Optical Cable Corporation — Q1 FY2022 Form 10-Q
Reporting period: Three months ended January 31, 2022; compared with the three months ended January 31, 2021. OCC manufactures fiber-optic and copper cabling and connectivity products for enterprise, specialty, harsh-environment and wireless-carrier markets. Financial statements are unaudited.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change / context |
|---|---|---|---|
| Net sales | $14.44 million | $11.88 million | Up 21.6% |
| Gross profit / margin | $4.05 million / 28.0% | $2.31 million / 19.4% | Gross profit up 75.2% |
| SG&A expenses | $4.78 million | $4.31 million | Up 11.0%; 33.1% of sales versus 36.3% |
| Operating loss | $753,000 | $2.00 million | Improved |
| Net loss / diluted loss per share | $936,000 / $0.12 | $2.14 million / $0.29 | Loss narrowed |
| Cash from operating activities | -$1.86 million | +$525,000 | Primarily affected by a $1.60 million inventory increase |
| Cash from investing activities | -$81,000 | -$57,000 | Primarily equipment purchases and deposits |
| Cash from financing activities | +$1.95 million | -$158,000 | Net revolver borrowings supported cash |
Financial position and liquidity
- At January 31, 2022, cash was $138,000; working capital was $22.3 million and the current ratio was 4.3 to 1.0.
- Total assets were $39.1 million; total liabilities were $17.8 million; shareholders’ equity was $21.3 million. Inventory was $17.9 million, up $1.6 million from October 31, 2021.
- Revolver borrowings were $5.5 million, with $2.9 million available; the revolver rate was 4.75% and its stated termination date is July 24, 2023. Real-estate term loans totaled $4.77 million, bear fixed interest at 3.95%, and have final payments due May 1, 2024.
- Management said cash on hand, operating cash flow and existing credit facilities should fund operations for at least the next 12 months. The quarter’s ending cash increased only $5,755.
Changes, outlook and risks
- Sales increased in enterprise and specialty markets, including wireless carrier. U.S. sales rose 25.2%; sales outside the U.S. rose 5.7%. One national distributor represented 17.2% of sales, down from 23.3% a year earlier.
- Management attributed improved gross margin partly to higher sales spreading fixed manufacturing costs and continuing operational improvements. SG&A rose mainly from higher sales personnel costs, including compensation, commissions and share-based compensation.
- Management reported higher-than-typical and increasing backlog/forward load and expected to benefit from improving markets during the remaining fiscal year. It did not provide numerical revenue or earnings guidance, and cautioned that pandemic impacts make future results difficult to estimate. OCC typically has relatively higher sales in the second half of its fiscal year.
- Supply availability, longer lead times, higher material costs and difficulty recruiting personnel continued to constrain production and sales. The filing also identifies pandemic uncertainty, inflation and transportation costs, customer and market concentration, competition, raw-material availability, and continued access to financing among risks.
- OCC reported $2.2 million of Employee Retention Tax Credit receivable remaining. Planned fiscal 2022 capital expenditures were estimated at $1.5 million; no material commitments existed at quarter-end. The share repurchase plan remained suspended, with no current repurchase plans.
- Management said ordinary-course legal and regulatory matters were not expected to materially affect financial position, results or liquidity. Disclosure controls were assessed as effective at January 31, 2022.
Important facts for investors to verify
- Whether increasing backlog converts to shipments and revenue given ongoing supply-chain and labor constraints.
- Whether inventory growth and operating cash use persist, and how much of the $2.2 million tax-credit receivable is collected and when.
- Revolver availability, borrowing-base capacity, lender covenants and refinancing needs ahead of the July 2023 revolver termination and May 2024 term-loan payments.
- Whether improved gross margins hold as product mix, input costs and sales volumes change; no numerical forward guidance was provided.