Good afternoon. Welcome to Clearfield’s Fiscal Fourth Quarter and Full Year 2020 Earnings Conference Call. This is the conference operator. 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 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 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 and its subsequent filings on Form 10-Q provides description of those risks. As a reminder, the slides in this presentation are not controlled by the speaker, but rather by you, the listener. Please advance forward through the presentation as the speakers present their remarks. With that, I would like to turn the call over to Clearfield’s CEO, Cheri Beranek. Please proceed.

Good afternoon and thank you everyone, for joining us today. I hope you are all continuing to stay safe and healthy. It's a pleasure to speak with you this afternoon to share Clearfield's results for the fiscal fourth quarter and full year 2020. The fourth quarter of fiscal 2020 capped off a record year for Clearfield. From a topline standpoint, this fourth quarter marks the highest quarterly revenue level in our company's history, bringing our total revenue for this fiscal year 2020 to a record $93.1 million. An integral part of our success has been our employees' unwavering commitment to providing best-in-class products and customer support and none of this could have been accomplished without their dedication to our mission. Looking more specifically at our fourth quarter for fiscal 2020 results, the $27.3 million in revenue we reported was up 14% year-over-year. This robust growth was driven by solid contributions from our MSO and community broadband markets, which were up 51% and 25% year-over-year respectively. The record topline performance in fiscal year 2020 Q4 also helped to drive solid gross profit, which totaled $10.8 million. As a percentage of revenue, the 41.2% margin marked this second highest gross profit margin we've achieved as a company in more than two years, just behind the 41.5% we reported last quarter. From a profitability standpoint, we generated $3 million in net income. We ended the year with a robust order backlog, totaling a record $10.7 million, up 153% year-over-year, providing clear visibility into growth in the new fiscal year. I'm also encouraged to report that we continue to look at industry best lead-times for our standard products as well. Our solid performance in the fourth quarter drove several additional and noteworthy record results for the year. In addition to the $93.1 million we…

Thank you, Cheri and good afternoon, everyone. Now, looking at our fourth quarter financial results in more detail. Our revenue in the fourth quarter of fiscal 2020 increased 14% to $27.3 million from $24 million in the same year ago period. The increase in revenue was primarily due to higher sales in our community broadband and MSO markets, partially offset by lowered National Carrier and international sales as Cheri just mentioned. Gross profit for the fourth quarter of fiscal 2020 totaled $11.2 million, or 41.2% of total revenue. This was an improvement from $9.3 million or 38.8% of total revenue in the fourth quarter last year. The increase in gross profit dollars was due to increased sales volume. Increase in gross margin was due to more favorable product mix and cost reduction efforts across our product lines as well as expanded use of our Mexico manufacturing plants, which included adding a second facility in the second quarter of fiscal 2020. Also efficiencies realized from our supply chain programs and lower tariff costs. Our operating expenses for the fourth quarter of fiscal 2020 were $7.6 million, which were up from $7.1 million in the same year ago quarter. As a percentage of total revenue, operating expenses in fiscal year 2020 Q4 were 27.7% compared to 29.7% in the same year ago period. The increase in operating expense dollars was primarily due to higher costs related to performance compensation accruals. In terms of our profitability measures, income from operations was $3.7 million in the fourth quarter of fiscal 2020, which compares the $2.2 million in the same year ago quarter. Income tax expense increased to $786,000 in the fourth quarter of fiscal 2020, up from $511,000 in the fourth quarter of 2019. Net income totaled $3 million or $0.22 per diluted share…

Thanks, Dan. At no time in our history has the need for high speed broadband connectivity been more apparent than during the COVID crisis. working remotely often from home, has blurred or even permanently altered the business versus consumer distinction with all networks now carrying business critical and entertainment data at the same time. COVID has accelerated the need for and deployment of broadband. Clearfield is well positioned in all of our markets to take advantage of this opportunity. As I mentioned earlier, our record results for Q4 and fiscal 2020 were driven by strong performance in our MSO and community broadband markets. We saw customers in these areas push forward with their purchasing decisions and deployments in response to COVID-19, which has highlighted the need for high speed broadband front and center, for both consumers and businesses alike. Much of our success since March has been with our existing customers, especially our base of community broadband providers, where we already had great rapport. These companies have looked to us to help them address the surging demand and need for high speed internet access. As you can see from this slide, COVID's effect on broadband demand is accelerating. In February of this year, market research for firm Omdia published its report for wireline broadband access equipment revenue in 2021. Estimating approximately $8.6 billion would be spent on equipment. Then in July after a dip in 2020, Omdia updated its forecast for 2021, noting that the market would strongly rebound with growth of 20%. While COVID has validated the need for broadband, the marketplace as responded with accelerated build plans. Now, shifting gears to our Coming of Age plan, which is most of you know, is our three years strategic plan designed to strengthen our core business and position our company…

