CLFD - Earnings call transcript Q1 2020

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Operator

Good afternoon. Welcome to Clearfield’s Fiscal First Quarter 2020 Earnings Conference Call. My name is Daryl, and I will be your operator this afternoon.

Joining us for today’s presentation are the company’s President and CEO; Cheri Beranek; and CFO, Dan Herzog.

Following their commentary, we will open the call for questions.

of to made that a available the Relations like be call link now Investor and website. recorded for section would remind this everyone will in I company’s the replay via call called FieldReport, Investor presentation Relations also a in the of also the webcasted accompanied which and This by is company’s PowerPoint section available is the being website.

Cheri Beranek

period. everyone, fiscal From respectively. Bookings for expectations quarter of XXXX Good saw consistent from today. for topline strong afternoon which XX% the our and a us up the and perspective, we National year-over-year, for joining XX% and thank MSO our were you, were with contributions first markets, Carrier

However, respect for the the in previously million our were increase guidance in received to quarter stated We financial a first impacted timing confident remain reaching $X.X overall backlog. by our with revenue orders, results fiscal the of resulting year. in

categories. XX.X%, up enhancements From in gross profit an margin product generated increased efficiency reflecting operating standpoint, to we multiple

our for In quarter margin seven. any the of fact, past marked quarter out this best performance

customers which of We’re margin of distribution, quarter expansion XX% considering than fulfilled more was three revenue of our typically margin especially had XX% We has all a which our profile. were this lower distributors. quarter proud this through

our deeper of before recent I’d Coming of operational like and market Now Age dive into some progress and I plan, going moment to results our against over our spend progress. a

TTM with million, XX, from closely, a market generated Looking On was $XX.X comparable core down our month, XX% revenue which at December million, XXXX, revenue starting period. Broadband the XX our $XX.X down market. trailing ended Broadband segments more revenue X% QX, totalled or of by Community Community In we market basis, year-over-year.

Active quarter was products, year consistent revenue. Cabinet decline Product which our in with the mix last impacted also exception international of a our for with the roughly

to effectiveness changing the this product address actively dynamics and overall objective category. We of our improving these visibility options with are evaluating of

the month our QX is of our XX trailing XX% total second largest market for business revenue National in of period. XX% revenue and Our Carrier comprising total

the year fiber-to-the-home million established QX is month to and last growth a made the Carrier year-over-year a continued this we’re demand over to from momentum $XX.X period. applications. investments achieving. to trailing the believe $X.X standpoint, and year-over-year strategic we on also We fiber-to-the-business two maintain increasing Driving the we’ve in From last XX our the XX% validates demonstrates traction momentum revenue the increase X million for in and the capitalize opportunity in Tier increase we XX% realizing the market National years growth

In addition XX or to $X.X million the period, year-over-year. the cable MSO up over $X.X we double-digit experienced in in XX% for growth year-over-year was Carrier month Revenue in positive was down and we generated the XX% up our In generated months. up QX, XX National we market. our trailing which international results in TV year-over-year, market generated X% last revenue, but was our market, million which XX%

our in market earlier, active but Revenue X% the quarter, our was in was international over first softness impacted XX% the cabinet Build-to-Print trailing legacy As in I by sales. period. month the business XX mentioned down up

foreseeable approximately this expect future. million at run to continue operate for rate a $X to annual We business the

XXXX. for With of walk us that, I’ll presentation our fiscal who Dan through now quarter our will the turn first Herzog, over performance to the CFO, financial

Dan Herzog

Thank Cheri. you,

in our results looking quarter first financial more Now at detail.

Broadband same $XX.X and decrease of sales first X% international period. in fiscal in in million Our was revenue due to The $XX.X our ago markets. the revenue year million primarily to the XXXX lower decreased in quarter from Community

