Q2 2020 RF Industries Ltd Earnings Call
Good day, ladies and gentleman and what kind of the RF industries second quarter fiscal 2020 financial results call. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session. As a reminder, this call is being recorded today Thursday June 11th 2020.
At this time I turn the conference over to Jim Byers with MK, Our Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to ours industries second quarter fiscal 2020, its financial results conference call.
Fortunately on todays call are ours industries, President and CEO LOPT also chief financial Officer Mark perform.
Before I turn the call over to Robarts I'd like to cover a few quick items. This afternoon Arts industries issued a press release announcing that second quarter fiscal 20, Twond These financial results.
That release is available on the company's website all this industries dot com.
This call is being broadcast live over the Internet for all interested parties and the webcast will be archived investor relations page of the company's website.
Well I remind everyone that during today's call management will make forward looking statements 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 21.
Securities Exchange Act of nights in third and fourth.
When you used the words anticipate but we expect and 10 future and other similar expressions identify forward looking statements.
These forward looking statements reflect management's current views with respect to future events.
Formats and are subject to risks and uncertainties and actual results may differ materially from outcomes can change and any forward looking statements.
Factors that could cause these forward looking statements differ from actual results include delays in developing marketing where sales of products and other risks and uncertainties discussing the companys periodic reports on form 10-K, and 10-Q and other filings with the Securities Exchange Commission on US industries undertakes no obligation to update or revise any Florida.
Additionally throughout this call we'll be discussing certain non-GAAP financial measures today's earnings release and the related current report on form 8-K, you described the differences between our non-GAAP and GAAP reporting a present a reconciliation between the two so the periods reported in the release and that's on the call over to Rob Dawson President.
And Chief Executive Officer, Rob.
Good afternoon, everyone and welcome to our second quarter fiscal 2020 earnings Conference call.
For joining today's call I hope that all of you in your family and friends are staying safe and healthy.
I'll start my comments like everybody else in detail around the significant challenges we experienced during the second quarter and how we respond.
And then alternative what we're seeing now why we think things are moving into right direction.
I don't want to dwell too much in the past what is difficult operating environment for most because I do think it will be helpful to share our experiences in the quarter to better understand our results and then get on to Whats next as we continue to execute on our growth strategy.
That's a central business, we remain open during our second quarter conserving provide support to our customers.
Got it much of the World was shutting down during this period of like certainty. We continued to focus first and foremost on the health and safety of our employees our customers our suppliers.
Protecting these resources. Most importantly, we have taken significant actually answered I'm sure everyone safety.
He has the board and management team and of course, thank our employees for their fortitude innovation and positive spirit and providing essential services to our customers what little interruption.
Production of support teams on the rock Star. The this company I kept things moving throughout a difficult.
Thanks.
We stated on our last earnings call in March which occurred only days prior to the mandate and stay at home orders.
I'm sure the full economic impact of the Corona virus anticipated their neighbors that short term speed Barclays.
Well, what that even with the situation around us potentially getting difficult our balance sheet gives us flexibility to manage the business as well as whether any crazy storms like the one we're dealing with them all.
In fact, the timing of just on favorable economic [laughter] heard right in the middle of our second core which ended on April Thirtyth.
Needless to say it had a significant impact on the results that were reporting today.
Lots of companies have released results through the March timeframe, but when you include in April and the results you're definitely get a picture of how difficult the operating environment became.
While we clearly saw sales impacted in the quarter, even with the tough environment, we were able to deliver adjusted EBITDA of $176000.
Also important to note we came out in the quarter with substantially the same cash of roughly $14 million.
Overall financial position, we have going into the core all things considered whether it pretty well.
Looking back on the quarter in February we were executing well our go to market plan and generating solid.
Good run rate business at a healthy pipeline in our project business.
Through the early part of March our results were on track with our outlook. However, as we move further into March and began operating during to stay at home period, a central business.
You can talk more in our operations were negatively impacted more on that animal.
By mid March as California, New York locked down we saw many of our customers close up shop for a period of time, including some distributors.
March we saw the momentum we were building drop off significantly.
The challenge is continued into April what started with project delays work its way through other areas of our business, including some customers in our OEM segment closing down for several weeks.
Eventually are generally healthy a diverse distribution business was affected as many of our distributors reduced orders were temporarily closed some locations.
And we saw project based business heavily impacted on numerous far from starting with the obvious capex spending pauses.
