RF Industries Ltd (RFIL) 2020 Q3 法說會逐字稿

Good day, everyone, and welcome to the RF Industries Third Quarter Fiscal 2020 Financial Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded, Thursday, September 10, 2020.

At this time, I'd like to turn the call over to Mr. Todd Kehrli of MKR Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to RF Industries' Third Quarter 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 third quarter 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 on the Investor Relations page of the company's website. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties. Please note that except for the historical statements, statements on this call today may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.

When used, the words anticipate believe, 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 the outcomes contained in any forward-looking statements.

Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales of product 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 2 for the periods reported in the release.

I'll now turn the conference over to Rob Dawson, President, Chief Executive Officer, Rob?

Thank you, Todd, and good afternoon, everyone. Welcome to our third quarter fiscal 2020 earnings Conference Call. Thanks for joining us today. I hope that all of you are staying safe and healthy. Similar to our last call, I'd like to start my comments by providing some brief details around the significant challenges we experienced during the quarter and how we responded. Then I'll turn to what we're seeing now and why we think things are finally moving in the right direction.

First, the fast summarized version. May was a very tough month. The quarter got better from there. While sales took a short-term hit, bright spots where the gross margins came way up to nearly 29%. The bottom line improved with adjusted EBITDA increasing to $292,000. Our balance sheet remains very strong. We see sales beginning to recover in Q4. Our opportunity pipeline continues to be robust. Finally, we expect fiscal '21 is going to be much better.

Now for some more detail. Looking back on the quarter, we followed a very tough Q2 with an even tougher Q3. Our third quarter results were significantly impacted by COVID-19, with softer bookings beginning in late March and April due to project and build plan delays in both our direct and distribution customers, impacted by state-mandated stay-at-home orders, all of which we discussed on our June earnings call.

As a result, revenue in the month of May was the lowest we've seen in 2 years. The March, April, May period was definitely the most challenging environment that we've seen. The good news is that while we started the quarter poorly, we saw revenue begin to improve in June and July, and we ended the quarter feeling like some normalcy was starting to creep back in. We're nowhere near back to normal, but we do believe that the third quarter was the bottom for us and expect that we'll see a return to sequential revenue growth in the fourth quarter, as business continues to slowly get better.

Let me try to provide some specific comments on where and how we were impacted. We made a very focused strategic shift in a large piece of our business over the last few years to get more aligned with the spend related to densification of networks in the 4G and 5G build-outs. That means we have a great lineup of products and solutions to address small cell and distributed antenna system deployments. These both became tough applications to deploy during the quarter.

I talked to several of our distributors and end-user customers as well as some of our peer companies, and they generally shared the same experience. If you were doing projects that were venue-based, like distributed antenna systems in stadiums, large office buildings or malls, they all came to a stop, since in many cases, building or venue access was a problem.

Additionally, beyond the physical access challenges, many of those deployments were paused since the customer spend just didn't make sense during the shutdown, as the ROI was tough to prove based on the unknown timing of the recovery. On the small cell side, it was a similar story for the folks that we do business with. Unless it was an emergency project, anything they were doing came to a halt for a few reasons.

First, gaining the required zoning approvals was difficult to impossible. In many cases, there was simply no one in the local government offices to give approval and site walks weren't happening. Then it was about finding crews to do the work. These were already constrained resources and coupled with the travel restrictions, it was tough to get the work done. The distributors we work with all reported slower activity in the quarter, and we have some customers seeing declines of 30% to 50% from where they were pre-pandemic. Additionally, carrier CapEx spending was light with most Tier 1 carriers slowing or altering build plans and the related spend.

Finally, as I talked about last quarter, with the physical lockdowns, many of our large industrial OEM customers, particularly in the Northeast, eased up on manufacturing or closed facilities for a length of time. Our wire harness sales in these segments were therefore impacted. While Q3 was not ideal and the month of May, in particular, was challenging, we did a good job managing through it. We were able to keep our expenses and G&A low and improved our gross margins by nearly 4 full percentage points versus the second quarter.

