OCC earnings call analysis

NASDAQ:OCC Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Automated System | Waiting Room Announcement: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero, and a member of our team will be happy to help you.

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¶¶ ¶¶ ¦ ¦ ¶¶ Angela | Conference Operator: Please stand by, your meeting is about to begin. Good morning. My name is Angela and I will be your conference operator today. At this time, I would like to welcome you to the Optical Cable Corporation's first quarter of fiscal year 2026 earnings conference call. All have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. Ms. Felix, you may begin your conference.

Caroline Felix | Moderator, Investor Relations

Good morning, and thank you for joining us for Optical Cable Corporation's first quarter of fiscal year 2026 conference call. By this time, everyone should have a copy of the earnings press release issued earlier today. You can also visit www.occfiber.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. 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.occfiber.com, as well as today's call. With that, I'll turn the call over to Neil Wilkin. Neil, please begin.

Neil Wilkin | President and Chief Executive Officer

Thank you, Caroline, 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 31st, 2026 in some additional detail. After Tracy's remarks, we will answer as many 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. OCC is off to a strong start in fiscal year 2026. During the first quarter, we delivered net sales and gross profit growth largely driven by increased demand across our enterprise and specialty markets and the positive impact of our operating leverage. During the first quarter of fiscal year 2026, net sales increased 4.4% and gross profit increased 16.1% compared to the same period last fiscal year. And gross profit margin increased to 32.7%. Additionally, our sales order backlog and forward load increased more than 50% to $10.4 million as of the end of the first quarter when compared to the same prior fiscal year period. And we expect to continue to build on this momentum. While seasonality typically impacts the first half of our fiscal year, during our second quarter we are seeing growing momentum in our targeted markets and in particular in our data center markets. We are confident that OCC is well-positioned for growth during fiscal year 2026. As always, remain focused on disciplined execution to drive value for our customers and shareholders. With that, I'll turn the call over to Tracy, who will review in additional detail our first quarter of fiscal year 2026 financial results.

Tracy Smith | Senior Vice President and Chief Financial Officer

Thank you, Neal. Consolidated net sales for the first quarter of fiscal 2026 increased 4.4% to $16.4 million compared to $15.7 million for the same period last year. During the first quarter of fiscal 2026, we experienced an increase 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 strengthen our severe duty market. Net sales to customers outside of the United States increased 18% and net sales to our customers in the United States increased slightly in the first quarter of fiscal year 2026 compared to the same period last year. As Neal referenced, our sales order backlog and forward load increased to $10.4 million compared to $6.6 million as of the end of our first fiscal quarter of 2025. Our sales order backlog and forward load also increased when compared to $7.3 million as of our 2025 fiscal year end. Turning to gross profit, our gross profit increased 16.1% to $5.4 million in the first quarter of fiscal 2026 compared to $4.6 million for the same period last year. Gross profit margin, our gross profit as a percentage of net sales, increased to 32.7% compared to 29.4% in the same prior year period. Gross profit margin for the first quarter of fiscal 2026 was positively impacted by higher volumes and the resulting positive impact of our strong operating leverage. Our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix. SG&A expenses increased to $5.6 million in the first quarter of fiscal year 2026. compared to $5.5 million for the same period last year, primarily as a result of increases in employee and contracted sales personnel related costs and shipping costs. SG&A expenses as a percentage of net sales were 33.8% in the first quarter of fiscal 2026 compared to 34.7% in the first quarter of fiscal 2025. OCC recorded a net loss of $398,000 or 5 cents per basic and diluted share for the first quarter of fiscal 2026 compared to a net loss of $1.1 million or 14 cents per basic and diluted share for the first quarter of fiscal 2025. With that, I'll turn the call back over to you, Neal.

Neil Wilkin | President and Chief Executive Officer

Thank you, Tracy. As is our normal practice, we're going to first answer questions from individual investors that have been submitted in advance of today's call. Caroline, could you go through the questions with us, and we will respond?

Caroline Felix | Moderator, Investor Relations

Yes, thanks, Neil. We'll get started. The first question is, can you update us on the data center opportunity in general, how you feel about it, and if the opportunity has strengthened or not during the quarter? Any major changes or updates?

Neil Wilkin | President and Chief Executive Officer

We continue to be optimistic about the data center opportunities, particularly in the multi-tenant data center and enterprise data center sectors. OCC saw and is seeing significant and growing activity in customer requests for quotes in the data center sector, particularly in January, and that activity is continuing and growing as we enter the second quarter of fiscal 2026. We believe this momentum will continue and result in increased sales in our targeted sectors of the data center market as fiscal year 2026 progresses.

Caroline Felix | Moderator, Investor Relations

Thanks, Neil. The next question is, in terms of outlook into 2026, in general, do you feel more or less optimistic now than in Q4?

Neil Wilkin | President and Chief Executive Officer

I would like to say that we continue to be very optimistic about potential sales growth this year. As you all know, we typically see seasonality impact our results during the first half of a given fiscal year, particularly during the first quarter. However, based on the fact that our sales order backlog and forward load has increased more than 50% to $10.4 million as of the end of fiscal quarter, the first fiscal quarter of 2026 when compared to the same period last year, and that the activity and requests for quotes we are seeing in our targeted market sectors, including the data center market sector, have been increasing. We continue to expect sales growth during fiscal year 2026.

Caroline Felix | Moderator, Investor Relations

Thanks, Neil. Next question. In the past, you have been commenting on improvements in OCC end markets. Have these improvements continued? Can you comment on new and emerging trends or risks?

Neil Wilkin | President and Chief Executive Officer

Thank you. As you all know, during fiscal year 2025, net sales increased 9.5% and gross profits increased 24.1% compared to the prior fiscal year, which we believe reflects the improvements we saw in many of our targeted markets last year, particularly during the second half of fiscal year 2025. So far, we continue to see growth opportunities in many of our targeted market sectors, including, in particular, the data center market, during fiscal year 2026. We believe this will continue to be the case, and this will positively impact OCC's revenue growth in fiscal year 2026.

Caroline Felix | Moderator, Investor Relations

Thanks, Neil. Next question. Can you please provide an update on progress of the LITERRA collaboration?

Neil Wilkin | President and Chief Executive Officer

Sure. As we've mentioned before, OCC has worked with LITERRA, formerly known as OFS, for decades. The strategic collaboration with Lytera announced last year was built on that long-standing relationship and the respect each team has for the other. The OCC and Lytera teams work well together and complement each other, enabling both companies to benefit from this important relationship. And we believe we're seeing the benefit of that as we move into fiscal year 2026. Thanks, Neil.

Caroline Felix | Moderator, Investor Relations

Next question. Could you comment on the type of products you expect to sell alongside Lytera? Will they be on the margin accretive connectivity side or more on the basic cabling side?

Neil Wilkin | President and Chief Executive Officer

Sure. So, OCC and Lytera have assembled product sets that we believe provide exceptional solutions to meet our customer needs. They're both on the cabling side and on the connectivity side. Lytera, speaking of Lytera products, They have a number of industry-leading product designs that are now included in OCC's product solutions offering. A couple of examples include Litera's rollable ribbon fiber optic cable, which is particularly well-suited for data center applications. Additionally, Litera's Invisalight product solutions are particularly well-suited for installations of passive optical land technology in existing buildings, where traditional passive optical land installations are more challenging. Of course, Lytera and OCC are both known for innovative product solutions and the development of new product solutions, which I would expect to continue to be the case.

Caroline Felix | Moderator, Investor Relations

Thanks, Neil. Next question is, can you explain if data center revenue had an impact in Q1 and what to expect for the rest of the year in terms of revenues?

Tracy Smith | Senior Vice President and Chief Financial Officer

OCC generally does not provide specifics regarding OCC's individual targeted market sectors. That said, during the first quarter, OCC saw increases in quotes and customer orders in the data center market sector, particularly in January. We believe this activity will continue to grow this year and will result in greater data center market sector revenues during the remainder of fiscal year 2026.

Caroline Felix | Moderator, Investor Relations

Thanks, Tracy. Next question is, Have you seen any interest regarding a potential acquisition of OCC by larger players, given that many of the larger players urgently need increased capacity?

