Rob Dawson - President and CEO Mark Turfler - CFO.

Orin Hirschman - AIGH Investment Partners.

Welcome to the RF Industries Second Quarter Fiscal 2018 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, Monday, June 11, 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, beliefs, expects, intend, future and other similar expressions, identify forward-looking statements.

These forward-looking statements reflect management’s current views with respect to future events and financial performance and are subject to risks and uncertainties and actual results may differ materially from the outcomes contained in any forward-looking statements.

Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales of new products and other risks and uncertainties discussed in the Company’s periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission.

RF Industries undertakes no obligation to update or revise any forward-looking statements. I will 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, Abby. Good morning everyone and welcome to our fiscal 2018 second quarter conference call. With me is Mark Turfler, the Company's CFO, who will review our financial and business highlights shortly.

As you saw in our earnings release from earlier this morning, RF industries fiscal '18 second quarter was the largest quarter in the history of the Company in both sales and net income.

These results were driven by growth in our historical run rate business as well as some nice successes with customers in our OEM market and the Tier 1 wireless ecosystem market related to three 5G or 5G build out.

The creative solutions and hard work from our team and the heavy focus on meeting our customers need has led to increased sales and bookings while showing significant improvement in gross margin.

During the quarter, we were asked to hit some aggressive production milestones on behalf of our customers and we did so in a flexible way without major increases in fixed operating cost.

While the strong efforts of the team helped us to deliver a large portion of the $20 million backlog that we had entering the second quarter, we were able to generate new orders of 12 million during the quarter.

This enabled us to start the third quarter with a solid $10 million backlog which although down from the beginning of the second quarter is still substantially higher than the $4 million backlog we started with the beginning of the fiscal year.

Q2 was a big quarter for us and while we strive to set records every quarter, I'm aware that there will be ebbs and flows from quarter-to-quarter as we execute on our growth strategies.

While we still have a lot of work to do, I'm confident in our ability to perform and believe that now is the time to invest in the business as we build a platform for long-term, sustainable and profitable growth. In the process, we're most proud of our gross margin and earnings per share increases which show our focus on profitable.

We remain focused on growing sales, maintain strong margin and leveraging our distribution channel to diversify our customer base. We're optimistic about the rest of the fiscal year as we continue to build momentum.

At this time, we expect the Company's run rate business in combination with project work and our current backlog to result in significant growth in net sales and net income for the current fiscal third quarter ending July 31, 2018 as compared to the third quarter last year.

Now let me address more directly the big question that I know is on everyone's mind. Was Q2 the new normal? The short answer is, not yet, while historically we delivered sequential growth each year from Q1 through Q4. I'm not expecting us to deliver another $22 million quarter in Q3.

But as I just mentioned, we do expect significant growth over the last year. Additionally, we expect the Tier 1 wireless ecosystem business that we’ve developed to continue and to be a little lumpy quarter-to-quarter, whereas our traditional run rate business and OEM projects tend to be a little more smooth and consistent and spread out over time.

Layering our growing run rate business and our new project business together will allow for continued growth and solid margins. The summary is that our backlog still remains strong. Beginning in January of this year, we started disclosing our order backlog which was not something that we had disclosed previously.

At that time, we disclosed a $4 million backlog to begin the fiscal year and that backlog grew to $20 million at the beginning of Q2. As mentioned a moment ago at the beginning of Q3 we had a $10 million backlog.

The focus on booking new business and building a backlog has given us the ability to see out a few months in a business that historically was my harder to project. We believe that at this time disclosing our backlog is a relevant data point to share with our investors.

Overall, I prefer to concentrate on our long-term opportunity and while Q2 was a great reminder of what’s possible, we’re excited that are four capabilities are being appreciated and provide us with a platform for that long-term growth. So, this company is really about three things quality, speed and flexibility.

