Clearfield, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion and analysis of the Company’s financial condition and results of operations as of and for the three and nine months ended June 30, 2025, and 2024 should be read in conjunction with the financial statements and related notes in Item 1 of this report and our Annual Report on Form 10-K for the year ended September 30, 2024.

OVERVIEW

General

Clearfield, Inc., together with its subsidiaries, is referred to in this report as “we,” “us,” “our,” and the “Company.” We design, manufacture, and distribute fiber protection, fiber management, and fiber delivery solutions to enable rapid and cost-effective fiber-fed deployment throughout the broadband service provider space primarily across North America. 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).

We are engaged in global operations. 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.

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 offer a broad portfolio of fiber products that allow service providers to build fiber networks faster, meet service delivery demands, and align build costs with take rates.

Clearfield’s products are designed to allow its customers to pass and connect homes in their Fiber to the Home (FTTH) builds by using fewer resources in less time than competitive products. Our products speed up the time to revenue for our service provider customers in Multiple Dwelling Units (MDUs) and Multiple Tenant Units (MTUs) by reducing the amount of labor and materials needed to provide gigabit service. Our products help make business services more profitable through faster building access, easier reconfiguration, and quicker services turn-up. 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.

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. Clearfield specializes in producing these products on both a quick-turn and scheduled delivery basis.

Nestor Cables Operating Segment

Nestor Cables is based in Oulu, Finland, with operations in Estonia through its wholly owned subsidiary, Nestor Cables Baltics OÜ. 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 has two types of production processes, the process of making cable in its Finland and Estonia 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. Nestor Cables is subject to Finnish government regulation and Nestor Cables Baltics is subject to Estonian government regulation.

Trade and Tariffs Update

Earlier this year the U.S. introduced trade policy changes that increased import tariffs across a wide range of trading partners at various rates, with exemptions for certain goods, including currently United States-Mexico-Canada Agreement (USMCA) compliant goods. In response, many trading partners implemented retaliatory tariffs on U.S. exports. The U.S. and certain trading partners have agreed to delay the effective date of certain of these tariffs while various trade deals are being negotiated, but a number of the increased tariffs remain in effect, including significant tariffs between the U.S. and China. While the tariffs did not materially impact our third quarter results, we do anticipate certain tariffs in effect as of August 7, 2025, will impact future financial results, the extent of which is uncertain, difficult to predict and dependent on a number of factors, including the extent and duration of the tariffs, any reversal or suspension of the tariffs, changes in the scope and rates of the tariffs, the availability of exemptions from the tariffs, the imposition of new tariffs, and our ability to successfully implement measures to mitigate the impact of the tariffs. Currently, products imported from our Mexican manufacturing facility are exempt from the new tariffs as they are USMCA compliant. Should the USMCA exemption no longer apply, our future financial results, particularly cost of sales and gross profit, would be negatively impacted by the tariffs. Components we import from China, some of which are from sole-source or limited source suppliers, are subject to the tariffs currently in effect. We are actively monitoring and evaluating the evolving tariff situation and working to mitigate the impact on our business.

Tariffs and other trade restrictions may increase the cost of raw materials and components imported from other countries, leading to higher production costs and product pricing to the extent those increased costs are offset through price increases to our customers (which may result in declines in sales); disrupt established supply chains, forcing the Company to find new suppliers or relocate production, which could be time-consuming and costly; limit the attractiveness of certain geographic markets for our product and, in turn, result in reduced sales; lower profitability; result in uncertainty related to planning long-term investments and strategies; and have other competitive effects.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2025 VS. THREE MONTHS ENDED JUNE 30, 2024

Net sales for the three months ended June 30, 2025, were $49,903,000, an increase of approximately 2%, or $1,110,000, from net sales of $48,793,000 for the three months ended June 30, 2024. Net sales to Broadband Service Providers were $46,641,000 and $46,028,000 in the three months ended June 30, 2025 and 2024, respectively. Net sales to Legacy customers were $570,000 in the three months ended June 30,2025 versus $820,000 for the three months ended June 30, 2024. In addition, the Company recorded $12,490,000 in international sales for the three months ended June 30, 2025 versus $16,494,000 for the three months ended June 30, 2024. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. International sales represented 25% and 34% of total net sales for the three months ended June 30, 2025 and 2024, respectively.

