RF Industries, Ltd.

Good day, ladies and gentlemen, and welcome to the RF Industries fourth quarter and fiscal 2021 financial results conference call. All lines have been placed on the listen-only mode, and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to Mr. Todd Kearley of MKR Investor Relations. Sir, the floor is yours.

Thank you, operator. Good morning and welcome to RF Industries' fourth quarter and 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 morning, RF Industries issued a press release announcing its fourth quarter and full year 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 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 lists and uncertainties discussed in the company's periodic reports on Form 10-K and 10-Q and other filings with the Securities Exchange Commission. RF Industries undertakes no obligation to update or revise any forward-looking statements. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8K describe the differences between our GAAP and non-GAAP reporting and present the reconciliation between the two for the periods reported in the release. With that, I'll now turn the call over to Rob Dawson, President and Chief Executive Officer. Rob?

Thank you, Todd. Bright and early on the West Coast this morning. Good morning, everyone. Welcome to our fourth quarter and year-end earnings conference call. I'd like to start with a brief review of our fourth quarter and full year results and then discuss what we're seeing now in the market and what we expect going forward before turning the call over to Peter to give more commentary on the financials. Starting with the fourth quarter, we're pleased to report our third consecutive quarter of strong sequential and year-over-year revenue growth. Sales for the quarter came in at $21.1 million, a sequential increase of 38% over the third quarter and up 97% year-over-year. On the bottom line, we generated net income of just over $800,000, non-GAAP net income of $1.1 million, and adjusted EBITDA of $1.5 million, all of which were up significantly on a year-over-year basis. It's important to note that Q4 also included several one-time charges related to our seasonal year-end performance-based compensation, as well as one-time charges related to M&A activity. Peter will have more information on that in a few minutes. For the full year, sales were up 33% over the prior fiscal year to $57.4 million, and we generated net income of $6.2 million, non-GAAP net income of $7.1 million, and adjusted EBITDA of $2.7 million, all up solidly year over year. We saw strong growth in all of our markets and channels for both the quarter and the full fiscal year, reflecting a healthy recovery in our entire business. We're pleased to be getting back to the growth plan we laid out in our long-term plan a few years back. While we had to pause a bit this past fiscal year under the operational challenges we encountered around the COVID pandemic, we're back to it and feel good about the way we're performing. and we expect more growth as we execute our plan to scale our business both organically and through M&A. More on that in a moment. As I noted last call, we continue to see signs of recovery in all markets and especially in the spending from the wireless carrier ecosystem. Over the past couple of quarters, we announced several multimillion-dollar orders from a new Tier 1 wireless carrier customer. These orders helped to bring our backlog to $33.3 million at the end of our fiscal year on October 31st. These sizable orders for our OptiFlex hybrid fiber cable solution highlight the increasing demand for our product offerings as wireless carriers accelerate their network build-outs. While our margins were down in the quarter, this was largely driven by the concentrated Tier 1 business and the impact of the current state of the supply chain and material and shipping costs. This was not unexpected, given our hybrid fiber solution has been such a large piece of our sales. The good news is we feel like we're delivering very well in the business and have been able to drop a significant amount of this revenue to our bottom line. I really appreciate the execution of our team at Cables Unlimited in Long Island to perform so well in building and fulfilling these orders in a tough market. We love this business, and while margins move around, we saw in 2018 and 2019 that large opportunities like this can transform our customer relationships, open new doors, and drop a large amount of cash onto our balance sheet. That gives us increased flexibility to run the business and invest in opportunities both organically and through M&A activity. We feel like we're very effective at deploying our resources with a keen eye on providing solid value for our shareholders. We do expect that most of the supply chain and material cost issues should normalize over the next few quarters. And as always, we also continue to monitor our pricing policies and make changes where necessary to address the overall market conditions and the related cost fluctuations. As we look ahead, we see significant room to further increase our gross margins through large