And welcome to the RF Industries’ First Quarter Fiscal 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded today, Tuesday, March 12th, 2019. At this time, I would like to turn the conference over to Mr. Todd Kehrli of MKR Group. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to RF Industries’ first quarter fiscal 2019 financial results conference call. With me on today’s call are RF Industries’ President and CEO, Rob Dawson; and Chief Financial Officer, Mark Turfler. Before I turn the call over to Rob and Mark, I’d like to cover a few quick items. This afternoon, RF Industries issued a press release announcing its first quarter fiscal 2019 financial results. That release is available on the company’s website at rfindustries.com. This call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company’s website. I’d like to remind everyone that on today’s call, management will make forward-looking statements that involve risks and uncertainties. Please note that except for the historical statements, statements on this call today may constitute forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934. When used, the words anticipates, beliefs, expects, intend, 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 statements. Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales of 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 statements. I’ll now turn the conference call over to Rob Dawson, President and Chief Executive Officer. Rob?

Thanks, Todd. Good afternoon, everyone. Welcome to our first quarter fiscal 2019 earnings conference call. We're pleased to report another strong quarter, which includes significant year-over-year growth in both our top and bottom line. For the first quarter, net sales grew 34% year-over-year and net income was up 41% on a year-over-year basis, despite the fact that the first quarter is seasonally our toughest quarter from a cost perspective. As these results demonstrate, we're beginning to see the positive effects of the go-to-market changes and operational improvements we've been making over the past year, as part of a strategic transformation of our business. Our solid top line performance in the first quarter reflects revenue growth in all three of our divisions. In fact, we performed better on both the top and bottom line with three divisions in the first quarter of 2019 than we did with four divisions in Q1 of last year, which highlights the progress we're making in further growing our sales and leveraging our distribution channels, while maintaining good control over costs. I'm especially pleased to note that for the first time in a long while we achieved year-over-year growth in our RF Cable and Connector business in Q1. This segment, often referred to as our traditional San Diego business, is the one area that has some seasonality to it and Q1 has historically been our toughest quarter. We grew this segment 24% year-over-year. This significant growth in Q1 highlights the positive changes we've made to our sales efforts and the benefits we're starting to see from our focus on driving more business through distribution. The strong year-over-year growth also reflects our improved execution in the overall wireless market. Our backlog at the end of Q1 was just under $11 million, nearly equal to the backlog at…

Thank you, Rob, and good afternoon everyone. Jumping right in net sales in the first quarter were $10.6 million, an increase of $2.7 million for 34% year-over-year. The majority of the increase was from our custom cabling segment, primarily due to project work in the OEM and wireless carrier market in addition to an increase in traditional run rate business. Gross profit for the first quarter is $3.1 million, an increase of $682,000 compared to $2.5 million in the first quarter last year. Gross margins were 30% making this the sixth straight quarter with gross margins of at least 30%. Selling and general expenses were $2 million compared to $1.8 million in the first quarter last year, reflecting higher compensation related to sales gains in the custom cabling segment. Despite this increase in expenses, selling and general expenses as a percentage of sales declined to 19% of sales compared to 22% of sales in the first quarter last year, reflecting the company's increased operational efficiency. Net income for the first quarter increased 41% to $640,000 or $0.07 per diluted share compared to net income of $454,000 or $0.05 per diluted share in the first quarter last year. Turning to our cash flow and liquidity. The company used cash of $2.3 million during the first quarter, due largely to the impact of increased sales, which resulted in increased inventory purchases and an increase in outstanding accounts receivable during. During the quarter, we also provided our shareholders with a return on their investment in the form of a $0.02 per share cash dividend. Total cash and cash equivalents for $14 million at January 31, 2019, a decrease of $2.3 million from the prior quarter end. Backlog at the end of the first quarter was $10.6 million compared to $11 million at the end of our fourth quarter. Lastly, on the investor relations front, Rob and I will be participating in two upcoming investor conferences. Tomorrow morning, we will be participating in LD Micro's Second Annual Virtual Conference with a presentation schedule that 7:20 AM Pacific time. And then on March 18, we will be presenting a meeting with investors at the 31st Annual ROTH Conference in Orange County, California. We hope to see some of you there. That concludes my discussion. I'll now turn the call back to Rob.

