NASDAQ:CLFD Clearfield Q2 2024 Earnings Report $28.54 +0.46 (+1.64%) As of 04/24/2025 04:00 PM Eastern Earnings HistoryForecast Clearfield EPS ResultsActual EPS-$0.40Consensus EPS -$0.53Beat/MissBeat by +$0.13One Year Ago EPS$0.67Clearfield Revenue ResultsActual Revenue$36.90 millionExpected Revenue$31.25 millionBeat/MissBeat by +$5.65 millionYoY Revenue Growth-43.10%Clearfield Announcement DetailsQuarterQ2 2024Date5/2/2024TimeAfter Market ClosesConference Call DateThursday, May 2, 2024Conference Call Time5:00PM ETUpcoming EarningsClearfield's Q2 2025 earnings is scheduled for Thursday, May 1, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Clearfield Q2 2024 Earnings Call TranscriptProvided by QuartrMay 2, 2024 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Ladies and gentlemen, greetings and welcome to the Clearfield Fiscal Second Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greg Meknes, Investor Relations for Clearfield. Operator00:00:35Please go ahead, sir. Speaker 100:00:38Thank you. Joining me on the call today are Sherry Baranette, Clearfield's President and CEO and Dan Herzog, Clearfield's 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 note that during this call, management will be making remarks regarding future events and the future financial performance of the company. Speaker 100:01:03These remarks constitute forward looking statements for purposes of the Safe Harbor provisions of the Private 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 in Clearfield's most recent Form 10 ks filing with the Securities and Exchange Commission and its subsequent filings on Form 10 Q provide a description of these risks. Speaker 100:01:49They are also summarized on Slide 2 of the earnings presentation. With that, I'd like to turn the call over to Clearfield's President and CEO, Sherry Beranek. Sherry? Speaker 200:01:58Good afternoon, everyone. Thank you for joining us today to discuss Clearfield's results for the fiscal Q2 2024. We also intend to provide an update on our business and current market trends. Please turn to Slide 4. While we view 2024 as a transition year, we believe that the quarter ending in March represents the beginning of a gradual recovery as broadband service providers continue to deploy equipment and long term demand remains robust. Speaker 200:02:29In the following slides, I will discuss the latest market data, which supports this view. Total net sales for the Q2 of fiscal 2024 were $36,900,000 above the high end of our guidance range, driven by higher than expected sales from our community broadband customers, as this customer segment was the least impacted by the inventory overhang. Dan will discuss our financial results for the quarter in more detail shortly. I would note that while we continue to expect ordering patterns for the remainder of the year to be impacted by the inventory overhang, predominantly in our large regional and MSO accounts, we have seen a pickup in quoting activity in our Q2 across all markets that is more consistent with the traditional build season. While we believe the recovery will be a gradual process, we remain focused on positioning Clearfield to take share when ordering patterns return to a more normalized cadence. Speaker 200:03:28We also continue to expand and enhance our product portfolio. As we announced in February, our newest active cabinet delivers a right sized small footprint option for roll expansion. The small form factor of the FiberFlex 600 is designed to configure the numerous applications, including remote passive optical network distribution, wireless base stations with fiber backhaul aggregation and active network equipment with backup power needs, utilizing a flexible layout. This is Clearfield's latest and smallest size option in the FiberFlex series. With its small form factor, the FiberFlex 600 will give our customers more flexibility in how it is deployed in the outside plant, helping to overcome permitting and right away challenges as they look to deploy fiber broadband in less populated areas. Speaker 200:04:20As with our Craft Smart and Field Smart products, we are working to ensure these products and all other Clearfield offerings will be compliant with the Build America, Buy American Act, known as VAVA, as required by the Broadband Equity and Access Deployment Program legislation, known as BEED. I want to provide a brief update on the BEED process. As many of you know, the states have started announcing RFPs. While this is a great progress, we do not expect to recognize any significant revenue from customer participation in the BEAT program until calendar year 25. Turning to the overall industry outlook as illustrated on Slide 5, industry forecasts from RBA indicate that the next 5 year period will see up to 59,000,000 additional homes passed with fiber, which equates to a 12.5% compound annual growth rate. Speaker 200:05:15Of these 59,000,000 homes, roughly a third are forecasted to have access to more than 1 fiber provider. We believe the introduction of a 2 fiber competition among providers is a very healthy development and expands our total addressable market. Coming back to Clearfield's 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 Q2 2024. Speaker 300:05:44Thank you, Sherry, and good afternoon, everyone. Please turn to Slide 7 to look at our fiscal Q2 2024 results in more detail. Consolidated net sales in the Q2 of fiscal 2024 were $36,900,000 a 49% decrease from $71,800,000 in the same year ago period, but above our guidance range of $29,000,000 to $33,000,000 The year over year decrease in total net sales was due to lingering inventory headwinds we have talked about in the past. As we transition into the build season, we anticipate a gradual uptick in orders more closely aligning with traditional ordering patterns. Throughout this transition phase, we remain focused on reducing costs and enhancing margins across the company. Speaker 300:06:34In Europe, this effort involves strategically investing in more efficient manufacturing equipment and introducing higher margin plug and play connectivity products. Additionally, we continue to be focused on labor utilization for enhanced productivity in order to improve gross margins at all our manufacturing locations, alongside efforts to reduce our inventory levels to enhance cash flow from operations. Order backlog increased 9% to $47,200,000 on March 31, 2024 from $43,500,000 on December 31, 2023. This quarter stands out as the first time in several quarters where our backlog has shown a sequential increase. We interpret this as an encouraging indicator of normalizing ordering patterns during a build season, while customers continue to work through their inventory. Speaker 300:07:27We are continuing to collaborate with our customers to align their open orders with their current deployment schedules. As a reminder, we expect backlog to become less of an indicator for future sales as