Earnings call transcript: Optical Cable sees strong Q2 2025 growth, stock drops

Optical Cable Corporation (OCC) reported a robust performance for Q2 of fiscal year 2025, with consolidated net sales rising by 8.9% year-over-year to $17.5 million. Despite this growth, the company faced a net loss of $698,000, though this was a significant improvement from the previous year. The stock, however, fell by 10.76% to $3.16, reflecting investor concerns despite positive sales figures. According to InvestingPro data, the company maintains strong liquidity with a current ratio of 2.06, indicating solid short-term financial stability.

Key Takeaways

• Q2 2025 net sales increased by 8.9% year-over-year.
• Gross profit margin improved by 5.3 percentage points to 30.4%.
• Net loss decreased by 56.4% from the previous year.
• Stock declined by 10.76% in recent trading.

Company Performance

Optical Cable Corporation demonstrated strong sales growth in the second quarter, driven by increased demand and improved manufacturing efficiencies. The company is recovering from a five-quarter industry slowdown and is seeing positive trends emerge, particularly in the military and enterprise markets where it maintains a strong competitive position. The diverse product offerings and domestic manufacturing capabilities have provided resilience against industry challenges. InvestingPro analysis reveals the company is trading at a low revenue valuation multiple, with additional insights available in the comprehensive Pro Research Report, part of InvestingPro’s coverage of over 1,400 US stocks.

Financial Highlights

• Consolidated Net Sales: $17.5 million (↑8.9% YoY)
• First Half FY2025 Net Sales: $33.3 million (↑7.5% YoY)
• Gross Profit: $5.3 million (↑32.1% YoY)
• Gross Profit Margin: 30.4% (↑5.3 percentage points YoY)
• Net Loss: $698,000 (↓56.4% from previous year)
• Sales Backlog: $7.2 million (↑26.3% from 10/31/2024)

Market Reaction

Despite the positive sales growth and improved gross margins, Optical Cable’s stock fell by 10.76% to $3.16. In pre-market trading, the stock saw a further decline of 1.9% to $3.10. This drop indicates investor concerns, possibly due to the ongoing net loss and broader market conditions affecting the tech sector. InvestingPro analysis suggests the stock is currently undervalued, with a market capitalization of just $23.12 million. The stock has shown strong momentum, gaining over 55% in the past six months, though it remains -12.47% year-to-date.

Outlook & Guidance

The company remains optimistic about the second half of FY2025, focusing on growth strategies and potential gross margin expansion. With a recovering market and emerging positive trends, Optical Cable expects continued improvement in sales and profitability.

Executive Commentary

• Neil Wilkin, CEO, expressed confidence in the company’s growth strategies, stating, "We are confident our focus on executing our growth strategies and capitalizing on operating efficiencies will drive positive results this year."
• Tracy Smith, CFO, highlighted the importance of fiber in their business model, saying, "Fiber is definitely the biggest portion of our business."
• Wilkin also addressed the tariff situation, noting, "We do continue to monitor the rapidly changing tariff landscape."

Risks and Challenges

• Continued net losses despite revenue growth.
• Potential impact of tariffs on supply chain operations.
• Market volatility affecting investor confidence.
• Competitive pressures in the data center and connectivity markets.
• Dependence on market recovery trends to sustain growth.

Q&A

During the earnings call, analysts focused on the company’s strategy for targeting Tier 2 and Tier 3 data centers, the minimal impact of tariffs on the supply chain, and the potential for improved margins with increased production volumes. These discussions highlighted the company’s strategic focus areas and operational leverage opportunities. For deeper insights into OCC’s financial health and growth potential, investors can access comprehensive analysis and additional ProTips through InvestingPro’s detailed research reports and advanced metrics.

Full transcript - Optical Cable Corporation (OCC) Q2 2025:

Spencer, Call Moderator, Optical Cable Corporation: Good morning, and thank you for joining us for Optical Cable Corporation’s Second Quarter Fiscal Year twenty twenty five 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, Optical Cable Corporation: Thank you, Spencer, and good morning, everyone. I will begin the call today with a few opening remarks. Tracy will then review the second quarter results for the three month and six month periods ended 04/30/2025, 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 and 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

Spencer, Call Moderator, Optical Cable Corporation: of our call.

