Optical Cable Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 12, 2023

There are 4 speakers on the call.

Operator

Good morning. My name is Shelby, and I will be your conference operator today. At this time, I would like to welcome you to the Optical Cable Corporation's 2nd Quarter of Fiscal Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.

Operator

Mr. Palash, you may begin your conference.

Speaker 1

All right. Thank you, Shelby. Good morning and thank you all for to the operator for participating on Optical Cable Corporation's 2nd Quarter 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.occfiber.com for a copy.

Speaker 1

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 to the conference 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.

Speaker 1

Neil, please begin.

Speaker 2

Thank you, Aaron, and good morning, everyone. I will begin the call today with a few opening remarks. Tracy will then review the 2nd quarter results for the 3 month 6 month periods ended April 30, 2023, in some to the Q and A session. After Tracey'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 and A session.

Speaker 2

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 the Q2 of fiscal 2023, the OCC team continued to build on our positive momentum and successfully execute on our growth strategies. We are pleased to have achieved significant growth by all measures: Net sales, gross profit, gross profit margin as well as income from operations and earnings per share All saw increases compared to the same periods in the prior year, both for the Q2 and for the first half of twenty twenty three. During the Q2, net sales grew 14.1% and gross profit increased 34.8%.

Speaker 2

During the first half of fiscal twenty twenty three, net sales grew 19.8% and gross profit grew 46 to our Q and A As we have mentioned before, OCC benefits from our strong operating leverage, which provides opportunities for shareholder value creation. Our sales order backlog and forward load continues to remain at higher than typical levels, approximately $8,000,000 at the end of the second quarter to fiscal year 2023 compared to more than $12,000,000 at the end of the Q4 of fiscal year 2022.

Speaker 3

To our Q and A.

Speaker 2

As you would expect, we are monitoring the evolving macroeconomic trends and potential risks that could impact our business. Certain of our markets are showing signs of softening. At the same time, we see positive indicators in certain of our other markets. To the operator. We will continue to monitor these macroeconomic trends and other indicators and work to make appropriate business adjustments as necessary as 2023 continues to unfold.

Speaker 2

The availability of skilled labor for our manufacturing facilities has This is a trend that we began to see in the latter part of last year. In addition, we have benefited this year from new members joining our manufacturing team and completing their training. Our supply chains have improved this fiscal year as well. We have also adjusted our raw material inventory levels in an effort to help accommodate unexpected fluctuations in materials availability. These efforts have helped, but not eliminated availability challenges of certain materials from time to time.

Speaker 2

To Importantly, we have also been replenishing our finished goods inventory levels this year. To this has enabled us to lower lead times and significantly increase our responsiveness to our customers for stocked products. To Looking ahead, we are continuing to execute our strategic initiatives to drive growth, work efficiently and safely And drive enhanced shareholder value. And with that, I will turn the call over to Tracy, who will review in additional detail our Q2 fiscal year 20 to Q3 financial results.

Speaker 3

Thank you, Neil. Consolidated net sales for the Q2 of fiscal 2023 We increased 14.1 percent to $19,600,000 compared to net sales of $17,200,000 for the same period last year. Consolidated net sales for the first half of fiscal twenty twenty three were 37 point during the Q2 and first half of fiscal twenty twenty three, we experienced an increase in net sales in our specialty markets compared to the same periods last year, during the Q2 and first half of fiscal year twenty twenty three compared to the same periods last year as well as our higher than typical levels of sales order backlog Additionally, improved product pricing increased to cover certain inflationary costs began to take effect for new orders received during the latter half of fiscal year twenty twenty two. To our Q2 results. As Neel mentioned, our sales order backlog and forward load continues to remain at higher than typical levels at approximately $8,000,000 at the end of the Q2 to the operator.

Speaker 3

Turning to gross profit. Gross profit increased 34.8 percent to $6,800,000 in the Q2 of fiscal 2023 That as a percentage of net sales increased to 34.6% in the Q2 of fiscal 2023 compared to 29.3% in the Q2 of fiscal 2022. Gross Profit was $13,300,000 in the first half of fiscal twenty twenty three, an increase of 46.5 percent compared to $9,100,000 in the to the first half of fiscal 2022. Gross profit margin increased to 35.1% in the first half of fiscal twenty twenty three As higher net sales levels are achieved, fixed manufacturing costs are spread over higher sales. This operating leverage positively impacted our gross profit margin during both the second quarter and first half of fiscal year twenty twenty three when compared to to the same period last year.

Speaker 3

SG and A expenses increased to $5,700,000 during the to the Q2 of fiscal 2023 compared to $5,000,000 for the same period last year. SG and A expenses as a percentage of net Sales were 28.9 percent in the Q2 of fiscal 2023 compared to 29.3% in the Q2 of fiscal 2022. SG and A expenses increased 13.3 percent to $11,100,000 during the first half of fiscal year twenty twenty three from $9,800,000 for the first half of fiscal year twenty twenty two. The increase in SG and A expenses during the 2nd quarter and first Half of fiscal year 2023 compared to the same periods last year was primarily the result of increases in employee and contracted sales personnel related costs. Included in employee and contracted sales personnel related costs are employee incentives and commissions, which increased due to increased net sales in the Imprea Financial Results During the Second Quarter and First Half of Fiscal twenty twenty three.

