Earnings call transcript Q3 2023

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Operator

Good day, and welcome to the Clearfield Fiscal Third Quarter 2023 Conference Call. All participants will be in a listen-only mode for the duration of the call. [Operator Instructions.] Please note that this event is being recorded today. And as a reminder, the slides in this presentation are controlled by you, the listener. Please advance forward through the presentation as the speakers present their remarks.

to for conference Clearfield. like McNiff, to now Relations Investor would turn over the Greg I Please ahead, go sir.

Greg McNiff

Thank you.

Kevin Clarus Joining me President CFO Herzog, Clearfield's Cheri are CMO. and Hill's on the and call CEO, today Morgan, Clearfield's Beranek, Dan

These provisions management Litigation statements Please be law, statements in regarding uncertainties today's the for this forward-looking materially factors future from performance to actual purposes making statement obligation the the note you Reform differ These the company. harbor to will of undertakes that note important contained of forward-looking materially results and in this statements. no actual the to earnings to conference events is and to of call. company statements. release, remarks from subject forward-looking remarks Securities also risks during could financial update could that that that by Act. the results Except cause call, Private company future those differ constitute consider to are safe those It forward-looking on cautions risk and the presentation the such press in required as cause

section recent filing the its Form and Clearfield's Risk with a and in Form subsequent Exchange these XX-K Commission XX-Q on risks. The Securities filings provide Factor of most description

Cheri? With turn like Clearfield's the Beranek. to CEO, that, Cheri would President I call over and to

Cheryl Beranek

for the of everyone, for to quarter you joining Berfield thank third Good results and XXXX. today afternoon, us fiscal discuss

our and We to also current market update intend trends. an business provide on

quarter net fiscal from $XX includes two our sales of million which Cables. contributed the the on third a prior $XX million, Our we calls. XXXX commentary reflects were record third Total provided Nestor for earnings quarter

XX, we revenue per trends. based increasing are ordering XXXX, limited, net September upon the for guidance remains income and year backlog our current our ending visibility and While share guidance our reiterating

share remains industry share remain on more company broadband. reiterate to continue we stable. to return market focus that we capture discuss patterns for to fiber Accordingly, ever shortly. positioning I'll as once more initiatives detail Likewise, market long-term believe ordering the as these a demand we in our want level. confident the I in normalized to

their strong Current end, demand XX% rate reflected providers our alternative remain of in environment. for percentage over upon continue and relative industry defined range provider of as typical cost customers that A service broadband a broadband take that is achieving. on depending and recognize ongoing rates remains strong solutions. are operations competition are and End-user rates allow is revenue to increasing homes return Take total their subscriber. strong vary rates fiber-based per to can to To subscribers improve best service the in and take investment, several years the passed. extremely reducing services that over rates take take

initial the will disbursement cadence Deployment enter we funding Equity, the BEAD, industry Broadband to normalized we stages the of are Access and of of program, certain that As government more more the deployment. programs, a return namely or

the funds. to placed important relationship between and funding with understand orders it's government However, these

not cautious by in topic this prudent compete have detail user a end customers expect To particularly funding, they costs. this service BEAD a to funds we step contribute We in remarks, deployments, to ahead related to continue be for respect best want significant take given highlight broadband slowdown the required and dynamic. available, a our address with and deployment. customers is will believe advantage I each our more matching rising labor this demand. rates interest near-term capital opportunity to that of to Morgan, that to necessary to Kevin impact ensure providers order community his the and Officer, Marketing to Chief In in our are While prepared to near-term financing

service during our as of aware, a Accordingly, customers, period. with industry impacted fiscal of industry expect comparison provider slowdown many revenues inventory during quarters XXXX. Also, we the to first you Additionally, and these next the the expect undergoes based half by the impacting typically winter. the we continue several conversations the year-over-year are results into And buildup soften to reasons, the we for this to these expect be dynamics. seasonally on

studies, pain While products from we long-term eliminating reduce customers. customers by the X.X other by field for positive two need to points our we by commissioned the reception in to studies required which our of amount of current laborer. homes of skilled average to conducted number the SeeChange nearly terminals splicing, included most levels could continue for connected that labor receiving demand, of is the that continue address our deployment SeeChange per very were terminal MSO to to and These maintaining day recently install homes announced to our from increase right recent meet end, design per hardware. plug-and-play and an our four processes size capacity growth are customers' infrastructure significant our To and

level hubs. years, For consistent those of of last over Clearfield you who with have our is this improvement FieldSmart the followed several fiber distribution

focus continue that and deployment reduce the to developing the time our by labor products We customers. required on

and is reminder, As factor deployment. gating the up a build approximately makes the XX% labor total of in cost

product delivery improve also our times. continue We to

range active supply across Lead height supply times remaining constraints. During subcomponents lead our are to of Any to our of reached product four weeks constraints most the target are predominantly XX in a lines. limited six due of cabinets. pandemic, to now times weeks

additional and Chief to call. Kevin? what long-term the Kevin the Officer, For significant seeing to would Morgan, the our like we're some I Marketing insights market in and welcome opportunity,

