITDA, the primary reason for the increase in each of these comparisons can be explained by the positive impact of the employee retention credit and the forgiveness of the PPP loans that was recognized in the second quarter. Even without the impact of the ERC and PPP loans, we see positive trends in Q1 versus Q2. As an example, our operating income was $42,000 in Q2 without the impact of the ERC and PPP loan forgiveness versus operating loss of $589,000 in Q1. Our balance sheet remained strong and included cash and cash equivalents of $14.8 million and working capital of just over $29 million at the end of the quarter. The cash balance here does not yet include the majority of the ERC credit, which we have recognized during the quarter from a P&L perspective. The receivable related to the ERC is included as part of our other current assets, which represents $2.4 million. Looking ahead, we are better positioned in the marketplace today than we have ever been. We are starting to see momentum build around new business as evidenced by our improved bookings and growth in our backlog in the quarter. At the end of Q2, backlog was $15.6 million on second quarter bookings of $19.6 million. This is up from $7.1 million in backlog last quarter. Since quarter end, our backlog has continued to build and as of today, currently stands at $22.8 million. we are seeing our overall sales pipeline continue to build in nearly all areas, which gives us confidence that these things are getting better. With what we know today, we are expecting sequential growth in the third quarter over Q2, and we also expect our fourth quarter to grow sequentially over Q3, with a return to year-over-year revenue growth for our full fiscal 2021 year. This concludes my discussion. Operator, We are ready to take our first question.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we poll for questions. Our first question is from Aman Gulani of B. Reilly Securities.

Please state your question.

Hey, guys. Thanks for taking my question, and congratulations on the hybrid fiber orders. Really good to see those starting to flow in. I wanted to ask about the hybrid fiber first. So, what's the expectation for gross margins going forward, maybe in the in the back half of the year and then into next year with some of these hybrid fibers to your tower customers?

Yeah, I think so. Appreciate that, Aman. Thanks for the question. I think there's two things probably in there that are important. One is that the profile of margins on that specific product line won't be drastically different kind of than our blended margins. The way we've been flowing, there is a wild card in there, which is we've got everyone in the world experiencing same kinds of supply chain stuff. We're handling that pretty well, but also the price of copper is something to keep an eye on within that. We don't expect a significant change to our margin profile based on that, but when you add that product line to the rest of our mix, we still expect the same kinds of improving gross margins as we've been As we've been talking about, up into the high 20s, trying to get to 30, and we think with a better mix over the next year plus, some of the higher margin stuff, we can push up into the 30s. But I think the summary is that product line will be different almost cable to cable. There's different lengths. There's different breakouts within them. A longer cable may have a lower gross margin percentage. There's a lot of moving parts in there. But in general, we expect it to be right in line kind of with our overall corporate margins.

Okay, that's helpful. Thanks. And in terms of inflation, you mentioned copper prices are increasing. Are you able to pass those prices increases on to your customers?

Yeah, so really the place that we see that as an impact is more on the hybrid side than almost anywhere else. I mean, we have copper involved in a whole bunch of different products that we sell. Most of those, it's a smaller amount. The hybrid fiber have a really significant piece of multiple pieces of copper in each one of those cables. And I think our team did a really good job going into this potential piece of business of quoting fair prices and making sure we were taking into account the variability of of how copper was shaking out. Part of the discussion there is making sure we place orders early enough to lock in some real pricing. I don't anticipate that we're going to have to revisit customer conversations necessarily around pricing. I think we've given fair pricing that takes into account the price of copper. Where we need to take increases on some other product lines, we're always reviewing that. That's part of our standard standard operating, uh, practice. I don't think we're going to see significant increases, but, um, we've taken some price increases over the last couple of quarters in, in different pockets of our business as it is to try to, you know, overcome some of those price increases that are cost increases, I should say that we're experiencing.

Got it. That's helpful. And then, um, good to see that you got another tier one, uh, wireless, uh, customer. Um, what's that sort of expectation, uh, from that customer? Do you expect to receive more orders from that customer maybe later this year or into next year?