And even on a lower quarterly revenue number, we delivered a better bottom line in Q3 than we did in Q2. All things considered, we weathered the storm pretty well and see the worst behind us. Later in the call, Peter will spend some time on our improved margins and highlighting the reasons why.

Now versus -- any more discussion on the difficult operating environment, let's talk about what we're seeing currently the progress that we've made even during the slowdown and talk about how we're set up going forward as things recover in the coming quarters. And why we think this year is just a hiccup in our growth story as we continue to execute on our long-term growth plan.

The good news is that wireless deployments are not an option, they're required, and we know that the related spend will return. We experienced an unforeseen delay, but we're still positioned strongly in the space and see opportunities to get better. The small cell world is recovering, and we expect to see that continue and be a contributor to sequential improvement in our performance in Q4 and into the end of the calendar year and beyond.

We have strong relationships with all the Tier 1 carriers in the U.S., especially in markets in the Northeast, where we have a solid footprint, and we're expanding those relationships to be more nationwide. Additionally, we have long-standing relationships with the large integrators and have seen their business start to slowly come back. Our distributors have thought through the delays and shutdowns and kept our products available and moving through the channel. As a matter of fact, our distribution business is slightly up year-over-year through 3 quarters, which we're taking as a good thing.

As we weathered through the last 2 quarters, we also continued to invest smartly in areas where we see opportunities that further us down the path of being a better product company. So less about custom everything and more about having a defined offering, solid availability and a strong sales engine. Whether it's fast turn or having the products in inventory on the shelves, our goal is to focus on being a better product company, servicing our targeted markets. That doesn't mean we don't -- we won't do customized solutions. But when a custom opportunity comes in, we're digging in to see how we can leverage that work across multiple customers, markets and regions, then we have to make an ROI decision.

We've been investing in the right places to grow our product business and are very focused on getting our products in front of new and existing customers. We're seeing our pipeline grow. And when spending returns to normal levels, we think we'll be in a good position to get a larger chunk of the spend.

During the quarter, we continued to see increased activity and positive momentum around new business development in all product areas, and we're seeing a nice pipeline of opportunities continue to build overall, including the small cell and thermal cooling offerings that we acquired in November. On our last call, I provided some examples of the types of new business opportunities we were seeing. We continue to make progress on those existing opportunities as well as new ones.

So here are some highlights and updates. First with carriers. We had a successful trial of our Direct Air cooling, or DAC, kits with a large North American carrier. Our first article was approved, and we received our first purchase order which was 6 figures. We expect an additional purchase order any day with deployment across key pieces of the carrier's infrastructure and recurring orders over several years. We have also uncovered more opportunities with the same carrier, including small cell shrouds. Next, we continue our work with a large carrier on DAC upgrade kits. This is a long-standing relationship, and we expect to deploy in Q4 and into fiscal 2021. We also have additional DAC applications with this customer for upgrade paths of various different cabinet types.

Next, our business with a large carrier for hybrid fiber-related products in their remote radio head deployments on towers continues, though we've yet to see their spend return to prior levels. With another large carrier, we have ongoing small cell concealment shroud opportunities in the Northeast, where we have a long standing relationship. This business was slowed by COVID for reasons that I already mentioned. And we're always uncovering and working on new and innovative solutions for this carrier and others, specifically related to small cell deployments. We have early discussions underway with 2 other North American carriers for potential DAC and small cell solutions.

And I want to reiterate that the multiple distributed antenna system and structured cabling projects that we have in play for large carriers, the several DAC projects for stadiums, large venues and large office buildings that have all been delayed are dead, and we expect them to return in the coming quarters. All of this activity is because of the go-to-market approach that we've been deploying for the last few years of 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.

