Good day, ladies and gentlemen, and welcome to the RF Industries Third Quarter Fiscal 2021 Financial Results Conference Call. All lines have been placed on a 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 Kehrli of MKR Investor Relations. Sir, the floor is yours.

Thank you, Operator. Good afternoon and welcome to RF Industries Third Quarter fiscal 2021, financial results conference call. With me on today's call are RF Industries President and CEO, Rob Dawson, and Senior Vice President and Chief Financial Officer, Peter Yin. Before I turn the call over to Rob and Peter, I would like to cover a few quick items. This afternoon RF Industries issued a press release announcing its Third Quarter fiscal 2021, financial results. That release is available on the Company's website at rfindustries.com. This call is being broadcast live over the internet for all interested parties and the webcast will be archived on the investor relations page of the Company's website. I want to remind everyone that during today's call management will make forward-looking statements that involve risks and uncertainties. Please note that except for the historical statements, statements on this call today may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When we use the words anticipate, believe, expect, intend, future, and other similar expressions, identifying 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 risks and uncertainties discussed in the Company's periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. RF Industries undertakes no obligation to update or revise any forward-looking statements. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and the related current report Form 8-K, describe the differences between our GAAP and non-GAAP reporting and present the reconciliation between the two for the periods reported in the release. I now turn the conference over to Rob Dawson, President, and Chief Executive Officer, Rob?

Thank you, Todd. Good afternoon, everyone and welcomes to our third quarter fiscal 2021 earnings conference call. I'd like to start with a brief review of our third-quarter results, then discuss what we're seeing now and what we expect going forward. Before turning the call over to Peter to give more commentary on the financials, we're pleased to report strong revenue growth that exceeded our expectations for the third quarter with increases both sequentially and year-over-year. Sales for the quarter came in just above $15 million. A sequential increase of 38% over the second quarter and up 60% from the same quarter last year. We continued to see signs of recovery in all markets and especially in the spending from the wireless carrier ecosystem. As evidenced by the two multi-million-dollar orders, that helped to bring our backlog to $31.5 million at quarter-end. The highest backlog in Company history. These two sizable orders for our OptiFlex hybrid fiber cable solution for the latest follow-on orders from our new tier-1 wireless carrier customer. These orders highlight the increasing demand for our product offerings as wireless carriers accelerate their network build-outs. As I mentioned on our last call, we've never done business -- direct business with the specific Tier-1 customer prior to last quarter. So, I'd like to give kudos to our sales team, specifically, our custom cable team at Cables Unlimited in Long Island for breaking through and getting those moving. Our ability to deliver the significant product to this customer is also opening up new opportunities with them and in the market overall. Looking at our total revenue for the third quarter, it's worth highlighting that only a few million dollars came from these recent Tier-1 carrier orders, reflecting a healthy recovery in our entire business. As I've said several times…

Thank you, Rob, and good afternoon, everyone. As Rob mentioned, in Q3 we saw increased demand and positive momentum as business activity in our markets continued to improve. Sales in the third quarter at $15.3 million were up 38% sequentially and up 60% year-over-year. The increase in our third-quarter revenue reflects improvement in all our product areas, including core distribution, business, OEM business, and our project revenue from wireless carrier customers. As we noted in our earnings press release, our third-quarter financial results include the impact of approximately 800,000 in Employee Retention Credit that we recognized. The majority of these Employee Retention Credit positively impacted our cost of goods sold as a day related to our production workers. The gross profit margin was 33%, which includes the impact of the ERC received during the quarter. Excluding the impact of ERC gross profit margin was 28%, up from 27% in the preceding second quarter. While this represents a sequential improvement, we believe there is room to further increase our gross margins and improved product -- from an improved product mix of our higher-margin small-cell and DAC offerings. The pipeline for these particular products continues to grow, though, as we mentioned previously, we have not yet seen the expected revenue increases. Operating income was $1.2 million, which excludes the impact of the ERC. With the increase in sales that we experienced during the quarter, comparisons to the prior quarter were all favorable whether looking at net income, EPS, or adjusted EBITDA, once we've removed the impact of the ERC and PPP. Our balance sheet remains strong and included cash and cash equivalents of $12.6 million and working capital of $30.6 million at the end of the quarter. Although cash was down from the preceding quarter by $2.2 million, this is primarily due to the timing of accounts receivable collections as we saw our balance increase by $4.2 million, as well, the cash balance here does not yet include a portion of the ERC credit that we received. The receivable related to the ERC are included as part of our other current assets, which is approximately $2.8 million. We continue to see momentum build around new business as evidenced by our improved bookings and growth in our backlog in the quarter. At the end of Q3 backlog was a Company record $31.5 million on third-quarter bookings of $31.2 million. This is up from $15.6 million in backlog last quarter. Since quarter-end, our backlog remains strong and currently stands at $27.2 million. We expect a strong finish to the fiscal year with fourth-quarter sales above the third quarter and exceeded our previous expectations. That concludes my discussion. Operator, we're ready to take our first question.

