Transcript
Good morning. My name is Stephanie, and I will be your conference operator today. I would like to welcome you to Optical Cable Corporation's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Ms. Felix, you may begin your conference.
Good morning, and thank you for joining us for Optical Cable Corporation's Fourth Quarter and Fiscal Year 2025 Conference Call. By this time, everybody 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.
Thank you, Caroline, 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 3-month and 12-month periods ended October 31, 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&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. Fiscal year 2025 was a solid year for OCC driven by the successful execution of our growth strategies and strong positioning in our target markets. We entered into a strategic collaboration with Lightera that expands our growth opportunities which we believe will be reflected in our top line in fiscal year 2026 and beyond. At the same time, we continue to operate efficiently and benefit from our strong operating leverage to drive gross profit growth. In fiscal year 2025, we realized the benefits of actions we took the previous year as the weakness across our industry during the second half of fiscal year 2023 and most of fiscal year 2024 subsided. As a result, in 2025, we were able to capture new opportunities and deliver consolidated net sales of $73 million. Our net sales increased during each quarter of fiscal year 2025 and compared to the same periods in fiscal year 2024. I'm pleased to share that OCC achieved growth by all measures during fiscal year 2025. Net sales grew by 9.5% and gross profit grew by 24.1%. Gross profit margin increased to 30.9% compared to 27.3% and SG&A expenses decreased as a percentage of net sales, all contributing factors to the significant improvements in operating results compared to fiscal year 2024. OCC benefited from strong operating leverage in fiscal year 2025, and we anticipate this will continue to bolster our results in fiscal year 2026 and beyond. Our manufacturing operating leverage tends to create disproportionate increases in gross profit as net sales and production volumes increase. While both gross profit and gross profit margin can be impacted by product mix, as OCC's net sales and production volumes increase, substantial fixed costs are spread over higher sales volumes. Importantly, manufacturing efficiencies also tend to increase particularly for fiber optic cable production. Gross profit disproportionately increased 24.1% as net sales increased 9.5% during fiscal year 2025. Our SG&A operating leverage also tends to be positively impacted by efficiency and profitability as net sales increase. Many SG&A expenses are relatively fixed costs rather than varying with net sales, including significant public company costs. As a result, OCC's SG&A expenses as a percentage of net sales typically decrease with increased net sales. OCC's commitment to pursuing new growth opportunities, including expanding our presence in targeted market sectors and the enhancement of our product solutions offerings, including those resulting from our strategic collaboration with Lightera will fuel our future success. As demand for cloud computing and artificial intelligence applications continues to accelerate, OCC is capturing the opportunity by expanding our existing presence and product solutions offerings for the data center market. We have continued to expand and innovate both our fiber optic cable product solutions offerings and our cable and connectivity product solutions offerings. As previously announced in July 2025, OCC and Lightera entered into a strategic collaboration agreement to expand product offerings and solutions especially for the data center and enterprise sectors. As a global leader in fiber optic and connectivity solutions, Lightera has a long history of industry-leading innovation, design and manufacturing capabilities, including the production of high-performance optical fibers. As respected manufacturers in the fiber optic industry, OCC and Lightera have partnered in various ways over many years, and this strategic collaboration builds on that long successful relationship. Through this strategic collaboration, OCC and Lightera expect to benefit from offering expanded fiber optic and copper cabling and connectivity solutions to the enterprise and data center sectors as well as an expanded presence in other sectors. The companies have combined portions of the extensive product portfolios of both OCC and Lightera to deliver integrated cabling and connectivity solutions offerings that will be sold by OCC. In connection with this strategic collaboration, Lightera has made an investment in OCC purchasing shares of OCC common stock from OCC and resulting in Lightera holding 7.24% of OCC's outstanding shares. Looking ahead, OCC remains uniquely positioned in the fiber optic and copper cabling and connectivity industry with differentiated core strengths and capabilities that enable us to offer top-tier products and application solutions and to compete successfully against much larger competitors. OCC is committed to enhancing and leveraging our core strengths and capabilities to drive long-term value for our shareholders. I'd like to highlight a few of those strengths for you today. First is our strong market positions, brand recognition and long-term