The increase in net sales for the three months ended June 30, 2025, of $1,100,000 compared to the three months ended June 30, 2024, was primarily driven by increased sales to Large Regional Service Provider customers of $3,118,000, up 82%, and MSO customers of $3,418,000, up 59%, partially offset by decreased sales to International customers of $4,004,000, down 24%. The increase in sales in the Large Regional Service Provider and MSO customer markets for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024, is due to higher sales of additional product lines in the quarter to customers in these segments. The decrease in sales to International customers was driven by decreased sales by the Nestor Cables segment during the quarter due to lower demand in Nestor’s European market.

Order backlog as of June 30, 2025, was $36,092,000, an increase of 6% compared to $34,097,000 as of March 31, 2025, and an increase of $3,509,000, or 11%, from June 30, 2024. The increase in backlog is consistent with the normal seasonality in our business as well as increased demand.

Revenue from customers is obtained from purchase orders submitted from time to time. The Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited. The Company’s ability to predict revenue is further limited by customer deployment schedules and factors affecting customer ordering patterns, including the digestion of customers’ excess inventory, the impact of tariffs and other macroeconomic economic policies, and uncertainties relating to the economic outlook in the United States and other countries in which we sell products. 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. The Company tests goodwill for impairment annually, or more frequently when events or changes in circumstances indicate that the asset might be impaired. The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The Company’s forecast for future revenue, profitability and business climate are among the qualitative factors management considers in its annual analysis of goodwill. The result of the most recent analysis performed, did not indicate an impairment of goodwill. 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. To the extent that a reporting unit's recorded goodwill exceeds the implied fair value of goodwill, a goodwill impairment charge would be recognized in the Company’s consolidated statement of earnings. An analysis of goodwill involves significant management estimates and judgments and an impairment loss, while non-cash, could have a material impact on the Company’s financial statements. During the nine months ended June 30, 2025, the Nestor reporting unit, which has $2.0 million of Goodwill, had a net operating loss. The Company’s next annual test for goodwill impairment will be completed during the quarter ending September 30, 2025 and if operating losses persist into the future, or if there are adverse changes in key assumptions such as discount rates or long-term growth rates, it is reasonably possible that an impairment charge could be recognized for the Nestor reporting unit in future periods.

Cost of sales for the three months ended June 30, 2025, was $34,669,000, a decrease of $3,432,000, or 9%, from $38,101,000 for the three months ended June 30, 2024. Gross profit percent was 30.5% of net sales for the three months ended June 30, 2025, an increase from 21.9% of net sales for the three months ended June 30, 2024. Gross profit increased $4,542,000, or 42%, to $15,234,000 for the three months ended June 30, 2025, from $10,692,000 for the three months ended June 30, 2024. The improvement in gross margin from the prior year quarter was due to increased volumes within the Clearfield segment resulting in improved utilization of manufacturing overhead, as well as lower excess inventory charges in the Clearfield segment of $2,485,000 which resulted in a benefit to cost of goods sold of $1,131,000 in the current quarter, reflecting improved inventory utilization and beneficial recoveries from previously reserved inventory.

Selling, general and administrative expenses for the three months ended June 30, 2025, were $13,738,000 in comparison to $12,999,000 for the three months ended June 30, 2024, an increase of $739,000, or 6%, due to an increase in depreciation and amortization and increased software maintenance costs.

Income from operations for the three months ended June 30, 2025, was $1,496,000 compared to loss from operations of $2,307,000 for the three months ended June 30, 2024, an increase of approximately 165%. The increased income from operations is the result of increased net sales and gross profit margin as explained above.

