Good afternoon. Welcome to Clearfield's Fiscal Second Quarter 2022 Earnings Conference Call. My name is Hemant 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 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.

Good afternoon. And thank you everyone for joining us today. We hope you're all doing well. It is a pleasure to speak with you this afternoon to share Clearfield’s results for the fiscal second quarter of 2022. And to provide an update on the business and market trends. Clearfield continues to execute in an environment in which demand is accelerating. Bookings led shipments by $34 million for the three month period, creating a backlog of $136 million as of March 31, 2022. We continue to maintain a healthy balance sheet with $43 million in cash and investments and no debt. We have filed a shelf registration statement and secured a $40 million line of credit with Bremer Bank to ensure we have the financial flexibility and how we respond to current and future robust clients demand as we invest in strategies that will enhance our growth opportunities in the future. We believe we are well positioned to capitalize on any new government funds that are dispersed to our market, with some of our customers already beginning to place advanced orders in anticipation of those disbursements. For all of those reasons, we are raising our fiscal year 2022 net sales savings from a range of $177 million to $183 million to a range of $204 million to $218 million. Our guidance represents growth of 45% to 55% over fiscal year 2021 revenues. Once again, we'd like to provide a brief overview of who we are and what we do for those of you who may be new to our company and industry. Clearfield is a leader in the expanding fiber broadband industry. We provide fiber protection, fiber management and fiber delivery solutions that enable the rapid and cost effective fiber-fed deployment throughout the broadband service provider space. We primarily serve service…

Thank you, Cheri. And good afternoon, everyone. It's a pleasure to be speaking with you today about our second quarter of our fiscal year ‘22 results. Looking at our second quarter financial results in more detail. Net sales in the second quarter of fiscal ‘22 were record $53 million, an 80% increase from $30 million in the same year ago period, and up 5% from $51 million in our first quarter of 2022. We had two 10% customers in the period, a distributor at 14% and a regional broadband service provider who was 13% of sales. In addition to our revenue increase, sales bookings maintain their strong momentum in the second quarter of fiscal 2022, resulting in a 605% year-over-year increase in our sales order backlog. Order backlog grew to a record of $136 million on March 31, 2022, up from $101 million on December 31, 2021 and up from $90 million on March 31, 2021. Our recent investments in our new facility in Mexico has tripled our Mexico manufacturing square footage. And our Minnesota warehouse has doubled our Minnesota footprint, which will enhance our capacity and revenue potential in the quarters ahead. Now, on slide 8, we'll review our net sales by our markets in greater detail. Our core community broadband market comprised 75% of our net sales in the second quarter of fiscal 2022. In Q2, we generated net sales of approximately $40 million in community broadband, up 94% from the same period last year. In addition for the trailing 12-month ended on March 31 2022, our community broadband market net sales totaled approximately $133 million, which was up 76% from the comparable 12-month period last year. Our MSO business comprise 14% of our net sales in the second quarter of fiscal 2022. From a growth perspective, we…

Thanks for the financial update, Dan. The Clearfield value proposition is driven by our thoughtfully designed fiber management and fiber connectivity products. We have made it our goal to remove the obstacles that would prevent our customers from adopting fiber led broadband. Since its founding Clearfield was built to scale. We were built for the opportunity that lies in front of us. As we mentioned from the beginning, Clearfield has been positioned to deliver fiber products to communities that have historically been underserved or unserved. Clearfield truly is community broadband. We are often asked how long this elevated demand for high speed broadband might last and whether it's sustainable. As previously stated, we are in the middle of a historic investment cycle for high speed broadband, particularly fiber led broadband. The chart on slide 14 put together by Jefferies Research shows the anticipated increase in government funding through 2025 and includes the nearly $65 billion in funding available through the infrastructure investment and Jobs Act, passed by Congress and enacted in November of 2021. The scale of this market opportunity is quite simply massive. As RDOF dollars have moved through SEC review, with around 50% of the first round of those funds being approved for distribution. We are now seeing some of our customers anticipating those dollars and beginning to place advanced orders. Moreover, the broadband equity access and deployment program, known as BEAD, which represents the $42 billion inside of the infrastructure fund will mostly be distributed sometime in late ‘23 or possibly into 2024. The SEC recently announced the broadband maps which identify the areas by census block where the BEAD programs funds are most likely to be allocated. And this will be updated this fall. Given the administration's stated goal of prioritizing underserved communities for broadband access…

[Operator Instructions] The first question comes from the line of Jaeson Schmidt with Lake Street.