industry relationships with loyal customers, decision-makers and specifiers, installers and integrators and end users across a broad range of targeted market sectors. Second is our extensive industry experience and expertise in OCC's engineering, sales and business development teams who are well respected for their product and application experience and expertise, which enables OCC to create and offer its portfolio of innovative, high-performance products. Next, OCC has a growing portfolio of innovative fiber optic and copper cabling and connectivity products and solutions that enable us to meet the unique needs of our customers and end users as they are well suited for the applications in our various targeted market sectors. We have significant availability of production capacity at our facilities, supported by knowledgeable and experienced manufacturing quality and engineering teams. Finally, our broad and diverse geographic footprint enables us to sell into approximately 50 countries every year. OCC has earned an exceptional reputation for its service excellence, innovation and entrepreneurial spirit, and we have built a team that embodies OCC's core strengths and capabilities. As we turn to fiscal year 2026, we are optimistic about our growth opportunities, encouraged by our successes this past year and excited to build on the growing momentum we are creating in our targeted market sectors. We look forward to leveraging our strengths and executing our strategies and initiatives to create long-term value for our shareholders. I'd like to thank the OCC team for its hard work, its commitment to OCC and those that count on us. Your contributions to the team's accomplishment this past year have been significant. Much has been accomplished by the OCC team this year, and we are confident we are well positioned for future growth in 2026 and beyond. I'd also like to thank our shareholders for your continued support of OCC. And with that, I'll turn the call over to Tracy, who will review an additional detail on our fourth quarter and fiscal year 2025 financial results.
Thank you, Neil. Consolidated net sales for fiscal year 2025 increased 9.5% to $73 million compared to net sales of $66.7 million for fiscal year 2024 with sales increases in both our enterprise and specialty markets. At the end of fiscal year 2025, our sales order backlog and forward load was $7.3 million compared to $5.7 million as of October 31, 2024. Looking forward, we anticipate additional growth opportunities during fiscal year 2026. We continue to expand our product solutions offering for the data center market as demand for cloud computing and artificial intelligence applications continues to accelerate. Consolidated net sales for the fourth quarter of fiscal year 2025 increased 1.8% to $19.8 million compared to $19.5 million for the same period in the prior year. We experienced an increase in net sales in both our enterprise and specialty markets during the fourth quarter of fiscal year 2025 compared to the fourth quarter of fiscal year 2024. Sequentially, OCC's net sales decreased less than 1% during the fourth quarter of fiscal year 2025 compared to net sales of $19.9 million for the third quarter of fiscal 2025. Turning to gross profit. Our gross profit increased 24.1% to $22.6 million in fiscal 2025 compared to $18.2 million for fiscal 2024. Gross profit margin, our gross profit as a percentage of net sales increased to 30.9% during fiscal 2025, up from 27.3% for 2024. Gross profit margin for fiscal year 2025 was positively impacted by higher volumes as fixed charges were spread over higher sales, the impact of 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. Gross profit decreased slightly to $6.3 million in the fourth quarter of fiscal 2025 compared to $6.5 million for the same period last year. Gross profit margin decreased to 31.9% in the fourth quarter of fiscal 2025 compared to 33.5% in the fourth quarter of fiscal 2024. During the fourth quarter of fiscal year 2025, there was no significant change in the gross profit when compared to the third quarter of fiscal 2025. Gross profit margin sequentially increased to 31.9% in the fourth quarter of fiscal 2025 compared to 31.7% during the third quarter of fiscal 2025. SG&A expenses increased to $23 million in fiscal year 2025 compared to $21.5 million in fiscal year 2024. SG&A expenses as a percentage of net sales were 31.4% in fiscal year 2025 compared to 32.2% in fiscal year 2024. SG&A expenses increased to $6 million in the fourth quarter of fiscal 2025 compared to $5.9 million for the same period last year. SG&A expenses as a percentage of net sales were 30.4% during the fourth quarter of 2025 compared to 30% during the same period of fiscal year 2024. The increase in SG&A expenses during the fourth quarter and fiscal year 2025 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, our compensation costs and sales incentives. While profitable during the second half of fiscal 2025, OCC recorded a net loss of $1.5 million or $0.18 per basic and diluted share for fiscal year 2025 compared to $4.2 million or $0.54 per basic and diluted share for the fiscal year 2024. OCC recorded net income of $49,000 or $0.01 per basic and diluted share for the fourth quarter of fiscal 2025 compared to net income of $373,000 or $0.05 per basic and diluted share for the fourth quarter of fiscal 2024. And with that, I'll turn the call back over to you, Neil.