Kevin Morgan

and more Cheri. the go want over little they will into on translate to orders the initiatives detail how into years. you, a government coming I funding Thank

initial states proposals formal are underway. in for NTIA As many and part $XX.XX will allocations grant their disbursements unserved how the notice as Infrastructure run of XX, until their on states underserved to June to the have received they funds high-speed towards and The know, to This to allocate internet billion Act. Jobs XX and submit of programs. the you BEAD the these program program related the of areas Investment allocates to access December

As illustrated funding for several government next year peak will and levels next continue years. Slide the these on initiatives at X, significant will

due funds to to providers, from months and when service its to specific processes However, place will distribute XX X in builds. provider to a estimate service receives a state the for a of places these there specific we funds to requirements be lag orders when

timing funding this next our demand initiatives. industry for starting and significant in by the to several demographic message lag, the core expect these The year grow at driven anticipate We industry years. for analysts Adjusting late substantially for several clear. next is years, XX% to XX% third-party continuing next very the

less of total than our billion same terms opportunity time period. be $XX to estimate we In slightly over the addressable market,

Clearfield's to third performance. back Coming quarter fiscal

results Herzog, I'd Officer, us financial now pass over like third through will the to quarter the Dan our who our XXXX. of Chief walk fiscal call Financial for to

Daniel Herzog

you, at fiscal a quarter Kevin, results X million, net fiscal to detail. XXXX in Please XXXX third Slide look XX% third Consolidated Thank and good turn afternoon, were sales more our everyone. of quarter $XX decrease an the to increase a in of organic $XX period. million same million reflecting XX% previous Nestor This sales and quarter. includes from over Nestor $XX Cables, from Clearfield cables net million from ago $XX contribution the from figure year the in

the improve equipment we reduce into costs how to process continuing higher-margin faster market. introduce margins at connectivity solutions European to in processing invest capital We with the Furthermore, Nestor. are continue and regarding discovery best to capability

markets. in MSO in decrease sales year-over-year our and across to due The markets, end net community was broadband particularly sales lower our core

aside down noted, Cheri accumulation, June approach on the were comparison to year's XXXX, million and are a by from be to Order on just-in-case negative setting near-term we As providers June will necessary for seeing these March in million approach will XXXX. service markets backlog utilizing service support this XX, last declined where the to appropriations. inventory match wait-and-see financial prepare $XXX million on that BEAD to XX, year, $XXX a $XX BEAD programs year-over-year upcoming providers In XX, on comparisons. XX% have impact XXXX,

which with their in this order deployment provider schedules, their collaborating are customers align to with period. our some open We service resulted orders cancellations

As six product four Cheri noted, times of lead most to range across lines. now our in target our are weeks

review in from markets. to of generated comprised primary I sales Sales net net our approximately market, broadband down sales X. Slide now period of the XX% third key XX% QX, net last in sales million we of XXXX. quarter broadband, to Turning by our our community In $XX year. the will fiscal community same

market periods last the XXXX, community net year. sales the from on June For our up comparable which $XXX broadband XX% totaled approximately was million, months XX trailing ended XX,

this customer we the understand large national did the Community from allows As regional quarter, to we referenced and investors contribution revenue are on earnings Broadband industry included was We dynamics service breaking out the markets. believe carrier call. previously last near-term we in our provider customers, which better breakout last

apart customer subscribers above, broadband providers. Specifically, market of our from disclose ILEC we which community XXX,XXX broken to and traditional refer regional providers service footprints we the as smaller and with from large to have revenue

refer the in by the were approximately to the at Net from for Please historical slide end service declined quarter sales trailing sales X% third view customer the contribution this period. Net market the regional group. to this large our year-over-year. presentation of XX-month up providers over revenue X%

sales XX% a down declined comprised for market year national our ago in On were the basis, net are sales by carrier trailing for and third sales in national sales the Net business Net X% XX-month period. MSO our of the XX% in Our trailing quarter quarter. from year-over-year. period. XX% our approximately up XX-month X% net decreased the carrier market third year-over-year

to XX-month in last of a to sales are $XX year-over-year the XXX% period which the net the due towards international segment trailing quarter this in XXX% contributed Finally, Cables, and acquisition million on up basis year-over-year same the fiscal third quarter. increased market third Nestor compared year the in

year X, the gross margin of in As quarter XX.X% net ago profit Slide from of detailed in sales net same XX.X% on to sales declined the quarter. third