opportunities and through an improved product mix that hasn't yet fully materialized, including our higher margin small cell and DAC offerings. As I've noted before, the layering of project wins on top of our growing core business gives us confidence that our diverse product platform is a springboard for strong future revenue growth. With our complete product offering, we're now doing business with every one of the companies in the wireless tier one ecosystem, including many of the largest tower and neutral host companies. As I've noted before, our investments in our sales and business development organization are building positive momentum around new business. Looking at some of our product areas and market segments, Our core distribution business remains healthy and diverse and continues to grow. Our RF coaxial cable and connector products and our C Enterprises fast-turn fiber products together make up our primary offers sold through distribution. Both of these two major product areas showed meaningful growth over the prior fiscal year, and we expect to see steady growth in our new fiscal year as we continue to build our baseline of core revenue. Turning to our small cell and DAC thermal cooling offerings, These are huge opportunities that we expect will increase sales in the coming year. Our Shroff Tech business, where these products reside, had their best sales quarter of the year in Q4, and for the full year, we're up meaningfully in sales compared to the prior year. The pipeline continues to build, and we have a strong backlog of orders. We have product actively shipping to several small sale players, as well as ongoing discussions regarding future deployments with others. We've also started field trials with a few large customers, and some smaller projects are also moving forward. Additionally, we look forward to sharing some product roadmap announcements very soon. All of this is giving us increased confidence in the growth prospects of our small cell and DAC business in the new fiscal year. Now turning to M&A. We're excited to have entered into a definitive agreement last week to acquire Microlab, the radio frequency components business of Wireless Telecom Group. for an aggregate cash consideration of $24.25 million. Microlab designs and manufactures high-performance RF and microwave products, enabling signal distribution and deployment of in-building DAS, wireless-based stations, and small cell networks. Their products are known worldwide for their superior quality and performance and are considered the gold standard in RF and microwave distribution systems. For the 12-month period ended September 30th, 2021, They generated unaudited revenue of approximately $16 million and adjusted EBITDA of approximately $3.7 million. The transaction has been unanimously approved by the board of directors of both companies and is subject to various terms and conditions, including approval by wireless telecom groups shareholders. Wireless Telecom Group will file a proxy statement regarding the proposed transaction with the SEC, and the closing of the transaction is anticipated to occur in the first calendar quarter of 2022. This acquisition is in line with our strategic plan that we've been working toward to drive revenue growth both organically and through the acquisition of good quality companies with passive components that give us access to new products that we can sell through our growing distribution channel. With our focus on the significant growth opportunities we expect to see in servicing the small cell and DAS markets, we believe Microlabs products will provide additional scale and opportunity for further revenue growth. With what we know about their product lines, we believe they will also help us take our gross margins up, and we expect the deal to be accretive immediately. So to conclude, We remain focused on successfully executing on our long-term growth plan to not only grow organically, but also through acquisitions. We're actively engaged with every top-tier company in the carrier ecosystem as a result of the investments in our go-to-market capabilities. With our expanded and complete product offering, we continue to grow our baseline business and see significant growth opportunities in small cell and DAC that we expect will increase sales and positively impact our margins in the coming year. and our large backlog gives us a nice tailwind as we start our new fiscal year. So as we look ahead, the first quarter is typically our toughest quarter seasonally. We expect revenue to be down versus Q4, but certainly up significantly over last year's Q1. We expect core revenue to increase throughout the year and to generate year-over-year revenue growth in fiscal 2022 of at least 10%, which should put our total sales for fiscal 22 at something more than $63 million. This growth rate does not include any microlab revenue for the new fiscal year, and any additional hybrid fiber orders would also be upside to that number as well. 