Earnings Call Transcript - CLFD Q1 2023

Operator, Operator

Good afternoon. Welcome to Clearfield's Fiscal First Quarter 2023 Earnings Conference Call. My name is Paul, and I will be your operator this afternoon. I'll now pass the call over to Jackie Keshner from Gateway Group.

Jackie Keshner, Investor Relations

Thank you. 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 descriptions of those risks. As a reminder, the slides in this presentation are controlled by you, the listener. Please advance forward during the presentation as the speakers present their remarks. With that, I would like to turn the call over to Clearfield's President and CEO, Cheri Beranek. Cheri?

Cheryl Beranek, CEO

Good afternoon, everyone, and thank you for joining us today. It is a pleasure to speak with our new and returning investors and analysts this afternoon to share Clearfield's results for the first quarter of fiscal 2023 as well as provide an update on our business and current market trends. Our strong financial performance in the first quarter of fiscal 2023 reflects our ongoing execution of our strategic growth plan as well as the robust and sustained demand for high-speed broadband. Total net sales for the first quarter were $86 million, which includes an $8 million contribution from Nestor Cables. Our organic net sales growth continues to be driven by our leadership in community broadband and expansion across each of our core end markets. As we continue to execute our lead strategic plan, we aim to strengthen our existing competitive advantages as we build the scale necessary to serve the long-term demand runway for high-speed broadband in unserved and underserved communities nationwide. Based upon consideration of the expected investments and impact of our progress on our lead strategic plan, as well as our ability to manage countervailing headwinds that could develop the customer ordering patterns and component sourcing, we are reiterating our previously stated revenue guidance for fiscal year 2023. In addition, we are introducing 2023 net income guidance of $4.30 to $4.50 a share. Before I review our performance and current market dynamics in greater detail, I’d like to briefly introduce you to who we are and what we do for those of you who may be new to Clearfield and our industry. Clearfield is a leader in the expanding fiber broadband industry. Our goal and underlying value proposition is to enable the lifestyle and better broadband provides. We provide craft-friendly fiber protection, fiber management, and fiber delivery solutions that enable rapid cost-effective fiber-fed deployment throughout the broadband service provider space. Our primary end market is community broadband, which is predominantly comprised of Tier 2 and Tier 3 incumbent local exchange carriers and an increasing number of municipalities, utilities, co-ops, and wireless carriers. We also serve service providers in the Tier 1 national carrier market and multiple system cable TV operators or MSOs as well as some international service providers. Pictures on Slide 4 is the Clearview cassette, which has changed the rules of fiber management. This integrated fiber management system is based on multiples of 12 fibers and can be utilized whenever and wherever it is required in the network. Our FieldShield platform offers protective pathways and fiber options that suit the needs of any network deployment. Our entire product line was thoughtfully designed to be craft-friendly in the field, reducing both the amount of necessary skilled labor needed for installation and the level of skills required to install. This enables our customers to complete their deployments faster and more efficiently, accelerating their time to revenue. With these capabilities and the competitive advantages we summarize on Slide 5, we've expanded our market leadership in underserved rural broadband. To further enhance our positioning, we have worked to improve our product delivery lead times, which represent another key area of industry leadership for Clearfield before the COVID-19 pandemic. Across our industry, pandemic-fueled supply constraints held fiber lead times to a range of 10 to 12 months. By contrast, Clearfield is now targeting lead times within the range of 8 to 10 weeks. I am proud to say that we have already achieved these lead times for all product lines with the exception of active cabinets, which have been negatively impacted by the longer lead times associated with power conditioning subcomponents used in their manufacturing process. This work to improve our lead times comes as our customer ordering cycles return to pre-COVID patterns, but at post-COVID volumes. Over the past three years, our customers ordered products early in their deployment schedules to stay ahead of any supply chain challenges as they planned their fiber builds. These advanced orders led to growth in our backlog, which reached record levels by the end of fiscal year 2022. Our customers have moved to staging less equipment in their yards and have now begun ordering according to more normalized seasonally driven deployment schedules. We believe this trend will continue in 2023 as customers readjust their ordering planning to our improved product lead times and try to match their order timing to their deployment schedules. Consistent with the return of these traditional ordering and delivery patterns, we anticipate approximately 40% of our expected revenue in the first six months of our fiscal year and 60% in the second half. We believe long-term demand remains exceptionally strong. Nearly all of our customers are indicating an increase in the number of homes they are passing and connecting in comparison to the previous year. In addition, the increase in the number of service providers we serve is exciting. For some additional insights on what we're seeing in the market and the significant long-term growth runway for fiber deployments, I'd like to welcome our Chief Marketing Officer, Kevin Morgan, to the call. Kevin?

