Clearfield - Q1 2026

Transcript

Operator (participant)

Good afternoon, everyone, and welcome to the Clearfield Fiscal First Quarter 2026 Conference Call. All participants will be in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Gregory McNiff, Investor Relations. Please go ahead, sir.

Gregory McNiff (Managing Director of Investor Relations)

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 sold its Nestor Cables business. Following the divestiture of Nestor, we are reporting only on the Clearfield segment. Clearfield is reflected as continuing operations, with Nestor classified as discontinued operations and assets and liabilities held for sale for first fiscal quarter of 2026 and all prior periods on our financials. With that, I would like to turn the call over to Clearfield's President and CEO, Cheri Beranek. Cheri?

Cheri Beranek (President and CEO)

Good afternoon, everyone. Thank you for joining us to discuss Clearfield's results for the first quarter of fiscal 2026. I'll begin with an overview of the quarter and our strategic priorities, and then I'll turn the call over to Dan to review the financial details and outlook. During the quarter, we saw signs of stabilization and an early rebound in community broadband demand, reinforcing confidence in our long-term outlook. Clearfield continues to operate as the leading provider of fiber management solutions for the community broadband market, guided by a disciplined strategy anchored in our three pillar framework to deliver Better Broadband and Beyond. This framework remains focused on protecting and strengthening our core business, expanding market share, and selectively extending our technology into adjacent markets.

Turning to results, first quarter net sales from continuing operations were $34.3 million, exceeding our guidance range of $30 million to $33 million. That outperformance reflected a favorable seasonal product mix and a solid demand across key customer segments. Net loss per share from continuing operations was $0.02. As a reminder, in November, we completed the sale of our Nestor Cables business. With this transaction behind us, our focus and portfolio are now fully centered on the Clearfield business and the execution of our core strategy. Following the end of the quarter, we introduced the Nova Platform, a modular, high-density fiber system designed to make building and expanding modern networks simpler.

The Nova Platform takes the cassette-based modular design approach that has long defined our success in broadband, and it extends it into new environments, including AI, data center, and edge compute networks, in which we expect our broadband service provider customers to play a key role in future build-outs. This product launch represents an important step in the execution of our Better Broadband and Beyond strategy. As networks continue to grow in size and complexity, customers are looking for solutions that reduce installation time and cost, improve day-to-day operations, and scale efficiently as capacity needs increase. While we expect near-term revenue contribution from Nova to be modest, the platform is strategically important as we focus on early customer adoption and validation.

Over time, we expect the Nova Platform to support new applications and customer opportunities, particularly as demand for higher density fiber solutions expands across regional data centers, edge facilities, and enterprise environments. Alongside this product momentum, execution across our core business, our core broadband markets remains steady. Community broadband remains a foundational element of our business, supported by long-standing customer relationships and a portfolio-based approach that emphasizes selling multiple Clearfield solutions across customer deployments. Large regional service providers and MSOs also remain important growth drivers and reflect the flexibility of our platform. In addition, recent acquisition approvals involving large regional customers create a favorable backdrop for continued opportunity. As broadband providers look ahead to their next phase of investment, the BEAD program remains a major area of focus across the industry.

We are encouraged by the progress that the NTIA has made in advancing the BEAD program and are pleased with the level of planning and network design activity we are seeing from both current and prospective customers. While we continue to expect BEAD-related revenue contribution in fiscal 2026 to be modest, service providers are actively preparing for deployment. Customers are working through planning, network design, and vendor decisions, and Clearfield is staying closely engaged to ensure we are ready when funding is released. To support this effort, we are taking a structured and proactive approach with expected BEAD recipients, focusing on where customers are in their planning process and how we can best support them as these projects take shape. This allows us to allocate resources thoughtfully and to remain aligned with customers as programs move forward.

