Optical Cable Corp. 2026 Q3 Earnings Call

Good morning, and thank you for joining us for Optical Cable Corporation's third quarter of fiscal year 2026 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, Executive 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 third quarter results for the three-month and nine-month periods ended July 31, 2026, 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 live 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. I will say that today we got more questions than we typically would get on a quarter from individual investors.

We'll answer as many of those as we can. When we get to the Q&A for institutional investors, please limit your questions to things that were not addressed by the questions from the individual shareholders. We'll be limiting the questions we'll take from institutional investors to one question per person. With that, we'll begin. Following a solid start to the year, we continued to build on OCC's strong growth and momentum during the third quarter of fiscal year 2026, delivering year-over-year increases of net sales, gross profit and net income. Net sales increased 22% to $24.3 million, and gross profit increased 43.9% to $9.1 million during the third quarter. Our net sales increase was largely driven by strong demand in OCC's enterprise, data center, and specialty markets.

Our strong gross profit results during the third quarter and also fiscal year to date continue to demonstrate the benefit of OCC's manufacturing operating leverage. As our production volumes increase, our fixed manufacturing costs are spread over higher sales volumes, and manufacturing efficiencies also tend to increase. As of the end of the third quarter, our sales order backlog and forward load stood at $13.5 million. We are now in the last quarter of our fiscal year, and we are confident in OCC's ability to build on our momentum and capitalize on the opportunities ahead. At the same time, we continue to explore opportunities to further strengthen OCC's capabilities and support long-term growth. As always, we remain focused on delivering exceptional service to our customers and end users and driving sustainable value creation for our shareholders.

With that, I'll turn the call over to Tracy, who will review in additional detail our third quarter of fiscal year 2026 financial results.

Thank you, Neil. Consolidated net sales for the third quarter of fiscal 2026 increased 22% to $24.3 million compared to $19.9 million for the same period last year. Consolidated net sales for the first nine months of fiscal 2026 were $62.9 million, an increase of 18.3% compared to net sales of $53.2 million for the same period last year. During the third quarter and first nine months of fiscal 2026, we experienced an increase in net sales in our enterprise, data center, and specialty markets compared to the same periods last year as we continued to see general market growth opportunities in our industry, both domestically and internationally, with strength specifically in our enterprise, data center, and specialty markets.

As Neil mentioned, our sales order backlog and forward load increased to $13.5 million at the end of the third quarter of fiscal 2026 compared to $13.3 million as of April 30, 2026, $10.4 million as of January 31, 2026, and $7.3 million as of October 31, 2025. Turning to gross profit. Our gross profit increased 43.9% to $9.1 million in the third quarter of fiscal 2026, compared to $6.3 million in the third quarter of fiscal 2025. Gross profit margin, our gross profit as a percentage of net sales, increased to 37.4% in the third quarter of fiscal 2026, compared to 31.7% in the third quarter of the prior year. Gross profit increased 35.5% to $22.1 million in the first nine months of fiscal 2026, compared to $16.3 million in the first nine months of fiscal 2025.

Gross profit margin increased to 35% in the first nine months of fiscal 2026, compared to 30.6% for the same period last year. Gross profit margin for the third quarter and first nine months of fiscal 2026 was positively impacted by higher volumes and the resulting positive impact of our strong 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. SG&A expenses increased to $7 million in the third quarter of fiscal year 2026 compared to $5.7 million for the same period last year. SG&A expenses as a percentage of net sales were 28.7% in the third quarter of fiscal 2026 compared to 28.8% in the third quarter of fiscal 2025.

SG&A expenses increased to $18.8 million in the first nine months of fiscal year 2026 compared to $16.9 million for the same period last year. SG&A expenses as a percentage of net sales were 29.9% in the first nine months of fiscal 2026 compared to 31.8% in the first nine months of fiscal 2025. The increase in SG&A expenses during the third quarter and first nine months of fiscal 2026 compared to the same periods last year was primarily the result of increases in employee costs, contracted sales personnel-related costs and shipping costs. Included in employee costs and contracted sales personnel-related costs are compensation costs and sales incentives.

OCC recorded net income of $1.9 million, or $0.21 per basic and diluted share for the third quarter of fiscal 2026 compared to net income of $302,000, or $0.04 per basic and diluted share for the third quarter of fiscal 2025. OCC recorded net income of $2.5 million, or $0.28 per basic and diluted share for the first nine months of fiscal 2026 compared to a net loss of $1.5 million, or $0.19 per basic and diluted share for the first nine months of fiscal 2025. With that, I'll turn the call back over to you, Neil.

Thank you, Tracy. As I previously mentioned, we received a large number of questions in advance of today's call, some of which came in just before the call. We believe that some of these questions that have been submitted will be of interest to most participants. We are going to go through those questions first, and then we will address any remaining questions live from analysts or institutional investors. As we have stated before, we would like to take one question from each institutional investor because I think we are going to be covering a lot of the questions you may have through the previously submitted questions. Caroline, if you would please begin by reading the questions we have received that we were provided in advance of the call, and we will proceed to respond.