Good morning. My name is Emma. I will be your conference operator today. At this time, I would like to welcome everyone to the Optical Cable Corporation Fourth Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Palash. You may begin.

Thank you. Good morning, and thank you all for participating on Optical Cable Corporation's fourth quarter and fiscal year 2021 conference call. By this time, everyone should have a copy of the earnings press release issued earlier today. You can also visit 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, Aaron. 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 period and 12 month period ended October 31, 2021 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 today. In 2021, our team successfully executed ongoing initiatives to strengthen OCC during the pandemic and for the long term, positioning us to capture current and future growth opportunities, realize improved operating efficiencies and control and reduce costs. The COVID-19 pandemic continued to significantly impact the global economy during much of 2021 and it impacted OCC as well. We began the fiscal year with demand for our products impacted by the pandemic. While demand begin to grow during our second quarter, new macroeconomic pandemic-related challenges arose, in particular, supply chain disruption and tight labor markets impacted our operations and our results. The OCC team met these emerging challenges with creative problem solving and a focus on serving our customers, while protecting and strengthening our operational effectiveness and efficiency. I'm incredibly grateful to the OCC team and their dedication and tireless efforts this past year. It is their resilience, perseverance and hard work that has enabled OCC to navigate these turbulent times and to well position OCC for fiscal year 2022. My sincere and continued thank you to every member of the OCC team and their families.…

Thank you, Neil. Consolidated net sales for fiscal 2021 increased 7% to $59.1 million compared to net sales of $55.3 million for fiscal year 2020. Consolidated net sales for the fourth quarter of fiscal 2021 increased 14.4% to $15.9 million compared to net sales of $13.9 million for the same period last year. During the fourth quarter and fiscal year 2021, we experienced an increase in net sales in the wireless carrier and enterprise market compared to the same period last year. We believe net sales during fiscal year 2021, specifically beginning in the second fiscal quarter were positively impacted by the continued lifting of some restrictions and the re-opening of certain markets that had been negatively impacted by the COVID-19 pandemic. Additionally, we believe that we will continue to see a trend of improving demand for our products and an increase in net sales to the extent there are declines in the direct and indirect impacts of the COVID-19 pandemic on our customers, suppliers, workforce and end users. Turning to gross profit. Our gross profit increased 15.5% to $16.3 million in fiscal 2021 compared to gross profit of $14.1 million in fiscal 2020. Gross profit margin increased to 27.5% in fiscal 2021 compared to 25.5% in fiscal 2020. Gross profit increased 20% to $5.1 million in the fourth quarter of fiscal 2021 compared to gross profit of $4.2 million for the same period last year. Gross profit margin increased to 31.8% in the fourth quarter of fiscal 2021 compared to 30.3% in the fourth quarter of fiscal 2020. Our gross profit margins tend to be higher when the company achieved higher net sales levels, as certain fixed manufacturing costs are spread over higher sales. This operating leverage, which is beneficial at higher sales levels, positively impacted our gross profit…

Thank you, Tracy. And now if any analysts or institutional investors have any questions, we are happy to answer them. Emma, if you could please indicate the instructions for our participants to call in any questions they may have, I'd appreciate it. Again, we are only taking live questions from analysts and institutional investors.

[Operator Instructions] And we'll turn the program over to Neil.

Thank you, Emma. Aaron, I know there are some questions submitted by some individual investors in advance of today's call. If you could go through those, we will answer those questions.

Sure. First, who are your main competitors for military grade solutions and what positions you favorably against them? Do you expect the joint war fighting cloud capability program to have an impact on OCC's business?

Okay. OCC does have a number of different competitors in different targeted markets that OCC addresses with our military grade products and solutions. We compete against our competitors on product performance, customer service and importantly, the expertise and knowledge OCC's customers have come to rely on to address their varied and unique application requirements. As to the second part of the question, as I'm sure the individual investor knows, the JWCC is intended to increase security from threats, both inside and outside of existing cloud solutions used by the US military. The focus of the program is on cloud capabilities, so I'd expect cloud service providers will be the types of companies involved in this project primarily. Of course, OCC tends to benefit from expanded military spending in data communication infrastructure that requires cable and connectivity products. However, this time, we have not estimated any possible impact to OCC from this program.