As well as with field work crews encountering difficulty picking up materials accessing buildings and venues.
We do installation and maintenance work and finally local zoning I'd say these challenges made it difficult for tower and neutral host companies to execute on build plans.
All of these factors contributed to most things getting delayed with customers holding off on accepting shipments and pushing things out for some amount of time.
Oh like the world's stood still for a while the project business was basically missing in the final 67 weeks of Q2.
And the roughly 3 million plus and related sales that we expected in the quarter Didnt happen.
That's just the project work sense. In addition, our core run rate was slower than usual.
As I said before with a company of our current size of $2 million in revenue makes a big difference in April is one of you really saw the impact.
Things were equally challenging from an internal operations perspective, while we quickly pivoted to a remote workforce the nature of our business that 70% of our team our production support staff that need to be physically onsite adult products.
So as we remained open we committed to additional measures to protect the safety of our employees and continued with the best practices, we had already implemented as outlined by the CDC and state governments.
These measures included social dispensing through staggered in multiple shifts supplying personal protective equipment.
Additional cleaning supplies, along with enhanced sanitation services and being flexible with our employees, who were impact directly or indirectly related to the probing 19 pandemic.
As a result, we incurred roughly $50000 of increased production and operating costs. During the quarter. This included paying out small bonuses to some of our employees on the production and support teams as a thank you for their incredible efforts to show up on site and ensure product continued to ship.
And at the pandemic worsening our operations changed even more over the course of several weeks as we began to further stagger shifts in our workforce to protect our employees.
In March we were separating our team into smaller groups ultimately adopting multiple ships under different time frames, which negatively impacted the productivity of our teams and ultimately called the into our gross margins.
By April we unfortunately saw directing actually they don't hats off your team members, particularly affecting our operations in the northeast in Connecticut, and New York.
There were several weeks, where we were operating with a significantly reduce production team. Although were considered a central business. We were certainly not going to mandate work ahead of someone's health.
All of these challenges obviously made for extremely difficult month in April which had a significant negative impact on our core we remain committed to keeping our people LP and on the job as best we could and I think you did a very good job, whether we're going to store, especially considering the type of business that we run.
And while many things were out of our control we focused on the things we could control inventory levels sales and customer service effort and taking care of each other most importantly, I'm very thankful that all of our teams made it through including healthy recoveries by all affected team members.
Thankfully now, let's change gears and talk about what we're seeing currently and where we're going as we continue to execute on our long term growth plan.
While many was challenging and felt a lot like April as we move further into our current quarter, we're starting to see things improve.
In every aspect of our business, but we're certainly seeing signs of life around purchasing slight pickup in our core run rate business.
We also continue to integrate the two acquisitions that we did last year. There's a balancing act here you have to acquire and you have to integrate digest. It takes a while to bring these things in and get the momentum and we haven't yet seen a full potential of these two acquisitions.
In fact, with a couple of quarters behind us since our acquisition of telecom suppliers trough technologies.
Starting with the increased activity and positive momentum around new business development. In this division and are beginning to building a pipeline of opportunities both for small cell and our thermal cooling solutions as many of you know drop that brought us to primary product offerings. The one we spoken more about the family of custom designed pull ready for GE and.
Fiveg small cell integrated and closures, which provide improved aesthetics and reduce small cell installation time from days to ours.
Traffic both expands our overall offer in the small cell bill of materials.
We can capitalize on the upcoming network densification opportunities.
Also diversified our exposure to the carriers, giving up additional buckets of money to tap into within the carrier Capex spend.
The second offer from trough Tech is the energy efficient thermal cooling solution for wireless base stations and remote equipment shelters, which can be increase the telecom carriers air conditioning costs by up to 75%.
Curious used the term directed air cooling or DAC when discussing opportunities for these solutions.
So in addition to the substantial opportunity we see within small cell dropped ex thermal cooling solutions enable us to offer a definitive value proposition.
Centered around a better design and clear cost and energy savings.
And is allowing us to initiate a different kind of sales conversation when a new set of customers.
To give some color on the types of new opportunities we're seeing.
Let me walk through a fuel.
We're currently engaged with a large north American carrier that's during the trial of a potential cabinet retrofit using softex DAC thermal cooley solution, including remote monitoring temperature regulation and cooling of the equipment in the cabinet.
