RF Industries, Ltd.

Q2 2021 Earnings Conference Call


spk_0: reading welcome to the are of industry as second quarter that go twenty twenty one financial result conference call at the time all participants are analyst and only mode a question and answer session will follow the formal presentation if anyone should require operator system during the conference please protect our zero on your telephone keypad please note that conference is being record did i will now turn the conference over to your host gym buyer that mk are investor relations thank you you may begin
spk_1: thank you operator good afternoon that welcomed our industries second quarter fiscal twenty twenty one financial results conference call with me on today call our our industries president feel robbed awesome and your vice president and chief financial officer peter year before i turn the car looked around and peter at like to cover few quick items this afternoon artist industries issued a press release announcing it's second quarter fiscal twenty twenty one financial results that relief is available on the company's website or our industries dot com his colleagues being broadcast live over the internet for all interested parties and the webcast will be archived on the industry relations page of the company's website
spk_2: one a reminder in one the during today's call management will make forward looking statements that involve the risks and uncertainties
spk_1: please note that except for the historical statements statements on this call today make us to poor looking statements within the meaning of section twenty one heave security exchange act at making thirty for work when used the words anticipate believe expect and ten future and other similar expressions identify forward looking statements he forward looking statements like management current news with your spectra future them from financial performance that are subject to risks and uncertainties an actual results may differ materially from the outcomes contained in a forward looking statements the factors that could cause these forward looking statements to differ from actual results include delays and development marketing or sales the products and other risks and uncertainties discussed customer companies periodic reports on form ten k and ten q another filings with the securities and exchange commission or industry undertakes no obligation update or revise and forward looking statements additionally it's rapids column we will be discussing certain non gap financial measures today's earnings release and the related crime report on form a cage described the differences between are non gaap and gap reporting and present the reckon silly
spk_2: asian between the two for the periods report reporting in the really
spk_1: now that sell turn the conference over to robbed awesome prison and studio rob
spk_3: good afternoon everyone welcome to our second for fiscal two thousand and twenty one earning up conference call the start with a brief review of our second quarter results and of guess what we're seeing now expects going forward before during the call over appear to get more commentary on the financials the police report sequential growth in both sale the profits of a second quarter sales for the the second quarter came in just about eleven million dollars a sequential increase at eleven percent over the first quarter and up six percent from the prior year second quarter we're starting to find the recovery and the wireless carrier ecosystems fact as evidenced by the to sizable orders we received over the past couple of months with butter backlog to nearly twenty four million dollars at one point last month the highest in the company's history not all that backlog will ship immediately but it certainly support their expectations for a strong back half of the here be to multimillion dollar orders at our table that unlimited division in long island or for our up deflect hybrid fiber solution for use in the build out of wireless power sites and came from a new tier one wireless carrier customer we had never done direct fitness with before he ordered represent a significant when for us and i like the increasing demand for our product offerings as wireless carriers accelerate their five g build out and a really a network that's the case as i've noted before significant project wins like this layered on top of our higher run right through both our core oh yeah customers are strong distribution partners give us confidence that are combined product by failing in a springboard for future revenue growth historically we've had just one tier one customer on the hybrid side so we're very pleased that a second as we've noted before or after deflect hybrid by resolution have been one of the key components of our growth in the last few years a solution to underscore our capabilities in supporting carrier tower site belts and we feel that along our small cell and back thermal calling solutions we're building a more complete their products for the wireless carrier market we developed a strong reputation in the market our ability to deliver is great and we continue to build on has proven track record we are strong and reliable bend or break carrier and the market is recognizing that more more we now have product of various types actively shipping and every wireless tier one carriers network we're doing business on one product or another or multiple products with every one of the company than the wireless tier one ecosystem much of that product will go to our distribution partners or am i go direct and some were selling various products product types through both channels looking at our product area the market segments are distribution business remain solid or rf coaxial cable and good actor products and are the enterprises fast turn fiber products together make up our primary offers ultra distribution as i've noted before during the past