Goody everyone. Welcome to the RF Industries Fourth Quarter and Fiscal 2019 Financial Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded today, Wednesday, December 18, 2019. At this time, I would like to turn the call over to Mr.

Todd Kehrli of MKR Group. Please go ahead, sir..

Thank you, operator. Good afternoon and welcome to RF Industries fourth quarter and full year fiscal 2019 financial results conference call. With me on today's call are RF Industries' President and CEO, Rob Dawson; and Chief Financial Officer, Mark Turfler. Before I turn the call over to Rob and Mark, I'd like to cover a few quick items.

This afternoon, RF Industries issued a press release announcing its fourth quarter and full year fiscal 2019 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 and 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 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’ll now turn the call over to Rob Dawson, President and Chief Executive Officer.

Rob?.

Thanks, Todd. Good afternoon, everyone. Welcome to our fiscal 2019 fourth quarter and year-end earnings conference call. We're pleased to report another strong quarter with sales growth of 57% over the fourth quarter last year, and full year sales up 10% over the prior fiscal year. We had tough year-over-year comparison with the huge Q2 in 2018.

I thought, I was done talking about it, but I’m finding that most other people aren't. So, hopefully, we're getting close being past it. In the year, we generated solid sales growth in our distribution centric business to the tune of 16% year-over-year.

We also continued to sell the wireless carrier ecosystem, although at lower levels compared to the huge year that we had there last year, more on that in a few minutes. And after my comments, Mark will go a little deeper into our Q4 and full year results. Before that though, I’d like to take some time and recap and maybe reframe the last few years.

I joined the Company as CEO a little more than two years ago. So, I just completed my second full fiscal year in that role. Reflecting on two years, we've done a lot. When I arrived, total annual sales were in the $23 million range. We had four businesses operating nearly independently with somewhat disparate cultures.

And our business was roughly breakeven. Additionally, we had little to know investor outreach, including no quarterly conference calls or attendance at any investor conferences, and our stock was trading below $2. Said simply, the Company needed some reenergized leadership to drive a strategic growth plan.

So, how did we get to where we are today? As we began fiscal 2018, we built a simple plan to grow sales 10% to 15% through some new go-to-market concepts and improved sales culture. The results of those efforts led us to sales in two years improved from $23 million to $50 million to $55 million in a year we just ended.

Needless to say that's not how he drew it up. But we're happy we were able to deliver -- extremely pleased, we were able to deliver such significant growth. Through that growth, we've been profitable every quarter, even as our margins have moved around a little bit. And we've invested in the business to support higher levels of sales and future growth.

And that's where we get credit for being profitable like we are and the flexibility that that allows us in running the business. Our growth plan included doubling down and using distribution to go to market.

We worked hard to improve the relationships we had with existing distributors and set out to add additional distributors to address specific market opportunities. This pivot to distribution has given us a great chance to grow organically in our channels, investing alongside our distribution partners on marketing and sales strategies.

A big catalyst for our growth in the last two years is the business relationship that we developed Tier-1 wireless carrier ecosystem.

Our team in Long Island, New York has done a great job, not only finding and developing those opportunities, but also nurturing them into long-term relationships where we continue to see meaningful business in that market segment today. Not to mention our production team delivering on some tough timelines to meet customer needs.

As we've discussed in the past, the Tier-1 carrier space is generally project oriented and tied to CapEx spend. This means that the flow of purchases is somewhat lumpy with peaks and valleys.

I would have loved it if our Tier-1 wireless customers would have slowly spent over several years, but instead we were blessed with a spike early, followed by continued strength and now bounces around a little quarter-to-quarter. We didn’t build specific goals in this market.

So, the Tier-1 business wasn't hit as a sweetener for us on top of our other growth. As a reminder, we did leverage this into a long-term relationship that continues and gives us the chance to be involved with other similar customers and opportunities. We continue to pursue these and feel positive about the progress that we're making.

We see the wireless market as a significant growth driver for the Company, which is why we completed two acquisitions in the past eight months that enhance our capabilities in the space, more on that shortly.

From a Company culture perspective, we set out to instill in the entire team the idea of growth and a related sales culture where growth isn't just an option, it's a requirement. And that growth doesn't really do us any good unless we're doing it profitably.

While we're certainly not perfect, nor finished evolving our culture, we've made huge strides culturally to be less siloed in our thinking. We're better at sharing sales opportunities looking for cross sell and from an operations perspective, looking to build products in whichever location makes the most sense.

On the shareholder front, we’ve established a stronger relationship with our shareholders and the investment community. We've had conference calls like this one every quarter since I joined the Company.