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 morning, everyone. As Rob mentioned, we are pleased to report our third consecutive quarter of strong sequential and year-over-year revenue growth for the fourth quarter. we saw significant growth in all our markets and channels for both the quarter and the full fiscal year. Before getting into the comparisons and getting into more detail of our fourth quarter and our full fiscal year results, I do want to note that our fourth quarter results is in a more normalized state as there is no impact from the Paycheck Protection Program loan forgiveness and no impact from the Employee Retention Tax Credit. When looking at the full fiscal year results, there will be impact from both the PPP loan forgiveness and the ERC as we recognize those impacts in the second and third quarter of fiscal 2021. For comparison purposes, here as I go through our results, I will be excluding the impact of the PPP loan forgiveness and the ERC where applicable to make the results more comparable. Sales in the fourth quarter were $21.1 million, up 38% sequentially from Q3, and up 97% year-over-year. For the full fiscal year, sales increased 33% year-over-year to $57.4 million. With our increase in sales, comparisons of our fourth quarter results to the prior quarter were all favorable, whether looking at net income, EPS, or adjusted EBITDA. Gross profit margin was 25.3% compared to 27.8% in the preceding third quarter. And as Rob noted, the decrease in our margin was driven by the concentrated Tier 1 business and the impact of the current state of the supply chain and material and shipping costs. This was not unexpected given our hybrid fiber solution has been such a large piece of our backlog, which means we had locked in pricing with our customer for these large orders and margins was impacted by the rising cost of shipping and certain materials as a result of the widely reported supply chain issues. We do expect to see the impact of the supply chain and increased costs to continue, but do anticipate it to moderate as the year progresses. To offset these rising costs, we are actively monitoring our pricing and making changes where necessary to address the increased costs we are experiencing. Further, we do see room to improve our margins through improved product mix, which includes large opportunities that we have in our pipeline related to our higher margin small cell and DAC offerings. Even with the margin impact, a significant amount of this revenue fell to the bottom line. Operating income was $1.1 million, up from operating income of $393,000 in the preceding third quarter. On the bottom line, we generated fourth quarter net income of $813,000, or 8 cents per diluted share, and non-GAAP net income of $1.1 million, or 10 cents per diluted share. both of which were up significantly on a year-over-year basis. Adjusted EBITDA was $1.5 million, up 47% from $1 million in the preceding third quarter. In our fourth quarter results, we also included some one-time acquisition-related charges of $105,000, and we also recognized sales and performance-related expenses and bonuses of $595,000. Following the close of the quarter, We filed a S3 shelf registration statement for the potential sale of up to $100 million in our comms stock, debt securities, or warrants. The shelf is intended to give the company flexibility to take advantage of our financing opportunities in the future to fund general corporate purposes or future acquisitions and is effective for three years. In regard to our pending acquisition of Microlab announced last week, we intend to pay the purchase price through a combination of cash on hand and borrowing from a bank facility. We do not plan to use the shelf to finance this acquisition. Our balance sheet remains strong and included cash and cash equivalents of $13 million and working capital of $31.3 million at the end of the quarter. Comparing to the preceding third quarter, cash was up slightly by $475,000 and accounts receivable increased by $2.9 million. As well, the cash balance here does not yet include a portion of the ERC credit. The remaining receivable related to the ERC is included as part of our other current assets, which is $1.7 million, and we expect to receive in the first half of the calendar year. Moving on, we continue to see momentum build around new business, as evidenced by our improved bookings and growth in our backlogs. Backlog was $33.3 million at October 31, 2021, on fourth quarter bookings of $22.9 million. As of today, our backlog currently stands at $30.5 million. Looking ahead, given the first quarter is seasonally our toughest quarter, we expect revenue to come down a bit compared to the fourth quarter, but certainly up significantly over last year's Q1. And looking to the coming fiscal year, As Rob mentioned, we expect year-over-year revenue growth to be north of 10%, which will put our total fiscal 2022 sales to at least $63 million. This growth rate does not include any microlab revenue or any additional significant hybrid fiber orders. These would be upside to that number as well. This concludes my discussion. Operator, we're ready to take our first question.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Josh Nichols. Please announce your affiliation, then pose your question.