few years we've successfully strengthened and increase the diversity of our distribution channels and has been of continued to provide a solid increasing baseline of sales at the business climate continue to improve particularly around our and general technical cruz 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 a small felt nothing has changed small cell it's still a huge opportunity which we expect will increase sales in a second half of the year and beyond spending is beginning to slowly improve definitely more than where a was six or nine months ago but we still have not been it unlock like we're starting to see other macro side with thing like i've heard fiber or the delay and small cells band has been the carriers reexamining their deployment plans do to thirty performance issues and a new spectrum from the seabed bad options but the thing to come down to tweaks and divides we believe that the reason a bad option to spend related to the seabed auction is going to drive the need for infrastructure to make all work and as significant increase in spending is not a matter of at the rather a matter of when and with both are offer our customer relationships were more strongly position now for long term growth what's the widespread rollout does occur our old activities continue to increase and we are strong backlog of small dollars we are product actively shipping to anyone who is deploying salsa as well as ongoing discussions regarding future deployments so i'd spend normalizes any increases like it's going to do we can scale rapidly what the carriers are already and we believe were well but this well positioned to benefit in addition to that that stand opportunity we see within small cell with the it significant opportunity for our deck their how cooling from would play them both traditional wireline a wireless carriers as well as the market segment like cable operators and mobile edge computing providers our thermal cooling solutions and able us to offer a definitive value proposition centered around a better design and clear cost and energy savings and of allowing us to initiate a different kind of failed conversation with a new set of customers we've discussed and quoted some major potential projects and some significant upgrade that we think are going to start to break free in the coming handful of course we believe these are going to have to and around the five g's band and will likely come in waves as more and more new or replacement equipment it added to sites to give an example of the discussions with many conversations with a company that as a wireless coverage footprint that if not cellular but more like broadband fries be connectivity the customer reached out are seeking a unique that cooling solution for their rooftops sites which would potentially represent a multimillion dollar opportunity that's one example shows our that products can go beyond the traditional carriers and open opportunity with new kind of companies like cable and ago that utilities you believe we're going to be dad again to gain momentum in the coming quarters do we feel very good about the opportunities for this product both and the carrier space and all these alternative markets one final point on the recovery our markets are industrial oh yeah and defense customers which are primarily service that or northeast facilities are returning to more normal i'd levels and we anticipate failed expansion in these segments it's again as part of our improving they find a revenue that we can build on top of with large long term project wins turning to emanate as i said before were permitted to driving consolidation in our industry and our planet to make 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 him in a strategy and we remain committed am in a activity this year we continue to add to growing pipeline a potential candidates and while i have no specific update share today there's certainly no shortage a conversations going on the to conclude it looks like the world of getting back as a normal to year and we expect the wireless carrier spend to continue to recover and grow the a growing opportunity to expand further into this market with our hybrid fiber small cell and back offerings all of which give us a strong foundation for growth going forward on top of our poor run rate brock lines he believe we're getting back to normal sequential growth and with are strong a good thing backlog and solid pipeline of opportunities we feel confident that we will return to your over year revenue growth and fiscal twenty one 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 and both que three and que for with that on now turn the call over to peter for review and discussion of the financial results for the quarter
spk_4: peter thank you rob and good afternoon everyone into to we started to see increased the man and positive momentum as business activity in our markets is starting to return to more normal levels
spk_3: filled in a fucking quarter at eleven point one million dollars were up eleven percent frequently and up six percent year over year the increase is primarily related to the project revenue from the care one carrier customer for hybrid fiber cable offer as we noted in our earnings growth really are fucking quarter financial results include the impact of the loan forgiveness we received from the paycheck protection program or two point eight million dollars and two point six million dollars an employee retention credit
spk_4: of the two point six million dollar and employee retention credit that we recognize one point seven seven million dollars up discredit positively impacted our costs of goods sold as they related to our production workforce and the remaining eight hundred and seventy three thousand dollars fell to our dna lot we do expect to receive another eight hundred thousand and employee retention credit that will have a positive impact in the current third quarter gross margin for cute who was forty three percent with include the positive impact of the employee retention credits recognized in the quarter as mentioned earlier