Hey, guys, thanks for taking my questions. And congrats on your early impressive results here. Cheri, I just want to start with sort of the March quarter and trying to reconcile the moving pieces. Obviously, the supply chain remains challenging. And you noted lead times continue to extend. But was there any demand in the March quarter that you were unable to fulfill? And if so, could you quantify that?

There's absolutely demand unable to fill in that there was I mean, our customers are looking to shorten their lead time across the board. And so we know that our responsibility is to continue to expand our capacity and to expand it as quickly as possible. I commented within the materials that our customers working diligently to shorten the lead time we currently accept promising to our customers doing the best that we can to ship to the date that we have provided. This is a really unusual market for people, they're learning about planning three and six months in advance and we're working to help them deal with those challenges right now. I couldn't really quantify specifically how much we could have pulled into this quarter. But there certainly was demand that would have been significant.

Okay, that's helpful. And I know a couple quarters ago, you noted that the backlog at that time comprised around 200 customers, just curious how that is today. And if that growth and backlog you're seeing is really being driven by the current customers, expanding their orders, or if that customer base has broadened out.

Oh it’s both, we continue to be really excited about working with new customers, we're seeing the utilities and the municipalities coming through, and have been very, I had the opportunity earlier this quarter to spend some time at the Power and Tel Annual Conference. We were recognized as their product and vendor of the year. So they're a great supplier or distributor to work with, and that they provided the opportunity for us to continue to expand to additional customers. I mean, I can I can tell you that there are more than a dozen customers in our backlog with more than a $1 million apiece and several 100 customers in the backlog that are continuing to put backlog members over $100,000.

Yes. And newer ones that were not in there in the prior quarters.

Okay, no, that's nice to hear. And very helpful. And then just the last one for me, and I'll jump back into queue. Just curious if you could help us think about the cadence of the remainder of this year, I know, the past 18 plus months are your normal seasonality has already gone out the window. But typically, I mean, June, the June quarter tends to be a strong one for you. Should we think about that strength continuing here this current quarter, and then maybe a drop off in September or kind of a gradual growth through the remainder of this fiscal year?

Yes, I think our seasonality at this point is going out the door. We're going to see incremental enhancement and incremental improvement on a quarter-to-quarter basis as we continue to work with the backlog. And continue to expand the capacity in front of us, as we talked about on the materials, we added 200 people last quarter, and we only moved into that new building in Mexico in the first part of March. So we have a lot of training in front of us, a lot of space utilization to implement. So we're looking forward to enhancing the revenue that goes out the door on an incremental basis each quarter, and working with our customers to be able this build season to continue to get product in their hands.

The next question comes from the line of Tim Savageaux with Northland Capital Markets.

Hi, good afternoon. And congrats from me as well on another great quarter. We had a question about then kind of government funding environment. And it's really levering off of something, I guess, one of your competitors. Corning commented on earlier in the week with also very strong numbers in optical fiber, but and thinking about the BEAD program, in particular, and I think what's that little over $40 billion in infrastructure spending, they commented that they thought that could mean an incremental $1 billion a year for them, or about 20% of their current run rate over a four year period. Yes, I wonder if you guys have given any thought to kind of looking at the opportunity that way of a have a certain amount of award funding. I know you've have per home metrics, but what sort of opportunity might come Clearfield way or if you've got any kind of equivalent metrics to think about with regard to what the impact of this upcoming program might be on the company and I have a follow up.

