Earnings Call: Q3 2021

Sep 13, 2021

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 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. You may register to ask a question at any time by pressing the star and one on your touch tone phone. 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. Call. Perfect. Thank you. Good morning and thank you all for participating on Optical Cable Corporation's Q3 fiscal year 2021 conference call. 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. Call. 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. Call. These cautionary statements apply to the contents of the Internet webcast on www.occfiber.com as well as today's call. Call. With that, I'll turn the call over to Neil Wilkins. Neil, please begin. Thank you, Aaron, and good morning, everyone. Call. I will begin the call today with a few opening remarks. Tracy will then review the 3rd quarter results for the 3 month 9 month periods ended July 31, 2021, in some additional detail. Call. 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 and A session. However, we also offer other shareholders Call. The opportunity to submit questions in advance of our earnings call. Instructions regarding such submissions are included During the Q3, we delivered solid results by executing our targeted growth strategies and maintaining a deep focus on operating as efficiently as Call 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. Call. Net sales increased 14.6% during the Q3 and gross profits increased 17.8% Inc. In both cases compared to the same period last year. Our net sales continue to benefit Conference from the lifting of some restrictions and reopening of certain markets that had been negatively impacted by the COVID-nineteen pandemic Conference with stronger gains in our U. S. Markets than in other markets. We are also seeing significant increases in our sales order backlog forward load as we enter the 4th quarter. At the same time, the OCC team is working to proactively manage certain challenges, including obtaining desired volumes of some raw materials, expanding Call. OCC's 3rd quarter results reflect the hard work of our team and the steps we continue to take to protect the business, Call. Additionally, we have successfully taken steps to control costs and improve efficiencies, efforts which are ongoing. Call. Year to date, through the Q3 of fiscal year 2021, we have decreased SG and A expenses $1,500,000 or 10.1 percent compared to the same period last year. Call. With OCC's differentiated core strengths and capabilities as well as our enviable market positions, Call. We remain confident that we will capture opportunities ahead and deliver value to our shareholders as market conditions continue to improve. Call. We believe that OCC is well positioned in our markets as we provide our customers with mission critical cabling and connectivity Products and Solutions and as we execute on our strategies to deliver enhanced value for shareholders. And with that, I'll turn the call over to Tracy Smith, who will review in additional detail our Q3 of fiscal year 2021 financial results. Call. Thank you, Neil. Consolidated net sales for the Q3 of fiscal 2021 increased 14.6% to $15,600,000 compared to net sales of $13,600,000 for the Q3 of fiscal 2020. Call. Net sales increased in both our enterprise and specialty markets, including the wireless carrier market in the Q3 of fiscal year 2021 compared to the same period last year. We believe net sales during the Q3 of fiscal year 2021 were positively impacted compared to the same period last year by the continued lifting of some restrictions and reopening of certain markets that had been negatively impacted by the COVID-nineteen pandemic. Call. Net sales to customers in the United States increased 16.6 percent and net sales to customers outside of the United States increased 6 point 3 percent in the Q3 of fiscal year 2021 compared to the same period last year. Consolidated net sales for the 1st 9 months of fiscal 2021 were $43,300,000 an increase of 4.5% compared to net sales of $41,400,000 for the same period last year. Turning to gross profit. Gross profit was $4,100,000 in the 3rd quarter of fiscal 2021, an increase of 17.8% compared to $3,500,000 in the Q3 of fiscal 2020. In the Q3 of fiscal 2021 compared to 25.5% in the Q3 of fiscal 2020. Gross profit was $11,200,000 in the 1st 9 months of fiscal 2021, an increase of 13.6 percent compared to $9,900,000 in the 1st 9 months of fiscal 2020. Gross profit margin increased to 25.9 percent in the 1st 9 months of fiscal 2021 compared to 23.9% in the 1st 