Q3 2020 Clearfield Inc Earnings Call
Later this afternoon, joining us for today's presentation that accompanies president <unk> CEO Jerry Bering.
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Their commentary, we will open the call for questions.
I would now like to remind everyone that this call will be recorded and made available for replay.
A lengthening investor relations section of the company's website.
Oh, it's also being webcast and accompanied by your Powerpoint presentation called Self report, which is also available in the Investor Relations section of the company's website.
Please note that during the course of this call management will make forward looking statements regarding future events in the future financial performance of the company. These forward looking statements are subject to risks and uncertainties that could cause actual results.
Materially from that wasn't as forward looking statements.
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The company cautious you'd consider risk factors that could cause actual results could differ materially from those on a forward looking statements contained in today's press release. Your report and then this conference call.
Soccer section a clear for <unk>. Most recent form 10-K filing the Securities Exchange Commission.
Subscription that I was impressed as a reminder, thislife analyst presentation for not controlled by the speaker rather by you.
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Or through the presentation has the speakers percepta rig.
With that I would like to turn the call over the near field CEO shared apparent <unk>. Please proceed.
Good afternoon. Thank you everyone for joining us today, I hope, everyone is safe and healthy greenies truly unprecedented times.
The third quarter fiscal 2020 was a strong quarterly performance for cross sell if we achieved the highest level of revenue for any quarter and our company's history.
The $26 million, we reported for Q3 was up 27% sequentially and 19% year over year.
This robust growth was driven most significantly the contributions from our analysts so and community broadband markets, which were up 48% and 22% year over year, respectively.
At the top line performance in the quarter helped produced record gross profit, which totaled $10.8 million.
As a percentage of revenue to 41.5% Mark the highest gross profit margin, we've achieved as a company in more than two years old.
Both of these achievements, we do you trust favorable product mix in the quarter as well as the continued realization of the operational efficiency initiatives, we've implemented since the start fiscal 2020.
This concludes the expanded use of our Mexico manufacturing plants.
Action of tariff costs.
Cost reduction efforts across all product lines.
All of these measures have helped increase our efficiency and enabled us to keep our operating expenses relatively stable, while driving our top line is backs that $3 million net income we generated in the quarter with the highest quarterly level in several years.
We ended the quarter with a robust order backlog of $8.5 million, which was down slightly from the prior quarter end up 68% from the same period last year.
Also encouraged to report that we continue to book at industry, leading lead times square standard products.
Before I turn the call over to our CFO, Dan Hurts us I'd like to walk through our financial performance in more detail spending a moment reviewing some of our recent operational updates and progress in our core end markets.
I'm encouraged to report it clear feel did not experience any particular customer ordering delays or negative changes in ordering patterns during fiscal Q3 due to covert 19.
Within that context, let's look at our market segments by revenue starting first with our core community bad debt market.
In the third quarter, we generated revenue of $16.7 million, which was up 22% from the same period last year.
Trailing 12 month basis, ending June Thirtyth, 2020 community broadband market revenue totaled $55.2 million, which was up 3% comparable period last year.
[laughter], our national carrier business was our second largest market comprising 15% of our total revenue in fiscal Q3, and 17% for the trailing 12 month period.
My growth standpoint, we've built on the momentum we established over the last several quarters, realizing a 19% year over year increase in revenue to $3.9 million in the third quarter.
37% year over year increased to $14.9 million for the trailing 12 month period.
Yes, I addressed within prior field reports the growth we're seeing in the national carrier market is related to the continued demand from fiber to the home in fiber to the business applications.
We believe the momentum if our national carrier market to date.
Today's the strategic investments, we've made to capitalize on a tier one luck.
In addition to positive results, we experienced international carrier market, we realize another quarter of double digit growth in our M.S.. So our cable TV market.
Fiscal Q3, we generated 3.7 million a revenue, which was up 48% year over year for the trailing 12 month period, we generated $11.1 million from this market, which was up 38% year over year [laughter] revenue in our international market was down 47.
With that year over year, and Dallas, 35% on a trailing 12 month, Gary how basis.
The decline in this quarter was primarily related to currency conversion rate, which have yet to recharge their creek cold mid level.
She has made our products temporarily cost prohibitive, causing customers to delay purchasing decisions.
