Good day, everyone, and welcome to the RF Industries' First Quarter Fiscal 2020 Financial Results Conference. [Operator Instructions] As a reminder, this call is being recorded today, Thursday, March 12, 2020. At this time, I would like to turn the call over to Mr. Todd Kehrli, MKR, Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to RF Industries' First Quarter Fiscal 2020 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 Mark and Rob, I'd like to cover a few quick items. This afternoon, RF Industries issued a press release announcing its first quarter fiscal 2020 financial results. That release is available on the company's website at rfindustries.com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties. Please note that except for the historical statements, statements on this call today may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When used, the words anticipate, believe, expect, intend, future and other similar expressions identify forward-looking statements. These forward-looking statements reflect management's current views with respect to future events and financial performance and are subject to risks and uncertainties, and actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales of products and other risks and uncertainties discussed in the company's periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. RF Industries undertakes no obligation to update or revise any forward-looking statements. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the 2 for the periods reported in the release. I'll now turn the conference over to Rob Dawson, President and Chief Executive Officer. Rob?

Thank you, Todd. Good afternoon, everyone, and welcome to our first quarter fiscal 2020 earnings conference call. Overall, our fiscal first quarter included some macro challenges. And while the market headwinds weren't ideal, the team did a great job of staying focused. We grew sales 17% over last year in the same quarter. We're able to show a profit and slightly exceed analysts' expectations on sales and non-GAAP net income for the quarter. As I've noted before, our first quarter is seasonally our most difficult. November through January is typically a difficult time of year in most of our markets. As I said on our December call, this year was even tougher with a late Thanksgiving and major holidays falling on a Wednesday, resulting in a 5- to 6-week period where the business climate seemed extremely slow. Q1 was also a shorter quarter with only 62 business days as compared to 65 in Q4. Our Q1 results also reflect the impact of some meaningful noncash and onetime expenses that hit our operating line in the quarter. Beginning this quarter, we'll be providing some additional financial metrics to give color on our results and make them more understandable. While we haven't traditionally done this, we recognize that with 2 acquisitions in the last year and the related costs and complexities of our evolving business, it would be helpful to provide more information. Additionally, we've frequently been asked by many investors to include items like adjusted EBITDA to clarify acquisition-related costs and equity compensation. Mark will provide more detail on that later in the call. In addition to the usual seasonal factors, we saw wireless carrier CapEx spend slow dramatically, and in some cases, stopped completely as 2019 was winding down and this continued into 2020. This industry-wide spending adjustment significantly impacted…

[Operator Instructions] And our first question today comes from Aman Gulani of B. Riley FBR.

Are you able to break out the revenue contribution from Schroff and then also C Enterprises for the quarter?

Yes. So in total, I think if you were to look at the 3 businesses that we would have had last year, at this time, declined a little bit related to the carrier spend. So we were, I don't know, $9.5 million, call it that. And we got the other -- the remaining dollars of $3 million roughly, or a little more than that from those 2 overall. So that's kind of the general breakout with -- Schroff had a soft quarter. We weren't surprised by that, but they came in around $1.2 million, I think, in total. So profitable at that level, which is helpful. But we expected their first quarter to be the kind of the slowest either. So you saw, call it, $9.5 million from the existing businesses and roughly $3 million in acquired business.

Got it. Okay. And then what were your booking and backlog numbers for the quarter?

Yes. So the backlog ended up just over $5 million. So subsequent to that, I think it's important to note, as we've talked about a little bit, is that backlog now stands at $6.6 million. So -- well, during our first quarter, it was a little slower than what we might like overall from a bookings perspective. It has picked up. It has come up from $5 million at the end of the quarter to $6.6 million total. Mark, what were the total bookings in Q1? Mark Turfler;Chief Financial Officer: It was $10.2 million for the first quarter.

Got it. Okay. And then can you talk about some of the cross-selling opportunities that you might be seeing with Schroff specifically? And where are you seeing the opportunities, that selling to Schroff's existing customer base or from Schroff to RFIL legacy customers?

