Optical Cable Corporation Q4 FY2025 earnings call

• Fiscal year 2025 was solid driven by successful execution of growth strategies and strong positioning in target markets.
• Entered into a strategic collaboration with Lightera expanding growth opportunities, with Lightera investing in OCC and holding 7.24% of outstanding shares.
• Key strengths include strong market positions, industry experience, innovative product portfolio, production availability, and broad geographic footprint.
• Data center market growth driven by cloud computing and AI, with OCC expanding its presence in this market.

Consolidated net sales for fiscal year 2025 were $73 million, an increase of 9.5% compared to fiscal year 2024. Gross profit was $22.6 million in 2025, up 24.1% from $18.2 million in 2024, with a gross profit margin of 30.9% vs. 27.3% in 2024. SG&A expenses were $23 million in 2025 compared to $21.5 million in 2024. For the fourth quarter of fiscal 2025, net sales were $19.8 million, up 1.8% from the prior year. Gross profit was $6.3 million in Q4 2025, slightly down from $6.5 million in Q4 2024, with a gross profit margin of 31.9% vs. 33.5% in Q4 2024.

• Optimistic about growth opportunities in fiscal year 2026, anticipating benefits from operating leverage continuing to bolster results.
• Expect the strategic collaboration with Lightera to reflect in top line in fiscal year 2026 and beyond, but no specific financial guidance provided.

• Seasonality impact on Q1 and Q2 with typical weakness in these quarters.
• Potential project delays in certain market sectors, though not significantly impacting overall growth.
• Product mix can impact gross profit margin, which is difficult to predict.

Q: Can you update us on the data center opportunity in general, how you feel about it if the opportunity has strengthened or not during the quarter? And any major changes or updates?

A: Yes. We believe like others in our industry that the data center markets are strong and will continue to grow. I wouldn't say that it had a significant impact in our fourth quarter, but we believe that it will start to impact us in fiscal year 2026. OCC has a presence in the data center market with established market relationships as well as products.

Q: Over the last quarter, you have been commenting on improvements in OCC end markets. Have those improvements continued into Q4? Can you comment on new and emerging trends or risks?

A: Yes, OCC continues to see strength in most of our targeted market sectors. There are certain market sectors where we've seen some projects delayed, but we do not believe that this has negatively impacted OCC's growth this year or that it would negatively impact OCC's growth in fiscal year 2026. We also believe that the continued growth opportunities in OCC's targeted market sectors for fiscal year 2026 continue to be significant. Of course, as we have said in the past and experienced in the past, during the first half of each year, OCC does experience the impact of seasonality. And as of now, we currently expect that to be the case as well.

Q: What do you think the potential sales look like for 2026 and 2027?

A: We don't provide forward-looking guidance. However, I will say that we are optimistic about potential increases in sales based on the opportunities that we expect to arise in fiscal 2026, particularly during the second half of fiscal 2026. Our belief is based on what we're seeing in our targeted market sectors as well as our expected opportunities to expand in those market sectors as a result of the strategic collaboration with Lightera.

Q: Is the focus still on Tier 2 data centers? Or is there some potential to capture some of the Tier 1 data center demand as part of your collaboration?

A: OCC products are best suited for Tier 2 or multi-tenant data centers and the enterprise data center market. And so that's really where our focus is, as we mentioned before. And I would not expect that OCC to directly have any significant participation in Tier 1 or hyperscale data centers. Doesn't mean there couldn't be some impact at some level. And of course, those growth in Tier 1 data centers in the market, can impact what kind of growth is being seen in Tier 2 for multi-tenant data centers and other parts of the market. But directly, I wouldn't expect us to have a significant participation at all in the Tier 1 or hyperscale data centers.

Q: OCC has been hiring a lot recently. Can you comment if you have seen any issues to find the right workers? Why you saw the need to hire that significantly? And if this will increase OpEx significantly?

A: I don't know if I'd characterize our hiring recently as significant. We do have a number of open positions that we are seeking to fill, and that's not unusual for that to be the case. Most of those positions are typically in manufacturing. We are fortunate that OCC has a good record of recruiting and retaining needed talent. But I think like a lot of businesses generally, not just in our industry, OCC has seen some additional turnover among newly hired personnel. However, OCC has what we believe is a record of unusually low turnover among our longer-term employees. So we do continue to expect to see hires. I don't expect that to significantly increase operating expense specifically. And of course, we are consistently looking at what expenses we're incurring in order to provide the appropriate staffing as well as the appropriate balance of expense relative to our opportunities.

Q: Can you give a sense of the financial metrics behind the operational leverage? For example, how much EPS can impact different forward sales levels if they do, in fact, inflect higher on the collaboration?

A: We can't give you a specific formula. As you all know, operating leverage as a result of fixed cost and manufacturing and also in SG&A costs being spread over higher sales. Manufacturing operating leverage is also impacted by product mix sold, which is not a variable that's very easy to predict.

Q: Q1 and Q2 are typically the weakest quarter in terms of seasonality. Should we still expect the typical seasonality into 2026?

A: As Neil mentioned, we do continue to see a seasonality impact in our first and second quarters, although there can be exceptions particularly if there are larger orders that impact the first half of the year, or unanticipated macroeconomic conditions during the year.

Q: Is the focus still on Tier 2 data centers? Or is there some potential to capture some of the Tier 1 data center demand as part of your collaboration?

