Q3 2020 Optical Cable Corp Earnings Call

At this time I would like to welcome everyone to the optical cable Corporation third quarter 2020, <unk> earnings Conference call.

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After the speaker's remarks, there will be a question and answer period.

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Thank you Mr. Pedro you May begin your conference.

Great. Good morning. Thank you all for participating optical cable Corporation third quarter fiscal year Twentytwenty Conference call.

At this time, everyone should have a copy of the earnings press release issued earlier today.

It also visit Www Dot most you see fiber dotcom for coffee.

Oh, the coal because today on your walking President and Chief Executive Officer base you see.

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.

Actual future results optical cable corporation may differ materially due to a number of factors and risks, including but not limited to those factors reference in the forward looking statements sections of this morning's pressures.

Cautionary statements apply to the cats, instead, intranet, what kind of some www dot Ulccs Harbor dotcom as well as today's call.

I'd like to turn the call ever done you're walking 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 third quarter results for the three month than nine month periods ended July 31st 2020, and some additional detail.

After currencies remarks.

We will answer as many of your questions. As we can has ours is our normal practice, we will only take questions from analysts and institutional investors do it during the Q1 nice session.

However, we also offer other shareholders the opportunities that make questions and advancing our earnings call instructions regarding such submissions are included in our press release announcing the Dayton Cohen of our call today.

2020 continues to be a challenging year for all of us.

I want to thank the FCC team sports continued diligence.

I'm hearing to the precautions, we haven't plays the keep onecc coated free.

It is through this Dylan Jones, both at work and yet at home.

Is that we will continue to remain safe and healthy.

We've taken a number of steps to ensure the health and safety of our employees and their families and we've been able to mitigate the impact of Coke at 19 or employees, you know day to day operations.

Which we continue to get uninterrupted at all three of our locations.

But at lower production volumes.

As I mentioned in our second quarter conference call Otcs obligated and continues to operate.

During the cold and 19 pandemic because of our workforce is classified as a defense industrial base, a central critical work force infrastructure workforce.

Under the guidelines from the U.S. Department of Defense.

And in a central critical infrastructure work force under the guidelines as the U.S. Department of Homeland Security Cyber security and infrastructure Security Agency.

Uh huh.

This is something that we are deeply humbled by and <unk> and he has the responsibility that we do not take lightly.

Every day.

But especially in light of moral being the 19th the anniversary of September 11th.

We reminded of the importance of our job to ensure the interrupt uninterrupted supply of our mission critical products to our country's military first responders and other central workers, including health care facilities of hospitals.

This quarter.

We have seen both the strength and resiliency of our offering a strong demand from certain customers has helped to partially offset those covert 19 really did reduce sales to customers in other industries.

That said, while we continue to operate we have experienced decreases in revenues or many of our markets in particular, our specialty markets, causing production volumes and operations to continue to be negatively impacted.

Page it because it doesn't seem pandemic.

As a result, our net sales for the third quarter fiscal year 2020.

The increase 21.5% compared to the same period last year.

Sequentially net sales decreased 8.2 person in the third quarter compared to the second quarter fiscal year 2020.

Despite these headwinds we've made important progress and are benefiting from cost reductions efficiency improvements and enhanced production throughput at our Rona production facility.

We also made important progress strengthening our financial position by successfully refinancing our revolving credit facility.

No capital during the third quarter of fiscal year 2020.

The revolver allows as cc until maximum aggregate principal mill of $18 million wood availability based on the working capital borrowing base calculation.

This provides the company with greater financial flexibility for working capital needs.

Oh C.C. has a strong foundation and as we've proven before a resilient business model.

Further as he continues to be uniquely positioned in our industry.

We remain focused on operating as efficiently as possible, while continuing to serve our customers.

We are confident.

There are distinct competitive advantages capabilities.

Initiatives underway.

I will facilitate future profitable growth further strengthen our market position and ultimately enable it's easy to successfully compete against our larger competitors, both now and into the post pandemic economic recovery in our markets.

And with that I'll turn the call over to Tracy Smith, who will review with additional detail our second quarter fiscal year 2020, <unk> financial results.

Thank you Neil.

Consolidated net sales for the third quarter fiscal 2020, more $13.6 million a decrease of 21.5 per cent compared to net sales of $17.4 million for the third quarter fiscal 2019.

Net sales were negatively impacted during the third quarter fiscal year 2020, due primarily to the economic effects of the kind of at 19 pandemic.

Consolidated net sales for the first nine months the fiscal 2020 were $41.4 million a decrease of 22% compared to net sales of $53.1 million for the same period last year.

The decrease in net sales during the first nine months for fiscal 2020 was primarily the result of the number of large orders from one customer in the wireless carrier market from the first nine months of fiscal year 2019 that did not recur at the same levels in the first nine months of fiscal year 2020.

Net sales for this customer decreased $5.6 million in the first nine months of fiscal year 2020.

Historically net sales for this customer had been volatile from quarter to quarter hand from year to year.

We also believe net sales during the first nine months of fiscal year 2020 were negatively impacted by the Kevin 19, pandemic, which ceased are significantly reduced operations of many businesses, including LTC customers and suppliers.

Turning to gross profit gross profit was $3.5 million in the third quarter fiscal 2020 compared to $4.5 million in the third quarter fiscal 2019.

Gross profit margin, our gross profit as a percentage of net sales was 25.5% in the third quarter fiscal 2020 compared to 25.9% in the third quarter of fiscal 2019.

Gross profit was $9.9 million in the first nine months for fiscal 2020 compared to $13.4 million in the first nine months of fiscal 2019.

Gross profit margin, our gross profit as a percentage of net sales were 23.9% in the first nine months of fiscal 2020 compared to 25.2% in the first nine months of fiscal 2019.