Revenue in our legacy build to print business was down slightly in the third quarter and down 5% over the trailing 12 month period.
On a trailing 12 month basis total revenue was $4.2 million, which is consistent with our expectations for this business to operate at approximately 4 million annual run rate for the foreseeable future.
[laughter] with that I'll now turn the presentation over to Dan who will walk us through our financial performance for the third quarter fiscal 2020.
Thank you Sherry and good afternoon, everyone.
Now looking at our third quarter financial results in more detail.
Revenue in the third quarter fiscal 2020 increased 19% to $26 million from $21.9 billion in the same year ago period.
Increasing revenue was primarily due to higher sales in our community broadband Amazon and national carrier markets, partially offset by lower international sales as you're just mentioned.
Gross profit for the third quarter fiscal 2020 totaled $10.8 million or 41.5% of total revenue.
This was an improvement from $8.4 million worth 38.4% of total revenue in the third quarter last year.
The increase in gross profit dollars was due to increased sales volumes.
The increase in gross margin was due to a more favorable product mix as well as cost reduction efforts across our product lines, including expanded use of our Mexico manufacturing plant and efficiencies realized from our supply chain programs.
Our operating expenses for the third quarter fiscal 2020 were $7.2 million, which were up from $6.9 million and the same here go quarter.
As a percentage of total revenue operating expenses in Q3 were 27.8% compared to 31.4% in the same year ago period.
The increase in operating expenses was primarily due to the higher compensation costs and costs associated with product testing required for tier one certification.
Offset by lower travel entertainment and marketing costs due to cobot 19 restrictions.
In terms of our profitability measures income from operations was $3.6 million in the third quarter fiscal 2020, which compares to $1.5 million in the same your goal corridor.
Income tax expense increased to $763000 in the third quarter fiscal 2020.
Up from $454000 and the third quarter of 2090.
In the third quarter fiscal 2020, net income totaled $3 million were 22 cents per diluted share improvement from $1.3 million or 10 cents per diluted share. The same your go quarter.
During the third quarter or cash cash equivalents and investments remained consistent at $48.4 million compared to the prior quarter end.
We believe the $48.4 million up cash on hand, and short term investments along with cash flow from operations is sufficient to meet our working capital and investment requirements for beyond the next 12 months.
As I mentioned on our last few report our board of directors suspended the company's share repurchase plan in April to further ensure our financial stability through the current cold with 19 operating environment.
Our board and leadership team will continue to evaluate our capital allocation strategy for our shareholders.
No.
It's my prepared remarks, I will now turn the call back over to Sherri Sherry.
Thanks, Dan [laughter] before I provide an update on our coming of age class I'd like to spend a few moments providing an update on how we continue to navigate the coal that 19 pandemic an operational measures we've taken over the last couple of months.
In March there fills operations were classified as critical scepter work due to the vital role our solutions clay and supporting the communications infrastructure.
Since that time, we have continued to be fully operational despite the unprecedented global business closures and the slowdown caused by the health crisis.
We continue with production operations in both our U.S. and Mexican manufacturing facilities.
Fixed analyst multiple contingency plans in the event of our ability to operate is diminished or eliminated that either location.
Encouraged report that our production operations are working at normal capacity, while adhering to state and federal government social discussing guidelines.
Our nonproduction employees are all working remotely and we are actively promoting and demonstrating our product solutions effectively to video conferencing and other methods.
Hi, I'm still very proud of how our team has seamlessly adapted to todays dynamic working environment.
We dual source the majority of our components and as of today. The majority of our supply chain partners remain operational and has continued to provide the necessary components for athletics.
I am encouraged to report that we experienced limited impact in our supply chain in fiscal Q3 related to cope with 19, thanks to our forward planning such as strategically increasing our safety stock inventory levels at both are many outlets and Mexico facility.
It's worth pointing out that rather than optimizing the plant for a particular product line. We made the decision to maximize the availability of all product lines by assuring that each location can manufacture across our broad product portfolio.
This allowed us to meet customer orders in Q3, and enable us to continue to fulfill orders going forward as well.
Turning to are coming of age class.
Which is our three year strategic plan designed to strengthen our core business and position our company for a disruptive growth opportunities.
