Optical Cable Corporation (OCC) Q3 2021 Earnings Report, Transcript and Summary

00:02 Good morning. My name is Britney, and I will be your conference operator today. At this time, I would like to welcome you to the Optical Cable Corporation third Quarter twenty twenty one Earnings Conference Call. All lines have been placed on mute to prevent any noise. [Operator Instructions] Please note, this call may be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Aaron Palash. Mr. Palash, you may begin your conference.

00:37 Perfect. Thank you. Good morning and thank you all for participating on Optical Cable Corporation's third quarter fiscal year twenty twenty one 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. 01:07 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 content of the Internet webcast on www.occfiber.com, as well as today's call. 01:33 With that, I'll turn the call over to Neil Wilkin. Neil, please begin.

01:38 Thank you Aaron, and good morning, everyone. I will begin the call today with a few opening remarks. Tracy will then review the third quarter results for the three month and nine month periods ended July thirty one twenty twenty one in some additional detail. After Tracy's remarks we will answer as many of your questions as we can. 02:00 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 opportunities to make 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 today. 02:26 During the third quarter, we delivered solid results by executing our targeted growth strategies and maintaining a deep focus on operating as efficiently as possible. We are optimistic and continue to see positive indicators of future strengthening in many of our markets with increasing sales and production volumes during our fiscal second and third quarters compared to last year. 02:53 Net sales increased fourteen point six percent during the third quarter and gross profits increased seventeen point eight percent in both cases compared to the same period last year. Our net sales continue to benefit from the lifting of some restrictions and reopening of certain markets that had been negatively impacted by the COVID-nineteen pandemic with stronger gains in our U.S. Markets than in other markets. 03:22 We are also seeing significant increases in our sales order backlog/forward load as we enter the fourth quarter. At the same time, the OCC team is working to proactively manage certain challenges, including obtaining desired volumes of some raw materials, expanding certain areas of our workforce and limiting certain cost increases. 03:50 OCC’s third quarter results reflect the hard work of our team and the steps we continue to take to protect the business, build on our strong place in the market and position the company to succeed as the effects of the pandemic subside. 04:07 Additionally, we have successfully taken steps to control costs and improve efficiencies, efforts which are ongoing. Year to date, through the third quarter of fiscal year twenty twenty one, we have decreased SG&A expenses one point five million dollars or ten point one percent compared to the same period last year. 04:32 With OCC’s differentiated core strengths and capabilities, as well as our enviable market positions, we remain confident that we will capture opportunities ahead and deliver value to our shareholders as market conditions continue to improve. 04:49 We believe that OCC is well positioned in our markets as we provide our customers with mission critical cable connectivity products and solutions and as we execute on our strategies to deliver enhanced value for shareholders. 05:06 And with that, I'll turn the call over to Tracy Smith, who will review an additional detail our third quarter of fiscal year twenty twenty one financial results.