Gross profit margins tend to be higher when the company achieved higher net sales levels as certain fixed manufacturing costs are spread over higher sales.

This operating leverage which has been official at higher sales level, what the primary factor putting downward pressure on gross profit margin during the third quarter and first nine months, specifically here 2020.

As fixed cost more spread ever lower sales offsetting cost reductions and significant production throughput and efficiency improvements achieved principally in the company's run <unk> production facility.

[laughter] after <unk> expenses decreased approximately $858000 are 15.8% to $4.6 million during the third quarter fiscal 2020 compared to $5.4 million for the same period last year.

<unk> expenses as a percentage of net sales were 33.4% in the third quarter fiscal 2020 compared to 31.2% <unk> third quarter fiscal 2019.

After <unk> expenses decreased approximately $3 million are 16.9% to $14.9 million during the first nine months nonsensical 2020.

Compared to $18 million for the same period last year.

<unk> expenses as a percentage of net sales were 36.1% in the first nine months of fiscal 2020 compared to 33.9% in the first nine months of fiscal 2019.

The decrease in nesting expenses during the third quarter and first nine months of fiscal 2020 compared to the same period last year was primarily the result of decreases in employee related costs.

Including employee incentives and commissions and net reductions and other s. DNA expenses.

We focused on controlling costs.

These decreases were partially offset by an increase in bad debt expense due to concerns about collectability of certain customer account during this unprecedented pandemic environment.

Oh Cc recorded a net loss of $1.4 million or 20 cents per basic and diluted share for the third quarter fiscal 2020 compared to a net loss of $1.1 million are 15 cents per basic and diluted share for the third quarter fiscal 2019.

Okay recorded a net loss of $5.7 million or 78 cents per basic and diluted share for the first nine months of fiscal 2020 compared to net loss of $5 million or 68 cents per basic and diluted share for the first nine months of fiscal 2019.

On July 20.

2020, Eighthpc terminated its revolving credit note with Pinnacle bank and along with our wholly owned subsidiary in their entered into a loan and security agreement with North No capital.

As part of the refinancing transaction if he see also entered into a revolving credit master promissory note with north nailed that provided up to a maximum aggregate principal amount of $18 million with availability based on a working capital borrowing base calculation.

As of July 31st 2020, we had outstanding borrowings at $4.6 million on our revolving credit noted and $2.2 million and available credit.

Also had outstanding loan balances a $5.2 million under our real estate term loans and $5 million on our PTP one.

And with that I'll turn the call back everything.

Thank you Tracy.

And now if you haven't questions, we're happy to answer them.

Maria if you could please indicate the instructions for participants to calling any questions. They may have I would appreciate it again, we are only taking my questions from analysts and institutional investors.

Thank you again, ladies and gentlemen to ask a question simply press Star then the number one on your telephone keypad again that a star one to ask your question.

I'm showing no questions at this time I'd like to turn the floor back over to Neil Wilkin for any additional closing remarks.

Okay. Thank you Maria.

Aaron.

We of course, but.

Except questions submitted in writing this morning part of the coal.

I think we have we're seeing some questions could you go ahead and.

Readers, often and we will respond to them. Please.

Yeah, we have where she'd be few questions. The first one is do we see see higher a new compensation consulting and 2020.

Okay.

Short answer is no.

The as you all know the independent compensation Committee HM two hires and utilizes a competition consultants to assist them in setting CEO and CFO compensation.

We use the same consulting with the compensation Committee uses.

As it provides data.

That we use in setting compensation levels for the remaining members of the leadership team.

That's a the competition consultant.

Yes.

The compensation consulting will probably using still saying one that the conversation has you comes each committed used in the past thing.

Do periodically consult with others and evaluate that and that's been done with the last couple of years.

But there has not been change.

And as you see as always has.

Focus as long as one compensation structures across the entire company that provides proper incentives.

Based on hitting performance targets.

If you have some more questions about that we described a little bit and our proxy statements.

How we view compensation, how the compensation committee these compensation and that should be helpful reforms.

Next question.

The JV agreed her role with the company yet.

No other than as a wow investor in the company.

David Good is a native of Roanoke.

And of course is the former.

Chairman and president of Norfolk Southern.

Oh, He's always expressed an interest in Roanoke has a region even when he left.

Oh, Roanoke and has expressed an interest synergistic city and we're proud to say that he's shareholder appreciate his investment.

Great do you do you expect to generate significant royalty income over the next several years.

Thanks for your Ferguson sure.

We continue to place importance on our new product development and using patents to protect our innovation.

We don't currently have licenses that are generating significant royalty at this time and significant royalty income at this time.

While we don't expect royalties to be a meaningful revenue stream in the near time at this time I can't say, whether it will become an increase source of revenue over the long time.

We we have been granted patents related to certain cat hate, enabling technology for connectors, which we believe we'll have future value for RCC and our products and possibly could generate license royalty revenue in future.

Okay last question.

Do you have to be timeline on when you will repurchase stock.

Once we build sure as.

It's gonna be noted in our 10-Q, which we expect to file later today.

Until future notice the company has suspended repurchases and has no current plans to repurchase or retire shares.

Given the market current market environment, including that uncertainty created back has a 19 really can't speculate about continuing our repurchase program right now.

Yes, it on the.

Submitted questions.

Okay, well, thank you Aaron.

Oh.

I would like to thank everyone for listening to our third quarter conference call today as always we appreciate your time.

And your interest in optical cable Corporation.

Oh view in your families continue to be safe and we thank you for your time today.

Thank you ladies and gentlemen, this does conclude today's conference call. You may now disconnect have a wonderful day.

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