Q2 2025 Clearfield Inc Earnings Call

Operator: Good day and welcome to the Clearfield. Sicily's second quarter 2025... All participants will be in a listen-only mode.

Good day and welcome to the Clearfield.

Fiscal second quarter 'twenty 'twenty five conference call all participants will be in a listen only mode. A brief question and answer session will follow the formal presentation.

Operator: A brief question-and-answer session will follow the formal presentation. If you'd like to ask a question, please press star 1 on your telephone. As a reminder, this conference is being recorded.

If you'd like to ask a question. Please press star one on your telephone keypad.

This conference is being recorded.

Greg McNiff: I would now like to turn the conference over to your host, Greg McNiff, Investor Relations for Clearfield. Please go ahead. Thank you.

Speaker Change: I would now like to turn the conference over to your host Greg Mcniff Investor Relations for Clearfield. Please go ahead.

Cheri Beranek: Thank you joining me on today's call are Cheri, Beranek, Clearfield, President and CEO and Dan Herzog Clearfield CFO.

Greg McNiff: Joining me on today's call are Sherry Beranek, Clearfield's President and CEO, and Dan Herzog, Clearfield's CFO. As a reminder, Clearfield publishes a quarterly shareholder letter which provides an overview of the company's financial results, operational highlights, and future outlook. You can find both the shareholder letter and the earnings release on Clearfield's Investor Relations website.

Cheri Beranek: A reminder, clearfield publishes quarterly shareholder letter, which provides an overview of the company's financial results and operational highlights and future outlook.

Cheri Beranek: Can find both the shareholder letter and the earnings release unclear fields Investor Relations website.

Greg McNiff: After brief prepared remarks, we will open the floor for a question and answer session. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company.

Cheri Beranek: After brief prepared remarks, we will open the floor for question and answer session. Please.

Cheri Beranek: Please note that during this call management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward looking statements for purposes of the Safe Harbor provisions of the private Securities Litigation Reform Act.

Greg McNiff: These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. from those expressed in the forward-looking statement.

Cheri Beranek: These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Cheri Beranek: From those expressed in the forward looking statements.

Greg McNiff: It is important to also note 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, shareholder letter, and on this conference call. The risk factors section in Clearfield's most recent Form 10-K filing with the Security and Exchange Commission and its subsequent filings on Form 10-Q provide a description of these risks.

Cheri Beranek: It is important to also note that the company undertakes no obligation to update such statements except as required by law.

Cheri Beranek: 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 shareholder letter and on this conference call and the risk factors section in <unk>. Most recent Form 10-K filing with the Securities and Exchange Commission and its subsequent filing.

Speaker Change: On Form 10-Q provide a description of these risks with that I would like to turn the call over to Claire Phillips, President and CEO Cheri Beranek Shari.

Cheryl Beranek: With that, I would like to turn the call over to Clearfield's President and CEO, Sherry Beranek. Sherry? Good afternoon, everyone, and thank you for joining us today to discuss Clearfield's second quarter results. We are happy to report a profitable second quarter of fiscal 2025.

Claire Phillips: Good afternoon, everyone and thank you for joining us today to discuss Clearfield second quarter results. We are happy to report a profitable second quarter of fiscal 2025, I will start by discussing the macro outlook followed by some commentary on the industry and then turn it over to Dan for a summary of our performance and outlook for <unk>.

Cheryl Beranek: I will start by discussing the macro outlook, followed by some commentary on the industry, and then turn it over to Dan for a summary of our performance and outlook. For more detailed information, please refer to our shareholder letter posted on the IR section of our website. We reported second quarter fiscal 2025 net sales of $47.2 million, an increase of 28% over last year and above our guidance range, highlighted by net sales in our Clearfield segment, which increased 47% year over year. Likewise, our net income per share of $0.09 was above our guidance range and significantly improved from a year ago period.

Speaker Change: More detailed information please refer to our shareholder letter posted on the IR section of our website.

Speaker Change: We reported second quarter fiscal 2025, net sales of $47.2 million, an increase of 28% over last year and above our guidance range highlighted by net sales in our Clearfield segment, which increased 47% year over here right.