And while sometimes it felt like I was talking to an empty phone line, we're very pleased to see the progress we've made with investors, where our institutional shareholder base has grown to nearly 50%. We've also been fortunate to have been invited to and attended several key investor conferences.

Although we’ve been through this transformation, we've been openly communicating with investors about our plan and our progress during both positive and challenging times and we're committed to continuing that. Turning around the Company is not a quick or easy process. As I said many times, this is about building a platform for the long term.

Finally, we've also continued to pay a quarterly dividend to provide our shareholders a financial return during this process. If you look at the plan that was rolled out two years ago, we’ve checked every box on that plan so far. We grew sales, maintained profitability, developed and executed on plans to grow both organically and through acquisitions.

We continued to add and upgrade talent as well as invest in the operations of the business to support higher revenue levels. So, let me take a moment to share how I look at the business now. I really see it in three general buckets. First, our core business.

This business is diverse, healthy, growing and hugely benefiting from our deeper focus on using distribution to go to market. During the year, we saw increased business from our distribution channels as evidenced by the continued growth we're generating in the RF Cable and Connectors segment, which again grew 16% year-over-year.

This healthy growth underscores the success we're seeing with our strategy to drive more business through distribution. We continued to build out our distribution channel, while at the same time broadening our reach with our existing distributors. We play in several massive markets.

So, we're just scratching the surface with the amount of sales that are possible through distribution. It's also easy to build growth goals here as we have done a nice job of making that into more recurring run rate business. Next, we have our concentrated business.

Business-to-business that we do in a Tier-1 carrier space, where we've seen huge growth but also find the purchasing patterns and then shipment timeframes to be lumpy, as I mentioned earlier. That's just the nature of project centric business. And this area gives us great exposure to the impending spend on the 5G infrastructure build out.

Said simply, I'd rather have this business than not, and I appreciate our customers in this space. Our concentrated Tier-1 wireless carrier ecosystem business delivered nice results in 2018 and again in 2019, though in 2019 at a lower level compared to the prior year as we expected.

It is important to note that just two years ago, we didn't have any of that direct Tier-1 business and that grew to $20 million plus in fiscal 2018. This year, while we didn't get that same amount of orders, were still able to generate nearly $20 million in wireless carrier revenue for the year.

As part of our growth plan, we’ve focused on building the bill of materials to capitalize on shortcoming wireless infrastructure spend that we believe will run for quite some time.

While the timing is still in question as to when that spend will happen in a consistent fashion, we have the product to participate in that spend in a meaningful way once it begins. And finally, we have our newly acquired business or inorganic growth.

Our results for the last two years gave us an improved cash position that accelerated my thoughts on M&A. While over time acquired companies will likely blur the lines with the first two buckets of core and concentrated business, we continue to look for inorganic growth to be a part of reaching our goals.

We stated our commitment to doing at least one acquisition this past fiscal year and we did exactly that. In March, we acquired C Enterprises, a manufacturer of quality connectivity solutions sold through telecommunications and data communications distributors.

C Enterprises provides us with solid manufacturing capabilities that strengthen our overall offer in the market and a strong fiber optic and copper product offering that’s scalable and complementary to our business.

C Enterprises had another solid quarter in Q4 and we're just completing a sales structure change to include their sales team and overall distribution sales approach. More on that later.

In addition, just last month, four days after the close of the fiscal year, we announced that we acquired telecom supplier Schroff Technologies International, representing our second acquisition.

Schrofftech is a manufacturer of products serving the high growth wireless, telecom and cable markets, and offers passive and integrated solutions for the communications marketplace that are a great fit with our industries.

We believe that their product offerings fit perfectly with our focus on the 5G small cell market and the significant growth opportunities we see in servicing that market over the next several years. Schrofftech has relationships with all four of the major wireless carriers and other key players in the space.

And they bring us higher margin revenue, which we expect to help our blended margins in the coming fiscal year.

In addition, as with C Enterprises, we expect to benefit from the sales growth Schroff has already been generating as well as accelerating that growth going forward by going through additional coaxial and hybrid fiber sales to their carrier customers.

So, within the past eight months, we completed two successful acquisitions that based on historical run rates should add approximately $16 million in sales in annual -- sorry, in annual revenue.

We paid $4.6 million to date for the two combined businesses and feel that we have the potential to grow these two companies further as we plug them into our go to market strategies. We continue to pursue a very robust and growing pipeline of acquisition candidates. And I'm hopeful that any additional acquisitions we do in the future will be larger.

