Q1 2023 Clearfield Inc Earnings Call

Yeah.

Good afternoon, welcome to Clearfield fiscal first quarter 2023 earnings Conference call. My name is Paul and I will be your operator this afternoon.

Ill pass the call over to Jacky Kessner from Gateway group.

Thank you. Please note that during this call management will be making forward looking statements regarding future events and the future financial performance of the company.

These forward looking statements are subject to risks and uncertainties that could cause actual results differ materially from those in the forward looking statements.

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.

Forward looking statements contained in today's press release, you'll report and in this conference call.

The risk factors section and clear felt most recent Form 10-K filing with the Securities and Exchange Commission and in subsequent filings on Form 10-Q provide descriptions of those risks.

As a reminder, the slides in this presentation are controlled by you.

He's a basketball or a data presentation at the speakers present there.

With that I would like to turn the call over to <unk>, President and CEO Cheri Beranek Shari.

Good afternoon, everyone and thank you for joining us today. It is a pleasure to speak with our new and returning investors and analysts this afternoon to share.

So as we sell for the first quarter of fiscal 2023 as well lets provide an update on our business and current market trends.

Our strong financial performance in the first quarter of fiscal 'twenty two 'twenty three.

It reflects our ongoing execution on our strategic growth plan as well as the robust and sustained demand for high speed broadband.

Total net sales for the first quarter were $86 million, which includes an $8 million contribution from Nestor cable.

Our organic net sales growth continues to be driven by our leadership in community broadband and expansion across each of our core end markets.

As we continue to execute on our strategic plan.

We aim to strengthen our existing competitive advantages as we build the scale necessary to serve the long term demand runway for high speed broadband.

Search and underserved communities nationwide.

Based upon consideration of the expected investments and impact of our progress on our lead strategic plan as.

And as well as our ability to manage countervailing headwinds that could develop in customer ordering patterns and component sourcing.

We are reiterating our previously stated revenue guidance for fiscal year 2023.

In addition, we are introducing 2023 net income guidance of $4 30 to $4 50 a share.

Before I review, our performance and current market dynamics in greater detail.

To briefly introduce you to who we are and what we do but those of you who may be new to <unk> and our industry.

Peripheral is a leader in the expanding fiber broadband industry alcohol and underlying value proposition is to enable the lifestyle and better by Dan survives.

We provide craft friendly fiber protection fiber management and five are delivering solutions that enable rapid cost effective fiber deployments throughout the broadband service provider space.

Our primary end market is community broadband, which is predominantly comprised of tier two and tier three incumbent local exchange carriers and an increasing number of municipalities utilities co op and wireless carriers. We also serve service providers and the tier one national carrier market.

And multiple system cable TV operators.

So it was as well as some international service providers.

Pictured on slide four if you do that.

Pat.

Does this change the rules of fiber management.

This integrated fiber management system is based on a multiple of 12 fibers. It can be utilized whenever and wherever it is required that much.

Our field show platform offers protected pathways and fiber options.

To the needs of any network deployment.

Our entire product line was thoughtfully designed to be craft family and the feel reducing both the amount of necessary skilled labor needed for installation and the level of skill required to install.

This enables our customers to complete their deployments faster and more efficiently accelerating their time to revenue.

With these capabilities and our competitive advantage as we summarized on slide five we've expanded our market leadership in underserved rural broadband.

Or enhance our positioning we have worked to improve our product delivery lead times, which represented another key area of industry leadership, we're clear so before the COVID-19 pandemic.

Across our industry pandemic field supply constraints held five really tightened to a range of 10 to 12 months.

Contrast, clearfield is now targeting lead times within the range of eight to 10 weeks.

I am proud to say that we have already achieved these lead times within the range for all product lines with the exception of active cabinets, which had been negatively impacted by the longer lead times associated with power conditioning sub components used in their manufacturing process.

This work to improve our lead times come in our customer ordering cycles returned to pre COVID-19 patterns, but post COVID-19 virus.

Over the past three years, our customers ordered products early in their deployment schedules to stay ahead of any supply chain challenges as they plan their fiber bills.

Advanced orders led to growth in our backlog, which reached record levels by the end of fiscal year 2022.