The reduction the to totalled XX.X% decrease first $X.X in chain million for the total to $X.X fiscal due programs profit quarter. of of to or first the the increase of reduce total margin quarter the and fiscal in of was revenue for XXXX. overall efforts initiatives profit including due XX.X% compared lower to of source profit the supply XXXX gross revenue in revenue or generated million impact quarter gross dollars Gross was in The we product product from across tariffs Mexican plant, use China. lines, our cost manufacturing expanded of

the an Our in which same sales The operations operating fiscal million expansion with from of $X.X operating XXXX of due year in XXXX Income $X.X product X from associated million, from expenses quarter. testing quarter. up certification. million costs the to expenses the was required for same increase for compared ago were fiscal the QX year were primarily $XXX,XXX $X.X and quarter ago resources totalled first Tier in to of

share to $XXX,XXX The fiscal of XXXX. expense quarter in This compared for tax net per compares was $XXX,XXX last in per $XXX,XXX quarter $X.XX diluted diluted quarter the $X.XX of was resulting first $X million share first or first net or of Income the to income of XXXX. the fiscal income year.

first introductions this cash XXXX. of September the quarter the during quarter bonuses an investments $XXX,XXX cash, During the and increase of XX, result for the quarter, $XX.X to from XXXX equivalents inventory was fiscal planned million as prior in $XX.X our decreased This ended for year million as new quarter. in later payment product well the

highest cost to that’s mentioned management deploy have continuing capital to further evaluate how our team to on opportunities. our or our reduce and our our share for and/or we invest our expand through prior the generate in to and shareholders, business repurchases I will returns structure revenue board FieldReport, market As continue whether

Cheri. back That Cheri? concludes my prepared remarks. turn call I to will now the over

Cheri Beranek

overview, Dan. for financial Thanks the

As three now for which XG. year our and business major plan, initiatives our update us that helped our core three year entering has many plan. disruptive of position providing second to within a on Age know, of especially opportunities, moment Clearfield strengthen spend the around of a brief Coming growth we’re you I’ll

this market. it in Community position our has core As relates expanding solid business, established Clearfield to Broadband a

to relied fiber a than manage customers decade, cost technology their more deploy For infrastructure. on and our have effectively

reduce these to and future helping and been while carriers network supporting term longer bandwidth their growth. still short-term has Clearfield expenses

Tier market our and toward As shortly, service municipalities which excellence our enter are we In operational we plan, on more unique grow moving distributor approach. I utilities, us X provider, traditional our help modular cooperatives into touch expect will to the with a further share. connection architecture alongside centric this

XX% As up revenue in the I more year which mentioned XX% earlier, ago QX of was than in through our was period. distributors, from

quarter revenue mix to the expect direct to sales of but We distributors quarter, sales will vary to and time over distributors between increase.

a focus is of entire primary effectiveness organization fiscal XXXX. in Operational our

first realized is resting by we demonstrated area And best this nearly profit in XX% this success, not quarter. our despite laurels. in this success the gross on are perhaps margin Our we

We well supply are capabilities improving continuing operational increase further to competitiveness as our in and judiciously efficiencies. Clearfield’s as to invest manufacturing chain

In we for industrial current park as lease are same month our manufacturing signing fact, second facility in a the this in Mexico, facility. is a which

square associated will facility to and to second establish lean our with to dedicating our double and by the The footage splicing us other initiatives manufacturing facility enclosures. operations allow connectivity one

in two. moving facility quickly on this our mentioning effort expect by second quarter XXXX. facility already for included costs are that the are out the the of We and fiscal associated financial guidance with fiscal new end shipping worth to the It’s be of

wireline XG on involves plan wireless National our capitalizing the of initiative third within opportunities markets. our of markets Carriers The all and

the the into operating X cadence. markets. to if we as networks. with sequel, we realizing of will, accelerating early at fiscal in handoff you between QX, traction gain that to and continue and that is call Coming wireline XG line we believe The is are Along what look associated stage deployments revenue Age plan very these We Tier we wireless of the

As to changing many know, ingrained conditions. react in to quickly to as of respond market allowed which swiftly listen as Clearfield’s DNA has to is and needs well us customer’s our you nimbleness,

our of in term, in to Longer to will is create our our that new accelerating second the motion. in initiative. the cadence Opening speed and of core for already initiative we operating help playing facility foundation a prime believe Mexico company is example this opportunities strength

quickly Our being We and secure while to and important as shipping us two have ahead to planned out our agile months new of And the operate. important, allowed how we will efficiently the to facility stay is lease our is in believe decisiveness and and continue just of a demonstrates endurance. just us competition. product agility ability just enable of

strategy, over the the competitiveness processes maintain we haul. that long systems confident and in We’re have our to Clearfield place enable will

