Q3 2021 Optical Cable Corp Earnings Call

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Good morning, My name is Peggy and I will be your conference operator today at this time I would like to welcome you to the optical cable Corporation third quarter 2021 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, you may registered to ask a question at any time by pressing the star and one on your Touchtone phone. Please note. This call may be recorded and I'll be standing by should you need any assistance. It is now my pleasure to turn today's program over to Aaron Payless. Mr. Taylor you May begin your conference.

Perfect. Thank you.

Good morning, and thank you all for participating on optical cable Corporation's third quarter fiscal year 2021 conference call.

At this time, everyone should have a copy of the earnings press release issued earlier today you can also visit www dot OCC fiber dot 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.

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 Dot OCC fiber dotcom as well as today's call with that I'll turn the call over to 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 third quarter results for the three month and nine month periods ended July 31, 2021, and 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 take questions from analysts and institutional investors during the Q&A session.

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 today.

During the third quarter, we delivered solid results by executing our targeted growth strategies and maintaining a deep focus on operating as efficiently as possible.

We are optimistic and continue to see positive indicators of future strengthening in many of our markets with increasing sales and production volumes during our fiscal second and third quarters compared to last year.

Net sales increased 14, 6% during the third quarter.

Gross profit increased 17, 8% in both cases compared to the same period last year.

Our net sales continue to benefit from the lifting of some restrictions and reopening of certain markets that had been negatively impacted by the COVID-19 pandemic with stronger gains in our U S markets than in other markets.

We are also seeing significant increases in our sales order backlog and forward load as we enter the fourth quarter.

At the same time, the OCC team is working to proactively manage certain challenges, including obtaining desired volumes of some raw materials, expanding certain areas of our workforce and eliminating certain cost increases.

OCC third quarter results reflect the hard work of our team and the steps we continue to take to protect the business build on our strong place in the market.

And positioning the company to succeed as the effects of the pandemic subsides.

Additionally, we have successfully taken steps to control costs and improve efficiencies efforts, which are ongoing.

Year to date through the third quarter of fiscal year 2021, we've decreased SG&A expenses $6.0 million.

Or 10, 1% compared to the same period last year.

With OCC differentiate differentiated core strengths and capabilities as well as our enviable market positions. We remain confident that we will capture opportunities ahead and deliver value to our shareholders as market conditions continue to improve.

We believe that OCC is well positioned in our markets.

As we provide our customers with mission critical cabling and connectivity.

Products and solutions.

And as we execute on our strategies to deliver enhanced value for shareholders.

Yeah.

And with that I'll turn the call over to Tracy Smith, who will review and additional detail our third quarter of fiscal year 2021 financial results.

Thank you Neil.

Consolidated net sales for the third quarter of fiscal 2021 increased 14, 6% to $21.0 million compared to net sales of $19.0 million for the third quarter of fiscal 2020.

Net sales increased in both our enterprise and specialty markets, including the wireless carrier market and third quarter of fiscal year 2021, compared to the same period last year.

We believe net sales during the third quarter of fiscal year 2021 were positively impacted compared to the same period last year. The continued lifting some restrictions and reopening of certain markets that had been negatively impacted by the COVID-19 pandemic.

Net sales to customers in the United States increased 16, 6% and net sales to customers outside of the United States increased six 3% in the third quarter of fiscal year 2021 competitive same period last year.

Consolidated net sales for the first nine months of fiscal 2021 or $46.0 million, an increase of four 5% compared to net sales of $45.0 million for the same period last year.

Turning to gross profit gross profit was $5.0 million in the third quarter of fiscal 2021, an increase of 17, 8% compared to $8.0 million in the third quarter of fiscal 2020.

Gross profit margin or gross profit as a percentage of net sales increased to 26, 2% in the third quarter of fiscal 2021 compared to 25, 5% in the third quarter of fiscal 2020.

Gross profit was $13.0 million in the first nine months of fiscal 2021, an increase of 13, 6% compared to $18.0 million in the first nine months of fiscal 2020.

Gross profit margin increased to 25, 9% in the first nine months of fiscal 2021 compared to 23, 9% in the first nine months of fiscal 2020.