Our customers have moved to staging less equipment in their yards and have now begun ordering according to a more normalized seasonally driven deployment schedules. We believe this trend will continue in 'twenty two 'twenty three as customers readjust their ordering planning to our improved lead times and try to match their order timing.

Schedules.

Consistent with the return of this traditional ordering and delivery patterns, we anticipate approximately 40% of our expected revenue in the first six months of our fiscal year and 60% in the second half.

We believe long term demand remains exceptionally strong.

All of our customers are indicating an increase in the number of homes. They are passing and connecting in comparison to the previous year.

Additionally, the increase in the number of service providers, we serve is exciting.

For some additional insights and what we're seeing in the market and the significant long term growth runway for fiber deployment I'd like to welcome our Chief marketing officer, Kevin mortgage to the call Kevin.

Thank you Sherry.

It's great to be joining all of you this afternoon.

Thank God for high speed broadband communications has never been greater and shows no sign of letting up.

This continues to drop out of Hormuz deeper into every corner of society.

Across all market segments.

I mentioned, we believe our work to maintain a world class lead times and further progress our elite strategic plan enhances our position for the robust near term demand environment.

On slide six.

We've also included the fiber broadband association strong forecast for power deployments over the next decade.

And it's 2022 fiber provider survey published in December the fiber Broadband Association estimated 10 year annual average run rate.

$11 3 million fiber deployments.

In 2022 alone Sabra providers past 7.9 million additional homes, representing a new record for annual deployment.

This momentum gives us a powerful foundation for 2023 and the years ahead.

As you'll see in the accompanying chart position within an accelerating investment cycle, but has yet to reach its peak.

We continue to be the gradual disbursement ARPA and auto bonds and your upcoming distribution, a bead funding as meaningful but gradual industry tailwind to further expand our market opportunity.

The data indicated on the slide assumes that $12 3 million new housing units will come online over the next 10 years.

Burger, 92% of homes are expected to have fiber availability with an additional 34% of homes, having two or more available fiber connections.

As this market continues to expand we believe our craft friendly products will continue to play a vital role.

Insulating homes past numbers and the homes connected revenue for our service providers as they deepen their fiber deployments.

Turning back to Clearfield fiscal first quarter performance I'd now like to pass the call over to our CFO Dan Herzog.

Who will walk us through our financial results for the fiscal first quarter of 2023. Thank.

Thank you Kevin and good afternoon, everyone. It's a pleasure to be speaking with you today about our fiscal first quarter 2023 results.

So looking at our fiscal first quarter 2023 results in more detail.

Consolidated net sales in the first quarter of fiscal 2023 or $86 million or 68% increase from $51 million in the same year ago period, and down 10% from $95 million in our fourth quarter of 2022.

This figure includes $78 million from organic Clearfield, and an 8 million dollar contribution from Nestor cables, representing nesters first full quarter of contribution since we acquired the business on July 26 2022.

The increase in net sales was due to higher sales across our core end markets, particularly in our community broadband multiple system, operator, and national carrier markets consistent with our performance throughout fiscal year 2022.

We recorded a 34% year over year increase in our sales order backlog.

Order backlog was $136 million on December 31, 2022 up from $101 million on December 31, 2021 and down from $165 million on September 30th 2022.

We believe our lead time progress will remain a more meaningful measure of our operational performance going forward.

Accordingly, we will focus on this metric in lieu of reporting on backlog in future quarters.

I'll now review net sales by our key markets.

Sales to our primary market community broadband comprised 55% of our net sales in the first quarter of fiscal 2023.

In Q1, we generated net sales of approximately $48 million in community broadband up 33% from the same period last year.

In addition for the trailing 12 months ended December 31, 2022, our community broadband market net sales totaled approximately $192 million, which was up 69% from the comparable period last year.

Our MSL business comprise 25% of our net sales in the first quarter fiscal 2023.

And I'm in the MSR market continues to be strong with net sales growing 137% year over year and up 152% for the trailing 12 month period.

Net sales in our national carrier market for the first quarter of fiscal 'twenty to 'twenty, three increased 67% year over year.

On a trailing 12 month basis net sales in our national carrier market was up 102% from the comparable year ago period.

