Clearfield, Inc.

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. And should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After the speaker's prepared remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To remove a question, please press star, then two. 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. I would now like to turn the conference over to Greg McNiff, Investor Relations for Clearfield. Please go ahead, sir.

Thank you. Joining me on the call today are Sherry Baranek, Clearfield's President and CEO, Dan Herzog, Clearfield's CFO, and Kevin Morgan, Clearfield's CMO. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. 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 statement contained in today's press release, earnings presentation, and on this conference call. The risk factor section in Clearfield's most recent form, 10-K filing, with the Securities and Exchange Commission and its subsequent followings on Form 10-Q provide a description of these risks. With that, I would like to turn the call over to Clearfield's President and CEO, Sherry Baranek. Sherry?

Good afternoon, everyone, and thank you for joining us today to discuss Clearfield's results for the third quarter of fiscal 2023. We also intend to provide an update on our business and current market trends. Our third quarter of fiscal 2023 reflects the commentary we provided on our prior two earnings calls. Total net sales for the third quarter were $61 million, which includes a record $13 million contributed from Nestor Cables. While visibility remains limited, we are reiterating our revenue guidance and increasing our net income per share guidance for the year ending September 30th, 2023, based upon our backlog and current ordering trends. I want to reiterate that we remain as confident as ever in the long-term demand for fiber broadband. Likewise, we believe our market share remains stable. Accordingly, we continue to focus on positioning the company to capture market share once industry ordering patterns return to a more normalized level. I'll discuss these initiatives in more detail shortly. End-user demand remains strong and is best reflected in ongoing take rates that our broadband service provider customers are achieving. A take rate is defined as the percentage of subscribers over total homes passed. Take rates in the 40% range are typical over several years but can vary depending upon competition and environment. Current industry take rates allow broadband service providers to recognize a strong return on investment, reducing their cost of operation and increasing their revenue per subscriber. To that end, take rates for fiber-based services remain extremely strong and continue to improve relative to alternative solutions. As we enter the initial stages of the disbursement of government funding programs, namely the Broadband Equity Access and Deployment Program, or VEED. We are more certain that the industry will return to a more normalized cadence of deployment. However, it's important to understand the relationship between government funding and orders placed with these funds. While our Chief Marketing Officer, Kevin Morgan, will address this topic in more detail in his prepared remarks, I want to highlight a near-term impact related to this dynamic. In order to compete for BEAD funding, service providers are required to contribute matching funds to each deployment. To ensure that they have the necessary financing and capital available, we expect our community broadband customers to continue to be cautious with respect to near-term deployment, particularly given rising interest rates and labor costs. We believe that this is a prudent step by our customers to best take advantage of the significant opportunity ahead and not a slowdown in end user demand. Additionally, based on conversations with our service provider customers, we expect the inventory buildup impacting the industry to continue into the first half of fiscal 2024. Also, as many of you are aware, the industry typically undergoes a slowdown during the winter. And for these reasons, we expect revenues to seasonally soften during this period. Accordingly, we expect the next several quarters' results and the year-over-year comparisons to be impacted by these dynamics. While we continue to right-size capacity levels to meet current demand, we are maintaining the infrastructure and processes for long-term growth and continue to design products to address our customers' most significant pain points and reduce the amount of skilled labor required to install our hardware. To that end, our recently announced seed change terminal is receiving very positive reception from field studies conducted by our customers. These recent deployment studies, which were commissioned by two of our MSO customers, concluded that by eliminating the need for splicing, seed change and our other plug-and-play terminals could increase the number of homes connected from an average of two and a half to nearly four homes per day per laborer. For those of you who have followed Clearfield over the last several years, this level of improvement is consistent with our feel-smart fiber distribution hubs. We continue to focus on developing products that reduce the deployment time and the labor required by our customers. As a reminder, labor makes up approximately 70% of the total build cost and is the gating factor in deployments. We also continue to improve our product delivery times. During the pandemic, lead times reached a height of 20 weeks due to supply constraints. Lead times now are in our target range of four to six weeks across most product lines. Any remaining supply constraints are predominantly limited to subcomponents of our active cabinets. For some additional insights and what we're seeing in the market and the significant long-term opportunity, I would like to welcome our Chief Marketing Officer, Kevin Morgan, to the call. Kevin?