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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. 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 ks filing with the Securities and Exchange Commission and its subsequent filings on Form 10 Q provide a description of these risks. With that, I would like to turn the call over to Clearfield's President and CEO, Sherry Baronek. Sherry?
11m 13s
Good afternoon, everyone, and thank you for joining us today to discuss Clearfield's second quarter results. We are happy to report a profitable second quarter of fiscal twenty twenty five. I will start by discussing the macro outlook, followed by some commentary on the industry, and then turn it over to Dan for a summary of our performance and outlook. For more detailed information, please refer to our shareholder letter posted on the IR section of our website. We reported second quarter fiscal twenty twenty five net sales of $47,200,000 an increase of 28% over last year and above our guidance range. Highlighted by net sales in our Clearfield segment which increased 47% year over year. Likewise, our net income per share of $09 was above our guidance range and significantly improved from a year ago period. Consistent with previous quarters, we view our second quarter performance as another step closer to returning to a normalized level of growth. For Clearfield. I now want to address the evolving tariff dynamic, As we've highlighted previously, all of Clearfield's products manufactured in Mexico are exempt from current tariffs as they are covered under The United States Mexico Canada agreement. We purposely designed our US and Mexican manufacturing facilities to support dual sourcing, cost optimization, and supply chain resilience And our nester business has enabled us to relocate our cable production from Europe to The U. S. As well.
12m 52s
Additionally, we are shifting the production of our affected components to multiple manufacturing sites across the globe. Our proactive diversification of our supply chain has allowed us to maintain stable product availability even as trade policies fluctuate. Regarding Asian sourced products in particular, we maintain strong supplier relationships across Asia, and have additional sources in place globally to ensure continued product availability. However, while we do anticipate increased costs as a result of the recent tariff policies, we continue to implement tactics to address these impacts and to understand how potential increases in selling prices could impact demand from our customers.
13m 40s
We do not believe the evolving tariff situation as currently known will materially affect our operating results. Turning to the industry, we continue to view the bead program as a meaningful long term growth catalyst, particularly for community broadband and Tier three service providers. Although funding has faced administrative delays and regulatory uncertainty, we remain confident in the program's direction. Despite political shifts and increased discussion around technology neutrality, we believe the majority of Bead funding will ultimately support fiber based infrastructure. As such, we expect that Bead will begin to contribute materially to Clearfield's revenue in fiscal twenty twenty six. As for near term growth catalysts, we expect the enhanced Alternative Connect America cost model or eACAM program to contribute meaningfully in the upcoming bill season. While EACAM and Bead funding cannot be applied to the same service addresses, providers can leverage both programs across different areas of their networks, enabling broader and more efficient network expansion. Because the Bead and EACAM government program combined with a return to a more normal ordering pattern for the overall industry, we believe Clearfield is well positioned to benefit from these opportunities. Finally, I'd like to highlight an important achievement in the quarter.
15m 14s
Our FieldSmart FiberFlex 600 active cabinet has been recognized among the best in the industry by the 2025 LiteVi BTR innovation reviews in the optical category. This award further validates our approach to providing flexible, scalable solutions that empower our customers to deploy networks efficiently and effectively. As we continue positioning the company to capitalize on current opportunities, we remain focused on identifying the next catalyst for growth. I look forward to updating you on these opportunities later in the year.
15m 53s
I'd now like to turn the call over to our CFO, Dan Herzog, who will provide an overview of our financial results for the second quarter twenty twenty five, as well as to share our outlook for the remainder of the fiscal year.
16m 7s
Thank you, Sherry, and good afternoon, everyone. I will now review our second quarter results beginning with sales. Consolidated net sales in the first quarter of fiscal twenty twenty five were $47,200,000 a 28% increase from $36,900,000 in the prior year second quarter and above our guidance range of $37,000,000 to $40,000,000 This figure includes $40,600,000 of Clearfield segment net sales, up 47% year over year and $6,000,000 of NESTER segment net sales down 30% year over year. Our outperformance this quarter was driven by strong customer demand across all our Clearfield segment end markets and solid execution. As we converted quoting activity into revenue at a faster pace and higher rate than anticipated. Once again, our strong bottom line performance and continued gross margin improvements were primarily driven by lower year over year inventory reserve costs, led by improved utilization as well as increased overhead absorption due to increased volumes at our Clearfield facilities. We are pleased with the progress our NESTER segment is making with the production of MicroDuct at our new facility in Estonia as we continue to rightsize the cost structure for the business. We remain focused on improving our European operations by prioritizing higher gross margin solutions.
17m 37s
Based upon these trends, we are reiterating our fiscal twenty twenty five outlook of net sales in the range of $170,000,000 to $185,000,000 As Sherry noted, we anticipate annual revenue growth for the Clearfield segment to be in line or above industry forecasts while we expect annual revenue from our NESTER segment for fiscal twenty twenty five to fall slightly year over year as we focus on improving margins. For our third fiscal quarter of twenty twenty five, we anticipate net sales in the range of $45,000,000 to $50,000,000 and net income per share in the range of $0.1 to $08 The net income per share range is based on the number of shares outstanding at the end of the second quarter and does not reflect potential share repurchases completed in the third quarter. Our guidance reflects the evolving tariff situation as currently known which we do not believe will materially affect our operating results. And with that, we will open the call to your questions. Thank you. At this time, we'll be conducting a question and answer session. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset.
