CLFD · Read the filing

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

Statements made in this Annual Report on Form 10-K, in the Company’s other SEC filings, in press releases and in oral statements, that are not statements of historical fact are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements. The words “believes,” “expects,” “anticipates,” “seeks,” “may,” “will,” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The risks and uncertainties that could cause actual results to differ materially and adversely from those expressed or implied by the forward-looking statements include those risks described in Part I, Item 1A “Risk Factors.”

Overview of Business: The Clearfield operating segment designs, manufactures, and distributes fiber optic management, protection, and delivery products for communications networks. Its “fiber to the anywhere” platform serves the unique requirements of leading broadband service providers in the United States, which include Community Broadband, Large Regional Service Providers, National Carriers, and Multiple System Operators (“MSOs” or “cable TV”), while also serving the broadband needs of the International markets, primarily in Europe, the Caribbean, Canada, and Mexico. These customers are collectively included in the category of Broadband Service Providers. The Clearfield operating segment also provides contract manufacturing services to its Legacy customers for build-to-print services which include OEM requiring copper and fiber cable assemblies built to their specifications. The Company’s sales channels include direct to customer, through distribution partners, and to original equipment suppliers who private label its products. The Company’s products are sold by its sales employees and independent sales representatives.

The Nestor Cables operating segment manufactures fiber optic and copper telecommunication cables and equipment which it distributes to telecommunication operators, network owners, electric companies, building contractors, and industrial companies. Nestor Cables has been a supplier to Clearfield for over a decade. Nestor has two types of production processes, the process of manufacturing cable in its Finland facility and the finished assembly portion of its business performed in Estonia. Nestor Cables sells its products predominantly to customers in Europe.

Results of Operations

Year ended September 30, 2024, compared to year ended September 30, 2023

The Company’s net sales for fiscal year 2024 decreased 38%, or $102,015,000, to $166,705,000 from net sales of $268,720,000 in fiscal year 2023. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 27% and 19% of net sales for the years ended September 30, 2024, and 2023, respectively.

The decrease in net sales for fiscal year 2024 of $102,015,000 compared to fiscal year 2023 is attributable to decreased demand across the Clearfield segment’s core markets. Sales to the Community Broadband market decreased 41%, or $45,703,000, from $111,708,000 in fiscal year 2023 to $66,005,000 in fiscal year 2024. Sales to Clearfield’s MSO/Cable TV market decreased 49%, or $22,182,000, from $45,669,000 in fiscal year 2023 to $23,487,000 in fiscal year 2024. Sales to National Carriers decreased 2%, or $187,000, from $8,954,000 in fiscal year 2023 to $8,767,000 in fiscal year 2024. The decrease in sales to these customers was due to a lull in demand for fiber connectivity products as customers digest their larger than normal inventory levels built up during the pandemic which were purchased over the previous years.

Revenue from customers is obtained from purchase orders submitted from time to time, with a limited number of customers recently issuing purchase orders for longer time frames. The Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited. The Company’s ability to predict revenue can be further limited by global supply chain issues and customer deployment schedules and factors affecting customer ordering patterns, which may result in changes in customer ordering trends in a relatively short period of time. The Company’s ability to recognize revenue in the future for customer orders will depend on the Company’s ability to manufacture and deliver products to the customers and fulfill its other contractual obligations.

Cost of sales for fiscal year 2024 was $137,816,000, a decrease of $45,625,000, or 25%, from $183,441,000 in fiscal year 2023. Gross profit decreased 66%, or $56,389,000, from $85,278,000 for fiscal year 2023 to $28,889,000 for fiscal year 2024. The decrease in gross profit was primarily due to lower net sales and lower gross profit margin in fiscal year 2024 in the Clearfield segment.

Gross profit percent was 17.3% in fiscal year 2024 compared to 31.7% for fiscal year 2023. Gross profit margin was negatively affected by unabsorbed overhead in our manufacturing facilities due to lower levels of demand. The Company’s gross profit was also negatively impacted by an increase in inventory reserves of $9,841,000 during the fiscal year ended September 30, 2024. Inventory reserves are primarily due to excess inventory due to the lull in demand in the Clearfield Segment while customers draw down their existing products previously purchased during the period of long lead time supply chain created by the pandemic. The Company expects to operate at gross profit percentage levels at or below these levels for several quarters until revenue levels increase, which is expected to bring improved margins.

Selling, general and administrative expense for fiscal year 2024 was $52,111,000, an increase of $4,119,000, or 9%, compared to $47,992,000 for fiscal year 2023. The increase was primarily due to increased performance-based compensation of $1,307,000, increased stock-based compensation of $1,034,000, and increased professional fees of $1,970,000.

Loss from operations for fiscal year 2024 was $23,222,000 compared to income from operations of $37,286,000 for fiscal year 2023. The decrease is attributable to lower sales and gross profit due to excess supply of fiber products in the Clearfield segment as described above and also higher unabsorbed overhead related to expanded manufacturing capacities in the Clearfield segment.

Net investment income in fiscal year 2024 was $7,472,000 compared to $5,206,000 for fiscal year 2023. The increase in interest income is due to a higher average investments balance and higher interest rates earned for the year ended September 30, 2024. The higher overall investments balance is a result of the Company’s capital raise of approximately $130,000,000 completed late in the first fiscal quarter of 2023 and cash generated from operations in fiscal 2024. The Company invests its excess cash primarily in Federal Deposit Insurance Company (“FDIC”) backed bank certificates of deposit, United States (“U.S.”) treasury securities, and money market funds and accounts. We expect interest income to remain at these levels through fiscal year 2025, subject to changes in market interest rates and changes in the average investments balance.

Interest expense in fiscal year 2024 was $506,000 compared to $881,000 for fiscal year 2023. The decrease is primarily due to the decrease in the average factoring liability held by Nestor Cables during fiscal year 2024.

Income tax benefit for fiscal year 2024 was $3,803,000 compared to income tax expense of $9,079,000 for fiscal year 2023. The decrease in tax expense of $12,882,000 from the year ended September 30, 2023, is primarily due to the decrease in pretax book income for fiscal year 2024. The increase in the income tax expense rate to 23.4% for fiscal year 2024 from 21.8% for fiscal year 2023 is primarily due to changes in state tax, foreign tax and decreased excess tax benefits from stock option exercises and restricted stock vesting, resulting in a shortfall in the current period. decreased excess tax benefits related to stock option exercises and restricted stock vesting, resulting in a shortfall in the current period. Our provision for income taxes includes current U.S. federal, state and foreign current and deferred tax expense.

Net loss for fiscal year 2024 was $12,453,000 or $(0.85) per basic and diluted share compared to net income of $32,533,000 or $2.17 per basic and diluted share for fiscal year 2023.

Year ended September 30, 2023, compared to year ended September 30, 2022

The Company’s net sales for fiscal year 2023 decreased 1%, or $2,163,000, to $268,720,000 from net sales of $270,883,000 in fiscal year 2022. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 19% and 6% of net sales for the years ended September 30, 2023, and 2022, respectively.

The decrease in net sales for fiscal year 2023 of $2,163,000 compared to fiscal year 2022 is attributable to decreased demand across the Clearfield’s segment core markets. Sales to the Community Broadband market decreased 12%, or $15,312,000, from $127,478,000 in fiscal year 2022 to $112,166,000 in fiscal year 2023. Sales to Clearfield’s MSO/Cable TV market decreased 5%, or $2,252,000, from $47,921,000 in fiscal year 2022 to $45,669,000 in fiscal year 2023. Sales to National Carriers decreased 17%, or $1,817,000, from $10,772,000 in fiscal year 2022 to $8,954,000 in fiscal year 2023. The decrease in sales to these customers was due to a lull in demand for fiber connectivity products as customers digest their larger than normal inventory levels built up during the pandemic which were purchased over the previous years. Net sales to International customers increased 226% or $34,570,000 from $15,316,000 in fiscal year 2022 to $49,885,000 in fiscal year 2023, primarily driven by the Company’s acquisition of Nestor Cables in July 2022.

Revenue from customers is obtained from purchase orders submitted from time to time, with a limited number of customers recently issuing purchase orders for longer time frames. The Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited. The Company’s ability to predict revenue is further limited by global supply chain issues, customer deployment schedules and factors affecting customer ordering patterns, which may result in changes in customer ordering trends in a relatively short period of time. The Company’s ability to recognize revenue in the future for customer orders will depend on the Company’s ability to manufacture and deliver products to the customers and fulfill its other contractual obligations.

Cost of sales for fiscal year 2023 was $183,441,000, an increase of $25,505,000, or 16%, from the $157,936,000 in fiscal year 2022. Gross profit decreased 25%, or $27,669,000, from $112,947,000 for fiscal year 2022 to $85,278,000 for fiscal year 2023. The decrease in gross profit was primarily due to lower net sales and lower gross profit margin in fiscal year 2023 in the Clearfield segment.

Gross profit percent was 31.7% in fiscal year 2023 compared to 41.7% in fiscal year 2022. Gross profit margin was negatively affected by excess overhead and production capacity in the Company’s Clearfield segment that was underutilized. The Company continues to realign capacity to current market conditions. Gross profit was also affected by lower gross profit realized in our Nestor Cables cable manufacturing business which was acquired in July 2022 and was not included in the comparable period of fiscal 2022.

Selling, general and administrative expense for fiscal year 2023 was $47,992,000, a decrease of $1,155,000, or 2%, compared to $49,130,000 for fiscal year 2022. While relatively consistent year over year, expense for the year ended September 30, 2023, decreased due to lower performance-based compensation and transaction costs, offset by additional professional and legal expenses related to the Nestor Cables business acquired in July 2022, as well as increased Clearfield employee compensation costs, stock-based compensation and travel and entertainment expenses.

Income from operations for fiscal year 2023 was $37,286,000 compared to $63,817,000 for fiscal year 2022. The decrease is attributable to lower sales and gross profit due to excess supply of fiber products in the Clearfield segment as described above, higher unabsorbed overhead related to expanded manufacturing capacities in the Clearfield segment, as well as a full year of Nestor Cables, which has a lower gross profit profile related to its bulk cable and duct product offerings.

Net investment income in fiscal year 2023 was $5,206,000 compared to $328,000 for fiscal year 2022. The increase in interest income was due to a higher average investments balance and higher interest rates earned for the year ended September 30, 2023. The higher investments balance was a result of the Company’s capital raise of approximately $130,000,000 completed in the first fiscal quarter of 2023. The Company invested its excess cash primarily in FDIC backed bank certificates of deposit, U.S. treasury securities, and money market funds and accounts.

Interest expense in fiscal year 2023 was $881,000 compared to $311,000 for fiscal year 2022. The increase was primarily due to incurring a full year of interest expense on the factoring liability held by Nestor Cables which was acquired in July 2022.