We believe community broadband providers are likely to move more quickly than Tier One operators once funding approvals occur, which aligns well with Clearfield's focus and customer mix. However, supply chain constraints of U.S.-made optical fiber that is required under the BABA, the Build America, Buy America Act, could restrain near-term deployment. We are working alongside others in the industry to address the issue. Beyond fiscal 2026, we expect BEAD to become a positive contributor, with timing dependent entirely on federal funding releases and supply chain constraints. With that, I'll turn the call over to Dan to review our financials and our outlook in more detail.

Dan Herzog (CFO)

Thank you, Cheri, and good afternoon, everyone. I will now review our first quarter results, beginning with sales. As noted earlier, all financial results for fiscal 2026 and prior periods are presented on a Clearfield continuing operations only basis. First quarter net sales from continuing operations were $34.3 million, exceeding our guidance range of $30 million to $33 million and up 16% from $29.7 million in the prior year period. Gross margin was 33.2% compared to 29.2% in the prior year quarter, driven primarily by improved overhead absorption and better inventory utilization. Operating expenses from continuing operations increased to $13.2 million from $10.7 million year-over-year, reflecting continued investment in technology and customer expansion initiatives.

We had an income tax benefit from continuing operations of $1,000 for the first quarter of fiscal 2026, compared to income tax expense from continuing operations of $53,000 for the year ago quarter. The income tax rate for the first quarter of fiscal 2026 was lower than the statutory rate due to the impact of discrete items and a lower level of pre-tax book loss. Net loss per share from continuing operations was $0.02 in the first quarter of fiscal 2026, compared to a loss of $0.02 per share in the comparable period last year.

Net loss from discontinued operations for the first quarter of fiscal 2026 was $340,000, or $0.02 per basic and diluted share, compared to a net loss from discontinued operations for the first quarter of fiscal 2025 of $1.6 million, or $0.11 per basic and diluted share. We ended the quarter with approximately $157 million in cash, short-term and long-term investments, and no debt, reflecting continued balance sheet strength and disciplined capital management. During the quarter, the company invested $5.2 million to repurchase 179,000 shares. In November 2025, our board of directors increased our share repurchase authorization from $65 million to $85 million, leaving $23.1 million available for additional repurchases as of December 31, 2025.

For the second fiscal quarter of 2026, we anticipate net sales from continuing operations to be in the range of $32 million to $35 million, operating expenses to be up slightly relative to the first quarter, and net loss per diluted share in the range of $0.02 to $0.10. The earnings per share ranges are based on the number of shares outstanding at the end of the first quarter and do not reflect potential additional share repurchases completed. For the full year of fiscal 2026, we are reiterating our guidance for 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 across our community broadband, large regional, and MSO customers, with BEAD-related revenue contribution expected to remain modest during fiscal 2026. We expect operating expenses as a percentage of revenue to remain consistent with fiscal 2025, and earnings per share from continuing operations to be in the range of $0.48 to $0.62. With that, we will open the call to your questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one 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 will come from Ryan Koontz with Needham & Company. Please go ahead.

Matt Cavanagh (Equity Research Analyst)

Hi, this is Matt Cavanagh, on for Ryan. Thank you for the question. On the Nova product line, it would be great to better understand who the target customer type is for these products and maybe how you're thinking about the revenue opportunity from Nova over the medium to longer term. Thank you.

Cheri Beranek (President and CEO)

Okay, great. Yeah, nice to talk to you, Matt. The, you know, the initial target customer I think we'll see is existing community broadband customers who are opening data centers, you know, for their, enhanced revenue base. So this would be customers like SDN Communications or Cologix, who understand, that the requirements associated with, with high density, and they're looking at how they're gonna be able to do that. Additionally, as we move into adjacent markets, the products are designed in a different way, with the concept of modularity, being able to do the same type of thing that we do with today's cassettes, so that every, rack unit is optimized for the type of connector or service offering, single-mode, multi-mode, or whatever the, high speed, you know, ultra, ultra small form factor connector might be.