Thank you, Mark. As our solid financial results illustrate, our strategy for the long-term is beginning to pay-off. While we still have some timing issues that can create short-term variability. We've made the nice progress thus far and this is only the start. We remain very focused on our key initiatives to leverage our strong customer relationships and channel partnerships, to further expand our footprint in the marketplace, and to do so in a profitable manner as we accelerate the work on our three year plan to grow to $100 million in sales. We appreciate the partnerships with our customer's, distributors, and suppliers, the hard work of our employees and the support of our shareholders. With that, I'd like to open the floor to questions. Kishion [ph], we're ready to take our first question.

Thank you. [Operator Instructions] We'll take our first question from Mike Crawford with B Riley.

Thank you. The initial 5G work you're seeing is that still mostly just the fixed outdoor boom?

Yeah. Mike thanks for the question. I think that the majority of the impact we've seen so far is on the – on the outdoor side. We're starting to see more small cell conversations happening, that has been something we've done for some time, that's hard for us to pinpoint whether that's related to 5G or just general densification overall. I think the small cell conversations that we're in now are more clearly related to kind of this next wave of spend.

And then just to confirm your custom cables these are like these high value like 300 foot cables or is there a bigger mix to that?

Yeah. There's a bigger mix to that. Our custom cable segment is actually made up of two of the acquisitions that the company did dating back to 2011 through like 2014 or 2015. So it's everything from wiring harnesses and multi conductor copper kind of cables and solutions and are hybrid fiber cables, which are the ones you're talking more about. They make-up a big piece of that number in total, but it is a broader mix than just the just the tower based hybrid fiber.

Okay. And then you talked about the increasing use of distribution. Does that include like the warehousing type activity for tower companies or is this – or is that yet another set of distribution?

Yeah. So, that's more of the third-party logistics folks doing the work for those companies. I think for us, it's we're using distribution to as a force multiplier both for sales and marketing as well as keeping inventory on the shelf. So we've expanded our focus on distribution, but for us that's more of a sales and go to market exercise.

Okay. Great. And then just last one, you talked about the pipeline being even fuller of potential external growth M&A candidates and that's even after this acquisition you announced earlier well just a couple days ago?

Yeah. So I think that, I guess, our broader point there is, I've been building that pipeline for some time, and I think I'm on – I feel good about some of the candidates that we have in that – it's a – it's becoming more robust. It's been a big focus of ours over the last year or so getting some of these conversations started. So, yeah, in addition to see enterprises acquisition we announced this week, I think there's the – there's a good possibility for some additional acquisitive moves as the year goes on.

Okay. Great. Well, thank you.

Thank you, Mike.

And we'll take our next question from Orin Hirschman with Investment Partners.

Anymore insight as to the timing on the 5G side and anymore – any competitive comments in terms of – your specialty on the 5G side versus some of the – few of the big competitors that exists out there?

Sure. Hey, Orin, thanks for the question. So 5G I think I've talked about in the past. So the spend is a little whole thing where it kind of starts and stops. I think the carriers are clearly committed to deploying 5G in multiple cities each this year. We continue to see kind of a clearer identification of what – you know, what those locations are for them that's come out in the last quarter or so. But we still kind of see the projections early on and then the whole thing spend that happens where it starts and then it stops and it starts and it stops and some of that quarter based and just timing centric some of it lends me to just wonder, hey, when are we going to see the full the blown spend here. I don't think we're close to that yet at least, it doesn't seem like it. Talked to a lot of my – lot of my peers and a lot of folks in the industry and they all kind of feel the same way that we're certainly seeing it ramp up, but we're not seeing it at all what it will be ultimately and to say what exactly that will be? Don't know. I'd be surprised, if we get a full blown spend this calendar year. I think, we maybe looking into next year, but it's hard to say that does seem to move around a little bit as the timing target for us. Related to that, your second question around the -- kind of, the competitive nature and what we believe gives up an advantage. One of the things we see what that spend is while a forecast might be great, it also becomes, hey we need to pull in some orders and get these out in market faster than we expected or kind of last minute as to whether that's driven by carriers or neutral hosts or the contractors themselves. And so I think our fast turnaround time and general ability to manage the supply chain to a forecast helps us, it also helps us that some of this stuff is more of a custom nature versus buying in bulk, long multi-mile runs. I mean these things are -- from a tower perspective, every tower is a little different height-wise, style-wise, radio-wise, that plays to our advantage because we're very good at the fast customization and turnaround time related to that.

