Q4 2020 Clearfield Inc Earnings Call
Please standby your conference will begin momentarily we thank you for your patience and ask that you. Please remain on the line.
[music].
Good afternoon, welcome to clear field fiscal fourth quarter and full year Twentytwenty earnings conference call.
The conference operator.
Yes, I did a presentation or the company.
Oh, sorry, Burnett and CFO Dan.
Following their comments, 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 via a link on the Investor Relations section of the company's website. This call is also being webcast and accompanied by a Powerpoint presentation called the field reports, which is also available in the Investor Relations section of the company's website <unk>.
Please note that during the course of this call management will be making forward looking statements regarding future events and the future.
For financial performance of the company.
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, except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward looking statements contained in today's press release field reports and this conference call.
The risk factor section and clear feels most recent form 10-K filing with the Securities Exchange Commission and its subsequent filings on form 10-Q provides descriptions of those right.
As a reminder, the slides in this presentation are not controlled by the speaker, but rather by you the listener.
Fast forward to the presentation I, just because sometimes I remark with that I would like to turn the call over to Claire field CEO Jerry Burnham. Please proceed.
Good afternoon, and thank you everyone for joining us today.
I Hope you are all continuing to stay safe and healthy it's a pleasure to speak with you. This afternoon. The sheer clearfield results for the fiscal fourth quarter and full year 2020.
The fourth quarter of fiscal 2020 capped off a record year for ups are filled.
The top line standpoint, this fourth quarter marked the highest quarterly revenue level in our company's history, bringing our total revenue for the fiscal year 2022, a record $93.1 million.
An integral part of our success has been our employees' unwavering commitment to providing best in class products and customer support and none of this could have been accomplished without their dedication to our mission.
Looking more specifically at our fourth quarter for fiscal 2020 results the $27.3 million in revenue, we reported was up 14% year over year. This robust growth was driven by solid contributions from our M.S. So at community broadband markets, which were up 51% and 20.
85% year over year respectfully.
The record top line performance in fiscal year 20, Q4 also helped to drive solid gross profit which totaled $10.8 million.
As a percentage of revenue to 41.2% margin Mark the second highest gross parts profit margin, we've achieved as a company in more than two years, just behind the 41.5% we reported last quarter.
From a profitability standpoint, we generated $3 million in net income.
We ended the year with a robust order backlog totaling a record $10.7 million up 153% year over year, providing clear visibility into growth in the new fiscal year. I'm also encouraged to report that we continue to book at industry Best lead times for Us.
Standard products as well.
Our solid performance in the fourth quarter drove several additional noteworthy record results for the year in.
In addition to the 93.1 million we generated revenue we produced record gross profit of 37.9 million, which totaled 40.7% of total revenue.
We also realized strong bottom line results generating 7.3 million in net income or 53 cents per diluted share.
The market for clear filled products was exceptionally strong in the second half of the year and that strength has carried into our new fiscal year, along that line I would like to spend a moment reviewing some of our recent operational updates and progress in our core end markets then our CFO, Dan Herzog will walk you through our financial performance.
In more detail.
Let's look at our market segments by revenue, starting first with our core community broadband market.
In the fourth quarter, we generated revenue of 18.5 million, which was up 25% from the same period last year.
For the full fiscal year ended September Thirtyth 2020 community broadband market revenue totaled 59 million, which was up 10% from the comparable period last year.
Our missile business comprised 13% of our total revenue in fiscal Q4.
From a growth standpoint, we built on the momentum we stablex over the last several quarters, realizing a 51% year over year increase in revenue to 3.6 million in Q4, and a 48% year over year increase to 12.4 million for the fiscal 2020.
Revenue in our National carrier market was up 18% year over year to 14.1 million for the full fiscal year.
As I've talked about on past field reports the growth we're seeing in the national carrier market is related to the continued demand for fiber to the home and fiber to the business applications due.
Due to ordering cycles revenue for the fourth quarter was down 19% year over year to 3.2 million.
Revenue in our international market was down 16% year over year in the fourth quarter and down 37% year over year for the full fiscal year.
Revenue in our legacy build to print business was down 41% year over year in Q4 and down 24% year over year for the full fiscal year 2020 revenue remains near the 4 million dollar level, which is consistent with our expectations for the year.
