Optical Cable Corporation Stock

Good morning, everyone. My name is Bo, and I will be your conference operator today. At this time, I would like to welcome you to Optical Cable Corporation's Third Quarter of Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] With that, Ms. Felix, you may begin your conference.

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 3-month and 9-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 questions from analysts -- 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. And then 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, and we'll be limiting the questions we'll take from institutional investors to 1 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.

And 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 9 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 9 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 as 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 9 months of fiscal 2026, compared to $16.3 million in the first 9 months of fiscal 2025. Gross profit margin increased to 35% in the first 9 months of fiscal 2026, compared to 30.6% for the same period last year.

Gross profit margin for the third quarter and first 9 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 9 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 9 months of fiscal 2026 compared to 31.8% in the first 9 months of fiscal 2025.

The increase in SG&A expenses during the third quarter and first 9 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 9 months of fiscal 2026 compared to a net loss of $1.5 million, or $0.19 per basic and diluted share for the first 9 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. So we're going to go through those questions first, and then we will address any remaining questions live from analysts or institutional investors.

As we've stated before, we'd like to take 1 question from each institutional investor because I think we're going to be covering a lot of the questions you may have through the previously submitted questions. Caroline, if you'd please begin by reading the questions we've received that we were provided in advance of the call, and we'll proceed to respond.

Thanks, Neil. The first question is, can you please go into more detail about how backlog and quarterly revenue have been changing in this new demand cycle and how it is different from prior instances where backlog has bumped to above $10 million? You had said in prior calls that you expected the second half of 2026 to be very strong. Is this reflected in current and future expected backlog? Is that assumption still valid? Or is the second half of 2026 looking different at all, positive or negative? How long do you expect this higher backlog to sustain?

So there's a lot of questions in that first statement. As you can see from our press release earlier this morning, our results during the third quarter of fiscal year 2026 support our previous expectation that the second half of 2026 would be very strong. We continue to believe that, that's going to be the case. We continue to have a robust backlog and forward load that are increasing. At the same time, sales are increasing.

We can't specifically comment on how long we expect our higher backlog to continue. However, as we've seen in the past, the backlog when it increases to a certain level, certainly is indicative of what we believe we're going to see in the following quarter or so. But a lower backlog doesn't necessarily mean that, that's going to generate a lower sales number, and we've talked about that previously. It's not a data point we've always described, but we've only been disclosing it to folks through our press releases and 10-Qs when we believe that, that number has some significant value.

I think I can also say that even though we don't know what the backlog will do, we still do believe that the industry in general is seeing high levels of demand, and there does not appear to be any indication that demand is weakening, at least as far as we can see at the moment. This does not necessarily mean that we will not see any seasonality. Our first quarter has many holidays in it, including Thanksgiving, Christmas, other December holidays, as well as New Year's. So, at this point, we're not really sure what we'll see in the first quarter, but we are seeing a significant amount of demand across the board in all of our markets.

Thanks, Neil. Next question is, can you touch on performance of OCC traditional markets, including defense?

Yes. I mean, as we noted in our press release this morning, our enterprise, data center and specialty market sectors are all increasing during this quarter and during our year-to-date periods for -- through the third quarter of 2026. Our specialty markets include market sectors such as the military market sector.

Thanks, Neil. Next question. Can you comment on OCC's working capital position and if you feel you have enough working capital to sustain the planned growth?

Tracy, you will take this one.

Yes, sure. Our working capital is strong at $19.2 million at the end of the third quarter and improved compared to $13.9 million at the end of fiscal year 2025. We do believe that our working capital and credit revolver are sufficient to support and sustain our working capital needs.

Thanks, Tracy. The next question is, can you provide some color on the growth rates for new versus existing customers?

I'll take that one as well. As we have noted previously, most of our sales are made through distributor channels. So we do not always have a clear picture of the customer purchasing our products through distribution or the end users of our products. However, we believe that our growth is being driven by both our existing customers and new customers and end users.

Thanks, Tracy. Next question. On the last earnings call, Neil, you had said that the sales cycle is longer for data center. Could you elaborate on that? Is the pre-backlog sales process/pipeline longer because of customer qualifications?

So yes, I'll take that one. Yes, the sales cycle for certain portions of the data center market sector do tend to be longer. That can include qualification requirements as a new supplier for certain new products being supplied. However, as we're going through those qualification processes where they exist or indications or periods where the sales cycle is longer, that those hopefully potential sales do not show up in our backlog. Our forward load and backlog is really items where we've either received an order -- we received an order or where we expect that, that order is noncancelable and that we will be delivering it at some point in the future. Sometimes that's a short time period. Sometimes that's a longer time period because we do have some customers that stage the deliveries over time.

Next question. Does the flattish backlog versus the last quarter reflect a potential normalization in demand? Should we expect backlog to normalize further in Q4, given that Q1 is the softest quarter in terms of seasonality?

I don't think that this -- the backlog increasing a slight amount indicates that demand is flattening in any way. We continue to see significant growth opportunities, and we have seen our backlog and sales forward load continue to grow this past month. This does not mean we may not experience some typical seasonality, as I mentioned before, in the first quarter. But for now, we continue to see continued strength in demand for our products, even if it's not reflected in a small change in the backlog forward load as of the end of the quarter.

Thanks, Neil. The next question is, SG&A rose to $7 million, above where the operating leverage story would predict. Was the Q2 to Q3 increase in employee and contracted sales personnel a onetime capacity step that now levels off? Or should we model continued SG&A growth as revenue scales? Put differently, where does SG&A settle as a percentage of sales at a $100 million-plus run rate?

I'll take that one. We don't generally provide guidance related to future or theoretical sales levels. However, certain sales compensation costs included in SG&A, as well as other costs such as shipping costs, generally tend to fluctuate with sales levels. However, this does not mean we will not see future benefits of SG&A operating leverage as sales continue to grow.

Thanks, Tracy. Next question is on funding and dilution, with working capital rising alongside growth and cash still thin, how are you funding the ramp? And at what revenue level would you need to raise equity or expand the credit facility? Should shareholders anticipate a capital raise to support fiscal year 2027 growth?

As we believe we've described previously, our cash is swept daily to repay the balance on our credit revolver. So our cash balance at any point in time will generally not be very high. At the current time, we believe we have sufficient availability on our credit revolver and from cash generated from operations to meet our needs for the near term.

Thanks, Tracy. Next question. Can you give some color on deliveries expected in Q4 and how you see margins progressing throughout fiscal year 2027?

Again, we don't provide forward guidance, so I won't comment on how we expect margins to progress throughout fiscal year 2027. I will say that we have continued to see strong sales and demand in August, but it is too early to comment on September.

The next question is, can you comment on the increased demand cycle you were experiencing and how long it could last?

Sure. As previously noted, we can't forecast specifically on how long we expect the increased demand cycle to continue. However, I can say that the industry, in general, is seeing high levels of demand, and there doesn't appear to be an indication of demand weakening in the near term.

Thanks, Tracy. Next question. Can you provide any sort of future outlook regarding customer demand signals?

Caroline, so that you know we're having a little bit of trouble hearing you. If Bo could confirm that he's able to hear you okay, we're hearing your question, and we'll continue to answer them, but your signal is breaking up just a little bit.

Mr. Wilkin, are you having any problem hearing Caroline? Mr. Wilkin, I can hear her loud and clear at this time, sir.

Okay. Okay. Maybe on our end then. So hopefully, you can hear us. Please flag -- let us know if you're having any trouble hearing us.

Yes, we can hear you okay.

Okay. So other than what we have already disclosed, we cannot really provide any additional future customer demand outlook.

Thanks, Tracy. The next question is, are you seeing any new or emerging risks?

We are not seeing any new or unusual market risk at this time. As we've described during our second quarter earnings call, we have been seeing some industry-wide delays as a result of high product demand and certain fiber optic -- optical fiber shortages. Additionally, we've seen some longer lead times for certain raw materials, as one would expect given the current high demand for products. We expect these challenges will continue, but we also believe we're taking appropriate action to navigate those challenges.

Thanks, Neil. The next question is, can you provide an update on OCC's plans to increase capacity? What level of capacity expansion are we talking about? And what is the plan?

We are regularly considering the need for investment in machinery and equipment and/or human resources to expand our capacity in general and also for specific opportunities. We are seeing some opportunities to increase our capacity currently. We do not generally comment publicly on the specific capacity expansion plans for various reasons, including for competitive reasons. And I think that answers the question.

Thanks, Neil. The next question is, can you provide an update on fiber shortages and potential challenges of higher fiber pricing on OCC's margins?

Yes. Currently, the industry continues to experience optical fiber shortages due to excessive product demand for data centers as well as certain other product applications. We believe OCC is successfully managing these industry dynamics as we've demonstrated during the first 9 months of this fiscal year. We do not believe these industry challenges will prevent us from continuing to report strong top line revenue growth during the remainder of fiscal year 2026. Notably, we work to limit potential impacts on our customers and our gross profits that these industry factors may have. Of course, as we've noted in the past, OCC's profit margins can also be impacted by product mix and other factors, which can be difficult to predict.

Thanks, Neil. Next question. Can you share an update on any potential bottlenecks at ramping up manufacturing, including labor availability and cost?

We are able to -- we are seeing various different effects that are limiting our product shipments at some level, and so those are bottlenecks. Those are primarily impediments to ramping up manufacturing. The primary impediments to ramping up manufacturing at the current time is really optical fiber shortages, as we previously described. But as you can also see in our results, we've been able to generate increased sales despite those impediments.