And just to follow-up one is when 5G spending does get rolling finally, would you be surprised that you don't eclipse both that 20 million quarter level, it is a peak level. And the second question is what else is growing so strong strongly, is it data center right now that's carrying today in terms of growth? What other applications are you seeing that are helping contribute to the growth that you're getting even without any real -- meaningful 5G business?

Yes, I think maybe I'll hit the second one first and then come back to your first question. So, the -- I think wireless, in general, continues to be our largest driver and that doesn't necessarily need to be 5G deployments, it can still just be getting coverage everywhere so that that densification idea while it gets sort of caught up in the 5G excitement, it doesn't have to be directly related to 5G, it's really just we need coverage and capacity everywhere. So, when we look at our coaxial -- our RF coaxial cable and connector business, a lot of that growth is kind of core applications we've dealt with for years whether that's DAS or even small cell and micro cell applications, that is absolutely part of that growth in addition to kind of the broader 5G early stages and the expectation there. On the OEM side, as we released last quarter, we've gotten into some nice long-term projects whether that's the Honolulu Transportation Project we mentioned or some others, we've done a nice job I think of getting into some longstanding pieces of business where the better we perform, the more opportunity we have. So, while a lion's share of our revenue growth is coming from wireless, we are seeing as we mentioned in the comments some growth in each of the different areas of business which is nice to see. I think we're most proud of that RF cable and connector growth because that's been a long time coming. We haven't seen that kind of growth in years, especially in the first quarter. So, that was a big piece for us. Your first question around do I think will eclipse the $20 million? That's certainly a goal. I mean I think if we're going to get $100 million a year in three years, we're going to need to be putting up those kinds of quarters. I think it's certainly possible the word I've used in the past is that that kind of lumpy nature of the spend and what that causes for us we're trying our best to forecast and smooth some of that out. But I still think there's certainly the opportunity for those kinds of quarters popping in here or there as that spend happens.

Thanks very much.

Thank you.

And we'll take our next question from Scott Searle with ROTH Capital.

Hey good afternoon. Thanks for taking my question. Rob, nice quarter and congrats on the C Enterprises acquisition.

Thanks Scott.

Hey just to follow-up on C Enterprise. Was there a purchase price that was disclosed in the mix in terms of cash in stock? And some other color if you could in terms of what gross margin profile, I assume it's in the same ballpark? But how many employees? What was the growth in 2018 versus 2017? And then as part of -- I thought you said sequential growth into the second quarter. I just want to clarify that's organic or if that's just reflecting the combination with C Enterprise? And then I had a couple of macro follow ups.

Sure. Yes. So, let me hit your last one first. So, yes, the expectation in Q2 is organic growth and then layer on top of that whatever portion of the quarter we have C Enterprises. So that does include growing our business sequentially and then layering on their revenue for us. The details on C Enterprises, we did not disclose the purchase price the way we talked about it. It actually fell into a level where it wasn't considered material against the total numbers of our business. And so I think it was a fair was a fair deal for both sides. We inherited a team of 70 or so folks. They did just under $9 million in sales last year which was a little bit of growth over the prior year. From a margin perspective, their margins are a little lighter than our blended margins. What we'd like to see and there's -- we have some work to do there, but I think we're pretty clear on some ways to get that moving in the right direction to where it will be similar to the rest of our business overall. And I think our expectation is that that will be accretive to our results this fiscal year.

And maybe -- thanks for that. And maybe on a macro level, coming out of Mobile World Congress I was I was kind of surprised at the level of discussion in and around various private LTE networks in IIoT driven networks for various enterprises to basically control their data security, reduce latency, things of that nature. Kind of curious, how private networks and discussions with potential enterprises and operators, if that's factoring into some of the pipeline that you're seeing. How is CBRS shaping up, because now that seems to be gaining some incremental steam and First Net as well? And then have one more.