Our balance sheet remains strong and provides us with significant resources to go after additional acquisitions that make sense. In terms of acquisition targets, I'm generally interested in companies in the $15 million to $30 million revenue range to give us access to a new product set and new customers or segments.

Every acquisition takes a lot of effort to integrate, in addition to the legal costs and other related costs. So, I'd rather put those resources to work on something larger and gain even more economies of scale. I believe that our state is right for further consolidation of both big and small companies.

While I don't have specific for anything right now, it's not outside of realm of possibility for us to complete a larger acquisitions in fiscal 2020.

So, as we look to the new fiscal year, we feel good about continued organic growth in our core distribution business and appreciate the opportunities that were given from a carrier related market, while assessing the fact that it might be a little inconsistent.

Fiscal year 2020 is the year to further operationalize the key functional areas of our business. We need to keep getting better. As mentioned in the past, we recently rolled out a new sales structure that combines all of our distribution sales teams, where we now have an account-based and regional goal system and centralized leadership.

This primarily combines our traditional RF coax sales team and the C Enterprises sales team into one. So, we also get an account review and shuffle in our OEM centric business, assigning the key accounts to various sales people. We anticipate that these changes will drive organic growth through our distributor partners.

In our concentrated business the carrier spend is a big wildcard, but we're working hard to diversify and land more customers and product opportunities. We also continue to work on integrating our acquisitions and we'll see the full year impact of both of them this year.

I expect that our mix of product business -- sorry I expect that our mix of projects business and fast turn book and ship business will continue to fluctuate, which should offset being more project-centric and our distribution business being more run rate.

I like the backdrop of the run rate business, while the projects cause numbers to bounce around a little bit. We're working to further evolve the Company with a positive growth culture and sales mindset including adding or upgrading talent in key positions within the Company.

With the savings that we find through synergies and redundancies, we will redeploy that capital to invest in the right talent to help us move forward. To that end, we're very pleased to have announced earlier this month our hiring of Ray Bibisi to the new position of Chief Revenue Officer, beginning in early January.

Ray comes to us from RFS where he led our North America business and helped grow their revenue to over $300 million. In this newly created role, Ray will report directly to me and will be focused on driving new growth initiatives. I've known Ray for a long time and his experience in sales and leadership will be a huge positive addition to the Company.

His direct sales experience in wireless infrastructure, mobile and broadband networks fits perfectly with our product line-up. And equally important, he shares the likeminded approach to team building and growth and is well respected in the wireless infrastructure industry. We're excited to add someone of Ray's caliber.

I'm personally looking forward to partnering with him to find new market and product opportunities to grow our business. In summary, we've made significant progress in executing our long-term growth plan and working toward our goal of reaching $100 million in sales over the next few years.

That plan calls for organic growth and the layering in of M&A for inorganic growth. We feel good about our core business and remain diligent about wide use of our capital to drive further growth. We're getting better at delivering consistent and more predictable results.

And while there is much more to accomplish, I'm very pleased with where we stand as we move into new fiscal year. While we don't provide specific guidance, in fiscal 2020, we've obviously built a plan to continue to grow. So, we expect the business to ramp throughout the year with Q1 being our seasonally toughest quarter.

And like many others, we saw a slowdown in the carrier CapEx spend as 2019 was winding down. We're also busy integrating our latest acquisition of Schroff Tech and working through our sales reorg, both of which should give us clear results as the year goes on.

Our solid results reflect the steady progress we're making with the multiyear transformation of the business. We're pleased to have generated meaningful growth both organically and through acquisitions and while at the same time investing in our business, remaining profitable and continuing to pay quarterly dividends.

And as we continue to put the pieces in place to create a solid platform for future growth, we remain focused on achieving our long-term growth plan. 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 afternoon, everyone. Our net sales in the fourth quarter were $15.5 million, an increase 57% or $5.6 million, compared to $9.9 million in the fourth quarter a year ago.

The year-over-year increase reflects sales contribution from the acquisition of C Enterprises as well as growth in both our traditional run rate business and project work in the OEM and wireless carrier markets. Bookings during the quarter were $13.7 million, leading us to the backlog of $6.1 million.

This underscores the nature of our business, which includes a large amount of fast turn book and ship orders, meaning that our backlog fluctuates sometimes more during a quarter. Gross profit for the fourth quarter was $4.1 million, an increase 40% or $1.3 million compared to the fourth quarter of fiscal 2018.

Goss margins were 27% of net sales, compared to 30% of net sales in the fourth quarter a year ago. Gross margin for fiscal 2019 was impacted by the inclusion of C Enterprises, as group gross margin were lower than the blended margins at the majority of our other divisions.

