Clearfield, Inc.

Welcome to Clearfield's Fiscal First Quarter 2020 Earnings Conference Call. My name is Darrell, and I will be your operator this afternoon. Joining us for today's presentation are the company's President and CEO, Sherry 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 Field Report, which is also available in the investor relations section of the company's website.

Good afternoon, and thank you everyone for joining us today. Bookings for the first quarter of fiscal 2020 were consistent with our expectations for the period. From a top line perspective, we saw strong contributions from our national carrier and MSO markets which were up 33% and 22% year over year, respectively. However, our overall revenue results in the first quarter were impacted by the timing of received orders, resulting in a $1.6 million increase in backlog. We remain confident with respect to reaching our previously stated financial guidance for the fiscal year. From an efficiency standpoint, We generated increased gross profit margin up to 39.9%, reflecting operating enhancements in multiple product categories. In fact, this quarter marked our best margin performance for any quarter out of the past seven. We're especially proud of our margin expansion this quarter, considering more than 55% of our revenue was fulfilled through distribution, which typically has a lower margin profile. We had three 10% customers this quarter, all of which were distributors. Now 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 our market segments by revenue more closely, starting with our core community broadband market. In Q1, we generated revenue of $11.6 million, which was down 11% year-over-year. On a trailing 12-month or TTM basis ended December 31, 2019, community broadband market revenue totaled $52.1 million, down 3% from the comparable period. Product mix for the quarter was roughly consistent with last year, with the exception of a decline in our active cabinet products, which also impacted our international revenue. We are actively evaluating options to address these changing dynamics with the objective of improving our visibility and overall effectiveness of this product category. Our national carrier business is our second largest market comprising 16% of total revenue in Q1 and 15% of our total revenue for the trailing 12-month period. From a growth standpoint, we maintain the momentum we established last year, realizing a 33% year-over-year increase in revenue to $3.1 million in Q1 and a 32% year-over-year increase to $12.7 million for the trailing 12-month period. Driving this growth is the continued demand for fiber to the home and fiber to the business applications. We believe the momentum in our national carrier market validates the strategic investments we've made over the last two years to capitalize on the Tier 1 opportunity and also demonstrates the increasing traction we're achieving. In addition to the positive results we experienced in our national carrier market, we generated double-digit growth in our MSO or cable TV market. In Q1, we generated $2.3 million in revenue. which was up 22% year-over-year and generated $8.8 million for the trailing 12-month period which was up 11% year-over-year. Revenue in our international market was down 27% year-over-year but up 8% over the last 12 months. As I mentioned earlier, our international market was impacted by the softness in active cabinet sales. Revenue in our legacy build-to-print business was down 3% in the first quarter, but up 11% over the trailing 12-month period. 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 first quarter of fiscal 2020.

Thank you, Sherry. Now looking at our first quarter financial results in more detail. Our revenue in the first quarter of fiscal 2020 decreased 4% to $19.4 million from $20.1 million in the same year ago period. The decrease in revenue was primarily due to lower sales in our community broadband and international markets. Gross profit for the first quarter of fiscal 2020 totaled $7.7 million or 39.9% of total revenue compared to $7.9 million or 39.6% of total revenue in the first quarter of fiscal 2019. The decrease in gross profit dollars was due to the lower overall revenue we generated in the quarter. The increase in gross profit margin was due to cost reduction efforts across the product lines, including expanded use of our Mexican manufacturing plant, supply chain programs, and initiatives to reduce the impact of tariffs for products sourced from China. Our operating expenses for fiscal Q1 of 2020 were $7.3 million, which were up from $86.8 million in the same year-ago quarter. The increase in operating expenses was primarily due to an expansion of sales resources and the costs associated with product testing required for Tier 1 certification. Income from operations totaled $400,000 in the first quarter of fiscal 2020 compared to $1.2 million in the same year-ago quarter. Income tax expense was $123,000 compared to $296,000 in the first quarter of last year. The resulting net income was $501,000 or $0.04 per diluted share for the first quarter of fiscal 2020. This compares to net income of $1 million or $0.08 per diluted share in the first quarter of fiscal 2019. During the first quarter, our cash, cash equivalents, and investments decreased $700,000 to $46.8 million from $47.5 million in the prior quarter ended September 30, 2019. This was the result of the payment of fiscal year 2019 bonuses during the quarter as well as an increase in inventory for new product introductions planned for later this quarter. As I have mentioned on prior field reports, our board and management team will continue to evaluate how we deploy our capital to generate the highest returns for our shareholders, whether that's through share repurchases or continuing to invest in our business to further reduce our cost structure and or expand our market and revenue opportunities. That concludes my prepared remarks. I will now turn the call back over to Sherry. Sherry?