Yes. So it's interesting. It's -- we're actually -- we're attempting to go both directions on that, and we're seeing some success. We're building a nice pipeline. We've only had them on board, call it, 4 months at this point. And so we've done both. We've gotten out in front of Schroff's existing customer base where possible, and they've been helping us -- Schroff's team has been helping us pull-through some of the other products in our portfolio as part of their broader solutions. So we're certainly seeing some successes there. I think, even better, and our opinion is we're getting our distribution channels trained on the Schroff offering, there's a subset of their offer that makes sense for distribution or at least identifying opportunities there. The other thing is we have sort of separate contacts. The Schroff team has -- most of their contacts are in the small cell side or kind of related within the various carriers and/or neutral host folks and tower companies. And our traditional relationships have been with a different group of folks, because we've been selling different product areas. So it allows us to sort of go up a level, let's say, at a higher level decision-maker, or I think even better, we have a real solution to talk about it. I think that's the direction that we're trying to go as a company is going in from solving a problem for an entire solution versus 1 or 2 product categories. We want to have more of that to offer. So I think we're seeing opportunities from a pipeline perspective in both. And it's a real-time activity. We're getting out with our existing sales team and the Schroff team and then sort of cross-pollinating or cross-selling between the different contacts. And people are excited about the conversation. I can tell you it causes a different beginning reaction to the conversation because it is a -- can be a more custom offering, but it's also -- you're solving a very clear problem if you can resolve some of the -- either thermal cooling challenges that people may have or small cell designs. So we're seeing it both ways.

Got it. I guess one more question for me. What are you seeing in terms of 5G spend, specifically to small cell deployment? Do you think your visibility in general has improved now that most of the major wireless carriers now -- they reported their 5G CapEx for 2020?

Yes, I think we have a better sense of it. One of the things that I mentioned in my comments is we expect the small cell and kind of the densification effort to be happening earlier in the year than the traditional macro tower sites. And that's sort of what we've had to play out so far. We've seen more opportunities or bookings increase on not only the small cell side, but when I think densification, we're also talking about DAS deployments. There's a lot of stadiums and other venues that are being built out right now. We're playing in several of those, mostly through our distribution channel on the DAS side, but we're having some successes there. So we feel good about DAS -- densification business increasing first. I think the part that we're hopeful for and looking to see pick up in the CapEx numbers -- and including Verizon's CEO, just this afternoon, was talking about increasing their spend on 5G deployment, that's great. We're hopeful for that. I think we've been expecting that in the second half of the year and into 2021, where we really start to see the bigger tower sites and rooftop sites being deployed kind of in a traditional format for each of the carriers. And getting the Sprint/T-Mobile merger completed. I've said for months, look, one way or the other, we need a resolution there, so we can execute kind of on the next phase of a plan in the market overall. That caused some of the slowdown in spending, I think, in total. But we're hopeful. And our expectation is that you get to the second half of this calendar year, we should start to see the CapEx pick up on the macro side.

Our next question comes from Josh Nichols of B. Riley FBR.

I just want to jump in and ask real quick. Obviously, a lot of uncertainty on the market, but you guys continue to execute pretty well in a tough operating environment. But I did want to ask, one, the current environment side and some of the uncertainty, is this an opportunity for you potentially to find an attractive acquisition in these types of uncertain times? And two, given that this is a very fragmented industry, do you think that there's some opportunity for RF to really take some share since you're able to -- you have a better balance sheet, able to have more inventory and maybe get some new customers that you didn't have previously?

Yes. Thanks, Josh. I appreciate both those questions. So on the first one, from an M&A perspective, I do think there's an opportunity here. I'm a -- as I've said for several quarters, I'm a big believer in bringing together some of these companies, both small and large for some consolidation. I think we're hearing more from customers that they love it if people had more bill of materials available. So we're working towards that. And I think there's going to be some opportunities. Not everyone has a balance sheet like ours. So there's going to be some need out there. Unfortunately, the current environment is probably going to make that even -- that much more obvious. But we do view this as a potential opportunity. Though we want to make good acquisitions, like I think we've done with the last 2, we'd be smart about it and pragmatic about our approach. On the second piece, the fragmented kind of overall marketplace, we think we've been taking share. I think our growth, overall, in the last couple of years in our kind of core run rate business, as we've branched out into more distributors, I feel like we're displacing maybe some incumbents or filling in gaps that people had that were even more fragmented maybe than they realized. Where they didn't have an incumbent and we've made that easier for them and try to fill in some of those gaps with distributors in particular. No question on the carrier side that the business that we've won, and it's been inconsistent at times and has its [ range ] of challenges based on timing. But I think we've proven that we can jump in and be a player and take some share from others, or at least position ourselves to benefit from it. So the -- with the market conditions the way they are, we -- as I mentioned, we've purposely taken our inventory position up in things that have short lead times. We're hopeful we can maintain that. The supply chain is a question mark for everyone going forward. But assuming we can maintain that, we think we've positioned ourselves with the right distributors and the right opportunities and relationships to take some of that share.

