Clearfield Inc (CLFD) 2025 Q4 法說會逐字稿

Good day, and welcome to the Clearfield Fiscal Fourth Quarter 2025 Conference Call. (Operator Instructions). 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 Cheri 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. 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 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'd like to turn the call over to Clearfield's President and CEO, Cheri Beranek. Cheri?

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 Nestor 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 a decision to divest the business. This move allows us to redeploy resources towards 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 (inaudible) our objective.

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 noncash write-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 South side. Expanding into adjacent markets by utilizing our core competencies to allow us to reach new customers and to strengthen our leadership in 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 (inaudible). 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 slicing.

After extensive review and month 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 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. Anis Khemakhem, 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 Presidents of Broadband Sales and Mark Temple, who joined as Vice President of Distribution Channel 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 long-standing 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 Optic 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 deliver in broadband on the proposal submitted. We intend to vigorously pursue this opportunity, and we'll 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, Cheri, 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 reflect our continuing operations and all quarter, full year and 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 absorbed with higher volume. Net income per share from continuing operations was $0.13 in the fourth quarter of fiscal '25 versus a loss of $0.01 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 continued improvement programs. While we reported an overall loss per share for fiscal 2025 of $0.58. 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 $0.45 from Clearfield's continuing operations, which compares to a net loss per share of $0.58 in the comparable period in fiscal 2024. These results underscore the strength of our continuing operations moving forward which continued 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 expand 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 2025, 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 remained consistent with the fiscal fourth quarter of 2025 and net loss per share in the range of $0.08 to breakeven. 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.

(Operator Instructions)

Ryan Koontz, Needham & Co.

I wanted to ask about your comments about the shutdown. Obviously, it may be some impacts on BEAD here, but were there other programs, subsidy programs or customer behavior you could point to, that might have impacted either revenue or bookings or your outlook for Q4 -- your fiscal Q1?

Right. 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 the fourth quarter that would then both because of our short lead times, both ship in fourth quarter and lead into first. So it's an unfortunate circumstance in one of those things that, I guess, we all don't even realize how much government funding and government operation affect us.

And Cheri, do you have a kind of a time line when you expect that to catch up to normal, I would think maybe over the next few quarters? Or is it just a...

Yes, 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 in...

Yes. Right. The Community Broadband was soft. I mean, in the fourth quarter is actually kind of flat over last year, which is really unusual, even down a little bit over last year. Community Broadband was partly the government shutdown, but I would say more affected over the course of the year by the delay in BEAD. Certainly, the smaller the service provider, the more the delay in BEAD has affected both the deployments and their planning, their engineering dollars and their engineering availability and then financing setting aside money to deal with BEAD.

We even saw it in private investment as well kind of in that smaller space because Community Broadband is more than just the Tier 3 operator, its some of the private equity money that is being used at the smaller level, and we just saw money being set -- kind of sitting on the sidelines waiting for to figure out where it's going to be deployed -- because we don't sometimes think about that where the BEAD dollars go affects, where the private investment, the timing of private investment because you want to leverage the money that -- or the fiber that's going into a BEAD network can be leveraged for 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 BEAD awards out. And while it won't the '26 -- I think we're going to see '26 have BEAD, but the biggest impact of it is going to be private money coming back because BEAD is now actually finally figured out.

Helpful. And 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 and 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. So first quarter would be looking a little bit lighter, but -- and scaling with revenue increases from there.

Got it. And Cheri, any thoughts about industry fibers line right now? Is that coming up much of a concern. Have you heard that from your customers at all in terms of (inaudible)?

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

Scott Searle, ROTH Capital.

Maybe just a couple of quick calibration questions. Dan, I'm just wondering what Nestor was in 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 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 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.

Yes, I'll take the first one there. Nestor finished their fourth quarter was $9.4 million in revenue, with the Clearfield being $41.1 million. So that would have put us at 5.4% exactly.

That's helpful. And then in terms of the December outlook.

Yes. Community Broadband is definitely a bit pressured, as I indicated, both from BEAD, the government shutdown and 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 with the large regional and the regional cable operator, typically -- they will have deployments in the same neighborhoods as the Community Broadband team. And so our work, our reputation and our sales channel -- in Community Broadband is what we're able to leverage for that MSO and Large Regional markets. Any one of 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, look through for a second. I mean -- the MSOs 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 (inaudible) 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 out earlier. And that's one of the reasons that we're -- if people look at our long-term our annual forecast. Our annual forecast is guided by what we can see, that's part of our reputation as a company, is to be I wouldn't say conservative, but I would say deliberate about our 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 members.

Great. And Cheri, if I could, just to follow in terms of the annual outlook, starting the year slow, but it sounds like you start to see normalization in the second quarter. The math on the $160 million to $170 million 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 your 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 then you've 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 introduction. It's 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 from high-end revenue. We see -- the new product introductions for 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 and that number in that $160 million to $170 million?

Yes, I would say we're looking at probably less than $10 million in that -- that's going to be. Remember, they got to build first with (inaudible) 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 bill 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, new products, what does that do to your addressable market? cassettes, I'm sure it's just extending your existing position. But what does the data center do (inaudible).

Actually, the next-generation cassette line is all about new customers as well as being eventually, there will be transformational back to our existing customers. As we talked about -- to go after the non-hyperscale data center is 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 as 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-value manufactured, it doesn't work. You've got to be able to do a lot more push and pull. And so the the new data -- the new data center cassettes 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 Dixie in January, and it will be fully debuted and on display in that January show.

(Operator Instructions) Tim Savageaux, Northland Capital Markets.

I want to stay on the BEAD theme here. And with a couple of questions. First, we've seen some of your peers in the access systems 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 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.

Yes, it makes sense. And just to get a sense of the magnitude of that opportunity, we had a recent big round of approvals, I think that was maybe $9 billion in the aggregate. And I think the total is beyond that. I think you mentioned it earlier. And -- 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 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 there tricks we can still think about?

They absolutely are. So 4% to 5% of the the cost of deployment our 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 case, is the reason to be able to come back to our generation and fully being integrated into our world. 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. Our competition likes to -- (inaudible) said, they're going to get 25% of the BEAD market. (inaudible) put numbers out there with big numbers. We could -- we could tout $500 million, and that's accurate. But remember, this is a four- to five-year build. So we want to make sure that we don't get everybody's -- their eyes bigger than their stomach. We think we're going to get a big part of that share, but it would be irresponsible to give you a particular number.

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

Yes. Well, thank you so much for the opportunity to speak with you this morning, our apologies that are 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 with a fully integrated line as we move forward, will be opportunistic for our world and '26 will be transformational (inaudible) 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 has now concluded. Thank you for attending today's presentation. You may now disconnect.