Selling and general sensors were $1.1 million or 17% of sales compared to $1.6 million or 16% of sales in the fourth quarter last year. The increase is primary due to absorption of the additional selling and general expenses such as newly acquired C Enterprises business.

In addition, the most recent quarter also included costs related to the acquisition of Schrofftech which occurred at the beginning of Q1 fiscal 2020. Net income for the fourth quarter was $782,000 or $0.08 per diluted share, up 70% compared to $460,000 or $0.05 per diluted share in the fourth quarter of fiscal 2018.

Turning to our fiscal 2019 full year results. Net sales were $55.3 million, an increase of 10% or $5.1 million compared to $50.2 million last year. Fiscal 2019 full year results included $7.2 million of sales from C Enterprises.

In addition, net sales at the RF Cable and Connectors segment increased by $1.9 million or 15% to $13.7 million, as compared to $11.8 million for fiscal 2018 as business from our distribution channel increased.

Partially offsetting these sales increases was a decrease in our Tier-1 wireless carrier business due to lower order levels than expected, and the fact that last year included the largest series of orders in the Company history. Gross profit for fiscal 2019 was $15.6 million growth, compared to $17.1 million.

The decrease was largely due to sales decline in the Tier-1 wireless carrier business as Q2 2018 included a new series of orders mentioned above. Also as previously mentioned, gross margins at C Enterprises are lower than the blended margins at the majority of our other divisions.

In addition, [indiscernible] wage increased as we paid more to reward and retain our production verticals. As a result, fiscal 2019 gross margin as a percentage of sales of 28% declined compared to 34% for fiscal 2018. Selling and general expenses were $9.7 million or 18% of sales compare to $8.2 million or 16% of sales in fiscal 2018.

The increase in selling and general expenses was primarily due to absorption of the selling and general expenses of the newly acquired C Enterprises business. The effective tax rate was 22.7% for fiscal 2019 and 19.6% in fiscal 2018.

The increase in the effective income tax rate was primarily due to the impact last year’s tax act where we recognized a one-time benefit in the prior year related to a reduction in deferred tax liabilities. In addition, share-based compensation excess tax benefits recognized in fiscal 2019 was lower than fiscal 2018.

Net income for fiscal 2019 was $3.5 million or $0.36 per diluted share, compared to $5.8 million or $0.61 per diluted share in fiscal 2018. Turning to our cash flow and liquidity.

Cash used of $2.7 million in operating activities for fiscal 2019 was primarily due to an increase of $7.9 million in accounts receivable, largely as a result of extending term to a major creditworthy customer, which is a very common practice in our industry.

Thus, taking into considering cash of $12.5 and the cash receivable of $12.2 million totaling $24.7 million as of October 31, 2019. Cash and accounts receivable increased $4.1 million as compared to $20.6 million at prior year end. On October 31, 2019, working capital was $27.6 million, up $3.8 million versus the prior year-end.

We had a current ratio of 5.5 to 1 with no outstanding debt. We provided our shareholders an $0.08 per share cash dividend during fiscal 2019 and recently announced our 38th consecutive dividend to be paid on January 15, 2020 to shareholders of record December 31, 2019. That concludes my discussion. I'll now turn the call back to Rob..

Thanks, Mark. Fiscal ‘19 was another solid year for our Company with record sales and strong cash flow and net income.

In fiscal ‘20, the goal will be to build on these results by leveraging our strong customer relationships and channel partnerships to further expand our footprint in the marketplace, and to do so in a profitable manner, as we work on our plan to grow to $100 million in sales.

We begin fiscal ‘20 with our seasonally toughest quarter, but even with that, we expect to grow sales versus last year's first quarter. We made huge progress in the last two years. And while we're not done with our transformation, we are energized by the opportunities we see ahead.

We appreciate the partnerships with our customers, distributors and suppliers. The hard work of our employees and the support of our shareholders. With that, I'd like to open the floor to questions. Karina, we're ready to take our first question..

Thank you. [Operator Instructions] We'll take our first question from Josh Nichols with the B. Riley FBR. Please go ahead..

Yes. Thanks for taking my question. I did want to ask, you mentioned the 5G build out that's coming.

Any guess today, what percentage of your company sales are related to the 5G buildout? And how much of a shift do you think that might be over the coming 12 to 24 months?.

Yes, Thanks, Josh. So, the first question, what percentage of our current sales. We don't believe that it's very directly related to 5G. And the reason I say that is that the spend has been not inconsistent, but I think as the year went on, we saw kind of pull back a little bit.