Thats kind of solution is particularly relevant today with the ship to remote working theres a substantial increase in the demand is placed on existing wireless and wireline infrastructures, including potential issues inside cabinet enclosures and small buildings.
The energy savings proposition that we can offer is a key driver behind our opportunity with this carrier.
And we're seeing similar opportunities with other potential carrier customers as well.
Second we continue working with a large U.S. carrier on direct their cooling upgrade kits in several markets with expected monthly recurring business to continue and increase into calendar Q4.
Third we're in discussions with a large carrier to drive spec position for Stratec direct air cooling units in their cabinets. This could lead to several thousand sites over the next few years.
Next we have ongoing small cell conceal netscout opportunities in the northeast with another large wireless carrier, where we have a longstanding relationship.
And finally rapidly beginning discussions with a few traditional wireline distributors, what we believe we have a relevant offer and market opportunity in the wireline carrier and rural telco space with Emmett those and proposed further into the smaller edge data Center segment.
Each of these opportunities ranges from a few hundred thousand dollars to a few million dollars over multiple quarters. While some are still in early stages. Many of these are conversations that have started in the last three to four months, which makes us feel very positive on the long term growth prospects for disrupt that business.
Reinforces the reason we did this acquisition.
There are several more similar opportunities, but I look forward to discussing in the future as we make progress in our sales efforts.
We believe the significant opportunity we see around our direct their cooling solutions is only going to get bigger as any place where there's a cabinet small enclosure large and closure or small building their houses electronics is an opportunity for direct air cooling.
And we're well positioned with a patented product line that is squarely focused on improved technology and the related energy savings.
Looking ahead, while we experienced delays in a large number of capital projects across all segments. In Q2, we're hopeful that distillate business will reappear later this fiscal year and into 2021.
But we do know is the wireless spend will recover.
As now more than ever users are demanding more from their carriers, which will drive the need for continued investment in their networks and the related infrastructure. We continue to feel very confident in how we're positioned to take advantage of this eventual infrastructure spend.
In addition to the strategic opportunities that I discussed earlier, we have several other opportunities at various stages in our pipeline I want to reiterate that the multiple das and structured cabling projects that we haven't play for a large carrier with several das projects for stadiums large venues that large office buildings, the small cell densification deployments in metro areas.
And the anticipated tier one carrier spending have all seen delays due to capex shifts building access issues or Chris shortages that we expect to be back on track soon.
Also we continue to gain approvals for a quick turn fiber program, what carriers and neutral host companies.
Looking at Q3, it remains difficult to provide specific items in the near term due to the continued uncertainty around the impact of the Corona virus.
Our supply chain and our customers.
Having said that we had already expected much of the wireless carrier spend to be loaded in the back half of our fiscal year.
While that May now get pushed into our next fiscal year. We do believe we'll see a much more consistent spend going forward as long as the world Doesnt see repeated disruptions during that time.
As you may have seen through our 8-K filings we received funds under the Paycheck protection program or PPP in early may totaling $2.8 billion. This funding. We received has given us an opportunity to continue to work through these uncertain times with most of our team intact.
With the funding we've been able to keep our people employed with benefits even as we clearly experienced reduced activity.
We've also been able to take advantage during this period of lower activity across train our team and expand our skill sets. So that we can continue that as we continue to recover will be in a much stronger position in terms of our production capabilities.
The PPP loan that we received is intended to be forgiven subject to any provisions of the care that.
Lastly, given the current challenging environment and continuing uncertainty that the pandemic our board of directors has elected to suspend our quarterly dividend payment.
We believe putting our dividend on hold is the right thing to do and that in the current environment. These proceeds are better used to strengthen our business and fees on opportunities to regain some of the growth trajectory that we're generating prior to the pandemic.
Specifically, we have accelerated our investment in our business generation resources and activities related to disrupt tech solutions that I mentioned earlier and to further diversify our relationships in the carrier ecosystem.
We also continue to upgrade talent and look forward to continuing to streamline our organization.
Additionally, we remain squarely focused on delivering shareholder value and as we've consistently said consolidation probably makes sense in our industry like any responsible company, we're always looking at value enhancing opportunities.
We're confident in the long term prospects of our business and remain focused on our growth plans to drive demand creation and expand our participation into different buckets of capex spend.
The board and leadership team are confident that with our solid financial standing we remain well positioned to successfully navigate through this challenging operating environment and emerge a stronger company.
