Good day, ladies and gentlemen, and welcome to the RF Industries' Fourth Quarter and Fiscal 2021 Financial Results Conference Call. [Operator Instructions] 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 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 would like to cover a few quick items. This afternoon RF Industries issued a press release announcing its fourth quarter 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 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. With that, I'll now turn the conference 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,…

Thank you, Bob, 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 credits. And looking at the four 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 at $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…

[Operator Instructions] Your first question for today is coming from Josh Nichols.

Yes, hi, thanks, Josh Nichols from B. Riley here. Good to see the company's strong revenue in the fourth quarter and you 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 like the gross margins? I know 4Q was impacted by the 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's it expected to change excluding the Microlab acquisition as you get more of these small cell and direct air cooling revenue items next year?

Yes, thanks for asking question. So yes, so 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 the 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. And most companies are experiencing the same thing. The rest of our margins outside of that concentrated business 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 before it's 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 historical where we've been in the past and then the product mix in total, should get better as the DAC and small cell stuff starts to take off.

And then it just pivoted into the Microlab acquisition here. I mean, it looks like a looking at Microlab business, that's a much higher gross margin. I think they did, like 45%, gross margin in third quarter, are expected to have a nice tailwind for you guys once that acquisition is closed. Is that the case? 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.

Yes, 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 cell and distributed antenna systems, which continue in large venues continue to be a 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, plugged directly into products like Microlab, all the time. So the fit 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 into carrier markets, the same things that I've talked about in 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 months time period to look at. But I think the business is expected to get better along with our business as we see the world sort of getting back to venue builds and other large wireless deployments.

And then last question for me, clearly, some really strong demand, right? We just looked at the backlog even after this quarter, north of $30 million I think that sets up pretty well for fiscal '22. If you can talk about two things real quick, is one, just trying to handicap the odds of you guys be 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, like you're around a little bit under $4 million for the quarter like what's the thought process on how that's going to play out over the next several quarters that here and stays at the normalized level? Or do you think that there's some potential for that to migrate back down over the following quarters?

Sure. Yes. I'll tackle the question on orders. And then I'll let Peter talk through the SG&A. So the orders as I said, in the last few calls that 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 carriers specific build plan. There's going to have to be more orders there. We feel like we've been performing well, and one of the reasons that I made the comment that I did during my comments around we're delivering very well on that business where we're bringing product in, we're getting it built, we're getting it shipped out the door. Yes, 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. 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, and 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 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 size of what orders might look like. But there's definitely more orders that need to be caught in order to get the build plan completed at the levels 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. Yes, so SG&A, as you mentioned, there, we just north of $4 million here for the quarter that includes the kind of sales and performance related bonuses that we accrued for it 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 if you exclude one time charges that we're seeing going forward some more additional acquisition related charges are expected to come through. And depending on how the purchase price accounting shakes out for the Microlab transaction 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 north or should be south $4 million going forward in our SG&A line.

Your next question is coming from Hal Granger.

Hi, thanks for taking my question, Great Quarter Research. Let me start first by saying that congratulations on strong revenue growth and good backlog, Rob. And let me start with a distraction, which is the -- there's some controversy about 5G, and airports and pilots in the US can 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?

Yes, it's -- 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 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 the overzealous response to, oh, my gosh, every plane is going to have a problem communicating, and 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 and 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 or for your acquisition, that you're just going to close in the first quarter for Microlab. But for Microlab, you're going to be using some bank borrowing. Can 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 some a certain amount of debt, because there are tax advantages of being able to write off, interest costs and such. So the bank borrowing for Microlab and potential use of the shelf in the future, if you choose to use it. Does that and right now, of course, if you lock in long term rates, they're pretty low. Can you? Are you -- can you talk about your philosophy on debt versus equity?

