Q2 2022 Optical Cable Corp Earnings Call

June 13, 2022

Good morning, My name is Gretchen and I will be your conference operator today.

At this time I would like to welcome you to the optical cable Corporation second quarter 2022 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 by pressing star one on your Touchtone phone. Please note. This call may be recorded it is now my pleasure to turn today's program over to Mr. Payless. Please you may begin your conference.

Thank you Gretchen.

Good morning, and thank you all for participating on optical cable Corporation's second quarter fiscal year 2022 conference call.

This time, everyone should have a copy of the earnings press release issued earlier today. You can also visit www Dot O C C fibers dot com for a copy.

A 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 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 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 today's call with a few opening remarks Tracy will then review the second quarter results for the three month and six month periods.

Ended April 32022, and some additional detail.

I have to 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 <unk>.

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

Okay.

Yeah.

Our second quarter results reflect the team's continued execution in a dynamic market that is experiencing pressures from inflation labor shortages and supply chain constraints, which tempered production volumes and impacted net sales.

Yet as a result of the OTC teams execution.

We were able to deliver a solid top line performance this quarter with net sales in the second quarter, increasing over 19% sequentially from the first for this year and it was like 9% year over year compared to the second fiscal quarter of 2021.

We were also able to deliver strong gross profit performance.

I would also add that we are pleased that our sales order backlog and forward load continues to be at high at high levels.

Higher than typical.

This reflects strong demand as we execute our growth strategies and build on our strong competitive position.

We are also going well.

We also continue to focus on controlling expenses.

Supply chain and labor labor market constraints that affected our results are starting to show signs of easing.

OCC remains well positioned to capture the growing opportunities in the cabling and connectivity industry.

How do you see we have a differentiated core differentiated core strengths and capabilities that not only enable us to offer a top tier solutions products application and technical expertise.

But also to successfully compete against much larger competitors.

Moreover.

Our enviable market position brand recognition and loyalty of your customers and end users.

Helps us to service a broad diverse geographic footprint with ACC selling into approximately 50 countries each year.

We appreciate the opportunity to meet the evolving and unique needs of our customers installers specifier and end users.

As we look ahead to the second half of fiscal 2022, our team is focused on continuing to drive growth in our targeted markets, providing customers with our full suite of mission critical cabling and connectivity products and solutions.

We are also continuing our efforts to operate efficiently and effectively.

Increased production volumes and meet strong product demand.

Moving forward, we remain committed to leveraging our core strengths and capabilities and executing our strategies and initiatives to create long term value for shareholders.

And with that I'll turn the call over to Tracy, who will review and additional detail our second quarter of fiscal year 'twenty two.

2022 financial results. Thank you Neil.

Consolidated net sales for the second quarter of fiscal 2022 increased nine 3% to $17 $2 million compared to net sales of $15 $7 million for the same period last year.

Sequentially net sales increased 19, 1% in the second quarter of fiscal year 2022, compared to net sales of $14 $4 million for the first quarter of fiscal year 2022.

Consolidated net sales for the first half of fiscal 2022, or 31 $6 million, an increase of 14, 6% compared to net sales of $27 $6 million for the same period last year.

During the second quarter and first half of fiscal 2022, we experienced an increase in net sales in both the enterprise and specialty markets.

Including the wireless carrier market compared to the same period last year.

As Neil mentioned, our sales order backlog for Atlanta continues to be at higher than typical level and product demand is robust with demand for our products increasing during the second quarter and first half of fiscal year 2022.

Production volumes for temporary during the second quarter and first half of fiscal year 2022 by supply chain and labor constraints impacting net sales.

At this time, we believe labor constraints are beginning to show signs of easing in the third quarter of fiscal year 2022.

Turning to gross profit our gross profit increased four 4% to $5 million in the second quarter of fiscal 2022 compared to gross profit of $4 $8 million in the second quarter of fiscal 2020 one.

Sequentially. The gross profit increased 24, 4% in the second quarter of fiscal year 2022, compared to gross profit of $4 million for the first quarter of fiscal year 2022.

Gross profit margin or gross profit as a percentage of net sales was 29, 3% in the second quarter of fiscal 2022 compared to 36% for the same period last year.

Gross profit was $9 $1 million in the first half of fiscal 2022, an increase of 27, 4% compared to $7 $1 million in the first half of fiscal 2021.

Gross profit margin increased to 28, 7% in the first half of fiscal 2022 compared to 25, 8% in the first half of fiscal 2021.

The year over year decrease in gross profit margin when comparing the second quarter of fiscal 2022 to the second quarter of fiscal 'twenty 'twenty. One was primarily due to rapid inflation, causing increases in costs in the raw material for self order accepted prior to raw material cost increases.

Our gross profit margins tend to be higher when the company achieves higher net sales level, a certain fixed manufacturing costs are spread over higher sales.

Operating leverage which is beneficial at higher sales levels positively impacted our gross profit margins in the first half of fiscal year 2022.

Partially offset by the impact of increasing costs of raw materials.

Yeah.

Okay.

SG&A expenses increased to $5 million during the second quarter of fiscal 2022 compared to $4 $6 million for the same period last year.

G&A expenses as a percentage of net sales were 29, 3% in the second quarter of fiscal 2022 compared to 29, 2% in the second quarter of fiscal 2020 one.

SG&A expenses increased to $9 $8 million during the first half of fiscal 2022 compared to $8 $9 million for the same period last year.

