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What changed in Clearfield, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Clearfield, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+283 added−274 removedSource: 10-K (2023-11-29) vs 10-K (2022-11-23)

Top changes in Clearfield, Inc.'s 2023 10-K

283 paragraphs added · 274 removed · 193 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe invest significant management attention, time and resources to attract, engage, develop and retain our employees, particularly for positions that require technical knowledge or expertise. For this reason, we offer rigorous training programs for manufacturing and other technical employees to allow them to develop the necessary skillset for their roles and promote career development.
Biggest changeFor this reason, we offer rigorous training programs for manufacturing and other technical employees to allow them to develop the necessary skillset for their roles and promote career development. To date, our training programs and overall collaborative working environment have allowed us to be successful in attracting and retaining qualified technical personnel for these positions.
This metric is important as the Company has taken a strategic approach to be able to offer low industry lead times for our customers. The Company incentivizes certain of its personnel based on the metrics. Climate Change Certain government and regulatory bodies have introduced or are contemplating regulatory changes relating to climate change.
This metric is important as the Company has taken a strategic approach to be able to offer low industry lead times for our customers. The Company incentivizes certain of its personnel based on these metrics. Climate Change Certain government and regulatory bodies have introduced or are contemplating regulatory changes relating to climate change.
Solely for convenience, the trademarks and trade names in this annual report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto. 8
Solely for convenience, the trademarks and trade names in this annual report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.
Nestor’s products are sold to telecommunication wholesalers and telecommunication operators, primarily in Europe. 3 The Company’s products are sold direct to customers through the Company’s sales force as well as through authorized distributors. In addition, the Company uses manufacturing sales representatives and sales agents for customer and geography specific needs.
Nestor’s products are sold to telecommunication wholesalers and telecommunication operators, primarily in Europe. The Company’s products are sold direct to customers through the Company’s sales force as well as through authorized distributors. In addition, the Company uses manufacturing sales representatives and sales agents for customer and geography specific needs.
These types of impacts from climate change may also result in transportation-related supply chain challenges and negatively impact the delivery of raw materials, components or products to or from our facilities. These potential physical effects may increase costs, cause delays or shortages in components required to produce our products or cause delays in the shipment of our products to customers.
These types of impacts may also result in transportation-related supply chain challenges and negatively impact the delivery of raw materials, components, or products to or from our facilities. These potential physical effects may increase costs, cause delays or shortages in components required to produce our products or cause delays in the shipment of our products to customers.
Competitors to the FieldSmart product lines include, but are not limited to, products offered by Corning Cabling Systems, Inc., OFS (Furukawa Electric North America, Inc.), AFL Telecommunications (a subsidiary of Fujikura Ltd.), Fujikura Ltd., Nokia, and CommScope, Inc.
Competitors to the FieldSmart product lines include, but are not limited to, products offered by Corning Cabling Systems, Inc., OFS (Furukawa Electric North America, Inc.), AFL Telecommunications (a subsidiary of Fujikura Ltd.), Fujikura Ltd., Nokia, Hextronics Group and CommScope, Inc.
Competition is largely based on any one or a combination of the following factors: functionality and features, price, product quality, cost and ease of installation, service and support, long-term returns to customers, scalability, product innovation and manufacturing capability.
Competition is largely based on any one or a combination of the following factors: functionality and features, price, product quality, product availability and lead times, cost and ease of installation, service and support, long-term returns to customers, scalability, product innovation, and manufacturing capability.
Sales outside the United States are principally to customers in countries in the Caribbean, Canada, Europe and Central and South America. Since our acquisition of Nestor Cables in July 2022, we have experienced an increased concentration of customers based in Europe.
Sales outside the United States are principally to customers in Canada as well as countries in the Caribbean, Europe and Central and South America. Since our acquisition of Nestor Cables in July 2022, we experienced an increased concentration of customers based in Europe.
Patents and Trademarks As of September 30, 2022, Clearfield has 36 patents granted and multiple patent applications pending both inside and outside the United States. These patents begin to expire in 2028. We have also developed and are using multiple trademarks and logos to market and promote our products.
Patents and Trademarks As of September 30, 2023, Clearfield has 47 patents granted and multiple patent applications pending both inside and outside the United States. These patents begin to expire in 2028. We have also developed and are using multiple trademarks and logos to market and promote our products.
Some of our products currently offered are described below: 2 FieldSmart ® is a series of panels, cabinets, wall boxes and other enclosures that house the Clearview components to provide a consistent design from the inside plant of the telco’s “central office” or cable television’s “head-end,” all the way through the outside plant to the access network to within the home or business.
Some of our products currently offered are described below: FieldSmart ® is a series of panels, cabinets, wall boxes and other enclosures that provide a consistent design from the inside plant of the telco’s “central office” or cable television’s head-end, all the way through the outside plant to the access network to within the home or business.
Clearfield Operating Segment Clearfield is focused on providing fiber management, fiber protection, and fiber delivery products that accelerate the turn-up of gigabit speed bandwidth to residential homes, businesses, and network infrastructure in the wireline and wireless access network.
Clearfield Operating Segment Clearfield is focused on providing fiber management, fiber protection, and fiber delivery products that accelerate the turn-up of fiber-based networks in residential homes, businesses, and network infrastructure in the wireline and wireless access network.
We tightly integrate our supply chain management, our product innovation activities, and our manufacturing operations. Our supply chain team also manages the critical logistics and transport services for our materials, components and finished products in and out of Mexico to ensure sufficient materials to timely produce products and to ensure timely export of products in order to qualify as duty-free.
Our supply chain team also manages the critical logistics and transport services for our materials, components and finished products in and out of Mexico to ensure sufficient materials to timely produce products and to ensure timely export of products in order to qualify as duty-free.
Markets and Customers The Company’s products are sold across broadband service providers, which we categorize as National Carrier (wireless/wireless national telco carriers (Tier 1)), Community Broadband (Tier 2 and 3 telco carriers, utilities, municipalities, and alternative carriers), Multiple System Operators (cable television), International (primarily Europe, Central/Latin America and Canada), and Legacy build-to-print copper and fiber assemblies (primarily contract manufacturing).
Markets and Customers The Company’s products are sold across broadband service providers, which we categorize as National Carrier (wireline/wireless national telco carriers (Tier 1)), Community Broadband (Tier 2 and 3 telco carriers, utilities, municipalities, and alternative carriers), Large Regional Service Providers (ILEC operating a multi-state network with more than 500,000 subscribers), Multiple System Operators (cable television), International (primarily Europe, Central/Latin America and Canada), and Legacy build-to-print copper and fiber assemblies (primarily contract manufacturing).
The Company’s office personnel are comprised of sales, marketing, engineering, and administrative personnel. The manufacturing personnel include both individuals directly involved in the manufacturing of our products, as well as warehouse and operations supervisory personnel. Certain positions within our organization require industry specific technical knowledge. Our manufacturing personnel currently work in two shifts as needed at our Brooklyn Park facility.
The substantial majority of these employees work out of our Brooklyn Park, Minnesota headquarters. The Company’s office personnel are comprised of sales, marketing, engineering, and administrative personnel. The manufacturing personnel include both individuals directly involved in the manufacturing of our products, as well as warehouse and operations supervisory personnel. Certain positions within our organization require industry specific technical knowledge.
In addition, Clearfield’s engineering services team works alongside the engineering design departments of our original equipment manufacturer (“OEM”) customers to design and manufacture custom solutions for both in-the-box as well as network connectivity assemblies specific to that customer’s product line.
Fiber Assemblies - Clearfield manufactures high quality fiber assemblies with an industry-standard or customer-specified configuration. In addition, Clearfield’s engineering services team works alongside the engineering design departments of our original equipment manufacturer (“OEM”) customers to design and manufacture custom solutions for both in-the-box as well as network connectivity assemblies specific to that customer’s product line.
Clearfield believes that it has a competitive advantage with customers who can leverage the cost savings the Clearview Cassette can provide and those who require quick-turn, high-performance customized products, and that it is at a competitive disadvantage with customers who principally seek large volume commodity products. 4 The Nestor Cables segment faces competition from numerous competitors within each of the markets it serves.
Clearfield believes that it has a competitive advantage with customers who can leverage the cost savings the Clearview Cassette can provide and those who require quick-turn, high-performance customized products, and that it is at a competitive disadvantage with customers who principally seek large volume commodity products.
The Nestor Cables segment competes primarily on the basis of its product performance and its ability to meet its customers’ highly specified design, engineering and delivery needs on a timely basis.
The Nestor Cables segment faces competition from numerous competitors within each of the markets it serves. The Nestor Cables segment competes primarily on the basis of its product performance and its ability to meet its customers’ highly specified design, engineering and delivery needs on a timely basis.
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, 2022, one customer accounted for 20% of accounts receivable. 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, 2023, three customers accounted for a combined 40% of accounts receivable. These customers are all distributors.
Our operations currently comprise of two reportable segments: the Clearfield Operating Segment, (referred to herein as “Clearfield”) and, since July 26, 2022, the Nestor Cables Operating Segment (referred to herein as “Nestor Cables” or “Nestor”). Prior to July 26, 2022, we were considered to be in a single reporting segment and operating unit structure.
Our operations currently comprise of two reportable segments: the Clearfield Operating Segment (referred to herein as “Clearfield”), and the Nestor Cables Operating Segment (referred to herein as “Nestor Cables” or “Nestor”), which we established following our acquisition of Nestor Cables on July 26, 2022. Prior to July 26, 2022, we had a single reportable segment structure.
We typically experience sequentially lower sales in our first and second fiscal year quarters, primarily due to customer budget cycles, deployment schedules of outdoor products, some customer geographical concentrations as well as standard vacation and holiday calendars. Sales have usually reach a seasonal peak in our third and fourth fiscal quarters.
Seasonality We are affected by the seasonal trends in the industries we serve. We typically experience sequentially lower sales in our first and second fiscal year quarters, primarily due to customer budget cycles, deployment schedules of outdoor products, some customer geographical concentrations, as well as standard vacation and holiday calendars.
Additionally, we may need to take into account the increasing frequency of extreme weather events in the development of our products. The increasing frequency of extreme weather events, changes in weather patterns, drought, rising ocean and temperature levels, earthquakes and the like may impact our manufacturing operations or the manufacturing operations of suppliers of our critical raw materials or components.
An increase in the frequency of extreme weather events, changes in weather patterns, drought, rising ocean and temperature levels, earthquakes and the like may impact our manufacturing operations or the manufacturing operations of suppliers of our critical raw materials or components.
This customer is a distributor. For the fiscal years ended September 30, 2021, and 2020 the Company had two customers that comprised 28% and 30% of net sales, respectively. Both of these customers were distributors.
For the fiscal year ended September 30, 2022, the Company had one customer that comprised 14% of net sales. This customer was a distributor. For the fiscal year ended September 30, 2021, the Company had two customers that comprised a combined 28% of net sales. Both of these customers were distributors.
Over the last several years, we have taken steps to improve our supply chain operations, enhance resiliency and mitigate risk of disruption that are described below under “Developments Regarding, and Actions Taken in Response to, COVID-19.” Major Customers and Financial Information about Geographic Areas For the fiscal year ended September 30, 2022, the Company had one customer that comprised 14% of net sales.
Over the last several years, we have taken steps to improve our supply chain operations, enhance resiliency and mitigate risk of disruption. Major Customers and Financial Information about Geographic Areas For the fiscal year ended September 30, 2023, the Company had one customer that comprised 16% of net sales. This customer is a distributor.
As of September 30, 2021, one customer accounted for 17% of accounts receivable. This customer is a telecommunications service provider in the Company’s Community Broadband market. 5 The Company allocates sales from external customers to geographic areas based on the location to which the product is transported.
As of September 30, 2022, one customer accounted for 20% of accounts receivable. This customer is a distributor. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported.
As of September 30, 2022, we had contracted for approximately 725 personnel in the Mexico facilities through a Maquiladora agreement and these manufacturing personnel are also currently working in two shifts as needed. In our manufacturing operations, we monitor key metrics and goals based on quality, productivity, and ability to meet shipping promise dates.
Nestor Cables has approximately 30 office personnel and 105 manufacturing personnel as of September 30, 2023. As of September 30, 2023, we had contracted for approximately 600 personnel in the Mexico facility through a Maquiladora agreement. In our manufacturing operations, we monitor key metrics and goals based on quality, productivity, and ability to meet shipping promise dates.
