Rob Dawson - President and Chief Executive Officer Mark Turfler - Chief Financial Officer.

Aaron Martin - AIGH Investment Partners Steven Kohl - Mangrove Partners.

Welcome to the RF Industries Fiscal 2018 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session [Operator Instructions]. As a reminder, this conference call is being recorded today, Wednesday, March 14, 2018.

Please note that except for the historical statements, statements in this release, may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When used the words anticipates, believes, expects, intends, future or 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 new products and other risks and uncertainties discussed in the Company’s periodic reports on Form 10-K and 10-Q and other filings within the Securities and Exchange Commission.

RF Industries undertakes no obligation to update or revise any forward-looking statements. I would now turn the conference over to Rob Dawson, President and Chief Executive Officer; and Mark Turfler, Chief Financial Officer of RF Industries. Rob, you may begin..

Thank you, Jake. Good morning everyone. Welcome to our fiscal 2018 first quarter conference call. With me is Mark Turfler, Company’s CFO, who will review financial and business highlights in a few minutes. We’re obviously extremely pleased to be able to report significant growth in revenue, gross profit and net income in the first quarter of fiscal ’18.

Overall, sales grew 56% in the quarter compared to Q1 last year. We drove increased sales in all divisions versus Q1 last year and we control cost, allowing us to deliver improved margins and profitability. Mark will give more details on this shortly.

This is a solid start to the year and shows that we’re executing well on our strategies for long-term growth. As I’ve discussed on prior calls, including the one in January, we’re building a culture of positive energy and accountability where we leverage correct channels and invest in the right resources to address the needs of the market.

These new go to market strategies and channel models are working with higher sales and bookings across all divisions in Q1 as I mentioned. The hard work of the team in these areas help us raise our backlog to $20.2 million as of January 31, 2018 compared to $4 million at October 31, 2017, that’s an increase of $16.2 million in three months.

We continue to build momentum. And while we’re cautiously optimistic about the rest of the year, we do expect our current backlog to power significant growth in net sales for the fiscal second quarter ending April 30, 2018 as compared to the same quarter last year.

Additionally, the Board and I are very pleased that these results allowed us to declare $0.02 per share of dividend, our 31st consecutive quarterly dividend. With that, I will now turn the call over to Mark for a detailed review and discussion of the financial results for the quarter.

Mark?.

Thank you, Rob. And thank you again who are joining us on the webcast today.

Judging from our first quarter results, it appears that Rob’s new go-to-market strategies and channel models are working as net sales for the first quarter of fiscal 2018, typically our seasonally weakest quarter, increased 56% to $10.3 million compared to $6.6 million in the first quarter last year.

As a matter of fact, net sales have increased sequentially each quarter since the first quarter of 2017. The increase in net sales as well as product mix during Q1, 2018 were the primary drivers for the increase in gross margins to 30% from 28% of the same sales in the same quarter last year.

Selling and general expenses for Q1, 2018 increased by $0.2 million over the same quarter last year to cover higher commission and accrued bonuses as a direct result of the increase in sales. However, as a percentage of sales, these expenses declined to only 21% of sales compared to 30% of sales in the first quarter last year.

And in addition, operating margins swung to a positive 5.4% of sales compared to a negative 5.4% of sales in the first quarter last year. The new tax law also provided a benefit this quarter as our effective tax rate dropped significantly.

Much of the year-over-year reduction in our tax rate is due to the new law, which allows fiscal year companies to blend their tax rates this year. Our effective federal tax rate for this quarter is based on two months of the old 35% tax rate and one month at 21%.

We were also able to take a benefit on our net deferred tax liability this quarter, which we are now recorded at the lower federal rate. Thus, as a result of these two changes in the tax law, we were able to reduce our tax provision and therefore increase our net income by over $100,000.

While this quarter’s effective tax rate is low due to these one-time adjustments, we do expect to realize significantly lower rate going forward than we have historically reported. Net income for the first quarter increased to $0.5 million or $0.05 per share compared with a loss of $0.2 million or $0.02 per share in the first quarter of last year.

As a matter of fact, net income for the first quarter 2018 exceeded all of net income for the entire fiscal 2017. Moving on to the balance sheet. Cash and cash equivalent as of the end of our first quarter 2018 stood at $5.9 million, down slightly from the $6 million at fiscal 2017 year end.

