Clearfield Reports Second Quarter 2024 Results

Rhea-AI Summary

Clearfield, Inc. (NASDAQ: CLFD) reported second-quarter 2024 results with revenue of $36.9 million, above the high end of guidance, and a net loss per share of $(0.40). The backlog increased sequentially, driven by strength in Community Broadband. The Board of Directors authorized a share repurchase program increase from $40 million to $65 million.

Positive

• Revenue exceeding the high end of guidance signals strong performance and potential growth opportunities.

• The sequential increase in backlog reflects positive trends in the market and potential future revenue growth.

• The increase in share repurchase authorization shows confidence in the company's value and market opportunity.

Negative

• Significant decreases in net sales, gross profit, and net income compared to the previous year affect financial performance negatively.

• The decrease in gross margin due to excess production capacity and inventory reserves indicates cost challenges.

• An increase in operating expenses impacts profitability, contributing to the overall net loss for the quarter.

Financial Analyst

Clearfield's Q2 financial report presents a challenging landscape, with a -49% decline in net sales and a -88% reduction in gross profit year-over-year. The company's net loss of $5.9 million or $(0.40) per diluted share illustrates a significant downturn from the prior year's net income of $10.4 million or $0.67 per diluted share. This stark reversal speaks to broader industry dynamics, possibly including overcapacity or inventory adjustments by clients. Despite this, the increase in share repurchase authorization suggests a strategic move to leverage the company's cash to enhance shareholder value in anticipation of a market rebound. However, investors should be cautious, considering the negative earnings per share outlook for Q3, indicating that a financial turnaround may not be imminent.

Market Analyst

The sequential backlog growth indicates some demand stabilization within Clearfield's Community Broadband sector, hinting at a positive outlook for the industry's long-term growth. However, the company's gross margin has contracted significantly, reflecting increased costs or potentially lowered pricing power in the face of soft demand. The build season might incrementally improve sales, but the sustained hit to margins and operations raises questions about whether this anticipated uptick can translate into profitability. Share buybacks could reflect management's confidence, but they may also detract from investment in growth or debt reduction during uncertain times. Investors will need to weigh these mixed signals when considering the stock's future performance.

• Revenue of $36.9 million and net loss per share of $(0.40) - both above the high end of their respective guidance ranges
• Backlog increased sequentially driven by strength in Community Broadband
  
• Board of Directors increased share repurchase program authorization from $40 million to $65 million
  

MINNEAPOLIS, May 02, 2024 (GLOBE NEWSWIRE) -- Clearfield, Inc. (NASDAQ: CLFD), a leader in fiber connectivity, reported results for the fiscal second quarter 2024.  

Fiscal Q2 2024 Financial Summary
(in millions except per share data and percentages)	Q2 2024			vs. Q2 2023			Change			Change (%)
Net Sales	$	36.9		$	71.8		$	(34.9)		-49	%
Gross Profit ($)	$	2.8		$	23.6		$	(20.7)		-88	%
Gross Profit (%)		7.7%			32.8%			-25.1%		-77	%
Income (Loss) from Operations	$	(9.7)		$	12.1		$	(21.8)		-181	%
Income Tax Expense (Benefit)	$	(2.1)		$	3.0		$	(5.1)		-170	%
Net Income (Loss)	$	(5.9)		$	10.4		$	(16.3)		-157	%
Net Income (Loss) per Diluted Share	$	(0.40)		$	0.67		$	(1.07)		-160	%

Fiscal Q2 YTD 2024 Financial Summary
(in millions except per share data and percentages)	2024 YTD			vs. 2023 YTD			Change			Change (%)
Net Sales	$	71.1		$	157.8		$	(86.6)		-55	%
Gross Profit ($)	$	7.5		$	54.2		$	(46.7)		-86	%
Gross Profit (%)		10.6%			34.4%			-23.8%		-69	%
Income (Loss) from Operations	$	(17.9)		$	29.9		$	(47.8)		-160	%
Income Tax Expense (Benefit)	$	(3.0)		$	6.7		$	(9.7)		-145	%
Net Income (Loss)	$	(11.2)		$	24.6		$	(35.8)		-145	%
Net Income (Loss) per Diluted Share	$	(0.75)		$	1.67		$	(2.42)		-145	%

Management Commentary

“We are encouraged by our second quarter fiscal 2024 performance with our sales exceeding the high end of our guidance range driven by higher-than-expected sales to our Community Broadband customers. We believe that the quarter ended March 31, 2024 represents the beginning of a gradual recovery as broadband service providers continue to deploy equipment and long-term demand remains robust. While we anticipate continued inventory-related impacts in our Large Regional and MSO markets, we're encouraged by increased quoting activity across all markets in the second quarter, aligning with the traditional build season. As we navigate this gradual recovery, we remain focused on positioning Clearfield to take share when ordering patterns return to a more normalized cadence," said Company President and Chief Executive Officer, Cheri Beranek. “Our confidence in both our company and the industry is reinforced by our conviction in the future growth in fiber deployment. We maintain our confidence that the value proposition Clearfield brings to the market is stronger than ever,” said Beranek.

