Q1 2025 Optical Cable Corp Earnings Call
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Good morning, My name is not a center and I will be your conference operator today.
At this time I would like to welcome you to optical cable Corporation's first quarter of fiscal year 2025 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. If you would like to ask a question at that time. Please press star one on your telephone keypad, if you wish you well.
Speaker Change: Keep yourself from the queue. Please press star to you. Mr. Hoffman you may begin your conference.
Thank you good morning.
Speaker Change: Joining us for optical cable Corporation's first quarter fiscal year 2025 conference call.
Speaker Change: By this time everyone's got a copy of the earnings press release issued earlier today you can also visit www dot fiber dot com for a copy.
Speaker Change: On the call with US today are Neil Wilkin, President and Chief Executive Officer.
Tracy Smith: And Tracy Smith, Senior Vice President Chief Financial Officer.
Speaker Change: Before we begin I'd like to remind everyone that this call may contain forward looking statements and involve risks and uncertainties.
Speaker Change: 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.
Speaker Change: The forward looking statements section of this morning's press release.
Speaker Change: These cautionary statements apply to the content Internet webcast on Www <unk>.
Speaker Change: Dot com as well as today's call.
Neil Wilkin: Ill turn the call over to Neil Wilkin.
Speaker Change: Sure.
Speaker Change: Thank you Spencer and good morning, everyone.
Speaker Change: I'll begin the call today with a few opening remarks.
Steve will then review the first quarter of results for the three month period ended January 31, 2025, and some additional detail.
Speaker Change: After Tracy's remarks, we will answer as many of your questions as we can.
Speaker Change: As is our normal practice, we will only be taking 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.
Speaker Change: During the first quarter of 2025, we achieved growth across key metrics, including net sales and gross profit with sales, increasing 6% and our significant operating leverage resulting in gross profit increasing 24, 6%.
Speaker Change: Both cases, when compared to the first quarter of last year.
Speaker Change: You will recall that we mentioned on our fourth quarter call that OCC is beginning to see market improvement as the weakness experienced across our industry generally.
Speaker Change: Since fits.
Speaker Change: Could you pick which began in fiscal 2023.
Speaker Change: And has begun to subside.
Speaker Change: I am pleased to report that we believe this trend is continuing.
Speaker Change: OCC has seen improvements in both our enterprise and specialty markets, including the military sector.
Speaker Change: We are confident our focus on executing our growth strategies as well as operating efficiency efficiently will drive results. This year, including gross profit margin expansion with increased volume.
Speaker Change: As we disproportionately benefit from OCC significant operating leverage.
Speaker Change: Well the first quarter of 2025 was impacted by what we believe to be our typical seasonality factors, particularly during November December.
Speaker Change: Our sales backlog and forward load is growing.
Speaker Change: At the end of the first quarter, our sales order backlog and forward load had increased approximately 16% to $6 $6 million when compared to October 31 2024.
Speaker Change: We also saw improvement in net cash provided by operating activities during the first quarter of fiscal 2025.
Speaker Change: I'm proud of the OCC team, whose hard work allowed us to deliver a strong start to fiscal year 2025 in a dynamic market environment, we look forward to capitalizing on growth opportunities and driving long term value for our customers and shareholders.
Speaker Change: Before I turn the call over to Tracy I want to take a moment to mention a topic currently being.
Currently garnering significant attention.
Speaker Change: As are many we are closely monitoring proposed enacted tariffs by the U S as well as others to determine any impact on our purchases of certain raw materials.
Speaker Change: And on the sales of our products, we export into approximately 50 countries each year Oc.
Speaker Change: Occ's three manufacturing facilities are based in the U S and we currently don't anticipate a significant impact on SBC as a result of the tariffs. However, it is still too early to be certain given the fluid nature of the environment and we will continue to evaluate potential impacts on OCC and our customers.
Speaker Change: That I will turn the call over to Tracy, who will review and then I'll detail, our first quarter of fiscal year 2025.
Tracy Smith: Actual results.
Tracy Smith: Thank you Neil.
Tracy Smith: Consolidated net sales for the first quarter of fiscal 2025 increased 6% to $15 $7 million compared to net sales of $14 $9 million for the same period last year.
Tracy Smith: During the first quarter of fiscal 2025, we experienced increases in net sales in both our enterprise and specialty markets compared to the same period last year as we continue to see general market improvements in our industry and strength in our military markets.
Tracy Smith: Net sales to customers outside of the United States increased 21, 3% and net sales to customers in the United States increased two 3% in the first quarter of fiscal year 2025, compared to the same period last year.
Tracy Smith: As Neil referenced at the end of our first fiscal quarter of 2025, our sales order backlogs before lives had increased to $6 $6 million when compared to $5 $7 million as of October 31 2024.
Tracy Smith: Turning to gross profit our gross profit increased 24, 6% or $913000 to $4.6 million in the first quarter of fiscal 2025 compared to $3 $7 million for the same period last year.