Speaker Change: Likewise, our net income per share of nine cents was above our guidance range and significantly improved from a year ago period.

Cheryl Beranek: Consistent with previous quarters, we view our second quarter performance as another step closer to returning to a normalized level of growth for Clearfield.

Speaker Change: Consistent with previous quarters, we view, our second quarter performance as another step closer to returning to a normalized level of growth for clearfield.

Cheryl Beranek: I now want to address the evolving tariff dynamic. As we've highlighted previously, all of Clearfield's products manufactured in Mexico are exempt from current tariffs as they are covered under the United States-Mexico-Canada Agreement. We purposely designed our U.S. and Mexican manufacturing facilities to support dual sourcing, cost optimization, and supply chain resilience, and our Nestor business has enabled us to relocate our cable production from Europe to the U.S. as well. Additionally, we are shifting the production of our affected components to multiple manufacturing sites across the globe. Our proactive diversification of our supply chain has allowed us to maintain stable product availability even as trade policies fluctuate.

Speaker Change: I now want to address the evolving tariff dynamic as we've highlighted previously olive clearfield products manufactured in Mexico are exempt from current tariffs as they are covered under the United States, Mexico, Canada agreement, we purposely designed our U S and Mexican manufacturing facilities.

Speaker Change: For dual sourcing cost optimization and supply chain resilience and our Nestor business has enabled us to relocate our cable production from Europe to the U S as well. Additionally.

Speaker Change: Additionally, we are shifting the production of our affected components to multiple manufacturing sites across the globe.

Speaker Change: Our proactive diversification of our supply chain has allowed us to maintain stable product availability, even as trade policies fluctuate.

Cheryl Beranek: Regarding Asian-sourced products in particular, we maintain strong supplier relationships across Asia and have additional sources in place globally to ensure continued product availability. However, while we do anticipate increased costs as a result of the recent tariff policies, we continue to implement tactics to address these impacts and to understand how potential increases in selling prices could impact demand from our customers.

Speaker Change: Regarding Asian source products in particular, we maintained strong supplier relationships across Asia and additional sources in place globally to ensure continued product availability. However, while we do anticipate increased costs as a result of the recent terrorist policies we.

Speaker Change: To implement tactics to address these impacts and to understand how potential increases in selling prices could impact demand from our customers. We do not believe the evolving tariff situation is currently known will materially affect our operating results.

Cheryl Beranek: We do not believe the evolving tariff situation as currently known will materially affect our operating resources.

Cheryl Beranek: Turning to the industry, we continue to view the BEAD program as a meaningful, long-term growth catalyst, particularly for community broadband and Tier 3 service providers. Although funding has faced administrative delays and regulatory uncertainty, we remain confident in the program's direction. Despite political shifts and increased discussion around technology neutrality, we believe the majority of BEAD funding will ultimately support fiber-based infrastructure. As such, we expect that BEAD will begin to contribute materially to Clearfield's revenue in fiscal 2026. As for near-term growth catalysts, we expect the Enhanced Alternative Connect America Cost Model, or EA-CAM, program to contribute meaningfully in the upcoming build season.

Speaker Change: Turning to the industry, we continue to view the bead program as a meaningful long term growth catalyst, particularly for community broadband and tier three service providers.

Speaker Change: Although finding has faced administrative delays and regulatory uncertainty we remain confident in the program's direction.

Speaker Change: Despite political shifts and increased discussion around technology neutrality, we believe the majority of funding will ultimately support fiber based infrastructure as such.

Speaker Change: We expect that beautiful begin to contribute materially to clearfield revenue in fiscal 2026.

Speaker Change: As for near term growth catalysts, we expect the enhanced alternative connect America cost model or E. A cam program to contribute meaningfully in the upcoming bill season, well he can and bead finding cannot be applied to the same service addresses providers can leverage both.

Cheryl Beranek: While EA-CAM and BEAD funding cannot be applied to the same service addresses, providers can leverage both programs across different areas of their networks, enabling broader and more efficient network expansion.

