UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from __________________ to ___________________
Commission File Number
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices and zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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The |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company in Rule 12b-2 of the Exchange Act.
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
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Class: |
Outstanding as of May 1, 2023 |
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Common stock, par value $.01 |
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CLEARFIELD, INC.
FORM 10-Q
TABLE OF CONTENTS
CLEARFIELD, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
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March 31, |
September 30, |
|||||||
| Assets | ||||||||
| Current Assets | ||||||||
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Cash and cash equivalents |
$ | $ | ||||||
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Short-term investments |
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Accounts receivables, net |
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Inventories, net |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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| Other Assets | ||||||||
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Long-term investments |
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Goodwill |
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Intangible assets, net |
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Right-of-use lease assets |
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Deferred tax asset |
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Other |
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Total other assets |
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Total Assets |
$ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current Liabilities | ||||||||
|
Current portion of lease liability |
$ | $ | ||||||
|
Accounts payable |
||||||||
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Accrued compensation |
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Accrued expenses |
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Factoring liability |
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Total current liabilities |
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| Other Liabilities | ||||||||
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Long-term debt |
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Long-term portion of lease liability |
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Deferred tax liability |
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Total liabilities |
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| Shareholders’ Equity | ||||||||
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Preferred stock, $ par value; |
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Common stock, authorized |
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Additional paid-in capital |
||||||||
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Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
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Retained earnings |
||||||||
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Total shareholders’ equity |
||||||||
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Total Liabilities and Shareholders’ Equity |
$ | $ | ||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CLEARFIELD, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
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March 31, |
March 31, |
|||||||||||||||
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2023 |
2022 |
2023 |
2022 |
|||||||||||||
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Net sales |
$ | $ | $ | $ | ||||||||||||
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Cost of sales |
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Gross profit |
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| Operating expenses | ||||||||||||||||
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Selling, general and administrative |
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Income from operations |
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Net investment income |
||||||||||||||||
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Interest expense |
( |
) | ( |
) | ||||||||||||
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Income before income taxes |
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Income tax expense |
||||||||||||||||
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Net income |
$ | $ | $ | $ | ||||||||||||
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Net income per share Basic |
||||||||||||||||
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Net income per share Diluted |
$ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
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Basic |
||||||||||||||||
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Diluted |
||||||||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CLEARFIELD, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
(IN THOUSANDS)
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Three Months Ended |
Six Months Ended |
|||||||||||||||
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March 31, |
March 31, |
|||||||||||||||
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2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Comprehensive Income: | ||||||||||||||||
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Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
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Unrealized gain (loss) on available-for-sale investments |
( |
) | ( |
) | ||||||||||||
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Unrealized gain on foreign currency translation |
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Total other comprehensive income (loss) |
( |
) | ( |
) | ||||||||||||
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Total comprehensive income |
$ | $ | $ | $ | ||||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CLEARFIELD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN THOUSANDS)
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For the three months ended March 31, 2023 |
Accumulated other | |||||||||||||||||||||||
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Common Stock |
Additional | comprehensive | Retained | Total share- | ||||||||||||||||||||
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Shares |
Amount | paid-in capital | loss | earnings | holders’ equity | |||||||||||||||||||
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Balance at December 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Issuance of common stock under equity compensation plans | ||||||||||||||||||||||||
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Exercise of stock options, net of shares exchanged for payment |
( |
) | ( |
) | ||||||||||||||||||||
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Other comprehensive income |
- | |||||||||||||||||||||||
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Net income |
- | |||||||||||||||||||||||
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Balance at March 31, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
|
For the three months ended March 31, 2022 |
Accumulated other | |||||||||||||||||||||||
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Common Stock |
Additional | comprehensive | Retained | Total share- | ||||||||||||||||||||
|
Shares |
Amount | paid-in capital | loss | earnings | holders’ equity | |||||||||||||||||||
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Balance at December 31, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||||||
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Stock-based compensation expense |
- | |||||||||||||||||||||||
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Restricted stock issuance, net of forfeitures |
||||||||||||||||||||||||
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Withholding related to exercise of stock options |
( |
) | ( |
) | ||||||||||||||||||||
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Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||
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Net income |
- | |||||||||||||||||||||||
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Balance at March 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CLEARFIELD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN THOUSANDS)
|
For the six months ended March 31, 2023 |
Accumulated other | |||||||||||||||||||||||
|
Common Stock |
Additional | comprehensive | Retained | Total share- | ||||||||||||||||||||
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Shares |
Amount | paid-in capital | loss | earnings | holders’ equity | |||||||||||||||||||
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Balance as of September 30, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Issuance of common stock under equity compensation plans | ||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | ||||||||||||||||||||||||
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Exercise of stock options, net of shares exchanged for payment |
( |
) | ( |
) | ||||||||||||||||||||
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Repurchase of shares for payment of withholding taxes for vested restricted stock grants |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Issuance of common stock, net | ||||||||||||||||||||||||
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Other comprehensive income |
- | |||||||||||||||||||||||
|
Net income |
- | |||||||||||||||||||||||
|
Balance at March 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
|
For the six months ended March 31, 2022 |
Accumulated other | |||||||||||||||||||||||
|
Common Stock |
Additional | comprehensive | Retained | Total share- | ||||||||||||||||||||
|
Shares |
Amount | paid-in capital | loss | earnings | holders’ equity | |||||||||||||||||||
|
Balance as of September 30, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||||||
|
Stock-based compensation expense |
- | |||||||||||||||||||||||
|
Restricted stock issuance, net of forfeitures |
||||||||||||||||||||||||
|
Issuance of common stock under employee stock purchase plan |
||||||||||||||||||||||||
|
Withholding related to exercise of stock options |
( |
) | ( |
) | ||||||||||||||||||||
|
Repurchase of shares for payment of withholding taxes for vested restricted stock grants |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||
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Net income |
- | |||||||||||||||||||||||
|
Balance at March 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
|
Six Months |
Six Months |
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Ended |
Ended |
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March 31, |
March 31, |
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|
2023 |
2022 |
|||||||
| Cash flows from operating activities | ||||||||
|
Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
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Depreciation and amortization |
||||||||
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Amortization of discount on investments |
( |
) | ( |
) | ||||
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Deferred taxes |
( |
) | ||||||
|
Stock-based compensation |
||||||||
| Changes in operating assets and liabilities, net of acquired amounts: | ||||||||
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Accounts receivable |
( |
) | ||||||
|
Inventories, net |
( |
) | ( |
) | ||||
|
Other assets |
( |
) | ( |
) | ||||
|
Accounts payable and accrued expenses |
( |
) | ||||||
|
Net cash provided by (used in) operating activities |
( |
) | ||||||
| Cash flows from investing activities | ||||||||
|
Purchases of property, plant and equipment, and intangible assets |
( |
) | ( |
) | ||||
|
Purchases of investments |
( |
) | ( |
) | ||||
|
Proceeds from sales and maturities of investments |
||||||||
|
Net cash provided by (used in) investing activities |
( |
) | ||||||
| Cash flows from financing activities | ||||||||
|
Repayment of long-term debt |
( |
) | ||||||
|
Proceeds from issuance of common stock under employee stock purchase plan |
||||||||
|
Repurchase of shares for payment of withholding taxes for stock grants |
( |
) | ( |
) | ||||
|
Withholding related to exercise of stock options |
( |
) | ( |
) | ||||
|
Issuance of stock under equity compensation plans |
||||||||
|
Net proceeds from issuance of common stock |
||||||||
|
Net cash provided by (used in) financing activities |
( |
) | ||||||
|
Effect of exchange rates on cash |
||||||||
|
Increase in cash and cash equivalents |
||||||||
|
Cash and cash equivalents, beginning of year |
||||||||
|
Cash and cash equivalents, end of year |
$ | $ | ||||||
| Supplemental disclosures for cash flow information | ||||||||
|
Cash paid for income taxes |
$ | $ | ||||||
|
Cash paid for interest expense |
$ | $ | ||||||
| Non-cash financing activities | ||||||||
|
Cashless exercise of stock options |
$ | $ | ||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Unless the context otherwise requires, for purposes of the Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” the “Company,” and “Clearfield,” refer to Clearfield, Inc.
Note 2. Net Income Per Share
Basic net income per common share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the reporting period. Diluted EPS equals net income divided by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock equivalents, such as stock options, when dilutive.
The following is a reconciliation of the numerator and denominator of the net income per common share computations for the three and six months ended March 31, 2023 and 2022:
|
Three Months Ended March 31, |
Six Months Ended March 31, |
|||||||||||||||
|
(In thousands, except for share data) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
|
Net income |
$ | $ | $ | $ | ||||||||||||
|
Weighted average common shares |
||||||||||||||||
|
Dilutive potential common shares |
||||||||||||||||
|
Weighted average dilutive common shares outstanding |
||||||||||||||||
| Net income per common share: | ||||||||||||||||
|
Basic |
$ | $ | $ | $ | ||||||||||||
|
Diluted |
$ | $ | $ | $ | ||||||||||||
Note 3. Cash and Cash Equivalents
We classify investments with original maturities of 90 days or less as cash equivalents. The following table presents the Company’s cash and cash equivalents balances:
|
(In thousands) |
March 31, 2023 |
September 30, 2022 |
||||||
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Cash and cash equivalents: |
||||||||
|
Cash including money market accounts |
$ | $ | ||||||
|
Money market funds |
||||||||
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U.S. Treasury securities |
||||||||
|
Total cash and cash equivalents |
$ | $ | ||||||
Note 4. Investments
The Company invests in certificates of deposit (“CDs”) that are fully insured by the Federal Deposit Insurance Corporation (“FDIC”) and United States (“U.S.”) Treasury securities with terms of not more than five years, as well as money market funds. Historically, the Company’s investment portfolio had been classified as held-to-maturity and recorded at amortized cost. During the second quarter of fiscal 2022, the Company sold investments and reclassified its investment portfolio to available-for-sale, which is reported at fair value. The unrealized gain or loss on investment securities is recorded in other comprehensive income, net of tax. Realized gains and losses on available-for-sale securities are recognized upon sale and are included in net investment income in the consolidated statement of earnings.
At March 31, 2023, available-for-sale investments consisted of the following:
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March 31, 2023 |
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(In thousands) |
Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value |
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| Short-Term | ||||||||||||||||
|
U.S. Treasury securities |
$ | $ | $ | $ | ||||||||||||
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Certificates of deposit |
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Investment securities – short-term |
$ | $ | $ | $ | ||||||||||||
| Long-Term | ||||||||||||||||
|
U.S Treasury securities |
$ | $ | $ | $ | ||||||||||||
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Certificates of deposit |
||||||||||||||||
|
Investment securities – long-term |
$ | $ | $ | $ | ||||||||||||
As of March 31, 2023, investments in debt securities in an unrealized loss position were as follows:
|
In Unrealized Loss Position For Less Than 12 Months |
In Unrealized Loss Position For Greater Than 12 Months |
|||||||||||||||
|
(In thousands) |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
||||||||||||
|
U.S Treasury securities |
$ | $ | $ | $ | ||||||||||||
|
Certificates of deposit |
||||||||||||||||
|
Investment securities |
$ | $ | $ | $ | ||||||||||||
As of March 31, 2023, there were
Note 5. Fair Value Measurements
The Company determines the fair value of its assets and liabilities based on the market price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company determines the fair value of U.S. treasury securities and certificates of deposit based on valuations provided by an external pricing service that obtains the valuations from a variety of industry standard data providers.
