Clearfield(CLFD) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's Q1 FY2023 financial statements show significant year-over-year growth in assets, sales, and net income, reflecting the recent Nestor Cables acquisition Consolidated Financial Statements In Q1 FY2023, the company reported a 68% increase in net sales, a 37% rise in net income, and significant asset growth driven by a common stock issuance Consolidated Statement of Earnings Highlights (Q1 FY2023 vs Q1 FY2022) | Metric | Three Months Ended Dec 31, 2022 (in thousands) | Three Months Ended Dec 31, 2021 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $85,942 | $51,109 | +68.2% | | Gross Profit | $30,649 | $22,972 | +33.4% | | Income from Operations | $17,890 | $13,049 | +37.1% | | Net Income | $14,255 | $10,389 | +37.2% | | Diluted EPS | $1.00 | $0.75 | +33.3% | Consolidated Balance Sheet Highlights (As of Dec 31, 2022 vs Sep 30, 2022) | Metric | Dec 31, 2022 (in thousands) | Sep 30, 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $294,145 | $160,122 | +83.7% | | Total Assets | $351,797 | $229,128 | +53.5% | | Total Liabilities | $57,916 | $81,546 | -29.0% | | Total Shareholders' Equity | $293,881 | $147,582 | +99.1% | Consolidated Cash Flow Summary (Q1 FY2023 vs Q1 FY2022) | Cash Flow Activity | Three Months Ended Dec 31, 2022 (in thousands) | Three Months Ended Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,103 | $(34) | | Net Cash used in Investing Activities | $(101,094) | $(319) | | Net Cash from Financing Activities | $113,519 | $(181) | | Increase (Decrease) in Cash | $13,663 | $(534) | Notes to Consolidated Financial Statements Notes detail the establishment of two new reporting segments post-acquisition, revenue concentration, and the status of debt facilities - Following the acquisition of Nestor Cables on July 26, 2022, the company established two reportable segments: Clearfield and Nestor Cables[49][65] Segment Performance (Q1 FY2023) | Segment | Revenue from External Customers (in thousands) | Net Income (Loss) (in thousands) | | :--- | :--- | :--- | | Clearfield | $78,355 | $14,718 | | Nestor Cables | $7,587 | $(310) | - Broadband service providers constituted 97% of net sales, with one major distributor, Customer A, comprising 15% of net sales during this period[29][63] - The company's $40 million revolving line of credit had a zero balance as of December 31, 2022, after being paid down, and the company was in compliance with all debt covenants[67][184] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the drivers of 68% revenue growth, a decline in gross margin due to expansion, and a strengthened liquidity position from a stock offering Results of Operations Q1 FY2023 net sales rose 68% driven by broadband demand and the Nestor acquisition, though gross margin declined due to investment and business mix Net Sales Breakdown (Q1 FY2023 vs Q1 FY2022) | Customer/Region | Q1 FY2023 Net Sales (in thousands) | Q1 FY2022 Net Sales (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Broadband Service Providers | $83,626 | $50,406 | +65.9% | | International Sales | $10,204 | $1,991 | +412.5% | | Total Net Sales | $85,942 | $51,109 | +68.2% | - Gross profit margin decreased from 44.9% to 35.7% YoY, attributed to investments in new Minnesota and Mexico facilities and the inclusion of lower gross profit from the Nestor Cables business[222] - The order backlog was $136 million as of Q1 2023, a 34% increase over the prior year but a 17% sequential decrease attributed to faster order fulfillment[46] Reportable Segments The Clearfield segment saw strong growth in sales and income, while the new Nestor Cables segment recorded a small net loss on $7.6 million in sales Clearfield Segment Performance | Metric | Q1 FY2023 (in thousands) | Q1 FY2022 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Segment Net Sales | $78,355 | $51,109 | +53.3% | | Segment Net Income | $14,718 | $10,389 | +41.7% | Nestor Cables Segment Performance (Q1 FY2023) | Metric | Amount (in thousands) | | :--- | :--- | | Segment Net External Sales | $7,587 | | Segment Net Loss | $(310) | Liquidity and Capital Resources Liquidity significantly improved with $158.1 million in cash and investments, bolstered by a $130.3 million stock offering used to repay acquisition-related debt - Net proceeds of $130.3 million were received from the issuance of common stock, and a portion of these funds, $16.7 million, was used to pay down the line of credit for the Nestor Cables acquisition[102] - Net cash provided by operating activities was $1.1 million, with cash used to increase inventory by $6.5 million to support the sales order backlog and mitigate supply chain disruptions[100] - The company's principal source of liquidity was $147.9 million in cash, cash equivalents, and short-term investments, plus a $40 million undrawn line of credit[227] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces increased foreign exchange risk from its Euro-based subsidiary and market risk from inflation impacting costs - The company is exposed to foreign exchange risk as the functional currency of its new subsidiary, Nestor Cables, is the Euro; a hypothetical 10% change in the Euro/USD rate would have changed operating expenses by approximately $130,000[88] - The company is subject to market risk from inflation, with rising costs in wages, logistics, and raw materials negatively impacting profitability[106] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Based on an evaluation as of December 31, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[107] - No material changes were made to internal controls over financial reporting, but the company is still in the process of integrating the internal control environment of the Nestor Cables segment[91] PART II. OTHER INFORMATION Item 1. Legal Proceedings & Item 1A. Risk Factors The company reports no material pending legal proceedings and no material changes to its previously disclosed risk factors - There are no pending legal proceedings against the Company expected to have a material adverse effect[92] - There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K[109] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 9,803 shares for $0.95 million to satisfy employee tax obligations, with $15.0 million remaining under its repurchase program Issuer Purchases of Equity Securities (Q1 FY2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | November 1-30, 2022 | 5,778 | $92.48 | | December 1-31, 2022 | 4,025 | $104.36 | | Total | 9,803 | $97.36 (approx.) | - As of December 31, 2022, the approximate dollar value of shares that may yet be purchased under the company's stock repurchase program is $14,980,671[110][119] Other Items and Exhibits The report notes no other material information to disclose and lists key exhibits filed, including CEO/CFO certifications and iXBRL data - Items 3 (Defaults Upon Senior Securities), 4 (Mine Safety Disclosures), and 5 (Other Information) were reported as not applicable or had no information to disclose[94][111][112][120] - Exhibits filed with the Form 10-Q include CEO and CFO certifications and financial data in iXBRL format[113][121]