Optical Cable OCC Q2 2025 Earnings Call Transcript

Image source: The Motley Fool

Mix— Fiber ducts are the largest segment, while copper remains significant; fiber-copper hybrids also comprise part of the mix

Operating Leverage— Management notes benefit from spreading fixed costs over increased volumes, enhancing gross fit margins when duction rises

Market Focus— Growth continues in military and specialty ; data center revenues are present in Tier 2 and Tier 3 segments but remain a small portion

Tariffs Impact— OCC’s U. -based facilities have resulted in less tariff impact than some industry peers, though tariffs continue to affect select ducts and exports

Seasonality— Company sales typically skew higher in the second half of the year, supported by historic sales patterns d on the call

SUMMARYOptical Cable Corporation (OCC 5. 26%) reported sequential and annual imvements in sales, gross fit, and gross margin for Q2 FY2025, driven by both enterprise and specialty market contributions

Management cited backlog expansion as evidence of positive underlying demand trends, adding clarity to forward revenue visibility

Wilkin stated, "We continue to see positive industry trends from which we believe OCC will continue to benefit as the year gresses. "The call clarified that OCC is deliberately not targeting hyperscale data center customers, focusing efforts instead on military, Tier 2, and Tier 3 data center

Smith explained, gross fit margin percentages are heavily dependent upon duct mix on a quarterly basis and may vary based on changes in duct mix

Wilkin confirmed that tariffs have impacted OCC but to a lesser extent than some competitors due to its U. -based manufacturing foot

INDUSTRY GLOSSARYBacklog and Forward Load: The total value of confirmed orders pending shipment, indicating future revenue visibility within specified periods

Tier 2 and Tier 3 Data Centers: Data center facilities classified below hyperscale, typically serving multi-tenant and enterprise with smaller-scale deployments

Loose Tube Fiber: A type of fiber optic cable construction used primarily for outdoor applications such as in data centers or larger infrastructure jects

Full Conference Call TranscriptNeil Wilkin: Thank you, Spencer, and good morning, everyone

I will begin the call today with a few opening remarks

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 holders 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

During the second quarter, the OCC team dered sales, net sales growth and gross fit growth on both a year-over-year and a sequential basis

Strong execution by the OCC team, coupled with our significant operating leverage also enabled us to der imved gross fit margins as we realized imved manufacturing efficiencies over higher duction volumes

We continue to see positive industry trends from which we believe OCC will continue to benefit as the year gresses

We are confident our focus on executing our growth strategies and capitalizing on operating efficiencies will drive positive results this year including opportunities for gross fit margin expansion with increased duction volume as we benefit from OCC's significant operating leverage

As we look ahead to the second half of the year, we remain focused on disciplined execution and capitalizing on growth opportunities to drive holder value

Tracy Smith: Thank you, Neil

Additionally, our gross fit margin percentages are heavily dependent upon duct mix on a quarterly basis and may vary based on changes in duct mix

Included in employee and contracted sales personnel-related costs are compensation costs and sales incentives

With that, I'll turn the call back over to you, Neil

Neil Wilkin: Thank you, Tracy

And now if any analysts or institutional investors have questions, we are happy to answer them

Madison, if you could please indicate the instructions for our participants to call in any questions they may have, I'd appreciate it

And again, we are only taking questions from analysts and institutional investors

Operator: [Operator Instructions] And we will take our first question from Manny Stoupakis with Geo

Manny Stoupakis: On your last call, you guys talked the significant demand from data centers

I know there's other -- you got the U

Manufacturing advantage in case it becomes all domestic

NVDIA, [ TSSI ], Dell are all in that Round Rock, Texas area

Why aren't we taking more advantage of this opportunity

Neil Wilkin: Well, data center market is divided into several different

And what's getting the most press and what's getting -- what you're hearing NVIDIA and others, those are really at the hyperscale level

And so that is a different type of duct set than one OCC vides

We have -- don't really -- haven't really targeted hyperscale data centers

We do have sales in the data center for Tier 2 and Tier 3, which is really the multi-tenant data centers and also in enterprise, and we're also looking to see how we can better address those

One of the things we did this year is we've added loose tube duct offering to our ducts and some of those are used in data centers, in some cases, in addition to tight buffer

So we're seeing some benefit of that

I think that there's more opportunity that we haven't taken advantage of yet

But a lot of what you're hearing is really at that hyperscale level

Manny Stoupakis: Well, I hear what you're saying on the hyperscale, but there are many small players who have a niche contribution to the data center market and they're really focusing on that area and starting to see extreme benefits

I said, you can look at TSSIs and the rack integration

There's other ones in the cooling TZIM

So I just -- just I was wondering, I know you touched on it on the last conference call, and I just wanted to see if the focus and the growth opportunity is still there and if this is something you're starting to see a little bit of momentum in, but it sounds it's a little bit more slow go than maybe it was anticipated or

Neil Wilkin: We are starting to see some movement in that area, but it hasn't been a major part of our sales at the moment

We're seeing more growth in the areas military, which is more squarely in our wheelhouse, but we are seeing opportunities in data centers and believe that we will benefit from that, but it will be smaller data centers

We appreciate your question

Operator: And it appears that there are no further questions at this time

I will now turn the call back to Mr

Wilkin for closing remarks

Neil Wilkin: Well, before that Madison, what we will do is we've had some individual investors submit questions in advance

And Spencer, if you read the questions, Tracy and I will address those

Spencer Hoffman: Sure

So the first question, can you give a sense of potential operational leverage

For example, what's your upside scenario -- what your upside scenario can look if revenue begins to jump while costs remain fixed

Tracy Smith: I'll take that one

The best sense of operational leverage can be seen in our historic quarterly results

Because duct mix also plays a significant role in our gross fit margin, it is difficult to predict or forecast how operational leverage will impact a specific quarter

However, we know that when we -- when certain fixed costs are spread over larger volumes, we benefit from that

Additionally, while we're a smaller reporting company that requires significant fixed costs related to being a public company, we also believe that we can increase sales to much higher levels without increasing those types of fixed costs at a similar level

Hopefully, that gives some indication of how operational leverage can impact our results at higher sales levels

Spencer Hoffman: Thank you

What percentage of the is related to copper and related to fiber or which one is bigger

Is it correct to say that copper market size declines and fiber is growing

Tracy Smith: Well, we don't generally disclose information related to what percentage of our is related to copper and what percentage is related to fiber

I can say that fiber is definitely the biggest portion of our

However, even some of our fiber cables are what we call hybrid and include both fiber and copper

But having said that, the market for copper is still significant

Neil Wilkin: Do you want to go to the next question, Spencer

Spencer Hoffman: Thank you, Tracy

Can you us on data -- on -- for the next question, can you us on data centers [ MBI ] opportunity

Are there any changes over the last quarters

Neil Wilkin: So Spencer, this is Neil

And I think I've addressed most of that question in response to the question we got previously

We do see sales in the data center applications, but currently, it has not been significant, but we believe there are and will be additional opportunities for OCC in the future, particularly in the Tier 2 and Tier 3 data centers

We are evaluating our cable and connectivity offerings on an basis in order to address the needs of our customers and end users in our targeted

And as I've mentioned before, we have added loose tube fiber cable ducts to our offering, which also opens up some additional data center opportunities

Spencer Hoffman: Thanks, Neil.