Yeah, hi, thanks. Josh Nichols from B Reilly here. Good to see the company's strong revenue in the fourth quarter and maintained a pretty strong backlog despite that revenue bump that we saw. You talked a little bit about the expectations for next year at a high level, but could you provide a little bit more detail on how you're thinking about potentially the gross margins? I know 4Q was impacted by some of the large fiber sales, right, that you did. But normally you've been closer to the high 20s or even 30. And how is that expected to change, excluding the micro lab acquisition, as you get more of these small cell and direct air cooling revenue items next year?

Sure. Yeah, thanks, Josh. Good question. So, yeah, I mean, we talked a decent amount about it, how – We were impacted in the fourth quarter. We think some of that hangover is going to carry into fiscal 22, certainly through the first quarter, maybe into the second. It's hard to know because pricing has been moving around. Sorry, costs for us have been moving around so much, and we're not alone. Most companies are experiencing the same thing. the rest of our margins outside of that concentrated business have remained exactly where you'd expect them to be. So they've been strong, they've been fine, in some cases getting better as we've been working on that in certain product areas over the last few years. So it really is a function of delivering on the large hybrid business, which we need to deliver. I mean, that's the bottom line is you get into a piece of business like that for us, we have to be able to deliver on that. And it hit us a little bit from a margin perspective to be able to do that. But I think it's important to note that the rest of our margins held up strong. And the product mix, as we see some of the higher margin integrated systems, DAC, small cell in particular, that we talk a lot about, the momentum that we've been waiting for is actually starting to show up there. That's something that the fourth quarter in those product lines, in those solutions overall, That was the best quarter of the year for those areas, and we see that continuing. We've got some pretty solid expectations for growth in that business going forward as well. So we expect margins are going to be impacted on the hybrid fiber stuff in the short term. We think it's going to normalize as the year goes on, but I think it's important to note that the rest of our product areas continue to have strong margins in line with sort of historicals where we've been in the past, and then the product mix in total should get better as the, as the DAC and small cell stuff starts to take off.

And then just pivoting to the micro lab acquisition here. I mean, it looks like looking at micro lab business, you know, that's a much higher gross margin. I think they did like 45% gross margin in the third quarter. I'd expect that to have a nice tailwind for you guys. Once that acquisition is closed, is that, And could you provide any commentary on what you're seeing in terms of order flow or expectations for that business? Because they're a little bit more small-cell focused, right, which had some headwinds a little bit more recently, I guess, during the pandemic, but it seems like that business could be picking up.

Yeah, so I think from a margin perspective, I mean, they disclose breakout margins in slightly different ways across their business because they have several different business units. their margins are considerably better than our blended margins. So we absolutely expect there to be a positive impact from sales of those products with the higher margins should absolutely drag up our blended margins overall. So we appreciate that and we love that those products have that level of margin and that relevance in big solutions like small sale and distributed antenna systems, which continue, you know, large venues continue to be a major, major place where the Microlab name shows up, that bill of materials for those large builds, we've been continuing to try to get more and more of that bill of materials in one house under our control. And this really gives us another step in that direction. Our products on the coaxial and fiber side plug directly into products like Microlab all the time. So the fit is is good. They experienced the same sort of overall headwinds in the last year and a half, call it, with COVID and all the venues being shut down and the spend shifting in the carrier markets. The same things that I've talked about on the last four or five calls impacted their business, so it wasn't a difficult thing for us to understand. Their trailing 12 months was a tough 12-month time period to look at, but I think the business is you know, expected to get better along with our business as we see the world sort of getting back to, you know, venue builds and other large wireless deployments.

And then last question for me, clearly some really strong demand, right? You just look at the backlog even after this quarter, north of 30 million, I think that sets up pretty well for fiscal 22. If you could talk about two things real quick is one, I'm just trying to handicap the odds of you guys being able to secure some of these additional large orders like you've been doing recently. I know that's not included in the company's preliminary outlook for next year. Then two, just on the SG&A expense, I know there's some increased costs and things like that. You're around a little bit under $4 million for the quarter. What's the thought process on how that's going to play out over the next several quarters? Is that here to stay? Is that the normalized level, or do you think that there's some potential for that to migrate back down over the following quarters.

Sure. Yeah, I'll tackle the question on orders, and then I'll let Peter talk through the SG&A. So on the orders, as I said in the last few calls, the orders that we have in-house are not enough to complete a full build plan that's been shared with us. and in some cases announced publicly on this carrier's specific build plan, there's going to have to be more orders there. We feel like we've been performing well. I mean, one of the reasons that I made the comment that I did during my comments around we're delivering very well on that business. We're bringing product in. We're getting it built. We're getting it shipped out the door. Yeah, it hit us in the margin a little bit this past quarter. I'm okay with that based on the fact that we continue to perform well. The only way you have a chance of getting more business is if you continue performing well and you lock in some large orders. That's great. That allows us to plan better. You can't plan for the kind of inflationary chaos that we've experienced in some of these product costs and then the logistics is a whole separate conversation. So I think because we've continued to perform well, we feel like we're in a good spot to get more orders if that's the route that they choose to go. So that's the reason why we sort of projected next year without them and said, look, we're expecting decent growth again, getting back to a growth plan, even without any additional orders. Any new orders would be upside to the numbers that we're putting out there. And we feel good about how we're performing. We're hopeful that there's more in there for us. hard to know on timing and exact, you know, size of what orders might look like, but there's definitely more orders that need to be cut in order to get the build plan completed at the levels, you know, short and long-term that's been shared with us. So we're hopeful on that. Peter, do you want to talk about kind of normalized SG&A levels in the coming quarters?

