Clearfield, Inc. (CLFD) Q3 2022 Earnings Report, Transcript and Summary

Good afternoon. Welcome to Clearfield's Fiscal Third Quarter 2022 Earnings Conference Call. My name is Vikram and I will be your operator this afternoon. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the conference over to your host, Sophie Pearson from Gateway Group. Please go ahead.

Thank you. Joining us for today's earnings presentation are Clearfield's President and CEO, Cheri Beranek, and CFO, Dan Herzog. Following their commentary, we will open the call for questions. I would 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. Please note that during this call, management will be making forward-looking statements regarding 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 10-Q, provide description of those risks. As a reminder, the slides in this presentation are controlled by 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, Cheri Beranek. Thank you and over to you.

Thanks Sophie. Good afternoon and thank you everyone for joining us today. It is such a pleasure to speak with you this afternoon to share Clearfield's results for the fiscal third quarter of 2022 and also to provide an update on our business and the trends we are seeing in the market. As evidenced by our strong Q3 financial results, including the record net sales of $71.3 million, the demand for high-speed broadband remains robust and continues to accelerate. Not only does our demand for broadband continues to be exceptionally strong, but we continue to execute on our Now of Age strategic plan to expand capacity and to rapidly scale our business to meet the burgeoning market demand. In May 2022, we announced an agreement for the strategic acquisition of finished fiberoptic cable manufacturer, Nestor Cables, a strategic supplier of our FieldShield product line. Our synergistic relationship with Nestor spans over a decade. The acquisition, which closed on July 26 and enables us to vertically integrate the design and supply of FieldShield cable to meet future customer demand. In a few minutes, I will go into greater detail on Nestor's business and what this acquisition means for the future of Clearfield. But first, I would like to welcome the Nestor team to Clearfield. We are so thrilled to have you working alongside. In addition to our record net sales in Q3, we also increased our quarter end backlog by 16% and from the prior quarter to a record $157 million. As I have said previously, we truly believe we are experiencing a once-in-a-generation investment opportunity in our industry, and we believe Clearfield is well positioned to capitalize on this growth. Our product portfolio was carefully developed for this opportunity, and our customers have responded enthusiastically. With our continued strong execution, broadband industry tailwinds and with our current visibility into this quarter, we are raising our fiscal year '22 net sales guidance to a range of $243 million to $247 million. Our net sales guidance represents growth of 72% to 75% over fiscal year 2021. For those of you who may be new to Clearfield in our industry, I'd like to provide a brief overview of who we are and what we do. Clearfield is a leader in the expanding fiber broadband industry. We provide cyber protection, cyber management and cyber delivery solutions that enable the rapid and cost-effective fiber-fed deployment throughout the broadband service provider space. Our primary end market is community broadband, which is predominantly comprised of Tier 2 and Tier 3 incumbent local exchange carriers and the growing number of municipalities, utilities, co-ops and wireless carriers. We also serve service providers in the Tier 1 national carrier market and multiple system cable TV operators or MSOs as well as some international service providers in Canada, the Caribbean, Central and South America. Our softly developed product portfolio focuses on scalable modular deployment, enabling Clearfield customers to meet their deployments faster and more efficiently. The image on the right of slide four is the patented Clearview effect, the foundation of our scalable and modular fiber management platform. Our entire product line, including the previously said is designed to reduce both the amount of necessary skilled labor needed for installation and the level of skill required to install. Given the significant shortage of trained technicians available in today's market, these qualities are particularly advantageous. Our mission at Clearfield is to enable the lifestyle better broadband provides. People need access to high-speed broadband to be able to fully participate in modern society. Broadband is changing the way we communicate with each other and fiber is the means to enable and future proof that change. Our company's founding mission was to deliver the products that build a better broadband network for all communities. This vision is fundamental to who we are as an organization. We have developed a product portfolio sales organization and operational infrastructure to service the growth in fiber deployment for every community. I would now like to take a few minutes to discuss our recently completed acquisition of Nestor Cables and why we are so excited about the business and the opportunities for Clearfield. Nestor was founded in 2007 in Finland by cable technology professionals with decades of experience in fiber optical development and manufacturing. Our relationship with Nestor spans over a decade as a developer and component supplier for our FieldShield product line. Clearfield owns the patents and IP associated FieldShield, while it has been codeveloped and manufactured for us by Nestor. Virtually integrated the design and supply of FieldShield cable, provides Clearfield with the opportunity to expand the manufacturing and supply of this product closer to the North American market. In fiscal 2021, Nestor generated €31.7 million in revenue and was profitable under Finnish accounting standards. Approximately 30% of its annual revenues were generated from exports to the European company. Final valuation work and integration will be completed by our fiscal year-end, and that will help us to clarify future net income projections, but we expect it to be accretive to our business in fiscal year 2023. Moreover, Nestor has established a stellar reputation for providing its customers with reliable and flexible deliveries, quick reaction times and operational efficiency, characteristics that seamlessly align with Clearfield company culture and values. The total transaction value, including fees was approximately $23 million and was funded primarily through our credit facility. Nestor will operate as a subsidiary of Clearfield and its financial results will be reported accordingly. Turning now to slide 8, which shows the high level of rationale and numerous expected benefits of the acquisition. The first expected benefit is the ability to vertically integrate the supply of our fiber optic cables to meet future customer demand. With the persistent challenges affecting today's supply chain, this capability is critically important in order to meet our customers' deployment schedules. Further, the Nestor team has deep technical expertise that we intend to leverage at our Mexico facility in order to extend the available supply of FieldShield fiber in the North American market. Not only will this increase the total supply of FieldShield fiber in North America, it also allows us to reduce the cost and complexity of transportation. We expect to commence the production of fiber at the cable at our Mexican facility in early calendar year 2023. Another potential benefit of the acquisition is the possibility of introducing our cassette-based fiber management solutions into the European market, which could be a significant growth opportunity for Clearfield in the longer term. Overall, Nestor aligns with our vision and will accelerate our company's progress towards its mission, which is to enable the lifestyle that our broadband provides. Nestor will extend our market leadership and will strengthen our position to service the growth in fiber deployment for every community. For additional details, you may refer to the Nestor acquisition conference call webcast and the accompanying presentation from May 17, 2022, that are both available on our IR site. With that, I'll now turn the presentation over to Dan, who will walk us through the financial performance for the third quarter of 2022.

