Q4 2023 Clearfield Inc Earnings Call
Good day, and welcome to Clearfield fiscal fourth quarter and full year 2023 conference call. All participants will be in listen only mode. A brief question and answer session will follow the formal presentation if anyone should require.
Operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to Greg Mcniff Investor Relations for Clearfield. Please go ahead.
Thank you joining me on the call today are Cheri, Beranek, Clearfield, President and CEO, Dan Herzog, Clearfield, CFO and Kevin Morgan Clearfield CFO as a reminder, the slides in this presentation are controlled by you. The listener. Please advance forward through the presentation as the speaker presents their remarks. Please.
During this call management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward looking statements for purposes of the safe Harbor provision of the <unk>.
Securities Litigation Reform Act.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements.
It is important to also note 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 earnings presentation and on this conference call the risk factors section.
<unk> most recent Form 10-K filing with the Securities and Exchange Commission and its subsequent filings on Form 10-Q provide a description of these risks. They are also summarized on slide two of the earnings presentation with that I would like to turn the call over to Claire Field's President and CEO Cheri Beranek Shari.
Good afternoon, everyone and thank you for joining us today to discuss <unk> results for the fiscal fourth quarter and full year 2023.
We also intend to provide an update on our data.
Lots of charge.
I'm joined here is a timeframe of your platform and as I recall last time, the last 12 months because a lot of time with the bond market has been extreme.
We started fiscal year 2023 demand on the industry and in case of all our service providers are emerging from the pandemic focused on ensuring they have the materials necessary to justify it.
Although labor constraints.
Unfortunately, the reality of building a network, it's hard and navigating the numerous articles coming out of the pandemic have been challenging for our customers and the industry.
That's a difficulty trying to enter this period has put them on.
Phil.
So when you finish the cost of fiber deployment by making the process as efficient as possible.
In addition to a need for reduced service provider inventory levels across the market.
Analysts are reporting that they expect that the torrid pace of decline has slowed down as some operators reduce their home on past calls and extended fiber expansion and overbuild and the 'twenty 'twenty four.
Excite many socio economic reasons for this projection and hatred, including managing our capex budget and higher interest rates.
And importantly, no one is forecasting a reduction in the end user demand for high speed broadband.
Our fourth quarter and fiscal 'twenty tonnage for yourselves and reflects the current state of against the Street and are consistent with the commentary that we have provided throughout the year total.
Total net sales for the quarter were $49 $7 million, which includes a $10 6 million contribution from off the table.
Yeah, and I'll discuss our financial results for the quarter and fiscal year in more detail shortly.
But first I want to provide an update on.
Disbursement of government funding program, specifically, the broadband access and the climate call them normal speed.
Currently the states are working through the <unk> guideline interacting and ask a follow up to the national telecommunications.
Information Administration N T I.
We expect to be used for calling for them to be finalized by year end with service provider Award announcements in the first part of next year.
Based on these assumptions, we expect to see increased demand and to recognize the national graphics.
Related program sometime late in the second half of calendar 'twenty 'twenty. Four however, that's really your 25.
The point in which we believe it or not a meaningful contribution to Iraq.
We expect the need to expand our total available market as fiber connections between homes will be longer and underserved or unserved grow environment.
The target language in line with our community broadband market.
We believe these longer can actually point to a higher cost per passing and car connected home. So I think my larger revenue opportunity for yourselves over the long term.
Based on our expected funding cycle, coupled with the ongoing inventory overhang impacting I'm going to say.
We expect the first half of fiscal 2020 for three main challenge it.
Additionally, the industry typically undergo a slowdown in the winter months.
So you can see we expect revenues seasonally saw it accordingly, we expect the next several quarters for himself in a year over year comparisons can be significantly impacted by these day model.
I now want to discuss that strategy progressing across when demand returns.
First of all we continue to adjust to demand levels. We are committed to designing products to address our customers' most significant pain points and reduced the amount of skills that are required to install a house there.
A reminder, labor makes up approximately 70% of the total build cost and mitigating factor into apartments.
We recently announced two new products designed to reduce deployment times and lower their total cost of goods hormone.
After achieving initial success with more than $1 million in revenue on a single digital service provider.
Ken and status quo.
And now it's smaller there yet.
