Clearfield sees signs of a recovering market

May 10, 2024
The community broadband market segment is the least impacted by inventory overhang, according to president and CEO Cheri Beranek.

Cheri Beranek, Clearfield’s president and CEO, reported that, despite a rough quarter, she sees signs of recovery.

“While we view 2024 as a transition year,” she said, “we believe that the quarter ending in March represents the beginning of a gradual recovery as broadband service providers continue to deploy equipment and long-term demand remains robust.”

Total net sales for the second fiscal quarter were $36.9 million, a 49% decrease year-over-year but above the company’s guidance range, which Beranek attributed to higher-than-expected sales in the community broadband customer segment, which she said was the segment least impacted by inventory overhang. She also reported existing overhang that may affect the year’s sales in both large regional and MSO segments.

“We have seen a pickup in quoting activity in our second quarter across all markets that is more consistent with the traditional build season,” she said. “While we believe the recovery will be a gradual process, we remain focused on positioning Clearfield to take share when ordering patterns return to a more normalized cadence.”

Financial headwinds

Daniel Herzog, Clearfield’s CFO, provided more details on the quarter’s financial results.

“The year-over-year decrease in total net sales was due to lingering inventory headwinds we have talked about in the past,” he said. “As we transition into the build season, we anticipate a gradual uptick in orders, more closely aligning with traditional ordering patterns.”

According to Herzog, order backlog improved, rising 9% over the quarter to $47.2 million.

“This quarter stands out as the first time in several quarters where our backlog has shown a sequential increase,” he said. “We interpret this as an encouraging indicator of normalizing ordering patterns during a build season while customers continue to work through their inventory.”

Community broadband, international challenges

For the quarter, sales in the community broadband market came in at $16.1 million, down 52% year-over-year, and made up 43% of Clearfield’s net sales. Clearfield also saw declining sales in international markets.

“Net sales in our international market were $9.9 million and comprised 27% of total net sales in the second quarter,” said Herzog. “Net sales in this market decreased by approximately 24% in the second quarter of fiscal 2024 versus the prior year second quarter. Revenues in Northern Europe were affected by a late spring and some economic issues in Finland. We anticipate a sequential increase in this market due to seasonality.”

Operating expenses for the quarter were $12.6 million—34.1% of net sales. Net loss for the quarter $5.9 million, compared to a net income of $10.4 million in Q2 2023.

“Our net loss was heavily affected by our reduced volume levels,” Herzog said, “which, in turn, resulted in lower gross profit percentage; it was also affected by the noncash inventory reserves. Our balance sheet remains healthy, with $149 million of cash, short-term and long-term investments, and just $2 million of debt. We had $2 million in capital expenditure in the quarter, mainly to support our manufacturing operations, and $4.4 million year-to-date. Our inventory balance decreased from $95 million at the end of the first quarter of fiscal 2024 to $84 million in the second quarter of fiscal 2024.”

Herzog reported that Clearfield expects net sales for the third quarter to range from $40 million to $44 million. 

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