Thanks, Neil. Next question. Can you provide some color on inventory levels at OCC customers and dealers and if this is above or below average?

As you might expect, we're not able to specifically comment on inventory levels of our products at our customers. That said, given current market conditions, we believe it would be unusual for companies to be carrying inventory in excess of current expected demand.

Thanks, Tracy. Next question. What is the typical duration of your backlog? And is this currently changing? Or does the data center-related business have different characteristics?

Various factors determine the duration of our sales order backlog and forward load, which are specific to each customer. Our backlog and forward load generally represents what we consider to be noncancelable orders. However, in some cases, customers may schedule out future deliveries, while others are expected to ship as soon as we can complete manufacturing. As a result, I would not say there is a typical duration. However, I would say that most of our sales order backlog and forward load is expected to be shipped within 2 to 3 quarters.

Thanks, Tracy. Next question is, can you help us understand what level of capacity OCC is currently operating at? On the last earnings call, Tracy, you had mentioned that OCC is looking into expanding capacity. Could you provide some additional color on which products or end markets you may focus on?

OCC has different levels of capacity for different product families at each of our manufacturing facilities. And so yes, we are looking into expanding capacity for certain products at certain facilities, and this includes additional hires as well as additional equipment.

Thanks, Tracy. Next question. Does OCC have opportunities in the grid, battery, energy and storage systems verticals?

Yes. OCC has some fiber optic cable and connectivity opportunities in grid and energy vertical market sectors.

Thanks, Neil. The next question is, Google Data is projected to build a large campus of data centers very close to OCC's site in Roanoke. Does this present an opportunity for you?

OCC's primary focus in the data center market sector is multi-tenant data centers and enterprise data centers. However, we are following the Google data center project near us. And as you'd expect, we will explore potential opportunities on that project. And of course, we're very excited that they're going to be setting this data center up so close to our Roanoke facility.

The next question is, this summer, Furukawa announced a significant capacity expansion through Lightera. Is this an opportunity for OCC?

Well, as you'd expect, we don't speak for Furukawa or Lightera. However, from OCC's perspective, Lightera is not only a strategic collaboration partner with OCC, but they are also an important supplier to OCC. The strategic collaboration with Lightera does add certain products to OCC's product offering.

Thanks, Neil. The next question is, in June, the company significantly stepped up its manufacturing-related hiring in Plano. Is this in relation to the Lightera partnership? And am I correctly recalling that OCC does a lot of its data center-related connectivity work in Plano?

Well, we're actually currently increasing staffing at each of our facilities with the largest increases at our fiber optic cable manufacturing facility in Roanoke and our connectivity and termination facility near Dallas. OCC has capabilities related to our targeted data center market sectors in each of our manufacturing facilities, including Roanoke, Dallas as well as some in Asheville as well.

Thanks, Neil. The last question for today is, your last 10-Q changed its language around the Lightera partnership related to Lightera products being offered and sold by the company. Does this mean that OCC has started to realize the first sales related to the Lightera partnership in Q2? And could you give us an update for Q3?

As you would expect, we are beginning to see some sales of some Lightera products, thus the change in the language in the 10-Q.

Thanks, Tracy and Neil. We have no other questions that were provided in advance of the call today at this time.

Well, thank you, Caroline. And now we will answer any additional questions that analysts or institutional investors may have. We ask that you please limit yourself to one question. Bo, if you could please indicate the instructions to our participants to call in any questions they have. I'd appreciate it. Additionally, if you'd please mute individuals following their 1 question so that we can take as many of the questions from analysts and institutional investors that wish to ask.

[Operator Instructions] We'll go first this morning to Sergi Mascaro with Eden Discovery.

So the gross margin was very impressive this quarter, and I'm wondering if this improvement is just related to higher volumes or there are other factors or other one-offs impacting the gross margin?

Well, our gross margin can vary based on manufacturing operating leverage, but also -- and other efficiencies, also product mix. And so we're pleased that we've been able to show an increase in our gross profit margins over the last couple of -- gross profit margin percentage over the last couple of quarters, and we're hoping that we'll continue to maintain higher margins at the production levels we're currently at.

[Operator Instructions] And Mr. Wilkin, it appears we have no further questions over the phone at this time. Sir, I'd like to turn the conference back to you for any closing comments.

Okay. Well, thank you. I would like to thank everyone for listening to our third quarter of fiscal year 2026 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation.

Additionally, I would like to note that this Friday marks the 25th anniversary of the terrible attack on the United States on September 11, 2001. We are so grateful for our company's first responders and those that serve and support the U.S. military for protecting us, protecting our freedom and protecting our way of life. Thank you all. Have a good day.

Thank you very much, Mr. Wilkin, and thank you, Ms. Smith. Again, ladies and gentlemen, this brings us to the end of today's meeting. We do appreciate your time and participation. You may now disconnect.

Good morning. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome you to Optical Cable Corporation's Second Quarter of Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Ms. Felix, you may begin your conference.

Good morning, and thank you for joining us for Optical Cable Corporation's Second 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 second quarter results for the 3-month and 6-month periods ended April 30, 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 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.

Following a solid start to the year, we continued to build on OCC's strong growth and momentum in the second quarter, delivering year-over-year increases of 26.6% in net sales and 42.4% in gross profit. Our net sales increase was largely driven by strength in OCC's enterprise, data center and severe duty markets and contributing to the disproportionate increase in gross profit during the second quarter was OCC's manufacturing operating leverage. As we enter the second half of fiscal year 2026, we continue to see growth opportunities in a wide range of our targeted market sectors, including the multi-tenant data center and the enterprise data center market sectors.

At the end of the second quarter, our sales order backlog and forward load increased to $13.3 million when compared to $10.4 million as of January 31, 2026, an increase of more than 27%, and when compared to $7.3 million in sales order backlog and forward load as of October 31, 2025, we saw an increase of more than 82%. We are confident in the OCC team's ability to capitalize on our momentum and on our continuing opportunities for growth. I'm thankful and truly grateful for the OCC team's continued dedication and tenacity in providing OCC's customers and end users with the quality products and service they have come to expect from OCC. We remain focused, as always, on the disciplined execution of our strategy and delivering value to our shareholders.

And with that, I will turn the call over to Tracy, who will review in additional detail our second quarter fiscal year 2026 financial results.

Thank you, Neil. Consolidated net sales for the second quarter of fiscal 2026 increased 26.6% to $22.2 million compared to $17.5 million for the same period last year and increased 35.2% compared to net sales of $16.4 million during the first quarter of fiscal year 2026. Consolidated net sales for the first half of fiscal 2026 were $38.6 million, an increase of 16.1% compared to net sales of $33.3 million for the same period last year. During the second quarter and first half of fiscal 2026, we saw an increase in net sales in both our enterprise and specialty markets compared to the same periods last year. We have noted continued general market improvements, both domestically and internationally with strength specifically in our enterprise, data center and severe duty markets. As Neil mentioned, our sales order backlog and forward load increased to $13.3 million at the end of the second quarter of fiscal 2026 compared to $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 42.4% to $7.6 million in the second quarter of fiscal 2026, compared to $5.3 million in the second quarter of fiscal 2025 and sequentially increased 41.4% compared to $5.4 million in the first quarter of fiscal year 2026. Gross profit margin or gross profit as a percentage of net sales increased to 34.2% in the second quarter of fiscal 2026 compared to 30.4% in the prior year period. Gross profit increased 30.1% to $13 million in the first half of fiscal 2026 compared to $10 million in the first half of fiscal 2025. Gross profit margin increased to 33.5% in the first half of fiscal 2026 compared to 29.9% for the same period last year. Gross profit margin for the second quarter and first half of fiscal 2026 was positively impacted by higher volumes and the resulting positive impact of our strong manufacturing operating leverage. 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 $6.3 million or 9.2% in the second 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 decreased to 28.2% in the second quarter of fiscal 2026 compared to 32.7% in the second quarter of fiscal 2025, the impact of our strong SG&A operating leverage. SG&A expenses increased to $11.8 million or 5.6% in the first half of fiscal year 2026, compared to $11.2 million for the same period last year. SG&A expenses as a percentage of net sales were 30.6% in the first half of fiscal 2026, compared to 33.6% in the prior year period. The increase in SG&A expenses was primarily due to increases in shipping costs and employee and contracted sales personnel-related costs, which include compensation costs and sales incentives.

OCC recorded net income of $1.1 million or $0.12 per share for the second quarter of fiscal 2026, compared to a net loss of $698,000 or $0.09 per share for the second quarter of fiscal 2025. OCC recorded net income of $657,000 or $0.07 per share for the first half of fiscal 2026, compared to a net loss of $1.8 million or $0.23 per share for the first half of fiscal 2025.

And with that, I'll turn the call back over to you, Neil.

Thank you, Tracy. We received a number of questions in advance of the call today that we believe would be of interest to most participants. So we're going to go through those questions first, and then we will address any remaining live questions from analysts and institutional investors. Caroline, if you could please begin reading the questions that were provided in advance of the call at this time, and Tracy and I will answer them.

Sure. Thanks, Neil. Our first question today is, with the huge Tier 1 data center demand cycle happening, can you please talk about how Tier 2 is being affected demand-wise in general?

Yes. We continue to believe the growth in the Tier 1 hyperscale data centers positively impacts growth opportunities that we are seeing in the multi-tenant data center market sector, often referred as Tier 2 data centers as well as growth opportunities we are seeing in the enterprise data center market sector. We -- so far, we've been seeing significant opportunities in both the multi-tenant data center and enterprise data centers, which is the portion of the data center sector market that is a particular focus for OCC.

