Clearfield, Inc.

Good day, and welcome to the Clearfield Fiscal Fourth Quarter 2025 Conference Call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. At this time, I'd like to turn the floor over to Gregory McNiff, Investor Relations. Sir, please go ahead.

Thank you. Joining me on today's call are Sherry Baranek, 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. 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. 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 statements. 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 Securities and Exchange Commission and its subsequent filings on Form 10-Q provide a description of these risks. Additionally, as announced on November 12, 2025, Clearfield has sold its Nestor Cables business. Following the divestiture of Nestor, we are reporting only on the Clearfield segment. Beginning with this release, Clearfield is reflected as continuing operations, with Nestor classified as discontinued operations and held for sale for fiscal 2025 and all prior periods on our financials. With that, I would like to turn the call over to Clearfield's president and CEO, Sherry Baranek. Sherry?

Good morning, everyone, and thank you for joining us to discuss Clearfield's fourth quarter and full year fiscal 2025 results. I'll begin with a brief overview of the quarter, discuss our decision to divest the Nester business, share updates on our long-term strategy, and then turn the call over to Dan for a summary of our financial performance and outlook for fiscal 2026. Fourth quarter net sales from Clearfield's continuing operations of $41.1 million were up 13% year-over-year. For the full year, Clearfield's continuing operations net sales grew 20% to $150 million, demonstrating solid execution as we continue to focus on growing faster than the industry and driving market share gains. After a thorough and comprehensive review of the Nestor segment, we made the decision to divest the business. This move allows us to redeploy resources toward our core North American operations and higher return opportunities. Our acquisition of Nestor was focused on gaining access to a key technology, namely the ability to manufacture our own line of FieldShield cable, and we achieved our objectives. We strengthened our vertical integration and Build America, Buy America compliance through the successful transfer of cable manufacturing technology into our US and Mexico facilities. However, expanding Nestor's business beyond Finland into the European market proved to be a lower margin opportunity, despite our efforts to improve margins through process improvements and new product introductions, resulting in a suboptimal use of capital. The transaction resulted in a $10.4 million non-cash right down in the fourth quarter with minimal cash impact. Importantly, the operational benefits for Nestor's integration remain embedded in our manufacturing platform. This divestiture sharpens our focus, improves our long-term margin profile, and better aligns resources with Clearfield's strategic priorities. Looking ahead, our focus remains on protecting what defines Clearfield, craftsmanship, reliability, and service. while leveraging our core strengths and expanding into areas where we can create the most value. We continue to execute on our Better Broadband and Beyond strategy through three core pillars. Protecting our core community broadband business by ensuring that the broadband service providers who have long relied on Clearfield continue to have the products, service, and support they need to succeed. Leveraging our market position into new applications and environments where fiber connectivity plays a growing role, including next generation wireless networks from the metro core to the cell site. Expanding into adjacent markets by utilizing our core competencies to allow us to reach new customers and to strengthen our leadership and broadband fiber infrastructure. As hyperscalers rely on smaller ISPs to push part of their compute workloads closer to the edge, Clearfield's position with regional providers opens up a new growth vehicle to the company. This disciplined approach positions Clearfield for measured growth as the market continues to recover. As part of this next phase, Clearfield will introduce two significant new product lines. In the first quarter of calendar 2026, we will launch a complete line of splice cases, expanding our offering and deepening engagement with customers who operate in environments that require splicing. After extensive review and months of successful field demonstration, we believe this new solution represents the best in class. Following that product introduction, we will release a next generation fiber management cassette optimized for non-hyperscale data centers a fast-growing market where Clearfield's modular design and innovation provide a unique advantage. These launches mark the start of a new generation of innovation as we extend our reach within and beyond traditional broadband markets. Another important element of our strategy is investing in sales development and expanding our distribution channels. We have enhanced our leadership team to support the new phase of growth. Anish Kanakam, our new Chief Commercial Officer, is integrating sales and marketing to align go-to-market strategy with product innovation. Mike Ward, who recently joined as our new Vice President of Broadband Sales, and Mark Temple, who joined as Vice President of Distribution Channels and Strategic Alliances, bring deep industry experience and will strengthen our Tier 1 and channel sales capabilities. Together, these leaders bring renewed focus, operational rigor, and energy to the organization, positioning Clearfield for the next chapter of growth. With respect to our distribution channels, our longstanding partners remain essential contributors to our success, connecting Clearfield solutions to broadband service providers. Building on that strong foundation, we recently added Wiremasters as a distribution partner, who has begun to distribute Clearfield's fiber-rapid connectivity and management products globally with an emphasis on the defense and aerospace markets, and we plan to add a wireless focused distributor early in fiscal 2026, opening new opportunities in cellular backhaul and emerging edge applications. These efforts strengthen our access to new customer groups while maintaining close collaboration with new existing partners who continue to be key to our growth. I want to briefly comment on the BEAD program. We are pleased that 18 of the 52 submitted proposals have been approved by the NTIA. Fiber remains the overwhelming medium to delivering broadband based on the proposal submitted. We intend to vigorously pursue this opportunity and will keep you updated as we approach the deployment stage. Fiscal year 25 was a transformational year for Clearfield, one defined by strategic focus, leadership investment, and a return to growth and profitability. As we enter fiscal 2026, we are executing with confidence on our better broadband and beyond strategy, driving innovation across our core markets while expanding into adjacent opportunities that enhance long-term shareholder value. With that, I'll turn the call over to Dan Herzog, who will review our fourth quarter and full year results and provide our outlook for fiscal 2026.