most orders will be fulfilled within the quarter they are received. Our lead times average 4 weeks across most product lines. Turning to Slide 8, I will now review net sales by our key markets. Sales to our primary market, community broadband, comprised 43% of our net sales in the Q2 of fiscal 2024. Speaker 300:08:00In Q2, we generated net sales of approximately $16,100,000 in community broadband, down 52% from the same period last year. As Sherry mentioned, our community broadband market experienced a sequential uptick of 32%, driven by a gradual increase in orders, including some new customers in the space as providers are preparing for the upcoming build season. Net sales in our MSO business were $5,000,000 which comprised 13% of our net sales in the 2nd quarter and decreased by approximately 50% in the Q2 of this fiscal year versus the prior year Q2. Net sales for the Q2 in our large regional service provider market were $3,200,000 comprising 9% of our total net sales and declined by approximately 75% in the Q2 of this fiscal year versus the prior year Q2. These customers continue to have a concentration of inventory from which they are deploying. Speaker 300:09:01Future quarters could be lumpy in this segment due to product mix concentrations and potential changes in their deployment strategies. Net sales in our national carrier for the Q2 were $2,100,000 accounting for 6% of total net sales and were relatively unchanged in the Q2 of this fiscal year versus the prior year Q2. Finally, net sales in our international market were $9,900,000,000 and comprised 27% of total net sales in the Q2. Net sales in this market decreased by approximately 24% in the Q2 of fiscal 2024 versus the prior year Q2. Revenues in Northern Europe were affected by a late spring and some economic issues in Finland. Speaker 300:09:47We anticipate a sequential increase in this market due to seasonality. As illustrated on Slide 9, gross profit margin in the 2nd quarter declined to 7.7% of net sales from 32.8% of net sales in the same year ago quarter. Our gross margin continues to be impacted by unabsorbed overhead in our manufacturing facilities and an increase in reserves for excess inventory due to the current low levels of demand. As mentioned on the prior quarter earnings call, non cash excess inventory charges in the 2nd quarter did increase sequentially by $1,500,000 to about $5,200,000 in the quarter. While we continue to expect revenue and gross margin in the second half of fiscal twenty twenty four to be impacted by elevated inventory levels at our customers, we believe the 2nd fiscal quarter represents the bottom of our customers' inventory digestion phase. Speaker 300:10:45As we transition into the build season, we expect order volumes and patterns to gradually improve. This anticipated increase in capacity utilization should subsequently result in improvements in gross margin levels. Now please turn to Slide 10. Operating expenses for the Q2 were $12,600,000 up from $11,500,000 in the same year ago quarter. The company continues to strategically invest in the organization yet with a prudent and disciplined approach to its cost controls. Speaker 300:11:19As a percentage of net sales, operating expenses for the 2nd quarter were 34.1%, up from 16 percent in the same year ago period due to lower sales volumes. Turning to Slide 11, net loss in the Q2 was $5,900,000 compared to net income of $10,400,000 in the same year ago period and net loss of $5,300,000 in the Q1 of fiscal 2024. Our net loss was heavily affected by our reduced volume levels, which in turn resulted in lower gross profit percentage and was also affected by the non cash inventory reserves I mentioned earlier. As illustrated on Slide 12, our balance sheet remains healthy with $149,000,000 of cash, short term and long term investments and just $2,000,000 of debt. We had $2,000,000 in capital expenditures in the quarter, mainly to support our manufacturing operations and $4,400,000 year to date. Speaker 300:12:20Our inventory balance decreased from $95,000,000 at the end of the Q1 of fiscal 2024 to $84,000,000 in the Q2 of fiscal 2024. Our cash, short term and long term investments reflect a reduction of $20,000,000 from December 31, of which $15,500,000 was associated with the repurchase of shares in the 2nd quarter. While we recorded the use of $3,200,000 in our cash flow from operations in the 2nd quarter, year to date we have generated $4,600,000 from operations. Our healthy balance sheet continues to ensure our readiness pursue larger customer prospects and strategic opportunities to enhance our market product portfolio. Likewise, our strong cash balance positions us to manage the business for the long term and through our share repurchase program, reinvest for the long term. Speaker 300:13:19Please turn to Slide 13. We anticipate Q3 fiscal 2024 net sales to be in the range of $40,000,000 to $44,000,000 We expect to generate a net loss per share in the range of $0.31 to $0.38 This loss per share range is based on the number of shares outstanding at the end of the second quarter and does not reflect share repurchases in the Q3. While our visibility remains limited beyond this quarter, we are encouraged by signs indicating ordering patterns are beginning to normalize with the onset of the build season and could follow the historical trend that our revenue in fiscal 3rd and 4th quarters have been consistent with each other. As I indicated earlier, we repurchased an additional $15,500,000 in stock in the Q2 as part of our share buyback program, which represented 543,439 shares at an average price of $28.48 Our belief in the value of our company and the market opportunity remains unchanged, as demonstrated by the size and scale of our buyback program. As such, our Board of Directors has increased our share buyback authorization from $40,000,000 to $65,000,000 giving us $30,400,000 authorized for additional repurchases when added to the $5,400,000 repurchase amount available as of March 31, 2024. Speaker 300:14:52This increase in our buyback authorization is a clear and proactive commitment on our part, driven by our strong conviction that our current share price is not reflective of our long term opportunity. That concludes my prepared remarks for our fiscal Q2 2024. 