Financial Data and Key Metrics Changes - Net sales in Q2 2019 were $13.6 million, a sequential increase of 28% compared to Q1 2019, but a decline from $20.5 million in Q2 2018 [36] - Net income for Q2 2019 was $1.1 million, or $0.11 per diluted share, a sequential increase of 66% from Q1 2019, but down from $3.2 million, or $0.34 per diluted share in Q2 2018 [40] - Gross profit for Q2 was $4.1 million, a sequential increase of 30% compared to Q1 2019, but down from $7.6 million in Q2 2018 [37] - The current backlog stands at $10 million, marking the third consecutive quarter with backlog over $10 million [43] Business Line Data and Key Metrics Changes - The RF Cable and Connector business grew 22% year-over-year in Q2 2019, indicating strong performance in this segment [17] - The acquisition of C Enterprises contributed about six weeks of results in Q2, enhancing overall performance [15][36] - Organic growth in the low-double digits was noted alongside the inorganic growth from the acquisition [15][45] Market Data and Key Metrics Changes - Continued spending from Tier 1 wireless customers was observed, alongside growth in OEM segments and distribution channels [16][34] - The company is seeing growth in industrial markets such as manufacturing, defense, aerospace, and transportation [18] Company Strategy and Development Direction - The company aims to grow to $100 million in sales over the next three years, focusing on both organic and inorganic growth strategies [46] - The acquisition of C Enterprises is seen as a strategic move to enhance fiber optic offerings and strengthen small cell product offerings in the wireless market [19][21] - The company is committed to pursuing additional acquisitions, with a focus on companies in the $10 million to $20 million revenue range [24][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to generate consistent and predictable results despite challenges from tariffs and supply chain issues [49][50] - The upcoming 5G rollout is viewed as a significant growth opportunity, with expectations for increased spending in the next 12-24 months [34][105] - Management anticipates another strong quarter in Q3 with both sequential and year-over-year revenue growth [35] Other Important Information - Sherry Cefali was added to the Board of Directors, bringing extensive experience in M&A and company valuation [29] - William Reynolds announced his retirement from the Board, effective before the annual meeting [30] Q&A Session Summary Question: Are there any supply chain disruptions due to tariffs? - Management acknowledged some impact from tariffs, particularly from China, but noted that they have generally mitigated these effects [49][50] Question: How is the C Enterprises acquisition performing? - The acquisition is performing better than expected, with C Enterprises showing a run rate above their previous sales figures [51][52] Question: What is the pipeline for potential acquisitions? - The company is focused on passive components and is interested in companies with $10 million to $20 million in sales, ideally with distribution channels [55][56] Question: Will there be sequential organic growth in the next quarter? - Management expects organic growth in Q3, alongside contributions from the C Enterprises acquisition [66][67] Question: What is the status of the backlog? - Management expressed confidence in the backlog, which remains healthy at $10 million, despite the fast-turn nature of much of their business [69][70] Question: What was the purchase price for C Enterprises? - The purchase price for C Enterprises was disclosed as being less than $1 million [71] Question: How is the new sales model different? - The new sales model emphasizes a unified company approach and increased focus on distribution as a key growth driver [101][102] Question: What are the expectations for 5G spending? - Management expects 5G spending to ramp up significantly in the next calendar year, with a long-term outlook for continued investment [105][116]

[Part I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) The company's unaudited statements show decreased sales and net income, driven by lower Custom Cabling segment performance [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $34.4 million, driven by increased trade accounts receivable, while stockholders' equity also increased Balance Sheet Summary (in thousands) | Account | April 30, 2019 (Unaudited) | October 31, 2018 | | :--- | :--- | :--- | | **Total Current Assets** | **$30,462** | **$28,530** | | Cash and cash equivalents | $13,856 | $16,334 | | Trade accounts receivable, net | $7,938 | $4,255 | | Inventories | $7,932 | $7,113 | | **Total Assets** | **$34,405** | **$32,502** | | **Total Current Liabilities** | **$4,658** | **$4,719** | | **Total Liabilities** | **$4,745** | **$4,719** | | **Total Stockholders' Equity** | **$29,660** | **$27,783** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company experienced a significant year-over-year decline in net sales and net income for both three and six-month periods Three Months Ended April 30, (in thousands, except per share data) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net sales | $13,626 | $20,515 | -33.6% | | Gross profit | $4,094 | $7,648 | -46.5% | | Operating income | $1,362 | $3,960 | -65.6% | | Consolidated net income | $1,061 | $3,204 | -66.9% | | Diluted EPS | $0.11 | $0.34 | -67.6% | Six Months Ended April 30, (in thousands, except per share data) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net sales | $24,273 | $28,482 | -14.8% | | Gross profit | $7,240 | $10,112 | -28.4% | | Operating income | $2,149 | $4,318 | -50.2% | | Consolidated net income | $1,701 | $3,658 | -53.5% | | Diluted EPS | $0.17 | $0.40 | -57.5% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased by $1.9 million to $29.7 million, driven by net income and stock option exercises - Stockholders' equity grew from **$27.8 million** on November 1, 2018, to **$29.7 million** on April 30, 2019[13](index=13&type=chunk) Changes in Stockholders' Equity (Six Months Ended April 30, 2019, in thousands) | Description | Amount | | :--- | :--- | | Beginning Balance (Nov 1, 2018) | $27,783 | | Consolidated net income | $1,701 | | Exercise of stock options | $357 | | Stock-based compensation | $192 | | Dividends | ($373) | | **Ending Balance (Apr 30, 2019)** | **$29,660** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash decreased by $2.5 million, with a notable shift to negative cash flow from operations due to increased receivables Cash Flow Summary (Six Months Ended April 30, in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash from operating activities | ($1,806) | $1,895 | | Net cash from investing activities | ($656) | ($44) | | Net cash from financing activities | ($16) | $53 | | **Net (decrease) increase in cash** | **($2,478)** | **$2,449** | - The **negative operating cash flow** in 2019 was largely driven by a **$2.4 million increase in trade accounts receivable**[16](index=16&type=chunk) [Notes to Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Key notes detail the adoption of ASC 606, the acquisition of C Enterprises, and significant customer concentration - On November 1, 2018, the Company adopted the new revenue recognition standard **ASC 606**, which did not have a material impact on revenue reporting[20](index=20&type=chunk)[24](index=24&type=chunk) - On March 15, 2019, the Company acquired the business and assets of C Enterprises L.P. for **$600,000 in cash**, which contributed **$1.7 million in revenue** for the period[25](index=25&type=chunk)[26](index=26&type=chunk) - The Company sold its subsidiary Comnet Telecom Supply, Inc. on October 31, 2018, and its prior period results are now classified as **discontinued operations**[27](index=27&type=chunk) - For the six months ended April 30, 2019, two customers accounted for approximately **32% and 10% of net sales**, compared to one customer accounting for **68%** in the prior year period[43](index=43&type=chunk)[44](index=44&type=chunk) [Management's Discussion and Analysis (MD&A)](index=21&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the sales decline, margin compression, strong liquidity, and the impact of the C Enterprises acquisition [Business Overview](index=23&type=section&id=Overview) The company operates through two segments, with the Custom Cabling segment accounting for 73% of total sales Sales Contribution by Segment (Six Months Ended April 30, 2019) | Segment | Percentage of Total Sales | | :--- | :--- | | Custom Cabling | 73% | | RF Connector | 27% | - The company provides interconnect products to telecommunications carriers, equipment manufacturers, and various OEMs[76](index=76&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with $13.9 million in cash, no debt, and a $10 million backlog - The company had **$13.9 million in cash and cash equivalents** and **$25.8 million in working capital** as of April 30, 2019[80](index=80&type=chunk) - The company maintained a strong backlog of **$10 million** as of April 30, 2019, which is expected to support liquidity[81](index=81&type=chunk) - The company has **no outstanding indebtedness** for borrowed funds[88](index=88&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Operational results were impacted by the Comnet sale and C Enterprises acquisition, with a sales decline from a non-recurring record order in the prior year - The sale of Comnet Telecom Supply, Inc. on October 31, 2018, has led to its results being reported as **discontinued operations** in prior period comparisons[87](index=87&type=chunk) - The acquisition of C Enterprises on March 15, 2019, contributed to the results of operations for the second quarter of 2019[90](index=90&type=chunk) - The year-over-year decline in sales was primarily due to an **exceptionally large series of orders** received in the 2018 fiscal quarter that did not recur[91](index=91&type=chunk) [Part II. OTHER INFORMATION](index=31&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings outside the ordinary course of business - As of the report date, the company is **not involved in any material legal proceeding** outside the ordinary course of business[114](index=114&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) No material changes have been made to the risk factors disclosed in the company's most recent Form 10-K - **No material changes** have occurred from the risk factors previously disclosed in the company's Form 10-K for the fiscal year ended October 31, 2018[115](index=115&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=31&type=section&id=Other%20Items) The company reports no unregistered sales of equity securities or defaults and lists filed exhibits, including officer certifications - The company had **nothing to report** for Items 2, 3, 4, and 5[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Item 6 lists the exhibits filed, including **CEO and CFO certifications** under Sarbanes-Oxley Sections 302 and 906[120](index=120&type=chunk)

RF Industries, Ltd. (NASDAQ:RFIL) Q1 2019 Earnings Conference Call March 12, 2019 4:30 PM ET Company Participants Todd Kehrli - President, MKR Group Rob Dawson - President & Chief Executive Officer Mark Turfler - Chief Financial Officer Conference Call Participants Mike Crawford - B Riley Orin Hirschman - Investment Partners Scott Searle - ROTH Capital Harry Venezia - HealthCare Capital Advisors Operator And welcome to the RF Industries’ First Quarter Fiscal 2019 Financial Results Conference Call. At this t ...