We're really trying to get our hands around that. Because we, I mean historically, of course, Corning was the big dog in the market and they were the big dog because of AT&T and Verizon being the predominant deployer. Today in this market those organizations still being very strong, delivery agents to fiber to the home. There's so many more. And there's so many parts of our world about what community broadband is in place. Corning talked about 20% incremental growth, and they had a 20% growth rate this year, over last year. So what we're trying to get our hands around with is that at growing at 80% over last year, we're nowhere, we know that we're taking share, and we need to be able to identify how we're taking that share, keeping that share sticky, establishing the organizational capacity by which to grow with that. So that's those are figures that we hope to be able to put together and perhaps provide at a later call. But at this point, it's more of our research, and most importantly, just working to make sure we can continue to build capacity factor.

Got it. And while we're on Corning, what are you seeing out of your kind of traditional larger competitors in the community broadband market these days, Corning and lately CommScope as well. Any change that's notable in their behavior, are they kind of tied up with the big tier one or what happened?

Yes, certainly Corning is a very well-run company and has service their large customers in a very well, strong way. The CommScope, the market is watched and is, it was figuring out how to best be able to solve some of their own financial challenges. We think there's an opportunity for us there of taking share within some of those customers as that organization perhaps fumbled the ball a little bit.

Okay, and last question for me, you'd mentioned that given a fair bit of the funding from RDOF had been dispersed, or at least earmarked to more than half of it that you were starting to see some activity either with customers who had received funds or are about to receive funds shortly ordering ahead. In any way you can give us some sense of the quantitative impact of that? Is that after, I guess, several quarters of maybe not being material, can we say that RDOF is beginning to have a material impact on your business kind of this quarter and heading forward?

Yes, for the quarter ending in March. No, it is not material, it will begin to become material moving forward, I mean that those orders are now in backlog. It's fairly identified as being more than 10%.

The next question comes from the line of Ryan Koontz with Needham.

Congrats on quarter to the team there. On the, Cheri, any commentary on product mix in terms of passings versus connections? Are you still seeing a more heavy passings business or because this past quarter was an intense weather quarter that becomes more of a connections mix in the product and I have a follow up.

Actually, as the weather gets nicer connections improve, so we're still in the quarter ending in March, very, very heavy in passings and very certainly a disproportionate amount of business in in the past in cabinets and the products that are necessary to be able to pass homes. In fact, we introduced this last month, a program that we call FastPass, and it's really helping our customers identify how they can pass twice as many homes as they would with a competitive technology. So FastPass is proven to get a lot of traction at a trade shows and at seminars. And so we think we're going to actually see a continued high concentration of passings moving forward because of the make ready work that has to happen. And we'll see the connections start to pick up probably late in the summer, and mostly the connections will be a fiscal year ‘23 opportunity and then that will augment the work that we're already doing.

Got it. And is the connections, the same exact competitor set generally that you deal with on the passing products.

Yes, absolutely.

Got it. And your commentary on RDOF was relaxing. You're seeing some nice order flow there. Any commentary around the ARPA funds? Is that kind of timing similar to RDOF or what your current visibility on ARPA?

Yes, the BEAD program is going to be a while. And that they're still working through how to do that to the NTIA. We've seen the NTIA administration getting out into the community talking to community providers on how to be able to apply for it. But that's really a calendar year ‘23 and ‘24 impact on [Indiscernible].

Okay, helpful. And then on the MSO business being down, is that more of just kind of a typical seasonality to the cable CapEx we've seen in the past that you might be seeing there that being down sequentially.

The MSO business is actually up quite substantially for year-over-year, 82% over a year. It's lumpy, like any other project business. But no, we actually see the cable business as a strong growth up market for us.

The visibility is pretty good there for you as well.

It is.

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 to Ms. for closing remarks. Please go ahead.

Thank you. It has been absolutely a pleasure to talk about and maybe to brag a little bit about Clearfield because we're so thrilled with what my team is doing and how we are working with our customers. I also want to thank our customers because we need to continue to improve our performance to the level that they are expecting. So for those customers who are also investors in our organization, please know that we do not take your business for granted and we'll be continuing to improve our performance in that area. And finally, I'm excited to let everyone know that we are back to Clearfield and while we are working in a hybrid environment. It is so nice to not have to wear masks. Have a safe and healthy summer.

Thank you for joining us today for Clearfield’s fiscal second quarter 2022 earnings conference call. You may now disconnect.