Tracy Smith: Gross profit margin or gross profit as a percentage of net sales was 29, 4% in the first quarter of fiscal 2025 compared to 25% in the first quarter of fiscal 2024.
Tracy Smith: Gross profit margin for the first quarter of fiscal 2025 was positively impacted by production efficiencies created by higher volumes and the resulting positive impact of our operating leverage.
Tracy Smith: 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.
Tracy Smith: SG&A expenses increased to $5 $5 million in the first quarter of fiscal year 2025, compared to $5 $1 million for the same period last year.
Tracy Smith: Primarily as a result of increases in employee and contracted sales personnel related cost.
Tracy Smith: SG&A expenses as a percentage of net sales were 34, 7% in the first quarter of fiscal 2025 compared to 34, 3% in the first quarter of fiscal 'twenty 'twenty four.
Tracy Smith: OCC recorded a net loss of $1 $1 million or 14 cents per basic and diluted share for the first quarter of fiscal 2025 compared to a net loss of $1 $4 million or 18 cents per basic and diluted share for the first quarter of fiscal 2024.
Speaker Change: With that I'll turn the call back over to email.
Tracy Smith: Tracy.
Speaker Change: 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 again, we are only taking live questions from analysts and institutional investors.
Tracy Smith: Thank you.
Speaker Change: And at this time, if you would like to ask a question. Please press the star and have line of your telephone keypad, you may remove yourself from the queue at any time by pressing star to you why.
Speaker Change: Once again that is star one to ask a question and we will pause for a moment to allow questions to queue.
Speaker Change: And we will take our first question from MS off Nathan with Eaton Discovery. Please go ahead.
Speaker Change: Thank you for taking me you for taking my call.
Speaker Change: So basically you.
Speaker Change: Answered about the tariffs that they have no material impact right now in the situation is fluid, but I was wondering if tariffs may have a positive effect on yours.
Speaker Change: <unk> infection.
Speaker Change: Based in the U S I can't really like a maybe a pricing advantage cost advantage.
Speaker Change: Yes. Thank you for the question.
Speaker Change: Actually as you said and as we mentioned we are likely to see some impact from tariffs from the U S and others.
Speaker Change: And it is true that we don't believe this is going to be significant at the moment, we could have some positive impacts as well as negative impacts and we're going to continue to monitor that situation and the changing environment.
Speaker Change: To adjust as we need to.
Speaker Change: As you would suspect with a lot of U S manufacturers supply chains are very very very long.
Speaker Change: And that impacts items on the raw material side, but at this point, we don't believe it's going to be terribly significant.
Speaker Change: Yeah.
Speaker Change: If I can continue on this last question so.
Speaker Change: Yogurt manufacturing and basically based in the U S and there is another government initiative called Bye Bye bye.
Speaker Change: America. So wondering if this can create an advantage for the company.
Speaker Change: Comparing to a Chinese manufacturer and other competition from abroad.
Speaker Change: Yes that that is I mean, primarily R. R.
Speaker Change: <unk> are based in the U S, but not all of our manufacturing necessarily based in the U S. But yes. There is an advantage for us to being able to say were made in the United States with respect the bava, specifically I don't know, whether that's going to increase our sales would we've not we're not counting on that.
Speaker Change: Taking the actions, we believe necessary to increase the size of our markets with our customers based on services and the products, we provide but yes that is an area that we hope to benefit from at least a little bit.
Speaker Change: And maybe maybe more significantly, but certainly it's certainly a little bit.
Speaker Change: I have any more questions.
Speaker Change: Good for you to tell me when to stop I can take the cargos.
Speaker Change: Yeah, well, we will we will limit it to three questions. If you don't mind.
Speaker Change: So do we have other Peter can answer and also just based on the timing.
Speaker Change: Okay. So given all that's happened since you released your annual report.
Speaker Change: Trump going to power in many many changes in the economy in this setting.
Speaker Change: The situation has been fluid would you.
Speaker Change: Do would you characterize that.
For the company going forward would you say the outlook is.
Speaker Change: Do you see.
Speaker Change: In Peru.
Speaker Change: Orphans or did not change.
Speaker Change: In light of what is happening.
Speaker Change: With books.
Speaker Change: Well, we haven't changed our outlook since what we've stated in the annual report.
Speaker Change: And we do still see seasonality and so that impacts us usually in the first half of the year, but we're still optimistic the entire industry generally wasn't a downturn.
Speaker Change: Since the middle of 2020 fiscal for us middle of fiscal year 2023 for others, a little bit earlier than that and that continued into through for us the fiscal third quarter of 2024.
Speaker Change: And so we saw some benefit of that using it in our fourth quarter and we're also continuing to see that although we did experience some seasonality in the first quarter and typically we do that we experienced the similar seasonality in the second quarter as well.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and as a reminder, if you would like to ask a question. Please press the star and one on your telephone keypad now.
Speaker Change: And it appears that we have no further questions. At this time I will now turn the program back to our presenters for any additional or closing remarks.