Thank you, Sherry, and good morning, everyone. I will now review our fourth quarter results, beginning with sales. This quarter marks the first period in which Nestor's results are classified under discontinued operations on our income statement. As a result, the Clearfield segment now reflects our continuing operations, and all quarter, full year, and prior period comparisons are now provided on a Clearfield continuing operations only basis to ensure clarity. Fourth quarter net sales from Clearfield's continuing operations were $41.1 million, up 13% over the same period from $36.2 million in the prior year. Gross margin improved from 26.6% to 34.6%, which was driven by better manufacturing efficiencies and overhead absorption with higher volume. Net income per share from continuing operations was $0.13 in the fourth quarter of fiscal 2025, versus a loss of one cent per share in the comparable period last year. For the full fiscal year, net sales from continuing operations were $150.1 million, up 20% from $125.6 million in fiscal year 2024. Gross margin expanded from 20.6% to 33.7%, mainly as a result of better overhead absorption with higher volume, lower inventory reserve charges as a result of improved inventory utilization, along with increases in production efficiency from our continuous improvement programs. While we reported an overall loss per share for fiscal 2025 of 58 cents, Nestor's discontinued operations and our impairment write-down of that business contributed a net loss of $1.03 per share. This was offset by net income per share of 45 cents from Clearfield's continuing operations, which compares to a net loss per share of 58 cents in the comparable period in fiscal 2024. These results underscore the strength of our continuing operations moving forward, which continue to demonstrate solid execution and share gains. We ended the quarter with approximately $166 million in cash and investments, up from $153 million in the prior year, reflecting continued strength in our balance sheet and disciplined operational execution. This financial position enables us to invest in innovation, product development, and market expansion programs that will drive long-term value creation. The company also invested $16.5 million in repurchasing 551,000 shares during the fiscal year. In addition, our Board of Directors has increased our share buyback authorization from $65 million to $85 million, providing us with $28.4 million available for additional repurchases when added to the $8.4 million repurchase amount remaining on September 30, 2025. For the full year, fiscal 2026, we expect net sales from continuing operations in the range of $160 million to $170 million. We expect growth to be driven by steady demand for fiber connectivity with continued strength across our large regional and MSO customers. We expect the late start to the BEAD program and the recent government shutdown to pressure investments both from private funding as well as government programs in our community broadband market early in the year. We expect operating expenses as a percentage of revenue to remain consistent with fiscal 2025 and earnings per share from continuing operations in the range of $0.48 to $0.62. For the first fiscal quarter of 2026, we anticipate net sales from continuing operations in the range of $30 million to $33 million. Total operating expenses remain consistent with the fiscal fourth quarter of 2025 and net loss per share in the range of $0.08 to break even. The earnings per share ranges are based on the number of shares outstanding at the end of the fourth quarter and do not reflect potential share repurchases completed.