Our financial and operational performance in fiscal Q3, and the first nine months Osisko 2020 have demonstrated [laughter] were beginning to realize the results from this plan.
I'll spend a moment, providing a brief update how our three major initiatives within that plan are working.
In terms of our first initiative expanding a core community broadband business.
During the third quarter, we saw customers push forward with their purchase decisions and deployments in response to covert 19.
As I've talked about before the Cotwo pandemic has absolutely highlighted the need for high speed broadband front and center.
This is created a swelling of demand so to speak but we believe will continue in our fiscal Q4 and into fiscal 2021.
Another driver for community broadband market is the anticipated government funding on the horizon.
In particular, the U.S. World Digital <unk> opportunity fund our Das is design to bridge the digital divide two especially it makes fun the deployment of broadband networks ever owner.
It's really two phase process. The FCC hold your wrapped up to $20.4 billion over 10 years to finance the up to gigabit speed broadband networks Unserved rural areas connecting millions of American homes and businesses to digital opportunity.
Our dog Phase one option is currently scheduled to begin on October 20, socket 2020, and we'll target over 6 million homes and businesses and census blocks that are entirely unserved by voice Im glad that.
Phase two will cover locations and sensors blocks that are partially served as well as locations not funded in phase one.
Earlier this month they were to propose bills in the U.S. Congress, which would drop the FCC two more quickly had out these monies probably our dot program, but can definitely application process setting earlier buildout requirements and automatically awarding fines to applicants that are in the sole bidder in an area that.
Commits to offerings symmetrical gigabit service.
These measures would likely result in a notable quick question assign it's going to real cooperatives.
Local governments and other community based broadband providers to quickly build high quality fiber networks [noise].
We're continuing to watch these bills. So we are poised for success in working with service providers, who will benefit from the expanded funding programs.
A longstanding competitive differentiator proposed field, it's been her innovative products, our ability to listen to customer once in a market demands informs our credit growth that so that we're introducing products that fill a need in the market along that line during fiscal Q3, we introduced.
The new products, the real I would distribution hub and the fiber flex 2000.
The area at the age which is part of our street smart portfolio, specifically designed for environments, where permitting and right of way because then a problem.
Clear field aerial ft. H can you placed directly on the strain on the same space, it's other areas and cultures.
And even the bulk of the engineering permitting construction material time in class associated with ground or pole mounted F. D H options.
After the H has seen strong interest from new alternative carriers looking to overcome right away challenges.
The other any product cycle. Besides just the industry's first active cabinet decides to fiber. The products is currently shipping that's been extremely well received by the market.
Five reflects is part of the future both edge computing as well as the need to know electronics deeper into the access network.
Our success, our operational effectiveness initiatives over the last several quarters, it's perhaps most evident in our expanding close probably.
One of the chief underlying drivers for this is related to the investments we've made to our operations in Mexico, which are starting to yield dividends, both improved efficiencies and cost effectiveness.
As many of you know we signed at least for a second manufacturing facility in Mexico in fiscal Q2, which doubled our square footage there and allowed us to establish lean manufacturing initiatives.
Well quoted 19 cause temporary delays and our ability to begin shipping product and the new facility in fiscal Q2.
Second facility is now fully operational and we commenced shipping during the third quarter.
The third initiative of our plan involves capitalizing on disruptive growth opportunities within the wireline markets of national carriers, and all wireless markets.
As reported earlier in this field required national carrier business with up 19% for the quarter.
However, while national carriers have declared a commitment the capital equipment expenditures. Despite the cold to pandemic coal that hasn't picked would eat deployment plans for fiveg, both in the near and midterm.
As it relates to the near term certain carriers identified the in locations where for GE was available they deem to fiveg as not essential service.
Fortunately, we saw that applies in new deployments by the carriers because of these restrictions.
Within the general wireless carrier space, we saw growth in the deployment of optical component revenue.
Typically as it related to optimizing existing fiber assets to meet exploding bandwidth requirements.
In environments, where our technologies are used to lower the cost of access that what diplomats revenues was slower than anticipated as cobot restrictions reduced the number of installation crews deployed in the hard hit North east early in the quarter.
The coldest hotspot moved to other locations Kobe temporarily delayed to plan to field trials with another tier one customer.
We are currently planning for one of the trials to commence in fiscal Q4 and the other fiscal 2021.