We will be flexible and raise react to anything thrown at us since we expect things to continue to be fundamentally different and certainly erratic at times.
With that I'll now turn the call over to Mark from detailed review and discussion the financial results for the quarter Mark.
Thank you Robin good afternoon, everyone jumping right.
Net sales in the second core there were $10.4 million.
Creates a 20.
7% grew $3.2 million.
Due to 13.6 million in the second quarter since group 2019.
So as year over year decrease in net sales reflects a decrease in our transit business, resulting from the slowed down in carrier spending as well as the other thing wrong just described.
This decrease was partially offset by an additional sales contributed prior newly acquired subsidiaries shrunk.
We did not own in fiscal 2019, and see enterprises, who is prior year quarter results root for a six week period.
At quarter end, our backlog stood at $5.7 million.
The $5 million.
Number and our prior quarter in.
Bulk up this increase came from our shrunk.
Which Ron just spoke about.
Gross profit for the second quarter was $3.6 million compared to $4.1 million in the second quarter last year.
Gross margins grew 20% to sort of net sales compared to 30% of net sales in the second quarter a year ago.
Sure I knew margins was primarily due to lower sales in our project business that resulted in lower coverage.
Thanks, good cost production mix that custom categories.
And increased sales have to see enterprise subsidiary or who's gross margins are lower than the blended margins are burnt weather conditions.
Total operating expenses increased a $100000 to $2.8 million were 27% of net sales.
There to 2.7.
20% of net sales in the second quarter last year.
Did you increase was primarily due to the inclusion of newly acquired shrunk take something expenses in a full quarter through see enterprise.
This increase was partially offset by $300000 decrease in the valuation in shrunk tanks earn out liability.
Excluding the impact shrunk takes additional operating expenses.
Second quarter operating expenses declined approximately $700000 compared to the second quarter last year.
Also included in total operating expenses for the second quarter.
Following three.
Spent segments first.
$173000 of amortization extends an increase of $104000 over last year as a result of disruptive acquisition.
Secondly.
$97000 and stock based compensation expense and increase in $19000 over the second quarter last year.
In part through one time compensation costs related to our recently.
Revenue wrong system.
And lastly.
Thanks.
Sales and volumes increased production not premium cross through supplies sanitation services and other calls to keep our employees.
Good morning team since then.
Net loss for the second quarter ones.
$4000 or two cents prove done sooner.
Compared to net income of $1.1 million were 11 cents per diluted share in the second quarter last year.
We are also combining some non GAPP findings from management's including non-GAAP net income known camp earnings per share and adjusted EBITDA.
Our earnings press release includes a reconciliation between GAAP and non generally poor.
We believe knowing Sam I knew through measures provides useful information to investors.
Roots turning in the lines are operating trends and performance.
Non-GAAP net loss for the second quarter was $73000 or one cents per diluted share compared to non-GAAP net income of 1.2 million or 13 cents per diluted share in the second quarter last year.
Non-GAAP net loss for the second quarter fiscal between trending.
Grew to $97000 and stock based compensation expense.
Adjusted EBITDA for the second quarter fiscal 2021 cents positive $176000 compared to 1.7 million in the second quarter last year.
Adjusted EBITDA for the second quarter, it's grew to $97000 of stock based compensation expense.
And $173000 event today and expense, which increased $104000, primarily due to in time requiring shrunk.
Adjusted EBITDA excludes a tax expense and $3000.
Two to $315000 tax expense in second quarter last year.
With our financial position cash cash equivalents of $14.1 million working capital of $23.5 million and accrued British you're probably more into one.
The second quarter.
We remain well positioned to navigate through these challenging operating environment and you merge and stronger Thompson.
That concludes my discussion.
Now I'd like to open fluid and questions operator, we're ready to take her first question.
Thank you, ladies and gentlemen, if you like to ask a question you may do so by pressing star one on your telephone keypad using a speaker phone. Please make sure. Your mute function has turned off to like you're signaling to reach our equipment.
Please press star one to ask a question, we'll pause a moment to assembler Q.
Well take our first question from Josh Nichols with B. Riley. Please go ahead.
Yes, Thanks for taking my question then.
I know you mentioned, there's clearly been some revenue headwinds for the quarters. Most companies. So that's kind of been experiencing in the current environment No no big surprises there.
One thing I did want mentioned is that the companys historically and this quarter as well done a very good job about managing the bottom line with this variable cost structure.
