Greetings, and welcome to the RF Industries Fourth Quarter and Fiscal 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I would now like to turn the call over to your host Mr. Todd Kehrli of MKR Investor Relations. Thank you, you may begin..

Thank you, operator. Good afternoon and welcome to RF Industries fourth quarter and full year fiscal 2020 financial results conference call. With me on today's call are RF Industries' President and CEO, Rob Dawson; and SVP and Interim Chief Financial Officer, Peter Yin. Before I turn the call over to Rob and Peter, 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 2020 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 in 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 statements on this call today may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When use the words anticipate, belief, expect, 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 outcomes contained in any forward-looking statements.

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

RF Industries undertakes no obligation to update or revise any forward-looking statements. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures.

Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the two for the periods reported in the release. With that, I'll now turn the call over to Rob Dawson, President and Chief Executive Officer.

Rob?.

Thanks Todd. Good afternoon everyone. Welcome to our fourth quarter and year-end earnings conference call. Thanks for joining us today. I hope that everyone is staying safe and healthy.

I'd like to start my comments by providing some detail around the fourth quarter and how we continue to successfully navigate this extremely challenging operating environment.

Then I'll turn to what we're seeing now and how our operational efforts this past fiscal year have more effectively positioned us to grow our business this new fiscal year and beyond.

Starting with Q4, the ongoing pandemic continue to have an impact on our revenue due to project and build plan delays on the carrier side of our business and with some OEM customers. However, we were able to finish the fiscal year with a return to sequential revenue growth, as business continued to slowly get better.

While our results obviously show that we haven't yet returned to the pre-COVID levels, we believe were beginning to see a light at the end of the tunnel. Fourth quarter sales came in at just under $10.7 million, up 12% sequentially.

On the bottom-line, we generated net income of nearly $160,000 and a 13% sequential increase in adjusted EBITDA to $329,000. Of course at the beginning of the year, we expected a much stronger Q4, but we feel okay about these results given the tough operating environment.

For the full year, we're obviously coming in lower than last year's full year revenue. That decline is completely related to the very concentrated Tier 1 carrier business we did last year, which we did not see repeat this year due in part to COVID and the delay that it caused, as well as changes to build plans.

Looking at Q4 from a monthly sales perspective, our final month of October was a very solid finish to the quarter and the fiscal 2020 year. We exceeded $4 million in sales in October, which is as good of a month as we've seen since pre-COVID.

While we're certainly not back to normal levels, it felt like momentum was and is really picking up around the overall business. And specifically, we've been starting to see more discussions and potential scheduling of the projects and CapEx-related work.

Looking at our various product areas and market segments, our distribution business continued to hold up very well and our RF coax cable and connector business actually grew year-over-year, which looking back to the March-April timeframe, I'm not sure you could have convinced me that that was going to happen.

Our C Enterprises, faster and fiber and copper business also did very well. These two combined make up our primary distribution business. During this past few years, we've successfully strengthened and increase the diversity of our distribution business, which has been a great benefit to us through this difficult period.

In our OEM-centric wiring harness and more custom cabling business at the Cables Unlimited and Rel-Tech brands, we continue to see recovery with our large blue chip customer base working to get back to more normalized levels.

In this business, we build very involved harnesses and custom cabling designs primarily for large manufacturers where our cables are used inside their equipment. Some of the key market segments included here are industrial manufacturers transportation, energy, defense or government, in addition to Telecom.

We've seen a nice increase in our work with government contractors and other related customers and projects in the last few months and expect these opportunities to provide some new revenue streams in the coming quarters.

And the Schrofftech business, particularly related to small cell also had a nice quarter compared to where we've been over the past couple of quarters. We've started to see pieces of that business come back and Schrofftech was a pretty meaningful piece of where we finished up in the fourth quarter.

It was really our best quarter of the year in that business. On a related note, the debate around timing and overall scale of small cell builds continues, with some expecting the U.S. to eventually have up to a million small cells. That will be a huge increase from the roughly 400,000 cell sites of all sizes that are online today.

But as we've discussed in the past, small cell build plans continue to be halting in nature with fits and starts and we haven't seen these massive increases, at least not yet. I discussed on the last call that the big U.S.

carriers have been spending on other projects or deployment models and the shift in network demand related to remote work has increased this focus away from small cells. So, we haven't yet seen the large CapEx spend that we expect for small cell deployments, which held down our expected results in these product areas during the past year.

Going forward, many industry analysts have an optimistic view of the small cell opportunity. Despite some thinking it may take a little longer for a widespread rollout to occur.

A financial analyst at Raymond James recently noted that they think the widespread deployment of small cells is a question of when not if, and they believe a major acceleration in nodes on air is more likely to happen later than 2021 or 2022.

It's important to note that even with a longer widespread rollout; we're still talking about a huge dollar opportunity. In fact, we continue to see sales of our small cell products increase, and we expect it to continue to increase in our current fiscal year.

We also believe that we're more strongly positioned both with our offer and our customer relationships for long-term growth once the widespread rollout does occur.

In addition to the substantial opportunity we see with small cell, Schrofftech's thermal cooling solutions enable us to offer a definitive value prop, centered around a better design and clear cost and energy savings. And it's allowing us to initiate a different kind of sales conversation with a new set of customers.

We see a significant opportunity for this direct air cooling or DAC offering, which plays in both traditional wireline and the wireless carriers as well as MSOs at the edges of their networks. It's the same energy efficient thermal cooling solution for wireless base stations and remote equipment shelters regardless of geography.

