2008 Interview with: RF Industries Ltd. (RFIL-NASDAQ), Founder, President and CEO, Howard F. Hill - featuring: their connecting solutions for the telecommunications and biomedical markets, including radio frequency (RF) coaxial connectors and cable assemblies used for Wi-Fi, PCS, radio, test instruments, computer networks and antenna devices as well as their wireless digital data transmission products for industrial monitoring, wide area networks, GPS tracking and locations systems and RadioMobile, an OEM provider of End-to-End mobile wireless network solutions for public safety, emergency medical, Transportation and industrial customers.
|RF Industries Ltd. (RFIL-NASDAQ)|
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RF Industries Is Supplying Their Coaxial
Cable And Connector Products Into Two Of The Most Exciting And Growing
Markets Today – Mobile And Medical
RF Industries (NASDAQ RFIL) has
provided connecting solutions for the telecommunications and biomedical
markets since 1979.
Our mission is to develop productive competitive business enterprises by promoting entrepreneurial employee ownership and improving corporate performance. Every employee is provided the opportunity to become a stockholder. Our exemplary customer service is delivered by our team of employee / owners.
The RF Connectors and Cable Assembly segment designs and distributes radio frequency (RF) coaxial connectors and cable assemblies used for Wi-Fi, PCS, radio, test instruments, computer networks and antenna devices. This business includes Aviel Electronics, which provides custom microwave and RF Connector solutions to aerospace, OEM and Government agencies, Worswick, which provides coaxial connectors and cable assemblies primarily to retail and local multi-media and communications systems customers and Bioconnect, which designs, manufactures and distributes specialized electrical cabling and interconnect products to the medical monitoring market. The RF Wireless segment includes Neulink, which designs and markets wireless digital data transmission products for industrial monitoring, wide area networks, GPS tracking and locations systems and RadioMobile, an OEM provider of End-to-End mobile wireless network solutions for public safety, emergency medical, Transportation and industrial customers.
CEOCFO: Mr. Hill, what is your vision when you founded RF Industries, and where are you today?
Mr. Hill: “RF Industries was founded in 1979. Our vision at that time was definitely to be into the wireless marketplace. We started a small company called Trilectric, and were building some amplifiers and a product called a Mobile Amplifier Charger, which was an interesting product; we went through some design changes through the years with that. We saw the cellular industry picking up, decided that was the place to be and went public in 1984. Wall Street called it the ‘wireless boom’ in the gold-rush days of cellular. We entered that market with the trunk mount type of electronics that was fairly large and actually fit in a car's trunk. The electronics, the phone itself, was like a lunchbox, fitting on the hump of front seat of the car. Everything started to change when Motorola came out with their "Brick", as it was called. This was a large hand-held device, but then things got smaller and smaller. We were undercapitalized and almost went out of business in the late 1980’s. We changed the company around and focused more on the mobile radio market. We were holding our own but things were still very tight. So we sold off some divisions to keep the banks and the creditors off our backs and in 1993 I took over the company permanently and my two partners went their own ways. We have been making money ever since 1993 and have a vision right now that the wireless and the medical markets are going to be fast-growing markets providing continued growth opportunities. We currently have seven different mini divisions, all in related connector or wireless businesses, are looking to acquire number eight and are continuing our M&A efforts going forward.”
CEOCFO: What are some of the products you supply, and why are they under different names and divisions?
Mr. Hill: “These are unique products. Our RF Connectors and Cable
Assembly segment includes the biggest division in the Company, RF Connectors. And that is exactly what they sell: Radio Frequency (RF) grade coaxial connectors that are connected to the ends of coaxial cables used for antennas and in electronics. We have approximately 1,500 different types of these coaxial connectors. This business led to a spin-off division called RF Cable Assembly. Again, that name describes exactly what they make. RF cable assemblies are just coaxial connectors from RF Connectors, assembled to a coaxial cable. They come in all kinds of different lengths and connector types, equating to about a hundred thousand different cable assembly products. That has historically been our second largest business. Also in this business segment is Aviel Electronics, which manufactures custom, prototype, obsolete RF, microwave and other connectors in any quantity, from one to a thousand. Aviel is promoted in our advertisements as having a "minimum order of ONE". There was one gentleman who needed a single obsolete connector for his test equipment, so we saved his $80,000 investment by designing and building a "just one" connector for him. This business segment also includes Bioconnect, a cabling and connector division serving serves the medical industry. Bioconnect makes connectors and cabling for medical monitoring instruments, the kind you see in emergency rooms or your doctor's office, defibrillators, and catheter type cables. This operation is really starting to expand and has recently become one of our fastest growing divisions. Finally, the connector segment includes a company we bought three years ago named Worswick (www.oddcables.com). The Internet address describes the business, which is to design and sell to retail and custom installers the unusual or odd electrical or connector cable to connect data communications, computer systems, entertainment and coaxial and fiber optic cable assemblies.