Net investment income for the three months ended June 30, 2025, was $1,588,000 compared to $1,735,000 for the three months ended June 30, 2024. The decrease in net investment income is due to decreased interest income driven by lower interest rates earned on investments during the quarter.

Interest expense for the three months ended June 30, 2025, remained relatively consistent at $106,000, compared to $153,000 for the three months ended June 30, 2024. Interest expense incurred during these periods is related to factoring liabilities in the Nestor segment.

The Company recorded an income tax expense of $1,372,000 and income tax benefit of $277,000 for the three months ended June 30, 2025, and 2024, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The income tax expense rate for the three months ended June 30, 2025, increased to 46.1% from 38.2% recorded for the three months ended June 30, 2024, primarily due to a valuation allowance of $780,000 recorded against the deferred tax assets of the Nestor Cables segment.

The Company’s net income for the three months ended June 30, 2025, was $1,606,000, or $0.11 per basic and diluted share. The Company’s net loss for the three months ended June 30, 2024, was $447,000, or $0.04 per basic and diluted share. The increase in basic and diluted earnings per share for the three months ended June 30, 2025, as compared to June 30, 2024, was due to higher net income as a result of increased gross profit margin, partially offset by increased selling, general and administrative expenses, and income tax expense as detailed above.

NINE MONTHS ENDED JUNE 30, 2025 VS. NINE MONTHS ENDED JUNE 30, 2024

Net sales for the nine months ended June 30, 2025, were $132,547,000, an increase of approximately 11%, or $12,614,000, from net sales of $119,933,000 for the nine months ended June 30, 2024. Net sales to Broadband Service Providers were $124,659,000 and $112,203,000 in the nine months ended June 30, 2025 and 2024, respectively. In addition, the Company recorded $25,958,000 in international sales for the nine months ended June 30, 2025 versus $33,110,000 for the nine months ended June 30, 2024. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 20% and 28% of total net sales for the nine months ended June 30, 2025 and June 30, 2024, respectively. Net sales to Legacy customers were $1,769,000 in the nine months ended June 30, 2025 versus $2,310,000 in the nine months ended June 30, 2024.

The increase in net sales for the nine months ended June 30, 2025, of $12,614 ,000 compared to the nine months ended June 30, 2024, was primarily driven by increased sales to Large Regional Service Provider customers of $10,620,000, up 71%, Community Broadband Service Providers of $1,992,000, up 4%, MSO customers of $6,364,000, up 40%, and National Carrier customers of $1,331,000, up 23%, partially offset by decreased sales to International customer of $7,152,,000, down 22%. The increase in sales across these markets for the nine months ended June 30, 2025, as compared to the nine months ended June 30, 2024, is due to early build season orders as well as reduced excess inventory levels at customers compared to the prior year period, and higher sales of additional product lines to customers in the Large Regional Service Provider and MSO markets. The decrease in sales to International customers was driven by decreased sales by the Nestor Cables segment during the nine months ended June 30, 2025.

Cost of sales for the nine months ended June 30, 2025, was $94,940,000, a decrease of $6,773,000, or 7%, from $101,712,000 for the nine months ended June 30, 2024. Gross profit percent was 28.4% of net sales for the nine months ended June 30, 2025, an increase from 15.2% of net sales for the nine months ended June 30, 2024. Gross profit increased $19,387,000, or 106%, to $37,608,000 for the nine months ended June 30, 2025, from $18,221,000 for the nine months ended June 30, 2024. The improvement in gross margin from the nine months ended June 30, 2024, was due to increased volumes within the Clearfield segment resulting in improved utilization of manufacturing overhead, as well as lower excess inventory charges of $9,319,000 in the nine months ended June 30, 2025, reflecting improved inventory utilization and beneficial recoveries from previously reserved inventory.