Kevin Morgan, CMO

Thank you, Cheri. It's great to be joining all of you this afternoon. The appetite for high-speed broadband communications has never been greater and shows no sign of letting up. This continues to drive fiber deployments deeper into every corner of society and across all market segments. As Cheri mentioned, we believe our work to maintain our world-class lead times and further progress our lead strategic plan enhances our position for the robust near-term demand environment. On Slide 6, we've also included the Fiber Broadband Association's strong forecast for fiber deployments over the next decade. In its 2022 fiber provider survey published in December, the Fiber Broadband Association estimated a 10-year annual average run rate of 11.3 million fiber deployments. In 2022 alone, fiber providers passed 7.9 million additional homes, representing a new record for annual deployment. This momentum gives us a powerful foundation for 2023 and the years ahead. As you'll see in the accompanying chart, we're positioned within an accelerating investment cycle that has yet to reach its peak. We continue to view the gradual disbursement of ARPA and RDOF funds and the upcoming distribution of BEAD funding as meaningful, but gradual, industry tailwinds to further expand our market opportunity. The data indicated on this slide assumes that 12.3 million new housing units will come online over the next 10 years. Further, 92% of homes are expected to have fiber availability with an additional 34% of homes having two or more available fiber connections. As this market continues to expand, we believe our craft-friendly products will continue to play a vital role in translating homes passed into the homes connected revenue for our service providers as they deepen their fiber deployments.