spk_3: excluding the impact of the tax credit
spk_4: gross profit margin was twenty seven percent which is up one hundred basis points from twenty six percent in the preceding first quarter the sequential improvement as a result of the increase in failed at one million dollar as compared to que one and having certain costs being spread over a higher failed number and are continuing to do a good job operationally to manage our factors rather than continue to go through all the comparisons one by one where they're looking at net income dps or just that he but are the primary reason for the increase in each of the comparisons can be explained by the positive impact of the employee retention credit and the forgiveness of the ppp loan that was recognized and the second call even without the impact of the he and ppp loans with be positive trends and que one vs que tu as an example are operating income was forty two thousand dollars and to without the impact of the t and ppp loan forgiveness vs operating loss of five hundred eighty nine god
spk_3: then and two one our balance sheet remain strong and included cash and cash equivalent of fourteen point eight million dollars and working capital of just over twenty nine million dollars at the end of the quarter the cast ballots here did not get include the majority of the our credit which we are back and night during the quarter from a p m l perspective though receivable related to the yards he is included as part of our other current assets which represents two point four million dollars looking ahead we are better positioned in the marketplace today than we have ever been we are starting to be momentum build around do business as evidenced by our improve the bookings and growth and are backlog and the quarter at the end of you to backlog was fifteen point six million dollars on fucking quarter booking of night ping pong
spk_4: pick million dollar this is up from seven point one million dollars and backlog last quarter current quarter end or backlog have continue to build an adult today currently stand at twenty two point eight million dollars we are seeing our overall failed pipeline continue to build the nearly all areas which give them confidence that the things are getting better
spk_3: with what we know today we are expecting sequential girl and the third quarter over to to and we also expect our fourth quarter to grow sequentially over cute three with they return to year over year revenue growth for a for fiscal twenty twenty one year
spk_0: this includes my discussion operator we're ready to take our first question thank you at the time we will be conducting a question and answer session he would like to ask a question for dar one on your telephone keypad a confirmation como indicate your one more question him you may press start to if you would like to remove your question from the que megumi speaker equipment and may be necessary to make up your handset before pressing starkey one moment while he pose the question
spk_5: our first question as from a mongrel on of be riley security we fit your question a guy the are against for i take my question a dog congratulations on the ipad five about orders from group really good to see those starting to flow in a when the ask about the hybrid five of first on it so i would put expectation for gross margins going forward baby this
spk_3: in the back half of the year them into next year on with some of the hybrid five do agree i felt like city from the be that high either fighters i do you tell customers yeah they vote brigade that i'm on thanks for the thanks for the question i think their their students probably in there that that are important watches that the profile of margins on that specific product line will be drastically different that are blended margins the way we've been flowing bury the wild card in there which is and we got ever wanna world's experiencing think i will supply chain staff were and like that pretty well but also the private property thought keep an eye on ah within that so what we are expected a significant change to our modern profile be felt that but would you add that product line kind of the rest of our max weeks we still expect the same kinds of by improving gross margin that we can talk about up in that i want you trying to get the thirty and gail we think with a better max over the next year plots of the higher margins doubt we can push up in your thirties but i think that the summary is that product line that be different about cable the cable
spk_6: the length of break out within i'm ah a longer cable me out with a lower gross margin presided if there's a lot of parts in there but in general while we expected to be right in line with our our overall corporate margins
spk_5: i'll get that helpful with thanks a lot
spk_3: in terms of inflation yeah you mentioned dog copper prices are increasing or are you able to pass those places that increases on to customer yeah so said it will be the plate the wifi be have an impact is more on the hybrid side of that world me what we we we have got all the whole bunch of different product that we sell most out of the smaller about divert by route really significant piece of of will be for the car bridgewater cables and i think our team that really good job going into this potential be the business out of quoting fair prices and make sure we were we were taken into account the variability of our was shaken out so i am but part of the discussion areas making sure we place orders early enough to lock him some some real pricing so i don't anticipate that we're gonna have to revisit optimal conversation that the fairly around private i think we've given their prime thing that takes into account that the pride the copper ah where we need to take increases on some other product line so we're always were doing that for that part of our standard operating practice i don't think we're going to be significant increases but though we've taken from price increase over the last couple of quarters it