Selling, general and administrative expenses increased $1,393,000, or 4%, to $39,823,000 in the nine months ended June 30, 2025, from $38,430,000 for the nine months ended June 30, 2024. The increase is primarily due to higher wages and performance-based compensation accruals of $1,562,000.

Loss from operations for the nine months ended June 30, 2025, was $2,217,000 compared to loss from operations of $20,210,000 for the nine months ended June 30, 2024, a decrease of approximately 89%. The decrease is the result of increased net sales and gross profit margin as explained above, partially offset by increased selling, general and administrative expenses.

Net investment income for the nine months ended June 30, 2025, was $4,920,000 compared to $5,653,000 for the nine months ended June 30, 2024. The decrease in interest income is due to lower interest rates on investments during the nine months ended June 30, 2025.

Interest expense for the nine months ended June 30, 2025, was $275,000 compared to $381,000 for the nine months ended June 30, 2024. Interest expense incurred during these periods is due to factoring liabilities in the Nestor segment.

The Company recorded an income tax expense of $1,401,000 and income tax benefit of $3,311,000 for the nine months ended June 30, 2025, and 2024, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The increase in tax expense of $4,712,000 for the nine months ended June 30, 2025 in from fiscal 2024 is primarily due to increased income from operations offset by a valuation allowance of $780,000 recorded against the deferred tax assets of the Nestor Cables segment recorded in the Company’s fiscal 2025 third quarter. The income tax expense rate for the nine months ended June 30, 2025, was 57.7% compared to 22.2% for the nine months ended June 30, 2024. The change in the effective tax rate was primarily due to the aforementioned valuation allowance recorded on the deferred tax assets of the Nestor Cables segment.

The Company’s net income for the nine months ended June 30, 2025, was $1,028,000 or $0.07 per basic share and diluted share. The Company’s net loss for the nine months ended June 30, 2024, was $11,626,000, or $0.79 per basic share and diluted share. The increase in basic and diluted income per share for the nine months ended June 30, 2025, as compared to June 30, 2024, was due to increased net income as a result of increased sales and increased gross profit margin, partially offset by higher selling, general and administrative expenses and income tax expense as detailed above.

Reportable Segments

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

Reportable segments are as follows:

• Clearfield Segment – The Clearfield segment designs, manufactures, and sells fiber management, protection, and delivery solutions. For the three months ended June 30, 2025 and 2024, net sales from the Clearfield segment comprised 78% and 69% of the Company’s total net sales, respectively. For the nine months ended June 30, 2025 and 2024, net sales from the Clearfield segment compromised 82% and 75% of the Company’s total net sales, respectively.
• Nestor Cables Segment – The Nestor Cables segment designs, manufactures, and sells fiber optic and copper telecommunication cables and equipment. For the three months ended June 30, 2025, and 2024, net sales from the Nestor Cables segment comprised 22% and 31% of the Company’s total net sales, respectively. For the nine months ended June 30, 2025 and 2024, net sales from the Nestor Cables segment compromised 18% and 25% of the Company’s total net sales, respectively.

Clearfield Segment

The following table provides net sales and net income for the Clearfield segment for the three and nine months ended:

(In thousands)

Net sales in the Clearfield segment increased 15%, or $5,085,000, for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024. Net sales in the Clearfield segment increased 22%, or $19,703,000, for the nine months ended June 30, 2025, as compared to the nine months ended June 30, 2024, resulting primarily from higher sales of additional product lines to customers in the Large Regional Service Provider and MSO markets.

Net income in the Clearfield segment for the three months ended June 30, 2025, increased 1288%, or $2,524,000, from a net loss, as compared to the three months ended June 30, 2024. Net income in the Clearfield segment for the nine months ended June 30, 2025, increased 153%, or $12,986,000, from a net loss, as compared to the nine months ended June 30, 2024, driven by the changes in sales outlined above, as well as increased gross profit margin which was positively affected by increased volume and decreased provision for excess inventory reserves.