Neil Wilkin | President and Chief Executive Officer

Caroline, as you might expect, we are unable to comment on whether or not there's been any such interest.

Caroline Felix | Moderator, Investor Relations

Thanks, Neil. Next question. Will you ever have an analyst day, perhaps with an investor deck?

Tracy Smith | Senior Vice President and Chief Financial Officer

OCC has given presentations to analysts in the past. However, as a small microcap company, OCC does not have any analyst coverage at the moment.

Caroline Felix | Moderator, Investor Relations

Thanks, Tracy. Next question. I've noticed increasing job activity including night shift jobs appearing on the job section of your website. Can we assume this is in anticipation of increased activity for the second half of 2026?

Tracy Smith | Senior Vice President and Chief Financial Officer

OCC currently is hiring in our manufacturing operations. We have been hiring to meet what we believe will be our personnel needs this fiscal year and recognizing the time it takes to train new manufacturing personnel. OCC is fortunate to have skilled long-term employees. Of course, OCC does have some personnel turnover as well that results in open positions. However, we are proud that OCC tends to have lower personnel turnover than other companies.

Caroline Felix | Moderator, Investor Relations

Thanks, Tracy. Next question. When do you think it's possible to start generating more revenue from the LITERRA collaboration? Can you give us an idea on how this might change current revenue rate?

Tracy Smith | Senior Vice President and Chief Financial Officer

Working with LITERRA has already begun to generate more opportunities, and we believe this will continue and contribute to revenue growth in fiscal year 2026 and beyond.

Caroline Felix | Moderator, Investor Relations

Thank you. Next question is, can you give more color on the Litera collaboration and how you ended up at 7% for a share purchase? Did they want to buy more?

Neil Wilkin | President and Chief Executive Officer

Excuse me. It would not be appropriate for me to comment more on the Litera collaboration beyond what OCC and Litera have already disclosed. I would like to say that we think very highly of the Litera and the Litera team. And we believe their investment in OCC reflects Lyterra's confidence in our business and our strong collaboration with them. I will also say that I believe Lyterra, that the Lyterra OCC collaboration is benefiting both companies and will continue to do so.

Caroline Felix | Moderator, Investor Relations

Thanks, Neil. Next question. Can you comment on demand signals or expand on backlog and the tier two data center sales cycle? Can you give an idea on the typical sales cycle as it might pertain to the Litera collaboration activity and new revenue streams?

Neil Wilkin | President and Chief Executive Officer

First, the SEC team stays close to customers and others that impact opportunities on a daily basis. And that allows us to see what demand signals are happening in the marketplace and provides us insight and a good sense of market dynamics. Also, the data center cycle tends to be longer for data center markets, particularly Tier 2, than the sales cycle for OCC's typical sales. We also believe that strategic collaboration is benefiting OCC and Litera in generating additional opportunities, which we believe will continue to grow this fiscal year.

Caroline Felix | Moderator, Investor Relations

Thank you. Next question is, in the past, you had mentioned you expect the second half to be stronger than the first half. Is this still the case?

Tracy Smith | Senior Vice President and Chief Financial Officer

Yes. As we have mentioned earlier on this call, we do expect the remainder of fiscal 2026 to show further growth, including the second half of the fiscal year.

Caroline Felix | Moderator, Investor Relations

Thanks, Tracy. Our last pre-submitted question this morning is, at what point do you expect the growth to inflect in 2026?

Tracy Smith | Senior Vice President and Chief Financial Officer

While we're not giving revenue guidance for fiscal year 2026, either for the year or by quarter, I would point out that we have seen a growing sales order backlog and forward load. Our sales order backlog and forward load was $10.4 million at the end of the first quarter of 2026, an increase of more than 50% when compared to the same period last year.

Caroline Felix | Moderator, Investor Relations

Thanks, both. That was the last pre-submitted question.

Neil Wilkin | President and Chief Executive Officer

Thank you, Caroline. And now, Angela. We will take any questions from analysts and institutional investors that may have questions. We ask you to please limit yourself to one question and one follow-up. Angela, if you could please indicate the instructions for our participants to call in any questions they may have, I'd appreciate it. And again, we're only taking live questions from analysts and institutional investors.

Angela | Conference Operator

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star two. We do ask that you limit yourself to one question and one follow-up. Once again, that is star one to ask a question. And we'll take our first question from Sergi Mascaro with Eden Discovery. Your line is now open.

Sergi Mascaro | Analyst, Eden Discovery

Hey, guys. Thanks for taking our questions. Can you hear me well?

Neil Wilkin | President and Chief Executive Officer

Yes.

Sergi Mascaro | Analyst, Eden Discovery

Okay, perfect. So the last call, you talked about some project delays. Can you update us about that?

Neil Wilkin | President and Chief Executive Officer

Yes, we had, I think in the last quarter, maybe the quarter before that, we had mentioned that we did have seen in the marketplace some projects that were being delayed, but that we didn't believe that that was affecting our overall results. Right now, I can't think of anything that is being delayed at the moment, but that always can happen in any quarter, but we don't expect that to be impacting our results this year.

Sergi Mascaro | Analyst, Eden Discovery

Okay, that's perfect. And my second and last question is that during the fiscal year 25, the backlog was growing about 20%. but we didn't see that translating into revenue growth. Why is that?

Neil Wilkin | President and Chief Executive Officer

Well, the backlog is a measurement of any point in time, but I think what we did see as it was growing, that last year we had increased sales 9.5% in total, and we saw significant strong sales in the third and fourth quarter of last year. And so I think that that's what was really... It's consistent with that backlog growth. I think the fact that we have mentioned that we're seeing a larger sales order backlog at the end of the first quarter and the fact that we're seeing more activity in quote requests in our markets, we believe that that's a good signal for the rest of fiscal year 2026.

Angela | Conference Operator

Thank you. And once again, if you'd like to ask a question, please press star and 1 on your keypad now. And at this time, there are no further questions in queue. I will turn the meeting back to Neil Wilkin.

Neil Wilkin | President and Chief Executive Officer

Thank you, Angela. I would like to thank everyone for listening to our first quarter of fiscal year 2026 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation, and that's most appreciated. I also want to thank the members of the U.S. Armed Forces and be with them and thinking of them during this period of time.

Thank you all. Angela | Conference Operator

This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. jsPDF 3.0.3 D:20260606090323-00'00'

NASDAQ:OCC Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Stephanie | Conference Operator: Good morning. My name is Stephanie, and I'll be your conference operator today. At this time, I'd like to welcome you to Optical Cable Corporation's fourth quarter and fiscal year 2025 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 period. If you'd like to ask a question at that time, please press star 1 on your telephone keypad. If you wish to remove yourself from queue, please press star 2. Ms. Felix, you may begin your conference.

Caroline Felix | Director, Investor Relations

Good morning, and thank you for joining us for Optical Cable Corporation's fourth quarter in the fiscal year 2025 conference call. By this time, everybody should have a copy of the earnings press release issued earlier today. You can also visit www.occfiber.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. 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 statement section of this morning's press release. These cautionary statements apply to the contents of the Internet webcast on www.opticalcable.com. OCCFiber.com as well as today's call. With that, I'll turn the call over to Neal Wilkin. Neal, please begin.