We're still generating positive EBITDA, despite revenue headwinds how should we think about.
The Opex expenses going forward as you look at back half of this fiscal year and the company is committed to kind of getting back to being consistently profitable.
Yes, Thanks, Josh I appreciate the question that's a it's a good one is off topic for us obviously at the moment so.
I think I mean, you have to your point.
Yeah, we were looking for some some positives in the quarter as as obviously there was a lot of challenges that I, putting together a commentary around how difficult things were but.
That would be the ability for us to kind of whether that storm was something we knew we could do and we still got a chance to take it to keep doing that but we've got to you got to write the ship on a few expense items I think the I mentioned the PPP loan that we took.
At the after Q2 ended.
It's allowed us to keep our team generally attacked and try to get through what's continuing to be a difficult operating environment, but.
Yes that money is meant to get through eight weeks, roughly and make sure that everyone's intact, which we've done our intent is that will be forgiven, we're using that for the correct.
For the correct things in our expectation is that that loan will be forgiven in the timeframe, but the the care act as kind of set out so beyond that I think if we return to.
Growth levels at sort of see the revenue return that we saw disappear during the quarter I think it gives us an opportunity to keep keep our team generally attack from an expense load. If we don't see that we'll have to make some adjustments we've already started to review that.
Pretty aggressively.
The one big misnomer that kind of happened in Q2 is already our gross margins get hit weird way when production when the productivity of our production team falls off so we need to make sure those folks are.
Well to keep working and we have to make sure. We're keeping their schedules fall if that were to change that we're just going after right that shift to get it back to where we had a little more in variable in less than in the fixed cost side.
We have built we built the engine over the last couple of years around the gross numbers that we were seeing and as I mentioned in yellow getting EBITDA early March still looks like we were going to be okay from that.
That makes it got real quiet and we are there for a while and so there's certainly an opportunity for us to.
To shore up the expense line rely a little more on variable and outsource pre finishing and outsourced labor in places.
Additionally, though I think we also need to make sure. We're investing in the continued growth of our Shroff Tech investment and generally the the carrier space. So I think that Theres out Theres, a balancing act here of doing how many production team members that we need versus making sure we keep our business generation engine.
Tax and even potentially accelerate.
Great Thats sitting still and waiting out of a global pandemic. We've we've generally done that for a few months, but we're kind of at a point where to your question we need to shore up some of the expense line, which were absolutely doing at the same time, we've got an opportunity to come out of this in a strong way as as the spending Thats a.
A little more consistent.
Thanks, Thanks to the additional detail on that that's helpful. And then I did want to ask.
I know you mentioned that.
Your an interesting situation because you were impacted for large chunk of the quarter given April.
At quarter end with some better visibility than what some other players who reported March had been talking about you mentioned that you've been seeing a pickup in activity.
Could you provide any type of color as far as rapidly while you're looking for at least for the current quarter is it fair to kind of assume I guess, what I'm getting added that.
Twoq, maybe like a revenue trough is what we may see at least based on the current trajectory.
Yes, so it's hard to say I think thats, a I'd love to give a really definitive answer around some even light guidance for the quarter I think when you look at May.
May didnt look drastically different than what we saw in April timeframe April had.
A few pockets and there where we saw some okay thing some emergency orders and some.
Some sort of unexpected new hospitals popping up and things that we were able to participate in which was nice.
I think really what we're starts to seeing now in June as the world seems to be getting back to some purchasing patterns that are more consistent that we understand we're also hearing.
The projects that I mentioned, a whole bunch of that it we're kind of.
Put on older pushed out we're starting to hear chatter about timeframe sands.
When they will be when customers will be releasing various budgets that expectation of installations. So it's hard for me to know is that going to happen, we're halfway through our third quarter.
Roughly now and I think we're in a place where we're starting to see an open more and I expect to hopeful to Jay will be better than what May was then and this is normally a time of year, where we see an acceleration for the outdoor built season in a lot of our wireless business.
Got a nice pipeline of stuff I can't be certain that all of that's going to.
In the third quarter. So it's hard for me to specifically defined it.
If we were to have a tough Q3, I think Q4 would be a meaningful recovery over that with what we see at this point. So I know that's not a direct answer to your question. The reason, it's tough I think in the amount of our business. We now do and fast turn can change. It a day, we had weeks where it was like Matt as this is this going to.
Recover.