We manufacture incredibly high quality products. We’re extremely responsive with fast turnaround times and high attention to customer needs and satisfaction. And we’re flexible to deliver exactly what the customer needs and will customize for their requirements, including things like labeling and testing.

We do these things better than anyone and I am confident that this is how we differentiate ourselves in the market. Now let me take a few minutes to discuss some of the progress we've made in our strategies since I joined the Company last July. First, we talked about increasing sales and our results state that we're having some success here.

We’ve adopted go-to-market strategy to improve our position, responsiveness, and presence for each industry and market where we have product offerings. We believe these efforts contributed to sales, bookings and backlog during the second quarter.

We’re getting better at influencing the end-user customers to include us in build the material or give us best position. We then want to be positioned to allow customers to buy through whatever channel they prefer.

We use distribution for the majority of our customer market segment and need to make sure that we have the correct distributors in place for each end market. In the OEM markets, we service many of these customers directly due to their highly customized wiring, harness and cable assembly needs. Second, we set out to improve margin.

Our gross margins were up from the mid-20s to the mid-30s in the last 10 months, so we’re making some good decisions. We’ve done this through being very focused on it every day, that’s number one, talking about us making sure that teams are all heavily focused on it.

Then we need to make sure we have accurate market pricing, look for cost improvements on the purchasing side, and use our labor more effectively. Third, I talked about maintaining cost controls that were put in place previously. We've done that and SG&A is down as a percentage of sales and we see no major CapEx investments required in a short term.

We’re maintaining these controls by using a variable expense approach for flexible production and strict accountability around any investment that is required. Finally, culture, I’ve talked a lot about culture on the last few calls.

We will continue to develop a culture of growth as one company versus multiple divisions that we’ve historically had in place. On the sales and operations side of our culture, we’re always looking for ways to work together more effectively between the various historical divisions.

We’re moving in the right direction and many things are going well while in other cases we’re finding various opportunities for us to perform better. As I said in the past in simple terms, we need to sell more stuff to more customers and then make stuff fast and efficiently.

The exact location where the sale happens or where that production is done should be driven by capability, capacity and proximity to customer and not necessarily our historical set up. We're constantly reviewing all aspects of our business for synergies and leverage points.

On the core value side culture, it's about positivity, accountability, communication and an increased pace of execution. I frequently share with the team the three expectations I have for being a part of the Company. First, work hard, I expect you to outwork anyone else who's in a similar role and we're seeing some success here.

Second, be honest and ethical, just do the right thing. Third, leave everyone in a good or better position than when you found them. If we do these things along with executing on simple growth strategies, the financial growth results will be there and I believe that's what contributed to our success thus far in the last few quarters.

Now going forward let me talk a little bit about some areas that would be important for our investors to watch in coming quarters, we need to leverage our successes and invest, now is not the time to relax and just enjoy our results. My mind set is that we're supposed to put a strong result, that's our job.

I believe now is the time to accelerate and invest in the business as we build a platform for long term, sustainable and profitable growth.

We're investing in key resources to improve our market position in areas like the wireless carrier ecosystem, with our distributors and with OEMs in specific market segments like industrial, defense, manufacturers, test and medical.

We're obviously pleased that we're seeing some awards from our strong market positioning, but we need to continue to work hard and keep our focus on rapidly responding to our customers' needs for customized quality solutions. Additionally, we will further diversify our customer base and distribution channels.

We benefit from having great distribution partners, a diverse customer set, diverse market segment and diverse product type. We've not yet shown what it looks like when we hit on all cylinders, but we're finding some nice projects while we're still growing the core run rate business and diversifying.

We're obviously not going to turn away a nice piece of business because it will cause concentration, but at the same time we understand the need for diversification. Next, we'll benefit from our strong balance sheet and cash position.

We continue to operate with no debt and a strong balance sheet which gives us a lot of flexibility on how we run the business. Our cash position is increasing and our priorities for our cash are the following. First, we want to continue to provide a nice cash return to shareholders, which we continued with our 32nd consecutive quarterly dividend.