Income tax expense for fiscal year 2023 was $9,079,000 compared to $14,472,000 for fiscal year 2022. The decrease in tax expense of $5,393,000 from the year ended September 30, 2022, was primarily due to the decrease in taxable income for fiscal year 2023. The decrease in the income tax expense rate to 21.8% for fiscal year 2023 from 22.7% for fiscal year 2022 was due to decreased permanent addback items including nondeductible compensation and transaction costs. Our provision for income taxes included current U.S. federal tax expense and state tax expense, Finland taxes and deferred tax expense.

Net income for fiscal year 2023 was $32,533,000, or $2.17 per basic and diluted share, compared to $49,362,000, or $3.58 per basic and $3.55 per diluted share, for fiscal year 2022.

Reportable Segments

The Company’s reportable segments are based on the Company’s method of internal reporting. These results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. The internal reporting of these operating segments is defined based, in part, on the reporting and review process used by the Company’s Chief Executive Officer.

On July 26, 2022, Clearfield, through its newly created Finnish subsidiary, Clearfield Finland Oy, acquired all of the equity of Nestor Cables Oy, which has a wholly owned Estonian subsidiary Nestor Cables Baltics OÜ. Following the closing of the acquisition of Nestor Cables on July 26, 2022, the Company reassessed its operating segments as defined under ASC 280, Segment Reporting. Under ASC 280, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”), in deciding how to allocate resources and in assessing performance. Prior to July 26, 2022, we were considered to be a single operating segment structure. Based upon the Company’s assessment following the acquisition of Nestor Cables, the Company determined that the business of Nestor Cables was considered a second reportable segment as of July 26, 2022. Accordingly, beginning with the year ended September 30, 2022, the Company has two reportable segments: (1) Clearfield; and (2) Nestor Cables. The entities that comprise the Nestor Cables segment are Clearfield Finland Oy, Nestor Cables Oy and Nestor Cables Baltics OÜ.

Reportable segments are as follows:

Clearfield Segment

The following table provides net sales and net (loss) income for the Clearfield segment for the fiscal years ended:

Net sales in the Clearfield segment decreased 44%, or $100,154,000, for the fiscal year ended September 30, 2024, resulting from decreased sales to its Community Broadband, MSO/Cable TV, and Large Regional customers as these customers work to digest inventory that was purchased previously during the period of long lead time supply chain created by the pandemic.

Net loss in the Clearfield segment for the fiscal year ended September 30, 2024 increased 128%, or $41,348,000, from net income of $32,834,000 for the fiscal year ended September 30, 2023, driven by the changes in sales outlined above, as well as lower gross profit margin which was negatively affected by the buildup in capacity that was not utilized, as well as reserves for inventory.

Nestor Cables Segment

The following table provides net sales and net loss for the Nestor Cables segment for the fiscal year ended:

Net sales in the Nestor Cables segment decreased 4%, or $1,861,000, for the fiscal year ended September 30, 2024, as compared to the fiscal year ended September 30, 2023, excluding sales to the Clearfield segment.

Net loss in the Nestor Cables segment for the fiscal year ended September 30, 2024, increased 112%, or $3,638,000, from the fiscal year ended September 30, 2023, driven by lower gross profit margin as well as increased operating expenses.

Sales Backlog

Sales backlog reflects purchase order commitments for our products received from customers that have yet to be fulfilled. The Company had a backlog of $25,133,000 and $57,285,000 as of September 30, 2024, and 2023, respectively. The decrease in backlog was primarily due to a lull in demand for fiber connectivity products at our Clearfield segment as customers digest their larger than normal inventory levels built up during the pandemic which were purchased over the previous years. We believe that the Nestor Cables segment generally experiences the same seasonality as the Clearfield segment.

Liquidity and Capital Resources

As of September 30, 2024, the Company had combined consolidated balances of cash, cash equivalents, short-term and long-term investments of $155,497,000 compared to $174,456,000 as of September 30, 2023. Additionally, we have a line of credit for $40 million that has no outstanding borrowing as of September 30, 2024. Our excess cash is invested mainly in certificates of deposit backed by the FDIC, U.S. Treasury securities, and money market funds.

On April 27, 2022, Clearfield entered into a loan agreement and a security agreement to provide the Company with a $40 million revolving line of credit that is secured by certain of the Company’s U.S. assets. The line of credit matures on April 27, 2025, and borrowed amounts will bear interest at a variable rate of the CME Group one-month term Secured Overnight Financing Rate (“SOFR”) plus 1.85%, but not less than 1.80% per annum. As of September 30, 2024, the interest rate was 7.05%. The loan agreement and the security agreement contained customary affirmative and negative covenants and requirements relating to the Company and its operations, including a requirement that the Company maintain a debt service coverage ratio of not less than 1.20 to 1 as of the end of each fiscal year for the fiscal year then ended and maintain a debt to cash flow ratio of not greater than 2 to 1 measured as of the end of each of the Company’s fiscal quarters for the trailing twelve (12) month period. Debt service coverage ratio is the ratio of Cash Available for Debt Service to Debt Service, each as defined in the loan agreement. Debt and Cash Flow are also as defined in the loan agreement for the purposes of the debt to cash flow ratio covenant.

On August 5, 2024, the Company entered into an amendment to the loan agreement that, among other things, (i) eliminated the requirement that the Company maintain a debt service coverage ratio of not less than 1.20 to 1 as of the end of each fiscal year for the fiscal year then ended and that the Company maintain a debt to cash flow ratio of not greater than 2 to 1 measured as of the end of each of the Company’s fiscal quarters for the trailing 12 month period; (ii) added a requirement that the Company maintain accounts with the lender with a minimum aggregate liquidity of unrestricted and unencumbered cash and cash equivalents at all times of not less than the outstanding principal balance of the Company’s revolving credit promissory note payable to the lender; and (iii) waived the Company’s compliance with the debt to cash flow ratio for the fiscal quarter ended June 30, 2024. As of the date of the amendment, there was not an outstanding principal balance on the Company’s revolving credit promissory note with the lender.

As of September 30, 2024, the Company had no borrowings against this line of credit and was in compliance with all applicable covenants. As of September 30, 2024, and 2023, the Company had a loan for €2,000,000, which equates to $2,228,000 and $2,112,000, as of September 30, 2024 and 2023, respectively. We believe the combined balances of short-term cash and investments, along with long-term investments and available bank lines of credit, provide a more accurate indication of our available liquidity.

We believe our existing cash equivalents and short-term investments, along with cash flow from operations and line of credit, will be sufficient to meet our working capital and investment requirements beyond the next 12 months. The Company intends on utilizing its available cash and assets primarily for its continued organic growth and potential future strategic transactions, as well as execution of the share repurchase program adopted by our board of directors. Effective January 27, 2022, the Company reinstated its stock repurchase program that had been suspended due to COVID uncertainty in April 2020. The Company’s board of directors increased the share repurchase program $18,000,000 effective November 7, 2023, and an additional $25,000,000 effective April 30, 2024, to an aggregate of $65,000,000. During the year ended September 30, 2024, the Company repurchased 1,164,190 shares for approximately $33,058,000. As of September 30, 2024, we have repurchased an aggregate of 1,729,780 shares for $40,077,000 leaving approximately $24,923,000 available within our $65,000,000 stock repurchase program. The repurchase program does not obligate Clearfield to repurchase any particular amount of common stock during any period. The repurchases will be funded by cash on hand. During the year ended September 30, 2023, the Company did not repurchase any shares under the stock repurchase program.

Operating Activities

Net cash provided by operations for the fiscal year ended September 30, 2024, totaled $22,223,000. Cash provided by operations included net loss of $12,453,000 for the fiscal year ended September 30, 2024, non-cash income and expenses for depreciation and amortization of $7,411,000, stock-based compensation of $4,641,000, amortization of discount on investments of $4,406,000, in addition to changes in operating assets and liabilities using cash. Changes in operating assets and liabilities using cash include a decrease in net inventories of $31,990,000 and a decrease in accounts receivable of $7,799,000. The decrease in inventory is due to lower inventory purchases during fiscal year 2024 as the Company utilized inventory on hand to fulfill customer orders to support sales demand, as well as higher excess inventory charges taken in fiscal year 2024. The decrease in accounts receivable is due to lower net sales in the fiscal 2024 compared to the prior year. Days sales outstanding (“DSO”), which measures how quickly receivables are collected, decreased 11 days from 53 to 42 from September 30, 2023, to September 30, 2024. Changes in operating assets and liabilities using cash include an increase in other assets of $9,225,000 and receiving cash due to an increase in accounts payable and accrued expenses of $544,000. The increase in other assets is related to prepaid expenses including value added taxes related to cross border inventory transfers.

Net cash provided by operations for the fiscal year ended September 30, 2023, totaled $18,423,000. Cash provided by operations included net income of $32,533,000 for the fiscal year ended September 30, 2023, non-cash expenses for depreciation and amortization of $6,054,000, stock-based compensation of $3,578,000, amortization of discount on investments of $3,512,000, in addition to changes in operating assets and liabilities using cash. Changes in operating assets and liabilities using cash include an increase in net inventories of $15,083,000 and a decrease in accounts payable and accrued expenses of $27,843,000. The increase in inventory is a result of additional stocking levels to support the Company’s anticipated customer demand, as well as stocking of long lead time components to limit manufacturing delays due to raw material component shortages and supply chain delays experienced during the pandemic. The decrease in accounts payable is due to lower purchasing activity of inventory near the end of the period in response to lower demand from customers, as well as lower performance-based compensation accruals as of September 30, 2023. Also, changes in operating assets and liabilities providing cash include a decrease in accounts receivable of $26,277,000, due to lower net sales in the Company’s fourth quarter of fiscal 2023 compared to the prior year. DSO remained consistent as it increased 1 day from 52 to 53 from September 30, 2022, to September 30, 2023.

Net cash provided by operations for the fiscal year ended September 30, 2022, totaled $2,258,000. Cash provided by operations included net income of $49,362,000 for the fiscal year ended September 30, 2022, non-cash expenses for depreciation and amortization of $3,426,000, stock-based compensation of $2,339,000, in addition to changes in operating assets and liabilities using cash. Changes in operating assets and liabilities using cash include an increase in net inventories of $43,744,000 and accounts receivables of $24,234,000. The increase in inventory is a result of additional stocking levels to support the Company’s increased sales backlog and higher demand, and stocking of high turn and long lead time components to limit manufacturing delays due to raw material component shortages and supply chain delays. The increase in accounts receivable was due to higher net sales as well as increased DSO due to higher sales to certain customers with longer payment terms. DSO increased 13 days from 39 to 52 from September 30, 2021, to September 30, 2022. Also, changes in operating assets and liabilities providing cash include an increase in accounts payable and accrued expenses of $15,760,000, due to timing of accounts payable and $8,738,000 in fiscal year 2022 incentive compensation accruals to be paid after year end.