Sure, yes. No problem. Good question. It's a big topic for us right now. I mean RF Industries. Two things, we've never had a shelf out there in our history. So it's a prudent thing for us to do with 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 cost of capital, when you look at debt in the low single digits from a debt perspective, you compare that to cost of capital and using equity, and you're looking at 10%, 12%, 15% 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 for deals like this, we've got decent debt agreements out there that we're working through, and we're comfortable that we're, 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 had been relatively small, but those kinds of investments had allowed us to take our volumes up, especially in our distribution center 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 or 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. I never felt pressured, maybe I should have but I never felt pressured to get a deal done even though it took way longer than what we were expecting it to take. And we're happy to have one now that we hoped can get through shareholder approval and get on to getting our hands on that business. But the punch line here is cost of debt is incredibly low, especially right now and we want to take advantage of that.

Right. Okay. Can you talk, Rob, about the landscape now as far as potential acquisitions? Is it -- are you seeing 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?

Yes, I love the ones that show up overnight, that 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 Microlab 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 are good but I'm generally not, while I'm very patient deploying capital and very patient in doing the right deals. I'm not patient about looking for the next one. So it's sort of a right on to the next one. What else is out there we have a decent list that continues to work through, do things pop up every week. And the good news is people now know that we are -- 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. Real, this one's not gigantic, but it's the largest deal that our industry 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, it's I'd like to continue finding deals of this size or larger, there are a few things out there, that kind of kicking around, I get a lot of deals put in front of me weekly, that are call it $6 million to $8 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, 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 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, 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 Microlab, how long do you think that will take to integrate into your business?

Yes, I don't think the integration will take very long. We're -- 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 will effectively have integrated that team into a broader organization structure that really lets us get the kind of immediate upside. This one is it's 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 that 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.

Your next question is coming from Steven Kohl.

Yes, Mangrove. Good morning, guys. I know it's earlier there and late here. So we're covering the time difference well, let me go back in 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, actually they've been working, making a conscious effort to exit the business? And it just came about? Or was it something that you guys approached them on someway that light went off? And they said it makes sense to accident?

Yes. 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 Microlab business almost at all. So I think there's a focus piece in there. But from how it came about that, these two companies have known each other for a very long time. I mean, we really don't compete; we overlap a tiny little a couple percentage probably on sales on both sides. We go through a lot of the same channels, though, and we get compared to each other often it's very common on calls like this. Or when I go to conferences, whenever that's allowed, again, people will ask about Microlab, they asked about a handful of other companies. So it's not a lack of knowledge. And I think just the conversation sort of organically found its way 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's sort of -- it came about organically in a good way. I think it made sense for both companies 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.

So if you look at Trough-Tec, we've heard that's obviously been 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 you've seen is it all related to the build up, the carriers are 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?

Yes, so the quote, I can tell you, the quoting and backlog are cranking we're seeing a ton of opportunities and handling those very well, I think our both the DAC thermal cooling and the small cell offer there are getting some notice. The reason for that they've had great offering. That's why we did the acquisition, I think the go-to- market that we've decided to use by adding some real focus with some additional sales resources, corporately, within our industries, but largely focused on those solution areas, and then the pull through that those can have 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're going to -- 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 quotes, in bookings in backlog and in shipments. And I think just having build plans around small cell. New York's a great example that 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 later than expected or just being delayed. Those are now starting…

When you're talking just turning to the hybrid stuff for a second, when you look at backlog now as a predominantly still at one new carrier, you started a couple of times you're 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 facing activity with them as well or where is the macro picture on the hybrid stuff today?

Yes, 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, or 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, with 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 in order with them to the time 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 looked at mitigating that what can you do there? And are they understanding of the realities today that you guys are facing on them?

Yes, it's interesting, I think, historically, we had done a pretty good job and our team on that product line is knows the space is very skilled at handling the supply chain there. That 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 we -- 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 kind of pre finishing work that we use for some of our bolt 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. We got some -- there's some pressure on material costs, okay, there's some pressure on wages, okay. But we managed through that we can take price increases. On this Tier-1 stuff, you really can't take a price increase. If you want to never do business again with someone, you go back to him in the middle of a major build and say, hey, all your models are wrong, take your prices up, because we're increasing things. 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 it's even with margins being pressured, it still drops a ton of money through 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 move. So we got caught there. And we chose to service the business.

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 we'd 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.