Neil Wilkin | President and Chief Executive Officer

Thank you, Caroline, and good morning, everyone. I will begin the call today with a few opening remarks. Tracy will then review the fourth quarter and full year results for the three-month and 12-month periods ended October 31st, 2025 in 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. Fiscal year 2025 was a solid year for OCC, driven by the successful execution of our growth strategies and strong positioning in our target markets. We entered into a strategic collaboration with Litera that expands our growth opportunities, which we believe will be reflected in our top line in fiscal year 2026 and beyond. At the same time, we continue to operate efficiently and benefit from our strong operating leverage to drive gross profit growth. In fiscal year 2025, we realized the benefits of actions we took the previous year as the weakness across our industry during the second half of fiscal year 2023 and most of fiscal year 2024 subsided. As a result, 2025, we were able to capture new opportunities and deliver consolidated net sales of $73 million. Our net sales increased during each quarter of fiscal year 2025 compared to the same periods in fiscal year 2024. I'm pleased to share that OCC achieved growth by all measures during fiscal year 2025. Net sales grew by 9.5%. Gross profit grew by 24.1%. Gross profit margin increased to 30.9% compared to 27.3%. and FCNA expenses decreased as a percentage of met sales, all contributing factors to the significant improvements in operating results compared to fiscal year 2024. OCC benefited from strong operating leverage in fiscal year 2025, and we anticipate this will continue to bolster our results in fiscal year 2026 and beyond. Our manufacturing operating leverage tends to create disproportional increases in gross profit as net sales and production volumes increase. While both gross profit and gross profit margin can be impacted by product mix, as OCC's net sales and production volumes increase, substantial fixed costs are spread over higher sales volumes. And importantly, manufacturing efficiencies also tend to increase, particularly for fiber optic cable production. Gross profit disproportionately increased 24.1% as net sales increased 9.5% during fiscal year 2025. Our SG&A operating leverage also tends to positively impact efficiency and profitability as net sales increase. Many SG&A expenses are relatively fixed costs, rather than varying with net sales, including significant public company costs. As a result, OCC's SG&A expenses as a percentage of net sales typically decrease with increased net sales. OCC's commitment to pursuing new growth opportunities, including expanding our presence in targeted market sectors and the enhancement of our product solutions offerings, including those resulting from our strategic collaboration with Latera, will fuel our future success. As demand for cloud computing and artificial intelligence applications continues to accelerate, OCC is capturing the opportunity by expanding our existing presence and product solutions offerings for the data center market. We have continued to expand and innovate both our fiber optic cable product solutions offerings and our cable and connectivity product solutions offerings. As previously announced in July 2025, OCC and Litera entered into a strategic collaboration agreement to expand product offerings and solutions, especially for the data center and enterprise sectors. As a global leader in fiber optic and connectivity solutions, Litera has a long history of industry-leading innovation, design and manufacturing capabilities, including the production of high-performance optical fibers. As respected manufacturers in the fiber optic industry, OCC and Litera have partnered in various ways over many years, and this strategic collaboration builds on that long, successful relationship. Through this strategic collaboration, OCC and Litera expect to benefit from offering expanded fiber optic and copper cabling and connectivity solutions to the enterprise and data center sectors, as well as an expanded presence in other sectors. The companies have combined portions of the extensive product portfolios of both OCC and Lytera to deliver integrated cabling and connectivity solutions offerings that will be sold by OCC. In connection with this, strategic collaboration, Litera has made an investment in OCC, purchasing shares of OCC common stock from OCC and resulting in Litera holding 7.24% of OCC's outstanding shares. Looking ahead, OCC remains uniquely positioned in the fiber optic and copper cabling and connectivity industry with differentiated core strengths and capabilities that enable us to offer top-tier products and application solutions and to and to compete successfully against much larger competitors. OCC is committed to enhancing and leveraging our core strengths and capabilities to drive long-term value for our shareholders. I'd like to highlight a few of those strengths for you today. First is our strong market positions, brand recognition, and long-term industry relationships with loyal customers, decision makers, and specifiers, installers and integrators, and end users across a broad range of targeted market sectors. Second is our extensive industry experience and expertise in OCC's engineering, sales, and business development teams, who are well respected for their product and application experience and expertise, which enables OCC to create and offer its portfolio of innovative high-performance products. Next, OCC has a growing portfolio of innovative fiber optic and copper cabling and connectivity products and solutions that enable us to meet the needs of our customers and end users as they are well-suited for the applications in our various targeted market sectors. We have significant production availability at our facilities, supported by knowledgeable and experienced manufacturing, quality, and engineering teams. Finally, our broad and diverse geographic footprint enables us to sell to approximately 50 countries every year. OCC has earned an exceptional reputation for its service excellence, innovation, and entrepreneurial spirit, and we have built a team that embodies OCC's core strengths and capabilities. As we turn to fiscal year 2026, we are optimistic about our growth opportunities, Encouraged by our successes this past year and excited to build on the growing momentum we are creating in our targeted market sectors, we look forward to leveraging our strengths and executing our strategies and initiatives to create long-term value for our shareholders. I'd like to thank the OCC team for its hard work, its commitment to OCC, and those that count on us. Your contributions to the team's accomplishment this past year have been significant. Much has been accomplished by the OCC team this year, and we are confident we are well positioned for future growth in 2026 and beyond. I'd also like to thank our shareholders for your continued support of OCC. And with that, I'll turn the call over to Tracy, who will review an additional detail on our fourth quarter and fiscal year 2025 financial results.

Tracy Smith | Senior Vice President and Chief Financial Officer

Thank you, Neal. Consolidated net sales for fiscal year 2025 increased 9.5% to $73 million compared to net sales of $66.7 million for fiscal year 2024 with sales increases in both our enterprise and specialty markets. At the end of fiscal year 2025, our sales order backlog and forward load was $7.3 million compared to $5.7 million as of October 31st, 2024. Looking forward, we anticipate additional growth opportunities during fiscal year 2026. We continue to expand our product solutions offering for the data center market as demand for cloud computing and artificial intelligence applications continues to accelerate. Consolidated net sales for the fourth quarter of fiscal year 2025 increased 1.8% to $19.8 million compared to $19.5 million for the same period in the prior year. We experienced an increase in net sales in both our enterprise and specialty markets during the fourth quarter of fiscal year 2025 compared to the fourth quarter of fiscal year 2024. Sequentially, OCC's net sales decreased less than 1% during the fourth quarter of fiscal year 2025 compared to net sales of $19.9 million for the third quarter of fiscal 2025. Turning to gross profits. Our gross profit increased 24.1% to $22.6 million in fiscal 2025, compared to $18.2 million for fiscal 2024. Gross profit margin, our gross profit as a percentage of net sales, increased to 30.9% during fiscal 2025, up from 27.3% for 2024. Gross profit margin for fiscal year 2025 was positively impacted by higher volumes as fixed charges were spread over higher sales, the impact of operating leverage. 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. Gross profit decreased slightly to $6.3 million in the fourth quarter of fiscal 2025 compared to $6.5 million for the same period last year. Gross profit margin decreased to 31.9% in the fourth quarter of fiscal 2025 compared to 33.5% in the fourth quarter of fiscal 2024. During the fourth quarter of fiscal year 2025, there was no significant change in the gross profit when compared to the third quarter of fiscal 2025. Gross profit margins sequentially increased to 31.9% in the fourth quarter of fiscal 2025 compared to 31.7% during the third quarter of fiscal 2025. SG&A expenses increased to $23 million in fiscal year 2025 compared to $21.5 million in fiscal year 2024. SG&A expenses as a percentage of net sales were 31.4% in fiscal year 2025 compared to 32.2% in fiscal year 2024. SG&A expenses increased to $6 million in the fourth quarter of fiscal 2025 compared to $5.9 million for the same period last year. SG&A expenses as a percentage of net sales were 30.4% during the fourth quarter of 2025 compared to 30% during the same period of fiscal year 2024. The increase in SG&A expenses during the fourth quarter and fiscal year 2025, compared to the same periods last year, was primarily the result of increases in employee and contracted sales personnel related costs and shipping costs. Included in employee and contracted sales personnel related costs are compensation costs and sales incentives. While profitable during the second half of fiscal 2025, OCC recorded a net loss of $1.5 million or 18 cents per basic and diluted share for fiscal year 2025 compared to $4.2 million or 54 cents per basic and diluted share for the fiscal year 2024. OCC recorded net income of $49,000 or 1 cent per basic and diluted share for the fourth quarter of fiscal 2025 compared to net income of $373,000 or $0.05 per basic and diluted share for the fourth quarter of fiscal 2024. And with that, I'll call back over to you, Neal.

Neil Wilkin | President and Chief Executive Officer

Thank you, Tracy. We have received a number of questions in advance of the call today, and we believe that those would be of interest to most participants. So we're going to go through those questions first, and then we will address any remaining live questions from analysts and institutional investors. Because some of those questions overlapped, we did try to combine them in a manner that we're addressing the core questions that were submitted in advance. Caroline, if you could please read the questions, we're happy to provide our responses.