Thank you, Cheri, and good afternoon, everyone. It's a pleasure to be speaking with you today about our fiscal third quarter 2022 results. So looking at our third quarter financial results in more detail. Net sales in the third quarter of fiscal 2022 were a record $71 million, an 84% increase from $39 million in the same year ago period, and up 33% from $53 million in our second quarter of 2022. We had two 10% customers in the period who accounted for 18% and 11% of net sales, respectively. Both of these customers were distributors. Strong momentum in sales bookings persisted into the third quarter of fiscal 2022, resulting in a 289% year-on-year increase in our sales order backlog. Order backlog grew to a record $157 million on June 30, 2022, up from $136 million on March 31, 2022, and up from $40 million on June 30, 2021. As we have previously discussed, we have expanded capacity in our Mexico and US based facilities, which we expect to allow us to capitalize on significant revenue opportunities in the quarters ahead. I'll now review net sales by our key markets. Our core community broadband market comprised 67% of our net sales in the third quarter of fiscal 2022, consistent with prior quarters in fiscal 2022. In Q3, we generated net sales of approximately $47 million in community broadband, up 73% from the same period a year ago last year. In addition, for the trailing 12 months ended on June 30, 2022, our community broadband market net sales totaled approximately $153 million, which was up 77% from the comparable period last year. Our MSO business comprised 15% of our net sales in the third quarter of fiscal 2022. Momentum in the MSO market continues to be strong with net sales growing 151% year-over-year and were up 130% for the trailing 12-month period. Net sales in our national carrier market for the third quarter of fiscal 2022 increased 191% year-over-year. On a trailing 12-month basis, net sales in our national carrier market were up 81% from the comparable year ago period. Net sales in our international markets were down 16% year-over-year in the third quarter compared to the same period last year and up 34% year-over-year on a trailing 12-month basis. Overall, as a company, our net sales over the trailing 12 months were up 80%, an increase from 71% trailing 12-month net sales recorded in the previous quarter end. Gross profit in the third quarter of fiscal 2022 increased 71% to approximately $29 million or 41% of net sales from approximately $17 million or 44.2% of net sales in the same year ago quarter. As expected, overhead costs associated with the first full quarter of our new facilities in Minnesota and Mexico negatively impacted gross margins. Alongside real estate costs, increased shipping costs and inflationary increases in some components negatively affected margins. Our strategic investment in our growing national carrier business will negatively affect margin for the near future. We anticipate margins at these levels for the coming quarters, not including Nestor Cables. Operating expenses for the third quarter of fiscal 2022 were approximately $13 million, which were up from approximately $9 million to 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, mainly associated with the acquisition of Nestor Cables. Our higher personnel costs are consistent with the company's strategic investment in sales, product management and engineering personnel to establish a firm organizational infrastructure to support the growing business. As a percentage of net sales, operating expenses for the third quarter of fiscal 2022 was 17.9%, down from 24.4% in the same year ago period. Although our operating expenses are up with our sales growth, our current OpEx at less than 20% of sales reflects our strong operating leverage. Net income in the third quarter of fiscal 2022 increased 109% to $12.7 million from $6.1 million in the same year ago period and up from $9.2 million in the second quarter of fiscal 2022. Net income increased as a result of higher revenues. As a percentage of net sales, net income for the third quarter of fiscal 2022 was 17.9%, up from 15.7% in the same year ago period and up from 17.3% in the second quarter of 2022. In terms of our balance sheet, we had $1.9 million in capital expenditures, mainly to support increased capacity and new facility build-outs and increased our inventory $8.4 million to $69.3 million in the third 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. While we ended our third quarter with no debt, the company did utilize approximately $16 million of its line of credit in July to date to fund the Nestor acquisition. With that, I'll turn it back over to Cheri. Cheri?