Investing Activities

We invest our excess cash in money market accounts, U.S. Treasury securities, money market funds, and bank certificates of deposit in denominations across numerous banks. We believe we obtain a competitive rate of return given the economic climate and relative risk profile of these investments. For the fiscal year ended September 30, 2024, the Company received proceeds from maturities of investments of $162,064,000 and used cash to purchase $159,393,000 of investments in certificates of deposit below FDIC insured levels and U.S. Treasuries. The Company used $9,567,000 in cash to purchase fixed and intangible assets. The result is cash used in investing activities of $6,896,000 in fiscal year 2024. In fiscal year 2025, the Company intends to continue investing in the necessary information technology, manufacturing equipment, and facility needs.

For the fiscal year ended September 30, 2023, the Company received proceeds from maturities of investments of $107,060,000 and used cash to purchase $210,923,000 of investments in certificates of deposit below FDIC insured levels and U.S. Treasuries. The Company used $8,384,000 in cash to purchase fixed and intangible assets. The result is cash used in investing activities of $112,247,000 in fiscal year 2023.

For the fiscal year ended September 30, 2022, the Company had $17,386,000 of FDIC-backed certificates of deposit and U.S. Treasuries mature or be sold. The Company used $9,148,000 in cash to purchase fixed and intangible assets. Additionally, the Company used $16,187,000 in cash to acquire Nestor Cables in July 2022. The result was cash used in investing activities of $8,197,000 in fiscal year 2022.

Financing Activities

For the fiscal year ended September 30, 2024, the Company used cash to repurchase $33,058,000 of our common stock on the open market under our stock repurchase program. In connection with the stock repurchase, the Company accrued $316,000 of U.S. Federal excise taxes to be paid during fiscal year 2025. We received $586,000 from employees’ purchase of stock through our Employee Stock Purchase Plan (“ESPP”) The Company also used cash of $3,617,000 on repayments on factored accounts receivables, net of borrowings and $493,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. As a result, the net cash used for financing activities during fiscal year 2024 was $36,907,000.

For the fiscal year ended September 30, 2023, the Company received $130,262,000 of net proceeds through the issuance of common stock in the first quarter of fiscal 2023. The Company received cash of $1,587,000 on borrowings on factored accounts receivables, net of repayments The Company also received $611,000 from employees’ purchase of stock through our ESPP and $954,000 related to issuance of stock as payment for incentive compensation. The Company used $16,700,000 to pay down in full the then-outstanding principal on our line of credit, which was originally drawn in the fourth quarter of fiscal 2022 to fund the acquisition of Nestor Cables. The Company also used $491,000 related to share withholding for exercise and taxes associated with the issuance of common stock upon cashless exercise of stock options and used $1,220,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. As a result, the net cash provided by financing activities during fiscal year 2023 was $115,002,000.

For the fiscal year ended September 30, 2022, the Company borrowed $16,700,000 on its line of credit to fund the July acquisition of Nestor Cables. The Company received $544,000 from employees’ purchase of stock through our ESPP and $1,258,000 on repayments on factored accounts receivables, net of borrowings. The Company used $5,183,000 related to share withholding for exercise and taxes associated with the issuance of common stock upon cashless exercise of stock options and used $1,406,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. As a result, the net cash provided by financing activities during fiscal year 2022 was $9,397,000.

Operating Leases

We have entered into various non-cancelable operating lease agreements for office equipment at our office and manufacturing spaces in Minnesota, Mexico, Finland, and Estonia expiring at various dates through August 2034. Certain of these leases have escalating rent payment provisions. We recognize rent expense under such leases on a straight-line basis over the term of the lease.

Critical Accounting Estimates

In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our sales, income from operations and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We believe there are several accounting policies that are critical to an understanding of our historical and future performance, as these policies affect the reported amounts of sales, expenses and significant estimates and judgments applied by management. While there are a number of accounting policies, methods and estimates affecting our financial statements, areas that are particularly significant include:

● Accounting for stock-based compensation

● Income taxes

● Valuation of inventory, long-lived assets, finite lived intangible assets and goodwill

● Valuation in business combinations

Stock-Based Compensation

We measure and recognize compensation expense for all stock-based awards at fair value over the requisite service period. We use the Black-Scholes option pricing model to determine the fair value of options. For restricted stock grants, fair value is determined as the closing price of the Company’s stock on the date of grant. Equity-based compensation expense is broken out between cost of sales and selling, general and administrative expenses based on the classification of the employee. The determination of fair value of stock-based awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

The expected terms of the options are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and expected future volatility of the Company’s stock. The Company has not historically issued any dividends and does not expect to in the future. Forfeitures for both option and restricted stock grants are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from estimates.

If factors change and we employ different assumptions in the determination of the fair value of grants in future periods, the related compensation expense that we record may differ significantly from what we have recorded in the current periods.

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes, under which deferred income taxes are recognized based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results, or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. The recorded valuation allowance is based on significant estimates and judgments and if the facts and circumstances change, the valuation allowance could materially change.

In accounting for uncertainty in income taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

As of September 30, 2024, and 2023, the Company had no U.S. federal or Estonia net operating loss (“NOL”) carry-forwards. As of September 30, 2024, there is a state NOL of $64,000. There was no state NOL as of September 30, 2023 As of September 30, 2024, and 2023, there is a Finnish NOL of $1,851,000 and $1,000, respectively.

As part of the process of preparing our financial statements, we are required to estimate our income tax liability in each of the jurisdictions in which we do business. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that these deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not more likely than not or unknown, we must establish a valuation allowance. If the valuation allowance is reduced, the Company would record an income tax benefit in the period in which that determination is made. If the valuation allowance is increased, the Company would record additional income tax expense.

The Company files income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. Based on its evaluation, the Company has concluded that it has no significant unrecognized tax benefits. The Company is generally subject to U.S. federal examination for all tax years after 2019. The Company is subject to state examinations for all tax years after 2014 due to unexpired research and development credit carryforwards still open under statute. Nestor is generally subject to Finland examination for all tax years after 2020 and Estonia examination for all tax years after 2020.

Impairment of Long-Lived Assets, Intangible Assets and Goodwill

The Company’s long-lived assets as of September 30, 2024, consisted primarily of property, plant and equipment, right of use lease assets, patents, intangibles, and goodwill. The Company reviews the carrying amount of its property, plant and equipment, right of use lease assets, and intangible assets if events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When this review indicates the carrying amount of an asset or asset group exceeds the sum of the future undiscounted cash flows expected to be generated by the assets, the Company recognizes an asset impairment charge against operations for the amount by which the carrying amount of the impaired asset exceeds its fair value.

Determining fair values of property, plant, and equipment, right of use lease assets, and intangible assets using a discounted cash flow method involves significant judgment and requires the Company to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Judgments are based on historical experience, current market trends, consultations with external valuation specialists and other information. If facts and circumstances change, the use of different estimates and assumptions could result in a materially different outcome. The Company generally develops these forecasts based on recent sales data for existing products, planned timing of new product launches or acquisitions, and estimated future growth of the FTTP market.

Goodwill represents the excess purchase price over the fair value of tangible net assets acquired in acquisitions after amounts have been allocated to intangible assets. Goodwill is tested for impairment annually at fiscal year-end, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. During the years ended September 30, 2024, 2023, and 2022, there were no triggering events that indicated goodwill or intangible assets may be impaired.

If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company would perform a quantitative test that compares the fair value to its carrying value to determine the amount of any impairment.

If the carrying amount of a reporting unit exceeds its fair value, the Company would measure the possible goodwill impairment loss based on an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit's recorded goodwill exceeds the implied fair value of goodwill. An impairment loss would be based on significant estimates and judgments, and if the facts and circumstances change, a potential impairment could have a material impact on the Company’s financial statements.

No impairment of goodwill or intangible assets has occurred during the years ended September 30, 2024, 2023, and 2022, respectively.

Valuation of Inventory

The Company maintains a material amount of inventory to support its manufacturing operations and customer demand. This inventory is stated at average cost, subject to the lower of cost or net realizable value. On a regular basis, the Company reviews its inventory and identifies inventory which is excess, slow moving, or obsolete by considering factors such as inventory levels, expected product life, and forecasted sales demand. Any identified excess, slow moving, and obsolete inventory is written down to its market value through a charge to cost of sales. It is possible that additional inventory write-down charges may be required in the future if there is a significant decline in demand for the Company’s products and the Company does not adjust its inventory procurement accordingly.

Valuation in Business Combinations

We record tangible and intangible assets acquired and liabilities assumed in business combinations under the purchase method of accounting under ASC 805, Business combinations. Amounts paid for each acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the dates of acquisition. The value recorded is based on estimates of future financial projections. These cash flow projections are discounted with a risk adjusted rate. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, which is considered management’s best estimate of inputs and assumptions that a market participant would use. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill.

Recently Adopted Accounting Pronouncements

On October 1, 2023, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the initial guidance: ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, and ASU No. 2020-02 (collectively, Topic 326). This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (CECL). The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost. The Company adopted Topic 326 using the modified retrospective method for all financial assets measured at amortized cost, which are primarily trade accounts receivable for the Company. Results for reporting periods beginning after October 1, 2023, are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. The impact of adopting Topic 326 as of October 1, 2023, was not material to the consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 is intended to enhance financial reporting by requiring incremental disclosures for significant segment expenses on an annual and interim basis by public entities required to report segment information in accordance with Accounting Standards Codification Topic 280. The amendments in ASU 2023-07 are to be applied retrospectively to all periods presented in the financial statements and early adoption is permitted. This standard will be applicable to the Company for the 2025 annual period and quarterly periods thereafter. The Company is evaluating its disclosure approach for ASU 2023-07 and anticipates adopting the standard for the year ended September 30, 2025, and filings thereafter.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance is expected to improve income tax disclosures primarily related to the rate reconciliation and income taxes paid information by requiring 1) consistent categories and greater disaggregation of information in the rate reconciliation and 2) income taxes paid disaggregated by jurisdiction. The guidance is effective on a prospective basis, although retrospective application and early adoption is permitted. The Company is evaluating its disclosure approach for ASU 2023-09 and anticipates adopting the standard for the annual period starting October 1, 2025.

