Q4 2019 Earnings Call
Good afternoon, welcome to clear feel fiscal fourth quarter and full year 29, <unk> earnings conference call.
My name is Steve and I'll be your operator at this afternoon.
Joining us for today's presentation or the company's president and CEO , Jerry Burnett CFO during <unk>.
The commentary, we will open the call for questions.
I would not have to remind everyone that this call will be recorded and made available for replay yeah like in the Investor Relations section of the company's website. This call is also being webcast and accompanying Powerpoint presentation called the feel report.
Which is also available in the Investor Relations section of the company's website.
Please note.
During the quarter during the course of this call management will make forward looking statements regarding future earnings and the future financial performance for the company.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements.
It's important to note also that the company undertakes no obligation to update such statements.
As required by law.
The company cautions you that that's it a risk factors that could cause actual results to differ materially from those in the forward looking statements contained in todays press release feel report and then this conference call.
The risk factor section and clear for his most recent Form 10-K filing with the Securities and Exchange Commission provides descriptions of those risks.
As a reminder, the slides in this presentation I'm not controlled by the speaker, but rather but you the list.
These advanced Ford through the presentation at the speakers present their remarks.
I would I'd just kinda call what do you see O'shea Bornak. Please proceed.
Good afternoon, and thank you everyone for joining us today.
The fourth quarter was a strong period for third field as we achieved the highest level of quarterly revenue in our company's history at $24 million, which was up 7%. So Q4 of last year.
Similar to our Q3 results much of this growth came from our national carrier market, where we saw a particularly strong demand in faster growing applications, such as wireless connectivity business class surfaces, and multi dwelling units or M.D. you deployments.
Backed we saw revenues so tier one customers, which includes both telcos as well as smaller wireless carriers increased each quarter in fiscal 2019.
This momentum that only validates the strategic investments we've made over the last two years to capitalize on a tier one market opportunity, but it also demonstrates the increasing traction were cheating in this important and growing market.
Our performance in the fourth quarter helped us achieve our financial guidance for the full fiscal year.
Looking at some of the headline numbers for the here, we generated revenue record revenue at $85 million, which was up 10% from 28 team driven by broad based growth across our key markets, especially tier one.
We also held our expenses in line with our plan as well that's maintained solid gross profit and net income margins of 38.4% and 5.4% respectively.
As usual before I dive deeper into our results in progress against are coming of age plan I'd like to spend a moment going over some of our recent operational and market progress.
Looking at the breakout of revenue we are exceptionally pleased that revenue is up in all of our five key markets.
Starting first with our core community broadband market Q4 revenue was consistent year over year at $14.8 million and up 4% for the year, It's 53.5 million.
As expected the softness we experienced with this customer market in Q3 carried over into Q4 due to the transition in the federal funding programs and the connect America fund or cap, which is ending in 2018 to 20.4 billion dollar World digital opportunities fund.
Begins a 10 year program starting in calendar 2020.
Is expected at the annual spend under the real digital opportunity fund will be approximately $2 billion given our track record of success in the community broadband market. We feel is well positioned with an enhanced integrated products suite to gain market share in the years ahead.
Our national carrier business is our second largest market comprising 70% of our total revenue in Q4 and 14% of our total revenue for fiscal 2019.
In Q4, our national carrier business achieved yet another record quarter with revenue of $4 million for the year, we generated a record 11.9 million up 31% or 2.8 million from the prior fiscal year.
These record results were primarily driven by the continued adoption of our field she'll products at two carriers.
Overall, our performance demonstrates our solutions continued copas to see in the field along with a growing trust. These larger carriers are developing with personnel to support at the scale their networks.
Looking briefly at our other markets, our industrial business was up 13% in Q4 to 2.4 million it up 6% for the year to 8.4 million.
Well, we're encouraged with the growth we achieved we believe some of the temporary spending freezes in the cable TV market will be alleviated after the first of the year.
Longer term as cable TV operators look to upgrade their networks and pushing fiber deeper and closer to the edge. There's still stands to benefit from this increasing desire to quickly and cost effectively carry out these initiatives.