Build to Print In addition to a proprietary product line designed for the broadband service provider marketplace, Clearfield provides contract manufacturing services for original equipment manufacturers requiring copper and fiber cable assemblies built to their specification. Competition The market for the fiber management, fiber protection, and fiber delivery products provided by the Clearfield segment is highly competitive.
Currently, the majority of these cell sites are served by fiber backhaul and fronthaul. Build to Print In addition to a proprietary product line designed for the broadband service provider marketplace, Clearfield provides contract manufacturing services for original equipment manufacturers requiring copper and fiber cable assemblies built to their specification.
Human Capital Resources As of September 30, 2022, the Company had approximately 407 full-time employees, of which 70% were based in the United States (“U.S.”) and 30% were based outside of the U.S., primarily in Finland and Estonia due to our Nestor Cables operations. We also employ seasonal, part-time employees and independent contractors.
Sales have usually reached a seasonal peak in our third and fourth fiscal quarters. Human Capital Resources As of September 30, 2023, the Company had approximately 400 full-time employees, of which 65% were based in the United States (“U.S.”) and 35% were based outside of the U.S., primarily in Finland and Estonia due to our Nestor Cables operations.
FTTB Fiber to the Business is principally for Multiple System Operators (cable television) and wireless/wireless national telco carriers (Tier 1) to penetrate the business marketplace. FTT-Cell site Fiber to the Cell site is the trend in which wireless service providers enhance their coverage for bandwidth. Currently, the majority of these cell sites are served by fiber.
We intend to leverage our Nestor platform to cross sell connectivity products into Europe. 4 FTTB Fiber to the Business is principally for Multiple System Operators (cable television) and wireline/wireless national telco carriers (Tier 1) to penetrate the business marketplace. FTT-Cell site Fiber to the Cell site is the trend in which wireless service providers enhance their coverage for bandwidth.
Finally, Clearfield is removing barriers to wireless 4G/5G small cell, Cloud Radio Access Network (“C-RAN”), and distributed antenna system (“DAS”) deployments through better fiber management, test access, and fiber protection.
Finally, Clearfield is removing barriers to wireless 4G/5G deployments in backhaul from the tower to the cloud and fiber fronthaul from the tower to the antenna at the cell site through better fiber management, test access, and fiber protection.
Subject to customarily local collective bargaining arrangements for employees in Finland and Estonia, none of our employees are covered by any collective bargaining agreement. Our U.S. employees include approximately 160 office personnel and 120 manufacturing personnel as of September 30, 2022. The substantial majority of these employees work out of our Brooklyn Park, Minnesota headquarters.
We also employ seasonal, part-time employees and independent contractors. Subject to customarily local collective bargaining arrangements for employees in Finland and Estonia, none of our employees are covered by any collective bargaining agreement. 6 Our U.S. employees include approximately 165 office personnel and 100 manufacturing personnel as of September 30, 2023.
Changes in climate change concerns, or in the regulation of such concerns, including GHG emissions, could subject the Company to additional costs and restrictions, including increased energy and raw material costs and other compliance requirements which could negatively impact the Company’s reputation, business, capital expenditures, results of operations, and financial position. 7 Developments Regarding, and Actions Taken in Response to, COVID-19 Under U.S. federal and state guidance in response to the COVID-19 pandemic, Clearfield’s operations are classified as part of the Cybersecurity and Infrastructure Security Agency (“CISA”) critical infrastructure sector and similar categorization in Minnesota.
Changes in climate change concerns, or in the regulation of such concerns, including GHG emissions, could subject the Company to additional costs and restrictions, including increased energy and raw material costs and other compliance requirements which could negatively impact the Company’s reputation, business, capital expenditures, results of operations, and financial position. 7 Corporate Information Clearfield, Inc. was incorporated under the laws of Minnesota in 1979.
FieldShield Microduct is strong enough to be placed using traditional methods of boring and plowing, leveraging existing conduit placement equipment, as well as newer, less disruptive technologies such as micro trenching or saw cutting. Fiber and Copper Assemblies - Clearfield manufactures high quality with an industry-standard or customer-specified configuration.
FieldShield starts with a ruggedized microduct designed to support all aerial, direct bury, and inside plant “last mile” needs. FieldShield microduct is strong enough to be placed using traditional methods of boring and plowing, leveraging existing conduit placement equipment, as well as newer, less disruptive technologies such as micro trenching or saw cutting.
We believe that the communication industry environment is constantly evolving, and our success depends on our ability to anticipate and respond to these changes. Our product strategy involves analyzing the environment and technology, with a particular focus on simplifying our customers’ business, and developing innovative high-quality products utilizing modular design wherever possible.
Nestor Cables is subject to Finnish government regulation and Nestor Cables Baltics is subject to Estonian government regulation. Products Our product strategy involves analyzing the broadband communications industry environment and technology, with a particular focus on simplifying our customers’ business, and developing innovative, high-quality products utilizing modular designs wherever possible.
Substantially all of the final build and assembly is completed at Clearfield’s plants in Brooklyn Park, Minnesota and Mexico, with manufacturing support from a network of domestic and global manufacturing partners. Clearfield specializes in producing these products on both a quick-turn and scheduled delivery basis. Products Product development for the Company’s product line program has mainly been conducted internally.
Substantially all of the final build and assembly is completed at Clearfield’s plants in Brooklyn Park, Minnesota and Tijuana, Mexico, with manufacturing support from a network of domestic and global manufacturing partners.
Competitors to the CraftSmart product line include products offered by Emerson Network Power, a subsidiary of Vertiv Co., and Charles Industries, Ltd., a subsidiary of Amphenol. Competitors to FieldShield include products offered by PPC Broadband, Inc. In various geographic or vertical markets, there are also several smaller companies with which we compete.
Competitors to the CraftSmart and FiberFlex active cabinet product lines include products offered by Emerson Network Power, a subsidiary of Vertiv Co., and Charles Industries, Ltd., a subsidiary of Amphenol. Competitors to FieldShield product lines include products offered by PPC Broadband, a subsidiary of Belden, Inc and Emtelle UK Limited.
The products are built and tested for harsh environments to meet the strictest industry standards ensuring customers trouble-free performance in extreme outside plant conditions.
The products are built and tested for harsh environments to meet the strictest industry standards ensuring customers trouble-free performance in extreme outside plant conditions. Active Cabinets using our FiberFlex product lines feature either fully integrated, fully engineered cabinets equipped with specific active electronics configurations or universal cabinets ready for mounting other electronic equipment.
Our supply chain management team oversees our suppliers to source and procure materials, manufacture and deliver our products to customers from the site of manufacture, whether at Clearfield’s facility in Brooklyn Park, Minnesota or the two facilities in Tijuana, Mexico that operate as Maquiladoras. Our supply chain management team consists of planning, sourcing, and logistics personnel.
Maquiladora status also allows us to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame. 5 Our supply chain management team oversees our suppliers to source and procure materials, manufacture and deliver our products to customers from the site of manufacture, whether at Clearfield’s facility in Brooklyn Park, Minnesota or the facility in Tijuana, Mexico that operates as Maquiladoras.
The central building block of FieldSmart is the patented technology surrounding the Clearview® Cassette. WaveSmart ® optical components are integrated for signal coupling, splitting, termination, multiplexing, demultiplexing and attenuation for a seamless integration within our fiber management platform.
All types of fiber cable construction can be integrated within the cassette to support all patch only, patch and splice (in-cassette splicing), passive optical component hardware and plug-and-play scenarios. WaveSmart ® optical components are integrated for signal coupling, splitting, termination, multiplexing, demultiplexing and attenuation for a seamless integration within our fiber management platform.
Nestor Cables’ customer base includes telecom operators, network owners, contractors, industries and wholesalers. Products are sold via distributors, and directly to end users. Nestor Cables is subject to Finnish government regulation; Nestor Cables Baltics is subject to Estonian government regulation.
Nestor has two types of production processes, the process of making cable in its Finland facility and the finished assembly portion of its business performed in Estonia. Nestor Cables’ customer base includes telecom operators, network owners, contractors, industries and wholesalers. Products are sold via distributors and directly to end users.
Active Cabinets (“ ODC ”), Fiber Active Cabinet (“ FAC ”), and FiberFlex product lines feature either fully integrated, fully engineered cabinets equipped with specific active electronics configurations or universal cabinets ready for mounting other electronic equipment. This product line features Clearfield’s fiber management solutions housing the Clearview Cassette.
This product line features Clearfield’s fiber management solutions housing the Clearview Cassette. The FieldSmart® FiberFlex product line of outdoor active cabinets feature multiple sizes for universal configurations of electronic equipment. CraftSmart ® FiberFirst ™ pedestals are designed to support fiber-only networks.
Nestor Cables is based in Oulu, Finland, with operations in Keila, Estonia through its wholly -owned subsidiary, Nestor Cables Baltics Ltd. Nestor Cables 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 manufactures fiber optic and copper telecommunication cables and equipment which it distributes to telecommunication operators, network owners, electric companies, building contractors, and industrial companies. Prior to the acquisition, Nestor Cables had been a supplier to Clearfield for over a decade and that relationship continued following the closing of the acquisition.
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. Nestor Cables Operating Segment As of July 26, 2022, Clearfield through its newly created Finnish subsidiary, Clearfield Finland Ltd, acquired Nestor Cables.
Clearfield specializes in producing these products on both a quick-turn and scheduled delivery basis. 2 Nestor Cables Operating Segment As of July 26, 2022, Clearfield, through its newly created Finnish subsidiary, Clearfield Finland Oy, acquired Nestor Cables. Nestor Cables is based in Oulu, Finland, with operations in Estonia through its wholly owned subsidiary, Nestor Cables Baltics OÜ.
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Our “fiber to anywhere” platform serves the unique requirements of leading incumbent local exchange carriers (“Traditional Carriers”), wireless operators, Multiple Systems Operators and Cable TV companies (“MSO’s”), and competitive local exchange carriers (“Alternative Carriers”), while also catering to the broadband needs of the utility/municipality, enterprise, and data center markets. We are engaged in global operations.
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Our “fiber to anywhere” platform serves the unique requirements of Community Broadband customers (Tier 2 and 3 telco carriers, utilities, municipalities, and alternative carriers), Multiple System Operators (cable television), Large Regional Service Providers (ILEC operating a multi-state network with more than 500,000 subscribers), National Carriers (wireline/wireless national telco carriers (Tier 1)), and International customers (primarily Europe, Canada, Mexico, and Caribbean Markets).
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On July 26, 2022, we acquired Nestor Cables Ltd, 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.
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Our mission is to enable the lifestyle that better broadband provides through innovative product design that accelerates fiber-based deployment, making communications simpler and more affordable for people everywhere.
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The purchase of Nestor Cables is expected to provide Clearfield with the ability to vertically integrate the supply of fiber optic cables and help meet customer demand for its products.
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We believe our products offer broadband service providers a competitive advantage at a crucial time when demand for fiber-based services is increasing to historic levels as providers focus on passing and connecting more homes. We are driven to help broadband service providers reduce the cost - and increase the speed - of fiber deployment.
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Nestor Cables’ technical expertise is expected to extend the supply of FieldShield into the North American market to reduce cost and complexity of transportation. 1 Upon closing of the acquisition of Nestor Cables, the Company reassessed its operating segments as defined under Accounting Standards Codification (“ASC”) 280, Segment Reporting .
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Strategy Overview In 2022, we launched a transformative multi-year strategy plan called LEAP. To leap means jumping higher, further and with greater force. The LEAP plan is our roadmap to how we intend to scale as a company to seize the opportunity Clearfield was built to achieve. There are four tenets in our LEAP plan, one for each letter.
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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.
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The L is to leverage our decade-long excellence in community broadband. We are a leader in community broadband fiber connectivity and have been focused on serving this market since we were founded. We make decisions by listening to our customers and understanding their evolving needs.
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Prior to our acquisition, Nestor Cables had been a supplier to Clearfield for over a decade and that relationship continued following the closing of the acquisition. Nestor has two types of production processes, the process of making cable in its Finland facility and the finished assembly portion of its business performed in Estonia.