Managing the energy needs of cooling enclosures, cabinets, and small buildings at the edges of networks can be incredibly inefficient and therefore expensive. We can offer a much more cost effective solution and can either start from scratch or do a retrofit of the existing designs and we're seeing a significant opportunity out there for both.

To put this opportunity in perspective, one carrier that we're working with has roughly 5,000 sites that likely need to be updated in the next three years related to cooling. These sites are a mix of both cabinets and shelters. Think of a small building or hut when you think of a shelter. Our average bill of materials for these sites is about $3,000.

So that gets you to a $15 million opportunity if we get all of them. And this is just a small percentage of their total sites and that's just one opportunity with one carrier. So, obviously, we feel bullish regarding this product offering.

On the last few calls, I've been providing some examples of the types of new business opportunities that we're seeing.

In addition to the sequential increase in revenue during the quarter, we saw increased activity and positive momentum around new business development in all of our product areas and are seeing a nice pipeline of opportunities continue to build.

Let me take a few minutes to update you on our continued progress with those existing opportunities, as well as some of the new ones we're seeing that we believe will contribute to our return to year-over-year revenue growth this fiscal year.

First, in the carrier space, on our last call, I noted that we received an initial purchase order for our direct air cooling kits from a large North American carrier and anticipated an additional order with deployment across key pieces of that carrier's infrastructure.

During the fourth quarter, this carrier placed those additional orders for DAC retrofits, and they were shipped and accepted in the quarter. We've seen continued business from this carrier and we're working with them to understand their demand for calendar 2021.

We've also uncovered additional opportunities with the same carrier including small cell shrouds and continue to see a significant opportunity with them. Next, we continue our work with another large carrier on DAC upgrade kits and saw increased deployments in Q4.

This is a long standing relationship and we expect deployments to continue into fiscal 2021. We also have additional DAC opportunities with this customer for upgrade paths of various different cabinet types.

We have initiated strategic partnerships with several other OEMs in the carrier space that give us an additional route into the large network deployments with the carriers. In many cases, our DAC solutions are being included in the bill of materials as an integrated offer by these manufacturer partners.

We have several trials happening now where we believe we are the right fit for the final application. We're working with multiple carriers to help them build an ROI and case study for evaluating our DAC solutions by their key stakeholders.

In some cases, these carriers have no history of purchases from us on these types of products and we're making good progress. We have a current activity related to AT&T's FirstNet and the need to keep sites on air in the event of a power outage, DAV uses less electricity, which makes backup power via a generator more manageable and less expensive.

Finally, we have ongoing small cell concealment shroud opportunities with a carrier in the northeast where we had a long standing relationship. This was part of the business that was slowed by COVID. We saw an uptick of delivery of shrouds to them in Q4.

New purchases have been a little slower as we end the year and look to the 2021 CapEx plan and specific deployment schedules. We're always uncovering and working on new and innovative solutions for this carrier and finding ways to be more relevant in their next generation designs.

A huge push for the team right now is to replicate this regional success elsewhere. We're speaking about new opportunities daily.

Again, much of this new activity is because of our increased go-to-market efforts aimed at getting in front of end user customers, influencing them to include us in their plans, and then allowing them to purchase through whatever channel makes the most sense for them.

Now, let's turn to some of the other market segments starting with neutral host or tower companies that I mentioned previously. Our core connectivity product offering has been approved by one of the largest neutral host companies in the country and we have a standard fiber optic offering that is being sold into another large neutral host.

Our install kits have gained momentum in this space with a few customers, and we continue to target others. And we've gained several approvals for quick-turn fiber programs with neutral host companies in addition to some carriers.

Outside of the wireless space, we're executing on our plan to further diversify in some other market segments, including wireline carriers and the related channel, and industrial markets like agriculture, energy, and government. A couple of examples.

First, as I mentioned earlier, we're seeing our industrial and defense OEM customers in the northeast returning with some of the delayed orders beginning to flow and we have some solid new defense customer wins that we hope to share more about in the future. Next, we've launched a new channel to market with electronic design and repair customers.

This isn't huge dollars yet, but we believe that this market presents a nice opportunity for our RF branded passive coaxial components. And we've launched with a new channel partner to help us get into industrial markets, like agriculture and energy.

On the product side of things, our standard faster and fiber offering for small cell connectivity and fiber-to-the-home is growing nicely. We've solidified this offer and our operations teams are adding capacity for these products considering the volume increases.

These are higher value, higher margin products that we want our production teams focused on. Finally, as we get better at being a product company, we're heavily focused on product development. So, in addition to our standard product roadmap, we've increased our focused on next-generation offerings.

We're continuing our development of unique and innovative small cell products and have testing and prototyping in process for some new designs that we believe will be impactful in the market. We have multiple customers involved in these demos and tests, and believe that we should see some design wins in coming months. More to come on this.

All of these are good signs that we're starting to see real progress in our strategic sales areas. While not all of these opportunities are producing dollars yet, we are seeing our pipelines grow and with what we see today, we expect that to lead to some nice year-over-year revenue growth in the current fiscal 2021 that started November 1st.

While this past fiscal year was challenging to say the least, we remain very focused on our long-term game plan to build a sustainable long-term engine for growth.

Even through the disruptions from this ongoing pandemic, we haven't stood still, but rather used our strong financial position to invest smartly in resources to accelerate our growth and come out stronger on the other side. Before I turn the call over to Peter, I'd like to quickly recap what we accomplished this past fiscal year.

First, we strengthened our go-to-market capabilities by adding significant new talent and direction for our sales team. These higher level resources have more direct experience and bring additional sales acumen that set us up for future growth.

