Optical Cable Corporation

Good morning. My name is James, and I will be your conference operator today. At this time, I would like to welcome you to the Optical Cable Corporation's fourth quarter and fiscal year 2023 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 the queue, please press star 2. Mr. Hoffman, you may begin your conference.

Thank you, James. Good morning, everyone. And thank you all for joining us for Optical Cable Corporation's fourth quarter and fiscal year 2023 conference call. By this time, everyone should have a copy of the earnings press release issued earlier today. You can also visit www.occfibre.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.

Thank you, Spencer, 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 31, 2023, 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. During fiscal year 2023, we demonstrated the strength of OCC's market position, the efficiencies generated by our operating leverage, and our ability to navigate and successfully execute our growth strategies in volatile markets. We started off the year strong, building on our momentum and delivering strong financial and operational performance. Like many others in our industry, however, we experienced significant volatility and a softening of demand in certain markets as fiscal year 2023 progressed, particularly in the enterprise and wireless carrier markets. Thanks to our diversified markets and product offerings, we finished fiscal year 2023 having achieved growth by all measures compared to the prior year. This includes net sales, gross profit, gross profit margin, as well as income from operations and earnings per share. Net sales for fiscal year 2023 increased 4.5% to $72.2 million. This followed net sales growth of 18.8% in fiscal year 2022 compared to fiscal year 2021. Our market diversification and our breadth of product offerings enabled us to achieve net sales growth during fiscal year 2023, despite the volatility in certain markets, with OCC achieving sales growth in our specialty markets, partially offset by decreases in our enterprise and wireless carrier markets. Net sales increased 19.8% during the first half of fiscal year 2023, and decreased 8.5% during the second half of fiscal year 2023. In both cases, this is compared to the same periods during the prior fiscal year. In addition to the growth in our specialty markets, net sales during the first half of fiscal year 2023 also benefited from our substantial backlog and forward load as we began the year. During 2023, we improved gross profit and gross profit margin. Gross profit increased 8.7% to $22.3 million. Gross profit margin increased to 30.9% during fiscal year 2023 compared to 29.7% during the prior year. Importantly, during the first half of fiscal year 2023, our gross profit margin was 35.1% compared to 28.7% in the first half of fiscal year 2022. And again, this demonstrates OCC's strong operating leverage and production efficiencies that we are able to achieve at increased production volumes. We continue to focus on operating as efficiently as possible and controlling expenses, including SG&A expenses. And SG&A expenses as percentage of net sales were 29.4% during fiscal year 2023 compared to 28.9% during fiscal year 2022. Our fixed SG&A expenses, including public company costs, are substantial. And as net sales grow, our SG&A expenses tend to increase at a slower rate than sales. We believe OCC remains uniquely positioned in the fiber optic and copper cabling and connectivity industry. Our differentiated core strengths and capabilities enable OCC to offer top tier products and application solutions and to compete successfully against much larger competitors. Since this is our fourth quarter call and the end of the year, I'd like to take a moment to emphasize what those core strengths and capabilities are. First, we have an enviable market position and brand recognition and our relationships with and the loyalty of our customers, decision makers, and end users across a broad range of targeted markets. We also have a wide range of fiber optic and copper cabling and connectivity products and solutions that enable OCC to deliver products and solutions that meet our customers' unique needs and that are well-suited for applications in our various targeted markets. The range of OCC's product offerings is extensive, and OCC often successfully competes with different competitors in our different targeted markets. Next, we have a broad and diverse geographic footprint, selling into approximately 50 countries each year. We have extensive industry experience and expertise with OCC's engineering, sales, and business development teams well respected for their product and application experience and expertise that enables OCC to create its portfolio of innovative, high-performance products and associated intellectual property. And finally, our significant production capacity at our facilities is supported by knowledgeable and experienced manufacturing, quality, and engineering teams. Many of the costs to maintain and build our strengths and capabilities along with our public company costs are fixed. As a result, as OCC grows, net sales, gross profit, and profitability tend to increase at a faster rate than that of net sales. This creates operating leverage for OCC as fixed production costs and fixed SG&A expenses remain relatively stable and are spread over higher net sales levels. I am proud of the OCC's team's accomplishments during fiscal year 2023. particularly given the market volatility, the industry experience during the year. Looking ahead to fiscal year 2024, we are optimistic about OCC's opportunities. At the same time, we are cautious of current market conditions and the impacts of soft market demand on our operating and production efficiencies. To that end, we continue to monitor changing industry and macroeconomic trends and believe we are prepared to implement appropriate business adjustments as necessary moving forward we remain as focused as ever on driving growth operating efficiently and identifying and capturing additional growth opportunities to ensure we are executing for our customers and end users while generating long-term value for our shareholders and with that i will turn the call over to tracy who will review in additional detail our fourth quarter fiscal year 2023 financial results thank you neil