RF Industries, Ltd. — Form 10-K Summary
Business context and reporting period
The filing reports the fiscal year ended October 31, 2019, compared with fiscal 2018; it is not a standalone 2018 fourth-quarter report, despite the request metadata. RF Industries makes and markets interconnect products, cable assemblies, wiring harnesses and related systems. Its two reporting segments are RF Connector and Cable Assembly and Custom Cabling Manufacturing and Assembly.
Financial performance and condition
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $55.3 million | $50.2 million |
| Gross profit / margin | $15.6 million / 28.3% | $17.1 million / 34.1% |
| Operating income / margin | $4.5 million / 8.1% | $7.4 million / 14.8% |
| Net income | $3.5 million | $5.8 million |
| Diluted EPS | $0.36 | $0.61 |
| Cash from continuing operations | Used $2.7 million | Provided $5.3 million |
Sales increased 10%. RF Connector sales rose 16% to $13.7 million; Custom Cabling sales rose 9% to $41.6 million and represented about 75% of sales. Gross margin fell as a result of customer pricing pressure, a lower-margin mix following the C Enterprises acquisition, and higher production labor costs. Selling and general expenses increased $1.5 million, mainly with the addition of C Enterprises.
At October 31, 2019, cash was $12.5 million, current assets $33.7 million, current liabilities $6.1 million, working capital $27.6 million, and the current ratio approximately 5.5:1. Accounts receivable rose to $12.2 million from $4.3 million, contributing to the operating cash outflow. Inventory was $8.2 million. The company had no borrowed debt at year-end; total liabilities were $6.2 million and stockholders’ equity was $31.5 million.
Material changes and transactions
- Comnet was sold on October 31, 2018 for $4.2 million cash. Fiscal 2018 reported a $180,000 after-tax discontinued-operations loss, including a loss on sale.
- RF Industries acquired C Enterprises in March 2019 for $600,000 cash and assumed certain liabilities. It contributed $7.2 million in FY2019 revenue; acquisition costs of about $100,000 were expensed.
- After year-end, on November 4, 2019, the company acquired Schrofftech for $4.0 million cash, with up to $2.4 million of additional earn-out payments tied to performance. Schrofftech results are not included in FY2019.
- Cash dividends totaled $748,000, or $0.08 per share, in FY2019.
Outlook, risks and other notable matters
Management said available current assets and expected operating cash generation should fund liquidity and capital needs for at least twelve months. Backlog declined to $6.1 million from $10.9 million, and management cautioned that orders are difficult to predict and may be canceled. No specific revenue or earnings guidance was provided.
In November 2019, the company entered into a $5 million revolving credit facility at LIBOR Daily Floating Rate plus 2%; no borrowings had been made as of the filing date. The facility is secured by company assets and subject to covenants. Management noted uncertainty around possible indirect costs from trade tariffs. Key risks include dependence on wireless-network investment and a small number of customers, contract manufacturing—particularly in Asia—competition, acquisition integration, and potential goodwill or intangible-asset impairment. Two customers represented approximately 19% and 23% of FY2019 sales; one customer’s receivable was 56% of year-end net receivables. The company reported effective management controls, but its assessment excluded C Enterprises. The auditor issued an unqualified opinion on the financial statements and did not audit internal-control effectiveness.
Important facts for investors to verify
- Confirm the source filing’s period: it is FY2019 ended October 31, 2019, not a 2018 Q4 filing.
- Assess whether the gross-margin decline and operating cash outflow are temporary, especially given the sharp receivables increase and lower backlog.
- Review customer concentration, payment terms and subsequent collection of the major year-end receivables.
- Evaluate the Schrofftech acquisition’s earn-out conditions, financing needs, covenant terms and integration results.
- Monitor tariffs, supplier continuity, and the potential effect of wireless-carrier spending changes on demand.