In March 2024, the SEC adopted rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires the disclosure of material Scope 1 and Scope 2 greenhouse gas emissions and other climate-related topics in annual reports and registration statements. For large-accelerated filers and accelerated filers, disclosure requirements will begin phasing in for fiscal years beginning on or after January 1, 2025, and January 1, 2026, respectively, subject to legal challenges and the SEC’s voluntary stay of the disclosure requirements. The Company is currently evaluating the impact these rules will have on its consolidated financial statements and related disclosures.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company currently invests its excess cash in bank certificates of deposit that are fully insured by the Federal Deposit Insurance Corporation and United States Treasury securities with terms of not more than five years, as well as money market funds. The fair value of these investments fluctuates subject to changes in market interest rates. As of September 30, 2024, and 2023, the Company had combined consolidated balances of cash, cash equivalents, short term, and long-term investments of $155,497,000 and $174,456,000, respectively.

Foreign Exchange Rates

The Company uses the U.S. dollar as its reporting currency. The functional currency of Nestor Cables is the Euro. The changing relationships of the U.S. dollar to the Euro could have a material impact on our financial results. Fluctuations in the Euro to U.S. dollar exchange rate impacts our consolidated balance sheets, as well as sales, cost of sales, and net income. If the Euro had appreciated or depreciated by 10%, relative to the U.S. Dollar, our operating expenses for fiscal year 2024 would have increased or decreased by approximately $700,000 or approximately 1%. We do not hedge against foreign currency fluctuations. As such, fluctuations in foreign currency exchange rates could have a material impact on the Company’s financial statements.

Inflation

Rising costs, including wages, logistics, components, and commodity prices are negatively impacting our profitability. We are subject to market risk from fluctuating market prices of certain purchased commodities and raw materials which has outpaced our ability to reduce the cost structure and manufacturability. We do not hedge commodity prices. Accordingly, inflation impacts our profitability, including cost of sales and operating expenses, and may have a material impact on the Company’s financial statements.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting of the Company. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting as of September 30, 2024. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—2013 Integrated Framework. Based on management’s evaluation and those criteria, management concluded that the Company’s system of internal control over financial reporting was effective as of September 30, 2024.

Management’s internal control over financial reporting as of September 30, 2024, has been audited by Baker Tilly US, LLP, an independent registered public accounting firm, as stated in their report appearing on the following page, in which they expressed an unqualified opinion thereon.

Date: November 15, 2024

Further discussion of our internal controls and procedures is included in Item 9A of this report, under the caption “Controls and Procedures.”

Clearfield, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID 23) 35

Financial Statements

Consolidated Balance Sheets 38

Consolidated Statements of Earnings 39

Consolidated Statement of Comprehensive Income 40

Consolidated Statements of Shareholders’ Equity 41

Consolidated Statements of Cash Flows 42

Notes to the Consolidated Financial Statements 43

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of Clearfield, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Clearfield, Inc. (the "Company") as of September 30, 2024 and 2023, the related consolidated statements of earnings, shareholders' equity, and cash flows, for each of the three years in the period ended September 30, 2024, and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company’s internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management report. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's a sets that could have a material effect on the financial statements.

with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Inventories, Net – Excess, Slow-Moving and Obsolete Inventory Reserve- Refer to Note 1 to the consolidated financial statements

Critical Audit Matter Description

The Company establishes inventory reserves which represent an amount for excess, slow-moving and obsolete inventory on hand that is expected to be written off or otherwise disposed of below cost at a future date. The Company’s estimate of the appropriate amount of the excess, slow-moving and obsolete inventory reserve utilizes certain inputs and involves judgment. Such inputs include data associated with historical sales trends, expected product life, forecasted sales demand and product mix and the Company’s core products. The calculation and analysis of historical sales data, expected product life, and forecasted sales demand and the application of this analysis to on-hand inventory involves complex analysis.

We identified the estimated inventory reserve for excess, slow-moving and obsolete inventory as a critical audit matter given the estimation uncertainty is impacted by a number of subjective factors including product lifecycle and forecasted sales demand. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the methodology and the reasonableness of these subjective factors in combination with assumptions and inputs including historical sales trends, forecasted sales demand, and the on-hand inventory product mix used to determine excess, slow-moving and obsolete inventory.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

/s/ Baker Tilly, US, LLP

We have served as the Company's auditor since 2013.

Minneapolis, Minnesota

November 15, 2024

CLEARFIELD, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

Assets

Current Assets

Other Assets

Liabilities and Shareholders’ Equity

Current Liabilities

Current portion of lease liability $ 3,357 $ 3,737

Current maturities of long-term debt - 2,112

Other Liabilities

Long-term debt, net of current maturities 2,228 -

Shareholders’ Equity

Accumulated other comprehensive income (loss) 1,079 (544 )

Total Liabilities and Shareholders’ Equity $ 315,275 $ 355,517

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(IN THOUSANDS, EXCEPT SHARE DATA)

Year Ended Year Ended Year Ended

September 30, September 30, September 30,

Operating expenses

Net (loss) income per share Basic (0.85 ) 2.17 3.58

Net (loss) income per share Diluted $ (0.85 ) $ 2.17 $ 3.55

Weighted average shares outstanding:

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

Year Ended Year Ended Year Ended

September 30, September 30, September 30,

Comprehensive (loss) income:

Other comprehensive income (loss), net of tax

Unrealized gain (loss) on available-for-sale investments 748 542 (1,590 )

Unrealized gain (loss) on foreign currency translation 875 812 (308 )

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(IN THOUSANDS)

For the year ended September 30, 2024 Accumulated other

Common Stock Additional comprehensive Retained Total share-

Shares Amount paid-in capital income (loss) earnings holders’ equity

Stock based compensation expense - - 4,641 - - 4,641

Issuance of common stock under equity compensation plans, net 130 1 (1 ) - - -

Issuance of common stock under employee stock purchase plan 24 - 586 - - 586

Exercise of stock options, net of shares exchanged for payment 1 - (9 ) - - (9 )

Adoption of new accounting pronouncement - - - - 79 79

Other comprehensive income - - - 1,623 - 1,623

For the year ended September 30, 2023 Accumulated other

Common Stock Additional comprehensive Retained Total share-

Shares Amount paid-in capital income (loss) earnings holders’ equity

Stock-based compensation expense - - 3,578 - - 3,578

Issuance of common stock under equity compensation plans, net 49 - 954 - - 954

Issuance of common stock under employee stock purchase plan 13 - 611 - - 611

Other comprehensive income - - - 1,354 - 1,354

For the year ended September 30, 2022 Accumulated other

Common Stock Additional comprehensive Retained Total share-

Shares Amount paid-in capital income (loss) earnings holders’ equity

Stock-based compensation expense - - 2,339 - - 2,339

Issuance of common stock under equity compensation plans, net 26 - - - - -

Issuance of common stock under employee stock purchase plan 13 - 544 - - 544

Other comprehensive loss - - - (1,898 ) - (1,898 )

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CLEARFIELD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Year Ended Year Ended Year Ended

September 30, September 30, September 30,

Cash flows from operating activities

Amortization of discount on investments (4,406 ) (3,512 ) (42 )

Changes in operating assets and liabilities, net of acquired amounts:

Cash flows from investing activities

Business acquisition, net of cash acquired - - (16,187 )

Cash flows from financing activities

Repayment of long-term debt (2,171 ) - -

Withholding related to exercise of stock options (9 ) (491 ) (5,183 )

Issuance of stock under equity compensation plans 1 954 -

Net borrowings and repayments of factoring liability (3,617 ) 1,586 (1,258 )

Net proceeds from issuance of common stock - 130,262 -

Repurchase of common stock (33,374 ) - -

Effect of exchange rates on cash (81 ) (2 ) (24 )

(Decrease) Increase in cash and cash equivalents (21,660 ) 21,177 3,434

Supplemental disclosures for cash flow information

Cash paid during the year for income taxes $ 159 $ 12,967 $ 13,744

Right of use assets obtained through lease liabilities $ 4,731 $ 3,776 $ 12,016

Non-cash financing activities

Cashless exercise of stock options $ 19 $ 566 $ 1,624

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Description of Business: Clearfield, Inc. and subsidiaries (the “Company”) manufactures a broad range of fiber connectivity products to customers throughout the United States and internationally, and since the July 26, 2022, acquisition of Nestor Cables Oy, manufactures fiber optic and copper telecommunication cables and equipment through its Finnish subsidiaries. Refer to Note 11 for further information regarding the acquisition of Nestor Cables.

We are engaged in global operations. Our operations currently comprise of two reportable segments: the Clearfield segment, (referred to herein as “Clearfield”) and, since July 26, 2022, the Nestor Cables segment (referred to herein as “Nestor Cables” or “Nestor”). Prior to July 26, 2022, we were considered to be in a single operating segment structure.

The Company’s products include fiber distribution systems, optical components, Outside Plant (“OSP”) cabinets, and fiber and copper cable assemblies that serve the communication service provider markets, including Fiber-to-the-Premises (“FTTP”), large enterprise, and original equipment manufacturer (“OEM”) markets.

Principles of Consolidation: The consolidated financial statements include the accounts of Clearfield, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition: Our revenue is comprised of the sale of our products to customers and is recognized when the Company satisfies its performance obligations under the applicable sales contract. A performance obligation is a promise in a sales contract to transfer a distinct product or service to a customer. Substantially all our sales contracts have a single performance obligation and are short term in nature. We recognize revenue by transferring the promised products to the customer, with substantially all revenue recognized at the point in time when the customer obtains control of the products. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of sales. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenue) basis.

Cash and Cash Equivalents: The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The following table presents the Company’s cash and cash equivalents balances:

Cash and cash equivalents:

Cash, including money market accounts $ 5,789 $ 11,360

The Company maintains cash balances at multiple financial institutions, and at times, such balances exceeded insured limits. The Company has not experienced any losses in such accounts.

Investments: The Company invests in certificates of deposit (“CDs”) that are fully insured by the Federal Deposit Insurance Corporation (“FDIC”) and United States Treasury (“Treasuries”) securities with terms of not more than five years, as well as money market funds. Historically, the Company’s investment portfolio had been classified as held-to-maturity and recorded at amortized cost. During the second quarter of fiscal 2022, the Company sold investments and has reclassified its investment portfolio to available-for-sale, which is reported at fair value. The unrealized gain or loss on investment securities is recorded in other comprehensive income, net of tax. Realized gains and losses on available-for-sale securities are recognized upon sale and are included in net investment income in the consolidated statement of earnings.

Foreign Currency Translation: Balance sheets and statements of earnings of our international subsidiaries are measured using local currency as their functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year-end. Statements of earnings accounts are translated at the average rates of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a cumulative translation adjustment in shareholders’ equity.

Comprehensive Income (Loss): Total comprehensive income and the components of accumulated other comprehensive loss are presented in the Consolidated Statements of Comprehensive Income (Loss) and the Consolidated Statements of Shareholders’ Equity. Accumulated other comprehensive loss is composed of foreign currency translation effects and unrealized gains and losses on available-for-sale marketable debt securities. We use the individual item approach for releasing income tax effects from accumulated other comprehensive loss.