Cynical timeframe and then the next day here comes the big kind of faster in orders that had to go out in a day or two so we have that dynamic plus. These these projects just sitting on the sidelines I'd love to say that in July will start to see those accelerate but it for some reason that would happen in to nail into the August timeframe and that would miss our.
Our third quarter, So I don't know how to give you an exact number but.
I don't expect Q3 to be at amazing quarter.
But I think thats part of the reason why we did.
Go and request and received the DPP funds because.
In that timeframe is really hard to tell what was going to happen next and once I started seeing the distribution business.
Effected.
Yeah that has been pretty steady it has been accelerating I mean are our cable connector segment grew 20% in Q2 over Q1 and Thats, what a massive drop off in the final month.
So seeing those start to come back is helpful. But those aren't the huge dollars that will drop and allow us to the kind of hit the big growth numbers.
Yes.
And then what do you have seen as far as.
By the spend clearly I mean do is big push out at least in the first calendar quarter.
Is that something that you're just hearing a little bit more chatter on or is your guests that that's going to be more like calendar second half and into 21.
Whenever you see is going to start seeing some these larger orders potentially closing.
Yeah, So so haven't talked to.
Carriers, our distributors other other manufacturers that are partners with ours or peers of ours people are kind of see in the same thing it's different carrier by carrier on what the expectation is but I think the things that we are expected to start.
Around now I mean, typically this is autonomy year you get into late spring early summer.
It is when you can see building activities pick up specifically, especially on outdoor kinds of things I think T. Mobile is come out and been pretty aggressive although I know, there's there's still right away and zoning issues at times of getting the layer that Verizon 18 to you have been I would say a little more passive at least from from what we've.
Seeing and cautious and smart about it.
Which I think we believe is pushing out those projects and in some of that increase spend a little further this year, we already expected this year to be back half loaded from a project perspective for us which relates to a lot of that capex.
I think it if I'm betting that I'm going to say it will start to pick up later this year, but I think into 21 is where I would expect there to be a larger.
Sort of increase in that span is.
That can also changed very quickly, but I I think to your earlier point.
When you start looking at April results for a lot of businesses at the end most companies released through March and pulled guidance and said Hey, we're not sure what's going to happen next.
Having operated through April.
It was interesting time and caused a whole bunch of chaos and I think thats, what we started seeing capex get give kind of held off until they were not going to we're not going to do any projects, we're not going to pull in any sites.
We're not going to take any inventory because we have no one to receive it like those are some of the challenges that are more logistics you got to have people physically able to receive materials and then go out on site and do the work so im expecting as they start to reopen we're certainly here in the chatter increase which leads me to believe its a.
Towards the end up certainly second half calendar, maybe a little bit little.
Further weighted towards the end acute calendar Q3 into Q4 in that 21, I would think we're going to have to see that spend because the demand is still there.
And then just.
I think you discussed briefly on the.
Gross margin profile, how should we be thinking about the gross margin going forward as far as the product mix between where you have with custom cableos cables and connectors in there and how you think thats going to trend based upon whats in the pipeline.
Yes, so I think the better we do in the in the trough Tech business that'll help us I mean, what we've said in the past as their margin profiles consistent considerably better than what we have across the rest of our business. So I think I'm I'm encouraged.
For multiple reasons on that business, but the margin profile will definitely help.
The margins we saw this during Q2.
Were directly affected more by.
Yes.
LNG as of productivity, where you got some overhead built into your production teams and yet you're not able to pump materials out at the same way.
We've I think generally remedied.
Most of those things around the social distancing set up and otherwise.
And our margins.
Without that our pricing in our margins on that side kind of stayed the same that was really more about the the variability of our teams and keeping those folks in place. So I expected. After Q1 that was kind of the trough in our margins. They obviously came down in Q2, but it was more about productivity than than anything else I.
I think going forward.
The better performance, we see from.
Our RF business and from the disruptive business and some recovery in the custom cable business, where we were really impacted in custom cable both from an order perspective, but also those two operations where that business primarily happens.
In Connecticut, and New York were both heavily impacted personnel wise. So I think we still have that 30% kind of low thirtys goal out there and from a gross margin perspective, I think it's very attainable.
It's that's where we should be and we're expecting as the tropic business picks up at that will start to help us pull that margin higher.
Yeah.
And then last question for me good to see that this number of opportunities in the pipeline with the recent acquisition of swaps.
