I would now like to turn the conference over to Greg McNiff, Investor Relations for Clearfield. Please go ahead.

Thank you. Joining me on the call today are Cheri Beranek, Clearfield's President and CEO; and Dan Herzog, Clearfield's CFO. As a reminder, the slides in this presentation are controlled by you, the listener. Please advance forward through the presentation as the speaker presents their remarks. 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, earnings presentation 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. They are also summarized on Slide two of the earnings presentation. With that, I'd like to turn the call over to Clearfield's President and CEO, Cheri Beranek. Cheri?

Good afternoon everyone. Thank you for joining us today to discuss Clearfield's results for the fiscal third quarter 2024. We also intend to provide an update on our business and current market trends. Please turn to slide four. 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. In the following slides, I will discuss the latest market data that supports this view. Total net sales for the third quarter of fiscal 2024 were $48.8 million, above the high end of our guidance range. Our outperformance 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. Specifically, community broadband revenue is comparable to last year, driven by a higher percentage of revenue from homes connected relative to last year. We continue to expect ordering patterns for the remainder of the year to be impacted by the inventory overhang, predominantly in our large regional and MSO accounts. Dan will discuss our financial results for the quarter in more detail shortly. 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. We see this as an emerging opportunity for Clearfield starting in fiscal 2025. As labor constraints continue to be an issue for our service provider customers, we are committed to helping them reduce installation time, errors, and field issues. To that end, our recently introduced 3D interactive fiber installation tool on the BILT mobile app is receiving very positive feedback from customers, with one large…

Thank you, Cheri, and good afternoon, everyone. Please turn to slide seven to look at our fiscal third quarter 2024 results in more detail. Consolidated net sales in the third quarter of fiscal 2024 were $48.8 million, a 20% decrease from $61.3 million in the same year-ago period, but above our guidance range of $40 million to $44 million. Net sales exceeded our expectations, driven by an increase in orders during the build season from both existing and new customers. Additionally, we are pleased that Nestor Cables had a strong quarter in our international market, benefiting from a seasonal push. While the industry continues to navigate inventory headwinds, we remain dedicated to reducing costs and enhancing margins across the company. In Europe, this continues to involve strategic investments in more efficient manufacturing equipment and the introduction of higher margin plug-and-play connectivity products. Additionally, we are focused on optimizing labor utilization to improve productivity and gross margins at all our manufacturing locations. Finally, we are also actively working to reduce our inventory levels to enhance cash flow from operations. Order backlog decreased 31% to $32.6 million on June 30, 2024 from $47.2 million on March 31, 2024. As we transitioned out of the build season, we anticipated a reduction in backlog as broadband service providers realigned their outstanding purchase orders to current deployment schedules, preparing for winter operations and year-end planning. 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. We are…

Thanks for the financial update, Dan. Turning to slide 15, I would now like to provide a brief update on our strategy. A core aspect of the value Clearfield brings to the market is our decades-long commitment to supporting the homes and businesses in rural and small-town communities. We focus on providing solutions which are scalable and reduce the cost of deployment by lowering the level of skilled labor required. We recently announced a new addition to our portfolio of products which reflects these qualities. The craft-friendly CraftSmart Deploy Reel TAP Box features an all-in-one flexibility that enables the technician to deploy the exact amount of cable from the curb as well as into the home with the remainder stored safely on the reel for future use quickly and efficiently. These benefits documented in a recent Clearfield customer deployment study which surveyed over 150 installations utilizing the fast pass method resulted in time savings between 35% and 38% versus the baseline method for outside and inside work performed. Second, we continue to invest in our European operations including our lower cost manufacturing facility in Estonia and a 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. Finally, 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. As we expressed last quarter, we remain confident that the long-term demand for fiber is as strong as ever and Clearfield is well-positioned to help service providers meet that demand. And with that, we will open the call to your questions.

Thanks for the questions. A few to start out with on the timing of the BEAD, it sounds like a little more push out there. Not super surprising given the pace of Louisiana and some of the early guys moving through the process. But it sounds like there is some optimism in the industry about projects beginning mid '25. Does that still align with your expectations or is there something specific with your commentary about late '25 in your prepared remarks?

Yes. Hi, Ryan. I think it's just being realistic. I think everybody is hoping for summer. But everyone that we talk to, if we really look through a chart of deliverables as to what has to happen in order for that to succeed, it's more likely than not that we're looking at quite late in the year. And one of our challenges for our fiscal year, in fact, is that since we closed, in September, it will be difficult for us to see revenue next year within the fiscal year. So we're hopeful, but realistically, probably not.

Got it. And on the international front, any specific geographies or products you might call out as strength from Nestor there?

