Optical Cable Q1 2025 Earnings Call Transcript

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March 10, 2025

There are 5 speakers on the call.

Operator

Good morning. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome you to Optical Cable Corporation's First Quarter of Fiscal Year twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.

Operator

Mr. Hoffman, you may begin your conference.

Speaker 1

Thank you. Good morning. And thank you for joining us for Optical Cable Corporation's First Quarter of Fiscal Year twenty twenty five Conference Call. By this time, everyone should have a copy of the earnings press release issued earlier today. You You can also visit www.occfiber.com for a copy.

Speaker 1

On the call with us today are Neil Wilkin, President and Chief Executive Officer of OCC and Tracy Smith, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain forward looking statements that involve risks and uncertainties. The actual future results of Optical Cable Corporation may differ materially due to a number of factors and risks, including, but not limited to, those factors referenced in the Forward Looking Statements section of this morning's press release. These cautionary statements apply to the contents of the Internet webcast on www.occrubber.com as well as today's call. With that, I'll turn the call over to Neil Wilkin.

Speaker 1

Neil, please begin.

Speaker 2

Thank you, Spencer, and good morning, everyone. I will begin the call today with a few opening remarks. Tracy will then review the first quarter results for the three month period ended 01/31/2025 in some additional detail. After Tracy's remarks, we will answer as many of your questions as we can. As is our normal practice, we will only be taking questions from analysts and institutional investors during the Q and A session.

Speaker 2

However, we also offer other shareholders the opportunity to submit questions in advance of our earnings call. Instructions regarding such submissions are included in our press release announcing the date and time of our call. During the first quarter of twenty twenty five, we achieved growth across key metrics including net sales and gross profit with sales increasing 6% and our significant operating leverage resulting in gross profit increasing 24.6% in both cases when compared to the first quarter of last year. You will recall that we mentioned on our fourth quarter call that OCC is beginning to see market improvement as the weakness experienced across our industry generally since fiscal which began in fiscal twenty twenty three and has begun to subside. I'm pleased to report that we believe this trend is continuing.

Speaker 2

OCC has seen improvements in both our enterprise and specialty markets, including the military sector. We are confident our focus on executing our growth strategies as well as operating efficiently will drive results this year, including gross profit margin expansion with increased volume as we disproportionately benefit from OCC's significant operating leverage. While the first quarter of twenty twenty five was impacted by what we believe to be our typical seasonality factors, particularly during November, December, our sales backlog and forward load is growing. At the end of the first quarter, our sales order backlog and forward load had increased approximately 16% to $6,600,000 when compared to 10/31/2024. We also saw improvement in net cash provided by operating activities during the first quarter of fiscal twenty twenty five.

Speaker 2

I'm proud of the OCC team whose hard work allowed us to deliver a strong start to fiscal year twenty twenty five in a dynamic market environment. We look forward to capitalizing on growth opportunities and driving long term value for our customers and shareholders. Before I turn the call over to Tracy, I want to take a moment to mention a topic currently being currently garnering significant attention. As are many, we are closely monitoring proposed and enacted tariffs by The U. S.

Speaker 2

As well as others to determine any impact on our purchases of certain raw materials and on the sales of our products we export into approximately 50 countries each year. OCC's three manufacturing facilities are based in The U. S. And we currently don't anticipate a significant impact on OCC as a result of new tariffs. However, it is still too early to be certain given the fluid nature of the environment and we will continue to evaluate potential impacts on OCC and our customers.

Speaker 2

And with that, I'll turn the call over to Tracy, who will review in additional detail our first quarter of fiscal year twenty twenty five financial results.

Speaker 3

Thank you, Neil. Consolidated net sales for the first quarter of fiscal twenty twenty five increased 6% to $15,700,000 compared to net sales of $14,900,000 for the same period last year. During the first quarter of fiscal twenty twenty five, we experienced increases in net sales in both our enterprise and specialty markets compared to the same period last year as we continue to see general market improvements in our industry and strength in our military markets. Net sales to customers outside of The United States increased 21.3% and net sales to customers in The United States increased 2.3% in the first quarter of fiscal year twenty twenty five compared to the same period last year. As Neil referenced, at the end of our first fiscal quarter of twenty twenty five, our sales order backlog and forward load had increased to $6,600,000 when compared to $5,700,000 as of 10/31/2024.