Thanks for the financial update, Dan. Our thoughtfully designed fiber management and fiber connectivity products drive our value proposition. It is our goal to remove the obstacles that will prevent our customers from adopting fiber-lead broadband. Since its founding, Clearfield was built to scale and delivering fiber products to historically underserved or unserved communities has been our priority. Clearfield truly is community broadband, and we were built for this generational opportunity that lies in front of us. As we've previously discussed, Clearfield's Now of Age plan is our multiyear strategic plan to establish Clearfield as the platform of choice for fiber management and connectivity. The three pillars of the Now of Age plan are intended to strengthen and solidify Clearfield's market position within the fiber broadband industry. Our goal is to capture the fiber-to-the-home and business market share that Clearfield was built to obtain, while concurrently powering the innovation for new and existing markets in the years ahead. Accelerating our operating cadence, this pillar reflects Clearfield's commitment to addressing the market's accelerating demand for fiber-fed broadband and to ensure our operations and continue to satisfy our customers' demands. As previously stated, we are in the middle of a historic investment cycle for high-speed broadband, particularly fiber-led broadband. Nearly $65 billion in funding is available through the Infrastructure Investment and Jobs Act, with $42 billion of that amount being allocated to the Broadband Equity Access and Deployment program known as BEAD. That is expected to be distributed in late 2023 and early 2024. Furthermore, the elevated demand in this market is not a short-term event. More new fiber is expected in the next five-year period than all prior years combined. Industry research notes that we are in the third year of an investment cycle that may peak 2024 through 2027. It's anticipated that 60 million homes will be passed by fiber by 2030. In this pivotal moment for the fiber broadband industry, our ability to deliver our products on-time to our customers is crucial. So then their deployment schedules are upheld and their time to revenue can accelerate. Demand for fiber significantly outpaces its availability and our supply chain issues continue to persist across all industries. Maintaining strong relationships with our suppliers is critical for our growth and is fundamental to our customers' success. The ability to meet future customer demand for field show while at the same time, reducing the time and cost of transporting optical cables to our North American customers was a key reason, as we pursue the acquisition of Nestor. Amplifying Bold Disruptive Growth is the second pillar in our Now of Age plan. This objective reflects Clearfield's commitment to continue delivering market-changing products for current and future market requirements. The build programs for fiber to the home and business we see today transform into the integration of wireline and wireless networks and future backhaul opportunities over the next several years. Our record $157 million in backlog, up 16% sequentially and 289% year-over-year, reflects the progress we have made toward achieving this pillar's objectives. Our products provide customers with ability to scale their deployment at a pace as to their deployment schedules, thanks to our ability to quickly and effectively respond to customer needs. We have been able to add incremental market share from new and existing customers. Our business is healthy, with demonstrated scalability but our world is not. Contractor labor availability is still restricted. Various material supply chain challenges are constant. And as a result, we are working closely with our customers to ensure we have the capacity required, to meet their needs without overextending our overhead costs. With our market growing at an amazing annual rate, we will aim to further expand our share of that growing market. Our third pillar, Augmenting Capacity for Ongoing Growth is Clearfield's commitment to scaling its operations to meet the exponential demand for high-speed broadband. The key features of this pillar are our agility and our ability to adapt to customers and their changing needs. We are laser-focused on executing on our capacity and following through on our growth strategy. Earlier this year, we significantly expanded our capacity at our manufacturing facility in Mexico and our distribution center here in Minnesota, in order to meet the substantial and growing demand for our products. You can see images of both facilities on this slide. In Mexico alone, we effectively added hundreds of employees, to enable expanded production. We continue to train these new employees to improve labor utilization over the coming quarters, until we've achieved facility optimization. As I have mentioned earlier, we intend to leverage the deep technical expertise of investor can to expand production of FieldShield cable for the North American market. We expect this production to begin in the first half of calendar 2023 and ensure we can continue to meet future customer demand for FieldShield's fiber optic cable. We will also look for opportunities that optimize production at Nestor's facilities to help smooth out the historical seasonality of their business. Supply chain management remains a key priority for Clearfield to ensure we can continue to ship product without delays. This helps to safeguard our deliveries against any supply chain interruptions, maintaining and leveraging our supplier relationships are of key importance as we have a strong network of partners that could further augment our capacity and grow demand. In addition to investing in our organic growth initiatives, we would also evaluate the right inorganic opportunities that would enable us to keep growing with our customers. To summarize, our demand for high-speed broadband, especially fiber-led broadband remains very strong, and we believe we are in the middle of a long-term investment cycle for broadband deployment. We have proactively expanded our capacity and effectively managed our supply chain to meet that customer demand. Our expertise in serving the community broadband market has us well positioned to further capitalize on industry tailwinds. We have a proven growth strategy and our third quarter financial results demonstrate outstanding execution of that strategy. We remain very optimistic about Clearfield's growth potential, with most of our record backlog scheduled to ship in the next six months. As we look to our fiscal fourth quarter, we look to repeat our third quarter performance and maintain our high degree of customer success, as well as integrating the Nestor team into our operations. With our current visibility into our substantial order backlog, as well as the pipeline behind it, we are raising our guidance for net sales from the range of $204 million to $218 million to a range of $243 million to $247 million, excluding Nestor cables in our fiscal year 2022, representing growth of 72% to 75% over fiscal year 2021. Our growth outlook excludes any revenue contribution from Nestor. We are confident that we can continue to grow the market leadership that Clearfield was built to achieve, based on our commitment to customers' needs, operational effectiveness, market expertise and innovative product portfolio. And with that, we are ready to open the call for your questions.