Caroline Felix | Director, Investor Relations

Thanks, Neal. The first question is, can you update us on the data center opportunity in general, how you feel about it, if the opportunity has strengthened or not during the quarter, and any major changes or updates?

Neil Wilkin | President and Chief Executive Officer

Yes, we believe like others in our industry that the data center markets are strong and will continue to grow. I wouldn't say that it had a significant impact in our fourth quarter, but we believe that it will start to impact us in fiscal year 2026. OCC has a presence in the data center market with established market relationships as well as products. Of course, as you all know, OCC's products are best suited for multi-tenant data centers or MTDCs and enterprise data centers, sometimes referred to as Tier 2 and Tier 3 data centers. We're currently working to expand our presence in portions of the data center market, and we're optimistic that the data center market, particularly the multi-tenant data centers and the enterprise data centers, will provide an opportunity for revenue growth in fiscal year 2026 for OCC.

Okay. Caroline Felix | Director, Investor Relations

Thanks, Neil. The next question is, over the last quarter, you have been commenting on improvements in OCC and markets. Have those improvements continued into Q4? Can you comment on new and emerging trends or risks?

Neil Wilkin | President and Chief Executive Officer

Yes. OCC continues to see strength in most of our targeted market sectors. There are certain market sectors where we've seen some projects delayed, but we do not believe that this has negatively impacted OCC's growth this year or that it would negatively impact OCC's growth in fiscal year 2026. We also believe that the continued growth opportunities in OCC's targeted market sectors for fiscal year 2026 continue to be significant. Of course, as we have said in the past and experienced in the past, during the first half of each year, OCC does experience the impact of seasonality. And as of now, we currently expect that to be the case as well.

Caroline Felix | Director, Investor Relations

Thanks, Neil. The next question is whether you believe OCC will have any hyperscale data center opportunities.

Neil Wilkin | President and Chief Executive Officer

We've talked about this before, or we've received this question before, and as we've noted that really our product solution offerings for the data center market are better suited and best suited for the multi-tenant data centers and enterprise data centers. We believe that there's significant growth opportunities in the multi-tenant data centers market segment, as well as enterprise data centers, but particularly for the MTDCs. that will provide significant opportunities for OCC in fiscal year 2026. Yeah. Yeah. I'd also add that, and Tracy mentioned this in some of her comments, that the multi-tenant data centers also are positively impacted by the growth, current growth in cloud computing and artificial intelligence. And so we believe that that's a true market opportunity for us.

Caroline Felix | Director, Investor Relations

Thanks. The next question is, what do you think the potential sales look like for 2026 and 2027?

Neil Wilkin | President and Chief Executive Officer

I'll let Tracy take the financial questions.

Tracy Smith | Senior Vice President and Chief Financial Officer

Sure. As we said before, we don't provide forward-looking guidance. However, I will say that we are optimistic about potential increases in sales based on the opportunities that we expect to arise in fiscal 2026, particularly during the second half of fiscal 2026. I believe is based on what we're seeing in our targeted market sectors as well as our expected opportunities to expand in those market sectors as a result of the strategic collaboration with La Terra.

Caroline Felix | Director, Investor Relations

Thanks, Tracy. Next question. Can you give a sense of the financial metrics behind the operational leverage? For example, how much EPS can impact different forward sales levels if they do, in fact, inflect higher on the collaboration?

Tracy Smith | Senior Vice President and Chief Financial Officer

We can't give you a specific formula. As you all know, operating leverage is a result of fixed costs in manufacturing and also in SG&A costs being spread over higher sales. Manufacturing operating leverage is also impacted by product mix sold, which is not a variable that's very easy to predict.

Caroline Felix | Director, Investor Relations

Thanks, Tracy. Next question is, Q1 and Q2 are typically the weakest quarters in terms of seasonality. Should we still expect the typical seasonality into 2026?

Tracy Smith | Senior Vice President and Chief Financial Officer

As Neil mentioned, we do continue to see a seasonality impact in our first and second quarters, although there can be exceptions, particularly if there are larger orders that impact the first half of the year or unanticipated macroeconomic conditions during the year.

Caroline Felix | Director, Investor Relations

Got it. Thanks, Tracy. Next question. Is the focus still on Tier 2 data centers, or is there some potential to capture some of the Tier 1 data center demand as part of your collaboration?

Neil Wilkin | President and Chief Executive Officer

Well, without speaking specifically about the strategic collaboration with Lytera, what I'd say is that OCC's products are best suited for Tier 2 or multi-tenant data centers and the enterprise data center market. And so that's really... where our focus is, as we mentioned before. And I would not expect that OCC to directly have any significant participation in Tier 1 or hyperscale data centers. It doesn't mean there couldn't be some impact at some level. And, of course, those growth in Tier 1 data centers in the market can impact what kind of growth is being seen in Tier 2 for multi-tenant data centers and other parts of the market. But directly, I wouldn't expect us to have a significant participation at all in the Tier 1 or hyperscale data centers.

Caroline Felix | Director, Investor Relations

Thanks, Neil. Next question. In terms of capacity available and any capacity constraints, are there any changes versus what you commented on last quarter?

Neil Wilkin | President and Chief Executive Officer

We continue to evaluate our capacity, but right now we believe that SEC has the capacity to capture the growth opportunities that we expect to see in fiscal year 2026. So I think that really answers that question.

Caroline Felix | Director, Investor Relations

Thanks, Neil. Next question. OCC has been hiring a lot recently. Can you comment if you have seen any issues to find the right workers, why you saw the need to hire that significantly, and if this will increase OPEX significantly?

Neil Wilkin | President and Chief Executive Officer

Yes. I don't know if I'd characterize our hiring recently as significant. We do have a number of open positions that we are seeking to fill, and that's not unusual for that to be the case. Most of those positions are typically in manufacturing. We are fortunate that OCC has a good record of recruiting and retaining needed talent, but I think like a lot of businesses generally, not just in our industry, OCC has seen some additional turnover among newly hired personnel. However, OCC has what we believe is a record of unusually low turnover among our longer-term employees. So we do continue to expect to see hires. I don't expect that to significantly increase operating expense specifically, and of course we are consistently looking at what expenses we're incurring in order to provide the appropriate staffing as well as the appropriate balance of expense relative to our opportunities.

Caroline Felix | Director, Investor Relations

Thanks, Neil. Next question is, can you please provide an update on progress of the LITERRA collaboration?

Neil Wilkin | President and Chief Executive Officer

Sure. So, OCC and Litera partnered in various capacities for many, many years. And so, it's not surprising, because we've worked well with them in the past, that our new strategic collaboration with Litera, I believe, is going well. The Litera team is exceptional, and we think highly of the OCC team as well, obviously. And we believe that this strategic collaboration will create growing opportunities for OCC in fiscal year 2026 and hopefully for, although I can't speak for Lytera, for Lytera also.

Caroline Felix | Director, Investor Relations

Thanks, Neil. Last question this morning is, Lytera has recently announced an investment into manufacturing. Is this an indication of strong demand for OCC?

Neil Wilkin | President and Chief Executive Officer

Well, we can't. OCC really can't comment on announcements that Lyterra has made or what their specific business plans are, so I'd leave those questions for Lyterra rather than OCC.

Caroline Felix | Director, Investor Relations

Thanks, Neil. We have no other questions that were provided in advance of the call today at this time.

Neil Wilkin | President and Chief Executive Officer

Okay. So if those are the questions, I guess operator, Stephanie, if you could let us know if there's any questions from analysts. We're happy to answer them. And if you could please, Stephanie, give the instructions for the folks to ask those questions, that would be wonderful.

Thank you. Stephanie | Conference Operator

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. In the interest of time, we ask you please limit yourself to one question and one follow-up question. Once again, that is star 1 to ask a question, and we'll pause for just a moment to lock questioners to queue. And again, that's star one to ask a question. We'll take our first question from Anthony Crist with Odyssey Investments.

Anthony Crist | Analyst, Odyssey Investments

Thank you very much. Mr. Wilkins, I have tried to call two or three times. I'm located up in Northern Virginia. My question deals with is there any visibility into whether or not Litera may refer us some of the SMF cabling, single-mode fiber cabling, or the hollow fiber cabling, which is basically Tier 1 products. And if you could – I know the words. If you could take a minute and explain what those two products are, I'd appreciate it. And then I have a follow-up.

