Shareholder letter
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1 Letter to Shareholders Second Quarter of Fiscal 2025 1 2 3 Cheri Beranek President/CEO Dan Herzog CFO Fiscal Q2 2025 Financial Summary We are pleased to share our results for the second quarter of fiscal 2025 ended March 31, 2025. Second quarter net sales of $47.2 million were up 28% over the same period in the prior year and above our guidance range, with Clearfield segment net sales up 47% year-over-year. Our net income per share of $0.09 was also above our guidance range and reflects a significant improvement from the year-ago period. Our outperformance was driven by strong customer demand across all of our Clearfield segment end markets and solid execution by our talented employees, as we converted early quarter quoting activity into Q2 revenue at a faster pace and higher rate than anticipated. These results are consistent with our expectation of a U-shaped recovery. We continue to execute on our strategy and strengthen our alignment with customer ordering plans as the industry moves to a normalized cadence heading into the upcoming build season. Given recent tariff announcements, we would like to provide some color on the potential tariff implications for Clearfield. First, all of Clearfield’s products manufactured in Mexico are currently exempt from current tariffs as they are covered under the United States-Mexico-Canada Agreement (USMCA). Our U.S. and Mexican manufacturing facilities were designed to support dual sourcing, cost optimization, and supply chain resilience. In terms of the different components of our supply chain, sheet metal is both built and procured in the U.S., and our acquisition of Nestor has enabled us to establish our cable production into the U.S. as well. Additionally, we are shifting the production of other 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. While the shifting nature of these policies makes it difficult to anticipate the potential financial impact on Clearfield, our experience managing previous tariff environments will enable us to respond quickly and take measured steps to mitigate new and increased tariffs and responsive tariffs. Regarding Asian sourced components that we include in our products, we are closely evaluating the near- term and longer-term impact of the newly increased tariffs. We maintain strong relationships across Asia and have secondary 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 understand how potential increases in selling prices could impact the revenue demand from our customers. We do not believe the evolving tariff situation as currently known will materially affect our operating results. ;ŝŶŵŝůůŝŽŶƐĞdžĐĞƉƚƉĞƌƐŚĂƌĞĚĂƚĂĂŶĚƉĞƌĐĞŶƚĂŐĞƐͿ YϮϮϬϮϱ ǀƐ͘YϮϮϬϮϰ ŚĂŶŐĞ ŚĂŶŐĞ;йͿ EĞƚ^ĂůĞƐ ϰϳ͘ϮΨ ϯϲ͘ϵΨ ϭϬ͘ϯΨ Ϯϴй 'ƌŽƐƐWƌŽĨŝƚ;ΨͿ ϭϰ͘ϮΨ Ϯ͘ϴΨ ϭϭ͘ϰΨ ϰϬϭй 'ƌŽƐƐWƌŽĨŝƚ;йͿ ϯϬ͘ϭй ϳ͘ϳй ϮϮ͘ϰй ϮϵϮй /ŶĐŽŵĞ;>ŽƐƐͿĨƌŽŵKƉĞƌĂƚŝŽŶƐ Ϭ͘ϯΨ ;ϵ͘ϳͿΨ ϭϬ͘ϬΨ ϭϬϯй /ŶĐŽŵĞdĂdž džƉĞŶƐĞ;ĞŶĞĨŝƚͿ Ϭ͘ϱΨ ;Ϯ͘ϭͿΨϮ ͘ϱΨ ϭϮϮй EĞƚ/ŶĐŽŵĞ;>ŽƐƐͿϭ ͘ϯΨ ;ϱ͘ϵͿΨϳ ͘ϮΨ ϭϮϮй EĞƚ/ŶĐŽŵĞ;>ŽƐƐͿƉĞƌŝůƵƚĞĚ^ŚĂƌĞϬ ͘ϬϵΨ ;Ϭ͘ϰϬͿΨ Ϭ͘ϰϵΨ ϭϮϯй &ŝƐĐĂůYϮϮϬϮϱ&ŝŶĂŶĐŝĂů^ƵŵŵĂƌLJ
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2 Business & Financial Performance Consolidated net sales in the second quarter of fiscal 2025 were $47.2 million, a 28% increase from $36.9 million in the prior year second quarter and above our guidance range of $37 million to $40 million. This figure includes $40.6 million of Clearfield segment net sales, up 47% year-over-year, and $6.6 million of Nestor 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. The continued momentum in quoting activity highlights the underlying return to health of the industry, even excluding government-funded programs. We are pleased with the progress our Nestor segment is making with the production of microduct at our new facility in