Earnings Labs

Clearfield, Inc. (CLFD)

Q2 2017 Earnings Call· Wed, Apr 26, 2017

$27.70

-5.36%

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Transcript

Cheryl Beranek

Management

Hello, this is Cheri Beranek, President and CEO of Clearfield. Welcome to our fiscal second quarter 2017 FieldReport. Before we begin today, I'd like to provide some important cautions regarding forward-looking statements made during today's presentation. Certain important factors could have a material impact on the company's performance, including those set forth in the slide entitled Important Cautions Regarding Forward-looking Statements as well as the factors set forth in Clearfield's annual report on Form 10-K for the fiscal year ended September 30, 2016, and other filings with the Securities and Exchange Commission. Once again, we have proven our commitment to expanding our presence in the Tier 1 market, with more than 11% of our revenue in the quarter coming from this customer segment. Our growth in this market has been very encouraging, as reflected by the increased amount of orders as well as the fact that we were able to achieve an important industry certification. As reported earlier this week, certification to Level 3 NEBS will enable us to more aggressively pursue additional Tier 1 business. Yet revenue growth of 4% for second quarter and 10% year-to-date is beneath our expectation and plan for this 6-month period. We did experience a noticeable dip in demand for our solutions from our customers in the wireless market. We see this as a short-term shift to procurement patterns as these carriers reduced their near-term capital expenditures in preparation for the enhancement of the optical fiber required for higher-speed networks. In addition, momentum within our Alternative Carrier markets has stalled. But it is important to note that this is consistent with the market speculation that has surrounded this customer group. I want to assure shareholders that while it is unfortunate that the short-term volatility of spend among these 2 groups is reflected in our year-to-date performance, I do not want it to mask the strong execution of Clearfield's strategy to establish ourselves as a key supplier of fiber management and distribution products for all broadband service providers regardless of size or network type. But before I discuss our operational results, growth strategies and future outlook in greater detail, I would like to turn the presentation over to our CFO, Dan Herzog, who will walk us through our full financial performance for the second quarter of fiscal 2017.

Daniel Herzog

Management

Thank you, Cheri. Now looking at our financial results in more detail, our revenue in the second quarter of fiscal 2017 increased 4% to $17.7 million from $16.9 million during the same year-ago period. The improvement was driven primarily by an increase in sales to our wireline customers in both domestic and international markets. Chief among these growth drivers for fiscal Q2 was the substantial growth of our sales to the Tier 1 market. The overall increase in sales to our wireline customers was partially offset by a decrease in sales to our wireless and cable TV customers. International revenue in fiscal Q2 more than doubled for the second quarter in a row and totaled $1.8 million or 10% of total revenue compared to $700,000 or 4% of total revenue in the same year-ago period. Building off the increase in demand we experienced in the prior quarter, our international business is gradually reestablishing momentum due to both favorable market conditions and our increased sales efforts and presence in these markets. We're encouraged to see this renewed appetite for more fiber buildouts. Gross profit for the fiscal second quarter of 2017 increased 2% to $7.4 million or 42.2% of total revenue. This compares to $7.3 million or 43% of total revenue in the same year-ago period. Gross profit for the quarter is consistent with the company outlook and is up sequentially over quarter 1. We continue to pursue cost-reduction initiatives, including expanding our manufacturing footprint internationally to help drive our costs down even further and remain competitive in the marketplace. Looking ahead, we believe our gross profit will be in line with the 40% to 42% annual target that we've established. However, fluctuations in and around this target may be expected as we continue to accelerate our expansion in the Tier…

Cheryl Beranek

Management

Thanks, Dan. Perhaps most telling of our success in the first half of 2017 has been how quickly our sales to the Tier 1 market have ramped up. Compared to a contribution of only 4% for all of fiscal 2016, our sales in this market have risen in both quarters this fiscal year and represent 10% of our total revenue for the period. As we've talked about before, certifications remain the key prerequisite for accelerating our sales in this market, and we're excited to have already hit some notable milestones in this regard. In fact, we announced earlier this week that one of our product lines received Level 3 NEBS certification, which enhances our ability to aggressively sell these products for Tier 1 deployment. Although a positive step in the right direction, we are by no means finished, and we'll continue to align our investments with this initiative to drive additional top line growth. Altogether, we see our next stage of growth being shaped by revenue from multiple sources in not just 1 or 2 areas where we have recently seen substantial growth. With this multipronged strategy, coupled with our increased sales efforts, differentiated product suite and faster lead times, we believe we can achieve our growth initiatives for fiscal 2017. Based on this strong Tier 1 performance and the reestablishment of our international business momentum, we are reiterating our revenue outlook for the year at 15%. However, revenue will be more concentrated in the fourth quarter than what was traditionally been the norm. Moreover, based upon our success to date, we are enhancing our commitment to grow our Tier 1 business. To date, we have been expanding our sales and engineering departments and have invested in the certification programs necessary to secure meaningful projects in these markets. We look…