Goody everyone. Welcome to the RF Industries Fourth Quarter and Fiscal 2019 Financial Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded today, Wednesday, December 18, 2019. At this time, I would like to turn the call over to Mr. Todd Kehrli of MKR Group. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to RF Industries fourth quarter and full year fiscal 2019 financial results conference call. With me on today's call are RF Industries' President and CEO, Rob Dawson; and Chief Financial Officer, Mark Turfler. Before I turn the call over to Rob and Mark, I'd like to cover a few quick items. This afternoon, RF Industries issued a press release announcing its fourth quarter and full year fiscal 2019 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 and Exchange Act of 1934. When used the words anticipates, beliefs, expects, 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. I’ll now turn the call over to Rob Dawson, President and Chief Executive Officer. Rob?

Thanks, Todd. Good afternoon, everyone. Welcome to our fiscal 2019 fourth quarter and year-end earnings conference call. We're pleased to report another strong quarter with sales growth of 57% over the fourth quarter last year, and full year sales up 10% over the prior fiscal year. We had tough year-over-year comparison with the huge Q2 in 2018. I thought, I was done talking about it, but I’m finding that most other people aren't. So, hopefully, we're getting close being past it. In the year, we generated solid sales growth in our distribution centric business to the tune of 16% year-over-year. We also continued to sell the wireless carrier ecosystem, although at lower levels compared to the huge year that we had there last year, more on that in a few minutes. And after my comments, Mark will go a little deeper into our Q4 and full year results. Before that though, I’d like to take some time and recap and maybe reframe the last few years. I joined the Company as CEO a little more than two years ago. So, I just completed my second full fiscal year in that role. Reflecting on two years, we've done a lot. When I arrived, total annual sales were in the $23 million range. We had four businesses operating nearly independently with somewhat disparate cultures. And our business was roughly breakeven. Additionally, we had little to know investor outreach, including no quarterly conference calls or attendance at any investor conferences, and our stock was trading below $2. Said simply, the Company needed some reenergized leadership to drive a strategic growth plan. So, how did we get to where we are today? As we began fiscal 2018, we built a simple plan to grow sales 10% to 15% through some new go-to-market concepts and…

Thank you, Rob, and good afternoon, everyone. Our net sales in the fourth quarter were $15.5 million, an increase 57% or $5.6 million, compared to $9.9 million in the fourth quarter a year ago. The year-over-year increase reflects sales contribution from the acquisition of C Enterprises as well as growth in both our traditional run rate business and project work in the OEM and wireless carrier markets. Bookings during the quarter were $13.7 million, leading us to the backlog of $6.1 million. This underscores the nature of our business, which includes a large amount of fast turn book and ship orders, meaning that our backlog fluctuates sometimes more during a quarter. Gross profit for the fourth quarter was $4.1 million, an increase 40% or $1.3 million compared to the fourth quarter of fiscal 2018. Goss margins were 27% of net sales, compared to 30% of net sales in the fourth quarter a year ago. Gross margin for fiscal 2019 was impacted by the inclusion of C Enterprises, as group gross margin were lower than the blended margins at the majority of our other divisions. Selling and general sensors were $1.1 million or 17% of sales compared to $1.6 million or 16% of sales in the fourth quarter last year. The increase is primary due to absorption of the additional selling and general expenses such as newly acquired C Enterprises business. In addition, the most recent quarter also included costs related to the acquisition of Schrofftech which occurred at the beginning of Q1 fiscal 2020. Net income for the fourth quarter was $782,000 or $0.08 per diluted share, up 70% compared to $460,000 or $0.05 per diluted share in the fourth quarter of fiscal 2018. Turning to our fiscal 2019 full year results. Net sales were $55.3 million, an increase of…

Thanks, Mark. Fiscal ‘19 was another solid year for our Company with record sales and strong cash flow and net income. In fiscal ‘20, the goal will be to build on these results by leveraging our strong customer relationships and channel partnerships to further expand our footprint in the marketplace, and to do so in a profitable manner, as we work on our plan to grow to $100 million in sales. We begin fiscal ‘20 with our seasonally toughest quarter, but even with that, we expect to grow sales versus last year's first quarter. We made huge progress in the last two years. And while we're not done with our transformation, we are energized by the opportunities we see ahead. We appreciate the partnerships with our customers, distributors and suppliers. The hard work of our employees and the support of our shareholders. With that, I'd like to open the floor to questions. Karina, we're ready to take our first question.