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Building on our decade plus of success in this market, we’ve demonstrated that we can nimbly adapt to a changing marketplace and grow with our customers as they grow. The E is to execute capacity enhancement. This tenet is centered around aligning us closer to market demand by building production capacity that facilitates optimal time to market.
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Research and development are reflected in Selling, General, & Administrative expenses.
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We are structured to maintain our market leadership position and to gain market share from competitors and grow the business overall, by matching our capacity to address the significant market demand for fiber broadband. 1 The A is to accelerate infrastructure investments.
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The FieldSmart® FAC and FiberFlex product line of outdoor active cabinets feature multiple sizes for universal configurations of electronic equipment. FieldShield ® is a patented fiber pathway and protection method aimed at reducing the cost of broadband deployment. FieldShield starts with a ruggedized microduct designed to support all aerial, direct bury, and inside plant “last mile” needs.
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This tenet reflects our commitment to continue investing in our organizational infrastructure to support the growing business and effectively manage our expanded capacity. This includes attracting and retaining key personnel, optimizing internal processes, and adding information systems to take advantage of the opportunity to achieve scalable company growth.
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DAS A distributed-antenna system, or DAS, is a network of spatially separated antenna nodes connected to a common source via a transport medium that provides wireless service within a geographic area or structure. C-RAN C-RAN uses front-haul fiber to connect the Remote Radio Head (“RRH”) to a Baseband Unit (“BBU”) located in a datacenter (i.e., the cloud).
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Finally, the P in LEAP stands for position innovation at the forefront of our value proposition. Accelerating our customers’ time to revenue by designing craft-friendly products that require less skilled labor is the foundation of our value proposition.
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C-RAN is an evolution of RAN cellular architecture that traditionally used fiber to backhaul signals from the BBU at a tower back to the mobile core network.
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We intend to achieve this tenet by emphasizing innovation in our product designs and increasing the cadence of our product expansions with the goal of facilitating our customers’ fiber broadband deployments. Segments We are engaged in global operations.
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Maquiladora also status allows us to import certain items from the United States into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame.
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We are committed to make fiber deployment success easier by providing craft-friendly, pre-connectorized plug-and-play fiber assemblies, fiber management and pathway products to speed deployments and provide the lowest total cost of ownership for our customer’s networks.
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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 $164,914,000, and $66,365,000 as of September 30, 2022, and 2021, respectively. At September 30, 2022, most of the Company’s backlog orders are scheduled to ship within the next six months.
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With the innovation of forward-thinking products, a 100 percent plug-and-play platform and creative deployment methods, we are fulfilling our mission to enable the lifestyle that better broadband provides.
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We believe that the Nestor Cables segment generally experiences the same seasonality as the Clearfield segment. Seasonality We are affected by the seasonal trends in the industries we serve.
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Throughout the fiber deployment journey from the Inside Plant (ISP) to the Outside Plant (OSP), into the Access Network and all the way to the fiber connection at the home, our labor lite solutions solve service provider fiber network design and installation challenges.
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To date, our training programs and overall collaborative working environment have allowed us to be successful in attracting and retaining qualified technical personnel for these positions. 6 Nestor Cables has approximately 40 office personnel and 90 manufacturing personnel as of September 30, 2022.
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Our methodologies provide easy to engineer and easy to install solutions that take the mystery out of deploying fiber networks. Leveraging factory terminated single-fiber and multi-fiber plug-and-play connectors, homes passed, and homes connected metrics can be greatly increased.
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In March 2020, we transitioned our corporate employees at our Brooklyn Park headquarters to remote work arrangements and they currently continue primarily working remote.
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The speed to turn up the entire network is maximized, while helping ensure superior optical performance achieved by using low-loss connectors, terminated in the factory. Whether inside a cabinet or at the home, innovative slack storage spools and deploy reels reduce the dependence on making exact cable measurements.
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In accordance with the Centers for Disease Control and Prevention (“CDC”) and World Health Organization (“WHO”) guidelines, we implemented and have continued health and safety measures for the production staff that remain onsite at our Brooklyn Park facility. We have maintained our manufacturing capacity in Brooklyn Park with these personnel at near historic levels.
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This enables the deployment of double-ended, standard cable lengths rather than relying on highly engineered, built to order cable assemblies or multiple field splicing events. Product development for the Company’s product line program has mainly been conducted internally.
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Similarly, we have ensured implementation of the recommended health and safety measures for the production staff that remain onsite at our Tijuana, Mexico manufacturing facilities that operate as Maquiladoras. Throughout the COVID-19 pandemic, the Company has closely monitored the operations and staffing levels at its Brooklyn Park facility and the two manufacturing facilities in Tijuana, Mexico.
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We believe that the communication industry environment is constantly evolving, and our success depends on our ability to anticipate and respond to these changes. Research and development are reflected in Selling, General, & Administrative expenses.
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Due to the risks to timely supply of materials to our facilities, we have taken multiple actions to ensure sufficient safety stock inventory levels at both our Minnesota and Mexico facilities.
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The Clearview® Cassette is the core building block of every product within the FieldSmart fiber management system. Clearview configuration options support tool-less installation, in-cassette buffer tube/ribbon slack storage as well as front access-only designs. The small footprint reduces real estate costs and improves density without compromising critical design elements of access, bend-radius protection, physical fiber protection and route path diversity.
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Additionally, we made the decision to maximize the availability of all product lines at all three of our plants by assuring that each location can manufacture across our broad product portfolio. These actions, combined with our historic practice of dual sourcing most of our components, has positioned us to meet our obligations to customers and to fulfill our sales backlog.
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Purpose-built to support a wide variety of service network designs, the pedestal eliminates the need for multiple, specialty pedestals and can support a passive optical network (PON) option, a splice-only option, or an access terminal option.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe depend on the availability of sufficient supply of certain materials and global disruptions in the supply chain for these materials could prevent us from meeting customer demand for our products. We purchase critical components for our products, including injected molded parts, various cabling, optical components, and connectors from third parties, some of whom are single- or limited-source suppliers.
Biggest changeWe purchase critical components for our products, including injected molded parts, various cabling, optical components, components for active cabinets, and connectors from third parties, some of whom are single- or limited-source suppliers. We depend on the ability of these third-party suppliers to secure a sufficient supply of raw materials and maintain sufficient manufacturing and shipping capacity.
Sustained or worsening of global economic conditions and geopolitical issues may disrupt or increase our cost of doing business and otherwise disrupt and delay our supply chain operations.
Sustained or worsening global economic conditions and geopolitical issues may disrupt or increase our cost of doing business and otherwise disrupt and delay our supply chain operations.
Despite the Company’s implementation of preventative security measures and controls to prevent, detect, and mitigate these threats, our infrastructure may still be susceptible to disruptions from cybersecurity incidents including ransomware attacks, security breaches, computer viruses, outages, systems failures, any of which could include the inability to access critical data, reputational damage, loss of our intellectual property, release of highly sensitive confidential information, litigation with third parties and/or governmental investigations and fines, which could have a material adverse effect on our financial condition and results of operations.
Despite the Company’s implementation of preventative security measures and controls to prevent, detect, and mitigate these threats, our infrastructure may still be susceptible to disruptions from cybersecurity incidents including ransomware attacks, security breaches, computer viruses, outages, and systems failures, any of which could include the inability to access critical data, reputational damage, loss of our intellectual property, release of highly sensitive confidential information, litigation with third parties and/or governmental investigations and fines, which could have a material adverse effect on our financial condition and results of operations.
Litigation has been in the past and may be necessary in the future to defend or enforce our intellectual property rights, to protect our patents and trade secrets, and to determine the validity and scope of our proprietary rights. Any litigation also may involve substantial costs and diversion of the attention of company management away from operational activities.
Litigation has been necessary in the past and may be necessary in the future to defend or enforce our intellectual property rights, to protect our patents and trade secrets, and to determine the validity and scope of our proprietary rights. Any litigation also may involve substantial costs and diversion of the attention of Company management away from operational activities.
Certain provisions of our articles of incorporation and bylaws, Minnesota law, and other agreements may make it more difficult for a third-party to acquire, or discourage a third-party from attempting to acquire, control of our company, including: ● the provisions of our bylaws setting forth the advance notice and information requirements for shareholder proposals, including nominees for directors, to be considered properly brought before shareholders; ● the right of our board of directors to establish more than one class or series of shares and to fix the relative rights and preferences of any such different classes or series; ● the provisions of Minnesota law relating to business combinations and control share acquisitions; and ● the provisions of our equity compensation plans allowing for the acceleration of vesting or payments of awards granted under the plans in the event of specified events that result in a “change in control” and provisions of agreements with certain of our executive officers requiring payments if their employment is terminated and there is a “change in control.” These measures could discourage or prevent a takeover of us or changes in our management, even if an acquisition or such changes would be beneficial to our shareholders.
Certain provisions of our articles of incorporation and bylaws, Minnesota law, and other agreements may make it more difficult for a third-party to acquire, or discourage a third-party from attempting to acquire, control of our Company, including: ● the provisions of our bylaws setting forth the advance notice and information requirements for shareholder proposals, including nominees for directors, to be considered properly brought before shareholders; ● the right of our board of directors to establish more than one class or series of shares and to fix the relative rights and preferences of any such different classes or series; ● the provisions of Minnesota law relating to business combinations and control share acquisitions; and ● the provisions of our equity compensation plans allowing for the acceleration of vesting or payments of awards granted under the plans in the event of specified events that result in a “change in control” and provisions of agreements with certain of our executive officers requiring payments if their employment is terminated and there is a “change in control.” 17 These measures could discourage or prevent a takeover of us or changes in our management, even if an acquisition or such changes would be beneficial to our shareholders.
Further, changes in government programs in our industry or uncertainty regarding future changes could adversely impact our customers’ or prospective customers’ decisions regarding timing and amounts of capital spending, which could decrease demand for our products, delay orders or result in pricing pressure from these customers.
Changes in government programs in our industry or uncertainty regarding future changes could adversely impact our customers’ or prospective customers’ decisions regarding timing and amounts of capital spending, which could decrease demand for our products, delay orders or result in pricing pressure from these customers.
As a result, certain component inventory purchases may become excess or obsolete, which could have an adverse effect on our financial condition and results of operations. 11 The reduction of available production capacity among our suppliers, their failures to meet production deadlines or increases to us in their manufacturing or shipping costs may impact our ability to deliver quality products to our customers on a timely basis, make our products less competitive due to extended delivery times or increased price, negatively impact our customer or distributor relationships, and result in lower net sales and profit.
As a result, certain component inventory purchases may become excess or obsolete, which could have an adverse effect on our financial condition and results of operations. 9 The reduction of available production capacity among our suppliers, their failures to meet production deadlines or increases to us in their manufacturing or shipping costs may impact our ability to deliver quality products to our customers on a timely basis, make our products less competitive due to extended delivery times or increased price, negatively impact our customer or distributor relationships, and result in lower net sales and profit.
Additionally, as cybersecurity threats continue to evolve, we may be required to devote additional resources to continue to enhance our information security measures and controls to mitigate these new and emerging threats. 15 Our business is dependent on interdependent management information systems.
Additionally, as cybersecurity threats continue to evolve, we may be required to devote additional resources to continue to enhance our information security measures and controls to mitigate these new and emerging threats. Our business is dependent on interdependent management information systems.
The risks inherent in pursuing or completing an acquisition include: ● diversion of management’s attention from existing business activities; ● difficulties or delays in integrating and assimilating information and financial systems, operations and products of an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings and synergies; 13 ● potential difficulties in managing our expanded international operations and, in the case of the Nestor acquisition, potential difficulties in managing our non-U.S. subsidiaries, including the burden and cost of complying with a variety of international laws; ● potential loss of key employees, customers and suppliers of the acquired businesses or adverse effects on relationships with existing customers and suppliers; ● adverse impact on overall profitability if the acquired business does not achieve the return on investment projected at the time of acquisition; ● currency translations and fluctuations may adversely affect the financial performance of our consolidated operations; and ● with respect to the acquired assets and liabilities, inaccurate assessment of additional post-acquisition capital investments; undisclosed, contingent or other liabilities; problems executing backlog of material supply or installation projects; unanticipated costs; and an inability to recover or manage such liabilities and costs.