Daniel Herzog, CFO

Thank you, Kevin, and good afternoon, everyone. It's a pleasure to be speaking with you today about our fiscal first quarter 2023 results. So looking at our fiscal first quarter 2023 results in more detail. Consolidated net sales in the first quarter of fiscal 2023 were $86 million, a 68% increase from $51 million in the same year-ago period and down 10% from $95 million in our fourth quarter of 2022. This figure includes $78 million from organic Clearfield and an $8 million contribution from Nestor Cables, representing Nestor's first full quarter of contribution since we acquired the business on July 26, 2022. The increase in net sales was due to higher sales across our core end markets, particularly in our community broadband, multiple system operator and national carrier markets, consistent with our performance throughout fiscal year 2022. We recorded a 34% year-over-year increase in our sales order backlog. Order backlog was $136 million on December 31, 2022, up from $101 million on December 31, 2021, and down from $165 million on September 30, 2022. We believe our lead time progress will remain a more meaningful measure of our operational performance going forward. Accordingly, we will focus on this metric in lieu of reporting on backlog in future quarters. I'll now review net sales by our key markets. Sales to our primary market, community broadband, comprised 55% of our net sales in the first quarter of fiscal 2023. In Q1, we generated net sales of approximately $48 million in community broadband, up 33% from the same period last year. In addition, for the trailing 12 months ended on December 31, 2022, our community broadband market net sales totaled approximately $192 million, which was up 69% from the comparable period last year. Our MSO business comprised 25% of our net sales in the first quarter of fiscal 2023. Momentum in the MSO market continues to be strong with net sales growing 137% year-over-year and up 152% for the trailing 12-month period. Net sales in our national carrier market for the first quarter of fiscal 2023 increased 67% year-over-year. On a trailing 12-month basis, net sales in our national carrier market was up 102% from the comparable year-ago period. Net sales in our international market increased 412% year-over-year in the first quarter compared to the same period last year and were up 126% year-over-year on a trailing 12-month basis due to the acquisition of Nestor Cables, which are included in our international sales. Gross profit in the first quarter of fiscal 2023 increased 33% to $31 million or 35.7% of net sales from $23 million or 44.9% of net sales in the same year-ago quarter. Our gross profit was affected by our investments to increase capacity for additional growth in the coming quarters and years. These investments include the increased facility costs associated with the addition of the company's new Minnesota and Mexico facilities that came on board late in the second quarter of fiscal 2022 and the continued expansion to outfit these facilities. The company continues its investment in cable manufacturing at its Mexico facility in conjunction with the Nestor Cables' acquisition, which is expected to be operational in our second fiscal quarter. Gross profit was also affected by a full quarter of lower gross profit realized in our Nestor Cables' cable manufacturing business. The company expects to operate at these gross profit percentage levels for several quarters with improving margins as revenue levels increase later this calendar year. Operating expenses for the first quarter of fiscal 2023 were $13 million, which were up from $10 million in the same year-ago quarter. In addition to the increase from the first full quarter of Nestor Cables' operating expenses in general, increased areas reflect higher compensation costs, travel and entertainment, stock compensation and professional fees. As a percentage of net sales, operating expenses for the first quarter of fiscal '23 was 15%, down from 19% in the same year-ago period. Our current OpEx at less than 15% of sales reflects our continued strong operating leverage. Net income in the first quarter of fiscal 2023 increased 37% to $14.3 million from $10.4 million in the same year-ago period and was down from $17 million in the fourth quarter of fiscal 2022. As a percentage of net sales, net income for the first quarter of fiscal 2023 was 17%, down from 20% in the same year-ago period and down from 18% in the fourth quarter of fiscal 2022. In terms of our balance sheet, we had $2.2 million in capital expenditures, mainly to support our expanding capacity and continued facility build-outs and our inventory balance increased from $82 million to $90 million in the first quarter. While we expect to continue increasing inventory this year, we do not expect to do so at the same levels as it did during fiscal year 2022, resulting in improved free cash flow in the fiscal year ahead. As a reminder, we did use approximately $16.7 million of our line of credit in July of 2022 to fund the Nestor acquisition and paid that amount off in the first quarter of fiscal 2023, leaving a zero balance draw on the line. In addition, we further enhanced our liquidity position through closing an upsized $120 million public offering of our common stock on December 9, 2022. Under the terms of the offering, we sold 1.2 million shares at a public price of $100 per share, including the underwriters' full exercise of the option to purchase up to 180,000 additional shares. We sold a total of 1.38 million shares of common stock at closing for net proceeds of $130.3 million after expenses paid in connection with the offering. The additional capital grants us greater flexibility to pursue our longer-term growth objectives and be opportunistic as further growth opportunities arise. We can continue investing in our inventory, capital expenditures, infrastructure, and other necessary strategic areas at a larger scale as well as ensure that we have the working capital position to effectively compete for larger customer opportunities. We appreciate the support of our new and existing shareholders as we continue to advance our strategic progress. That concludes my prepared remarks for our first quarter of fiscal 2023. I will now turn the call back over to Cheri. Cheri?