Net sales in the international market increased 412% year over year in the first quarter compared to the same period last year and were up 126% year over year on a trailing 12 month basis due to the acquisition of Mr. Cables, which are included Internet International sales.

Gross profit in the first quarter of fiscal 2023 increased 33% to $31 million or 35, 7% of net sales from $23 million or 44, 9% of net sales in the same year ago quarter.

Our gross profit was affected by our investments to increase capacity for additional growth in the coming quarters and years.

These investments include the increased facility costs associated with the addition of the company's new Minnesota, Mexico facilities that came onboard late in the second quarter of fiscal 2022 and the continued expansion to outfit these facilities.

The company continues its investment in cable manufacturing at its Mexico facility in conjunction with the Nestor cables acquisition, which is expected to be operational in our second fiscal quarter.

Profit was also affected by a full quarter of lower gross profit realized in all the Nestor cables cable manufacturing business.

The company expects to operate at these gross profit percentage levels for several quarters with improving margins.

Revenue levels increase later this calendar year.

Operating expenses for the first quarter of fiscal 2023 were $13 million, which were up from $10 million in the same year ago quarter.

In addition to the increase from the first full quarter of Mr. Cable's operating expenses in general.

Greased areas reflects higher compensation costs travel and entertainment stock compensation and professional fees.

As a percentage of net sales operating expenses for the first quarter of fiscal 'twenty three 'twenty three was 15% down from 19% in the same year ago period.

Our current opex at less than 15% of sales reflects our continued strong operating leverage.

Net income in the first quarter of fiscal 2023 increased 37% to $14 $3 million from $10 $4 million in the same year ago period, and was down from $17 million in the fourth quarter of fiscal 2022.

To support.

Our expanding capacity and continued best facility build outs.

And our inventory balance increased from 82 million to $90 million in the first quarter.

While we expect to continue to increase in inventory. This year, we do not expect to do so at the same levels as it did during fiscal year 2022, resulting in improved free cash flow in the fiscal year ahead.

As a reminder, we did use approximately $16 $7 million of our line of credit in July of 2022 to fund the Nestor acquisition and paid that amount off in the first quarter of fiscal 2023, leaving a zero balance draw on the line.

In addition, we further enhanced our liquidity position through closing an upsized $120 million public offering of our common stock on December nine 2022.

Under the terms of the offering we sold one 2 million shares at a public price of $100 per share.

Including the underwriters' full exercise of the option to purchase up to 180000 additional shares we sold a total of 1.38 million shares of common stock at closing for net proceeds of $133 million after expenses paid in connection with the offering.

The additional capital grants with greater flexibility to pursue our longer term growth objectives and be opportunistic as further growth opportunities arise.

We can continue investing in our inventory capex infrastructure and other necessary strategic areas at a larger scale as well as ensure that we have the working capital position to effectively compete for larger customer opportunities.

We appreciate the support of our new and existing shareholders as we continue to advance our strategic progress.

That concludes my prepared remarks for our first quarter of fiscal 2023.

I'll now turn the call back over to Sherri.

Yeah.

Thanks for the financial update there.

As I mentioned earlier in the call. We have continued to make progress on our new multi year strategic plan leap.

Is the successor to our previous now of age plan.

At least plan as our road map to how we look scale of the company in order to seize the opportunity clinical was built to achieve how.

We expect to jump higher farther and with greater force with that said I'd like to review our progress on each of our leap plan for tenants one for each letter.

Oh, it sounds leverage our decade long excellence in community broadband market in which we have focused since our founding in 2000 and D C.

Through our deep understanding of this market and our customers base and regional operators, we've proven to be an agile partner that can be involved with the broader market and grow alongside our customers.

Earlier this month, we announced that we had reached a milestone of shipping 15 million five reports of our craft friendly labor light family of serve you pick that hill.

He'll shield assemblies and Iraq terminal.

The vast majority of these five reports have been deployed throughout the networks of our community broadband customers.

Reaching this milestone underscores the success and the fiber broadband market is as much about execution as it is innovation to further improving our scale, we are deepening our commitment to providing our customers the products and support they need when they need it to take their fiber broadband networks as far as.

They can go.

Our E X.

Execute capacity growth in advanced at the market opportunity building.