Sure, yeah. So I think generally, whether it's CBS -- the CBRS or First Net or the private networks, some of that is built into our kind of daily run rate that's been increasing. We don't always know how -- where those things are impacting us. On the private side, we absolutely see some growth around applications like high speed trading where there's private networks going in, specifically, for that. Seeing some of those -- the sight of some of those microwave dishes that these guys are putting up to give them that advantage. We've absolutely got on the RF cable side solutions going into that play. First Net, we're starting to see, kind of, that spend trickle down through. That sort of gets lost for us in the macro shuffle of selling into the carrier space through distribution. We're trying to drive all that business through our distributors as much as possible. And so, we don't always know if that's going into a carrier application whether that's first net or otherwise. And so, I think, we feel good about the overall spend related to that, but we don't necessarily have direct visibility into those customer segments, other than my conversations that I have with the folks in the industry, whether that's at the carriers or otherwise. I think we all feel pretty good about the impact of the public safety needs and what the CBRS platform is going to give for all of us, really from just freeing up some space and some structural built to support that.

Thank you. And lastly, not to belabor the 5G questions, but I'm just wondering if you're seeing the interest level across all the carriers and/or what's the impact right now in terms of the dialogue and discussion related to T-Mobile Sprint? Is that causing any pause? Or is the business still flowing pretty well on that front? Thank you.

Sure, yeah. Thanks, Scott. So I think we're hearing the same kinds of conversations around all carriers. They're all they're all definitely committed to getting some cities online and whatever variation of 5G that might be. The T-Mobile Sprint conversation is a big one. I think it definitely causes there to be part of the halting nature of the spend out there, at least as it relates to the contractors and the integrators doing work for those carriers. We definitely see some of that starting and stopping related to those conversations. And I think the review of that deal took another pause and seems to kind of keep happening that way. That doesn't necessarily help any of us get a clear sense of a forecast of real timing. That's a pretty critical overlay over top of every conversation. So we're definitely seeing that have an impact. I'm hoping that that gets resolved for one way or the other here in the next quarter or so.

Great. Thanks. Nice quarter.

Thanks. Thank you, Scott. Appreciate it.

[Operator Instructions] Our next question will be from Hal Granger, private investor.

Thank you for taking my question, guys. I always like saying this genuinely and the comment is great quarter guys.

Thank you, Hal. Appreciate that.

You've done a fantastic job. I have the same questions Scott had about the cost of those acquisitions. So I'll skip over that and go just in the general acquisition, your thoughts and your strategies. What made C Enterprise an appealing acquisition for you all? I guess it was extending the reach and the products and can we get into that? And was there other things that made it appealing. And in future acquisitions, what sort of things will you be looking for?

Yes. Thanks for the question. So, I think, one of the things that I really liked about C Enterprises was the cultural fit. It was comfortable from the initial conversation. I have a pretty specific cadence to reviewing acquisitions, I'm not fast. I try to make sure I know who we're talking to and what we're talking about and I like the human side of these conversations. I think that cultural fit and the ability to truly integrate a business starts with the human side of it, as much as it does the business side. And so, that was one of the things I really liked. It was a comfortable conversation. We knew them; we knew their business reasonably well. They've got some similarities from Corning Gold House perspective, that’s -- our Long Island operation is also a Corning Gold Partner. So we knew from that perspective what we had there. And I think what we had to figure out was the go-to-market similar, which it was. They generally go through distribution as much as possible, that makes it seamless and easy and we're not adding another layer of complexity to the existing channel model that we worked so hard in the last year and a half or so to get in place. So I think all of those things made sense for us. The final piece is the growth opportunity. Their production capabilities, specifically, around us leveraging that for enhancing our fiber small cell offering is going be a big one for us. I think we're seeing not only what our opportunity is today with our offer in the small cell deployments that are going on, that's only going to ramp up. And I want to make sure we have a strong offer that's scalable. I think that's one…

Great. Yes. Thank you for that answer. When you're -- right now, so last year you were at $50 million, you're going go to $100 million in a few years perhaps, some of that is organic and some of that is acquisitions. When you're thinking about some of these future acquisitions, how large might the largest acquisition be? And when you're thinking about the price you're willing to pay for acquisitions, can you talk about what that price might be in relation to the potential acquisitions revenues?