Got it. Next question, over the past decade, OCC's revenue stream seems to have been rather stable with the added cyclicality of carrier and other large contracts. Speaking about OCC's growth potential, do you see that coming from further expansion of your product offerings or growth in demand for existing lines? Can you outline the trends that give you confidence in OCC's growth potential and headwinds OCC might be facing in the mid to long term?

Thanks, Aaron. So to answer the first part of the question, we see growth potential coming from both future expansion of our product offerings, as well as growth in demand for our existing cable and connectivity products and solutions. Even during the pandemic, OCC's new product development has continued. At this time, the state of the global macroeconomic environment and the pandemic, both of which are difficult to predict are really the biggest factors that would be headwinds facing OCC in the mid to longer term. We're well positioned in our markets and we've been effectively competing against much larger competitors, and we believe that will continue.

Great. Given OCC's existing capacity potential and assuming no outlandish growth, can you walk us through where you see opportunities to deploy incremental capital?

Okay. Aaron, thank you. We do believe as the impact of the pandemic on the global economy recedes that we will see additional cash flow growth and availability of additional capital. To date, our first priority of any investments has been to focus on continuing to improve our efficiency, and we've made some investments more recently in fact. However, we also evaluate potential investment in production of new products and increased production capacity when an appropriate business case justifies those investments.

Great. Do you have any difficulty finding qualified employees?

We've touched on this issue in some of comments that I've made and Tracy has made earlier in the call. What I'd also say is that OCC is very fortunate that in the regions of the country in which our facilities are located, we are normally able to find qualified employees to meet our needs. But like other companies, the pandemic has impacted labor availability, particularly recently, making it more difficult for us to add personnel in order to increase our production capacity. We have seen some recent improvement in our recruiting results, and we believe that will continue as the impact of the pandemic continues to recede.

Okay. Are you experiencing any supply chain issues or having difficulty getting materials?

We have touched on that previously in the call, but we'll expand briefly. We have experienced impacts on our supply chain because of the pandemic, like many others, and this creates challenges in obtaining some materials. Our team has been actively managing these challenges in order to minimize the impact on OCC and has largely been successful, which we're very appreciative of their efforts. The supply chain issues had impacted our revenue, though, and having some availability with supplies being volatile. But despite these challenges, we grew revenues this year and including growing revenues, 14.4% during the fourth quarter of fiscal year 2021.

Okay. So are you experiencing significant price increases from suppliers? If so, are you able to pass the cost along to customers?

And because of the supply chain disruption, many, including OCC are experiencing pressures on prices. We have seen increased costs from certain suppliers of certain raw materials, longer lead times and increased shipping costs. And while we do not like to increase prices to our customers, we have made some adjustments for particular products that we've been forced to do by the actions of our suppliers.

Sorry, I was on mute. What is your current backlog?

We haven't and typically don't provide a specific dollar amount of OCC's current sales order backlog or forward load. We do - we have talked about on this call, and we'll disclose in our filings in the coming either later today or the next couple of days. But our backlog has more than doubled since the beginning of this year. And so we're seeing that as very strong.

Do you plan on reinstating your share repurchase program in 2022?

No. At this time, we have no plans to reinstate the share repurchase program. We've had it in place for a while but suspended it previously and have - don't anticipate reinstating that at this time.

Do you expect to generate significant royalty income from your licensing agreement with CommScope?

We're not providing any estimates of OCC's expense or income related to our cross licensing agreements, which includes the CommScope cross licensing agreement. The CommScope cross license agreement was announced in May 2021. And we're very proud of the fact that we think this is another example of the capabilities OCC has demonstrated in various market categories and OCC's strong technological position in our industry.

Okay. Last question, can you elaborate on how your sales commission program is structured?

We don't talk about the specifics of that, although we do have both employees and contracted personnel that are part of our sales team across the country and across the globe. The actual terms can vary, but all the arrangements are typical as used by others in our industry.

Okay. That was the last question. So back to you, Neil.

Okay. Thank you, Aaron. And thank you all for your questions. I'd like to thank everyone for listening to our fourth quarter and fiscal year 2021 conference call today. As always, we appreciate your time and interest in Optical Cable Corporation. I hope everyone continues to be safe and has a happy holiday season, both for you and for your families. Thank you very much.

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