9 months of fiscal 2020. Call. Our gross profit margins tend to be higher when the company achieves higher net sales levels as certain fixed manufacturing costs are spread over higher sales. Segment. This operating leverage, which has beneficial at higher sales levels, positively impacted our gross profit margins for the 3 to 9 month periods of fiscal year 2021. Call. Additionally, actions that we took in fiscal years 2020 2019 contributed to the increase in our gross profit margin in the 1st 9 months of fiscal year 2021, resulting in an improved gross profit margin when compared to the 1st 9 months of fiscal year 2020. Call. Our gross profit margin percentages are also heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix from quarter to quarter. Call. SG and A expenses decreased slightly to $4,500,000 during the Q3 fiscal 2021 even as sales increased compared to $4,600,000 for the same period last year. SG and A expenses as a percentage of net sales were 29% in the Q3 of fiscal 2021 compared to 33.4% in the 3rd increase of $13,400,000 during the 1st 9 months of fiscal 2021 compared to $14,900,000 for the same period last year. Call. SG and A expenses as a percentage of net sales were 31% in the 1st 9 months of fiscal 2021 compared to 30 point 1 percent in the 1st 9 months of fiscal 2020. The reduction in SG and A expenses during the Q3 and 1st 9 months of fiscal 2021 compared to the same periods last year was primarily the result of net decreases in employee and contracted sales personnel related costs, Call. Bad debt expense, legal and professional fees and certain other costs impacted by the COVID-nineteen pandemic. Call. The reduction in employee and contracted sales personnel related costs and other costs also were positively impacted by OCC's ongoing cost control initiatives. OCC recorded net income of $5,400,000 or 0 point 7 and diluted share for the Q3 of fiscal 2021 compared to a net loss of 1 point 4 and diluted share for the Q3 of fiscal 2020. OCC recorded net income of of $6,600,000 or $0.88 per basic and diluted share for the 1st 9 months of fiscal 2021 compared to a net loss of 5.7 $1,000,000 or $0.78 per basic and diluted share for the 1st 9 months of fiscal 2020. Call. On July 1, 2021, the Small Business Administration forgave the entire balance of our Paycheck Protection Program loan, including accrued interest that we received on April 15, 2020. As a result, we recognized a gain on the extinguishment of debt of approximately 5,000,000 Call in the Q3 and 1st 9 months of fiscal year 2021. Also, during the 1st 9 months of fiscal year 2020 Call. We recognized a refundable payroll tax credit totaling $4,300,000 $965,000 of which was recognized during the Q3 of fiscal 2021. The refundable payroll tax credit is part of the employee retention tax credit, Call or ERTC created by the CARES Act and then subsequently amended by the Consolidated Appropriation Act Call of 2021 and the American Rescue Plan Act of 2021 for qualified businesses that are keeping employees on their payroll during the COVID-nineteen pandemic. Call. We do not expect to receive any additional credits for the remainder of the calendar year. As of July 31, 2021, we had $3,600,000 and recognized ERTC still to be refunded. As of July 31, 2021. We had outstanding borrowings of $5,600,000 on our revolver and $2,200,000 in available credit. Conference Call. We also had outstanding loan balances of $4,900,000 under our real estate term loan. And with that, I'll turn the call back over to Keelan. Thank you, Tracy. And now if any institutional investors or analysts have questions, we are happy to answer them. Brittany, if you could please indicate the instructions for our participants to call in any questions they may have, I would appreciate it. Call. Again, we're only taking live questions from analysts and institutional investors. Certainly. It appears we have no questions at this time. I will turn the call back over to Neil Wilkin and Tracy Smith for any additional or closing remarks. Call. Thank you, Britney. Aaron, are there any questions that were submitted by individual investors in advance of the call today? Neil, I did not have any questions submitted in advance of the call. Okay. Thank you. I would like to thank everyone for attending our Q3 conference call today. Call. As always, we appreciate your time and your interest in Optical Cable Corporation. In closing, this past Saturday marked the 20th anniversary Call of the nineeleven 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. Call. Thank you all. This does conclude today's program. Thank you for your