Speaker Change: Ramps across different areas of their networks, enabling broader and more efficient network expansion.

Cheryl Beranek: Because the BEAD and EA-CAM government programs combine with a return to a more normal ordering pattern for the overall industry, we believe Clearfield is well-positioned to benefit from these opportunities.

Speaker Change: The beat in EAA Cam government programs combined with a return to a more normal ordering pattern for the overall industry. We believe clearfield is well positioned to benefit from these opportunities.

Cheryl Beranek: Finally, I'd like to highlight an important achievement in the quarter. Our FieldSmart FiberFlex 600 Active Cabinet has been recognized among the best in the industry by the 2025 LightDrive BTR Innovation Reviews in the optical category. This award further validates our approach to providing flexible, scalable solutions that empower our customers to deploy networks efficiently and effectively. As we continue positioning the company to capitalize on current opportunities, we remain focused on identifying the next catalyst for growth.

Speaker Change: Finally, I'd like to highlight an important achievement in the quarter.

Speaker Change: Our field Smart five reflects 600 active cabinet has been recognized among the best in the industry by the 20th twenty-five Lightwave BTR innovation reviews in the optical category. This award further validates our approach to providing flexible scalable solutions that empower our customers.

Speaker Change: Tumors to deploy networks efficiently and effectively.

Speaker Change: As we continue positioning the company to capitalize on current opportunities. We remain focused on identifying the next catalyst for growth I look forward to updating you on these opportunities later in the year.

Cheryl Beranek: I look forward to updating you on these opportunities later in the year.

Daniel Herzog: I'd now like to turn the call over to our CFO, Dan Herzog, who will provide an overview of our financial results for the second quarter, fiscal 2025, as well as to share our outlook for the remainder of the fiscal year. Thank you, Sherry, and good afternoon, everyone. I will now review our second quarter results, beginning with sales. Consolidated net sales in the first quarter of fiscal 2025 were $47.2 million, a 28% increase from $36.9 million in the prior year, second quarter, and above our guidance range of $37 million to $40 million. This figure includes $40.6 million of Clearfield segment net sales, up 47% year-over-year, and $6.6 million of Nester segment net sales, down 30% year-over-year.

Speaker Change: Now I'd like to turn the call over to our CFO, Dan Herzog, who will provide an overview of our financial results for the second quarter fiscal 2025, as well as to share our outlook for the remainder of the fiscal year.

Dan Herzog: Thank you Sherry and good afternoon, everyone.

Dan Herzog: I will now review, our second quarter results beginning with sales.

Dan Herzog: Consolidated net sales in the first quarter of fiscal 2025 were $47 $2 million, a 28% increase from $36 $9 million in the prior year second quarter and above our guidance range of 37 million to $40 million.

Dan Herzog: This figure includes $46 million of Clearfield segment, net sales up 47% year over year and $6 $6 million of Nestor segment, net sales down 30% year over year.

Daniel Herzog: Our outperformance this quarter was driven by strong customer demand across all our Clearfield segment end markets and solid execution as we converted quoting activity into revenue at a faster pace and higher rate than anticipated. Once again, our strong bottom line performance and continued gross margin improvements were primarily driven by lower year-over-year excess inventory reserve costs, led by improved utilization, as well as increased overhead absorption due to increased volumes at our Clearfield facility. We are pleased with the progress our Nester segment is making with the production of microduct at our new facility in Estonia as we continue to right-size the cost structure for the business.

Dan Herzog: Our outperformance this quarter was driven by strong customer demand across all our Clearfield segment end markets and solid execution as we converted quoting activity into revenue at a faster pace and higher rate than anticipated.

Dan Herzog: Once again, our strong bottom line performance and continued gross margin improvements were primarily driven by lower year over year excess inventory reserve costs led by improved utilization as well as increased overhead absorption due to increased volumes at our clearfield facilities.

Dan Herzog: We are pleased with the progress our Nestor segment is making with the production of micro docked at our new facility in Gastonia as we continue to right size the cost structure for the business.