Thank you. [Operator Instructions] We'll take our first question from Josh Nichols with the B. Riley FBR. Please go ahead.

Yes. Thanks for taking my question. I did want to ask, you mentioned the 5G build out that's coming. Any guess today, what percentage of your company sales are related to the 5G buildout? And how much of a shift do you think that might be over the coming 12 to 24 months?

Yes, Thanks, Josh. So, the first question, what percentage of our current sales. We don't believe that it's very directly related to 5G. And the reason I say that is that the spend has been not inconsistent, but I think as the year went on, we saw kind of pull back a little bit. Although I can say it's not always easy for us to tell because 5G is one of those concepts where it's not just about speed, but there's the densification idea. So, building more indoor and outdoor distributed antenna system networks and small cell networks, we know we have products being included in those applications and shifting into those kinds of builds every single day. In some cases as they’re going through distribution, in other cases they are more OEM centric. So, it's not always easy for us to tell, are they putting a 5G radio or 4G radio or something else into that deployment, but we're certainly -- from a densification perspective, I would say that total revenue were somewhere 30% to 50%, depending on the quarter has to be going into that kind of a build, although not always easy to tell if that’s 5G.

Thanks...

You had a second question. I failed to answer. So, what do we expect to happen going forward? Once 5G or true carrier CapEx spend kind of smooths out and becomes more consistent, which we believe will start to happen in the middle of calendar 2020, who know if that's kind of -- what it what it feels like at this point, I would expect the mix of products that we're selling to go hot as far as the percentage of selling into densification and/or potential 5G, both driven by the market growth opportunities there and our current positioning, plus throwing the acquisition of Schrofftech, which has a great product footprint that would play very well in that kind of build.

Great. Thanks for that. And that actually leads really well into my follow-up question. I know we're only about 45 days in since the acquisition, but could you tell me a little bit about how the acquisition with Schroff is trending and integration work that's already been done and what you plan on doing over the next quarter or two?

Yes, sure. So, I think it's -- the integration is playing out exactly as we expected. There's not a ton of integration there. It's a small group. They don't have a huge employee group. So, that always makes it a little bit easier. And also, they are very buttoned up organization. I think what I appreciated more than anything was the amount of control, both financially and operationally that were in place and what a good job they do related to that always makes it easier. So, from a financial reporting perspective, we're transitioning some of the reports to make them a little easier for us. We've got more work to do on that in the coming year to get our systems approach more consistent between the two companies and get them on to the systems that we need them on. We're not missing anything today by not having them, but it will certainly make things easier for us. The other piece that we're just kind of in the early stages of that I'm looking forward to is the customer sharing and sort of cross pollination of products and sales opportunities. We have some of those already happening. We're already including products in joint solutions, which is great and was expected. But, we're just kind of getting started on other areas where we can jointly provide solutions to our customers that historically have been distinct with one company or the other and now finding a way to share that -- the conversations we have had, we've seen those very positively received.

Great. And then, I did want to follow up. The Company has done a really good job expanding its distribution network over the last two years. And at this juncture, do you think you're more focused on increasing your penetration with your existing customers or really adding new customers to grow?

Yes. So, if -- when we say adding, we’re talking about distributors. I think, we've got the right mix of distributors today. I'm pleased with the group we have, it’s a lot of great blue chip kind of bellwether companies. And we're focused on growing within those organizations jointly with -- investing in sales and marketing programs together. A part of our sales reorg that we just completed from a distribution perspective is to get better connections between our team and the distributors, in both markets and regions. So, having strict accountability around that within our group is going to be helpful. I don't think we need to add additional distribution. If we did, it would be really focused on certain market segments that we're not getting to today, where we have products that are that are relevant. And I don't have any specifics in that. But, I think we're generally pleased with the way that our channel is performing with us and we're getting better at sort of operationalizing quarterly reviews and jointly setting goals and kind of the related pieces of that. So, short answer is, I love what we have on board. And I'm thankful for the additions that we've been able to make in the last few years plus showing increases in some of the longstanding distributors through communicating better and I think just having a clear strategy has been helpful and will -- we're not going to continue playing that the way we are.