Fair Value of Financial Instruments: The financial statements include the following financial instruments: cash and cash equivalents; investments; accounts receivable; and accounts payable. The Company estimates the fair value of investments as of the balance sheet date. All other financial instruments’ carrying values approximate fair values because of the short-term nature of the instruments.

Accounts Receivable: Credit is extended based on the evaluation of a customer’s financial condition, and collateral is generally not required. Accounts that are outstanding longer than the contractual payment terms are considered past due. On October 1, 2023, the Company adopted the cumulative expected credit loss model (CECL). Upon adoption of CECL, the Company measures the allowance for credit losses using an expected credit loss model, which uses a lifetime expected credit loss allowance for all accounts receivable. To measure the expected credit losses, accounts receivable are grouped based on shared credit risk characteristics and the days past due. In calculating an allowance for credit losses, the Company uses its historical experience, external indicators, and forward-looking information to calculate expected credit losses using an aging method. The Company assesses impairment of accounts receivable on a collective basis as they possess shared credit risk characteristics which have been grouped based on the days past due. The expected loss rates are based on the Company’s historical credit losses experience. The historical loss rates are adjusted to reflect current and forward-looking information. As of September 30, 2024, the Company’s allowance for credit losses was $0.

As of September 30, 2023, and 2022, prior to the adoption of CECL, the Company’s allowance for doubtful accounts was $79,000. Upon the adoption of CECL, the prior allowance for doubtful accounts was recorded as a benefit to beginning retained earnings.

Inventories: Inventories consist of finished goods, raw materials, and work-in-process and are stated at average cost, subject to the lower of cost or net realizable value. Certain components of the Company’s inventory classified as raw materials or finished goods can be used as a component to manufacture products or can be sold directly to the customer. Inventory is valued using material costs, labor charges, and allocated factory overhead charges and consists of the following:

(In thousands)

On a regular basis, the Company reviews its inventory and identifies that which is excess, slow moving, and obsolete by considering factors such as inventory levels, expected product life, and forecasted sales demand. A reserve is established for any identified excess, slow moving, and obsolete inventory through a charge to cost of sales. Inventory write-down charges may be required in the future if there is a significant decline in demand for the Company’s products and the Company does not adjust its manufacturing production accordingly, if new products are not accepted by the market, or if products are end of life through life cycle management.

Property, Plant and Equipment: Property, plant and equipment are recorded at cost. Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense when incurred. Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives. Leasehold improvements are amortized over the shorter of the remaining term of the lease or estimated life of the asset.

Estimated useful lives of the assets are as follows:

Years

Leasehold improvements 7-10 or life of lease

Vehicles 3

Property, plant and equipment consist of the following:

Property, plant and equipment, net $ 23,953 $ 21,527

Depreciation expense for the years ended September 30, 2024, 2023, and 2022 was $5,815,000, $4,915,000, and $2,647,000, respectively.

Goodwill and Intangible Assets: Goodwill represents the excess purchase price over the fair value of tangible net assets acquired in acquisitions after amounts have been allocated to intangible assets. Goodwill is tested for impairment annually at fiscal year-end, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. During the years ended September 30, 2024, 2023, and 2022, there were no triggering events that indicated goodwill or intangible assets may be impaired.

If the carrying amount of a reporting unit exceeds its fair value, the Company would measure the possible goodwill impairment loss based on an allocation of the estimate of fair value of the reporting unit to all the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit’s recorded goodwill exceeds the implied fair value of goodwill. An impairment loss would be based on significant estimates and judgments, and if the facts and circumstances change, a potential impairment could have a material impact on the Company’s financial statements.

No impairment of goodwill or intangible assets has occurred during the years ended September 30, 2024, 2023, and 2022, respectively.

Capitalized software: In accordance with ASC 350-40, “Internal-use Software,” the Company capitalizes certain costs incurred in connection with developing or obtaining internal-use software. Costs incurred in the preliminary project stage are expensed. All direct costs incurred to develop internal-use software during the development stage are capitalized and amortized using the straight-line method over the estimated useful life, generally 2 to 15 years. Costs such as maintenance and training are expensed as incurred. Research and development costs are also expensed as incurred.

The Company capitalizes legal costs incurred to obtain patents. Once accepted by either the U.S. Patent Office or the equivalent office of a foreign country, these legal costs are amortized using the straight-line method over the remaining estimated lives, not exceeding 20 years. As of September 30, 2024, the Company has 53 patents granted and multiple pending applications both inside and outside the United States.

In addition, the Company has various finite life intangible assets, most of which were acquired as a result of the acquisition of a portfolio of the active cabinet products from Calix, Inc. (“Calix”) during fiscal year 2018 and the acquisition of Nestor Cables as of July 26, 2022. Refer to Note 11 for further information regarding the acquisition of Nestor Cables.

The changes in the carrying amount of goodwill by reportable segment for the fiscal year 2024 were as follows:

(In thousands) Clearfield, Inc. Nestor Cables Total

Currency translation effect on foreign goodwill balances - 99 99

The changes in the carrying amount of goodwill by reportable segment for the fiscal year 2023 were as follows:

(In thousands) Clearfield, Inc. Nestor Cables Total

Currency translation effect on foreign goodwill balances - 126 126

Finite life intangible assets as of September 30, 2024, and 2023 are as follows:

Amortization expense related to these assets for the years ended September 30, 2024, 2023, and 2022 was $1,567,000, $1,128,000, and $766,000, respectively.

Our future estimated amortization expense for intangibles is as follows as of September 30, 2024:

(In thousands) Estimated amortization expense

Impairment of Long-Lived Assets: The Company assesses potential impairments to its long-lived assets or asset groups when there is evidence that events occur or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recovered. An impairment loss is recognized when the carrying amount of the long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group.

Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value and is recorded as a reduction in the carrying value of the related asset or asset group and a charge to operating results. No impairment of long-lived assets occurred during the years ended September 30, 2024, 2023, or 2022, respectively.

Income Taxes: The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. The Company establishes a valuation allowance to reduce the deferred tax assets when it is more likely than not that a deferred tax asset will not be realizable. Changes in tax rates are reflected in the tax provision as they occur.

In accounting for uncertainty in income taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of September 30, 2024, and 2023, the Company did not have any unrecognized tax benefits. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We do not expect any material changes in our unrecognized tax benefits over the next 12 months.

Stock-Based Compensation: We measure and recognize compensation expense for all stock-based awards at fair value over the requisite service period. We use the Black-Scholes option pricing model to determine the fair value of options. For restricted stock and performance share unit grants, fair value is determined as the closing price of the Company’s stock on the date of grant. Equity-based compensation expense is broken out between cost of sales and selling, general and administrative expenses based on the classification of the employee. The determination of fair value of stock-based awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

Share Repurchase Program: Effective January 27, 2022, the Company reinstated its stock repurchase program that had been suspended due to COVID uncertainty in April 2020. The Company’s board of directors increased the share repurchase program $18,000,000 effective November 7, 2023, and an additional $25,000,000 effective April 30, 2024, to an aggregate of $65,000,000. During the year ended September 30, 2024, the Company repurchased 1,164,190 shares for approximately $33,058,000. As of September 30, 2024, we have repurchased an aggregate of 1,729,780 shares for approximately $40,077,000 leaving approximately $24,923,000 available within our $65,000,000 stock repurchase program The repurchase program does not obligate the Company to repurchase any particular amount of common stock during any period. The repurchase will be funded by cash on hand.

The Company is authorized to issue 50,000,000 shares of common stock at $.01 par value and 5,000,000 undesignated shares. From the undesignated shares, 500,000 shares have been designated as Series B Junior Participating Preferred Shares and none of such shares have been issued or are outstanding.The board of directors may, by resolution, establish from the remaining undesignated shares different classes or series of shares and may fix the relative rights and preferences of shares in any class or series.

Research and Development Costs: Research and development costs amounted to $3,000,000, $3,115,000 and $895,000 for the years ended September 30, 2024, 2023, and 2022, respectively, and are charged to expense when incurred.

Advertising Costs: Advertising costs amounted to $535,000, $609,000, and $537,000 for the years ended September 30, 2024, 2023, and 2022, respectively, and are charged to expense when incurred.

Net (Loss) Income Per Share: Basic and diluted net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding and the weighted average number of dilutive shares outstanding, respectively.

Weighted average common shares outstanding for the years ended September 30, 2024, 2023, and 2022 were as follows:

Year ended September 30, (In thousands except share data) 2024 2023 2022

(Losses) Earnings per share:

There were no antidilutive shares for the years ended September 30, 2024, 2023, or 2022.

Use of Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses and disclosure about contingent assets and liabilities at the date of the financial statements. Significant estimates include the rebates related to revenue recognition, stock-based compensation and the valuation of inventory, long-lived assets, finite lived intangible assets and goodwill. Actual results may differ materially from these estimates.

Reclassification: The Company has revised the prior period presentation within its Statement of Cashflows for the fiscal years ended September 30, 2023, and 2022 to reclassify the net borrowings and repayments of factoring receivables from the operating activities section of the statement within the line for changes in operating assets and liabilities titled “Accounts payable and accrued expenses” to its own line as currently presented in the financing activities section. We have reviewed the classification changes and determined they are not material to the financial statements as a whole.

Recently Adopted Accounting Pronouncements: On October 1, 2023, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the initial guidance: ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, and ASU No. 2020-02 (collectively, Topic 326). This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (CECL). The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost. The Company adopted Topic 326 using the modified retrospective method for all financial assets measured at amortized cost, which are primarily trade accounts receivable for the Company. Results for reporting periods beginning after October 1, 2023, are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. The impact of adopting Topic 326 as of October 1, 2023, was not material to the consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted: In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 is intended to enhance financial reporting by requiring incremental disclosures for significant segment expenses on an annual and interim basis by public entities required to report segment information in accordance with Accounting Standards Codification Topic 280. The amendments in ASU 2023-07 are to be applied retrospectively to all periods presented in the financial statements and early adoption is permitted. This standard will be applicable to the Company for the 2025 annual period and quarterly periods thereafter. The Company is evaluating its disclosure approach for ASU 2023-07 and anticipates adopting the standard for the year ended September 30, 2025, and filings thereafter.

Note 2. Stock Based Compensation

Stock-Based Compensation: The Company’s stock-based compensation plans are administered by the Compensation Committee of the board of directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.