05:17 Thank you, Neil. Consolidated net sales for the third quarter of fiscal twenty twenty one increased fourteen point six percent to fifteen point six million dollars compared to net sales of thirteen point six million dollars for the third quarter of fiscal twenty twenty. 05:34 Net sales increased in both our enterprise and specialty markets, including the wireless carrier market in the third quarter fiscal year twenty twenty one compared to the same period last year. 05:46 We believe net sales during the third quarter of fiscal year twenty twenty will positively impact as compared to the same period last year by the continued lifting of some restrictions and reopening of certain markets that have been negatively impacted by the COVID-nineteen pandemic. 06:02 Net sales to customers in the United States increased sixteen point six percent and net sales to customers outside of the United States increased six point three percent in the third quarter of fiscal year twenty twenty one, compared same period last year. Consolidated net sales for the first nine months of fiscal twenty twenty one were forty three point three million dollars, an increase of four point five percent compared to net sales of forty one point four million dollars for the same period last year. 06:34 Turning to gross profit, gross profit was four point one million dollars in the third quarter of fiscal twenty twenty one, an increase of seventeen point eight percent compared to three point five million dollars in the third quarter of fiscal twenty twenty. 06:49 Gross profit margin, our gross profit as a percentage of net sales increased to twenty six point two percent in the third quarter of fiscal twenty twenty one compared to twenty five point five percent in the third quarter of fiscal twenty twenty. 07:05 Gross profit was eleven point two million dollars in the first nine months of fiscal twenty twenty one, an increase of thirteen point six percent compared to nine point nine million dollars in the first nine months of fiscal twenty twenty. 07:19 Gross profit margin increased to twenty five point nine percent in the first nine months of fiscal twenty twenty one compared to twenty three point nine percent in the first nine months of fiscal twenty twenty. 07:31 Our gross profit margins tend to be higher when the company achieved higher net sales levels as certain fixed manufacturing costs were spread over higher sales. This operating leverage, which is beneficial at higher sales levels, positively impacted our gross profit margins for the three and nine month periods of fiscal year twenty twenty one. 07:51 Additionally, actions that we took in fiscal years twenty twenty and twenty nineteen contributed to the increase in our gross profit margin in the first nine months of fiscal year twenty twenty one, resulting in an improved gross profit margin when compared to the first nine months of fiscal year twenty twenty. 08:07 Our gross profit margin percentages are also heavily dependent upon product mix on a quarterly basis and they vary based on changes and product mix from quarter to quarter. S&A expenses decreased slightly to four point five million dollars during the third quarter in fiscal twenty twenty one, even as sales increased, compared to four point six million dollars for the same period last year. 08:34 SG&A expenses as a percentage of net sales were twenty nine percent in the third quarter of fiscal twenty twenty one compared to thirty three point four percent in the third of fiscal twenty twenty. 08:47 SG&A expenses decreased ten point one percent to thirteen point four million dollars during the first nine months of fiscal twenty twenty one compared to fourteen point nine million dollars in the same period last year. 09:00 SG&A expenses as a percentage of net sales were thirty one percent in the first nine months of fiscal twenty twenty one compared to thirty six point one percent in the first nine months of fiscal twenty twenty. 09:13 The reduction in SG&A expenses during the third quarter and first nine months of fiscal twenty twenty one compared to the same period last year was primarily a result of net decreases in employee and contracted sales personnel related costs, bad debt expense, legal and professional fees, and certain other costs impacted by the COVID-nineteen pandemic. The reduction in employee and contracted sales personnel related costs and other costs also were positively impacted by SEC’s ongoing cost control initiatives. 09:46 OCC recorded net income of five point four million dollars or zero point seven one dollars per basic and diluted share for the third quarter of fiscal twenty twenty one compared to a net loss of one point four million dollars or zero point two zero dollars per basic and diluted share for the third quarter of fiscal twenty twenty. 10:06 OCC recorded net income of six point six million dollars or zero point eighty eight dollars basic and diluted share for the first nine months of fiscal twenty twenty one compared to a net loss of five point seven million dollars or zero point seven eight dollars per basic and diluted share for the first nine months of fiscal twenty twenty. 10:25 On July 1, twenty twenty one the Small Business Administration forgave the entire balance of our Paycheck Protection program line, including accrued interest that we received on April fifteen, twenty twenty. As a result, we recognized the gain on the extinguishment of debt of approximately five million dollars in the third quarter and first nine months of fiscal year twenty twenty one. 10:49 Also during the first nine months of fiscal year twenty twenty one, we recognized a refundable payroll tax credit totaling four point three million dollars nine hundred and sixty five thousand dollars of which was recognized during the third quarter of fiscal twenty twenty one. 11:05 The refundable payroll tax credit is part of the employee retention tax credit or ERTC created by the CARES Act and then subsequently amended by the Consolidated Appropriation Act of twenty twenty one and the American Rescue Plan Act of twenty twenty one for qualified businesses that are keeping employees on their payroll during the COVID-nineteen pandemic. We do not expect to receive any additional credits for the remainder of the calendar year. 11:33 As of July thirty one, twenty twenty one, we had three point six million dollars and recognized ERTC still to be refunded. As of July thirty first, twenty twenty one, we had outstanding borrowings of five point six million dollars on our revolver and two point two million dollars in available credit. We also had outstanding loan balances of four point nine million dollars under our real estate term loan. 11:59 And with that, I'll turn the call back over to Neil.

12:02 Thank you, Tracy. And now, if any institutional investors or analysts have questions, we are happy to answer them. Britney, if you could please indicate 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.

13:08 Thank you, Britney. Aaron, are there any questions that were submitted by individual investors in advance on the call today?

13:15 Neil, I do not have any questions submitted in advance to the call.

13:20 Okay. Thank you. I would like to thank everyone for attending our third quarter conference call today. As always, we appreciate your time and your interest in Optical Cable Corporation. 13:34 In closing, this past Saturday marked the twentieth anniversary of the nine/eleven attacks on our country. We remember and thank all of those brave men and women who defended to defend our freedom and Liberty and the first responders who serve our nation and our communities. Thank you all.

14:02 This does conclude today's program. Thank you for your participation. You may disconnect at any time.