Yes. So I think it's probably easier for me to talk about the size of the companies that we're looking at and maybe kind of the largest that I'm interested in. It's tougher to nail down the price, because every deals a little bit different. And I think structurally maybe there's -- it will be easier for me to talk about structure. But let me start with size. So I would love to find a company in the $15 million to $25 million dollar range that matches all the things that I just talked about and was available. That's been a little tougher to do. I'm seeing more in -- well, I'm seeing a ton in the sub $5 million range, that's not as interesting. It's hard to integrate a business anyway. I don't care whether that's 30 people doing $3 million a year or 100 people doing $40 million a year. It's challenging either way. It's about cultural fit for me. So I would love to find a larger one that fits well. I think deal structure wise, we've got a clean balance sheet even after this acquisition, we're in a really good position, strength of the balance sheet. We have no debt. So I think that the goal would be to do a little to dilute the shareholder base as possible and find some creative ways to finance if it's a larger acquisition, find some creative ways to finance it, knowing that we've got a solid amount of cash flow at this point and such a clean balance sheet that it gives us a lot of flexibility.

Okay. Would you be willing to use debt to finance acquisitions?

I would. Yes, for the right scenario I would absolutely look at that. That's not something that we have today and that's not something we've had in a maybe ever -- certainly a very long time. But I think there's a valuable place for debt. If you're using it in the right way and that's again I think if I were to describe my approach I use the word cadence a lot. There's a pace to the way we work through these and who we're talking to and making sure that we're doing it as right as possible. And then there's the very kind of pragmatic simple approach. I don't like things that are difficult and confusing for a whole host of reasons. So as transparent as we can be and make it as simple as possible. If debt is the right answer in some of those cases that I'm absolutely open to that concept.

Okay. Can you talk about the Gold Corning fiber segment? Is the rev -- and can you talk about that segment as far as revenues and margins in relation to the rest of your business. In other words, set up higher -- the revenues growing faster or the margins better, can you express that?

Yes. So we don't disclose around those segments -- around our segments that way, but I can tell you that generally the Corning Gold business is in line with the rest of our blended margins.

Okay. Thanks. So Rob you mentioned the wireless is the driver and the RF cable and connector segment in specific, I gather, when you look at your increase in Q1 sales year-over-year, I guess we can -- I guess we can draw the conclusion that most of that increase year-over-year is sales to the Wireless segment?

I think that's true. Yeah, and it'll show up both in our Custom Cable segment as well as in our RF Coaxial segments. So that our two reporting segments, both saw growth related to wireless spend or specifically wireless applications whether that's you know, 4G, 5G, macro site, small cell, DAS I think all of those things were part of that growth. The biggest note in there though is the distribution focus really shows up in our RF coaxial, cable and connector business. I mean, we've shifted that business as much as possible. And I'd love to -- if I can get everything through distribution that's ideal in that segment. We're seeing the dividends of doing that and the partnerships, our distributors are working as a force multiplier. So, we saw growth in both areas.

Okay. Great. You mentioned operational changes; can you talk about those operational changes?

Yeah, I think they're fairly simple overall. The way we've talked about them in the last year is just trying to get our supply chain as consistent as possible, take cost out of it where we can. You know, as we do things like acquisitions or look at our business broadly across the country what -- you talk about integration of an acquisition, some of that is -- it's just pulling back office functions and getting them into one centralized place. And so, we've been -- those are the kinds of efficiencies that we've been working on. We've still got a little room to go there, but I think we at least have a game plan around whether it's an acquisition or looking at our current business. Operationally, we want to centralize as much of those back office functions as we possibly can, leaving the go-to-market and production functions to match the market segments where we're doing the work. So, I'm pretty comfortable with the way we build things. In the past, I've said we need to sell stuff and then we need to make stuff, keeping it as simple as possible. I'm comfortable with our ability to do our production and make good quality products and get them out there in the market. I think our sales team is evolving nicely around a new set of strategies and goals that we've put in place in the last year and a year and a half that final piece is really the operational things you're talking about where you know, if there's unnecessary or duplicate spend, let's make sure we know why we have it and if there's a way to centralize that across the economies scale of the business then that's what I want to do.

Okay. Great. Thanks. And my final question is that in the past Rob you talked about organic growth long-term like for years I would say low to mid teens, is that continues to be what you're thinking?