19m 5s
Before pressing the star keys. One moment please while we poll for questions. Our first question comes from Ryan Coons with Needham and Company. Please proceed with your question. Great. Thanks for the questions. Congrats on a great quarter there. [indiscernible] 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?
19m 41s
Right. Well, I mean, the the quarter now ending in March, had a really strong continuation of products being purchased for the connection of homes and then expanding upon that reignited growth in products for connecting homes. There had been previously some level of surplus fiber distribution hubs or cabinets you know in the marketplace. Those gone. And now our sales of cabinets are resuming. I think moving forward, what we're going to see now, 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.
20m 28s
Got it. And how is traction coming along on your new Connected Home products there?
20m 35s
Really thrilled with where we're at with the fiber, with the home deployment kits. You know, 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 And then we use those solutions to very which take one 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, on our trucks and that coming across the country to demo our products. And you'll see a lot that equipment in our customers trucks that are out there connecting homes.
21m 32s
Great, thanks. And, really strong back from your regional stair in the quarter. Nice to see Roughly, how is that diversification within that category? Or, you know, roughly how many customers are contributing materially to that number? In in regionals?
21m 51s
Large regionals, there's a there's a half a dozen companies that are involved, but there was one customer that did pull forward about $3,000,000 worth of business into this quarter. And so know always thrilled to be able to do 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 they're that we have one large region will become a 10% customer.
22m 19s
Okay great. And Dan, on gross margin there, you talked about lower E and O reserve. Did you end up crediting back some of that E and O reserve in the quarter? Or you're just saying you it was less of a reserve?
22m 37s
Was less of a reserve, I think last year's quarter, we had about close to $5,000,000 or $4,900,000 This year we ended up with or this quarter we ended up with roughly around 400 and of but we did, reverse about five hundred ks of tailwinds of recovery. So, continue to see strong that's what talk about when we say utilization. It's It's kind of like prepaid inventory and it works really well for us. Reducing that with the higher demand.
23m 9s
Sure. Great. And then lastly, you talked about Nestor maybe making some changes there. Can you unpack a little bit in terms of your cost reduction approach or what you're thinking for that business?
23m 22s
We're continuing to expand the product mix and the new product mix. 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 the development of cables, but our higher gross solutions are predominantly coming out of the Estonia plant. And that plant you know was just finished building that plant. It's really optimized for diversification, really optimized for of product mix. And so being able to bring new products to market that are in that higher margin category will really help us get the products closer to the European continent. Cause we could ship them out of Estonia more quickly than we can out of Finland. [indiscernible] Super. I'll pass it on. Thank you. Thank you so much.
24m 18s
As a reminder, you'd like to ask a question, please There are no further questions at this time. At this point, I'd like to turn the call back over to Sherry Baronek. For closing comments.
24m 43s
Thanks so much. I'm Unfortunately for those of you who may be on the call, we've identified that are a lot of calls from a lot of public companies going on at this point in time. So unfortunately, the rest of our analyst community was not able to join us today. But know that we will be speaking to each of our analysts later this evening. When they are available so that they can put their reports out tomorrow morning. So for those of you who receive your reports from the analysts know that we will have a chance to speak with each of them this evening. We are thrilled with where we see the market recovering Our position especially within the Clearfield segment is one in which demand is there. We're seeing it both in our connected home and in our past home and excited about some new trade shows and new products that you're going to see launched moving forward. We believe that the U shaped recovery is underway and we look forward to a lot of great business moving forward. Until next quarter, please be careful, be nice to each other and we'll talk soon. Thanks. This concludes today's conference.
25m 58s
You may disconnect your lines at this time. And we thank you for your participation.
Key Insights
Clearfield reported Q2 FY25 net sales of $47.2M, a 28% increase YoY and above guidance; Clearfield segment sales grew 47% YoY, while NESTER segment sales declined 30% YoY.
Net income per share was $0.09, above guidance and significantly improved from the prior year; gross margin improvements were driven by lower inventory reserve costs and increased overhead absorption.
The company reiterated FY25 net sales guidance of $170M–$185M, with Q3 FY25 net sales expected between $45M–$50M and net income per share in the range of $0.01–$0.08.
Management does not expect current tariff changes to materially affect operating results due to diversified global supply chain and dual-sourcing strategies; some increased costs are anticipated but are being managed.
Clearfield expects BEAD funding to contribute materially to revenue in FY26 and sees near-term growth from the eACAM program and a return to normalized industry ordering patterns; new Connected Home products and the FieldSmart FiberFlex 600 cabinet were highlighted as growth drivers.