As we have previously mentioned, it is noteworthy that the sales cycle tends to be longer for certain projects in the data center market space when compared to the sales cycle of certain OCC's other targeted market sectors. However, sales into these data center markets have positively impacted OCC's revenue in the second quarter, and we believe that our revenue will continue to be positively impacted during the second half of fiscal 2026.

Next question is, can you explain how OCC expects to be impacted by the booming military expenditure by the current administration?

The impact of overall military spending on our sales growth can be difficult to predict. Announced increases in U.S. military spending may or may not include increased spending for OCC's products. Also, we can see significant increases in military sales even when there are not active conflicts when military product demand is driven by the need to replenish supplies outside of active conflicts. Additionally, our military sales include sales to allies, which can result in increased sales. During the past fiscal year, we saw increases in our sales in the military market sector.

Next question. Can you explain how the backlog in data center demand has been evolving into Q3?

As was noted in this morning's press release, at the end of the second quarter of fiscal year 2026, the company's sales order backlog and forward load increased to $13.3 million when compared to $10.4 million as of January 31, 2026, an increase of more than 27% and when compared to $7.3 million as of October 31, 2025, an increase of more than 82%. At the end of May, our backlog and forward load continues to be strong.

The next question is, fiber and copper pricing has been increasing significantly. Is this positive or negative for OCC gross margins?

Well, as you would expect, as materials prices that are used in our products increase, there can be a negative impact on our gross margins. However, during the second quarter, we saw our gross profit margins increase to 34.2%. Generally, we are able to prospectively mitigate the impact of increasing raw material costs by adjusting our selling prices. And of course, we use many different types of raw materials in the manufacture of our products, so the mix of products manufactured and sold can also impact gross margins.

Next question. Is there an opportunity to profit from hyperscaler growth in the data center given the inference build-outs?

As we have mentioned before, our product solution offerings for the data center market are best suited for multi-tenant data centers and enterprise data centers. However, we continue to believe the growth in Tier 1 hyperscale data centers can positively impact these other markets, multi-tenant data center and enterprise data center markets.

Next question is, can you try and give a sense of what revenue can be at full capacity? Is full capacity realistic in this demand cycle?

Changes in product mix of products being sold and manufactured impacts our capacity at any point in time. Additionally, staffing, raw material availability and other factors impact our capacity as well. So we're not providing a revenue level for full capacity. However, we can say that at our current manufacturing and staffing levels, we believe we still have room to support additional revenue growth, and we are seeing opportunities to do so. Additionally, we are evaluating increasing manufacturing staff and adding certain machine capacity in anticipation of future long-term growth.

The next question is, can you comment on the proportion of growth being driven on new versus existing customers?

We are currently seeing growth among our existing customers and new customers. Additionally, it's worth noting that most of our sales are made through distributor channels. So we do not always have a clear picture of the customer purchasing our products through distribution or the end users of our products.

Next question. Is there an opportunity for OCC to increase service revenue?

If by service revenues, the person posing the question is referring to installation or other similar services. That's not part of our business strategy.

Got it. Thanks, Neil. The next question is, does OCC sell products for the grid? Do you expect to benefit from grid increased CapEx and investments?

OCC does manufacture products suitable for certain applications in the power grid. As power grid capital expenditures increase, we would expect to benefit. However, to be clear, OCC does not sell power cables for use in the power grid.

The next question is, can you explain if you foresee any capacity issues and if you are investing in increasing the capacity available?

We regularly consider the need for investment in machinery and equipment and/or human resources to expand our capacity in general and also for specific opportunities. We are seeing some opportunities to increase our capacity currently.

Next question. Are you seeing any new or emerging risks, including project delays?

We are not seeing any unusual risk with respect to demand for our products at this time. There are individual projects that are delayed from time to time, but that's not unusual in our markets. We are seeing some industry-wide delays as a recent -- as a result of high product demand and certain optical fiber shortages.

The next question is, in the past, you have commented on improvements in OCC end markets. Have those improvements continued this quarter?

As we said last quarter, we continue to see growth opportunities in many of our targeted market sectors, including, in particular, the data center market. Our improved top line in the second quarter is a result of those growth opportunities, not only in the data center market, but broadly across most of our markets. Additionally, it's worth noting that our product offerings, customers and targeted market sectors in which we sell our products are quite diverse, and OCC benefits from this diversification.

The next question is, can you comment on lead times and supply issues or constraints?

Yes. Currently, the industry is experiencing optical fiber shortages due to excessive product demand for data centers as well as certain other product applications. As a result, we are seeing increased lead times throughout the industry. OCC is successfully managing these industry dynamics as we have demonstrated during the second quarter. We do not believe these industry factors will prevent us from continuing to grow revenue, including during the second half of fiscal year 2026.

The last question is, is there anything about the timing or time line of orders that can help us understand why bookings have so far been increasing the backlog instead of being converted into sales?

OCC currently is seeing an increase in both our net sales and in our sales order backlog and forward load, which we believe is consistent with expectations during periods of increased product demand.

Thanks, Tracy and Neil. We have no other questions that were provided in advance of the call today at this time.

Okay. Thank you, Caroline. And now if any analysts or institutional investors have any remaining questions, we are happy to answer them. We ask that you limit yourself to one question and one follow-up please. Madison, if you could please indicate the instructions for our participants to call in any questions they have, I would appreciate it. Additionally, if you please limit people to one question and/or follow-up question, we would appreciate it. Again, we are only taking live questions from analysts and institutional investors.

[Operator Instructions] And we will take our first question from Sergio Masaros with Eden Discovery.

Congrats on a very, very strong quarter that we have been waiting for a long time. We have 2 questions. The first one is that we are wondering if the deal that Corning at Meta closed a few months ago and today also with Amazon is an opportunity for OCC to provide fewer customization, engineering or additional services?

No. Typically, we don't provide those sorts of services outside of OCC if you're talking about services. I mean, Corning has a number of deals, including one with NVIDIA. And -- but that's not necessarily impacting OCC and -- but we're not seeing any limit on our ability to grow in the markets that we're targeting, particularly in data centers.

Okay. That's helpful. And the second question is, if you're having or expect to have any issues ramping up the capacity that you have available, for example, with labor availability or labor cost or any other issues?

I mean whenever you're ramping up capacity, you can have challenges. We are not experiencing challenges in that regard at the moment and don't anticipate it at this time. As we've disclosed in our Form 10-Ks and 10-Qs, we have what we believe some excess capacity, of course, the ability to utilize that excess capacity depends on product mix. We're also looking, as Tracy mentioned earlier, at evaluating our capacity and making some increases from -- by adding personnel as appropriate as well as some equipment.

[Operator Instructions] And we'll move next to Assaf Nathan with Eden Discovery.

Congratulations on a very strong quarter. I wanted to ask regarding the partnership you have with Lightera Furukawa. And I was wondering if they are helping you obtain raw material like fibers and what -- how do you view the partnership in light of the current business environment?

So we are very pleased with our partnership with Lightera. We think that OCC and Lightera complement each other, and we are excited about the opportunities it provides for both companies. OCC has worked with Lightera, which is a supplier of optical fiber as well as other suppliers for really decades. And at the moment, we've been fortunate that we have not been having any significant problems with fiber supply or other raw materials. There are some exceptions to that statement that have impacted certain customers, unfortunately. But as a general rule, we are not having that issue.

At this time, this concludes our question-and-answer session. I will now turn the meeting back to Neil Wilkin for any additional or closing remarks.

Thank you, Madison. I would like to thank everyone for listening to our second quarter of fiscal year 2026 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation. Thank you.

This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.

Good morning. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome you to the Optical Cable Corporation's First Quarter of Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Ms. Felix, you may begin your conference.

Good morning, and thank you for joining us for Optical Cable Corporation's First 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, 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. 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 first quarter results for the 3-month period ended January 31, 2026, in some additional detail. After Tracy's remarks, we will answer as many 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 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.

OCC is off to a strong start in fiscal year 2026. During the first quarter, we delivered net sales and gross profit growth, largely driven by increased demand across our enterprise and specialty markets and the positive impact of our operating leverage. During the first quarter of fiscal year 2026, net sales increased 4.4% and gross profit increased 16.1% compared to the same period last fiscal year. And gross profit margin increased to 32.7%. Additionally, our sales order backlog and forward load increased more than 50% to $10.4 million as of the end of the first quarter when compared to the same prior fiscal year period, and we expect to continue to build on this momentum.

While seasonality typically impacts the first half of our fiscal year, during our second quarter, we are seeing growing momentum in our targeted markets and in particular, in our data center market. We are confident that OCC is well positioned for growth during fiscal year 2026, as always, remain focused on disciplined execution to drive value for our customers and shareholders.

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

Thank you, Neil. Consolidated net sales for the first quarter of fiscal 2026 increased 4.4% to $16.4 million compared to $15.7 million for the same period last year. During the first quarter of fiscal 2026, we experienced an increase in net sales in both our enterprise and specialty markets compared to the same period last year as we continue to see general market improvements in our industry and strength in our severe duty market. Net sales to customers outside of the United States increased 18% and net sales to our customers in the United States increased slightly in the first quarter of fiscal year 2026 compared to the same period last year.

As Neil referenced, our sales order backlog and forward load increased to $10.4 million compared to $6.6 million as of the end of our first fiscal quarter of 2025. Our sales order backlog and forward load also increased when compared to $7.3 million as of our 2025 fiscal year-end. Turning to gross profit. Our gross profit increased 16.1% to $5.4 million in the first quarter of fiscal 2026 compared to $4.6 million for the same period last year.