Cheryl Beranek, CEO

Thanks for the financial update, Dan. As I mentioned earlier in the call, we have continued to make progress on our new multiyear strategic plan, LEAP, which is a successor to our previous Now of Age plan. The LEAP plan is our roadmap to how we will scale up the company in order to seize the opportunity Clearfield was built to achieve, how we expect to jump higher, farther, and with greater force. With that said, I'd like to review our progress on each of our LEAP plans for tenants, one for each letter. The L is to leverage our decade-long excellence in community broadband, the market on which we have focused since our founding in 2008. Through our deep understanding of this market and our customers' base and regional operators, we've proven to be an agile partner that can evolve with the broader market and grow alongside our customers. Earlier this month, we announced that we have reached the milestone of shipping 50 million fiber ports of our craft-friendly labor-light family of Clearview cassette, FieldShield assemblies, and YOURx-Terminal. The vast majority of these fiber ports have been deployed throughout the networks of our community broadband customers. Reaching this milestone underscores that success in the fiber broadband market is as much about execution as it is about innovation. Through further improving our scale, we are deepening our commitment to providing our customers with products and support they need when they need it to take their fiber broadband networks as far as they can go. Our E is to execute capacity growth in advance of the market opportunity. Building upon our previous strategic work to augment capacity for ongoing growth, we will continue making progress on these enhancements and developing our supply chain partnerships to maintain our market leadership. Having expanded our manufacturing footprint in both Minnesota and Mexico last year, we are leveraging the in-house cable manufacturing capabilities brought by our acquisition of Nestor Cables. Most recently, we are adding another microduct line in Finland to generate additional revenue and to improve margins from our current facility. This new line will enhance Nestor's capacity and will allow us to run our manufacturing at a higher and more efficient level. The A in our LEAP plan is to accelerate infrastructure investment. This tenant represents our underlying investment in our organizational infrastructure as we continue to grow the business and manage our expanding capacity. To support the significant growth we have generated over the last two years, we focus on investing in our quality teams and systems. This includes adding supply chain and quality personnel as well as placing quality engineers earlier in the overall process. As I've said in the past, we can grow as fast as our quality systems will allow. Our investments in this area have played a meaningful role in our topline growth expansion, and we expect them to help facilitate additional progress. More broadly, we may add personnel to our sales, product management, and manufacturing teams as we work to improve lead times. We will also continue to expand Clearfield College to provide online and in-field training support as our industry navigates the ongoing shortage of trained labor in the market. Finally, the P in LEAP stands to position innovation at the forefront of our value proposition. Through increasing the cadence of our product expansions and emphasizing innovations in our pilot designs, we aim to build upon the craft-friendly nature of our products. We will soon be announcing an additional new product in the coming weeks that we believe further enhances our promise on innovation, and more to come on that front. We intend to introduce additional fiber management and fiber connectivity solutions that align with federal and state funding program requirements. These will help facilitate swift and streamlined installations for our customers as they extend the depth and breadth of the fiber broadband access in their networks. As our first quarter financial results indicate, we have continued to make strong progress on our strategic plan amid a robust demand environment for fiber-fed broadband. Our operational agility allows us to be flexible in an evolving market, and we have built a strong foundation from which to address the long-term demand runway for high-speed broadband across our markets. We believe our continued work to leverage our deep expertise in community broadband, enhance our capacity, accelerate our infrastructure investments, and prioritize innovative product design enables us to both address existing demand and prepare for the longer-term tailwinds of state and federal funding. With our current visibility into our current pipeline, we are reiterating our previous topline guidance of estimated revenue of between $380 million to $393 million, representing a 40% to 45% growth rate over fiscal year 2022. In addition, we are introducing fiscal year 2023 net income guidance of $4.30 to $4.50 a share. We continue to expect our revenues to follow year-over-year seasonal patterns, resulting in expected strong year-over-year growth in the first half of this fiscal year. We remain underway with improving our product lead times as we further improve capacity and reduce order backlog. While we still expect to see higher levels of build activity in the second half of the year, we will closely monitor the availability of labor that our customers need to proceed with their planned network builds. And with that, we are ready to open the call to your questions.

Paul Silverstein, Analyst

Cheri, Dan, what do you expect in terms of contribution from Nestor in the March quarter? Is it consistent with the $8 million achieved in December, or is it significantly different?

Cheryl Beranek, CEO

Yes, it's going to go up in the next quarter. I mean it's important to remember that Nestor is very much affected by the seasonal nature of our business and probably even more so than we are. And so you're going to see their numbers about $8 million in this quarter. It will probably be double that by the summer, growing second quarter to probably 10%, 11%, up to as much as 15% in the summer months. And their gross margins are going to be affected significantly by that. So we're going to see gross margins now at about 11%, 12% by the summer months, will be up in the high teens, kind of averaging in that middle, about 15%. We said when we acquired the company that they're a commodity-based business. So the gross margin percentage will go down, but the gross margin dollar contribution would be accretive. This quarter that wasn't the case because of the downness of the winter months, but we still continue to expect that accretive nature throughout the year.