The second part of our business is the RF Wireless segment. This includes the RF Neulink division, which manufactures data transmission products, including wireless transmitters, receivers and modems used by commercial, security and the military. The Navy is using these wireless transceivers in drone airplanes and agricultural businesses use them to control irrigation systems. There are many other applications for Neulink's wireless products. Last September we bought a company called RadioMobile, which is involved in communication networks for public utilities, fire and police departments and cab companies. They are systems integrators, designing some of their own products, buying some equipment and combining these with custom software to make a data communication system for their customers.
We are pretty much addressing a large number of opportunities in the RF data and wireless market. However, we are trying to build the medical products part of our business by acquiring other medical cabling and speciality medical products companies. We are currently conducting due diligence on another medical products company which happens to be a Bioconnect customer.”
CEOCFO: Is there a consolidation in the industry?
Mr. Hill: “Yes there is, and there was a big consolidation two years ago. In the last two years we had AT&T merge with Singular, we had Nextel merge with Sprint, which put a little turmoil into the business until the end of winter, 2007. That affected the first half of our 2007 fiscal year. The big boys were regrouping and trying to figure out what technology they were going to use because there were four different technologies merging into two companies. Consequently, much of their infrastructure build-out was put on hold and that put the first six months of fiscal 2007 into a slump. We did not lose business; orders were just delayed; so the second half of 2007 was a record six-month and this growth in continuing in 2008. We have recently posted a number of record months and quarters and continue to experience strong sales growth.
CEOCFO: What is the competitive landscape like for you?
Mr. Hill: “We definitely have competitors. We have a lot of products that are different in design but these designs are unfortunately not easily patentable. One of our niches is we design our connectors and products for multiple applications and promote the products on this basis. I like to say our biggest asset is our sales force and our management team because we are a very customer oriented company and we bend over backwards to provide service for our customers. That helps us in our growth and our attitude towards our customers and towards our business.”
CEOCFO: Please tell us more about the entrepreneurial spirit for your company.
Mr. Hill: “We have a stock option plan for every employee. I like to think that our employees, when they make any decision for the company, are making that decision for themselves. Most of the time, when you make a decision for yourself, you make a wiser decision. We have a great attitude around here, and I have to compliment our staff because it rolls downhill, so to speak, and their attitudes are a tremendous asset to the Company. We are constantly looking at the new company and the growth of it. We have a mix of ages; I happen to be the oldest person in the company and it goes down to the 20-year-old level. Therefore, we have a nice mix of age, attitudes and knowledge in this company.”
What is the financial picture of the company?
Mr. Doss: “Financially we are very strong. We carry no debt; we have a very strong and healthy balance sheet and roughly $9 million in cash and near-cash investments at our last filing. We are profitable and have been profitable for 15 straight years. The Company's profitability enabled us to initiate a cash dividend over a year ago, now paying three cents a quarter. We have also been returning equity to our investors through stock buy-backs.”
CEOCFO: Where do you manufacture?
Mr. Doss: “You are starting to get to where some of our competitive advantages are. We have had long-time suppliers in Asia and these are people that we have worked with for twenty-five years now.”
CEOCFO: Do you keep much inventory?
Mr. Hill: “Yes we do keep a high inventory, and there is a reason for that. For example, if our customers need a connector and we don’t have it, somebody else will.”