We continue the of in to a period be half second fiscal XXXX believe year. profitability, and will solid especially the of growth

is on and FieldReport, the I main that we our this As talked our long-term. wireline to our investing National success the in Carriers, trajectory support both back-loaded strategically business the are of in market wireless in about reason and continued for near the prior

million $XX year mid to we’ve in revenue for revenue is fiscal guidance at So that range to million XX% reiterate, build XXXX, guidance similar growth our between point. historically. to $XX and the expect seen throughout we will the of Embedded our our what financial representing

some metrics, to at other margins of between to Looking anticipate our XX% gross XX%. continue range we to financial

we’re business. continue the this cognizant in X of gains our remain share of pressure the margin first pricing we by While Tier potential encouraged and we strong growth we quarter, as market in the segment our realized in for to market drive

XXXX. essentially expenses to of which down the the between expect Moving revenue total continue statement, as for to we percentage revenue a is our operating XX% XX% income to compared and of be fiscal year, flat

operating our level talked last with in phase our half improvement will digit plan I of As continue on to call, off fiscal expenses enter to we as operating the margin we enabling to high anticipate single fiscal earnings cadence our later that in growth continue XXXX. of accelerating the about an acceleration XXXX, in mid

as year it commitment between to X% and our expect remain growing relates X% income revenue bottom and profitably we continue for responsibly. line, percentage a the to our of to As underscoring net

end. in mid high Net then digits half the year, the single rising in the first income digits near to will of single percentage be the year early low to

leading As disruptive on optics opportunities in we are fiber industry and fiscal we well capitalize ahead XXXX, to model positioned solutions, within a for strong a competitive business the the position growth industry. proven look

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

Operator

Thank you.

side be comes proceed the of Markets. taking the Northland companies publishing from Tim sell now of Savageaux Capital first questions. your [Operator Please analysts. Instructions] with will line questions set questions We Our from of

Tim Savageaux

afternoon. Hi. me. of questions. Good Pardon couple Hi. A

to in First, quarter. market the I I focus Broadband guess around the want dynamics the Community on

coming order that of Or we Was later dynamic? Should late – orders market that principally? maybe flow verticals kind kind do of and that in well? backlog building in that the as that developing other you assume Broadband the that’s of quarter. have the that’s were mentioned Community that You focus saw

Cheri Beranek

first is Broadband. Community by we of that increase the Inside driven Right. results, inside backlog XXXX the indicate quarter of do press release, the of in

$X.X of million, about the the think, by XXth but so was driven $X.X increase Community over quarter, Broadband September in I the principally Broadband. quarter And Community for for backlogs was down million the

it’s business, of I seasonality So do. the relational. seen to important in that’s XXst an the what of we’ve Clearfield, directly because December seasonality quarter And don’t I in think the for our increase backlog note ever history of the we believe due of because to

unusual. was really So this

sound the between our equipment time But make And within to so were to of people gets Year, be that getting right to we it’s be December understood so the our for with period Community business that the strong wasn’t the market. to is the center, us time happened ended late Christmas sites, they share and wanted them front of and just make we into for of good on that to New that up middle shipping just wanted that Broadband appreciate a a be. – It’s still lot bookings area and to product. continue unmanned a in kind and that we shipped where

Tim Savageaux

visibility visibility confidence then if of – And projects revenue you the for in backlog your the guidance related in that despite it but least in you you rest that Broadband, year but you’re driving than guiding that’s from you competition? or not initial do building as lower Tier bookings that certain QX, some Xs mentioned, QX, at what’s I giving of the if of Right. revenue have year? you kind Obviously in annual Community reiterate that expected kind is XG the have to don’t know or

Cheri Beranek

that. to time enhance out to then support was our and we’ve amount position beside that excited pillar, Right. plan, we I we accomplished is But mean, with the upon which the back able them opportunities, pillar in regard and materials. feel limited are of third the Broadband pillars I and tried the we’re expand I we disruptive continuing Coming about mean, being first of think think, Tim, that to technologies point three support and go have I things I to operating really about in within our and to our Community that Age to if

fiber-to-the-business up period that period. it’s make just our days and day The I year for period we first business is to look out us because over XX fiber-to-the-home the wanted is think XX Tier X month last inside XX% trailing and also called a sure for XX that to irresponsible of and of at I really the