The Company’s investments are categorized according to the three-level fair value hierarchy which distinguishes between observable and unobservable inputs, in one of the following levels:
Level 1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3- Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those with fair value measurements that are determined using pricing models, discounted cash flow valuation or similar techniques, as well as significant management judgment or estimation.
The following provides information regarding fair value measurements for the Company’s investment securities as of March 31, 2023, according to the three-level fair value hierarchy:
|
Fair Value Measurements at March 31, 2023 |
||||||||||||||||
|
(In thousands) |
Total |
Level 1 |
Level 2 |
Level 3 |
||||||||||||
| Cash equivalents: | ||||||||||||||||
|
U.S Treasury securities |
$ | $ | $ | $ | ||||||||||||
|
Money market funds |
||||||||||||||||
|
Total cash equivalents |
$ | $ | $ | $ | ||||||||||||
| Investment securities: | ||||||||||||||||
|
Certificates of deposit |
||||||||||||||||
|
U.S Treasury securities |
||||||||||||||||
|
Total investment securities |
$ | $ | $ | $ | ||||||||||||
During the six months ended March 31, 2023 and the year ended September 30, 2022, the Company owned
Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets, and right-of-use assets for operating leases are subject to non-recurring fair value measurements if they are deemed impaired. The Company had no re-measurements of non-financial assets to fair value in the three or six months ended March 31, 2023 and the year ended September 30, 2022.
Note 6. Other Comprehensive Income (Loss)
Changes in components of other comprehensive loss, net of tax, are as follows:
|
(In thousands) |
Unrealized Gain/ (Loss) on Available-for-Sale Securities |
Foreign Currency Translation Gain/(Loss) |
Accumulated Other Comprehensive Loss | |||||||||
|
Balances at September 30, 2022 |
$ | ( |
) | ( |
) | ( |
) | |||||
|
Other comprehensive income for the three months ended December 31, 2022 |
||||||||||||
|
Balances at December 31, 2022 |
$ | ( |
) | ( |
) | |||||||
|
Other comprehensive income for the three months ended March 31, 2023 |
||||||||||||
|
Balances at March 31, 2023 |
$ | ( |
) | ( |
) | |||||||
Note 7. Stock-Based Compensation
On February 23, 2023, the Company’s shareholders approved the Clearfield, Inc. 2022 Stock Compensation Plan (the “2022 Plan”). The 2022 Plan became effective on the date of shareholder approval, and no further awards may be made under the Clearfield, Inc. Amended and Restated 2007 Stock Compensation Plan (the “Prior Plan”) following the effective date of the 2022 Plan. The total number of shares of stock reserved and available for distribution under the 2022 Plan is
The Company recorded $
Stock Options
The Company uses the Black-Scholes option pricing model to determine the fair value of options granted. During the six months ended March 31, 2023, the Company granted employees non-qualified stock options to purchase an aggregate of
The fair value of stock option awards during the six months ended March 31, 2023 was estimated as of the respective grant dates using the assumptions listed below:
|
Six months ended March 31, 2023 |
||||
|
Dividend yield |
% | |||
|
Expected volatility |
% | |||
|
Risk-free interest rate |
% | |||
|
Expected life in years |
||||
|
Vesting period in years |
||||
The expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating the expected life. The expected life represents the period of time that options are expected to be outstanding after their grant date. The risk-free interest rate reflects the interest rate as of the grant date on zero-coupon U.S. governmental bonds with a remaining life similar to the expected option term.
Options are granted with exercise prices at fair market values determined on the date of grant and vesting normally occurs over a to -year period. Shares issued upon exercise of a stock option are issued from the Company’s authorized but unissued shares.
The following is a summary of stock option activity during the six months ended March 31, 2023:
|
Number of options |
Weighted average exercise price |
|||||||
|
Outstanding as of September 30, 2022 |
$ | |||||||
|
Granted |
||||||||
|
Exercised |
( |
) | ||||||
|
Forfeited or Expired |
||||||||
|
Outstanding as of March 31, 2023 |
$ | |||||||
The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. As of March 31, 2023, the weighted average remaining contractual term for all outstanding and exercisable stock options was
Restricted Stock
The Company’s 2022 Stock Compensation Plan permits the Compensation Committee of the Board of Directors to grant stock-based awards, including stock options and restricted stock, to key employees and non-employee directors. The Company has made restricted stock grants that vest over to years.
During the six months ended March 31, 2023, the Company granted employees restricted stock awards totaling
During the six months ended March 31, 2022, the Company granted newly elected non-employee directors restricted stock awards totaling
Restricted stock transactions during the six months ended March 31, 2023 are summarized as follows:
|
Number of shares |
Weighted average grant date fair value |
|||||||
|
Unvested shares as of September 30, 2022 |
||||||||
|
Granted |
||||||||
|
Vested |
( |
) | ||||||
|
Forfeited |
||||||||
|
Unvested as of March 31, 2023 |
||||||||
Bonus Stock
During the six months ended March 31, 2023, the Company granted employees an aggregate of
Employee Stock Purchase Plan
The Company’s ESPP allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide those participating employees the ability to purchase the Company’s common stock on a voluntary after-tax basis. Employees may purchase the Company’s common stock at a price that is no less than the lower of
Note 8. Revenue
Revenue Recognition
Net sales include products and shipping and handling charges. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies its performance obligations under the applicable sales contract. The Company recognizes revenue by transferring the promised products to the customer, with substantially all revenue recognized at the point in time the customer obtains control of the products. The Company recognizes revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. The majority of the Company’s sales contracts have a single performance obligation and are short term in nature. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
Disaggregation of Revenue
The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Sales outside the United States are principally to countries in Europe, the Caribbean, Canada, Central America and South America.
Revenues related to the following geographic areas were as follows for the three and six months ended:
|
Three Months Ended March 31, |
Six Months Ended March 31, |
|||||||||||||||
|
(In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
|
United States |
$ | $ | $ | $ | ||||||||||||
|
All other countries |
||||||||||||||||
|
Total Net Sales |
$ | $ | $ | $ | ||||||||||||
The Company manufactures and sells proprietary product lines designed for the Broadband Service Provider marketplace. In addition, the Company’s Legacy business provides build-to-print services for original equipment manufacturers requiring copper and fiber cable assemblies built to their specifications.
The percentages of the Company’s sales by markets were as follows for the three and six months ended:
|
Three Months Ended March 31, |
Six Months Ended March 31, |
|||||||||||||||
|
2023 |
2022 |
2023 |
2022 |
|||||||||||||
|
Broadband service providers |
% | % | % | % | ||||||||||||
|
Other customers |
% | % | % | % | ||||||||||||
|
Total Net Sales |
% | % | % | % | ||||||||||||
Broadband Service Providers are made up of Community Broadband, which includes local and regional telecom companies, utilities, municipalities and alternative carriers, multiple system operators (“MSO’s” or “Cable TV”), which are also referred to as Tier 2 and Tier 3 customers; National Carriers, which includes large national and global wireline and wireless providers, also referred to as Tier 1’s; Large Regional Service Providers, which are independent local exchange carriers (ILECs) with footprints of 500,000 subscribers and above; and international customers. Other customers include sales of copper cable, build-to-print copper assemblies and other contract manufacturing.
Accounts Receivable
Credit is extended based on the evaluation of a customer’s financial condition, and collateral is generally not required. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company writes off accounts receivable when they become uncollectible; payments subsequently received on such receivables are credited to the allowance for doubtful accounts. As of both March 31, 2023 and September 30, 2022, the balance in the allowance for doubtful accounts was $
See Note 9 “Major Customer Concentration” for further information regarding accounts receivable and net sales.
Note 9. Major Customer Concentration
For the three months ended March 31, 2023, Customer A comprised
For the three months ended March 31, 2022, Customers A and B comprised
As of March 31, 2023, no customer comprised 10% or more of the Company’s accounts receivable. As of September 30, 2022, Customer D comprised
Note 10. Inventories
Inventories consist of the following as of:
|
(In thousands) |
March 31, 2023 |
September 30, 2022 |
||||||
|
Raw materials |
$ | $ | ||||||
|
Work-in-process |
||||||||
|
Finished goods |
||||||||
|
Inventories, gross |
||||||||
|
Inventory reserve |
( |
) | ( |
) | ||||
|
Inventories, net |
$ | $ | ||||||
Note 11. Goodwill and Intangibles
The Company analyzes its goodwill for impairment annually or at an interim period when events occur or changes in circumstances indicate potential impairment. The result of the analysis performed as of September 30, 2022, did indicate an impairment of goodwill. During the six months ended March 31, 2023, there were no triggering events that indicate potential impairment exists.
The Company capitalizes legal costs incurred to obtain patents. Once accepted by either the U.S. Patent Office or the equivalent office of a foreign country, these legal costs are amortized using the straight-line method over the remaining estimated lives, not exceeding
In addition, the Company has various finite lived intangible assets, most of which were acquired as a result of the acquisition of the active cabinet product line from Calix, Inc. during fiscal year 2018 and the acquisition of Nestor Cables in fiscal year 2022. The Company analyzes its intangible assets for impairment annually or at interim periods when events occur or changes in circumstances indicate potential impairment. The result of the analysis performed as of September 30, 2022, did indicate an impairment of the Company’s intangible assets. During the six months ended March 31, 2023, there were no triggering events that indicate potential impairment exists.
Note 12. Segment Reporting
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.
Upon closing of the acquisition of Nestor Cables on July 26, 2022, the Company reassessed its operating segments as defined under Accounting Standards Codification (“ASC”) 280, Segment Reporting. Under ASC 280, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”), in deciding how to allocate resources and in assessing performance. Based upon the Company’s assessment, the Company determined that the business of Nestor Cables was considered a second reportable segment as of July 26, 2022.
For the second quarter of fiscal 2023, the Company has reportable segments: (1) Clearfield; and (2) Nestor Cables. Clearfield’s Finnish holding company, Clearfield Finland Ltd., purchased Nestor Cables Ltd, including its Estonian subsidiary, Nestor Cables Baltics Ltd., on July 26, 2022. These entities comprise the Nestor Cables Segment. Prior to July 26, 2022, we were considered to be in a single reporting segment and operating unit structure.
Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the CODM in making internal operating decisions. For consolidated reporting, the Company eliminates transactions between reportable segments.