Mr. Doss: “Our inventory is at a level that, when you look at it as an accountant, you say it is too high. However, we manage this inventory by sitting down at the end of every year with our major customers to make sure that we are going to have the right kind and amount of inventory on-hand for the coming year. We go over an analysis of what they bought last year and they tell us: ‘this area is going to grow and this area is not’. So we make it a partnership, to insure that the material and products they will need is on-hand. As Howard said, if we don’t have it, somebody else may.”
Mr. Doss: “As a part of our entrepreneurial spirit, we partner with our customers. We work with them closely and believe that by trying to grow their business, we can grow our business at the same time. We not only have that spirit but we also have that relationship with our customers.”
Mr. Hill: “Our sales people are trained to watch out for the customers. A lot of buyers will be zealous in their own way. Sometimes they will try to 'go around' the distributor and come directly to us. That is one of the reasons we ask for credit reports and references, because sometimes our customers names pop up on those reports. If that happens, we then call the customer and ask: 'Hey, why is so-and-so coming to us? How can we help you, because we don’t want to take your business away’ They are often shocked because most of their other suppliers won’t bother to alert them or ask, they simply take the order away. We, however, are very loyal to our customers.”
will imagine it has paid back!
Mr. Doss: “And that is one of the situations that affect our marketplace. Last year we still made money every quarter even though the market was disrupted. We accredited a lot to the fact that our customers were loyal to us because we were loyal to them.”
CEOCFO: Please tell us more about the medical area that you are branching into?
Mr. Hill: “It is small but fast-growing. The cable products that Bioconnect builds, primarily for OEMs, are often disposable items. They are frequently used in applications that involve piercing the skin, so they get used once and then thrown away. Some of the other products have use limitations, which are mandated by the FDA and can only be used, perhaps, seven times. It is almost a 'razor blade' type of business, so you have to make new ones. That is a fast growing part of Bioconnect's business, and we want to expand that. Like I said before, we are looking at acquiring a company making disposable medical products, which has European distribution and a larger customer base, so it would be big move if we go through with the acquisition. The medical industry is exciting, as I think that we will soon have the baby boomers growing older and that there is going to be a lot more growth in this area.”
CEOCFO: Why should the investment community be interest in RF Industries, and what might people miss that should be understood from the investment perspective?
“Our history is an important thing. The track record of our company, as Jim
pointed out is that for fifteen years we have been making money. We went
through some hard times, but we are businessmen that have been in the
industry for thirty years or more. We have been through some hard knocks,
and learned from it. We are going down the path of paying back our
investors, such as increasing the dividend that we are paying. Right now, I
remember reading on the message board where one of our investors said, ‘Hey,
why keep your cash in a money market, when you can make more money from RF
Industries' dividend and the stock is solid, it just steadily goes up’. It
is nice to read about your company in that aspect.”
Mr. Doss: “There are three things in particular that investors should be aware of. Our strong balance sheet with high cash balances and no debt is the first thing. The second thing is our history: Fifteen straight years of operating profitability in nearly every quarter of every year. Only one quarter had a net loss due to a non-operating transaction. But fifteen straight years speaks for itself. The third thing is our stock traditionally was a growth stock; we are now a growth income stock. There are two facets to that, which make it exciting now, with the stock market in turmoil itself, our stock price is going up. We have had strong demand, strong earnings, I just can’t say enough good things about it, plus we are investing back to our owners which are our stockholders.”
CEOCFO: Final thoughts, what should people reading about RF Industries remember most?
Mr. Hill: “If anybody is looking at the market, in the last few years the wireless market has been very exciting. It went through a slump in the 2000 era, but really came out of it with shining colors. I think that if you are doing any research at all into the market, RF or radio frequency would be one of the areas that is a good investment. Medical has always been strong, and it is going to continue to be strong. Let’s face it, everybody is living longer and we get more medical problems the older we get. I think we are focusing on two perfect markets for growth and we are at the right place at the right time.”
“One of our niches is we design our connectors and products for multiple applications and promote the products on this basis. I like to say our biggest asset is our sales force and our management team because we are a very customer oriented company and we bend over backwards to provide service for our customers. That helps us in our growth and our attitude towards our customers and towards our business.” - Howard F. Hill
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