And with that, we will open the call to your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

At this time, we will pause momentarily to assemble our roster. The first question today comes from Ryan Coons with Needham & Co.

Please go ahead.

Great, thanks. Good morning. I wanted to ask about your comments about the shutdown. Obviously, it may be some impacts on BEAT here, but were there other programs, subsidy programs, or customer behaviors you could point to that might have impacted, you know, either revenue or bookings or your outlook for Q4? Sorry, your fiscal Q1.

Right. Yeah, good morning, Ryan. We saw it in everything kind of across the board, probably ACAM, probably the most effective. Not that it's going to diminish the amount of money available, but it did affect bookings in fourth quarter that would then, both because of our short lead times, both ship in fourth quarter and lead into first quarter. So it's, you know, an unfortunate circumstance and one of those things that, you know, I guess we all don't even realize how much government funding and government operation affect us.

Sherry, do you have a kind of a timeline when you expect that to catch up to normal? I would think maybe over the next few quarters or is it just a?

Oh, yeah, we'll be back to normal by second quarter as it relates to the government shutdown. So the government shutdown did affect bookings and our forecast for a soft first quarter into next year. But I don't expect it to affect the total year. So second quarter we should be normalized.

Got it. And specifically there then within your reported fourth quarter, community broadband looked a little soft. That's what you're pointing to there.

Yeah, right. The government, the community broadband was soft. I mean, in fourth quarter, it's actually kind of flat over last year, which is really unusual, even down a little bit over last year. Community broadband is part of, was partly the government shutdown, but I would say more affected over the course of the year by the delay in Bede. Certainly the smaller the service provider, the more the delay in BEAD has affected both their deployments and their planning, their engineering dollars and their engineering availability, and then financing, setting aside money to deal with BEAD. And we even saw it in private investment as well, kind of in that smaller space, because community broadband is more than just the tier three operator. you know, some of the private equity money that is, you know, being used at the smaller level. And we just saw money being set, you know, it's kind of sitting on the sidelines waiting for B to figure out where it's going to be deployed. Because, you know, we don't sometimes think about that where the B dollars go affects where the private investment, the timing of private investment, because you want to leverage the money or the fiber that's going into a B network can be leveraged for a middle mile and other work elsewhere. So it does have a follow-on or a kind of a waterfall effect. So we're anxious to get the BEAT awards out. And while it won't, the 26, I think we're going to see 26 have BEAT dollars, but the biggest impact of it is going to be private money coming back because BEAT is now actually finally figured out.

Dan, on the gross margin outlook there relative to where you are in continuing operations, how do you think about broadly margins going forward? Is it purely a matter of scale at this point? Do you expect some modest improvements in gross margin going forward with higher revenues?

Yes, that's exactly how to read that, Ryan. Obviously, volume dependent. would be looking a little bit lighter and scaling with revenue increases from there.

Got it. Sherry, any thoughts about industry fiber supply right now? Is that coming up much of a concern? Have you heard that from your customers at all in terms of raw fiber?

Unfortunately, over and over and in every customer regardless of size. So the data center glut of utilization of fiber is affecting Corning's allocation and then it affects Corning's allocation to other service providers which in turn will affect broadband deployments. aggressively help both for our own sake as well as for our customers sake sourcing and identifying equivalent to equivalent fibers that can be approved in those networks.

Got it.

Really helpful.

That's all I've got for now. Thank you.

The next question comes from Scott Surley with Lost Capital. Please go ahead.