Thank you. We will now be taking questions from the company’s publishing sell-side analysts. [Operator Instructions] And our first question is from the line of Jaeson Schmidt with Lake Street. Please proceed.

Hey, guys. Thank you for taking my questions. Cheri, just want to follow-up on your last comments in the prepared remark -- remarks. I mean, how should we think about just general seasonality in fiscal 2021 just given the momentum you've seen, and it sounds like expect to continue to see here in the near term?

Yes, I think the normal seasonality of a business kind of coming down in the first quarter, we're not seeing at this point. I mean, we came into the quarter with an extremely strong backlog of over $10 million, with the great majority of that backlog scheduled to ship in the first quarter. So we're seeing a really strong first quarter, we think parts of that are related to the CARES Act. I mean, there's some requirements within the CARES Act for bills to be completed by 12/31. We were worried that there's probability that that will be extended, but at this point in time, people aren't kind of pushing toward getting things done this first quarter. So I'm thinking first quarter is going to be really strong. That's the outlook that we provided for the forecast. Second quarter, I think we're going to see some of the normal new challenges associated with budgeting and forecasting and weather. But it's going to be -- the demand right now out there in Community Broadband and for fiber in general is really strong, we're very optimistic for the full year.

Okay. That's helpful. And just given the strength you've been seeing, do you think this is more of a function of sort of a rising tide across the industry? Or do you guys think you're still taking share in your select markets?

I think it's both. I mean, certainly across the entire marketplace, you see a lot of our -- the companies that we partner with, companies like Calix, companies like ADTRAN, Nokia, I mean, their business in the access market is definitely up. And so we're taking advantage of that market increase in market demand. But I also believe, we're uniquely positioned due to our strength and market share in Community Broadband to take advantage of that. We have a very in depth and established sales team that has -- is heavily distributed throughout the marketplace, coupled with our what we call our smart guys, our application engineers who are out in the field, to help organizations who are predominantly been underserved or who are new to fiber, to be able to design and run their networks. So I think the marketplace is strong. And I think we're taking advantage of that strength of demand as well as achieving additional share throughout the process.

Okay. And then just last one for me, and I'll jump back into queue. How should we think about OpEx going forward? It was up here sequentially in September, is this sort of a new level in fiscal 2021?

See, until we get a little bit of seasonality of fourth quarter expenses due to compensation increases for achievement of a revenue threshold. But that said, we're scaling organization, we need to continue to be able to build into our resources as well as build into the infrastructure of our company. So our SG&A levels will not climb significantly. But the percentage of business is probably pretty consistent at fourth quarter levels.

Okay. Perfect. Thanks a lot, guys.

You're welcome.

And our next question is from the line of Tim Savageaux with Northland Capital Markets. Please go ahead.

Thanks very much, and good afternoon and congratulations on the strong results. We certainly have been seeing that, fairly broad based across especially the rural fiber access space. And I kind of want to follow-up on that sort of high level. It's an interesting forecast that you featured in the field report and I kind of want to follow-up on that sort of high level. It's an interesting forecast that you featured in the field report talking about 20% growth in the industry. And that seems to be somewhat of a recurring theme. With regard to some of your recent results, your community broadband has been growing in excessive, at least the last couple of quarters. And to the extent that you don't see normal seasonality in the first quarter, you'll be growing well above that level as well. So that 20% mark seems to be kind of a reasonable target in my view for maybe gauging the company's growth potential in fiscal 2021, I'd be interested in your thoughts on that?