On February 23, 2023, the Company’s shareholders approved the Clearfield, Inc. 2022 Stock Compensation Plan (the “2022 Plan”). The 2022 Plan became effective on the date of shareholder approval, and no further awards may be made under the Clearfield, Inc. Amended and Restated 2007 Stock Compensation Plan (the “Prior Plan”) following the effective date of the 2022 Plan. The total number of shares of stock reserved and available for distribution under the 2022 Plan upon approval was 1,461,461 shares, which includes the number of shares remaining for grant and delivery under the Prior Plan, plus any shares subject to outstanding awards under the Prior Plan as of the effective date of the 2022 Plan that were forfeited, cancelled, or settled for cash.

As of September 30, 2024, $4,989,000 of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a period of approximately 2.1 years. The Company recorded related compensation expense for the years ended September 30, 2024, 2023, and 2022 of $4,641,000, $3,578,000, and $2,339,000, respectively. For the year ended September 30, 2024, $4,432,000 of this expense was included in selling, general and administrative expense and $209,000 was included in cost of sales. For the year ended September 30, 2023, $3,407,000 of this expense was included in selling, general and administrative expense and $171,000 was included in cost of sales. For the year ended September 30, 2022, $2,213,000 of this expense was included in selling, general and administrative expense and $126,000 was included in cost of sales.

Stock Options: The Company uses the Black-Scholes option pricing model to determine the fair value of options granted. During the fiscal year ended September 30, 2024, the Company granted employees non-qualified stock options to purchase an aggregate of 118,706 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $26.84. During the fiscal year ended September 30, 2023, the Company granted employees non-qualified stock options to purchase an aggregate of 40,266 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $64.38. During the fiscal year ended September 30, 2022, the Company granted employees non-qualified stock options to purchase an aggregate of 62,730 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $66.48.

The fair value of stock option awards during the year ended September 30, 2024, 2023, and 2022 was estimated as of the respective grant dates using the assumptions listed below:

Dividend yield 0 % 0 % 0 %

Weighted average risk-free interest rate 4.55 % 3.75 % 0.97 %

Weighted average expected life (years) 5 5 5

Vesting period (years) 3 3 3

The expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating the expected life. The expected life represents the period of time that options are expected to be outstanding after their grant date. The risk-free interest rate reflects the interest rate at grant date on zero-coupon U.S. governmental bonds having a remaining life similar to the expected option term.

Options are generally granted at fair market values determined on the date of grant and vesting normally occurs over a three to five-year period. The maximum contractual term is normally six years. Shares issued upon exercise of a stock option are issued from the Company’s authorized but unissued shares. There were 90,245 options vested during the year ended September 30, 2024, 79,911 options vested during the year ended September 30, 2023, and 113,727 options vested during the year ended September 30, 2022. For the year ended September 30, 2024, there were 1,501 stock options that were exercised using a cashless method of exercise. For the year ended September 30, 2023, there were 21,630 stock options that were exercised using a cashless method of exercise. For the year ended September 30, 2022, there were 125,651 stock options that were exercised using a cashless method of exercise. The intrinsic value of options exercised during the years ended September 30, 2024, 2023, and 2022 was $25,000, $1,603,000, and $11,279,000, respectively.

Option transactions under the 2022 Plan during the years ended September 30, 2024, and 2023 and under the Prior Plan for the year ended September 30, 2022, are summarized as follows:

Number of shares Weighted average exercise price Weighted average fair value

The following table summarizes information concerning options exercisable under the 2022 Plan and the Prior Plan as of the years ended September 30, 2024, 2023 and 2022:

The following table summarizes information concerning options currently outstanding at:

Restricted Stock: The 2022 Plan permits, and the Prior Plan permitted, the Compensation Committee of the board of directors to grant stock-based awards, including stock options and restricted stock, to key employees and non-employee directors. The Company has made restricted stock grants that vest over one to ten years.

Restricted stock transactions during the years ended September 30, 2024, 2023, and 2022 are summarized as follows:

Number of shares Weighted average grant date fair value

The fair value of restricted shares vested during the year end September 30, 2024, 2023, and 2022 was $1,796,000, $3,141,000, and $3,744,000 respectively. The Company repurchased a total of 15,879 shares of our common stock at an average price of $31.05 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2024. The Company repurchased a total of 12,862 shares of our common stock at an average price of $62.20 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2023. The Company repurchased a total of 13,292 shares of our common stock at an average price of $105.78 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees for the year ended September 30, 2022.

Performance Stock Units: During the fiscal year ended September 30, 2024, the Company granted 47,745 performance stock units which entitles the recipients to receive the same number of shares of the Company’s common stock, upon achievement of a fiscal year 2024 performance goal. The Company has determined the fair value per underlying share of the performance stock unit awards to be $26.18 as of the grant date.

Compensation expense for the performance stock units is measured using the fair value of our common stock at the grant date. For the fiscal year September 30, 2024, the performance goal was not achieved and previously recognized compensation expense related to these awards has been reversed to $0.

Bonus Stock: During the fiscal year ended September 30, 2023, the Company granted employees an aggregate of 9,144 shares of common stock as a discretionary bonus for fiscal 2022 performance. The bonus stock consisted of common stock with no vesting period or restrictions. The fair value on the date of issuance was $104.36 per share. No bonus stock was granted in the fiscal years ended September 30, 2024, and 2022.

Employee Stock Purchase Plan: The Clearfield, Inc. 2010 Employee Stock Purchase Plan (“ESPP”) allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide that participating employees may purchase the Company’s common stock on a voluntary after-tax basis. Employees may purchase the Company’s common stock at a price that is no less than the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase. The ESPP is carried out in six-month phases, with phases beginning on July 1 and January 1 of each calendar year. For the phase that ended on December 31, 2023, employees purchased 10,104 shares at a price of $24.72 per share. For the phase that ended on June 30, 2024, employees purchased 13,598 shares at a price of $24.72 per share As of September 30, 2024, the Company withheld approximately $175,000 from employees participating in the phase that began on July 1, 2024. In February 2020, the shareholders of Clearfield, Inc. approved an increase of 200,000 in the shares authorized for issuance under the ESPP. After the employee purchase on June 30, 2024, 144,548 shares of common stock were available for future purchase under the ESPP.

Note 3. Investments

The Company invests in CDs in amounts that are fully insured by the FDIC and Treasuries with terms of not more than five years, as well as money market funds. During the second quarter of fiscal 2022, the Company sold investments and has reclassified its investment portfolio to available-for-sale, which is reported at fair value. The unrealized gain or loss on investment securities is recorded in other comprehensive income (loss), net of tax. Realized gains and losses on available-for-sale securities are recognized upon sale and are included in net investment income in the consolidated statement of earnings. The Company did not sell investment securities during the years ended September 30, 2024, or 2023.

As of September 30, 2024, available-for-sale investments consist of the following:

(In thousands) Cost Unrealized Gains Unrealized Losses Fair Value

Short-Term

Long-Term

As of September 30, 2023, available-for-sale investments consisted of the following:

(In thousands) Cost Unrealized Gains Unrealized Losses Fair Value

Short-Term

Long-Term

Investment securities – long-term $ 6,967 $ - $ (624 ) $ 6,343

As of September 30, 2024, investments in debt securities in an unrealized loss position were as follows:

Certificates of deposit - - 236 (12 )

As of September 30, 2023, investments in debt securities in an unrealized loss position were as follows:

As of September 30, 2024, and 2023, there were six and 42 securities in an unrealized loss position, respectively, which is due to the securities paying lower interest rates than the market. As of September 30, 2024, there are no securities which are other than temporarily impaired as the Company intends to hold these securities until their value recovers and there is negligible credit risk due to the nature of the securities which are backed by the FDIC and U.S. federal government. The Company had no allowance for credit losses on investments for year ended September 30, 2024.

Note 4. Fair Value Measurements

The Company determines the fair value of its assets and liabilities based on the market price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company determines the fair value of Treasuries and CDs based on valuations provided by an external pricing service, which obtains them from a variety of industry standard data providers.

The Company’s investments are categorized according to the three-level fair value hierarchy which distinguishes between observable and unobservable inputs, in one of the following levels:

Level 1- Quoted prices in active markets for identical assets or liabilities.

Level 2- Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3- Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those with fair value measurements that are determined using pricing models, discounted cash flow valuation or similar techniques, as well as significant management judgment or estimation.

The following provides information regarding fair value measurements for the Company’s investment securities as of September 30, 2024, according to the three-level fair value hierarchy:

Fair Value Measurements as of September 30, 2024

(In thousands) Total Level 1 Level 2 Level 3

Cash equivalents:

Investment securities:

Certificates of deposit 738 - 738 -

During the year ended September 30, 2024, we owned no Level 3 securities and there were no transfers within the fair value level hierarchy.

Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets and right-of-use assets for operating leases are subject to non-recurring fair value measurements if they are deemed impaired. We had no re-measurements of non-financial assets to fair value in the years-end September 30, 2024, 2023 and 2022.

The following provides information regarding fair value measurements for the Company’s investment securities as of September 30, 2023, according to the three-level fair value hierarchy:

Fair Value Measurements as of September 30, 2023

(In thousands) Total Level 1 Level 2 Level 3

Cash equivalents:

Investment securities:

Certificates of deposit $ 8,115 $ - $ 8,115 $ -

Note 5. Other Comprehensive Income (Loss)

Changes in components of other comprehensive income (loss), net of tax, are as follows:

Note 6. Income Taxes

Components of income tax expense are as follows for the years ended:

September 30, September 30, September 30,

Current:

Deferred:

The following is a reconciliation of the federal statutory income tax rate to the effective tax rate as a percent of pre-tax income for the following years ended:

September 30, September 30, September 30,

State income taxes 3.9 % 2.8 % 2.1 %

Foreign income taxes (1.5% ) (0.1% ) 0.4 %

Permanent differences 0.0 % 0.8 % 4.6 %

Research and development credits 0.8 % (1.0% ) (0.5% )

Excess tax benefits from stock-based compensation (0.8% ) (1.7% ) (4.9% )

As of September 30, 2024, the current U.S. income tax payable was approximately $30,000 and the foreign income tax receivable was approximately $5,000, these amounts are included in the other current assets and other current liabilities in the Company’s consolidated balance sheet. Current income tax payable amounts are included in accrued expenses in the Company’s consolidated balance sheets.

As of September 30, 2024, and 2023, the Company had no U.S. federal or Estonian net operating loss (“NOL”) carryforwards. As of September 30, 2024, there is a state NOL of $64,000. There was no state NOL as of September 30, 2023. As of September 30, 2024, and 2023, there is a Finnish NOL of $1,851,000 and $1,000, respectively. The Company has not recorded a valuation allowance on these deferred tax assets as the Company believes it is more likely than not they will be utilized. In addition, as of September 30, 2024, and 2023, the Company had Minnesota research and development tax credits of $370,000 and $255,000, respectively. The Company has not recorded a valuation allowance on these research and development related deferred tax assets as the Company believes it is more likely than not they will be utilized before they begin to expire in fiscal year 2038.