How much revenue contribution was there some from that acquisition just like you get a little bit better apples to apples comparison to like given the companys balance sheet and that a lot of these smaller competitors are probably in a tough operating environment I would assume but maybe without your financial wherewithal would you can say this to be like kind of the target rich environment.
No position, where you might be looking to do an acquisition into over the next couple of quarters.
Yes, so on on the first part.
Shrunk Tech they had a late quarter largely we had one one specific project that we expected to ship out that that Didnt go but they did.
Just a million to maybe in sales something like that.
In the second quarter, which was generally consistent with what they did in the first quarter.
That's not what we expect that business to be short term or long term frankly.
We expect a growth engine there, but there was a definite impact on a small cell side of being able to get out and do a lot of that work.
Because just the.
This year.
Definition of small cell, it's going in a densely populated area of will that made it really top and places like New York and add New Jersey, where we have meaningful business of that space came to a halt for obvious reasons. So we expect their contribution to certainly increase overtime, even with that that the profitable business. They do a good job.
And that's a that team's doing a nice job, helping us find these additional opportunities.
To your second.
Your second question around M&A, So we had a whole bunch of conversations going on leading into.
But the world shutting down and some of those have continued I think.
Sellers at the moment are a little skittish on are they going to get real valuations and do they feel like it's a fair time to do this.
With that said I think as time goes on it'll get a little easier to understand.
New levels of revenue, where profitability or difficulty and operating.
And I do think there will be some some decent targets.
Well getting.
A few a few opportunities a week that come across my desk from a variety of sources.
I think the thing that we just need to be cautious of is not getting lowered into a bunch of little acquisitions that.
Would be very difficult to do any way that's a lot of work for a small return and an environment like today can you physically get out see an operation get involved in and do things you need to do to get involved so I am.
I'm cautious, but I think over the next quarter or so absolutely interested in im going that direction and finding some of those targets I think I've already got some in our conversations we just need to let a little time go by and make sure that what we're seeing is realistic.
Thank you how back into queue.
Okay. Thanks.
Ladies and gentlemen, as a reminder, star one for questions Star one please.
Well take our next question from how Granger with greater quarter Research. Please go ahead.
Thank you for taking my question.
One of the congratulate you guys very very difficult.
Quarter on.
Having positive EBITDA and.
Oh loss of only two cents per share and maintaining your super strong balance sheet, which these days is more and more important.
At the same time has taken care of your please.
Customers. That's I think you guys did a good job with all that.
Great. Thanks.
Thank you.
Yeah.
Housekeeping items, starting with the right abuse asset does that have to do with Ross that.
That's a leap that lease accounting for the new lease accounting that yet to go through on the way, we handle and our balance sheet perspective, So that's what you're seeing there.
Right I guess, that's independent disrupt that.
It is yes.
Okay.
Can you review so the dividend dividends.
I think I think it's fine you guys.
At this more on on operations growth and.
Not so much on dividends, so I agree with words.
Decision there can you give some sense about what what the what.
The boards.
Or your comp you're feeling like the regarding dividends in the future.
Yes, so it's something that we obviously review every quarter. The company has had a long standing dividend in place going back 10 years, something like that or close to it.
And it's been a nice way I think to provide a return.
Is that yes become a one 1.5% kind of yield over the course of the last little while as Weve as we've seen the.
Current stock position. So we still review quarterly this was a.
Tough conversation and I think there's.
Theres reasons why a certain there's some folks that are in our stock that the appreciated the dividend theres a whole separate set that what the growth focus that I think the discussion in this case.
Really came down to something that I've said publicly for a few years, which is if we have a better use of capital.
I think we would rather deploy that around growth and.
One of the things that we've done and are in the process of doing a little more and I mentioned. This is we can't we can't just sit back and hold our breath and wait for everything to get better from a sales and business generation perspective, I think thats a.
For us that's a dangerous game to play.
You saw it you saw the impact in Q2 of some projects being pushed out.
Fine.
Don't love it, but if the way things worked out there's a chance for us to double down on.
Some of these newer pieces of technology, Stratec and otherwise that we've invested in.
And I think Theres, some business generation resources that we.
We need to continue investing in and adding to the business.
As well as upgrading talent overall, and it's not a huge expense, but when you look at on annual basis paying out 750 $800000 in.
And dividend payments and then you look back on the last couple of years in the M&A that we've done we've gotten some some affordable unfair deals on the M&A side. We've added some good members to the team I think investing in that now with a great time to do it with the intent to coming out of whatever this thing is it.