Estonia as we continue to right size the cost structure for the business. We remain focused on executing on our strategy of improving our European operations by prioritizing higher gross margin solutions including our European-based sales of microduct. Our backlog as of March 31, 2025, increased to $34.1 million from $26.0 million on December 31, 2024. The increase in backlog is consistent with the normalization of seasonality into the business. Our average lead time remains steady at approximately four weeks across most product lines. All dollar figures in millions Fiscal Q2 2025 Financial Summary - Con’t (in millions except per share data and percentages) 2025 YTD vs. 2024 YTD Change Change (%) Net Sales 82.6$ 71.1$ 11.5$ 16% Gross Profit ($) 22.4$ 7.5$ 14.8$ 197% Gross Profit (%) 27.1% 10.6% 16.5% 156% Loss from Operations (3.7)$ (17.9)$ 14.2$ -79% Income Tax Expense (Benefit) 0.0$ (3.0)$ 3.0$ -101% Net Loss (0.6)$ (11.2)$ 10.6$ -95% Net Loss per Diluted Share (0.04)$ (0.75)$ 0.71$ -95% Fiscal Q2 YTD 2025 Financial Summary
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3 Net Sales Comparison by Key Market Net sales in the National Carrier market were $2.2 million in the second quarter, which comprised 5% of net sales in the quarter and increased by approximately 6% from the prior year second quarter. Our National Carrier business experienced a sequential downtick of 19% from the first quarter as a result of lumpiness in stocking programs among these customers. Net sales in the International market, which includes sales in the Nestor segment as well as sales into Canada, Mexico and other parts of Central America from the Clearfield segment, were $7.3 million in the second quarter and comprised 16% of total net sales in the quarter. Net sales in this market decreased by approximately 26% in the second quarter of fiscal 2025 from the prior year second quarter. Our International market revenue was up 19% sequentially from the first quarter as a result of normal seasonality. Net sales in the Large Regional Service Provider market were $11.3 million in the second quarter, which comprised 24% of net sales in the quarter and increased by approximately 255% from the prior year second quarter. Our Large Regional Service Provider business experienced a sequential uptick of 54% over the first quarter, driven by increased customer demand, an early start to the build season, and overall reduced inventory levels held by our customers across the market. However, we continue to expect quarter-to-quarter variability in this market due to shifts in product mix and evolving deployment timelines and strategies. Net sales in Clearfield’s primary market, Community Broadband, comprised 38% of net sales in the second quarter of fiscal 2025. We generated net sales of $18 million in Community Broadband, up 12% from the prior year second quarter. Sequentially, Community Broadband experienced an uptick of 36% from the first quarter, due to increased customer demand, an early start to the build season, and overall reduced inventory levels held by our customers across the market. Net sales in the MSO market were $7.6 million in the second quarter, which comprised 16% of net sales in the quarter and increased by approximately 53% from the prior year second quarter. Our MSO business experienced a sequential uptick of 37% from the first quarter, driven by higher volumes from portfolio customers in this market. Some of our MSO customers are still carrying elevated inventory levels, but we anticipate a return to more typical inventory positions over the next year. All dollar figures in millions Q2 FY25 Net Sales Composition Ended 3/31/251 1Based on net sales of $47.2 million for Clearfield and Point of Sales (POS) reporting from distributors who resell our product line into these markets.