Gross profit margin, or gross profit as a percentage of net sales increased to 32.7% compared to 29.4% in the same prior year period. Gross profit margin for the first quarter of fiscal 2026 was positively impacted by higher volumes and the resulting positive impact of our strong operating leverage.

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 $5.6 million in the first quarter of fiscal year 2026 compared to $5.5 million for the same period last year, primarily as a result of increases in employee and contracted sales personnel-related costs and shipping costs. SG&A expenses as a percentage of net sales were 33.8% in the first quarter of fiscal 2026 compared to 34.7% in the first quarter of fiscal 2025. OCC recorded a net loss of $398,000 or $0.05 per basic and diluted share for the first quarter of fiscal 2026 compared to a net loss of $1.1 million or $0.14 per basic and diluted share for the first quarter of fiscal 2025.

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

Thank you, Tracy. As is our normal practice, we're going to first answer questions from individual investors that have been submitted in advance of today's call. Caroline, could you go through the questions with us, and we will respond.

Yes. Thanks, Neil. We'll get started. The first question is, can you update us on the data center opportunity in general, how you feel about it? And if the opportunity has strengthened or not during the quarter? Any major changes or updates?

We continue to be optimistic about the data center opportunities, particularly in the multi-tenant data center and enterprise data center sectors. OCC saw and is seeing significant and growing activity and customer requests for quotes in the data center sector, particularly in January, and that activity is continuing and growing as we enter the second quarter of fiscal 2026. We believe this momentum will continue and result in increased sales in our targeted sectors of the data center market as fiscal year 2026 progresses.

Thanks, Neil. Next question is, in terms of outlook into 2026, in general, do you feel more or less optimistic now than in Q4?

I would like to say that we continue to be very optimistic about potential sales growth this year. As you all know, we typically see seasonality impact our results during the first half of a given fiscal year, particularly during the first quarter. However, based on the fact that our sales order backlog and forward load has increased more than 50% to $10.4 million as of the end of fiscal quarter -- the first fiscal quarter of 2026 when compared to the same period last year and that the activity and request for quotes we have seen in our targeted market sectors, including the data center market sector, have been increasing. We continue to expect sales growth during fiscal year 2026.

Thanks, Neil. Next question. In the past, you have been commenting on improvements in OCC end markets. Have these improvements continued? Can you comment on new and emerging trends or risks?

Thank you. As you all know, during fiscal year 2025, net sales increased 9.5% and gross profits increased 24.1% compared to the prior fiscal year, which we believe reflects the improvements we saw in many of our targeted markets last year, particularly during the second half of fiscal year 2025. So far, we continue to see growth opportunities in many of our targeted market sectors, including, in particular, the data center market during fiscal year 2026. We believe this will continue to be the case, and this will positively impact OCC's revenue growth in fiscal year 2026.

Thanks, Neil. Next question. Can you please provide an update on progress of the Lightera collaboration?

Sure. As we've mentioned before, OCC has worked with Lightera, formerly known as OFS for decades. The strategic collaboration with Lightera announced last year was built on that long-standing relationship and the respect each team has for the other. The OCC and Lightera teams work well together and complement each other, enabling both companies to benefit from this important relationship. And we believe we're seeing the benefit of that as we move into fiscal year 2026.

Thanks, Neil. Next question. Could you comment on the type of products you expect to sell alongside Lightera? Will they be on the margin-accretive connectivity side or more on the basic cabling side?

Sure. So OCC and Lightera have assembled product sets that we believe provide exceptional solutions to meet our customer needs. They're both on the cabling side and on the connectivity side. Lightera, speaking of Lightera products, they have a number of industry-leading product designs that are now included in OCC's product solutions offering. A couple of examples include Lightera's Rollable Ribbon fiber optic cable, which is particularly well suited for data center applications.

Additionally, Lightera's InvisiLight product solutions are particularly well suited for installations of passive optical LAN technology in existing buildings where traditional passive optical LAN installations are more challenging. Of course, Lightera and OCC are both known for innovative product solutions and the development of new product solutions, which I would expect to continue to be the case.

Thanks, Neil. Next question is, can you explain if data center revenue had an impact in Q1 and what to expect for the rest of the year in terms of revenues?

OCC generally does not provide specifics regarding OCC's individual targeted market sectors. That said, during the first quarter, OCC saw increases in quotes and customer orders in the data center market sector, particularly in January. We believe this activity will continue to grow this year and will result in greater data center market sector revenues during the remainder of fiscal year 2026.

Thanks, Tracy. Next question is, have you seen any interest regarding a potential acquisition of OCC by larger players given that many of the larger players urgently need increased capacity?

Caroline, as you might expect, we are unable to comment on whether or not there's been any such interest.

Thanks, Neil. Next question. Will you ever have an Analyst Day perhaps with an investor deck?

OCC has given presentations to analysts in the past. However, as a small micro cap company, OCC does not have any analyst coverage at the moment.

Thanks, Tracy. Next question. I've noticed increasing job activity, including night shift jobs appearing on the jobs section of your website. Can we assume this is in anticipation of increased activity for the second half of 2026.

OCC currently is hiring in our manufacturing operations. We have been hiring to meet what we believe will be our personnel needs this fiscal year and recognizing the time it takes to train new manufacturing personnel. OCC is fortunate to have skilled long-term employees. Of course, OCC does have some personnel turnover as well that results in open positions. However, we are proud that OCC tends to have lower personnel turnover than other companies.

Thanks, Tracy. Next question. When do you think it's possible to start generating more revenue from the Lightera collaboration? Can you give us an idea on how this might change current revenue rate?

Working with Lightera has already begun to generate more opportunities, and we believe this will continue and contribute to revenue growth in fiscal year 2026 and beyond.

Thank you. Next question is, can you give more color on the Lightera collaboration and how you ended up at 7% for a share purchase? Did they want to buy more?

It would not be appropriate for me to comment more on the Lightera collaboration beyond what OCC and Lightera have already disclosed. I would like to say though, we think very highly of the Lightera and the Lightera team, and we believe their investment in OCC reflects Lightera's confidence in our business and our strong collaboration with them. I will also say that I believe that the Lightera OCC collaboration is benefiting both companies and will continue to do so.

Thanks, Neil. Next question. Can you comment on demand signals or expand on backlog in the Tier 2 data center sales cycle? Can you give an idea on the typical sales cycle as it might pertain to the Lightera collaboration activity and new revenue streams?

First, the OCC team stays close to customers and others that impact opportunities on a daily basis. And that allows us to see what demand signals are happening in the marketplace and provides us insight and a good sense of market dynamics. Also, the data center cycle tends to be longer for data center markets, particularly Tier 2 than the sales cycle for OCC's typical sales. We also believe the strategic collaboration is benefiting OCC and Lightera and generating additional opportunities, which we believe will continue to grow this fiscal year.

Thank you. Next question is, in the past, you had mentioned you expect the second half to be stronger than the first half. Is this still the case?

Yes. As we have mentioned earlier on this call, we do expect the remainder of fiscal 2026 to show further growth, including the second half of the fiscal year.

Thanks, Tracy. Our last pre-submitted question this morning is, at what point do you expect the growth to inflect in 2026?

While we are not giving revenue guidance for fiscal year 2026, either for the year or by quarter, I would point out that we have seen a growing sales order backlog and forward load. Our sales order backlog and forward load was $10.4 million at the end of the first quarter of 2026, an increase of more than 50% when compared to the same period last year.

That was the last pre-submitted question.

Thank you, Caroline. And now Angela, we will take any questions from analysts and institutional investors that may have questions. that Angela, 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're only taking live questions from analysts and institutional investors.

[Operator Instructions] And we'll take our first question from [ Serge Mascaro ] with [ Eden Discovery ].

Okay. Perfect. So the last call, you talked about some project delays. Can you update us about that?

Yes. We had -- I think in the last quarter, maybe the quarter before that, we had mentioned that we did have seen in the marketplace some projects that were being delayed, but that we didn't believe that, that was affecting our overall results. Right now, I can't think of anything offhand that is being delayed at the moment, but that always can happen in any quarter, but we don't expect that to be impacting our results this year.

Okay. That's perfect. And my second and last question is that during the fiscal year '25, the backlog was growing about 20%, but we didn't see that translating into revenue growth. Why is that?

Well, the backlog is a measurement of any point in time. But I think what we did see as it was growing that last year, we had increased sales 9.5% in total, and we saw significant strong sales in the third and fourth quarter of last year. And so I think that, that's what was really -- is consistent with that backlog growth. I think the fact that we have mentioned that we are seeing a larger backlog, sales order backlog at the end of the first quarter and the fact that we're seeing more activity and quote requests in our markets, we believe that that's a good signal for the rest of fiscal year 2026.

[Operator Instructions]

And at this time, there are no further questions in queue. I will turn the meeting back to Neil Wilkin.

Thank you, Angela. I would like to thank everyone for listening to our first quarter of fiscal year 2026 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation, and that's most appreciated. I also want to thank the members of the U.S. Armed Forces and be with them and thinking of them during this period of time. Thank you all.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning. My name is Stephanie, and I'll be your conference operator today. At this time, I'd like to welcome you to Optical Cable Corporation's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call.

[Operator Instructions]

Ms. Felix, you may begin your conference.

Good morning, and thank you for joining us for Optical Cable Corporation's Fourth Quarter and Fiscal Year 2025 Conference Call. By this time, everybody 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, 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. 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 fourth quarter and full year results for the 3-month and 12-month periods ended October 31, 2025, 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 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.