With that I'll now turn the presentation over to Dan who will walk us through our financial performance for the fourth quarter and full fiscal year 2020.
Thank you Sheri and good afternoon, everyone.
Looking at our fourth quarter financial results in more detail.
Our revenue in the fourth quarter fiscal 2020 increased 14% to $27.3 million from $24 million in the same year ago period.
The increase in revenue was primarily due to higher sales in our community broadband nm muscle markets, partially offset by lower national carrier in international sales this year each as much.
Gross profit for the fourth quarter fiscal 2020 totaled $11.2 million or 41.2% of total revenue.
This was an improvement from $9.3 million or 38.8% of total revenue in the fourth quarter last year.
Recent gross profit dollars was due to increased sales volume.
The increase in gross margin was due to more favorable product mix and cost reduction efforts across our product lines as well as expanded use of our Mexico manufacturing plants, which included adding a second facility in the second quarter of fiscal 2020.
Also efficiencies realized from a supply chain programs and lower tier of costs.
Our operating expenses for the fourth quarter fiscal 2020 were $7.6 million, which were up from $7.1 million in the same year ago quarter.
As a percentage of total revenue operating expenses in fiscal year, 20, Q4 were 27.7% compared to 29.7% in the same year ago period.
The increase in operating expense dollars was primarily due to higher costs related to performance compensation of schools.
In terms of our profitability measures income from operations was $3.7 million in the fourth quarter of fiscal 2020, which compares to $2.2 million in the same year ago quarter.
Income tax expense increased to $786000 in the fourth quarter fiscal 2020 up from 511000 in the fourth quarter of 2019.
Net income totaled $3 million or 22 cents per diluted share an improvement from $1.9 million or 14 cents per diluted share in the same year ago quarter.
Turning now to our annual results.
Revenue for fiscal 2020 increased 9% to $93.1 million from $85 million in fiscal 2019.
As Sheri mentioned the increase in revenue was driven by growth across our key markets, especially from our community broadband customers, which was up 25% or approximately $3.7 million compared to the prior year.
Gross profit for fiscal 2020 totaled $37.9 million or 40.7% of total revenue.
On a dollar basis. This was a 16% improvement from the $32.7 million or 38.4% of total revenue we reported in fiscal 2019.
The increase in gross profit dollars was due to increased sales volume.
The increase in gross profit percent was due to a favorable product mix and cost reduction efforts across the company's product lines, including increased production at its Mexico manufacturing plants and efficiencies realized from supply chain programs and lower tariff costs.
Our operating expenses for fiscal 2020 were $29.5 million, which was up 7% from $27.5 million in fiscal 2019.
As a percentage of revenue operating expenses for fiscal 2020 was 31.7%.
The increase in operating expense dollars was primarily due to additional personnel and higher performance based compensation accruals as well as higher external sales commissions commissions and agents fees offset by lower stock based compensation expense and travel entertainment and marketing costs due to COVID-19 restrictions.
Income from operations totaled $8.4 million in fiscal 2020 and improvement from $5.2 million in fiscal 2019.
Income tax expense was $1.9 million, which was up from $1.4 million in fiscal 2019.
Taken together, the resulting net income for fiscal 2020 was $7.3 million or 53 cents per diluted share, which was an improvement from $4.6 million or 34 cents per diluted share we reported last year.
[noise] can finally now turning to our balance sheet.
At quarter end.
Our balance sheet remains strong with $52.2 million in cash cash equivalents and investments.
As I mentioned on recent field reports our board of directors suspended the company's share repurchase plan in April to further ensure our financial stability through the current COVID-19 operating environment.
Our board and leadership team will continue to evaluate our capital allocation strategy for our shareholders.
I'd like to spend a few moments providing an update on how we continue to effectively navigate the COVID-19 pandemic and the operational measures we've taken since March of this year.
I'm encouraged to report that clear field remains fully operational despite the unprecedented business closures and slowdown caused by the global health crisis.
Our non production employees are working remotely using collaboration tools and video conferencing to stay as connected as possible.
Our production operations in both the U.S. and Mexico are working as normal while adhering to state and federal government social distancing guidelines.
As a precautionary measure we have multiple contingency plans in the event our ability to operate is diminished or eliminated at either location.