Pittsburgh version of a craft smart Albert first pedestal.
These parasol provider secure ground access points ideal for service providers looking to deploy into rural area.
Another new pilots.
Fox hybrid class 1700 cabinet, which is an all in one design paperboard integrating fiber power active equipment is also tailored to fit any outdoor in Miami and it's smaller sites like ideal Hoover Osaka.
Both the craft Smart Cyrusone Carter, So Atlas sales part fiber correct covenant are ideal for broadcast service providers looking to deploy in rural areas as efficiently and economically as possible.
If I had my first pet is still five months left active cabinet I can't remember any revenue today and reflect another step toward alcohol are providing our customers with long term solution.
Solution.
We are working to ensure that all of this product offering will be barbour compliance by the end of calendar year 'twenty 'twenty four.
For some additional insight and what we're seeing in the market and a significant long term opportunity I would like to welcome our Chief Marketing Officer, Kevin wanted to the call Kevin.
Thank you Sherry.
Now in the middle of a historic fiber build out with more ahead of us than behind us.
As many of you know before the $2 5 billion.
Billion dollar beat program.
Now underway with initial disbursements to the states and territories.
As illustrated on slide five industry forecasts from RMB eight indicates the next five year period, we'll see up to 12 million additional homes passed with fiber because of federal funding initiatives.
Our internal expectation is that this additional build out may extend into 2021 and beyond because of delays in awards and variability associated with rural fiber builds.
Programs will bring high speed Internet access to Unserved and underserved areas that will boost the total homes passed in the next five years in the U S market to over 57 million homes.
As Jerry noted building.
Building a fiber network is hard work Clearfield remains focused on developing products that reduce both the time to deploy as well as the amount of skill needed to connect homes to the fiber network.
The industry has rewarded great appeal approach.
Product development is the company's revenue has grown at a pace faster than the market.
This slide illustrates the market performance and five year periods set against a clear field revenue growth over the same period.
Clearfield focused on helping service providers improve their time to revenue as our driving value proposition and why we believe in the long term market opportunity for the company.
Coming back to critical 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 fourth quarter and full year 2023.
Thank you, Kevin and good afternoon, everyone.
Please turn to slide seven to look at our fiscal fourth quarter and full year 2023 results in more detail.
Consolidated net sales in the fourth quarter of fiscal 2023 were $49 $7 million or 48% decrease from $95 million in the same year ago period.
This figure includes $39 $1 million of organic net sales are poor clearfield and a $10 6 million dollar contribution from Nestor cables.
The sequential decrease in Nestor cables revenue over the previous quarters, primarily due to seasonality.
Well, Mr cables exhibited strong year over year topline growth, we remain focused on reducing costs and improving margins at nestor by investing in more efficient manufacturing equipment, and introducing higher margin plug and play connectivity products from Clearfield and higher margin specialty cables, Nestor can produce and sell to the European market.
Yeah.
The year over year decrease in total net sales was due to the ongoing industry dynamics and a clear field segment that Sherri described earlier that our peers in the marketplace have reported over the last several months.
Order backlog declined 65% to $57 $3 million on September 32023 from $164 $9 million on September 32022, and $74 $7 million on June 32023.
We continue to collaborate with our customers to align their open orders with their deployment schedules.
As Sherry noted our lead times are now less than four weeks across most product lines.
We expect backlog to become less of an indicator for future sales as most orders will be fulfilled within the quarter. They are received.
Due to the timing of our year and we don't have visibility yet to the calendar year 'twenty 'twenty four outlook from our regional service providers and Msos customers normally book on a more scheduled basis.
We continue to work closely with our customers to monitor their inventory levels and long term demand.
Turning to slide eight I'll now review net sales by our key markets.
Yeah.
Sales to our primary market community broadband comprised 46% of our net sales in the fourth quarter of fiscal 2023.
In Q4, we generated net sales of approximately $22 $8 million in community broadband down 48% from the same period last year.
For fiscal 2023, our community broadband market net sales totaled approximately $112 million, which was down 12% from the previous year.
As a reminder, we have broken out our community broadband customers, taking it to disclose revenue from the traditional smaller providers and from ilex with footprints of 500000 subscribers and above which we refer to as large regional service providers.
Net sales for our fourth quarter, and our large regional service providers market was $6 $3 million.