Let's turn to some other market segments, starting with the MSO space. As I've noted before, the MSO market, or what was traditionally called the cable market, is one that we haven't touched before, but believe we have a relevant product offer and see significant upside. As an example, with a large MSO, we're waiting on purchase orders for initial sites of a shelter DAC solution for larger shelters. We have the right offer to address the need where there is lots of equipment at the edge of a network distributing service to homes and businesses and creating a lot of heat.

In another segment with neutral host or tower companies, we have 3 core connectivity product offerings approved by one of the largest neutral host companies in the country. We have a standard fiber optic offering that's been sold into another large neutral host. We're working on proposals with additional companies in this space related to installation kits for small cell deployments, and we've gained several approvals for quick turn fiber programs with carriers and neutral host companies.

A few other quick market updates. We're moving discussions forward within other market segments, including wireline carriers and the related channels. We're establishing new channels to market for our thermal cooling offer with trial orders in process with multiple infrastructure OEMs and we're seeing our industrial and defense OEM customers in the Northeast, returning with some of the delayed orders beginning to flow.

Finally, I already mentioned that our distribution business is healthy and slightly up year-over-year. Our distributors did a great job through the quarter, helping us keep our products available to their customers. As a matter of fact, our traditional RF Cable and Connector segment was up year-over-year in Q3 versus the same quarter last year, which is a testament to the distribution model.

All of these are good signs that we're starting to see the logjam of opportunities begin to move forward. While not all of these are producing dollars yet, we've seen our pipelines grow, and we expect that to lead to some nice revenue growth next year. With these positive developments, we've accelerated our investment in our new business generation resources and the activities with extra focus on small cell and DAC products and are looking to further diversify our relationships in the carrier ecosystem.

We added additional sales resources during the quarter, including 3 seasoned salespeople focused on selling our complete offer in regions with a specific focus on the carriers, and we will continue to upgrade talent and streamline our organization. The team is driven to gain end user approval for products and solutions within existing and new customers. And then operationally, we will make those products easily available with our primary focus being through our distribution channel. We have more senior level talent now than ever before, which is allowing us to further leverage our solid product offerings and expand our footprint in the markets we serve, while still reviewing new market segments.

Even through the disruptions from the pandemic, we've invested so that we can accelerate and come out stronger on the other side. We see a huge opportunity in small cell and densification, and we're investing in the right product lines to increase our market share. As I mentioned, we're seeing our overall pipeline start to build in all areas, which gives us confidence that things are getting better. While many things are out of our control over the last few months, we focused on the things we could control inventory levels, sales and customer service efforts and taking care of each other. We have a strong team ready to move us forward.

At quarter end, our backlog stood at $5.7 million. Subsequent to quarter end, we've seen that backlog increase to $6.3 million, which supports my prior comments that the pipeline is slowly building. On M&A, while I have no specific update to share, 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 opportunities and continue to review a robust pipeline of potential candidates.

So to conclude, while our revenue in fiscal 2020 has clearly been impacted by COVID, we've weathered the storm and are generally unscathed from a balance sheet perspective. We got our margins in a better place. We've controlled our expenses. Our cash position remains strong, and we've invested smartly to maximize our growth opportunities with our backlog increasing.

We've built momentum on many of the projects we've been working and expect to see a return to more normalized spending levels over the next few quarters. As such, we anticipate sequential growth in revenue in Q4, with a ramp into what we expect will be a strong fiscal 2021 with year-over-year revenue growth. We also look ahead as we continue to execute on our long-term growth plan.

Before I turn the call over to Peter Yin to walk through our financial results, I want to take a moment to thank Mark Turfler for his many contributions to RF Industries. During the third quarter, we had a CFO transition, and Mark left the company after nearly 7 years here. Mark was a strong business partner for me when I joined in 2017 and during the first years of our strategic transformation. So thank you, Mark.

I'm also pleased to introduce Peter Yin, who's our interim CFO. Peter has been with the company since 2014. He has played a key central role on my leadership team and is well-prepared for his position as interim CFO. I'm delighted to have Peter join me on this call.