Significant components of deferred income tax assets and liabilities are as follows at:

September 30, September 30,

Accrued expenses and reserves 427 515

Property and equipment depreciation 4 (683 )

Net operating loss carry forwards and credits 726 201

Foreign currency translation loss - -

Unrealized loss on investments (16 ) 204

Foreign currency translation gain (238 ) (36 )

Total deferred tax liability $ (1,795 ) $ (1,301 )

Realization of NOL carryforwards and other deferred tax temporary differences are contingent upon future taxable earnings. The deferred tax assets and deferred tax liabilities are not netted due to being within different tax jurisdictions. The Company’s deferred tax assets were reviewed for expected utilization by assessing the available positive and negative factors surrounding their recoverability. As of September 30, 2024, and 2023, no valuation allowance was deemed necessary as the Company determined it was more likely than not that the Company’s deferred tax assets will be realized.

The Company is required to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than notthreshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies the interpretation to all tax positions for which the statute of limitations remained open. The Company had no liability for unrecognized tax benefits and did not recognize any interest or penalties during the years ended September 30, 2024, or 2023.

The Company is subject to income taxes in the U.S. federal and various state and foreign jurisdictions, including Finland. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Clearfield, Inc. is generally subject to U.S. federal examination for all tax years after 2019 and state examinations for all tax years after 2015 due to unexpired research and development credit carryforwards still open under statute. Nestor is generally subject to Finland examination for all tax years after 2020.

Note 7. Concentrations

Suppliers: The Company purchases critical components for our products, including injection molded parts and connectors from third parties, some of whom are single- or limited-source suppliers. If any of our suppliers are unable to ship critical components, we may be unable to manufacture and ship products to our distributors or customers. If the price of these components increases for any reason, or if these suppliers are unable or unwilling to deliver, we may have to find another source, which could result in interruptions, increased costs, delays, loss of sales and quality control problems.

Customers: For the fiscal year ended September 30, 2024, the Company had two customers that comprised 15% and 11% of net sales. These customers are distributors. For the fiscal year ended September 30, 2023, the Company had one customer that comprised 16% of net sales. This customer is a distributor. For the fiscal year ended September 30, 2022, the Company had one customer that comprised 14% of net sales. This customer is a distributor. These major customers, like our other customers, purchase our products from time to time through purchase orders, and we do not have any agreements that obligate these major customers to purchase products in the future from us.

As of September 30, 2024, three customers accounted for 16%, 11%, and 10% of accounts receivable, respectively. These customers are all distributors. As of September 30, 2023, three customers accounted for 16%, 13% and 11% of accounts receivable, respectively. These customers are all distributors.

Disaggregation of Revenue: The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Sales outside the United States are principally to customers in Europe, the Caribbean, Canada, and in Central and South America.

The following table presents our domestic and international sales for each of the last three fiscal years:

Year Ended September 30,

The Company sells its products to the Broadband Service Provider marketplace. In addition, the Company provides Legacy services for original equipment manufacturers requiring copper and fiber cable assemblies built to their specification.

The percentages of our sales by these markets were as follows for each of the last three fiscal years:

Year Ended September 30,

Broadband service providers 94 % 97 % 99 %

Other customers 6 % 3 % 1 %

Broadband Service Providers are made up of Community Broadband, which includes local and regional telecom companies, utilities, municipalities and alternative carriers, also referred to as Tier 2 and 3 customers, National Carriers, which includes large national and global wireline and wireless providers also referred to as Tier 1s, Large Regional Service providers with a national footprint, MSOs, which include cable television companies, and international customers.

Long-lived assets: As of September 30, 2024, and 2023, the Company had property, plant, and equipment with a net book value of $5,395,000 and $7,003,000, respectively, located in Mexico. In addition, as of September 30, 2024, and 2023, the Company had property, plant, and equipment with a net book value of $7,093,000, and $6,703,000, respectively, located in Finland and $989,000, and $660,000, respectively, located in Estonia. All other property, plant, and equipment is located within the United States.

Note 8. Employee Benefit Plan

Clearfield, Inc. maintains a contributory 401(k) profit sharing benefit plan, whereby eligible employees may contribute a portion of their earnings, not to exceed annual amounts allowed under the Internal Revenue Code. The Company matched 100% of the first 3% and 50% of the next 3% of the participant’s eligible compensation that was contributed by the participant. The Company’s contributions under this plan were $1,087,000, $1,017,000, and $1,129,000 for the years ended September 30, 2024, 2023 and 2022, respectively.

Nestor Cables is mandated by the Finnish government to participate in a pension and social expense plan to which Nestor and its employees make contributions. The plan is accounted for as defined contribution plan and Nestor Cables is responsible for an average of 17.6%, 18.3%, and 17.4% of employees’ wages for plan years ended September 30, 2024, and 2023, and 2022, respectively. Nestor’s contributions under this plan were $1,328,000, $1,112,000, and $204,000 for the years ended September 30, 2024, and 2023, and 2022, respectively.

Note 9. Leases

The Company leases an 85,000 square foot facility at 7050 Winnetka Avenue North, Brooklyn Park, Minnesota consisting of corporate offices, manufacturing, and warehouse space. The original lease term was ten years and two months, ending on February 28, 2025, with a renewal option. In April 2024, the Company exercised the renewal option, which extended the lease term three additional years to end on February 29, 2028. The exercise of the renewal option added a right of use asset and corresponding lease liability of $1,337,000 upon lease commencement.

The Company indirectly leases an approximately 318,000 square foot manufacturing facility in Tijuana, Mexico that operates as a Maquiladora. In April 2024, the Company terminated the lease for this manufacturing facility and signed a new lease for the same facility. The new lease has a term of seven years, of which five years are mandatory. The lease contains two options to extend the term of the lease for additional periods of five years each. The lease calls for monthly base rental payments of approximately $169,000, increasing 2% annually. The renewal options have not been included within the lease term because it is not reasonably certain that the Company will exercise either option. The termination of the original facility lease resulted in a decreased right of use asset and corresponding lease liability of $5,610,000, offset by the addition of the right of use asset and lease liability of the new facility lease for $8,637,000 upon lease termination and commencement, respectively.

The Company leases a 105,000 square foot warehouse and manufacturing facility in Brooklyn Park, Minnesota. The lease term is five years ending on February 28, 2027, with rent payments increasing annually. The lease includes an option to extend the lease for an additional five years. The renewal option has not been included within the lease term because it is not reasonably certain that the Company will exercise the option.

Nestor Cables leases an approximately 25,000 square foot manufacturing facility in Oulu, Finland, which is utilized for the operations of Nestor Cables. The original lease term ended on October 31, 2022, but auto renewed and will continue to auto renew indefinitely until terminated with two years written notice. It is not reasonably certain that the Company will not exercise the termination option. The lease calls for monthly rental payments of approximately €40,000. Rent is increased each year on January 1st based upon the cost-of-living index published by the Finnish government.

Nestor Cables leases an approximately 49,000 square foot manufacturing facility in Tabasalu, Estonia, which is utilized for the operations of Nestor Cables Baltics. The lease is without a fixed term and requires two years’ written notice to terminate the lease. Additionally, the lease grants to Nestor Cables the option to lease an expansion facility that is to be constructed no later than December 2024. The expansion facility will be constructed on the same premises as the existing facility. Nestor exercised the option to lease the expansion facility, and the lease term of the existing facility will be 10 years commencing December 2024.

The lease called for monthly rental payments of approximately €20,400 until April 2024 and calls for monthly rental payments of €25,000 afterwards. Rent is increased each year on May 1st based upon the cost-of-living index published by the Estonian government and is capped at 5%.

Right-of-use lease assets and lease liabilities are recognized as of the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods we are reasonably certain to exercise. Our leases do not contain any material residual value guarantees or material restrictive covenants.

Operating lease expense included within cost of sales and selling, general and administrative expense was as follows:

Selling, general and administrative 323 244 277

Our future lease obligations for leases that have commenced were as follows as of September 30, 2024:

(In thousands) Operating Leases

Total lease payments 19,163

Less: Interest (3,035 )

Present value of lease liabilities $ 16,128

As of September 30, 2024, the weighted average term and weighted average discount rate for our leases were 5.20 years and 6.59%, respectively. As of September 30, 2023, the weighted average term and weighted average discount rate for our leases were 5.16 years and 3.59%, respectively. As of September 30, 2022, the weighted average term and weighted average discount rate for our leases were 4.04 years and 3.22%, respectively. For the years ended September 30, 2024, 2023, and 2022, the operating cash outflows from our leases were $4,222,000, $3,954,000, and $2,064,000, respectively.

Note 10. Debt

On April 27, 2022, the Company entered into a loan agreement and a security agreement with a bank that provides the Company with a $40,000,000 revolving line of credit that is secured by certain of the Company’s U.S. assets. The line of credit matures on April 27, 2025, and borrowed amounts will bear interest at a variable rate of the CME Group one-month term Secured Overnight Financing Rate (“SOFR”) plus 1.85%, but not less than 1.80% per annum. As of September 30, 2024, the interest rate was 7.05%. The loan agreement and the security agreement contains customary affirmative and negative covenants and requirements relating to the Company and its operations, including a requirement that the Company maintain a debt service coverage ratio of not less than 1.20 to 1 as of the end of each fiscal year for the fiscal year then ended and maintain a debt to cash flow ratio of not greater than 2 to 1 measured as of the end of each of the Company’s fiscal quarters for the trailing twelve (12) month period. Debt service coverage ratio is the ratio of Cash Available for Debt Service to Debt Service, each as defined in the loan agreement. Debt and Cash Flow are also as defined in the loan agreement for the purposes of the debt to cash flow ratio covenant.

On August 5, 2024, the Company entered into an amendment to the loan agreement that, among other things, (i) eliminated the requirement that the Company maintain a debt service coverage ratio of not less than 1.20 to 1 as of the end of each fiscal year for the fiscal year then ended and that the Company maintain a debt to cash flow ratio of not greater than 2 to 1 measured as of the end of each of the Company’s fiscal quarters for the trailing 12 month period; (ii) added a requirement that the Company maintain accounts with the bank with a minimum aggregate liquidity of unrestricted and unencumbered cash and cash equivalents at all times of not less than the outstanding principal balance of the Company’s revolving credit promissory note payable to the bank; and (iii) waived the Company’s compliance with the debt to cash flow ratio for the fiscal quarter ended June 30, 2024.