In a stronger fashion with the right people in the right seats.
We still need to streamline the operations and some spots to some earlier comments that I made but I think the better use of that capital is to.
Both invest in our team in the bright spots as well as looking for some some potentially good M&A that.
Bill will likely present itself over and over the next few quarters.
Okay, great. Thanks.
Good asking about cables, United So what I'm, what I'm looking at your financials you talk about the.
700000 dollar decline on expenses year over year some of that.
It has to be employees somewhere.
You mentioned that.
Fortunately cable as noted in Connecticut, and New York was was affected by.
Scrubbers.
One of them when I'm looking at that I'm kind of reading in that that a lot of that $700000 had to do with employee expenses at payables, United and now after you've got your PPP loan.
You have you've hired back a lot of those employees is that is that correct read or can you can you.
Some color on moves going on that.
Yes, you are partially right I think that theres kind of two big things in there. One is we kept our entire team employed with pay and benefits through this entire process and that was something that I said to our leadership team going back to.
Early March timeframe when it was pretty clear we were starting to season weirdness, you've got into the third week of March.
And it was important to me that our team had some comfort that they were say if they were going to have benefits last thing they needed was to worry about.
That change and we Didnt really know what we were walking into I mean are we had our second I mean, our first quarter conference call back on March 12.
That that night was and I, we found out that schools were closing in California. The next Thursday, as well in California, New York sort of subsequently one after another shutdown. So we made some decisions at that point that keep our team in seats with pay with benefits.
To keep them, Okay, now productivity wise, obviously as I talked about we had some tough times.
But the majority of what you're seeing there.
We obviously had lower lower commissions and a few less.
If you let hours being worth less overtime, you start, adding all that out but it can get to a pretty decent size number, especially when you're comparing it to the prior year results that were significantly higher so you've kind of got our mix of some people costs in there.
As well as just some lower expense loads, but we purposely did not go in and take out a bunch of folks in that business.
Okay, great Great for you and that's that's.
I'm sure your employees I appreciate that.
Has never pays.
He's off in the long run.
Let me see the.
Let me and my questions with.
The project based carrier spending.
It seems to me that that's that's something that likely.
Will happen, it's not as you mentioned is not clear when the timing is going to being.
But is it reasonable to be pretty confident that the bulk of that carrier spend which would have happened.
This calendar year.
Will will happen.
In the future at some point hopefully next calendar year, if it's not hopefully this calendar year, but if not next.
Yes, so I think our expectation is that most of that should come back overtime. You know the one the one uncomfortable part is the more time that goes by with restrictions of travel and locally showing up in certain places. It makes it harder I think to go through RFP.
Or vendor selection processes and some other things it's.
Carriers, maybe incentivized to be less creative about the number of providers that they use you know we bid on it on a trajectory where we've been breaking into new things sort of consistently over the course of the last few years and seeing some upside from that both in real time, and then future looking and the other more time that goes by and that the harder is to keep those relationships.
Yes.
Building and growing again getting your name into New places. That's my one concern around it proposition in perspective, I think the spend is going to be there.
It's definitely difficult.
To find those opportunities to displace the gigantic companies that might be in there now, which we've seen some success on in the past so I'm.
Comfortable saying I think the spends coming back I think we're still positioned very very well.
Hopeful that we keep getting the opportunities to.
To play in that space the way we have.
Even with some of the kind of logistical challenges that are being thrown at us.
Great. Thank you Rob.
Thanks Al.
As a reminder, star one for questions.
Well take our next correct question from Chris.
Much Foskey private Investor. Please go ahead.
Hello.
Well thanks for taking my question and my question was already answered.
Good luck.
Okay. Thanks, Chris.
Thank you.
Star one for questions, we'll pause a moment to assemble the queue.
And at this time, we have no further questions I would like to turn the conference back to your speakers for any additional or closing remarks.
Thank you.
Closing I'm incredibly proud of our team at on behalf of the board and management team I would again like to thank our employees for their creativity positive spirit and resilience during these very challenging times.
Thanks, everyone for your interest in support of RF industries, I look forward to reporting our fiscal 2023rd quarter results in September.
Hopefully speaking with some of you at our virtual Investor Conference presentations before that.
Thanks for joining our call. Please stay safe have a great day and now you can take a breath.
Thank you.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
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