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

Thank you, Rob, and good afternoon, everyone. I hope everyone is doing well and is in good health. While I've been with RF since 2014, first as controller and then more recently, as Vice President of Finance and Operations, I am excited to step into my new role as interim CFO, and I am looking forward to working more closely with Rob and the management team to help get us back on the path to growth.

I'm also looking forward to speaking with our current and potential investors on a regular basis, which certainly includes all of you.

Turning to the quarter. Rather than read our financial results, which you can see in the financial tables of our earnings release and 10-Q, I'd instead like to focus on providing more context around the numbers and highlight some of our operational improvements we achieved this past quarter, setbacks we experienced and any forward-looking business that I am able to share. So jumping right in. The third quarter was certainly less than ideal, given the significant impact COVID-19 had on the global economy and our company. As previously mentioned, under the Paycheck Protection Program, we did apply for and received PPP loans of approximately $2.8 million during the quarter, which we used primarily to cover payroll costs.

We anticipate that the PPP loans will be eligible for forgiveness, and we will be applying when the window to do so opens with our lender. However, as Rob mentioned, even in this tough operating environment, we did a good job operationally to keep expenses low.

In fact, while revenue was down from prior quarter, we were able to make more money in Q3 at the gross profit line, increasing our gross profits by $140,000 on revenue of $9.5 million compared to revenue of $10.4 million in Q2. This was the result of an improved gross margin of nearly 400 basis points to 28.6%.

We believe this margin is something we can sustain and continue to improve upon. The significant improvement in gross margins reflect better product mix during the quarter as well as our diligence in controlling expenses, improving efficiencies and taking advantage of our synergies.

A few examples. One, we were able to control and reduce our fixed production costs in areas of the business where we weren't seeing the returns we expected. It's important to note that even with our cost control and reductions, our operational capacity and bandwidth have not been negatively impacted.

Two, we were able to better utilize the locations and capacity of our divisions to produce goods at the location where it make the most sense, reducing production lead times, delivery times and overtime hours. And third, we just got better at operating in this challenging environment. All our employees, especially our production employees, are doing a great job at being comfortable -- being uncomfortable as they are required to wear masks and physical distance from one another.

While we made good progress at controlling costs, increasing our efficiencies and taking advantage of our synergies during the quarter, we are not just simply in the cost-cutting mode. Our main focus continues to be returning to growth, sequentially quarter-to-quarter and ultimately, year-over-year.

As Rob mentioned, we are seeing our pipeline grow, and we continue to invest in certain areas of the business, adding resources where we see significant upside potential for future growth. For example, during the quarter, we added 3 seasoned sales reps to our team who focused on expanding the reach of our entire product offering, but particularly our opportunities in small cell and DAC, which we added to our product portfolio with our acquisition of Schroff Tech.

We have also increased our inventory levels to have products more available and ready to service our customers. Ultimately, we're looking to invest any cost savings into growth opportunities that further add to and build upon our capabilities as a product company.

Even with the challenges we face and the impact to our top line, we were able to weather through another tough order and delivered positive non-GAAP income of $178,000 or $0.02 per diluted share and adjusted EBITDA of $292,000 in the third quarter. This included a onetime charge related to restructuring as well as the ongoing costs we are incurring related to PPE and sanitation efforts to keep our employees safe.

Our balance sheet remains strong, including cash and cash equivalents of almost $16 million and working capital of $25.2 million. We remain well positioned to navigate through this challenging operating environment.

In summary, while COVID-19 made for another tough quarter, which impacted our revenue in Q3, we were able to control costs and achieve additional synergies during the quarter that resulted in significantly improved gross margins and an increase in gross profits.

At the same time, we increased investments in our organization to grow our top line going forward. We believe with our current product offerings, we are well positioned to return sequential revenue growth in Q4.

