Clearfield, Inc. (CLFD) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon. Welcome to Clearfield's Fiscal First Quarter 2021 Earnings Conference Call. My name is Sam 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. I would now like to remind everyone that this call will be recorded and made available for replay via a link in the Investor Relations section of the company's website. This call is also being webcasted and accompanied by a PowerPoint presentation called the FieldReport, which is also available in the Investor Relations section of the company's website. Please note, that during the course of this call, management will be making forward-looking statements regarding future events and the future financial performance of the company. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. It is important to note also that the company undertakes no obligation to update such statements, except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release, FieldReport and in this conference call. The Risk Factors section in Clearfield's most recent Form 10-K filing with the Securities and Exchange Commission and its subsequent filings on Form 10-Q provides description of those risks. As a reminder, the slides in this presentation are not controlled by you, the listener. Please advance forward through the presentation as the speakers present their remarks.
Cheri Beranek: Good afternoon and thank you everyone, for joining us today. I hope you are all continuing to stay safe and healthy. It's a pleasure to speak with you this afternoon to share Clearfield's result for the fiscal first quarter of 2021. The first quarter of fiscal 2021 was an exceptionally strong start to our new fiscal year. As you can see on Slide 4, the $27.1 million we generated in revenue was a 40% increase over last year and marked the highest revenue level for any fiscal first quarter in Clearfield history. Our growth in the period with again led by double-digit increases from our community broadband and multiple system operator, also known as MSO or cable TV markets, which were up 71% and 30% respectfully. Our extended and ongoing strong top line performance over the last several quarters as enabled us to exceed the $100 million revenue level on a trailing 12 month basis for the first time. The surging demand and need for high speed Internet access accelerated by COVID-19 is prevalent across the country, especially in the community broadband market in which Clearfield commands strong market leadership. Our track record and reputation in the community broadband market has positioned us extremely well to take share. And further capitalize on the expansion that is currently underway. As our base of independent telephone providers is joined by utilities and municipalities and delivering high-speed broadband to consumers and businesses. Clearfield is helping these emerging providers meet the growing demand by providing our traditional products as well as helping them deploy innovative solutions like our home deployment kits, which extend our field-proven fiber management expertise and leading-edge fiber connectivity performance all the way into the home. As evidence of the success of this initiative. During this past quarter we secured a near-million dollar order for home deployment kits by an electric co-op within our community broadband market. We recognized a portion of this when as revenue in Q1 and the balance is reflected in our $8.9 million backlog at quarter end. The robust industry trends, we have experienced since last year have continued now into fiscal 2021, supported by sustained demand for broadband coupled with government programs such as the Coronavirus Aid Relief and Economic Security Act, also known as the Cares Act that are helping to fund to accelerate these deployments.
Daniel Herzog: Thank you, Cheri and good afternoon everyone, it's great to be speaking with you today. Now looking at our first quarter financial results in more detail. As you can see on Slide 7. Our revenue in the first quarter of fiscal 2021 increased 40% to $27.1 million from $19.4 million in the same year-ago period. The increase in revenues was primarily due to higher sales in our community, broadband and MSO markets partially offset by decreases in our legacy and National Carrier market.
Cheri Beranek: Thanks, Dan. Now shifting gears to our operational initiatives and focus in fiscal 2021. Our strategic plan has been a multi-year initiative to prepare Clearfield for the accelerated rate of demand and growth we are now seeing. As you can see on Slide 12 of the field report, we are now ready to Come Of Age , which is the next phase of our growth plan to further strengthen our core business and position our company for disruptive growth opportunities. While the underlying objectives are unchanged. The three pillars up holding our Coming of Age plan has evolves to better align with where Clearfield is today as a company. Our end markets and customer needs and the near and long-term trends were seeing in the industry. Our first pillar, building a better broadband one community at a time. Leverage is Clearfield's long standing customer and partnership relationships to build brand awareness and expertise. Ultimately, our goal here is to facilitate the enablement of pervasive high-speed broadband to underserved and unserved communities. A major initiative for 2021 is extending our reach within community broadband into electrical co-ops, rural utilities and municipalities that are not currently being serviced by a rural telephone company and are still underserved by the major carriers. As part of this effort our strategy includes partnering with established distributors in these target markets. We anticipate securing these relationships in the coming months. Clearfield position within the community broadband market has never been better. Our track record and reputation has positioned us extremely well to continue to grab market share and further capitalize on the expansion that's currently underway.
Operator: And our first question is from Jaeson Schmidt with Lake Street Capital. Please proceed with your question.
Jaeson Schmidt: Hey guys, thanks for taking my questions. I understand that at lead times can be pretty sure for you guys but just curious, if you could comment on the linearity of bookings in the December quarter?
Cheri Beranek: Hi, Jaeson. Defined linearity; what do you mean by that?
Jaeson Schmidt: Just trying to get sense of order pattern -- patterns were pretty consistent throughout the quarter or if it was more back-end loaded?
Cheri Beranek: No, very consistent. So, I mean it was really -- I mean we're having a mild winter, certainly always helps, but I think overall in the general market, we are seeing just a continual demand of ongoing as people evaluate and build their environments and then plan for the future. So, no, it was a very nice and consistent quarter.
Jaeson Schmidt: Okay. And then, I know you outlined some of the potential tailwinds going forward, obviously you've benefited from some of the tailwinds related to COVID. Just curious, if you could comment on any change in visibility the over the past three months?
