Q1 2020 Earnings Call

Good morning, My name is see a they will be the conference operator today at this time I would like to welcome everyone to the optical cable quarter. One Twentytwenty earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time.

Simply put us try and the number one on your telephone keypad, if he would like to withdraw the question press. The pound key. Thank you at this time I would like to turn the conference or would it Aaron Payless. Please go ahead Sir.

Great. Good morning. Thank you all for participating on optical cable Corporation first quarter fiscal year 2020 conference call.

Hi, This time, everyone should have a copy of the earnings press release issued earlier today you can also visit www dot ULCC Fibria dotcom for coffee.

On the call. It goes today, our Neil Wilkin, President and Chief Executive Officer boasts you see.

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 involve risks and uncertainties.

Actual future results of optical cable corporation may differ materially tutoring number of factors and risks, including but not limited to those factors referenced in the forward looking statements section of this mornings press release.

These cautionary statements apply to the current tends to be intranet, where cash on www Dot O C. C fiber job time as well as today's call.

With that I'll turn the call Liberty Neil Wilkin, Neil please begin.

Thank you Aaron 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 January 31, 2020, and some additional detail.

After Tracy's remarks, we'll answer as many of your questions as we can.

Hi, This is our normal practice, we will only take questions from analysts and institutional investors carried into Q1 nice Sasha.

However, we also offer other shareholders.

Opportunity you submit questions in advance of our earnings call.

Instructions regarding such submissions are included in our press release announcing the dates in time of our call today.

Let me start by acknowledging the biggest issue in the news today, the global Corona virus pandemic.

Well, our manufacturing facilities continue to operate as normal.

The health and safety ever employees as of the utmost importance.

We are encouraging our employees to take additional precautions.

As recommended by local and federal health officials.

We have taken appropriate steps to encourage social distancing.

Letting travel and letting face to face meetings to protect our employees our business partners and our local communities.

And we will continue to take additional actions as necessary or appropriate.

Like others around the world, we're closely monitoring the impact of the pandemic and we'll continue to take actions as appropriate.

That said, we are focused on what we can control.

This includes continuing to innovate and provide comprehensive solutions that meet the evolving needs of our broad and diverse customer base.

With that let me turn to our results for the quarter.

Despite the volatility of our markets all that's all for the first quarter or flexibility in certain of our core markets.

Building on our work from the end of last fiscal year, we made progress on cost reduction initiatives, you have achieved increase production throughput and efficiency improvements at alone or production facility.

Well, our fixed costs and operating leverage offset these efforts during the quarter, we expect to realize the benefits of these initiatives that sales increase.

Looking ahead, we are seeing increases in sales activity on certain of our markets. So far.

When compared to the first quarter.

And we're continuing to execute on our strategy is to aggressively drives sales increase operational efficiency.

We remain committed to enhancing operational excellence to deliver enhanced value to our shareholders.

And with that I'll turn the call over Tracy Smith, who or view and some additional detail.

Our first quarter.

Fiscal year 2020 financial results.

Thank you now.

Consolidated net sales for the first quarter fiscal 2020 were $12.9 million compared to net sales of $16.8 million for the first quarter fiscal 2019.

Year over year decrease in net sales was primarily due to a number of large orders from one customer in the wireless carrier market in the first quarter fiscal year 2019 that did not occur at the same levels in the first quarter fiscal year 2020.

Net sales for this customer decreased $2.3 million in the first quarter fiscal 2020 as compared to the first quarter fiscal 2019.

Darkling that failed to this customer had been volatile from quarter to quarter and from year to year.

Turning to gross profit.

Gross profit was $2.4 million in the first quarter fiscal 2020 compared to $3.6 million in the first quarter fiscal 2019.

Gross profit margin, our gross profit as a percentage of net sales was 18.7% in the first quarter fiscal 2020 compared to 21.3% in the first quarter fiscal 2019.

The lower gross profit margin in the first quarter fiscal year 2020 was substantially impacted by fixed production costs being spread over lower cattle sales can compare to the first quarter fiscal 2019, offsetting cost reductions and significant production throughput and efficiency improvements achieved principally in the company's ran at production to sell.

Right.

[noise] SGN <unk> expenses decreased 28.8% to $4.8 million during the first quarter fiscal 2020 compared to $6.8 million for the same period last year.

Decrease in asking expenses was primarily the result of decreases in employee related costs felt was also positively impacted by other cost reduction initiative.

Okay. Thank you recorded a net loss of $2.6 million or 35 cents per day basic and diluted share for the first quarter fiscal 2020 compared to a net loss of $3.3 million are 44 cents per basic and diluted share for the first quarter fiscal 2019.

During the first quarter of fiscal year 2020, FCC achieved net cash provided by operating activities a $544000 five or do you think account payable in accrued expenses, including accrued compensation and payroll taxes by $1.5 million ending the first quarter with the current ratio.

2.1 to one.

Subsequent to our fiscal quarter end, we entered into a land modification agreement with our lender to modify our credit agreement.

Purposes. The agreement what's were made the current ratio financial covenants for the fiscal quarters ended January 31st 2020, and ending April Thirtyth 2020, and to remove the total liabilities to tangible net worth ratios kind of fiscal quarters ended June January 31st 2020, and ending April Thirtyth 2020.

[noise] LTC reaffirmed it would reduce the aggregate outstanding balance under the credit agreement by $200000 on or before April 15th 2025, reducing the outstanding principal balances on the real estate timeline.

I don't see see also affirmed that it would continue to engage in good faith negotiate a letter of intent or similar expressions of interest to refinance the revolver by March 31st 2020, and enter into a financing commitment letter similar equity commitment or combination thereof relating to the financing by may 1st 2020, but of closing.