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4 Clearfield’s overall gross profit margin in the second quarter was 30.1% of net sales, up from 7.7% of net sales in the prior year’s second quarter and up from 23.1% in the first quarter. While gross margins in our Clearfield segment are highly volume-dependent, we were able to deliver meaningful improvements through our targeted programs addressing productivity and general cost reduction initiatives. Additionally, non-cash excess inventory charges decreased year-over-year by $4.5 million to approximately $400,000 in the quarter reflecting improved inventory utilization and beneficial recoveries from previously reserved inventory. As a result of these strong gross margins, our Clearfield segment delivered a positive operating margin of 4%. Operating expenses for the second quarter were $13.9 million in comparison to $12.6 million in the prior year second quarter, driven by higher wages and performance-based compensation accruals. As a percentage of net sales, operating expenses for the second quarter were 29.5%, down from 34.3% in the first quarter and down from 34.1% in the prior year second quarter. Gross Profit and Profit Margin Operating Expenses All dollar figures in millions All dollar figures in millions
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5 Net Income (Loss) Clearfield’s net income in the second quarter was $1.3 million, or $0.09 per diluted share, up from a net loss of $5.9 million, or $(0.40) per diluted share, in the prior year second quarter and a net loss of $1.9 million, or ($0.13) per diluted share, in the first quarter of fiscal 2025. The significant improvement was primarily driven by strong performance in the Clearfield segment, where better-than-expected revenue, reduced excess inventory charges and improved overhead absorption contributed meaningfully to the bottom line. • The Company’s balance sheet remains strong with $153 million of cash, short-term and long-term investments and low levels of debt. • Clearfield recorded positive cash flow from operations of approximately $3 million in the second quarter, including a reduction in net inventory of approximately $3.6 million in the quarter. • The Company repurchased approximately $4.7 million in shares under its share repurchase program in the second quarter. • Backed by our healthy balance sheet, we believe we are well positioned to pursue larger customer opportunities and strategic initiatives to strengthen our market position and expand our product portfolio. Our strong cash balance also equips us for the anticipated growth in demand ahead. Balance Sheet and Cash Flow All dollar figures in millions
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6 As previously mentioned, a trend we have been tracking for some time is the shift of electronics out of the central office to cabinets closer to the end-user. We designed our FiberFlex cabinet line to address this trend, with a universal flexibility to the type of electronics, cooling, power source and, of course, fiber count. We are proud that our FieldSmart® FiberFlex 600 active cabinet has been named among the best in the industry by the 2025 Lightwave + BTR Innovation Reviews in the Optical Category, which includes Carrier Fiber, Cable, Enclosures, and Accessories. As operators expand FTTH, 5G, and edge computing backhaul networks, Lightwave + BTR recognizes Clearfield for our innovative, customer-centric solutions. We remain committed to delivering flexible, scalable solutions that empower our customers to deploy networks efficiently and effectively. We will continue to work to drive progress in the market with cutting-edge technology designed to meet the evolving needs of the industry and to establish ourselves as the one-stop shop for active cabinet deployments. As we continue positioning the company to capitalize on current opportunities, we remain focused on identifying the next catalysts for growth, which include 6G and long-haul fiber to edge network architectures, data center opportunities, and select international markets. We’re actively building the teams to support these initiatives under the leadership of our Chief Marketing Officer, Anis Khemakhem. Operational and Strategic Initiatives FieldSmart® FiberFlex 600 - Front View FieldSmart® FiberFlex 600 - Back View
