Good afternoon. Welcome to Clearfield's Fiscal Second Quarter 2020 Earnings Conference Call. My name is Daryl, and I will be your operator this afternoon. Joining us for today's presentation are the company's President and CEO, Cheri Beranek; 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 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 FieldReport, which is also available in the Investor Relations section of the company's website. Please note that during the course of this call, management will make 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 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 statements contained in today's press release, FieldReport and in this conference call. The Risk Factors section in Clearfield's most recent Form 10-K filing with the Securities and Exchange Commission provides descriptions of those risks. With that, I would like to turn the call over to Clearfield's CEO, Cheri Beranek, please proceed. Thank you for standing by. With that, I will turn the call over to Clearfield's CEO, Cheri Beranek. Please proceed. Please standby for technical difficulties. And I do apologize. [Technical Difficulty]. Thank you for standing by. With that, I will turn the call over to Clearfield's CEO, Cheri Beranek. Please proceed.

Good afternoon, and thank you, everyone, for joining us today. As you can see, some of the things we just take for granted in earlier times when we're in a situation like this, we do our best that we can. So thank you for sticking with us. We're -- Dan and I are both at our own perspective homes and doing the normal routine that most people are doing today, which is social distancing, work from home and the remote life that is now becoming our new normal. We were pleased that due to the critical role Clearfield solutions play in supporting the communications infrastructure, Clearfield operations have been classified as critical sector works. We have continued to be fully operational since the beginning of 2020, despite precedented global business closures and slowdown caused by COVID-19. We continue with production operations in both the U.S. and Mexican manufacturing facilities and have established multiple contingency plans in the event our ability to operate would be diminished or is eliminated at either location. As of today, our employees are healthy, and we have no reported COVID-19 cases. However, this, of course, can change at any time. The second quarter was a strong period for Clearfield as we achieved the highest level of revenue for any fiscal Q2 in our company's history at $20.4 million, which was up 5% sequentially and 7% year-over-year. This trajectory is consistent with our expectations and was driven by strong contribution from our National Carrier and MSO markets, which were up 66% and 75% year-over-year, respectively. In terms of efficiency, we realized another quarter of solid gross profit margin at nearly 40%, which is the highest level in 8 quarters. This achievement reflects the success of the operational efficiency initiatives that we've implemented across the organization over the…

Thank you, Cheri, and good afternoon, everyone. Now looking at our second quarter financial results in more detail. Our revenue in the second quarter of fiscal 2020 increased 7% to $20.4 million from $19.1 million in the same year ago period. The increase in revenue was primarily due to higher sales in our Tier 1 and MSO markets, offset by lower international sales, as Cheri mentioned. Gross profit for the second quarter of fiscal 2020 totaled $8.2 million or 39.9% of total revenue. This was an improvement from $7 million or 36.8% of total revenue in the second quarter of fiscal 2019. The increase in gross profit dollars was due to increased sales volume, while the increase in gross profit percent was due to cost reduction efforts across our product lines, including expanded use of our Mexico manufacturing plant and efficiencies realized from our supply chain programs. Our operating expenses for the second quarter of fiscal 2020 were $7.4 million, which were up from $6.7 million in the same year ago quarter. As a percentage of total revenue, operating expenses in Q2 were 36.4% compared to 35.3% in the same year ago period. The increase in operating expenses was primarily due to increased compensation costs and the costs associated with product testing required for Tier 1 certification. Income from operations was $720,000 in the second quarter of fiscal 2020 in comparison to $297,000 in the same year ago quarter. Income tax expense increased from $99,000 in the second quarter of 2019 to $190,000 in the second quarter of fiscal 2020. In the second quarter of fiscal 2020, net income totaled $748,000 or $0.05 per diluted share, which is an improvement from $368,000 or $0.02 per diluted share in the same year ago quarter. During the second quarter, our cash, cash equivalents and investments increased $1.6 million to 40.8 -- $48.4 million from $46.8 million in the prior quarter ended December 31, 2019. It's worth noting that our excess cash is invested mainly in CDs backed by the FDIC, U.S. Treasury Securities and money market accounts, which are secure and highly liquid. We believe our existing cash and short-term investments, along with cash flow from operations, is sufficient to meet our working capital and investment requirements for beyond the next 12 months. During the quarter, we repurchased 41,796 shares of our common stock for an aggregate value of approximately $429,000. Our Board and management team will continue to evaluate how we deploy our capital to generate the highest returns for our shareholders. To further ensure our financial stability during these uncertain times, we have suspended our share repurchase plan. That concludes my prepared remarks. I will now turn the call back over to Cheri. Cheri?

