RF Industries Ltd (RFIL) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the RF Industries second-quarter conference call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded today Friday, June 8, 2012.

Please note that except for historical statements, statements in this release may constitute forward-looking statements within the meaning of the Section 21E of the Securities Exchange Act of 1934. When used, these words anticipates, believes, expects, intends, 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 statement. Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales of new products, 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 statement.

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

Thank you, Pamela. Good morning, ladies and gentlemen and fellow shareholders. Thank you for standing by.

RF Industries' second quarter was another record quarter. Net sales for the quarter increased 52% to a $6,672,000 compared to $4,392,000 in the same period last year. For six months ending April 30, 2012, net sales increased 43% to $12,232,000 compared to $8,532,000 for the first half of fiscal 2011.

A record year-to-date six months sales benefited from the strong performance from the Wireless segment, posting a 72% increase for our RF Neulink division and a 277% increase for the RadioMobile division. Together, a combined increase of $626,000 compared to the same six months last year.

The continuing strength from the medical cabling and interconnect product division Bioconnect sales for the six months increased 11% to $143,000 increase compared to the same period last year. RF Industries and Cable Assembly division sales increased 1% for the six months first half of the year with the declining sales from ABL due to a large military contract delay, which reduced segments slightly.

Looking forward, we anticipate the RF Connector & Cable Assembly division participating in a number of new infrastructure projects scheduled with Cable Unlimited this year.

Speaking of Cable Unlimited, our larger acquired subsidiary, last year we had the product development team design OptiFlex. OptiFlex is a hybrid cable solution, custom designed, highly flexible, pre-terminated cable compressing a multiple fiber optic and power cables in a single jacket. The light cable reduced power load and is a perfect solution for 4G, WiMAX and LTE power upgrades and installations up to 550 feet, twice the length of our competing products.

OptiFlex cable eliminates the need for tower hardware by directly connecting both PC power and the signal from the radio on top of the antenna tower with the baseband equipment on the ground. With that pre-terminated fiber by Corning-certified technicians, OptiFlex cabling improves performance and eliminates field termination, dramatically reducing installation, time and costs.

The cable is made in the United States and can be custom fabricated to include coax and ethernet cabling for customer-specific application. Take a look at our website, rfindustries.com, under New Products. Cable Unlimited has started receiving orders; it is increasing production.

RF Industries is always on the cutting edge of new technology with our divisions ready to meet customer needs. As I've said before, I believe RF Industries continues to be the right place at the right time.

I will now turn over the conference call to Jim Doss, our President and CFO. Jim?

Good morning and thank you, Howard. As Howard mentioned, our consolidated net sales increased 52% to the second-quarter record $6,672,000 compared to the second-quarter record last year of $4,392,000 in the same period.

Excluding the Cables Unlimited division, which added sales of $1,836,000 to the total, comparable sales from continuing businesses increased 10% to $4,836,000 in the second quarter of fiscal 2012.

Gross margin declined to 45% from 51% of sales, primarily due to low gross margins of 29% at Cables Unlimited, which was not in the consolidated sales mix of last year.

Improved results at Bioconnect and the RF Wireless segments significantly benefited the quarter results. Excluding the Cables Unlimited, second-quarter gross margins were comparable to the businesses of 51% for the previous year's.

Engineering expenses declined 15% to $283,000 from $333,000 in the same period last year. Selling and general administrative expenses increased $558,000 or 44% to $1,840,000 from $1,282,000 in the same quarter last year. The majority of this increase is due to the acquisition of Cables Unlimited, which accounted for $340,000 of that increase.

As a percentage of sales, Companywide selling and general administrative expenses declined to 28% of sales in the quarter compared to 29% of sales in the quarter last year. Excluding Cables Unlimited, comparable selling and general expenses in the same businesses would have been 30% of sales.

Second-quarter operating income increased 44% to $899,000 compared to $622,000 the same quarter last year. Our interest income for the quarter was only $6,000 as the Company held significant lower cash balances at this period than it did in the same period last year, and interest rates remain very low.

The tax provision for the quarter was $303,000 or 34%, which compares to a 36% tax provision for the same quarter last year.

After taxes net income attributed to RF Industries LTD and subsidiary was $602,000 or $0.08 per diluted common share compared to $407,000 or $0.06 per diluted share in the same quarter last year.

Turning to the balance sheet, we finished the first six months of the fiscal 2012 with approximately $3,813,000 in cash and cash equivalents. We used cash during the period of approximately $1,143,000 to repurchase 324,871 common shares in the open market transactions and paid cash dividends of approximately $695,000 for the year.

Expenditures for capital goods and equipment were approximately $446,000 year to date, and we anticipate that this is not indicative of our expected annual rate for the fiscal year. As most of our major CapEx projects are significantly completed or significantly underway, we anticipate this to be approximately $100,000 for the remainder of the year.

The liabilities and equities discussions, accounts payable and accrued expenses increased by approximately $191,000, in line with increases in inventory of approximately $260,000. Total current liabilities declined 34% to $2,292,000 from $3,495,000, and this is primarily related to the removal of the mortgage payables to the VIE creditors due Q1 of 2012 deconsolidation of the K&K entity. Consequently, RFI's current ratio improved to 6.8 to 1 from 4.7 to 1 at the end of fiscal 2011.