The following table summarizes the amounts between the reportable segments for the three and six months ended March 31, 2023:
|
Three months ended March 31, 2023 |
||||||||||||||||
| (In thousands) |
Clearfield |
Nestor Cables |
Eliminations |
Consolidated |
||||||||||||
|
Revenue from external customers |
$ | $ | $ | $ | ||||||||||||
|
Revenue from internal customers (Clearfield, Inc.) |
( |
) | ||||||||||||||
|
Net investment income |
||||||||||||||||
|
Interest expense |
||||||||||||||||
|
Depreciation and amortization |
||||||||||||||||
|
Stock based compensation |
||||||||||||||||
|
Income taxes |
||||||||||||||||
|
Net income (loss) |
( |
) | ||||||||||||||
|
Capital expenditures |
||||||||||||||||
|
Six months ended March 31, 2023 |
||||||||||||||||
| (In thousands) |
Clearfield |
Nestor Cables |
Eliminations |
Consolidated |
||||||||||||
|
Revenue from external customers |
$ | $ | $ | $ | ||||||||||||
|
Revenue from internal customers (Clearfield, Inc.) |
( |
) | ||||||||||||||
|
Net investment income |
||||||||||||||||
|
Interest expense |
||||||||||||||||
|
Depreciation and amortization |
||||||||||||||||
|
Stock based compensation |
||||||||||||||||
|
Income taxes |
||||||||||||||||
|
Net income (loss) |
( |
) | ||||||||||||||
|
Capital expenditures |
||||||||||||||||
The following table summarizes the amounts between the two reportable segments as of March 31, 2023 and September 30, 2022:
|
March 31, 2023 |
||||||||||||||||
| (In thousands) |
Clearfield |
Nestor Cables |
Eliminations |
Consolidated |
||||||||||||
|
Goodwill |
$ | $ | $ | $ | ||||||||||||
|
Total assets |
( |
) | ||||||||||||||
|
September 30, 2022 |
||||||||||||||||
| (In thousands) |
Clearfield |
Nestor Cables |
Eliminations |
Consolidated |
||||||||||||
|
Goodwill |
$ | $ | $ | $ | ||||||||||||
|
Total assets |
( |
) | ||||||||||||||
Note 13. Financing Receivables
Nestor Cables factors certain of its accounts receivable, with recourse provisions that are accounted for as a secured borrowing. Nestor Cables has a total factoring liability of $
Note 14. Income Taxes
For the three and six months ended March 31, 2023, the Company recorded income tax expense of $
For the three and six months ended March 31, 2022, the Company recorded income tax expense of $
Deferred taxes recognize the impact of temporary differences between the amounts of the assets and liabilities recorded for financial statement purposes and these amounts measured in accordance with tax laws. The Company’s realization of deferred tax temporary differences is contingent upon future taxable earnings. The Company reviewed its deferred tax asset for expected utilization using a “more likely than not” criteria by assessing the available positive and negative factors surrounding its recoverability and determined that as of March 31, 2023 and September 30, 2022, a valuation allowance against the deferred tax assets is not required. The Company will continue to assess the need for a valuation allowance based on changes in assumptions of estimated future income and other factors in future periods.
As of March 31, 2023, the Company does have any unrecognized tax benefits. It is the Company’s practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not expect any material changes in its unrecognized tax positions over the next 12 months.
Note 15. Leases
The Company leases an
In July 2021, the Company entered into an indirect lease arrangement for an approximately
On November 19, 2021, the Company signed a lease for a
Nestor Cables leases an approximately
Right-of-use lease assets and lease liabilities are recognized as of the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods the Company is reasonably certain to exercise. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants. Operating lease expense included within cost of goods sold and selling, general and administrative expense was as follows for the three months ended:
|
Operating lease expense within: (in thousands) |
Three Months Ended March 31, |
Six Months Ended March 31, |
||||||||||||||
|
2023 |
2022 |
2023 |
2022 |
|||||||||||||
|
Cost of sales |
$ | $ | $ | $ | ||||||||||||
|
Selling, general and administrative |
||||||||||||||||
|
Total lease expense |
$ | $ | $ | $ | ||||||||||||
Future maturities of lease liabilities were as follows as of March 31, 2023 (in thousands):
|
FY2023(Remaining) |
$ | |||
|
FY2024 |
||||
|
FY2025 |
||||
|
FY2026 |
||||
|
FY2027 |
||||
|
Thereafter |
||||
|
Total lease payments |
||||
|
Less: Interest |
( |
) | ||
|
Present value of lease liabilities |
$ |
The weighted average term and weighted average discount rate for the Company’s leases as of March 31, 2023 were
Note 16. Debt
On April 27, 2022, the Company entered into a loan agreement and a security agreement with a bank that provides the Company with a $
During March 2021, Nestor Cables entered into a loan agreement, providing a $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other words and terms of similar meaning, typically identify these forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual results could differ from those projected in any forward-looking statements because of the factors identified in and incorporated by reference from Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended September 30, 2022 and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q, as well as in other filings we make with the Securities and Exchange Commission, which should be considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements included herein are made as the date of this Quarterly Report on Form 10-Q and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.
The following discussion and analysis of the Company’s financial condition and results of operations as of and for the three and six months ended March 31, 2023 and 2022 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, 2022.
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 and Europe. Our “fiber to the anywhere” platform serves the unique requirements of leading Broadband Service Providers in the United States (“U.S.”), which include Community Broadband, MSO’s, Large Regional Service Providers, and National Carriers, while also serving the broadband needs of the International markets, primarily countries in Europe, the Caribbean, Canada, and Central and South America. These customers are collectively included in Broadband Service Providers. The Company also provides contract manufacturing services for its Legacy customers which include original equipment manufacturers (OEM) requiring copper and fiber cable assemblies built to their specifications.
We are engaged in global operations. Our operations are currently comprised of two reportable segments: the Clearfield Operating Segment (referred to herein as “Clearfield”) and, since July 26, 2022, the Nestor Cables Operating Segment (referred to herein as “Nestor Cables” or “Nestor”). Prior to July 26, 2022, we were considered to be in a single reporting segment and operating unit structure.
On July 26, 2022, the Company acquired Nestor Cables Ltd, a leading developer and manufacturer of fiber optic cable solutions located in Finland. The purchase of Nestor Cables is expected to provide the Company with the ability to vertically integrate the supply of fiber optic cables and help meet customer demand for its products. Nestor Cables’ technical expertise is expected to extend the supply of the Company’s FieldShield products into the North American market to reduce cost and complexity of transportation.
Upon closing of the acquisition of Nestor Cables on July 26, 2022, the Company reassessed its operating segments as defined under Accounting Standards Codification (“ASC”) 280, Segment Reporting. Under ASC 280, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”), in deciding how to allocate resources and in assessing performance. Based upon the Company’s assessment, the Company determined that the business of Nestor Cables was considered a second reportable segment as of July 26, 2022.
Nestor Cables Operating Segment
As of July 26, 2022, Clearfield, through its Finnish subsidiary, Clearfield Finland Ltd, acquired Nestor Cables. Nestor Cables is based in Oulu, Finland, with operations in Keila, Estonia through its wholly-owned subsidiary, Nestor Cables Baltics Ltd. Nestor Cables manufactures fiber optic and copper telecommunication cables and equipment, which it distributes to telecommunication operators, network owners, electric companies, building contractors, and industrial companies. Prior to the acquisition, Nestor Cables had been a supplier to Clearfield for over a decade and that relationship continued following the closing of the acquisition. Nestor Cables has two types of production processes, the process of making cable in its Finland facility and the finished assembly portion of its business performed in Estonia. Nestor Cables’ customer base includes telecom operators, network owners, contractors, industries and wholesalers. Products are sold via distributors and directly to end users. Nestor Cables is subject to Finnish government regulation, and Nestor Cables Baltics is subject to Estonian government regulation.
Clearfield Operating Segment
Clearfield is focused on providing fiber management, fiber protection, and fiber delivery products that accelerate the turn-up of gigabit speed bandwidth to residential homes, businesses, and network infrastructure in the wireline and wireless access network. 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 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 small cell, Cloud Radio Access Network (“C-RAN”), and distributed antenna system (“DAS”) deployments through better fiber management, test access, and fiber protection. The Company has historically focused on the unserved or underserved rural communities that receive voice, video and data services from independent telephone companies. By aligning its in-house engineering and technical knowledge alongside its customers, the Company has been able to develop, customize and enhance products from design through production. Final build and assembly of the Company’s products is completed at Clearfield’s manufacturing facilities in Brooklyn Park, Minnesota, and the manufacturing facility in Tijuana, Mexico that operates as a Maquiladora, 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. The Company deploys a hybrid sales model with some sales made directly to customers, some made through two-tier distribution (channel) partners, sales agents and manufacturing representatives, and some sales made through original equipment suppliers who private label their products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2023 VS. THREE MONTHS ENDED MARCH 31, 2022
Net sales for the second quarter of fiscal 2023 ended March 31, 2023 were $71,809,000, an increase of approximately 34%, or $18,314,000, from net sales of $53,495,000 for the second quarter of fiscal 2022. Net sales to Broadband Service Providers were $69,168,000 in the second quarter of fiscal 2023 versus $52,832,000 in the same period of fiscal 2022. Among this group, the Company recorded $13,138,000 in international sales for the second quarter of fiscal 2023 versus $1,450,000 in the same period of fiscal 2022. Net sales to Legacy customers were $593,000 in the second quarter of fiscal 2023 versus $662,000 in the same period of fiscal 2022. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 18% and 3% of total net sales for the second quarter of fiscal 2023 and 2022, respectively. The increase in sales to international customers was primarily due to the acquisition of Nestor Cables as its sales are to European and other non-U.S. customers.
The increase in net sales for the quarter ended March 31, 2023 of $18,314,000 compared to the quarter ended March 31, 2022 was driven primarily by increased sales to international customers, Community Broadband Service Providers, and MSO customers of $11,676,000, $6,888,000, and $2,818,000, respectively. The increase in sales to international customers was primarily driven by the acquisition of Nestor Cables, which accounted for $11,358,000 of international sales. The increase in sales to Community Broadband and MSO customers was due to increased demand for fiber connectivity products and the need for high-speed broadband since the pandemic.
Order backlog as of March 31, 2023 was $107,586,000, a decrease of 21% compared to $136,269,000 as of December 31, 2022, and a decrease of $27,920,000, or 21%, from March 31, 2022. The decrease was due to the Company’s ability to fulfill customer orders more quickly and a return to pre-pandemic ordering patterns.
Revenue from customers is obtained from purchase orders submitted from time to time, with a limited number of customers recently issuing purchase orders for longer time frames. The Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited. The Company’s ability to predict revenue is further limited by global supply chain issues, customer deployment schedules and factors affecting customer ordering patterns. The Company’s ability to recognize revenue in the future for customer orders will depend on the Company’s ability to manufacture and deliver products to the customers and fulfill its other contractual obligations.
Cost of sales for the second quarter of fiscal 2023 was $48,246,000, an increase of $17,915,000, or 59%, from $30,331,000 in the comparable period of fiscal 2022. Gross profit percent was 32.8% of net sales in the second quarter of fiscal 2023, a decrease from 43.3% of net sales for the second quarter of fiscal 2022. Gross profit increased $399,000, or 2.0%, to $23,563,000 for the three months ended March 31, 2023, from $23,164,000 in the comparable period in fiscal 2022. Gross profit margin was negatively affected by the buildup in capacity in the Company’s Clearfield segment that was not utilized. Gross profit was also affected by lower gross profit realized in our Nestor Cables cable manufacturing business which was acquired in July 2022 and was not included in the comparable period of fiscal 2022. The Company expects to operate at these gross profit percentage levels for several quarters with improving margins realized as revenue levels increase and cost reduction measures are realized. Despite the decrease in gross profit margin percentage, gross profit remained relatively consistent.
Selling, general and administrative expenses increased $274,000, or 2%, to $11,507,000 in the second quarter fiscal 2023 from $11,233,000 for the fiscal 2022 second quarter. This increase is the result of the addition of $1,345,000 operating expenses of the Nestor Cables business acquired in July 2022, offset by the reversal of performance-based compensation accruals of approximately $1,032,000 during the fiscal 2023 second quarter.