Yes, I think that the short answer is I don't know. The slightly longer answer is we certainly, there have not been enough orders placed for that customer to build the network that they're talking about. I mean, our infrastructure would require significantly more of that product type to build out the infrastructure they want to build. And we know we're one of multiple suppliers. We think it's really on us to perform, which we've been doing. And we believe if we keep performing and we're happy that we're receiving these size orders, but our team is very focused on making sure we can get things out the door in the right time frame to make the customer happy. And we're hopeful that that will lead to more future orders. We don't have definitive knowledge of what that might look like, but that's pretty standard. Having been through three or four major build cycles, that's kind of how it goes. You get some orders, you need to perform to have the opportunity to keep getting them, and the better you do, the better chance you have for more upside. So we're hopeful on that, but as soon as we know, obviously we'll let the world know, but at the moment we're fulfilling the ones that we have over the next several months and are hopeful we can get some more. Excellent.

Okay. And this last question for me, any updates on DAS deployments? I know your large distribution customer, Tesco, is seeing a bit of a ramp in their DAS backlog. Are you seeing something similar in terms of DAS deployments?

Yeah. So I think, you know, the standard deployment distributed antenna system stuff in normal sized buildings has started to come back here and there. I think the ones that really make a dent in a backlog or have a bigger impact are stadiums and large venues. We have seen a couple of stadiums come back. They were projects that were slated to happen in, I'll call it late spring last year, that obviously stopped during the craziness that we all fought through there. So we're seeing some of those come back. There's a couple of them that have already, some orders have been placed, and we've benefited from some of those in our bookings. The full impact of all the stadiums and large venues coming back, we haven't seen all those yet, but I certainly think we're on the verge, especially as various sports seasons end. The traditional way to build one of those networks is when there's not people in the stadium every day. We're happy to see people showing up in stadiums again. I think we're seeing full stadiums in a lot of locations in multiple sports. But I think as we go into the fall NFL season and then, you know, as baseball wraps up in the fall, also basketball is wrapping up here in the next month or so, I think we expect to see some of those stadium venues come back, which will certainly have an impact on us too.

Thank you, gentlemen. I'll pass it on. Thanks, Amon.

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for additional questions. Our next question is from Hal Granger of Great Quarter Research. Please state your question.

Hi, Rob and Peter. Congratulations on a lot of good things going on at the company.

I see your stock in after-hours trading is trading up, suggesting that the market likes what they're seeing in your release.

That's good. Thanks, Al. Appreciate that.

I had a question about your acquisitions going forward. Are there certain areas you're looking at? Are you looking to add to existing capabilities? Are you looking for additional capabilities? What are you thinking along those lines?

I appreciate the question, Hal. I think probably two things to that. Sticking with kind of things that I've stated in the past, we like passive components, so things that help fill out a bill of materials in the project areas and solution areas where we do work today. So opportunities to fill in those gaps, things like power, antennas, cabinets, enclosures, all areas that we benefit from in selling our solutions today, and it may make sense for us to have a little more vertical control over that supply chain. So I think that's one. The other piece is we really like our distribution channels also, and so products that are distribution friendly and can help us gain some more share or some more access into our distribution customers and their customer bases are certainly things that we're looking for. With that said, I'm never going to turn down a good deal on a cable assembly manufacturing scenario, but I feel like we've generally covered... From a cable assembly perspective, we kind of have the complete offer that we need today. There may be a couple of pockets here or there that I would look at, but I think we're showing our organic growth on the cable assembly side, whether it's fiber, copper, coax, investing there to help grow that. That's generally not a place that I'm looking at acquisitions, though I do see a lot in that space, and there may be one that turns our head at some point. But as of today, it's kind of filling in other areas of the solutions.

Okay, thanks. What size are you looking at in terms of revenues of acquisitions?

Yeah, so I think we'd like to go larger than what we've done in the past. Doing deals in the $5, $6, $7, $8 million in sales levels, it's hard to find synergies there, number one. And number two, we're sitting on a balance sheet with $15-plus million in cash with more expected in coming quarters. So I think when we look at that, we're focused more in the $20 million to $30 million in sales kind of range. We think that's a realistic size for us and nicely accretive to current sales levels and the improvement we have going on. We've got to get on the market and get some more scale to get out of some of the noise that happens when you're putting up sales numbers like this. It's nice to get back to organic growth, and that's terrific. we'd like to step that up a little bit. And look, if we find something creative and interesting and different that's out there that falls even beyond those guidelines, that's great. I think our opportunity is huge with the balance sheet that we're sitting on right now.