Part I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis of financial condition and results of operations, and disclosures regarding market risk and internal controls [Item 1: Financial Statements](index=2&type=section&id=Item%201%3A%20Financial%20Statements) For the quarter ended January 31, 2019, RF Industries, Ltd. reported total assets of $32.5 million, a slight increase from October 31, 2018. Net sales grew 34% year-over-year to $10.6 million, driving consolidated net income to $640,000, up from $454,000 in the prior-year period. Cash and cash equivalents decreased to $14.0 million from $16.3 million, primarily due to increased working capital needs to support sales growth [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight increase in total assets to $32.5 million, with notable shifts in cash, receivables, and inventories, and an increase in stockholders' equity | | January 31, 2019 (Unaudited, in thousands) | October 31, 2018 (in thousands) | | :--- | :--- | :--- | | **Total Current Assets** | $28,599 | $28,530 | | **Total Assets** | $32,507 | $32,502 | | **Total Current Liabilities** | $3,803 | $4,719 | | **Total Liabilities** | $3,814 | $4,719 | | **Total Stockholders' Equity** | $28,693 | $27,783 | - Key changes from October 31, 2018 to January 31, 2019 include a decrease in cash and cash equivalents from **$16.3 million** to **$14.0 million**, an increase in trade accounts receivable from **$4.3 million** to **$5.6 million**, and an increase in inventories from **$7.1 million** to **$8.2 million**[6](index=6&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net sales increased 34% year-over-year to $10.6 million, driving significant growth in operating income and consolidated net income for the quarter | | Three Months Ended January 31, 2019 (in thousands) | Three Months Ended January 31, 2018 (in thousands) | | :--- | :--- | :--- | | **Net sales** | $10,647 | $7,966 | | **Gross profit** | $3,145 | $2,463 | | **Operating income** | $786 | $358 | | **Consolidated net income** | $640 | $454 | | **Diluted EPS (Net income)** | $0.07 | $0.05 | - Net sales increased by **34%** year-over-year, leading to a **120%** increase in operating income and a **41%** increase in consolidated net income for the first quarter of fiscal 2019 compared to the same period in 2018[12](index=12&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased to $28.7 million, primarily due to net income and stock option exercises, partially offset by dividends - Total stockholders' equity increased from **$27.8 million** at the beginning of the period to **$28.7 million** at January 31, 2019. The increase was primarily driven by net income of **$640,000** and proceeds from the exercise of stock options of **$342,000**, partially offset by dividends paid of **$186,000**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a net cash outflow of $2.4 million from operating activities, mainly due to increased working capital to support sales growth | | Three Months Ended January 31, 2019 (in thousands) | Three Months Ended January 31, 2018 (in thousands) | | :--- | :--- | :--- | | **Net cash used in operating activities** | ($2,401) | ($220) | | **Net cash used in investing activities** | ($73) | $12 | | **Net cash provided by financing activities** | $156 | ($19) | | **Net decrease in cash** | ($2,318) | ($159) | | **Cash at end of period** | $14,016 | $5,880 | - The company experienced a net cash outflow from operating activities of **$2.4 million**, primarily due to increases in trade accounts receivable (**$1.4 million**) and inventories (**$1.1 million**) to support higher sales volumes[16](index=16&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Key notes include the adoption of ASC 606, the sale of a subsidiary, significant customer concentration, and a post-quarter acquisition announcement - On November 1, 2018, the Company adopted the new revenue recognition standard ASC 606, which did not have a material impact on its revenue recognition policies or financial statements[20](index=20&type=chunk)[23](index=23&type=chunk) - On October 31, 2018, the Company sold its subsidiary, Comnet Telecom Supply. The results of Comnet are reported as discontinued operations. For the three months ended January 31, 2018, Comnet generated **$2.4 million** in net sales and **$150,000** in net income[24](index=24&type=chunk) - For Q1 2019, two customers accounted for **38%** and **14%** of net sales, respectively. In the prior year's quarter, one customer accounted for **47%** of net sales, indicating significant customer concentration[38](index=38&type=chunk) - Subsequent to the quarter end, the company announced a binding agreement to purchase the assets of C Enterprises, L.P., a manufacturer of custom cables, and declared a quarterly cash dividend of **$0.02 per share**[54](index=54&type=chunk)[55](index=55&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 34% year-over-year sales growth in Q1 2019 to increased demand in both the Custom Cabling and RF Connector segments, particularly from project work in OEM and wireless carrier markets. Gross margin slightly decreased from 31% to 30% due to higher outsourcing costs. Despite higher selling and general expenses in absolute