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 Sherry. Speaker 200:15:18Thanks for the financial update, Dan. Turning to Slide 15, I would now like to provide a brief update on our multi year strategic plan, which we have labeled LEAP. As a reminder, LEAP is our roadmap for how we intend to capitalize on the significant opportunities ahead when industry demand returns to a more normalized cadence. Playful continues to build our product offerings to be craft friendly with the inherent goal of reducing the cost of deployments by improving installation time. To aid in this process, we have long provided in field as well as classroom and online training through Clearfield College. Speaker 200:15:57In March, Clearfield announced the availability of an app based 3 d interactive training tool that provides an easy way to streamline the installation process. This solution is delivered on the installation errors, time and field issues by ensuring field technicians have access to the information they need right at their fingertips. This training tool is exactly what cyber technicians are in need of, offering interactive guidance for step by step instructions without relying on manuals. We believe this is how today's workforce and particularly new hires can learn how to install Clearfield products correctly, so that our customers can move quickly from deployment to service availability. Today's workforce is more tech savvy and digitally oriented, making it ideal to develop an installation tool that aligns with their preferred methods of learning and consuming information. Speaker 200:17:01The availability of Clearfield instructions in the BILT app is part of the company's commitment to improve workforce development practices and tools. As the industry works to increase the fiber technician workforce, this 3 d interactive based tool makes it easier to onboard and attract the newer generation of technician. Both voice and text guidance for Clearfield products are immediately available in English, Spanish and German. Anyone can download the free BILT app worldwide from the App Store or Google Play. As we expressed last quarter, we remain confident that the long term demand for fiber is as strong as ever and Clearfield is well positioned to help service providers meet that demand. Speaker 200:17:46And with that, we will open the call to your questions. Operator00:17:53Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. Our first question is from the line of Ryan Coons with Needham and Company. Please go ahead. Speaker 400:18:36Hi, Sherry and Dan. Nice to hear commentary on filling the bottom here. Dan, first one for you on this reserves write down. At a high level, is this related to obsolescence or costs that were out of line with what you can buy from today? And secondly, what would gross what was the impact of that write down? Speaker 400:18:59What would or what margins have been without the write down in the quarter? Speaker 300:19:03Right. Sure. No, this is related to like an excess only because of the value of the amount of inventory we have compared to our sales. It's not about obsolescence and it's not about a lower of cost or market. So, I think we would have had I think our overall gross margin here would have been closer to a 20% sorry, 19% number if you would have taken that to more of a normalized number. Speaker 400:19:33Great, awesome. And Sherry, on the community broadband trend, nice to see that rebounding there. Can you maybe give us a little color there on some of the trends you're seeing in that Tier 3 market in terms of in new builds versus edge outs versus fill in, connected home? Any color you can share there in that Tier 3 space, please? Speaker 200:19:58Yes, we're excited. A couple of things. One is we're definitely seeing there's somewhat of a decrease in excitement about homes passed, not because people aren't ready to do it, but because they want to be able to focus on homes connected. And that's really the growth initiative is making sure that they turn that home passing into a subscriber that generates revenue, which gives us some new revenue opportunities since the inventory that is out there is predominantly cabinets associated with passing homes. The other thing we're seeing is new customers, new Tier 3 providers who are not necessarily telco providers, but community based deployments and other providers who are new to us, who are coming on board through distribution. Speaker 400:20:49That's great, great to hear. And then on the kind of government funding side, I don't think I may be surprised by your commentary on bead in 2025. Any commentary you'd share on the non bead programs as it relates to ARPA or capital projects fund? It feels like every month we're seeing 100 of 1,000,000 of new awards in that space. And are you hearing about those projects coming to bat now? Speaker 400:21:16Is that already starting to impact some of your bookings for the year? And how would you characterize your thinking about those shorter term projects over the next couple of years? Speaker 200:21:26Yes. We saw some of those projects as part before these could come into play. That's been part of the recovery 2022 and 2023 as those early stage programs that didn't have all of the administrative challenges that the B program does or were legacy programs that were extended so that people knew more about them. I would say some of them have hit the Tier 3 market, others probably more associated in the MSO space where we're seeing some of the somewhat the larger provider, but certainly the middle market MSO would get involved in being able to take advantage of it. I think we'll see some of that in this build season in 2024 and it will be a good bridge until we get to the larger B program in 2025 and beyond. Speaker 400:22:22That's great. I'll pass it on. Thanks for the comments. Operator00:22:28Thank you. Our next question comes from the line of Scott Searle with ROTH Capital Partners. Please go ahead. Speaker 500:22:36Hey, good afternoon. Thanks for taking my questions. Also nice to see you guys putting in the trough and a sequential outlook improving into the June quarter. Maybe just to follow-up on some of the other customer segments. Sherry, large regionals, MSOs, it sounds like that's still a little bit lumpy. Speaker 500:22:56But are you expecting to see sequential improvement as we look out into the June, September quarter? And maybe folding Speaker 600:23:11So I Speaker 200:23:13So I'll start at the back end. So yes, what we're anticipating is that we're starting the beginning of a normalized build season. While we can't see a lot of the product mix beyond this quarter, we are seeing some ordering patterns and some quoting patterns that would indicate that we are in kind of this normalized program with 3rd and Q4 are pretty consistent with each other. From an orientation of what do we see in regard to the large cable providers or the large regional providers kind of coming back up to speed, I would say that's the biggest question mark that we have. Those are the providers that unfortunately have either the largest inventory position or have the biggest question mark in regard to how fast they're going to be deploying in order to align their capital equipment expenditures alongside their subscriber take rates. Speaker 200:24:16So those I would say the large regional MSL providers are the swing that could take us below or above our numbers and that's why we have to be a little careful. Speaker 500:24:28Got you. And Shari, maybe just to follow-up on that. So, what are you factoring