That is the goal. Yeah, I mean, the toughest -- I think the toughest thing we're up against is our current quarter as we talked about, putting up a $20 million quarter in Q2 last year. It's pretty tough to put up organic growth year-over-year against that, but I think on an annual basis smoothed that out a little bit, that is absolutely where we're focused from a goal perspective across our business.

Fantastic. Great quarter guys.

Thank you. Appreciate the questions.

Thank you.

We'll take our next question from Harris Levitan, private investor.

So, great quarter. So, I have a question that, I know you've said your advantage -- actually, I have a few questions, but in the -- is that your -- these cell sites they're all -- they're like snowflakes, basically they're all different and a lot of times you need stuff on short notice and your ability to customize to that is a big advantage to you in your time of delivery. In the micro cell area, I was wondering if you could give us some kind of color in terms of how -- I know it's really tough to generalize, but how the revenue -- you know, what is it that you're -- somebody doing a 5G micro cell, what are they buying from you, cable, connectors you know, is there like an average revenue per cell side or is there any way you can characterize that?

Yeah. So, thanks for the question. So, we're -- I would say to get a general kind of what are they buying from us, that's our core offer whether that's fiber or coaxial, it’s cable assemblies jumpers, whips where one end has a connector and the other end is not connectorized to be -- they're going to plug that into something else. I think we're in an early enough phase of seeing some consistency here that I'm not sure I know a good answer on what's our average, what's the average spend on one of those. It's been a little bit all over the map. I'm encouraged by the number of conversations we're having with the right kinds of integrated small cell providers whether that's the folks building them on the poles or the radios or the enclosures or all of the above. I think we're starting to see that there's a need for a connectorize solution which is where we come in. It's -- sending out raw materials is tough for someone out in the field. We want to do everything we can to make that as easy as possible through connectorize. So, I think that maybe answers the kinds of things there that we're selling into that mix, but I would give you a bad answer if I tried to get the dollar amount per right. So I'm going to punt on that one if its okay, Harris.

Okay. No, that's fine. I mean, I didn't think you'd be able to really address that, but I guess, you know what I've read that there's literally going to be tens of thousands of these micro cell sites over the next five, seven years. And so I just want -- I'd like to try to understand what the market opportunity is from your side. But I understand that it's pretty early, so that's fine.

Yeah, so it's early but maybe you hit one more colour point in there. So I think while it is early, we believe our opportunity is to put a piece coax or fiber or both into every single one of these integrated small cells. And if there's a chance to do some of that integration work as well, because we have those capabilities, we absolutely want to be there. So the goal at a very high level is to touch every single one of those small cells and put materials inside it, whether that's connector or otherwise. So, I believe there is a huge opportunity ahead of us in the next three to five to seven years depending on the speed and cadence that these get deployed. I want to be right in the middle of that and I think we're -- our sales team is doing a nice job of talking to the right people, I think we're showing that we have value in that space. We need some opportunities to build some first article to do some integration, put some materials out there. But I think to this point I feel really, really comfortable with the way we're lining up with that market opportunity.

Okay. And it seems like to the extent, because I've read about, obviously, you talked about your own business, labor shortages, it seems like the extent that you can provide a more integrated thing that require solution that requires a lot less labor in the field that would be certainly something that these cell providers would be interested in.

Absolutely. Yeah that’s the place we think, we can add value, yeah.

Okay. Another question I had was on China. Obviously we've -- looking through your 10-K, you're sourcing a lot of your material in the U.S. but you are sourcing some stuff from China. You talk about any impact either from a competitive standpoint, from a margin standpoint, from a sourcing, what the terrorists have had or have it -- has it really affected the competitive environment, or have you not even really noticed in terms of the disruption?