Although I can say it's not always easy for us to tell because 5G is one of those concepts where it's not just about speed, but there's the densification idea.

So, building more indoor and outdoor distributed antenna system networks and small cell networks, we know we have products being included in those applications and shifting into those kinds of builds every single day. In some cases as they’re going through distribution, in other cases they are more OEM centric.

So, it's not always easy for us to tell, are they putting a 5G radio or 4G radio or something else into that deployment, but we're certainly -- from a densification perspective, I would say that total revenue were somewhere 30% to 50%, depending on the quarter has to be going into that kind of a build, although not always easy to tell if that’s 5G..

Thanks....

You had a second question. I failed to answer.

So, what do we expect to happen going forward? Once 5G or true carrier CapEx spend kind of smooths out and becomes more consistent, which we believe will start to happen in the middle of calendar 2020, who know if that's kind of -- what it what it feels like at this point, I would expect the mix of products that we're selling to go hot as far as the percentage of selling into densification and/or potential 5G, both driven by the market growth opportunities there and our current positioning, plus throwing the acquisition of Schrofftech, which has a great product footprint that would play very well in that kind of build..

Great. Thanks for that. And that actually leads really well into my follow-up question.

I know we're only about 45 days in since the acquisition, but could you tell me a little bit about how the acquisition with Schroff is trending and integration work that's already been done and what you plan on doing over the next quarter or two?.

Yes, sure. So, I think it's -- the integration is playing out exactly as we expected. There's not a ton of integration there. It's a small group. They don't have a huge employee group. So, that always makes it a little bit easier. And also, they are very buttoned up organization.

I think what I appreciated more than anything was the amount of control, both financially and operationally that were in place and what a good job they do related to that always makes it easier. So, from a financial reporting perspective, we're transitioning some of the reports to make them a little easier for us.

We've got more work to do on that in the coming year to get our systems approach more consistent between the two companies and get them on to the systems that we need them on. We're not missing anything today by not having them, but it will certainly make things easier for us.

The other piece that we're just kind of in the early stages of that I'm looking forward to is the customer sharing and sort of cross pollination of products and sales opportunities. We have some of those already happening. We're already including products in joint solutions, which is great and was expected.

But, we're just kind of getting started on other areas where we can jointly provide solutions to our customers that historically have been distinct with one company or the other and now finding a way to share that -- the conversations we have had, we've seen those very positively received..

Great. And then, I did want to follow up. The Company has done a really good job expanding its distribution network over the last two years.

And at this juncture, do you think you're more focused on increasing your penetration with your existing customers or really adding new customers to grow?.

Yes. So, if -- when we say adding, we’re talking about distributors. I think, we've got the right mix of distributors today. I'm pleased with the group we have, it’s a lot of great blue chip kind of bellwether companies. And we're focused on growing within those organizations jointly with -- investing in sales and marketing programs together.

A part of our sales reorg that we just completed from a distribution perspective is to get better connections between our team and the distributors, in both markets and regions. So, having strict accountability around that within our group is going to be helpful. I don't think we need to add additional distribution.

If we did, it would be really focused on certain market segments that we're not getting to today, where we have products that are that are relevant. And I don't have any specifics in that.

But, I think we're generally pleased with the way that our channel is performing with us and we're getting better at sort of operationalizing quarterly reviews and jointly setting goals and kind of the related pieces of that. So, short answer is, I love what we have on board.

And I'm thankful for the additions that we've been able to make in the last few years plus showing increases in some of the longstanding distributors through communicating better and I think just having a clear strategy has been helpful and will -- we're not going to continue playing that the way we are..

And then, I did want to ask how much revenue for the fiscal year came from the acquisition of C Enterprises.

And as a follow-up just thinking about -- how should we be thinking about like sales and marketing expense? Are you seeing much wage pressure with the historically low unemployment rate that we have right now?.

Yes. So, two questions. The first one, so, C Enterprises revenue was just over $7 million for the 7.5 months or so that we have them for the year. That was their contribution. So, call it $3 million a quarter is kind of what they did in the time that we have them. From a pay levels in sales and marketing, we haven't seen a big change there.

We did go through a sales compensation structure overall, both last year with part of our team and then again coming into this fiscal year as we reorged the sales team to make them more connected to kind of the growth of the business.

I’m a -- with the sales background, I like comp plans for sales that are not only connected to what the rest of the company's trying to achieve but are aligned with my goals and the goals of shareholders, which are growth related.

So, we haven't seen pressure there, if anything, we've actually seen some of our growth is, I would say related to the better connection of how we need sales people performing and growing our businesses. But, we've seen less wage pressure there than we have in other areas, specifically operations is an area we certainly see pressure..