Hey, good morning. Thanks for taking the questions. Hey, maybe just a couple of quick calibration questions. Dan, I'm just wondering what Nestor was in the September quarter, just to kind of look at our published numbers, apples to apples. And then looking into the December quarter, could you give us a little bit of color in terms of the sequential outlook by the different customer classifications? It sounds like community broadband will be under a little bit of pressure given BEAD and government shutdowns, but I'd love to have a little bit of color on that front. And what you need in terms of turns, you know, to get to the lower end of the range and what the visibility is in the immediate outlook. And then I had a follow-up.

Yeah, I'll take the first one there. Nestor finished, you know, their fourth quarter was $9.4 million in revenue, with the clear field being 41.1. So that would have put us at 50.4, roughly, exactly.

That's helpful.

And then in terms of the December outlook,

Mm-hmm. Yeah, community broadband is definitely a bit pressured, as I indicated, both from the government shutdown and the private money that goes around it. We continue to be extremely pleased with our work in the large regional group, as well as in the regional MSO markets. They now comprise about close to 40% of our business, and that really is a means of leveraging our existing sales channel in that, you know, the large regional and the regional cable operator typically have deployments in the same neighborhoods as the community broadband team. And so our work, our reputation, and our sales channel, excuse me, in community broadband is what we're able to leverage for that MSO in large regional markets. And those are larger customers than the community broadband team is, and it means we get some larger orders and some opportunity to scale with it. So with community broadband coming back, in fact, let me look here for a second. MSOs were up for the year close to 40%. Large regionals for the year were up close to 60%. So with that momentum and with community broadband, hopefully we anticipate coming back in second quarter, we could have a really strong build season for next year. I just wanted to go back a little bit to the lack of fiber question that Ryan brought up earlier. And that's one of the reasons that if people look at our long-term annual forecast, our annual forecast is guided by what we can see. That's part of our Our reputation as a company is to be, I wouldn't say conservative, but I would say deliberate about our forecast. And with the lack of fiber being outside of our control, that could be one of the contributing factors of our long-term numbers.

Great. Thank you. And Sherry, if I could, just to follow up in terms of the annual outlook, starting the year slow, but it sounds like you start to see normalization in the second quarter. You know, the math on the 160 to 170 range implies kind of mid-40s through the rest of the year, so I assume that's kind of ramping. But I'm wondering what you're factoring into that forecast. Is it just normalization of the existing customer base and spending patterns? How much are you factoring in for bead? And have you got some new products that seem like they're kind of intriguing in terms of your next-gen splicing and data center? I'm wondering how they fit into the equation as well.

We are not identifying a significant amount of revenue for new product introductions, only a few million dollars, because typically you need a full, especially for outside plant products, you need a full year for them to go through an outside weather cycle before you have a long-term commitment for high-end revenue. we see the new product introductions for the Splice case and really excited about the next-gen cassette line as being more significant revenue in 27.

Very good. And just in terms of how you're thinking about bead in that numbers, in that $160 to $170 million?

Yeah, I would say we're looking at, you know, probably less than $10 million in that that's going to be. Remember, they got to build first with passing home – with kind of middle-mile stuff and the actual construction of placing cabinets is probably going to be in our fourth quarter. And that's one of the things that we have to remember for our numbers is that since our numbers end in September of next year, we tend to miss some of the fall numbers in the build season. So next year's fourth quarter and first quarter will be significantly stronger than what we're seeing here.

Great. And last, if I could, you know, new products, what does that do to your addressable market? You know, cassettes, I'm sure, is just extending your existing position, but what does the data center do?