in from those two categories over the next couple of quarters? And maybe throw the T Mobile joint venture into there now with Lumin had been historically been a customer. How do you see that playing out for you guys? Speaker 200:24:48T Mobile and Lumos are is a really interesting combination. And I think it really shows the development of a 1 fiber network where the wireless and wireline provider becomes 1. As 5 gs deployments start to move forward, T Mobile has had the opportunity to deploy 5 gs with a different level of spectrum, which has allowed it to be faster for deployment, but not isn't as scalable. And so they need in order for it to continue to be able to add more bandwidth and more users, especially for their fixed wireless providers, they need to get more fiber in the ground. And so a joint venture or partnership with Lumos is or acquisition in this case is an exciting way by which for them to control it. Speaker 200:25:43We have been excited to be part of the Lumos build in the past. We have been part of the Lumen build in the past as well. We don't typically throw around customer names because it's there's so much competitive foundation there that one has to be very diligent and prudent about continuing to earn the business. But I would say what's most exciting is the fact that it's happening and people are back to a standpoint of they're not waiting to see, they're actually making plans to make it happen. Speaker 500:26:17Great. And one last one, if I could, Dan, just to clarify on the gross margins. You've got the excess inventory reserves. Looking at your guidance, it seems like that continues into the June quarter. Just want to clarify, how long does that continue? Speaker 500:26:30It seems like this is an accounting adjustment again, not for obsolete inventory. So at some point, you should see the benefit of that. But when do we see that kind of work its way through the system, if you will, from an accounting perspective? Thanks. Speaker 300:26:43Yes. Sure. Yes. So yes, it still stays there. I'd see it being a little bit lower, like more like $3,000,000 or so at least plus or minus, but that's what we're looking at Q3 right now. Speaker 300:26:56And as revenues goes up, those things are going to go down and sequentially will go down as the revenues go up. So we're going to it's still going to be around, obviously, if our revenues in Q4 are similar to our projections in Q3. So but probably more at that level that I just spoke to. And then as the U keeps growing sequentially, those become smaller and recoveries become baked will start to get into our numbers. Speaker 500:27:30Great. Thanks so much. I'll get back in the queue. Speaker 200:27:33Thanks, Scott. Operator00:27:36Thank Our next question is from the line of Jason Schwed with Lake Street Capital. Please go ahead. Speaker 600:27:52Hey guys, thanks for taking my questions. Most have been covered, but just curious if you could update us on how the cross selling opportunities with the Nestor product portfolio has progressed since you brought that online? Speaker 200:28:07It's continuing, but I'd say it's still in the discovery phase. We have had the benefit of being able to be in front of some customers, in our current customers buying cable, and then prospective customers that would be associated more predominantly with connectivity in several European trade shows over the last few weeks and we'll be continuing that moving forward with Engicom in Germany in just a couple of weeks. Centimeters, I think what's important here is it's not about revenue right now. It's really more about being able to establish those partnerships. And what we're really looking for is, we know the product sense that we feel is best, but what we really need to align ourselves with is to expand our channel offerings. Speaker 200:28:57We have had in the U. S. A very strong direct sales program, but more importantly, an extremely strong and well developed distribution network. And so we're looking at that distribution network in target countries and seeing what we can do to facilitate the product offerings that we have in play. Speaker 600:29:18Okay. That's helpful. And then just as a follow-up. Dan, you noted kind of managing OpEx here. It was down sequentially in March. Speaker 600:29:28How should we think about it ramping through the second half of this year? Speaker 300:29:33Yes. We'll have some additional variable costs that will go along with a little bit of increase in revenues here. So expect it to remain not too different percentage wise from where we would be in Q2 right now, plus or minus a little bit, but you could probably aim at the same relative percentage. Speaker 600:29:56Got it. That's really helpful. Thanks a lot, guys. Speaker 500:30:01You're welcome. Operator00:30:02Thank you. As there are no further questions, I now hand the conference over to Sherry Berenik for closing comments. Sherry? Speaker 200:30:24Thank you. Once again, it's been a pleasure to talk and speak with you. I think really in summary, we want to make sure that everyone understands that we're excited about where we're at right now, but we want to reassure everyone that we're at the beginning of a gradual U shaped recovery like we've been talking about for the last couple of quarters. We see deployments continuing somewhat moving forward. Deployments are happening, although they're somewhat thwarted by economic conditions. Speaker 200:30:54But we also see the gap between revenue and customer deployments, while it's still present, we believe the build season will work to minimize it. Furthermore, and I think most importantly, I would close with that, we believe Clearfield is uniquely positioned to serve the 59,000,000 homes that are anticipated to be passed with fiber over the course of the next 5 years. The next 5 years is really what Clearfield is looking for and we hope you're part of our journey. Operator00:31:27Thank you. The conference of Clearfield has now concluded. Thank you for your participation. You may now disconnect yourRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallClearfield Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Clearfield Earnings HeadlinesClearfield Sets Fiscal Second Quarter 2025 Earnings Call for Thursday, May 8, 2025April 24 at 5:00 PM | globenewswire.comClearfield County amusement center prepares for annual Easter egg huntApril 20, 2025 | msn.comTrump’s betrayal exposed Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 25, 2025 | Porter & Company (Ad)Clearfield County poll workers begin training to prepare for upcoming municipal electionsApril 18, 2025 | msn.comClearfield residents divided over proposed whitewater park projectApril 11, 2025 | msn.comDA: Clearfield man gets decades in prison for strangling mother for her insurance moneyApril 9, 2025 | msn.comSee More Clearfield Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Clearfield? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Clearfield and other key companies, straight to your email. Email Address About ClearfieldClearfield (NASDAQ:CLFD) manufactures and sells various fiber connectivity products in the United States and internationally. The company offers FieldSmart, a series of panels, cabinets, wall boxes, and other enclosures; WaveSmart, an optical components integrated for signal coupling, splitting, termination, multiplexing, demultiplexing, and attenuation for integration within its fiber management platform; and active cabinet products. It also provides CraftSmart FiberFirst pedestals, an access terminal that offers a cable management and mounting bracket kit to support the deployment of access terminals; YOURx, an access terminal that provides flexibility with cable mid-span and internal splicing options; and FieldShield, a fiber pathway and protection method for reducing the cost of broadband deployment. In addition, the company offers fiber assemblies; fiber optic and copper cables, microducts, microduct accessories, and tools; and installation and connection accessories for fiber optic networks. It serves community broadband customers, multiple system operators, large regional service providers, and wireline/wireless national telco carriers. The company was formerly known as APA Enterprises, Inc. and changed its name to Clearfield, Inc. in January 2008. Clearfield, Inc. was incorpoarted in 1979 and is headquartered in Minneapolis, Minnesota.View Clearfield ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock? 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There are 7 speakers on the call. Operator00:00:00Ladies and gentlemen, greetings and welcome to the Clearfield Fiscal Second Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greg Meknes, Investor Relations for Clearfield. Operator00:00:35Please go ahead, sir. Speaker 100:00:38Thank you. Joining me on the call today are Sherry Baranette, Clearfield's President and CEO and Dan Herzog, Clearfield's 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 note that during this call, management will be making remarks regarding future events and the future financial performance of the company. Speaker 100:01:03These remarks constitute forward looking statements for purposes of the Safe Harbor provisions of the Private 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 in Clearfield's most recent Form 10 ks filing with the Securities and Exchange Commission and its subsequent filings on Form 10 Q provide a description of these risks. Speaker 100:01:49They are also summarized on Slide 2 of the earnings presentation. With that, I'd like to turn the call over to Clearfield's President and CEO, Sherry Beranek. Sherry? Speaker 200:01:58Good afternoon, everyone. Thank you for joining us today to discuss Clearfield's results for the fiscal Q2 2024. We also intend to provide an update on our business and current market trends. Please turn to Slide 4. While we view 2024 as a transition year, we believe that the quarter ending in March represents the beginning of a gradual recovery as broadband service providers continue to deploy equipment and long term demand remains robust. Speaker 200:02:29In the following slides, I will discuss the latest market data, which supports this view. Total net sales for the Q2 of fiscal 2024 were $36,900,000 above the high end of our guidance range, driven by higher than expected sales from our community broadband customers, as this customer segment was the least impacted by the inventory overhang. Dan will discuss our financial results for the quarter in more detail shortly. I would note that while we continue to expect ordering patterns for the remainder of the year to be impacted by the inventory overhang, predominantly in our large regional and MSO accounts, we have seen a pickup in quoting activity in our Q2 across all markets that is more consistent with the traditional build season. While we believe the recovery will be a gradual process, we remain focused on positioning Clearfield to take share when ordering patterns return to a more normalized cadence. Speaker 200:03:28We also continue to expand and enhance our product portfolio. As we announced in February, our newest active cabinet delivers a right sized small footprint option for roll expansion. The small form factor of the FiberFlex 600 is designed to configure the numerous applications, including remote passive optical network distribution, wireless base stations with fiber backhaul aggregation and active network equipment with backup power needs, utilizing a flexible layout. This is Clearfield's latest and smallest size option in the FiberFlex series. With its small form factor, the FiberFlex 600 will give our customers more flexibility in how it is deployed in the outside plant, helping to overcome permitting and right away challenges as they look to deploy fiber broadband in less populated areas. Speaker 200:04:20As with our Craft Smart and Field Smart products, we are working to ensure these products and all other Clearfield offerings will be compliant with the Build America, Buy American Act, known as VAVA, as required by the Broadband Equity and Access Deployment Program legislation, known as BEED. I want to provide a brief update on the BEED process. As many of you know, the states have started announcing RFPs. While this is a great progress, we do not expect to recognize any significant revenue from customer participation in the BEAT program until calendar year 25. Turning to the overall industry outlook as illustrated on Slide 5, industry forecasts from RBA indicate that the next 5 year period will see up to 59,000,000 additional homes passed with fiber, which equates to a 12.5% compound annual growth rate. Speaker 200:05:15Of these 59,000,000 homes, roughly a third are forecasted to have access to more than 1 fiber provider. We believe the introduction of a 2 fiber competition among providers is a very healthy development and expands our total addressable market. Coming back to Clearfield's 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 Q2 2024. Speaker 300:05:44Thank you, Sherry, and good afternoon, everyone. Please turn to Slide 7 to look at our fiscal Q2 2024 results in more detail. Consolidated net sales in the Q2 of fiscal 2024 were $36,900,000 a 49% decrease from $71,800,000 in the same year ago period, but above our guidance range of $29,000,000 to $33,000,000 The year over year decrease in total net sales was due to lingering inventory headwinds we have talked about in the past. As we transition into the build season, we anticipate a gradual uptick in orders more closely aligning with traditional ordering patterns. Throughout this transition phase, we remain focused on reducing costs and enhancing margins across the company. Speaker 300:06:34In Europe, this effort involves strategically investing in more efficient manufacturing equipment and introducing higher margin