We’ll take our next question from [indiscernible]. Please go ahead..

Yes. I had a question on the acquisition thinking.

I just want to ask really about your willingness to issue debt or access to debt to do acquisitions, since you mention some of them could be a little bit larger, and similarly, your willingness to use stock?.

Yes. Thanks for the question. So, I think we're going to be, I hope we're going to be faced with a scenario where we have a larger acquisition where I have to go do some kind of a raise, whether that's a debt or additional capital raise. The difference in that, we don't really know, and that's not something that Company has done before.

We’re exploring various -- different avenues that we could use to be able to do that. I think using stock, to your question, I’d like it in some deal structures, you get into a bigger one, I like portion of it potentially being in stock.

I think, it's tougher to want to use stock when you're sitting in $5.50 or $6 range, there's less power on the paper in that scenario. So, I would say, everything is on the table as far as avenues to go for doing a raise.

And I do mean, to your point, if we find a business that fits into the criteria of being larger, there's going to be a requirement for us to raise capital. We have a great cash position on our balance sheet. But, depending on the size of the deal, we're certainly going to outpace that from a need perspective.

I don't have an opinion one way or the other on which is the exact right answer. Yes, I think, part of it is walking through some of these acquisition candidates we have in the pipeline and seeing what magnitude we're actually talking about..

[Operator Instructions] We'll take our next question from Hal Granger with Great Quarter Research. Please go ahead..

I had a couple of housekeeping items to start with.

What was your backlog at the end of the fiscal year?.

Yes. Our backlog was between $6 million and $7 million. And that would have been prior to obviously the acquisition of Schrofftech, which would change that but we haven't disclosed that number yet. But, it was -- I think it was $6.1 million or $6.2 million..

In last year's 10-K, you said one customer who is a distributor accounted for 62% of sales. The previous year, fiscal 2017, that number was 27%.

What was that number for fiscal ‘19?.

Yes. So, you'll see that in the K. And what you're going to find -- I think, the important thing to note on that Hal is that the distributor that we referenced is longstanding customers, been our largest customer for many years.

In fiscal ‘18 and a tiny bit of ‘17, they benefited from the Tier-1 carrier business being run through that distributor? So, it was sort of a false positive on that number order of magnitude wise.

And so, what you saw was a huge increase there came primarily from the Tier-1 carrier spend, which subsequent to fiscal ‘18 has gone at different route and is not direct with that carrier. So, what you're going to see in the fiscal '19 numbers.

The distributor was up a little bit over historical levels, but not nearly as large concentration wise as it was in ‘18. And you're going to see an additional customer in there that's meaningful of a magnitude as we kind of talk about a few minutes ago. We saw a $15 million to $20 million in the Tier-1 space.

Big chunk of that will be running through that customer. So, you're going to see our concentration numbers, not only move around, but the companies that we're referencing are changing as well because we're going through such a unique growth base..

Okay. That's great angularity on that.

So, the second customer who will be referenced in your K, that's not the Tier-1 end customer, that's an intermediate customer?.

So, this year, you're going to see the Tier-1 referenced and a distributor both referenced whereas last year you saw distributors of the largest customers..

Okay.

You're not going to identify the Tier-1, right?.

We're not. I'm sorry..

Following up on Josh's questions. He -- I'm curious, your small cell product offering, as you said you sell products and you can't be sure whether it's going into 4G or 5G.

But if something was going into 5G, would hybrid fiber be part of that, would DAS be part of that? Can you describe what products you sell would be going into 5G other than the course of the 5G and closures that you were talking about disruptive?.

Sure, yes. So, on our kind of historical offer, I think the -- when we sell hybrid fiber, which again is a single cable that inside has several pieces of fiber, and multiple pieces of copper of varying sizes.

The copper is to power the radio, which is at the top of the top of the tower site or rooftop site, and the fiber is for the communication part of that. The only way that we can really tell, other than through conversations with our customer, but the only way we can really tell is the connector type that goes on certain cables.

So, the style, as I call it, the style of the cable maybe different and going into a 5G deployment, not necessarily, but may be different. And so, we certainly see hybrid fiber as a tower site where traditional kind of power and rooftop site play in the historical sense of our product offering.

The other thing, when we look at distributor antenna systems or DAS deployments, both coaxial cable and other types of fiber are a big piece of that with coax are low PIM, which is just a quality metric. There's a lower ability or I guess a better ability to tolerate noise in a low PIM cable.