So, I think we'll see customers there of a traditional database type environment, but not the big super scale hyperscale markets that will require additional innovation and an additional product offering that you'll see from us, probably in about a year. From a revenue perspective, we don't see a significant revenue contribution in 2026, but we do see the Nova Platform becoming over the next 2-3 years really the kind of the dominant product offering of the company. And that a lot of what we're doing with Nova will be brought then, will be brought back into community broadband, so that we'll have a single cassette and a single platform for optimization of all density requirements throughout our customer base.

Matt Cavanagh (Equity Research Analyst)

Great. Thank you. That sounds really exciting. And.

Cheri Beranek (President and CEO)

Oh, it is. Thank you.

Matt Cavanagh (Equity Research Analyst)

As a follow-up, you had also mentioned earlier on BEAD, community broadband customers maybe being more likely to move quickly on their projects than their larger counterparts. Could you expand on why this might be the case and how it's affecting Clearfield's outlook for the program over the next several years?

Cheri Beranek (President and CEO)

Right. Right. Well, you know, we've seen over the years that, you know, community broadband, just by definition of being smaller, are more nimble players, and they'll be able to, you know, kind of optimize, you know, their deployments and can switch easier from one opportunity to the other or can pounce onto the money availability and move forward. You know, the larger providers, you know, absolutely are going to deliver, you know, their BEAD initiatives, but they already have, you know, if AT&T and Charter, they already have their build plans for the year, and we don't see them moving, you know, the application from one point to the next.

We're optimistic that even with some supply chain challenges, you know, our small providers are gonna be in a position to be able to get a little bit of a head start. You know, we're tracking. There are 319 different broadband service providers who are slated, based upon the early, you know, tentative awards, to be part of the BEAD program. And we are systematically tracking each of those customers based upon our penetration as a customer. You know, where are we at in regard to the sales cycle? And really trying to apply, you know, the same type of high-level sales and customer support that we've done for the last 15 years to now really, you know, put the sauce on thick within BEAD. So, we're excited about it, but, you know, more to come in coming quarters.

Matt Cavanagh (Equity Research Analyst)

Great. Thank you. And, just one more, if I may, but is there any way, as you're talking about the potential fiber shortage, to maybe quantify, the revenue impact and how that's affecting your fiscal 2026 outlook?

Cheri Beranek (President and CEO)

Yeah, I think it's really difficult to quantify specifically, you know, what's gonna happen with fiber supply, especially as it relates, you know, just from a BABA perspective. The current suppliers of BABA compliant fiber, you know, sorry, the bare extruded fiber, are on lead times of over a year. And that is not consistent with being able to have a good, aggressive BEAD program, and I'm sure it is not what the NTIA intended when they said there was enough fiber to go around under the BABA program. And so we as an industry are looking at ways by which we can offer waivers or alternative types of means by which to ensure that we can get a head start. Because of the uncertainty of all of that, it's one of the reasons why there is really no guidance in fiscal year 2026 associated with BEAD revenue.

Matt Cavanagh (Equity Research Analyst)

Great. Thank you, Cheri.

Cheri Beranek (President and CEO)

You're welcome.

Operator (participant)

The next question will come from Tim Savageaux with Northland Capital Markets. Please go ahead.

Tim Savageaux (Managing Director and Senior Research Analyst)

Hey, good afternoon.

Cheri Beranek (President and CEO)

Hey, Tim.

Tim Savageaux (Managing Director and Senior Research Analyst)

Got a couple of, I guess, call them merger-related questions. Not you so much, but, customers and competitors. So I'd be interested if you had any observations or thoughts on the early impact of both Verizon's combination with Frontier. Clearly, they're guiding CapEx way down as a combined entity, but seeming to keep the fiber build steady, if not increasing. And also anything out of the CommScope and Amphenol merger that might be driving any opportunities for Clearfield?

Cheri Beranek (President and CEO)

You know, we're looking at the Verizon-Frontier merger as, you know, as a significant opportunity for Clearfield. We have been a key supplier to Frontier. I've been pretty open about that over the years, and Frontier is, as you said, you know, full speed ahead on their program for fiscal year 2026 and not looking to make any changes that are gonna interfere with the build season. You know, Verizon has been in strong support of being very visible, of saying, you know, the reason they acquired Frontier is because of the strength of their fiber network. So as we move forward and have an opportunity to learn more about the procurement process inside of Verizon, which is, you know, one of our large Tier One customers, we're looking to just really be able to optimize that.