We dual source most of our components to cover multiple points of failure and have purposeful redundancies to remove potential risks.
Thankfully as of today, many of our supply chain partners remain operational and have continued to provide the necessary components for our products or.
Our supply chain remains intact. Thanks to our teams forward planning to ensure sufficient safety stock inventory levels at both our Minnesota, Mexico facilities.
A share he has indicated previously we made the decision to maximize the availability of all product lines at all three of our plants by ensuring that each location can manufacture across our broad product portfolio.
This strategic decision has allowed us to meet the growing customer orders and enable us to continue to fulfill our increased order backlog going forward.
That concludes my prepared remarks, I will now turn the call back over to Sherry Sherry.
Thanks, Dan.
No time in our history has the need for high speed broadband connectivity bid more apparent than during the Kobe crisis work.
Working remotely often from home.
Has blurred or even permanently altered the business versus consumer distinction with all networks now caring business critical and entertainment data at the same time.
Calvin has accelerated the need for and deployment of broadband clear.
Clear field is well positioned in all of our markets to take advantage of this opportunity.
As I mentioned earlier, our record results for Q4 and fiscal 2020 were driven by strong performance in our MSL and community broadband market. We saw customers in these areas push forward with their purchasing decisions and deployments in response to cope with 19, which has highlighted the need for high speed broadband.
Front and center for both consumers and businesses alike.
Much of our success since March has been with our existing customers, especially our base of community broadband providers, where we already had great report.
These companies have looked to us to help them address the surging demand and need for high speed Internet access.
As you can see from this slide 12, its effect on broadband demand is accelerating.
In February of this year market research Fourq from India.
Publish its report for wireline broadband access equipment revenue and 2021.
Estimating approximately $8.6 billion will be spent on equipment.
And in July after a death in 2020 Sandia updated its forecast for 2021, noting that the market would strongly rebound with growth of 20%.
Well I hope it has validated the need for broadband the marketplace has responded with accelerated build plans.
Now shifting gears to our coming of age plan, which as most of you know is our three year strategic plan designed to strengthen our core business and position our company for disruptive growth opportunities.
As our overall performance in fiscal year, 20, Q4, and fiscal Twentytwenty indicate we are realizing demonstrated well results from our commitment to an execution of this plan.
And with that I'll now spend a moment, providing a brief update on our three major initiatives within that plan.
In terms of expanding our core community broadband business Q4 represented a continuation of clear fields customers accelerating their purchasing decisions and deployments in response to COVID-19. This trend has carried into fiscal 2021 supported by continued demand for broadband and the government programs helping.
To fund these deployments.
Clearly fills position within the community broadband market has never been better our track record and reputation has positioned us extremely well to take market share and further capitalization on the expansion. That's currently under way.
New projects have been initiated as part of the Korean or virus aid relief and economic Security Act also known as the carriers that yeah.
The other major government funding program is our U.S. Rural digital opportunity fund or our Das which is a 10 year program designed to bridge the digital divide to efficiently fund the deployment of broadband networks in Rural America.
The FCC will direct to $20.4 billion over 10 years to finance up to gigabit speed broadband network in Unserved rural areas connecting millions of American homes and businesses to digital opportunity.
On October Eightth, the wireline competition Bureau, and the office of economics and analytics in coordination with the rural broadband auctions Task Force agnostic released a final eligible census blocks, including certain census blocks, primarily located in price cap carrier territory there.
Based on data from June nine June 2019, and a subsequent challenge process. We're not served by the incumbent price cap carrier warrant and some subsidize competitor with voice and broadband speeds of 25 megabits or higher.
To give you a better sense of the economic opportunity available here, let me explain.
Through the IDE off program approximately 540000 homes will be conducted annually.
Right. If we provide represent an opportunity to clear field of $35 per home passed and with a conservative estimate of 40% of homes passed connecting to the service an additional opportunity of $185 per home connected.
This is over $50 million of an annual opportunity for fulfilled.
Moreover, it is not a question that you asked it rather how and when these homes will be connected.
Regardless of the variable inputs clearfield is well positioned to capitalize on this opportunity.
In addition, a major initiative for 2021 is extending our reach within community broadband into electrical collapse rural utilities and municipalities that are not currently being serviced by rural telephone companies and are still underserved by the major carriers.