And then, I did want to ask how much revenue for the fiscal year came from the acquisition of C Enterprises. And as a follow-up just thinking about -- how should we be thinking about like sales and marketing expense? Are you seeing much wage pressure with the historically low unemployment rate that we have right now?

Yes. So, two questions. The first one, so, C Enterprises revenue was just over $7 million for the 7.5 months or so that we have them for the year. That was their contribution. So, call it $3 million a quarter is kind of what they did in the time that we have them. From a pay levels in sales and marketing, we haven't seen a big change there. We did go through a sales compensation structure overall, both last year with part of our team and then again coming into this fiscal year as we reorged the sales team to make them more connected to kind of the growth of the business. I’m a -- with the sales background, I like comp plans for sales that are not only connected to what the rest of the company's trying to achieve but are aligned with my goals and the goals of shareholders, which are growth related. So, we haven't seen pressure there, if anything, we've actually seen some of our growth is, I would say related to the better connection of how we need sales people performing and growing our businesses. But, we've seen less wage pressure there than we have in other areas, specifically operations is an area we certainly see pressure.

We’ll take our next question from [indiscernible]. Please go ahead.

Yes. I had a question on the acquisition thinking. I just want to ask really about your willingness to issue debt or access to debt to do acquisitions, since you mention some of them could be a little bit larger, and similarly, your willingness to use stock?

Yes. Thanks for the question. So, I think we're going to be, I hope we're going to be faced with a scenario where we have a larger acquisition where I have to go do some kind of a raise, whether that's a debt or additional capital raise. The difference in that, we don't really know, and that's not something that Company has done before. We’re exploring various -- different avenues that we could use to be able to do that. I think using stock, to your question, I’d like it in some deal structures, you get into a bigger one, I like portion of it potentially being in stock. I think, it's tougher to want to use stock when you're sitting in $5.50 or $6 range, there's less power on the paper in that scenario. So, I would say, everything is on the table as far as avenues to go for doing a raise. And I do mean, to your point, if we find a business that fits into the criteria of being larger, there's going to be a requirement for us to raise capital. We have a great cash position on our balance sheet. But, depending on the size of the deal, we're certainly going to outpace that from a need perspective. I don't have an opinion one way or the other on which is the exact right answer. Yes, I think, part of it is walking through some of these acquisition candidates we have in the pipeline and seeing what magnitude we're actually talking about.

[Operator Instructions] We'll take our next question from Hal Granger with Great Quarter Research. Please go ahead.

I had a couple of housekeeping items to start with. What was your backlog at the end of the fiscal year?

Yes. Our backlog was between $6 million and $7 million. And that would have been prior to obviously the acquisition of Schrofftech, which would change that but we haven't disclosed that number yet. But, it was -- I think it was $6.1 million or $6.2 million.

In last year's 10-K, you said one customer who is a distributor accounted for 62% of sales. The previous year, fiscal 2017, that number was 27%. What was that number for fiscal ‘19?

Yes. So, you'll see that in the K. And what you're going to find -- I think, the important thing to note on that Hal is that the distributor that we referenced is longstanding customers, been our largest customer for many years. In fiscal ‘18 and a tiny bit of ‘17, they benefited from the Tier-1 carrier business being run through that distributor? So, it was sort of a false positive on that number order of magnitude wise. And so, what you saw was a huge increase there came primarily from the Tier-1 carrier spend, which subsequent to fiscal ‘18 has gone at different route and is not direct with that carrier. So, what you're going to see in the fiscal '19 numbers. The distributor was up a little bit over historical levels, but not nearly as large concentration wise as it was in ‘18. And you're going to see an additional customer in there that's meaningful of a magnitude as we kind of talk about a few minutes ago. We saw a $15 million to $20 million in the Tier-1 space. Big chunk of that will be running through that customer. So, you're going to see our concentration numbers, not only move around, but the companies that we're referencing are changing as well because we're going through such a unique growth base.

Okay. That's great angularity on that. So, the second customer who will be referenced in your K, that's not the Tier-1 end customer, that's an intermediate customer?

So, this year, you're going to see the Tier-1 referenced and a distributor both referenced whereas last year you saw distributors of the largest customers.

