Clearfield, Inc. Q2 FY2025 earnings call

Macro Outlook: Happy to report a profitable second quarter of fiscal 2025. ### Industry Commentary: View BEAD program as long-term growth catalyst for community broadband and Tier 3 service providers, expecting it to contribute materially to revenue in fiscal 2026. E-ACAM program expected to contribute meaningfully in upcoming build season. ### Tariff Dynamic: Clearfield's Mexico-manufactured products exempt from current tariffs. Proactively diversifying supply chain for Asian-sourced products. Anticipate increased costs from tariffs but tactics in place to address impacts. ### Operational Highlight: FieldSmart FiberFlex 600 active cabinet recognized in 2025 Lightwave + BTR Innovation Reviews optical category.

Consolidated net sales for fiscal second quarter 2025 were $47.2 million. The Clearfield segment had net sales of $40.6 million, which is a 47% year-over-year increase. The Nestor segment had net sales of $6.6 million, a 30% year-over-year decrease. Clearfield segment net sales contributed approximately 86% of the total net sales ($40.6 million / $47.2 million), while Nestor segment contributed approximately 14% ($6.6 million / $47.2 million).

Fiscal 2025: Reiterated net sales range $170 million to $185 million. ### Third Fiscal Quarter 2025: Anticipates net sales $45 million to $50 million and net income per share $0.01 to $0.08. ### Clearfield Segment: Anticipated annual revenue growth in line or above industry forecast. ### Nestor Segment: Anticipated annual revenue to fall slightly year-over-year as focusing on margin improvement.

Evolving tariff situation could cause actual results to differ from forward-looking statements, but management does not believe it will materially affect operating results.

Q: Congrats on a great quarter there. Cheri, 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 passings were in your first quarter and how maybe they are off to your start of your -- the June quarter?

A: Right. Well, I mean, the quarter now ending in March, we had a really a strong continuation of products being purchased for the connection of homes. And then with the -- and then expanding upon that, reignited growth in the products for connecting homes. There had been previously some level of surplus fiber distribution hubs or cabinets in the marketplace. Those are gone and now our sales of cabinets are resuming. 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.

Q: And how is traction coming along on your new connected home products there?

A: Really thrilled with where we're at with the fiber -- with the home deployment kits. One of the things that we do 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 and then -- 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. 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 there connecting homes.

Q: Roughly, how is that diversification within that category? Or roughly how many customers are contributing materially to that number in regionals?

A: 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 always thrilled to be able to do ongoing business with the large regionals and being in a good place for their builds. But you will see in the queue when it's filed that there -- that we have one large regional will become a 10% customer.

Q: 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 reserve?

A: It was less of a reserve. Last year's quarter had about close to $5 million or $4.9 million. This quarter ended up with roughly around $400,000. And we did reverse about $500,000 of tailwinds of recoveries. So continue to see strong -- that's what we talk about when we say utilization. It's kind of like prepaid inventory, and it works really well for us, reducing that with the higher demand.

Q: Can you unpack that a little bit in terms of your cost reduction approach or what you're thinking for that business?

A: 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 was -- 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 and get the products closer to the European continent because we could ship them out of Estonia more quickly than we can out of Finland