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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 Second 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. Mr. Hoffman, you may begin your conference.
11m 28s
Good morning, and thank you for joining us for Optical Cable Corporation's Second 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 can also visit www.occfiber.com for a copy. 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 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.0ccfiber.com as well as today's call. With that, I'll turn the call over to Neil Wilkin. Neil, please begin. Thank you, Spencer, and good morning, everyone. I will begin the call today with a few opening remarks Tracy will then review the second quarter results for the three month and six month periods ended April 30, 2025 in some additional detail.
12m 50s
After Tracy's remarks, we will answer as many of your questions as we can. As is our normal practice, we will only take questions from analysts and institutional investors during the Q and A session. However, we also offer other shareholders 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 second quarter, the OCC team delivered sales net sales growth and gross profit growth on both a year over year and a sequential basis. Strong execution by the OCC team coupled with our significant operating leverage also enabled us to deliver improved gross profit margins. As we realized improved manufacturing efficiencies over higher production volumes. We continue to see positive industry trends from which we believe OCC will continue to benefit as the year progresses. At the end of our second quarter, of fiscal twenty twenty five, our sales backlog and forward load had increased to $7,200,000 compared to $6,600,000 as of 01/31/2025, and $5,700,000 as of 10/31/2024. We are confident our focus on executing our growth strategies and capitalizing on operating efficiencies. Will drive positive results this year.
14m 33s
Including opportunities for gross profit margin expansion with increased production volume as we benefit from OCC's significant operating leverage. I'm proud of the OCC team whose hard work allowed us to deliver a strong start to the first half of fiscal twenty twenty five in a dynamic market environment. As we look ahead to the second half of the year, we remain focused on disciplined execution and capitalizing on growth opportunities to drive shareholder value. And with that, I'll turn the call over to Tracy, who will review in additional detail our second quarter of fiscal year twenty twenty five financial results.
15m 18s
Thank you, Neil. Consolidated net sales for the second quarter of fiscal twenty twenty five increased 8.9% to $17,500,000 compared to net sales of $16,100,000 for the same period last year, resulting from increases in net sales in our specialty markets while our enterprise markets were relatively stable. Sequentially, net sales increased 11.5% during the second quarter of fiscal year twenty twenty five compared to net sales of $15,700,000 for the first quarter of fiscal twenty twenty five. We experienced sequential increases in both our enterprise and specialty markets during the second quarter, compared to the first quarter of fiscal year twenty twenty five. Consolidated net sales for the first half of fiscal twenty twenty five were $33,300,000 an increase of 7.5% as compared to net sales of $31,000,000 for the first half of fiscal twenty twenty four, with sales increases in both our enterprise and specialty markets. As Neil mentioned, at the end of our second fiscal quarter of twenty twenty five, our sales order backlog and forward load increased to $7,200,000 compared to $6,600,000 as of 01/31/2025, and $5,700,000 as of 10/31/2024. Turning to gross profit. Our gross profit increased 32.1% or $1,300,000 to $5,300,000 in the second quarter of fiscal twenty twenty five, compared to $4,000,000 for the same period last year.
17m 5s
Gross profit margin or gross profit as a percentage of net sales increased to 30.4% the second quarter of fiscal twenty twenty five. Up from 25.1% in the second quarter of fiscal twenty twenty four and twenty nine point four percent for the first quarter of fiscal year twenty twenty five. Gross profit was $10,000,000 in the first half of fiscal twenty twenty five, an increase of 28.5% compared to $7,800,000 in the first half of fiscal twenty twenty four. Gross profit margin was 29.9% the first half of fiscal twenty twenty five compared to 25% in the first half of fiscal twenty twenty four. Gross profit margin for the second quarter and first half 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 $5,700,000 in the second quarter of fiscal year twenty twenty five compared to $5,300,000 the same period last year. SG and A expenses as a percentage of net sales were 32.7% in the second quarter of fiscal twenty twenty five, compared to 33% in the prior year period.
18m 36s
By comparison, SG and A expenses as a percentage of net sales were 34.7% during the first quarter of fiscal year twenty twenty five. The increase in SG and A expenses during the second quarter and first half of fiscal year twenty twenty five compared to the same periods last year was primarily the result of increases in employee and contracted sales personnel related costs and shipping costs. Included in employee and contracted sales personnel related costs [indiscernible] compensation costs and sales incentives. OCC recorded a net loss of $698,000 or $09 per basic and diluted share for the second quarter of fiscal twenty twenty five, compared to a net loss of $1,600,000 or $0.21 per basic and diluted share for the second quarter of point fiscal twenty twenty four. OCC recorded a net loss of $1,800,000 or $0.23 per basic and diluted share for the first half of fiscal year twenty twenty five, compared to $3,000,000 or $0.39 per basic and diluted share for the first half of fiscal year twenty twenty four. With that, I'll turn the call back over to you, Neil.
