Optical Cable Corp. (OCC) Reports Q2 Loss of $0.23 on Revenues of $14.9M

Optical Cable Corp. (NASDAQ: OCC) reported Q2 EPS of ($0.23), versus ($0.08) reported last year. Revenue for the quarter came in at $14.9 million, versus $18.96 million reported last year.

Second Quarter 2020 Financial Results

• Consolidated net sales were $14.9 million in the second quarter of fiscal year 2020, a decrease of 21.6% compared to net sales of $19.0 million for the same period last year, with net sales in certain of the Company's markets negatively impacted by the economic effects of the COVID-19 pandemic.
• Net sales to one customer in the wireless carrier market accounted for $2.9 million of the decrease in net sales during the second quarter of fiscal 2020, as compared to the second quarter of fiscal 2019. Excluding sales to this customer, consolidated net sales would have decreased 7.7% during the second quarter of fiscal year 2020 compared to the same period last year.
• Sequentially, net sales increased 15.3% in the second quarter of fiscal year 2020, compared to net sales of $12.9 million for the first quarter of fiscal year 2020.
• Gross profit was $4.0 million in the second quarter of fiscal year 2020 compared to gross profit of $5.3 million in the same period last year, a decrease of 24.7%. Gross profit margin, or gross profit as a percentage of net sales, was 26.9% in the second quarter of fiscal year 2020 compared to 28.0% for the same period in fiscal year 2019. Gross profit increased 66.2% in the second quarter of fiscal year 2020, compared to the first quarter of fiscal year 2020.
• 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. This operating leverage, which is beneficial at higher sales levels, was the primary factor putting downward pressure on gross profit margin during the second quarter of fiscal year 2020, as fixed costs were spread over lower sales.
• SG&A expenses decreased 3.9% to $5.5 million during the second quarter of fiscal year 2020, compared to $5.8 million for the second quarter of fiscal year 2019. SG&A expenses as a percentage of net sales were 37.3% in the second quarter of fiscal year 2020, compared to 30.5% in the second quarter of fiscal year 2019. The decrease in SG&A expenses was primarily the result of decreases in employee related costs and other cost reduction initiatives, but was partially offset by a $447,000 increase in bad debt expense.
• For the second quarter of fiscal year 2020, OCC recorded a net loss of $1.7 million, or $0.23 per basic and diluted share, compared to a net loss of $617,000, or $0.08 per basic and diluted share, for the second quarter of fiscal year 2019.

Overview of COVID-19 Effects

The COVID-19 pandemic has had a significant negative impact on businesses and individuals in OCC's markets both in the United States and globally. Actions taken to limit the spread of the disease have resulted in an unprecedented disruption of normal activities as businesses have been forced to shut down or operate on a limited basis.

OCC is obligated and continues to operate during the COVID-19 pandemic because the Company's workforce is classified a "Defense Industrial Base Essential Critical Infrastructure Workforce" under guidelines from the U.S. Department of Defense and an "Essential Critical Infrastructure Workforce" under guidelines by the U.S. Department of Homeland Security, Cybersecurity and Infrastructure Security Agency (CISA). While continuing to operate, OCC's revenues, production volumes, and operations have been negatively impacted by the COVID-19 pandemic.

During the COVID-19 pandemic, the safety of OCC employees and their families, and safely manufacturing and supplying the critical and essential needs of OCC's customers, are of primary importance. The Company made a number of proactive changes to business operations in response to the COVID-19 pandemic, including: severely limiting business travel and face-to-face meetings, having a portion of its non-manufacturing employees work remotely, and implementing strict social distancing, symptom self-assessments and mask protocols within its facilities.

OCC continues to closely monitor the COVID-19 situation and will continue to take appropriate actions to protect the safety of OCC employees and their families, as well as the business.

Management's Comments

Neil Wilkin, President and Chief Executive Officer of OCC, said, "Our results for the quarter reflect the economic disruption caused by the COVID-19 pandemic. We have worked hard to build a diversified customer base, and are pleased that strong demand from certain customers helped offset reduced sales to customers in other industries."

Mr. Wilkin added, "OCC is a patriotic organization, and the OCC team is incredibly proud to provide mission-critical products to support our country's military, first responders and other essential workers, including at healthcare facilities and hospitals, test centers and laboratories. We will continue to do our part to meet the needs of our government and commercial customers, both here in the United States and around the world."

Mr. Wilkin concluded, "We have a strong foundation and a resilient business model. We are taking actions to enhance OCC's financial flexibility and continuing to execute on our sales and business growth initiatives—using our operating leverage and building on efficiency and effectiveness improvements to our manufacturing operations. OCC is uniquely positioned in our industry, and we are confident that our distinct competitive advantages and capabilities will facilitate profitable growth, enabling OCC to successfully compete against our larger competitors now and into the future."

For earnings history and earnings-related data on Optical Cable Corp. (OCC) click here.

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