plug and play connectivity products. Additionally, we continue to be focused on labor utilization for enhanced productivity in order to improve gross margins at all our manufacturing locations, alongside efforts to reduce our inventory levels to enhance cash flow from operations. Order backlog increased 9% to $47,200,000 on March 31, 2024 from $43,500,000 on December 31, 2023. This quarter stands out as the first time in several quarters where our backlog has shown a sequential increase. We interpret this as an encouraging indicator of normalizing ordering patterns during a build season, while customers continue to work through their inventory. Speaker 300:07:27We are continuing to collaborate with our customers to align their open orders with their current deployment schedules. As a reminder, we expect backlog to become less of an indicator for future sales as most orders will be fulfilled within the quarter they are received. Our lead times average 4 weeks across most product lines. Turning to Slide 8, I will now review net sales by our key markets. Sales to our primary market, community broadband, comprised 43% of our net sales in the Q2 of fiscal 2024. Speaker 300:08:00In Q2, we generated net sales of approximately $16,100,000 in community broadband, down 52% from the same period last year. As Sherry mentioned, our community broadband market experienced a sequential uptick of 32%, driven by a gradual increase in orders, including some new customers in the space as providers are preparing for the upcoming build season. Net sales in our MSO business were $5,000,000 which comprised 13% of our net sales in the 2nd quarter and decreased by approximately 50% in the Q2 of this fiscal year versus the prior year Q2. Net sales for the Q2 in our large regional service provider market were $3,200,000 comprising 9% of our total net sales and declined by approximately 75% in the Q2 of this fiscal year versus the prior year Q2. These customers continue to have a concentration of inventory from which they are deploying. Speaker 300:09:01Future quarters could be lumpy in this segment due to product mix concentrations and potential changes in their deployment strategies. Net sales in our national carrier for the Q2 were $2,100,000 accounting for 6% of total net sales and were relatively unchanged in the Q2 of this fiscal year versus the prior year Q2. Finally, net sales in our international market were $9,900,000,000 and comprised 27% of total net sales in the Q2. Net sales in this market decreased by approximately 24% in the Q2 of fiscal 2024 versus the prior year Q2. Revenues in Northern Europe were affected by a late spring and some economic issues in Finland. Speaker 300:09:47We anticipate a sequential increase in this market due to seasonality. As illustrated on Slide 9, gross profit margin in the 2nd quarter declined to 7.7% of net sales from 32.8% of net sales in the same year ago quarter. Our gross margin continues to be impacted by unabsorbed overhead in our manufacturing facilities and an increase in reserves for excess inventory due to the current low levels of demand. As mentioned on the prior quarter earnings call, non cash excess inventory charges in the 2nd quarter did increase sequentially by $1,500,000 to about $5,200,000 in the quarter. While we continue to expect revenue and gross margin in the second half of fiscal twenty twenty four to be impacted by elevated inventory levels at our customers, we believe the 2nd fiscal quarter represents the bottom of our customers' inventory digestion phase. Speaker 300:10:45As we transition into the build season, we expect order volumes and patterns to gradually improve. This anticipated increase in capacity utilization should subsequently result in improvements in gross margin levels. Now please turn to Slide 10. Operating expenses for the Q2 were $12,600,000 up from $11,500,000 in the same year ago quarter. The company continues to strategically invest in the organization yet with a prudent and disciplined approach to its cost controls. Speaker 300:11:19As a percentage of net sales, operating expenses for the 2nd quarter were 34.1%, up from 16 percent in the same year ago period due to lower sales volumes. Turning to Slide 11, net loss in the Q2 was $5,900,000 compared to net income of $10,400,000 in the same year ago period and net loss of $5,300,000 in the Q1 of fiscal 2024. Our net loss was heavily affected by our reduced volume levels, which in turn resulted in lower gross profit percentage and was also affected by the non cash inventory reserves I mentioned earlier. As illustrated on Slide 12, our balance sheet remains healthy with $149,000,000 of cash, short term and long term investments and just $2,000,000 of debt. We had $2,000,000 in capital expenditures in the quarter, mainly to support our manufacturing operations and $4,400,000 year to date. Speaker 300:12:20Our inventory balance decreased from $95,000,000 at the end of the Q1 of fiscal 2024 to $84,000,000 in the Q2 of fiscal 2024. Our cash, short term and long term investments reflect a reduction of $20,000,000 from December 31, of which $15,500,000 was associated with the repurchase of shares in the 2nd quarter. While we recorded the use of $3,200,000 in our cash flow from operations in the 2nd quarter, year to date we have generated $4,600,000 from operations. Our healthy balance sheet continues to ensure our readiness pursue larger customer prospects and strategic opportunities to enhance our market product portfolio. Likewise, our strong cash balance positions us to manage the business for the long term and through our share repurchase program, reinvest for the long term. Speaker 300:13:19Please turn to Slide 13. We anticipate Q3 fiscal 2024 net sales to be in the range of $40,000,000 to $44,000,000 We expect to generate a net loss per share in the range of $0.31 to $0.38 This loss per share range is based on the number of shares outstanding at the end of the second quarter and does not reflect share repurchases in the Q3. While our visibility remains limited beyond this quarter, we are encouraged by signs indicating ordering patterns are beginning to normalize with the onset of the build season and could follow the historical trend that our revenue in fiscal 3rd and 4th quarters have been consistent with each other. As I indicated earlier, we repurchased an additional $15,500,000 in stock in the Q2 as part of our share buyback program, which represented 543,439 shares at an average price of $28.48 Our belief in the value of our company and the market opportunity remains unchanged, as demonstrated by the size and scale of our buyback program. As such, our Board of Directors has increased our share buyback authorization from $40,000,000 to $65,000,000 giving us $30,400,000 authorized for additional repurchases when added to the $5,400,000 repurchase amount available as of March 31, 2024. Speaker 300:14:52This increase in our buyback authorization is a clear and proactive commitment on our part, driven by our strong conviction that our current share price is not reflective of our long term opportunity. That concludes my prepared remarks for our fiscal Q2 2024. 