Okay, thanks. Let me ask a question that's maybe a little more difficult, and that is incentive compensation. Can you talk about, sorry, no, that's a board consideration as far as incentive for you two, Rob and Peter. But can you talk about the incentive compensation philosophy and then what, here's an even more difficult question, what it might be prospectively in the future, because you've had some additions to the board?

Sure, I'll take a stab at that as best I can. I think that the, From an incentive comp perspective, I feel like we put together a budget that we think is aligned with what shareholders would want to see, and we are measured against that. There's a mix of revenue expectations, but most of it is on profitability and EBITDA expectations. Peter and I and the rest of the leadership team are tied to the same kinds of expectations that we want to put out from an earnings per share and a profitability perspective for shareholders. It is right in line with that, whether that's cash and or equity. Those things are aligned perfectly with what we think are the right values for our shareholders in returning growth. As far as future looking, I don't think that's going to change. I'm not someone that fights against having goals and then needing to achieve them to once you hit those milestones, you get paid. If you don't, you don't get paid. I mean, that's as simple as that. I'm a recovering sales guy, so I still function very much with a goal-based kind of scenario, and our entire team is built around that, and the entire structure of the incentive comp is built around that.

Great. Thanks very much. Thank you, Al.

Our next question is from John Fixhorn of Dialectic Capital. Please state your question.

Yeah. Hi, guys. Thanks for the time and nice quarter. A couple of questions. First, what's the duration of the $22.8 million in backlog, roughly? And are there any components or anything in the supply chain shortage that holds up that shipment that you're concerned about?

Yeah. Hey, John. Thanks for the questions. Two things. As far as how long that backlog is going to last, I mean, short answer is we don't specifically know. We certainly think it will be drawn against over the next, you know, two to three quarters, probably more like three quarters, so we start to get into the end of the calendar year and maybe even into the beginning of next calendar year. That can change. I think we've seen that in the past with our results, that a customer can draw in and or push out expectation on delivery of those orders, but... Kind of what we see today, we think there's another, you know, call it three-quarters-ish worth of shipment time. Could be a little more, depending on how that goes. The supply chain side of it, the one piece of it we talked a little bit about is copper. You know, we can procure copper. We just got to make sure we control pricing on that and keep it under control, which I think we've done. And then, you know, some of the pre-finishing work on the hybrids in particular is done by outside partners. So making sure that we're placing orders on them for the right volume, quantity, specific styles, staying ahead of that. I think the other team, Long Island has been doing a great job of staying ahead of that and making sure that we're in line where we need to be, getting the orders that we need to. We haven't seen massive supply chain issues, but I think the entire world, especially in materials like this, are seeing delays. So, you know, we're seeing a week here, a week there. Nothing that at this point says we can't meet the timeline of the next, you know, three-ish quarters for the customer to draw against that, though.

So that backlog, though, primarily is driven by customer demand on timing, not your inability to ship.

That's right. Yeah, and we've been performing very well for this customer and, frankly, for all of our customers. But in this case, for this specific customer, we've been performing very well within the guidelines of what they expect, and we think that's going to continue.

Okay. And kind of with the growing backlog, it would seem to me like you might have – kind of a higher level of ability to guide. And your guidance still seems kind of vague, right? It's directional. Yeah, it's got some year-over-year growth. But can you give us any more specifics, either about how you feel on the next quarter, the shape of the rest of the fiscal year, or why you're uncomfortable doing that? I'll take any of them.