Okay. You're not going to identify the Tier-1, right?

We're not. I'm sorry.

Following up on Josh's questions. He -- I'm curious, your small cell product offering, as you said you sell products and you can't be sure whether it's going into 4G or 5G. But if something was going into 5G, would hybrid fiber be part of that, would DAS be part of that? Can you describe what products you sell would be going into 5G other than the course of the 5G and closures that you were talking about disruptive?

Sure, yes. So, on our kind of historical offer, I think the -- when we sell hybrid fiber, which again is a single cable that inside has several pieces of fiber, and multiple pieces of copper of varying sizes. The copper is to power the radio, which is at the top of the top of the tower site or rooftop site, and the fiber is for the communication part of that. The only way that we can really tell, other than through conversations with our customer, but the only way we can really tell is the connector type that goes on certain cables. So, the style, as I call it, the style of the cable maybe different and going into a 5G deployment, not necessarily, but may be different. And so, we certainly see hybrid fiber as a tower site where traditional kind of power and rooftop site play in the historical sense of our product offering. The other thing, when we look at distributor antenna systems or DAS deployments, both coaxial cable and other types of fiber are a big piece of that with coax are low PIM, which is just a quality metric. There's a lower ability or I guess a better ability to tolerate noise in a low PIM cable. We sell those coax cable every day, we're making thousands of them. And those are going into distributed antenna systems which usually you can't tell if that is a 5G or 4G. Our cables are somewhat agnostic. There are going to be times where going forward we’ll see a connector change or an adapter thrown in the mix. But for the most part, I like to envision those kind of as the road. They don't care, if it's a car, truck, van, bus driving across them. It's…

Okay. So, I wanted to ask you about that. So, Schrofftech has two primary product offerings, one being the cooling systems and the cooling systems also include I guess remote equipment shelters. And when I Google that I find stuff on that, I find that [indiscernible] has patent on that. That's super impressive. When I Google the 5G enclosures, I don't find stuff. Is that a new product or what -- can you talk about that?

Sure, yes. So, there -- yes, the small cell enclosures to Schroff [ph] are the newer of those two offers. I think historically, if you go back in time several years, company has been around a long time, been through a few iterations of ownership and/or management with [indiscernible] who is business partner in that company that we acquired from 6 weeks ago or so. They’ve seen a pivot in the last few years, where the majority of our revenue used to come from the cooling systems, and that offer is patented that they have a handful of patents on various technologies around that. What they've seen in the last few years as they started to deploy the small cells offer for some of their key customers, that business started to grow and outpace the growth in the other business. So, we've seen -- and I've been talking about it for some time, well over a year. So, we saw the kind of shift in their revenue stream, becoming -- more grow from the small cell side. So, as a newer offer, it needed growing faster, and it’s a larger piece of their business now than what it would have been a few years ago, where that mix may have been flip the opposite way.

So, the small cell 5G piece of their business is still smaller than the cooling segment?

No, the other way around. Traditionally, you would have seen that to be the case going back a couple of years ago, but the growth rate in the last few years has primarily come from the small cell business. So, small cell is now a larger portion of their revenue than the cooling.

Okay. Thanks. I was looking at your November 5th filing of your 8-K and working through the earn-out numbers first Schrofftech. And seems that to hit the earn-out numbers, that suggests that, Schrofftech is much more profitable EBITDA wise than RF is blended. Does that make sense?

If you look at it, that’s the right way. Yes. We haven't disclosed final numbers on that. We're going to get more out here in the handful of weeks. But, I think you're looking at that the right way and that the earn-out is structured in such a way that they need to grow to max out the earn-out, which I'm hopeful that I can do and we're trying to support that. But yes, backing into some numbers, you're looking at the math the right way. They have a solid profitability and strong EBITDA and stronger margins by a good bit in our blended margins across the Company. So, there is a lot of things to like about the way that business operates.

Who do you view as your closest competitors and that are publicly traded as for example comparables for you guys?