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 Sherry. Speaker 200:15:18Thanks for the financial update, Dan. Turning to Slide 15, I would now like to provide a brief update on our multi year strategic plan, which we have labeled LEAP. As a reminder, LEAP is our roadmap for how we intend to capitalize on the significant opportunities ahead when industry demand returns to a more normalized cadence. Playful continues to build our product offerings to be craft friendly with the inherent goal of reducing the cost of deployments by improving installation time. To aid in this process, we have long provided in field as well as classroom and online training through Clearfield College. Speaker 200:15:57In March, Clearfield announced the availability of an app based 3 d interactive training tool that provides an easy way to streamline the installation process. This solution is delivered on the installation errors, time and field issues by ensuring field technicians have access to the information they need right at their fingertips. This training tool is exactly what cyber technicians are in need of, offering interactive guidance for step by step instructions without relying on manuals. We believe this is how today's workforce and particularly new hires can learn how to install Clearfield products correctly, so that our customers can move quickly from deployment to service availability. Today's workforce is more tech savvy and digitally oriented, making it ideal to develop an installation tool that aligns with their preferred methods of learning and consuming information. Speaker 200:17:01The availability of Clearfield instructions in the BILT app is part of the company's commitment to improve workforce development practices and tools. As the industry works to increase the fiber technician workforce, this 3 d interactive based tool makes it easier to onboard and attract the newer generation of technician. Both voice and text guidance for Clearfield products are immediately available in English, Spanish and German. Anyone can download the free BILT app worldwide from the App Store or Google Play. As we expressed last quarter, we remain confident that the long term demand for fiber is as strong as ever and Clearfield is well positioned to help service providers meet that demand. Speaker 200:17:46And with that, we will open the call to your questions. Operator00:17:53Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. Our first question is from the line of Ryan Coons with Needham and Company. Please go ahead. Speaker 400:18:36Hi, Sherry and Dan. Nice to hear commentary on filling the bottom here. Dan, first one for you on this reserves write down. At a high level, is this related to obsolescence or costs that were out of line with what you can buy from today? And secondly, what would gross what was the impact of that write down? Speaker 400:18:59What would or what margins have been without the write down in the quarter? Speaker 300:19:03Right. Sure. No, this is related to like an excess only because of the value of the amount of inventory we have compared to our sales. It's not about obsolescence and it's not about a lower of cost or market. So, I think we would have had I think our overall gross margin here would have been closer to a 20% sorry, 19% number if you would have taken that to more of a normalized number. Speaker 400:19:33Great, awesome. And Sherry, on the community broadband trend, nice to see that rebounding there. Can you maybe give us a little color there on some of the trends you're seeing in that Tier 3 market in terms of in new builds versus edge outs versus fill in, connected home? Any color you can share there in that Tier 3 space, please? Speaker 200:19:58Yes, we're excited. A couple of things. One is we're definitely seeing there's somewhat of a decrease in excitement about homes passed, not because people aren't ready to do it, but because they want to be able to focus on homes connected. And that's really the growth initiative is making sure that they turn that home passing into a subscriber that generates revenue, which gives us some new revenue opportunities since the inventory that is out there is predominantly cabinets associated with passing homes. The other thing we're seeing is new customers, new Tier 3 providers who are not necessarily telco providers, but community based deployments and other providers who are new to us, who are coming on board through distribution. Speaker 400:20:49That's great, great to hear. And then on the kind of government funding side, I don't think I may be surprised by your commentary on bead in 2025. Any commentary you'd share on the non bead programs as it relates to ARPA or capital projects fund? It feels like every month we're seeing 100 of 1,000,000 of new awards in that space. And are you hearing about those projects coming to bat now? Speaker 400:21:16Is that already starting to impact some of your bookings for the year? And how would you characterize your thinking about those shorter term projects over the next couple of years? Speaker 200:21:26Yes. We saw some of those projects as part before these could come into play. That's been part of the recovery 2022 and 2023 as those early stage programs that didn't have all of the administrative challenges that the B program does or were legacy programs that were extended so that people knew more about them. I would say some of them have hit the Tier 3 market, others probably more associated in the MSO space where we're seeing some of the somewhat the larger provider, but certainly the middle market MSO would get involved in being able to take advantage of it. I think we'll see some of that in this build season in 2024 and it will be a good bridge until we get to the larger B program in 2025 and beyond. Speaker 400:22:22That's great. I'll pass it on. Thanks for the comments. Operator00:22:28Thank you. Our next question comes from the line of Scott Searle with ROTH Capital Partners. Please go ahead. Speaker 500:22:36Hey, good afternoon. Thanks for taking my questions. Also nice to see you guys putting in the trough and a sequential outlook improving into the June quarter. Maybe just to follow-up on some of the other customer segments. Sherry, large regionals, MSOs, it sounds like that's still a little bit lumpy. Speaker 500:22:56But are you expecting to see sequential improvement as we look out into the June, September quarter? And maybe folding Speaker 600:23:11So I Speaker 200:23:13So I'll start at the back end. So yes, what we're anticipating is that we're starting the beginning of a normalized build season. While we can't see a lot of the product mix beyond this quarter, we are seeing some ordering patterns and some