So especially market X I the we’re building. in the fiber-to-the-home, versus the have within down that a substantially is Tier momentum and the XXXX fiber-to-the-home share X we cadence the in shows XXXX, Tier space in think really that

their you is XX% see us, in deliberate board. is TV, but this spends it for cable expansion, And down matter the TV, trailing small period. where Second cable market within meaning last XX-month CapEx you’ll the across opportunity a had we are it’s look a continual no

TV able dollar, I and as small that will it’s shows that in that to we being the creates advantage to – continue anticipate spend we’re revenue share, spend inside of to and take us some this competitive see XG TV, well cable customer start dollar revenue to a spend it take churn think as that. share of positioned issues So although – market or increases cable as we’ll year wireless

a with aspect business is third we’re in our XG we but did that comfortable revenue level And done the need not We incumbent changing is that ideas. and that business a the replace things to one, XG able for opportunity see there’s they space. new be there’s then standpoint year of next And to quarter it’s be whenever for market fabulous – from new that And need a that technology and in the XG there to it’s us able disruption believe is technologies, in in excited is to is XG with very why for beginning of two. new small talked XG and we’re quarter that’s see two, market the But we’ve for were wireline there’s build. we the more handoff about still there now that a between for than being that over wireless in backlog in that forecast attacking and to start revenues where space. we’ll year quarter a beginning

Tim Savageaux

got of mentioned Okay, square guess footprint could to in if you’re I up the think Mexico you follow And doubling the on size I [ph] it. feet. I capacity your expansion, or thousand

Cheri Beranek

That’s right.

Tim Savageaux

but you if products will what be? on maybe of quarterly overall maybe what an up, maybe you understanding speak of a could your dollar ramp us kind wonder can basis to capacity making that your a revenue I you’re you different when in will give different – that estimate locations,

Cheri Beranek

mix. mean product because I that’s that’s – think mean, difficult based I I upon it’s

that first into I Mexico ago capacity we put the the – that in look period of think place had we of I facility we entered first at, in three if mean years time. that square and to feet XX,XXX

of add levels point, second of it’s Chinese of of time right we’ve but the of a first now additional really structures to a – fabulous associated manufacturing there, because the for been maxed that building not into because out some we’re the and the capacity tariffs – us some We that that footprint. cost to this solutions aggressive moving facility have at

initiatives, apart splicing for to to lean cost is able second able to each process will a allow facility cost to termination statistical from a to fiber deal being be in able with to of just and really structures, for so facility a And be which control enclosures, connectivity us and put dedicate the reductions. other those optimize forklift

in it XX,XXX about cost of is is square – enhancement feet about much an as additional as reductions capacity. that So

that can’t We doing to should that believe really that Clearfield anything we on else. better be footprint a not isn’t someone continue we do than

we’ll second we’ve will we lease Brooklyn facility the be and Mexico two partners original got our Brooklyn then be we’re then in left some years virtual But think – manufacturing here about Park facility another have for we’ve our So for got in that to and coterminous. resigning years – X.X still behind I a in X years that. in lease

So we for years. next a think for right we’re three growth place our now the two to good in initiatives

Tim Savageaux

more And me? on Can I’ll you one that if with Right. pass I follow-up question on. just hear could it and

Cheri Beranek

got Yes, a I have dip.

Tim Savageaux

I another Mexico could how predominant just I facility Okay, wonder kind you’ve – of an sourced of capacity the estimate give out you and been, shifting at your China of revenue is? sorry. that present us current Well, am approaching is that know or base way your tariff but I I what that issues, think, of portion deal with to of if

Cheri Beranek

This we Mexico more year than time that manufacturing is Yes. of in fiscal the out Brooklyn first Park. started

we’re a split XX:XX at about So right now.

or allow our that to expansion. And without shift space a revenue double just then our ability so, will in CapEx with first to probably even us doubling enhancing Mexico major