Also we feel that an even better use of cash is investing in both organic and inorganic growth for the Company. On the organic side as I discussed, we will continue to reinvest in the business both in talent and in improving and streamlining our operations.

On the inorganic side, we expect to become more interested in M&A activity, while there's nothing on the table today I expect to greatly increase my review of deal flow in coming months looking for possible acquisitions to further diversify our customer base, product set and market segment along with adding talent to the team.

And finally, we will keep moving our one company culture forward in a positive direction, which I've already discussed at great length. So, overall, we feel like we're making good progress in the business and I believe our strong start to fiscal 2018 is proof of what's possible here.

We appreciate the partnerships with our customers and suppliers, the hard work of our employees and the support of our shareholders. With that I’ll 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 good day everyone. Our second quarter sales of $22.4 million increased $14.8 million from $7.6 million in the second quarter last year.

The majority of the sales gains were at our custom cabling segment where sales increased by $14.6 million to $19.6 million, due to higher shipments of custom, fiber-optic cable and other copper cabling products. Second quarter gross profit increased 6.1 million to $8.1 million, while at the same time, gross margins improved to 36% from 26%.

The strong increase in gross margin is attributable to the growth in sales at our custom cabling segment which had the effect of spreading certain fixed manufacturing costs over a larger revenue base.

Selling and general expenses increased 1.7 million to 3.4 million, due to higher compensation costs related to the strong sales gains at our custom cabling segment.

Despite the increase in expenses, selling and general expenses as a percentage of sales declined to 15% as compared to 22% of sales, indicating the Company's increased operational efficiency. The second quarter tax provision was 20% compared to 47% for the second quarter last year.

The decrease in the effective income tax rate was driven by the reduction of the federal corporate income tax rate, primarily due to the Tax Act and the benefit of R&D credit. Net income for the quarter was 3.2 million or $0.34 per diluted share, compared to net income of 0.1 million or $0.01 per diluted share in the second quarter of last year.

Net margin for the second quarter was 14.3% compared to 1% in the second quarter last year. As for the first six months of fiscal 2018, financial results were favorably impacted by our historic Q2 results as just mentioned. I will touch on some of the first half results that I believe are worth to highlight.

Sales for the first half of 2018 increased by $18.4 million to $32.7 million compared to $14.3 million in the same period last year. As a result of these strong sales gains, gross profit increased by $7.4 million to $11.2 million, while at the same time gross margins increased to 34% from 26%.

Selling and general expenses increased 1.9 million to 5.6 million due to higher compensation related to sales. Despite this increase in expenses, selling and general expenses declined to 17% of sales compared to 26% of sales in the first half last year.

Net income for the first six months of fiscal 2018 was 3.7 million or $0.40 per diluted share, compared to a net loss of 0.1 million or a loss of $0.01 per share within the same period last year.

With regards to cash flow and liquidity, as a result of our strong first half results, we generated cash from operations of 2.5 million or approximately $0.28 per share, [we lowly] contributed to our 42% increase in cash to a 0.5 million. We were able to generate 32.7 million first half sales with only 0.1 million in capital expenditures.

This concludes my discussion of the second quarter and first-half..

Thanks Mark. We achieved a record second quarter sales higher margin, near record first-half net income, strong cash flow, improved working capital, have a strong backlog of 10 million and declared our 32nd consecutive quarterly dividend.

The Company expects to again post significant sales growth in earnings compared to the same quarter last year in the current third quarter of fiscal '18. With that, I would like to open the floor to questions. Abby, we’re ready to take first question..

[Operator Instructions] And our first question comes from Greg Rich who is a Private Investor. Please go ahead..

Congratulations gentlemen on an outstanding quarter. I have two questions. First question is regarding your involvement with the 5G build out or implementation. Could you comment as to where along the build out we stand right now from industry standpoint? We've just seen 10% build out so far or 50%.