Fiscal year 2025 was a solid year for OCC driven by the successful execution of our growth strategies and strong positioning in our target markets. We entered into a strategic collaboration with Lightera that expands our growth opportunities which we believe will be reflected in our top line in fiscal year 2026 and beyond.

At the same time, we continue to operate efficiently and benefit from our strong operating leverage to drive gross profit growth. In fiscal year 2025, we realized the benefits of actions we took the previous year as the weakness across our industry during the second half of fiscal year 2023 and most of fiscal year 2024 subsided.

As a result, in 2025, we were able to capture new opportunities and deliver consolidated net sales of $73 million. Our net sales increased during each quarter of fiscal year 2025 and compared to the same periods in fiscal year 2024.

I'm pleased to share that OCC achieved growth by all measures during fiscal year 2025. Net sales grew by 9.5% and gross profit grew by 24.1%. Gross profit margin increased to 30.9% compared to 27.3% and SG&A expenses decreased as a percentage of net sales, all contributing factors to the significant improvements in operating results compared to fiscal year 2024.

OCC benefited from strong operating leverage in fiscal year 2025, and we anticipate this will continue to bolster our results in fiscal year 2026 and beyond. Our manufacturing operating leverage tends to create disproportionate increases in gross profit as net sales and production volumes increase. While both gross profit and gross profit margin can be impacted by product mix, as OCC's net sales and production volumes increase, substantial fixed costs are spread over higher sales volumes. And importantly, manufacturing efficiencies also tend to increase particularly for fiber optic cable production. Gross profit disproportionately increased 24.1% as net sales increased 9.5% during fiscal year 2025.

Our SG&A operating leverage also tends to be positively impacted by efficiency -- or excuse me, tends to positively impact efficiency and profitability as net sales increase. Many SG&A expenses are relatively fixed cost rather than varying with net sales, including significant public company costs. As a result, OCC's SG&A expenses as a percentage of net sales typically decrease with increased net sales. OCC's commitment to pursuing new growth opportunities, including expanding our presence in targeted market sectors and the enhancement of our product solutions offerings, including those resulting from our strategic collaboration with Lightera will fuel our future success.

As demand for cloud computing and artificial intelligence applications continues to accelerate, OCC is capturing the opportunity by expanding our existing presence and product solutions offerings for the data center market. We have continued to expand and innovate both our fiber optic cable product solutions offerings and our cable and connectivity product solutions offerings. As previously announced in July 2025, OCC and Lightera entered into a strategic collaboration agreement to expand product offerings and solutions especially for the data center and enterprise sectors.

As a global leader in fiber optic and connectivity solutions, Lightera has a long history of industry-leading innovation, design and manufacturing capabilities, including the production of high-performance optical fibers. As respected manufacturers in the fiber optic industry, OCC and Lightera have partnered in various ways over many years, and this strategic collaboration builds on that long successful relationship.

Through this strategic collaboration, OCC and Lightera expect to benefit from offering expanded fiber optic and copper cabling and connectivity solutions to the enterprise and data center sectors as well as an expanded presence in other sectors. The companies have combined portions of the extensive product portfolios of both OCC and Lightera to deliver integrated cabling and connectivity solutions offerings that will be sold by OCC. In connection with this strategic collaboration, Lightera has made an investment in OCC purchasing shares of OCC common stock from OCC and resulting in Lightera holding 7.24% of OCC's outstanding shares.

Looking ahead, OCC remains uniquely positioned in the fiber optic and copper cabling and connectivity industry with differentiated core strengths and capabilities that enable us to offer top-tier products and application solutions and to compete successfully against much larger competitors. OCC is committed to enhancing and leveraging our core strengths and capabilities to drive long-term value for our shareholders.

I'd like to highlight a few of those strengths for you today. First is our strong market positions, brand recognition and long-term industry relationships with loyal customers, decision-makers and specifiers, installers and integrators and end users across a broad range of targeted market sectors. Second is our extensive industry experience and expertise in OCC's engineering, sales and business development teams who are well respected for their product an application, experience and expertise, which enables OCC to create and offer its portfolio of innovative, high-performance products.

Next, OCC has a growing portfolio of innovative fiber optic and copper cabling and connectivity products and solutions that enable us to meet the unique needs of our customers and end users as they are well suited for the applications in our various targeted market sectors. We have significant availability of production availability at our facilities, supported by knowledgeable and experienced manufacturing quality and engineering teams.

Finally, our broad and diverse geographic footprint enables us to sell into approximately 50 countries every year. OCC has earned an exceptional reputation for its service excellence, innovation and entrepreneurial spirit, and we have built a team that embodies OCC's core strengths and capabilities.

As we turn to fiscal year 2026, we are optimistic about our growth opportunities, encouraged by our successes this past year and excited to build on the growing momentum we are creating in our targeted market sectors.

We look forward to leveraging our strengths and executing our strategies and initiatives to create long-term value for our shareholders. I'd like to thank the OCC team for its hard work, its commitment to OCC and those that count on us. Your contributions to the team's accomplishment this past year have been significant. Much has been accomplished by the OCC team this year, and we are confident we are well positioned for future growth in 2026 and beyond. I'd also like to thank our shareholders for your continued support of OCC.

And with that, I'll turn the call over to Tracy, who will review an additional detail on our fourth quarter and fiscal year 2025 financial results.

Thank you, Neil. Consolidated net sales for fiscal year 2025 increased 9.5% to $73 million compared to net sales of $66.7 million for fiscal year 2024 with sales increases in both our enterprise and specialty markets. At the end of fiscal year 2025, our sales order backlog and forward load was $7.3 million compared to $5.7 million as of October 31, 2024.

Looking forward, we anticipate additional growth opportunities during fiscal year 2026. We continue to expand our product solutions offering for the data center market as demand for cloud computing and artificial intelligence applications continues to accelerate. Consolidated net sales for the fourth quarter of fiscal year 2025 increased 1.8% to $19.8 million compared to $19.5 million for the same period in the prior year.

We experienced an increase in net sales in both our enterprise and specialty markets during the fourth quarter of fiscal year 2025 compared to the fourth quarter of fiscal year 2024. Sequentially, OCC's net sales decreased less than 1% during the fourth quarter of fiscal year 2025 compared to net sales of $19.9 million for the third quarter of fiscal 2025.

Turning to gross profit. Our gross profit increased 24.1% to $22.6 million in fiscal 2025 compared to $18.2 million for fiscal 2024. Gross profit margin, our gross profit as a percentage of net sales increased to 30.9% during fiscal 2025, up from 27.3% for 2024. Gross profit margin for fiscal year 2025 was positively impacted by higher volumes as fixed charges were spread over higher sales, the impact of 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. Gross profit decreased slightly to $6.3 million in the fourth quarter of fiscal 2025 compared to $6.5 million for the same period last year. Gross profit margin decreased to 31.9% in the fourth quarter of fiscal 2025 compared to 33.5% in the fourth quarter of fiscal 2024.

During the fourth quarter of fiscal year 2025, there was no significant change in the gross profit when compared to the third quarter of fiscal 2025. Gross profit margin sequentially increased to 31.9% in the fourth quarter of fiscal 2025 compared to 31.7% during the third quarter of fiscal 2025. SG&A expenses increased to $23 million in fiscal year 2025 compared to $21.5 million in fiscal year 2024.

SG&A expenses as a percentage of net sales were 31.4% in fiscal year 2025 compared to 32.2% in fiscal year 2024. SG&A expenses increased to $6 million in the fourth quarter of fiscal 2025 compared to $5.9 million for the same period last year. SG&A expenses as a percentage of net sales were 30.4% during the fourth quarter of 2025 compared to 30% during the same period of fiscal year 2024. The increase in SG&A expenses during the fourth quarter and fiscal year 2025 compared to the same periods last year was primarily the result of increases in employee and contracted sales personnel-related costs and shipping costs, included in employee and contracted sales personnel-related costs, our compensation costs and sales incentives.

While profitable during the second half of fiscal 2025, OCC recorded a net loss of $1.5 million or $0.18 per basic and diluted share for fiscal year 2025 compared to $4.2 million or $0.54 per basic and diluted share for the fiscal year 2024. OCC recorded net income of $49,000 or $0.01 per basic and diluted share for the fourth quarter of fiscal 2025 compared to net income of $373,000 or $0.05 per basic and diluted share for the fourth quarter of fiscal 2024.

And with that, I'll turn the call back over to you, Neil.

Thank you, Tracy. We have received a number of questions in advance of the call today. And we believe that those would be an interest to most participants. So we're willing to go through those questions first, and then we will address any remaining live questions from analysts, institutional investors because some of those questions overlapped, we did try to combine them in a manner that we're addressing the core questions that were submitted in the advance. .

Caroline, if you could please read the questions. We're happy to provide our responses.

Thanks, Neil. The first question is, can you update us on the data center opportunity in general, how you feel about it if the opportunity has strengthened or not during the quarter? And any major changes or updates?

Yes. We believe like others in our industry that the data center markets are strong and will continue to grow. I wouldn't say that it had a significant impact in our fourth quarter, but we believe that it will start to impact us in fiscal year 2026. OCC has a presence in the data center market with established market relationships as well as products. Of course, as you all know, OCC's products are best suited for multi-tenant data centers or MTDCs, and enterprise data centers, sometimes referred to as Tier 2 and Tier 3 data centers.

We're currently working to expand our presence in portions of the data center market, and we're optimistic that the data center market, particularly this multi-tenant data centers and the enterprise data centers will provide an opportunity for revenue growth in fiscal year 2026 for OCC. .