Comprising 13% of our total net sales and declined by approximately 64% in the fourth quarter of this fiscal year versus the prior year fourth quarter.
Net sales in this market were down 26% in fiscal 2023 as compared to the prior fiscal year.
Our MSL business comprised 11% of our net sales in the fourth quarter.
Net sales declined 75% in the fourth quarter of this fiscal year versus the prior year fourth quarter and were down 5% for fiscal 2023 as compared to the prior fiscal year.
Net sales in international carrier market for the fourth quarter accounted for 5% of total net sales decreased approximately $500000 or 18% in the fourth quarter of this fiscal year versus the prior year fourth quarter.
For fiscal 2023, net sales international carrier market were down 17% as compared to the prior fiscal year.
Finally, net sales in our international market were $12 $4 million and comprised 25% of total net sales in the fourth quarter.
Net sales increased 32% in the fourth quarter fiscal 2023 compared to the same period last year and were up 226% for fiscal 2023 due to the acquisition of Mr cables, which contributed $10 6 million towards this segment in the fourth quarter of fiscal year 2023.
As a reminder, we acquired nester in July of 2022, which was the middle of our fourth quarter of fiscal 2022.
Yeah.
Turning to slide nine consolidated net sales for the full year fiscal 2023 decreased a little less than 1% to $269 million from $271 million in fiscal 2022.
Clearfield organic net sales were $226 million down 14% year over year and Masters contribution was $43 million for the fiscal year.
The decrease in total net sales was due to the industry dynamics, we discussed earlier.
As detailed on slide 10 gross profit margin in the fourth quarter declined to 24, 1% net sales from 39, 5% of net sales in the same year ago quarter.
Our gross margin continues to be impacted by unabsorbed overhead in our manufacturing facilities due to lower levels of demand.
The company continues to adjust its production capacity to align to current demand and market conditions.
Yeah.
Turning to the next slide gross profit margin for the full year fiscal 2023 declined to 31, 7% of net sales from 41, 7% of net sales in fiscal 2022.
As Sherri highlighted we expect revenue in the first half of fiscal 2024 to be impacted by the continued inventory digestion as well as normal seasonality, which will also impact our gross margin performance.
As we enter the build season in the second half of fiscal 'twenty 'twenty four we anticipate an uptick in demand, which should lead to an improvement in gross margin as capacity utilization increases.
We will continue to work to uphold price discipline as well, while also ensuring the preservation of our long term customer relationships.
Moving forward, we will remain thoughtful in how we address these costs with our customers.
Now please turn to slide 12.
Operating expenses for the fourth quarter were $10 $3 million, which decreased from $15 $3 million in the same year ago quarter.
This decrease is primarily the result of lower performance based compensation accruals year over year as well as reduced legal and professional fees related to the acquisition of Nestor cables that occurred in last year's fourth quarter.
As a percentage of net sales operating expenses for the fourth quarter were 21% up from 16% in the same year ago period due to lower sales volumes.
As detailed on the next slide.
Operating expenses for the full year fiscal 2023 were $48 million.
Down slightly from $49 million in fiscal year 2022.
As a percentage of net sales operating expenses for fiscal 2023 were 18% unchanged from 18% in fiscal year 2022.
We continue to monitor our sales and marketing activities and align our variable cost to ensure that our return on investment is strong.
Okay.
Turning to slide 14, net income in the fourth quarter decreased $2.7 million from $17 million in the same year ago period, and was down from $5 $2 million in the third quarter of fiscal 2023.
As a percentage of net sales net income for the fourth quarter was 5% down from 17% in the same year ago period and down from 9% in third quarter of fiscal 2023.
Turning to the next slide net income for the full year fiscal 2023 decreased 34% to $32 $5 million from $49 $4 million in fiscal 2022.
As a percentage of net sales net income for fiscal 'twenty twenty-three was 6% down from 18% in fiscal year 2022.
As illustrated on slide 16, our balance sheet remains strong with $174 million of cash short term and long term investments and just $2 million of debt.
We had $1.8 million in capital expenditures in the quarter, mainly to support our manufacturing operations.
Our inventory balance decreased from $105 million in the June quarter to $98 million in the fourth quarter, reflecting lower stocking levels to align with reduced demand driven by the industry dynamics, we have discussed.
