Optical Cable Corporation

Good morning. My name is Reed, and I will be your conference operator today. At this time, I would like to welcome you to the Optical Cable Corporation first quarter 2022 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. You may queue to ask a question at any time by pressing star and one on your touchtone phone. Please note today's call may be recorded. I will be standing by if you should need any assistance. Mr. Paylesh, you may begin your conference.

Terrific. Thank you. Good morning, and thank you all for participating on Obstacle Cable Corporation's first quarter of fiscal year 2022 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 statement 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 Neal Wilkin. Neal, please begin.

Neal Wilkin Thank you, Aaron, 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, 2022, and some additional detail. After Tracy's remarks, we will answer as many of your questions as we can. As is our normal practice, we will only take questions from analysts and institutional investors during the Q&A session. However, we also offer other shareholders the opportunity to submit questions in advance of our earnings call. Instructions regarding such submissions are included in our press release announcing the date and time of our call today. Our first quarter results reflect the OCC team's solid execution in a market environment that is still directly and indirectly affected by COVID-19, including significant supply chain constraints. During the quarter, net sales were up 21.6% and gross profit up 75.2% in each case compared to the same period last year. We are pleased to continue seeing strong demand for our full suite of mission critical cabling and connectivity products and solutions, reinforcing our confidence in the strengths of our offerings, growth strategies, and competitive position in the market. It's worth reiterating that thanks to the hard work of our team, OCC remains uniquely positioned in our industry and we appreciate the opportunity to meet the evolving and unique needs of our customers, installers, specifiers, and end users. At OCC, we have differentiated core strengths and capabilities that not only enable us to offer top tier solutions, products, applications, and technical expertise, but also to successfully compete against much larger competitors. Moreover, our enviable market position, brand recognition, and the loyalty of our customers and end users helps us distribute to a broad... Neil, are you still there? I'm still here. Okay. So what was the last thing you heard?

I believe that you distribute to a broad, diverse geographic footprint.

Okay.

Thank you.

So I'll start a little bit earlier than that so that you have it completely here. But moreover, our NVO market position, brand recognition, and the loyalty of our customers and end users helps us distribute to a broad, diverse geographic footprint with OCC selling into approximately 50 countries each year. OCC continues to experience the effects of supply chain constraints and the team is working diligently to minimize the impact of these challenges to the extent possible. As we look ahead, OCC will continue to control what we can, including driving growth in our targeted markets and focusing on operating efficiently. As the various direct and indirect effects of the pandemic recede, OCC is poised to capture the opportunities ahead. We remain committed to leveraging our core strengths and capabilities and executing our strategies and initiatives to create long-term value for shareholders. And with that, assuming we're still on, I'll turn it all over to Tracy, who will review in additional detail our first quarter of fiscal year 2020 financial results.

Thank you, Neal. Yes, that's 2022 financial results. Consolidated net sales for the first quarter of fiscal 2022 increased 21.6% to $14.4 million, compared to net sales of $11.9 million for the same period last year. During the first quarter of fiscal 2022, we experienced an increase in net sales in both enterprise and specialty markets, including the wireless carrier market, compared to the same period last year. Net sales to customers in the United States increased 25.2% and net sales to customers outside of the United States increased 5.7% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021. Our sales order backlog and forward load continues to increase due to strong product demand. While that demand continued to increase during the first quarter of fiscal year 2022, our net sales were impacted by the continuing direct and indirect effects of COVID-19, including supply chain and labor constraints in particular that are affecting production volumes. We are continuing to see some positive indicators of future strengthening in some of our markets and believe we will continue to benefit from improvement in our markets during the remaining nine months of fiscal year 2022. However, we cannot fully anticipate or reasonably estimate the continuing impacts of the pandemic on our various markets and customers, including impacts from emerging variants of COVID-19 in our various markets. Turning to gross profit, our gross profit increased 75.2% to $4 million in the first quarter of fiscal 2022, compared to gross profit of $2.3 million in the first quarter of fiscal 2021. Gross profit margin, our gross profit as a percentage of net sales, increased to 28% in the first quarter of fiscal 2022 compared to 19.4% for the same period last year. Our gross profit margins tend to be higher when the company achieves higher net sales levels as certain fixed manufacturing costs are spread over higher sales. This operating leverage, which is beneficial at higher sales levels, positively impacted our gross profit margins in the first quarter of fiscal year 2022. Additionally, we believe actions that we took and operational improvements we made in fiscal years 2020 and 2019 continue to have a positive impact on our gross profit margin. Our gross profit margin percentages are also heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix from quarter to quarter. SG&A expenses increased to $4.8 million during the first quarter of fiscal 2022 compared to $4.3 million for the same period last year. SG&A expenses as a percentage of net sales were 33.1% in the first quarter of fiscal 2022 compared to 36.3% in the first quarter of fiscal 2021. The increase in SG&A expenses was primarily the result of net increases in employee and contracted sales personnel related costs. Included in employee and contracted sales personnel related costs are compensation costs, payroll taxes, commissions, and share based compensation expense. OCC recorded a net loss of $936,000 or 12 cents per basic and diluted share for the first quarter of fiscal 2022. compared to a net loss of $2.1 million or 29 cents per basic and diluted share for the first quarter of fiscal 2021. As of January 31st, 2022, we have a $2.1 million receivable for the employee retention tax credit still to be refunded. As of January 31st, 2022, we had outstanding borrowings of $5.5 million on our revolver and $2.9 million in available credit. We also had outstanding loan balances of $4.8 million under our real estate term loans. And with that, I'll turn the call back over to Neal.

Thank you, Tracy. And now, if any analysts and institutional investors have any questions, we're happy to answer them. Reid, I think you're still our operator. 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.

If you'd like to ask a question, please press star and 1 on your touchtone phone. You may remove yourself from the question queue by pressing the pound key. Again, that is star and 1, and we'll pause to allow any questions to queue. And there appear to be no questions at this time.

Okay, thank you, Reed. Aaron, I know that we've gotten a couple of questions from individual shareholders. If you'd read the question, we will respond.

Sure. Can you provide a rough breakdown of your employees into sales, manufacturing, administration, or similar groups?

For competitive reasons, we don't provide breakdowns. of our employee groups. However, and I think the reason why the question's being asked is you all should know our commitment to operating as efficiently and as lean as possible. You'll recall that we reduced SG&A expenses by a million dollars or 5.2% in fiscal year 2021 compared to fiscal year 2020. And that was after we had reduced SG&A expenses in fiscal year 2020 by $4.2 million or 17.9% compared to the prior year.

Great. And then last question here. Can you give us an update on the progress on the manufacturing and substation solutions?

Thanks, Aaron. Again, for competitive reasons, we don't comment on specific products or projects, but what we can say is that we are moving forward with a comprehensive suite of solutions. We're excited by the demand we're seeing and believe we are well positioned to continue to drive growth across our markets.

Great. There is a final question.

Okay. Thank you, Aaron. Appreciate that. I'd also like to thank everyone for listening to our first quarter of fiscal year 2022 conference call today. As always, we appreciate your time and your interest in Optical Cable Corporation. Thank you.

Operator, that concludes today's call.

And this does conclude today's program. We appreciate your participation and you may now disconnect.