RF Industries Ltd (RFIL) 2012 Q1 法說會逐字稿

Welcome to RF Industries' first-quarter results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer answer session. (Operator Instructions). As a reminder, this conference call is being recorded today Monday, March 19, 2012.

Please note that except for the historical statements, statements made in this release may contain forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934. When used, the words anticipate, believe, expects, intends, future or 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 outcome contained in forward-looking statements.

Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing, or sales of new products, or other risks and uncertainties discussed in the Company's periodic report 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 statement.

I will now turn the conference over to Mr. Howard Hill, Chief Executive Officer, and Mr. James Doss, President and Chief Financial Officer of RF Industries. Mr. Hill, you may begin.

Thank you, Shovanna. Good morning, ladies and gentlemen, fellow shareholders. Welcome to RF Industries' first-quarter conference call. Our first quarter of fiscal year 2012 was a challenging quarter for each of our industry divisions. Material and labor costs increased and project delays were the major challenges to overcome.

RFI Industries' Connector and RF Cable Assembly segment, historically the Company's largest and most profitable segment add in FY 2011 and into the first quarter of 2012 an increase in raw material and labor.

Raw materials such as copper had increased and gold and silver hit record highs prices as well. Our connectors are mainly machined from brass and we are primarily -- they are primarily coated with nickel, silver and gold plated. The RF Cable Assembly's are also manufactured from copper and insulation materials made from oil [brent] products and we are all hearing about the increase of oil every day.

We have increased our prices for our hard connectors and RF cable assemblies products in the first quarter of fiscal year 2012. We are now beginning to see benefits of these increases and, as the year continues, it will be more. As our new cable subsidiaries, Cable Unlimited sales are primarily factored for the first quarter revenue increase; the RF Industries continue for the balance of FY 2012.

Cable Unlimited's gross margin also increased and should continue for the balance of 2012 as well. The Aviel Electronics division was down in sales in the first quarter due to their largest customer experiencing technical program delays, which they hope to resolve this year. The Medical Cabling and Interconnect segment increased sales with new and existing customers in FY 2011 and in FY 2012. The Medical segment also increased efficiency with their new manufacturing area and equipments contributing to the increase in their gross margin.

With the $2.6 million Los Angeles County Fire Department contract, the Wireless segment sales in gross margin increased due to scheduled shipments which will continue into FY 2013. Wireless segment request for quotations RFQs also have increased, which is a good sign for potential large orders being placed in the future. Engineering expenses remained constant for the first quarter of FY 2012, keeping RF Industries always on the cutting edge of new technologies and continue our ability to meet our customers' needs.

We have increased our senior sales staff to move us into new areas of opportunities for all of our divisions. Every day, we are hearing of new products being developed using RF technologies.

As I have said before, we believe RF Industries was at the right place at the right time. I will now turn over the conference call to James Doss, our President and CFO.

Hi, good morning and. And thank you, Howard. As Howard mentioned our net sales increased 34% to a record $5.559 million compared with the first quarter of last year, which was a record $4.14 million. Our gross margins did decline as Howard had mentioned from 45% to 52% of sales but as mentioned before this is primarily due to our largest customer -- our largest business segment, RF Connector and Cable Assembly, being squeezed on the commodity price.

Now as Howard mentioned, we have increased those costs along to our customers and we did have to wait so it can correspond with their increasing of their customers also because a lot of our customers are the distributors and they have preprinted material. So from a timing standpoint, the day we get an increase in price we have to wait sometimes to accommodate them. All of our price increases have gone through to our customers and they have been accepted at this point in time.

We anticipate seeing the benefit of that in the second and third quarters and continued on through the rest of the year.

Engineering expense was essentially unchanged at $290,000 from $296,000 in the same quarter last year. Most of these engineering expenses are going to the RadioMobile project and directly into the LA County contract that Howard mentioned. A majority of those projects are done at this point and they are into the production area of a lot of these -- a lot of the delivering of the contracts at this point. We do anticipate this going into FY '03. However as we've stated before, a majority of that contract will be completed in 2012.

Selling and general administrative expenses increased by $666,000 to just over $2 million from $1,346,000 in the same quarter last year. Now the majority of this increase was due to the acquisition of Cables Unlimited, which accounted for $512,000 of this increase. There were some selling and general expenses that were related to completing that transaction as we finished up for our year end audit.

As everybody knows, our first quarter we have traditionally have the highest SG&A expenses for our year for our one-time nonrecurring expenses. A lot of that has to do with legal and accounting expenses related to our year end.

There was also an increase due to some non-stock option expense in the quarter. There was some increase in salary expense and other certain professional fees.

Our first-quarter operating income was $201,000 compared to $528,000 in the first quarter last year. Our interest income was $19,000 compared to $11,000 last year.

The tax division for the first quarter was $104,000 or 47% of income compared to a tax division of $187,000 or 35% in the same quarter last year. The higher than usual tax rate is largely due to the effect of the stock compensation expense as it relates to GAAP, and also last year we did receive a one-time tax benefit related to research and development that we did not have available to us at this year.