My arent on or before June Thirtyth 2020.

As of January 31st 2020, we had outstanding borrowings at $5.7 million on our revolving credit now.

We have not made any additional borrowings on our revolver since our third quarter fiscal year 2019 ended July 31st 2019, and we had $850000 and available credit on our revolving credit note as of January 31st 2020.

We also had outstanding loan balances a $5.6 million under our real estate term line.

With that I'll turn the call back over to me.

Thank you Tracy.

And now if you have any questions we are happy to answer them.

Yeah. If you could please indicate the instructions for participants to calling any questions. Let me have I'd appreciate it again, where you're only taking live questions from analysts and institutional investors.

At this time I would like to remind everyone that if he would like to ask a question superstar one on your telephone keypad again, that's far one for any questions over the phone line, we'll pause for just a moment.

And again that star one for any questions over the phone.

And there are no responses at this time I'd like to turn it over to Mr. pay lish.

Actually it.

So they are we.

Sure go ahead.

So I don't think yarn youre going to ask if you.

I'm going to check to see for your questions on <unk>.

You can read any questions, we have probably been writing.

We'll go ahead respond to those.

Yes, we do have a few questions submitted in advance of the called by acknowledge institutional.

Shareholders.

The first one is how did you reduce as China expenses by 28, 20%.

Sales commissions reduction in headcount.

Reduction of Executive Officer and board compensation.

[noise] so.

One of our focus has been for the past several quarters operating efficiently and reducing costs, it's been a high priority for us he see.

And we've continued to build on those efforts.

Well significant portion of the S.G.N. a decrease was primarily the result of employee related costs.

It also reflects our other cost reduction initiatives.

Great.

Heavy issues with Roanoke production been resolved.

We believe that they have been resolved.

We've been focusing on this for quite some time and we continue to keep our eye on it.

They continue to make substantial.

Progress as we've noted in the past.

And Uh Huh believes that as we see sales increases will completely and fully realize those efficiencies and throughput improvements that we've made.

Okay.

The press release referred to seen increases in selectivity certain of our markets.

We do library to series Fiveg impact do you expect as Fiveg impact in future.

Well this is our shareholders know we participate in many many different markets a we did see.

Increased an order increase in order volume in early February.

And that has been and keeping us busy.

We're not comedy and all those specific markets. So we've seen the strength at this time.

We do believe five GE and of course. The you know continued build out of Fourg is gonna be a driver for our industry.

And we do continue to take steps are there to see see that we believe will best position us to be able to participate in that growth.

That will incur a that will occur and <unk>.

In the market.

Okay well.

What was your backlog forward mug.

So we typically don't disclose our backlog and fourth load.

We as I said, we did see an increase in sales activity in February and where the orders were placed and that's where large extent what we believe we were saying was projects that were in the works even during the first quarter, but hadn't and converted into orders until.

The first part of February and and and that's the reason why we've been saying that.

We've seen this increase activity compared to the first quarter.

Okay. What is your current availability on the revolver.

Well talk about this tracing sure as I mentioned in my earlier comments the current availability on the revolver isn't $150000.

Got it and why Oh, Yeah, correct virus turmoil is it reasonable to expect a letter of intent in two weeks.

We have then working and continue to work expeditiously with a goal of completing though a letter of intent on Mark starting first 2020.

Do you have contingency plans if you cannot meet the June Thirtyth Giovanni critical.

We always we are always working on contingency planning and that is something that we typically do that said we're focused on completing the agreement by June 30, or.

My you receive emergency Corona virus related funding.

I'll.

I got one airline I'd say at this point I think it's too early for us to know that that will be the case and I can't really speculate of course.

We're moderating what's going on in Congress as follows.

Other actions taken by the federal government and many actions that will be taken by the states in which we offer I.

To ensure we best position does he see during all.

During the crisis.

Can you review Corona Volaris intact.

Sales and supply chain are you anticipating.

The wage project needs to come calling in China, there can't be source.

Oh, so far we've been very fortunate.

We've not seen any impact on sales to date.

And the impact on our supply chain has been very very minimal.

Like all those were continuing to monitor the situation closely and for US you know what we can control.

And I'm hopeful, but given the nature of our business will have a less there'll be less impact on our sales and there might be on some other industries.

Because also assays as a reminder, all of our manufacturers are three manufacturing facilities are based in the U.S.

And ER, and obviously, we stand ready to supply or customers and the fact that they have trouble with any of that or other suppliers.

Yes, Matt that's a good segue do you see an increasing interest by your customers and sourcing locally.

Through cc, rather than importing products.

Yeah, but when you haven't seen anything specific that would indicate that that's.

Happening at the moment, but it's like I said we.

Well there manufacturing facilities all located in the United States when.

You know, we have oh plants and near Dallas in Plano, Texas plant near Asheville, North Carolina.

Of course, our plant here in Roanoke, and so that gives us an ability to.

Supply in ways that others may not be able to win and and were available to do that should the need for us.

Okay.

Last question would you consider selling the company is on certain times.

[laughter].

Yeah.

Of course, we've always been open minded to whatever is the best course of action that would.

Maximize shareholder value that's always the case will continue to be the case.

But that said, we're never going to comment on any sort of M&A activity, whether exists or don't doesn't exist and we've got our strategic plans in place we're focused on growing the business and we believe suppose strategic plans will enable us to create shareholder value.

Yeah that was my final question.

Okay.

Well, if there's no other questions I'd like to thank everyone for listening to our first quarter fiscal year 2020 conference call today as always we appreciate your time and your interest optical cable corporation. Thank you.

Ladies and gentlemen, thank you for participating in today's conference call you may now disconnect.

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