OPTICAL CABLE CORP Q1 FY2025 earnings call

• Achieved growth in net sales (6%) and gross profit (24.6%) compared to Q1 last year.
• Market improvement continuing since industry weakness started in fiscal 2023, with improvements in enterprise, specialty, and military markets.
• Operating leverage driving gross profit margin expansion with increased volume.
• First quarter impacted by seasonality, but sales backlog and forward load grew 16% to $6.6 million.
• Improved net cash from operating activities.
• Monitoring tariffs and their potential impact on raw materials and exports; OCC's US-based manufacturing currently not anticipating significant impact but environment is fluid.
• Recognizing Buy America initiative as a potential advantage but not counting on it as the sole driver of growth.

Consolidated net sales for the first quarter of fiscal 2025 increased 6% to $15.7 million compared to $14.9 million in the same period last year. Gross profit increased 24.6% to $4.6 million, with gross profit margin at 29.4% vs. 25% last year. Net sales grew in both enterprise and specialty markets; international net sales increased 21.3% and US net sales rose 2.3%. At the end of Q1, sales order backlog and forward load increased 16% to $6.6 million compared to October 31, 2024.

• Outlook remains positive as per annual report, despite seasonality affecting the first half of the year.
• Industry downturn easing, but seasonality typically impacts the first half of the year.

• Monitoring proposed and enacted tariffs by the US and others for potential impact on raw material purchases and product exports.
• Fluid nature of the tariff environment makes it uncertain if there will be a significant impact on OCC.

Q: Could tariffs have a positive effect on OCC given its US-based manufacturing?

A: Tariffs could have both positive and negative impacts, and OCC will continue to monitor the situation. Supply chains are long, but currently, no significant impact is anticipated.

Q: Can BABA (Buy America, Built America) create an advantage for OCC over foreign competitors?

A: Yes, being US-based gives an advantage, and OCC hopes to benefit from BABA, though not counting on it as the sole driver of growth.

Q: How would you characterize the company's outlook going forward in light of recent changes since the annual report?

A: Outlook remains as stated in the annual report; still optimistic despite seasonality, with industry downturn easing but seasonality affecting the first half.

Q: Talk about operational leverage and sensitivity of revenue scenarios on EPS.

A: OCC has significant operating leverage, described in the 2025 annual report. Graphs in the letter show sensitivity of gross profit margin and SG&A expenses to net sales, with product mix also impacting results.

Q: Do you have a five-year revenue EPS per share goal?

A: OCC prepares multi-year projections but doesn't disclose them publicly.

Q: Are you benefiting from demand in AI data centers?

A: OCC has some regular business in the data center market and sees opportunities to benefit from AI-related data center demand, though it hasn't been a large part of the business to date.

Q: Can you discuss new products OCC plans to launch?

A: OCC reviews new product opportunities regularly but doesn't discuss upcoming launches prior to official release, focusing on serving customer special requests and needs.

Q: Has the outlook changed since the Q4 report?

A: No, outlook remains positive as stated in the annual report, with seasonality impacting the first quarter.

Q: Have there been fundamental changes in the industry versus the last 20 years that could affect OCC's revenue?

A: The need for increased communication bandwidth continues, positively impacting fiber optics and OCC, and the company is positioned well in the communications market.