Some of this cash was used to fund the higher inventory and accounts receivable necessary to support the increase in sales. We also used cash to pay dividends of $176,000 in the first quarter. At January 31, 2018, working capital increases to $13.9 million compared to $13.2 million at the end of fiscal 2017.

Our current ratio was 3.8:1 and we still have no outstanding debt. We remain committed to our dividend program and recently announced a dividend of $0.02 per share with a record date of March 31st and a payment date of April 15th.

As Rob previously mentioned, subsequent to fiscal year ended October 31, 2017, we experienced an increase in orders of products and services at each of our four divisions. As a result of these increased orders, our backlog increased by $4 million since year end 2017 to $20.2 million as of January 2018.

A substantial amount of this backlog is expected to be filled in the upcoming quarter ending April 30, 2018 and the remaining amount of the current backlog to be largely filled by the end of the current fiscal year ending October 31, 2018.

In summary, we have strong sales, high gross margins, selling and administrative expenses declined as a percentage of sales. First quarter net income eclipsed full year 2017 earnings, working capital improved and we declared a 31st consecutive quarterly dividend.

We expect strong sales for the second quarter 2018 as a result of a significant increase in backlog. This concludes my discussion of the first quarter financial results. Rob..

Thanks Mark. Mark stole my thunder on the review, so I’ll make it easy. We remain focused on driving growth in our key markets in leveraging channel partnerships to best serve our customers.

We continue to feel positive about the direction of the business, the hard work that the team is providing momentum as we move through the year and as evidenced by the stronger backlog we feel and expect to fulfill in Q2 and after. With that, Jake, I’d like to open the floor to questions. We’re ready for our first question..

[Operator Instructions] And we will hear first from Aaron Martin with AIGH Investment Partners..

In particular, are there any products that go out the product lines that are getting extra traction, it feels that the biggest pick up in backlog obviously is the connector and cable divisions. What’s going on there? Is there a slew of products, is there a specific market need that you’re fulfilling.

Is it a build out on the wireless side where they need your products and you putting them all together? Give us whatever color you can..

Thanks for the question, Aaron. So I think for us, all four of our historical divisions the way we typically talked about the business in the past showed growth in the quarter over the prior year. So the good news is we saw some diversity in the growth.

As far as major things that are causing it, we are seeing the every boat rise effect of career spending. I think we’ve done a nice job of getting -- the team done great is getting position correctly so that in the carrier space when they do spend, we’re thought of as a relevant player both on collect field side and on the fiber optic side.

So if you’re looking for what drove the lion share of our growth there, it was better positioning within the key markets and specifically we saw little upside in the career ecosystem..

In particular, there has been I would say an under investment in that space, which is the credit for you guys in terms of gaining additional market share over the quarters to continue to make progress since we came on board.

Is this --there are indications that finally a loosening of the first springs here, particularly in anticipation of broadly 5G build out.

Is that one of the drivers here?.

I think yes, so that’s the gigantic question I think everyone’s asking. And as I listen to the call and our leases from other companies that are in a similar space in a similar product line to us.

I think what we’re seeing is very early preparations for 5G and in some cases, it’s hard to tell the difference between what’s happening today and through 5G. There is a lot of prep work that goes into getting a network ready. But the good news is we’re on the path of component side.

So we’re not going to see the wild swings of making a radio or having the active gear that is a major driver of deciding when they’re going to deploy that technology. For us passive components is it’s the cable, the connectors, the jumpers, all the equipment to allow those radios to function.

And I think we’re seeing -- certainly seeing some building and I feel like if it’s not through 5G, it’s certainly a step in that direction..

Are you finding other applications outside the private applications for your cable that’s driving the growth outside of the wireless connectivity, for example data center?.

So I think historically if you look at the way we talked about the business, we spend a lot of time talking about the wireless market, and the name is RF Industries. So that makes sense.

But if you look at the way the business is structured today, we have a significant amount of business in few industrial OEMs, whether that’s aerospace and defense or through industrial equipment manufacturers. We’re seeing nice growth there.

