Clearfield, Inc. (CLFD)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2026, and 2025 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, 2025.

OVERVIEW

General

Clearfield designs, manufactures, and distributes fiber optic management, protection, and delivery products for communications networks. Its “fiber to the anywhere” platform serves the unique requirements of leading broadband service providers in the United States, which include Community Broadband, Large Regional Service Providers, National Carriers, and Multiple System Operators (“MSOs” or “cable TV”), while also serving the broadband needs of the International markets, primarily in Canada, the Caribbean, Central/South America and Mexico. These customers are collectively included in the category of Broadband Service Providers. The Company’s sales channels include direct to customer and through distribution partners. The Company’s products are sold by its sales employees and independent sales representatives.

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Segment Information

We are engaged in global operations. On November 11, 2025, the Company completed the sale of its Nestor Cables business, which was previously reported as the Nestor Cables Operating Segment. In connection with this sale, the historical results of the Nestor Cables business and certain assets and liabilities of the Nestor Cables business are reported in our consolidated financial statements as discontinued operations. Following the sale of the Nestor Cables business, the continuing operations of the Company comprise one operating segment and one reportable segment. Unless otherwise stated below, all references in results of operations are to the Company’s continuing operations and not the discontinued operations.

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 allow its customers to connect more homes in their Fiber to the Home (“FTTH”) builds by using fewer resources in less time. 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 broadband service. Our products help make our customers’ 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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2026 VS. THREE MONTHS ENDED JUNE 30, 2025

Net sales for the three months ended June 30, 2026, all of which were to Broadband Service Providers, were $43,864,000, an increase of approximately 13%, or $5,109,000 from net sales of $38,755,000 for the three months ended June 30, 2025. The Company recorded $999,000 in international sales for the three months ended June 30, 2026 versus $1,341,000 for the three months ended June 30, 2025. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. International sales represented 2% and 3% of total net sales for the three months ended June 30, 2026 and 2025, respectively. Net sales to Legacy customers were $0 in the three months ended June 30, 2026 versus $570,000 in the three months ended June 30, 2025.

The increase in net sales for the three months ended June 30, 2026, of $5,109,000 compared to the three months ended June 30, 2025, was primarily driven by increased sales to Large Regional Service Provider customers of $4,025,000, up 58%, Community Broadband customers of $2,379,000, up 13%, and National Carrier customers of $1,157,000, up 54%, partially offset by decreased sales to MSO customers of $1,540,000, down 17%, Legacy customers of $570,000, down 100%, and International customers of $343,000, down 26%. The increase in sales in the Large Regional, Community Broadband, and National Carrier customer markets for the three months ended June 30, 2026, as compared to the three months ended June 30, 2025, is due to increased demand in the quarter to customers in these segments. The decrease in sales to Legacy customers is due to the divestiture of the Company’s former build-to-print copper cable assemblies business in September 2025.

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Order backlog as of June 30, 2026, was $20,988,000, a decrease of 34% compared to $31,647,000 as of March 31, 2026, and a decrease of $9,747,000, or 32%, from June 30, 2025. The decrease in backlog is due to slower demand during the quarter, as well as the exclusion of the remaining portion of a previously booked customer order in the amount of $4,624,000 which we no longer believe will be fulfilled.

Cost of sales for the three months ended June 30, 2026, was $29,920,000, an increase of $4,841,000, or 19%, from $25,079,000, for the three months ended June 30, 2025. Gross profit percent was 31.8% of net sales for the three months ended June 30, 2026, a decrease from 35.3% of net sales for the three months ended June 30, 2025. Gross profit increased $268,000, or 2%, to $13,944,000 for the three months ended June 30, 2026, from $13,676,000 for the three months ended June 30, 2025. Gross margin as a percentage of net sales decreased compared to the prior period, driven by product mix, as well as higher excess and obsolete inventory charges specifically driven by $2,560,000 in charges related to the remaining finished good portion of a customer order which we no longer believe will be fulfilled. This was offset by recoveries on sales of previously reserved inventory of $1,407,000 as well as $655,000 in tariff refunds related to previously paid tariffs that have been refunded following a change in tariff regulations.

Selling, general and administrative expenses for the three months ended June 30, 2026, were $11,373,000 in comparison to $12,149,000 for the three months ended June 30, 2025, a decrease of $776,000, or 6%. The decrease is due to a reduction of $1,710,000 of performance-based compensation accruals during the quarter, reflecting lower projected expense under the Company's incentive compensation programs. This was partially offset by higher wages and benefit related expense of $755,000.