We to important have it’s a believe out. to right and Mexico come employees now we’ve training. invested and don’t in about grab in lot additional We building XXX people because that that for in us in continue

same the ensure quality and ability have line better is in the else investment We product to and training level the that’s than in our marketplace. anything of

that. invest So to we continue in

to be margins as into to see gross point going to think take for So at from in fiscal that that good is of able advantage that us I growth of a the XX% capacity improved we’re the expand space where XX% XXXX, XX% a profit for for that’s year point But model we it. for identifying. that standpoint, year to this some we’re gross that where we’re profit that

Tim Savageaux

thanks. it, Got

Cheri Beranek

talk to soon. You bet. you, Nice you see to

Operator

your with questions. set Lake Our Please the Jaeson line from of questions of come proceed next Street. of Schmidt

Jaeson Schmidt

much want that with to December. relatedly and if all you the of thanks quarter? got out guys, if how December here I expect for pushed Hey Curious recognize that out you the questions. taking could revenue of quantify pushed March in got start just to my

Cheri Beranek

see about Yes. in recognized quarter and two. $X.X It million of was think we will that I most

challenges they each really do approved of challenges and will that the go have because – is we see budgets quarter I time and some some in business short we guarantee the do January quoting you’ve a of One where always lead in when which this revenue in month that you specifically the in regard it’s get is the in got in larger that identifying to customers. other the short in and all activity much so time of like say

model we’re committed XX the XX. a from to still standpoint, So to

increase we’ll maybe the expectations for think quarter I see two, I if originally other QX a little forecast. But of know show some increase, half over million in $X quarter full then up million million an in as what and analysts’ than $X.X don’t will we three. the the

Jaeson Schmidt

do Okay. you you to think term, And target? to increase of sort to That’s amount I or guys be you for from are fair guys coming know distribution. would helpful. split planning of the Longer targeting revenue what

Cheri Beranek

that’s dependent on mean choice. really I customer upon

the As their process And should RFQ they and go as to price X we’re we for we continue that the choose service direct in our with RFQ price the if to of under we the then things distributor take one expand point Tier is then the finding services. through provider. X Tier bid negotiate markets, the distribution, that to bid they that the selling into

where – because Tier us, we X what don’t quote, vendors it’s know little a clouded bit really the the do. want So cloaked bit a to little for

are Broadband. probably have increase, distribution seen of X and likely packaging that revenues Community our providers some important national for distributors Tier because that staging it’s revenues the functionality think well, that increase we the as the as that in that will haven’t I our

every think I it’s we’re and XX% see then to going going fluctuation. growing quarter. some to be don’t think I

back again. we’ll down least maybe end go at Probably year, some think XX%, up but I probably see than more and in XX% and go by the XX% probably the to much that of not short the see term. maybe we’ll

Jaeson Schmidt

if me, seeing today? to it outlook know from on from queue. I’ll potential but margin jump and one curious in comment pressure, the into I for standpoint a gross last just could the a the back you sounded And bake keeping pricing you’re pricing what like Okay.

Cheri Beranek

competitive Tier business I the go for to I is our mean, into not Tier goal think a world addition X not we’re and world, space, in but on win in advantage can’t to sustainable price the the X that’s us. competitive we go,

space. margin So to the need looking We we we’re win in in not a to but need to competitive, significant be incumbents be the by undercut business. order market to

that with going that new We’re requiring after new markets solutions. space are in technology and changing,

So apples-to-apples it’s comparison. not an

rate first margin will in think, now those I XG as always standpoint those as move as those However, lower that products. be actually we shipping a start we level until to for to quarter a two, talked first or we a of some producing I like cadence solutions forward at about there’s that products start get a technologies and run

So some expansion the for end front depths afterwards. with in opportunities

we some, coming about, growing, the growing kind in Another bottom really at trying with municipalities, that points with Broadband also certifications, technologies that it. I’ll pressure price of price into new feeders, just and and call it’s amazingly are thing without much are too the explore them some to is without them around that fit Community we low utilities dealing in is coming that haven’t talked but very but is it’s that we’re have companies, growing

into for year this got of baked some that So our we’ve as its expectations where well.

organization lumpiness work a features, our got how world-class through. I’ve knows some sales get sell could think that to until that but to against we I there and quarterly sell who be

Jaeson Schmidt

a Okay. Thanks lot.