The risks inherent in pursuing or completing an acquisition include: ● diversion of management’s time and attention away from existing business activities; ● difficulties or delays in integrating and assimilating information and financial systems, operations and products of an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings and synergies; ● potential difficulties in managing our expanded operations and, in the case of international acquisitions, potential difficulties in managing non-U.S. subsidiaries, including the burden and cost of complying with a variety of international laws; ● potential loss of key employees, customers and suppliers of the acquired businesses or adverse effects on relationships with existing customers and suppliers; ● adverse impact on overall profitability if the acquired business does not achieve the return on investment projected at the time of acquisition; ● currency translations and fluctuations may adversely affect the financial performance of our consolidated operations; and ● with respect to the acquired assets and liabilities, inaccurate assessment of additional post-acquisition capital investments; undisclosed, contingent, or other liabilities; problems executing backlog of material supply or installation projects; unanticipated costs; and an inability to recover or manage such liabilities and costs.
This fluctuation can be further affected by the long sales cycles necessary to obtain contracts to supply equipment for these projects, the availability of capital to fund our customers’ projects, changes, or delays in customer deployment schedules and the impact of the government regulation to encourage service to unserved or underserved communities, rural areas or other high-cost areas on customer buying patterns.
This fluctuation can be further affected by the long sales cycles necessary to obtain contracts to supply equipment for these projects, the availability of capital to fund our customers’ projects, changes or delays in customer deployment schedules, and the impact of government programs to encourage service to unserved or underserved communities, rural areas or other high-cost areas on customer buying patterns.
Competition from manufacturers of telecommunications equipment such as ours may result in price reductions, lower gross profit margins, increased discounts to customers, and loss of market share could require increased spending by us on research and development, sales and marketing, and customer support. Our success depends upon adequate protection of our patent and intellectual property rights.
Competition from manufacturers of telecommunications equipment such as ours may result in price reductions, lower gross profit margins, increased discounts to customers, and loss of market share, which could require increased spending by us on research and development, sales and marketing, and customer support. Our success depends upon adequate protection of our patent and other intellectual property rights.
Further, tariffs may be imposed by the U.S. on imports from other countries that are the single- or limited-source of our materials and components. Tariffs increase the cost of the materials and components that go into making our products, but we are generally unable to pass long these increased costs to our customers.
Further, tariffs may be imposed by the U.S. on imports from other countries that are the single- or limited-source of our materials and components. Tariffs increase the cost of the materials and components that go into making our products, but we are generally unable to pass most of these increased costs on to our customers.
Our ability to compete successfully will depend on whether we can continue to advance the technology of our products and develop new products, the acceptance of our products among our customers and prospective customers, and our ability to anticipate customer needs in product development, as well as the price, quality and reliability of our products, our delivery and service capabilities and our control of operating expenses.
Our ability to compete successfully will depend on whether we can continue to advance the technology of our products and develop new products, the acceptance of our products among our customers and prospective customers, and our ability to anticipate customer needs in product development, as well as the price, quality and reliability of our products, our delivery and service capabilities and our control of production capacity and operating expenses.
These factors could negatively affect the cost and supply of components needed for our products, our ability to ship products to customers and ultimately impact our business, financial condition and result of operations. Our planned growth may strain our business infrastructure, which could adversely affect our operations and financial condition.
These factors could negatively affect the cost and supply of components needed for our products, our ability to ship products to customers and ultimately impact our business, financial condition, and result of operations. 11 Growth may strain our business infrastructure, which could adversely affect our operations and financial condition.
Our ability to meet expected future customer demand for our products will in turn depend upon our suppliers receiving timely and adequate supply of raw materials to be able to produce the critical materials and components they supply to us.
Our ability to meet future customer demand for our products will in turn depend upon our suppliers receiving timely and adequate supplies of raw materials to be able to produce the critical materials and components they supply to us.
Our business, including global supply chain is affected by global economic conditions and geopolitical issues. Geopolitical issues, such as the Russia invasion of Ukraine and related economic sanctions and tensions between Russia and NATO countries, has resulted in increasing global tensions, rising fuel costs and creates uncertainty for our global supply chain.
Our business, including global supply chain, is affected by global economic conditions and geopolitical issues. Geopolitical issues, such as the Russian invasion of Ukraine and related economic sanctions and tensions between Russia and NATO countries, has resulted in increasing global tensions, rising energy costs and creates uncertainty for our global supply chain.
Other factors that may affect our quarterly operating results include: ● the volume and timing of orders from and shipments to our customers, particularly significant customers; ● mergers and acquisitions activity among our customers; ● work stoppages and other developments affecting the operations of our customers; ● the timing of and our ability to obtain required certifications or qualifications to sell products, the timing of and our ability to obtain new customer contracts, and the timing of revenue recognition; ● the timing of new product and service announcements; ● the availability of products and services; ● market acceptance of new and enhanced versions of our products and services, including the impact of government regulations on customers purchasing decisions; ● variations in the mix of products and services we sell; ● the utilization of our production capacity and employees, including foreign operations; ● the availability and cost of key components of our products, including the impact of new or increased tariffs; and ● accounting treatment related to stock-based compensation.
Other factors that may affect our quarterly operating results include: ● the volume and timing of orders from and shipments to our customers, particularly significant customers; ● mergers and acquisitions activity among our customers; ● work stoppages and other developments affecting the operations of our customers; ● the timing of and our ability to obtain required certifications or qualifications to sell products, the timing of and our ability to obtain new customer contracts, and the timing of revenue recognition; 16 ● the timing of new product and service announcements; ● the availability of products and services; ● seasonal trends in the industries we serve; ● market acceptance of new and enhanced versions of our products and services, including the impact of government programs on customers purchasing decisions; ● variations in the mix of products and services we sell; ● the utilization of our production capacity and employees, including foreign operations; ● the availability and cost of key components of our products, including the impact of new or increased tariffs; and ● accounting treatment related to stock-based compensation.
A significant percentage of our sales in the last three fiscal years have been made to a small number of customers, and the loss of these major customers could adversely affect us. Our customer base includes direct customers, OEMs and distributors. For fiscal year 2022, the Company had one customer that comprised 14% of net sales.
A significant percentage of our sales in the last three fiscal years have been made to a small number of customers, and the loss of these major customers could adversely affect us. Our customer base includes direct customers, OEMs, and distributors. For fiscal year 2023, the Company had one customer that comprised 16% of net sales.
After a consolidation occurs, a customer may choose to reduce the number of vendors from which it purchases equipment and may choose one of our competitors as its preferred vendor. There can be no assurance that we will continue to supply equipment to the surviving communications service provider after a business combination is completed.
After a consolidation occurs, a customer may choose to reduce the number of vendors from which it purchases equipment and may choose one of our competitors as its preferred vendor. There can be no assurance that we will continue to supply equipment to the surviving company after a business combination is completed.
Our failure to attract and retain skilled personnel could hinder the management of our business, our research and development, our sales and marketing efforts and our manufacturing capabilities. Our future success depends to a significant degree upon the continued services of key senior management personnel, including Cheryl Beranek, our Chief Executive Officer and John P. Hill, our Chief Operating Officer.
Our failure to attract, develop and retain skilled personnel could hinder the management and growth of our business, our research and development, our sales and marketing efforts and our manufacturing capabilities. Our future success depends to a significant degree upon the continued services of key senior management personnel, including Cheryl Beranek, our Chief Executive Officer, and John P.
Fluctuations in exchange rates between the Euro and U.S. dollar may impact our results of operations, financial position and cashflows. The Company expects to continue to experience fluctuations in the U.S. dollar value of these activities if it is not possible, cost-effective or should we not elect to hedge certain currency exposure.
Fluctuations in exchange rates between the Euro and U.S. dollar may impact our results of operations, financial position and cashflows. The Company expects to continue to experience fluctuations in the value of the U.S. dollar against the Euro and other currencies if it is not possible, cost-effective or should we not elect to hedge certain currency exposure.
This has led some manufacturers who depend on these raw materials to experience shortages, delivery delays and price increases for both the raw materials and shipping, with the corresponding consequence that these manufacturers may be delayed in delivering products to their customers or may charge higher prices for these products, or there may be increased shipping costs associated with the products.
This may lead some manufacturers who depend on these raw materials to experience shortages, delivery delays and price increases for both the raw materials and shipping, with the corresponding consequence that these manufacturers may be delayed in delivering products to us or may charge higher prices for these products, or there may be increased shipping costs associated with the products.
As we grow, we will face the risk that our existing resources and systems, including management resources, enterprise technology and operating systems, may be inadequate to support our growth. We cannot assure you that we will be able to retain the personnel or make the changes in our systems that may be required to support our growth.
As we grow, we will face the risk that our existing resources and systems, including management resources, enterprise technology and operating systems, may be inadequate to support our growth. There can be no assurance that we will be able to retain the personnel or make the changes in our systems that may be required to support our growth.
The occurrence of this litigation or the effect of an adverse determination in the current litigation or similar future litigation could have a material adverse effect on our business, financial condition and results of operations. We face risks associated with expanding our sales outside of the United States.
The occurrence of litigation or the effect of any settlement or an adverse determination in litigation could have a material adverse effect on our business, financial condition, and results of operations. 15 We face risks associated with expanding our sales outside of the United States.
We have employment agreements with Ms. Beranek and Mr. Hill that provide that if we terminate the employment of either executive without cause or if the executive terminates her or his employment for good reason, we would be required to make specified payments to them as described in their employment agreements. We have key person life insurance on Ms.
Hill, our Chief Operating Officer. We have employment agreements with Ms. Beranek and Mr. Hill that provide that if we terminate the employment of either executive without cause or if the executive terminates her or his employment for good reason, we would be required to make specified payments to them as described in their employment agreements.
Furthermore, restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, resulting in higher costs and delays, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers.
Restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, resulting in higher costs and delays, could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers. Employee health, availability, productivity, and efficiency may be adversely impacted.
If these technologies are patented or proprietary to our competitors, we may not be able to access these technologies. 16 If we fail to anticipate or respond in a cost-effective and timely manner to technological developments, changes in industry standards or customer requirements, or if we experience any significant delays in product development or introduction, our business, operating results and financial condition could be affected adversely.
If we fail to anticipate or respond in a cost-effective and timely manner to technological developments, changes in industry standards or customer requirements, or if we experience any significant delays in product development or introduction, our business, operating results, and financial condition could be affected adversely.
The failure of our third-party manufacturers to manufacture the products for us or the failure of our suppliers of components and raw materials to supply us these items consistent with our requirements as to quality, quantity and timeliness could materially harm our business by causing delays, lost sales, increases in costs and lower gross profit margins. 10 An increasing amount of products manufactured by the Company are produced outside the U.S., including in our Mexico facilities.
The failure of our third-party manufacturers to manufacture the products for us or the failure of our suppliers of components and raw materials to supply us these items consistent with our requirements as to quality, quantity and timeliness could materially harm our business by causing delays, lost sales, increases in costs and lower gross profit margins.
Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and new reports relating to trends in our markets or general economic conditions. 19 In addition, the stock market is subject to price and volume fluctuations that affect the market prices for companies in general, and small-capitalization, high-technology companies like us in particular.
Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and new reports relating to trends in our markets or general economic conditions.
However, we may be unable to fully pass on these costs to our customers. Long lead times for certain components, as detailed above, along with increased demand for our products may impact our ability to accurately forecast our production requirements.
However, we may be unable to fully pass on these costs to our customers. Long lead times for certain components and changes in demand for our products may impact our ability to accurately forecast our production requirements.
We believe that our future growth depends in part upon our ability to increase sales in international markets. These sales are subject to a variety of risks, including fluctuations in currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected changes in regulatory requirements, longer accounts receivable payment cycles, potentially adverse tax consequences, and export license requirements.
These sales are subject to a variety of risks, including fluctuations in currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected changes in legal and regulatory requirements, longer accounts receivable payment cycles, potentially adverse tax consequences, and export license requirements.
Competition in the telecommunications equipment and services industry is intense. Our competitors may have or could develop or acquire marketing, financial, development and personnel resources that exceed ours.
Intense competition in our industry may result in price reductions, lower gross profits, and loss of market share. Competition in the telecommunications equipment and services industry is intense. Our competitors may have or could develop or acquire marketing, financial, development and personnel resources that exceed ours.
For example, programs like the Connect America Fund (CAF), which provides a capital expenditure subsidy for the build-out of the country’s broadband network, and the Rural Digital Opportunity Fund (RDOF), which will provide a capital expenditure subsidy for the support high-speed broadband networks in rural America, may subsidize or encourage spending by our customers or prospective customers on capital spending projects that utilize our products.