The third quarter with a strong two of its of course, though.
Our financial performance and operational effectiveness demonstrates the resilience of our business customer base and industry as a whole.
Our success in Q3 has given us significant momentum in Q4, and a positive outlook for fiscal 2021.
No time in our history has the need for high speed broadband connectivity been more parent than during this cold and crisis.
Working remotely often for home has blurred or even destroyed the business versus consumer distinction within all networks now carrying business critical and entertainment data all at the same time.
Service providers, who do not know where demand will come from next that's faced with meeting to put capacity everywhere. The business case for optical fiber markets for Fiveg and access network deployment couldn't be more evidence or brighter.
And with that we're ready to open the call for your questions operator.
Thank you we will now be taking questions from the company's publishing sell side analysts you would like to ask the question. Please press star one on your telephone keypad.
Confirmations all indicate your line is quite showed here.
My first start you would like to remove your question for next year or participants you know speaker equipment and may be necessary to pick up your handset before pressing the star keys. One moment. Please what we poll for your questions.
First question will come from the line of Jason Schmidt of Lake Street Capital. Please proceed with your question.
Hey, guys. Thanks for taking my questions just wanted to start if you think just given.
You saw in the June quarter do you think you got hold.
Second half of this calendar year.
No I don't think so I mean, I think we saw in kidney broadband has typically been strong in the third and fourth quarter and so yeah. We we went into the quarter a little bit. It really had me I think we may have had a little bit at a backlog in March 31st might have been pulled in a little bit the last couple of weeks.
The quarter as people kind of get ready and wanted to make sure. They were in the front I'm, but not significant you know that and that was in March you are the quarter here its strong kind of across the markets. Yeah. There's no significant you know one large customer and community broadband or in cable TV, it's really kind of abroad space.
Thanks.
So I'm really pleased with where it's at.
Okay. That's helpful and just curious if you soon if you could comment on the linear.
In the June quarter did it.
It's a fairly linear throughout the quarter.
Very very consistent the m. So lean were you know I actually I have a graph that I call I, everybody I think some funny, but it's the graph that what is their average daily bookings courier per month since the day, we stared of course.
So we track that very carefully and consistently and and we did have a very regular booking period throughout the quarter.
Okay.
And the last one for me I'll jump back into queue, obviously very strong gross margin.
June quarter, you laid out a number of drivers behind that how should we think about gross margin going forward is this.
Going to be sorry, the new normal levels.
[noise] I wouldn't get too comfortable we like it a lot we worked very hard to get here.
And we think there's not there's room for improvement and that it's yeah. We believe in a world class operations and I've got an amazing team you know to pull that together, but everything did click really nicely together here. So this might be a little high to model you know indefinitely moving forward the but I think we are.
Kind of showing a little bit higher than where we have what we originally forecasted for the year because things you know did work nicely.
Yeah, we made some strong investments by which to do that I'm, putting inventory in both locations ensuring that we didnt have you know issues associated with expedite and all we made a lot of the right decisions and if you think back the last hundred days them out as a guest work that we were doing yeah, we were right more times than.
And I think we've got some really good data that we used to do that but as we move forward. There's still an awful lot of change it changed out there that we don't quite know how to anticipate I'm. So were being cautiously optimistic and working hard to stay here and improve but I wouldn't model at these levels quite yet.
Okay. Thanks, a lot.
Thank you our next question or something along the same savageaux of Northland Capital markets. Please proceed with your question.
And like you'd be able to check if your phone on mute seats, yeah, I don't want to sorry, sorry about that work [noise].
And I and congratulations.
Folks and it's because the order thanks.
And and I wanted to talk a little bit more about that I know you've seen.
Your peers as wellcare looks or wherever we could.
You have some pretty strong growth <unk>, you're kind of two or three community broadband markets, you know around or over 20% and and that's.
I think you mentioned that you're seeing that enhanced by no increase capacity needs from I think what's more of a baseline.
But you know double digit or so I guess my question is twofold, which is.
Yeah, we've been saying you expect your momentum to continue in Q4, which is usually a pretty strong seasonal period for you as well notwithstanding any kind of network access impacts.
I would you expect that type of growth rate to maintain into Q4 would you expect to be able to <unk> to grow sequentially in Q4 <unk>. So your your backlog came down a bit but state a pretty high level.