We expect inventory balance to continue to level off in fiscal 2024.
Please turn to slide 17.
Due to limited visibility related to the reasons. We've discussed we will provide quarterly rather than annual guidance at this time.
We expect the first quarter of fiscal 2020 for net sales to be in a range of $28 million to $32 million.
We expect to generate a net loss per share in the range of 36 to 44 cents.
This range does not reflect the potential impact of any share repurchases that may be completed in the quarter.
While we are not providing guidance beyond the first quarter, we would expect normal seasonality to continue thereafter into the next bill cheated.
Our strong balance sheet ensures that we are well positioned to effectively compete for larger customer opportunities and to pursue strategic opportunities to enhance our market and product portfolio.
Likewise, our strong cash balance positions us to manage the business for the long term.
Okay.
We are also announcing that our board of directors has increased our share buyback authorization from $22 million to $40 million, leaving approximately $33 million available for repurchases.
This strategic move reflects the boards consider strong conviction that our current share price is undervalued relative to our long term opportunity.
This increase in our buyback authorization as a clear and proactive commitment on our part because we believe in the enduring strength and potential of our company.
That concludes my prepared remarks for our fiscal fourth quarter and full year 2023.
We appreciate the support of our investors as we continue to work to drive shareholder value.
I will now turn the call back over to Sherri.
Thanks for the financial update Dan.
With a strong balance sheet. The company is in good position and why they got the dynamics that are affecting that market over the short term.
We are taking a long term approach Mr. Cusick Ascension positioning the company can lead to significant demand.
Turning to slide 19, I would now like to provide an update on our multiyear strategic plan, which we have labeled.
We have a roadmap for how we intend to capitalize on the significant opportunities ahead and industry demand begins to recover.
I previously mentioned, our new product offering.
Now I'd like to emphasize a few additional initiatives that we are actively pursuing.
First we are recruiting extra can you send your market, especially in Europe, where we intend to leverage I want your platform to cross sell connectivity products.
We are also investing one.
Tony a facility like relax and connectivity manufacturing.
Second our ongoing operational initiatives continue to drive cost we'd have seen that can improve our gross profit once business conditions improve.
I'm sorry.
Yeah.
To improve operational efficiency and a unified company.
As I said at the beginning of our call today.
And here comes with many of these vaccines as a fast.
I'm proud of the execution of course, they'll kind of demonstrated.
Prior to the pandemic.
Since our inception, Krefeld have strategically growing the organization, while delivering consistent profitability.
We achieved that scale clearfield made substantial infrastructure investments.
Good morning, Andrew.
Overhead that will negatively affect our earnings power over the next two quarters. However, we remain confident that the future growth in fiber in absolute.
Cleared those plants ready to deliver on that demand as the market returns to its normal life.
And with that we will open the call to your question.
Yeah.
Thank you we will now be conducting a question and answer session.
If he would like to ask a question. Please press star one on your telephone keypad.
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Yeah.
Your first question comes from Jason Smith with Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions understandings were had been normal seasonal patterns for the softness in the first half, but this year due to weather can you just remind us if December traditionally is the trough quarter for the year, just given what you've seen the past couple of.
Years, and kind of seasonality getting thrown out the window, how should we think about kind of December potentially being the low point.
Yeah, historically actually the.
First and second quarter are usually pretty similar in.
And that we started out strong in October and that we're still building them and then slow down for the holidays and their budget season, and then a slow back bringing come back up for the spring.
The bigger issue is that the weather in first quarter, but it's how quickly we get to spring in second quarter that could influence.
How much stronger second quarter might be the first.
Okay. That's really helpful. And then have you transitioned all the Nestor product lines over to your Mexico facility at this point.
Yeah, we are manufacturing, all but one or two of the fibers and the Mexican facility and that movement continues so that we can do it at really a strategic kind of kind of case by case basis part of that is related to inventory.
That we have.
Some inventory of the products that we are not yet producing that we would have transferred a entity the Mexican plant so its being done as inventory conditions dictate.
Gotcha and then just the last one from me and I'll jump back into queue Opex took a step back in the September quarter.
Dan how should we think about opex trending through fiscal 'twenty four.