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7 We continue to view the Broadband Equity, Access and Deployment (BEAD) program as a meaningful long-term growth catalyst, particularly for Community Broadband and Tier 3 service providers. Although funding has faced administrative delays and evolving regulatory guidance, we remain optimistic 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. We expect BEAD to begin contributing more significantly to Clearfield’s revenue in fiscal 2026. With our modular product portfolio and strong customer relationships in rural and Community Broadband markets Clearfield is positioned to capitalize on the opportunities this program will bring. The Enhanced Alternative Connect America Cost Model (E-ACAM) program has already been driving activity in our core markets, and we expect it to contribute meaningfully in the upcoming build season. With a four-year deployment timeline, the program provides a clear and actionable path forward for participating service providers, many of whom are already Clearfield customers. While E-ACAM 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. RVA, a leading market research firm, projects the fiber industry to grow at a 12.5% compound annual growth rate over the next five years, with approximately one-third of new households expected to gain access to multiple fiber providers. Similarly, industry analysts anticipate that the annual number of homes connected will outpace homes passed through 2028. We believe Clearfield is well positioned to benefit from these industry trends. Framing Views on the Industry Five Year North American FTTH Forecast of 12.5% Annual
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8 We are reiterating our fiscal 2025 net sales outlook in the range of $170 million to $185 million. As a result of the economic instability as well as the evolving tariff situation that originated early in our third quarter, we are not raising our net sales guidance despite our strong first half performance. Fiscal 2025 and Q3 2025 Outlook As a result of the acceleration of several million dollars of business into our second fiscal quarter that was originally anticipated in our third quarter plan, we anticipate third quarter fiscal 2025 net sales in the range of $45 million to $50 million. This range also reflects a higher percentage of net sales being generated in the third quarter from our Nestor segment in comparison to the second quarter, adversely affecting our gross margin for the quarter. We expect operating expenses to increase from the second quarter to reflect higher seasonal and marketing fees. We expect to generate net income per share in the range of $0.01 to $0.08 in the third quarter of fiscal 2025. 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 our current understanding of the impact of the evolving tariff situation, which we expect will contribute to uncertainty in our business and in the macroeconomic environment. As we currently understand the tariff environment, we do not believe that the tariffs in their present form will materially affect our operating results.
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9 Management will hold a conference call today, May 8, 2025, at 4:30 p.m. Eastern Time (3:30 p.m. Central Time) to discuss these results and provide an update on business conditions. Clearfield’s President and Chief Executive Officer, Cheri Beranek, and Chief Financial Officer, Dan Herzog, will host the presentation, followed by a question-and-answer period. U.S. dial-in: 1-877-407-0792 | International dial-in: 1-201-689-8263 | Conference ID: 13752678 The live webcast of the call can be accessed at the Clearfield Investor Relations website along with the company’s earnings press release and presentation. A replay of the call will be available after 8:00 p.m. Eastern Time on the same day through May 22 2025, while an archived version of the webcast will be available on the Investor Relations website for 90 days. U.S. replay dial-in: 1-844-512-2921 | International replay dial-in: 1-412-317-6671 | Replay ID: 13752678 About Clearfield, Inc. Clearfield, Inc. (NASDAQ: CLFD) designs, manufactures, and distributes fiber optic management, protection, and delivery products for communications networks. Our “fiber to anywhere” platform serves the unique requirements of leading incumbent local exchange carriers (traditional carriers), competitive local exchange carriers (alternative carriers), and MSO/cable TV companies, while also catering to the broadband needs of the utility/municipality, enterprise, and data center markets. Headquartered in Minneapolis, MN, Clearfield deploys more than a million fiber ports each year. For more information, visit www.SeeClearfield.com. Cautionary Statement Regarding Forward-Looking Information Conference Call Investor Relations Contact: Greg McNiff | The Blueshirt Group | 773-485-7191 clearfield@blueshirtgroup.com Forward-looking statements contained herein and in any related presentation or in the related Earnings Presentation are made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995. Words such as “may,” “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” “outlook,” or “continue” or comparable terminology are intended to identify forward-looking statements. Such forward looking statements include, for example, statements about the Company’s future revenue and operating performance, the impact of recent trade policy