Building upon our previous strategic work to augment capacity for ongoing growth, we will continue making progress on these enhancements and developing our supply chain partnerships maintain our market leadership.

Having expanded our manufacturing footprint in both Minnesota, and Mexico last year.

We are leveraging the in house cable manufacturing capabilities brought by our acquisition of Master cables.

Most recently, we are adding another macro decline in Finland to generate additional revenue will actually improve margins from our current facility.

This new line will enhance that's just capacity and will allow us to run our manufacturing at a higher and more efficient level.

The a and our plan is to accelerate infrastructure investment.

This tenant represents their underlying investment and our organizational infrastructure as we continue to grow the business and manage our expanding capacity.

The significant growth we have generated over the last two years, we've focused in investing in our quality teams and systems. This includes adding supply chain and quality personnel as well as placing quality engineers earlier in the overall process.

As I said in the past, we can grow as fast as our quality systems will allow.

Our investments in this area have played a meaningful role in our top line growth expansion and we expect them to help facilitate additional progress.

More broadly we may add personnel to our sales product management and manufacturing teams as we work to improve lead times we.

We will also continue to expand peripheral college right online and infield training support as the industry navigates the ongoing shortage of trained labor in the market.

Finally, the Pea and leap Stan to position innovation at the forefront of our value proposition.

Are you increasing the cadence of our product expansion and emphasizing innovation and our colleagues is that we aim to build upon the craft friendly nature of our products. We will soon be announcing an additional new product in the coming weeks that we believe further enhances our promise on innovation more to come on that front.

We intend to introduce additional fiber management and fiber connectivity solutions that align with federal and state funding program requirements.

This will help facilitate slips and streamlined installations for our customers as they extend the depth and breadth of the fiber broadband access and their networks.

As our first quarter financial results indicate we have continued to make strong progress on our strategic plan and that a robust demand environment for fiber fed bought that.

Our operational agility allows us to be flexible in an evolving market and we have built a strong foundation from which to address the long term demand runway for high speed broadband across our markets. We believe our continued work to leverage our deep expertise in community broadband enhancer capacity accelerated our.

Structure investments and prioritize innovative product design enables us to both address existing demand and prepare for the longer term tailwind as state and federal funding.

Current visibility into our current pipeline, we are reiterating our previous topline guidance, an estimated revenue that's between 380 million to $393 million, representing a 40% to 45% growth rate over fiscal year 2022.

In addition, we are introducing fiscal year 2023 net income guidance of $4 30 to.

The $4.50 a share.

We continue to expect our revenues to follow year over year seasonal patterns, resulting in expected strong year over year growth in the first half of this fiscal year.

We remain underway with improving our product lead times as we further improve capacity and reduced order backlog.

While we still expect to see higher levels of build activity in the second half of the year, we will closely monitor the availability of labor that our customers need to proceed with their plant network bells.

And with that we're ready to open the call to your questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star Covid one of them.

Please while we poll for questions.

Yeah.

Okay.

Okay.

Thank you. Our first question is from Paul Silverstein with Cowen and company. Please proceed with your question.

Thanks sure what do you expect what contribution you're expecting from Nestor.

March quarter is the consistent would be able to use it in December or is it something meaningfully different.

Yeah, it's going to go up in the next quarter I mean, it was it's important to remember that yeah. Nestor is very much affected by the seasonal nature of our business and probably even more so than we are.

So you're going to see the their numbers about 8 million this quarter, it'll probably be double that by the summer you'll growing second quarter to probably 10 or 11.

You know as much as 15 in the in the summer months.

And their you know their gross margins are going to.

Be affected significantly by that so we're going to see gross margins now at about 11% 11, 12% by the summer months they'll be up in the high teens.

Kind of averaging in that middle of about 15%.

Yeah, Yeah. We said you know when we acquired the company that they're a commodity based business. So the gross margin percentage will go down but the gross margin dollar contribution yeah would be accretive.

This quarter that wasn't the case because of the down this is the winter months, but we still continue to expect that accretive nature throughout the year.

Let me get to the real question, so if I take tens of $11 million.

$10 million for March that would imply organic if I did the math right.