spk_5: pockets of our bit of avenue and try to overcome some those price increase or decrease but they were experiencing guy that helpful and then i'm good to see that you got another tier one ah wireless customers on what's this sort of expectation ah from that customer you expect to receive more orders that customer on
spk_3: maybe later this year or into next year yes i think that that the short answer is ah i don't know that the slightly longer answer is we certainly had that are not been in a orders placed for that customer to build the network that they're talking about in our infrastructure would require a significantly more of that product type third to build out the infrastructure they want to build an what we know we're one of multiple suppliers we think it's really on off to perform which we've been doing and we believe if we keep performing and at yeah we're happy to were receiving side orders but our aim is very focused on making sure we can get think that the door and in the right time random the customer alley and we're all over that will lead to more pewter or we we don't have better knowledge of what that might look like but that's pretty standard and i you're having been through three or four major gold cycle that kyle go to give them orders you need to perform down the opportunity to keep getting up and the better you do the better chance you have for for more upside so where i pull on that but i as soon as soon as we know obviously will i will let the world now but at the moment though
spk_5: the going along the we have over the next several months and now l r o for we get some or
spk_3: excellent okay this last question for me i'm a any updates on the on that deployment i know on your life distribution got no tesco is seeing a bit of our rad in their dad backlog are you seeing something similar in terms of das deployments yeah so i think the that the standard distributed at the to stop and normal sized buildings i have started to come back here and there i think the one that really make it a damn dog and a backlog our bigger impact our stadiums that large batches we have seen a couple of days ago scumbag they were project that were slated for the app an alien in a call it late spring last year that obviously stops during that the craziness that we all bought through there so where's the another come back of a couple of on that a large supporters of the plate that we benefited from some other than rpr bookings that the full impact of all the stadiums a large venues coming back at we haven't been although get by i certainly think we're we're on the verge as as of various sports season and that feel that the traditional way to build lot of networks is whether or not people in the stadium every day so where we're happy to be people showing up at the him again i think we're seeing full stadium that allow a location that multiple sports ah but i think as we go into the fall lt then and then yell at that baseball wraps up
spk_5: in the fall so ah basketball's wrapping up here in the next month or so i think we expect defeat them of those stadium venues comeback which will certainly have an impact on us to
spk_0: thank you joe mill or pass it on thank them up reminder if you'd like to ask the question please press dar one on your telethon keep a confirmation tama indicate your line of in the question him in april start you if you'd like to remove your question him it has been teasing speaker equipment and a be necessary to pick up your handset one moment please we pull her additional question
spk_7: our next question and somehow granger of great quarter research we think your question i'm robbing peter than congratulations on lot of the things going on that the company i see use your stock in address trading is said this trading up
spk_3: suggesting that the market likes with their seen in your release
spk_7: what's good like that appreciate that at at a question about your or your your acquisitions are going forward from what the certain areas you're looking at at or the are you looking to
spk_3: to add to existing capabilities are you looking for additional capabilities where were you were you on what are you thinking along those lines yeah so i think i appreciate the question out i think that probably few things to that one is ah they're sticking with kind of thing that i've stated in the past we like out of components so thing that helped fill out all material the in the project areas and and solution areas where we do work today so so opportunities to fill in those gaps things like power and and as cabinets enclosures closures all areas that we benefit from india and selling our solutions today and and it may make sense for us that a little more vertical control over that supply chains i think that's that's what did that the the other pieces we really like like are distribution channels also and so product their distribution friendly and can help us games more share or or some or access into our our distribution customers in their customer bases are certainly think that were that were looking for with that said i'm i'm a i'm never gonna turn down a good deal on our cable assembly manufacturing scenario but i feel like we've we've generally covered from a cable assembly perspective week i have the complete offer that today or maybe a couple of pockets here their that though that i would look at but the i think we what what we're show and our
spk_7: art are organic growth on the cable exactly side whether it's fiber copper collects are investing their to help grow that are that that's generally not a plate that i would get acquisitions though i do with the a lot in that space and there may be one that that and turned our at that point but as of today of got filling and other areas of the other solution