Yeah. So if you were to look at our historical Opex you know this quarter is little bit lower obviously, but we did have some savings that took place and if you would look at nor our Q3 of this past year.
You know Q1, Q2 had a little bit of a benefit in there. If you look at our AR Q3, it's probably.
Some are closer to to that and.
On a run rate basis, it's probably going to be pretty steady going forward from from there.
Okay.
Okay perfect. Thanks, a lot guys.
Mhm I think.
Yeah.
Next question, Scott Searle with Roth Capital Partners. Please go ahead.
Hey, good afternoon. Thanks for taking my questions I'm, sorry, I apologize. If this was covered earlier, but in terms of the outlook for the December quarter. I was wondering if you could provide a little bit more color on the specific categories of customers, where you're seeing that weakness and then Dan as it relates to the gross margins. Obviously, you take the utilization here and I think.
That's embedded in your guidance here, but it goes pretty low the gross margins in the December quarter.
Quickly does that start to come back as you would expect utilization to start to pick up in the second third and fourth fiscal quarters in 'twenty four.
Yeah, I'll go to the gross margin right away and that Yep, you're right. There are some definitely like the volume and capacity issues that the volume really has a huge effect on us. So it is low.
Q2, we would expect to potentially be a slightly better than that and then we really start to pick up in Q3, and Q4 and so we would exit you know you know we may exit Q4 and much more.
More you know, we'd be making up that labor capacity excess capacity.
Past and fixed overhead coverage much stronger, but it starts to really get it starts to get better at Q3 and Q4 Scott.
Okay.
Yeah.
Yeah, Yeah, it's a.
In regard to where we're seeing the weakness that's been largely itself.
Large regionals have kind of a combination of us pulling back from previous numbers.
That you have seen some reductions in plan is based upon.
Their availability to hit numbers and then secondarily you know another carrier you know they've taken a step back based upon a realignment there their balance sheet and appetite.
Taking a step back on Capex as a cabinet.
Do you think the capex as their financial plans can I come in order.
It seems to be.
Temporary at more of a migratory issue as they figure out where they kind of where they're going to go with there'd be a dollars and whether or not they're going to take any a cam dollars mm for any particular market.
But you know community broadband yeah, the bigger there.
<unk> tried to carrier that more money is an issue.
The large which is where the large reason does play in the community broadband players I would say there are stronger at less of a of a weakness, but the difference there for the day versus a year ago is that's no longer a race.
I'd say a year ago because of all of the uncertainty in all of the big guys.
Fighting against the little guys and the M. S. Those fighting against the Lard Friese felt it was a race to see who is going to get there first.
And as a result, that's where the inventory buildup can cause any of the cadence seems a practical and prudent.
And eventually as various carriers get underway and we'll be back to a more normalized with them on a more normalized cadence.
Sure and maybe just a follow up what is that normalized run rate you know when youre looking at deployments versus working through inventory absorption at your customers.
And I guess as part of that it sounds like a cam is factoring into the calculus as well here in terms of delays ultimately I would think that's a good thing as it has been but is that a primary culprit here in terms of customers pausing as they figure out a camera bead.
Right, it's definitely applies in the smaller carrier so in community broadband I'm, you know with some of our peers, who we are we work very closely with I've outlined in their calls in the last few weeks the expansion and the continuation of a Cam is a fantastic thing for our marketplace.
And that it provides another almost $20 billion into a market or 50% more than what was originally thought wasn't that come from the government.
But it isn't it in most situations it as an either or decision and as a result, you know companies need to very carefully make a decision as to what they're going to do.
To ensure that they don't get cut off them by making a mistake and I think there's enough time and are in the bead programs and end up being a calendar to allow these service providers to do that.
Our backs here that the normalized cadence.
The time that you see in engineering design come into play until the time that you see you know first several you know can be as short as.
You have three to four months, but it's more often and closer to a year.
And you know in our World, We watch all of those.
Work really closely with those engineering design companies, they're still extremely bullish about what Peter is going to do for us and so I would watch the activity of those engineering companies next year to really show how strong the second half of 'twenty four and end of 'twenty five is gonna be for fiber construction.
Yes.
Great. Thank you.
Next question, Ryan Koontz with Needham and company. Please go ahead.
Thanks for the question.
A comment about the rural market with the longer loops being a higher Tam market for you guys.