So, we see it as an opportunity and have invested in a broader sales organization by which to support it. In addition to what we've done in the past to do traditional regional sales managers who live and work in the communities in which fiber is deployed, we've added not only a national sales team calling on corporate, but a, we call a national turf team, that calls on the field offices of those national offices to introduce our product line and to continue to help support it, for an existing customer in a new market, or for new customers as they get, introduced to the modularity of our platform. So, if you look at our SG&A investments and you see the $3 million investment for this quarter, higher than a year-ago quarter, you know, that's where those dollars are going.

We're not gonna get that new business, you know, in our core business, in Pillar One or in some of those adjacent markets without, you know, those investments and strategies. But it's really a replication of the strategy that has worked for the last 15 years, just for new customers. As it relates to CommScope and Amphenol, it's really too early. There's still a lot of people figuring out, you know, who's gonna sign their check and, you know, is their job gonna change, and who am I reporting to? So from that perspective, I think it's an opportunity for Clearfield as we continue to be focused and in supporting our customer base.

We also have seen, you know, CommScope continue to be, you know, open for all markets, of course, but, you know, they really have done a nice job in the hyperscale space, and we see them focusing on that under the Amphenol umbrella, which again, I think could provide an opportunity for Clearfield.

Tim Savageaux (Managing Director and Senior Research Analyst)

Right, and less focused on carrier and perhaps even more so rural carrier markets.

Cheri Beranek (President and CEO)

Correct.

Tim Savageaux (Managing Director and Senior Research Analyst)

In terms of the results, you saw cable down, come down pretty sharply. I wonder whether, you know, what you expect throughout the balance of the year there, maybe in Q2? Looks like you're looking at a flattish overall revenue. Any notable trends in terms of the segments driving the Q2 outlook, and what do you expect for cable beyond that?

Cheri Beranek (President and CEO)

Yeah. Well, I mean, the, as you see, you know, community broadband was significantly up, and it was the driver across, you know, across the company. And I think everyone will find that to be very refreshing because we saw last year that community broadband was the one that's most severely affected by the delay in the BEAD deployments, not only for the BEAD dollars themselves, but for the inability to fund and have the time by which to engineer other projects. So I think community broadband will continue to lead, you know, our growth into future quarters. The, you know, cable was really. It was down from fourth quarter, but consistent with first quarter of last year.

You know, what we see in the MSO markets, because those orders tend to be, you know, at a little bit larger scale, is a little bit of bumpiness on a quarter-to-quarter basis. So I'm comfortable that the regional MSO, you know, as I've talked about before, the Midco and the Blue Ridge, the cable ones, you know, are committed to their fiber builds. They're seeing that, you know, fiber does not have the risk that you're gonna see from a DOCSIS standpoint. It's a better long-term play. And especially as the telcos, you know, get aggressive in the deployment of fiber, you know, as Verizon and AT&T continue to build out, you know, the MSO market, especially the regionals, are ready to respond. So, I'm confident that you're gonna see growth in that space as well.

Tim Savageaux (Managing Director and Senior Research Analyst)

Okay, great. Thanks very much.

Cheri Beranek (President and CEO)

You're very welcome.

Operator (participant)

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

Cheri Beranek (President and CEO)

Well, thank you all. I hope everyone that is listening stays warm and enjoy, and is finding ways to enjoy this winter weather. Clearfield has, of course, been a Minnesota-based company from the beginning, and it has been a struggle for our winter for a variety of different ways. But I want to commend everyone in the U.S. who is working to be each other's neighbor and look out for each other. We are looking out for you and all of broadband, and we do not take your support for granted, and we'll continue to be able to earn it as we move forward. I look forward to seeing you next quarter.

Operator (participant)

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