Income from operations for the quarter ended March 31, 2023 remained relatively consistent at $12,056,000 compared to $11,931,000 for the comparable quarter of fiscal 2022.
Net investment income for the quarter ended March 31, 2023, was $1,395,000 compared to $121,000 for the comparable quarter for fiscal 2022. Net investment income for the quarter ended March 31, 2023 is compromised of interest income only. Net investment income for the quarter ended March 31, 2022, is comprised of $82,000 of interest income and $39,000 net realized gains on sales of investments during the quarter. The increase in interest income is due to higher interest rates earned on a higher investment balance during the second quarter of fiscal 2023. We expect interest income to remain at these levels through the remainder of the fiscal year, subject to changes in market interest rates.
Interest expense for the quarter ended March 31, 2023 was $112,000. The increase was due to debt held by Nestor Cables. The Company did not have any interest expense during the second quarter of fiscal 2022.
We recorded a provision for income taxes of $2,974,000 and $2,816,000 for the three months ended March 31, 2023 and 2022, 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 $158,000 from the second quarter for fiscal 2022 is primarily due to increased income from operations, partially offset by the decrease in the effective tax rate. The income tax expense rate for the second quarter of fiscal 2023 decreased to 22.3%, from 23.4% recorded in the second quarter of fiscal 2022, due primarily to decreased non-deductible expenses.
The Company’s net income for the three months ended March 31, 2023 was $10,364,000, or $0.67 per basic and diluted share. The Company’s net income for the three months ended March 31, 2022 was $9,236,000, or $0.67 per basic share and $0.66 per diluted share. The increase in basic and diluted earnings per share for the three months ended March 31, 2023 as compared to March 31, 2022 was due to higher net income, offset by the additional shares issued during the first quarter of fiscal 2023.
SIX MONTHS ENDED MARCH 31, 2023 VS. SIX MONTHS ENDED MARCH 31, 2022
Net sales for the six months ended March 31, 2023 were $157,751,000, an increase of approximately 50%, or $53,147,000, from net sales of $104,604,000 for the six months ended March 31, 2022. Net sales to Broadband Service Providers were $152,779,000 in the six months ended March 31, 2023 versus $103,238,000 in the same period of fiscal 2022. Among this group, the Company recorded $23,342,000 in international sales for the six months ended March 31, 2023 versus $3,456,000 in the same period of fiscal 2022. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 15% and 3% of total net sales for the six months ended March 31, 2023 and March 31, 2022, respectively. Net sales to Legacy customers were $1,343,000 in the six months ended March 31, 2023 versus $1,433,000 in the same period of fiscal 2022.
The increase in net sales for the six months ended March 31, 2023 of $53,147,000 compared to the six months ended March 31, 2022 was driven primarily by increased sales to Community Broadband Service Providers, MSO, and international customers of $70,757,000, $31,039,000 and $23,342,000, respectively. The increase to Community Broadband and MSO customers was due to increased demand for fiber connectivity products and the need for high-speed broadband since the pandemic. The increase in sales to international customers was primarily driven by the acquisition of Nestor Cables, which accounted for $18,945,000 of international sales.
Revenue from customers is obtained from purchase orders submitted from time to time, with a limited number of customers recently issuing purchase orders for longer time frames. The Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited. The Company’s ability to predict revenue is further limited by global supply chain issues, customer deployment schedules and factors affecting customer ordering patterns. The Company’s ability to recognize revenue in the future for customer orders will depend on the Company’s ability to manufacture and deliver products to the customers and fulfill its other contractual obligations.
Cost of sales for the six months ended March 31, 2023 was $103,539,000, an increase of $45,071,000, or 77%, from $58,468,000 in the comparable period of fiscal 2022. Gross profit percent was 34.4% of net sales for the six months ended March 31, 2023, a decrease from 44.1% of net sales for the six months ended March 31, 2022. Gross profit increased $8,076,000, or 18%, to $54,212,000 for the six months ended March 31, 2023, from $46,136,000 in the comparable period in fiscal 2022. Gross profit margin was negatively affected by the buildup in capacity in the Company’s Clearfield segment that was not utilized. Gross profit was also affected by lower gross profit realized in our Nestor Cables cable manufacturing business which was acquired in July 2022 and was not included in the comparable period of fiscal 2022. . Despite the decrease in gross profit margin percentage, gross profit remained relatively consistent. Given the dynamics impacting the industry, including rising supply costs, as well as our exposure to Large Regional Service Providers, we now expect gross margins to finish the fiscal year near 30%.
Selling, general and administrative expenses increased $3,111,000, or 15%, to $24,266,000 in the six months ended March 31, 2023, from $21,155,000 for the comparable period of fiscal 2022. The increase in expense for the six months ended March 31, 2023 consisted primarily of the additional operating expenses of $2,643,000 from the Nestor Cables business acquired in July 2022, increased travel and entertainment expenses, and stock-based compensation, partially offset by reversal of performance-based compensation accruals during the fiscal second quarter.
Income from operations for the six months ended March 31, 2023, was $29,946,000 compared to $24,981,000 for the comparable quarter of fiscal 2022, an increase of approximately 20%. This increase is attributable to increased net sales, partially offset by lower gross profit margin percentage and increased selling, general and administrative expenses.
Net investment income for the six months ended March 31, 2023, was $1,698,000 compared to $241,000 for the comparable quarter for fiscal 2022. The increase in interest income is due to higher interest rates earned and a higher average investments balance in the six months ended March 31, 2023. We expect interest income to remain at the levels experienced during the three months ended March 31, 2023 through the remainder of the fiscal year, subject to changes in market interest rates and changes in the average investments balance.
Interest expense for the quarter ended March 31, 2023, was $356,000. The Company did not have any interest expense during the second quarter of fiscal 2022. The increase in interest expense was due to $170,000 in interest on Clearfield’s line of credit which was repaid in the first quarter of fiscal 2023, and $186,000 in interest expense on debt held by Nestor Cables.
The Company recorded a provision for income taxes of $6,669,000 and $5,596,000 for the six months ended March 31, 2023, and March 31, 2022, respectively. The Company records its quarterly provision for income taxes based on its estimated annual effective tax rate for the year. The increase in tax expense of $1,073,000 from the six months ended March 31, 2022, is primarily due to increased income from operations. The income tax expense rate for the six months ended March 31, 2023 decreased to 21.3%, from 22.2% recorded in the comparable period of fiscal 2022, due to decreased non-deductible expenses.
The Company’s net income for the six months ended March 31, 2023, was $24,619,000, or $1.68 per basic share or $1.67 per diluted share. The Company’s net income for the six months ended March 31, 2022, was $19,626,000, or $1.43 per basic share or $1.41 per diluted share. The increase in basic and diluted earnings per share for the six months ended March 31, 2023, as compared to March 31, 2022 was due to higher net income, partially offset by the additional shares issued during the first quarter of fiscal 2023.
Reportable Segments
The Company’s reportable segments are based on the Company’s method of internal reporting. These results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. The internal reporting of these operating segments is defined based, in part, on the reporting and review process used by the Company’s Chief Executive Officer.
On July 26, 2022, Clearfield, through its newly created Finnish subsidiary, Clearfield Finland Ltd, acquired all of the equity of Nestor Cables Ltd, which has a wholly-owned Estonian subsidiary, Nestor Cables Baltics Ltd. Following the closing of the acquisition of Nestor Cables on July 26, 2022, the Company reassessed its operating segments as defined under Accounting Standards Codification (“ASC”) 280, Segment Reporting. Under ASC 280, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Prior to July 26, 2022, the Company was considered to be in a single reporting segment and operating unit structure. Based upon the Company’s assessment following the acquisition of Nestor Cables, the Company determined that the business of Nestor Cables was considered a second reportable segment as of July 26, 2022.
For the three and six months ended March 31, 2023, the Company has two reportable segments: (1) Clearfield and (2) Nestor Cables. The entities that comprise the Nestor Cables segment are Clearfield Finland Ltd, Nestor Cables Ltd and Nestor Cables Baltics Ltd.
Reportable segments are as follows:
|
● |
Clearfield Segment – Clearfield designs, manufactures and sells fiber management, protection, and delivery solutions. |
|
● |
Nestor Cables Segment – Nestor Cables designs, manufactures, and sells fiber optic and copper telecommunication cables and equipment. |
Clearfield Segment
The following table provides net sales and net income for the Clearfield Segment for the three and six months ended:
|
Three Months Ended March 31, |
Six Months Ended March 31, |
|||||||||||||||
|
(In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
|
Segment net sales |
$ | 60,451 | $ | 53,495 | $ | 138,806 | $ | 104,604 | ||||||||
|
Segment net income |
10,395 | 9,236 | 25,113 | 19,626 | ||||||||||||
Net sales in the Clearfield segment increased 13%, or $6,956,000, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. Net sales in the Clearfield segment increased 33%, or $34,202,000, for the six months ended March 31, 2023 as compared to the six months ended March 31, 2022. The increase in net sales was driven by increased sales to the Company’s Community Broadband and MSO/Cable TV customers, offset by decreased sales to Large Regional Service Provider customers. The increased sales to Community Broadband and MSO/Cable TV customers was due to continuing demand for fiber connectivity products and the demand for high-speed broadband since the pandemic. The decreased sales to Large Regional Service Provider customers was due to slower inventory consumption from these customers who had accumulated an excess inventory position during the COVID-19 pandemic.
Net income in the Clearfield segment for the three months ended March 31, 2023 increased 13%, or $1,159,000, as compared to the three months ended March 31, 2022. Net income in the Clearfield segment for the six months ended March 31, 2023 increased 28%, or $5,487,000, as compared to the six months ended March 31, 2022 The increase in net income was driven by the increase in sales outlined aboveand decreased selling, general and administrative expenses resulting from the reversal of performance-based compensation accruals, partially offset by lower gross profit margin due to buildup in capacity that was not utilized.
Nestor Cables Segment
The following table provides net sales and net income for the Nestor Cables segment for the three and six months:
| Three Months Ended March 31, |
Six Months Ended March 31, |
|||||||||||||||
|
(In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
|
Segment net sales to external customers |
$ | 11,358 | $ | - | $ | 18,945 | $ | - | ||||||||
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Segment net income |
402 | - | 92 | - | ||||||||||||
Nestor Cables was acquired on July 26, 2022. Prior to the acquisition, the Company operated as one reporting segment.
Net sales in the Nestor Cables segment for the three and six months ended March 31, 2023 were $11,358,000 and $18,945,000, respectively, excluding sales to the Clearfield Segment.
Net income in the Nestor Cables segment for the three and six months ended March 31, 2023 was $402,000 and $92,000, respectively.
Liquidity and Capital Resources
As of March 31, 2023, our principal source of liquidity was our cash, cash equivalents, and short-term investments. Those sources total $157,065,000 as of March 31, 2023 compared to $22,452,000 as of September 30, 2022. Additionally, we have a line of credit for $40 million that has no outstanding borrowing as of March 31, 2023. Our excess cash is invested mainly in certificates of deposit backed by the FDIC, U.S. Treasury securities, and money market funds. Investments considered long-term were $8,527,000 as of March 31, 2023, compared to $22,747,000 as of September 30, 2022. 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 March 31, 2023, our cash, cash equivalents, and short-term and long-term investments totaled $165,592,000, compared to $45,199,000 as of September 30, 2022.