Sure, no problem. Hey, Josh. Yeah, so SG&A... As you mentioned there, we're just north of $4 million here for the quarter. That includes the kind of sales and performance-related bonuses that we accrued for and picked up in Q4 based on how we ended the year there. And there was also some one-time charges that we noted of about $105,000, a normalized state kind of going forward. We expect that, obviously, to come down. Some of the items, you know, if you exclude one-time charges that we're seeing going forward, you know, some more additional, you know, acquisition-related charges are expected to come through. And depending on how the purchase price accounting shakes out for the micro lab transaction, you know, amortization will definitely kick up, right? But if you kind of do those one-time charges add back and look at. I think we should be south of $4 million going forward in our SG&A line.

Thanks, guys. I'll hop back in the queue. Thanks, guys.

Your next question is coming from Hal Granger. Please announce your affiliation, then pose your question.

Hi. Thanks for taking my question. Great quarter research. Let me start first by saying congratulations on strong revenue growth and good backlog, Rob. And let me start with a distraction which is there is some controversy about 5G and airports and pilots in the US seem to be nervous about that, but it doesn't seem to be an issue outside the US. Can you talk about what's going on there?

Yeah, this is another deep technology kind of conversation that's been out there for some time around health and safety of wireless signals and then other interference potential issues. I think it's I mean, you talk about what frequencies are being deployed on 5G networks, and if those frequencies are also being utilized for critical communications of aircraft, which certainly some of those are, there's fear that there could be an overlap and therefore some issues interfering with the communication from planes. I think it's, you know, technology says, yes, that's possible. However, there are several different frequency blocks that are being utilized to deploy 5G. And I think we're kind of getting caught up in, you know, the overzealous response to, oh my gosh, every plane is going to have a problem communicating. It really is going to be a rare case that the frequencies would be identical. When you look at these large auctions that have happened over the last few years, frequency blocks being acquired by all the carriers, Not every one of those frequency blocks has anything to do with the same communication frequencies used by critical communications of any kind, not just airplanes, but other types of critical communications. The FCC, on purpose, puts out different blocks of frequencies to be utilized for different communication types to avoid there being interference in those kinds of issues. So I get it. At the root, I understand what they're trying to accomplish. There may be certain frequencies that are less desirable to put near airports. Got it. That's something I think we can work around to allow the communications to still work. And I'm not trying to downplay it. It's absolutely planes have to have safe communications. But I think there's technology ways using different frequencies and different ways of deploying the network that should alleviate that concern.

Okay. Thank you, Rob. Can you talk about, so you've got this, the shelf that you filed, it's not going to be used for your acquisition that we're just going to close in the first quarter for Microlab. But for Microlab, you're going to be using some bank borrowing. One of the intriguing and really nice things about RF Industries to date is that you've had essentially no debt. But on the other hand, there's a great argument that companies should use a certain amount of debt because their tax advantages of being able to write off interest costs and such. So, with the bank borrowing for Microlab and the potential use of the shelf in the future, if you choose to use it, and right now, of course, if you lock in long-term rates, they're pretty low. Can you talk about your philosophy on debt versus equity?