As part of this effort I strategy is to partner with X Stablex distributors in these target markets, which we anticipate securing in the coming months.
Turning to our second pillar enhancing our competitive position and operational effectiveness.
Our execution in this area over the last several quarters is perhaps most evident in our increasing gross profit one of the chief underlying drivers for this expansion is related to the investments we've made to our operations in Mexico, which are starting to yield beneficial results, both improved efficiencies and cost effectiveness.
Well, we're able to build any product in all three of our manufacturing plants, Minnesota and the two in Mexico. We're also focused on optimization in.
In addition to process improvements our success here has largely been a function of the efforts of our manufacturing teams. It's been an extremely busy year for them and we are truly grateful for all of their efforts.
Also encouraging we found further opportunities to realize improved productivity from our plans to drive cost down even further.
Currently watching and extensive training and optimization program to reduce our manufacturing costs by improving floor utilization and overall labor capacity.
To be sure we're steered still seriously investing in our current human capital to not only care for their work quality of life, but also to complete their health needs. This means supporting our workforce in all measures of their daily lives to ensure their families have what they need to get through these challenging times due to cope with it.
Like many organizations our people are our greatest asset. So it's incredibly important we continue to invest in our most precious resource.
As the fiber it anywhere company clear sold is accelerating cost effective fiber fed deployments with the industry's most craft friendly fiber management and pathway product.
With the launch of our field smart fiber delivery point indoor 288 port while box clear fills now offers every service providers are optimal configuration for S.P.T.H. deployment.
First of all is the only fiber management provider in the industry to provide enclosures design for strand phone below grade in building and outside plant.
Further with the addition of these new products clear fills continues to allow service providers to scale their networks as demand or conditions allow or not with the push toward accelerated appointment the tools to turn up networks rapidly all with the same architecture and design principles.
The third initiative of our coming of age plan involves capitalizing on disruptive growth opportunities within the wireline markets of national carriers, and all wireless markets I.
Our position in the tier one market remains solid and our success growing our national carrier business by 18% in fiscal Twentytwenty reflects the return on the strategic investments we've been making over the last couple of years, we continued to execute on our operational initiatives, including rolling out product lines like this.
Smart transition Bucks to address the apt opportunities within this market.
That said the tier one market has been progressing slower than some of our other end markets relevant.
While the national carriers remain committed to capital equipment expenditures coal that has impacted the deployment plans for fiveg, both in the near and mid term in.
In the second half of our fiscal year, we saw a temporary pause in new deployments by the carriers because of these restrictions.
However deployment of optical components, specifically related to optimizing existing fiber assets to meet exploding bandwidth requirements has picked up.
Longer term, we are investigating adjacent product categories to expand our total addressable market consistent with our approach of being a fiber to anywhere company. We're looking at investing in product categories or areas that may not be fiber rich today, the ones that would allow us to introduce products to the market that would enable them.
Lifestyle ubiquitous broadband provider.
Our comprehensive financial and operational performance in fiscal 2020 speaks to the resiliency of our business as well as our strategic positioning within our customer base and industry. Our success in Q4, specifically has given us significant momentum starting Q1 of fiscal year 2020.
Anyone giving us a bullish outlook for the next year.
The business case for optical fiber markets for Fiveg and access networks deployment couldn't see more of it.
Well, we are currently unable to provide a concrete financial forecast for the upcoming fiscal year due to the ongoing volatility from coated we're confident that demand for fiber fed broadband will continue in fiscal 2021 and beyond.
Based on our robust bookings and pipeline of business. We currently anticipate a strong first quarter of fiscal 2021 compared to the same year ago period.
And with that we're ready to open the call for your questions operator.
Thank you we will now be taking questions from the Companys publishing sell side analysts. If you would like to register a question. Please press. The one followed by the four on your telephone you will hear a three tone prompt to acknowledge your request one moment for any questions.
And as a reminder, if anyone has any questions you can press. The one followed by the four on your telephone keypad.
And our first question is from the line of Jason Schmidt with Lake Street. Please proceed.
Hey, guys. Thanks for taking my questions I assure you just want to follow up on your last comments in the prepared remark remarks, I mean, how should we think about just general seasonality in fiscal 21, just given the momentum you've seen and it sounds like I expect to continue to see here in the near term.
