Business context and reporting period
RF Industries, Ltd. designs, manufactures and markets interconnect products, including coaxial and fiber-optic cables and connectors, wiring harnesses, telecom cooling systems and small-cell enclosures. This filing reports the fiscal year ended October 31, 2020, compared with fiscal 2019—not 2019 Q4 as stated in the request metadata.
The company reports two segments: RF Connector and Cable Assembly, and Custom Cabling Manufacturing and Assembly. Acquisitions included C Enterprises in March 2019 and Schrofftech in November 2019; Schrofftech contributed $4.3 million of fiscal 2020 revenue.
Financial performance and liquidity
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Net sales | $43.0 million | $55.3 million |
| Gross profit / margin | $11.6 million / 26.9% | $15.6 million / 28.3% |
| Operating income (loss) | $(0.4) million | $4.5 million |
| Net income (loss) | $(0.1) million | $3.5 million |
| Diluted earnings (loss) per share | $(0.01) | $0.36 |
| Cash provided by (used in) operating activities | $4.5 million | $(2.7) million |
| Cash and cash equivalents at year-end | $15.8 million | $12.5 million |
Sales declined 22%, primarily due to weaker project-based Custom Cabling demand following reduced carrier capital spending amid COVID-19. Custom Cabling sales fell 32% to $28.5 million, and the segment recorded a $2.4 million pretax loss (versus $3.6 million pretax income in 2019). RF Connector sales rose 6% to $14.6 million, with $2.0 million pretax income.
Lower project volumes reduced fixed-cost absorption; product mix and increased sales from lower-margin C Enterprises also weighed on gross margin. Engineering expense rose to $2.0 million, while selling and general expense was $10.0 million, or 23.2% of sales, versus 17.6% the prior year. Fiscal 2020 included higher acquisition-related amortization and stock compensation, partly offset by a $0.9 million decrease in the Schrofftech earn-out liability.
Audited balance-sheet figures show current assets of $30.9 million, current liabilities of $6.7 million and stockholders’ equity of $32.1 million at October 31, 2020. The company received $2.8 million in PPP loans; $2.8 million remained outstanding at year-end, subject to potential forgiveness. It had no other borrowed debt outstanding and had not drawn on its $5.0 million revolving credit facility. The filing says liquidity should cover at least 12 months. Operating cash flow benefited substantially from collecting receivables; receivables fell from $12.2 million to $5.7 million.
Material changes, outlook and risks
Management expected the COVID-related economic slowdown to continue to affect demand at least through the first quarter of fiscal 2021. The company remained operational as an essential business, but workforce constraints, customer and vendor closures, reduced demand and increased costs affected results. Backlog was $6.3 million at year-end, versus $6.1 million a year earlier; management cautioned that orders may be cancelled and provide limited visibility.
Management anticipated most PPP loans would qualify for forgiveness; any unforgiven balance carries a two-year term and 1% interest. The company stopped its quarterly dividend after two fiscal 2020 payments, totaling $0.04 per share. It reported no goodwill impairment indicators, but warned that future impairment charges could be material. No material non-ordinary-course legal proceedings were reported.
Key risks include dependence on wireless and broadband carrier spending, COVID-19 uncertainty, reliance on third-party connector manufacturers (including suppliers in Asia) without long-term supply agreements, distributor and major-customer concentration, intense competition, acquisition integration, and possible goodwill or intangible-asset impairment. Two distributors represented 14% and 12% of fiscal 2020 sales. The company reported effective internal controls, but its assessment excluded Schrofftech.
Important facts for investors to verify
- Confirm the period: the filing is for fiscal 2020, ended October 31, 2020, despite the request’s “2019 Q4” label.
- Reconcile balance-sheet figures: MD&A reports total assets of $41.1 million and current liabilities of $6.9 million, while the audited statements report $40.8 million and $6.7 million, respectively.
- Review PPP forgiveness status and repayment obligations; the filing only states management’s expectation that most loans would be forgiven.
- Clarify revolving-credit covenant status: MD&A says the company was in compliance, while the note says it obtained a waiver for the period.
- Assess recovery in Custom Cabling demand and margins, customer concentration, and the potential for goodwill impairment or further acquisition-related costs.