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 for beyond the next 12 months. The Company intends on utilizing its available cash and assets primarily for its continued organic growth including expanding production capacity and facilities, as well as inventory growth to meet previously anticipated customer demand, potential future strategic transactions, and the Company’s share repurchase program, as well as to mitigate the potential impacts on the Company’s business due to supply chain, logistics, and customer fulfillment risks.
Operating Activities
Net cash provided by operating activities totaled $10,141,000 for the six months ended March 31, 2023. This was primarily due to net income of $24,619,000, non-cash expenses for depreciation and amortization of $2,822,000, stock-based compensation of $1,444,000, and non-cash income related to amortization of discounts on investments of $1,139,000, in addition to changes in operating assets and liabilities providing and using cash. The primary change in operating assets and liabilities using cash was a decrease in accounts payable and accrued expenses of $14,273,000 and an increase in inventory of $17,243,000. The decrease in accounts payable and accrued expenses is due to the timing of payments to vendors. The Company increased stocking levels of inventory during the quarter ending March 31, 2023 to support previously anticipated demand. Days sales outstanding, which measures how quickly receivables are collected, decreased 3 days to 49 days as of March 31, 2023, compared to 52 days from September 30, 2022.
Net cash used by operating activities totaled $11,282,000 for the six months ended March 31, 2022. This was primarily due to net income of $19,626,000, non-cash expenses for depreciation and amortization of $1,362,000, and stock-based compensation of $1,010,000 in addition to changes in operating assets and liabilities providing and using cash. The primary change in operating assets and liabilities using cash was an increase in inventory of $33,394,000, and increases in accounts receivable of $2,398,000, partially offset by increases in accounts payable and accrued expenses of $3,344,000. The Company increased stocking levels of inventory during the quarter ending March 31, 2022 to support the Company’s increased sales order backlog, as well as provide for safety stock for anticipated demand considering then-current long lead times for components and transportation within the global supply chain. The Company maintained higher than historic stocking levels through fiscal year 2022. The increase in accounts receivable was due to increased sales in the quarter ending March 31, 2022 as well as timing of payments from customers. Accounts receivable balances can be influenced by the timing of shipments for customer projects and payment terms. Days sales outstanding decreased 3 days to 37 days from September 30, 2021 to March 31, 2022. The increase in accounts payable and accrued expenses was due to the timing of payments to vendors and inventory growth.
Investing Activities
We invest our excess cash in money market funds, U.S. Treasury securities and bank CDs not exceeding FDIC insured levels. We believe we obtain a competitive rate of return given the low credit risk on these investments. During the six months ended March 31, 2023, we received proceeds from maturities of investments of $100,743,000 and used cash to purchase $99,126,000 of investment securities. Purchases of property, plant and equipment, mainly related to manufacturing equipment and intangible assets, consumed $4,797,000 of cash during the six months ended March 31, 2023.
During the six months ended March 31, 2022, we received $17,386,000 on sales and maturities of investment securities and used cash to purchase $248,000 of investment securities. Purchases of property, plant and equipment, mainly related to manufacturing equipment and intangible assets, consumed $4,842,000 of cash during the six months ended March 31, 2022.
Financing Activities
For the six months ended March 31, 2023, we received $130,262,000 of net proceeds through the issuance of common stock. We used $16,700,000 to pay down the principal on our line of credit, which was originally drawn in the fourth quarter of fiscal 2022 to fund the acquisition of Nestor Cables. We received $299,000 from employees’ participation and purchase of stock through our ESPP, we received $954,000 related to the issuance of stock as payment for incentive compensation previously earned, we used $471,000 related to share withholding for the exercise price and taxes associated with the issuance of common stock upon cashless exercises of stock options, and used $954,000 for payment of withholding taxes for stock grants. We did not repurchase common stock under our share repurchase program in the six months ended March 31, 2023.
For the six months ended March 31, 2022, we received $249,000 from employees’ participation and purchase of stock through our ESPP, we used $282,000 related to share withholding for the exercise price and taxes associated with the issuance of common stock upon cashless exercises of stock options, and used $274,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. We did not repurchase common stock under our share repurchase program in the six months ended March 31, 2022.
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, 2022. Management made no changes to the Company’s critical accounting estimates during the quarter ended March 31, 2023.
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 quarter ended March 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently invests its excess cash in bank certificates of deposit (“CDs”) that are fully insured by the Federal Deposit Insurance Corporation (“FDIC”) and United States Treasury (“Treasuries”) securities with terms of not more than five years, as well as money market 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 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 $135,000 and $264,000, or approximately 1%, for the three and six months ended March 31, 2023, respectively. We do not hedge against foreign currency fluctuations. As such, fluctuations in foreign currency exchange rates could have a material impact on the Company’s financial statements.
Inflation:
Rising costs, including wages, logistics, components, and commodity prices, are negatively impacting our profitability. We are subject to market risk from fluctuating market prices of certain purchased commodities and raw materials 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 consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES
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 March 31, 2023. 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
There were no changes to the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, that occurred during the quarter ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting except that the Company continues to integrate and improve the internal control over financial reporting environment of the Nestor Cables segment.
There are no pending legal proceedings against or involving the Company for which the outcome is likely to have a material adverse effect upon its financial position or results of operations.
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, 2022, There have been no material changes from the risk factors previously disclosed .
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Not applicable.
101–The following materials from Clearfield, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2023 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2023 and March 31, 2022; (ii) Consolidated Statements of Earnings for the three and six months ended March 31, 2023 and 2022; (iii) Consolidated Statements of Shareholders’ Equity for the three and six months ended March 31, 2023 and 2022; (iv) Consolidated Statements of Cash Flows for the six months ended March 31, 2023 and 2022; and (v) Notes to the Consolidated Financial Statements.
104 - Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CLEARFIELD, INC.
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May 8, 2023 |
/s/ Cheryl Beranek |
|
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By: Cheryl Beranek Its: President and Chief Executive Officer |
||
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(Principal Executive Officer) |
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May 8, 2023 |
/s/ Daniel Herzog |
|
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By: Daniel Herzog Its: Chief Financial Officer |
||
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(Principal Financial and Accounting Officer) |
Exhibit 31.1
CERTIFICATION
I, Cheryl Beranek, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Clearfield, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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May 8, 2023 |
/s/ Cheryl Beranek |
|
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By: Cheryl Beranek, President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Daniel Herzog, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Clearfield, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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May 8, 2023 |
/s/ Daniel Herzog |
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By: Daniel Herzog, Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned certify pursuant to 18 U.S.C. § 1350, that:
(1) The accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2023 of Clearfield, Inc. (the “Company”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the accompanying report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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May 8, 2023 |
/s/ Cheryl Beranek |
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By: Cheryl Beranek, President and Chief Executive Officer |
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(Principal Executive Officer) |
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May 8, 2023 |
/s/ Daniel Herzog |
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By: Daniel Herzog, Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Preferred Stock, Par or Stated Value Per Share (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred Stock, Shares Authorized (in shares) | 500,000 | 500,000 |
| Preferred Stock, Shares Issued (in shares) | 0 | 0 |
| Preferred Stock, Shares Outstanding (in shares) | 0 | 0 |
| Common Stock, Shares Authorized (in shares) | 50,000,000 | 50,000,000 |
| Common Stock, Par or Stated Value Per Share (in dollars per share) | $ 0.01 | $ 0.01 |
| Common Stock, Shares, Outstanding (in shares) | 15,254,711 | 13,818,452 |
| Common Stock, Shares, Issued (in shares) | 15,254,711 | 13,818,452 |
Consolidated Statements of Earnings (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Net sales | $ 71,809,000 | $ 53,495,000 | $ 157,751,000 | $ 104,604,000 |
| Cost of sales | 48,246,000 | 30,331,000 | 103,539,000 | 58,468,000 |
| Gross profit | 23,563,000 | 23,164,000 | 54,212,000 | 46,136,000 |
| Operating expenses | ||||
| Selling, general and administrative | 11,508,000 | 11,233,000 | 24,266,000 | 21,155,000 |
| Income from operations | 12,055,000 | 11,931,000 | 29,946,000 | 24,981,000 |
| Net investment income | 1,395,000 | 121,000 | 1,698,000 | 241,000 |
| Interest expense | (112,000) | 0 | (356,000) | 0 |
| Income before income taxes | 13,338,000 | 12,052,000 | 31,288,000 | 25,222,000 |
| Income tax expense | 2,974,000 | 2,816,000 | 6,669,000 | 5,596,000 |
| Net income | $ 10,364,000 | $ 9,236,000 | $ 24,619,000 | $ 19,626,000 |
| Net income per share Basic (in dollars per share) | $ 0.67 | $ 0.67 | $ 1.68 | $ 1.43 |
| Net income per share Diluted (in dollars per share) | $ 0.67 | $ 0.66 | $ 1.67 | $ 1.41 |
| Weighted average shares outstanding: | ||||
| Basic (in shares) | 15,233,848 | 13,767,341 | 14,693,829 | 13,755,291 |
| Diluted (in shares) | 15,260,769 | 13,902,836 | 14,766,938 | 13,900,180 |
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
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| Net income | $ 10,364 | $ 9,236 | $ 24,619 | $ 19,626 |
| Other comprehensive income (loss), net of tax | ||||
| Unrealized gain (loss) on available-for-sale investments | 197 | (725) | 339 | (725) |
| Unrealized gain on foreign currency translation | 302 | 0 | 1,326 | 0 |
| Total other comprehensive income (loss) | 499 | (725) | 1,665 | (725) |
| Total comprehensive income | $ 10,863 | $ 8,511 | $ 26,284 | $ 18,901 |
Note 1 - Summary of Significant Accounting Policies |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Significant Accounting Policies [Text Block] |
Note 1. Summary of Significant Accounting Policies
Unless the context otherwise requires, for purposes of the Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” the “Company,” and “Clearfield,” refer to Clearfield, Inc.
Basis of Presentation
The accompanying (a) consolidated balance sheet as of September 30, 2022, which has been derived from audited financial statements, and (b) unaudited interim consolidated financial statements as of and for the three and six months ended March 31, 2023 have been prepared by Clearfield Rin accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations, and cash flows of the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of results to be expected for the full year or for any other interim period, due to variability in customer purchasing patterns, seasonality and other factors. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022.
In preparation of the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses during the reporting periods. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Clearfield, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
New Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. In November 2018, the FASB issued update ASU 2018-19 that clarifies the scope of the standard in the amendments in ASU 2016-13. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Financial instruments impacted include accounts receivable, trade receivables, other financial assets measured at amortized cost and other off-balance sheet credit exposures. The new guidance is effective for the Company beginning in the first quarter of fiscal 2024, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. |
Note 2 - Net Income Per Share |
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| Earnings Per Share [Text Block] |
Note 2. Net Income Per Share
Basic net income per common share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the reporting period. Diluted EPS equals net income divided by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock equivalents, such as stock options, when dilutive.