terms, they declined as a percentage of sales from 22% to 19%, reflecting improved operational efficiency. The company maintains a strong liquidity position with $14.0 million in cash and no debt, and a stable backlog of $11 million [Critical Accounting Policies](index=19&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies involve significant estimates and judgments, including inventory valuation, impairment, income taxes, and the adoption of ASC 606 - The company's critical accounting policies involve significant estimates and judgments, particularly regarding inventory valuation, allowance for doubtful accounts, impairment of long-lived assets including goodwill, income taxes, and stock-based compensation[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - The company adopted the new revenue recognition standard ASC 606 on November 1, 2018, using the modified retrospective method. The adoption did not have a material impact on revenue recognition[60](index=60&type=chunk) [Overview](index=21&type=section&id=Overview) The company operates through two segments, Custom Cabling and RF Connector, with Custom Cabling contributing the majority of sales in Q1 2019 - The company operates through two segments: RF Connector and Cable Assembly, and Custom Cabling Manufacturing and Assembly[71](index=71&type=chunk) - For Q1 2019, the Custom Cabling segment accounted for **69%** of total sales, while the RF Connector segment accounted for the remaining **31%**[72](index=72&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with $14.0 million in cash and no debt, despite a cash decrease due to increased working capital for sales growth | Metric | As of January 31, 2019 | | :--- | :--- | | Cash and cash equivalents | $14.0 million | | Working capital | $24.8 million | | Current ratio | 7.5:1 | | Outstanding indebtedness | $0 | - The company maintained a consistent backlog of **$11 million** as of January 31, 2019, unchanged from the end of fiscal year 2018[76](index=76&type=chunk) - Cash decreased by **$2.3 million** during the quarter, primarily due to a **$1.4 million** increase in accounts receivable and a **$1.1 million** increase in inventories, driven by higher sales[77](index=77&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Net sales increased significantly across both segments, while gross margin slightly declined due to higher outsourcing costs, and operating efficiency improved | Metric | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $10.6M | $8.0M | +34% | | Custom Cabling Sales | $7.4M | $5.3M | +38% | | RF Connector Sales | $3.3M | $2.6M | +24% | | **Gross Profit** | $3.1M | $2.5M | +28% | | **Gross Margin** | 30% | 31% | -1 ppt | - The decrease in gross margin from **31%** to **30%** was primarily due to higher costs of outsourcing at the Custom Cabling segment[83](index=83&type=chunk) - Selling and general expenses as a percentage of sales declined to **19%** from **22%** in the prior-year quarter, indicating improved operational efficiency[86](index=86&type=chunk) - The effective tax rate increased to **21%** in Q1 2019 from **16%** in Q1 2018, mainly due to the elimination of certain tax benefits following the 2017 Tax Act[88](index=88&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company reported no new or material quantitative and qualitative disclosures about market risk for the period - The company had nothing to report regarding quantitative and qualitative disclosures about market risk[92](index=92&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of January 31, 2019. There were no material changes to the company's internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective[95](index=95&type=chunk) - There were no changes in the company's internal control over financial reporting during the quarter ended January 31, 2019, that materially affected, or are reasonably likely to materially affect, these controls[96](index=96&type=chunk) Part II. OTHER INFORMATION This section covers legal proceedings, risk factors, and other miscellaneous items, including exhibits filed with the report [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company is not subject to any material legal proceedings outside the ordinary course of business as of the report date - As of the date of this report, the company is not subject to any proceeding that is not in the ordinary course of business or that is material to its financial condition[98](index=98&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended October 31, 2018 - There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended October 31, 2018[99](index=99&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=27&type=section&id=Other%20Items) The company had nothing to report for Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds), Item 3 (Defaults upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information). Item 6 lists the exhibits filed with the report - The company reported nothing for Unregistered Sales of Equity Securities, Defaults upon Senior Securities, Mine Safety Disclosures, and Other Information[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) - Item 6 lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files[104](index=104&type=chunk)