Okay.
Yeah, I think the normal seasonality of.
Business kind of coming down in the first quarter, we're not seeing you know at this point. The I mean, we came into the quarter with an extremely strong backlog of over $10 million with the great majority of that backlog scheduled to ship in the first quarter. So we're seeing a really strong first call.
We are we think parts of that are related to the carriers asking me. There's some requirements within the cares act for build to be completed by 12 31, we've heard worried that there's a probability that that will be extended but at this point in time and people are kind of pushing toward getting things done this first quarter.
So I'm I'm thinking first quarter is going to be really strong. That's the outlook that we provided for the for the forecast second quarter. I think we are going to see some of the normal.
Alan is associated with budgeting and forecasting and weather, but it's going to be you know that.
The demand right there right now out there infinity broadband and for fiber in general is really strong we're very optimistic for the full year.
Okay. That's helpful and just given the strength you've been saying do you think this is more of a function of sort of a rising tide across the industry or do you guys think you're still taking share and your select markets.
Oh, I think it's both I mean.
I mean, it certainly across the entire marketplace. You know you see a lot of those are the companies that we partner with companies like Catholics companies like Air Tran Nokia I mean their business in the access market is definitely up and so yeah, we're taking advantage of that market increase in market demand, but.
I also believe we are uniquely positioned due to our strength in market share in community Brant community broadband to take advantage of that a we have a very in depth and extensive list. You know sales team that has it's heavily distributed throughout the marketplace coupled with you know our what we call our smart guys are applicator.
Patient engineers, who are out in the field you know to help you know organizations, who are predominantly been underserved or who are new to fiber you know to be able to design and run their networks.
So I think the marketplace is strong and I think we're taking advantage of that strength of demand as well as achieving additional share throughout the process.
Okay, and then just last one for me ill jump back into queue. How should we think about opex going forward. It was up here sequentially in September or is this the new level in fiscal 21.
[noise] theater, when we hold a little bit of seasonality, a fourth quarter I'm expenses due to compensation increases for achievement of.
<unk> of revenue threshold.
But that said what we know we're scaling organization, we need to continue to be able to build into our resources as well as build into the infrastructure of our company. So our S. DNA levels will not climb significantly via but the percentage of business is probably pretty consistently at.
At fourth quarter levels.
Okay perfect. Thanks, a lot guys.
You're welcome.
HM.
And our next question is from the line of Tim Savageaux with Northland Capital markets. Please go ahead.
Hi, Thanks, very much and good afternoon, and congratulations on the strong results, we certainly haven't seen that.
Fairly broad based across especially the rural fiber access space and I kind of want to follow up on that sort of high level.
Good.
Forecasts.
It's.
Are they your future.
In the field report talking about 20% growth in industry.
And that seems to be somewhat of a recurring theme with regard to some of your recent results your community broadband is growing.
Growing in excess of that at least the last couple of quarters.
And to the extent that you don't see.
Normal seasonality in the in the first quarter will be growing well above that level as well.
So that 20% Mark seems to be.
Kind of a reasonable.
Target in my view for for maybe due to the company's growth potential in the in fiscal 21 foundry and some of your thoughts sort of Uh huh.
I think there's potential I wish she gets there there's definitely some strong demand to put that in place I mean, if you look at that at that chart from idea I'm not sure if I'm pronouncing that correctly, but you know it it calls for that increase in calendar year 2021, So we're a little bit ahead of that right.
Right now what makes me comfortable that that we've gained share is that you know that showed a pretty heavy reduction I'm in 2020 in regard to reduction of demand. So feel good about where we're at in a kind of a capitalizing on it.
I think the challenge right now and getting too far ahead of ourselves for forecasting 20% for the year is just the uncertainty of the markets that we're living in you know the covisint world issues associated potentially with deployment with having the enough availability of labor and real.
Sources, just says we need to not get too far out of ours in front of our skis.
Appreciate the marketing or the opportunity in the execution that are necessary. Yeah, we're continuing to invest as we pointed out in the multiple facilities. So that we can continue to fulfill on these requirements.
So no we're not giving a long term guidance opportunity, but the longer we get into the year. The more comfortable feel was capitalizing on that market demand.