A: OCC products are best suited for Tier 2 or multi-tenant data centers and the enterprise data center market. And so that's really where our focus is, as we mentioned before. And I would not expect that OCC to directly have any significant participation in Tier 1 or hyperscale data centers. Doesn't mean there couldn't be some impact at some level. And of course, those growth in Tier 1 data centers in the market, can impact what kind of growth is being seen in Tier 2 for multi-tenant data centers and other parts of the market. But directly, I wouldn't expect us to have a significant participation at all in the Tier 1 or hyperscale data centers.

Q: In terms of capacity available and any capacity constraints, are there any changes versus what you commented on last quarter?

A: We continue to evaluate our capacity. But right now, we believe that OCC has the capacity to capture the growth opportunities that we expect to see in fiscal year 2026. So I think that really answers that question.

Q: Can you please provide an update on progress of the Lightera collaboration?

A: Sure. So OCC and Lightera partnered in various capacities for many, many years. And so it's not surprising because we worked well with them in the past that our new strategic collaboration with Lightera, I believe, is going well. The Lightera team is exceptional. And we think highly of the OCC team as well, obviously. And we believe that the strategic collaboration will create growing opportunities for OCC in fiscal year 2026 and hopefully for -- although I can't speak for Lightera, and for Lightera also.

Q: Lightera has recently announced an investment into manufacturing. Is this an indication of strong demand for OCC?

A: Well, we can't -- OCC really can increment on announcements that Lightera has made or what their specific business plans are. So I'd leave those questions for Lightera rather than OCC.

Q: My question deals with, is there any visibility into whether or not Lightera may refer us some of the SMF cabling, single-mode fiber cabling or the hollow fiber cabling, which is basically Tier 1 products. And if you could -- I know the words -- if you could take a minute and explain what those 2 products are, I'd appreciate it. And then I have a follow-up.

A: Okay. So Hollow-Core on the -- is the type of fiber that's really looking to reduce latency and increased speed in certain applications. And so that is something that probably is usable in a lot of different applications. And our engineering team would be better able to answer that question, but as a general matter, that's the case. I think that I can't comment on what people are thinking about with respect to or what Lightera is thinking about with respect to how they're going to use that product. But OCC, we partnered with Lightera in a number of different ways, and Lightera is a large fiber producer of various different products that have been leading performance in the industry for many, many years. So again, our products are more focused on the traditional markets that we've had, enterprise, various parts of the enterprise market as well as a number of specialty markets, including harsh environment and military and others. We use some specialty technologies in some of those products. And then in data centers. We've had a presence in data centers before, but now we're focusing on expanding that and leveraging our current relationships and also focusing on expanding our product offering. I don't know if that really helps specifically on your question. SMF, specifically, I think, of just a single mode fiber. So that's a more typical product that would be used in data center, although multimode fiber is also used.

Q: Dare I ask Neil, if those 2 fibers, the SMFs and the Hollow case fibers would make -- were competitive with the Corning fibers? And if any automation, AI would be given us by Lightera to produce them.

A: Yes, I'm not the best person to answer the question about how those are going to be used. And there's a whole lot of intellectual property and strategy that goes behind which fibers are going into which applications and what plans the fiber manufacturers have. What I can just say is that Lightera is known for having leading technology in fiber development, everything from the Rollable Ribbon fibers to many, many other types of fibers. They've been a leader in many ways and are well respected in that regard. How they plan to deploy those technologies in different markets, is not really something that we can comment on. And those are questions that will really be left to Lightera, if they choose to answer them, which they may not be because of the proprietary nature of some of that. But Anthony, one thing I guess I would add is if you're asking how they compare to Corning, I would suspect that as with any other competitors, Lightera would have a very favorable view of their products, and I think the market does too.

Q: Historically, the company has been -- has shown real positive seasonality in its October quarter, it's fourth quarter, up double digits sequentially. This year, we didn't quite see that. And I thought I might have heard something about delays. So the question is, were there any project delays or pushouts that might have caused that?

A: Well, first of all, generally, our seasonality is what we see in the first quarter versus the second quarter -- I mean, excuse me, the first half of the year versus the second half of the year. So I don't have the precise percentage in front of me, but the growth that we would have seen from the second quarter to the third quarter would have been, I would expect in double digits. Sequentially, that wasn't the case from Q3 to Q4, but I would expect Q3 and Q4 to be more equal. Again, with most of the seasonality being impacting the first half of the year and seeing positive increases in the second half of the year.

Q: The collaboration with Lightera, which we inked back in July, you indicate that should -- would you start to see that impact the top line in 2026. Can you give us any more color on that? Can we see that in the first half, would it be the second half? And just as a follow-on, why is that taking this long? What is it that -- what are the gating factors before we see the revenue contribution of that?

A: Yes. I mean, it's a good question. It also has a lot of details behind it, say specifically what we're going to see in 2026. We don't provide forecast on what we're going to see -- we do think we're going to see a positive impact, and we've stated that. With respect to the collaboration, as you'd imagine, when you're working with companies in a different way that there is a lot of work that goes into that I think that the work is going well and expeditiously and that there's a lot of work that's being done, you'd expect that, that would be the case before it started to impact sales, but I can't, beyond that, comment on what it is. I think that what I'd also -- I don't have the quite percentage -- if you'll just hold on for a second. So there was -- I was just confirming -- you talked about the double-digit increase because of seasonality. If you look at what our performance was in the second quarter of 2025 versus the third quarter 2025, that does create -- that we do see a double-digit increase in sales, which is consistent with the observation that you had made but you wouldn't necessarily expect to see that between the third and fourth quarter because of the seasonality between the first half and the second half, as we described, is fairly consistent.