Our international market, which as most of you know is predominantly sales into Mexico, the Caribbean markets in Canada with consistent to last year in the fourth quarter and up 21% to $6.5 million for the full fiscal year.
Revenue in our legacy build to print business was up 28% in the fourth quarter and 25% for this fiscal year to $4.7 million. We continue to expect this business to operate at approximately a 4 million dollar annual run rate for the foreseeable future.
With that I'll now turn the presentation over to our CFO , Dan Hurts that who will walk us through our financial performance for the fourth quarter and full year fiscal 2019.
Thank you Sherry.
Now looking at our quarter in full financial results in more detail.
Our revenue in the fourth quarter fiscal 2019 increased 7% to $24 million from $22.5 million in the same year ago period.
The $24 million in revenue marked a quarterly record for our company largely driven by increased sales to our national carrier customers, which was up 36% or approximately $1.1 million compared to fiscal Q4 2018.
Gross profit for the fourth quarter fiscal 2019 totaled $9.3 million or 38.8%. The total revenue compared to $8.6 million were 38.3% of total revenue in the fourth quarter fiscal 2018.
Gross profit percentage for the fourth quarter fiscal 2019 was up slightly both from the prior quarter and year ago quarter due to overhead absorption and some supply chain enhancements that reduced the tariff impact during the quarter.
Our operating expenses for fiscal Q4, 2019 were $7.1 million, which were up from $6.1 million in the same year ago corridor.
The increase in operating expenses was primarily due to an increase of $989000 in compensation costs associated with additional sales and engineering personnel as well as external sales Commission fees.
Income from operations totaled $2.2 million in the fourth quarter fiscal 2019, compared to $2.5 million and the same year ago quarter.
Income tax expense was $511000 compared to $791000 in the fourth quarter of last year.
The resulting net income was $1.8 million or 14 cents per diluted share for the fourth quarter fiscal 2019.
This compares to net income of $1.9 billion or 14 cents per diluted share in the fourth quarter fiscal 2018.
No shifting to our financial results for the fiscal year ended September 30 2090.
Our revenue for fiscal 2019 increased 10% $85 million from $77.7 million in fiscal 2018.
Our top line results came in at the midpoint of our guidance driven by growth across our key markets, especially from our national carrier customers, which was up 31% were approximately $2.8 million compared to the prior year.
Gross profit for fiscal 2019 totaled $32.7 million or 38.4% of total revenue.
On a dollar basis. This was a 6% improvement from the $30.1 million for 39.9% of total revenue we reported in fiscal 2018.
Our gross profit margin for fiscal 2019 exceeded our guidance range of 37% to 38% driven by our continued efforts to enhance their supply chain cost structure, despite more than a million dollars in tariff costs throughout the year.
Our operating expenses for fiscal 2019 were $27.5 million, which was up 6% from $25.9 million in fiscal 2018.
As a percentage of revenue operating expenses for fiscal 2019 were 32.3%, which was near the midpoint of our guidance of 31% to 33%.
The increase in operating expense dollars for fiscal 2019 was due to higher compensation expense as a result of strategic additions in headcount to support our continued growth as well as an increase in external sales commission and fees paid to manufacturing sales reps and agents.
Income from operations totaled $5.2 million in fiscal 2019, an improvement from $5.1 million in fiscal 2018.
Income tax expense was $1.4 million, which was up from $1.3 million in fiscal 2018.
Taken together, the resulting net income for fiscal 2019 was $4.6 million worth 34 cents per diluted share, which was an improvement from $4.3 million or 32 cents reported last year.
And finally, turning now to our balance sheet.
During the fourth quarter, our cash cash equivalents and investments increased $4.3 million to $47.5 million.
From $43.2 million in the prior quarter ended June 30 2019.
As it relates to our capital allocation strategy the board and management will continue to evaluate how we deploy our capital to generate the highest returns for our shareholders, whether that's through share repurchases or continuing to invest in our business to further reduce our cost structure and or expand our market in revenue opportunities.