This team is allowing us to further leverage our expanded product offerings and extended footprint in the markets we serve, while targeting opportunities in new market segments.

We haven't yet seen the real impact of this team, which is not surprising, since I've only been on board for about four months, but we believe the relationships they've been building and fostering are positioning us for longer term growth, both this fiscal year and beyond and you heard some of the specific customer opportunities that we're seeing.

Related to that, we also significantly broadened our relationships in the carrier ecosystem this past year, moving from just one big customer to having solid relationships with all major wireless carriers in North America, as well as the neutral host and tower companies and several key OEMs and integrators.

As I discussed earlier, in some cases, we're in early stages of trials, but in others, we've seen multiple purchase orders in the hundreds of thousands of dollars. With the increased numbers -- number of carriers that we now work with, we believe that our carrier-based business prospects are healthier than they've ever been.

Our relationships are solid and we're doing business with a much longer list than ever before. In fact, we're now shipping our products or integrated solutions into every North American carrier's network.

This new diversity in our relationships positions us to gain a larger portion of the spend and be healthier, which is a big part of our story going forward. Looking back three years ago, we essentially had one very large distributor, which was generating 20% to 25% of our sales.

With the addition of four meaningful distributors, as well as direct relationships with carriers and new segments, our future growth should be more diversified and less dependent on one big customer.

Today, we're more about execution and having a relevant offer and with the additional top tier distributors and carrier relationships we've added, we're more effectively positioned to capture a larger portion of the spend as it returns.

To that point, this past fiscal year, we significantly expanded our product offering, taking this further down the path of becoming a product company as opposed to a custom project company. We see a huge opportunity and small cell and densification and we've invested in the right product lines to increase our market share.

As a result of our Schrofftech and C Enterprises acquisitions, we have a more diverse product set, creating more carrier influence, and relationships as a product company with a full solution set. Going forward, we remain squarely focused on delivering shareholder value. And as we've consistently said, consolidation makes sense in our industry.

Like any responsible company, we're always looking at value enhancing acquisition opportunities. Our plan is to make an acquisition of a much more meaningful size, and we continue to review and add to a pipeline of potential candidates.

While I have no specific update to share today, the additional talent that we have added to our team will allow me to spend more time on this critical part of our strategy.

So, to conclude, while our fiscal 2020 revenue was clearly impacted by COVID, we've weathered the storm and remained focused on successfully executing on our long-term growth plan.

Our actions this past year have more effectively positioned us to drive demand creation and expand our participation in the different buckets of CapEx spent and we're confident in our long-term prospects.

We're seeing our overall sales pipeline continue to build in nearly all areas which gives us confidence that things are getting better We look forward to returning to year-over-year revenue growth in fiscal 2021.

The first quarter is our toughest quarter seasonally, but with what we see today, we do expect a similar quarter in revenue in Q1 to what we just saw in Q4, with the majority of our growth for the year coming in the back half of the year.

With that, I'll now turn the call over to Peter for review and discussion of the financial results for the quarter.

Peter?.

Thank you, Rob and good afternoon, everyone. I hope everyone is safe and doing well. As I did last quarter, rather than read our financial results, I'd instead like to focus on providing more context around the numbers, and highlight some of the operational improvements we've achieved during the fourth quarter.

As Rob noted, while the ongoing market conditions continued to have an impact on our revenue, we've successfully navigated through another quarter that was very tough. Business has been slowly improving and we were able to finish our fiscal quarter with a return to sequential revenue growth and profitability in the fourth quarter.

For Q4, sales came in at approximately $10.7 million, up 12% sequentially from Q3. This increase reflects an improvement in both of our business segments, and growth in all of our product areas compared to Q3.

On the bottom-line, we generated net income of $159,000, or $0.02 per diluted share compared to a net loss of $82,000 or a loss of $0.01 per diluted share in Q3. From a G&A perspective, we continued to do a good job operationally in managing our expenses as we've remained essentially flat from Q3 on higher sales in the fourth quarter.

G&A costs in Q4 includes our sales resources that were added at the end of Q3, which we have not yet seen the real impact to our sales numbers. We held gross margin relatively steady at 28% compared to 28.6% in Q3.

As seen here, from quarter-to-quarter, we were able to maintain a steady gross margin, but there may be fluctuations due to product mix given our sales level.

We do believe the current margin level is something we can sustain going forward and we see room for improvement, not only as our sales increase overall, but should operating environments improve in the future.

On a non-GAAP basis, we delivered net income of $356,000 or $0.04 per diluted share and adjusted EBITDA increased 13% sequentially to $329,000 in the fourth quarter.

This included a one-time charge in Q4 of $90,000 related to restructuring costs, as well as the additional ongoing costs that we're incurring related to sanitation efforts and protective equipment to keep our employees safe.

As we continue to execute on our growth plan, these restructuring charges and our continued investment in the business areas where we see significant upside are critical and necessary.

These one-time charges free up our resources, so we're not just layering on additional expense, but at times, even reducing our overall expense going forward even after investments are made.

As we continue to execute our growth strategy, we will continue to make changes as necessary as we learn better ways on how to be more effective and more efficient. I want to give an update on the Paycheck Protection Program, where we received PPP loans of approximately $2.8 million, which we use primarily to cover eligible payroll costs.

We have applied for forgiveness for our PPP loans and are now waiting to hear back on the status of the forgiveness from our lender. We expect our PPP loans to be forgiven once the review of our application is complete.