Paul Silverstein, Analyst

You're anticipating a significant decline in growth. If I estimate the figures correctly, taking $10 million to $11 million for March would suggest an organic range of approximately $56 million to $61 million. This translates to a sequential decline of 23% to 17%. On a year-over-year basis, this could imply growth between 5% and 15%, assuming you achieve those numbers for Nestor and the larger company. This represents a slowdown from over 50% year-over-year growth in the December quarter. While I appreciate the return to a more seasonal business pattern, I'm trying to grasp the reasons behind such a sharp decline. I understand that businesses are reverting to normal order patterns and that the backlog wasn't sustainable, but the data indicates a substantial collapse in backlog over a short period. I want to know if, when considering the current quarter's linearity, we are witnessing continued softening in business, or if we are moving toward stabilization. Please provide your insights on this matter.

Cheryl Beranek, CEO

Thank you, Paul. I see it as an alignment. We mentioned around 90 days ago that for the first time in two years, bookings would be less than shipments. This shift is due to the world returning to pre-COVID practices and ordering patterns. As our customers adjust their inventory and forecasts in relation to product availability and labor conditions, we are observing some inventory buildup in the market. We believe this reflects alignment rather than a market softening, as demand remains strong; it's more about matching supply with labor availability.

Paul Silverstein, Analyst

All right. I can calculate the numbers after the call, but could you clarify how much the 10% to 11% gross margin for Nestor contributed to the overall gross margin? Considering it was 35.7%, what is that figure?

Cheryl Beranek, CEO

Nestor is likely around 2.5% this quarter. It's important to note that when considering the fourth quarter of last year, it isn't a valid comparison because we didn't have any of the new facilities operational and were at full capacity. Over the past year, we have been significantly expanding our capacity, starting with the construction of the buildings in March of last year and continuing with ongoing enhancements. One of our major investments has been increasing our workforce by about 25% since last summer. Although we anticipated that the winter would be more seasonal, we made a deliberate investment in personnel to ensure we could cross-train resources and maintain labor capacity. While this first quarter may be a bit concerning, it aligns with our strategy for gross margin and prepares us for the upcoming summer and next year, focusing on the capacities needed.

Paul Silverstein, Analyst

All right. I appreciate the response. Before I pass it on, I would just respectfully submit, I think you're making a mistake in respect to your plan to stop disclosing backlog, even assuming lead times, you're better engaged with your business as you maintain, again, I would urge you to continue providing that. But let me pass along. I appreciate the responses.

Jaeson Schmidt, Analyst

Just following up on that line of questioning. What gives you the confidence that a rebound in the second half will occur and that this inventory correction or issue, whatever you want to call it, will only be a one-quarter event?

Cheryl Beranek, CEO

What we're experiencing is a strong ongoing demand from all our customers who wish to connect and pass more homes. We are actively collaborating with the contractor and labor communities to secure additional resources and provide training. We are supporting them in acquiring the necessary knowledge and training tools to improve labor availability. At the end of the year, our customers seem to be reassessing household conditions, reviewing their current situation against what is available. They are making necessary adjustments. There is a persistent push for demand, as everyone aims to be the first to deploy fiber, and we continue to see growth across all segments of our market. It's important to note that at the start of this year, we projected a growth rate of 40% to 45%, expecting to see a robust performance in the first quarter with a 70% growth rate compared to last year. We anticipate this growth will gradually decrease to an increase of 20% to 25% by the end of the year, and we will strive to maintain that trajectory. The industry is undergoing a significant readjustment due to the unique challenges posed by the pandemic, making it difficult to establish a solid comparison or trend analysis.

Jaeson Schmidt, Analyst

And I understand there's a lot of dynamics out there. Just curious, when you did provide that original fiscal '23 guidance, what had you been thinking the split would be? I mean now you think it's going to be 40-60, but what were your sort of the initial expectations?

Cheryl Beranek, CEO

Yes, I was thinking a little closer to 45-55. So just a little bit of a readjustment so that we'd be pushing out second quarter and seeing that more at the tail end of the year. So it's important to look, again, that next quarter, we're probably looking at a 30% to 35% increase over last year, which again, is an amazing level of increase on an organization from a marketplace that's growing at about 12% to 15%. So we're just trying to normalize our patterns and put everything together.