Next question is, over the last quarter, you have been commenting on improvements in OCC end markets. Have those improvements continued into Q4? Can you comment on new and emerging trends or risks?

Yes, OCC continues to see strength in most of our targeted market sectors. There are certain market sectors where we've seen some projects delayed, but we do not believe that this has negatively impacted OCC's growth this year or that it would negatively impact OCC's growth in fiscal year 2026. We also believe that the continued growth opportunities in OCC's targeted market sectors for fiscal year 2026 continue to be significant.

Of course, as we have said in the past and experienced in the past, during the first half of each year, OCC does experience the impact of seasonality. And as of now, we currently expect that to be the case as well.

The next question is whether you believe OCC will have any hyperscale data center opportunities?

We've talked about this before or we've received this question before. And as we've noted, that really, our product solution offerings for the data center market are better suited and best suited for the multi data centers and enterprise data centers. We believe that there's significant growth opportunities in the multi-tenant data centers market segment as well as enterprise data centers, but particularly for the MTDCS. And that will provide significant opportunities for OCC in fiscal year 2026.

Yes. I'd also add that -- and Tracy mentioned this in some of her comments, that the multi-tenant data centers also are possibly impacted by the growth -- current growth in cloud computing and artificial intelligence. And so we believe that, that's a true market opportunity for us. .

Next question is, what do you think the potential sales look like for 2026 and 2027?

I'll let Tracy take the financial questions.

Sure. As we said before, we don't provide forward-looking guidance. However, I will say that we are optimistic about potential increases in sales based on the opportunities that we expect to arise in fiscal 2026, particularly during the second half of fiscal 2026. Our belief is based on what we're seeing in our targeted market sectors as well as our expected opportunities to expand in those market sectors as a result of the strategic collaboration with Lightera. .

Next question. Can you give a sense of the financial metrics behind the operational leverage? For example, how much EPS can impact different forward sales levels if they do, in fact, inflect higher on the collaboration?

We can't give you a specific formula. As you all know, operating leverage as a result of fixed cost and manufacturing and also in SG&A costs being spread over higher sales. Manufacturing operating leverage is also impacted by product mix sold, which is not a variable that's very easy to predict.

Next question is, Q1 and Q2 are typically the weakest quarter in terms of seasonality. Should we still expect the typical seasonality into 2026? .

As Neil mentioned, we do continue to see a seasonality impact in our first and second quarters, although there can be exceptions particularly if there are larger orders that impact the first half of the year, or unanticipated macroeconomic conditions during the year.

Got it. Next question. Is the focus still on Tier 2 data centers? Or is there some potential to capture some of the Tier 1 data center demand as part of your collaboration?

Well, without speaking specifically about the strategic collaboration with Lightera. What I'd say is that OCC products are best suited for Tier 2 or multi-tenant data centers and the enterprise data center market. And so that's really where our focus is, as we mentioned before. And I would not expect that OCC to directly have any significant participation in Tier 1 or hyperscale data centers. Doesn't mean there couldn't be some impact at some level.

And of course, those growth in Tier 1 data centers in the market, can impact what kind of growth is being seen in Tier 2 for multi-tenant data centers and other parts of the market. But directly, I wouldn't expect us to have a significant participation at all in the Tier 1 or hyperscale data centers.

In terms of capacity available and any capacity constraints, are there any changes versus what you commented on last quarter? .

We continue to evaluate our capacity. But right now, we believe that OCC has the capacity to capture the growth opportunities that we expect to see in fiscal year 2026. So I think that really answers that question.

Question. OCC has been hiring a lot recently. Can you comment if you have seen any issues to find the right workers? Why you saw the need to hire that significantly? And if this will increase OpEx significantly? .

Yes. I don't know if I'd characterize our hiring recently as significant. We do have a number of open positions that we are seeking to fill, and that's not unusual for that to be the case. Most of those positions are typically in manufacturing. We are fortunate that OCC has a good record of recruiting and retaining needed talent. But I think like a lot of businesses generally, not just in our industry, OCC has seen some additional turnover among newly hired personnel.

However, OCC has what we believe is a record of unusually low turnover among our longer-term employees. So we do continue to expect to see hires. I don't expect that to significantly increase operating expense specifically. And of course, we are consistently looking at what expenses we're incurring in order to provide the appropriate staffing as well as the appropriate balance of expense relative to our opportunities. .

Thanks, Neil. Next question is, can you please provide an update on progress of the Lightera collaboration? .

Sure. So OCC and Lightera partnered in various capacities for many, many years. And so it's not surprising because we worked well with them in the past that our new strategic collaboration with Lightera, I believe, is going well. The Lightera team is exceptional. And we think highly of the OCC team as well, obviously. And we believe that the strategic collaboration will create growing opportunities for OCC in fiscal year 2026 and hopefully for -- although I can't speak for Lightera, and for Lightera also.

Last question this morning is, Lightera has recently announced an investment into manufacturing. Is this an indication of strong demand for OCC? .

Well, we can't -- OCC really can increment on announcements that Lightera has made or what their specific business plans are. So I'd leave those questions for Lightera rather than OCC. .

Thanks, Neil. We have no other questions that were provided in advance of the call today at this time. .

Okay. So if those are the questions, I guess, operator, Stephanie, if you could let us know if there's any questions from analysts, and we're happy to answer them. And if you could please, Stephanie give the instructions for the folks to ask those questions, that would be wonderful. Thank you. .

[Operator Instructions] We'll take our first question from Anthony Christ with Odyssey Investments. .

Thank you very much. Mr. Wilkin, I have tried to call 2 or 3 times, I'm located up in Northern Virginia. My question deals with, is there any visibility into whether or not Lightera may refer us some of the SMF cabling, single-mode fiber cabling or the hollow fiber cabling, which is basically Tier 1 products.

And if you could -- I know the words -- if you could take a minute and explain what those 2 products are, I'd appreciate it. And then I have a follow-up.

Okay. So Hollow-Core on the -- is the type of fiber that's really looking to reduce latency and increased speed in certain applications. And so that is something that probably is usable in a lot of different applications. And our engineering team would be better able to answer that question, but as a general matter, that's the case. I think that I can't comment on what people are thinking about with respect to or what Lightera is thinking about with respect to how they're going to use that product.

But OCC, we partnered with Lightera in a number of different ways, and Lightera is a large fiber producer of various different products that have been leading performance in the industry for many, many years. So again, our products are more focused on the traditional markets that we've had, enterprise, various parts of the enterprise market as well as a number of specialty markets, including harsh environment and military and others. We use some specialty technologies in some of those products.

And then in data centers. We've had a presence in data centers before, but now we're focusing on expanding that and leveraging our current relationships and also focusing on expanding our product offering.

I don't know if that really helps specifically on your question. SMF, specifically, I think, of just a single mode fiber. So that's a more typical product that would be used in data center, although multimode fiber is also used.

And we'll take our next question from Shawn Boyd with Next Mark Capital.

He said he had a follow-up question, though. Did you want to take that, Stephanie, first? Anthony did.

Anthony, would you like to announce your follow-up?

Yes. Yes.

Your line is open, Anthony. .

Okay. Dare I ask Neil, if those 2 fibers, the SMFs and the Hollow case fibers would make -- were competitive with the Corning fibers? And if any automation, AI would be given us by Lightera to produce them. .

Yes, I'm not the best person to answer the question about how those are going to be used. And there's a whole lot of intellectual property and strategy that goes behind which fibers are going into which applications and what plans the fiber manufacturers have.

What I can just say is that Lightera is known for having leading technology in fiber development, everything from the Rollable Ribbon fibers to many, many other types of fibers. They've been a leader in many ways and are well respected in that regard. How they plan to deploy those technologies in different markets, is not really something that we can comment on. And those are questions that will really be left to Lightera, if they choose to answer them, which they may not be because of the proprietary nature of some of that.

But Anthony, one thing I guess I would add is if you're asking how they compare to Corning, I would suspect that as with any other competitors, Lightera would have a very favorable view of their products, and I think the market does too.

[Operator Instructions] And we'll take our next question from Shawn Boyd with Next Mark Capital.

Can you hear me okay?

It's a little low, but I think we've been able to make out what you're saying.

Okay. Let's give it a shot here. So historically, the company has been -- has shown real positive seasonality in its October quarter, it's fourth quarter, up double digits sequentially. This year, we didn't quite see that. And I thought I might have heard something about delays. So the question is, were there any project delays or pushouts that might have caused that?

Well, first of all, generally, our seasonality is what we see in the first quarter versus the second quarter -- I mean, excuse me, the first half of the year versus the second half of the year. So I don't have the precise percentage in front of me, but the growth that we would have seen from the second quarter to the third quarter would have been, I would expect in double digits.

Sequentially, that wasn't the case from Q3 to Q4, but I would expect Q3 and Q4 to be more equal. Again, with most of the seasonality being impacting the first half of the year and seeing positive increases in the second half of the year. .

And we did see our seasonality this year mirror that from 2024. So for the second half of the year, I think it was 48% in the first half.....

Of total sales.

I'm sorry, 46% of total sales in the first half of the year and the rest in the second half of the year, and that was exactly the same in 2025 compared to 2024.

And we'll be filing our annual report on Form 10-K today, we expect to, in the footnotes, we disclose details about some of the seasonality.

And the MD&A.

The other question that you had was the -- part of the same question you had was, did we see any products that have been delayed impacting the fourth quarter?