Based upon your 40 60 split your reiteration of three to $3 93, and what you did in the first quarter that would imply organic.

Somewhere in the neighborhood, if I did the math correctly $56 million to $61 million, which in turn would translate to 23%.

Climbed to 17% decline sequentially on a year over year basis, if I did the math right that would imply 5% to as much as 15% growth if you hit those numbers.

Nestor instead of a larger company that you'd be deceleration down from over 50% year over year in the December quarter.

I appreciate the return on them.

A more seasonal business pattern.

I guess I'm trying to understand.

The dramatic decline.

And growth what would drive such a dramatic fall I appreciate that everyone's going to go back to more normal order patterns and backlog was not feasible.

The numbers suggest.

A significant collapse in backlog and a very good I mean, we can see them in a very compressed.

And I'm trying to understand them.

If we look at linearity, including screw the 30 days of the current quarter.

<unk> business continued to soften.

You get folded.

Or is it more of a stabilization when they let you respond.

Right.

Thank you Paul I, I think I would call them, they're not alignment.

And that you know we talked about you know 90 days ago at the end of the fiscal year that we weren't going to see for the first time in two years bookings, we're going to be less than shipments and that was a result of the world are coming.

Coming back to you post.

Post to pre Covid, where all the way of doing things and ordering patterns and we're gonna start into that process. Yeah. As people are as our customers align their inventory positions and their forecast physicians in regard to product alongside the labor conditions, we're seeing a bit of a bubble or perhaps even in inventories while at this point.

In the market and so we think that's very much a it's not a softening of the market and that the math is very high it's an alignment of what's actually available with labor.

Alright.

I can do the math with you after the call, but help me out he turned 11% gross margin showed up for Nestor how much of a hit was it to overall gross margins were looking at $35 seven whatever the number is probably about two and a half or second quarter.

I mean, they were a fact that the.

Yeah, well, it's important to when we look at.

The fourth quarter of last year, that's really not a comparative number because we didnt have any of the new facility is up and we were at complete capacity over.

Over the course of the last year, we've been adding a considerable level of at capacity. The buildings themselves in March of last year and now adding continue all building enhancements and probably one of the biggest investments that we've made is about 25% increase in our labor force.

In summer of last year, and so even though we knew that the winter was going to be more seasonal we made a conscious investment in people to ensure cross training of resources and labor capacity availability.

And so while it might be a little saddling for this first quarter.

Absolutely to our plan as to where we're at from a gross margin standpoint, so that we can prepare for the summer and into next year and the capacities that are going to be necessary.

Alright, I appreciate the response before I pass it on I would just respectfully submit.

Youre, making mistakes and you spoke to your plans don't disclose backlog, even assuming lead times or better as you maintain.

And I would urge you to continue providing up to limit password I appreciate the responses.

Very good thanks.

Yeah.

Thank you. Our next question is from Jason Smith with Lake Street Capital Markets. Please proceed with your question.

Hey, guys. Thanks for taking my questions I'm just following up on that line of questioning and just what gives you the confidence that that second half snapback will comment that this inventory correction or issue, where a digestion whatever you want to call. It is just sort of a one quarter issue.

Yeah.

Yeah, what we've.

Seeing as that absolute continued demand from every customer that they want to increase the number of homes that they are connecting in passing.

And aggressively working with our contractor community and the labor community too.

Find additional resources to train additional resources.

We're actively involved in that process and helping them gain the process.

The knowledge and the training tools by which to enhance the labor availability that's out there.

I think there's really a yeah I would call it almost like a I review them.

Household conditions when you come back in at the end of this of the year and you can kind of working through your calendar and he was looking to see what's out there versus you know what you have and so all of our customers I think I'd, just kind of making that refresh.

I think it's the continual demand push that they all continue you want it to be the first fire out and that commitment of them you know across the board that there was still growth in every part of our marketplace.

Yeah. The other thing I wanted to make sure that I am I think reiterate is the fact that when we walked into this year you know ethylene identify that the 40% to 45% growth rate for the year. Yeah. We said, we would come out extremely strong in first quarter and up 70% growth rate over last year.

Yeah, and that that growth rate would D. Escalate over the course of the year. What does he ended the year at a 20% to 25% increase over last year, and then working for us to continue at that position.