Thank you, Tracy. We have received a number of questions in advance of the call today. We believe that those would be of interest to most participants. So we're willing to go through those questions first, and then we will address any remaining live questions from analysts and institutional investors. Because some of those questions overlapped, we did try to combine them in a manner that we're addressing the core questions that were submitted in advance. Caroline, if you could please read the questions. We're happy to provide our responses.
Thanks, Neil. The first question is, 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?
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. Of course, as you all know, OCC's products are best suited for multi-tenant data centers or MTDCs, and enterprise data centers, sometimes referred to as Tier 2 and Tier 3 data centers. We're currently working to expand our presence in portions of the data center market, and we're optimistic that the data center market, particularly this multi-tenant data centers and the enterprise data centers will provide an opportunity for revenue growth in fiscal year 2026.
Next question is, 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?
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. As of now, we currently expect that to be the case as well.
The next question is whether you believe OCC will have any hyperscale data center opportunities?
We've discussed this previously and have received this question before. Our product solutions for the data center market are particularly well-suited for multi-data centers and enterprise data centers. We see substantial growth opportunities in the multi-tenant data centers market segment as well as in enterprise data centers, especially for the MTDCs. This will create significant opportunities for OCC in fiscal year 2026. Additionally, as Tracy mentioned in her comments, multi-tenant data centers could be influenced by the ongoing growth in cloud computing and artificial intelligence. We believe this presents a genuine market opportunity for us.
Next question. What do you think the potential sales look like for 2026 and 2027?
Sure. As we said before, 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.
Next question. 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 inflect higher on the collaboration?
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.
Next question is, Q1 and Q2 are typically the weakest quarter in terms of seasonality. Should we still expect the typical seasonality into 2026?
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.
Got it. Next question. 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?
Well, without speaking specifically about the strategic collaboration with Lightera, what I'd say is that OCC products are best suited for Tier 2 or multi-tenant data centers and the enterprise data center market. That's really where our focus is, as we mentioned before. 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. 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.
In terms of capacity available and any capacity constraints, are there any changes versus what you commented on last quarter?
We continue to evaluate our capacity. Right now, we believe that OCC has the capacity to capture the growth opportunities that we expect to see in fiscal year 2026. I think that really answers that question.
Question. OCC has been hiring a lot recently. Can you comment if you have seen any issues in finding the right workers? Why you saw the need to hire that significantly? And if this will increase OpEx significantly?
Yes. 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 it'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. Like many 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. We do continue to expect to see hires, but I don't expect that to significantly increase operating expense specifically. We're consistently looking at what expenses we're incurring to provide the appropriate staffing as well as the appropriate balance of expense relative to our opportunities.
Thanks, Neil. Next question is, can you please provide an update on the progress of the Lightera collaboration?
Sure. OCC and Lightera partnered in various capacities for many, many years. 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. We think highly of the OCC team as well, obviously. We believe that the strategic collaboration will create growing opportunities for OCC in fiscal year 2026 and hopefully for Lightera also.
Last question this morning is, Lightera has recently announced an investment into manufacturing. Is this an indication of strong demand for OCC?
Well, OCC cannot comment on the announcements made by Lightera or their specific business plans. I suggest directing those questions to Lightera instead.
Thanks, Neil. We have no other questions that were provided in advance of the call today at this time.
Okay. So if those are the questions, I guess, operator, Stephanie, if you could let us know if there are any questions from analysts, and we're happy to answer them. If you could please, Stephanie give the instructions for the folks to ask those questions, that would be wonderful. Thank you.