Income from continuing operations for the three months ended June 30, 2026, was $2,571,000 compared to income from continuing operations of $1,527,000 for the three months ended June 30, 2025, an increase of approximately 68%. The increase in income from continuing operations is the result of increased gross profit and decreased selling, general and administrative expenses as explained above.

Net investment income for the three months ended June 30, 2026, was $1,363,000 compared to $1,588,000 for the three months ended June 30, 2025. The decrease in net investment income is due to decreased interest income driven by lower interest rates earned on investments during the quarter.

The Company recorded an income tax expense of $934,000 and $787,000 for the three months ended June 30, 2026, and 2025, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The income tax rate for the three months ended June 30, 2026, was 23.7% compared to 25.3% for the three months ended June 30, 2025. The income tax rate for the three months ended June 30, 2026, approximated the Company's estimated annual effective tax rate, reflecting state income taxes and the nondeductibility of certain executive compensation under Section 162(m) of the Internal Revenue Code being partially offset by the impact of research and development tax credits. The income tax rate for the three months ended June 30, 2025, was higher than the statutory rate primarily due to the nondeductibility of certain executive compensation under Section 162(m) of the Internal Revenue Code and discrete tax items, including excess tax shortfall from the vesting of restricted stock.

The Company’s net income from continuing operations for the three months ended June 30, 2026, was $3,000,000, or $0.22 per basic and diluted share compared to net income from continuing operations for the three months ended June 30, 2025, of $2,328,000, or $0.16 per basic and diluted share.

The Company’s net loss from discontinued operations for the three months ended June 30, 2026, was $0, or $0.00 per basic and diluted share compared to net loss from discontinued operations for the three months ended June 30, 2025, of $722,000, or $(0.05) per basic and diluted share. The decrease in net loss from discontinued operations is due to the sale of the Nestor Cables business in the first quarter of fiscal 2026.

NINE MONTHS ENDED JUNE 30, 2026 VS. NINE MONTHS ENDED JUNE 30, 2025

Net sales for the nine months ended June 30, 2026, all of which were to Broadband Service Providers, were $112,596,000, an increase of approximately 3%, or $3,522,000, from net sales of $109,074,000 for the nine months ended June 30, 2025. The Company recorded $3,435,000 in international sales for the nine months ended June 30, 2026 versus $2,484,000 for the nine months ended June 30, 2025. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 3% and 2% of total net sales for the nine months ended June 30, 2026 and June 30, 2025, respectively. Net sales to Legacy customers were $0 in the nine months ended June 30, 2026 versus $1,769,000 in the nine months ended June 30, 2025.

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The increase in net sales for the nine months ended June 30, 2026, of $3,522,000 compared to the nine months ended June 30, 2025, was primarily driven by increased sales to Community Broadband customers of $4,034,000, up 8%, Large Regional Service Provider customers of $3,361,000, up 13%, International customers of $950,000, up 38%, and National Carrier customers of $728,000, up 10%, partially offset by decreased sales to MSO customers of $3,783,000, down 17%, and Legacy customers of $1,769,000, down 100%. The increase in sales to Community Broadband, Large Regional, International, and National Carrier customer markets for the nine months ended June 30, 2026, as compared to the nine months ended June 30, 2025, was due to increased demand to customers in these segments. In addition, the decrease in sales to Legacy customers is due to the divestiture of the Company’s former build-to-print copper cable assemblies business in September 2025.

Cost of sales for the nine months ended June 30, 2026, was $76,103,000, an increase of $3,341,000, or 5%, from $72,762,000 for the nine months ended June 30, 2025. Gross profit percent decreased slightly at 32.4% of net sales for the nine months ended June 30, 2026, when compared to 33.3% of net sales for the nine months ended June 30, 2025. Gross profit increased $181,000,

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

Cautionary Statement Regarding Forward-Looking Information

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

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Overview of Business: Clearfield designs, manufactures, and distributes fiber optic management, protection, and delivery products for communications networks. Its “fiber to the anywhere” platform serves the unique requirements of leading broadband service providers in the United States, which include Community Broadband, Large Regional Service Providers, National Carriers, and Multiple System Operators (“MSOs” or “cable TV”), while also serving the broadband needs of the International markets, primarily in Canada, the Caribbean, Central/South America and Mexico. These customers are collectively included in the category of Broadband Service Providers. The Company’s sales channels include direct to customer and through distribution partners. The Company’s products are sold by its sales employees and independent sales representatives.

