Clearfield(CLFD) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed financial statements for the three and six months ended March 31, 2021, showing significant growth in net sales and income Condensed Balance Sheets As of March 31, 2021, total assets increased to $103.8 million and shareholders' equity grew to $89.8 million, reflecting strong retained earnings growth Condensed Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Total Current Assets | $60,837 | $52,523 | | Total Assets | $103,818 | $95,297 | | Total Current Liabilities | $11,888 | $10,415 | | Total Liabilities | $13,969 | $12,544 | | Total Shareholders' Equity | $89,848 | $82,753 | Condensed Statements of Earnings The company reported significant growth for the periods ended March 31, 2021, with Q2 net sales increasing 45% to $29.7 million and net income surging to $3.6 million Statement of Earnings Summary (Unaudited, in millions) | Metric | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | Six Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $29.7 | $20.4 | $56.8 | $39.8 | | Gross Profit | $12.9 | $8.2 | $24.3 | $15.9 | | Income from Operations | $4.5 | $0.7 | $8.2 | $1.1 | | Net Income | $3.6 | $0.7 | $6.8 | $1.2 | | Diluted EPS | $0.27 | $0.05 | $0.50 | $0.09 | Condensed Statements of Cash Flows For the six months ended March 31, 2021, net cash from operating activities significantly increased to $6.7 million, driven by higher net income Cash Flow Summary for Six Months Ended March 31 (Unaudited, in millions) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6.7 | $2.3 | | Net cash used in investing activities | ($0.5) | ($3.5) | | Net cash used in financing activities | ($0.3) | ($0.3) | | Increase (Decrease) in cash | $5.9 | ($1.5) | | Cash and cash equivalents, end of period | $22.3 | $8.6 | Note 5: Revenue Revenue is primarily recognized upon product transfer, with sales disaggregated by geography and market, predominantly to Broadband Service Providers in the United States Revenue by Geographic Area (in thousands) | Region | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | United States | $27,744 | $19,489 | | All other countries | $1,948 | $919 | | Total Net Sales | $29,692 | $20,409 | Percentage of Sales by Market | Market | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Broadband service providers | 97% | 96% | | Legacy customers | 3% | 4% | Note 7: Major Customer Concentration The company has significant sales and accounts receivable concentration with two distributor customers as of March 31, 2021 - For the three months ended March 31, 2021, two distributor customers (A and B) comprised 21% and 11% of net sales, respectively[57] - As of March 31, 2021, Customers A and B accounted for 10% and 14% of accounts receivable, respectively[58] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results, highlighting a 45% increase in net sales for Q2 2021 driven by strong demand and improved gross profit margins Results of Operations This section details significant year-over-year growth for the periods ended March 31, 2021, driven by increased demand and improved gross profit margins Q2 Fiscal 2021 vs Q2 Fiscal 2020 Performance | Metric | Q2 2021 | Q2 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $29.7M | $20.4M | +45% | | Gross Profit | $12.9M | $8.2M | +59% | | Gross Margin | 43.6% | 39.9% | +3.7 p.p. | | Operating Income | $4.5M | $0.7M | +518% | | Net Income | $3.6M | $0.7M | +387% | - The Q2 sales increase was driven by Community Broadband (+$8.3M), MSO (+$1.6M), and International customers (+$1.0M), partially offset by a decrease in Tier 1 sales (-$1.6M)[82] - The increase in gross profit percent was primarily due to a favorable product mix, cost reduction efforts, and efficiencies from higher sales volumes and greater use of its Mexico manufacturing plants[84] Liquidity and Capital Resources As of March 31, 2021, the company maintained a strong liquidity position with $57.9 million in cash and investments and no long-term debt - Total liquidity, including cash, cash equivalents, and short- and long-term investments, increased to $57.9 million as of March 31, 2021[100] - The company had no long-term debt obligations as of March 31, 2021[100] - Net cash provided by operating activities for the six months ended March 31, 2021, was $6.7 million, compared to $2.3 million for the same period in 2020[102][104] Quantitative and Qualitative Disclosures About Market Risk The company states that this item is not applicable for this reporting period - Not applicable[114] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2021[115] - No changes to the Company's internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[116] PART II. OTHER INFORMATION Legal Proceedings The company reports no pending legal proceedings that are likely to have a material adverse effect on its financial position or results of operations - There are no pending legal proceedings against the Company for which the outcome is likely to have a material adverse effect[117] Risk Factors This section supplements previous risk disclosures, highlighting significant global supply chain risks impacting material availability and costs - The company depends on the availability of sufficient supply of certain materials, and global disruptions in the supply chain for these materials could prevent it from meeting customer demand[121] - The global supply chain for critical raw materials, such as resin and fiber optic cable, has recently suffered shortages, shipping delays, and price increases, which are expected to persist and likely intensify[122] - Failure of suppliers to meet deadlines or increases in their costs may impact the company's ability to deliver products on time, make products less competitive, and result in lower net sales and profit[124] Unregistered Sales of Equity Securities and Use of Proceeds The company details equity security repurchases for the three months ended March 31, 2021, including shares bought for tax payments and remaining repurchase authorization - In the three months ended March 31, 2021, the Company repurchased 1,750 shares at an average price of $24.72 in connection with payment of taxes upon vesting of restricted stock[127][128] - Approximately $4,980,671 remains available for repurchase under the Company's Board-authorized program[127] Defaults Upon Senior Securities The company reports that there were no defaults upon senior securities - None[129] Mine Safety Disclosures The company states that this item is not applicable - Not applicable[130] Other Information The company states that this item is not applicable - Not applicable[131] Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications pursuant to SEC rules - Lists CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) filed or furnished with the report[132]