15 Jun Clearfield Inc: Communicating with a Better Future
Clearfield, Inc. (NASDAQ: CLFD) is a leader in fiber connectivity. The Company designs, manufactures and distributes fiber optic management, protection, and delivery products for communications networks.
The Company
Clearfield aims to enable rapid, cost-effective, fiber-fed deployment throughout the broadband service provider space, primarily across North America. The Company’s “fiber to anywhere” platform serves the unique requirements of leading incumbent local exchange carriers (Traditional Carriers), wireless operators, Multiple Systems Operators and Cable TV companies (MSOs), and competitive local exchange carriers (Alternative Carriers), while also catering to the broadband needs of the utility/municipality, enterprise, and data center markets.
Clearfield’s operations currently comprise two reportable segments: Clearfield Operating Segment and, since July 26, 2022, the Nestor Cables Operating Segment.
Clearfield, Inc. (NASDAQ: CLFD)
Market Cap: $698.62M; Current Share Price: $45.80
Data by YCharts
We will discuss key highlights that make the Company an exciting watch.
- Multi-billion broadband fiber market:
Clearfield’s primary target markets include Fiber to the Home (FTTH), Multiple Dwelling Units (MDUs) and Multiple Tenant Units (MTUs), business services, and wireless.
The Company’s products allow customers to connect twice as many homes in their Fiber Home (FTTH) builds using fewer resources in less time. Clearfield’s products also speed up the time to revenue for service provider customers in Multiple Dwelling Units (MDUs) and Multiple Tenant Units (MTUs) by reducing the amount of labor and materials needed to provide gigabit service.
The Company’s products help make business services more profitable through faster building access, easier reconfiguration, and quicker service turn-up. Finally, Clearfield is removing barriers to wireless 4G/5G small cell, Cloud Radio Access Network (C-RAN), and distributed antenna system (DAS) deployments through better fiber management, test access, and fiber protection.
Given its product profile, there is a tremendous market opportunity for the Company, especially across rural broadband. It is to be noted that
Additionally, multiple incremental market expansion growth vectors exist in the Tier 1 US market, international markets, and 5G opportunities.
Image Source: Company
The 5G market seems especially promising – it is estimated to have more than 20 years of sustainable opportunity, and the Company’s current product suite is well positioned for 5G’s big spending cycle.
Clearfield’s existing products can be used in wireless networks for 5G implementation, bringing fiber management expertise to 5G. Thus, there is a unique point of entry for the Company, with the next three years pivotal to gaining a 5G foothold. It is to be noted that the cumulative e 5G cycle spend coincides with Clearfield’s Now of Age Plan, removing obstacles for the integration of wireline and wireless networks.
Overall, it can be said that there is a major impending shift in fiber deployment, and Clearfield seems well-poised to benefit from it.
- Differentiated scalable platform
The Company has a unique, uniform platform with a modular architecture that reduces customers’ labor and time needs for deployment, with service providers able to connect twice as many homes daily.
In other words, reduced installation cost and maintenance time result in an attractive total cost of ownership for the client. And through ease, speed, low price of deployment, and end-to-end delivery of a comprehensive solution, the Company highlights its commitment to quality, making its products very attractive to customers.
Image Source: Company
Additionally, Clearfield’s products, solutions, and market strategy are advantageous to the Company in the following ways:
Thus, the platform and solutions offered by Clearfield benefit both the Company and its customers, making it a win-win proposition.
- Strong performance history
Clearfield has an established track record of approximately 25 years in the telecommunications industry, with 14 consecutive years of profitability and sustained growth since 2008.
In fact, over the last two years, the Company’s annual revenue has demonstrated a CAGR of 70.6%
Image Source: Company
Specifically for FY22, revenue grew 92% to $271 million compared to FY21. The increase in net sales was due to higher demand for products across core end markets, most notably Community Broadband, MSO/Cable TV, and National Carrier markets.
Gross profit was $113 million (or 41.7% of net sales) for FY22, an increase of 84.6% from $61 million (or 43.5% of net sales) in FY21. The decrease in gross profit margin was partially due to increased overhead costs associated with new facilities in Minnesota and Mexico and higher freight and transportation costs.
FY22 Net Income totaled $49 million, or $3.55 per Diluted Share, an improvement of 143% from $20 million, or $1.47 per Diluted Share, in FY21.
More recently, for Q2 FY23, the Company reported that revenue grew 34% YoY to $71.8 Million. Additionally, Net Income for Q2 FY23 increased 12% YoY to $10.4 million, or $0.67 per Diluted Share.
Image Source: Company
The Company mentioned that sales were lower than in the previous quarter due to order pushouts by several Large Regional Service Providers and some Multiple System Operators (MSOs or Cable TV providers) who had accumulated an excess inventory position during the pandemic. However, management expects long-term demand to remain strong and believes that the Company is well-positioned to benefit from the significant rural broadband build still in front.
Clearfield ended Q2 FY23 with $166 million of cash, short-term and long-term investments, and $2 million of debt. It also raised $130 million in net proceeds in December 2022, a secondary offering for working capital and general corporate purposes.
For FY23, due to customer order trends and an anticipated normalization of inventory carrying practices at customer sites, Clearfield expects net sales guidance to be within a range of $260 to $275 million and net income per share guidance to be $1.80 to $2.10.
Image Source: Company
As discussed earlier, long-term catalysts for Company growth include government funding for unserved and underserved communities, 5G wireless and wireline integration, Cloud, Edge, IoT architecture, and European expansion. Currently, Clearfield is rightsizing capacity levels to meet current demand. However, the Company is maintaining the infrastructure and processes for long-term growth. It continues to design products to address its customers’ most significant pain points and reduce the skilled labor required to install.
Thus, given long-term growth prospects and its product expertise, Clearfield remains a Company worth tracking.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/796505/000117184322007645/clfd20220930_10k.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/796505/000117184323003018/clfd20230331_10q.htm
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