Our well to gross as Nestors inclusion levels margin impacted capacity unused this was as lower our demand in facility due revenue. Mexico of quarter's in the by

The of acquired capacity year. a reminder, strategically current to in As last conditions. was to market Nestor realign continues company July

While along long-term the our in customers relationships. on have our interest been maintaining price, how Clearfield does not prudent of in pass we costs rising compete we to

in to will going continue our We addressing customers these forward. be costs thoughtful with

the increase expenses were the third expenses primarily up Nestor addition Slide Cables in were ago result quarter. Now slightly of which quarter X. to million, operating for $XX.X of $XX.X the year the please the same from of million Operating is turn This business.

As were up of sales, from same ago third XX%, XX% expenses operating period. for net in year percentage the quarter the a

XXXX. fiscal quarter in million Turning to decreased period the quarter same in million Net $XX.X and in XX% Slide from from income to the the second million XX. of $XX.X year-ago down third $X.X was

of the fiscal a for sales, period X%, in the from from in XX% down As XXXX. net net year quarter percentage quarter XX% down income same the was ago third of and second

million expenditures Slide cash, sheet to mainly long-term $X in debt. XX, in strong support illustrated million of remains our on As with operations. quarter, investments We balance short-term and our had million $X.X $XXX of the and capital manufacturing

Our inventory to million the balance dynamics in the by in discussed. driven industry $XXX March million $XXX increased we quarter, have from third

we slightly year flow While in the not free experienced ahead. quarter, year we next fiscal in fiscal we so XXXX, expect in at do them levels cash inventory expect same to levels the to as increase resulting improved do

revenue are We fiscal reiterating XXXX guidance. our

$X.XX are per of We $X.XX within initiatives. range to income increasing to cost-saving better-than-expected product our share and a XXXX guidance from $X.XX per be per to per range $XXX share well fiscal share, year margin in is in full guidance The previously. as net million as up net our $XXX to income sales be the increase of share due to $X.XX million to expect net

we With areas. the infrastructure investing strategic raise and our we year, to other plan undertook capital in necessary continue last

we Additionally, effectively are well larger that to to our enhance strong portfolio. our compete product for and balance customer positioned sheet opportunities opportunities to pursue strategic ensures

the to concludes prepared we drive the work Cheri. call I quarter turn back continue fiscal will value. as of to That my remarks support to our appreciate over investors third shareholder for XXXX. We our now

Cheryl Beranek

Thanks for Dan. the financial update,

great capitalize like update an significant longer multiyear provide Turning leap to on is XX. higher, now with the LEAP, jump plan would To our our to road to and is strategic for ahead. to which map how opportunities intend I Slide force. on we

the infrastructure a significant overwhelming near-term such the organizations that highlighted. access long-term inventory able to with meet demand XXXX, to overcome. as provider directions those how is this demand For strategic the contains broadband in service our challenge order for meet for pause Clearfield, demand to the in to in in hurdle were need we digestion invest new navigate LEAP Kevin

and some listening need We with in the little on using best in cutting continuing to to are than significant time capacity. to the telling throughout products to they have them Rather demand investments growth growth. taking several record last this that position always to several by while the we us provide with ourselves lowering capacity customers We same a prided these and this after years rightsizing years significant prices demonstrated industry company our make thoughtful customers offset service. to the to order do ahead. time slowdown, meet approach costs record of are strategic the or Today, a

to discuss to making we're like marketplace some of organization level the investments more of to I'd the when orders. returns the scale a normalized

both curriculum. Clearfield an to invest and to skilled in College external continue College an shortage. address the training we internal is labor First, Clearfield

and to building. SG&A significant floor stronger know-how of we we to difficult is and cost that progress will layoffs This invest our manufacturing higher difference. and while because announcing the our But competitors within the be on both make in people leap will people, reductions, to measure. the are able are functions, the Our continue