The following is a reconciliation of the numerator and denominator of the net income per common share computations for the three and six months ended March 31, 2023 and 2022:
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Note 3 - Cash and Cash Equivalents |
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| Cash and Cash Equivalents Disclosure [Text Block] |
Note 3. Cash and Cash Equivalents
We classify investments with original maturities of 90 days or less as cash equivalents. The following table presents the Company’s cash and cash equivalents balances:
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Note 4 - Investments |
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| Investment [Text Block] |
Note 4. Investments
The Company invests in certificates of deposit (“CDs”) that are fully insured by the Federal Deposit Insurance Corporation (“FDIC”) and United States (“U.S.”) Treasury securities with terms of not more than five years, as well as money market funds. Historically, the Company’s investment portfolio had been classified as held-to-maturity and recorded at amortized cost. During the second quarter of fiscal 2022, the Company sold investments and reclassified its investment portfolio to available-for-sale, which is reported at fair value. The unrealized gain or loss on investment securities is recorded in other comprehensive income, net of tax. Realized gains and losses on available-for-sale securities are recognized upon sale and are included in net investment income in the consolidated statement of earnings.
At March 31, 2023, available-for-sale investments consisted of the following:
As of March 31, 2023, investments in debt securities in an unrealized loss position were as follows:
As of March 31, 2023, there were 59 securities in an unrealized loss position which is due to the market paying a higher interest rate than the coupon rate on these securities. As of March 31, 2023, there are securities which are other than temporarily impaired as the Company intends to hold these securities until their value recovers and there is negligible credit risk due to the nature of the securities which are backed by the FDIC and U.S. federal government. |
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Note 5 - Fair Value Measurements |
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| Fair Value Disclosures [Text Block] |
Note 5. Fair Value Measurements
The Company determines the fair value of its assets and liabilities based on the market price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company determines the fair value of U.S. treasury securities and certificates of deposit based on valuations provided by an external pricing service that obtains the valuations from a variety of industry standard data providers.
The Company’s investments are categorized according to the three-level fair value hierarchy which distinguishes between observable and unobservable inputs, in one of the following levels:
Level 1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3- Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those with fair value measurements that are determined using pricing models, discounted cash flow valuation or similar techniques, as well as significant management judgment or estimation.
The following provides information regarding fair value measurements for the Company’s investment securities as of March 31, 2023, according to the three-level fair value hierarchy:
During the six months ended March 31, 2023 and the year ended September 30, 2022, the Company owned no Level 3 securities and there were no transfers within the fair value level hierarchy.
Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets, and right-of-use assets for operating leases are subject to non-recurring fair value measurements if they are deemed impaired. The Company had no re-measurements of non-financial assets to fair value in the three or six months ended March 31, 2023 and the year ended September 30, 2022. |
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Note 6 - Other Comprehensive Income (Loss) |
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Note 6. Other Comprehensive Income (Loss)
Changes in components of other comprehensive loss, net of tax, are as follows:
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Note 7 - Stock-based Compensation |
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| Share-Based Payment Arrangement [Text Block] |
Note 7. Stock-Based Compensation
On February 23, 2023, the Company’s shareholders approved the Clearfield, Inc. 2022 Stock Compensation Plan (the “2022 Plan”). The 2022 Plan became effective on the date of shareholder approval, and no further awards may be made under the Clearfield, Inc. Amended and Restated 2007 Stock Compensation Plan (the “Prior Plan”) following the effective date of the 2022 Plan. The total number of shares of stock reserved and available for distribution under the 2022 Plan is 1,461,461 shares, which includes the number of shares remaining for grant and delivery under the Prior Plan, plus any shares subject to outstanding awards under the Prior Plan as of the effective date of the 2022 Plan that were forfeited, cancelled or settled for cash.
The Company recorded $784,000 and $1,444,000 of compensation expense related to current and past restricted stock grants, non-qualified stock options, and the Company’s Employee Stock Purchase Plan (“ESPP”) for the three and six months ended March 31, 2023. For the three months ended March 31, 2023, $736,000 of this expense is included in selling, general and administrative expense, and $48,000 is included in cost of sales. For the six months ended March 31, 2023, $1,361,000 of this expense is included in selling, general and administrative expense, and $83,000 is included in cost of sales. The Company recorded $570,000 and $1,010,000 of compensation expense related to current and past restricted stock grants, non-qualified stock options, and the Company’s ESPP for the three and six months ended March 31, 2022. For the three months ended March 31, 2022, $538,000 of this expense is included in selling, general and administrative expense, and $32,000 is included in cost of sales. As of March 31, 2023, $6,681,000 of total unrecognized compensation expense related to non-vested restricted stock awards and stock options is expected to be recognized over a period of approximately 2.6 years.
Stock Options
The Company uses the Black-Scholes option pricing model to determine the fair value of options granted. During the six months ended March 31, 2023, the Company granted employees non-qualified stock options to purchase an aggregate of 19,084 shares of common stock with a weighted average contractual term of years, a weighted average -year vesting term, and a weighted average exercise price of $95.06 per share. During the six months ending March 31, 2022, the Company granted employees non-qualified stock options to purchase an aggregate of 62,730 shares of common stock with a weighted average contractual term of five years, a weighted average three-year vesting term, and a weighted average exercise price of $66.48 per share.
The fair value of stock option awards during the six months ended March 31, 2023 was estimated as of the respective grant dates using the assumptions listed below:
The expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating the expected life. The expected life represents the period of time that options are expected to be outstanding after their grant date. The risk-free interest rate reflects the interest rate as of the grant date on zero-coupon U.S. governmental bonds with a remaining life similar to the expected option term.
Options are granted with exercise prices at fair market values determined on the date of grant and vesting normally occurs over a to -year period. Shares issued upon exercise of a stock option are issued from the Company’s authorized but unissued shares.
The following is a summary of stock option activity during the six months ended March 31, 2023:
The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. As of March 31, 2023, the weighted average remaining contractual term for all outstanding and exercisable stock options was 2.78 years and their aggregate intrinsic value was $2,177,000.
Restricted Stock
The Company’s 2022 Stock Compensation Plan permits the Compensation Committee of the Board of Directors to grant stock-based awards, including stock options and restricted stock, to key employees and non-employee directors. The Company has made restricted stock grants that vest over to years.
During the six months ended March 31, 2023, the Company granted employees restricted stock awards totaling 34,674 shares of common stock, with a vesting term of approximately years and a fair value of $72.26 per share. During the six months ended March 31, 2023, the Company granted the non-employee directors restricted stock awards totaling 6,818 shares of common stock, with a vesting term of approximately year and a fair value of $61.56 per share.
During the six months ended March 31, 2022, the Company granted newly elected non-employee directors restricted stock awards totaling 318 and 2,758 shares of common stock, with a vesting term of approximately one year and a fair value of $62.77 and $63.35 per share, respectively. During the six months ended March 31, 2022, the Company granted non-employees restricted stock awards totaling 3,118 shares of common stock, with a vesting term of approximately one year and a fair value of $64.11 per share. During the six months ended March 31, 2022, the Company also granted employees restricted stock awards totaling 23,318 shares of common stock, with a vesting term of approximately three years and a fair value of $66.48 per share.
Restricted stock transactions during the six months ended March 31, 2023 are summarized as follows:
Bonus Stock
During the six months ended March 31, 2023, the Company granted employees an aggregate of 9,144 shares of stock as a discretionary bonus for fiscal 2022 performance. The bonus stock consisted of common stock with no vesting period or restrictions. The fair value on the date of issuance was $104.36 per share.
Employee Stock Purchase Plan
The Company’s ESPP allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide those participating employees the ability to purchase the Company’s common stock on a voluntary after-tax basis. Employees may purchase the Company’s common stock at a price that is no less than the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase. The ESPP is carried out in six-month phases, with phases beginning on January 1 and July 1 of each calendar year. For the phase that ended on December 31, 2022, employees purchased 5,585 shares at a price of $53.52 per share. After the employee purchase on December 31, 2022, 176,005 shares of common stock were available for future purchase under the ESPP. |
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Note 8 - Revenue |
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Note 8. Revenue
Revenue Recognition
Net sales include products and shipping and handling charges. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies its performance obligations under the applicable sales contract. The Company recognizes revenue by transferring the promised products to the customer, with substantially all revenue recognized at the point in time the customer obtains control of the products. The Company recognizes revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. The majority of the Company’s sales contracts have a single performance obligation and are short term in nature. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
Disaggregation of Revenue
The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Sales outside the United States are principally to countries in Europe, the Caribbean, Canada, Central America and South America.
Revenues related to the following geographic areas were as follows for the three and six months ended:
The Company manufactures and sells proprietary product lines designed for the Broadband Service Provider marketplace. In addition, the Company’s Legacy business provides build-to-print services for original equipment manufacturers requiring copper and fiber cable assemblies built to their specifications.
The percentages of the Company’s sales by markets were as follows for the three and six months ended:
Broadband Service Providers are made up of Community Broadband, which includes local and regional telecom companies, utilities, municipalities and alternative carriers, multiple system operators (“MSO’s” or “Cable TV”), which are also referred to as Tier 2 and Tier 3 customers; National Carriers, which includes large national and global wireline and wireless providers, also referred to as Tier 1’s; Large Regional Service Providers, which are independent local exchange carriers (ILECs) with footprints of 500,000 subscribers and above; and international customers. Other customers include sales of copper cable, build-to-print copper assemblies and other contract manufacturing.
Accounts Receivable
Credit is extended based on the evaluation of a customer’s financial condition, and collateral is generally not required. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company writes off accounts receivable when they become uncollectible; payments subsequently received on such receivables are credited to the allowance for doubtful accounts. As of both March 31, 2023 and September 30, 2022, the balance in the allowance for doubtful accounts was $79,000.
See Note 9 “Major Customer Concentration” for further information regarding accounts receivable and net sales. |
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Note 9 - Major Customer Concentration |
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| Concentration Risk Disclosure [Text Block] |
Note 9. Major Customer Concentration
For the three months ended March 31, 2023, Customer A comprised 17% of the Company’s net sales. For the six months ended March 31, 2023, Customer A comprised 16% of the Company’s net sales. Customer A is a distributor.
For the three months ended March 31, 2022, Customers A and B comprised 14% and 13% of the Company’s net sales, respectively. Customer A is a distributor and Customer B is a regional broadband service provider. For the six months ended March 31, 2022, Customers A, B, and C comprised 13%, 12% and 11% of the Company’s net sales, respectively. Customer A is a distributor and Customers B and C are regional broadband service providers. These major customers, like our other customers, purchase our products from time to time through purchase orders, and the Company does not have any agreements that obligate these major customers to purchase products from us in the future.
As of March 31, 2023, no customer comprised 10% or more of the Company’s accounts receivable. As of September 30, 2022, Customer D comprised 11% of accounts receivable. Customers D is a distributor.
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Note 10 - Inventories |
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Note 10. Inventories
Inventories consist of the following as of:
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Note 11 - Goodwill and Intangibles |
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Note 11. Goodwill and Intangibles
The Company analyzes its goodwill for impairment annually or at an interim period when events occur or changes in circumstances indicate potential impairment. The result of the analysis performed as of September 30, 2022, did indicate an impairment of goodwill. During the six months ended March 31, 2023, there were no triggering events that indicate potential impairment exists.
The Company capitalizes legal costs incurred to obtain patents. Once accepted by either the U.S. Patent Office or the equivalent office of a foreign country, these legal costs are amortized using the straight-line method over the remaining estimated lives, not exceeding 20 years. As of March 31, 2023, the Company has 41 patents granted and multiple pending applications both inside and outside the United States.