Nestor Cables Segment

The following table provides net sales and net income for the Nestor Cables segment for the three and nine months ended:

(In thousands)

30

Net sales in the Nestor Cables segment decreased 26%, or $3,975,000, for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024, excluding sales to the Clearfield segment. Net sales in the Nestor Cables segment decreased 23%, or $7,089,000, for the nine months ended June 30, 2025, as compared to the nine months ended June 30, 2024, excluding sales to the Clearfield segment. The decrease in net sales for the Nestor Cables segment was a result of lower demand in their European market for the three and nine months ended June 30, 2025.

Net loss in the Nestor Cables segment for the three months ended June 30, 2025, increased 186%, or $470,000, as compared to the three months ended June 30, 2024. The increased net loss was driven by lower sales and increased income tax expense for the three months ended June 30, 2025. Net loss in the Nestor Cables segment for the nine months ended June 30, 2025, increased 10%, or $332,000, as compared to the nine months ended June 30, 2024. The increased net loss for the nine months ended June 30, 2025, is due to lower sales and the tax valuation allowance recorded in the third quarter of fiscal 2025.

Liquidity and Capital Resources

As of June 30, 2025, our principal source of liquidity was our cash, cash equivalents, and short-term investments. These sources total $117,229,000 as of June 30, 2025, compared to $130,992,000 as of September 30, 2024. Additionally, we have a line of credit for $40 million that has no outstanding borrowing as of June 30, 2025. Our excess cash is invested mainly in Treasuries, CDs backed by the FDIC, and money market funds. Investments considered long-term were $40,168,000 as of June 30, 2025, compared to $24,505,000 as of September 30, 2024. We believe the combined balances of short-term cash and investments, long-term investments, along with our line of credit provide a more accurate indication of our available liquidity. As of June 30, 2025, our cash, cash equivalents, and short-term and long-term investments totaled $157,397,000, compared to $155,497,000 as of September 30, 2024.

We believe our existing cash equivalents, short-term investments, and line of credit facility along with cash flow from operations will be sufficient to meet our working capital and investment requirements beyond the next 12 months. The Company intends on utilizing its available cash and assets primarily for its continued organic growth, potential future strategic transactions, and the Company’s share repurchase program.

Operating Activities

Net cash provided by operating activities totaled $18,116,000 for the nine months ended June 30, 2025. This consisted of net income of $1,028,000, non-cash expenses for depreciation and amortization of $5,766,000, stock-based compensation of $3,745,000, amortization of premium and discounts on investments of $1,556,000, and decreased deferred income taxes of $157,000, in addition to changes in operating assets and liabilities providing and using cash. The primary change in operating assets and liabilities providing cash was a decrease in inventory of $13,752,000 and an increase in accounts payable and accrued expenses of $3,037,000, due to timing of payments. The decrease in inventory is due to increased sales to customers during the nine months ended June 30, 2025 as the Company has continued to utilize inventory on hand to fulfill customer orders and achieve lower stocking levels. The primary change in operating assets and liabilities using cash was an increase in accounts receivable of $4,944,000, along with an increase in other assets of $2,555,000, related to the increases in prepaid taxes and prepaid expenses. The increase in accounts receivable is due to increased net sales during the nine months ended June 30, 2025. Days sales outstanding, which measures how quickly receivables are collected, decreased 3 days to 49 days as of June 30, 2025, compared to 52 days as of June 30, 2024.

Net cash provided by operating activities totaled $9,131,000 for the nine months ended June 30, 2024. This consisted of a net loss of $11,626,000, non-cash expenses for depreciation and amortization of $5,481,000, stock-based compensation of $3,437,000, amortization of discounts on investments of $3,304,000 and increased deferred income taxes of $3,523,000, in addition to changes in operating assets and liabilities providing and using cash. The primary change in operating assets and liabilities providing cash was a decrease in inventory of $23,440,000 and an increase in accounts payable and accrued expenses of $2,310,000. The decrease in inventory was due to decreased inventory purchases during the nine months ending June 30, 2024, as the Company utilized inventory on hand to fulfill customer orders and achieve lower stocking levels to support the decreased sales order backlog, as well as higher excess inventory reserves. The primary change in operating assets and liabilities using cash was an increase in other assets of $8,030,000 related to increases in prepaid taxes and prepaid expenses.

