Clearfield, Inc.

Welcome to Clearfield's fiscal second quarter 2022 earnings conference call. My name is Hemant, and I will be your operator this afternoon. Joining us for today's presentation are the company's president and CEO, Sherry Berneck, 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 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. Please note that during this call, management will be making forward-looking statements regarding the 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'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 contained in 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 and its subsequent Filings on Form 10Q provides descriptions of those risks. As a reminder, these slides in this presentation are controlled. You, the listener, please advance forward through the presentation as the speaker presents their remarks. With that, I would like to turn the call over to Clearfield's CEO, Sherry Bernack. Thank you, and over to you.

Good afternoon, and thank you everyone for joining us today. We hope you're all doing well. It is a pleasure to speak with you this afternoon to share Clearfield's results for the fiscal second quarter of 2022 and to provide an update on the business and market trends. Clearfield continues to execute in an environment in which demand is accelerating. Bookings led shipments by $34 million for the three-month period, creating a backlog of $136 million as of March 31st, 2022. We continue to maintain a healthy balance sheet with $43 million in cash and investments and no debt. We have filed a shelf registration statement and secured a $40 million line of credit with Rimmer Bank to ensure we have the financial flexibility in how we respond to the current and future robust client demand and to invest in strategies that will enhance our growth opportunities in the future. We believe we are well positioned to capitalize on any new government funds that are dispersed to our market, with some of our customers already beginning to place advanced orders in anticipation of those disbursements. For all of those reasons, we are raising our fiscal year 2022 net sales guidance from a range of $177 to $183 million to a range of $204 million to $218 million. Our guidance represents growth of 45 to 55% over fiscal year 2021 revenues. Once again, we'd like to provide a brief overview of who we are and what we do for those of you who may be new to our company and industry. Clearfield is a leader in the expanding fiber broadband industry. We provide fiber protection, fiber management, and fiber delivery solutions that enable the rapid and cost-effective fiber-fed deployment throughout the broadband service provider space. We primarily serve service providers in the community broadband market, mainly Tier 2 and Tier 3 communications providers. We also serve providers in the Tier 1 market and multiple system or cable TV operators, also known as MSOs, as well as some international service providers, primarily in Canada, the Caribbean, Central and South America. By focusing on scalable, modular deployment, our thoughtfully developed product portfolio enables our customers to complete their deployments faster and more efficiently. Our products are designed to reduce both the amount of necessary skilled labor needed for installation, as well as the level of skill required for the install. This is particularly advantageous in today's labor market, where there is significant shortage of trained technicians. The foundation of our scalable and modular fiber management platform is the patented Clearview cassette shown here as the image on slide four. Our mission at Grifield is to enable the lifestyle that better broadband provides. People need access to high-speed broadband to be able to work, to attend school, and to fully participate in today's modern society. Broadband is changing the way we communicate with each other and fiber. is a means to enable that change. Our company's founding vision was to deliver the products that build a better broadband network. This vision is not something that we implemented recently. It's fundamental to who we are as an organization. We have developed a product portfolio, sales organization, and operational infrastructure to service the growth and fiber deployments for every community. With that, I'll now turn the presentation over to Dan, who will walk us through our financial performance, for the second quarter of 2022.

Thank you, Sherry, and good afternoon, everyone. It's a pleasure to be speaking with you today about our second quarter of our fiscal year 22 results. We're looking at our second quarter financial results in more detail. Net sales in the second quarter of fiscal 22 were a record $53 million, an 80% increase from $30 million in the same year-ago period. and up 5% from $51 million in our first quarter of 2022. We had two 10% customers in the period, a distributor at 14%, and a regional broadband service provider who was 13% of sales. In addition to our revenue increase, sales bookings maintained their strong momentum in the second quarter of fiscal 2022, resulting in a 605% year-over-year increase in our sales order backlog. Order backlog grew to a record $136 million on March 31, 2022, up from $101 million on December 31, 2021, and up from $19 million on March 31, 2021. Our recent investments in our new facility in Mexico has tripled our Mexico manufacturing square footage, and our Minnesota warehouse has doubled our Minnesota footprint which will enhance our capacity and revenue potential in the quarters ahead. Now, on slide eight, we'll review our net sales by our markets in greater detail. Our core community broadband market comprised 75% of our net sales in the second quarter of fiscal 2022. In Q2, we generated net sales of approximately $40 million in community broadband, up 94% from the same period last year. In addition, for the trailing 12 months ended on March 31, 2022, our community broadband market net sales totaled approximately $133 million, which was up 76% from the comparable 12-month period last year. Our MSO business comprised 14% of our net sales in the second quarter of fiscal 2022. From a growth perspective, we have maintained the positive momentum established in this market over the last several quarters. In this market, we realized an 82% year-over-year increase in net sales to approximately $7 million in the second quarter of fiscal 2022 and delivered a 95% increase in trailing 12-month net sales to approximately $28 million. Net sales in our national carrier market for the second quarter of fiscal 2022 were up 76% year over year to approximately $4 million. On a trailing 12-month basis, net sales in our national carrier market totaled approximately $15 million, up 20% from the comparable year-ago period. Net sales in our international market were down 25% year over year in the second quarter compared to the same period last year, but up 98% year over year for the trailing 12-month period ended March 31, 2022. Overall, as a company, our net sales over the trailing 12 months is now up 71%, an increase from 63% recorded the previous quarter end. Gross profit in the second quarter of fiscal 2022 increased 79% to approximately $23 million, or 43% of net sales, from approximately $13 million or 43.6% of net sales in the same year-ago quarter. The slight sequential decline in gross profit margin was expected and due to increased overhead costs associated with our new facilities in Minnesota and Mexico, as well as higher freight and transportation costs associated with the global supply chain challenges with higher sales and inventory volumes. Operating expenses for the second quarter fiscal 2022 were approximately $11 million, which were up from approximately $9 million in the same year-ago quarter. The increase in operating expenses consisted primarily of higher compensation costs due to increased personnel and higher performance-based compensation, as well as increased travel expenses and professional fees. We are happy to say we are able to be in front of customers more now than in the past two be it through on-site visits or through trade shows, which have recently picked up. As a percentage of net sales, operating expenses for the second quarter of fiscal 2022 was 21%, down from 28% in the same year-ago period. It's important to note that while our operating expenses are up with our sales growth, our OpEx remains near 20% of sales, representing strong operating leverage results. Net income in the second quarter of fiscal 2022 increased 154% to $9.2 million from $3.6 million in the same year-ago period, and slightly down from $10.4 million in the first quarter of fiscal 2022. Net income was lower than last quarter due to the increase in SG&A costs associated with increased travel, professional fees, and the introduction of additional overhead associated with the new buildings. As a percentage of net sales, net income for the second quarter of fiscal 2022 was 17.3%, up from 12.3% in the same year-ago period and down from 20.3% in the first quarter of fiscal 2022. On the balance sheet side, we had $2.7 million in capital expenditures, mainly to support increased capacity and new facility build-outs, and increased our inventory $17 million to $61 million in the second quarter, as we utilize our cash position to acquire the necessary inventory to meet the high demand for our products as represented in our sales order backlog. Lastly, as discussed in our first quarter call, the company has reinstated its stock repurchase program, but did not repurchase any of its common stock in this period. With that, I'll turn it over to Sherry.