This concludes my discussion. I would now like to open the floor to questions. Operator, we're ready to take our first question.

(Operator Instructions) We'll take our first question from Aman Gulani from B. Riley.

First question is given that you've reached the trough in sales in the July quarter, would it be fair to say that your profitability has also reached a bottom? I mean, clearly, you're able to maintain profitability, despite the headwinds. So I wanted to get a sense for what profit -- so profitability could look like, once start things -- things start to pick up a little bit? Like where do you see gross margin and EBITDA margins once some of these projects start to come back, specifically on the 5G side?

Yes. Thanks, Aman. Appreciate the questions. See, I think you characterized it well. That was, we think, the trough on -- from a sales perspective and related to that, the profitability impact, which frankly hit us harder, I think, in the second quarter than it did in the third, time to react during the second quarter was much less, obviously, to the situation going on around us. So cleaning up the expense line a little bit, getting some of the G&A in order, getting our production teams, working in a difficult environment by getting them staggered shifts and figuring out the best way to manage that, which we did quickly, allowed us to get better in Q3.

So that kind of second half of March, all of April, May time frame was collectively the trough on both items, sales, and I think, from an earnings perspective as well.

So we do expect we're going to maintain G&A levels like we have for some time. We're keeping them low even while we invest in the right kinds of things. And I think that from a gross margin perspective, seeing those increased to 28.6%, we certainly saw a trough on that in the prior quarter. So I think we feel good about that. But the goal that I've stated for several quarters is to try to keep our margins 30% or better with the low 30s being something that I think is attainable when it comes to really the 2 big variables, product mix being the obvious one and then the other one being our ability to fully absorb our labor in an effective way. And a lot of that is just getting better at managing those fluctuations and forecasting.

So we think the margins are fine. It's nice that they increased the way they did. That gave us some help there from a bottom line perspective. Still like to see those come up a bit, and they would do that with a higher sales number. I mean that's kind of the punch line to all this is a sales number like that. I'm pleased we were able to take our margins up. They would have been even better if the sales number had been a little higher just around the use of labor.

So the other piece of your question around EBITDA margins, I think those will come up as much with the gross margins as anything else. In our business, the gross margin is really where this happens. We don't have wild fluctuations below that line. And we have at the gross line, both product cost, but then also labor cost related to that. So those 2 things combined really with labor being the bigger one caused the fluctuations. So the better we do on the gross line, you're going to see EBITDA margins come up as well.

Got it. And just to get a little more granular on the quarter. You mentioned that May was the bottom and then you saw uptick in June and July. Could you comment on what sort of month-over-month growth you were seeing from like May to June to then to July?

Yes, we saw 10% to 15% sequential growth in each of those months. So May to June, June was 15-ish percent better than May, and we had a similar percentage growth July over June. So it was -- I mean, it doesn't speak to anything being amazing. May -- it just speaks to May being a really tough month. But I think that the bigger thing was while we haven't yet gotten back to the exact kind of pre-level that we were seeing in January and February, we're seeing some normalcy around project time frames and things that we -- that have been pushed out further and further and further are starting to show up, and we're making progress on some of the big initiatives that we've been working on.

So yes, we saw some pretty significant growth numbers, especially if you compare July to May, we were -- that's a 35-plus percent kind of growth number there.

Got it. That's helpful. And then how would you say your visibility into the 5G CapEx is relative to last quarter? I mean it seems as though a lot of the wireless carriers, haven't really slowed their CapEx for the year? I mean, they've maintained their CapEx guidance for the year, but maybe some of these projects have been delayed. But are you seeing a little bit more activity with some carriers relative to others? And do you potentially see a situation where you have another big quarter like you did back in April 2018?