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: During the second quarter, the OCC team delivered sales net sales growth and gross profit growth on both a year over year and a sequential basis. Strong execution by the OCC team coupled with our significant operating leverage also enabled us to deliver improved gross profit margins as we realized improved manufacturing efficiencies over higher production volumes. We continue to see positive industry trends from which we believe OCC will continue to benefit as the year progresses. At the end of our second quarter of fiscal twenty twenty five, our sales backlog and forward load had increased to $7,200,000 compared to $6,600,000 as of 01/31/2025 and $5,700,000 as of 10/31/2024. We are confident our focus on executing our growth strategies and capitalizing on operating efficiencies will drive positive results this year, including opportunities for gross profit margin expansion with increased production volume as we benefit from OCC’s significant operating leverage.

I’m proud of the OCC team whose hard work allowed us to deliver a strong start to the first half of fiscal twenty twenty five in a dynamic market environment. As we look ahead to the second half of the year, 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 Tracy, who will review in additional detail our second quarter of fiscal year twenty twenty five financial results.

Tracy Smith, Senior Vice President and Chief Financial Officer, Optical Cable Corporation: Thank you, Neil. Consolidated net sales for the second quarter of fiscal twenty twenty five increased 8.9% to 17,500,000 compared to net sales of $16,100,000 for the same period last year, resulting from increases in net sales in our specialty markets, while our enterprise markets were relatively stable. Sequentially, net sales increased 11.5% during the second quarter of fiscal year twenty twenty five compared to net sales of $15,700,000 for the first quarter of fiscal twenty twenty five. We experienced sequential increases in both our enterprise and specialty markets during the second quarter compared to the first quarter of fiscal year twenty twenty five. Consolidated net sales for the first half of fiscal twenty twenty five were $33,300,000 an increase of 7.5% as compared to net sales of $31,000,000 for the first half of fiscal twenty twenty four, with sales increases in both our enterprise and specialty markets.

As Neil mentioned, at the end of our second fiscal quarter of twenty twenty five, our sales order backlog and forward load increased to $7,200,000 compared to $6,600,000 as of 01/31/2025 and $5,700,000 as of 10/31/2024. Turning to gross profit. Our gross profit increased 32.1% or $1,300,000 to $5,300,000 in the second quarter of fiscal twenty twenty five compared to 4,000,000 for the same period last year. Gross profit margin or gross profit as a a percentage of net sales increased to 30.4% in the second quarter of fiscal twenty twenty five, up from 25.1% in the second quarter of fiscal twenty twenty four and twenty nine point four percent for the first quarter of fiscal year twenty twenty five. Gross profit was $10,000,000 in the first half of fiscal twenty twenty five, an increase of 28.5% compared to $7,800,000 in the first half of fiscal twenty twenty four.

Gross profit margin was 29.9% in the first half of fiscal twenty twenty five compared to 25% in the first half of fiscal twenty twenty four. Gross profit margin for the second quarter and first half of fiscal twenty twenty five 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 and A expenses increased to $5,700,000 in the second quarter of fiscal year twenty twenty five compared to $5,300,000 for the same period last year. SG and A expenses as a percentage of net sales were 32.7% in the second quarter of fiscal twenty twenty five compared to 33% in the prior year period.

By comparison, SG and A expenses as a percentage of net sales were 34.7% during the first quarter of fiscal year twenty twenty five. The increase in SG and A expenses during the second quarter and first half of fiscal year twenty twenty five 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. OCC recorded a net loss of $698,000 or $09 per basic and diluted share for the second quarter of fiscal twenty twenty five compared to a net loss of $1,600,000 or $0.21 per basic and diluted share for the second quarter of fiscal twenty twenty four. OCC recorded a net loss of $1,800,000 or $0.23 per basic and diluted share for the first half of fiscal year twenty twenty five compared to 3,000,000 or $0.39 per basic and diluted share for the first half of fiscal year twenty twenty four.

With that, I’ll turn the call back over to you, Neal.

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: Thank you, Tracy. And now if any analysts or institutional investors have questions, we are happy to answer them. Madison, if you could please indicate the instructions for our participants to call in any questions they may have, I’d appreciate it. And again, we are only taking live questions from analysts and institutional investors.

Conference Operator: Thank And we will take our first question from Manny Stukakis with GEO Investing. Please go ahead.

Manny Stukakis, Analyst, GEO Investing: Hi, how are guys doing? On your last call, guys talked about the significant demand from data centers. I wanted to

Spencer, Call Moderator, Optical Cable Corporation: know if you can

Manny Stukakis, Analyst, GEO Investing: tell us about it seems like the focus is not there to grow in that area, especially given that you guys do have an operating facility in Dallas. There’s tremendous infrastructure spend kind of booked out through 2029. I know there’s other manufacturers, you got The US manufacturing advantage in case it becomes all domestic. NVIDIA, TSSI, Dell are all in that Round Rock, Texas area. What am I missing?