Cheri Beranek

All right.

Operator

set Our with the proceed Partners. line your Gibson next of Roth from questions. questions Capital of come William of Please

William Gibson

What you. expenditure the plans your Thank year? are for capital

Cheri Beranek

pass to Dan. I that to want

Dan Herzog

last on going X.X, that of somewhere since X.X – to year facility. X. Last in our a have going significant we Yes, be bit we between This lot We Thanks. did year of we and year, incurred Bill. a it’s higher. Mexico in a current was little about expansion but chunk

William Gibson

of speaking was And and Okay. first of facility? any part the Mexico I’m second of quarter the

Cheri Beranek

No.

Dan Herzog

No.

Cheri Beranek

Yes.

February. in costs in shipping March. So of out the we’ll We’ll start second incurring facility start

William Gibson

to you. Fund Thank in? Digital Opportunity the starting is And that lastly, Okay. kick Rural

Cheri Beranek

confusing. just it’s No,

in or done I what’s do some lobbying actually – some so So, balance if actually some call in of really for they has everybody. lower to are work I’m there not that it’s part a rather be advantages equal legislation, a in provide fiber in their the changes and like some to good to or because long-term. that’s stuff Association for Fiber the on heading their speed, that, Rudolph going it’s for, good they’re is than a good the it long-term. The of out, us basically good to the giving conditioning increasing It’s we higher ones. that Broadband require for year. It’s speeds word to down world. it bid But looking Community I the of Broadband some slowed think comes increased kind of – this footing at

year’s next a but see that the think I bit is we’ll of to little real build start increase, cycle, of XXXX. impact

William Gibson

Good. you. Great. Thank

Cheri Beranek

welcome. You’re

Operator

Capital questions. Markets. of your from Northland next Savageaux of with the come proceed Our Please line questions Tim from set

Tim Savageaux

be on though it it Yes, bit, I it that fairly off growth you could that And competitors of end up follow-up kind giving share on of an for low Community market. actually little expectations you growing mentioned? the a flattish. a it’s what slow market you I a relative from basis to which wanted of grower, market but can think to you’ve overall wonder But these obviously touched rate seems kind us started be kind estimate you Broadband what a seems like and double-digit bookings core might market, of you of some at standpoint give of kind and then your what is if

Cheri Beranek

and to are past it’s buy what’s individuals that to made not area. come And averaging X% there’s going Right. on we’ve that solely of done happened – basis We conscious is somewhere think and customer. it’s have decision to are that usually a kind X% growing they the and We’ve XX% that in our back. who price say in target business sometimes no you between

think over. then when and out, fortune back $XXX they’ve and they goes buy out time The it the a first splitter, winter they and first saved rip they a start it come

love Broadband we So grow about X%. Community to

hard to to that We’re – continue work make going be to able to happen.

where to network the And But interesting the planning need and probably they cycle to it’ll build play starts. they RFQ, and municipality engineering to send fiber have going some the make a with work into you choices. challenges don’t that sophistication it associated with in good be of out out to when for they’re – regards if

be So in the market next upon but not fiber right. important decision years, you based to go think to are putting be do that end. for competitive, low there may I or share a short-term it take But risk the our to we when will to the XX ground XX it’s

Tim Savageaux

Thanks much. very

Cheri Beranek

welcome. You’re

Operator

Thank you. This does conclude our question-and-answer session.

like Investors back clfd@gatewayir.com. may closing remarks. for Cheri the was website. not Clearfield’s at will your call the the to to Investor company now If question Beranek questions of Clearfield’s team Relations her contact foreign taken, I’d The section turn you post most relevant CEO, and in answers

Cheri Beranek

you at annual forward we much which website look soon. on materials so for joining our to held our will you Please for and meeting, again and updating of progress to our the Thank week proxy February our look last us today. be

Operator

note results obligation required cause such in law. those differ important to by that during future update management statements the financial this course future forward-looking of to that note also performance forward-looking the statements. the These call made Please the events of materially that subject statements forward-looking could and and except as the undertakes company regarding to to uncertainties It’s statements from actual risks company. are no

Clearfield (CLFD) 23 Jan 202020 Q1 Earnings call transcript