Could give us any idea about that?.

Greg, that’s a great question. I would love to say that we got a definitive number nailed on that. I think that's the easiest way for me to answer that is we’re in the really early stages. So in my comment I think I may even call the pre-5G.

We're still seeing some call it interim updates from 4G to 5G or even just finishing up the 4G footprint is what we believe is happening. With that said, there has obviously been a large amount of talk about that amount of CapEx that’s going to be spent by the large carriers in the coming few years on 5G.

So I guess generally we think we are in the very early stages in the infancy of the 5G build..

Alright and the second question regards the use of or the potential use of RFIL products with the cryptocurrency processing centers. Can you comment about that? I mean do you see a good opportunity there or is it just kind of minimal or….

Yes, so, we don’t do anything with that today. With that said, it doesn’t mean people aren’t buying our products and utilizing them at that space, but that is not -- the crypotcurrency centers themselves are not a focus point for us.

We do business with large data centers, which certainly are processing some of that work, but we’re not directly involved with the cyrpotocurrency centers today..

[Operator Instructions] Our next question comes from Orin Hirschman with AIGH Investment Partners. Please go ahead..

Can you go through, it is a follow up really to last question of on the topology that people are using at the base station level and how that topologies evolving and what that might mean for you guys?.

So, are you referring specifically on the 5G build on?.

Yes, 4.5G build out, whatever you want to call it at this point..

Right..

And also all I mean, if you can clarify exactly following on the last question whether this is just really prep work or when the 5G build really becomes real in your opinion to have an opinion at this point?.

We think we are in the early stages of it, so I think what we're starting to see is either call it a prep work or laying a ground work for the next couple of years of significant build.

So I think related to the topology question, it really depends on the carrier and in some cases not just the carrier but the region or the type of radios that they are going within different parts of the country.

We've seen some folks using remote radio heads, not unlike what they may have done in the 4G build where the radio and antenna are integrated together and go with the top of the tower. In other cases, we're seeing the typical topology that's been around for years with the base station radio at the bottom and the antennas at the top of the tower.

The bigger topic here I think is the densification aspect of it which gets talked about a lot, and that's really making sure that coverage footprint can handle the density of use from mobile users, but that goes into small cell and dash as well.

But specifically on the power topology, I think we're positioned to sell products into really any other design that may go on. We have some successes been -- when someone decides to go with the remote radio head or an integrated radio and antenna, which will be a fiber or hybrid fiber fed solution.

We feel like we know that space pretty well and have an opportunity to perform there..

And just in the connector side, is this a drive on the connector side as well or plus so?.

So I think that the connector side can benefit probably as much from the historic power design builds that are there, but also from dash deployments whether that's being stadiums, municipalities even in building.

We're seeing a great opportunity to the connector wise and adaptor wise for adaptor kits to make sure that when a technician goes out to a site or is working at any location, they have the correct data that they needed and don’t have the delay getting the network online or per matter of days while they wait for something different or they need to run back somewhere and pick up the right product.

We ideally love to keep a kit on every technician's truck, so he is ready to do that work and we feel like we're seeing some success there and I think that will continue just kind of the day-to-day run rate business.

When we look at our overall historical business, the cable and connectors business is kind of the run rate that is actually trending up a little bit which is nice..

[Operator Instructions] And we have no additional phone questions at this time. So I would like to turn the call back to Rob Dawson for any additional or closing remarks..

Great, thank you, Abby. Thanks everyone for going easy on us this morning, only a couple of questions. I appreciate your interest and support to the Company. Mark and I are obviously always available to take personal calls, if you have any additional questions or you need more information outside of this call.

We look forward to again discussing our results when we report results for the Company's third quarter -- fiscal third quarter in September. Thank you again to your support. Thanks for joining our call and have a great day..

Ladies and gentleman, this concludes today's call and we thank you for your participation. You may now disconnect..