Neil Wilkin | President and Chief Executive Officer

Okay, so hollow core on the – is a type of fiber that's really looking to reduce latency and increase speed in certain applications. And so that is something that probably is usable in a lot of different applications. Our engineering team would be better able to answer that question, but as a general matter, that's the case. I think that I can't comment on what people are thinking about with respect to or what Lytera or is thinking about with respect to how they're going to use that product. But, you know, OCC, we've partnered with Lytera in a number of different ways, and Lytera is a large fiber producer of various different products that have been having leading performance in the industry for many, many years. So, again, our products are more focused on the traditional markets that we've had, enterprise, various parts of the enterprise market, as well as a number of specialty markets, including harsh environment and military and others. We use some specialty technologies in some of those products, and then in data centers. We've had a presence in data centers before, but now we're focusing on expanding that and leveraging our current relationships and also focusing on expanding our product offering. I don't know if that really helps specifically on your question. SMF specifically, I think of just a single mode fiber. So that's a more typical product that would be used in data center, although multi-mode fiber is also used.

Stephanie | Conference Operator

Thank you. And we'll take our next question from Sean Boyd with Neck Smart Capital.

Neil Wilkin | President and Chief Executive Officer

He said he had a follow-up question, though. Did you want to take that, Stephanie, first?

Caroline Felix | Director, Investor Relations

Anthony did.

Stephanie | Conference Operator

Anthony, would you like to announce your follow-up?

Anthony Crist | Analyst, Odyssey Investments

Yes.

Yes. Yes. Stephanie | Conference Operator

Your line is open, Anthony.

Anthony Crist | Analyst, Odyssey Investments

Okay, thank you. Dare I ask, Neil, if those two fibers, the SMFs and the hollow case fibers, were competitive with the corning fibers? And if any automation AI would be given us by Lytera to produce them?

Neil Wilkin | President and Chief Executive Officer

Yeah, I'm not I'm not the best person to answer the question about how those are going to be used, and there's a whole lot of intellectual property and strategy that goes behind which fibers are going into which applications and what plans the fiber manufacturers have. What I can say is that VITERA is known for having leading technology in fiber development, everything from the rollable ribbon technology fibers to many, many other types of fibers. They've been a leader in many ways and are well respected in that regard. How they plan to deploy those technologies in different markets is not really something that we can comment on, and those are questions that will really be left to Litera. if they choose to answer them, which they may not be because of the proprietary nature of some of that. But, Anthony, the one thing I guess I would add is if you're asking how they compare to Corning, I would suspect that, as with any other competitors, Lytera would have a very favorable view of their products, and I think the market does, too.

Stephanie | Conference Operator

Thank you. Again, that's our one to ask a question, and we'll take our next question from Sean Boyd with Nix Smart Capital.

Sean Boyd | Analyst, Nix Smart Capital

Good morning. Can you hear me okay?

Neil Wilkin | President and Chief Executive Officer

It's a little low, but I think we'll be able to make out what you're saying.

Sean Boyd | Analyst, Nix Smart Capital

Okay. Let's give it a shot here. So historically, the company has shown real positive seasonality in its October quarter, its fourth quarter, up double digits sequentially. This year, we didn't quite see that. And I thought I might have heard something about delays. So the question is, were there any project delays or push-outs that might have caused that?

Neil Wilkin | President and Chief Executive Officer

Well, first of all, generally our seasonality is what we see in the first quarter versus the second quarter. I mean, excuse me, the first half of the year versus the second half of the year. So I don't have the precise percentage in front of me. But the growth that we would have seen from the second quarter to the third quarter would have been, I would expect, in double digits. Sequentially, that wasn't the case from Q3 to Q4, but I would expect Q3 and Q4 to be more equal. Again, with most of the seasonality being impacting the first half of the year and seeing positive increases in the second half of the year.

Tracy Smith | Senior Vice President and Chief Financial Officer

And we did see our seasonality this year mirror that from 2024. So for the second half of the year, I think it was 48% in the first half.

Neil Wilkin | President and Chief Executive Officer

Of total sales.

Tracy Smith | Senior Vice President and Chief Financial Officer

I'm sorry, 46% of total sales in the first half of the year and the rest in the second half of the year. And that was exactly the same in 2025 compared to 2024.

Neil Wilkin | President and Chief Executive Officer

And we'll be filing our – annual report in Form 10-K today. We expect to, in the footnotes, we disclose details about some of the seasonality.

Tracy Smith | Senior Vice President and Chief Financial Officer

And the MD&A.

Neil Wilkin | President and Chief Executive Officer

The other question that you had was, part of the same question you had was, did we see any products that had been delayed impacting the fourth quarter? I don't think that that was significantly And again, I don't think that those delays are significant overall. I think they're – and one of the things that OCC benefits from is we're in many, many different markets geographically in particular market segments. And so sometimes we'll see big fluctuations in certain market sectors that are not truly visible because they're offset by other fluctuations in other market segments that we're targeting.

Tracy Smith | Senior Vice President and Chief Financial Officer

Let me just correct the seasonality percentage that I stated earlier. It was 46% in the first half of the year and 54% in the second half of the year, and that was the same seasonality pattern that we saw in 2024 and 2025.

Sean Boyd | Analyst, Nix Smart Capital

Okay. So the 46-54 is the year we just finished, FY25?

Tracy Smith | Senior Vice President and Chief Financial Officer

Yes, as well as 2024. They were exactly the same.

Sean Boyd | Analyst, Nix Smart Capital

Got it. Okay. That color is helpful. Appreciate that. So just as a follow-up, the collaboration with Lytera, which we inked back in July, you indicate that we should start to see that impact the top line in 2026. Can you give us any more color on that? Can we see that in the first half? Would it be the second half? And just as a follow-on, why is that taking this long? What is it that – What are the key factors before we see the revenue contribution of that?

Neil Wilkin | President and Chief Executive Officer

Yeah, I mean, it's a good question. It also has a lot of details behind it, so specifically, you know, what we're going to see in 2026. We don't provide forecasts on what we're going to see. We do think we're going to see a positive impact, and we've stated that. With respect to the collaboration, as you'd imagine, when we're – when you're working with companies in a different way, that there is a lot of work that goes into that. I think that the work is going well and expeditiously, and that there's a lot of work that's being done. You'd expect that that would be the case before it started to impact sales, but I can't, beyond that, comment on what it is. I think that what I'd also – I don't have the quite percentage – if you'll just hold on for a second – So there was – I was just confirming, you talked about the double-digit increase because of seasonality. If you look at what our performance was in the second quarter of 2025 versus the third quarter of 2025, that does create – you do see a double-digit increase in sales, which is consistent with the observation that you had made. But you wouldn't necessarily expect to see that between the third and fourth quarter because of seasonality between the first half and the second half. as we described, is fairly consistent.

Stephanie | Conference Operator

Thank you. There are no additional questions at this time. I'd like to now turn it back to our presenters for any additional or closing remarks.

Neil Wilkin | President and Chief Executive Officer

Thank you, Stephanie. Appreciate everyone's questions. We'd like to thank everyone for listening to our fourth quarter. and fiscal year 2025 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation. We hope that you and your families have a wonderful holiday and a happy new year.

Thank you. Stephanie | Conference Operator

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. jsPDF 3.0.3 D:20260606090324-00'00'

NASDAQ:OCC Q3 2025 Earnings Call Transcript Generated on 6/6/2026 David | Conference Operator: Hello, my name is David and I'll be your conference operator today. At this time, I'd like to welcome you to Optical Cable Corporation's third quarter of fiscal year 2025 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 period. If you would like to ask a live question at that time, please press the star and one on your telephone keypad. Please note that today's call will be recorded. Your host today will be Mr. Dean Starrett. Mr. Starrett, you may begin your conference.