Speaker 3

Turning to gross profit, our gross profit increased 24.6% or $913,000 to $4,600,000 in the first quarter of fiscal twenty twenty five compared to $3,700,000 for the same period last year. Gross profit margin, our gross profit as a percentage of net sales was 29.4% in the first quarter of fiscal twenty twenty five compared to 25% in the first quarter of fiscal twenty twenty four. Gross profit margin for the first quarter of fiscal twenty twenty five was positively impacted by production efficiencies created by higher volumes and the resulting positive impact of our operating leverage. Additionally, our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix. SG and A expenses increased to $5,500,000 in the first quarter of fiscal year twenty twenty five compared to $5,100,000 for the same period last year, primarily as a result of increases in employee and contracted sales personnel related costs.

Speaker 3

SG and A expenses as a percentage of net sales were 34.7% in the first quarter of fiscal twenty twenty five compared to 34.3% in the first quarter of fiscal twenty twenty four. OCC recorded a net loss of $1,100,000 or $0.14 per basic and diluted share for the first quarter of fiscal twenty twenty five compared to a net loss of $1,400,000 or $0.18 per basic and diluted share for the first quarter of fiscal twenty twenty four. With that, I'll turn the call back over to you, Neal.

Speaker 2

Thank you, Tracy. And now if any analysts or institutional investors have questions, we are happy to answer them. Madison, if you could please indicate the instructions for our participants to call in any questions they may have, I'd appreciate it. Again, we are only taking live questions from analysts and institutional investors.

Operator

Thank And we will take our first question from Asaf Nathan with Eden Discovery. Please go ahead.

Speaker 4

Thank you. Thank you, Neil for taking my call. So basically, you answered about the tariffs that they have no material impact right now and the situation is fluid. But I was wondering if tariffs may have a positive effect on you or your manufacturing is based in The U. S?

Speaker 4

And can you have it like maybe a pricing advantage or cost advantage?

Speaker 2

Yes. Thank you for the question. As you said and as we mentioned, we are likely to see some impact from tariffs from The U. S. And others.

Speaker 2

And it's true that we don't believe this is going to be significant at the moment. We could have some positive impacts as well as negative impacts and we're going to continue to monitor that situation and the changing environment to adjust as we need to. As you'd suspect with a lot of U. S. Manufacturers supply chains are very, very, very long and that impacts items on the raw material side.

Speaker 2

But at this point, we don't believe it's going to be terribly significant.

Speaker 4

Yes. Just if I can continue this line of question. So your manufacturing is basically based in The U. S. And there is another government initiative called BABA Buyers America, Built America.

Speaker 4

So wondering if this can create an advantage for the company comparing to a Chinese manufacturer and other competition from abroad?

Speaker 2

Yes, that is. I mean, primarily our competitors are based in The U. S, but not all their manufacturing is essentially based in The U. S. But yes, there is an advantage for us to being able to say were made in The United States.

Speaker 2

With respect to Baba specifically, I don't know whether that's going to increase our sales. We're not counting on that. We're taking the actions we believe necessary to increase the size of our markets with our customers based on services and the products we provide. But yes, that is an area that we hope to benefit from at least a little bit and maybe more significantly, but certainly a little bit.

Speaker 4

I have many more questions, so feel free to tell me when to stop. I can take the entire call if you want.

Speaker 2

Yes. Well, we will limit it to three questions, if you don't mind, so that other people can answer and also just based on the timing.

Speaker 4

Okay. So given all that happened since you've released your annual report, Trump going to power, many changes in the economy, as you said, and the situation has been fluid. Would you how do you characterize the outlook for the company going forward? Would you say the outlook you see it has improved or worsened or did not change in light of what has happened since the annual report?

Speaker 2

Well, we haven't changed our outlook since what we've stated in the annual report. And we do still see seasonality and so that impacts us usually in the first half of the year, but we're still optimistic. The entire industry generally was in a downturn since the middle of twenty twenty fiscal for us middle of fiscal year twenty twenty three, for others a little bit earlier than that. And that continued into through for us the fiscal third quarter of twenty twenty four. And so we saw some benefit of that easing in our fourth quarter and we're also continuing to see that although we did experience some seasonality in the first quarter and typically we do that we experienced a similar seasonality in second quarter as well.