As of September 30, 2024, and 2023, the Company had no borrowings against this line of credit. As of September 30, 2022, the Company had borrowed $16,700,000 against the line of credit. As of September 30, 2024, 2023 and 2022, the Company was in compliance with all applicable covenants. The line of credit is collateralized by Clearfield, Inc’s assets of $300,472,000 as of September 30, 2024.

During March 2021, Nestor Cables entered into a loan agreement, providing a €2 million senior loan with a term of three years. The Finland Government pays the interest, capped at 5% with the interest to be paid by the Finnish Government when the loan is used as intended and is repayable with a 2% additional interest penalty if there is a violation of the terms. The loan expired on March 31, 2024. A new loan was issued under the same program with consistent terms as detailed above and is due on March 31, 2026. The repayment and issuance of these loans occurred in April 2024. The loan is fully secured by a Finnish government guarantee. As of September 30, 2024, 2023 and 2022, the Company owed €2,000,000 on this loan, which equates to $2,228,000, $2,112,000 and $1,966,000, respectively. As of September 30, 2024, Nestor Cables was not in compliance with the equity ratio covenant but received a waiver from the bank. As of September 30, 2023, and 2022, Nestor Cables was in compliance with all covenants. The interest expense associated with this loan has been presented net of government payments on the Company’s income statement.

Note 11. Acquisition of Nestor Cables

On July 26, 2022, the Company, through its wholly owned subsidiary, Clearfield Finland Oy, acquired 100% of the share capital of Nestor Cables Oy, a leading developer and manufacturer of fiber optic cable solutions located in Finland, upon the terms and conditions contained in a Share Sale and Purchase Agreement entered into on May 17, 2022. The total purchase price and the acquisition date fair value of the consideration transferred for the shares totaled €7.9 million ($8.0 million) in addition to €7.6 million ($7.8 million) related to the repayment of certain of Nestor Cables’ debt. The purchase price was funded from a draw of $16.7 million under the Company’s revolving line of credit. The purchase of Nestor Cables was intended to provide the Company with the ability to vertically integrate the supply of fiber optic cables and fulfill customer demand more rapidly. Nestor Cables’ technical expertise is expected to extend the supply of the Company’s FieldShield product line into the North American market, to reduce cost and complexity of transportation. Finally, Nestor Cables enhances the possibility of introducing Clearfield’s cassette-based fiber management solutions into the European market.

The following table summarizes the estimated fair value of the assets and liabilities acquired as of July 26, 2022:

(in thousands)

Accounts receivables 10,562

Other current assets 173

Total current assets 22,184

Property and equipment 7,689

Intangibles assets 1,840

Right of use lease asset 1,297

Accounts payable 5,839

Accrued compensation 1,430

Accrued expenses 1,916

Deferred tax liability 621

Lease liability 1,297

Factoring liability 5,849

Total liabilities $ 18,997

Net assets acquired $ 15,830

The Nestor Cables acquisition resulted in approximately $1,700,000 of goodwill due to intangible assets not qualifying for separate recognition as well as expected synergies. The goodwill created from the acquisition of Nestor Cables is expected to be deductible for tax purposes.

Nestor Cables acquired accounts receivable balance is the gross amount which is expected to be collected, which approximates fair value. As of the acquisition date no allowance for uncollectible amounts is deemed necessary.

The intangible assets acquired include customer relationships, developed technology and trademarks. The remaining weighted average useful life of intangible assets acquired is 12.82 years as of the acquisition date. Refer to Note 1 for further detail.

The Company incurred approximately $1,600,000 in legal, professional, and other costs related to the acquisition which were accounted for as selling, general and administrative expenses when incurred. Refer to Note 12-Segment Reporting for the operating results of Nestor Cables from the date of acquisition through September 30, 2022.

The Company has a fiscal year end of September 30 and reports its financial results in accordance with U.S. GAAP. Nestor Cables has historically had a fiscal year end of December 31 and reported its results under Finnish Accounting Standards. Accordingly, it is impracticable to disclose the revenue and earnings of the combined entity as though the business combination occurred as of the beginning of the comparable prior year periods due to the differing basis of accounting and reporting periods of the entities requiring assumptions about management’s intent that cannot be independently substantiated. In addition, these disclosures would require significant estimates that are not possible to reliably establish in order to distinguish objective information that provides evidence of circumstances that existed on the dates at which those amounts would have been recognized, measured and disclosed and would have been available when the financial statements for that prior period were issued.

Note 12. Segment Reporting

Upon closing of the acquisition of Nestor Cables, the Company reassessed its operating segments as defined under ASC 280, Segment Reporting. Under ASC 280, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”), in deciding how to allocate resources and in assessing performance. Based upon the Company’s assessment, the Company determined that the business of Nestor Cables was considered a second reportable segment as of July 26, 2022.

For the year ended September 30, 2024, the Company has two reportable segments: (1) Clearfield; and (2) Nestor Cables. Clearfield’s Finnish holding company, Clearfield Finland Oy, purchased Nestor Cables Oy, including its Estonia subsidiary, Nestor Cables Baltics, on July 26, 2022. These entities comprise the Nestor Cables segment. Refer to Note 11 - Acquisition of Nestor Cables for additional information on this transaction.

Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the CODM in making internal operating decisions. For consolidated reporting, the Company eliminates transactions between reportable segments.

The following table summarizes the amounts between the two reportable segments for the year ended September 30, 2024:

(in thousands) Clearfield Nestor Cables Eliminations Consolidated

Revenue from internal customers (Clearfield) 58 2,271 (2,329 ) -

The following table summarizes the amounts between the two reportable segments for the year ended September 30, 2023:

(in thousands) Clearfield Nestor Cables Eliminations Consolidated

Revenue from internal customers (Clearfield) - 5,408 (5,408 ) -

The following table summarizes the amounts between the two reportable segments as of September 30, 2024, and September 30, 2023:

(in thousands) Clearfield Nestor Cables Eliminations Consolidated

Note 13. Financing Receivables

Nestor Cables factors certain of its accounts receivable, with recourse provisions that are accounted for as a secured borrowing. Nestor Cables has a total factoring liability of $2,920,000, $6,289,000 and $4,391,000 as of September 30, 2024, 2023 and 2022, respectively. Nestor receives cash for 80% of the receivable balance from the bank initially and the remaining 20% when the invoice is paid up to a limit of €12.5 million ($13.9 million). Due to the conditions mentioned above, these transactions do not qualify as a sale and are thus accounted for as secured borrowing. The contractual interest rate on Nestor’s factoring arrangements is the 3-month Euribor rate plus a range of .75% to 1.3%. The average interest rate for the year ended September 30, 2024, 2023 and 2022, was 5.12%, 3.89% and 2.14%, respectively. These agreements are indefinite with a termination notice period ranging from zero to one month.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2024. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2024 based on the framework in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that, as of September 30, 2024, our internal control over financial reporting was effective based on the COSO internal control criteria. The effectiveness of our internal control over financial reporting as of September 30, 2024 has been audited by Baker Tilly US, LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of fiscal year 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.OTHER INFORMATION

During the quarter ended September 30, 2024, none of our directors or officers informed us of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408(a).

ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III.

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by Item 10 to be included under the headings “Executive Officers,” “Corporate Governance” and “Proposal 1. Election of Directors” in our Proxy Statement for our 2025 Annual Meeting of Shareholders (the “2025 Proxy Statement”), which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year for which this report is filed, is incorporated herein by reference into this section.

The Company has an insider trading policy governing the purchase, sale, and/or other dispositions of our securities by our directors, executive officers and employees that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the exchange listing standards applicable to us. A copy of our insider trading policy, as amended, is filed as Exhibit 19 to this Annual Report on Form 10-K.

ITEM 11.EXECUTIVE COMPENSATION

The information required by Item 11 to be included under the heading “Executive Compensation” in the 2025 Proxy Statement, is incorporated herein by reference into this section.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 under the headings “Ownership of Voting Securities by Principal Holders and Management” and “Equity Compensation Plan Information” to be included in the 2025 Proxy Statement, is incorporated herein by reference into this section.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 under the heading “Certain Relationships and Related Person Transactions” to be included in the 2025 Proxy Statement, is incorporated herein by reference into this section.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 under the heading “Relationship with Independent Accountants” to be included in the 2025 Proxy Statement, is incorporated herein by reference into this section.

PART IV.

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report.

(1) Financial Statements.

The financial statements of Clearfield, Inc. are filed herewith under Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

(2) Certain financial statement schedules have been omitted because they are not required, not applicable or the required information is provided in other financial statements or the note to the financial statements.

(3) Exhibits: See Items 15(b) below.

(b) Exhibits.

EXHIBIT INDEX

Number Description Incorporated by Reference to

21.1 Subsidiaries of Clearfield, Inc. **

23.1 Consent of Baker Tilly US, LLP **

Number Description Incorporated by Reference to

101.INS Inline XBRL Instance Document **

101.SCH Inline XBRL Taxonomy Extension Schema **

101.CAL Inline XBRL Taxonomy Calculation Linkbase **

101.LAB Inline XBRL Taxonomy Labels Linkbase **

101.PRE Inline XBRL Taxonomy Presentation Linkbase **

101.DEF Inline XBRL Taxonomy Definition Linkbase **

† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.

* Indicates a management contract or compensatory plan or arrangement.

** Filed herewith.

All schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes.

ITEM 16.FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Clearfield, Inc.

Date: November 15, 2024 /s/ Cheryl Beranek

Cheryl Beranek

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Each person whose signature appears below hereby constitutes and appoints Cheryl Beranek and Daniel Herzog and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his or her behalf, individually and in each capacity stated below, all amendments to this Form 10-K and to file the same, with all exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as each might or could do in person, hereby ratifying and confirming each act that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue thereof.

Signatures Title Date

/s/ Ronald G. Roth Ronald G. Roth Director November 15, 2024

/s/ Roger G. Harding Roger G. Harding Director November 15, 2024

/s/ Donald R. Hayward Donald R. Hayward Director November 15, 2024

/s/ Charles N. Hayssen Charles N. Hayssen Director November 15, 2024

/s/ Patrick F. Goepel Patrick F. Goepel Director November 15, 2024

/s/ Walter L. Jones, Jr. Walter L. Jones, Jr. Director November 15, 2024

/s/ Carol A. Wirsbinski Carol Wirsbinski Director November 15, 2024

CLFD US Equity

CLFD · 10-K · period ended 2024-09-30

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.CONTROLS AND PROCEDURES

ITEM 9B.OTHER INFORMATION

ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.EXECUTIVE COMPENSATION

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16.FORM 10-K SUMMARY

CLFD US Equity☆

CLFD · 10-K · period ended 2024-09-30

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.CONTROLS AND PROCEDURES

ITEM 9B.OTHER INFORMATION

ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.EXECUTIVE COMPENSATION

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16.FORM 10-K SUMMARY

CLFD US Equity