Clearfield, Inc. Q3 FY2025 earnings call

Pillars of Long-Term Vision - Protect core: Serve nearly 1,000 broadband service providers, meeting their present and future product needs. - Leverage market position: Grow alongside customers as they move into new applications, e.g., wireless backhaul and data centers. - Target adjacent markets: Expand customer base using modular product platforms like Clearview Cassette. ### Product Innovations - FiberFlex cabinet line designed to address shift of electronics out of central office. - TetherSmart MFT, the industry’s smallest fully sealed 10-port access terminal for various applications. - Home Deployment Kits combining fiber deploy reels and home install components, providing labor-saving opportunities. ### Industry Trends - Shift of electronics out of central office to closer cabinets. - AI driving demand for fiber deployments due to power requirements for AI and low latency needs pushing computing to the edge.

Third quarter net sales were $49.9 million, up 2% year-over-year. Clearfield segment net sales were up 15% year-over-year. Gross margin improved from 21.9% to 30.5% for the period. Nestor segment had lower revenue due to broadband service providers redirecting focus, but saw a modest year-over-year improvement in gross profit margin. Clearfield segment's net sales contribution was 15% YOY growth, while total net sales were $49.9M with a 2% YOY increase.

Fiscal 2025 Outlook - Clearfield segment revenue expected to grow in line or above industry growth. - Nestor segment revenue to fall slightly in fiscal 2025 as focus is on improving margins. ### Fourth Fiscal Quarter 2025 - Net sales range: $47 million to $51 million. - Net income per share range: $0.03 to $0.11. - Guidance reflects evolving tariff situation, which is not expected to materially affect operating results.

• Supply chain tightness, particularly with battery backup and rectifiers for active cabinets, related to tariffs and border delays. - Uncertainty around BEAD program affecting small carriers' spending, leading to delayed revenue for Clearfield from these customers.

Q: Cheri, I just want to expand on sort of that data center opportunity you highlighted. How should we be thinking about that market impacting the P&L in a more sizable way?

A: We have revenue today in the data center space, but not in the big hyperscale space. We believe we can participate in data centers our customers are building and those in their markets. We expect some revenue in 2026 and more in 2027, with new products under development and investments in product marketing.

Q: How should we think about OpEx trending, the remainder of this calendar year?

A: OpEx is probably trending slightly up for our fourth quarter due to trade shows, travel, and higher variable costs related to year-end audits and consulting.

Q: I have a question on the smaller carrier markets or really kind of the U.S. markets in general. So you saw a small increase, but short of what you might typically see seasonally. And I know you referenced pull-ins in large regional. I mean, was there some of that dynamic at work amongst the smaller carriers as well?

A: Small carriers are the most impacted by uncertainty associated with BEAD. They're not building as much because of uncertainty in BEAD funding, but that revenue isn't lost, just delayed.

Q: You're guiding kind of flat here for September. Any notable moves among your end markets below that, that are worth calling out up or down?

A: Traditionally third and fourth quarters were peak, but things came in a little earlier this year. Fourth quarter will see strong demand from Clearfield segment, with European revenue continuing to be weak. Similar mix of Clearfield and Nestor segment revenue expected in upcoming quarter, perhaps a bit higher Clearfield revenue than third quarter.