Why aren’t we taking more advantage of this opportunity?

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: Well, I mean, the data center market is divided into several different categories. And what’s getting the most press and what’s getting what you’re hearing about NVIDIA and others, those are really at the hyperscale level. And so that is different type of product set that one OCC provides. We haven’t really targeted hyperscale data centers. We do have sales in the data center markets for Tier two and Tier three, which is really the multi tenant data centers and also in enterprise.

And we’re also looking to see how we can better address those markets. One of the things we did this year is we’ve added loose tube product offering to our product and some of those are used in data centers, in some cases in addition to tight buffer. So we’re seeing some benefit of that. I think that there’s more opportunity that we haven’t taken advantage of yet. But a lot of what you’re hearing is really at that hyperscale level.

Manny Stukakis, Analyst, GEO Investing: Well, hear what you’re saying on the hyperscale, but there are many small players who have a niche contribution to the data center market and they’re really focusing in that area and starting to see extreme benefits. Like I said, that you can look at TSSIs and the rack integration. There’s other ones in the colon like TGen. So I just was wondering, I know you touched on it on the last conference call and I just wanted to see if the focus and the growth opportunity is still there and if this is something you’re starting to see a little bit momentum in, but it sounds like it’s a little bit more slow go than maybe it was anticipated or?

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: We are starting to see some movement in that area, but it hasn’t been a major part of our sales at the moment. We’re seeing more growth in the areas like military, which is more squarely in our wheelhouse, but we are seeing opportunities in data centers and believe that we will benefit from that. But it will

Manny Stukakis, Analyst, GEO Investing: be Okay. Appreciate your time.

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: Thank you very much. It will be the smaller data centers. I appreciate your question. Thank you.

Manny Stukakis, Analyst, GEO Investing: Thank you.

Conference Operator: Thank you. And it appears that there are no further questions at this time. I will now turn the call back to Mr. Wilkin for closing remarks.

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: Well, before that Madison, what we will do is we’ve had some individual investors submit questions in advance. And Spencer, if you’d read the questions, Tracy and I will address those.

Spencer, Call Moderator, Optical Cable Corporation: Sure. So the first question, can you give a sense of potential operational leverage? For example, what’s your upside scenario or what your upside scenario can look like if revenue begins to jump while costs remain fixed? What could that look like?

Tracy Smith, Senior Vice President and Chief Financial Officer, Optical Cable Corporation: I’ll take that one. The best sense of operational leverage can be seen in our historic quarterly results. Because product mix also plays a significant role in our gross profit margin, it is difficult to predict or forecast how operational leverage will impact a specific quarter. However, we know that when we when certain fixed costs are spread over larger volumes, we benefit from that. Additionally, while we’re a smaller reporting company that requires significant fixed costs related to being public company, we also believe that we can increase sales to much higher levels without increasing those types of fixed costs at a similar level.

Hopefully, that gives some indication of how operational leverage can impact our results at higher sales levels. Also, if you review Neil’s letter to the shareholders in our 2024 annual report, you’ll see some descriptions, graphs and data regarding OCC’s operating leverage over varying sales levels.

Spencer, Call Moderator, Optical Cable Corporation: Thank you. The next question. What percentage of the business is related to copper and related to fiber? Or which one is bigger? Is it correct to say that copper market size declines and fiber is growing?

Tracy Smith, Senior Vice President and Chief Financial Officer, Optical Cable Corporation: Well, we don’t generally disclose information related to what percentage of our business is related to copper and what percentage is related to fiber. I can say that fiber is definitely the biggest portion of our business. However, even some of our fiber cables are what we call hybrid and include both fiber and copper. But having said that, the market for copper is still significant.

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: Do you want to go to the next question, Spencer?

Spencer, Call Moderator, Optical Cable Corporation: Thank you, Tracy. Can you update us on data centers, and the opportunity? Are there any changes over the last quarters?

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: So, Spencer, this is Neil and I think I’ve addressed most of that question in response to the question we got previously. We do see sales in the data center applications, significant, but we believe there are and will be additional opportunities for OCC in the future, particularly in the Tier two and Tier three data centers. We are evaluating our cable and connectivity offerings on an ongoing basis in order to address the needs of our customers and end users in our targeted markets. And as I’ve mentioned before, we have added loose tube fiber cable products to our offering, which also opens up some additional data center opportunities.