In addition, the Company has various finite lived intangible assets, most of which were acquired as a result of the acquisition of the active cabinet product line from Calix, Inc. during fiscal year 2018 and the acquisition of Nestor Cables in fiscal year 2022. The Company analyzes its intangible assets for impairment annually or at interim periods when events occur or changes in circumstances indicate potential impairment. The result of the analysis performed as of September 30, 2022, did indicate an impairment of the Company’s intangible assets. During the six months ended March 31, 2023, there were no triggering events that indicate potential impairment exists. |
Note 12 - Segment Reporting |
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| Segment Reporting Disclosure [Text Block] |
Note 12. Segment Reporting
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.
Upon closing of the acquisition of Nestor Cables on July 26, 2022, the Company reassessed its operating segments as defined under Accounting Standards Codification (“ASC”) 280, Segment Reporting. Under ASC 280, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”), in deciding how to allocate resources and in assessing performance. Based upon the Company’s assessment, the Company determined that the business of Nestor Cables was considered a second reportable segment as of July 26, 2022.
For the second quarter of fiscal 2023, the Company has reportable segments: (1) Clearfield; and (2) Nestor Cables. Clearfield’s Finnish holding company, Clearfield Finland Ltd., purchased Nestor Cables Ltd, including its Estonian subsidiary, Nestor Cables Baltics Ltd., on July 26, 2022. These entities comprise the Nestor Cables Segment. Prior to July 26, 2022, we were considered to be in a single reporting segment and operating unit structure.
Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the CODM in making internal operating decisions. For consolidated reporting, the Company eliminates transactions between reportable segments.
The following table summarizes the amounts between the reportable segments for the three and six months ended March 31, 2023:
The following table summarizes the amounts between the two reportable segments as of March 31, 2023 and September 30, 2022:
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Note 13 - Financing Receivables |
3 Months Ended |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Financing Receivables [Text Block] |
Note 13. Financing Receivables
Nestor Cables factors certain of its accounts receivable, with recourse provisions that are accounted for as a secured borrowing. Nestor Cables has a total factoring liability of $8,475,000 as of March 31, 2023. Nestor Cables receives cash for 80% of the receivable balance from the bank initially and the remaining 20% when the invoice is paid up to a limit of € million ($13.6 million as of March 31, 2023). Due to the conditions mentioned above, these transactions do not qualify as a sale and are thus accounted for as secured borrowing. The contractual interest rate on Nestor Cables’ factoring arrangements is the 3-month Euribor rate plus a range of 0.75% to 1.3%. The average interest rate for the three months ended March 31, 2023, was 3.48%. These agreements are indefinite with a termination notice period ranging from to month. |
Note 14 - Income Taxes |
3 Months Ended |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
Note 14. Income Taxes
For the three and six months ended March 31, 2023, the Company recorded income tax expense of $2,974,000 and $6,669,000 reflecting an effective tax rate of 22.3% and 21.3%, respectively. The difference between the effective tax rate and the statutory tax rate for the three and six months ended March 31, 2023 was primarily related to excess tax benefits from non-qualified stock option exercises and vesting of restricted stock, Section 162(m) compensation deduction limitations, foreign derived intangibles income (FDII) deduction, and research and development credits.
For the three and six months ended March 31, 2022, the Company recorded income tax expense of $2,816,000 and $5,596,000, reflecting an effective tax rate of 23.4% and 22.2%, respectively. The difference between the effective tax rate and the statutory tax rate for the three and six months ended March 31, 2022 was primarily related to excess tax benefits from restricted stock vesting during the period, Section 162(m) compensation deduction limitations, other nondeductible expenses, foreign derived intangibles income deduction, and research and development credits.
Deferred taxes recognize the impact of temporary differences between the amounts of the assets and liabilities recorded for financial statement purposes and these amounts measured in accordance with tax laws. The Company’s realization of deferred tax temporary differences is contingent upon future taxable earnings. The Company reviewed its deferred tax asset for expected utilization using a “more likely than not” criteria by assessing the available positive and negative factors surrounding its recoverability and determined that as of March 31, 2023 and September 30, 2022, a valuation allowance against the deferred tax assets is not required. The Company will continue to assess the need for a valuation allowance based on changes in assumptions of estimated future income and other factors in future periods.
As of March 31, 2023, the Company does have any unrecognized tax benefits. It is the Company’s practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not expect any material changes in its unrecognized tax positions over the next 12 months. |
Note 15 - Leases |
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| Lessee, Operating Leases [Text Block] |
Note 15. Leases
The Company leases an 85,000 square foot facility in Brooklyn Park, Minnesota consisting of corporate offices, manufacturing and warehouse space. The lease term is years and two months, ending on February 28, 2025, and is renewable. The renewal options have not been included within the lease term because it is not reasonably certain that the Company will exercise either option.
In July 2021, the Company entered into an indirect lease arrangement for an approximately 318,000 square foot manufacturing facility in Tijuana, Mexico that operates as a Maquiladora. The lease term is for seven years, of which five years are mandatory, commencing in March 2022. The lease contains written options to renew for additional consecutive periods of five years each. The lease calls for monthly rental payments of $162,000, increasing 2% annually. The renewal options have not been included within the lease term because it is not reasonably certain that the Company will exercise either option.
On November 19, 2021, the Company signed a lease for a 105,000 square foot warehouse in Brooklyn Park, Minnesota. The lease term is years commencing in March 2022 and ending on February 28, 2027, with rent payments increasing annually. The lease includes an option to extend the lease for an additional years. The renewal option has not been included within the lease term because it is not reasonably certain that the Company will exercise the option.
Nestor Cables leases an approximately 25,000 square foot manufacturing facility in Oulu, Finland, which is utilized for the operations of Nestor Cables. The original lease term ended on October 31, 2022, but auto renews indefinitely until terminated with two years written notice. It is not reasonably certain that Nestor Cables will not exercise the termination option. The lease calls for monthly rental payments of approximately $40,000. Rent is increased each year on January 1st based upon the cost-of-living index published by the Finnish government.
Right-of-use lease assets and lease liabilities are recognized as of the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods the Company is reasonably certain to exercise. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants. Operating lease expense included within cost of goods sold and selling, general and administrative expense was as follows for the three months ended:
Future maturities of lease liabilities were as follows as of March 31, 2023 (in thousands):
The weighted average term and weighted average discount rate for the Company’s leases as of March 31, 2023 were 3.79 years and 3.23%, respectively, compared to 4.71 years and 3.05%, respectively, as of March 31, 2022. For the three and six months ended March 31, 2023, the operating cash outflows from the Company’s leases were $950,000 and $1,907,000, respectively, compared to $238,000 and $550,000, respectively, for the three and six months ended March 31, 2022. |
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Note 16 - Debt |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Debt Disclosure [Text Block] |
Note 16. Debt
On April 27, 2022, the Company entered into a loan agreement and a security agreement with a bank that provides the Company with a $40,000,000 revolving line of credit that is secured by certain of the Company’s U.S. assets. The line of credit matures on April 27, 2025, and borrowed amounts will bear interest at a variable rate of the CME Group one-month term Secured Overnight Financing Rate (“SOFR”) plus 1.85%, but not less than 1.80% per annum. As of September 30, 2022, the Company had outstanding debt of $16,700,000 against its line of credit. During the quarter ended December 31, 2022, the Company paid the outstanding balance of the revolving line of credit. As of March 31, 2023, the outstanding balance on the revolving line of credit was zero and the interest rate was 6.52%. The loan agreement and the security agreement contain customary affirmative and negative covenants and requirements relating to the Company and its operations, including a requirement that the Company maintain a debt service coverage ratio of not less than 1.20 to 1 as of the end of each fiscal year for the fiscal year then ended and maintain a debt to cash flow ratio of not greater than 2 to 1 measured as of the end of each of the Company’s fiscal quarters for the trailing twelve (12) month period. Debt service coverage ratio is the ratio of Cash Available for Debt Service to Debt Service, each as defined in the loan agreement. Debt and Cash Flow are also as defined in the loan agreement for the purposes of the debt to cash flow ratio covenant. As of March 31, 2023, the Company was in compliance with all covenants. The line of credit is collateralized by the assets of the Clearfield segment.
During March 2021, Nestor Cables entered into a loan agreement, providing a $2 million senior loan with a term of years. The Finland National Emergency Supply Agency (“NESA”) pays the interest, capped at 5% with the interest to be paid by NESA when the loan is used for stockpiling purposes and is repayable with a 2% additional interest penalty if there is a violation of the terms. The loan is due on March 31, 2024. The loan is fully secured by a Finnish government guarantee. If used for any purposes other than stockpiling, the lender has the right to terminate the agreement and the entire outstanding balance will become due. As of March 31, 2023, Nestor Cables was in compliance with all covenants. The interest expense associated with this loan has been presented net of government payments on the Company’s consolidated statement of earnings.