Results of Operations

The Company’s reportable segment is based on the Company’s method of internal reporting. The internal reporting of the operating segment is defined based, in part, on the reporting and review process used by the Company’s Chief Executive Officer, also known as the Chief Operating Decision Maker (“CODM”). The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources and evaluating financial performance. As such, the Company has determined that it operates as one reportable segment.

On November 11, 2025, the Company completed the sale of its Nestor Cables business, which was previously reported as the Nestor Cables Operating Segment. In connection with this sale, the historical results of the Nestor Cables business and certain assets and liabilities of the Nestor Cables business are reported in our consolidated financial statements as discontinued operations. Following the sale of the Nestor Cables business, the continuing operations of the Company comprise one operating segment and one reportable segment.

Reported below are the results of operations for the Company’s continuing operations unless otherwise stated.

Year ended September 30, 2025, compared to year ended September 30, 2024

The Company’s net sales for fiscal year 2025 increased 20%, or $24,566,000, to $150,134,000 from net sales of $125,568,000 in fiscal year 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 3% and 2% of net sales for the years ended September 30, 2025, and 2024, respectively.

The increase in net sales for fiscal year 2025 of $24,566,000 compared to fiscal year 2024 is attributable to increased demand across the Company’s core markets. Sales to the Community Broadband market increased 1%, or $767,000, from $66,005,000 in fiscal year 2024 to $66,772,000 in fiscal year 2025. Sales to Clearfield’s MSO/Cable TV market increased 38%, or $8,864,000 from $23,487,000 in fiscal year 2024 to $32,351,000 in fiscal year 2025. Sales to the Large Regional market increased 58% to $33,706,000 from $21,293,000 in fiscal year 2024. Sales to National Carriers increased 11%, or $976,000, from $8,767,000 in fiscal year 2024 to $9,743,000 in fiscal year 2025.

Cost of sales for fiscal year 2025 was $99,597,000 compared to $99,721,000 in fiscal year 2024. Gross profit increased 96%, or $24,690,000, from $25,847,000 for fiscal year 2024 to $50,537,000 for fiscal year 2025. Gross profit percent was 33.7% in fiscal year 2025 compared to 20.6% for fiscal year 2024. The improvement in gross margin was due to increased volumes resulting in improved absorption of manufacturing overhead, as well as lower excess inventory charges of $10,074,000 in fiscal year 2025, reflecting improved inventory utilization and beneficial recoveries from inventory previously written down.

Selling, general and administrative expenses for fiscal year 2025 was $48,419,000, an increase of $3,338,000, or 7%, compared to $45,081,000 for fiscal year 2024. The increase was due to higher wages and performance-based compensation of $3,164,000.

Income from continuing operations for fiscal year 2025 was $2,118,000 compared to a loss from continuing operations of $19,234,000 for fiscal year 2024. The increase in income is attributable to increased sales and gross profit from higher customer demand and improved gross profit margin, partially offset by higher selling, general and administrative expenses as described above.

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Net investment income in fiscal year 2025 was $6,549,000 compared to $7,472,000 for fiscal year 2024. The decrease in interest income is due to lower interest rates earned, partially offset by a higher average investments balance for the year ended September 30, 2025. The Company invests its excess cash primarily in Federal Deposit Insurance Company (“FDIC”) backed bank certificates of deposit, United States (“U.S.”) treasury securities, and money market funds and accounts. We expect interest income to decrease slightly in fiscal year 2026 due to lower expected market interest rates.

Income tax expense for fiscal year 2025 was $2,357,000 compared to income tax benefit of $3,248,000 for fiscal year 2024. The increase in tax expense of $5,605,000 from the year ended September 30, 2024, is due to the increase in pretax book income for fiscal year 2025. The income tax expense rate decreased to 27.2% for fiscal year 2025 from 27.6% for fiscal year 2024 due to changes in state tax, foreign tax and increased section 162(m) deduction. Our provision for income taxes includes current U.S. federal and state current and deferred tax expense.