Thanks, Dan. Over the last two years, we've been executing on our Coming of Age plan, which is our three year strategic plan designed to strengthen our core business and position our company for disruptive growth opportunities, specifically around 5G. As our financial and operational performance in Q2 demonstrated, we're now starting to realize the results of this plan. I'll now spend a moment providing a brief update on our three major initiatives within it. In terms of our first initiative, expanding our core community broadband business, we are seeing emerging opportunities with utilities, in which we expect our unique modular architecture will help us capitalize on these opportunities and grow our share in this market. Further, we expect to be successful in working with service providers who will benefit from the expanded funding programs for broadband deployment sponsored by the federal government. In terms of our progress enhancing our operational effectiveness, our success in this area was most clearly demonstrated by the 40% gross profit margin we realized in the quarter. In addition to benefiting from the cost reduction efforts across the product lines as Dan mentioned, we are continually looking for ways to improve our manufacturing capabilities and supply chain efficiencies. During Q2, we signed a lease for a second manufacturing facility in Mexico, which has doubled our square footage and allows us to establish lean manufacturing initiatives by dedicating 1 facility to connectivity and the other to splicing operations associated with our enclosures. The COVID-19 impact in Mexico caused temporary delays in our ability to begin shipping products from the facility, but did not significantly impact the planned level of revenue shipped this quarter. Based on the current assessment, we believe we can commence shipping from the facility in the coming weeks. In terms of our competitive…

[Operator Instructions]. Our first questions come from the line of Tim Savageaux of Northland Capital Markets.

This is actually Steven on for Tim. I was wondering if you could give us any color on what drove the increase in backlog.

Couple of things. The increase in backlog was a lot more orders, and a lot more in the tail end of the quarter in March. The backlog is driven across the company that's in community broadband, MSO as well as in the carrier business. We didn't quite have the -- some of it came a little bit late in the month of March and some of it was associated with what we're doing in Mexico and that the COVID virus didn't allow us to open up the second plant because the construction team that was dedicated to our plant got called to a Mexican federal project. But it's long-term consistent overall business.

Okay. That's great. And then can you just let us know, is there -- the traffic increases due to the pandemic, are those positively impacting your business? Or is it pushing anything out?

When you say traffic, broadband traffic?

Yes. Correct.

Right. I think we're certainly seeing a level of high interest from our service provider customers, whose -- their customers are asking for service turn-ups. And I think there's no better time right now to demonstrate just how crucial broadband connectivity is and how much it drives our day-to-day lives. I think we're seeing a little bit of uptick in second quarter, but not a lot, and that's still kind of in front of us. We're seeing our service providers see a level of take rates that they haven't previously seen because people need it and they're demonstrating through it. So I think it's both a short-term and long-term opportunity for us in that -- because of the recognition of those -- the success of what that delivers.

[Operator Instructions]. I'd now like to turn the call back to CEO, Cheri Beranek, for her closing comments.

Thank you, everyone. I appreciate you joining us today. We, as a company, traditionally take questions from our covering analysts. If you have a question that has not been addressed in today's information, please feel free to reach out to us by sending an e-mail to myself personally, which is cberanek@clfd.com or to our IRR firm, which is ir@gateway.com. I ask you to stay safe, wash your hands and social distancing is not a choice, it's a requirement. Thanks very much. Bye for now.

Good bye.

Thank you for joining us today for Clearfield's Fiscal Second Quarter 2020 Earnings Conference Call. You may now disconnect.