After taxes, the net income attributed to RF Industries and its subsidiary, Cables Unlimited, was $[115,000] (see press release) or $0.02 per diluted share compared to $351,000 or $0.05 per diluted share in the same quarter of last year.

Turning to the balance sheet, we finished the quarter with just under $4.7 million in cash, cash equivalents, and certificates of deposits. I think it is very important to point out that we used during this first quarter $787,000 to repurchase [232] (see press release) shares of common stock in the open market; and we paid dividends of $353,000 to our shareholders. In other words we returned over $1.1 million to our stockholders during this first quarter.

Expenditures for capital goods and equipment were approximately $192,000 in the quarter. We anticipate this is not indicative of the expected annual rate for the fiscal year. However with that being said, we do expect approximately another $200,000 of capital expenditures to occur during the rest of the year. This could increase if additional equipment is needed to address automation or capacity issues that we have in fulfilling future customer purchases and sales orders.

The trade account receivable increased by 11% or $282,000 to a total of just under $2.9 million. This increase is really due to January, the last half of January, we had quite a bit of late minute calls and rush orders from a lot of our customers and that just had not moved through the timing of collections yet.

The Company's increased inventory purchases in order to take advantage of some volume discounts from our vendors. Again, this is related to commodity prices and we are trying to get ahead of the curve as much as we can on getting out in the front and acquiring the stuff that we know is going to be purchased from our customers.

Like I said there is a lagtime before when we acquire stuff with the prices until we pass on our increase in prices to our customer. But like I said, that has all been accepted by our customers at this point.

Accounts payable combined with accrued expenses at January 31, 2012 increased $365,000; that's just under $2.5 million from $2.1 million on -- at the close of the fiscal 2011. Primary result of this in inventory and other purchases that we had near the end of the quarter.

Total liability declined 29% to the $2.466 million from just under $3.5 million. This is primarily due to the removal of the VIE obligation that has been completely taken care of now and the Corporation has no more liability associated with that VIE. Consequently, RF Industries' current ratio has improved to 6.4 to 1 from 4.7 at the end of fiscal 2011.

With the repurchase that I talked to previously of 232,000 shares during the first quarter of 2012, RF Industries has roughly [6,920,000 -- 29,000] shares outstanding as of July 31, 2012. When the Company buys back its common shares, those shares are immediately retired. Our current buyback program initiated during 2011 is expected to be completed during the second quarter of 2012.

RF Industries' total shareholder equity was affected by stock repurchases and dividends paid which totaled $1.14 million. Consequently the stockholders equity decline to $18.566 million from $19.67 million or [$0.0268] per share [$0.0277] per share(Sic-see press release).

That concludes my discussion on the financial quarter, first-quarter financial results.

Are there any questions?

(Operator Instructions). Vincent Staunton representing Wedbush Securities.

In regards to SG&A, you mentioned that there are a couple of one-time charges in SG&A. What do you see as a normalized run rate for SG&A going forward?

It is hard to get our hands on --. I don't want to say we don't have our hands around it. However, what we have done in the past isn't necessarily indicative of what we have moving on in the future right now. As we enter some new marketplaces, we are seeing some expenses come up that we haven't had in the past. For instance as you guys know, we have hired a new VP of Sales who is directly related to SG&A. He is a very high level individual that we brought in to help work specifically with our distribution side of our business.

Vincent, I would love to sit here and quote what we believe it is. However that is all a bit of a moving target at this point.

Is most of the increase due to Cables Unlimited?

Well, a majority of it was bringing them on when you compare it to the same quarter of last year. All but approximately $130,000 of that was related to the Cables Unlimited directly for what they incurred in this first period. There was approximately another $60,000 to $70,000 related to the acquisition that came through in this first quarter.

Okay. In terms of Cables Unlimited, if you look at 10-Q, it showed for the quarter that operating income was $37,000. Is that what you expect going forward or --?

No. We expect that to be higher. We are only about 7 1/2 months into this trend, into this acquisition. And as we all know, acquisitions take time. We had figured internally it was going to take approximately a year for us to have everything wrapped up over there as far as truly having an integrated part of the overall corporation. There is a large information systems conversion going over right now there that is taking up some time and resources on our end. We look for them to be much more profitable very quickly here in the future.

Yes, we had to upgrade our total system here to handle that increase there also. So that, as Jim pointed out, the couple hundred thousand dollars coming ahead is related to that software programming and so forth we have to implement.

Okay. In regards to the guidance you gave earlier this year, do you still think you will meet that guidance? .

Yes. We knew. We purposely did not give quarterly guidance because we know historically our first quarter is our weakest quarter. Last year was more of an anomaly that it was such a strong quarter for us than traditionally.

We don't turn business away. (laughter).

We still feel that with our new product lines that we have up -- have with our new -- with relationships with our distributors and specifically with the new products that we need to cross sell, we still feel strong that we are standing by that at this time.

Okay. Great. Thanks.

Thank you.

(Operator Instructions). At this time, Mr. Hill, there are no further audio questions.

Well, thank you. You have a nice day.

Thank you for all of our shareholders who attended the call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

You too.