“As we transition into the build season, we anticipate a gradual uptick in orders, more closely aligning with traditional ordering patterns. Despite ongoing challenges related to industry-wide elevated inventory levels, we interpret the sequential increase in backlog as a positive indicator of normalization in ordering behaviors. Our ongoing collaboration with customers to align orders with deployment schedules underscores our proactive approach to navigating industry uncertainties,” said Chief Financial Officer Dan Herzog. “Our $15.5 million in share repurchases during the quarter underscores our confidence in our company’s value and market opportunity, as evidenced by the size and scale of our buyback program. Consequently, our Board of Directors has increased our share buyback authorization from $40 million to $65 million, providing us with $30.4 million available for additional repurchases when added to the $5.4 million repurchase amount remaining on March 31, 2024.”

Financial Results for the Three Months Ended March 31, 2024

Net sales for the second quarter of fiscal 2024 decreased 48.6% to $36.9 million from $71.8 million in the same year-ago quarter.

As of March 31, 2024, order backlog (defined as purchase orders received but not yet fulfilled) was $47.2 million, an increase of $3.7 million, or 8.6%, compared to $43.5 million as of December 31, 2023, and a decrease of $60.4 million, or 56.1%, from March 31, 2023.

Gross margin for the second quarter of fiscal 2024 was 7.7%, compared to 32.8% in the second quarter of fiscal 2023. Gross margin was negatively affected by excess production capacity and an increase in reserves for excess inventory primarily resulting from the lull in demand as customers digest previously purchased products.

Operating expenses for the second quarter of fiscal 2024 increased 9.3% to $12.6 million, or 34.1% of net sales, from $11.5 million, or 16.0% of net sales, in the same year-ago quarter.

Net loss for the second quarter of fiscal 2024 totaled $5.9 million, or ($0.40) per diluted share, compared to net income of $10.4 million, or $0.67 per diluted share, in the same year-ago quarter. In the quarter, we repurchased approximately $15.5 million in shares under our Share Repurchase Program, leaving an additional $5.4 million remaining for future repurchases as of March 31, 2024, and $30.4 million remaining for repurchase after the additional authorization. 

Outlook
At this time and after considering the current state of the industry, the Company expects net sales for the third quarter of fiscal 2024 to be in the range of $40 million to $44 million and net loss per share to be in the range of $0.31 to $0.38. This loss per share range is based on the number of shares outstanding at the end of the second quarter and does not reflect share repurchases completed in the third quarter.

Conference Call
Management will hold a conference call today, May 2, 2024, at 5:00 p.m. Eastern Time (4:00 p.m. Central Time) to discuss these results and provide an update on business conditions.

Clearfield’s President and Chief Executive Officer, Cheri Beranek, and Chief Financial Officer, Dan Herzog, will host the presentation, followed by a question-and-answer period.

U.S. dial-in: 1-877-407-0792
International dial-in: 1-201-689-8263
Conference ID: 13745310

The live webcast of the call can be accessed at the Clearfield Investor Relations website along with the company's earnings press release and presentation.

A replay of the call will be available after 8:00 p.m. Eastern Time on the same day through May 16, 2024, while an archived version of the webcast will be available on the Investor Relations website for 90 days.

U.S. replay dial-in: 1-844-512-2921
International replay dial-in: 1-412-317-6671
Replay ID: 13745310

About Clearfield, Inc.
Clearfield, Inc. (NASDAQ: CLFD) designs, manufactures, and distributes fiber optic management, protection, and delivery products for communications networks. Our “fiber to anywhere” platform serves the unique requirements of leading incumbent local exchange carriers (traditional carriers), competitive local exchange carriers (alternative carriers), and MSO/cable TV companies, while also catering to the broadband needs of the utility/municipality, enterprise, and data center markets. Headquartered in Minneapolis, MN, Clearfield deploys more than a million fiber ports each year. For more information, visit www.SeeClearfield.com.