While 2020 presented a very tough and challenging operating environment and had significant impact to our revenue and bottom-line, our balance sheet remains strong and includes cash and cash equivalents of almost $16 million and working capital of $24 million. Our backlog at the end of Q4 was $6.3 million compared to $5.7 million at the end of Q3.

Our focus continues to be growing our revenue and we expect to return to year-over-year revenue growth in fiscal 2021 with the majority of the growth coming in the back half of the year. That concludes my discussion. I would now like to open the floor to questions. Operator, we're ready to take our first question..

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Aman Gulani with B Riley Securities. Please proceed with your question..

Hey guys, thanks for taking my question and nice to see the sequential revenue growth.

I wanted to ask about the October month; like you exited he did that with $4 million, do that that sort of run rate to continue into the first quarter?.

Hey Aman, thanks for the question. So, I don't think we expect it to be exactly like that. I mean, October, generally is a great month for us just because of the way the markets in which we function. So, that's a normalized level for what we've seen over the last few years, this year was obviously different.

We haven't seen that exact level continue into Q1, mostly because seasonally you hit November, December, January, things look a little different from a carrier deployment perspective, they can be massive to end a year or they can be slow to end a year, as you look to the -- look into the next CapEx year, depending on how things are going.

With the increase in COVID cases, we've seen things kind of move around a little bit.

We had a solid month in the month of November and I think we expect to have a similar -- our first quarter, while seasonally, it's the most difficult, we expect it to look fairly similar in total to what we saw in Q4, although the monthly breakout might be hard for us to nail down..

Got it. Thank you. It's helpful.

And then you mentioned a customer that has 5,000 locations that are looking to upgrade or retrofit small cells over the next three years, do you have visibility into like how that might be weighted over the next three years? Like is it going to be maybe heavily weighted in fiscal 2021 or maybe fiscal 2022? Should we think about that?.

Yes. So, it's actually it's a -- it's not a small cell deployment, it's a DAC deployment. So, cooling of large and small sites and small buildings and edge equipment in either small buildings or in enclosures. So, similar to a small cell deployment, but those 5,000 sites, we think will probably be spread out pretty evenly across the next few years.

We don't have a specific build plan; at least we've not had one shared with us. But that's one example, as we have conversations that we expect to get more intelligence from them on exactly when we're going to be seeing these deployments. We have to win that business. We're in the right spot. We've got some things in network today.

But I think our general expectation is that there's around DAC anyway, there's not a specific impetus to do it right this second. They're going to get there as quickly as they can to reduce their energy costs overall.

So, I think the way we look at it without having any other detail is expecting over the next few years, a fairly steady stream of those opportunities..

Got it. Okay.

And then just given the pipeline of the direct air cooling projects that you've got, how should we think about the gross margin as some of these higher value projects begin to materialize?.

Yes, so those items are generally have a better overall gross margin profile than our blended margin.

So, when you look at the 28%, 29%, 30% kinds of numbers that we've been seeing over the last few quarters, those deployments have a -- regardless of dollar amount depending on the scale of what's being deployed, we see a considerably higher margin profile.

So, when we talk about mix and opportunity for better margin going forward, that's one of the reasons that we're looking at it that way. As you know, we've sort of normalized our margins in our core run rate items, our distribution items, et cetera.

As we see more growth in the integrated solutions, like DAC or small cell shrouds and deployments around that, we expect the bigger mix that we're drawing in from those kinds of items; we should see an increase in our margins related to that..

Okay. Thanks.

And then switching gears a little bit, can you talk about your distributed antenna business? I know that like COVID has put some pressure on those deployments, but generally, how have you seen activity in the last quarter, have you seen things pick up a little bit on that front?.

Frankly, we haven't. I think the short answer.

Those deployments -- we continue to see some of the smaller deployments, but the large venue deployments like stadiums, indoor and outdoor shopping malls, large office buildings, and government buildings that the -- those deployments that we saw back in February timeframe that we expected just haven't returned yet, they will.

But I think it has, it has a lot to do with the return on investment for the people who own or operate those buildings.

And so I think about stadiums, watch a football game on TV, and you see zero to 10,000 people there, okay, well, the build out design was to support, 50 to 100,000 people in those locations, plus folks around the area and in the parking lot, et cetera with a with a robust network deployment.

While in some cases, those things have to have happened in the last several months or a couple of years to build these new stadiums. Not all of those have continued and I get it, it's hard for us to argue with someone who says we're going to we're going to put that off.

But we expect those to return over the course of the next several quarters the sooner we can get some come back from COVID and being able to get out in public again, I think everyone's experiencing the same thing.

So, as soon as we see that, I think we expect some of those projects to return although we have not -- we certainly haven't seen that yet..

Okay.

And then how would you characterize your quick turn business right now in terms of activity? And more specifically, as it relates to like, fiber deployments?.

Yes, it's been steady. I think that the thing that -- I'm not going to say surprised me, but it -- I was proud of the fact that how resilient that business was for us both on the coax and the fiber side. We have a lot of fast turn fiber that is specific connector types for small cell or FTTX.

So, whether that's fiber-to-the-home or fiber to a remote site, we've seen that business continue pretty steadily.

Our distribution business managed to grow year-over-year, which is -- was a tough thing to convince ourselves, I think in in March, April, May timeframe we were doing okay there, but we've seen it recover and pretty steadily flow, it's -- it can be inconsistent if you look at one customer, but I think having diversity of five large distributors that have different -- slightly different focus areas, when you look at them as far as size of projects or markets and industries that they're most effective within, we've seen that be consistent at us at a summary level or at a total level, while it moves around within one distributor.