Dean Starrett | Host / Director of Investor Relations

Good afternoon, and thank you for joining us for Optical Cable Corporation's third quarter of fiscal 2025 conference call. By this time, everyone should have a copy of the earnings press release issued earlier today. You can also visit www.occfiber.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 would like to remind everyone that this call may contain forward-looking statements that involve risks and uncertainties. The actual future results of Optical Capable Corporation may differ materially due to a number of factors and risks including, but not limited to, those factors referenced in the forward-looking statement section of this morning's press release. The cautionary statements apply to the contents of the Internet webcast on OCCFiber.com, as well as today's call. With that, I'll turn the call over to Neil Wilkin. Neil, please begin.

Neil Wilkin | President and Chief Executive Officer

Thank you, Dean, and good afternoon, 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 31st, 2025 in 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. OCC had a strong third quarter as we delivered significant net sales growth and gross profit expansion during both the third quarter and the first nine months of this fiscal year. Net sales increased 22.8% during the third quarter of fiscal 2025 compared to the same period last fiscal year, and increased 12.8 percent during the nine months ended July 31st, 2025, compared to the same period last year. These results reflect the OCC team's ability to capture additional opportunities as demand for our products increased in many of our markets. We also continue to see the benefits of OCC's significant operating leverage during the third quarter. as our 22.8% year-over-year increase in net sales drove gross profit growth of 61.2%. I'm pleased to report that the OCC team is executing well against our long-term growth strategy. As previously announced, OCC and Litera entered into a strategic collaboration agreement in early July to expand product offerings and solutions to the enterprise sector, the data center sector, as well as expanded presence in certain other sectors. As part of this strategic collaboration, OCC and Litera have combined portions of the product portfolios of both companies to deliver additional integrated cabling and connectivity solution offerings, which will include certain Litera products being offered and sold by OCC. In connection with this strategic collaboration, Litera made an investment in OCC with Litera holding 7.24% of the company's outstanding common shares. We anticipate our strategic collaboration with Litera will provide growth opportunities for OCC. As we look ahead to the end of this fiscal year and into 2026, we remain focused on disciplined execution and capitalizing on growth opportunities to drive shareholder value. And with that, I'll turn the call over to Tracey, who will review in additional detail our third quarter of fiscal year 2025 financial results.

Tracy Smith | Senior Vice President and Chief Financial Officer

Thank you, Neal. Consolidated net sales for the third quarter of fiscal 2025 increased 22.8% to $19.9 million compared to net sales of $16.2 million for the same period last year, resulting from increases in net sales in both our enterprise and specialty markets. Sequentially, net sales increased 13.5% during the third quarter of fiscal year 2025, compared to net sales of $17.5 million for the second quarter of fiscal 2025. Consolidated net sales for the first nine months of fiscal 2025 increased 12.8% to $53.2 million, compared to net sales of $47.2 million for the first nine months of fiscal 2024, with sales increases in both our enterprise and specialty markets. At the end of our third fiscal quarter of 2025, our sales order backlog and forward load was $7.1 million compared to $7.2 million as of April 30th, 2025, $6.6 million as of January 31st, 2025, and $5.7 million as of October 31st, 2024. Turning to gross profit, our gross profit increased 61.2% or $2.4 million to $6.3 million in the third quarter of fiscal 2025, compared to $3.9 million for the same period last year. Gross profit margin or gross profit as a percentage of net sales increased to 31.7% in the third quarter of fiscal 2025 up from 24.2% in the third quarter of fiscal 2024 and 30.4% for the second quarter of fiscal year 2025. Gross profit increased 39.5% to $16.3 million in the first nine months of fiscal 2025 compared to $11.7 million in the first nine months of fiscal 2024. Gross profit margin increased to 30.6% in the first nine months of fiscal 2025, compared to 24.7% in the first nine months of fiscal 2024. Gross profit margin for the third quarter and first nine months of fiscal 2025 was positively impacted by production efficiencies created by higher volumes and the resulting positive impact of our operating leverage. 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. SG&A expenses increased to $5.7 million or 9.5% in the third quarter of fiscal year 2025 compared to $5.2 million for the same period last year. SG&A expenses as a percentage of net sales were 28.8% in the third quarter of fiscal 2025 compared to 32.3% in the prior year period. SG&A expenses increased to $16.9 million or 8.2% during the first nine months of fiscal year 2025 compared to $15.7 million for the same period last year. SG&A expenses as a percentage of net sales were 31.8% in the third quarter of fiscal 2025 compared to 33.2% in the prior year period. The increase in SG&A expenses during the third quarter and first nine months of fiscal year 2025 compared to the same periods last year was primarily the result of increases in employee and contracted sales personnel related costs and shipping costs. included in employee and contracted sales personnel related costs for compensation costs and sales incentives. OCC recorded net income of $302,000 or 4 cents per basic and diluted share for the third quarter of fiscal 2025 compared to a net loss of $1.6 million or 20 cents per basic and diluted share for the third quarter of fiscal 2024. OCC recorded a net loss of $1.5 million or 19 cents per basic and diluted share for the first nine months of fiscal year 2025 compared to $4.6 million or 59 cents per share for the first nine months of fiscal year 2024. With that, I'll turn the call back over to you, Neal.

Neil Wilkin | President and Chief Executive Officer

Thank you, Tracy. At this time, we would normally take questions from analysts and institutional investors, live questions. However, we have received a number of questions in advance of the call today we believe would be of interest to most participants. So we're going to go through those questions first and then we will address any remaining questions live that may come from analysts and institutional investors. Dean, if you could please begin reading the questions we've received in advance and we will respond.

Dean Starrett | Host / Director of Investor Relations

Absolutely. First question, can you Comments on what you're seeing in your traditional markets and how it has evolved through the year?

Neil Wilkin | President and Chief Executive Officer

Yes, we are generally seeing strength in our targeted markets this year, and that's been the case with others in our industry as well. We believe we're benefiting from our strong market position, and that's been reflected in our top-line results this year, including in the third quarter of 2025.

Thanks. Dean Starrett | Host / Director of Investor Relations

Can you comment as to what you're seeing in terms of AI impact? It seems like this should be a significant opportunity for you.

Neil Wilkin | President and Chief Executive Officer

Well, as folks know, and I believe it's fairly clear that AI is growing or some would even say exploding because of all the demand. And this is positively impacting our industry generally. The impact is seen in the growth of hyperscale data centers in particular. Currently, OCC's products are more suited for what we would call Tier 2 and Tier 3 data centers. However, we do believe we will see positive impact from AI and data center growth. However, we also believe the biggest growth will be seen by those companies targeting hyperscale data centers.

Unknown | Unidentified Participant

Yeah, apologies.

Dean Starrett | Host / Director of Investor Relations

CommScope recently sold the vertical that is competing with you on Amphenol. Do you expect any impact from that?

Neil Wilkin | President and Chief Executive Officer

As our listeners may expect, we are following these developments, but at this time we do not believe this will have an impact on OCC.

Dean Starrett | Host / Director of Investor Relations

Thank you. Next question. The backlog is down versus Q2, but Q4 is usually the strongest quarter. Does this decline in backlog mean that the seasonality is not expected to be what we'd normally expect from Q4?

Neil Wilkin | President and Chief Executive Officer

Tracy is going to take the next few questions here.

Tracy Smith | Senior Vice President and Chief Financial Officer

Thanks. I would describe the decrease in backlog and forward load of approximately $100,000 as more of a leveling off rather than a decrease, certainly not a significant decrease. and possibly more related to timing of shipments and order entry than indicative of demand. At the end of Q3, our backlog and forward load was still higher than the backlog and forward load at the end of both fiscal 2024 and the first quarter of fiscal 2025, which is basically where you see the seasonality impact.

Dean Starrett | Host / Director of Investor Relations

Thanks, Gracie. How much indicative backlog decline is a result of potentially weaker demand?

Tracy Smith | Senior Vice President and Chief Financial Officer

Well, as I mentioned in my response to the previous question, this was a very minimal decline. We don't believe it is an indicator of weaker demand at this point. As Neil said, we're generally seeing strength in our target markets and believe demand is holding strong.

Dean Starrett | Host / Director of Investor Relations

Appreciate that. Next question is why was the gross margin 31.5% with higher sales levels in the quarter? considering in Q4 last year it was 33.5% with lower sales levels.