Thank you. [Operator Instructions]. We'll take our first question from Josh Nichols with B. Riley. Your line is open, sir. Please, go ahead.

Yeah, thanks for taking my question. I just wanted to ask a little bit. You hit -- kind of hit on gross margins up quarter-over-quarter, even up to you move the ERC credit. Could you, kind of at an eye-level, talk about some of the gross margin differences between some of the product lines and what has to happen to kind of get gross margins back to 30%+ if we think over the next quarter or two or -- and is something like that, achievable?

Hey, Josh, it's Rob. Thanks for the question. Yeah. So, I think as a group we look at that 30% margin as something that it's not just what's get to that as a goal and get above it, but it's attainable as well. Really what it comes down to for us is, is product mix can have a meaningful impact. And I think when you look at the large dollar amount that's now shipping into the Tier-1 space, the margin profile of those products is more kind of consistent with our overall blended margins of the Company. And the other thing that we generally look at is we have some higher-margin items in our offer, the dollar amount sales-wise impact of those is lower than what we anticipated being to drag the blended margin up. So, I think as we start to see things like our DAC offer and our small cell offer, and even some of the other product areas that we have that are slightly lower dollar amounts in total, as those start to improve and increase, it has the opportunity to drag our margins up. When we get into a large relationship, it could be the product mix, even within the hybrid fiber that we're shipping, different lengths, different breakouts of a number of fibers, and a number of pieces of copper. Each of those has a different margin profile overall, so it can be even the mix within that product area can have an impact. But I think our expectation is, as we more consistently have higher sales, we think there's room to drive that up from a product mix perspective up to that 30% and above.

Great. And then I just wanted to hit on a little bit about SG&A, I know you mentioned they're investing a little bit more there. It looks like $3.5 million for the quarter, how should we think about going -- how should we think about that line item going forward? And I guess what investments have you made on -- what's pushing that number up?

Yeah. So, the number, this quarter, in particular, you've got some stock comp in there that is not a -- it shouldn't be in there every quarter. You got a few hundred thousand dollars of stock comp in there that we had during the quarter. And then also just increased sales and reward comp around the higher sales number, both from a commission perspective, but also from an annual accrual perspective, we're performing better also setting some money aside for that as well. So, I think you're not going to see a number as high as this type, but it's really driven up just by the increased performance of the business and the related accruals in dollars that come with that, the only other thing is that a couple 100 thousand in Stock comp in the quarter.

And then just to touch on it, I mean, you've been looking at doing some M&A. You did a couple, right? I think a year or so ago, but not too much recent. Is there any type of timeline did you say that you would look to do a larger deal and expect that your kind of far enough along to potentially get that completed by the end of say, as this calendar year or is still too hard to put a timeline on that?

Yeah, I think that's the hope, but it's hard to nail it down perfectly. But we got a lot of conversations going on. So, I'm optimistic that something can still happen this calendar year. Timing doesn't always go exactly as you want, but I think that's certainly the hope and we're extremely active. And I think the quality of the deal flow is way out from where it's been over the last several months as well. So, I feel good about it, it's hard to nail that timing exactly.

Thanks. I'll hop back in the queue.

Thanks, Josh.

[Operator Instructions] We'll move next to Hal Granger at Great Quarter -- sorry, Great Quarter Research. Your line is open, sir, please go ahead.

Thank you for taking my question. Congratulations on your strong revenue growth in the quarter and also, for a record, backlog at the end of the quarter.

Thanks, Hal. Appreciate it.

I wanted to ask a few questions about, kind of the current conditions you're finding in business that, for example, a big -- big issue these days is supply chains sourcing. How are you -- are you finding issues there and how are you dealing with that?