We also have a key component of our business that is in the data centers and collocation businesses that also saw some nice growth in the quarter. So while we’re benefiting from positioning ourselves effectively in the wireless space, which is where I think we’ve been thought for a long time.

We’re functioning in the two way radio space as well, which is far away from career CapEx as you can get. And we’re also doing a good job, the team is doing a great job of getting positioned in the right OEMs, making sure people understand our value and just leveraging the conversations we’ve been having for years is what else we can do for growth..

Are there any particular individual OEMs that are driving the growth customers where you’re gaining a bunch of share or that’s not what it’s about?.

No, I don’t think. In the quarter, I don’t think we saw any one major OEM drive some growth. We’ve got some very longstanding customers that we do deepen numbers with many of them and it’s just continuing to service them as a -- almost as a recurring revenue stream, because we’ve been doing business with them for so long.

So for us -- when we set this year in motion, it was very simple, hey, let’s return to growth, profitable growth, make sure we can cover the dividend, let’s do all the good, blocking and tackling that we should be doing. And that led to some conversations with the majority of our customers, asking what we could do better and how we do more.

And so we’re seeing some growth from that. I’d love to say it’s some elaborate scheme that I cooked that’s driving it, but it’s really just working hard and being good to our customers and seeing what we can do to help..

Your customer that was 36% of revenue in the quarter.

Is that a distributor or is that an end customer?.

Yes, it’s a distributor. As usual, our largest customers are distributors..

And then can you talk to the sustainability of the trends that you’re seeing right now?.

So a little bit, I guess, is the short answer. The longer answer is our backlog of $20.2 million that we have at the end of January is going to sustain us for a while. We expect a significant portion of that to go out in the current quarter, our second quarter that’s happening now. And then fulfill the majority of that throughout the rest of the year.

Beyond that, we historically have not had a large backlog, which is why it’s rarely ever been disclosed. But I think at this point, the obviously think we have to talk about, we are very, very focused as a team at getting into -- leveraging this into a longer term focus in the business so that we can drive consistent growth.

I think I feel really good about what we’ve done and how the team has executed on the specific plans for business. To give much visibility beyond what we said would be tough to do, I think I’ll be better at that answer on the Q2 call, which will be in June I should have a lot more insight..

And just my last question, so thank you for taking a lot of questions, and I’ll do more offline with you.

But just in terms of two way radios, you mean through public safety build out for example?.

Yes, but not the way -- public safety gets a lot of buzz right now. And that’s more around the public safety task and first net and the big spend that’s going on around getting better coverage.

I was really more referring to -- we've got a long list of historical customers who buy from our distributors that are main screening two way radio systems or installing two way radio systems. Some of those maybe for public safety. It can also be on a college campus or any number of other applications.

So my reference to two way was less about just the big buzz of public safety today and more about the historical two way radio systems..

[Operator Instructions] We’ll now hear from Steve Kohl with Mangrove Investments..

Let me touch on a couple of things. First of all, maybe if Rob you could speak the core San Diego business little bit, but obviously a good uptick. But I know one of the strategies was to continue to drive more business through these other channels, and we’ve heard a little bit about that. And I got that that’s getting traction.

But maybe give us an update on how are you’re feeling without those and some of those channels and opportunities.

Do you expect that to continue to gain momentum as well as we work through ‘18?.

I think the cable and connectors group, which is our historical business based here in San Diego is we saw some nice growth year-over-year and had a decent year last year overall. I think for us there continues to be a significant upside.

For us to realize that upside we have to get ourselves positioned correctly in some of the larger careers being a part of build the materials that they’re being put together by integrators, careers, power companies, contractors. We need to be on that list as either expect position and as good scenario.

When we get those conversations and get to show the product quality, we get a good job of wining some business. And so we’re in the midst of that now. We’re doing a good job of having the conversations and we’re seeing a little bit of upside.

I will say as much as I don’t like the word seasonality, that seems to be the one business that we have that does have a little seasonality to it around the first quarter. So I think we need to work hard to drive some growth but I feel good about our prospects there, specifically related just the quality and price points of our product.

Customers will love it when they get it. And so our connectors are great quality, we make great cable assemblies, a lot of low cable assemblies, which are typically used in vast deployments. We’re certainly one of the incumbents in that space. So I think we feel really good about it but there is definitely meaningful upside there..