Actually, the next generation cassette line is all about new customers, as well as being, eventually, they'll be transformational back to our existing customers. So, as we talked about, the next center to go after the non-hyperscale data center is a I use the word disciplined approach because we could go after hyperscalers and we would lose because that's a high volume, low mix solution. That's not the way Clearfield is designed. It's not the way our manufacturing lines are set up. We compete aggressively in a low volume, high mix world. And so data centers at the edge that push to the edge where we're going to see our customers and smaller data centers picking up the compute power requirements from the big guys as they move out. That's where we're really going to have a significant opportunity because it's our space. It's a space in which that high-volume manufacturer doesn't work. You've got to be able to do a lot more push and pull. And so the new data center cassette is going to allow a lot of unique configurations inside of a particular 19-inch panel. and so that you can design by cassette. So you can expect to see that launched around Bixie in January, and it'll be fully debuted and on display in that January show.

Great. Thanks so much. I'll get back in the queue.

As a reminder, if you would like to ask a question, please press star then 1 to join the question queue. The next question comes from Tim Savio with Northland Capital Markets. Please go ahead.

Hey, good morning. I want to stay on the bead theme here with a couple of questions. First, we've seen some of your peers in the access system space talk about receipt of initial orders for bead. I think historically, maybe you have some correlation there on the cabinet side, but It sounds like you're talking about an overall uptick in activity with these approvals with maybe some delay from shutdown, but can you talk to when you expect initial orders or have you seen them yet for BEAD?

Right. Because of our short lead time, what we're seeing is quoting activity but not necessarily shipping activity associated with it. We know pretty much what customers have been identified as anticipating to be receiving money, and so that's freed up some planning dollars. I would expect we'll see, but I don't think we'll see significant revenue until the summer construction season, so third and fourth quarter.

Yeah, it makes sense.

And just to get a sense of the magnitude of that opportunity, we had a recent, you know, big round of approvals. I think that was maybe $9 billion in the aggregate. And I think the totals beyond that, I think you mentioned it earlier. And, you know, in terms of opportunity for Clearfield, I think we used to talk about maybe 4% to 5% of that total award value as addressable by the company. Does that remain the case? And Yeah, because just on that recent round of approvals, that gets you close to $500 million, which is pretty interesting relative to what you're doing now. So are those metrics we can still think about?

They absolutely are. So 4% to 5% of the cost of deployment are products that we offer. We increasingly are working to become that portfolio supplier so that we would get the solutions of both being able to pass and to connect the home. The full line and next generation of splice cases is a part of that strategy, keeping our portfolio customers out away from our competition and being able to give those customers who are using our competition splice cases a reason to be able to come back to our generation and fully being integrated into our world. you know, every time we place a patch-only cabinet, somebody else's splice case was being used in that, and then previously somebody else's vault. So, completing out our product line is really a defensive, more aggressive move in order to put that together. You know, our competition likes to, you know, AdTrans said, you know, they're going to get 25% of the bead market. You know, Calix put numbers out there, you know, with big numbers. You know, we could We could tout $500 million, and that's accurate. But remember, this is a four- to five-year bill, so we want to make sure that we don't get everybody's, you know, their eyes bigger than their stomach. You know, we think we're going to get a big part of that share, but it would be irresponsible for me to give you a particular number.

Got it. Thanks very much. Good, helpful call. You're welcome.

This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.

Yeah. Well, thank you so much for the opportunity to, you know, to speak with you this morning. Our apologies that our numbers were delayed by a week, but you can understand with the divestiture of Nestor that we had a few numbers to be able to tie out and put together. We wish our friends at Nestor well. We think the opportunity to focus, having been able to bring that infrastructure into our world, to be able to transform Clearfield into a vertically integrated supply chain is really exciting for our potential gross margin and our ability to be that portfolio supplier is exciting. Like I said, we wish Nestor well. We think the transformation of Clearfield into being a bigger, broader supplier supplier with a fully integrated line as we move forward will be opportunistic for our world, and 26 will be transformational, putting us together for that long-term strategy plan of better broadband and beyond. Thank you for our world. I'm grateful to you now at Thanksgiving time, and I wish you the best and the most joyous of Thanksgiving holidays.

Enjoy your families.

The conference is now concluded. Thank you for attending today's presentation.

You may now disconnect.