spk_8: okay thanks of would what size are you looking at own terms of that positions on the reviews about positions
spk_3: that's a lie i think we'd we'd like to go larger the what we've done in the past and doing doing deal than the five six seven eight million dollars in sales levels it's hard to find synergy their number one and number two it were sitting on balance sheet with a fifteen plus million in cash with more expected in the incoming quarter's ah so i think when when we look at that what we're focused more and that's one a thirty million dollars in sales and it can arrange we think that the real site for us and young and nightly accreted third to current failed level than improvement we are going on with it we got a job market and get the more scale the get out of some of the noise that that happens when you're putting up failed numbers like there's a big night to get back organic growth that that that's terrific nick but damn with i have done that of have a little bit and if you look if we find something creative an interesting and different about their that that falls even beyond a guideline that's great
spk_9: ah the garber tutored it is huge with the balance sheet that were sitting on right now
spk_7: okay thanks and ludlam he asked a question that that maybe a little more difficult in that is a good incentive compensation can you talk about zone know that's a board
spk_10: consideration is was an incentive
spk_11: for for you to adam deal
spk_7: but can you can you talk about
spk_3: the incentive plantation philosophy and mean what a then you're needing more difficult question what it might be prospectively in the future of you've had some additions to the born sure yeah i'll take a stab at that that i can i think that the from is that golfers by a i feel like we're working out we put together a budget that we think of the line with what shareholders would wanna see and we are measured against that for their the mix of of revenue expectations but most of motivated on profitability but i expect eight of them though peter an eye on the rather live the leadership team are tied to the same kind of expectation that we want to put out from and earnings per share air and abroad ability perspective for shareholders so it is right in line with bass boko get it whether as cash and or equity those things are are align perfectly with what we think are the the right values for our shareholders and and return it growth as far as future looking i don't think that's gonna change i am a oh and i'm not i'm not someone that fights against the having goals and then needing to achieve them to are he attempted what he had that miles down to get paid if you don't you don't get paid inept at the as simple as that i'm on a recovering say okay so i still function very
spk_7: nice with a a goal based kind of scenario and our entire team is is built around that an entire structure out the in that a cop is built around them
spk_12: great thanks thanks very much
spk_13: and you out
spk_14: or next question isn't john
spk_15: and dialect the capital
spk_16: your question
spk_5: yeah hi guys thanks some time in a scooter
spk_7: public questions first know what's the what's the duration of the twenty two point eight million and backlog roughly and are there any
spk_3: components or anything in the supply chain shortage that holds up that shipment the you're concerned about day job thanks for the questions the two things are as far as how long that backlogged go last were you short answer is we don't specifically know we certainly think it will be drawn against over the next two to three quarters probably more like recorder so we started to get into the the end of the calendar year and maybe even in the beginning of next calendar year that can change i think we we've seen that the past with our results that the a customer can can dry and and or push out expectation on delivery of those orders but some god what we'd be today we think there's another callback college reporters ashworth of fog shipment time could be a little more depending on how that goes that that supply chain side of it that the one piece of it we got below what about as copper we can procure copper we gotta make sure we control frightening on that them and keep it under control which i think we've done and then the ultimate of refinishing work on the hybrids in particular is that by out outside partners so making sure that we're placing orders on them for the right but the on the volume quantity specific styles they had of that we the other team in long island been doing a great job of staying out of that and making sure that we're we're in line where we need to be getting your is that we need few we haven't seen massive supply chain issues but i think the entire world especially in material like their thirst being delayed so what the hell with the a week here a week there are no
spk_16: nothing that as point says we can't meet the timeline out the next three years quarters for the customer to draw against that though
spk_3: so that backlog though primarily is driven by customer demand on timing not your inability to ship
spk_16: that's right yeah and we've been we've been proportion very well ah the first customer nightly brawl our customers by in in that case for that specific as or we been performing very well within the guidelines about what they expect them and we think that's going to continue
spk_7: nothing in of with the the growing backlog it would seem to me like you might have kind of at a higher level of ability to died and your guidance don't seems kind of a great it's direction all yeah it's got some year over year growth but can you give us any more specific either about