Tracy Smith | Senior Vice President and Chief Financial Officer

As we've mentioned in our previous filings, our gross profit margin varies depending on product mix in addition to volumes. We believe this was as a result of product mix when comparing the two quarters.

Dean Starrett | Host / Director of Investor Relations

Thanks. Next question. Do you think you will need to increase capacity if you have plans to materially invest in extra capacity?

Tracy Smith | Senior Vice President and Chief Financial Officer

We believe we have the capacity to capture the exciting growth opportunities out there. We're currently filling some open positions in our manufacturing operations given anticipated demand, particularly in Roanoke. And it does take some time for our production employees to get fully up to speed. But other than filling open requisitions to meet anticipated demand, we don't have any needs or plans to significantly invest in extra capacity at this time.

Dean Starrett | Host / Director of Investor Relations

Thank you. Next question, is the current OPEX level sustainable or should we expect any material new expenses moving forward?

Tracy Smith | Senior Vice President and Chief Financial Officer

As we've described in the past, we believe our operating leverage has a significant positive impact on our results as revenues increase. We also believe that our operating expenses should be generally sustainable at current and even higher sales levels.

Dean Starrett | Host / Director of Investor Relations

Next question. Could you elaborate on the structure of OCC's Litera cooperation? Will OCC be manufacturing Litera-branded products? And will OCC hold any Litera equipment inventory?

Neil Wilkin | President and Chief Executive Officer

Thanks, Dean. I will answer the number of questions that we've received regarding Litera. I will say, as we get started in going through these questions, There's a lot of details about our collaboration that we're not prepared to share and that I think is consistent with the way we've typically operated. With respect to the question at hand here, we had previously disclosed the purpose of the strategic collaboration that ACC has entered into with ITERA was to expand product offerings and solutions, especially for the data center and enterprise sectors. We believe that both OCC and Lyterra will benefit from opportunities generated by the ability to expand fiber optic and copper cabling and connectivity solutions in the enterprise sector, the data center sector, as well as an expanded presence in certain other sectors. As you all know, Lyterra has made an investment in OCC and we believe this reflects their confidence in OCC. and resulted in Litera holding 7.24% interest in OCC. We have on file the stock purchase agreement related to this investment by Litera, and that was filed with the SEC in a form 8K shortly after the announcement on July 7th.

Dean Starrett | Host / Director of Investor Relations

Thank you. The next question on this topic, how will Litera add value to OCC? How will Lytera help you to increase sales?

Neil Wilkin | President and Chief Executive Officer

Well, as we've said, and one of the benefits of working with a company like Lytera is they are a global leader in optical fiber and connectivity solutions. And we've successfully worked with Lytera and its predecessor, OFS VITAL, for decades. Our collaboration with Lytera expands on our product offerings and solutions especially for data centers and enterprise sectors, and we believe OCC will benefit from that. We think not only our customers will benefit, but also our shareholders as well.

Unknown | Unidentified Participant

Thanks.

Next question. Dean Starrett | Host / Director of Investor Relations

It seems like OCC has already started to benefit from Lytera sales and marketing efforts. Is Lytera going to then sales and marketing resources to generate business for the partnership going forward?

Neil Wilkin | President and Chief Executive Officer

Well, Litera did exhibit at the Bixie Trade Show last month, and at the invitation of Litera, OCC did provide some personnel at the Litera booth at Bixie. As part of this new collaboration, we expect that Litera and OCC will be working together in various different ways. However, we are not commenting on our specific sales and marketing strategies which is consistent with OCC's past practice.

Dean Starrett | Host / Director of Investor Relations

Thanks, Neil. Next question. Is the goal with Litera collaboration still to target tier two data centers, or does this open the door to hyperscalers and larger data centers?

Neil Wilkin | President and Chief Executive Officer

OCC continues to focus on the products we offer, which tend to be more suitable for what we would call Tier 2 and Tier 3 data centers. That does not rule out the possibility of us seeing benefits from the growth that's happening in the hyperscale market, but our core products and solutions are fairly focused on Tier 2 and Tier 3.

Dean Starrett | Host / Director of Investor Relations

Thanks. The next investor question, Can you give us an impression of the opportunity here, maybe a typical ticket size for Tier 2 or Tier 3 data centers given the combined offerings?

Neil Wilkin | President and Chief Executive Officer

Well, I will say that the opportunities in Tier 2 and Tier 3 data centers really vary in size. They can include anything from greenfield builds to moves, adds, and changes. As you all know, it's our practice that we do not provide forecasts of expected sales opportunities. I think that's what we can say about that.

Dean Starrett | Host / Director of Investor Relations

Next question is, did Lytera want to buy more equity than the 7.24% interest?

Neil Wilkin | President and Chief Executive Officer

No. We're not going to comment or get into the details of our negotiations with Lytera, and that shouldn't be a surprise. We do think very highly of Lytera and the Lytera team, and we believe their investment in OCC reflects their confidence in our business and the work we will do together. We're very excited to be working with Lytera and look forward to that continually develop over time.

Dean Starrett | Host / Director of Investor Relations

Thanks. We received a number of questions with respect to specific sales or financial outlook with respect to the strategic collaboration with Litera. Can you speak to that?

Neil Wilkin | President and Chief Executive Officer

Again, consistent with OCC's past practice, we are not going to give specific guidance or projections. What we will say is that we are confident that our strategic collaboration with Litera and the resulting Litera OCC integrated solutions will enable us to offer, provide an offering that will expand our market opportunities, accelerate OCC's sales growth, and will create value for OCC and its shareholders.

Dean Starrett | Host / Director of Investor Relations

Thanks. We have no other questions that were provided in advance of the call today at this time.

Neil Wilkin | President and Chief Executive Officer

Neil? Okay. Thank you, Dean. So now, as we usually do, If any analysts or institutional investors have any remaining questions, we are happy to answer them. David, if you could please indicate the instructions for our participants to call in the questions they may have, I'd appreciate it. Again, we are only taking live questions from analysts and institutional investors.

David | Conference Operator

Absolutely. At this time, if any of the analysts or institutional investors would like to ask a question or please press the star and one keys on your telephone keypad. Keep in mind, you can remove yourself from the question queue at any time by pressing star and two. Again, it is star and one to ask a question today. And we'll take our first question from SF Nathan with Eden Discovery. Please go ahead.

Your line is open. S.F. Nathan | Analyst, Eden Discovery

Hello, guys. Congratulations. You're a wonderful quarter. The first question is that you saw meaningful growth in the U.S. market this quarter, and in the past quarter, the U.S. was not growing that fast. So I was wondering if you can give us a little bit of color about which verticals caused this acceleration and which products.

It would be great. Unknown | Unidentified Participant

Thanks.

Neil Wilkin | President and Chief Executive Officer

I appreciate the question. Part of the reason why we're seeing growth in addition to the work that our sales and business development teams are doing successfully is you'll recall that in most of fiscal year 2024 and before that, the whole industry was in a bit of a downturn. So we're benefiting that, but we're also benefiting from our strong position in the marketplace that's doing well. I don't think we can speak, and we typically don't speak to the specifics of which markets and which products are doing well. But generally right now, and as we'll disclose in our Form 10-Q that will be filed later today, we've seen growth in both our enterprise markets as well as our specialty markets. And we've seen growth in the U.S. and we've seen growth internationally. And so I think that at this point it's a fairly broad growth scenario that we're experiencing and strengthen market.

S.F. Nathan | Analyst, Eden Discovery

Okay, from my next question, I've been following you for a long time and I read all the press releases and I noticed all the tones. So, at the current press release, you talked about good prospects for this year and beyond. which is a new thing. It seems that you're more confident on the next fiscal year. So it is also a surprise. So can you explain a little bit about driving deaths and a little bit more color about what makes you feel more optimistic?