I think of that as being a.
Having a bigger impact on the actual fiber cable itself on homes passed as opposed to productivity, but maybe you can expand on why their connectivity Tam is larger is it is that just because the density per unit is lower and you do need to spend more on.
If you remember pumps, thanks mm mm no. It actually goes back to the fiber as you indicated is that.
We are most of the association with connecting a home I'm the largest percentage of the cost is the actual fiber cable itself and so if you're homeless 500 miles of fire miles, yes, 500 feet from your terminal box versus a mile from there.
Terminal box, it's a heavily influences what the cost of your drop cable is gonna be and so they're further out those individual houses are the more opportunity. There is for both drive cable and terminal devices and again, you might see a at multiple terminals being.
Strong, let feeding off of each other in order to get to that and.
Like I said the other one reason why the total available market is.
It's Lars here.
In general we're working to I think that's one of the things that sometimes gets all right. What is clearfield is investing strongly to increase our total available market. During this during this low and that we came out of the market put into the marketplace. You know last year with a range of pedestal.
Yeah, it's pretty common knowledge, we're going to come out with a vault, which is gonna be able to be used with every cabinet that we're gonna have a that will be that deploying and you know clearfield has historically been a company associated with passing homes are not as much connecting homes and so we have a very strong initiative.
Using our market presence to get them more of home of the homes connected to be used in clearfield equipment and use a C change being announced last spring, which is undergoing field trials over the course of this first year, which we believe will represent additional revenue opportunities.
Additional Tam for us next year and beyond.
That's helpful. Thank you and just a real quick follow up on the on the cable market any difference there between Ah that's obviously.
Members have been a little depressed there is that similar inventory issues or are you seeing any changes in architecture pauses in programs, maybe you can kind of make any broad comments about cable and.
I think the cable market is that those individuals those individual companies who are committed to.
Fiber to the home Theres been no change in our commitment and they continue to build and being committed to yeah, the new architectures and for those companies to larger company issue, a roommate, who will retain their commitment to the DOCSIS position, yeah, I haven't seen a change, but what we have been involved with.
With as a higher number of hub collapses and other types of areas in which they are taking fiber deeper into their networks and as a result have a need for both passive and active cabinet to serve into that space.
Alright, Thanks Sherry.
Next question correct.
West Park. Please go ahead.
Yes. Thank you and you mentioned earlier in your prepared remarks that you don't lead times of shrunk to less than four weeks and that the.
The majority of the business going forward it'll be you know book and ship business.
How has that impacted and how do you expect it will impact the pricing.
Yeah, I mean clears those businesses before the pandemic was always book and ship them and we had some of the best lead times in the industry.
And in fact, they have really worked very closely with our customers to assure that we could align our they get the equipment that they need it.
You know at the time that we can ship it.
I think from a pricing standpoint in regard to customer pricing, there's always in a time of oversupply P. M. There is a price pressure you know on the I'm the manufacturer and other service providers are commanding you know what's the thinking was there the buyers are and are in the strongest position.
But in general we are working toward what we call price discipline is that we will not lose market share to for on good business. Yeah, but we also will ensure that should there be inappropriate pricing in the marketplace that is not sustainable and that we won't be tempted to follow.
Great and as a just a companion to that question as the the bead program you know unfolds.
How do you expect the program to impact pricing.
Is it going to be pretty much no impact or there will be some some changes in our and <unk>.
You know willingness to pay things like that.
Oh there'll be the feed program by definition of the Baba initiative, which is build America.
It's going to increase the cost of materials.
There's no way, there's no if ands or buts about that and that any product that is labor intensive to build such as the termination of fiber connectivity.
If we bring that back into the U S market is it takes the same amount of labor. It's just that the labor costs that a lot more in the U S and so most of my peers. When we when we need at a trade show you know have been talking about the fact that we'll have two skus of the same product.
Just one made in America, and one made in a lower cost labor markets and they'll have two different class two different selling prices.
Yeah.
Got it thank you.
Once again, if you would like to ask a question. Please press star one on your telephone Keypad next question comes from Tim Seven all with Northland Capital markets. Please go ahead.
All right good afternoon.
First question was.
International revenue and I know, there's some seasonality there.
Typically.