Jaeson Schmidt, Analyst

And then just last one for me. Just looking at gross margin. Obviously you're going to kind of remain at these levels for the next several quarters. So does that mean we shouldn't expect a step-up until sort of that December quarter timeframe? Or could you start to see improvement in September?

Cheryl Beranek, CEO

Yes. We're anticipating an improvement in September. And as we get back up to levels similar and beyond of last year, in that fourth quarter where everything was clicking and people were taking their inventory positions for the winter. So yes, absolutely, fourth quarter is where we should be signing.

Ryan Koontz, Analyst

I wanted to ask about your assumptions in the March quarter and this new kind of customer order pattern and booking behavior. What are your assumptions going into March? Do you feel like March can still be a period where you would expect your backlog to soften a bit and then pick up during the peak construction season? Or what's your kind of general mindset there? I know you don't plan to give backlog out, but any kind of insights would be helpful there.

Cheryl Beranek, CEO

Certainly. The backlog has decreased by about $30 million over the last 90 days, which we had anticipated and planned for. We reached a high of $160 million and are currently just under $130 million. I previously mentioned that we aim to achieve a backlog that aligns with about one times the revenue for the quarter. It's likely that the March backlog will decrease slightly as we adjust to the new cadence of product ordering, both on our end and from our customers during their deployment phases. While a decline in backlog might typically be seen as negative, I believe this is a return to a necessary normalcy following the bubble we experienced during the COVID period.

Ryan Koontz, Analyst

If you could reflect on the strength in the quarter from the cable segment? It looked like it was really strong. Is that coming from your active cabinets into the DAA or more of your fiber-to-the-home customers? And maybe give us some color on the strength here.

Cheryl Beranek, CEO

Yes. It's coming from both areas in that the different types of cable companies, both the regional as well as the national have different philosophies on how they can best provide high-speed broadband to their customers. And due to the architecture of our product line that allows us to support whether it's a PON-based deployment or a non-PON based deployment, active cabinets versus the YOURx-Terminal, we're actively involved in both. And both have similar high gross profit margins, and we're excited about all of that opportunity moving forward. Like everything else in our space, I think we'll probably see some bubbles with that over the course of the next couple of quarters, but the demand is absolute. And it's really exciting to see the cable community come in play.

Ryan Koontz, Analyst

And in terms of your latest quarter and bookings, any mix shifts there between passings and connected home in the product lines?

Cheryl Beranek, CEO

We're beginning to notice an increase in home connections, as people recognize the value of their investments in home installations. By connecting these homes, they can transform them into revenue-generating customers, which yields a higher revenue rate. While home installations still account for a larger share of our revenue, the growth in connected homes is promising, and it's exciting to witness the successful implementation of these initiatives.

Ryan Koontz, Analyst

And one last one. Any new commentary around RDOF and ARPA contributions to your recent business? Is it still gaining momentum? And kind of where do you feel like we are relative to those programs contributing?

Cheryl Beranek, CEO

It's still gaining momentum, but it's very early. This is almost entirely privately funded, which is why we feel confident making the capacity enhancements that we are. One of the frustrating aspects of the industry is how long it takes for government funding to move through the programs and enter the market. We've experienced this repeatedly, such as in 2012 and 2008, when we were excited about the funding but had to wait two years. We know it's coming; we just haven't seen much of it yet.

Timothy Savageaux, Analyst

And actually, my question was on capacity. So that's a good place to pick it up. And you've obviously been on this capacity addition plan for a couple of quarters now, but you've made some additional kind of increases. So I wonder if you can give a sense of where you stand from a kind of quarterly revenue capacity standpoint currently, clearly, you're looking for some record quarters in the second half of the fiscal year. But if you want to take it from what you just reported or what you expect here in the current quarter, where are we from a capacity utilization standpoint? And where do you expect that capacity to be by, call it, fiscal year-end?

