Cheri Beranek, Clearfield’s President and CEO reported total net sales above the guidance range during the company’s fiscal third-quarter earnings call.
“We continue to view 2024 as a transition year and believe that we remain in a gradual recovery as broadband service providers continue to deploy equipment and long-term end-user demand remains robust,” said Beranek.
Clearfield reported total net sales of $48.8 million for the quarter—this comes in above the high end of the company’s guidance range ($40 million-$44 million) but represents a 20% year-over-year decrease.
“Our out-performance was driven by strong sales in our international customer segment and higher-than-expected sales from our community broadband customers, including orders from new customers in the utility segment,” Beranek said.
Clearfield expects inventory overhang to impact the rest of the year’s ordering patterns, but Beranek reported potential growth in new markets.
“We are encouraged by the growing interest in our active cabinets for new applications in adjacent markets, including transportation support and traffic monitoring, which will expand our customer base to new categories, such as municipalities,” she said. “We see this as an emerging opportunity for Clearfield starting in fiscal 2025.”
Beranek also reported that Clearfield is focused on reducing installation time, errors, and field issues to help address labor constraints faced by its service provider customers.
Ready for BEAD
Beranek said that Clearfield has seen an increase in quoting activity for BEAD compliant products and the company expects most of its portfolio will be BEAD compliant by the end of the fiscal year.
“We continue to expect to recognize initial revenue from customer participation in the BEAD program starting late in calendar 2025, with more significant ramp and activity anticipated in fiscal 2026,” said Beranek.
Beranek further reported that Clearfield is currently receiving orders from Alternative Connect America Cost Model (ACAM) eligible service providers and is focusing on optimizing manufacturing.
“As the future BEAD market will require an expanded utilization of our U.S. manufacturing footprint, we continue to rationalize and streamline our product portfolio to ensure we have the optimal product mix to drive growth and margin expansion,” she said.
Financials
Clearfield CFO Dan Herzog reaffirmed that net sales for the quarter exceeded Clearfield’s expectations, driven, he reported, by an increase in orders during the build season. He reported that Nestor Cables, the Finnish cable manufacturer that Clearfield acquired in 2022, had a strong quarter in the international market, also driven by seasonal orders.
“While the industry continues to navigate inventory headwinds, we remain dedicated to reducing costs and enhancing margins across the company,” he said. “In Europe, this continues to involve strategic investments in more efficient manufacturing equipment and the introduction of higher-margin plug-and-play connectivity products.”
Inventory issues continue
Clearfield is also working to reduce its inventory levels. Herzog reported that order backlog decreased 31%, going from $47.2 million on March 31, 2024, to $32.6 million on June 30, 2024.
“As we transition out of the build season, we anticipated the reduction in backlog as broadband service providers realigned their outstanding purchase orders to current deployment schedules, preparing for winter operations and year-end planning,” he said. “As we indicated last quarter, our customers are asking us to align their open orders with their current deployment schedules, which has resulted in some order cancellations in the quarter. This effort will help our customers reduce excess inventory and return to normalized ordering patterns. We do not consider this lost business as we are actively working with these customers to better realign their calendar year 2025 requirements.”
Herzog reported a positive cash flow from operations of approximately $3.9 million in the third quarter and $8.5 million year-to-date, which he attributed to a reduction in inventory (approximately $9 million in the quarter and $23 million year-to-date). He further reported that the healthy balance sheet positions Clearfield to pursue large customer prospects and strategic opportunities.
Key markets
The community broadband market accounted for 40% of Clearfield’s net sales for the quarter, generating $19.6 million. The international market generated $16.5 million in net sales, 34% of total net sales, and the multiple-system operator (MSO) market generated net sales of $5.8 million, 12% of total net sales. The large regional service provider market made up 8% of net sales with $3.8 million, and the national carrier market net sales were $2.3 million, 5% of the total.
“On a sequential basis, our international market was up 66% due to a strong seasonal uptick during the build season in Europe,” said Herzog. “We anticipate that this quarter will represent our international markets’ peak revenue performance for the year as the build season begins to wind down during our fiscal fourth quarter. Consequently, we expect revenue from our international market to decline sequentially in the fourth quarter.”
According to Beranek, Clearfield intends to expand its presence in Europe.
“We continue to invest in our European operations,” she said, “including our lower-cost manufacturing facility in Estonia and the high-speed fiber line for Finland. These investments will expand the skill set within our operations, including introducing the FieldShield pushable MPO assembly to that market.”
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Hayden Beeson
Hayden Beeson is a writer and editor with over seven years of experience in a variety of industries. Prior to joining Lightwave and Broadband Technology Report, he was the associate editor of Architectural SSL and LEDs Magazine.