I think there's potential by which to get there. There's definitely some strong demand to put that in place. If you look at that chart from the metrics, I'm pronouncing that correctly. But it calls for that increase in calendar year 2021. So we're a little bit ahead of that right now. What makes me comfortable that we've gained share is that, that showed a pretty heavy reduction in 2020, in regard to reduction of demand. So feel good about where we're at and kind of capitalizing on it. I think the challenge right now in getting too far ahead of ourselves for forecasting 20% for the year, is just the uncertainty of the market that we're living in. The COVID world issues associated potentially with deployment, with having enough availability of labor and resources to associate with we need to -- not get too far out of our in front of our skis. Appreciate the opportunity and the execution that are necessary. We're continuing to invest, as we pointed out in the multiple facilities so that we can continue to fulfill on these requirements. So we're not getting a long-term guidance, opportunity. But the longer we get into the year, the more comfortable I'll feel with capitalizing on that market demand.

And that's absolutely fair enough. Following up on the backlog, obviously, an impressive number there. Just I have kind of two questions about that.

Are you still there?

Can you hear me?

Nope. There you are. You're back?

Am I back?

Yep. We can hear you now.

Yes. We can hear you.

Great. Sorry about that. Let's see backlog. Yes. And I guess the questions were I would be interested if the composition of the backlog is skewed in any particular direction in terms of your business segments, or is it pretty well distributed across your typical categories. And in particular, what you might be seeing in terms of trends on the cable side, heading into calendar year end, obviously, your fiscal first quarter, but there are some indications that maybe they could finish the year pretty strong. I wonder if you're seeing that at all.

We think -- I mean the backlog is strongly distributed across all market categories, with the exception of international. We sell into the Canadian, Latin American Mexico markets. And those markets have been, especially Mexico and South America, Caribbean markets have been very flat. They've been redeveloped -- redeploying their currency to other places. So you won't see a lot of international in our backlog, although we're optimistic when things stabilized in those spaces that will be better off next year. The rest of it is strong community broadband, cable TV and carrier business. Like I said, the carrier business is a little bit of a bubble in regard to delayed orders. Our strength at cable TV is predominantly Tier 2, cable TV with some business in Charter and Content, but our strength is predominantly Tier 2. We're very pleased, as you can know with the numbers that we're putting together and they continue to build there that are operational. The challenge again with -- as we move into the Tier 1 space with cable TV is some of the delayed orders, the more project based business that we haven't quite got into a run rate level yet to forecast. But I definitely see cable TV responding to some of the funding that's going on in some of the underserved markets, and they're responding to really protect their franchises. So I think that'll certainly be played out next, maybe not in fourth quarter of the calendar year, first quarter of our fiscal year. But it's certainly something that we've been investing in for a long time and look to reap some of the fruits of that next year.

Great. Thanks. And last question for me, as you maybe consider that overall growth potential in fiscal 2021. I wonder if you could address kind of what kind of assumptions you may or may not be making with regard to new product growth. You mentioned the fiber distribution opportunity. I don't know if that $50 million was an annualized number, you felt the market opportunity might be for Clearfield, or how you were defining that. But is there kind of a timeframe that you envision kind of ramping here, maybe towards the back half of the fiscal year?

Right. That $50 million opportunity is an annual opportunity for our level of product. Certainly, we're not going to achieve 100% market share, but it's pretty exciting to see that kind of new market opportunity really in spaces that you weren't building before because these are difficult regions or underserved or unserved territory. So they typically have been not economically feasible to be deployed previously. So that's really new market for us. That said, at the end of the calendar year, next year, before you're going to see significant revenue smart off, right. I mean, the auctions are currently underway, till they get awarded, and they're engineered and put in place. I think we'll start to see revenue on that maybe 4th of July and fourth quarter of next year, our fourth quarter of next year, which really positions us well for fiscal year 2022. And we have been, it's not like we had to put resources in place for any of that, that's where we shine. We've been building that business for the last 13 years VM and have been augmenting it now with new resources in the utility space, where we haven't been as strong but really is a -- it's a replication of the work that we did in the early days of independent telephone. There's about 900 different utilities across the country, similar to how 10 years ago there were 900 independent telephone companies underserved works, it's refreshing actually to get back into those early days of pioneering fiber and look forward to it like I said, probably late next year.

Okay. Thanks very much, and congrats once again.

Thank you.

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

Thank you again for joining us today. It's a tumultuous time in our country. I hope you're all safe and appreciative of the country that we live in and look forward to our opportunity to continue to make it a strong organizational environment for all of us to do business. We look forward to updating you again on our progress soon.

Thank you for joining us today for Clearfield's fiscal fourth quarter and full year 2020 earnings conference call. You may now disconnect your lines.