6% move on good volume, no news or analyst action and confounding shareholders as to why.
That's the old CLFD we know and love.
Last week Clearfield distributed a webinar to their email subscribers titled "Last Mile Fiber Delivery Solutions Using Labor Lite Technology". This webinar was conducted by Clearfield in partnership with Dura-Line and representatives from both companies presented together (you can find this webinar by Googling "Clearfield Dura-Line webinar"). I thought this was interesting because in the last 10K Clearfield listed Dura-Line as a competitor to their Field Shield product. Obviously the two companies are now working together in some capacity and this is interesting for a couple of reasons:
1. Dura-Line is a large company who did upwards of $700mm in revenue last year. They are the preeminent conduit supplier for the telecom industry with 2300 customers on 6 different continents. They have 20 manufacturing plants on 5 different continents. Some of their customers include Google Fiber, Verizon, AT&T, Time Warner, Cablevision in the U.S. and Vodafone, Orange, Telia Sonera and Telefonica in Europe. Dura-Line helped develop AT&T and Verizon's microtechnology architecture and they often have exclusive agreements with the carriers for the projects they supply.
2. A partnership here makes sense. Dura-Line could use Clearfield's Field Shield fiber and connectors (which are now Telcordia certified) to fit perfectly into their large range of conduits. This relationship could provide the perfect "in" for Clearfield to enter the Tier 1 space with their Field Shield product through Dura-Line's broad range of conduit customers.
There aren't any official details on this relationship yet but its certainly a potentially exciting development and something to keep an eye on.
Comcast said this morning they will make 2Gbps FTTH, which they call Gigabit Pro, available to 1.5mm residents in Atlanta starting next month. They also say they will make this service available to 18mm homes throughout their footprint by year end.
Ladenburg reiterated their $18 price target on CLFD this morning. They tie CLFD Field Shield and Field Smart products to Google Fiber and AT&T and say CLFD will benefit from Tier1 fiber initiatives going forward.
The USDA just announced the distribution of $35mm in broadband loans to three rural providers, at least two of which are Clearfield customers. Southwest Arkansas Telephone and Mescalero Telephone received a combined $30.4mm in loans which will be used for FTTH upgrades in their respective footprints.
New below grade cabinet called "Makwa" (Ojibwe for "Bear") just announced by CLFD this morning. I think this product has the potential to be a big revenue generator for the company.
Huntsville Alabama mayor Tommy Battle announced Wednesday that Huntsville wants to hear from private companies capable of creating a citywide fiber-optic network with download speeds "at or above" 1 gigabit per second. Huntsville has approximately 86K households.
"With Google Fiber and other Internet companies deploying ultra-high-speed fiber networks primarily in "NFL cities" like Atlanta and Nashville, said Battle, Huntsville has to be aggressive to make sure it is not left behind. Moving data at high speeds is becoming as essential to a city's economic survival as water, sewer and roads, he said."
Either smaller cities compete by building high speed fiber networks or risk not offering a competitive solution to attract businesses or even risk losing the tax base that they already have to larger cities in the region. As more and more cities announce plans to explore or move forward with high speed fiber networks, more pressure is put on the incumbents to upgrade their networks to compete. This whole dynamic benefits CLFD.
Infonetics Research, now owned by IHS, recently put out a report that included a survey of operators around the world asking if the respondents were planning to launch 1Gbps access services in their network by 2017. 40% of the respondents stated that 1Gbps service was on their roadmap in that timeframe. That's a pretty healthy number and that survey is part of the reason why Infonetics expects subscribers served by FTTH to grow over the next year.
In another development, the FCC recently struck down laws prohibiting municipal networks from competing with incumbent providers. This decision could greatly help the proliferation of fiber networks. Next Century Cities, an organization that helps municipalities leverage high speed broadband to attract new businesses and create jobs now has over 75 member cities representing over 20mm people. In the last two weeks cities such as Davenport Iowa, Lexington Kentucky, Fairlawn Ohio, Shutesbury and Amherst Massachusetts, Davis California and Lancaster Pennsylvania to name a few, have announced they are either in the investigative stage, have issued an RFI or have already started planning a municipal FTTH or gigabit network.
Clearfield, having supplied many gigabit FTTH based municipal networks over the last 10 years, is in a great position to capitalize on a growth trend. They have strong relationships with distributors, OEM's like Calix and Adtran as well as plenty of experience with the major engineering firms. Since municipalities are not broadband providers they typically use engineering firms who have the expertise to build their networks and make the equipment purchase decisions.
Thanks but its really the company who rocks. They have been working hard for years putting out groundbreaking products, offering quick delivery, great customer service and the result has been solid growth of their business. Now they are well positioned for another round of revenue growth that could very well be more substantial than what we saw in 2013. They have the right products, the right manufacturing capacity and the right customer set at precisely the right time in the fiber/gigabit investment cycle. I expect a very favorable outcome for shareholders over the next 2 years.
Unfortunately CLFD doesn't get a lot of attention from Wall Street investment houses because due to a very strong balance sheet they don't need to raise capital and they aren't dependent on an acquisition to further their growth. Ladenburg did pick up coverage on CLFD a few months ago and my guess would be that the company would like to attract more coverage of this type. They have a great story to tell but its not easy to get people to listen when they don't see any fat commissions in the near future.