Net income from continuing operations for fiscal year 2025 was $6,310,000 or $0.45 per basic and diluted share compared to net loss of $8,514,000 or $(0.58) per basic and diluted share for fiscal year 2024.

Net loss from discontinued operations for fiscal year 2025 was $3,947,000 or $(1.03) per basic and diluted share compared to net loss of $3,939,000 or $(0.27) per basic and diluted share for fiscal year 2024. Net loss from impairment of discontinued operations for fiscal year 2025 was $10,413,000. See Note 11 for further details regarding the impairment charges related to the Nestor Cables business.

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

The Company’s net sales for fiscal year 2024 decreased 44%, or $100,154,000, to $125,568,000 from net sales of $225,722,000 in fiscal year 2023. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 2% and 3% of net sales for the years ended September 30, 2024, and 2023, respectively.

The decrease in net sales for fiscal year 2024 of $100,154,000 compared to fiscal year 2023 is attributable to decreased demand across the Company’s core markets. Sales to the Community Broadband market decreased 41%, or $45,703,000, from $111,708,000 in fiscal year 2023 to $66,005,000 in fiscal year 2024. Sales to Clearfield’s MSO/Cable TV market decreased 49%, or $22,182,000, from $45,669,000 in fiscal year 2023 to $23,487,000 in fiscal year 2024. Sales to the Large Regional market decreased 57% or $28,596,000, to $21,293,000 in fiscal 2024 from $49,889,000 in fiscal 2023. Sales to National Carriers decreased 2%, or $187,000, from $8,954,000 in fiscal year 2023 to $8,767,000 in fiscal year 2024. The decrease in sales to these customers was due to a lull in demand for fiber connectivity products as customers digest their larger than normal inventory levels built up during the pandemic which were purchased over the previous years.

Cost of sales for fiscal year 2024 was $99,721,000, a decrease of $46,144,000, or 32%, from $145,865,000 in fiscal year 2023. Gross profit decreased 68%, or $54,010,000, from $79,857,000 for fiscal year 2023 to $25,847,000 for fiscal year 2024. The decrease in gross profit was due to lower net sales and lower gross profit margin in fiscal year 2024. Gross profit percent was 20.6% in fiscal year 2024 compared to 35.4% for fiscal year 2023. Gross profit margin was negatively affected by unabsorbed overhead in our manufacturing facilities due to lower levels of demand. The Company’s gross profit was also negatively impacted by an increase in inventory write-downs of $4,748,000 during the fiscal year ended September 30, 2024. Inventory write-downs are primarily due to excess inventory due to the lull in demand while customers draw down their existing products previously purchased during the period of long lead time supply chain created by the pandemic. The Company expects to operate at gross profit percentage levels at or below these levels for several quarters until revenue levels increase, which is expected to bring improved margins.

Selling, general and administrative expense for fiscal year 2024 was $45,081,000, an increase of $2,801,000, or 7%, compared to $42,280,000 for fiscal year 2023. The increase was due to increased performance-based compensation of $1,395,000, increased stock-based compensation of $819,000, and increased professional fees of $1,086,000.

Loss from continuing operations for fiscal year 2024 was $19,234,000 compared to income from continuing operations of $37,577,000 for fiscal year 2023. The decrease is attributable to lower sales and gross profit due to excess supply of fiber products and also higher unabsorbed overhead related to expanded manufacturing capacities.

Net investment income in fiscal year 2024 was $7,472,000 compared to $5,199,000 for fiscal year 2023. The increase in interest income is due to a higher average investments balance and higher interest rates earned for the year ended September 30, 2024. The higher overall investments balance is a result of the Company’s capital raise of approximately $130,000,000 completed late in the first fiscal quarter of 2023 and cash generated from operations in fiscal 2024. The Company invests its excess cash primarily in Federal Deposit Insurance Company (“FDIC”) backed bank certificates of deposit, United States (“U.S.”) treasury securities, and money market funds and accounts.

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Income tax benefit for fiscal year 2024 was $3,248,000 compared to income tax expense of $8,883,000 for fiscal year 2023. The decrease in tax expense of $12,131,000 from the year ended September 30, 2023, is due to the decrease in pretax book income for fiscal year 2024. The increase in the income tax expense rate to 27.6% for fiscal year 2024 from 20.9% for fiscal year 2023 is due to changes in state tax, foreign tax and decreased excess tax benefits from stock option exercises and restricted stock vesting, resulting in a shortfall in the current perio

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