Cautionary Statement Regarding Forward-Looking Information
Forward-looking statements contained herein and in any related presentation or in the related Earnings Presentation are made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995. Words such as “may,” “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” “outlook,” or “continue” or comparable terminology are intended to identify forward-looking statements. Such forward looking statements include, for example, statements about the Company’s future revenue and operating performance, expected customer ordering patterns, anticipated shipping on backlog and future lead times, future availability of components and materials from the Company’s supply chain, future availability of labor impacting our customers’ network builds, the impact of the Broadband Equity Access and Deployment Program (BEAD), Rural Digital Opportunity Fund (RDOF) or other government programs on the demand for the Company’s products or timing of customer orders, the Company’s ability to match capacity to meet demand, expansion into new markets and trends in and growth of the FTTx markets, market segments or customer purchases and other statements that are not historical facts. These statements are based upon the Company's current expectations and judgments about future developments in the Company's business. Certain important factors could have a material impact on the Company's performance, including, without limitation: inflationary price pressures and uncertain availability of components, raw materials, labor and logistics used by us and our suppliers could negatively impact our profitability; we rely on single-source suppliers, which could cause delays, increase costs or prevent us from completing customer orders; we depend on the availability of sufficient supply of certain materials and global disruptions in the supply chain for these materials could prevent us from meeting customer demand for our products; a significant percentage of our sales in the last three fiscal years have been made to a small number of customers, and the loss of these major customers could adversely affect us; further consolidation among our customers may result in the loss of some customers and may reduce sales during the pendency of business combinations and related integration activities; we may be subject to risks associated with acquisitions, and the risks could adversely affect future operating results; we have exposure to movements in foreign currency exchange rates; adverse global economic conditions and geopolitical issues could have a negative effect on our business, and results of operations and financial condition; growth may strain our business infrastructure, which could adversely affect our operations and financial condition; product defects or the failure of our products to meet specifications could cause us to lose customers and sales or to incur unexpected expenses; we are dependent on key personnel; cyber-security incidents, including ransomware, data breaches or computer viruses, could disrupt our business operations, damage our reputation, result in increased expense, and potentially lead to legal proceedings; our business is dependent on interdependent management information systems; natural disasters, extreme weather conditions or other catastrophic events could negatively affect our business, financial condition, and operating results; pandemics and other health crises, including COVID-19, could have a material adverse effect on our business, financial condition, and operating results; to compete effectively, we must continually improve existing products and introduce new products that achieve market acceptance; if the telecommunications market does not continue to expand, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results; changes in U.S. government funding programs may cause our customers and prospective customers to delay, reduce, or accelerate purchases, leading to unpredictable and irregular purchase cycles; intense competition in our industry may result in price reductions, lower gross profits and loss of market share; our success depends upon adequate protection of our patent and intellectual property rights; we face risks associated with expanding our sales outside of the United States; expectations relating to environmental, social and governance matters may increase our cost of doing business and expose us to reputational harm and potential liability; our operating results may fluctuate significantly from quarter to quarter, which may make budgeting for expenses difficult and may negatively affect the market price of our common stock; our stock price has been volatile historically and may continue to be volatile - the price of our common stock may fluctuate significantly; anti-takeover provisions in our organizational documents, Minnesota law and other agreements could prevent or delay a change in control of our Company; and other factors set forth in Part I, Item IA. Risk Factors of Clearfield's Annual Report on Form 10-K for the year ended September 30, 2023 as well as other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update these statements to reflect actual events unless required by law.

Investor Relations Contact:
Greg McNiff
The Blueshirt Group
773-485-7191
clearfield@blueshirtgroup.com

CLEARFIELD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
	Three Months Ended								Six Months Ended
	March 31,								March 31,
		2024				2023				2024				2023
Net sales	$	36,910			$	71,809			$	71,140			$	157,751
Cost of sales		34,078				48,246				63,611				103,539
Gross profit		2,832				23,563				7,529				54,212
Operating expenses
Selling, general and
administrative		12,573				11,508				25,432				24,266
(Loss) Income from operations		(9,741	)			12,055				(17,903	)			29,946
Net investment income		1,849				1,395				3,918				1,698
Interest expense		(102	)			(112	)			(228	)			(356	)
(Loss) Income before income taxes		(7,994	)			13,338				(14,213	)			31,288
Income tax (benefit) expense		(2,083	)			2,974				(3,034	)			6,669
Net (loss) income	$	(5,911	)		$	10,364			$	(11,179	)		$	24,619
Net (loss) income per share:
Basic	$	(0.40	)		$	0.67			$	(0.75	)		$	1.68
Diluted	$	(0.40	)		$	0.67			$	(0.75	)		$	1.67
Weighted average shares outstanding:
Basic		14,629,489				15,233,848				14,922,811				14,693,829
Diluted		14,629,489				15,260,769				14,922,811				14,766,938