In total, we've seen it be pretty consistent. So, I expect that to get better also as the operating environment gets better. But that's also a -- back to your earlier question around monthly numbers, that business can be -- for a week can be slow and then crank the next week and look completely different.

So, on a summarized quarterly and an annual basis, we feel really good about that and we're projecting that business to grow again in fiscal 2021 as we get even better with those relationships that we've established, and have more and more products to offer.

And I think even more so, we see some of those DACs and related kinds of projects start coming back..

Okay, cool. And then this is more of a housekeeping question.

Did you disclose your quarterly backlog?.

We did. Yes, backlog at the end of the quarter was $6.3 million, which was up from $5.7 million at the end of the prior quarter. So, we ended Q3 at $5.7 million, we ended Q4 at $6.3 million..

Okay, thank you. I'll jump back in the queue..

Thanks Aman..

[Operator Instructions] Our next question comes from line of Hal Granger with Great Quarter Research. Please proceed with your question..

Thank you for taking my question. Rob, you did a great job on these conference calls. So, congratulations to you on that..

Thanks Hal..

Peter also does a great job and I thought maybe I'll start with a question, Peter. And that is you talked about the $2.8 million in PPP loans and you expect forgiveness.

Can you can you walk us through what the EPS impact would be assuming you do get forgiveness?.

Yes, sure. No problem. Thanks for the question. The $2.8 million if -- whenever that comes in, I think it'll be right around $0.25 to $0.30 EPS impact should come in and we'll definitely kind of put wording around that when and should that come in to kind of highlight that separate from kind of ongoing business items.

But you take $2.8 million or so there and kind of ogre or call it $9.8 million -- 9.8 million shares outstanding and get the EPS from there..

Okay, great. Thank you. So, Rob or Peter, I'm imagining right now. So, you've said there's a bunch of impacts from coronavirus in delaying projects like small cell implementation, et cetera. I'm imagining that there's going to be a sudden rush to complete a number of projects on the part of your customers.

And there's going to be capacity constraints perhaps with you guys and also with all your competitors.

And I'm wondering if the nature of your business permits you to boost margins, if that happens, or if you're locked into long-term prices on your products and services?.

Yes, Hal, this is Rob. Thanks for the question. So it depends -- the short answer is it depends on the product set. But most of our product areas, especially the ones that would be more impacted, I think by that kind of a volume increase would be the traditional run rate items.

Those are generally, we may not be locked into a contractual price, but you've kind of got market pricing in place, where there's an expectation of what something costs, and people have built, build materials around that.

So that, the return on investment use case for -- whoever is deploying that network, whether that's a carrier, or a neutral host, or a third party of some sort, they've built a model that includes, if we're in the bill of materials, there's $1 amount in there.

There's times when things can be a little bit priced up a little bit, if it's ultra-fast turn or some kind of a unique request. But I think, on that side, it's fairly standard.

On the small cell side and the DAC side, as I talked about earlier, the margin profile there is pretty strong, as it is and I think those generally are more manageable, and kind of have the value already built into the supply chain and the offering there.

So, I think I don't expect there to be a meaningful margin increase, because of an increase in volume. It's more about making sure that we have that availability. So we can win that business, and continue servicing the customers we have. And then hopefully see some share shift where others might not be able to service it..

Okay. Thank you. As you've noticed, your stock has done super well, since Election Day. And I think the election came out the way most people are expecting those going to come out.

But I'm wondering, the impact -- of your stock prices are reflecting the feeling that a Biden administration will be more beneficial to you all?.

Yeah. I'd love to say, I'm smart enough to know the answer to that definitively. But I think, what I feel like our stock prices reflecting is, yeah, we got beat up during COVID over the last few quarters. And I think it was hard for small cap, micro-cap kinds of companies to -- for people to notice what's really going on.

And you look at the value that we have, in addition to being able to make money still in some tough operating environments. We as we see increases, we've got a lot of leverage in our business to grow without taking additional expense on to be able to do it. And we're sitting on a nice balance sheet that gives us a lot of flexibility.

So, if anything, I think when you look at the from a government perspective, or legislative perspective, we're hopeful I think that, there'll be continued to be pushed for more spectrum being available more demands on the -- on the wireless deployment side where we have to have coverage everywhere.

I mean, that's really the thing that I think we're looking for, and I haven't seen an indication any differently than what we've been experiencing that, from the Biden administration, we don't yet know what the FCC might look like or otherwise, but there is a lot of spectrum auctions coming up.

And there's a lot of demand requirements, when you look at companies like DISH and others, who have a deployment schedule that they have to meet, irrespective of, who's in the White House things that they have to accomplish, and we're excited about all the all those opportunities.

So, I'm hopeful when you look at past President changes, or administration changes from whether that's Democrats or Republicans, wireless in the deployments seem to always be in the forefront as a as a requirement. And I think we feel like we're positioned well to benefit from that..

Right. Okay. Thank you. So separate question, but also related to government, you mentioned that you were that there's a new a new government customer, I think you phrase that.

Is that something you can talk about? Or give us some sense of what -- what's going on there?.

Yes. So there's a few different government customers, I think, we'll be able to share more going forward. But these are new relationships that are our team in the Northeast sales team in the Northeast on the OEM side has done a really good job of, finding new business even in during a time when things got really weird.

And so, we saw a lot of customers regionally in the Northeast, back in March, April, May timeframe who were, closed or slowed down, or we're having the first phase or first wave of challenges related to the pandemic.

Our sales team did a great job of getting out and finding some additional business, we got some additional certifications that our production facility in Long Island around, government types of products and the yield certifications, you have to have supply products in the government projects. And I think that's really boated, well, for us.

