Clearfield, Inc. Q1 FY2025 earnings call

• Net sales for fiscal first quarter 2025 were $35.5 million, in line with guidance. Net loss per share was $0.13, smaller than guidance range.
• Clearfield segment net sales up 6% YOY, aligning with normalized growth progress.
• Addressed industry trends, including rural broadband deployment model evolution and new products like FibroFlex cabinet line and StreetSmart ReadyConnect terminal.
• BEAD program expected to contribute more meaningfully to revenue from fiscal 2026, with NTIA approving final proposals for Louisiana, Nevada, and Delaware. Near-term uncertainties due to US administration change, but optimistic about long-term potential.
• Mexican and US manufacturing sites designed for redundancy, cost optimization, and dual sourcing. Product lines BABA compliant. Managing tariff impacts and optimizing supply chain.
• New facility in Estonia accelerating MicroDuct production, enhancing European operations with higher-margin solutions.

Clearfield segment net sales were $29.7 million, up 6% year over year. Nestor segment net sales were $5.8 million, down 6% year over year. Net sales for Clearfield segment contributed a significant portion, while Nestor segment's contribution was lower. The Clearfield segment's growth aligns with steady progress towards normalized growth.

• Reiterating fiscal 2025 net sales range of $170 million to $185 million. Clearfield segment annual revenue growth expected in line with or above industry forecast of 12.5%. Nestor segment expected to have flat annual revenue with improved margins.
• Anticipating second quarter fiscal 2025 net sales in range of $37 million to $40 million. Second quarter gross margins expected to align more closely with original first quarter assumptions. Net loss per share expected in range of $0.16 to $0.21.
• Full year 2025 and second fiscal quarter guidance not accounting for potential tariff impacts due to uncertainty.

• Tariff uncertainties with potential cost increases. European economic challenges and geopolitical tensions affecting Nestor segment. Inventory overhang in primary market (community broadband) was an issue but predominantly cleared.

Q: Could you please expand on how many customers were material in the large regional segment and whether they are buying connected products, passing products, or a mix of both?

A: Large regionals are multiple providers (more than one, handful). Predominantly passing products, with room to grow into portfolio customers. Likely neighborhood of three customers over a million dollars in sales, half a dozen or more total.

Q: What kind of visibility do you have going into the rest of the fiscal year as it relates to customer forecasts, new designs, orders, and lead times going forward?

A: Pleased with quoting activity at end of last year/quarter and January period. Quoting for summer, with customers not in position for long-term purchase agreements but seeing better trends towards long-term orientation and multiyear projects. Lead time is about four weeks for most products.

Q: You talked about many operators initiating new multiyear projects. Could you give more color on this, including examples and breadth?

A: More in community broadband. Smaller emerging regionals and some municipal/utility providers working on multiyear agreements. Example like TDS working on fiber plans. Also seeing venture funding and VC capital in some spaces. Core customer group identified, with more providers emerging in community broadband.

Q: On the dynamic versus homes past versus home homes connected, where are we in the process and implications?

A: Currently at about a fifty-fifty split between revenue from homes connected and past. Historically, connected home was less cost-effective but now with own cable manufacturing and connectors, can be cost-effective. Connected home products have higher labor count, influencing overhead absorption. Aim for two-to-one ratio as more customers use product lines to connect.

Q: For community broadband, are you seeing sequential growth going forward absent BEAD? What about the BEAD process changes?

A: Anticipating good booking quarter and backlog growth for community broadband going into next quarter. BEAD program is changing with more funding for direct build, streamlining process for service providers. New NTIA administrator's stance less fiber-friendly, but hoping for long-term cost-effective infrastructure decisions.

Q: On gross margins and BABA compliant comments, what should we expect from gross margin standpoint and BABA compliance with Mexican facility?

A: Gross margins volume dependent. One-time benefits in first quarter, second quarter margins expected to align more. Aqiladura facility still across border, navigating country of origin rules for BABA compliance. Margins expected to be in lower twenties to mid-twenties by fourth quarter as volume increases.