Clearfield, Inc.

Good afternoon. Welcome to Clearfield's fiscal fourth quarter and full year 2019 earnings conference call. My name is Steve, and I'll be your operator this afternoon. Joining us for today's presentation are the company's president and CEO, Sherry Beranek, and CFO, Darren Herzog. Following the 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. Thank you. Thank you. It's 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 containing today's press release, field report, and in this conference call. The risk factors section in Clearfield's most recent Form 10-K filing with the Securities and Exchange Commission provides descriptions of those risks. As a reminder, the slides in this presentation are not controlled by the speaker, but rather by you, the listener. Please advance forward through the presentation as the speakers present their remarks. With that, I would like to turn the call over to Clearfield's CEO, Cheryl Beranek. Please proceed.

Good afternoon, and thank you, everyone, for joining us today. The fourth quarter was a strong period for Clearfield as we achieved the highest level of quarterly revenue in our company's history at $24 million. which was up 7% from Q4 of last year. Similar to our Q3 results, much of this growth came from our national carrier market where we saw particularly strong demand in faster growing applications such as wireless connectivity, business class services, and multi-dwelling units or MDU deployments. In fact, we saw revenue from Tier 1 customers which includes both telcos as well as smaller wireless carriers increased each quarter in fiscal 2019. This momentum not only validates the strategic investments we've made over the last two years to capitalize on the Tier 1 market opportunity, but it also demonstrates the increasing traction we're achieving in this important and growing market. Our performance in the fourth quarter helped us achieve our financial guidance for the full fiscal year. Looking at some of the headline numbers for the year, We generated record revenue at $85 million, which was up 10% from 2018, driven by broad-based growth across our key markets, especially Tier 1. We also held our expenses in line with our plan, as well as maintained solid gross profit and net income margins of 38.4% and 5.4%, respectively. As usual, before I dive deeper into our results and progress against our coming-of-age plan, I'd like to spend a moment going over some of our recent operational and market progress. Looking at the breakout of revenue, we are exceptionally pleased that revenue is up in all of our five key markets. Starting first with our core community broadband market, Q4 revenue was consistent year-over-year at $14.8 million and up 4% for the year at $53.5 million. As expected, the softness we experienced with this customer market in Q3 carried over into Q4 due to the transition in the federal funding programs from the Connect American Fund, or CAF, which is ending in 2019, to the $20.4 billion Rural Digital Opportunity Fund, which begins a 10-year program starting in calendar 2020. It is expected that the annual spend under the Rural Digital Opportunity Fund will be approximately $2 billion. Given our track record of success in the community broadband market, Clearfield is well positioned with an enhanced and integrated product suite to gain market share in the years ahead. Our national carrier business is our second largest market, comprising 17% of our total revenue in Q4 and 14% of our total revenue for fiscal 2019. In Q4, our national carrier business achieved yet another record quarter with revenue of $4 million. For the year, we generated a record $11.9 million, up 31%, or $2.8 million from the prior fiscal year. These record results were primarily driven by the continued adoption of our FieldShield products at two carriers. Overall, our performance demonstrates our solution's continued competency in the field along with the growing trust these larger carriers are developing with Clearfield to support and to scale their networks. Looking briefly at our other markets, our MSO business was up 13% in Q4 to $2.4 million and up 6% for the year to $8.4 million. While we're encouraged with the growth we achieved, we believe some of the temporary spending freezes in the cable TV market will be alleviated after the first of the year. Longer term, as cable TV operators look to upgrade their networks and push fiber deeper and closer to the edge, Clearfield stands to benefit from this increasing desire to quickly and cost-effectively carry out these initiatives. Our international market, which as most of you know is predominantly sales into Mexico, the Caribbean markets, and Canada, was consistent to last year in the fourth quarter and up 21% to $6.5 million for the full fiscal year. Revenue in our legacy builder print business was up 28% in the fourth quarter and 25% for the fiscal year to $4.7 million. We continue to expect this business to operate at approximately a $4 million annual run rate for the foreseeable future. With that, I'll now turn the presentation over to our CFO, Dan Herzog, who will walk us through our financial performance for the fourth quarter and full year of fiscal 2019.

Thank you, Sherry. Now looking at our quarter and full financial results in more detail, our revenue in the fourth quarter of fiscal 2019 increased 7% to $24 million from $22.5 million in the same year-ago period. The $24 million in revenue marked a quarterly record for our company. largely driven by increased sales to our national carrier customers which was up 36% or approximately $1.1 million compared to fiscal Q4 2018. Gross profit for the fourth quarter of fiscal 2019 totaled $9.3 million or 38.8% of total revenue compared to $8.6 million or 38.3% of total revenue in the fourth quarter of fiscal 2018. The gross profit percentage for the fourth quarter of fiscal 2019 was up slightly both from the prior quarter and year-ago quarter due to overhead absorption and some supply chain enhancements that reduced the tariff impact during the quarter. Our operating expenses for fiscal Q4 of 2019 were $7.1 million, which were up from $6.1 million in the same year-ago quarter. The increase in operating expenses was primarily due to an increase of $989,000 in compensation costs associated with additional sales and engineering personnel as well as external sales commission fees. Income from operations totaled $2.2 million in the fourth quarter of fiscal 2019 compared to $2.5 million in the same year-ago quarter. Income tax expense was $511,000 compared to $791,000 in the fourth quarter of last year. The resulting net income was $1.8 million, or 14 cents per diluted share, for the fourth quarter of fiscal 2019. This compares to net income of $1.9 million, or 14 cents per diluted share, in the fourth quarter of fiscal 2018. to our financial results for the fiscal year ended September 30, 2019. Our revenue for fiscal 2019 increased 10% to $85 million from $77.7 million in fiscal 2018. Our top line results came in at the midpoint of our guidance, driven by growth across our key markets, especially from our national carrier customers, which was up 31%, or approximately $2.8 million compared to the prior year. Gross profit for fiscal 2019 totaled $32.7 million or 38.4% of total revenue. On a dollar basis, this was a 6% improvement from the $30.1 million or 39.9% of total revenue we reported in fiscal 2018. Our gross profit margin for fiscal 2019 exceeded our guidance range of 37 to 38% driven by our continued efforts to enhance our supply chain and cost structure Our operating expenses for fiscal 2019 were $27.5 million, which was up 6% from $25.9 million in fiscal 2018. As a percentage of revenue, operating expenses for fiscal 2019 were 32.3%, which was near the midpoint of our guidance of 31 to 33%. The increase in operating expense dollars for fiscal 2019 was due to higher compensation expense as a result of strategic additions in headcount to support our continued growth, as well as an increase in external sales commission and fees paid to manufacturing sales reps and agents. Income from operations totaled $5.2 million in fiscal 2019, an improvement from $5.1 million in fiscal 2018. Income tax expense was $1.4 million which was up from $1.3 million in fiscal 2018. Taken together, the resulting net income for fiscal 2019 was $4.6 million, or 34 cents per diluted share, which was an improvement from $4.3 million, or 32 cents reported last year. And finally, turning now to our balance sheet, During the fourth quarter, our cash, cash equivalents, and investments increased $4.3 million to $47.5 million from $43.2 million in the prior quarter ended June 30, 2019. As it relates to our capital allocation strategy, the Board and management will continue to evaluate how we deploy our capital to generate the highest returns for our shareholders. whether that's through Sherry Purchases or continuing to invest in our business to further reduce our cost structure and or expand our market and revenue opportunities. Now with that, I would like to turn the call back over to Sherry. Sherry?