Spencer, Call Moderator, Optical Cable Corporation: Thanks, Neil. For the next question, can you update can you provide an update on the company outlook and how it compares to the situation at the end of Q1 and Q4?

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: Yes. As you all know, OCC does not provide any forward looking guidance. That said, we have disclosed in our public filings our sense of our market and industry trends and where we think the market is going. You recall that in the beginning of OCC’s Q twenty twenty four, the industry had come out of what had been a significant slowdown for approximately five quarters. We saw the benefit of that that market improvement in Q4 and in our results.

In Q1 of twenty twenty five, we grew 6% compared to the prior year and we saw an increase in our backlog compared to Q4. And as we announced today in Q2 twenty twenty five, we grew 8.9% compared to the prior year and we saw another increase in our backlog compared to the end Q1. Of course OCC’s sales have long been subject to seasonality with the first half of the year typically having lower sales than the second half of the year. We believe we are seeing positive trends and at this time we are optimistic looking at the second half of fiscal year twenty twenty five.

Spencer, Call Moderator, Optical Cable Corporation: Thanks, Neal. The next question is, can you provide an update on tariffs impact and also if you are benefiting at all from Build in America trends?

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: Thank you. So, like others OCC has seen impact from tariffs. However, what we’ve experienced has been less of an impact in our supply chains than we believe others in our industry have experienced. OCC’s three manufacturing facilities are all located in The U. S.

And of course we benefit from that fact. We have seen impacts from tariffs on certain products and also some from in our exports. And tariffs, as you all know, can be further down the supply chain and it’s not simply where we’re who our supplier is, but who our supplier’s supplier is. And so it ends up being a little bit complicated. We do continue to monitor the rapidly changing tariff landscape and are making appropriate adjustments.

Spencer, Call Moderator, Optical Cable Corporation: Thanks, Neal. Next question. The backlog you report each quarter, is it more of a sign of next quarter demand or full year demand?

Tracy Smith, Senior Vice President and Chief Financial Officer, Optical Cable Corporation: The backlog and forward load that we report each quarter includes all confirmed orders for product regardless of when it is expected to ship. So some orders are placed with a short lead time to ship date and some are placed well in advance by the customer for shipment months into the future, depending on the project needs. So it can be demand for the next quarter or later.

Spencer, Call Moderator, Optical Cable Corporation: Thank you. Next question. Do you expect to see sequential revenue growth over the next few quarters?

Tracy Smith, Senior Vice President and Chief Financial Officer, Optical Cable Corporation: Well, provide revenue guidance. However, as we have disclosed previously, we do generally see some seasonality in our sales with sales typically heavier in the second half of the fiscal year. For example, in fiscal year twenty twenty four, approximately 46% of our sales occurred during the first half of the fiscal year and approximately 54% of our sales occurred during the second half of the fiscal year, primarily due to the seasonality impact. Other factors can make a difference to that seasonality impact though.

Spencer, Call Moderator, Optical Cable Corporation: Thank you. And now the final question. What gross margin would the company be able to achieve at full capacity?

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: So not surprisingly, we can’t provide specific gross profit margin that we will experience at specific sales levels or if you’re looking at a production volume capacity measure, because the answer is very dependent on product mix and that makes up that additional production volume. However, I would point to the gross margins OCC achieved in the past at higher volumes including Q4 twenty twenty four and Q1 and Q2 twenty twenty three before the industry slowdown that impacted OCC’s top line revenues during the approximate five quarters during the industry slowdown. Also based on what we’ve seen, we experienced less of a slowdown than a lot of our competitors did. And so I think that goes to the diversification of our product offering. Also Tracy had previously mentioned in my letter to shareholders, it’s included in our annual report, we talk a lot about the operating leverage and give some graphs and data that I think would be useful for Mark to look at and get a sense of where we see differences as we grow.

Spencer, Call Moderator, Optical Cable Corporation: Well, thank you, Neil. That was the last question.

Neil Wilkin, President and Chief Executive Officer, Optical Cable Corporation: Okay. Well, I appreciate everyone who submitted questions and those that asked questions And I want to thank everyone for listening to our second quarter fiscal year twenty twenty five conference call. As always, we appreciate your time and your investment in Optical Cable Corporation. Thank you.

Conference Operator: Thank you. This does conclude today’s presentation. Thank you for your participation. You may disconnect at any time.

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