Well, of course, Finland, which is always our core and our home base. But also moving into the German market, which is certainly an opportunity in that Germany is underway with their build. They're late to the build process because of how they originally were able to maximize their copper infrastructure, but now are strongly investing in that space. And our success there is more in the alternative carriers. Early success is with Microduct and the ability to provide a high-quality solution there as a make-ready solution, and then look forward to leverage that in future quarters and years for the actual build-out process.

Great. And on the community broadband, I see that bounce back nicely. I heard your comment about product mix a little more around homes connected. Do you think that this – can you give us an idea of the magnitude of the kind of mix shift year-over-year at a high level? And then how should we think about that mix going forward the next several quarters?

Right. I think there's been a bit of a – I mean, it's a pretty concentrated sway toward connected homes in that overall due to the concentration of homes passed for all of our customers. And so I would say our cabinet business has definitely been – is more down, whereas our connected business sales is definitely up. Within community broadband itself, it's close to probably to a 50-50 mix, which I think is really healthy. That's exactly where you'd kind of like it to see, because you're going to pass a home and then you're going to connect a series of homes along that line over the next two to three years.

That's great. And would you call out any share gains you're seeing there, or is it really more just about spend still at this point in terms of connected?

I think it's a standpoint, but I wouldn't go so far as share gain yet. I would say it's a standpoint of being able to get a share of pocketbook at this point. We're monitoring the share gain process as we look to see, since most of these customers were not customers that we had worked – you would assume share gain, because since they didn't buy from us for connected home, but we also want – or previously, but we want to be careful to quantify those who were kind of connecting their first homes, especially those through distribution, so that we can accurately provide that information to the market.

Great. And nice improvement in gross margin there sequentially. Did I – just a clarification here. Did I hear that the E&O write-off was maybe a little lower than expected in the quarter?

Yes, it definitely was. I think we had forecasted something up like towards $3 million, and we were closer to about a 1.7. So, much better utilization. That's what happens when you have higher demand, and so we're happy about that.

Got it. And then maybe a couple quick product questions. On the fiber front from Nestor, are you seeing much of an opportunity in data centers? I'm sure you saw the quoting results earlier in the week, and the strong attach rate, the new share gains are seen in these AI clusters. Is that something you're evaluating?

The product would definitely fit into those spaces. To date, we don't have a channel into the data center world, so I would say, yes, we're evaluating, but not something that I think shareholders should take into consideration as being a near-term opportunity.

All right. Great. Thanks for the questions.

Thank you.

The next question comes from Jaeson Schmidt of Lake Street Capital. Please go ahead.

Hey, guys. Thanks for taking my questions. Obviously, a really strong June quarter here, and I know you highlighted sort of the drivers there, but do you think any revenue was pulled into June?

Only in the international markets, there was couple of million dollars that we had a customer in the European space who asked to take some product that was in backlog early to maximize their build season period. And that's why we are forecasting the fourth quarter to be a little less than third quarter in the European markets, but consistent in the U.S. markets, the North American markets in third and fourth quarter.

Okay. That's helpful. And looking at the Nestor Cables business, is the gross margin for that business where you guys originally thought it could be once this business was fully ramped, or is there still potential upside on the gross margin line within Nestor?

There's significantly more upside. And no, it's not where we want it to be. That's why we're investing in the Estonia plant. Why we're investing in the high-speed fiber line. There's some things we could do, certainly, with capacity, but mostly it's about being able to continue to lower the cost of manufacturing in that environment.

Okay. That's helpful. And then just the last one for me, and I'll jump back into queue. On your inventory, Dan, should we look for levels to continue to decline here in September?

I think I feel good about us declining a little bit more, maybe not at the rate that we just did in this quarter here. But obviously, we had some good utilization, including at Nestor. So, I would decline it by a lesser factor than what you saw, but yes, on that ramp.

Okay. That's helpful. Thanks a lot, guys.

Thank you. [Operator Instructions] Our next question comes from Scott Searle of ROTH Capital Partners. Please go ahead.

Good afternoon. Thanks for taking my questions. Nice to see the business bottoming and starting to recover. I apologize I got a little bit late on the call. But Dan, I was wondering if you could just -- I'm not sure if I heard a number in terms of Nestor sales with international. And was there a gross margin number that you provided for the September quarter? And then I had several follow-ups.

For the September quarter. So, Nestor, we had about $15 million of our international pool.

Got you.

And you were looking for our guide on our gross margin or?

Correct. Yes.

Our guide at mid was, I think it's around 21.3.

Okay, perfect.

At midpoint.