19m 49s
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. And again, we're only taking live questions from analysts and institutional investors.
20m 13s
Thank you. And we will take our first question from Manny Stukakis with Investing. Please go ahead.
21m
Hi. How are guys doing?
21m 1s
On your last call, you guys talked about the significant demand from data centers. I wanted to know if you can tell us about it seems like the focus is not there to grow in that area, especially given that you guys do have an operating facility in Dallas. There's tremendous infrastructure spend kind of booked out through 2029. I know there's other manufacturers, you got The US manufacturing advantage in case it becomes all domestic NVIDIA TSSI, Dell are all in that Round Rock, Texas area.
21m 33s
Am I missing? Why aren't we taking more advantage of this opportunity?
21m 39s
Well, I mean, data center market is divided into several different categories.
21m 47s
And what's getting the most press and what's getting what you're hearing about NVIDIA and others, those are really at the hyperscale level. And so that is different type of product set that OCC provides. We have haven't really targeted hyperscale data centers. We do have sales in the data center market for Tier two and Tier three. Which is really the multi tenant data centers and also in enterprise. And we're also looking to see how we can better address those markets of the things we did this year is we've added loose tube product offering to our to our product and some of those are used in data centers. In some cases in addition to tight buffer. So we're seeing some benefit of that. I think that there's more opportunity that we have in taken advantage of yet. But a lot of what you're hearing is really at that hyperscale level.
22m 50s
Well, hear what you're saying on the hyperscale, but there are many small players who have a niche contribution to the data center market. And they're really focusing in that area and starting to see extreme benefits. Like I said, that you can look at TSSIs and the rack integration. There's other ones in the colon like TGen. So I just just was wondering, I know you touched on it on the last conference call and I just wanted to see if the focus and the growth opportunity is still there and if this is something starting to see a little bit of momentum in, but it sounds like it's a little bit more slow go than maybe it was anticipated or We are starting to see some movement in that area but it hasn't been a major part of our of our sales at the moment. We're seeing more growth in the areas like military which is more squarely in our wheelhouse, but we are seeing opportunities in data center and believe that we will benefit from that.
23m 51s
But it will be. Okay.
23m 52s
Appreciate your time. Thank you very much. It will be the smaller data centers. I appreciate your question. Thank you.
23m 58s
Thank you.
24m 3s
Thank you.
24m 5s
And it appears there are no further questions at this time. I will now turn the call back to Mr. Wilkin for closing remarks.
24m 13s
Well, before that Madison, what we will do is we've had some individual investors submit questions in advance And Spencer, if you'd read the questions, Tracy and I will address those.
24m 26s
Sure. So the first question, can you give a sense of potential operational leverage? For example, what's your upside scenario what your upside scenario can look like if revenue begins to jump while costs remain fixed? Could that look like?
24m 42s
I'll take that one. The best sense of operational leverage can be seen in our historic quarterly results. Because product mix also plays a significant role our gross profit margin, it is difficult to predict our forecast how operational leverage will impact us specific quarter, However, we know that when we when certain fixed costs are spread over larger volumes, we benefit from that. Additionally, while we're a smaller reporting company that requires significant fixed costs related to being a public company, we also believe that we can increase sales to much higher levels with without increasing those types of fixed costs. At a similar level. Hopefully, that gives some indication of how operational leverage can impact our results at higher sales levels. Also, if you review Neil's letter to the shareholders in our 2024 annual report, you'll see some description, graphs and data regarding OCC's operating leverage over varying sales levels.
25m 43s
Thank you. The next question. What percentage of the business is related to copper and related to fiber? Or which one is bigger? Is it correct to say that copper market size declines and fiber is growing?
25m 58s
We don't generally disclose information related to what percentage of our business is related to copper and what percentage is related to fiber. I can say that fiber is definitely the biggest portion of our business. However, even some of our fiber cables are what we call hybrid and and include both fiber and copper. Having said that, the market for copper is still significant.
26m 34s
You want to go to the next question, Spencer?
26m 43s
Thank you, Tracy. Can you update us on for the next question, can you update us on data centers MBI opportunity? Are there any changes over the last quarters? [indiscernible] [indiscernible] I think I've addressed most of that question in response to the question we got previously. We do see sales in the data center applications, but currently it has not been significant, but we believe there are and will be additional opportunities for OCC in the future. Particularly in the Tier two and Tier three data centers. We are evaluating our cable and connectivity offerings on an ongoing basis in order to address the needs of our customers and end users. In our targeted markets and as I've mentioned before, we have added loose tube fiber cable products to our offering.
27m 45s
Which also opens up some additional data center opportunities.
27m 53s
Thanks, Neil.
27m 54s
The next question can you update can you provide an update on the company outlook and how it compares to the situation at the end of Q1 and Q4.