CLEARFIELD, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
		(Unaudited)
		March 31,			September 30,
		2024			2023
Assets
Current Assets
Cash and cash equivalents	$	15,818		$	37,827
Short-term investments		127,089			130,286
Accounts receivable, net		21,899			28,392
Inventories, net		83,985			98,055
Other current assets		8,641			1,695
Total current assets		257,432			296,255
Property, plant and equipment, net		22,434			21,527
Other Assets
Long-term investments		6,523			6,343
Goodwill		6,568			6,528
Intangible assets, net		6,219			6,092
Right of use lease assets		12,394			13,861
Deferred tax asset		2,842			3,039
Other		991			1,872
Total other assets		35,537			37,735
Total Assets	$	315,403		$	355,517
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of lease liability	$	3,761		$	3,737
Current maturities of long-term debt		2,159			2,112
Accounts payable		5,914			8,891
Accrued compensation		5,871			5,571
Accrued expenses		2,740			2,404
Factoring liability		5,931			6,289
Total current liabilities		26,376			29,004
Other Liabilities
Long-term portion of lease liability		9,098			10,629
Deferred tax liability		721			721
Total Liabilities		36,195			40,354
Shareholders' Equity
Common stock		144			153
Additional paid-in capital		162,697			188,218
Accumulated other comprehensive income (loss)		130			(544	)
Retained earnings		116,237			127,336
Total Shareholders' Equity		279,208			315,163
Total Liabilities and Shareholders' Equity	$	315,403		$	355,517

CLEARFIELD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
			Six Months Ended				Six Months Ended
			March 31,				March 31,
			2024				2023
	Cash flows from operating activities
	Net (loss) income	$	(11,179	)		$	24,619
	Adjustments to reconcile net (loss) income to cash provided
	by (used in) operating activities:
	Depreciation and amortization		3,572				2,822
	Amortization of discount on investments		(2,196	)			(1,139	)
	Deferred income taxes		(195	)			(35	)
	Stock-based compensation		2,284				1,444
	Changes in operating assets and liabilities
	Accounts receivable		6,600				16,353
	Inventories, net		14,414				(17,243	)
	Other assets		(5,951	)			(2,407	)
	Accounts payable and accrued expenses		(2,752	)			(14,273	)
	Net cash provided by operating activities		4,597				10,141
	Cash flows from investing activities:
	Purchases of property, plant and equipment and
	intangible assets		(4,389	)			(4,797	)
	Purchase of investments		(47,748	)			(99,126	)
	Proceeds from sales and maturities of investments		53,293				100,743
	Net cash provided by (used in) investing activities		1,156				(3,180	)
	Cash flows from financing activities:
	Repayment of long-term debt		-				(16,700	)
	Proceeds from issuance of common stock under		250				299
	employee stock purchase plan
	Repurchase of shares for payment of withholding taxes		(240	)			(954	)
	for vested restricted stock grants
	Tax withholding and proceeds related to exercise of stock options		(9	)			(471	)
	Issuance of stock under equity compensation plans		-				954
	Net proceeds from issuance of common stock		-				130,262
	Repurchase of common stock		(27,814	)			-
	Net cash (used in) provided by financing activities		(27,813	)			113,390
	Effect of exchange rates on cash		51				80
	(Decrease) increase in cash and cash equivalents		(22,009	)			120,431
	Cash and cash equivalents, beginning of period		37,827				16,650
	Cash and cash equivalents, end of period	$	15,818			$	137,081
	Supplemental disclosures for cash flow information
	Cash paid for income taxes	$	157			$	10,211
	Cash paid for interest	$	172			$	266
	Non-cash financing activities
	Cashless exercise of stock options	$	19			$	510

FAQ

What were Clearfield's revenue and net loss per share in the second quarter of 2024?

Clearfield reported revenue of $36.9 million and a net loss per share of $(0.40) for the second quarter of 2024, both above the high end of their respective guidance ranges.

What was the change in net sales and gross profit percentage for Clearfield in the second quarter of 2024 compared to the same period in 2023?

Clearfield experienced a 49% decrease in net sales and a 77% decrease in gross profit percentage in the second quarter of 2024 compared to the same period in 2023.

What is the current share repurchase program authorization for Clearfield?

The Board of Directors increased Clearfield's share repurchase program authorization from $40 million to $65 million.