We sell those coax cable every day, we're making thousands of them. And those are going into distributed antenna systems which usually you can't tell if that is a 5G or 4G. Our cables are somewhat agnostic. There are going to be times where going forward we’ll see a connector change or an adapter thrown in the mix.

But for the most part, I like to envision those kind of as the road. They don't care, if it's a car, truck, van, bus driving across them. It's the road is concrete and it's the same. So, we can only tell what we do know based on some stadium [ph] deployments for example that are happening where 5G is clearly mix that we have products going into those.

What we haven't seen a ton of yet it is a smaller version of hybrid fiber that would be more for small cell or DAS deployments. We expect to see some of that and I think a lot of that is tied to this densification spend, whether it's 5G or otherwise.

And then, the final piece which you referenced, but I want to just give maybe an additional, a little bit of info on it. The Schrofftech solution their cabinets for their small cell [indiscernible] enclosures, inside there could be any number of different kinds of radios and quality of radios.

The deployment of 5G small cells is a slow process and it's been going on a long time. There is a big logjam in certain areas where local legislation and the other municipal challenges are keeping it from being deployed.

I think, we believe there is a huge opportunity for us there, both through the Schrofftech offering as well as coupling in some of our traditional products, coaxial cable other kinds of copper cable and then the smaller version of hybrid.

So, I think there'll be a pull-through of that, which is one of the drivers for us wanting to do the acquisition and getting our product offering that much broader..

Okay. So, I wanted to ask you about that. So, Schrofftech has two primary product offerings, one being the cooling systems and the cooling systems also include I guess remote equipment shelters. And when I Google that I find stuff on that, I find that [indiscernible] has patent on that. That's super impressive.

When I Google the 5G enclosures, I don't find stuff.

Is that a new product or what -- can you talk about that?.

Sure, yes. So, there -- yes, the small cell enclosures to Schroff [ph] are the newer of those two offers.

I think historically, if you go back in time several years, company has been around a long time, been through a few iterations of ownership and/or management with [indiscernible] who is business partner in that company that we acquired from 6 weeks ago or so.

They’ve seen a pivot in the last few years, where the majority of our revenue used to come from the cooling systems, and that offer is patented that they have a handful of patents on various technologies around that.

What they've seen in the last few years as they started to deploy the small cells offer for some of their key customers, that business started to grow and outpace the growth in the other business. So, we've seen -- and I've been talking about it for some time, well over a year.

So, we saw the kind of shift in their revenue stream, becoming -- more grow from the small cell side. So, as a newer offer, it needed growing faster, and it’s a larger piece of their business now than what it would have been a few years ago, where that mix may have been flip the opposite way..

So, the small cell 5G piece of their business is still smaller than the cooling segment?.

No, the other way around. Traditionally, you would have seen that to be the case going back a couple of years ago, but the growth rate in the last few years has primarily come from the small cell business. So, small cell is now a larger portion of their revenue than the cooling..

Okay. Thanks. I was looking at your November 5th filing of your 8-K and working through the earn-out numbers first Schrofftech. And seems that to hit the earn-out numbers, that suggests that, Schrofftech is much more profitable EBITDA wise than RF is blended.

Does that make sense?.

If you look at it, that’s the right way. Yes. We haven't disclosed final numbers on that. We're going to get more out here in the handful of weeks.

But, I think you're looking at that the right way and that the earn-out is structured in such a way that they need to grow to max out the earn-out, which I'm hopeful that I can do and we're trying to support that. But yes, backing into some numbers, you're looking at the math the right way.

They have a solid profitability and strong EBITDA and stronger margins by a good bit in our blended margins across the Company. So, there is a lot of things to like about the way that business operates..

Who do you view as your closest competitors and that are publicly traded as for example comparables for you guys?.

Yes. That's a tough one. I think we did -- when I go to conferences, we were at a conference last week and I get asked about a lot of companies that are roughly our size, maybe a little smaller, maybe a little larger, not going to reference any of them by name necessarily because I think that's a tough comparison.

Because we are active -- we are passive component-centric and our focus on active components that helps with our profitability, which tend to make us look a little different than some of those guys we get compared to. On a flip side, there are some huge companies. There's not a lot of mid-sized companies like ours in this space that are public.

So, you look at the big guys, and a small piece of -- a tiny little piece of what CommScope does or what Amphenol does, they're doing billions of dollars globally in a much broader product set.

And I think the way we distinguish ourselves is we stick to what we know, passive components, connectors, adapters, cable assemblies and kind of the related products there and then throw in the Schrofftech offer which will blur the line a little bit with some of those guys, the bigger guys in particular who have something similar in small cell.