Yeah, thanks, Hal. That's an -- it's a big topic one that we've -- we watch very closely, and so far, we've managed it pretty well. I think the team has done a good job of keeping the supply chain rolling. We did -- going back to January of '20, I think we saw the future a little bit and tried to pre-buy some things that needed to come in from overseas. To make sure we were ahead of that, we've kind of stayed a step ahead on our purchase levels. And I wouldn't say it's given us a massive increase in inventory, but it's -- we're up a little bit partially because we've been buying earlier than we normally would to try to take the craziness out of that supply chain potential challenges. Now with that said we -- a huge amount of our supply chain is U.S.-based, where we're buying from other U.S. providers. We've done a good job there, as well. Obviously, the increase in the hybrid fiber -- you've got copper prices, you've got supply on that, which our team has done a really good job of managing, as well. It's certainly out there and I think we -- day-to-day we have to watch it. We've managed to work through it pretty well so far, but I wouldn't say we're out of the woods. I think this is a -- every day and every week we have to decide, is there something we need to stay ahead of? But for the most part, with the passive material that we're working with, we've managed to stay ahead of it and do okay.

Okay, great. Similarly with employees, when you're looking for new employees, are you finding difficulty finding employees, or what is your outlook for that, if there are any changes in the future?

Yes, I think a lot like every other Company, there's a lot of wage pressure right now and it's not just regionalized, it's really everywhere. So, we want to reward our team. We want to give them the best that we possibly can, especially when we look at our production teams and the related production support folks, those wage expectations have certainly gone up. If we can find people which depending on the location, there are some constraints around finding a skilled workforce that we can bring in. When we can find them, they're a little more expensive, maybe than they've been historical, which again is fine. It just -- we want to make sure we're getting well-skilled people and giving them an opportunity to learn and develop and grow into the other things. And so, I think the mass media press on that is exactly right. We're experiencing exactly what you're reading about in any article. Just -- can you find people and if you do, there -- the expense of that is going up.

Okay. Thanks. And lastly, can you talk about COVID restrictions and how that landscape might be changing? Are you finding you now have access to venues that you didn't have access to before, so you can go ahead with completing work that previously you weren't able to complete?

Yeah, so on the venue-based project work; it hasn't all come back yet. I think while access to venues is more readily available, the spending related to that and the timing of those large projects. Some of the stadiums have come back, not all of them. Like if we look at the projects that we had on kind of an expected time frame back in March of 2020, about half of those have come back. Not all of them came back the exact same dollar level that we were anticipating, either. So, I think they will, I don't think there is a risk of these things not happening. But I would certainly feel like people are still slow-rolling a little bit on some of these deployments to make sure they are able to understand the overall impact of COVID on the landscape and it's nice to see people back in stadiums. That's a big driver of these kinds of venue build-outs. What we haven't seen is the large office buildings return. That was another major thing was adding capacity and coverage into large office buildings and kind of related campuses that haven't come back just yet where the stadiums and some of the related facilities like that have. So, I think they will, but it's certainly not back to the level that it was pre-pandemic.

Okay, great. Thank you very much, Rob.

Thanks, Al.

We'll go next to John Fichthorn at Dialectic Capital. Your line is open, sir, please go ahead.

Yeah. Hi, guys. Thanks for taking my questions. First, just on the backlog. Are you delivering based on customer demand and that's why you're carrying more or is it your own limitations based on supply chain you discussed that a little bit before, but what's really -- and what's kind of your target backlog number, should investors be looking for backlog growth or backlog depletion, and over what time frame? Just give us some color on how you see that shaking up?

Sure. Yeah. I appreciate the question. Thanks, John. The primary driver of our backlog, being drawn down or the timing of things shipping against it is customer demand when the customer wants something. We haven't really had a major issue with the supply chain. I mean, there's some of it, but I think our expectations with our larger customers, we set accurate timelines in the discussions really early on and try to be open and honest about what capacity is going to be there. So, it's less about our capacity though, and availability and more about just hitting customer milestones that match their build plan. So, I think from the size of our backlog, you should expect it to come down from where it was. I mean, keeping it up in the thirties is an unlikely place for us to be over the long term. So, you should expect it to drawdown. But I think the exact number of where it sits is at the end of a quarter is a weird function of timing. We had never had a backlog north of 20 million that was back in 2018. And prior to that, it had never been anywhere close to that. So having something up above 30 says we're going to see it drawdown over the course of time. If another round of orders were to come in it could certainly pop back up in coming quarters but if we're staying up in $12 to $15 million from a backlog perspective, that's a really healthy place to be. You get above that and that allows us to drive some more, I'll say systemic numbers where we can talk about it a little more readily over what the next few quarters look like. You get down 10 or 12 million in backlog, which is what we saw over the last few years or even a little lower than that, it's way harder to predict because things come and go in there. So, I think our hope is that we can keep that number up, obviously, as high as possible. Balancing that against customer demand and when they want things. But if you see a number of 15 million or above, you're going to hear us feel pretty good about that as a place to be.