Speaker 3

To the operator. OCC recorded net income of $2,400,000 or $0.31 per basic and diluted share for the Q2 of fiscal 2023 compared to a net loss of $228,000 or $0.03 per basic and diluted share for the Q2 of fiscal 2022. To OCC recorded net income of $3,200,000 or $0.41 per basic and diluted share for the first half of fiscal year twenty twenty three Compared to a net loss of $1,200,000 or $0.16 per basic and diluted share for the first half of fiscal year twenty twenty two. To the Q2. In addition to improved sales and gross profit, the company's results for the Q2 and first half of fiscal twenty twenty three benefited from the gain on insurance proceeds received for damage to property and equipment totaling $1,700,000 which was recorded as other income net on the company's statement of operations during the Q2 and first half of fiscal year twenty twenty three.

Speaker 3

To the Q2 of fiscal year 2023, OCC received insurance proceeds in connection with the office building and its to the Q1 of 2019.

Speaker 2

Thank you. Thank you. Thank you.

Speaker 3

Thank you. Thank you. Thank you. Our next question comes from the line of John to the office building damage is separate from our manufacturing building, which houses the Asheville manufacturing operations and certain offices at the same location. There was no significant impact to our operations as a result of this event.

Speaker 3

Insurance proceeds received in excess of expenses incurred Through April 30, 2023, a net total of $1,700,000 is included in other income expense net as a gain on insurance proceeds received for damage to property and equipment on our condensed consolidated statement of operations. To the extent we incur expenses in future periods to restore, repair or replace damaged assets, we may recognize offsetting losses in those future periods. At this time, we do not expect future restoration and repair costs to exceed any insurance proceeds. To the operator. As of April 30, 2023, we had outstanding borrowings of $8,000,000 on our revolver and $5,000,000 in available credit.

Speaker 3

We also had outstanding loan balances of $4,400,000 under our real estate term loans. And with that, I'll turn the call back over to you Neal.

Speaker 2

Thank you, Tracy. And now if any analysts or institutional investors have questions, We are happy to answer them. Shelby, if you could please indicate the instructions for our participants to call in any questions they may have, I would appreciate it. Again, we are only taking live questions from analysts and institutional investors.

Operator

Thank you. We will pause for a moment to allow questions to queue. And it appears that we have no questions at this time. I will now turn the program back over to Neil Wilkin.

Speaker 2

Thank you, Shelby. Aaron, are there any questions that have been submitted by individual investors in advance to today's call.

Speaker 1

Yes, Neil. I do have a few questions submitted in advance of the call by non institutional shareholders. To the first oh, go ahead. I was

Speaker 2

going to say, if you go ahead and read them, we will answer those questions best we can.

Speaker 1

Wonderful. As a provider of integrated fiber connectivity solutions, how would you characterize How did the environment you find yourself in and how has that environment changed over the past few years?

Speaker 2

Well, the fiber optic and also copper cabling and connectivity industry has always been competitive. And we do focus on adjusting to changes in our markets. We have been able to successfully compete With much larger competitors in our markets in the markets we target and we believe that continues to be the case. And so we haven't been seeing A change there. We have done this for years by offering top tier Fiber Optic and Copper Cabling and Connectivity Solutions.

Speaker 2

This has enabled us to drive sales growth and coupled with our strong operating leverage enables us Also to achieve strong margins.

Speaker 1

Could you comment on demand from to infrastructure end markets such as water treatment and wastewater plants as well as the energy sector.

Speaker 2

Well, we don't like to comment on specific markets we target for competitive reasons, But OCC is seeing additional infrastructure end market opportunities. Many of the infrastructure End markets are directly in our wheelhouse and OCC has solutions specifically designed to benefit our customers as well as installers and end users.

Speaker 1

On your Web You show that OCC will soon offer manufacturing and substantial industrial solutions. Could you clarify whether OCC currently provides its customers with such systems?

Speaker 2

Sure. I'm a little unclear as to whether or not it's The question is talking about different market segments or not, but we do offer a wide range of specialty and harsh environment solutions, Including for manufacturing, industrial and also substation applications.

Speaker 1

Okay. Last question. Could you provide an update on the availability of skilled labor?

Speaker 2

Yes. So as I had mentioned earlier, the availability of skilled labor has improved for us. This is a trend we began to see in the latter part of last year, and we have benefited this year from the new members who have joined our team, particularly our manufacturing team, who have also completed their training.

Speaker 1

Great. That was the last question.

Speaker 2

Okay. Thank you, Aaron. I would like to thank everyone for into our Q2 of fiscal year 2023 conference call today. As always, we appreciate your time and your interest in Optical Cable Corporation. Thank you.

Operator

That concludes today's teleconference. Thank you for your participation. You may now disconnect.

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Key Takeaways

  • Strong revenue and profit growth: Q2 net sales rose 14.1% to $19.6 million and gross profit grew 34.8%, while net income swung to $2.4 million ($0.31/share) compared to a loss last year.
  • Robust operating leverage: Higher volumes and updated pricing drove gross margin to 34.6% in Q2 (up from 29.3%) by spreading fixed manufacturing costs over increased sales.
  • Elevated order backlog of about $8 million at quarter-end provides visibility into near-term demand, despite some softening in select end markets.
  • Operational improvements—better access to skilled labor, stabilized supply chains, and replenished finished-goods inventories—have lowered lead times and enhanced customer responsiveness.
  • Q2 results benefited from a one-time $1.7 million gain on insurance proceeds for facility damage, with no anticipated net repair overages.
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Earnings Conference Call
Optical Cable Q2 2023
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