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

This operating leverage which is beneficial at higher sales level positively impacted our gross profit margin for the three and nine month periods of fiscal year 2021.

Additionally actions that we took in fiscal year 2020 in 2019 contributed to the increase in gross profit margin in the first nine months of fiscal year 2021, resulting in an improved gross profit margin when compared to the first nine months of fiscal year 2020.

Our gross profit margin percentages are also heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix from quarter to quarter.

Yes.

SG&A expenses decreased slightly to $9.0 million during the third quarter of fiscal 2021, even as sales increased compared to $10.0 million for the same period last year.

SG&A expenses as a percentage of net sales were 29% in the third quarter of fiscal 2021 compared to 33, 4% in the third quarter of fiscal 2020.

SG&A expenses decreased 10, 1% to $17.0 million during the first nine months of fiscal 2021 compared to $23.0 million in same period last year.

SG&A expenses as a percentage of net sales were 31% in the first nine months of fiscal 2021 compared to 36, 1% in the first nine months of fiscal 2020.

Okay.

The reduction in SG&A expenses during the third quarter and first nine months of fiscal 2021 compared to the same periods last year was primarily the result of net decreases in employee and contracted sales personnel related costs.

Bad debt expense legal and professional fees and certain other costs impacted by the COVID-19 pandemic.

The reduction in employee and contracted sales personnel related costs and other costs also were positively impacted by FCC ongoing cost control initiatives.

OCC recorded net income of $9.0 million or <unk> 71 per basic and diluted share for the third quarter of fiscal 2021 compared to a net loss of $5.0 million or <unk> 20 per basic and diluted share for the third quarter of fiscal 2020.

OCC recorded net income of $12.0 million or 88 cents per basic and diluted share for the first nine months of fiscal 2021 compared to a net loss of $12.0 million or <unk> 78 per basic and diluted share for the first nine months of fiscal 2020.

On July one 2021, the small business administration for Dave the entire balance of our Paycheck protection program loan, including accrued interest that we received on April 15, 2020, as a result, we recognized a gain on the extinguishment of debt of approximately $5 million in the third quarter and first nine months.

Our fiscal year 2021.

Also during the first nine months of fiscal year 2021, we recognized the refundable payroll tax credit totaling $7.0 million 965000 of which was recognized during the third quarter of fiscal 2021.

A refundable payroll tax credit as part of the employee retention tax credit our ER T. SEC created by the Cares Act and then subsequently amended by the consolidated approach Appropriations Act of 2021, and the American rescue plan at 2021 for qualified businesses that are keeping employees on their payroll during the case.

Of the 19 pandemic.

We do not expect to receive any additional credits for the remainder of the calendar year.

As of July 31, 2021, we had $9.0 million and recognized E RTC still to be refunded.

As of July 31, 2021, we had outstanding borrowings of $11.0 million on our revolver and $4.0 million in available credit.

Also had outstanding loan balances of $13.0 million under our real estate term loan.

And with that I'll turn the call back over to you. Thank.

Thank you Tracy.

And now if any institutional investors or analysts have questions. We are happy to answer them. Britney. If you could please indicate the instructions for participants to call in any questions. They may have I would appreciate it again, we are only taking live questions from analysts and institutional investors.

Certainly at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.

You may now move yourself from the queue at any time.

Question. The patchy once again that is star Antoine if you would like to ask a question I will pause for just a moment to allow questions to queue.

And once again that is star one if you would like to ask a question I'll pause for just an additional moment.

And it appears we have no questions at this time I will turn the call back over to Neil Wilkin, and Tracy Smith for any additional or closing remarks.

Thank you Brittany.

And are there any questions that were submitted by individual investors in advance of the call today.

Neil I did not have any questions submitted in advance of the call.

Okay.

Thank you.

I would like to thank everyone for attending our third quarter conference call today as always we appreciate your time and your interest in optical cable Corporation.

In closing this past Saturday Mark the 20th anniversary of the 900 level 911 attacks on our country.

We will remember and thank all of those brave men and women, who defend it to defend our freedom.

And Liberty.

And the first responders, who serve our nation and our communities.

Thank you all.

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

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