Cheryl Beranek, CEO

Tim, from an operational perspective, we aim to establish metrics for where we want to be by the end of each quarter, which allows us to make incremental investments throughout the process. Currently, I believe we are at approximately $105 million. By the end of the year, we anticipate reaching about $130 million to $135 million quarterly, which would position us at around a $500 million run rate by the year's close.

Timothy Savageaux, Analyst

And in terms of getting there, I mean, is that more kind of adding people? Are you pretty well set from a facility standpoint, I guess, as you continue throughout the year, how you kind of address the facilities aspect of it if at all?

Cheryl Beranek, CEO

The facilities are established, but we need to enhance both the facilities and the surrounding infrastructure. For instance, developing the capability to produce optical cable within the facility requires increased power, new production lines, and water systems under the floor for cable production and cooling. These are the incremental costs that we often overlook, yet they are currently essential. We are also assessing the infrastructure aspects, which might not seem directly related to capacity but involve procurement teams, software systems, and process development to ensure a systematic approach. We have achieved significant growth over the last two years, but it's crucial to evaluate how we can maintain this growth and scale effectively. This is vital from a gross profit perspective; although the company was built to scale, there are still infrastructural elements that need to be established to ensure quality. This includes hiring staff, implementing systems, and integrating software to support long-term growth. We need to catch up on some initiatives that we should have undertaken a year ago but couldn’t due to our rapid pace of growth.

Timothy Savageaux, Analyst

In terms of the, you seem to be going back, I guess, to maybe your more traditional seasonality going back several years now, where you had, I guess, a quarter in there somewhere that was up 20% to 30% sequential, something like that on a seasonal basis. Is that the way we should kind of look at this in context just at a much higher revenue level obviously?

Cheryl Beranek, CEO

Exactly, yes. I mean I think that's how I try to describe it as being pre-COVID conditions at post-COVID levels. And there's always been seasonality to our business. It's just that it was hit in the last two years. And so I think I want to go back to a statement that Jaeson asked, how do I have the confidence that the back half of the year is going to follow through? And it's really, doing this the last 15 years, in that that's the traditional normalized pattern. And so the only caveat to that is in a post-COVID world, how quickly will we get back to that normalized pattern.

Scott Searle, Analyst

Just to revisit the gross margin, it seems that aside from the mix issue, there is a labor content problem affecting our near-term results until we increase capacity at the facilities. Is that the correct way to view the situation until we enter the second half of this fiscal year?

Cheryl Beranek, CEO

Absolutely. We are adding those people ahead of when we actually need them. Currently, our efficiency and utilization on the floor are not at the targeted level. However, this approach enables us to rotate those employees, training them across different lines rather than just focusing them on a single production line, which was our strategy when we hired staff last year. This past approach allowed them to optimize one line but limited our scalability. To achieve the necessary flexibility and meet critical lead times for our long-term success, we need to train all employees on various functions and process steps involved in fiber termination. This investment in workforce and training will help us achieve target lead times of six to eight weeks this summer, which is still significantly longer than our pre-COVID lead times of three to four weeks. I don’t anticipate returning to that timeframe; it's not essential. Our goal should be to maintain a six to eight-week lead time, and we will have the workforce necessary to accomplish that based on our current investments.

Scott Searle, Analyst

And just a follow-up, I guess, and catalyze a couple of the earlier comments. You're looking for 30% to 35% growth in the second fiscal quarter, which kind of implies like you said, normal seasonality is sequentially down December to March before we see that recovery into the second half of which you're expecting a 60% plus split being skewed towards the back half of the year. Is that correct?

Cheryl Beranek, CEO

Absolutely. You can completely take it. 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 over to Ms. Beranek for closing remarks. Thank you all for the opportunity to speak with you and for the questions from our analyst community. Definitely a year of transition and a year of being able to come back into these normalized patterns. And so I invite shareholders to contact Gateway, our IR firm, and welcome the opportunity to speak with you because I could not be more excited about the revenue plan in front of us and the opportunity by which to become a significant player in high-speed broadband. See you until next quarter.

Operator, Operator

Thank you for joining us today for Clearfield's Fiscal First Quarter 2023 Conference Call. You may now disconnect.