Now with that I would like to turn the call back over to Sherri Jerry Thanks, Dan.
It's been a year since we introduced the coming of age class, which is designed to strengthen our core business and positions are filled for disruptive growth opportunities.
Although I'll spend a moment going over our progress on the plan during the fourth quarter in fiscal year.
First kinda the plan is expanding our core community broadband business.
We continue to realize market share gains in this business throughout the year, an integral part of our continued success has been our ability to increase touch points with customers and deepen our conversations around how crucial can help them cost effectively deploy and manage their fiber infrastructure.
Consistent with their fields commitments to designing flexible fiber termination and distribution systems, Our New York Multipurpose terminal is a craft friendly outside plant that isn't always t. rated housing that can figures to meet the business falls for any fiber distribution and drop cable network.
Designed unlike any other terminal on the market. The your X.M.P.T. fits into any business model, giving the network design or the flexibility to balance lever and capital expense.
Cost effectively.
Utilities municipalities and Whopper does enter into this market alongside the traditional tier three service providers, who are filled intends to leverage solutions like this to further penetrate the community broadband market.
The second tenant ever coming of age plan relates to enhancing our competitive position and operational effectiveness.
In fiscal 2019, we continue to invest in our products suite to meet the evolving needs of our customers, while working to improve our cost structure and healthy margin profiles.
In addition to new product launches, we created a dedicated R&D test lab to enhance our industry, leading on time deliveries and short lead times.
The challenge is probably tariffs to remain we're forging ahead with our supply chain strategy to reduce manufacturing costs, including expanding capacity in our Mexico facility.
Longer term, we expect these changes will improve margins reduce the impact of the tariff requirements and create additional operational efficiency.
The third Canada that plan involves capitalizing on our five GE opportunities within the wireline markets and national carriers and all wireless markets. We made tremendous strides within these markets during 2019, and we believe we're just scratching the surface.
According to delight, the U.S. food well require an estimated 130 billion to 150 billion in fiber investments to support Fiveg technologies over the next five to seven years.
As I've talked about on prior calls most of their fields work in Fiveg at this point is addressing the new friday's requirements for the meet me or demarcation points of wireless and wireline network convergence as well as market densification of the small cell networks.
Over the year Clearfield has been responding to the design requirements of the cross functional selection committees at several of these carriers with rapid to market designs.
We believe our ability to listen to the needs of these customers and respond with the innovation to solve those requirements will give us a beachhead for 2020 efforts and a football as five do you spend accelerates in the years ahead.
Altogether fiscal 2019 represented a major step in our coming of age plan as we continue to experience growth in our key markets, while positioning clearfield closer towards the growth opportunities that we believe will serve as the true inflection point in our business.
Our financial performance in the fourth quarter marked a solid finish to a strategic year for clear Phil.
We achieved our financial guidance for fiscal 2018 and entered fiscal 2020 with significant operating momentum growth opportunities on the horizon at a rock solid balance sheet.
Looking ahead, we anticipate solid growth and consistent profitability for ask why 2020, especially in the second half of the year.
The reason for this trajectory is that we're strategically investing in our business to support our continued success in the wireless and wireline market at the national carriers, both in the near and long term.
With that background in mind, we anticipate double digit revenue growth to continue in fiscal year 2020, with revenue ranging between 92 million and 95 million representing growth of 10% at the midpoint.
Embedded in our guidance is that our revenue will build throughout the year similar to what we've seen historically.
Looking at some of our other financial metrics, we anticipate gross margins for fiscal 2020 to range between 30, 738%.
Our gross margin outlook reflects our sales strategy to aggressively priced products in environments, where we believe significant revenue opportunity exists for follow on sales comprising additional cassettes and optical components at a later time.
We expect or operating expenses as a percentage of revenue to be relatively flat compared to fiscal 2019 or between 31 and 33% of total revenue.
As it relates to our bottom line, we expect net income as a percentage of revenue to remain between three and 5% for the year underscoring our commitment to continue growing profitably and responsibly.
Net income percentage will be in a low single digits early in the year raising to mid to high single digits near the yearend.