Tracy Smith: Thank you Madison as we usually do we do take questions in written form better submitted before the call.
Speaker Change: Up until about an hour before the call is Mike.
Speaker Change: As I recall and I think we do have some questions.
Spencer: Spencer if you could walk us through those then we will respond to those individual questions previously submitted.
Speaker Change: Sure. So the first question.
Speaker Change: Can you talk about the operational leverage the sensitivity.
Speaker Change: Tangible revenue scenarios on EPS.
Sense for potential upside.
Speaker Change: Talk about scenarios and what peak.
Speaker Change: Yeah.
Speaker Change: Sure. Thank you Spencer.
Speaker Change: As you as you all know we have described OCC significant operating leverage previously.
Speaker Change: Particularly with respect to manufacturing operations and its positive and negative impact on gross profit and gross profit margin.
Speaker Change: We call your attention to the fact that in my letter to the shareholders included in Occ's 2025 annual report.
Speaker Change: We describe occ's operating leverage with respect to both manufacturing as well as SG&A expenses.
Speaker Change: Included in the letter is some data set forth in two graphs that will help you see the sensitivity of our operating leverage to different actual revenue scenarios.
Speaker Change: The first graph shows gross profit margin percentage compared to quarterly net sales.
Speaker Change: For the last two fiscal years, 2023, and 2024 and the second graph shows SG&A expenses as a percentage.
Speaker Change: Of of net sales.
Speaker Change: Compared to quarterly net sales for the same periods.
Additionally, I would also call your attention to Occ's reported results during the first and second quarters of fiscal 2023 before the period of market weakness experienced by the industry generally.
As well as the results in the fourth quarter of fiscal year 2024. After this industry weakness began to abate.
Speaker Change: It is important to note that product mix during any period can vary significantly and this also impacts gross profit and gross profit margin.
Speaker Change: Both from a margin set on a different product, but also efficiency of operations.
Speaker Change: Based on the product mix.
Neil Wilkin: Thank you Neil next question do you have a five year revenue EPS per share growth.
Neil Wilkin: Yes, as you would expect we do prepare multi year financial projections. However, like many other smaller companies, we do not provide those forecast publicly.
Neil Wilkin: Yeah.
Neil Wilkin: Can you explain if you are better.
We'll benefit from AI data center.
Neil Wilkin: From the demand in AI data centers is that there's a big opportunity for the company.
Neil Wilkin: Thank you for the question. Yes. This is a hot topic, along with tariffs is a hot topic as everyone knows in some of the questions that have been asked.
Neil Wilkin:
Neil Wilkin: In the data center market there are various tiers of business and OCC does have some regular business in the data center market and we believe we have opportunities to benefit and expand that business from the significant data center demand.
Neil Wilkin: Of course, that's also including what's generated by AI.
Neil Wilkin: Hi.
Neil Wilkin: And.
Neil Wilkin: And we will continue to explore those opportunities. So it hasnt been a huge part of our business to date, but it is something that we do have some regular business soon.
Neil Wilkin: Yeah.
Speaker Change: Next question can you explain a little bit what opportunity you see for OCC. So what new products you plan to launch to market.
Speaker Change: For competitive reasons, we tend not to discuss new product launches prior to the official loss, but OCC is reviewing new product opportunities on a regular basis and we do make adjustments based on our customer requirements. Additionally.
Speaker Change: Additionally, OCC is known for.
Speaker Change: Being a company in our industry that customers come to when they have special requests and special needs and Thats part of what we are exceptionally capable of handling it.
Speaker Change: And are well known in our industry for being able to serve those specialized needs.
Speaker Change: The outlook and demand changed at all since your Q4 report.
Speaker Change: No as we touched on that a little bit earlier.
Haven't changed our outlook.
Speaker Change: We have been impacted by seasonality in the first quarter.
Speaker Change: And we are continuing to monitor the many factors that are changing business, whether positively or negatively but currently our outlook for 2025 remains positive.
Speaker Change: Thanks, Neil and this is the final question have you.
Speaker Change: Lately seen any fundamental changes in the industry versus the last 20 years.
Speaker Change: It could allow you to pass through 85 million highest historical revenue Mark.
Speaker Change: Gross prospects.
Speaker Change: Well generally I believe that our prospects are strong the need for more and more communication bandwidth is continuing and that that.
Speaker Change: That demand is increasing and we believe fiber optics and FCC are positively impacted by that trend and expect to be for years to come we think we're properly positioned in the core.
Speaker Change: Communications market.
Speaker Change: Thanks, Neil if that was the last question.
Spencer: Okay. Thank you Spencer.
Spencer:
Spencer: In closing I would like to thank everyone for listening to our first quarter of fiscal year 2025 conference call today as always we appreciate your time your interest and your investment in optical cable Corporation. Thank you.
Spencer: Thank you.
Spencer: This does conclude today's presentation. Thank you for your participation you may disconnect at any time.
Spencer: Yeah.
Okay.
Spencer: [music].