Thank you. We will now be taking questions from the company's publishing sell-side analysts. [Operator Instructions] We have our first question from the line of Jaeson Schmidt with Lake Street Capital Markets. Please, go ahead.

Hey, guys. Thanks for taking my questions and congrats on the really impressive results. Just want to start with that backlog number. Just curious, if the composition of that backlog is pretty similar to the revenue breakdown you saw this past quarter or I guess, just year-to-date?

The backlog is pretty consistent with third quarter and some increase in regard to longer-term solutions, we're seeing in the market that more and more customers are looking to actually place long-term scheduled orders into next year. So that will be the only caveat. Other than that, it's pretty consistent with where we've been at in the last quarter.

Okay. That's helpful. And Cheri, I know you alluded to some just overall supply and labor constraints. Curious, if there was some demand that you were unable to ship in the June quarter? And I guess, relatedly, how are you guys thinking about that overall backdrop? Do you expect any improvement as we progress through the remainder of this calendar year?

Yes. Well, we haven’t had labor that has affected our manufacturing ability to ship. I mean, we've had actually an amazing time to -- and a much more accelerated rate of bringing people onboard in both Mexico and in Minnesota. So from our perspective, we've been able to achieve labor. But I have spoken with several customers, some of our larger customers who are experiencing a challenge to be able to get new people into the market. And we're seeing a very accelerated need for training. And I expect that problem to actually get a little worse before it gets better because we're really at this point where people are ready to kind of get some things in place and now it will turn into winter and we'll have to figure out how the build season is affected next spring. So I think we've got kind of 12 months of kind of uncertainty around labor demand -- in our labor availability amongst service providers and contractors at the end, but we are investing in an aggressive program to accelerate training programs available from Clearfield to help support the installation of our products and looking to significantly increase the -- our investment in application engineers and other training resources to help alleviate some of that concern from our customer base.