Super. And as we look forward over the next 12 months, just in terms of growth drivers, should we be looking for you to sign up another big Tier-1 customer or is it going to more be on looking for DAC and small cell to drive it with a more diversified customer basis. Give us an idea of what we should be expecting to kind of hear from the Company over the coming year if you guys are hitting your targets, and where you see the growth coming from?

Sure. Yes. I think the diverse -- a slightly more diverse customer base is what we would expect to show the more meaningful growth. We need to see some other product areas paved off as well with DAC and small-cell being big drivers, just because they are bigger ticket items, per site, you're talking $3000, $5000 kinds of things. The only other product area that we have like that is our Hybrid Fiber. So those product areas are ones where you can get into some bigger ticket items per unit. And larger purchase orders that go with that. So those are the kinds of things that you'll see us communicate press releases on when there are large dollar amounts where we can predict the time frame under which those are going to ship. Which will help drive some of that? I think our -- the additional pieces, we're hopeful that we're performing well enough on the hybrid fiber side that there's more opportunity there. Both with our existing customer and there may be some others, as well. Not every carrier builds with the hybrid fiber design as their kind of as the backbone of their tower design. Those that do are aware of us and we're certainly on the right radar and having the right conversations. So, we feel like there's opportunity there, as well. Those would be the big areas on top of just an increasing core baseline of when we were in the 40 plus million on that base of business that's coming up as well. So, with that increasing and then layering in the multiple product areas that we just talked about from a higher-ticket item. That's the stuff you're going to hear from us to put up a bigger number.

Great. And the last question, the revenue growth is great to see and its certainly part of the equation as is gross margin. But really, as a shareholder, we care most about earnings per share. And just talk to us about how you guys think about that going forward in terms of whether it's product mix or customers or operating margins or whatever. And then secondarily that same question on with regards to M &A and kind of what your hurdle rate and discipline are on the deals you're looking at in terms of driving accretion?

Sure. Yeah. I appreciate that. So, I think from a -- year apart from a margin perspective and just improvement of the overall financials, we agree with you. We love the revenue growth. We know that we see that first for a Company of our size, trying to come upmarket and get back to some meaningful growth. We love to see profitable revenue growth; we love to see increases in revenue predictability by having a backlog makes it a lot easier to manage some of those expenses that are tougher when you go through a major ramp up, as we've gone through. So, most of what goes on in our business happen up the gross profit line and below that, there's not a ton going on. We talked about a couple of things earlier that sort of impacted our SG&A this past quarter. I think that that number is generally stable. It's really getting the product mix better and then executing to fully absorb our labor, which is a big piece that happens above that gross profit line. So, if we can get that number in every percentage point that comes up, now you're dropping $150,000 or $200,000 more straight through the entire model. We feel good about that. We think there are some opportunities to take some cost out in a few places over -- over a coming couple of quarters. Just combining some operations and finding some ways to maybe spend a little better. So, we still believe we can get that operating line up there closer to 10% or a little better. As our sales go up, we think that's going to be a big driver of it. And relating that to M&A, we're kind of looking for the same thing. We like higher-margin products and obviously,…

That's great. And if patient equals are disciplined on the price you pay, then I completely agree and appreciate all of those thoughts, and thank you very much. Good luck.

Thank you, John. I appreciate it. Thank you.

[Operator Instructions] And at this time, I do not have any other questions that have been signaled. I will turn the conference back to management for any additional or closing comments.

Great. Thank you, Jess (ph). And thanks, everyone, for joining our call today. We really appreciate your support of RF Industries. Peter and I look forward to reporting our fourth quarter and full-year results in December. Thank you again. And have a great day.

Ladies and gentlemen, that will conclude the RF Industries Third Quarter Fiscal 2021 Financial results conference call. We thank you for your participation. You may disconnect at this time. And have a great day.