Yeah, sure. So the why I'm uncomfortable part really comes down to timing. We've been burned both in a good and a bad way in the past around saying specific, the next quarter we're going to see X. We had a $20 million quarter in our second quarter of 2018, and that is not at all where we expected it to be when we had the call and gave guidance. It ended up being significantly higher, and then the next quarter after that was lower than expected because we had taken so much that we thought was going to go in that quarter and pulled it forward. We try to give, I think, as much helpful directional guidance as we can. Last year, we did low $40 million in sales. We certainly expect to exceed that, even though we're sitting at $21 million through two quarters. Again, that's very general kinds of things, but we're expecting Q3 sales to ramp from Q2 and Q4 to ramp from Q3, where we get back to some pretty significant year-over-year growth. That, coupled with the idea that how much of this backlog is going to go out the door and kind of what we've established as a base run rate. I mean, last year's results of 43 million, whatever it was, it's not going to be worse than that, right? That was the worst operating environment we've experienced. So you start layering in these growth quarters of another few million bucks in Q3, another few million bucks on top of that in Q4. I have a hard time saying exactly what that number will be, but when we kind of look at it, we're thinking, oh, okay, so what do we do, 13 in Q3 and 15 in Q4? Those are the kinds of ways that we look at the numbers.

Okay. And are there a couple of kind of long shot upsides out there that you're shooting for that might come in that you haven't kind of worked into your budget? Like do you have some maybe even not so long shot? Just talk to us about what the upsides and also downside risk potentials, if there's some of those that keep you awake at night.

Sure. Yeah, I think we're coming off some comps that are pretty bad from last year. The numbers got really rough in the middle of the year. So when we look at downside risk, I don't see much. I think more from we get through the rest of this fiscal year, it starts to become how do we grow off to a considerably bigger number Next year, there's not downside risk to that, but it's where are those numbers going to come from. If I look at our pipeline in general and some of the opportunities we have, whether it's DAC or small cell or even some other OEM customers that we're doing some work for, we have, I don't know, a dozen multimillion-dollar opportunities in the pipeline. that have nothing to do with the hybrid fiber that we're already talking about, and we're hopeful that there's more of that as well. So I think the upside is really driven by the big CapEx opportunities around the 5G build-out, whether that's on the macro site with the hybrids, small cell getting some momentum again, and or the DAC cooling solution benefiting from all this additional equipment out there, I think we're just seeing a general return to kind of a normal operating environment, which gives us a tremendous amount of comfort in our opportunity to grow. So we can certainly come in with bigger numbers than what I just laid out. Timing works into that, and if any of these large million-dollar-plus deals come in, that's a big number for us. and can certainly swing us to the upside.

Super. Thank you very much for that, Culler. I appreciate it, and good luck.

Thanks, John.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for additional questions. Our next question is from Aaron Martin of AIGH Investment Partners. Please state your question.

Hi, guys. You know, it's glad to be talking about growth again. My question is on gross margin as we, you know, get back to, you know, numbers we haven't seen in a long time, you know, 13, 15 million quarters or even larger as we look into next year. how do we think about gross margin and how much of that is volume dependent versus, you know, structurally just, you know, you're not going to get too high. Can we, you know, if we're hitting upper teens, can we start seeing a 30, you know, a three in front of the gross margin? How should we think about that as we're seeing growth again?

Yeah. Thanks, Aaron. Appreciate that. I think you're looking at it right. I mean, really the two things that move our gross margin is, sales volume once we've fully absorbed labor we can you know lots of good upside coming off that once we've done that and You're seeing even at the 11.1 million dollar in sales. We just did you're kind of seeing where that We start to see a little pick up in gross margins, so you get up into the teens We're going to pick off some some percentage points there the other is mix you know we haven't seen a the full benefit of some of the higher margin product areas that we have, whether that's small cell or DAC, printing through in our numbers just yet. Those are product – we made that acquisition in November of 19, starting to pick up some momentum, and then it came to a grinding halt. So we haven't really experienced in any of our results the potential upside of that higher margin mix of product areas. So we certainly think with higher sales numbers – Yeah, 30% starts to become something we look at, especially when you add the higher margin mix items in there.

Okay, thanks a lot. Thanks, Aaron.

There are no more questions at this time. We have reached the end of the question and answer session. I will now turn the call back to management for closing.

Thank you, Hilary, and thanks, everyone, for joining our call today. We appreciate your support of RF Industries. Peter and I look forward to reporting our third quarter results in September.

Thank you again, and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.