Sure. Yeah, no problem. Good question. It's a big topic for us right now. I mean, RF industry is two things. We've never had a shelf out there in our history. So it's a prudent thing for us to do. It's smart to have it there. Our intent is not to use that until we feel like we're getting the right value in our stock, which I don't think we are at the moment. The bigger part of what you just asked is you know, cost of capital when you look at debt in the, you know, low single digits from a debt perspective, you compare that to cost of capital in using equity and you're looking at, you know, 10, 12, 15 percent kinds of things. So, it's significantly higher to, from a cost of capital perspective, to use equity. Our intent is not to use equity, you know, For deals like this, we've got decent debt agreements out there that we're working through and we're comfortable that that's the direction that we're going because it is so inexpensive. And I think we can benefit as a company, we can benefit from taking on some debt and really focus on that return on invested capital. I think we're pretty good at deploying capital. If you look at the acquisitions that we've done, prior to this, and even the investments internally, which have been relatively small, but those kinds of investments have allowed us to take our volumes up, especially in our distribution-centric business. So we're very focused on being prudent about deploying capital. As I've said on prior calls, very patient around M&A, looking for the right kinds of businesses, the right kinds of people involved, the right valuation points, And I think all of those things sort of lend themselves to, we're generally going to be the ones that are looking for the least expensive way to do something, deploying capital when it makes sense versus just doing it to do it. You know, I never felt pressured, maybe I should have, but I never felt pressured to get a deal done, even though it took away longer than what we were expecting it to take. And, you know, we're happy to have one now that we hope can get through shareholder approval and, and get on to getting our hands on that business. But, um, you know, the, the punchline here is cost of debt is incredibly low, uh, especially right now when we want to take advantage of that.

Right. Okay. Um, can, can you talk about, um, the landscape now as far as, uh, potential acquisitions? Is it, is it, is, are you seeing a, a bunch of interesting opportunities, or is this something that just arises kind of like overnight and you don't have any visibility for opportunities that may come up in the future?

Yeah, I love the ones that show up overnight. I haven't had that in a while. Most of the things that we've been working through have been on an agenda or a list for some time. The micro lab discussion is a good example of that. We've worked through that for several months. with some specific outcomes we were trying to drive there. And thankfully, it looks like we've gotten to those, which is good. But I'm generally not... While I'm very patient in deploying capital and very patient in doing the right deals, I'm not patient about looking for the next one. So... So it's sort of, all right, on to the next one. What else is out there? We have a decent list that continue to work through. New things pop up every week. I think the good news is people now know that we are, you know, we don't just say we're acquisitive. We actually are. We're active. We're vocal about it and say exactly kind of what we're looking for. So order of magnitude, the thing that I'm appreciative of is we're getting to a point where we can do larger deals. This one's not gigantic, but it's the largest deal that RF Industries has ever done. And it's a meaningful step up in a whole bunch of ways to kind of take our revenue up closer towards that $100 million number. And obviously, the accretive impact on the bottom line, we're looking for an immediate effect there as well when we close this deal. So For me, I'd like to continue finding deals of this size or larger. There are a few things out there that are kind of kicking around. I get a lot of deals put in front of me weekly that are, call it six to eight million in sales. Those are the ones that there's got to be an interesting product line or solution set in there or some disruptive relationship. It's just harder because the amount of time and effort that goes into doing M&A and the cost. You know, it's not inexpensive to bring in however many lawyers and different folks that you need to get these deals done. You basically pay the same amount of money almost regardless of, you know, the size of the deal from a revenue perspective. So we are absolutely focused on how do we find the next one, but job one at this point with the team is effectively integrating, you know, getting the deal closed with MicroLab, integrating that business getting that team on board and letting us get our hands on the product lines and their go-to-market, which we feel we can do some good stuff with.

Right. Regarding MicroLips, how long do you think that will take to integrate into your business?

Yeah, I don't think the integration will take very long. It's something that we intend to keep working through even while the proxy process is playing out with Wireless Telecom Group. we're communicating with that team all the time and working through the various technical integration pieces. The go-to-market and product pieces, it is a dovetail fit almost perfectly. So I anticipate when we close that deal, right around that time, we'll effectively have integrated that team into a broader organization structure that really lets us get the immediate upside. This one is a mature business. The product lines are something that we know very well. We've been interacting with these products in most of the solutions we sell into for a long time. We know the company well. I know it from my days in distribution in a prior life. My leadership team from a sales and product perspective know it very, very well. So That coupled with the fact they've got some really talented people on the team, I think it's going to make this integration easier than maybe it might seem on the outside. And we're leaving them where they are. They're staying put exactly in the same location. And it's our job to invest in that in a way that allows some growth to happen. But I think the growth is the bigger thing I'm focused on. The integration piece is seemingly going to be a little easier for us.