Speaker 4

Okay. Thank you.

Operator

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks.

Speaker 2

Thank you, Madison. As we usually do, we do take questions in written form that are submitted before the call, up until about an hour before the call is mine, as I recall. And I think we do have some questions. And Spencer, if you could walk us through those, then we will respond to those individual questions previously submitted.

Speaker 1

Sure. So the first question, can you talk about the operational leverage, the sensitivity of different potential revenue scenarios on EPS to get a sense for potential upside? You can talk about scenarios and what they could be.

Speaker 2

Sure. Thank you, Spencer. As you all know, we have described OCC's significant operating leverage previously, particularly with respect to manufacturing operations and its positive and negative impact on gross profit and gross profit margin. I would call your attention to the fact that in my letter to the shareholders included in OCC's twenty twenty five annual report, we describe OCC's operating leverage with respect to both manufacturing as well as SG and A expenses. Included in the letter is some data set forth in two graphs that will help you see the sensitivity of our operating leverage to different actual revenue scenarios.

Speaker 2

The first graph shows gross profit margin percentage compared to quarterly net sales for the last two fiscal years twenty twenty three and 2024. And the second graph shows SG and A expenses as a percentage of net sales compared to quarterly net sales for those same periods. Additionally, I would also call your attention to OCC's reported results during the first and second quarters of fiscal twenty twenty three before the period of market weakness experienced by our industry generally, as well as the results in the fourth quarter fiscal year twenty twenty four after this industry weakness began to abate. It is important to note that product mix during any period can vary significantly And this also impacts gross profit and gross profit margin, both from a margin set on a different product, but also efficiency of operations based on the product mix.

Speaker 1

Thank you, Neil. Next question. Do you have a five year revenue EPS per share goal?

Speaker 2

Yes. As you'd expect, we do prepare multiyear financial projections. However, like many other smaller companies, we do not provide those forecasts publicly.

Speaker 1

Can you explain if you are benefiting or will benefit from AI data center from the demand in AI data centers? Isn't this a big opportunity for the company?

Speaker 2

Thanks for the question. Yes, this is a hot topic along with tariffs is a hot topic as everyone knows and from some of the questions that have been asked. In the data center market, there are various tiers of business and OCC does have some regular business in the data center market and we believe we have opportunities to benefit and expand that business from the significant data center demand. Of course, that's also including what's generated by AI and we'll continue to explore those opportunities. It hasn't been a huge part of our business to date, but it is something that we do have some regular business in.

Speaker 1

Next question. Can you explain a little bit what opportunity you see for OCC and what new products you plan to launch to market?

Speaker 2

For competitive reasons, we tend not to discuss new product launches prior to their official loss, but OCC is reviewing new product opportunities on a regular basis and we do make adjustments based on our customer requirements. Additionally, OCC is known for being a company in our industry that customers come to when they have special requests and special needs. And that's part of what we are exceptionally capable of handling and are well known in our industry for being able to serve those specialized needs.

Speaker 1

The outlook and demand changed at all since your Q4 report?

Speaker 2

No. As we touched on that a little bit earlier, we haven't changed our outlook. We have been impacted by seasonality in the first quarter and we are continuing to monitor the many factors that are changing business whether positively or negatively. But currently our outlook for 2025 remains positive.

Speaker 1

Thanks, Neil. And this is the final question. Have you lately seen any fundamental changes in your industry versus the last twenty years that could allow you to pass $85,000,000 highest historical revenue mark and slower growth prospects?

Speaker 2

Well, generally, I believe that our prospects are strong. The need for more and more communication bandwidth is continuing and that demand is increasing. And we believe fiber optics and OCC are positively impacted by that trend and expect to be for years to come. We think we're properly positioned in the communications market.

Speaker 1

Thanks, Neil. That was the last question.

Speaker 2

Okay. Thank you, Spencer. In closing, I would like to thank everyone for listening to our first quarter fiscal year twenty twenty five conference call today. As always, we appreciate your time, your interest and your investment in Optical Cable Corporation. Thank you.

Operator

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.

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Optical Cable Q1 2025
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