28m 6s
Yes. As you all know, OCC does not provide any forward looking guidance That said, we have disclosed in our public filings our sense of our market and industry trends and where we think the market is going. You'll recall that in the beginning of OCC's Q twenty twenty four, the industry had come out of what had been a significant slowdown for approximately five quarters. We saw the benefit of that in that market improvement in Q4 and in our results. Q1 of twenty twenty five, we grew 6% compared to the prior year. And we saw an increase in our backlog compared to Q4. And as we announced today in Q2 twenty twenty five, we grew 8.9% compared to the prior year and we saw another increase in our backlog compared to the end of compared to the end of Q1. Of course, OCC's sales have long been subject to seasonality with the first half of the year typically having lower sales than the second half of the year. We believe we are seeing positive trends and at this time we are optimistic looking at the second half of fiscal year twenty twenty five.
29m 29s
Thanks, Neil. The next question is, can you provide an update on tariffs impact And also, you are benefiting at all, from Build in America trends.
29m 42s
Thank you. So like others OCC has seen impact from tariffs. However, what we've experienced has been less of an impact in our supply chains than we believe others in our industry have experienced. OCC's three manufacturing facilities are all located in The U. S. And of course we benefit from that fact. We have seen impacts from tariffs on certain products and also some from in our exports. And tariffs as you all know can be further down the supply chain It's not simply where we're who our supplier is but who our supplier's supplier is. And so it ends up being a little bit complicated. We do continue to monitor the rapidly changing tariff landscape and are making appropriate adjustments Thanks, Gil.
30m 44s
Next question. The backlog you report each quarter, is it more of a sign of next quarter demand or full year demand?
30m 54s
The backlog and forward load that we report each quarter includes all confirmed orders for product regardless of when it is expected to ship. Some orders are placed with a short lead time to ship date, and some are placed well in advance by the customer for shipment months into the future. Depending on the project needs. So it can be it can be demand for the next quarter or later.
31m 19s
Thank you.
31m 21s
Next question. Do you expect to see sequential revenue growth over the next few quarters?
31m 29s
Well, provide revenue guidance. However, as we have disclosed previously, we do generally see some seasonality in our sales with sales typically heavier in the second half of fiscal year. For example, in fiscal year twenty twenty four, approximately 46% of our sales occurred during the first half of the fiscal year and approximately 54% of our sales occurred during the second half of the fiscal year, primarily due to the seasonality impact.
31m 55s
Other factors can make a difference to that seasonality impact though.
32m 1s
Thank you. And now the final question. What gross margin would the company be able to achieve at full capacity?
32m 11s
So not surprisingly, we can't provide specific gross profit margin that we will experience at specific sales levels or or if you're looking at a production volume. Capacity measure. Because the answer is very dependent on product mix And that makes up that additional production volume. However, I would point to the gross margins OCC achieved in the past at higher volumes [indiscernible] Q4 twenty twenty four and Q1 and Q2 twenty twenty three before the industry slowdown that impacted OCC's top line revenues during a the approximate five quarters during the industry slowdown. Also based on what we've seen, we experienced less of a slowdown than a of our competitors did And so I think that goes to the diversification of our product offering. Also Tracy had previously mentioned in my letter to shareholders is included in our annual report we talk a lot about the operating leverage and give some graphs and data that I think would be useful for Mark to look at and get a sense of where we see differences as we as we grow.
33m 36s
Well, you, Neil. That was the last question.
33m 40s
Okay. I appreciate everyone who submitted questions. And those that asked questions. And I want to thank everyone for listening to our second quarter fiscal year twenty twenty five conference call. As always, we appreciate your time and your investment in Optical Cable Corporation. Thank you.
34m 2s
Thank you.
34m 4s
This does conclude today's presentation. You for your participation. You may disconnect at any time.
34m 12s
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Key Insights
OCC reported strong year-over-year and sequential net sales growth for Q2 FY2025, with net sales increasing 8.9% to $17.5 million compared to $16.1 million in Q2 FY2024, and 11.5% sequentially from Q1 FY2025.
Gross profit rose 32.1% to $5.3 million in Q2 FY2025, with gross profit margin improving to 30.4% from 25.1% in the prior year period, driven by higher production volumes and improved manufacturing efficiencies.
The company’s sales order backlog and forward load increased to $7.2 million at the end of Q2 FY2025, up from $6.6 million at the end of Q1 and $5.7 million at the end of Q4 FY2024, indicating positive demand trends.
OCC recorded a net loss of $698,000 ($0.09 per share) for Q2 FY2025, a significant improvement from a net loss of $1.6 million ($0.21 per share) in Q2 FY2024; net loss for the first half of FY2025 was $1.8 million versus $3.0 million in the prior year period.
Management remains optimistic for the second half of FY2025, citing seasonality (historically higher sales in H2), ongoing growth strategies, and opportunities for further gross margin expansion, but does not provide specific forward-looking financial guidance.