I think CLFD is right on the cusp of a new revenue cycle due to several potential catalysts:
1. Google Fiber has just started connecting homes in Austin which has a potential 350K homes and 80K businesses to pass and connect with Fiber. There are another 1.3mm households in the latest properties Google announced in Atlanta, Charlotte Raleigh and Nashville and hundreds of thousands of businesses. With their new below grade cabinet and Strong Fiber products, as well as their newly upgraded manufacturing/warehouse capacity CLFD could be ready to see substantial upside from these deployments as their revenue per line could be higher than what they saw in K.C.
2. Competition is starting to heat up in the small to medium business (SMB) space. As Google steps into these new markets the incumbent players will have to upgrade their infrastructure to match Google Fiber's speed and pricing. In areas like Phoenix, Portland and Salt Lake City, cities that Google is eyeballing next, Centurylink has already started on plans to upgrade their infrastructure to fiber to compete. AT&T is deploying fiber strategically to keep pace with Google as well. With their new Telcordia certified connector products, CLFD now has a whole new market to sell into with the Tier 1/2's.
3. The company, with their move into the Caribbean/Latin America and recently South Africa could see a steady rise in their international business as their relationships with distributors, OEM's and engineering firms grows and the CLFD products start to catch hold. The company clearly has the desire to move into markets that offer a solid ROI and is finding several ways to successfully do that.
I posted the link to a good article on my Twitter page (@Niles09) today titled "2015: A Good Year for Fiber to the Home" (page 44-47). The article quotes CLFD's CEO Cheri Beranek and David Russell, Marketing Director at Calix on whats going on in the FTTH space currently and how 2H2015 and 2016 will play out.
That quote, I believe, came from a female exec at Google whose name escapes me. She said Google likes to build long term relationships with their suppliers and views them more as partners that they can collaborate with long term for the mutual benefit of all parties.
As to the future of the Google Fiber/CLFD relationship, nobody knows with 100% certainty at this point. My personal feeling is that not only is the relationship still intact but there is a good chance CLFD could be shipping more product into future builds than they did in K.C. as their ability to design, manufacture and warehouse new product should increase with the new facilities. CLFD has a stellar reputation in the industry for product design, fast shipment and customer service. After supporting Google with equipment for hundreds of thousands of deployed lines already and potentially millions more to come, I'm sure CLFD is bending over backward to make them happy on all levels.
I don't think the importance of CLFD's capacity add can be stressed enough. If you've followed the company for awhile its clear that management is historically very conservative and operates on a strict ROI based model as far as cap-ex goes. For instance, over the last several years CLFD's international sales have been growing nicely and comprised nearly 10% of overall revenues in FY2014 (up 79% Y/Y). Yet management has not committed to a direct sales force outside of the U.S. continuing instead to use distributors and OEM's to reach those end customers. Obviously their approach to cap-ex is very disciplined and measured. But something, whether it be the plans from one, several, or a large group of customers, tripped their threshold and caused them to commit cap-ex in a historically substantial way. I don't think this is a head fake.
Last night the Charlotte N.C. city council approved the installation of 21 Google Fiber huts around the city. A Google spokesman confirmed each fiber hut will connect approximately 20,000 homes. This would be enough capacity to serve every household and business in Charlotte.
Dan Gilbert, the founder and Chairman of Quicken Loans who also owns 70 buildings in Detroit, announced on Twitter this weekend that a company he formed called Rocket Fiber LLC. will deploy a superfast fiber optic network in downtown Detroit that will "be at least as fast as Google Fiber". Gilbert says they plan to deploy service in other parts of Detroit and possibly the suburbs in the future. Construction on the Detroit network is already underway.
Its amazing how many of these gigabit networks are popping up all over since Google began their fiber initiative. Many cities that Google bypassed are now exploring their own gigabit initiatives. And Google's competitors are also starting to move toward fiber. AT&T announced last week that they will deploy gigabit fiber in Kansas City as well .
This is all good for Clearfield.
Slides from yesterdays meeting are up in the investor relations section of the Clearfield website. New below grade cabinet product they designed looks like it could be a big deal.
Actually Fusion is Sonic's copper offering. It only offers speeds "up to" 20Mbps. Sonic has been deploying that service for many years. Their gigabit fiber service is currently being offered in 10 areas right now (3 sections of San Francisco, Brentwood, Sebastopol, Novato, Healdsburg, Santa Rosa, Petaluma and Berkley California). Six of those towns were announced a few days ago.
To get your neighborhood signed up for fiber service there is a 50% to 75% take rate requirement due to the very low cost of the service and the higher cost to deploy 1Gbps fiber. But Sonic is charging the same $40 price for gigabit fiber + phone as they are for ADSL + phone so theoretically sign up rates should be high. As long as Sonic gets their 50% to 70% than payback is generally assured in a particular neighborhood over a certain period and they can build out fiber there. This is very similar to the Google Fiber "fiberhood" approach. Hopefully Sonic decides to take their fiber offering into other states.
The other day Sonic, an ISP in Northern California and previous Clearfield customer, announced they will be expanding their gigabit fiber offering to six more communities in Northern California including Brentwood. Sonic's head of marketing stated that although the projects announced are all in California, future projects could be anywhere in the country and they hope to be able to build all over. Sonic is offering a 1Gbps data + phone package for just $40 a month which they claim is the lowest price in the U.S. (I don't doubt it).
Since I knew Sonic was a previous Clearfield customer I asked Dane Jasper on twitter, the CEO of Sonic, whether or not they were still using Clearfield gear for their builds. His response was yes and that Clearfield's Field Smart terminals are great.