So I think it's important for us as a community to identify that the you know the industry is going through a complete readjustment to this once in a weird lifetime situation that we called the pandemic.

So there isn't really a model by which to judge the spine or is it really even.

Compare it to my trend trying to do that.

Okay No that's helpful.

You're saying, there's a lot of dynamics out there just curious when you did provide that original fiscal 'twenty three guidance what have you been thinking the split would be I mean now you think it's gonna be poured in 16, but what were you here the initial expectations.

Yeah, I was thinking a little closer to 45 55, so just a little bit of a readjustment, yeah, so that we'd be pushing out second quarter and and seeing that more at the tail end of the year. So it's.

To look at again that next quarter, we're probably looking at 30 or 35% increase over last year, which again is a you know in an amazing level of increase you know on an organization from a marketplace that's growing at.

At 12% to 15%. So we're just trying to normalize our patterns and put everything together.

Okay.

And then just last one for me just looking at gross margin, obviously, you're going to kind of remain at these levels for the next several quarters. So.

Does that mean, we shouldn't expect a step up in Tulsa worried that.

December quarter timeframe or could you start to see improvement.

Improvement in September .

Yeah, I mean, we're anticipating an improvement in September and you know as we get back up to levels similar N beyond of last year. It wasn't that that fourth quarter, where everything was clicking and people were taking their inventory positions for the winter.

So yes, absolutely fourth quarter is it's why we should be signing.

Okay. Thanks, a lot guys.

You're welcome.

Yeah.

Thank you. Our next question is from Ryan Koontz with Needham and company. Please proceed with your question.

Hi, good afternoon. Thanks for the questions I wanted to ask about your assumptions in the March quarter and this new.

Customer order patterns and booking behavior.

Your assumptions going into March do you feel like Marshalls can still be a period, where you are.

You would expect your backlog to soften a bit.

And then pick up during the <unk>.

Peak construction season, or what's your kind of general mindset. There I know you don't plan to give backlog out, but any kind of insights kofler. Thanks sure of course yeah.

The backlog went down about $30 million somewhat.

Over the course of the last 90 days and you know as when he talked about that was anticipated and planned for that we had had a very high 160 million and I think we're just a little under $130 million at this point.

I said at that point that we were aiming to get to a backlog that was you know consistent with about one times revenue for the quarter. Yeah. So March backlog will go down a little bit as well is that as we get to more of this paint this cadence in which we are ordering a product or a customer.

Oregon product in the period in which there to play so well that.

Yeah.

In a normalized world that I see that there's a reduction in backlog is a bad thing, but in a post COVID-19 world.

I believe this is a return to normal necessity that kind of walks through this bubble around this period of time.

Got you that's helpful and if.

If you could reflect on the strength in the quarter from from the cable segment. It looked like it was real strong is it.

Coming from your active cabinets into the DAA or more of your fiber the home customers and maybe give some color on the striking oh, yeah. If it's coming from both areas and that you know with the the different types of cable companies and the both the regional as well as the national have have different philosophies on how they can.

Can best provide them high speed broadband to their customers and do the architecture of our product line that allows us to to support whether it's upon based deployment or a non PON base deployment, you know active cabinets versus the your ex terminal you know we're actively involved in both and both have.

Yeah, similar a high gross profit margins.

And we're excited about all of that opportunity moving forward.

Like everything else in our space I think we'll probably see some bubbles them with that over the course of the next couple of quarters.

Demand is absolutely and and really exciting to see the cable community come in play.

Alright terrific.

In terms of your latest quarter in bookings any mix shifts there between passing and connected home and the broader product lines.

Yeah, we're starting to see them, where are they still increasing and connecting and that people are looking at their standpoint that they made the investment and the passing of the homes and now by connecting their homes. They can turn that into a revenue producing customer that's at a higher rate.

<unk> revenue for them.

So I would it's still a passing of the home is still a higher percentage of our revenue, but definitely seeing connecting up homes is increasing in and saying it's exciting to see the success of those deployments take place.

Got you and one last one.

No new commentary around.

<unk> and ARPA contributions too.

The recent business still getting momentum and kind of where do you feel like we are relative to those programs are contributing.