Investing Activities

We invest our excess cash in money market accounts, Treasuries, money market funds, and bank CDs in denominations across numerous banks. We believe we obtain a competitive rate of return given the economic climate and relative risk profile of these investments. During the nine months ended June 30, 2025, we received proceeds from the maturity of investment securities of $95,976,000 and used cash to purchase $78,697,000 of investment securities. Purchases of property, plant, and equipment, mainly related to manufacturing equipment and intangible assets, consumed $5,221,000 of cash during the nine months ended June 30, 2025.

During the nine months ended June 30, 2024, we received proceeds from the maturity of investment securities of $142,067,000 and used cash to purchase $124,137,000 of investment securities. Purchases of property, plant, and equipment, mainly related to manufacturing equipment and intangible assets, consumed $5,608,000 of cash during the nine months ended June 30, 2024.

Financing Activities

For the nine months ended June 30, 2025, we used cash to repurchase $16,665,000 of our common stock on the open market under our stock repurchase program, which includes U.S. Federal excise taxes. We received $595,000 from employees’ participation and purchase of stock through our ESPP and used $494,000 for payment of withholding taxes for vesting of restricted stock grants. The Company received cash of $3,544,000 on net borrowings and repayments of factoring liabilities. The Company also received cash from net borrowings on bank overdrafts of $793,000.

For the nine months ended June 30, 2024, we used cash to repurchase $33,374,000 of our common stock on the open market under our stock repurchase program, which includes U.S. Federal excise taxes. We received $586,000 from employees’ participation and purchase of stock through our ESPP, used $240,000 for payment of withholding taxes for vesting of restricted stock grants, and used $9,000 related to share withholding for the exercise price and taxes associated with the issuance of common stock upon cashless exercises of stock options. The Company also used cash of $667,000 on net borrowings and repayments of factoring liabilities.

CRITICAL ACCOUNTING ESTIMATES

Management utilizes its technical knowledge, cumulative business experience, judgment and other factors in the selection and application of the Company’s accounting estimates. The accounting estimates considered by management to be the most critical to the presentation of the financial statements because they require the most difficult, subjective, and complex judgments include the fair value of investments, stock-based compensation, and valuation of inventory, long-lived assets, finite lived intangible assets and goodwill.

These accounting estimates are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended September 30, 2024. Management made no changes to the Company’s critical accounting estimates during the three and nine months ended June 30, 2025.