I don't think that, that was significant. And again, I think that those delays are significant overall. I think there -- and one of the things that OCC benefits from is we're in many, many different markets geographically, in particular market segments. And so sometimes, we'll see big fluctuations in certain market sectors that are not truly visible because they're offset by other fluctuations in other market segments that we're targeting.

Let me just correct the seasonality percentage that I stated earlier, it was 46% in the first half of the year and 54% in the second half of the year. And that was the same seasonality pattern that we saw in 2024 and 2025. .

Okay. So the 46%, 54% is the year we just finished, FY '25? .

Yes, as well as 2024. They were exactly the same. .

Got it. Okay. That color is helpful. Appreciate that. So just as a follow-up, the collaboration with Lightera, which we inked back in July, you indicate that should -- would you start to see that impact the top line in 2026. Can you give us any more color on that? Can we see that in the first half, would it be the second half? And just as a follow-on, why is that taking this long? What is it that -- what are the gating factors before we see the revenue contribution of that? .

Yes. I mean, it's a good question. It also has a lot of details behind it, say specifically what we're going to see in 2026. We don't provide forecast on what we're going to see -- we do think we're going to see a positive impact, and we've stated that.

With respect to the collaboration, as you'd imagine, when you're working with companies in a different way that there is a lot of work that goes into that I think that the work is going well and expeditiously and that there's a lot of work that's being done, you'd expect that, that would be the case before it started to impact sales, but I can't, beyond that, comment on what it is.

I think that what I'd also -- I don't have the quite percentage -- if you'll just hold on for a second. So there was -- I was just confirming -- you talked about the double-digit increase because of seasonality. If you look at what our performance was in the second quarter of 2025 versus the third quarter 2025, that does create -- that we do see a double-digit increase in sales, which is consistent with the observation that you had made but you wouldn't necessarily expect to see that between the third and fourth quarter because of the seasonality between the first half and the second half, as we described, is fairly consistent.

There are no additional questions at this time. I'd like to now turn it back to our presenters for any additional or closing remarks.

Thank you, Stephanie. I appreciate everyone's questions. We'd like to thank everyone for listening to our fourth quarter and fiscal year 2025 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation.

We hope that you and your families have a wonderful holiday and a happy new year. Thank you. .

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Hello. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome you to Optical Cable Corporation's Third Quarter of Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note that today's call will be recorded.

Your host today will be Mr. Dean Mr. Stark, you may begin your conference.

Good afternoon, and thank you for joining us for Optical Cable Corporation's Third Quarter of Fiscal 2025 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, Senior Vice President and Chief Financial Officer.

Before we begin, I would 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. The cautionary statements apply to the contents of the Internet webcast on occfiber.com as well as today's call.

With that, I'll turn the call over to Neil Wilkin. Neil, please begin.

Thank you, Dean, and good afternoon, everyone. I will begin the call today with a few opening remarks. Tracy will then review the third quarter results for the 3-month and 9-month periods ended July 31, 2025, and 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 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.

OCC had a strong third quarter as we delivered significant net sales growth and gross profit expansion during both the third quarter and the first 9 months of this fiscal year. Net sales increased 22.8% during the third quarter of fiscal 2025 compared to the same period last fiscal year and increased 12.8% during the 9 months ended July 31, 2025, compared to the same period last year. These results were select the OCC team's ability to capture additional opportunities as demand for our products increased in many of our markets.

We also continue to see the benefits of OCC's significant operating leverage during the third quarter as our 22% -- 22.8% year-over-year increase in net sales drove gross profit growth of 61.2%. I'm pleased to report that the OCC team is executing well against our long-term growth strategy.

As previously announced, OCC and Lightera entered into a strategic collaboration agreement in early July to expand product offerings and solutions to the enterprise sector, the data center sector as well as expanded presence in certain other sectors. As part of this strategic collaboration, OCC and Lightera have combined portions of the product portfolios of both companies to deliver additional integrated cable and connectivity solution offerings which will include certain Lightera products being offered and sold by OCC.

In connection with this strategic collaboration, Lightera made an investment in OCC with Lightera holding 7.24% of the company's outstanding common shares. We anticipate our strategic collaboration with Lightera will provide growth opportunities for OCC. As we look ahead to the end of fiscal year -- of this fiscal year and into 2026, we remain focused on disciplined execution and capitalizing on growth opportunities need to drive shareholder value.

And with that, I'll turn the call over to Tracy, who will review in additional detail, our third quarter of fiscal year 2025 financial results.

Thank you, Neil. Consolidated net sales for the third quarter of fiscal 2025 increased 22.8% to $19.9 million compared to net sales of $16.2 million for the same period last year, resulting from increases in net sales in both our enterprise and specialty markets. Sequentially, net sales increased 13.5% during the third quarter of fiscal year 2025 compared to net sales of $17.5 million for the second quarter of fiscal 2025.

Consolidated net sales for the first 9 months of fiscal 2025 increased 12.8% to $53.2 million compared to net sales of $47.2 million for the first 9 months of fiscal 2024 with sales increases in both our enterprise and specialty markets. At the end of our third fiscal quarter of 2025, our sales order backlog and forward load was $7.1 million compared to $7.2 million as of April 30, 2025, $6.6 million as of January 31, 2025, and $5.7 million as of October 31, 2024.

Turning to gross profit. Our gross profit increased 61.2% or $2.4 million to $6.3 million in the third quarter of fiscal 2025 compared to $3.9 million for the same period last year. Gross profit margin or gross profit as a percentage of net sales increased to 31.7% in the third quarter of fiscal 2025, up from 24.2% in the third quarter of fiscal 2024 and 30.4% for the second quarter of fiscal year 2025.

Gross profit increased 39.5% to $16.3 million in the first 9 months of fiscal 2025 compared to $11.7 million in the first 9 months of fiscal 2024. Gross profit margin increased to 30.6% in the first 9 months of fiscal 2025 compared to 24.7% in the 9 months of fiscal 2024. Gross profit margin for the third quarter and first 9 months of fiscal 2025 was positively impacted by production efficiencies created by higher volumes and the resulting positive impact of our 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 $5.7 million or 9.5% in the third quarter of fiscal year 2025 compared to $5.2 million for the same period last year. SG&A expenses as a percentage of net sales were 28.8% in the third quarter of fiscal 2025 compared to 32.3% in the prior year period. SG&A expenses increased to $16.9 million or 8.2% during the first 9 months of fiscal year 2025 compared to $15.7 million for the same period last year. SG&A expenses as a percentage of net sales were 31.8% in the third quarter of fiscal 2025 compared to 33.2% in the prior year period. The increase in SG&A expenses during the third quarter and first 9 months of fiscal year 2025 compared to the same periods last year was primarily the result of increases in employee and contracted sales personnel-related costs and shipping costs, included an employee and contracted sales personnel-related costs for compensation costs and sales incentives.

OCC recorded net income of $302,000 or $0.04 per basic and diluted share for the third quarter of fiscal 2025 compared to a net loss of $1.6 million or $0.20 per basic and diluted share for the third quarter of fiscal 2024. OCC recorded a net loss of $1.5 million or $0.19 per basic and diluted share for the first 9 months of fiscal year 2025 compared to $4.6 million or $0.59 per share for the first 9 months of fiscal year 2024.

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

Thank you, Tracy. At this time, we would normally take questions from analysts and institutional investors -- live questions. However, we have received a number of questions in advance of the call today, we believe would be of interest in most participants. So we're going to go through those questions first, and then we will address any remaining questions live that may come from analysts and institutional investors. Dean, if you could please begin reading the questions we've received in advance, and we will respond. .

Absolutely. First question, can you comment on what you're seeing in your traditional markets and how it has evolved through the year?

Yes. We are generally seeing strength in our targeted markets this year, and that's been the case with others in the industry as well. We believe we're benefiting from our strong market position, and that's been reflected in our results this year, including in the third quarter of 2025.

Can you comment as to what you're seeing in terms of AI impact? It seems like there should be a significant opportunity for you.

Well, folks know, and I believe it's fairly clear that AI is growing or someone even saying exploding because of all the demand. And this is positively impacting our industry generally. The impact is seen in the growth of hyperscale data centers in particular. Currently, OCC's products are more suited for what we would call Tier 2 and Tier 3 data centers. However, we do believe we will see positive impact from AI and data center growth. However, we also believe the biggest growth that we've seen by those companies targeting hyperscale data centers.

[indiscernible] Yes, apologies. CommScope recently sold the vertical that is competing with you on Amphenol. Do you expect any impact from that?

As our listeners may expect, we are following these developments, but at this time, we do not believe this will have an impact on OCC.

Next question. The backlog is down versus Q2, but Q4 is usually the strongest quarter. Does this decline clog mean that the seasonality is not expected to be what we'd normally expect from Q4?

Tracy is going to take the next few questions here.

Thanks. I would describe the decrease in backlog and forward load of approximately $100,000 as more of a leveling cost rather than a decrease, certainly not a significant decrease. And possibly more related to timing of shipments and order entry than indicative of demand. At the end of Q3, our backlog and forward load was still higher than the backlog and forward load at the end of both fiscal 2024 and the first quarter of fiscal 2025, which is basically where you see the seasonality impact.

Thanks, Tracy. How much indicative backlog decline is a result of potentially weaker demand?

Well, as I mentioned in my response to the previous question, this was a very minimal decline. We don't believe it is an indicator of weaker demand at this point. As Neil said, we're generally seeing strength in our target markets and believe demand is holding strong.

Appreciate that. Next question is why was the gross margin 31.5% with higher sales levels in the quarter considering in Q4 last year, it was 33.5% with lower sales growth?