It's still gaining momentum, but it's still very early this is almost entirely privately funded so and that's why we're comfortable making the capacity.

Enhancements that we are Oh, one other thing that's very frustrating as an industry right is how long it takes for government money to fund through the programs and get into the market. We've seen it time and time again in regard to 2012 2008, I mean, all of those times, where we.

We were excited about the money that we had to wait two years.

So we know it's coming we just haven't seen a lot of it yet.

Okay, Great I'll pass it on thanks, so much.

Thanks Ryan.

Thank you. Our next question is from Tim Salvageable with Northland Capital markets. Please proceed with your question.

Hi, good afternoon, reviewing one of them.

Can you hear me.

Yeah. There you are.

Okay.

Great sorry about that.

And actually my question was on capacity. So that's a good place to pick it up.

You obviously been on this capacity addition.

Planned for a couple of quarters now but.

You've made some additional kind of increases so.

I Wonder if you can give a sense of where you stand from a kind of quarterly revenue capacity standpoint.

Currently what are you looking for some you know.

Record quarters in the second half of the fiscal year, but.

If you want to take it from what you just reported or what you expect them here in the current court, where where are we from a capacity utilization standpoint and and.

And where do you expect that capacity to be by fiscal year end.

Right.

Where are we what we tried to do from an operational standpoint is it set metrics as to where we want to be by the end of each quarter and so that we can make incremental.

Investments along the way and so I think we're probably at about $105 million, you know today and Ah by.

By the year end, we expect to be closer to 130, maybe 135.

Accordingly, which puts us at about a $500 million.

So run rate by the end of the year.

Great and in terms of getting there I mean is that more kind of adding people are you.

Pretty well set from a facility standpoint are you.

As you continue throughout the year how are you.

A dresser.

So that aspect of it but if at all.

Right Yeah. The facilities are in place, but I think we need to continue to augment the facilities and infrastructure surrounding it.

For example, bringing and the ability to produce optical cable inside of the facility means I'm, bringing in a higher power capabilities, you've got to bring in the new lines and we're bringing in water you onto the floor. So that we can actually produce a cable and that's it.

<unk> lines that are necessary for cooling the cable if it comes up out of the extruder. So those are the type of incremental class that you. Perhaps you know that we don't think about it that way.

In place right now and we're also looking at a standpoint of just kind of the infrastructure around it and you wouldn't think of this is.

Affecting the capacity, but it's the.

Yeah, that's the procurement teams and it's the software systems around it and it's the process development to ensure that we do this in a systematic process based way and we have been very successful over the course of the last two years growing at the rate that we have but we have to take a step back and.

Well I can say how are we going to make us the Hannibal at how can we scale. This and I think that's an important element for us to look at from a gross profit standpoint is you know this company was designed to scale, but theres still a standpoint of infrastructure that needs to be put in you know within it and so as that strong foundation to ensure quality.

And so there'll be people there'll be system there'll be some software with Manhattan and and that's so that we can grow long term. So yeah, we've got a little bit of catch up to do from what we perhaps should have done a year ago. Just didn't have the wherewithal because of how quickly we were going to take that step back.

Okay and in terms of the.

You seem to be going back I guess to maybe your more traditional seasonality.

Going back.

Several years now.

Where you had I guess, you know a quarter in there somewhere there was up 20.

20, 30% sequential something like that on a on a seasonal basis.

The way, we should kind of look at this in context, just at a much higher revenue level right. Obviously exactly yeah. I mean, I think that's tied to you describe it as being pre COVID-19 conditions at post COVID-19 levels, and there's always been seasonality to our business. It's just that it was hidden in the last two years.

And so I think I wanted to go back to a statement that they are that Jason asked you know how do I have the confidence yeah.

The back half of the year is going to follow through and it's really the doing this the last 15 years and that that's the trick the traditional normalized pattern and so the only caveat to that is in a post COVID-19 world how quickly will we get back to that normalized pattern.

Got it thanks very much.

Youre welcome.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Our next question is from Scott Searle with Roth Capital Partners. Please proceed with your question.

Good afternoon, thanks for taking the question.

Hey, just to dive in on the gross margins again.

