Clearfield Inc

Company Overview

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).

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. 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.

Segments

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”).

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 allow its customers to connect twice as many 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 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.

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. 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. 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.

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. 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. 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. 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. 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.

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. 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. 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. 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. 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. 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. The FiberFirst Pedestal Access Terminal options provide a cable management and mounting bracket kit that supports the deployment of all Clearfield access terminals.

Access Terminals from Clearfield are designed to ensure every service provider has the freedom of choice to match drop cable configuration and technology with the needs of their environment and first-cost priorities. The patented SeeChange® terminal and hardened connector system lets the operator push fiber deeper in the neighborhood using a completely plug-and-play approach. The YOURx® access terminals also offer flexibility with cable mid-span and internal splicing options. Clearfield access terminals can be deployed in a variety of locations including pedestal, vault, flowerpot, pole-mount, smart-pole, or strand mounted options.

FieldShield® platform is a patented fiber pathway and protection method aimed at reducing the cost of broadband deployment. Our FieldShield fiber drop cable assemblies are designed to connect the fiber access point (hand hole, pedestal or aerial) to the optical network terminal (ONT), on the home, in a fiber to the home (FTTH) network. 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.

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.

Fiber Optic Cables manufactured by Nestor Cables include a comprehensive range of optical fiber cables that offer dependable solutions for various installation conditions and special requirements, including direct buried cables, duct cables, microduct cables, indoor/outdoor cables, aerial cables and submarine cable.

Copper Cables manufactured by Nestor Cables include copper conducted instrumentation and automation cables as well as central and signaling cables. Nestor also manufactures copper cable for telecommunications networks.

Nestor Optimusproduct family is a complete solution which includes all needed products - cables, microducts, microduct accessories and tools - for construction of microduct networks which are easily expandable, suitable for changing and growing urban and suburban areas, and enables the use of lighter installation techniques, which reduces construction costs and interference during installation.

NesCon Connectivity Productsis a product family by Nestor Cables that includes essential installation and connection accessories for fiber optic networks, all of which are compatible with Nestor Cable’s optical fiber cables.

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). 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.

The Company considers the primary markets for its products to be as follows:

FTTP

Fiber to the Premise (also called Fiber to the Home) is a means of delivering the highest possible level of bandwidth directly to the user. The Company’s sales and marketing efforts have principally been focused on the U.S., with additional efforts in Canada and Central/Latin America. We intend to leverage our Nestor platform to cross sell connectivity products into Europe.

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. 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.

Competition

The market for the fiber management, fiber protection, and fiber delivery products provided by the Clearfield segment is highly competitive. 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.

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. 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. In various geographic or vertical markets, there are also several smaller companies with which we compete. 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 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. The market demand and resulting build rates of fiber optic networks and capital expenditures by telecommunications wholesalers and telecommunications providers, has a large and direct influence on the demand for the Nestor Cables segment products.

Many of our competitors have greater resources than we do, including greater sales, product development, marketing, financial, technical, or engineering resources. As a result, our competitors may be able to procure necessary components and labor at much lower prices than we can or may offer competitive products at below market prices, which could prevent us from competing effectively.

Sources of Materials and Supply Chain

Numerous purchased materials and components and sources of labor are used in the manufacturing of the Company’s products. Most of these are available from multiple suppliers. However, some components and third-party contract manufacturing services are purchased from a single or a limited number of suppliers. The loss of access to some components and third-party contract manufacturing services could have an adverse effect on our ability to deliver products on a timely basis and on our financial performance.

Clearfield’s Mexico facility operates under a Maquiladora arrangement. Under this arrangement, we contract with a company to provide certain personnel and other services at the production facilities in Mexico that complete final build and assembly of a significant portion of Clearfield’s products. 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.

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 facilities in Brooklyn Park, Minnesota or the facility in Tijuana, Mexico that operates as a Maquiladora. Our supply chain management team consists of planning, sourcing, and logistics personnel. 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.

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

As of September 30, 2024, three customers accounted for a combined 37% of accounts receivable. These customers are all distributors. As of September 30, 2023, three customers accounted for a combined 40% of accounts receivable. These customers are all distributors.

The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Sales outside the United States are principally to customers in 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, 2024, Clearfield has 53 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.

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. Sales have usually reached a seasonal peak in our third and fourth fiscal quarters.

Human Capital Resources

As of September 30, 2024, the Company had approximately 400 full-time employees, of which 62% were based in the United States (“U.S.”) and 38% 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. Except for customary local works council 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 90 manufacturing personnel as of September 30, 2024. 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. Our manufacturing personnel currently work in one shift as needed at our Brooklyn Park facility.

We 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. 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.

Nestor Cables has approximately 35 office personnel and 120 manufacturing personnel as of September 30, 2024.

As of September 30, 2024, we had contracted for approximately 330 personnel in the Mexico facility through a Maquiladora agreement. The manufacturing personnel contracted through the Maquiladora are covered by a customary local collective bargaining agreement with the company that provides the personnel and other services to Mexico facility.

In our manufacturing operations, we monitor key metrics and goals based on quality, productivity, and ability to meet shipping promise dates. As a measure of quality, we focus on First Pass Yield (“FPY”), which is calculated as the percentage of product that meets all performance criteria upon first completion from our manufacturing floor and requires no rework. The Company’s target for FPY ranges from 92-99%, depending on key manufacturing steps and the product line being produced. We also measure our On-Time Delivery (“OTD”) which is determined by the Company’s ability to ship product on the date necessary, accounting for standard shipping times, in order to meet the agreed upon delivery date with our customers. The Company’s OTD target is a minimum of 95%. 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. While we do not believe climate-related risks are reasonably likely to have a material impact on our business, results of operations, or financial condition at this time, we are continuing to assess the nature and extent of risk from a changing climate and the potential for increased regulation.

The majority of our manufacturing operations calls for compiling raw material and other purchased components from suppliers. As part of our operations, we focus on minimizing scrap and other waste and look to recycle and salvage this scrap wherever possible. Any new regulation of emissions may result in additional costs to our suppliers which may be passed on to us.

In addition, the physical impacts of climate change and other natural events, including adverse weather conditions such as heavy or sustained rainfall, flooding, cold weather and snow, can impact deployment schedules of outdoor products and potentially affect demand for our products. Additionally, we may need to take into account an increase in the frequency of extreme weather events in the development of our products.

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. 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.

Changes in environmental and climate change laws or regulations, including laws relating to greenhouse gas (“GHG”) emissions, could lead to new or additional investment in the Company’s products or facilities and could increase environmental compliance expenditures. 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.

Corporate Information

Clearfield, Inc. was incorporated under the laws of Minnesota in 1979. Our corporate headquarters are located at 7050 Winnetka Avenue North, Suite 100, Brooklyn Park, Minnesota, 55428, and our corporate website is www.seeclearfield.com. We do not incorporate the information on or accessible through our website into this annual report on Form 10-K, and you should not consider any information on, or that can be accessed through, our website as part of this annual report on Form 10-K.

Our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at our website as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers, like Clearfield, that file electronically with the SEC and that internet site is http://www.sec.gov.

We use various trademarks and trade names in our business, including without limitation our corporate name and logo. 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.

ITEM 1A. **RISK FACTORS