What are you expecting for Q1 out of international or whats implied in your guidance.
It's cold in Finland.
I am very sorry, [laughter] so yeah.
And they go a good percentage you know 70% of their business isn't is a bar business for European is in Finland.
The guidance for first quarter is slightly less than about six to seven yeah.
Mhm.
Yes, the six to seven or six to eight roughly in that range right now.
Is that a absolute dollar or percentage.
Dollars are at absolute dollar.
Yeah, I'm sorry, alright.
Alright, that's super helpful and that's kind of where I had you.
So I'm looking at.
I mean, it's interesting to note that no your community broadband was up sequentially in September.
Yep.
And you know it.
It seems given the magnitude of decline I mean regionals already you know.
Doesn't have much farther to further to go.
To zero, so I no I assume that the primary driver of the decline it kind of has to be community broadband in that regard and maybe I don't know whether it is inventory or pausing in front of B Riley.
Just wanted to make sure.
I'm looking at that right.
Yeah I think.
You have to go to yeah very much so yeah. There's a book Yeah I'm sorry go ahead.
No.
Yeah, well I think he.
Absolutely you know Theres community broadband I'm in there, but I think one of the things that is important to note on community broadband and it in and the size of the pie that you're looking at them is you know any any mix from one customer to the next can significantly change from one quarter to the next.
And so it's important to look at the overall business as a trend line and that is a single quarter and so it's more of a standpoint, if we put them carefully put community broadband it to the last six months and then back to Batesville Paragon last six months to get a better picture.
I mean community the community broadband base tends to be much.
Well most of the ILEC right or are in the space between you know the Dakota and Texas.
And and so certainly weather effects that space you know.
Much more than we might see you know some of our cable providers, who were more on the coast.
But I wouldn't.
Hit it from a market trend standpoint, it's I think much more seasonal base than it is market trend based.
Yes that makes sense and.
In terms of.
The flip side or the positive side the seasonality.
You know it sounds like you might expect that into.
Heading into the calendar second quarter.
Of next year and then it seems like.
Your gross margins are dipping down it looks like in the maybe low to mid teens here.
With the under absorption, but is it reasonable to look at a kind of a.
Jake even revenue levels somewhere in the $50 million, a quarter range, plus or minus depending on how gross margins were up.
Yeah.
Yeah, I'd I'd put that are around the summer.
Somewhere around the 50 million Mark.
I mean it was in.
Some of it will be you know product mix pricing and everything like that but.
But that's you're not too far off.
It could be slightly lower than than your 55 and so.
Yeah.
Got it.
And I'm sure as we go through I mean, it seems like this bid process is happening pretty much in real time with the initial proposals having been submitted by the states.
Does that unlocking some funding and <unk>.
You May have commented this already I came on late but.
You know.
Do you think we're in a position.
And when it warms up to also have the beta process warming up or should that be a little bit behind the seasonality.
Oh, I think the there's going to be at the behind the seasonality I'm because were.
I think we'll start to see engineering companies get their money, but like I talked about in regard to the shovel ready initiatives.
Best case, we're six months behind the engineering for shovel ready and the engineering dollars will start next summer and so it'll be a seasonal warming forest and then the bead numbers should come behind that and help US then over the course of the winter.
As a result, I think the recovery is going to be messy.
And and messy not in a bad way just in a way in which it's going to be difficult to probably see some of the leading indicators from the generalized market place them, because youre going to have so many competing data points on it.
But the recovery will absolutely come into play, it's just a matter of timing.
Got it thanks very much.
Thank you I will now turn the call over to Sherri for closing comments.
And thank you for the opportunity to speak with you today.
This is a an amazing time in the marketplace as I talked about earlier, the pendulum swing from <unk>.
Demand then appeared insatiable too because it man today, which is much more measured and unpredictable yeah, but clear field over the last 15 years has been a I think a leader and execution. This is a company that is pragmatic prudent and strategic in or out.
Look yes.
And we could not be more disciplined to what we're looking to make happen as we outlined in the materials and there is more market in front of us than we have behind us and more importantly, the market that is in front of us is our market.
The rural market the underserved market in the place in which Clearfield was designed and built to fulfill and so we we are a patient but we're also in a standpoint of being tenacious and we look forward to delivering shareholder value in the future.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
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