spk_3: how you feel on the next quarter of the shape of the rest of the fiscal year or or why you're uncomfortable doing that i'll take any other asher said so that the that that the while uncomfortable part relic of data type yeah what we've been we've been burned about good about bad way in the past around saying specific yeah that quarter at the axe ah yeah we are twenty million dollar quarter in our second quarter of of it you don't have a pain and i have not all where we expected it to push when we had to call a good guy i ended up being significantly higher and then the next quarter after that would lower than expected because we had taken so much that we gotta get go in that quarter and an old forward so would be a would we try to give i figured as much helpful directional games as we can work out last year we did low forty million in sales we certainly the bag and our said the twenty one million through two quarters okay so again that that's very general time of things but were expecting que three that to grant from due to and few porteram from keep through three where we get back to some pretty significant your over your proud it that coupled with the idea that that meal how much did as backlog of to go out the door and what we've established as a base run rate me last year result of forty three million whatever was it it could be worse than that right it in any for now the worst operating environment we've experienced so you start layering and these it's growth quarter's okay ah another few million bucks in in you three anarchy my about the top the that you for ah
spk_17: i are time saying exactly what that number will be but when meet gonna look at where think i'll get already thirteen and in in que three and and fifteen and euphoria the other kinds of way that we look at the numbers
spk_3: looking and are there are there a couple and kind a long shot upside out there that you're shooting for that might come in the haven't kind of worked in your budget my do you have some maybe the not so long shot just talk to him about what the upside than it and also downside risk potentials if there's some of those of keep you awake at night sure yeah i think of it that from work on awesome cops are are are pretty bad for last year yelled at the numbers got really rough in the middle of year so where it when we look at at downside risk galaxy much i think much more from yeah we get through the rest of this fiscal year it starts to become how do we grow on you are considerably bigger number next year that that the other not downside risk of that but it's what were those numbers gonna come from if i look are are are pipeline in general and some of the opportunity to be have whether it's the out at dac or small cell or or even some some other oh yeah customers that the were doing some work for we have i don't know what and multimillion dollar our opportunities in the pipeline that have nothing to do with the hybrid fiber that up the where are you talking about and we were hopeful that there's more of that as well so i think that the upside is really driven by that that they can act opportunities around the that the by build out whether that's on the macros i went with the hybrids are small sell get and momentum again i and or that the the dac cooling solution benefiting from all that additional quitman out there i worry as being a general return to have a normal operating environment which gives us a tremendous amount of of comfort and in our opportunity to grow so we could certainly going with their numbers than what i just laid out timing timing works in the that and if any of these a large million dollar plus bills come in at the big number for us
spk_16: i can certainly swing us to the upside
spk_0: to birth thank you very much for color appreciated good luck i extra
spk_18: reminder if you like to ask a question die one telephone keep on a confirmation indicate your lines in the question him he april
spk_0: the by to interview questions and with him can equipment necessary
spk_19: said
spk_20: one moment please repost an additional question
spk_21: i next question as an hour in my enemy ai huge investment partner
spk_5: we think your question hi guys you know as glad to be talking about growth again
spk_2: mickelson and gross margin as we get back to numbers we haven't seen it in a long time
spk_5: thirteen fifteen million colors or or even larger as we look into next year
spk_3: but how do we think about gross margin and how much of that is volume dependent vs know structurally to say oh you're not going to get to high can we know if we're hitting upper teams can we start seeing the to reprise you know three infinitely gross margin has you think about that as we're seeing growth again yeah think they're pretty that it's i think you're looking at right and in really that you think that move are gross margin is they'll volume once we fully absorbed labour we can yeah a lot like a good outside coming up there once we've done that and we're your seem even of the land point one million dollars they'll be just stared your cause the and were that we start to feel old pick up and in gross margins are you get up into the teams were jumping up some some the percentage coin they're the other it makes a a wood we haven't seen the all bad at them the higher margin
spk_5: primary of that we have our that small seller dac printing through and our numbers just yet in another product we we may die position and in november nineteen
spk_13: started because the momentum and that the game to a grinding halt so we haven't really experienced any of our results the that potential upside of that higher margin mix of of product areas so will we certainly think with
spk_0: with higher sales numbers yeah thirty percent starts to become suddenly what we look at especially when you add the the higher margin makes items in there
spk_3: okay excellent
spk_0: like there

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