And then last question for me. I think one of the things about this company is its ability to flex up and down with the variable cost structure, as you've mentioned before. Just how much flex do you have on that if you were to, one, get a larger order for like a macro or small cell site in the second half of this year? Or if there's going to be a little bit of additional softness in 2Q? Or how are you able to manage that so that you could continue to kind of remain fairly profitable all throughout the year?

Yes. So I think on the downside. So if things were to continue being down, and we have some pressure in the second quarter, which we're feeling some of, we're trying to manage through it. I think we try to do a good job of keeping a breakeven number at all locations. So we know, even as we reduce head count, we got to keep key people in seats so that when these orders hit -- and we know they will. It's just the timing of it. We can't afford to not have people ready to do production. So I think our ability to flex down, you got a good example of that in the quarter that we just presented. I wouldn't call that a massive sales quarter for us, and we managed to make money and still come through looking good. On the upside, if things were to greatly increase, we've invested in the company in the last few years to increase production at all locations where needed. And our ability to flex up is significant. I was asked by an investor, "Hey, if you were to do $20 million a quarter and smooth it out at $80 million a year, how much investment would be required?" And I said, "Listen, if we can smooth it out at $20 million a quarter, we're good. We don't need to do any investment other than the variability of people." That -- so I think we've got great ability to flex up. But the real challenge or the topic around that comes down to how consistent those results flow in, and we're seeing it. We're doing a great job of throwing off cash in our distribution-centric business. Its run rate, it's become somewhat of an annuity. The booking numbers daily look great and are way up from where they've been historically. The harder part is on the project side. When that spend hits, we're ready to consume it. We think we'll be able to flex up very, very easily around that. That kind of -- that movement or that variability in the numbers is the one part of it that's hard to predict quarter-to-quarter. But we feel good about our ability to flex either way.

Great. Well, thanks for that. And good to see the company kicking off over $5.5 million of operating cash flow in the quarter. I look forward to speaking with you guys next quarter. Rob and Mark, have a good one.

Thanks so much, Josh, you too. Mark Turfler;Chief Financial Officer: Thank you, Josh.

[Operator Instructions] Our next question comes from Hal Granger of GreatQuarter Research. Hal Granger;GreatQuarter Research;Analyst: I liked your quarter, so congratulations on that. I wanted to ask you, organic sales, now that you have C Enterprises and Schroff Tech and understanding that there's a lot of lumpiness when it comes to macro, what do you view your organic sales to -- going forward? And also understanding this quarter is going to be kind of a mess because of coronavirus, what's your long-term organic sales rate -- growth rate, do you think?

Yes. So I think it's -- setting aside the coronavirus impact, I think what we've seen in -- in what we're now talking about our kind of core run rate or distribution-centric business, that's been really steady in 10%, 15% and even in 20% kinds of growth, depending on the time frame that we're looking. And that really impacts our traditional coax business, the RF coax and connector business and C Enterprises, which we've -- as I mentioned on the last quarterly call, we combined those sales teams and the customer set and kind of our regional and national approach to those accounts. Again, those are mostly distributors, if not all distributors. That's become an annuity, and it's producing exactly what we expect, double-digit kind of growth numbers, and it's healthy and good and the margins are improving because we can manage the workload and the related expense of the people, of the variable production folks within that. So that business is growing double digits as we expect. Schroff Tech, we think, as kind of a stand-alone entity, we're expecting it to be steady. They had, through the first 9 months of last year, they were at $5.8 million, I think, in sales. So we look at them at the $7 million to $8 million a year kind of business. Their margins are solid. We think that will start to print through in the coming couple of quarters as we get more impact from them. They have some seasonality around CapEx spend, and we -- they were impacted by the overall CapEx pullback at the end of the year and beginning year as well. But we're expecting that business to kind of grow off of that. Again, I think there's low double-digit growth in that business. The rest of the…