RF industries has approximately 6,860,000 shares outstanding, having repurchased approximately 324,871 shares in the current fiscal year. The weighted average basic and diluted shares quantity outstanding at the end of the quarter reflects the acquisition of Cables Unlimited, which resulted in the issuance of an additional approximately 760,000 common shares in the third quarter of fiscal 2011. When RF Industries buys back common shares, they all retired immediately.

RFI's total stockholder equity was affected by the stock share repurchase and dividends paid for the year, which have totaled approximately $1,838,000. Consequently stockholders equity has declined to approximately $18,582,000 from $19,678,000 or, in other words, from $2.71 per share to $2.70 per share.

This concludes my discussion for the first-quarter results -- or for the second-quarter results, Howard?

Are there any questions?

(Operator Instructions) Vincent Staunton, Wedbush Securities.

Hi, guys. The question is regarding Bioconnect. It seems like this quarter was the highest sales and highest pretax income in its history. Do you think this is sustainable, and what do you think is driving the sales?

Well, we added a new customer we've been working with and going through some development with them, which was one of these bumpy roads and it's finally clicking. We got the product here this third quarter. We are being a little cautious. We may have a pipeline there just being filled -- the pipeline. But we think it's sustainable. They're very happy with us now, and it looks like we're going to have a good customer for a long period of time.

To add onto that, you know there is some seasonality into their sales. Historically the third and the fourth quarter have not been their best quarters. They're profitable still in those quarters, but they haven't been like the second quarter. With the addition of the new customer, we are hoping to maintain that sustainability.

One thing about the Bioconnect division that is similar to the Connector divisions, you've got to have the inventory on hand. So they give us projections. We have a guarantee that they are going to buy that, but they slow down in the second half. So they give us a year projection, we build to it to give us our quantity discounts when we buy material, and then what we got is a little unbalanced in the third and fourth quarter because they back off. But they do take it eventually.

The division is doing really well. Over the course of the last two years, it's up almost 80% total for the current year's run rate. So, you know, we're very bullish on that division.

And that's the place to be -- I guess you focused on that because it has the same feeling, I assume.

Yes, just looking historically at the revenue and operating income, it seems like there has been a dramatic improvement. (multiple speakers)

Yes, the reason that division was purchased (multiple speakers) with us is because it was another market totally. Also, the labor assembly is very similar to the Cable Assembly division. So we can swap people back and forth when there is a peak and valley, and it works out beautiful that way. So they're crosstrained between divisions, and we actually do labor transfer and so forth because we keep track totally by our divisions, so.

Okay. In terms of the RF Connector & Cable Assembly segment, margin has come down from the prior year period. Is that due to historical increases in commodity prices?

We had -- well, that is a great question. Because we've seen commodity prices for our inputs fluctuate quite a bit in the past year, and one of the things that we do is we do have a -- from a strategic standpoint, we carry a lot of inventory. And some of the inventory that we had purchased I would say in the past six months was some of it was at slightly higher commodity prices. We are getting some price reductions as we are refilling that inventory now moving forward, and that did play into some of that market degradation.

We are working with our suppliers on that. They have been receptive to our pushback on some of it because we also know that their input costs have lowered as you see oil and copper drive a lot of these input costs just from the manufacturing standpoint and from the raw material.

So, as those are coming down recently, we do anticipate some price reductions on some of our inputs.

I will get you a little technical that all the -- most of our connectors are made out of brass, which the big commodity there is copper, and, of course, the oil and freight. We actually ship by boats from our foreign facility, and this saves us about $0.05 per connector shipping by the boat. And that takes three weeks.

So we have got a long lead time to get here, so we've got a lot of planning when we fill our inventory stock.

But given the decline in raw material prices, I guess over time if it stays that way we should expect an increase in margin in that segment?

Yes.

Yes, yes, yes.

Also, the other part that plays into that is there are some significant fixed costs within that margin within the margin, the gross margin side of it. So as our sales increase and once we get above a certain threshold, those margins get much better quickly.

When you get a good product mix sometimes, we get higher margins on some of the older connectors that have been around for years. They've are very tight -- we've got a lot more competition in that world out of China, and we don't buy out of China.

We are primarily out of Taiwan.

Okay. Thanks, guys. Great quarter.

Thank you very much, Vincent.

(Operator Instructions) [Charles Hilton], private investor.

Good morning.

Good morning, Mr. Hilton. How are you?

I'm fine. Well, I have followed the Company for a number of years, and I have to say when I read the quarterly report, I just said to myself, wow, I can't remember a time when it appeared that all cylinders were firing. And I, you know, a little nitpicking here and there, I'm going to not even give that any time because it really seemed like you guys were clicking, and I wanted to give strong congratulations to you.

We really appreciate that, Mr. Hilton. The quarter was a wow! I always like to say that when we have customers that compliment us, and you complimenting us, it was really a wow! Obviously we saw it coming when we went through the last couple of months of the second quarter, and it's been very, very pleasing. It's been a difficult last couple of years as far as the way the economy was going and so forth.

Thank you so much.

Sure. My pleasure. Bye.

With no further questions in queue, I would like to turn the call back over to Mr. Hill for closing remarks.

Thank you so much for your support. End of call.

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