Okay, that sounds great.

Thanks a lot, Rob. Thanks, Al. Appreciate it.

Once again, if there are any questions or comments, please press star 1 on your phone at this time. Your next question is coming from Stephen Cole. Please announce your affiliation, then pose your question.

Hey, I'm Matt Grove. Good morning, guys. I know it's earlier there and late here, so we're covering the time difference well. Let me go back on a couple of things. Let me start, if I could, on Microlab. I'm just curious, Rob, you mentioned you had been working on it for a number of months. Is this something that was wireless trying to – have they been working in a – And I kept making a conscious effort to exit that business. And it just came about or was this something that you guys approach them on somebody that a light went off and they said it makes sense to accident?

Yeah, so

So strategically for them, I can't speak to that other than in their press release last week announcing the deal, they did talk about the heavy focus on the other pieces of their business that are really not related to the micro lab business almost at all. So I think there's a focus piece in there. But from how it came about, these two companies have known each other for a very long time. I mean, we really don't compete. We overlap a tiny little you know, a couple percentage probably on, on sales on both sides. Uh, we go through a lot of the same channels though, and, um, we get compared to each other often. You know, it's, it's very common on calls like this. Um, or when I go to conferences, uh, whenever that's allowed again, uh, people will ask about, uh, you know, micro lab, they ask about a handful of other companies. So it, um, you know, it's not a lack of knowledge. And I think just the conversation sort of organically found its way into, uh, into a good discussion topic with their team and ended up kicking it around for a little while and then working through some of the more process-based things. But it came about organically in a good way. I think it made sense for both companies. I mean, for us, it makes sense perfectly from a bill of materials perspective and a go-to-market perspective. And for them, I think, as their press release said, it allows them to put some real focus on the other pieces of their business.

If you look at trough tech, we've heard, you know, that's obviously been an area that for the last year or more, you've been excited about the prospects, obviously, aside from the better margin, but just the opportunity. I think you mentioned they had a good fourth quarter. What's happened there that's driving that? I mean, have you seen, is it all related to the, you know, build out the carriers realizing that things are running hotter as they're starting to do things or what's driving that? And what are you seeing on the level of quoting and backlog there?

Yeah, so I can tell you, the quoting and backlog are cranking. We're seeing a ton of opportunities and handling those very well. I think both the DAC thermal cooling and the small cell offer there are getting some notice. The reason for that, they've had a great offering. That's why we did the acquisition earlier. I think the go-to-market that we've decided to use by adding some real focus with some additional sales resources corporately within RF Industries, but largely focused on those solution areas, and then the pull-through that those can have with some of our other product lines. That engagement with the carrier ecosystem and sort of related is starting to show up. That's not a quick sales process. You have to take a very technical product line or product lines and get in front of the right people. They have to put those products through their paces, whether that's in a network, in a lab, in a demo case, or all of those things. And that process in a normal world should take six months. In the world that we've been living in for the last few years, it takes more like 12 months. So we're kind of getting to that inflection point where we've had a lot of long-term conversations going on. Those are starting to show up in in quotes, in bookings, in backlog, and in shipments. And I think just having build plans around small cell, New York's a great example. The small cell network that is being deployed and needs to be deployed there is enormous. But the site counts that we would hear from the carriers over the last few years were coming in lighter than expected or just being delayed. Those are now starting to play out. We can kind of see the normal flow that we would expect in large markets like New York, for example, where we hear some site counts from a carrier, we then get an order, and then we ship against it roughly in the timeframe we're told. So that's sort of what you want to see, that the logjam's breaking loose and those opportunities can start to flow. What we haven't fully realized yet, and this is kind of the commentary that we make on the last few calls, these larger opportunities that have been in the works for some time with large carriers, neutral hosts, integrators. Those are deals that we've seen small orders. Those are usually the tip of the iceberg to, okay, that worked. Now let's go for the larger orders. And that's the upside that we expect. We think they're just going to have better quarters as we go through this year with a backlog that's intact there and the opportunities that we know have already closed or are close to closing. But we see the build plans and we see the kind of quoting activity we have and we feel comfortable that we're hopefully this year has some normalcy to it and we can realize the upside from that.