For example, programs like the Connect America Fund (CAF), which provides a capital expenditure subsidy for the build-out of the country’s broadband network, the Rural Digital Opportunity Fund (RDOF), which will provide a capital expenditure subsidy for the support of high-speed broadband networks in rural America, and the Broadband Equity, Access and Deployment (BEAD) program, among others, which will provide funding for broadband deployment, mapping and adoption projects in unserved and underserved areas in the United States, its territories, and the District of Columbia, may subsidize or encourage spending by our customers or prospective customers on capital spending projects that utilize our products.
Any delays or inabilities in meeting customer required shipping dates may also expose us to order cancellations in our sales backlog by customers, which could have an adverse effect on our results of operations. We rely on our manufacturing operations to produce product to ship to customers. Manufacturing constraints and disruptions could result in decreased future revenue.
Any delays or inabilities in meeting customer required shipping dates may also expose us to order cancellations in our sales order backlog by customers, which could have an adverse effect on our results of operations.
Our agreements with our distributor customers do not prohibit them from purchasing or offering products or services that compete with ours. We believe that the loss of our major distributor customers would likely result in purchases being re-directed through other sales channels, for example our other distributors, independent sales representatives, or through direct sales by the Company to customers.
We believe that the loss of our major distributor customers would likely result in purchases being re-directed through other sales channels, for example our other distributors, independent sales representatives, or through direct sales by the Company to customers.
Currently, demand for high-speed broadband capabilities and access is increasing rapidly due to the pandemic, but future growth may be limited by several factors, including, among others: (1) relative strength or weakness of the global economy or certain countries or regions, including the impact of the current global effects due to COVID-19, (2) an uncertain regulatory environment, and (3) uncertainty regarding long-term sustainable business models as multiple industries, such as the cable, traditional telecommunications, wireless and satellite industries, offer competing content delivery solutions.
Currently, demand for high-speed broadband capabilities and access is increasing, but future growth may be limited by several factors, including, among others: (1) relative strength or weakness of the global economy or certain countries or regions, (2) an uncertain regulatory environment, (3) uncertainty regarding long-term sustainable business models as multiple industries, such as the cable, traditional telecommunications, wireless and satellite industries, offer competing content delivery solutions, (4) excess product inventory in the marketplace, (5) lack of available skilled labor to install product; and (6) delays in the permitting process for fiber optic network installations.
Further, recent economic conditions have resulted in significant fluctuations in stock prices for many companies, including Clearfield. We cannot predict when the stock markets and the market for our common stock may stabilize. In addition, although our common stock is listed on the Nasdaq Stock Market, our common stock has at times experienced low trading volume in the past.
We cannot predict when the stock markets and the market for our common stock may stabilize. In addition, although our common stock is listed on the Nasdaq Stock Market, our common stock has at times experienced low trading volume in the past.
We cannot assure you that we will be able to compete successfully against our current or future competitors.
There can be no assurance that we will be able to compete successfully against our current or future competitors.
Customers integrating large-scale acquisitions may also reduce their purchases of equipment during the integration period, or postpone or cancel orders. 12 The impact of significant mergers among our customers on our business is likely to be unclear until sometime after such transactions are completed, which may take a year or more.
The impact of significant mergers and acquisitions among our customers on our business is likely to be unclear until sometime after such transactions are completed, which may take a year or more.
In connection with this merger and acquisition activity, our customers may postpone or cancel orders for our product based on revised plans for technology or network expansion pending consolidation activity.
In connection with this merger and acquisition activity, our customers may postpone or cancel orders for our product based on revised plans for technology or network expansion pending consolidation activity. Customers integrating large-scale mergers or acquisitions may also reduce their purchases of equipment during the integration period or postpone or cancel orders.
The termination or interruption of any of these relationships, or the failure of these manufacturers or suppliers to supply components or raw materials to us on a timely basis or in sufficient quantities, likely would cause us to be unable to meet orders for our products and harm our reputation and our business.
Furthermore, due to general economic conditions in the U.S. and globally, our suppliers may experience financial difficulties, which could result in increased delays, additional costs, or loss of a supplier. 8 The termination or interruption of any of these relationships, or the failure of these manufacturers or suppliers to supply components or raw materials to us on a timely basis or in sufficient quantities, likely would cause us to be unable to meet orders for our products and harm our reputation and our business.
Beranek and Mr. Hill. We also have employment agreements with other key management. Further, our future success also depends on our continuing ability to attract, retain, and motivate highly qualified managerial, technical and sales personnel. Our inability to retain or attract qualified personnel could have a significant negative effect and thereby materially harm our business and financial condition.
We have key person life insurance on Ms. Beranek and Mr. Hill. We also have employment agreements with other key management. Further, our future success also depends on our continuing ability to attract, develop, retain, and motivate highly qualified managerial, technical and sales personnel.
These risks associated with international operations may have a material adverse effect on our revenue from or costs associated with international sales. 18 Risks Relating to Our Common Stock Our operating results may fluctuate significantly from quarter to quarter, which may make budgeting for expenses difficult and may negatively affect the market price of our common stock.
Risks Relating to Our Common Stock Our operating results may fluctuate significantly from quarter to quarter, which may make budgeting for expenses difficult and may negatively affect the market price of our common stock.
Changes in U.S. government funding programs may cause our customers and prospective customers to delay, reduce, or accelerate purchases, leading to unpredictable and irregular purchase cycles. The telecommunications and cable television industries are subject to significant and changing U.S. federal and state regulation, some of which subsidizes or encourages spending on initiatives that utilize our products.
The telecommunications and cable television industries are subject to significant and changing U.S. federal and state regulation, some of which subsidizes or encourages spending on initiatives that utilize our products.
While we monitor our networks and continue to enhance our network security measures, particularly as we transitioned to some remote work, cyber-attacks have increased in frequency and sophistication, and our efforts may not be adequate to prevent all cybersecurity incidents.
Cybersecurity threats continue to expand and evolve, making it difficult to detect and prevent such threats from impacting the Company. While we monitor our networks and continue to enhance our network security measures, cyber-attacks have increased in frequency and sophistication, and our efforts may not be adequate to prevent all cybersecurity incidents.
If our products do not meet our customers’ performance requirements, our customer relationships may suffer. Also, our products may contain defects or fail to meet product specifications.
Product defects or the failure of our products to meet specifications or domestic content requirements could cause us to lose customers and sales or to incur unexpected expenses. If our products do not meet our customers’ performance requirements, our customer relationships may suffer. Also, our products may contain defects or fail to meet product specifications.
For fiscal years 2021 and 2020, the Company had two customers that comprised 28% and 30% of net sales, respectively. These customers are all distributors. These customers, like our other customers, purchase our products from time to time through purchase orders. We do not have any agreements that obligate our customers to purchase products in the future from us.
For fiscal year 2022, the Company had one customer that comprised 14% of net sales, and for fiscal year 2021 the Company had two customers that comprised a combined 28%, of net sales. These customers are all distributors. These customers, like our other customers, purchase our products from time to time through purchase orders.
These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. Further, any failure by us to meet or exceed the expectations of financial analysts or investors is likely to cause a decline in our common stock price.
Further, any failure by us to meet or exceed the expectations of financial analysts or investors is likely to cause a decline in our common stock price. Further, recent industry and economic conditions have resulted in significant fluctuations in stock prices for many companies, including Clearfield.
In addition, hiring additional personnel and implementing changes and enhancements to our systems will require capital expenditures and other increased costs that could also have a material adverse impact on our operating results. 14 Product defects or the failure of our products to meet specifications could cause us to lose customers and sales or to incur unexpected expenses.
Failure to secure these resources and implement these systems on a timely basis could have a material adverse effect on our operating results. In addition, hiring additional personnel and implementing changes and enhancements to our systems will require capital expenditures and other increased costs that could also have a material adverse impact on our operating results.
In addition, we are subject to the risks inherent in conducting business internationally, including political and economic instability and unexpected changes in diplomatic and trade relationships. Currency fluctuations may also increase the relative price of our product in international markets and thereby could also cause our products to become less affordable or less price competitive than those of international manufacturers.
Currency fluctuations may also increase the cost of our international operations and increase the relative price of our product in international markets and thereby cause our products to become less affordable or less price competitive than those of international manufacturers.
Costs could be incurred on pursuits or proposed acquisitions that have not yet or may not close which could impact our operating results, financial condition, or cash flows. Additionally, after the acquisition, unforeseen issues could arise which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price.
Additionally, after the acquisition, unforeseen issues could arise which adversely affect the anticipated returns, or which are otherwise not recoverable as an adjustment to the purchase price.
If we are unable to complete acquisitions or successfully integrate and develop acquired businesses, our financial results could be materially and adversely affected.
Acquisitions may result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could negatively impact our financial results. 10 If we are unable to complete acquisitions or successfully integrate and develop acquired businesses, our financial results could be materially and adversely affected.
The introduction of products using new technologies or the adoption of new industry standards can make our existing products, or products under development, obsolete or unmarketable.
The telecommunications equipment industry is characterized by rapid technological changes, evolving industry standards, changing market conditions and frequent new product and service introductions and enhancements. The introduction of products using new technologies, or the adoption of new industry standards can make our existing products, or products under development, obsolete or unmarketable.
The Company’s manufacturing facilities in Mexico are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows the Company to import certain items from the U.S. into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame.
Maquiladora status allows the Company to import certain items from the U.S. into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations.
The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus and address its impact, and how quickly and to what extent normal economic and operating conditions can resume. 9 Inflationary price pressures and uncertain availability of components, raw materials, labor and logistics used by us and our suppliers could negatively impact our profitability.
The degree to which pandemics and other health crises impact our results will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the pandemic and address its impact, and how quickly and to what extent normal economic and operating conditions can resume. 13 Risks Relating to Our Markets and Industry To compete effectively, we must continually improve existing products and introduce new products that achieve market acceptance.
These risks associated with acquisition, integration of acquired businesses and management of our expanded international operations may have a material adverse effect on our sales, financial condition, and results of operations. Adverse global economic conditions and geopolitical issues could have a negative effect on our business, and results of operations and financial condition.
These risks associated with acquisition, integration of acquired businesses and management of our expanded operations may have a material adverse effect on our sales, financial condition, and results of operations. We have exposure to movements in foreign currency exchange rates. Nestor Cables’ functional currency is the Euro, which is translated to the Company’s reporting currency of the U.S. dollar.
The success of our acquisitions will depend on our ability to integrate the new products or operations with our existing products or operations. We cannot ensure that the expected benefits of any acquisition will be realized or will be realized within the time frames we expect.
We cannot ensure that the expected benefits of any acquisition will be realized or will be realized within the time frames we expect. Costs could be incurred on pursuits or proposed acquisitions that have not yet or may not close which could impact our operating results, financial condition, or cash flows.
The telecommunications market also has experienced periods of overcapacity, some of which have occurred even during periods of relatively high network usage and bandwidth demands. If the factors described above were to occur and cause the demand for fiber broadband capabilities or access to slow, stop or reverse, our business, financial condition and operating results would be negatively affected.
If the factors described above were to occur and cause the demand for fiber broadband capabilities or access to slow, stop or reverse, our business, financial condition and operating results would be negatively affected. 14 Changes in U.S. government funding programs may cause our customers and prospective customers to delay, reduce, or accelerate purchases, leading to unpredictable and irregular purchase cycles.
These factors, which are variable and generally outside of our control, could materially impact our results of operations, anticipated future results, financial position and cash flows. If we are unable to integrate acquired businesses, our financial results could be materially and adversely affected. From time to time, we evaluate acquisition candidates that may strategically fit our business objectives.
These factors, which are variable and generally outside of our control, could materially impact our results of operations, anticipated future results, financial position, and cash flows. Adverse global economic conditions and geopolitical issues could have a negative effect on our business, and results of operations and financial condition.
Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the Maquiladora program and other local regulations. Failure to comply with these regulations or other disruptions within the program could adversely affect the Company’s financial position, results of operations, and cash flows.
Failure to comply with these regulations or other disruptions within the program could adversely affect the Company’s financial position, results of operations, and cash flows. We depend on the availability of sufficient supply of certain materials. Global disruptions in the supply chain for these materials could prevent us from meeting customer demand for our products.