quoting patterns that would indicate that we are in kind of this normalized program with 3rd and Q4 are pretty consistent with each other. From an orientation of what do we see in regard to the large cable providers or the large regional providers kind of coming back up to speed, I would say that's the biggest question mark that we have. Those are the providers that unfortunately have either the largest inventory position or have the biggest question mark in regard to how fast they're going to be deploying in order to align their capital equipment expenditures alongside their subscriber take rates. Speaker 200:24:16So those I would say the large regional MSL providers are the swing that could take us below or above our numbers and that's why we have to be a little careful. Speaker 500:24:28Got you. And Shari, maybe just to follow-up on that. So, what are you factoring in from those two categories over the next couple of quarters? And maybe throw the T Mobile joint venture into there now with Lumin had been historically been a customer. How do you see that playing out for you guys? Speaker 200:24:48T Mobile and Lumos are is a really interesting combination. And I think it really shows the development of a 1 fiber network where the wireless and wireline provider becomes 1. As 5 gs deployments start to move forward, T Mobile has had the opportunity to deploy 5 gs with a different level of spectrum, which has allowed it to be faster for deployment, but not isn't as scalable. And so they need in order for it to continue to be able to add more bandwidth and more users, especially for their fixed wireless providers, they need to get more fiber in the ground. And so a joint venture or partnership with Lumos is or acquisition in this case is an exciting way by which for them to control it. Speaker 200:25:43We have been excited to be part of the Lumos build in the past. We have been part of the Lumen build in the past as well. We don't typically throw around customer names because it's there's so much competitive foundation there that one has to be very diligent and prudent about continuing to earn the business. But I would say what's most exciting is the fact that it's happening and people are back to a standpoint of they're not waiting to see, they're actually making plans to make it happen. Speaker 500:26:17Great. And one last one, if I could, Dan, just to clarify on the gross margins. You've got the excess inventory reserves. Looking at your guidance, it seems like that continues into the June quarter. Just want to clarify, how long does that continue? Speaker 500:26:30It seems like this is an accounting adjustment again, not for obsolete inventory. So at some point, you should see the benefit of that. But when do we see that kind of work its way through the system, if you will, from an accounting perspective? Thanks. Speaker 300:26:43Yes. Sure. Yes. So yes, it still stays there. I'd see it being a little bit lower, like more like $3,000,000 or so at least plus or minus, but that's what we're looking at Q3 right now. Speaker 300:26:56And as revenues goes up, those things are going to go down and sequentially will go down as the revenues go up. So we're going to it's still going to be around, obviously, if our revenues in Q4 are similar to our projections in Q3. So but probably more at that level that I just spoke to. And then as the U keeps growing sequentially, those become smaller and recoveries become baked will start to get into our numbers. Speaker 500:27:30Great. Thanks so much. I'll get back in the queue. Speaker 200:27:33Thanks, Scott. Operator00:27:36Thank Our next question is from the line of Jason Schwed with Lake Street Capital. Please go ahead. Speaker 600:27:52Hey guys, thanks for taking my questions. Most have been covered, but just curious if you could update us on how the cross selling opportunities with the Nestor product portfolio has progressed since you brought that online? Speaker 200:28:07It's continuing, but I'd say it's still in the discovery phase. We have had the benefit of being able to be in front of some customers, in our current customers buying cable, and then prospective customers that would be associated more predominantly with connectivity in several European trade shows over the last few weeks and we'll be continuing that moving forward with Engicom in Germany in just a couple of weeks. Centimeters, I think what's important here is it's not about revenue right now. It's really more about being able to establish those partnerships. And what we're really looking for is, we know the product sense that we feel is best, but what we really need to align ourselves with is to expand our channel offerings. Speaker 200:28:57We have had in the U. S. A very strong direct sales program, but more importantly, an extremely strong and well developed distribution network. And so we're looking at that distribution network in target countries and seeing what we can do to facilitate the product offerings that we have in play. Speaker 600:29:18Okay. That's helpful. And then just as a follow-up. Dan, you noted kind of managing OpEx here. It was down sequentially in March. Speaker 600:29:28How should we think about it ramping through the second half of this year? Speaker 300:29:33Yes. We'll have some additional variable costs that will go along with a little bit of increase in revenues here. So expect it to remain not too different percentage wise from where we would be in Q2 right now, plus or minus a little bit, but you could probably aim at the same relative percentage. Speaker 600:29:56Got it. That's really helpful. Thanks a lot, guys. Speaker 500:30:01You're welcome. Operator00:30:02Thank you. As there are no further questions, I now hand the conference over to Sherry Berenik for closing comments. Sherry? Speaker 200:30:24Thank you. Once again, it's been a pleasure to talk and speak with you. I think really in summary, we want to make sure that everyone understands that we're excited about where we're at right now, but we want to reassure everyone that we're at the beginning of a gradual U shaped recovery like we've been talking about for the last couple of quarters. We see deployments continuing somewhat moving forward. Deployments are happening, although they're somewhat thwarted by economic conditions. Speaker 200:30:54But we also see the gap between revenue and customer deployments, while it's still present, we believe the build season will work to minimize it. Furthermore, and I think most importantly, I would close with that, we believe Clearfield is uniquely positioned to serve the 59,000,000 homes that are anticipated to be passed with fiber over the course of the next 5 years. The next 5 years is really what Clearfield is looking for and we hope you're part of our journey. Operator00:31:27Thank you. The conference of Clearfield has now concluded. Thank you for your participation. You may now disconnect yourRead morePowered by