Got you. And then, Cheri, diving in a little bit on the BEAD front, coming out of Fiber Connect this week, I'm wondering, initially when we started to talk about BEAD, probably going back 12 or 18 months ago, there started to be momentum swinging towards the Tier 1s. Now it feels like that there's been a shift back, just in terms of the states are getting to allocate the funding. How are you seeing this ultimately play out in terms of the impact and the market share that it has into the community broadband providers, so the Tier 3s and Tier 2s that benefit more so. Are you seeing a share shift there versus early expectations? And how are you thinking about that?

I think the qualification process continues to change. I think the NTA has done a phenomenal job of listening and trying to adapt to try to meet the original intention of the program. So early on, the thought was that we would see small providers close to the customer being the heavy user. Then because of the complexity of the application process and the length of the requirement, as well as the original letter of credit that was required, that was shifting away from the small provider and back to the Tier 1s and the large provider. Now through our efforts at the FBA and many others, as well as, like I said, the reasonableness of the environment, they've taken a lot of that complexity away and they continue to try to be able to streamline the process. And so as a result, I think it's more of an equal playing ground than it was ever before. So I think it's going to be a very heterogeneous award. You're going to see things very different from state-to-state. I think that's going to be the biggest challenge for the large providers is that the application process is going to be done census map by census map. And so a large provider really doesn't necessarily have a huge administration advantage because of the fact they got to do it 56 times, and whereas a small provider is going to hone in on the areas that make the most sense for them. One of the things that we have been talking to customers about is how BEAD is complex, but it may be strategic if they have an island of unserved customers that is bracketed by two middle mile lines that are really been established, that makes perfect sense for them to go after and zero sense for a large provider. On the concourse, on that contrary, if you've got a serving area that might be 500 square miles, I mean, that's going to be a different scenario and you're probably going to see the big guys come in. So we're anxious to work with all of them. We don't think we're cut out of even a Tier 1, because they still have to be deployed in a rural way. And our understanding of the rural markets or ability to provide products that fit that footprint, I think will be to our advantage.

Very helpful. And if I could follow-up just in terms of some of the inventory levels with your customers, the community broadband guys seems like at least they've bottomed and started to recover a little bit, but I think you had some comments specifically that inventories remain elevated to large service providers and MSOs. I'm wondering what your early thoughts are in terms of when you think that inventory clears and we start to get back to equilibrium in terms of end market demand and shipments in?

Like you highlighted, community broadband, I think is very close, is not there by the end of this build season. Unfortunately, I would say the large regionals and the MSOs have a way to go. They had big pocketbooks when we started. The MSOs have traditionally been, at least the small regionals, have been cash rich. And so they use that to their advantage. So I think we have a period of time yet in the MSO market. I think the large regionals are getting close. And by the end of this build season, I am anticipating that we would potentially see a new range of orders by first quarter of our next fiscal year.

Great. Very helpful. And last, if I could, just in terms of cash utilization, kind of how you're thinking about things in terms of buyback, we're starting to look elsewhere. As the market is normalized now and you found the bottom, are you starting to think about inorganic opportunities? Thanks.

Go ahead, Dan.

I was going to say, we always are going to be evaluating inorganic opportunities as well. We're really happy with the share buyback actions that we've taken and continue to watch that. But absolutely putting a little bit more focus on the inorganic as well as something that is always in our playbook.

Yes, I would just augment that by saying that we continue to evaluate adjacent markets and the adjacent markets being areas of non-Telco environment where we already have pockets of success. What we wouldn't want to do is to be able to go into an entirely new space where it's foreign to us. The best acquisitions are ones in you have a base that you can build upon. You see some of the things that we're doing with the active cabinets and our use of the active cabinets in transportation, as we highlighted in traffic monitoring. Perhaps we've always used our active cabinets in backhaul. So there's a variety of options. I would say that's not a commitment for an inorganic opportunity, but rather a standpoint that is as any prudent public company, we're evaluating those adjacent markets and looking for the best match.

Thanks so much. I'll get back in the queue.

Ladies and gentlemen, it appears we have no further questions in the question queue. Scott, would you like to go ahead with the next question if you have one?

No, I'm good. Thank you.

Thank you. Ladies and gentlemen, that concludes today's question-and-answer session. I will now hand over to Cheri Beranek for closing remarks.

Well, thank you all for joining us. We absolutely treasure the investment and the trust that you have placed in us as investors in Clearfield. We're reaching an opportunity here in front of us. We talk about this as being a generational build, but having just come home from the Fiber Broadband Association meetings in Nashville, I couldn't be more excited about the opportunities in front of us. So, pleased to meet you again in this year, to meet you over the airwaves and look forward to meeting you in person in the near future. Goodbye for now.

Thank you. That concludes today's event. Thank you for attending and you may now disconnect your lines.