other and build our fulfill add new lead where us ERP better are actively satisfaction will and thereby orders, software in improving These platform. updates markets, to on enable customer to recruiting especially Second, modernizing systems. internal reducing Europe we to we Nestor in are manage while Further, our intend we expertise times. system

programs Clearfield and to microduct umbrella with integrates expanding manufacturing initiatives. product initially procurement for sales we're connectivity create follow our Specifically, our a and and facility will Estonia that and intend management operational

demand. are foundation to and summary, results that levels In visibility reflect which to address of the across strong guidance quarter capacity To from we and lack discussed previously, long-term third while near-term focused remain we financial our building meet our for markets. uncertainty the high-speed we've end, on current demand broadband rightsizing a

points. the term. growth is customers' most approach this our to We processes the shareholder right continue significant over for We and infrastructure long are to value design long-term pain maintaining address to the and products significant drive believe

we that, call will with questions. the And open to your

Operator

the we Needham. We time, come will question, Ryan [Operator Instructions.] from begin with will our will Koontz now session. first this which question-and-answer take At

Ryan Koontz

ask quarter sequentially, down normal talk here to dynamics? about years. to wanted look has, I been of last your Nothing this for guide your strength Cheri, in some seasonality it in on seasonality. some maybe like maybe several maybe was the demand in and course, about puts as us But we the about a June segments, you and at you step of the be have year And of and what down the strength the of some in seems in June kind September. of just you maybe takes there but on strength couple what weren't fill and might anticipating, can were

Cheryl Beranek

alluded to by to is was providers. as weather. some going seasonality, BEAD And of materials the done they be difficult obligations is come finally be show as labor from coming we opportunities if that of make going to have regional unanticipated. providers, financial strong and able that all going facing and service large the and happen. the for they're structure we going. having there is to great to But less in talked now but about, really community and that there in The originally sell-through that is because the nice But and inside going our with products really and where be providing some to be the had We I establish providers it are is those to But this going to to that is defined know up provider customers still are Absolutely. it's a within a community up because was quite service to significant. in helping program large really them we especially it's fully work regional which it's the traditional, market, just always our the be time And to area smaller are funds where they're and the understanding compounded or to had going released, to able labor. apply that financial access that's going provider where now a broadband, did labor

to a they grant of able for waiting puts which to As a be letter need allocation. capital an XX% their submission, frozen equal of to lot provide sitting example, really credit of

for makes into we months could it So, we these business prudent balance more get customers little released. expected. I position us of have But at our think it's think really seasonality their sheets opportunities. are really -- year that optimistic than that are force those that as our they looking identifying winter may a we're next And ongoing aggressively very materials

Ryan Koontz

makes That sense. Right.

are then referring matching in mostly near CapEx, award that they of anticipation speak, these to so for funds? incumbent So, providers to getting for saving you're term are the

Cheryl Beranek

Exactly.

but the have those the who've be to will and traditional ones balance So, incumbent continue providers, place, and traditional who had stretched, sheets been in so. customers our are

[rural] we additional we the year. next current also but think opportunity alternative with our the it up in providers, built that show look utilities, up the of haven't showing there's not some will That's that seasonality, new municipalities is previously. some As revenue forward,

and target. separate So, so the on you're challenges that it's well market when isolate takes tightly some things manage. we understood that our did and create some a of to people of [flaws] of large regional categories right working that things more work we're one the to providers reasons the of and the level And of when puts

Ryan Koontz

guide volume? the a the in other margin and looks purely gross mix for expectations there issues down? and if you're that implied factor Or pretty Is lower I to fixed margins this play down a strong step are anticipating it. number And -- could, just one in of quarter Got a from gross in at guidance gross follow-up, relative June. like the on earnings costs

Cheryl Beranek

different the absolutely cut a We've could lot and there. out No, can Yes. to come space strong do winter. to pleased bone that extremely not over not any of control the we been that to I've systems I'm it's We've chosen looking the done a to in class. in so -- investment lot volume-based quality we of able training, protocol. that further do the work so that been with we've cut

there's We allocation now have just you margins much overhead. right is a so been with well. pull their But product that only it able really to quite can do space

Operator

question ROTH Searle our come with MKM. And will from Scott next

Scott Searle

on Really up it's this quickly margins follow Maybe know quarter. operating nice gross I the difficult Ryan's environment. job a to question. on

September a visibility two one range, it revenue of follow-ups. Is implies do a do you current do areas? $XX Looking particularly terms that to could bigger And of good give standpoint? most you of need you to the turns sequential of million And million. quarter to community in at from have you to lower the then Where couple that us range or a the wondering I'm expect had the directionally pretty get I to progression time? some Or the of of $XX at if broadband. see end categories, there?