changes, including new and increased tariffs, retaliatory tariffs, trade disputes, and market and economic reactions to such changes, expected customer ordering patterns and future supply agreements with customers, anticipated shipping on backlog and future lead times, future availability of components and materials from the Company’s supply chain, compliance with Build America Buy America (BABA) Act requirements, future availability of labor impacting our customers’ network builds, the impact of the Broadband Equity, Access, and Deployment (BEAD) Program, Rural Digital Opportunity Fund (RDOF) or other government programs on the demand for the Company’s products or timing of customer orders, the Company’s ability to match capacity to meet demand, expansion into new markets and trends in and growth of the FTTx markets, market segments or customer purchases and other statements that are not historical facts. These statements are based upon the Company’s current expectations and judgments about future developments in the Company’s business. Certain important factors could have a material impact on the Company’s performance, including, without limitation: our business is dependent on interdependent management information systems; inflationary price pressures and uncertain availability of components, raw materials, labor and logistics used by us and our suppliers could negatively impact our profitability; we rely on single-source suppliers, which could cause delays, increase costs or prevent us from completing customer orders; we depend on the availability of sufficient supply of certain materials and global disruptions in the supply chain for these materials could prevent us from meeting customer demand for our products; a significant percentage of our sales in the last three fiscal years have been made to a small number of customers, and the loss of these major customers could adversely affect us; further consolidation among our customers may result in the loss of some customers and may reduce sales during the pendency of business combinations and related integration activities; we may be subject to risks associated with acquisitions, and the risks could adversely affect future operating results; we have exposure to movements in foreign currency exchange rates; adverse global economic conditions and geopolitical issues could have a negative effect on our business, and results of operations and financial condition; growth may strain our business infrastructure, which could adversely affect our operations and financial condition; product defects or the failure of our products to meet specifications could cause us to lose customers and sales or to incur unexpected expenses; we are dependent on key personnel; cyber-security incidents, including ransomware, data breaches or computer viruses, could disrupt our business operations, damage our reputation, result in increased expense, and potentially lead to legal proceedings; natural disasters, extreme weather conditions or other catastrophic events could negatively affect our business, financial condition, and operating results; pandemics and other health crises could have a material adverse effect on our business, financial condition, and operating results; to compete effectively, we must continually improve existing products and introduce new products that achieve market acceptance; if the telecommunications market does not continue to expand, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results; changes in U.S. government funding programs may cause our customers and prospective customers to delay, reduce, or accelerate purchases, leading to unpredictable and irregular purchase cycles; intense competition in our industry may result in price reductions, lower gross profits and loss of market share; our success depends upon adequate protection of our patent and intellectual property rights; we face risks associated with expanding our sales outside of the United States; expectations relating to environmental, social and governance matters may increase our cost of doing business and expose us to reputational harm and potential liability; our operating results may fluctuate significantly from quarter to quarter, which may make budgeting for expenses difficult and may negatively affect the market price of our common stock; our stock price has been volatile historically and may continue to be volatile - the price of our common stock may fluctuate significantly; anti-takeover provisions in our organizational documents, Minnesota law and other agreements could prevent or delay a change in control of our Company; and other factors set forth in Part I, Item IA. Risk Factors of Clearfield’s Annual Report on Form 10-K for the year ended September 30, 2024 as well as other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update these statements to reflect actual events unless required by law.