Well not providing long term revenue guidance at this time, we anticipate said as part of our coming of age initiatives that are increasing operational expenditures will level off in the latter half of fiscal year 20, enabling this acceleration in margin improvement to continue with mid to high single digit earnings.
We continue as are coming of age plan matures in 2021.
So in conclusion fiscal 2019 was a banner year Sinclair filled well, we returned to double digit revenue growth achieved our financial guidance and gained meaningful traction in the tier one market.
As we look ahead to fiscal 2020, we're well positioned for industry, leading solutions, a strong competitive position and a proven business model to capitalize on the disruptive growth opportunities within the fiber optics industry.
And with that we're ready to open the call for your questions operator.
We will now be taking questions from the company's publishing sell side analysts.
During the question King You May Press Star, then 100 telephone keypad, you'll hear a tone and lodging request.
Using a speakerphone. Please pick up you had said before personality Keith.
So what are your question. Please press Star then too we'll pause for a moment as college during the Q.
The first question comes from Jason Smith with Lake Street capital.
Hey, guys. Thanks for taking my question. So I just want to start with the traction you're seeing at your tier one accounts I know, it's always been situation, where just given the size of these accounts. It was always going to take a while to break and and gain steam there, but can you just talk a little bit about why you're seeing so much.
Success currently and why you're feeling so bullish on that market and 2020.
You know what we what we're seeing today regarding momentum as I outlined in the material or was it we've got field show success and two separate carriers.
And field she'll being used in Oh, fibria, the home and fiber to the business and growing within each of those carriers really independently of each other.
Yeah. That's you know it feels he was the unique architecture, yet so you got to patented Theres still design. So it's really recognizing that there's a difference different way of being able to do things I'm. So it's you what it was a technology that needed to be proven out and now that it's true about the momentum that's behind it will help us grow with that product line as well.
The product line that you know that feel children a brings to market you feel shield is the dropped cable associated with that deployment and it connects them to all of our different exposures. So were not only excited about what feels field has done with us today, but the disruptive technology that allows us to build.
For new designs that would be more fiveg based.
Okay. That's helpful. And then looking at the planned investment for this year is that primarily going to headcount or some of that earmarked for additional church tip occasions.
You got to both the so it is a absolutely that its head count and certification specifically targeted for tier one revenue requirements is that rather well out of the certification work that we did previously was the make ready work that you had to do in order to be can sit.
Third.
So it's an example, it was the GR testing for.
L.C.R.S.C. termination capability now the certifications that we're doing our the test like fortino nine that are specific requirements for unique and closures and so once the enclosure certifications are complete and we've got an open runways that to except those orders.
And then the people college the head counts for that are the engineers the product managers there the capacity managers that not the salespeople because that's what we did last year, but it's the product managers capacity planners and supply chain in order for us to deliver that effectively throughout the year. So that's why you're going to see a heavier.
A build up in the first half of the year, they're going to be about that capacity management and then we'll be able to take advantage of it you later in the or.
And I think that's what I want to be sure to point out is that this is a very it was very planned and and thoughtful and program that we started with the initiation of the coming of age and so these are really about the operational effectiveness associated with our tier two coming of age program.
Okay, and then lastly from me and I'll jump back into Q1, a clarification on one of your comments about revenue building throughout fiscal 20.
Still expect to see sorry that seasonality in the March quarter, correct or given what the pipeline. You currently have you actually see sequential growth in March.
Yeah at this point, the I wouldn't be seeing anything other than the seasonal illness, there's nothing more nothing specific enough.
To do not anticipate that so yes, the seasonal necessary first to second quarter would take would continue and then we would see the third and fourth quarter.
Being a higher revenue after that.
Okay perfect. Thanks, a lot guys.
Once again, if you have a question. Please press Star then one.
The next question comes from Tim Savageaux.
With Northland capital markets.
Hi, good afternoon, and congrats on the results for the quarter end the year.
On a few questions about your well first of all your commentary on.
Maybe a stronger growth in tier one.
In the second half of fiscal 20.
Is that.