Yes. So I think we're getting a little more visibility on CapEx. I wouldn't call it completely clear at this point. But I think to an earlier comment I made, project time lines and projections are starting to be spoken of and we're starting to put some things on the calendar, and that's helpful. That means there's real spend that's sitting out there. I think our expectation is, while it's been quiet, generally, we've seen -- where T-Mobile has been spending is really more on macro sites in certain markets, not every market. Verizon and AT&T seemed to have pivoted a little differently. Their spend was altered from what we expected. They've still been spending. But I don't think that 5G and specifically small cell kinds of deployments, that hasn't been the #1 focus in those infrastructures.

There's been a lot of fiber deployed in the last couple of quarters. As we've seen, the infrastructure needs to look different than it did just a couple of quarters ago. But I think that also leads to these more edge-based, multi-use sites that can be used wireline, wireless, they can feed small cells, they can feed DAS deployments or they could feed a neighborhood that needs high-speed Internet.

So we've seen that the CapEx just changed a little bit from what we expected going into the year. And we don't play in all of those market segments due to our product mix. And I think that's the piece that we're very well positioned on DAS small cells, certain components in the macro sites, less so on the wireline side. And so that's the part earlier I was talking about applications. We got to continue adding new applications and market segments that we can push our products into, but I think our visibility on CapEx is getting clearer with some year-end spend, but I really think it's becoming a '21 kind of event when you look at CapEx overall.

To the second piece of your question, it's been an interesting 3 years for me because we went from $23 million to $50 million to $55 million in the last 3 fiscal years. And year-to-date, it would say, unless we have an absurd fourth quarter, we're likely going to decline a little bit year-over-year. I think that's kind of a given that people are expecting at this point.

So built into that is some pretty wild short-term swings, quarters where we do $20 million, quarters where we do $15 million, quarters where we do $10 million, have been built into all those different years and it's bounced around a good bit in the short term, which is -- I've always been called that out openly and said, "Hey, look, our short-term fluctuations make it hard to predict and get a specific 90-day window exactly right." But it's a long game. We have to be looking at this, stay in the course on our strategy, which has produced a significant amount of cash and positive things for the company in the last few years.

And it's not out of the realm to throw up another gigantic quarter. Just like we have some down quarters, we're going to have some heavy-up quarters. At this point, I can't predict when that's going to be, that's what makes it that much more interesting for us. But I certainly think that as the spend starts to flow more readily. And the conversations I referenced, I don't know, 12 or 15 different relationships and/or projects that are ongoing, some of which are brand-new in the last 3 months, we're making progress on those. And some of them have a meaningful addressable market opportunity in there.

And the better we can do on the product side, getting things more productized, getting product on the shelf and ready to go, I think that's where we start to see a direct relation to CapEx spend and kind of what our results are going to be, which, again, we expect to kind of get more clarity on going into the calendar '21.

Got it. Okay. And then last question for me, and then I'll jump back in the queue. But can you talk about the approved direct air cooling system project with that North American carrier that you mentioned on the call? Can you comment on the potential size of that opportunity?

You said that can lead to recurring revenue. Do you see that customer becoming maybe like a top 2 or 3 customer for RF?

Yes. Good question. So I think as far as total order of magnitude, the first article that we put in their hands a few months ago, that went well. They've been great to work with and that led to the first purchase order, which as I mentioned, was 6 figures, which we don't get orders like that every day. That's -- our business has a lot of distribution built into it. So you see a lot of smaller orders. So it's nice to see those kinds of things come in. And there's a deployment schedule being worked out right now. We don't have all the details on exactly the size in total, but our expectation is that there's another round of purchase orders coming soon to very soon.

And that over the course of the next several quarters or years, we'll be deploying against chunks of the network, and it's a certain cabinet types that we're helping the carrier address. So it's not going to be the entire network, but it's still -- there's going to be quarters where it's certainly possible, it could become a top customer. There'll be others where it won't just be based on that build-out schedule.

So it's always also going to be tough for an end-user customer who's spreading a project out over time to be in the top couple because of the size of some of our distribution relationships, where they're taking us to 4,000 or 5,000 of their customers in some cases. It's likely our biggest customers are usually going to be distributors. But that doesn't mean that in a short-term window, there can't be a spike in there for some kind of an infrastructure build like this.