But again, we're looking at the passive components of that and not the radios. And that's a place where it makes the comparisons very difficult. We don't have radios. We don't have the active DAS components. And frankly, those aren't things that I'm pursuing just from an R&D spend perspective.

So, not trying to be evasive to your question, but I think it's a tough one to try to compare apples to apples, which I think makes our story a little tough for people to understand, how are we sticking to passive components, making the money that we're making, being profitable, growing in what is admittedly a very fragmented market.

And I think that was in my comments from a few minutes ago. I believe that this segment is right for further consolidation both on a smaller and the larger companies. We're trying to drive that obviously as much as we can.

And part of the reason I'm looking for something larger is to further that and take us up market where we're not necessarily competing directly with some of those folks today, but we're certainly running into them. And I find it a compliment. When we run into the bigger companies in the market, I think that as a compliment..

Okay. So, talking about a bigger company, let's say Corning, you do a lot of work with them in terms of your both the Cables Unlimited also C Enterprises I guess, the Gold Program, where you are buying stuff.

Do you often compete directly with Corning?.

We don't. No, we love the partnership we have with them, the Corning Gold House program. Obviously, they have -- two of our businesses are Corning Gold. We work very well with them. I think, they obviously -- Corning Cable Systems obviously have a Cable assembly offer.

I don't think their go-to-market is designed to be fast turn necessarily, but they got great quality products themselves. We partnered very well with them. And I would say more often than not, we run into partnership opportunities versus competitive opportunities when it comes to Corning..

Okay. Thank you. One final subject or questions regarding C Enterprises. Just a Schrofftech seems like, it's as you've confirmed, more profitable than RF as a whole, C Enterprises seems less profitable, at least when you made the acquisition.

Is that still the case and do you have a plan to increase the profits there to bring it up to the average of RF?.

Sure, yes. So, I think when we bought C Enterprises, their 12-month sales were $8.7 million and they were roughly breakeven, some months make a little bit, some month lose a little bit. We have, as we said we would do at the time, made that to where it was profitable for us for the seven months or so that we had them in the year.

They made, I don't know $300,000 in profit or a little more than that when you break it out. So, we were pleased with that, getting their revenue level up held to make that profitable and be accretive to us like we expected.

The big piece of that I think remains is keeping those sales and production levels up, because their margins, as we talk about are a little lower than our blended margins, we have seen them increase, we've been working hard on that.

And I think, to the second part of your question, that's the piece that we're most focused on is let's get sales up to fully absorb the labor from that location. So, they're able to keep these volumes going and pay for themselves.

And a piece of that is also making sure that we're selling the right product mix and not products that are incredibly fast turn and low margin. And there is some of that in their product mix. And so, we've been focused on that.

And the last piece I’ll say is by kind of collapsing or combining the sales teams from our multiple distribution centric businesses, we're starting to see -- to look at this more about account penetration and product -- what products are we selling into certain accounts and certain locations versus not.

And the better we do there, the more we can kind of control, which production sites we need to use for what. And then, I'll give you one example. So, it's going to get harder for us to break out specifically C Enterprises results as we go forward because we've combined so many things now sales wise and even operationally.

And the example that I want to give is we have a traditional C Enterprises sales person who's in one of the regions on the East Coast and that salespersons done a great job of finding opportunities.

In some cases, it may make more sense and we've had one recently where it made more sense for us to make that product to build it in Long Island and Cables Unlimited. And so, there's going to be cases where that makes more sense.

And I think, we're getting better at sort of juggling the multiple locations of not necessarily duplicate but complementary capabilities around production.

So, I guess to kind of summarize where your question started, we're making money on C Enterprises, their margins are lower than our blended margins, but we're seeing them start to perk up and our goal there is -- has already been -- we've already rolled out the plan on how to make that better.

And a lot of it is diligence around sales and product mix..

Okay.

One small question, that $300,000 that you referenced, is that operating income or is that net income, what is that?.

Yes. It's an operating income number and it's a little higher than $300,000. I don't have the exact number in front of me, but it’s an operating income number..

Okay. That's great. Thanks very much..

Thanks, Hal..

And that concludes today's question-and-answer session. I'd now like to turn the call back over to CEO, Rob Dawson for any additional or closing remarks..

Thank you, Karina. Thanks everyone for your interest and support of RF Industries. Mark and I look forward to reporting our fiscal 2020 first quarter results in March. Thanks for joining our call. Happy holidays to all of you, and have a great day..

Once again, that does conclude today's conference. Thank you very much for your participation, you may now disconnect your phone lines..