Restrictions on our manufacturing, support operations or workforce, or similar limitations for our suppliers, could limit our ability to meet customer demand and could have a material adverse effect on our financial condition and results of operations.
Constraints and limits imposed on our operations due to pandemics or other health crises may slow or diminish our sales and marketing programs, product development activities and qualification activities with our customers. Restrictions on our manufacturing, support operations or workforce, or similar limitations for our suppliers, could limit our ability to meet customer demand.
Accordingly, these increased costs adversely impact the gross margin that we earn on our products. Furthermore, due to general economic conditions in the U.S. and globally, our suppliers may experience financial difficulties, which could result in increased delays, additional costs, or loss of a supplier.
Accordingly, these increased costs adversely impact the gross margin that we earn on our products.
In fiscal 2022, the Company has experienced and expects to continue to experience increased demand for its products from its customers, putting pressure on the Company’s supply chain to meet demand amidst these global issues.
Increased demand for the Company’s products from its customers may put pressure on the Company’s supply chain, particularly during periods of disruption in the global supply chain and may lead to increases in costs or delays in obtaining the materials and components for our products from our suppliers.
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ITEM 1A. RISK FACTORS Risks Relating to Our Operations The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our business, financial condition and operating results.
Added
ITEM 1A. RISK FACTORS Risks Relating to Our Operations Inflationary price pressures and uncertain availability of components, raw materials, labor and logistics used by us, and our suppliers could negatively impact our profitability.
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As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders, and business shutdowns.
Added
An increasing number of products manufactured by the Company are produced outside the U.S., including in our Mexico facilities. The Company’s manufacturing facilities in Mexico are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico.
Removed
We have manufacturing operations in the U.S. and Mexico that have been affected by the outbreak and we have taken measures to try to contain it. Measures providing for business shutdowns generally exclude certain essential services, and those essential services commonly include critical infrastructure and the businesses that support that critical infrastructure.
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The global supply chain for raw materials critical to our products has in the past, and may again in the future, suffer shortages, shipping delays and shipping shortages.
Removed
While our facilities currently remain operational, these measures have impacted and may further impact our workforce and operations, as well as those of our customers and suppliers. The constraints and limits imposed on our operations may slow or diminish our product development activities and qualification activities with our customers.
Added
Some manufacturers may also allocate short supply of products among Clearfield and their other customers.
Removed
Although many governmental measures have had specific expiration dates, some of those measures have already been extended more than once; as a result, there is considerable uncertainty regarding the duration of such measures and potential future measures.
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We do not have any agreements that obligate our customers to purchase products in the future from us. Our agreements with our distributor customers do not prohibit them from purchasing or offering products or services that compete with ours.
Removed
In response to these developments, we have modified our business practices, including restricting employee travel, modifying employee work locations, implementing social distancing and enhanced sanitary measures in our facilities, and cancelling attendance at industry events and conferences. Many of our customers, suppliers, and service providers have made similar modifications.
Added
The success of our acquisitions will depend on our ability to successfully identify and properly value suitable acquisition candidates, negotiate appropriate acquisition terms, obtain financing at a reasonable cost, prevail against competing acquirers, complete the acquisitions, and integrate the acquired businesses into our existing business.
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The resources available to employees working remotely may not enable them to maintain the same level of productivity and efficiency, particularly our sales employees whose in-person access to our customers and customer prospects has been significantly limited.
Added
In addition, certain of our products will be required to meet Build America, Buy America (BABA) Act domestic content requirements to enable certain customers to qualify for grant funding under the Broadband Equity, Access, and Deployment (BEAD) program.
Removed
While we have experienced only limited absenteeism from those employees who are required to be on-site to perform their jobs, absenteeism may increase in the future and may harm our productivity. Further, our increased reliance on remote access to our information systems increases our exposure to potential cybersecurity breaches.
Added
Any failure of such products to meet BABA domestic content requirements would result in those products being ineligible for purchase and use by certain customers under the BEAD program, and could result in lost sales, lost business opportunity, breach of warranty claims, and damage to our reputation and customer relationships.
Removed
We may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe renewal options have not been included within the lease term because it is not reasonably certain that the Company will exercise either option. 20 Clearfield’s Mexico facility operates under a Maquiladora arrangement pursuant to which we contract with a company to provide certain personnel and other services at the Tijuana, Mexico facility.
Biggest changeThe renewal options have not been included within the lease term because it is not reasonably certain that the Company will exercise either option. Clearfield’s Mexico facility operates under a Maquiladora arrangement pursuant to which we contract with a company to provide certain personnel and other services at the Tijuana, Mexico facility.
Added
On May 11, 2023, Nestor Cables signed a lease for an approximately 49,000 square foot manufacturing facility in Tabasalu, Estonia, to be 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.
Added
Additionally, the lease grants to Nestor Cables the option to lease an expansion facility that is to be constructed no later than August 31, 2024. The expansion facility will be constructed on the same premises as the existing facility.
Added
Once the expansion option is exercised and the expansion facility is made available for use, the lease term of the existing facility will become a minimum of 60 months. The lease calls for monthly rental payments of approximately €20,400 until April 2024 and €25,000 afterwards.
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Rent is increased each year on May 1 st based upon the cost-of-living index published by the Estonian government and capped at 5%. 18

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe currently intend to retain any earnings for use in our operations, continued organic growth and potential future strategic transactions, as well as execution of the repurchase program described below, and do not intend in the foreseeable future to pay cash dividends on our common stock. 21 Stock Performance Graph The following graph shows a comparison of the 5-year cumulative total return on Clearfield, Inc.’s common stock relative to the Standard & Poor’s 500 Stock Index (S&P500 Index), which the Company has selected as a broad market index, and The Standard & Poor’s 1500 Communications Equipment Index (S&P 1500 Communications Equipment Index), which the Company has selected as a published industry index.
Biggest changeStock Performance Graph The following graph shows a comparison of the 5-year cumulative total return on Clearfield, Inc.’s common stock relative to the Standard & Poor’s 500 Stock Index (S&P500 Index), which the Company has selected as a broad market index, and The Standard & Poor’s 1500 Communications Equipment Index (S&P 1500 Communications Equipment Index), which the Company has selected as a published industry index.
In addition, effective January 27, 2022, the Company’s board of directors increased the share repurchase program by an additional $10 million to an aggregate of $22 million, from the previous $12 million. As of September 30, 2022, we have repurchased an aggregate of 565,590 shares for approximately $7,019,000, leaving approximately $14,981,000 available within our $22,000,000 stock repurchase program.
In addition, effective January 27, 2022, the Company’s board of directors increased the share repurchase program by an additional $10 million to an aggregate of $22 million, from the previous $12 million. As of September 30, 2023, we have repurchased an aggregate of 565,590 shares for approximately $7,019,000, leaving approximately $14,981,000 available within our $22,000,000 stock repurchase program.
The repurchase program does not obligate Clearfield to repurchase any particular amount of common stock during any period. The repurchase will be funded by cash on hand. During the year ended September 30, 2022, the Company did not repurchase any shares under the stock repurchase program.
The repurchase program does not obligate Clearfield to repurchase any particular amount of common stock during any period. The repurchase 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.
The graph assumes an investment of $100 (with reinvestment of all dividends) is made in the Company’s common stock and in each index on September 30, 2017 and its relative performance is tracked through September 30, 2022.
The graph assumes an investment of $100 (with reinvestment of all dividends) is made in the Company’s common stock and in each index on September 30, 2018, and its relative performance is tracked through September 30, 2023.
The following table presents the total number of shares repurchased during the fourth quarter of fiscal 2022 by month and the average price paid per share: ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1) July 1-31, 2022 - $ - - $ 14,980,671 August 1-31, 2022 9,170 123.45 - 14,980,671 September 1-30, 2022 - - - 14,980,671 Total 9,170 $ 123.45 - $ 14,980,671 (1) Amount remaining from the aggregate $22,000,000 repurchase authorizations approved by the Company’s Board of Directors on January 27, 2022.
The following table presents the total number of shares repurchased during the fourth quarter of fiscal 2023 by month and the average price paid per share: ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1) July 1-31, 2023 - $ - - $ 14,980,671 August 1-31, 2023 7,084 37.50 - 14,980,671 September1-30, 2023 - - - 14,980,671 Total 7,084 $ 37.50 - $ 14,980,671 (1) Amount remaining from the aggregate $22,000,000 repurchase authorizations approved by the Company’s board of directors on January 27, 2022.
The returns shown are based on historical results and are not intended to suggest future performance. 22 Company/Index September 30, 2017 September 30, 2018 September 30, 2019 September 30, 2020 September 30, 2021 September 30, 2022 Clearfield, Inc. $ 100.00 $ 98.90 $ 87.13 $ 148.31 $ 324.63 $ 769.41 S&P 500 Index 100.00 105.30 117.95 126.98 178.83 150.35 S&P 1500 Communications Equipment Index 100.00 137.03 138.73 114.40 160.72 130.81 Issuer Repurchases The Company repurchased a total of 9,170 shares of our common stock during the fourth quarter of fiscal year 2022 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees.
The returns shown are based on historical results and are not intended to suggest future performance. 19 Company/Index September 30, 2018 September 30, 2019 September 30, 2020 September 30, 2021 September 30, 2022 September 30, 2023 Clearfield, Inc. $ 100.00 $ 87.13 $ 148.31 $ 324.63 $ 769.41 $ 212.72 S&P 500 Index 100.00 117.95 133.49 170.98 142.32 170.20 S&P 1500 Communications Equipment Index 100.00 138.73 114.40 160.72 130.81 171.24 20 Issuer Repurchases The Company repurchased a total of 7,084 shares of our common stock during the fourth quarter of fiscal year 2023 in connection with payment of taxes upon the vesting of restricted stock previously issued to employees.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Market under the symbol “CLFD.” Number of Holders of Common Stock There were 277 holders of record of our common stock as of September 30, 2022.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Market under the symbol “CLFD.” Number of Holders of Common Stock There were 290 holders of record of our common stock as of September 30, 2023.
Removed
Dividends We have never paid cash dividends on our common stock.
Added
Dividends We have never paid cash dividends on our common stock. We currently intend to retain any earnings for use in our operations, continued organic growth, and potential future strategic transactions, as well as execution of the repurchase program described below, and do not intend in the foreseeable future to pay cash dividends on our common stock.
Added
On November 7, 2023, the Company’s board of directors increased the share repurchase program to an aggregate of $40 million from the previous $22 million, leaving approximately $32,980,671 available for repurchase.
Added
Equity compensation plans information is incorporated by reference from Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report, and should be considered an integral part of Item 5. ITEM 6. [RESERVED] Not applicable.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNestor Cables Segment The following table provides net sales and net income for the Nestor Cables segment for the fiscal year ended: (In thousands) September 30, 2022 September 30, 2021 September 30, 2020 Segment net sales $ 7,061 $ - $ - Segment net income (loss) (409 ) - - 30 Nestor Cables was acquired on July 26, 2022.
Biggest changeNestor Cables Segment The following table provides net sales and net income for the Nestor Cables segment for the fiscal year ended: (In thousands) September 30, 2023 September 30, 2022 September 30, 2021 Segment net sales $ 42,998 $ 7,061 $ - Segment net loss $ (301 ) $ (409 ) $ - Net sales in the Nestor Cables segment increased 509% or $35,937,000 for the fiscal year ended September 30, 2023, due to a full year of operations in fiscal 2023 after being acquired in the fourth quarter of fiscal 2022. 25 Net loss in the Nestor Cables segment for the fiscal year ended September 30, 2023 decreased 26% or $108,000 from the fiscal year ended September 30, 2022, driven by non-recurring acquisition related expenses in the prior year.
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.” 23 Overview of Business: The Clearfield operating segment designs, manufactures and distributes fiber optic management, protection and delivery products for communications networks.
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.
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. 24 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.
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.
Critical Accounting Policies: 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.
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.
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 in a single reporting segment and operating unit structure.
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 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 2017. The Company is subject to state examinations for all tax years after 2013 due to unexpired research and development credit carryforwards still open under statute.
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 2018. The Company is subject to state examinations for all tax years after 2013 due to unexpired research and development credit carryforwards still open under statute.
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. Any identified excess, slow moving and obsolete inventory is written down to its market value through a charge to cost of sales.