Cheryl Beranek

most sell-through regional the project Yes, large upon fulfillment. based is and in the fluctuation providers

pretty We their have in need lead middle to six-week of our backlog, that. customers time, low don't the we'll But that the got four end working space and expect space. through on we're inventory But we stage. the of we've be probably have now with in to much the

bad not mouth, So, through have way. in It's of swings to the regard pendulum little hand a that more digestion. in the bit inventory it's a gone to

be hand right so upon have the expecting to high not goes the to in an based that transparent don't low shareholder be implication could be the the and I'm the is I don't for at the to we we at it as I that marketplace but and everything So, side. direction, in we'll is unpredictable, quarter orders those fact as side, our needed base. --

Scott Searle

and into of about September, And we what continuing Very the up, anticipated and March? to helpful. should results seasonality I for you. injecting December into the that the could, another or give quarters is lastly, Or expect looking the wondering if on bit is in couple terms for Got results follow standpoint in marketplace. a a talking more know there variability little of entry if little mix, I'm more And from a you're bit product your you differentiate seeing? you've thoughts into been us some to could I other what that updated front? ways European Cheri,

Cheryl Beranek

So, the standpoint winter. in lower the second maybe with and little that our Central some European very and breaking and into in strongly first today, the that -- Europe European Continental throughout Mid sales a looking range, quarter are bit opportunities. of of our Finland because associated

seasonality Finland United States, And so, of much is than the worse the unfortunately.

the they a because tend down short be that next them the such to into orders do to tend see place they and a in place seasonally So, have winter months. quarter quarter to put will They they March ending and early go. build things and season -- stronger into of to ready

microduct of orientation works Europe pushable to fiber we're with microduct to we FieldShield work plus-and-play. and into solutions That is to that really a prepare have the seen and has From on able done means doing marketplace provide us that's historically product plug-and-play European to the been be in not the some level. done we're helps the in for pleased as work a what that

over to how last has years. can the and and cassette how deployment blown evaluating to the utilize air that fiber are use the XX with methods the blown brought air fiber more use traditional to fiber how being We market that air within we Clearfield blown modularity

So, in those so a we'll that be British direction. to we we take are to receive into product show able anxious technologies of those and the displaying can be technologies more trade response specific September some see at late

Operator

come here from question WestPark Greg next Capital. Mesniaeff Our with [Operator Instructions.] will

Greg Mesniaeff

how to would the if pricing Can impacting at color. good buildup has be recent issues about inventory bit little some a customers It all? you environment, that the get talk been

Cheryl Beranek

to of a but It's not inventory future season build-up the are that reference to at and necessarily looking try think I price or year's of their have affecting frame build pricing is such purchases, to already more position customers how next decisions. affecting costs identify changed. be looking that able future it's

challenges normalize being needs company you'll think that inventory as against that any current of any see less for it may they the it. not are when the have inventory worth I through their they than providers of purchased being able what writing is service One paid to what to their And was down valuation go it.

fact, other it's it's of building and going costs material associated if the it. the In direction anything, general because with costs labor

Greg Mesniaeff

Sure. follow-up. carrier seeing And Has been there any larger In just recently? quick in change then competitors a moved smaller the other into competitive any you're landscape other that market? have words, the

Cheryl Beranek

In world, the dedicated carrier them our Corning from for Yes. product designed taken I efforts, but sales our of last there, -- mix always and have general the small the broadband, true period share years over we've they XX to community nimble the mean, due been environments. that's the team [Indiscernible] those

the providers, been would So, that the regionals, carriers. larger they are have market, focused to and I I certainly larger wouldn't say on the but new that say national the probably they

Operator

for that, we remarks. to conclude closing Beranek will with And to session. like the conference turn over Cheri I'd the back any question-and-answer

Cheryl Beranek

very Thanks very These industry. are in us much. this times difficult for

quarter I we continue be been being others product at right X% make to able income net my struggled to think times time. you'll have where shareholder I'm struggling proud on a this profit. in to very able team of with across how at able have board, right and find the value to competitors to serve see the the my provide

we are to be I believe certainly pleased well hope forward. prudent. able to we serving and management think be year are and moving that managed. look my top-notch, So, forward team is I to you you next we

Operator

presentation. The attending conference for Thank has you concluded. today's now

disconnect may You your now lines.

Clearfield (CLFD) 3 Aug 232023 Q3 Earnings call transcript