SG&A expenses as a percentage of net sales were 31% in the first half of fiscal 2022 compared to 32, 2% in the first half of fiscal 2021.

The increase in SG&A expenses during the second quarter and first half of fiscal 2022 compared to the same periods last year was primarily the result of net increases in employee and contracted sales personnel related costs.

I can see recorded a net loss of $228000 or three cents per basic and diluted share for the second quarter of fiscal 2022 compared to net income of $3 $4 million or 45 cents per basic and diluted share for the second quarter of fiscal 2021.

I don't think they recorded a net loss of $1 $2 million or 16 cents per basic and diluted share for the first half of fiscal 2022 compared to net income of $1 $2 million or 17 cents per basic and diluted share for the first half of fiscal 2021.

As of April 30 of 2022, we had a $2.2 million receivable for the employee retention tax credits to be able to be refunded, which we received in May 2022.

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

Thank you Tracy.

And now with any analysts or institutional investors have any questions. We're happy to answer them correctly and if you could please indicate the instructions for our participants to call in any questions. They may have I'd. Appreciate it again, we're only taking live questions from analysts and institutional investors.

At this time, if you'd like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the punky. Once again that is star one to ask a question, we'll pause for a moment to allow questions to queue.

And once again that is star and one we will pause for another moment.

And it appears we have no questions at this time I will now turn the program back over to our speakers for any additional or closing remarks.

And I know we've had some questions submitted by some non institutional shareholders do you want to go through those and we'll answer them.

Sure.

So first question.

I appreciate that product mix and inflation play an important role here I was wondering if you could comment on whether the efficiency improvements that you are rolling out increased operational leverage shifted your cost structure.

Yeah.

Thank you yeah.

Yes, we have been very focused on making improvements in efficiency.

And it Hasnt increased our operating leverage.

We've looked at process improvements.

As well as Kal.

How products move through the plant in order to increase that efficiency.

That said our margins are still impacted by product mix, which can vary.

Sometimes significantly from quarter to quarter.

This year.

What's been impacting our gross profit has been the inflation and also.

Labor availability.

Labor availability issues.

The higher volume would go go through the plant the more efficient we are in the better our gross profits are.

As we've said before and I've been talking about.

Alcohol sales order backlog is high.

And when we receive those orders and we've committed to a price we honor that price.

Even though we may have.

Received subsequent raw material increases.

Part of what the Tracy was describing earlier.

Also and as you would imagine when you have a supply chain constraints.

Can also affect.

Now the plant is running efficiently.

So in the second quarter and the gross profit margin that we were able to deliver.

I'm very pleased with that given these other.

Matters that are impacting or putting some downward pressure on gross profit and also as we see volume increase.

Yeah.

The labor issues ease I'd expect over time that prepares our margins would improve.

Okay.

Okay great.

Next question could you comment on potential opportunities you see for the company both directly related to the build out and the derivative effects more expansive broadband networks may have on demand for products.

Yeah.

Yes, I mean generally our market targets tend to be enterprise private markets as well as specialty markets that are private networks.

Have as you all know.

<unk> had a fair amount of success in the fiber to the antenna market.

Outside of that area and we've also have some products and some sales that I've touched on the broadband market.

Constantly evaluating.

Markets and opportunities to use our.

To expand sales, we have and the private network space certainly had success and that have been impacted by the broadband initiatives that are currently going on.

Yeah.

Okay.

Given the labor shortage the company has been dealing with over the past month and the increased demand for skilled labor is sales growth may lead to could you comment on how you were thinking about the hiring of skills skilled versus internal training tradeoffs.

Yes. Thank you.

Okay.

We've been very fortunate as you see to have folks that are well tenured.

And while we have seen an increase in some turnover.

During the last quarter.

Quarters.

It's been less than what we've heard others have been experiencing and we benefit from that.

We do always try to find production employees that maybe have some relevant experience to what their pass will be here.

But if the question is implying that we would hire someone temporarily.

Just to kind of come in from a skilled standpoint, that's harder to do.

We definitely have no matter how experienced someone is in manufacturing.

To go through internal training.

Because all a glut of our setups.

And controls are proprietary.

And so it takes time to make sure that even if someone wasn't experienced cable operator by way of a manufacturer by way of example.

They learn what our processes are in order to.

To make our proprietary or proprietary products.

So always looking at this we've been looking at very creative ideas to help minimize this.

As we've said we are seeing some easing in the labor constraints and hope that hope that continues and.

We think we will see some of that but some benefit if those easings in the first quarter.

Yeah.

Terrific last question to you.

Do you have an update on manufacturing or substitution product development.

Well as our shareholders know OCC has.

History of making adjustments and improvements to products win.

They see when we see an opportunity to better serve our customers' needs.

And have continued to do that we also are fortunate to have a engineering team that is able to come up with some unique concept. So we've been able to patent.

Don't talk about our ongoing product development opportunities specific way and so I'm not going to do that here, but I will say that we continue to have a presence in.

Manufacturing and industrial applications and that's one of the things that we are definitely known for in car.

Customer base appreciates.

Okay.

Great. So that was the last question.

Okay. Thank.

Thank you and I appreciate it.

Well, thank everyone for listening to our second quarter fiscal year 2022 conference call today.

As always we appreciate your time and your interest in optical cable Corporation.

And hope everyone has a good day.

Thank you.

This does conclude today's program. Thank you for your participation you may now disconnect.

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Q2 2022 Optical Cable Corp Earnings Call

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