In applying its critical accounting estimates, management reassesses its estimates each reporting period based on available information. Changes in these estimates did not have a significant impact on earnings for the three and nine months ended June 30, 2025.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events and typically address the Company’s expected future business and financial performance. Words such as “may,” “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” “outlook,” or “continue” or comparable terminology are intended to identify forward-looking statements. Such forward looking statements include, for example, statements about the Company’s future revenue and operating performance, the impact of recent trade policy changes, including new and increased tariffs, retaliatory tariffs, trade disputes, and market and economic reactions to such changes, expected customer ordering patterns and future supply agreements with customers, anticipated shipping on backlog and future lead times, future availability of components and materials from the Company’s supply chain, compliance with Build America Buy America (BABA) Act requirements, future availability of labor impacting our customers’ network builds, the impact of the Broadband Equity, Access, and Deployment (BEAD) Program, Rural Digital Opportunity Fund (RDOF) or other government programs on the demand for the Company’s products or timing of customer orders, the Company’s ability to match capacity to meet demand, expansion into new markets and trends in and growth of the FTTx markets, market segments or customer purchases, future goodwill analysis and other statements that are not historical facts. These statements are based upon the Company's current expectations and judgments about future developments in the Company's business. Certain important factors could have a material impact on the Company's performance, including, without limitation: our business is dependent on interdependent management information systems; inflationary price pressures and uncertain availability of components, raw materials, labor and logistics used by us and our suppliers could negatively impact our profitability; we rely on single-source suppliers, which could cause delays, increase costs or prevent us from completing customer orders; we 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; 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; further consolidation among our customers may result in the loss of some customers and may reduce sales during the pendency of business combinations and related integration activities; we may be subject to risks associated with acquisitions, and the risks could adversely affect future operating results; we have exposure to movements in foreign currency exchange rates; adverse global economic conditions and geopolitical issues could have a negative effect on our business, and results of operations and financial condition; growth may strain our business infrastructure, which could adversely affect our operations and financial condition; product defects or the failure of our products to meet specifications could cause us to lose customers and sales or to incur unexpected expenses; we are dependent on key personnel; cyber-security incidents, including ransomware, data breaches or computer viruses, could disrupt our business operations, damage our reputation, result in increased expense, and potentially lead to legal proceedings; natural disasters, extreme weather conditions or other catastrophic events could negatively affect our business, financial condition, and operating results; pandemics and other health crises could have a material adverse effect on our business, financial condition, and operating results; to compete effectively, we must continually improve existing products and introduce new products that achieve market acceptance; if the telecommunications market does not continue to expand, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results; 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; intense competition in our industry may result in price reductions, lower gross profits and loss of market share; our success depends upon adequate protection of our patent and intellectual property rights; we face risks associated with expanding our sales outside of the United States; expectations relating to environmental, social and governance matters may increase our cost of doing business and expose us to reputational harm and potential liability; 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; our stock price has been volatile historically and may continue to be volatile - the price of our common stock may fluctuate significantly; anti-takeover provisions in our organizational documents, Minnesota law and other agreements could prevent or delay a change in control of our Company; and other factors set forth in Part I, Item IA. “Risk Factors” of Clearfield's Annual Report on Form 10-K for the year ended September 30, 2024, Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, as well as other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update these statements to reflect actual events unless required by law.

Clearfield is exposed to market risk due to the risk of loss arising from adverse changes in interest rates, foreign currency exchange rates, and commodity prices. Changes in those factors could impact the Company’s results of operations and financial condition. For a discussion of sensitivity analysis related to these types of market risks, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended September 30, 2024. There have been no material changes in information that would have been provided in the context of Item 3 for the three and nine months ended June 30, 2025.

The Company currently invests its excess cash in bank CDs that are fully insured by the FDIC and Treasuries with terms of not more than five years, as well as money market funds. The fair value of these investments fluctuates subject to changes in market interest rates.

Foreign Exchange Rates

The Company uses the U.S. Dollar as its reporting currency. The functional currency of Nestor Cables is the Euro. The changing relationships of the U.S. Dollar to the Euro could have a material impact on our financial results. Fluctuations in the Euro to U.S. Dollar exchange rate impacts our condensed consolidated balance sheets, as well as sales, cost of sales, and net income. If the Euro had appreciated or depreciated by 10% relative to the U.S. Dollar, our operating expenses would have increased or decreased by approximately $159,000 and $468,000, or approximately 1%, for the three and nine months ended June 30, 2025. 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 condensed consolidated financial statements.

Inflation

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

Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2025. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2025, the Company implemented a new ERP system in the Clearfield segment, which changed a number of the Company’s processes and internal controls over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. These changes are primarily in our revenue, inventory, accounts payable and financial reporting processes. In connection with this implementation we have updated aspects of our control environment related to these processes to ensure our controls remain effective.

The most significant risk factors applicable to the Company are described in Part II, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2024. There have been no material changes from the risk factors previously disclosed.