Okay. Got it. And then just the last one for me, and I'll jump back into queue. Just a clarification. I know the new guided range does not include any contribution from Nestor Cables. However, are you expecting any revenue from them, or was the guided range just given so it would be on an apples-to-apples basis?

We felt it was important for it to be apples-to-apples. And with the rate of our accelerated growth and the amount of organic growth that we are recording, we wanted to make sure that the shareholders would be able to see that very clearly. The Nestor Cables is a -- their financial audits -- were done in Finland to finish accounting standards. So we're referencing the revenue that they were able to achieve in fiscal year 2021, which is what actually was dited on a more international basis, which was €31 million. They have some level of seasonality to their business. It will start to tick down now in September and October in that they do most of their business in Northern Europe. So they're going to have some capacity available for us. We anticipate there probably will be $5 million or $6 million in revenue from Nestor in the period ending in September. The profitability is much more difficult to walk through because there's all of these integration valuation issues bringing the fair value review, the depreciation review. So, we'll be able to give a much more clean and accurate vision of what that -- with the integrated program of Nestor as a part of Clearfield means when we announced year-end financials in November.

Okay. Appreciate that color. Thanks a lot, guys.

Thanks. Mr. Peter.

Thank you. We have next question from the line of Ryan Koontz with Needham & Company. Please go ahead. Q – Ryan Koontz: Thanks for the question. I'm merely out of superlatives here for Clearfield just a spectacular quarter. Big congrats to the team. So keep it up.

Thanks. Q – Ryan Koontz: Just hoping, Cheri you can help us understand what's happening with the inflection we're seeing in both the national carriers and the MSOs. Are these new wins for the companies? Are these existing programs, your task to that are gaining more budget? Are you displacing other vendors? Maybe any kind of color there across those two segments, it would be great.

Our ability to execute in the national carrier business is really exciting for us, because it represents the fact that we can use the same product line in community broadband as we do in national carriers. We've said that from the very beginning that the product lines scale from the smallest to the largest of networks and especially as it relates to the cabinet infrastructure that as we pass more and more homes than the national carrier markets that we work with are starting to really put -- get their app together and be able to move forward. So it is a variety of work in passing homes with the national carrier market and using the existing product portfolio. In the cable TV space, in the MSO market, it's really an extension of the work we've already been doing in the Tier 2 markets. The Tier 2 service providers continuing in the cable market to extend their fiber reach and to be able to support their highly dense markets with a higher concentration of fiber as a proactive rather than a defensive move. And we're also seeing some success and really exciting success with our active cabinet business in the cable TV market. So that's a new level of win for us of active cabinets in cable TV as they bring their electronics further out into the network and to be able to capture some of this -- protect what they currently have and really invest in where they're going. So we see both of those programs as long-term opportunities that we can support at current levels and grow into as their needs expand.

Makes a lot of sense. The cable guys are moving to the distributed access architecture and need to power all those remote nodes, so makes a lot of sense.

Yes. Yes.

And then how about on the -- go ahead, Cheri.

And then a lot of cables they are going to file with that. So we're excited that active cabinets is actually build connectivity and the demand for connectivity that we can then provide as well.

Right. Great. And then on the subsidies, are you -- what kind of -- I know you probably can't give us a number, but can you give us on the revenue contribution for the subsidies from either ARPA or RDOF? Are they material yet? Where are we in the cycle for those two earlier programs?

They're less than 5% of our revenues very, very, very early.

Got it. Helpful. And then on the product mix in the quarter, any -- as far as kind of passing versus connections versus historical mix any difference there?

No difference, still very heavily weighted towards passing of homes and so the architectures associated with cabinets and the like. And that's really what is reflected in the gross margin. We knew that we were going to see some impact in profitability and gross profit associated with the new buildings. But we did see with this kind of record increases in cabinet business that rate of inflationary cost per sheet metal has outpaced our ability to reduce the cost structure and the manufacturability of those. We'll be addressing that over the next probably six months, but it is an unfortunate kind of statement of fact of where we're at, sheet metal is a significant part of our cost structure. It's not one of our core competencies. We can design phenomenal sheet metal enclosures, but we don't actually then sheet metal. And that's something that we've had to be able to deal with in this last quarter in a more accelerated rate.