Got it. And maybe I'll jump in with one more. Can you comment on your Tier 1 wireless customer? What sort of visibility do you have into their ordering patterns like based on conversations you've had with them in the last couple of months?

Yes. I think -- so we now -- I mean, the good news is, we're now doing work with all of the Tier 1s in the U.S. and more than one product set in each case. We've gotten some additional approvals, but I think that the large relationship that we've had over the course of several years which has gone quiet over the last several quarters going back, frankly, to last, call it, September time frame when their ordering pattern kind of slowed down expected, but it slowed down. We started to see pockets of that return. We certainly haven't seen the order of magnitude that we had in the prior couple of years. And again, that was expected. We weren't expecting that size of the relationship to continue.

But I think the team has done a nice job of parlaying that into other product opportunities within that carrier and others. So I have -- we're getting some visibility into overall CapEx and kind of byproduct area, how they're intending to deploy in the next handful of years. And really, that falls into the broader bucket of, I think, what the world would characterize as 5G CapEx. Again whether it's 5G or 4G, small cell, macro site, not always completely cut and dry in some cases, but we certainly expect the spending pattern to increase, and we've seen some improvement in that even in the last handful of weeks.

(Operator Instructions) And we'll our next question from Josh Nichols from B. Riley.

And good to speak with you, Peter, congratulations on the new position as well. I know you've been with the company for some time, though.

Thanks, Josh.

Yes. And one thing I did want to ask is, it's good to see that things are rebounding, but could you provide any more color on 1 or 2 product offerings that are seeing a little bit stronger or softer rebounding just as we get a little bit of a feel for the cadence for this rebound into 4Q and next fiscal year?

Yes. Sure. Thanks, Josh. So I think we've had a couple of products that have stayed generally consistent through this. Our RF, coaxial, connectors, cables, jumpers and our fast-turn fiber has generally stayed consistent. Haven't seen huge swings. We expected those to grow, they haven't, but they've stayed roughly flat. The other kind of the good and the bad, if we look at the rest of the offering, we haven't seen the hybrid fiber come back to levels, even close to levels that we saw over the prior few years. And that's -- again, we weren't expecting the same levels, but we haven't seen that return in the same kind of over the course of the last several quarters. We're starting to see pockets of that show up here and there, but it's not nearly the level that it was.

On the other side of that, are -- I feel really bullish on the DAC and small cell opportunities. That was targeted. But the reception we've received from customers both U.S., Canada, international in some cases, we're seeing some interesting discussions that fall right into our wheelhouse and are generally not custom products, it's things that we're already doing.

So we feel good about retrofitting the cooling approach to cabinets and enclosures and even small buildings that blur the lines with kind of an edge data center. Feel good about the pipeline building there. And I think the other thing that has recovered, which the last few quarters have been tough, our wire harness business, which doesn't get nearly as much conversation because it's not necessarily wireless related, it's going into large OEM manufacturing customers.

We've seen that customer base come roaring back in the last, well, I'll say the last month, frankly, compared to where it had been. And so that product type is long-standing relationships, good blue-chip customers. And while product-to-product, they all look a little bit different. It's a similar heavy multi-conductor kind of product line that goes mostly into industrial or defense kind of the customers, largely a regional footprint, but we've seen that business come back as well.

So if you go back to my comments during the call, I think we're betting on the idea that our distribution business with our core kind of run rate stuff will continue to be strong. Our distributors are doing a great job there. But we expect that we're going to see some bigger growth opportunities in the pipeline from the DAC and small cell product lines.

Thanks for the additional product line color on that. And then I think everyone's kind of aware for the impact that this has had for the space broadly, right, with demand. But you've been doing this for a while and have a lot of experience in the industry. Could you talk a little bit how it's also impacted, maybe the competitive environment? And how RF Industries may be positioned as we go into like next fiscal year with this new dynamic?