We haven't really seen the full impact of that in our numbers yet, but those are things we'll be able to talk more about in coming quarters..

Okay. Thanks. And one last question. Rob, you talked about being product oriented, and also custom project oriented and how you're you used to be predominantly custom project oriented, and now you're adding a custom project oriented, and now you're adding product orientation.

That sounds like it's subtle, but potentially meaningful, can you can you talk more about that?.

Sure. Yes. Thanks. It's a -- when I say historically, we've been custom project oriented, not everything we do is the phone rings, and we're making something unique for the first time, that certainly happens.

But I think as we've seen with adding distribution, relationships, you start to build a standard run rate set of items, and you can build a product hierarchy, and you get, certain products move at a higher velocity than others.

And it allows us to manage our workforce and production teams, and the related product availability that much more effectively. So, it isn't for us in the company, it's not a new topic, we've been getting better at, making sure we have availability have items on the shelf and available to ship out to our distributors and others.

And then it's about a sales engine and being able to get in front of more people to tell the story. If we don't have availability, that becomes a challenge. And a big differentiator for us has been fast turn items, we're seeing those fast turn items starting to standardize both because we have a defined market segment portfolio that we're going after.

And because on our distribution side, we have multiple distributors selling similar or the same items, you start to get some real good data to tell you what we should be building and keeping on our shelves as well. So, there's that piece on one side that makes us more of a product availability and sales engine.

The other side of that is, if you look at some of our Schrofftech related items in small cell and DAC, those are pretty defined product portfolios already, and it's around getting a better understanding of, what are the various product names or product categories within those offers. So, we can market more effectively. We can scale more effectively.

And it doesn't, it's really easy for someone to look at a company like ours and say, okay, so every time someone calls you, you're building a cable assembly, maybe not, every time someone calls you you're building a shroud.

We have some standard colors, and sizes, and shapes, and designs that we need to do a better job of telling that story and getting that out in front of people, as well as developing next-generation products to go along with those that overall product portfolio.

So, I think it's while it is a subtle comment, it makes things much easier for us in managing our production workforce. So we can predict things better. We know what we're building, and we're not in the business of every time the phone rings, we build something unique or different.

This was a three plus years ago, we started down this path by adding additional distribution in different market segments, or different market focus areas. And magically, we saw that the product offering needed by those distributors and their markets was very similar, if not the same in some cases.

So, once that starts to happen, now you can predict much more effectively, what you're doing, and our gross profit line moves around a lot with the labor cost. And so being able to manage that better, and then the sales engine that we've been building and being able to have a defined offer that makes it easier for a salesperson as well as great.

That doesn't mean, when someone needs something unique, we can't do it. We're proud of the fact we can do it, we can do it quickly, and affordably. We want to make sure we're getting the right return on investment for us on those kinds of scenarios as well..

Great. Thanks very much..

Thanks Hal.

Our next question comes from the line of Josh Nichols with B. Riley FBR. Please proceed with your question..

Yes. How's it going? Hi, Rob and Peter. Thanks for taking my question. I just had a one or two follow-ups here.

Looking at like the direct air cooling, right, who you typically competing against whenever you go into these scenarios? How would you say the company kind of compares in terms of like cost efficiency? And like, what are the company's typical kind of win rate in the space if you have any data on that?.

Yeah. So I think that from a competitive landscape, the easiest way to describe that is the normal way of cooling equipment is to blow cold air over hot equipment forever, and trying to -- try and use an air conditioner to cool down something that's consistently throwing off heat. And while that can work, it's also inefficient and therefore expensive.

And I think our -- we compete against anybody that makes air conditioning equipment for those kinds of venues. We also can partner with those kinds of companies to give them an alternative way of cooling an enclosure or a small building or a cabinet. And I think that's been how we've focused is we can partner with these folks.

But we can offer an alternative way that's considerably up to 75% less expensive to operate our system to cool this equipment. So you're bringing down energy costs of a cabinet or enclosure by whatever 40%, 50%, 60%, 70% that can be meaningful across thousands and thousands of sites in a network.

So we believe we compete very well there, from an offer perspective. It's hard to know what the win rate is. It's been a small business historically. We bought it roughly a year ago.

And I think in working with the Schrofftech team, what I've been impressed by versus having specific data at this point on hit rate or win rate, every conversation starts very easily. It's not hard to get a dialogue going with a customer, because everybody's facing this challenge.

So, on some of our other items that we sell, you sell coaxial cables, that's great. That's not a differentiator kind of conversation, you don't generally start there.

We're now able to start with an obvious need, an obvious market, case study that's going on and everybody wants to be more green, bring down costs, manage their energy spend more effectively. So it allows us to start in a much better place. And we've yet to have someone slam the door in our face.

And I think that, well, that's not analytical, as a sales guy responds to looking at something going on all right, well, people care about this. And they like our story. They may have an embedded way of doing it, if they've done previously.

They may have someone in their technical team that believes in something other than direct air cooling, that's fine. I get it. There's going to be different opinions. But we have a very relevant offer that makes people at least go through a diagnosis of what's working and what's not and no one argues about cost. Ours is much more cost effective.

It really comes down to style in some cases, but I think we're -- with some of these conversations still being relatively new, we feel like we're making our mark in these conversations and people are taking note..

Thanks. And then, I was going to ask, so -- and so you named a number of opportunities, right? There the pipeline seems to be improving.

Is there like one or two deployment opportunities that you think are kind of like outsized if you look at 2021, is that like related to DAC, small cell, the quick turn fiber, is there any detail that you can provide on that for the outlook as far as the pipeline?.