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.
Results of Operations Year ended September 30, 2022 compared to year ended September 30, 2021 The Company’s net sales for fiscal year 2022 increased 92%, or $130,128,000, to $270,883,000 from net sales of $140,755,000 in fiscal year 2021. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported.
Year ended September 30, 2022, compared to year ended September 30, 2021 The Company’s net sales for fiscal year 2022 increased 92%, or $130,128,000, to $270,883,000 from net sales of $140,755,000 in fiscal year 2021. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported.
Accordingly, international sales represented 6% and 7% of net sales for the years ended September 30, 2022 and 2021, respectively. The increase in net sales for fiscal year 2022 of $130,128,000 compared to fiscal year 2021 is attributable to increased demand across Clearfield’s core markets.
Accordingly, international sales represented 6% and 7% of net sales for the years ended September 30, 2022, and 2021, respectively. The increase in net sales for fiscal year 2022 of $130,128,000 compared to fiscal year 2021 was attributable to increased demand across Clearfield’s core markets.
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 delays.
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.
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, for the year ended September 30, 2022, the Company has two reportable segments: (1) Clearfield and (2) Nestor Cables.
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.
Also, changes in operating assets and liabilities providing cash include an increase in accounts payable and accrued expenses of $14,502,000, due to timing of accounts payable and $8,738,000 in fiscal year 2022 incentive compensation accruals to be paid after year end. Net cash generated from operations for the fiscal year ended September 30, 2021 totaled $10,903,000.
Also, changes in operating assets and liabilities providing cash include an increase in accounts payable and accrued expenses of $14,502,000, due to timing of accounts payable and $8,738,000 in fiscal year 2022 incentive compensation accruals to be paid after year end. Net cash provided by operations for the fiscal year ended September 30, 2021, totaled $10,903,000.
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 long-lived assets, intangible assets or goodwill has occurred during the years ended September 30, 2022, 2021, and 2020, respectively.
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, 2023, 2022, and 2021, respectively.
The increase in the income tax expense rate to 22.7% for fiscal year 2022 from 21.0% for fiscal year 2021 is due to increased permanent addback items including nondeductible compensation and transaction costs. Our provision for income taxes includes current U.S. federal tax expense and state tax expense, Finland taxes and deferred tax expense.
The increase in the income tax expense rate to 22.7% for fiscal year 2022 from 21.0% for fiscal year 2021 was due to increased 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.
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 delays. The increase in accounts receivable was due to higher net sales.
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 delays. The increase in accounts receivable was due to higher net sales experienced over the prior year.
Valuation of Inventory The Company maintains a material amount of inventory to support its manufacturing operations and customer demand. This inventory is stated at the lower of cost or net realizable value.
Valuation of Inventory The Company maintains a material amount of inventory to support its manufacturing operations and customer demand. This inventory is stated average cost, subject to the lower of cost or net realizable value.
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.
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.
On April 27, 2022, Clearfield entered into a loan agreement and a security agreement with a bank that provides the Company with a $40 million revolving line of credit that is secured by certain of the Company’s U.S. assets.
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, 2022, the interest rate was 4.36%.
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, 2023, the interest rate was 7.18%.
Nestor is generally subject to Finland examination for all tax years after 2018. 25 Impairment of Long-Lived Assets, Intangible Assets and Goodwill The Company’s long-lived assets as of September 30, 2022 consisted primarily of property, plant and equipment, right of use lease assets, patents, intangibles, and goodwill.
Nestor is generally subject to Finland examination for all tax years after 2019 and Estonia examination for all tax years after 2019. Impairment of Long-Lived Assets, Intangible Assets and Goodwill The Company’s long-lived assets as of September 30, 2023, consisted primarily of property, plant and equipment, right of use lease assets, patents, intangibles, and goodwill.
As a result, the net cash used in financing activities during fiscal year 2020 was $247,000. 32 Operating Leases We have entered into various non-cancelable operating lease agreements for office equipment and our office and manufacturing spaces in Minnesota, Mexico, Finland and Estonia expiring at various dates through February 2027. Certain of these leases have escalating rent payment provisions.
As a result, the net cash used in financing activities during fiscal year 2021 was $536,000. Operating Leases We have entered into various non-cancelable operating lease agreements for office equipment and 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.
This increase is primarily comprised of an increase of $6,976,000 in Clearfield’s compensation costs due to additional personnel this year over last, higher performance-based compensation accruals as well as sales commissions due to significantly higher sales volumes, expenses and fees related to the acquisition of Nestor Cables of $1,647,000, increased travel, entertainment, and tradeshows cost of $1,382,000 due to reduced COVID-19 travel restrictions as compared to the prior year, and increased stock compensation expenses of $990,000 due to issuances of equity awards in fiscal 2022. 27 Income from operations for fiscal year 2022 was $63,817,000 compared to $25,234,000 for fiscal year 2021.
This increase was primarily comprised of an increase of $6,976,000 in Clearfield’s compensation costs due to additional personnel in fiscal year 2022 over fiscal year 2021, higher performance-based compensation accruals as well as sales commissions due to significantly higher sales volumes, expenses and fees related to the acquisition of Nestor Cables of $1,647,000, increased travel, entertainment, and tradeshows cost of $1,382,000 due to reduced COVID-19 travel restrictions as compared to fiscal year 2021, and increased stock compensation expenses of $990,000 due to issuances of equity awards in fiscal year 2022.
Following the closing of the acquisition of Nestor Cables on July 26, 2022, the Company reassessed its operating segments as defined under Accounting Standards Codification (“ASC”) 280, Segment Reporting .
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 .
The Company did not have any interest expense for fiscal year 2021. Income tax expense for fiscal year 2022 was $14,472,000 compared to $5,407,000 for fiscal year 2021. The increase in tax expense of $9,065,000 from the year ended September 30, 2021 is primarily due to the increase in taxable income for fiscal year 2022.
Income tax expense for fiscal year 2022 was $14,472,000 compared to $5,407,000 for fiscal year 2021. The increase in tax expense of $9,065,000 from the year ended September 30, 2021, was primarily due to the increase in taxable income for fiscal year 2022.
Interest expense in fiscal year 2022 was $311,000. The increase is due to $141,000 in interest as a result of $16,700,000 borrowed on the Company’s line of credit drawn on in the fourth quarter of fiscal 2022 to fund the acquisition of Nestor Cables, and $170,000 in interest on debt held with Nestor Cables.
The increase was due to $141,000 in interest as a result of $16,700,000 borrowed on the Company’s line of credit drawn on in the fourth quarter of fiscal 2022 to fund the acquisition of Nestor Cables, and $170,000 in interest on debt held with Nestor Cables. The Company did not have any interest expense for fiscal year 2021.
As of September 30, 2022, the Company has borrowed $16,700,000 against this line of credit. As of September 30, 2022, the Company was in compliance with all covenants. We had long-term debt obligations of $18,666,000 as of September 30, 2022 and no long-term debt obligations as of September 30, 2021.
As of September 30, 2023, the Company had no borrowings against this line of credit. As of September 30, 2023, the Company was in compliance with all covenants. We had no long-term debt obligations as of September 30, 2023, and $18,666,000 as of September 30, 2022.
Its “fiber to the anywhere” platform serves the unique requirements of leading broadband service providers in the United States, which include Community Broadband, National Carriers, and Multiple System Operators (“MSO’s” or “cable TV”), while also serving the broadband needs of the International markets, primarily in the Caribbean, in Canada, and Central and South America.
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 Provider, National Carriers, and Multiple System Operators (“ MSOs ” or “cable TV”), while also serving the broadband needs of the International markets, primarily in the European, Caribbean Markets , Canada, and Mexico .
The entities that comprise the Nestor Cables segment are Clearfield Finland Ltd, Nestor Cables Ltd and Nestor Cables Baltics Ltd. Reportable segments are as follows: - Clearfield Segment- Clearfield designs, manufactures and sells fiber management, protection, and delivery solutions. - Nestor Cables Segment- Nestor Cables designs, manufactures and sells fiber optic and copper telecommunication cables and equipment.
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 Clearfield segment designs, manufactures, and sells fiber management, protection, and delivery solutions.
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 Company’s sales channels include direct to customer, through distribution partners, and to original equipment suppliers who private label its products.
The increase in accounts receivable was due to higher net sales as well as increased days sales outstanding (“DSO”) due to higher sales to certain customers with longer payment terms. DSO, which measures how quickly receivables are collected, increased 13 days from 39 to 52 from September 30, 2021 to September 30, 2022.
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.
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.
The Company’s products are sold by its sales employees and independent sales representatives. 21 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.
Income from operations for fiscal year 2021 was $25,234,000 compared to $8,384,000 for fiscal year 2020. This increase is attributable to increased sales and gross profit, partially offset by increased selling, general and administrative expenses as described above. Interest income in fiscal year 2021 was $500,000 compared to $771,000 for fiscal year 2020.
Income from operations for fiscal year 2022 was $63,817,000 compared to $25,234,000 for fiscal year 2021. This increase was attributable to increased sales and gross profit, partially offset by increased selling, general and administrative expenses as described above. Net investment income in fiscal year 2022 was $328,000 compared to $500,000 for fiscal year 2021.
The Company’s ability to recognize revenue in the future for its backlog of 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 2022 was $157,936,000, an increase of $78,358,000, or 98%, from the $79,578,000 in fiscal year 2021.
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. 22 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.
For restricted stock grants, fair value is determined as the average 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.
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.
Also, changes in operating assets and liabilities providing cash include an increase in accounts payable and accrued expenses of $9,776,000, due to timing of accounts payable and $6,513,000 in fiscal year 2021 incentive compensation accruals to be paid after year end. 31 Net cash generated from operations for the fiscal year ended September 30, 2020 totaled $6,656,000.
The Company’s DSO increased 1 day from 38 to 39 from September 30, 2020, to September 30, 2021. Also, changes in operating assets and liabilities providing cash include an increase in accounts payable and accrued expenses of $9,776,000, due to timing of accounts payable and $6,513,000 in fiscal year 2021 incentive compensation accruals to be paid after year end.
Net income for fiscal year 2022 was $49,362,000 or $3.58 per basic and $3.55 per diluted share compared to $20,327,000 or $1.48 per basic and $1.47 per diluted share for the fiscal year 2021.
Net income for fiscal year 2022 was $49,362,000 or $3.58 per basic and $3.55 per diluted share compared to $20,327,000 or $1.48 per basic and $1.47 per diluted share for the fiscal year 2021. 24 Reportable Segments The Company’s reportable segments are based on the Company’s method of internal reporting.
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.
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.
The Company received $544,000 from employees’ purchase of stock through our Employee Stock Purchase Plan (“ESPP”). 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.
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.
The increase in cash used in investing activities was driven by increased investment of cash in excess of operating needs into long-term investments. During fiscal year 2021, we used $2,046,000 in cash for the purchase of capital equipment and software and for obtaining patents. These purchases were mainly related to manufacturing and information technology equipment.
During fiscal year 2021, we used $2,046,000 in cash for the purchase of capital equipment and software and for obtaining patents. These purchases were mainly related to manufacturing and information technology equipment.
Cash provided by operations included net income of $7,293,000 for the fiscal year ended September 30, 2020, non-cash expenses for depreciation and amortization of $2,422,000, stock-based compensation of $774,000, slightly offset by a non-cash amortization of discounts on investments of $64,000, in addition to changes in operating assets and liabilities using cash.
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 $6,043,000, 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.
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. 26 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 .
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.
Net sales to International customers increased 62% or $5,846,000 from $9,470,000 in fiscal year 2021 to $15,276,000 in fiscal year 2022, partially driven by the Company’s acquisition of Nestor Cables on July 26, 2022. Revenue from all customers is obtained from purchase orders submitted from time to time.
Net sales to International customers increased 62% or $5,846,000 from $9,470,000 in fiscal year 2021 to $15,276,000 in fiscal year 2022, partially driven by the Company’s acquisition of Nestor Cables on July 26, 2022. 23 Cost of sales for fiscal year 2022 was $157,936,000, an increase of $78,358,000, or 98%, from the $79,578,000 in fiscal year 2021.
The Company used $462,000 to pay for taxes related to employees’ exercises of stock options and $458,000 to pay for taxes related to employees’ vesting of restricted shares using share withholding. As a result, the net cash used in financing activities during fiscal year 2021 was $536,000.