Neil Wilkin | President and Chief Executive Officer

Well, we've been optimistic because, you know, the industry went through about five quarters of decrease and and pressure. We kept the position. We weren't as negatively affected as others in our industry were. And in addition to that, we're also benefiting from the recovery in the industry. We believe that the activity that's going on in data centers we're going to benefit from, even though we are not at the moment offering products that are more hyperscale related. And we also see strength in our other markets. We do a lot of specialty work, and we're seeing strength across the board in those markets, and so that's the reason why we're optimistic. I think we're also, as you would expect, excited about our new relationship with Lytera. We've worked with Lytera for years. We know the quality company that they are and the people, and the fact that we believe we've are taking the relationship we've developed over many years to a different level by them making this investment and collaborating in a significant way in certain markets and with certain products, I think is a reason to be particularly optimistic on our part. We still have seasonality in our annual cycle. Of course, Q1 and Q2 tend to be a little softer. And, of course, there's a lot of noise in the market now in many different fronts. If you just, as you see and follow the financial news, you can see that. So, you know, we can't be certain about what will happen, but right now we're particularly optimistic about the path we're on.

S.F. Nathan | Analyst, Eden Discovery

Thank you. That's very helpful. And that's my last question. I won't hijack the call. So it's a little bit more macro-oriented, so we can assume interest rates are probably going down soon. So I was wondering, does the fact that interest rates are going down can maybe affect some of your clients, maybe help them a little bit to, you know, relieve some of the financial pressure and maybe accelerate your growth? Do you see any effect of that?

Neil Wilkin | President and Chief Executive Officer

It's hard to say. I think that the interest rate decreases that the Fed is at least being pressured and somewhat considering. They're looking at various different market data, some of which is conflicting, and how that actually filters down into the actual interest rates that businesses are subject to is also still a question mark, I think, in the market. So we're not really... looking to what happens with the interest rates to figure out how our business is going to do going forward. But it is something we'd watch as you'd expect.

S.F. Nathan | Analyst, Eden Discovery

Thank you. Thank you so much. Just a very last question. Considering the large growth you had this quarter, do you still expect the level of seasonality to take place? Do you still expect Q4 to be the youngest?

Neil Wilkin | President and Chief Executive Officer

Well, we don't really. forecast on a quarterly basis. And our business also is a business that can have a lot of volatility in it, but right now we're optimistic. Appreciate your questions. I was happy that you've asked a number of them. I was happy to answer those. We tend to restrict the questions just to two per institutional investor. Dean, are there any other questions?

David | Conference Operator

Or operator, excuse me. As a reminder, if you'd like to ask a question, please press the star and one keys on your telephone keypad. We can pause for a moment to allow any further questioners to queue. We'll take our next question from James Winchester with Quantified Value Partners. Please go ahead.

Your line is open. James Winchester | Analyst, Quantified Value Partners

Yes, good afternoon. I wanted to ask if you could maybe give us a little bit better sense of what's driving gross margin. I know that you've talked in the past about how when the market was soft, you maintained your infrastructure and capacity, even though it was kind of penalized you during that period. But In looking at gross margins, I see we are now, I think, up to the fourth quarter consecutively of very nice expansion in gross margin. I was wondering if you could just talk a little bit about what's driving that.

Neil Wilkin | President and Chief Executive Officer

Sure. There's two things that impact our margins significantly. One is the product mix. The products that we offer particularly on the fiber optic cable side, but also across our other product lines, can vary based on product mix. Just from what the market price is for certain products. And so that creates an issue. It also, on the cable manufacturing side, that product mix can particularly impact you know, for a processing standpoint. So, I put those kind of in one bucket which is really product mix. The second piece that really impacts us and that we benefit from at higher sales levels is the operating leverage. And that operating leverage in our business is significant. So, yes, we do tend to not to like to pull back in personnel significantly on the manufacturing side. when there's pullbacks in the marketplace. But a lot of the cost relates to just the fixed cost of having a manufacturing facility. And as our sales dollars go up, those fixed costs get spread over those higher dollars very quickly. And that results in higher gross profit margins. We just see the same effect in SG&A costs because we have a substantial amount of fixed SG&A costs. And being a public company, those public company costs also factor into that. I addressed that in my letter to the shareholders in our 2024, the last year's letter to the shareholders, that kind of gives you a sense of what you can see over several quarters, which may be of interest to you if you haven't looked at that before.

James Winchester | Analyst, Quantified Value Partners

That's very helpful. Just sort of extending on that first question, And in light of your new relationship or joint venture with Lytera, can you sort of give a generalization of whether that will, number one, whether that will drive more volume over your manufacturing infrastructure? And number two, can you give us some sense of kind of where you're at in terms of utilization of your capacity? Are you at, you know, a quarter, a half, 90%? We're going to need more capacity next year or, you know, just to sort of give a broad brush assessment of where you're at.

Neil Wilkin | President and Chief Executive Officer

Sure. Well, we certainly do hope that the relationship with iTero will create more production volume for us. I think that we're in a good position in our products and in our markets. and then adding Lytera's products to that, I think ultimately should create more demand for us, and that's what our goal certainly is. From a utilization or capacity standpoint, typically, and Tracy had talked about this I think earlier in a question a little bit, is typically what affects us most is the personnel standpoint from a manufacturing side. we tend to have more capacity in equipment than we completely utilize. Part of that's because our product line is diverse enough that we have to be prepared for different types of flows of products through the plant, particularly on the cable side. And so we tend to flex on personnel with overtime and then by new hires as demands increase, and that typically does not require significant additional investment in new equipment. And that also explains the operating leverage. What we've disclosed in our Form 10-Q, typically when we do our calculations, is a capacity, running at a capacity of about 50%. Now that seems low, But that's not the personnel we have staffed. That's really the machinery and also recognition of how we calculate or how we're utilizing shifts. So in two of our facilities, we're not running 24 hours a day. And in Roanoke, we're not fully staffed 24 hours a day, 365 like some companies. That's important and strategic in the way we operate because we're not making just a handful of cable products that are always run in very, very long runs and are kind of set it and forget it. Our products include customized products and also specialty products that allow us to be more flexible as different product lines move through our facility in different cells in different manners depending on demand. So what I'd say is that we report that by calculating in that manner, It's about a 50% capacity. I think on any day our manufacturing people wouldn't look at it that way, but that's the way we calculate it. But certainly we have to maintain and do maintain excess capacity in order to maintain that flexibility and also a reality of the type of business and the part of the business we're in rather than a company that really focuses on 100 different or 200 different cable products, and that's what they run all day long, 365, 24-7.

David | Conference Operator

And once again, if you would like to ask a question, please press the star and one keys. And we can pause for another moment to allow any further questioners to queue. We'll take our next question from Sergei Mascara with Kelper Capital Firm. Please go ahead.

Your line is open. Sergei Mascara | Analyst, Kelper Capital Firm

Hey, guys. Thanks for taking my question. I'm wondering why you are not talking about the data center opportunity in your website and your data center products?

Neil Wilkin | President and Chief Executive Officer

Let me make sure I understood the question. Why we're not talking about the collaboration more extensively on our website yet? Is that what you're talking about?

Sergei Mascara | Analyst, Kelper Capital Firm

No, no, no. I'm asking, if I check your website, it seems that you are not offering products for data center. I'm wondering why you are not advertising the product that you have on your website.

Neil Wilkin | President and Chief Executive Officer

Well, I mean, we do have, we are in the process of making some improvements to our website. I think that there's a couple of reasons. Number one, I think that there needs to be some improvements. We do have data center products on our website. I need to go back to see how much we specifically promoted that, but we will look at improvements on our website. But a lot of our sales in the business that we receive is through the relationships we've had in the industry over years and years and years. And so it's a little bit different than some other businesses that relied more on the advertising on the website.

David | Conference Operator

And there are no further questions on the line at this time. I'll turn the program back to management for any additional or closing remarks.

Neil Wilkin | President and Chief Executive Officer

Thank you, David. I would like to thank everyone for listening to our third quarter of Fiscal Year 2025 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation. Additionally, on today specifically, I'd like to thank those men and women who have served and are serving our country around the world to protect our freedom and liberty, and to honor those who perished in the terrorist attack on our country 24 years ago today in New York, Pennsylvania, and Virginia. And OCC, we will never forget.

Thank you. David | Conference Operator

This does conclude the Optical Cable Corporation's third quarter of fiscal year 2025 earnings conference call. Thank you for your participation, and you may now disconnect. jsPDF 3.0.3 D:20260606090325-00'00'