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Significant Accounting Policies (Policies) |
3 Months Ended |
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| Accounting Policies [Abstract] | |
| Basis of Accounting, Policy [Policy Text Block] | Basis of PresentationThe accompanying (a) consolidated balance sheet as of September 30, 2022, which has been derived from audited financial statements, and (b) unaudited interim consolidated financial statements as of and for the three and six months ended March 31, 2023 have been prepared by Clearfield Rin accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations, and cash flows of the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of results to be expected for the full year or for any other interim period, due to variability in customer purchasing patterns, seasonality and other factors. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022.In preparation of the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses during the reporting periods. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. |
| Consolidation, Policy [Policy Text Block] | Principles of ConsolidationThe consolidated financial statements include the accounts of Clearfield, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. |
| New Accounting Pronouncements, Policy [Policy Text Block] | New Accounting PronouncementsIn June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. In November 2018, the FASB issued update ASU 2018-19 that clarifies the scope of the standard in the amendments in ASU 2016-13. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Financial instruments impacted include accounts receivable, trade receivables, other financial assets measured at amortized cost and other off-balance sheet credit exposures. The new guidance is effective for the Company beginning in the first quarter of fiscal 2024, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. |
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Note 4 - Investments (Tables) |
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| Reconciliation of Revenue from Segments to Consolidated [Table Text Block] |
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| Reconciliation of Assets from Segment to Consolidated [Table Text Block] |
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Note 15 - Leases (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Lessee, Operating Lease Expense [Table Text Block] |
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| Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block] |
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Note 2 - Net Income Per Share - Weighted Average Common Shares Outstanding (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Net income | $ 10,364 | $ 9,236 | $ 24,619 | $ 19,626 |
| Weighted average common shares (in shares) | 15,233,848 | 13,767,341 | 14,693,829 | 13,755,291 |
| Basic (in shares) | 15,233,848 | 13,767,341 | 14,693,829 | 13,755,291 |
| Dilutive potential common shares (in shares) | 26,921 | 135,495 | 73,109 | 144,889 |
| Weighted average dilutive common shares outstanding (in shares) | 15,260,769 | 13,902,836 | 14,766,938 | 13,900,180 |
| Basic (in dollars per share) | $ 0.67 | $ 0.67 | $ 1.68 | $ 1.43 |
| Diluted (in dollars per share) | $ 0.67 | $ 0.66 | $ 1.67 | $ 1.41 |
Note 3. Cash and Cash Equivalents - Schedule of Cash and Cash Equivalents (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Cash and cash equivalents: | ||
| Cash including money market accounts | $ 4,985 | $ 16,635 |
| Money market funds | 18,212 | 15 |
| U.S. Treasury securities | 113,884 | 0 |
| Total cash and cash equivalents | $ 137,081 | $ 16,650 |
Note 4 - Investments (Details Textual) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Debt Securities, Available-for-Sale, Unrealized Loss Position, Number of Positions | 59 |
| Debt Securities, Available for Sale, Other than Temporary Impairment | $ 0 |
Note 4 - Investments - Available-for-sale Investments (Details) $ in Thousands |
Mar. 31, 2023
USD ($)
|
|---|---|
| Fair value | $ 28,511 |
| Short-term US Treasury Securities [Member] | |
| Amortixed cost | 9,496 |
| Unrealized gains | 0 |
| Unrealized losses | 259 |
| Fair value | 9,237 |
| Short-term Certificates of Deposit [Member] | |
| Amortixed cost | 10,995 |
| Unrealized gains | 0 |
| Unrealized losses | 248 |
| Fair value | 10,747 |
| Short-term Investment [Member] | |
| Amortixed cost | 20,491 |
| Unrealized gains | 0 |
| Unrealized losses | 507 |
| Fair value | 19,984 |
| Long-term US Treasury Securities [Member] | |
| Amortixed cost | 6,702 |
| Unrealized gains | 0 |
| Unrealized losses | 539 |
| Fair value | 6,163 |
| Long-term Certificates of Deposit [Member] | |
| Amortixed cost | 2,469 |
| Unrealized gains | 1 |
| Unrealized losses | 105 |
| Fair value | 2,364 |
| Long-term Investment [Member] | |
| Amortixed cost | 9,171 |
| Unrealized gains | 1 |
| Unrealized losses | 644 |
| Fair value | $ 8,527 |
Note 4 - Investments - Securities in a Continuous Unrealized Loss Position (Details) $ in Thousands |
Mar. 31, 2023
USD ($)
|
|---|---|
| Fair value unrealized loss, less than 12 months | $ 2,017 |
| Gross unrealized loss, less than 12 months | 43 |
| Fair value unrealized loss, greater than 12 months | 26,282 |
| Gross unrealized loss, greater than 12 months | 1,108 |
| US Treasury Securities [Member] | |
| Fair value unrealized loss, less than 12 months | 0 |
| Gross unrealized loss, less than 12 months | 0 |
| Fair value unrealized loss, greater than 12 months | 15,433 |
| Gross unrealized loss, greater than 12 months | 798 |
| Certificates of Deposit [Member] | |
| Fair value unrealized loss, less than 12 months | 2,017 |
| Gross unrealized loss, less than 12 months | 43 |
| Fair value unrealized loss, greater than 12 months | 10,849 |
| Gross unrealized loss, greater than 12 months | $ 310 |
Note 5 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| U.S Treasury securities | $ 28,511 | |
| Fair Value, Inputs, Level 3 [Member] | ||
| U.S Treasury securities | $ 0 | $ 0 |
Note 6 - Other Comprehensive Income (Loss) - Changes in Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Balance at December 31, 2022 | $ 293,881 | $ 147,582 | $ 114,474 | $ 147,582 | $ 103,824 |
| Other comprehensive income | 499 | (725) | 1,665 | (725) | |
| Balance at March 31, 2023 | 305,399 | 293,881 | 123,429 | 305,399 | 123,429 |
| AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-Sale, Parent [Member] | |||||
| Balance at December 31, 2022 | (1,083) | (1,224) | (1,224) | ||
| Other comprehensive income | 197 | 141 | |||
| Balance at March 31, 2023 | (886) | (1,083) | (886) | ||
| Accumulated Foreign Currency Adjustment Attributable to Parent [Member] | |||||
| Balance at December 31, 2022 | 350 | (674) | (674) | ||
| Other comprehensive income | 302 | 1,024 | |||
| Balance at March 31, 2023 | 652 | 350 | 652 | ||
| AOCI Attributable to Parent [Member] | |||||
| Balance at December 31, 2022 | (733) | (1,898) | 0 | (1,898) | 0 |
| Other comprehensive income | 499 | 1,165 | |||
| Balance at March 31, 2023 | $ (234) | $ (733) | $ (725) | $ (234) | $ (725) |
Note 7 - Stock-based Compensation - Valuation Assumptions (Details) |
6 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Dividend yield | 0.00% |
| Expected volatility | 61.89% |
| Risk-free interest rate | 4.01% |
| Expected life in years (Year) | 3 years 6 months |
| Vesting period in years (Year) | 3 years |
Note 7 - Stock-based Compensation - Option Transaction Summary (Details) - $ / shares |
6 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Outstanding as of September 30, 2022 (in shares) | 236,509 | |
| Outstanding as of September 30, 2022 (in dollars per share) | $ 31.30 | |
| Granted (in shares) | 19,084 | 62,730 |
| Granted (in dollars per share) | $ 95.06 | $ 66.48 |
| Exercised (in shares) | (18,709) | |
| Exercised (in dollars per share) | $ 27.24 | |
| Forfeited or Expired (in shares) | 0 | |
| Forfeited or Expired (in dollars per share) | $ 0 | |
| Outstanding as of March 31, 2023 (in shares) | 236,884 | |
| Outstanding as of March 31, 2023 (in dollars per share) | $ 36.76 | |
Note 7 - Stock-based Compensation - Restricted Stock Transactions (Details) - Restricted Stock [Member] |
6 Months Ended |
|---|---|
|
Mar. 31, 2023
$ / shares
shares
| |
| Unvested shares as of September 30, 2022 (in shares) | 98,508 |
| Unvested shares as of September 30, 2022 (in dollars per share) | $ / shares | $ 31.51 |
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 41,492 |
| Granted (in dollars per share) | $ / shares | $ 70.50 |
| Vested (in shares) | (25,759) |
| Vested (in dollars per share) | $ / shares | $ 46.25 |
| Forfeited (in shares) | 0 |
| Unvested as of March 31, 2023 (in shares) | 114,241 |
| Unvested as of March 31, 2023 (in dollars per share) | $ / shares | $ 27.83 |
Note 8 - Revenue (Details Textual) - USD ($) |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Accounts Receivable, Allowance for Credit Loss, Current | $ 79,000 | $ 79,000 |
Note 8 - Revenue - Disaggregation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Total Net Sales | $ 71,809 | $ 53,495 | $ 157,751 | $ 104,604 |
| Total Net Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Broadband Service Providers [Member] | ||||
| Total Net Sales | 96.00% | 99.00% | 97.00% | 99.00% |
| Legacy Customers [Member] | ||||
| Total Net Sales | 4.00% | 1.00% | 3.00% | 1.00% |
| UNITED STATES | ||||
| Total Net Sales | $ 58,671 | $ 52,045 | $ 134,409 | $ 101,163 |
| Non-US [Member] | ||||
| Total Net Sales | $ 13,138 | $ 1,450 | $ 23,342 | $ 3,441 |
Note 9 - Major Customer Concentration (Details Textual) - Customer Concentration Risk [Member] |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Sep. 30, 2022 |
|
| Revenue Benchmark [Member] | Customer A [Member] | |||||
| Concentration Risk, Percentage | 17.00% | 14.00% | 16.00% | 13.00% | |
| Revenue Benchmark [Member] | Customer B [Member] | |||||
| Concentration Risk, Percentage | 13.00% | 12.00% | |||
| Revenue Benchmark [Member] | Customer C [Member] | |||||
| Concentration Risk, Percentage | 11.00% | ||||
| Accounts Receivable [Member] | Customer D [Member] | |||||
| Concentration Risk, Percentage | 11.00% | ||||
Note 10 - Inventories - Components of Inventory (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Raw materials | $ 79,564 | $ 69,142 |
| Work-in-process | 5,298 | 4,592 |
| Finished goods | 20,271 | 10,803 |
| Inventories, gross | 105,133 | 84,537 |
| Inventory reserve | (4,295) | (2,329) |
| Inventories, net | $ 100,838 | $ 82,208 |
Note 11 - Goodwill and Intangibles (Details Textual) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
|
Sep. 30, 2022
USD ($)
|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
| Goodwill, Impairment Loss | $ 0 | ||
| Number of Patents Granted | 41 | ||
| Impairment of Intangible Assets (Excluding Goodwill), Total | $ 0 | ||
| Patents [Member] | |||
| Finite-Lived Intangible Asset, Useful Life | 20 years |
Note 12 - Segment Reporting (Details Textual) |
6 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Number of Reportable Segments | 2 |
Note 12 - Segment Reporting - Reconciliation of Assets from Segments to Consolidated (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Goodwill | $ 6,587 | $ 6,402 |
| Total assets | 357,395 | 229,128 |
| Operating Segments [Member] | Clearfield [Member] | ||
| Goodwill | 4,709 | 4,709 |
| Total assets | 332,906 | 214,785 |
| Operating Segments [Member] | Nestor Cables [Member] | ||
| Goodwill | 1,878 | 1,693 |
| Total assets | 43,135 | 31,023 |
| Intersegment Eliminations [Member] | ||
| Goodwill | 0 | 0 |
| Total assets | $ (18,646) | $ (16,680) |
Note 13 - Financing Receivables (Details Textual) € in Millions |
3 Months Ended | |||
|---|---|---|---|---|
|
Mar. 31, 2023
USD ($)
|
Dec. 31, 2022 |
Mar. 31, 2023
EUR (€)
|
Sep. 30, 2022
USD ($)
|
|
| Factoring Liabilities | $ 8,475,000 | $ 4,391,000 | ||
| Financing Receivables, Percentage of Cash Initially Received | 80.00% | 80.00% | ||
| Financing Receivable, Percentage of Balance Received When Invoice is Paid | 20.00% | 20.00% | ||
| Financing Receivable, Limit | $ 13,600,000 | € 12.5 | ||
| Financing Receivable, Average Interest Rate During Period | 3.48% | |||
| Minimum [Member] | ||||
| Agreement Termination Period (Month) | 0 months | |||
| Maximum [Member] | ||||
| Agreement Termination Period (Month) | 1 month | |||
| Euribor [Member] | Minimum [Member] | ||||
| Financing Receivable, Interest Rate, Basis Spread on Variable Rate | 0.75% | |||
| Euribor [Member] | Maximum [Member] | ||||
| Financing Receivable, Interest Rate, Basis Spread on Variable Rate | 1.30% | |||
Note 14 - Income Taxes (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Income Tax Expense (Benefit) | $ 2,974,000 | $ 2,816,000 | $ 6,669,000 | $ 5,596,000 |
| Effective Income Tax Rate Reconciliation, Percent, Total | 22.30% | 23.40% | 21.30% | 22.20% |
| Unrecognized Tax Benefits, Ending Balance | $ 0 | $ 0 | ||
Note 15 - Leases - Operating Lease Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Total lease expense | $ 1,058 | $ 496 | $ 2,077 | $ 836 |
| Cost of Sales [Member] | ||||
| Total lease expense | 995 | 439 | 1,958 | 724 |
| Selling, General and Administrative Expenses [Member] | ||||
| Total lease expense | $ 63 | $ 57 | $ 119 | $ 112 |
Note 15 - Leases - Maturities of Lease Liabilities (Details) $ in Thousands |
Mar. 31, 2023
USD ($)
|
|---|---|
| FY2023(Remaining) | $ 2,067 |
| FY2024 | 3,890 |
| FY2025 | 3,063 |
| FY2026 | 2,870 |
| FY2027 | 1,196 |
| Thereafter | 0 |
| Total lease payments | 13,086 |
| Less: Interest | (610) |
| Present value of lease liabilities | $ 12,476 |
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