You know also function of no seasonality or do you have any specific.
Project based visibility on the fiveg decide or otherwise.
It gives you confidence in that you're one acceleration in the second half and I've got a couple of follow ups from there.
So well you know while I don't have a backlog that supports second half initiatives at this point in time. The 'em, we do have the visibility to the projects that are underway and and where our product line fits into it.
No as I talked about and part of the materials. You know we have been across the table from the cross functional action groups a in the national carriers, we are aware of what their needs our way there holes are integrated product requirements.
And are hopeful and excited about the opportunity for a price to be used there.
Okay, and then just in terms of overall assumptions and write offs. His question I guess spoke about your national carrier market and community broadband.
On a relative to the sort of growth crude you saw in fiscal 19.
Maybe starting with community broadband in the 4% range given the.
The new program coming in.
Wouldn't seem to be fair to assume some acceleration there I wonder if that's built into your plan.
And likewise, no having never seen 30% growth.
I'm on the National carrier side, you seem to be.
Kind of right in the process was sort of breaking out there.
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Again relative to that grow creed, what sort of assumptions or or in your guidance with regard to grow come a tier one.
Right, Yeah, I'm, not I mean, I guess in the tier ones first the <unk>, we're not providing specific guidance for each individual market, yeah, but certainly our demonstrated success. It at this point in time would be that accelerate to be able to continue the momentum in tier one is will really.
Kind of where we're looking to pick up that additional you know 10% growth. The m. community by bad has some opportunities to accelerate beyond the 4%, but in both categories, both community broadband and tier one there's so much still uncertainty in regard to their schedules and their spend that you know anything beyond our current.
Our run rate of activity, we just don't have the visibility for yet.
Okay, great sorry about that and I'm on the cost side.
You mentioned a million dollar impact on me a tariff costs in the year I Wonder Yeah with regard to your gross margin planning assumptions do you assume that kind of a steady state or.
Should we see any movement.
The overall trade and tariffs situation is out of control a better for you guys.
Yeah, well, we've we did some really good work over the course is a year and that that million dollars impact or about $1.1 million an impact started to decrease in third quarter and was significantly less than the fourth quarter of this year.
And that was work <unk> as you and I have talked about in the past that we were willing to absorb the costs associated with the terrorists in order to assure quality and on time delivery in one of our our core successes within our marketplaces, we deliver faster than anyone else the marketplace with on time delivery.
I've, 97% to 98% at the time.
So we took a an inventory position to ensure that we had the products to continue working through it for availability as well as took our time to ensure that each of our suppliers can meet the quality that we needed.
So where we've added some additional suppliers outside of the Chinese market. We've also expanded our Mexican operation. So I don't think we're in a world in which we can take tariffs outerwear equation, but I don't think they will have you know that they were more than a million dollars I mean, it back if you take a million dollars of terrorists. It means it's a million dollars.
That income that you added eight up and I don't see that it will be that kind of percentage I mean, the rod dollar number might be similar but the percent of veterinary business will be down.
Yeah got it and if I could actually follow up [noise].
Mm Hmm.
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Go ahead, Jim I'm sorry.
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Tim Your line yeah.
Hi, Tim either.
Oh, yeah, Okay, sorry go ahead.
Yes.
[noise].
This concludes our question and answer session.
Your question was taken.
You may contact clear fields Investor relations team at C.L. ft at Gateway IR Dot Com the company as opposed to Robin questions and answers and the foreign investors section of care fields website.
I'd now like to turn the call back to see El show de bottleneck for closing comments.
Yeah. Thank you very much the we Oh of course that look forward to talking with all of you at a time in the future in regard to different investor conferences that were attending in addition, neo anyone who did not receive I have the opportunity to get their questions answered a we look forward to talking to you a more on a one on.
One basis, you know they certainly welcome to contact us through our <unk> IR firm or it's directly through our website.
And I look forward to talking to you in a few months as we get into fiscal year 20.
Thank you for joining us today, Okay first fiscal fourth quarter.
Unfold here, Tony 19 earnings Conference call you May now disconnect.
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