Yes.

Are you talking about during 2021? Are there any that I think are bigger opportunities and others that what you meant?.

Yes. Yes, just the one or two largest opportunities, if you look right for calendar 2021..

Yes, I think DAC comes first and foremost for me. Small cell is one that I'd like to say is a big opportunity this year, and I believe that it is, but it's a lot harder to pin down timeframes on that. It's not like we're doing huge, not hundreds of millions of dollars in that space.

So, even small wins for us, you can say it's small cells delayed, not going as fast as you want. That's great. We're coming off of single digit millions of dollars in sales there where we have an opportunity to scale it. So I think both of those are big opportunities for us.

Small cell, it's around leveraging the successes we've had largely regionalized in the northeast and a couple of pockets of other large cities, taking that nationwide and getting into additional carriers, which we're doing as well as new product launches that I expect should have a meaningful increase for us in fiscal 2021.

Certainly beyond that, but I think we should see some of that impact in 2021. On the DAC side, those conversations are ongoing, and they're not -- that's not as much waiting. It's more of a deployment scheduled. It's going to roll out over the course of several years. So, I think that bodes well for us in 2021.

We built a lot of our growth expectations on those more robust unique product areas to build with what we have today and some new things to be developed.

The only other one I'll mention is, in our core run rate offer, we now have a really great fast turn fiber program that carriers and neutral host folks are picking up on, where we're able to do specific connector types that are great for connecting into small cells or other edge pieces of equipment, fiber-to-the-home, et cetera.

We're able to do that much more quickly than others can in the marketplace. And we've added capacity to try to support that, we're doing that production both on the east coast and the west coast, because the volume has picked up pretty significantly. And we think that will continue.

It's harder to project big wins in that because it's sort of run rate, but we're sticking with our belief that our distribution business can continue to have good low double-digit kinds of percentage growth year-over-year. And this past year, we didn't get that. But we did grow in a time where everything else kind of declined.

So, I think we feel good about that offer overall..

And then, if I was looking, I know you sell into a few different end markets, and that seems to be expanding a little bit.

Could you just touch on some of these markets that you're seeing a little bit more strength or weakness in particularly? And how you're geared to those end markets?.

Sure. Yeah. I think, if you look at the breakdown of our revenue, wireless or carrier based wireless is clearly the biggest for us. And we continue to be strong there and think we're getting stronger for all the reasons that I've mentioned around, our existing offer as well as the new offer that we've added in the last year or so from Schrofftech.

When I look at markets beyond that the MSO space is one, cable companies traditionally called that, is one that we've started to see some conversations there and we've never really had a big powerful offer and that gives us an opportunity to be relevant in that space.

Don't know how powerful that's going to be or how powerful we can be in that space, but we at least now have something to say and people are taking note and we're able to get conversations going. When I look at the strength of the business, the good blue chip OEM customers and existing defense and new defense customers feel great about those.

Those are good hearty kinds of run rate, long-term project based things that you sign a kind of a commitment to draw against a purchase order over the course of a year or two every quarter you do that. Feel solid there, I think as well.

And then the last piece I'll mention is taking our core coaxial offer into other market segments is something that we're very focused on.

So electronic research, engineering, design and repair shops is a place we've started to see a little bit of an uptick and the same offer that we sell into the wireless carrier space, wireless is a lot more than just cellular and carrier kinds of deployments. You have the oil and gas sites that are remote.

You have vehicle monitoring that's going on, and a host of others agriculture, all of these things are leveraging the same kinds of wireless, whether that's CBRS frequencies, whether you've got public safety, deployments happening like FirstNet out there that's carrier based, but a slightly different spin on it.

We feel like we've got great strength and opportunity there. And we're trying to tap into all of those market segments where we have good conversations already going. But they don't always show up in a meaningful way over the last few years in our revenue stream.

We think they will and we think that's part of our long-term growth with the same or a similar offer just getting notoriety in a different segment..

Thanks. And then last question for me. I mean, I understand that, of course, now things are still influx and visibility is still somewhat limited. But it does look like the U.S.

is on path to potentially getting back to some kind of semblance of a more normal environment, at least in the second half of calendar 2021 with the vaccine distribution that's just starting to go on now.

Who knows, maybe we'll be able to attend a concert or maybe go to a live sporting event, right sometime next year? Do you think that that could be kind of like the big catalyst that starts to spur some of the more small cells spend that's been like a little bit lagging, now, as we look into the -- at least the summer of 2021 and then into 2022? What are your thoughts on a high level on that?.

Yes. I totally agree. I'm hopeful like you are and I think like a lot of people are, that you get into the back half of 2021 and we'll see some level of normalcy. I do think that's required before you're going to see the larger CapEx on this densification play.

I still think there's room for us to grow even before that, because our numbers aren't huge, and we've got projects that are ongoing. But I really think if we're looking to open the floodgates on this, you get into the second half of 2021 and beyond. There's a lot of pent-up demand.

And there's a lot of designs that have been sitting out there just waiting for someone to say, yeah, we have the dollars go. That will require us having a reason for people to be out and about, it's hard to want to put a coverage everywhere when people are everywhere at the moment.

Yeah, the big shift we saw over the last few quarters was that the amount of spend on fiber and wireline kinds of fiber to supply these edge data centers and add capacity to neighborhoods that needed to look very different than what they look like last year at this time. I think that's great.

And that's allowed us to move people remotely and make this happen. The use case for 5G and kind of the replacement of cable modems or fiber-to-the-home kinds of things that use case needs to get some more opportunity I think and the mobility piece of that also needs to be out there. And mobility is the last thing anyone's thinking about now.