Sure. Yes. No, I appreciate that question. I think 2 things I'll say. First is, I'm thankful that over the last few years, we really diversified our distribution channels to make sure that we're getting to a lot of different customers. Without that, this would have been a much tougher experience for us. And so I think we managed to mitigate the damage from that. And I think those relationships have actually gotten stronger over the course of the last few quarters and we kept operating, and we kept providing materials as quickly as our customers have gotten used to, specifically in the distribution space. So I feel really good about our competitive impact there.

The other thing is, I think this has caused -- if you're a considerably larger company with a lot of product lines, like some of our competitors are, I think you'll find that this space that we're in, largely talking about cable assemblies and passive components is one that's -- it's hard to keep up with unless you're really focused on it and we are. We've done a good job on some of the fast-turn fiber some specific connector types that not everyone is able to do. We've done a great job of servicing those. And I think we're taking share in that. And again, with that, I don't want to be too specific on it on purpose. But it's -- we're deploying certain cable assemblies with a really specific connector type on them that is hard to do. And we've used this last couple of quarters to really get word out on that. Not everyone was able to produce those and keep up with demand there. So feel good about that.

The last piece is, I think, the slowdown actually gave us the ability to take a breath and get the right people into certain market segments, selling specifically, while they're selling our full offer, specifically selling DAC and small cell opportunities into the carriers and kind of that related ecosystem. It's -- when building is going on actively and at a fever pitch, it's not always easy to get people to stop and look at other potential options.

And I think we've seen that we've been able to engage in some great conversation with not just the carriers but the neutral host companies, the large integrators and kind of that, what we call the whole Tier 1 wireless ecosystem, of, call it, 15 companies in the U.S. and a handful more in Canada. And we've gotten in front of all of those folks. Some newly in the last couple of quarters. And I think we're positioned well for the items where there's an RFP great, where we're going to be a part of those for items where there may be a design spec that needs to be met. I think those are the ones that I feel really good about our ability to take those relationships up a level.

We've been at scenarios where you have to have a vendor ID in many cases to do work with the carriers. And having one of those at all is a big deal. And we've gotten a few of those in place, call it, a license to hunt that we didn't have before in the carrier space. And so I think for us, it's more furthering down this path that we've been on for 3 years, really, since I joined saying, we need to get in front of these end-user customers. It's not fast. It's not going to be easy. I certainly wasn't expecting a global pandemic thrown into the mix in a time we thought we'd be accelerating. But I'm also not great at playing the victim and saying, "Oh, the world is so difficult."

So we took -- we held our breath for a little while in this. We kept our team safe. And then we invested. And I think the intensity with which we're coming out, ready to take share and get involved in these larger CapEx areas, including some new ones, it's the go-to-market exercise now, and that's what we're about is let's get our products out there available and then we got to sell. And I think that's something we've proven over the last few years that we know how to do, we just got to take ourselves up a level.

And again, back to one thing I mentioned in my comments, M&A, I don't want to lose sight of that, that there's going to be some opportunities, I think, in the next few quarters to do some really interesting things, which will again put us even further in front of different customers with different product sets. And in many cases, some of the same customers with multiple product sets, so we can get a little more notice. And I think I'm excited about that as well.

(Operator Instructions) And we have no further questions. I would now like to turn the call back over to management for any closing remarks.

Great. Thank you. I'm incredibly proud of our team and on behalf of the Board and management team, I'd like to thank our employees for their creativity, positive spirit and resilience during these challenging times. Thanks, everyone, for your interest and support of RF Industries. We look forward to reporting our fourth quarter and full fiscal 2020 results in December. And hopefully speaking with some of you at our virtual investor conference presentations prior to that. Thank you again for joining our call. Please stay safe, and have a great day.

And this does conclude today's call. Thank you for your participation. You may now disconnect.