Yes. That's a tough one. I think we did -- when I go to conferences, we were at a conference last week and I get asked about a lot of companies that are roughly our size, maybe a little smaller, maybe a little larger, not going to reference any of them by name necessarily because I think that's a tough comparison. Because we are active -- we are passive component-centric and our focus on active components that helps with our profitability, which tend to make us look a little different than some of those guys we get compared to. On a flip side, there are some huge companies. There's not a lot of mid-sized companies like ours in this space that are public. So, you look at the big guys, and a small piece of -- a tiny little piece of what CommScope does or what Amphenol does, they're doing billions of dollars globally in a much broader product set. And I think the way we distinguish ourselves is we stick to what we know, passive components, connectors, adapters, cable assemblies and kind of the related products there and then throw in the Schrofftech offer which will blur the line a little bit with some of those guys, the bigger guys in particular who have something similar in small cell. But again, we're looking at the passive components of that and not the radios. And that's a place where it makes the comparisons very difficult. We don't have radios. We don't have the active DAS components. And frankly, those aren't things that I'm pursuing just from an R&D spend perspective. So, not trying to be evasive to your question, but I think it's a tough one to try to compare apples to apples, which I think makes our story a little tough for people to understand, how are we sticking to passive components, making the money that we're making, being profitable, growing in what is admittedly a very fragmented market. And I think that was in my comments from a few minutes ago. I believe that this segment is right for further consolidation both on a smaller and the larger companies. We're trying to drive that obviously as much as we can. And part of the reason I'm looking for something larger is to further that and take us up market where we're not necessarily competing directly with some of those folks today, but we're certainly running into them. And I find it a compliment. When we run into the bigger companies in the market, I think that as a compliment.

Okay. So, talking about a bigger company, let's say Corning, you do a lot of work with them in terms of your both the Cables Unlimited also C Enterprises I guess, the Gold Program, where you are buying stuff. Do you often compete directly with Corning?

We don't. No, we love the partnership we have with them, the Corning Gold House program. Obviously, they have -- two of our businesses are Corning Gold. We work very well with them. I think, they obviously -- Corning Cable Systems obviously have a Cable assembly offer. I don't think their go-to-market is designed to be fast turn necessarily, but they got great quality products themselves. We partnered very well with them. And I would say more often than not, we run into partnership opportunities versus competitive opportunities when it comes to Corning.

Okay. Thank you. One final subject or questions regarding C Enterprises. Just a Schrofftech seems like, it's as you've confirmed, more profitable than RF as a whole, C Enterprises seems less profitable, at least when you made the acquisition. Is that still the case and do you have a plan to increase the profits there to bring it up to the average of RF?

Sure, yes. So, I think when we bought C Enterprises, their 12-month sales were $8.7 million and they were roughly breakeven, some months make a little bit, some month lose a little bit. We have, as we said we would do at the time, made that to where it was profitable for us for the seven months or so that we had them in the year. They made, I don't know $300,000 in profit or a little more than that when you break it out. So, we were pleased with that, getting their revenue level up held to make that profitable and be accretive to us like we expected. The big piece of that I think remains is keeping those sales and production levels up, because their margins, as we talk about are a little lower than our blended margins, we have seen them increase, we've been working hard on that. And I think, to the second part of your question, that's the piece that we're most focused on is let's get sales up to fully absorb the labor from that location. So, they're able to keep these volumes going and pay for themselves. And a piece of that is also making sure that we're selling the right product mix and not products that are incredibly fast turn and low margin. And there is some of that in their product mix. And so, we've been focused on that. And the last piece I’ll say is by kind of collapsing or combining the sales teams from our multiple distribution centric businesses, we're starting to see -- to look at this more about account penetration and product -- what products are we selling into certain accounts and certain locations versus not. And the better we do there, the more we can kind…

Okay. One small question, that $300,000 that you referenced, is that operating income or is that net income, what is that?

Yes. It's an operating income number and it's a little higher than $300,000. I don't have the exact number in front of me, but it’s an operating income number.

Okay. That's great. Thanks very much.

Thanks, Hal.

And that concludes today's question-and-answer session. I'd now like to turn the call back over to CEO, Rob Dawson for any additional or closing remarks.

Thank you, Karina. Thanks everyone for your interest and support of RF Industries. Mark and I look forward to reporting our fiscal 2020 first quarter results in March. Thanks for joining our call. Happy holidays to all of you, and have a great day.

Once again, that does conclude today's conference. Thank you very much for your participation, you may now disconnect your phone lines.