We'll take our first question from Anthony Christ with Odyssey Investments.
Thank you very much. Mr. Wilkin, I have tried to call a few times; I'm located in Northern Virginia. My question is whether there is any indication that Lightera may refer us some of the SMF cabling, single-mode fiber cabling, or the hollow fiber cabling, which are essentially Tier 1 products. If you could take a moment to explain what those two products are, I would appreciate it. I have a follow-up question as well.
Hollow-Core fiber is designed to reduce latency and increase speed in various applications. This technology is likely applicable in a wide range of contexts. While our engineering team could provide more detailed insights, this is generally true. I can't speculate on Lightera's plans for utilizing that product. OCC collaborates with Lightera in different ways, and Lightera has been a major fiber producer, known for delivering high-performance products for many years. Our focus remains on traditional markets, including various enterprise segments and specialty markets such as harsh environments and military applications, where we employ specialized technologies. Although we've established a presence in data centers, we are now concentrating on expanding our reach and leveraging existing relationships, as well as broadening our product range. As for your question about SMF, it stands for single-mode fiber, which is commonly used in data centers, although multimode fiber is also an option.
And we'll take our next question from Shawn Boyd with Next Mark Capital.
He said he had a follow-up question, though. Did you want to take that, Stephanie, first? Anthony did.
Anthony, would you like to announce your follow-up?
Yes. Yes.
Your line is open, Anthony.
Okay. Dare I ask Neil, if those 2 fibers, the SMFs and the Hollow Core fibers would be competitive with the Corning fibers? And if any automation, AI would be given us by Lightera to produce them.
Yes, I'm not the best person to answer the question about how those are going to be used. There's a 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, from Rollable Ribbon fibers to many other types of fibers. They've been a leader for many years and are well-respected in that regard. How they plan to deploy those technologies in different markets is not something we can comment on directly. Those questions are really for Lightera if they choose to answer them, which they may not due to the proprietary nature of some of that. But if you're asking how they compare to Corning, I would suspect that, like other competitors, Lightera would have a very favorable view of their products, and I think the market does too.
And we'll take our next question from Shawn Boyd with Next Mark Capital.
It's a little low, but I think we've been able to make out what you're saying.
Okay. Let's give it a shot here. Historically, the company has shown real positive seasonality in its October quarter, its fourth quarter, up double digits sequentially. This year, we didn't quite see that. 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?
Well, first of all, generally, our seasonality is what we see in the first half of the year versus the second half of the year. I don't have the precise percentage in front of me, but I would expect the growth that we would have seen from the second quarter to the third quarter would be 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, most of the seasonality impacting the first half of the year and positive increases in the second half of the year.
And we did see our seasonality this year mirror that from 2024. For the second half of the year, I think it was 48% in the first half...
Of total sales.
I'm sorry, 46% of total sales in the first half of the year and the rest in the second half of the year, and that was exactly the same in 2025 compared to 2024.
Got it. Okay. That color is helpful. Appreciate that. As a follow-up, the collaboration with Lightera, which we inked back in July, you indicate that should 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, second half? And just as a follow-on, why is that taking this long? What are the gating factors before we see the revenue contribution of that?
Yes, that's a good question with many details, especially regarding what we anticipate for 2026. We do not provide specific forecasts, but we believe there will be a positive impact, as we've mentioned. However, collaborating with different companies demands significant effort, and there's a lot underway. We expect this will eventually influence sales, but I can't provide further comments on that. While I don't have the exact percentage right now, I can confirm that in the second quarter of 2025 compared to the third quarter, there was a favorable increase in sales. However, you shouldn't expect a similar trend between the third and fourth quarters due to the consistent seasonality we discussed.
There are no additional questions at this time. I'd like to now turn it back to our presenters for any additional or closing remarks.
Thank you, Stephanie. I appreciate everyone's questions. We'd like to thank everyone for listening to our fourth quarter and fiscal year 2025 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation. We hope that you and your families have a wonderful holiday and a happy new year. Thank you.
Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.