And next question, just curious obviously we’ve had with the acquisition you’ve had growth that just turned out quite nicely, and given the limited of turned up. What do you attribute as part of again more success designing into some things. And I know obviously as you look back after a year, Darren have some success.

And are things changing there you guys doing a better job of testing the market and getting working with these customers to help design these things or what’s changed or what is changing in that area?.

Yes, really I think the biggest thing is level of intensity and energy around our opportunities, and that’s a simple way of saying the sales team has done a terrific job of getting positioned in finding opportunities.

And then our product team has continued to respond whether it’s a product that we already have theoretically on the shelf or that we’re making every day or if it’s something that requires a tweak and a slightly new design, which we’re turning around quickly.

And I think that’s a big advantage for us in that market is our speed from conversations to design to turnaround to actually producing the products. We’re quick and we’re flexible in doing that. So I think the team has responded extremely well in customizing some of these solutions that the customers need.

And that’s happening in multiple different locations of our various acquisition through the years. But certainly as Cables Unlimited has proven many times in the past, they can take almost any scenario find a solution and turn it around quickly..

And last question is going to be an odd one, since we haven’t talked about it in a while. But I noticed radio and mobile royalties, it’s always great to have royalties and create money for --. But I noticed they were -- we didn’t get too much of this quarter.

Is there something changed there or what’s happen? I can’t remember how long you have that tail on radio and mobile?.

So that expires. The royalties on that expire last year, I think it was….

Yes, that last year and expires, that was it..

[Operator Instructions] We’ll now hear from [Gregory Graves]. Go ahead sir..

Just two brief questions one is, has the significant increase in your backlog.

Will it require any additional capital investments to meet those requirements on a timely basis?.

So minor investments, which we’ve already made so you would see the lion share of those already built into the results that you’re looking at. I think the majority of what needed to add -- and there was a little bit of equipment needed just to make sure we would increase our volumes, that’s already built into the Q1 results.

So going forward, I wouldn’t expect any major capital expenses..

But anything would you expect a similar blip in demand in this existing quarter to keep the backlog at a relatively high level as we go into the rest of the year?.

I would love to say, yes and then I knew the answer to that certainly, but we’re working on that. That is the big question, because I mean the obvious scenario here is we have this large amount of business we need to produce and get it out the door and make the customers happy, which we seem to be doing. We got at the same time backfill that business.

And as I mentioned previously, our typical backlog, we didn’t disclose but it was more in the $3 million range, let’s call it, if you go back over the years. So when we jump into $4 million back when we released in Q4, we felt really, really good about what we’re doing.

And we’re in the troughs of trying to add to it, which we then did producing this $20 million number. We continue to book aggressively against our goals and booking new business and driving growth.

So I can’t give definitive answers on can we keep that number up where it is, but I can tell you that there is no other focus, of the team at the moment it’s as simple as it may sound, I talked about it for the team. We need to sell stuff and then we need to make stuff.

And right now we are clearly making stuff as fast as we can and the sales team is very focused on selling stuff to backfill that, so we can stay busy. So I’ll have a much clear answer to that Greg when we get to second quarter call..

And the last question is I’ve read a lot about crypto-currency positives.

Do any of your products fill a need in that area that you’re aware of?.

So not specifically that I’m aware of. We do sell a meaningful amount of product into the data center and co-locations based. Somebody is using that bandwidth to do something. But we don’t have a specific push into the crypto centers now that it couldn’t be done.

Clearly, there’s cables and connectors being used in those configurations, but not that I’m aware of..

[Operator Instructions] With no additional questions in the queue, I’ll be happy to turn the call back to your host for closing remarks..

Thank you, Jake. Thanks all of you for joining our call this morning. I would also like to thank our employees, customers and shareholders for believing in the company and supporting us. We really appreciate your interest in RF Industries and look forward to sharing our Q2 results in June as I’ve mentioned a couple of times.

As always, please feel free to reach out to me or Mark if you have any additional questions outside of this call. Have a good rest for the day. Thanks again and we’ll talk to you soon..

Ladies and gentleman, this does conclude your conference for today. We do thank you for your participation. You may now disconnect..