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10 CLEARFIELD, INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2025 (Unaudited) September 30, 2024 Assets Current Assets Cash and cash equivalents $ 28,848 $ 16,167 Short-term investments 83,142 114,825 Accounts receivables, net 24,196 21,309 Inventories, net 56,084 66,766 Other current assets 13,998 10,528 Total current assets 206,268 229,595 Property, plant and equipment, net 25,166 23,953 Other Assets Long-term investments 41,356 24,505 Goodwill 6,573 6,627 Intangible assets, net 5,868 6,343 Right-of-use lease assets 17,834 15,797 Deferred tax asset 6,830 6,135 Other 962 2,320 Total other assets 79,423 61,727 Total Assets $ 310,857 $ 315,275 Liabilities and Shareholders’ Equity Current Liabilities Current portion of lease liability $ 3,778 $ 3,357 Current maturities of long-term debt 2,165 - Accounts payable 8,683 6,720 Accrued compensation 7,053 6,977 Accrued expenses 3,460 4,378 Bank overdraft 1,239 - Factoring liability 4,118 2,920 Total current liabilities 30,496 24,352 Other Liabilities Long-term debt, net of current maturities - 2,228 Long-term portion of lease liability 14,462 12,771 Deferred tax liability - 161 Total liabilities 44,958 39,512 Shareholders’ Equity Preferred stock, $.01 par value; 500,000 shares; no shares issued or outstanding - - Common stock, authorized 50,000,000, $.01 par value; 13,991,769 and 14,229,107 shares issued and outstanding as of March 31, 2025 and September 30, 2024, respectively 140 142 Additional paid-in capital 150,789 159,579 Accumulated other comprehensive income 586 1,079 Retained earnings 114,384 114,963 Total shareholders’ equity 265,899 275,763 Total Liabilities and Shareholders’ Equity $ 310,857 $ 315,275 (IN THOUSANDS, EXCEPT SHARE DATA)
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11 2025 2024 2025 2024 Net sales $ 47,168 $ 36,910 $ 82,644 $ 71,140 Cost of sales 32,976 34,078 60,270 63,611 Gross profit 14,192 2,832 22,374 7,529 Operating expenses Selling, general and administrative 13,930 12,573 26,087 25,432 Income (Loss) from operations 262 (9,741) (3,713) (17,903) Net investment income 1,589 1,849 3,332 3,918 Interest expense (69) (102) (169) (228) Income (Loss) before income taxes 1,782 (7,994) (550) (14,213) Income tax expense (benefit) 455 (2,083) 29 (3,034) Net income (loss) $ 1,327 $ (5,911) $ (579) $ (11,179) Net income (loss) per share Basic $ 0.09 $ (0.40) $ (0.04) $ (0.75) Net income (loss) per share Diluted $ 0.09 $ (0.40) $ (0.04) $ (0.75) Weighted average shares outstanding: Basic 14,095,341 14,629,489 14,154,830 14,922,811 Diluted 14,095,341 14,629,489 14,154,830 14,922,811 March 31, March 31, CLEARFIELD, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) Three Months Ended Six Months Ended
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12 Six Months Ended Six Months Ended March 31, March 31, 2025 2024 Cash flows from operating activities Net loss $ (579) $ (11,179) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,711 3,572 Amortization of premium and discount on investments, net (1,202) (2,195) Deferred taxes (891) (195) Stock-based compensation 2,427 2,284 Changes in operating assets and liabilities, net of acquired amounts: Accounts receivable (3,447) 6,600 Inventories, net 10,478 14,414 Other assets (2,154) (5,951) Accounts payable and accrued expenses 1,855 (2,256) Net cash provided by operating activities 10,198 5,094 Cash flows from investing activities Purchases of property, plant and equipment and intangible assets (4,722) (4,389) Purchases of investments (59,234) (47,748) Proceeds from maturities of investments 75,176 53,293 Net cash provided by investing activities 11,220 1,156 Cash flows from financing activities Proceeds from issuance of common stock under employee stock purchase plan 301 250 Repurchase of shares for payment of withholding taxes for vested restricted stock grants (494) (240) Withholding related to exercise of stock options (12) (9) Borrowings and repayments of bank overdrafts, net 1,212 - Borrowings and repayments of factoring liability, net 1,253 (497) Net proceeds from issuance of common stock - - Repurchase of common stock (11,015) (27,814) Net cash used in financing activities (8,755) (28,310) Effect of exchange rates on cash 18 51 Increase (decrease) in cash and cash equivalents 12,681 (22,009) Cash and cash equivalents, beginning of period 16,167 37,827 Cash and cash equivalents, end of period $ 28,848 $ 15,818 Supplemental disclosures for cash flow information Cash paid for income taxes $ 403 $ 157 Cash paid for interest 109$ 172$ Right of use assets obtained through lease liabilities 3,795$ -$ Non-cash financing activities Cashless exercise of stock options 97$ 19$ CLEARFIELD, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)