Daniel Herzog: We remain focused on improving our European operations by prioritizing higher gross margin solutions. Based upon these trends, we are reiterating our fiscal 2025 outlook of net sales in the range of $170 million to $185 million. As Sherry noted, we anticipate annual revenue growth for the Clearfield segment to be inline or above industry forecasts, while we expect annual revenue from our Nester segment for fiscal 2025 to fall slightly year-over-year as we focus on improving margins. For our third fiscal quarter of 2025, we anticipate net sales in the range of $45 million to $50 million and net income per share in the range of $0.01 to $0.08.

Dan Herzog: We remain focused on improving our European operations, Bryan prioritizing higher gross margin solutions.

Dan Herzog: Yeah.

Dan Herzog: Based upon these trends we are reiterating our fiscal 2025 outlook of net sales in the range of 170 million to $185 million.

Dan Herzog: As Sherry noted, we anticipate annual revenue growth for the Clearfield segment to be inline or above industry forecast, while we expect annual revenue from our Nestor segment for fiscal 2025 to fall slightly year over year as we focus on improving margins.

For our third fiscal quarter of 2025, we anticipate net sales in the range of 45 million to $50 million and net income per share in the range of one cents to eight cents.

Daniel Herzog: The net income per share range is based on the number of shares outstanding at the end of the second quarter and does not reflect potential share repurchases completed in the third quarter. Our guidance reflects the evolving tariff situation as currently known, which we do not believe will materially affect our operating regime.

Dan Herzog: The net income per share range is based on the number of shares outstanding at the end of the second quarter and does not reflect potential share repurchases completed in the third quarter.

Dan Herzog: Our guidance reflects the evolving tariff situation is currently known which we do not believe will materially affect our operating results.

Greg McNiff: And with that, we will open the call to your questions. Thank you.

Dan Herzog: And with that we will open the call to your questions.

Dan Herzog: Thank you at this time, we'll be conducting a question and answer session.

Operator: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in the question. You may press star 2 if you'd like to remove your question from me. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll.

Dan Herzog: Ask a question. Please press star one on your telephone keypad.

Dan Herzog: A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from Mchugh for participants using speaker equipment. It may be necessary to pick up your handset before pressing this darkies one moment, please while we poll for questions.

Ryan Koontz: Our first question comes from Ryan Koontz with Needham & Company. Please proceed with your question. Thanks for the questions.

Speaker Change: Our first question comes from Ryan Koontz with Needham <unk> Company. Please proceed with your question.

Ryan Koontz: Great. Thanks for the questions and congrats on a great quarter there.

Cheryl Beranek: Congrats on a great quarter there. Sherry, on the product mix, can you comment on that? I know you've been very, very strong in the last several quarters on subscriber ads. Can you update us on how new passings were in your first quarter and how maybe they are off to your start of your career? Right. The quarter now ending in March, we had a really strong continuation of products being purchased for the connection of homes. And then expanding upon that, reignited growth in products for connecting homes. There had been previously some level of surplus fiber distribution hubs or cabinets in the marketplace.

Speaker Change: Sherri on the product mix can you comment on that I know you've been very very strong in the last several quarters on subscriber adds can you update us on how new pass things are or where in your first quarter and maybe they are off so you started your.

Ryan Koontz: The June quarter.

Ryan Koontz: Right.

Ryan Koontz: I mean, that's the corner now ending in March we had a really strong.

Ryan Koontz: <unk>.

Ryan Koontz: Of products being purchased for the connection of homes and then with the and then expanding upon that reignited growth in products for connecting homes. There had been previously some level of surplus.

Speaker Change: Yeah fiber distribution hubs or cabinets in the marketplace. Those are going on and now our sales of cabinets are resuming I think moving forward, what we're going to see now, especially over the course of this summer when.

Cheryl Beranek: Those are gone, and now our sales of cabinets are resuming.

Cheryl Beranek: I think moving forward, what we're going to see now, especially over the course of the summer when there is more focus on the connected home, which is more labor intensive, that we'll continue to see an increase in the number of homes connected using Clearfield equipment. Got it.