Yeah, a fair question. I think what we hadn't really noticed much. I mean, obviously, the tariffs are something that had been out there for some time. It's some noise, it created a lot of drama I think for all of us in the space who are doing work with China or having things sourced outside the United States overall. In the last quarter, we are seeing a little bit of impact of those tariffs and having to find ways to consume that whether that's in some cases, we're just getting smarter about our supply chain, in other cases we've added diverse suppliers that are not being hit with that tariff. So we're trying to be as proactive as we can. I'll be a little bit of a moving target, and for a company of our size the scale makes it a little bit more challenging. So I think the team has done a nice job of managing through those conversations, but as I mentioned in my comments, we're feeling a little bit of margin pressure related to one you just talked about around the labor shortage and wage pressure. The other is tariffs and related drama does seem to cause some hiccups in the supply chain, not always as much us direct with things that that we're manufacturing or sourcing, but sometimes it's just our U.S. based suppliers slow down a little bit. And I think it's -- they're having a hard time getting their hands on the volume that's needed. So we feel it. I think we've managed it reasonably well. I'd love to have some clear answers and some resolution as I think everybody would on what exactly is happening next. But I would not call it a major part of what we're experiencing today, though there is a more clear impact in the last quarter than there has been in prior.

Okay. Like how much if you had to guess, I mean how much of your, is it maybe 10%, 20% of your product is sourced from China, or is it I mean just as a -- it's not exact just kind of as a sort of an estimate?

Yeah, I'm not exactly sure is the short answer. The slightly longer answer is, it's not the lion's share of what we're selling out there, although obviously we're buying from U.S. based suppliers as well, who could certainly be sourcing it overseas. So I don't always know. But I think when we look at the supply chain, the direct impact of things coming in to us from overseas, its not the lion's share of what leads to our revenue in a quarter like we just had.

Okay. Okay, great. And then the final question is on the balance sheet, in terms of, obviously, I guess we'll wait and see in terms of the cash impact of the acquisition, but in terms of -- are there pretty much just seasonal factors, why you guys used $2.3 million in cash? I mean, should we expect you ex-acquisitions to generate cash throughout the rest of the year. Is that reasonable assumption?

Yeah, you should expect us to generate cash. The larger amount of cash spent in the quarter was -- what was really seasonal. And two things, one, related compensation related things that happened in the first quarter. Yeah, that were related to performance in 2018. The other was taking our inventory levels up in some places. The last piece is we have some professional service fees that happened to hit us more heavily in the first quarter than otherwise. So it's -- you should not expect that to be a normal quarterly span. You should expect us to be cash flow positive generating cash and kind of back to our standard SG&A percentages which had been from an operations perspective generally declining as a percentage of revenue.

Perfect, thanks for answering all the questions Robert. A – Rob Dawson: You are welcome. Thank you for asking. Appreciate it.

We'll take our next question from Harry Venezia with HealthCare Capital Advisors. Q – Harry Venezia: Hello. I'd like to thank you Robert and Mark for continuing the great growth you have done. I've got a couple questions that are more housekeeping and then a couple that are looking forward. From a housekeeping standpoint, I was on the call a little late, I wanted to compare the backlog what we have now or what you had the end of October. Do you recall what that was? A – Rob Dawson: Yes, at the end of Q4, it was it was just under $11 million and the end of Q1 I think it was $10.6 million or $10.65 million, so it's down maybe 20000, but roughly in the same place. Q – Harry Venezia: Perfect. The one thing I couldn't reconcile, the topline growth of 34%. When I looked at your press release last year, it didn't have $8 million in net sales, it had $10.3. What am I looking at incorrectly there? A – Rob Dawson: Yeah, no problem Harry. So it’s -- we had -- last year we had an additional division that we divested in the last couple of quarters that did about 2 million per quarter in revenue. So not 2 million of what we delivered last year and one of my comments was you know with three divisions this year we delivered larger revenue and bottom line dollars than what we did with four division of last year. So we did divest a division, a company in at the end of our end of our fourth quarter this past year. So that's the difference, the $2 million difference. Q – Harry Venezia: Thank you for clarifying. I should have caught that. A – Rob Dawson: No…

And that concludes our question and answer session. I'd like to turn the conference back over to management for closing remarks.

Thank you Kishion. I can honestly say I think that is more questions in one call than we've had in every prior call combined. So appreciate the questions. I also want to thank everyone for your interest in the company and supporting us. As Mark mentioned, we're going to be at a couple of upcoming investor conferences in the next week and hope to talk to some of you there. We also look forward to reporting our second quarter fiscal 2019 results in June. Thanks again for joining our call. Have a great day.

That concludes today's conference. Thank you for your participation.