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 $10,655,000.
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.
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. 28 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.
As a result, the net cash provided by financing activities during fiscal year 2022 was $10,655,000. For the fiscal year ended September 30, 2021, the Company received $384,000 from employees’ purchase of stock through our ESPP.
As a result, the net cash provided by financing activities during fiscal year 2023 was $113,416,000. 27 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.
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.
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. 29 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.
The Company used $176,000 to pay for taxes related to employees’ exercises of stock options and vesting of restricted shares using share withholding.
For the fiscal year ended September 30, 2021, the Company received $384,000 from employees’ purchase of stock through our ESPP. The Company used $462,000 to pay for taxes related to employees’ exercises of stock options and $458,000 to pay for taxes related to employees’ vesting of restricted shares using share withholding.
For the fiscal year ended September 30, 2021, we purchased $24,809,000 of FDIC-backed certificates of deposit and U.S. Treasuries and had $13,255,000 of FDIC-backed certificates of deposit and U.S. Treasuries mature or be called. The result is cash used in investing activities of $13,600,000 in fiscal year 2021.
Treasuries and had $13,255,000 of FDIC-backed certificates of deposit and U.S. Treasuries mature or be called. The result was cash used in investing activities of $13,600,000 in fiscal year 2021. The increase in cash used in investing activities was driven by increased investment of cash in excess of operating needs into long-term investments.
While there are a number of accounting policies, methods and estimates affecting our financial statements, areas that are particularly significant include: ● Revenue recognition ● Accounting for stock-based compensation ● Income taxes ● Valuation of inventory, long-lived assets, finite lived intangible assets and goodwill ● Valuation in business combinations 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 contract.
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.
Year ended September 30, 2021 compared to year ended September 30, 2020 Net sales for fiscal year 2021 increased 51%, or $47,681,000, to $140,755,000 from net sales of $93,075,000 in 2020. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported.
Results of Operations 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.
Liquidity and Capital Resources As of September 30, 2022, the Company had combined consolidated balances of cash, cash equivalents, short term and long-term investments of $45,199,000 compared to $60,503,000 as of September 30, 2021. As of September 30, 2022, our principal sources of liquidity were our cash and cash equivalents and short-term investments.
We believe that the Nestor Cables segment generally experiences the same seasonality as the Clearfield segment. Liquidity and Capital Resources As of September 30, 2023, the Company had combined consolidated balances of cash, cash equivalents, short-term and long-term investments of $174,456,000 compared to $45,199,000 as of September 30, 2022.
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. 29 On July 26, 2022, Clearfield through its newly created Finnish subsidiary, Clearfield Finland Ltd, acquired all of the equity of Nestor Cables Ltd, which has a wholly-owned Estonian subsidiary. Nestor Cables Baltics OÜ.
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.
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. The share repurchase program was originally adopted on November 13, 2014 with $8,000,000 authorized for common stock repurchases.
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.
Changes in operating assets and liabilities using cash include an increase in net inventories of $5,396,000 and accounts receivables of $1,378,000.
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 $26,257,000.
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.
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.
The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, which consider 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.
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.
As of September 30, 2022, we have repurchased an aggregate of 565,590 shares for approximately $7,019,000, leaving approximately $14,981,000 available within our $22,000,000 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 repurchase program does not obligate Clearfield to repurchase any particular amount of common stock during any period. The repurchase 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.
Our provision for income taxes includes current federal tax expense, state income tax expense, and deferred tax expense. Net income for fiscal year 2021 was $20,327,000 or $1.48 per basic and $1.47 per diluted share compared to $7,293,000 or $0.53 per basic and diluted share for the fiscal year 2020.
Our provision for income taxes includes 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.
Also, changes in operating assets and liabilities providing cash include an increase in accounts payable and accrued expenses of $3,152,000. Investing Activities 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.
The result is cash used in investing activities of $112,247,000 in fiscal year 2023. In fiscal year 2024, the Company intends to continue investing in the necessary information technology, manufacturing equipment and facility needs. 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.
We recognize rent expense under such leases on a straight-line basis over the term of the lease. New Accounting Pronouncements: In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments . In November 2018, the FASB issued update ASU 2018-19 that clarifies the scope of the standard in the amendments in ASU 2016-13.
In November 2018, the FASB issued update ASU 2018-19 that clarifies the scope of the standard in the amendments in ASU 2016-13. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses.
Net income in the Clearfield segment for the fiscal year ended September 30, 2022 increased 145% or $29,444,000 for the fiscal year ended September 30, 2022, driven by the changes in sales outlined above.
Net income in the Clearfield segment for the fiscal year ended September 30, 2023, decreased 34% or $16,937,000 from the fiscal year ended September 30, 2022, 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.
Effective January 27, 2022, the Company reinstated its stock repurchase program that had been suspended in April 2020 due to COVID-19 uncertainty. In addition, effective January 27, 2022, the Company’s board of directors increased the share repurchase program by an additional $10 million to an aggregate of $22 million, from the previous $12 million.
In addition, effective January 27, 2022, the Company’s board of directors increased the share repurchase program by an additional $10 million to an aggregate of $22 million, from the previous $12 million. As of September 30, 2023, we have repurchased an aggregate of 565,590 shares for approximately $7,019,000, leaving approximately $14,981,000 available within our $22,000,000 stock repurchase program.
This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Financial instruments impacted include accounts receivable, trade receivables, other financial assets measured at amortized cost and other off-balance sheet credit exposures.
Financial instruments impacted include accounts receivable, other financial assets measured at amortized cost and other off-balance sheet credit exposures. The new guidance is effective for the Company beginning in the first quarter of fiscal 2024, with early adoption permitted.
Clearfield Segment The following table provides net sales and net income for the Clearfield Segment for the fiscal years ended: (In thousands) September 30, 2022 September 30, 2021 September 30, 2020 Segment net sales $ 263,822 $ 140,755 $ 93,075 Segment net income 49,771 20,327 7,293 Net sales in the Clearfield segment increased 87% or $123,067,000 for the fiscal year ended September 30, 2022, resulting in increased sales to its Community Broadband, MSO/Cable TV, and Tier 1 customers due to continuing demand for fiber connectivity products in response to COVID-19, driven by these customers to accelerate their purchasing decisions and deployment schedules of our fiber optic solutions and the need for high-speed broadband.
Clearfield Segment The following table provides net sales and net income for the Clearfield segment for the fiscal years ended: (In thousands) September 30, 2023 September 30, 2022 September 30, 2021 Segment net sales $ 225,722 $ 263,822 $ 140,755 Segment net income $ 32,834 $ 49,771 $ 20,327 Net sales in the Clearfield segment decreased 14% or $38,100,000 for the fiscal year ended September 30, 2023, 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.
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.
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.
As of September 30, 2022 and 2021, the Company had no U.S. federal, state or Finnish net operating loss (“NOL”) carry-forwards. 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.
As of September 30, 2023, and 2022, the Company had no U.S. federal, state, or Estonia net operating loss (“NOL”) carry-forwards. As of September 30, 2023, and 2022 there is a Finnish NOL of $1,000 and $4,000, respectively.
Income tax expense for fiscal year 2021 was $5,407,000 compared to $1,862,000 for fiscal year 2020. The increase in tax expense of $3,545,000 from the year ended September 30, 2020 is primarily due to the increase in taxable income for fiscal year 2021.
The decrease in tax expense of $5,393,000 from the year ended September 30, 2022 is 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 is due to decreased permanent addback items including nondeductible compensation and transaction costs.
The increase in inventory is a result of additional stocking levels to support the Company’s increased backlog and higher demand, and additional safety stock across the Company’s multiple locations due to the uncertainty of COVID-19 on the Company’s supply chain and manufacturing locations.
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.
Additionally, the Company used $16,187,000 in cash to acquire Nestor Cables on July 26, 2022. The result is cash used in investing activities of $8,197,000 in fiscal year 2022. In fiscal year 2023, the Company intends to continue investing in the necessary information technology, manufacturing equipment and facility needs, including further expansion of manufacturing in our Mexico facility.
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 on July 26, 2022. The result was cash used in investing activities of $8,197,000 in fiscal year 2022. For the fiscal year ended September 30, 2021, we purchased $24,809,000 of FDIC-backed certificates of deposit and U.S.
Accordingly, international sales represented 7% and 4% of net sales for the years ended September 30, 2021 and 2020, respectively. Sales in fiscal year 2021 to broadband service providers were 98% of net sales, or $138,021,000 compared to $89,571,000, or 96%, of net sales in fiscal 2020.
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 Clearfield’s core markets.
Those sources total $22,452,000 as of September 30, 2022 compared to $23,590,000 as of September 30, 2021. Investments considered long-term were $22,747,000 as of September 30, 2022 compared to $36,913,000 as of September 30, 2021. Our excess cash is invested mainly in certificates of deposit backed by the FDIC, U.S. Treasury securities and money market accounts.
Additionally, we have a line of credit for $40 million that has no outstanding borrowing as of September 30, 2023. Our excess cash is invested mainly in certificates of deposit backed by the FDIC, U.S. Treasury securities, and money market funds.
This increase is attributable to increased sales and gross profit, partially offset by increased selling, general and administrative expenses as described above. Net investment income in fiscal year 2022 was $328,000 compared to $500,000 for fiscal year 2021. The decrease is due to lower interest rates earned on decreased investment balances in fiscal 2022.
The decrease was due to lower interest rates earned on decreased investment balances in fiscal year 2022. Interest expense in fiscal year 2022 was $311,000.
The Company performed step zero of the impairment test to determine whether there are any qualitative factors which may indicate a potential impairment. During the year ended September 30, 2022, there were no triggering events that indicated goodwill could be impaired.
During the years ended September 30, 2023, 2022, and 2021, there were no triggering events that indicated goodwill or intangible assets may be impaired.
Accordingly, 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 has become further limited by potential disruption to its supply chains or changes in customer ordering patterns due to COVID-19.
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.
For the fiscal year ended September 30, 2020, the Company used $429,000 of cash to repurchase its own common stock prior to the suspension of the share repurchase plan in April 2020. For the fiscal year ended September 30, 2020, the Company received $349,000 from employees’ purchase of stock through the ESPP.
Financing Activities 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 also received $611,000 from employees’ purchase of stock through our Employee Stock Purchase Plan (“ESPP”) and $954,000 related to issuance of stock as payment for incentive compensation.
The new guidance is effective for the Company beginning in the first quarter of fiscal 2024, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements.
The Company has evaluated the impact of the adoption of ASU 2016-13 on its consolidated financial statements and determined that the adoption of the new standard would not have a material impact on the Company's consolidated financial statements.
Removed
A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. The majority of our contracts have a single performance obligation and are short term in nature.
Added
Sales to the Community Broadband market decreased 12% or $15,312,000 from $127,478,000 in fiscal year 2022 to $112,166,000 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.
Removed
We recognize revenue by transferring the promised products to the customer, with substantially all revenue recognized at the point in time 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.
Added
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 several quarters.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe fair value of these investments fluctuates subject to changes in market interest rates. As of September 30, 2022, and 2021, the Company had combined consolidated balances of cash, cash equivalents, short term and long-term investments of $45,199,000 and $60,503,000, respectively. Foreign Exchange Rates: The Company uses the U.S. dollar as its reporting currency.
Biggest changeThe fair value of these investments fluctuates subject to changes in market interest rates. As of September 30, 2023, and 2022, the Company had combined consolidated balances of cash, cash equivalents, short term, and long-term investments of $174,456,000 and $45,199,000, respectively. Foreign Exchange Rates: The Company uses the U.S. dollar as its reporting currency.
Accordingly, inflation impacts our profitability, including cost of sales and operating expenses and may have a material impact on the Company’s financial statements. 33
Accordingly, inflation impacts our profitability, including cost of sales and operating expenses, and may have a material impact on the Company’s financial statements. 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company currently invests its excess cash in bank 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 accounts.
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.
If the Euro had appreciated or depreciated by 10%, relative to the U.S. Dollar, our operating expenses for fiscal year 2022 would have increased or decreased by approximately $70,000 or less than 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.
If the Euro had appreciated or depreciated by 10%, relative to the U.S. Dollar, our operating expenses for fiscal year 2023 would have increased or decreased by approximately $570,000 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.

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