And that's absolutely fair enough.
Following up on the backlog, obviously, an impressive number there. Thank your for kind of two questions about that we're going to use to go there.
Can you hear me.
Well there you are.
Your back then.
My back.
Yep, Yeah, I can hear you.
We can hear you great Rebecca.
Let's see backlog, yes, and.
And I guess the questions were.
Yeah I'd be interested if the composition of the backlog is.
Skewed in any particular direction in terms of your.
Your business segments.
More or is it pretty well distributed.
Crossed your typical categories.
And in particular, what you might be seeing in terms of trends on the cable side.
Heading into the calendar year, and obviously your fiscal first quarter, but there are some indications that maybe there to finish the year pretty strong I wonder if you're seeing that at all.
Well I think I mean, the backlog is strongly distributed across all market categories with the exception of international.
Yeah, we sell into the Canadian and Latin America, and Mexico markets and those markets have been you know, especially Mexico, and the <unk> and South America Caribbean markets have been very flat now they've been redevelop redeploying their currency to other places.
So you won't see Internet a lot of international and our backlog, although we're optimistic when things stabilize in those spaces that will be better off next year.
The rest of it is as strong community broadband cable TV anterior business like I said the carrier businesses, you know a little bit of a bubble in regard to delayed orders you know our strength in cable TV is predominantly tier two cable TV with some business in charter and Comcast our strength is predominantly there too.
The I'm very pleased as you can note again with the numbers that were putting together and they continue to build out there that are operational the the challenge again with as they move into the tier one space with cable TV as some of the.
The delayed orders the more project based business that we haven't quite got into a run rate level, yet to forecast, but I definitely see cable TV responding to some of the funding that's going on in some of the underserved markets and they're responding to really protect their.
Franchises.
Oh, I'm, sorry, I think that'll certainly be play out next year, maybe not in fourth quarter of the calendar year first quarter of our fiscal year, but it's certainly something that we've been investing in for a long time and look to reap some of the fruits of that next year.
Great. Thanks, and last question for me is you.
Consider that overall growth potential.
Sure.
Fiscal 21 order if you could address.
What kind of assumptions you may or may not be making with regard to new product growth you mentioned the fiber distribution opportunity.
I don't know if that's 50 million was an annualized run rate for the market opportunity might be for clear field or how you are defining that but.
Is there.
Kind of a timeframe.
Got you envision kind of ramping here.
Towards about great [laughter].
Great that 50 million dollar opportunity as an annual opportunity.
For our level of product certainly you know, we're not going to achieve 100% market share, but it's pretty exciting to see that kind of new market opportunity really in spaces that you weren't building before because I mean these are difficult.
Regions are underserved or Unserved territory. So they typically have been not economically feasible to be deployed previously so that's really new market for us.
That said that's a at the end of the calendar year next year before you're going to see significant revenue from art off right. I mean, the the actions are currently underway you know till they get awarded and their engineered and put in place.
I think we'll start to see revenue on that maybe fourth of July and you know fourth quarter next year, our fourth quarter of next year, which really positions us well for fiscal year 22.
And we have been it's not like we had to put resources in place you know for any of that that's that's where we shine and we've been building that business for the last 13 years.
And have been augmenting it now with with new resources in the utility space, where we haven't been as strong but really is a.
Replication of the work that we did in the early days of independent telephone you know, there's about 900 different utilities, you know across the country similar to how the 10 years ago. There were 900, a independent telephone companies under served.
Works, Yeah, it's it's refreshing actually to get back into those kind of early days of a pioneering fiber.
And look forward to it you know like I said, probably late next year.
Okay, Thanks, very much and congrats once again.
Thank you.
At this time. This concludes the company's question and answer session. If your question was not taken you may contact clear fields Investor Relations team at C. L. S D at Gateway IR Dot com.
Now I'd like to turn the call back over to Miss Barrenechea for closing remarks.
Thank you again for joining us today.
You know, it's a tremendous time in our country I hope, you're all safe and are appreciative of the country that we live in and look forward to our opportunity to continue to make it a strong organizational environment for all of US did business. We look forward to updating you again on our progress.
Thank you for joining us today for clear field fiscal fourth quarter and full year 2020 earnings Conference call. You May now disconnect your lines.
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