And then as you look into 21 per your comments on your feeling positive about growth.
Would you expect.
Your market growth could return back to that double digit level or could you know our dog for you or any other stimulus that's.
You know that might materialize keep it closer to where we honor.
Mhm [noise].
Our third and fourth quarter is tend to <unk>.
Near each other pretty well and so it's less about about growth in kind of the run rate as the market and so you know last year I fourth quarter was higher than our third I'm still growth rate over that might be a little tough to maintain no at that are those the 22% that we were showing here. So I think fourth.
Quarter, you know is you know on par.
Well I went down a little bit, but I think your fourth quarter, assuming no covert doesn't hit one of our manufacturing plants demand should be consistent and we expect continued to be able to fulfill it.
Yeah, you know as we move in to 21, I don't think people can wait a winning in the past we were in a situation in which the you know potential government funding programs actually well. They helped after they were implemented you know they slowed things down and while we were waiting for them and I.
I think right now the market is such that consumers are demanding their bandwidth you know the difference between business service and consumer service has been blinded you know and kind of eroded because we're all working from home and in order to protect and prevent churn in their consumer bases. The UBS service providers, who are doing whatever.
Are they can't you either a increased bandwidth today or to promise bandwidth tomorrow by the investments that you're making it infrastructure I'm. So we're very bullish about 21 and think that there's some really good opportunities that if we continue to execute that we should be able to bring it.
[noise], great interest or just sorry, just a follow up and you mentioned well it sounds like you're saying.
Whereas historically you might have seen into.
I knew it slowed things down in this environment it might be speeding it up to some degree which is interesting and you'd mentioned those two factors I guess, maybe increase traffic overall or work from home and.
Perhaps anticipation of art off or something along those lines.
As you're thinking about your community broadband market you know I wonder if you might be able to wait those two factors in terms reports.
Your more most important in terms of driving that growth or no.
Kind of order of magnitude would it be you know.
Search traffic and one third stimulus or I know, it's kinda granular, but oh, sorry, yeah. As you look right Mark and I just wondered what are the more important factors.
Oh demand and supply and demand without question.
Dan did you might come out.
No I totally agree it's it's it's right there, it's what's happening right now versus the [noise].
Versus the program, that's rolling out yet.
Right.
And I I know you commented on cable I think I might've missed it go you know in terms of.
There is that [laughter].
I guess can you can you talk a little bit more about the drivers of your your [laughter] strength in reality total segment in the quarter news is that subscriber growth driven or is that more or.
You know when the business its definitely fiber investment and yet I mean, we're striving Oh, we have emerging opportunities at the national carriers, but just like were strong at the regional carriers with in community broadband were strongest at the regional carriers within the cable TV market.
And so you know you in a regional carriers level the investment by the tier three provider provides an incentives for you know the regional cable TV providers you get in each invested fiber and so our success in tier three <unk> community broadband it's been instrumental in some of the successes that we have.
To date, you know in an NFL markets and so I mean, it's off a small base, but you know it's it's grown now I think this the third quarter in a row and I'm not the double check my numbers here, but I think it's the third quarter in Oh, Oh with more than double digit growth.
We also have some emerging opportunities at the national carrier level, we don't talk a lot about but it's about national standards things that the national carriers are looking at in order to where they want to go, especially now and this cobot space. That's the kind of investment that they need to do you know next year and beyond.
Partially about subscribers and also about you know leveraging some of their networks are back all of the wireless carriers. So it's it's truly that's fiber to anywhere type protocol that we've been preaching for the last five years.
Great. Thanks, very much and congrats again you.
Yeah very welcome.
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[noise] [noise] at this time. This includes compressed <unk> recession. Your question. It was not taking you make talk that clear fields Investor Relations team. That's you know ft at Gateway IR Dot com.
Now I'd like to turn the call back over to respect for closing remarks.
Thank you again, you know for joining US today, you know if any Xu who are not part of the analyst community have an individual question. Please feel free to send that to the IR address all will be sure a to address those questions get back to you on an individual basis, we look forward to updating you again on ARPU.
Hi, Chris soon stay safe and stay healthy.
Thank you for joining us today for clear girls fiscal third quarter 2020 earnings call you may now disconnect.