When you're talking, just turning to the hybrid stuff for a second, when you look at the backlog now, is it predominantly still the one new carrier? You said it a couple of times, are you starting to see some of the other Now you've worked hard, not only just on that one, but you've had some legacy ones too, and even some new ones. Are you seeing activity with them as well, or where is the macro picture on the hybrid stuff today?

Yeah, the large majority of what's in our backlog is with that one carrier. There are odds and ends of other smaller orders in there from others, but by and large, it's the one large carrier that's in there. That doesn't preclude us from getting business with others. We're in those conversations all the time. Not everyone deploys a hybrid fiber solution for their tower sites. So that's part of it is not every carrier is going to be deploying it. And if they do, they could choose to do it in a small piece of their deployment. So very active. The sales team focused on that, does a great job of getting in front of everyone. We've got history that says we can deliver on this. which puts us in a very small group of companies that can do that. And so I think it's helpful to be in that position. We're hopeful for more opportunities closing around that, but right now what you see in the backlog is largely from that one carrier.

And last question on that is when you look at, I think you kind of alluded to this too, is there a mismatch? So when you look at the time from your book and order with them to the time they execute on it, How do you actually hedge that risk on the cost side? So it sounds like, is that what we had a little bit of a mismatch that caused the margins to get impacted there? And what can we do when we look at mitigating that? What can you do there? And are they understanding of the realities today that you guys are facing on that?

Yeah, it's interesting. I think historically we had done a pretty good job and our team on that product line knows the space, is very skilled at handling the supply chain there. The crazy level of cost changes and kind of inflationary pressure, both on materials as well as logistics over the last, call it four or five months, there was no way to predict that. The reason we were getting some of these larger orders, and I talked about this on prior calls, is if you communicate with the customer and say, look, the sooner we get this order, the sooner we can lock up this gigantic amount of copper, for example, that we need to have to go inside a hybrid fiber cable, you've got fiber on half of it and then huge pieces of large gauge copper that are carrying the electrical signal on the other piece of it. That copper is not cheap and hedging copper prices is great and that's something that the team knows how to do around the supply chain and the pre-finishing work that we use for some of our bulk cable with some outside suppliers. the day-to-day or hour-to-hour changes of some of those materials was just impossible to get right. So we chose to service the business and make sure that we were keeping the customer happy versus saying, no, we're going to put major delays on here because we're unwilling to pay for this. I think it's important to note that even with the ding to the margins, if we strip out this concentrated carrier business, the rest of the business held up just fine. You know, we got some, there's some pressure on, on, you know, material costs. Okay. There's some pressure on wages. Okay. But, but we managed through that. We can take price increases on this tier one stuff. You really can't take a price increase. Um, you know, if you want to never do business again with someone, you go back to them, uh, in the middle of a major build and say, Hey, all your models are wrong. Take your prices up, uh, because we're, we're increasing things. Um, so the good and the bad of getting large POs is we're locking in pricing, We managed through it pretty well. And I think even with margins being pressured, it still drops a ton of money through to the bottom line because our SG&A doesn't really move around much on a normalized basis. And our R&D is minimal and CapEx is minimal. So we can still make a lot of money even with margins being pressured. Obviously, I'm all for margins being higher, but I think it's important to note on that business in particular that the short-term chaos was just something that we had our eyes on everything we thought we could and some things moved. So we got caught there and we chose to service the business.

Sounds good. Thank you guys very much. I appreciate your time as always.

Thanks, Steve.

There are no more questions in queue. I would now like to turn the floor back over to Robert for any closing comments.

Great. Thank you, Holly. I appreciate it. I'm incredibly proud of our team and would like to thank our employees for their hard work throughout the year. It was another trying year, and the team came through with a record level of sales for the company again, second time over the last few years. So we're back to our growth. Thanks, everyone, for joining the call today. We appreciate all of your support of RF Industries as well. Peter and I look forward to reporting our fiscal 2022 first quarter results in March. Thank you again. Have a great day and happy holidays.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.