Cheri Beranek: We're actually getting kind of -- I would say, increased visibility to business needs. I think the COIVD world has actually created a situation in which communication service providers are really kind of looking out to things by a season by season basis, and trying to work with their suppliers to give them at least some visibility to their plans and needs, not necessarily blanket purchase orders but definitely a little bit more long-range visibility that we would have had in the past. However, I think that's also coupled with some concerns about the availability of labor and installation. We've heard some concerns, especially in the national carrier market about union individuals not wanting to be able to -- require to be able to go into homes; so it's that kind of push/pull that it's created some challenge for our visibility standpoints. But we are continuing to really manage our lead times, we are really industry-leading today at three to four weeks, and then working with our distribution partners to even improve upon that for high volume product so that it will be available from our distribution -- I guess, the distribution partners in three or four days. So we're aggressive about what we see the marketplace heading, and as long as the market -- laborers continue to be available, we're very optimistic.
Jaeson Schmidt: Okay, that's helpful. And then just last one for me and I'll jump back in the queue. Gross margin, a nice uptick in December; how should we think about sort of the opportunity for expansion this fiscal year?
Cheri Beranek: Yes. So the margin was positively affected by the strong dominance of community broadband; with community broadband being up 70% and representing what 65%, 67% of our total business; that business is -- because it's done smaller projects is typically higher margin, and so we certainly benefited from that. With the carrier business, the Tier 1 business being down a little bit in the quarter, that also from the product mix standpoint with representative. So we think 42% is a great target, we don't think it's a scale to move above; so I think we are comfortable that we're doing a lot of great programing to reduce the class. But from a modeling standpoint, I think this is -- should be kind of the pinnacle of what we can achieve.
Jaeson Schmidt: Okay. Thanks a lot guys.
Cheri Beranek: You're welcome.
Operator: And our next question is from Tim Savageaux with Northland Capital Markets. Please proceed with your question.
Tim Savageaux: Hi, good afternoon, and congrats on the strong results. I have a couple of questions, but I'll start with backlog -- we actually saw obviously, a pretty sharp increase relative to last year, but somewhat of a decline sequentially. I'm wondering if you could discuss the puts and takes in terms of bookings and backlog in the quarter that led to that decline sequentially? Thanks.
Cheri Beranek: Yes, there is a very -- it's a very -- the decline sequentially is very standard, it's very seasonal. We don't typically -- a service provider is not all that excited about putting a purchase order over extending their fiscal year. So we tend to see December bookings go down as their budgets are not yet approved and that they're putting together their plans; so that -- I would always say we've offered backlog as a point of information, but it should be taken with a grain of salt, the backlog is not indicative of future demand.
Tim Savageaux: Well, I guess with that in mind, I mean would you expect or can you comment on what you're seeing thus far this quarter with regard to bookings relative to that? We're understanding that your smaller customers may not have the type of cumbersome budget cycles, you might see among the larger carriers. But…
Cheri Beranek: We're having a great January. So it is -- without giving any future guidance within because we can only do what we can see with the three to four week lead times, but bookings have been good. I do not have a concern in regard to lack of market demand, it's strong. There is a lot of projects and activities in place, community broadband is really excited about the available -- of the energy available for where they can put together. And then, I think we have --we've worked for years to have the community -- to have the reputation that we have in community broadband, and the support that we're providing. So I believe we're taking share in this marketplace and are positioned to grow with it as the COVID world tends to settle down.
Tim Savageaux: Got it. And then, if I could move over to your commentary on the RDOF process and the potential to accelerate growth from what looked to be already pretty strong levels. I wonder if you could be a little more granular on kind of expectations for timing there? You'd referenced kind of some degree of pull-forward in demand. Is it likely that we're like to see -- likely to see a normalization in that pull-forward, maybe in contrast to traditional seasonality in the business prior to seeing any type of acceleration from RDOF projects, maybe later in calendar '21?
Cheri Beranek: We -- the general frame of thought is that it's always difficult to know what government projects. But the general trend of thought is that we'll start to see the beginning of that revenue in July and August. So since our fiscal year ends in September, I don't see the RDOF program having a really significant increase for our numbers this year, it certainly will be one of the mechanisms to improve numbers moving forward. The -- to-date the growth that we're seeing; there has been some business that has been CARES Act funded and we certainly saw some business in that in the December quarter, but I think what we're seeing really is true organic need in the marketplace. The -- I mean, COVID absolutely created the requirement that broadband is necessary. And yes, there were those individuals over the course of the first 7-8 months of the pandemic that we're able to immediately put dollars into place, but most of them were really in a place where they're just being able to truly react now and build out their networks in a broader term basis. And one of the things that was really surprising to me and I'll send it to anyone on the call that hasn't seen it -- in the State of Minnesota the -- what traditionally we would view as being community broadband-centric. The Star Tribune, our metropolitan newspaper, published here is where high-speed broadband is available in our state; and what we saw was the 7 County Metro area, and the few of Clearfield customers across the country, across the states such as . There is still a huge amount of need out there and I think we're going to see that over the course of the summer. I've listened to some of the same broadcast that you probably have been or some of the others in our market; and I think our timing is sometimes a little bit different for the space. There is a lot of work that has to be done in regard to construction to actually deliver the physical dig and physical infrastructure to each home in business. So we're optimistic about this year, as well as for the fiscal year 2022, when we can take advantage of government initiatives on top of this.
Tim Savageaux: Great, thanks very much.
Operator: At this time, this concludes the company's question-and-answer session. If your question was not taken you may contact Clearfield's Investor Relations team at clfd@gatewayir.com. I'd now like to turn the call back over to Mrs. Beranek for closing remarks.
Cheri Beranek: Thank you so very much. It's a difficult time now with the pandemic and the inability to receive vaccinations for those that we love. But I encourage you all to be patient and to keep yourselves safe. Thank you for joining us today. We look forward to updating you again on our progress soon.
Operator: Thank you for joining us today for Clearfield's fiscal first quarter 2021 earnings conference call. You may now disconnect.