Right. So when you said, unfortunately, you're looking to probably pass along price increases areas where you're feeling some pain there?

Yes. We're hoping to be able to actually hold prices most of the way through, in a partnership with our service provider customers. So any increase in revenue from us won't be because of price increases there. Some places we'll need to. But as a statement of kind of across platform, we're going to hold it where we can.

That's great. That's all the questions I have. Thanks so much, Cheri.

Thank you.

Thank you. We have next question from the line of Tim Savageaux with Northland Capital Markets. Please go ahead.

Hi, good afternoon, and I'll – pardon me – add my congratulations on the strong results. My first question is around capacity or capacity utilization. You've had a lot of new manufacturing capability coming online in the US and in Mexico. I think you tripled your capacity down there. But as we look at the strong third quarter results, I mean, can you relate that and whether you're fully scaled up now or where you might be shortly here total revenue capacity? Where are you running now? And what capability might you have going forward in terms of overall revenue capacity? And I have a follow-up.

We were extremely pleased on how rapidly we were able to execute to the strategy that we've been calling forward really for the last 9 months to 12 months that we were making a very significant investment in real estate and we were we're able to execute in both the – in an environment where labor we sort where contractors were difficult to deal with that we were able to build those facilities on schedule that we're working with. A team of managers that were able to bring those people on board, and to bring them on board effectively, so that we could get the revenue out in place. What you'll see really from us is each month, we are adding to our capacity. One of the things that has been critical to our ongoing commitment to quality is to grow at a pace that you can ensure quality design and quality manufacturing. So each month of each quarter is a little bit bigger than the one before, pending sheet metal and so attending other components to be able to ship. And so we were able to ship more than we expected in the third quarter, because we were able to expedite some sheet metal, be able to get some things in place. We are bringing on additional suppliers to be able to lessen that issue. But at the same time, we've got every day, there's a different commitment in the different suppliers that we need to manage. And so our – once we can get the bomb on the floor, we are having amazing commitment to lead time and commitment to manufacturing capacity, but it's getting all the materials in place. And so that's why you see such a significant increase in inventory as well. We didn't build this facility for one year. We built it for this generational infrastructure development. There's more CapEx that's required to fully utilize the building, this market is growing somewhere between 12% and 15%. We saw companies like Calix and Corning announced numbers this week that were about 17%, 18% of a market. So we're going to grow at least that amount over an annual basis. And I can't give you a finite number because it's really product specific, but we believe we can grow with this market in Denso.

Great. Thanks for all that color. And if I could just follow up back on the Tier 1 side where you obviously had a pretty impressive increase there. And I guess, should we look at that as some sort of significant penetration of one of these larger guys you've been chasing for a while something that you can kind of build on after this sort of step function higher, or maybe something that might be a little more lumpy over time and can you say whether you're you've got one major customer driving that or multiple national carriers that you've seen increases with?

This is not project business. So it is ongoing revenue that is being charged out for delivery on a monthly basis. And so it is a significant part of backlog at about the same percentage rate as what you've seen here and that we started shipping that product early in the quarter, and we'll continue to be able to ship it kind of at that rate moving forward. The increase -- we do sell to all of the national carriers in the wireless carriers as well, but the increase is predominantly related to a single carrier.

Great. Thanks very much, and congrats again.

Thank you.

Thank you. At this time, this concludes the company's question-and-answer session. If your question was not taken, you may contact Clearfield's Investor Relations team at CLFD@gatewayir.com. I'd now like to turn the call back over to Ms. Beranek for closing remarks. Over to you, ma'am.

Thank you. It has been an absolutely amazing time to be able to work with our customers and to work with the Clearfield community to demonstrate this level of success. We were built, as I've said many times before, for community broadband and are thrilled that we're able to provide the equipment necessary for our customers. Moreover, we are now extremely excited about the next stage of Clearfield and the acquisition of Master and what that does for our product portfolio and our opportunity to really be even earlier and more strategically involved with our customers' planning process. We look forward to speaking with you again at the end of our fiscal year. We will report sometime in mid to late November, December as the integration materials are put together. Thanks so much, and good day.

Thank you very much. Ladies and gentlemen, thank you for joining us today for Clearfield's Fiscal Third Quarter 2020 Earnings Conference Call. You may now disconnect your lines.