Speaker Change: There is more focus on the connected home, which is more labor intensive and that will continue to see an increase in the number of homes connected you Sinclair field equipment.

Speaker Change: Got it and how is traction coming along on your new connected home.

Cheryl Beranek: And how is traction coming along on your new connected home product? Really thrilled with where we're at with the home deployment kits. One of the things that we do to me is really always a focus on labor, always a focus on craft-friendly solutions. And the home deployment kits take all of the equipment that is necessary for turning up the home, put it in one package, which is different from anyone else in the marketplace. And then we use those solutions which take a whole person out of the equation. We can pull up a house with one person rather than two.

Speaker Change: Products there.

Speaker Change: Really thrilled with where we're at with a fiber with the home deployment kits.

Speaker Change: The things that we do it to me is really always a focus on labor always a focus on craft friendly solutions in the home deployment and kits.

Speaker Change: All of the equipment that is necessary for turning up the home put it in one package and then which is different from anyone else in the marketplace and then we use those solutions to very rich.

Speaker Change: Take one off a whole person out of the equation, we can pull up a house with one person rather than two.

Cheryl Beranek: So you'll see a lot of highlight about the home distribution kits in the summer trade shows and the like. You'll see a lot of it on our trucks that are coming across the country to demo our products. And you'll see a lot of that equipment in our customers' trucks that are out connecting homes. and really a strong bounce back from your regionals there in the quarter.

Speaker Change: So you'll see a lot of highlight about the home distribution kits and.

Speaker Change: This summer.

Speaker Change: Tradeshows and the like I see a lot of it on Oh on our trucks that are coming across the country to demo our products.

Speaker Change: And you'll see a lot of that equipment and our customers.

Speaker Change: The trucks that are out there connecting homes.

Speaker Change: Great Thanks and.

Speaker Change: Really strong bounce back from the original store in the quarter nice to see.

Cheryl Beranek: Roughly, how is that diversification within that category, or you know, roughly? Large regionals, there's a half a dozen companies that are involved, but there was one customer that did pull forward about $3 million worth of business into this quarter. And so, you know, always thrilled to be able to do, you know, ongoing business with the large regionals and being in a good place for their builds. But you will see in the queue, you know, when it's filed that there will be one large region will become a 10%.

Speaker Change: Roughly yes.

Speaker Change: How was that diversification within that category roughly how many customers are contributing materially to that number.

Rachel: And Rachel.

Speaker Change: A large regional is there's a there's a half a dozen.

Speaker Change: Companies that are involved but there was one customer that did pull forward of about $3 million worth of business into this quarter.

Speaker Change: And so.

Speaker Change: Always thrilled to be able to do ongoing business with the large regionals and being in a good place for their belts.

Speaker Change: But you will see in the Q when it's filed out there.

Speaker Change: We have one large region will become a 10% customer.

Speaker Change: Yes.

Daniel Herzog: And Dan, on the gross margin there, you talked about lower E&O reserve. Did you end up crediting back some of that E&O reserve in the quarter, or you're just saying it was less of a? It was less of a reserve. I think last year's quarter, we had about close to $5 million or $4.9 million. This year, we ended up with, or this quarter, we ended up with roughly around $400, but we did reverse about $500K of tailwinds of recovery. So, you know, continue to see strong, that's what we talk about when we say utilization.

Speaker Change: Great and.

Speaker Change: Dan on the on the gross margin there you talked about lower.

Speaker Change: Reserve.

Speaker Change: Did you end up crediting back some of that you know reserve in the quarter or you're just saying it was less of a reserve.

Speaker Change: It was less of the reserve I think last year's quarter, we had about close to $5 million or $4 $9 million. This year, we ended up with our this quarter we ended up with.

Speaker Change: Roughly around 400 and <unk>.

Speaker Change: But we did reverse about 500 K of tail winds of recovery. So.

Speaker Change: We continue to see strong that's what we talk about when we say utilization.