It sounds like most of the beyond the mix issue that there is a labor content issue here until you get capacity up at the facilities, that's kind of weighing on the near term results is that the way to think about it until we get into the second fiscal half of this year.

Absolutely yeah.

That you were making the the addition of those people in advance of meeting them, so our efficiencies and utilization.

On the floor is it's not at the level that you target.

But what it does allow us to do is to move those people around so that they're not trained in a single line, which is what we did when we brought everyone on board them you know last year in the second quarter is we hire people when we put them on one line and we made sure that they could optimize that one line yeah, but it doesn't.

Allow you to scale, what you need to do is you need to train all of those people on it on all of the different functions and process steps in the fiber termination process in order to really have the flexibility to ensure these lead times that are so crucial to our long term success.

And so.

It's that investment in people and the training that will allow us to hit those six to eight week lead times. This summer.

That's still far more than what we were pre Covid. We were working on lead times are three to four weeks I don't think that's in our in our future. That's a whole that's not necessary, but six to eight weeks should be alcohol and we'll have the labor force by which to do that based upon the investments, we're making right now.

Okay, and just a follow up I guess and catalyze a couple of the earlier comments.

You know youre looking for 30% to 35% growth in the second fiscal quarter, which kind of implies like you said normal seasonality a sequentially down December to March before we see that recovery into the second half of what you are expecting a 60% well split you'll being skewed towards the back half of the years is that correct.

Absolutely you got completely taken.

Gotcha, and then so just to dig in on the back half and I know it was asked earlier, but the comfort level there.

Whats youre seeing in terms of engagement from a customer standpoint requesting of shipments and it doesn't sound like art off is really built into those expectations I'm kind of curious where that fits either into the backlog or your thought process around a ramp up in the second half of the fiscal year.

Right I mean, I never comment on a government money in my projections.

Because it's just it's too much variability and lack of.

Accountability I'm you know to.

Meeting or a date and so that is definitely then that's still not in those numbers.

And the other thing that is affecting these numbers is you know what I think what I mentioned in regard to our backlog am I see that lead time is that's coming down with the exception of Aon active cabinets and our availability of sourcing rectifiers.

Yeah, we don't think Ah clinical as being a chipset affected company yeah, but the the components that are in their rectifiers for power conditioning are in extreme long lead time positions and it's been it's been frustrating for our revenue models and for our customers to not be able to get those products that they would like to see.

And so the that's one of the other reasons for the back half of the year coming back on board.

Is as the chipsets rectifiers become more readily available and that is the amount of our active cabinet business will be a much more significant part of our total revenue plan.

And just a follow up on that sure he's active cabinets carry a higher gross margin as well.

They're pretty similar you know two of them to the rest of the cabinet. That's the lion's head no I wouldn't call them hire them, but they would be pretty close there isn't the same 42, 43% kind of margin.

Got you, but in terms of the revenue guidance and extrapolating that into the back half you're starting to get back into that one.

Bracketed $110 million to $120 million range okay.

Yeah, Oh, yeah, but yeah look I.

I would make them.

You look at it from a standpoint I think of.

It seem that significantly because I'm, just not sure where those rectifiers aren't going to come in.

And the amount of backlog that we have for powered cabinets that definitely the fourth quarter is gonna be that step up in that.

The ability of some of those materials, it's been allowed fourth quarter to them to be a higher number than what you would normally expect.

Okay, great. Thanks, I'll get back in the queue.

Okay.

At this time. This concludes the company's question and answer session. If your question was not taken you may contact circles Investor Relations team.

Ft Gateway IR Dot com.

Now I'd like to turn the call over to Mr. <unk> for closing remarks.

Thank you all for the opportunity to speak with you in it for the questions.

From our analyst community definitely a year of transition and a year of being able to come back into these normalized patterns.

And so I I invite you know and our shareholders to contact our gateway or our IR firm and welcome the opportunity to speak with you because I could not be more excited about the revenue plan in front of us and the opportunity by which to become you know I think.

<unk> and player in high speed broadband.

Yeah until next quarter.

Yeah.

Thank you for joining us today for clear probes fiscal first quarter of 2023 conference call you may now disconnect.

Yeah.

Okay.

Yeah.

Yeah.

Yeah.

Okay.

I had five minutes.