Sure. Yes, thanks. So the -- yes, as far as the kind of run rate business, we think we're taking share there. There is growth. The one area that seems to be growing is DAS and public safety, whether that's public safety DAS or otherwise, those are areas where there's additional build-outs happening. So it's incremental dollars that are available. But I think if you go back a couple of years, we weren't positioned to get that spend kind of broadly about the different end-user customer sets or distributors. We've -- each distributor has some strength areas, and we love that. So the distribution is a space that I understand reasonably well from my time that I spent there. And you have to recognize that not every distributor is going after the same-sized opportunities or the same submarkets or segments within those markets. And so we -- I think we've done a good job of positioning ourselves with the right distributors. We're growing with all of them. And that kind of points to the idea that we have to be taking some share. I can't imagine that every market that every distributor plays in is growing. We're just seeing more opportunities. And I think we've aligned our team in a better way there. On your second question related to the kind of slow macro site spend. As the year wound down, one of the big stories, which we think has resolved itself here in coming weeks, T-Mobile and Sprint getting that merger completed finally. And it has approval and we're hearing early April. I think that's what everyone has heard from a -- when that thing will close. With them not spending -- and when I say not spending, it wasn't even light in some cases, there was no spending…

Yes. That was encouraging. Hal Granger;GreatQuarter Research;Analyst: Can you talk about the supply chains? And you import from Asia, I guess, coaxial connectors and some cable. Can you talk about -- and that's been -- has been a big problem in certain areas in Asia, but things seem to be improving dramatically. Can you talk about your experience with sourcing stuff from Asia and what your outlook is for that?

Sure. Yes, I think the supply chain coming out of Asia is one that we have broadly a lot of exposure to, and we're monitoring it closely. If I go back several weeks, our coax business, in particular, we bring in a lot of items from Asia, mostly Taiwan and other places. We do have exposure to Mainland China on coaxial cable. That's an area, in particular, where one of the largest incumbents in coax cable and U.S. networks is in China. That's where their factory is. We've been in touch with them consistently. I get daily updates from our team on production levels, are those facilities back online. I think we've heard similar to what others have. But when people at home for Chinese New Year, there was a shutdown, and it was difficult to get people back because of quarantines or otherwise. We feel like we positioned ourselves pretty well with a larger inventory position in the States. We feel comfortable with that. We're being told that the dates we expected, our next orders, which we increased the magnitude of on purpose. We've been told those are going to be in line with what we expected. You don't really know until it gets through customs and shows up, unfortunately. But I think we're encouraged, at least, by the improvements that we've heard about in the last couple of weeks, as those companies get back up online and get running. The one wildcard in this is even other places in Asia or domestic suppliers that we buy from -- we buy a lot of materials in the States. When we ask them where they buy, their raw materials or otherwise, invariably, China is a pretty common answer. So the fear, if there is one, is that we're all drawing…

Yes. I think just one other thing on that, Hal. We're in a lucky position where we don't have a lot of challenges collecting. And so when our receivables did increase at the end of last quarter, we don't view receivables or cash really any differently from that perspective. Because we don't have collection challenges, which has been a nice thing for us over many years. In that case, our finance team did a great job of just making sure that we can get it flowing a little more readily, and there was a little bit of a log down there at the end of the fiscal year that cleared itself up. And we expected that, but it was still nice to see, and obviously, increased cash always helps. Hal Granger;GreatQuarter Research;Analyst: Right. Yes. And that's one of the super appealing aspects of your company. You've got a lot of cash and you have no debt and an undrawn credit line if you need it. So that's really great.

Ladies and gentlemen, that concludes the question-and-answer session. I would now like to turn the call back to your host for any additional or closing remarks.

Thank you, and thanks, everyone, for your interest and support for RF Industries. Mark and I look forward to reporting our fiscal 2020 second quarter results in June, and hopefully seeing some of you at our investor conference presentations before that. Thanks again for joining our call. Please stay safe, and have a great day.

Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now disconnect.