RF Industries(US:RFIL)2021-09-14 00:22Financial Data and Key Metrics Changes - Sales for Q3 2021 reached just above $15 million, representing a sequential increase of 38% and a year-over-year increase of 60% [6][19] - Gross profit margin was reported at 33%, including the impact of approximately $800,000 in Employee Retention Credit (ERC); excluding ERC, the margin was 28%, up from 27% in the previous quarter [20][21] - Operating income for the quarter was $1.2 million, excluding the impact of ERC [21] Business Line Data and Key Metrics Changes - The core distribution business remains healthy and diverse, contributing to the overall revenue growth [10][16] - Sales in the OEM and industrial markets showed growth, returning to more normalized levels [11] - Small cell and DAC thermal cooling offerings are expected to increase sales, with a strong backlog of orders [12][13] Market Data and Key Metrics Changes - The company experienced increased spending from the wireless carrier ecosystem, evidenced by multi-million-dollar orders for OptiFlex hybrid fiber solutions [7][16] - The backlog at the end of Q3 reached a record $31.5 million, up from $15.6 million in the previous quarter [23] Company Strategy and Development Direction - The company is focused on expanding its product offerings and enhancing its sales and business development organization [9][17] - There is a commitment to pursuing mergers and acquisitions (M&A) to drive growth, with a pipeline of potential candidates being developed [14][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a strong finish to the fiscal year, with fourth-quarter sales expected to exceed those of Q3 [18][23] - The company is optimistic about the long-term growth potential associated with 5G infrastructure spending [13][16] Other Important Information - The company has a strong balance sheet, with cash and cash equivalents of $12.6 million and working capital of $30.6 million at the end of the quarter [22] - The company is actively managing supply chain challenges and wage pressures in the labor market [41][46] Q&A Session Summary Question: Gross margin differences between product lines - Management indicated that achieving a gross margin above 30% is attainable, with product mix playing a significant role [26][29] Question: SG&A expenses outlook - Management noted that the current SG&A expenses include stock compensation and increased sales-related compensation, but these levels are not expected to be sustained [30][32] Question: Timeline for larger M&A deals - Management expressed optimism about completing a larger deal by the end of the calendar year, although timing is uncertain [33][34] Question: Supply chain issues - Management reported that they have managed supply chain challenges well, having pre-purchased materials to mitigate potential disruptions [41][42] Question: Employee recruitment challenges - Management acknowledged wage pressures and difficulties in finding skilled labor, which are consistent with broader industry trends [46][48] Question: COVID restrictions and project access - Management noted that while access to venues has improved, not all projects have returned to pre-pandemic levels [50][51] Question: Backlog management and expectations - Management clarified that backlog growth is primarily driven by customer demand, and they expect it to draw down over time [58][60] Question: Future growth drivers - Management indicated that growth will come from a more diverse customer base and higher-ticket items like DAC and small cell products [64][66] Question: Earnings per share outlook - Management emphasized the importance of profitable revenue growth and improving product mix to enhance earnings per share [68][70]