Daniel Herzog: It's kind of like prepaid inventory, and it's worked really well for us reducing that with the higher demand.

Speaker Change: It's it's kind of like prepaid inventory and it works really well for us reducing that with higher demand.

Daniel Herzog: Great, and then lastly, you talked about Nestor, maybe making some changes there. Can you unpack a little bit? Cost Reduction Approach. We're continuing to expand the product mix, and the new products that are being produced there are predominantly being produced in Estonia. So we'll continue the business that we're doing in Finland and the development of cables, but our higher gross margin solutions are predominantly coming out of the Estonia plant. And that plant, just finished building that plant, it's really optimized for diversification, really optimized for flexibility of product mix. And so being able to bring new products to market that are in that higher margin category will really help us get the products closer to the European continent, because we can ship them out of Estonia more quickly than we can out of Finland.

Speaker Change: Great and then lastly, you talked about nester.

Speaker Change: Maybe making some changes there can you unpack that a little bit in terms of your cost reduction approach or what youre thinking for that business.

Speaker Change: We're continuing to.

Speaker Change: Expand the product mix and the new products that are being produced there are predominantly being produced in Estonia.

Speaker Change: So we'll continue the business that we're doing in Finland, and the and the development of cables, but our higher gross margin solutions are predominantly coming out of the Estonia plant and that plant.

Speaker Change: You just finished building that plant is really optimized for diversification.

Speaker Change: Really optimized for flexibility of product mix and so.

Speaker Change: Being able to bring new products to market that are in that higher margin category.

Speaker Change: It really help us and you can.

Speaker Change: Get the products closer to the European continent, because we can ship them out of astounding.

Speaker Change: More quickly than we can out of Finland.

Speaker Change: Great.

Ryan Koontz: Super, I'll pass it on. Thank you so much.

Speaker Change: Super.

Speaker Change: I'll pass it on thank you. Thank you so much.

Speaker Change: Okay.

Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone. One moment, please, while we poll for questions.

Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: One moment, please while we poll for questions.

Operator: There are no further questions at this time.

Speaker Change: There are no further questions at this time at this point I'd like to turn the call back over to Cheri Beranek for closing comments.

Cheryl Beranek: At this point, I'd like to turn the call back over to Sherry Beranek for closing. Thanks so much. Unfortunately, for those of you who may be on the call, we've identified that there are a lot of calls from a lot of public companies going on at this point in time. So unfortunately, the rest of our analyst community was not able to join us today. But know that we will be speaking to each of our analysts later this evening when they are available so that they can put their reports out tomorrow morning. So for those of you who receive your reports from the analysts, know that we will have a chance to speak with each of them this evening.

Cheri Beranek: Thanks, so much.

Speaker Change: Unfortunately for those of you who may be beyond the call. We've identified that there are a lot of calls from a lot of public companies going on at this point in time. So unfortunately, the rest of our analyst community, who is not able to join US today, but know that we will be speaking to each of our analysts later this evening.

Speaker Change: When there are when they are available so that they can put their reports out tomorrow morning. So for those of you who receive your reports from the analysts know that we will have a chance to speak with each of them. This evening.

Cheryl Beranek: We are thrilled with where we see the market recovering. Our position, especially within the Clearfield segment, is one in which demand is there. We're seeing it both in our connected home and in our past home, and excited about new trade shows and new products that you're going to see launched moving forward. We believe that the U-shaped recovery is underway, and we look forward to a lot of great business moving forward.

Speaker Change: We are thrilled.

Speaker Change: With where we see the market recovering our position, especially within the Clearfield segment is one in which demand is is there and we're seeing it both in our connected home and in our past home.

Speaker Change: And excited about new trade shows and new products that youre going to see launch moving forward. We believe that the U shaped recovery is underway and we look forward to a lot of great business moving forward.

Operator: Until next quarter, please be careful, be nice to each other, and we'll talk soon. Thanks.

Speaker Change: Until next quarter.

Speaker Change: Be careful.

Speaker Change: It would be nice to each other and we'll talk soon.

Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your...

Speaker Change: Thanks. This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.