Mobility means, can I be at home versus being at the office versus truly being out and about. And I think once we see the world start to open up and concert venues and sports venues that's where I think you really start to see the return to a larger CapEx opportunity there..

Great. Thanks guys. I'll leave it there..

Thanks Josh..

Thanks..

[Operator Instructions] Our next question comes in line of John [Indiscernible] with Capital. Please proceed with your question..

Yes. Hi, guys. Thanks for taking it out. I'll keep it quick, since I appreciate you squeezing me in your hour. I'm going to ask the same question a lot of people have kind of been beating around the bush on in a slightly different way, which is I get that you've guided to growth over next year and it's in the back half.

But can you just give me any feeling for how you see the year playing out sequentially? Is -- are we going to see sequential increases from here and they're just going to start really slow? You said, next quarter is basically going to be flat.

But is there some downtick that we see in April or July, just some kind of seasonality, you can say you have no idea.

But I'm just kind of -- and then what's the hockey stick look like? And what gives you comfort in -- we all hear back half guides all the time, right? And so, really giving us some idea, whether it's just a guess, or whether you actually have visibility to it would be helpful also? And then basically the same question around gross margins? Those are really my two questions..

Okay, got it. Thanks, John. Yes, I'd say I have no idea all the time. So, I'm happy to throw that in whenever I can. But in this one, we have a little bit of knowledge of what's going on. And I think the -- our fiscal first quarter, so right now November, December, January, seasonally is our most difficult quarter. There's less business days.

There's year end and year beginning spend that tends to get a little bit weird, sometimes in the carrier space. This year is no different. Some years you see a huge increase as the year ends, because there's money to be spent, other year that gets held back, like we saw 2019 into 2020 it got held back and in the final calendar quarter of 2019.

And then 2020 it was about to get going and then it didn't for reasons in March and April that we all know. So, our expectation is this should be our toughest quarter in fiscal 2021, the quarter that we're in right now is -- should be the toughest.

We see a pretty steady climb from there, if we were to project this out with what we know around our existing backlog and the pipeline of opportunities, most of which I discussed, some which I didn't yet because we don't have full clarity on some of those.

So, our expectation is this is the toughest quarter and then we should see an increase as we go throughout the year.

I don't know that we have specific knowledge on well one quarter be disruptively larger than others, that can always happen for a company of our size, where you get one order pulled in or pushed out by a matter of a few days, and it can move from one quarter to the next.

We try to cover that with our backlog discussion as well as our obviously sales discussion, just to balance those two things and keep people up to speed with what's happening. But I don't have specific knowledge as to why one quarter would be disruptively large, although that can always happen.

On the on the gross margin side, as we've said a few times in the past, and I think even on this call, I don't see a meaningful amount of expense needed or additional CapEx for us to be able to deliver these larger dollar amounts as we increase.

So, we expect that from a production perspective, the better we do smoothing out those numbers, the better our margins can look. We're able to manage our workforce better.

We also expect that our sales increases are going to be heavily influenced by some of the higher margin items in our portfolio that are more solution based and more technology based.

So, while we think the distribution business will be steady and grow, we expect it to be other things to grow faster, DAC, small cell et cetera and expect those to grow larger throughout the year, which carry a better margin profile. So, we think the margins will go up.

As we see sales increase throughout the year product mix can cause that to move around a little bit. But we're starting to see that the last few quarters prior to Q4, it was sort of an anomaly out there of seeing some mid-20s, we think we should be in the high-20s trending to the low-30s over the course of the next several quarters..

Super, that's great. And last quick one. Your backlog movement was great. I'm guessing that backlog movement was somewhat back and of the quarter loaded, given that otherwise, it seems like you would have put up maybe a higher revenue number.

Can you give any color on the backlog? And kind of what we should expect from that this year? Is that something that you're going to try and hold this level on, or should we go down or up or whatever?.

Yes. I think we'd like to see it go up, I think when you see a real CapEx dollars start to flow in the carrier space, that's where you see a backlog increase.

I was happy to see even with a sequential sales increase in Q4 over Q3, we still ended the quarter with higher backlog, not huge, but 10%, 12% up from where it was at the end of the prior quarter. So, sales were increasing. I don't know that it was necessarily backend loaded in the quarter.

We've sort of -- we see it bounce around based on if a larger shipment were to go out or there's a huge week for some reason, it can cause that to go up or down. That's kind of what we've seen since the quarter ended, but no material changes to it.

I do expect if we're going to be delivering larger sales numbers, that the foreshadowing there should be an increase in the backlog to go with it. If it happens within a quarter like our fast -- doesn't always show up in a backlog because it can come and go in a matter of a couple days.

More project-oriented or long-term deployment oriented things that are usually tied to CapEx those start to get spread out over the course of quarters. And that'll show up in that backlog which again, we hope for that to be increasing to support the sales growth that we're expecting..

Super. Thanks a lot..

Thanks, John..

Now, we have reached the end of our question-and-answer session. And I would like to turn the call back over to Rob Dawson for any closing remarks..

Great, thank you. I'm incredibly proud of our team and would again like to thank our employees for their flexibility, positive attitudes and resilience during what's been a completely bizarre year.

Thanks everyone on the call for your interest in our industries, and I especially want to thank our customers and shareholders for your continued support of me and the company as we work towards our continuing on our growth path.

We look forward to reporting our fiscal 2021 first quarter results in March and hopefully speaking with some of you before then. Thanks for joining our call. Please stay safe and have a great day..

This concludes today's conference call. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..