As we've mentioned in our previous filings, our gross profit margin varies depending on product mix in addition to volumes. We believe this was a result of product mix when comparing the 2 quarters.

Next question. Do you think you will need to increase capacity if you have plans to materially invest in extra capacity?

We believe we have the capacity to capture the exciting growth opportunities out there. We're currently filling some open positions in our manufacturing operations, given anticipated demand, particularly in Roanoke. And it does take some time for our production employees to get fully up to speed. But other than filling open requisitions to meet anticipated demand, we don't have any needs or plans to significantly invest in extra capacity at this time.

Next question. Is the current OpEx level sustainable? Or should we expect any material expenses moving forward?

As we've described in the past, we believe our operating leverage has a significant positive impact on our results as revenues increase. We also believe that our operating expenses should be generally sustainable at current and even higher sales levels.

Next question, could you elaborate on the structure of OCC's Lightera cooperation? Will OCC be manufacturing Lightera branded products? And will OCC hold any Lightera equipment inventory?

Thanks, Dean. I will answer the number of questions that we've received regarding Lightera. I will say, as we get started and going through these questions that there's a lot of details about our collaboration that we're not prepared to share and that I think is consistent with the way we've typically operated.

With respect to the question at hand here, we have previously disclosed the purpose of strategic collaboration that OCC has entered into Lightera was to expand product offerings and solutions, especially for the data center and enterprise sectors. We believe that both OCC and Lightera will benefit from opportunities generated by the ability to expand fiber optic and copper cabling and connectivity solutions in the enterprise sector, the data center sector as well as an expanded presence in certain other sectors.

As you all know, Lightera has made investment in OCC, and we believe this reflects their confidence in OCC and resulted in Lightera holding 7.24% interest in OCC. We have on file the stock purchase agreement related to this investment by Lightera, and that was filed with the SEC in a Form 8-K shortly after the announcement on July 7.

The next question on this topic. How will Lightera add value to OCC? How will Lightera help you to increase sales?

Well, as we've said and one of the benefits of working with a company like Lightera is they are a global leader in optical fiber and connectivity solutions. And we've successfully worked with Lightera and its predecessor OFS Fitel for decades. Our collaboration with Lightera expands on our product offerings and solutions, especially for data centers and enterprise sectors, and we believe OCC will benefit from that. We also -- we think not only our customers will benefit, but also our shareholders as well.

Next question. It seems like OCC has already started to benefit from Lightera sales and marketing efforts. Is Lightera going to spend sales and marketing resources to generate business for the partnership going forward?

Lightera did exhibit at the Dixi trade show last month. And at the invitation of Lightera, OCC did provide some personnel at the Lightera booth at Dixi. As part of this new collaboration, we expect the Lightera-OCC will be working together in various different ways. However, we are not commenting on our specific sales and marketing strategies, which is consistent with OCC's past practice.

Thanks, Neil. Next question. Is the goal with Lightera collaboration still to target Tier 2 data centers? Or does this open the door to hyper scalers and larger data centers?

OCC continues to focus on the products we offer, which tend to be more suitable for what we would call Tier 2 and Tier 3 data centers that does not rule out the possibility of us seeing benefits from the growth that's happening in the hyperscale market, but our core products are really -- and solutions are fairly focused on Tier 2 and Tier 3.

The next investor question. Can you give us an impression of the opportunity here, maybe a typical ticket size for Tier 2 or Tier 3 data centers given the combined offerings?

Well, I will say that the opportunities in Tier 2 and Tier 3 data centers really vary in size. It can include anything from greenfield builds to moves ads and changes. And as you all know, our practice -- it's our practice that we do not provide forecast of expected sales opportunities. So -- that's where -- I think that's what we can say about that.

Next question is, did Lightera want to buy more of the equity than the 7.24% interest?

Well, we're not going to comment or get into the details of our negotiations with Lightera, and that shouldn't be a surprise. We do think very highly of Lightera and Lightera team, and we believe their investment in OCC reflects their confidence in our business and the work we will do together. We're very excited to be working with Lightera and look forward to that continuing to develop over time.

We received a number of questions with respect to specific sales or financial outlook with respect to the strategic collaboration with Lightera. Can you speak to that?

Again, consistent with OCC's past practice, we are not going to give specific guidance or projections. What we will say is that we are confident that our strategic collaboration with Lightera and the resulting Lightera-OCC integrated solutions will enable us to offer -- make -- provide an offering that will expand our market opportunities, accelerate OCC's sales growth and will create value for OCC and its shareholders.

We have no other questions that were provided in advance of the call today at this time. Neil?

Okay. Thank you, Dean. So now as we usually do, if any analysts or institutional investors have any remaining questions, we are happy to answer them. David, if you could please indicate the instructions for our participants to call in the questions they may have, I'd appreciate it. Again, we are only taking live questions from analysts and institutional investors. .

[Operator Instructions] And we'll take our first question from [indiscernible] Discovery.

Congratulations on a wonderful quarter. My first question is the seminal growth in the U.S. market this quarter. And in the past quarter, the use was not growing bedfast. So I was wondering if you can give us a little bit of color about which verticals caused this strong acceleration in which products, it will be great.

I appreciate the question. Part of the reason why we're seeing growth in addition to the work that our sales and business development teams are doing successfully is, you'll recall that in most of fiscal year 2024 and before that, the whole industry was in a bit of a downturn. So we're benefiting that, but we're also benefiting from our strong position in the marketplace. It's doing well. I don't think we can speak and we typically don't speak to the specifics of which markets and which products are doing well. But generally, right now, and as we will disclose in our Form 10-Q that will be filed later today, we've seen growth in both our enterprise markets as well as our specialty markets. And we've seen growth in the U.S., and we've seen growth internationally. And so I think that for -- and right at this point, it's a fairly broad growth scenario that we are experiencing and strengthen market.

Okay. And from my next question. I've been following you for a long time, and I read all the press releases and noticed all the So it the current press release, you talked about good prospects for this year and beyond, which is a new thing. It seems that you are more confident on the next fiscal year. So this is also a surprise. So -- can you explain a little bit about driving that and a little bit more color about what makes you feel more optimistic?

Well, we've been optimistic because the industry went through about 5 quarters of decrease and pressure. We kept the position. We weren't as negatively affected as others in our industry were. And in addition to that, we're also benefiting from the recovery in the industry. We believe that the activity that's going on in data centers we're going to benefit from even though we are not, at the moment, offering products that are more hyperscale related. And we also see strength in our other markets. We do a lot of specialty work and we're seeing strength across the board in those markets. And so that's the is why we're optimistic. I think we're also, as you would expect, excited about our relationship -- new relationship with Lightera. We've worked with Lightera for years. We know the quality company that they are and the people. And the fact that we believe we are taking the relationship we've developed over many years to a different level than making this investment in collaborating in a significant way in certain markets and with certain products, I think, is particularly the reason to be particularly optimistic on our part. We still have seasonality in our annual cycle quarters. Of course, Q1 and Q2 tend to be a little softer. And of course, there's a lot of noise in the market now in many different fronts. If you just -- as you see and follow the financial moves, you can see that. So we can't be certain about what will happen. But right now, we're particularly optimistic about the path we're on.

That's very helpful. And that's for my last question, I want to dial -- So is it a little bit more macro oriented, so we can assume interest rates are probably going down soon. So I'm not does the fact that interest rates are going down a maybe affect some of your clients, maybe help a little bit to release some of the financial pressure and maybe exponential growth. Do you see any effect on that?

It's hard to say. I think that the interest rate decreases that the Fed is at least being pressured and somewhat considering. They're looking at various different market data, some of which is conflicting and how that actually filters down is the actual interest rates that businesses are subject to is also still a question mark, I think, in the market. So we're not really looking to what happens with the interest rates to figure out how our business is going to do going forward, but it is something we'd watch as you'd expect.

Just a very last question. Considering the large growth you had this quarter, do you still expect as sites we expect Q4 to be

Well, we don't really forecast on a quarterly basis. And our business also is a business that has -- can have a lot of volatility in it. But right now, we're optimistic. Appreciate your questions. I was happy that you've asked a number of them. I'm happy to answer those. We tend to restrict the questions just to 2 for institutional investor. .

Dean, are there any other questions or operator, excuse me?

[Operator Instructions] We'll take our next question from James Winchester with Quantified Value Partners.

I wanted to ask if you could maybe give us a little bit better sense of what's driving gross margin. I know that you've talked in the past about how -- when the market was soft, you maintain your infrastructure and capacity, even though it was kind of penalized you during that period. But -- in looking at gross margins, I see we are now, I think, up to the fourth quarter consecutively of very nice expansion in gross margin. I was wondering if you could just talk a little bit about what's driving that?

Sure. There's two things that impact our margins significantly. One is the product mix. The products that we offer particularly on the fiber optic cable side, but also across our other product lines can vary based on product mix. Now, you -- just from what the market price is for certain products. And so that creates an issue. And also on the cable manufacturing side, that product mix can particularly impact from a processing standpoint. So I put those kind of in one bucket, which is really product mix.

The second piece that really impacts us and then we benefit from a higher sales levels is the operating leverage, and that operating leverage in our business is significant. So -- yes, we do tend to not like to pull back in personnel significantly on the manufacturing side when there's pullbacks in the marketplace, but a lot of the cost relates to just the fixed cost of having a manufacturing facility. And as our sales dollars go up, those fixed costs get spread over those higher dollars very quickly, and that results in higher gross profit margins. We did see the same effect in SG&A costs because we have a substantial amount of fixed SG&A costs. And being a public company, those public company costs also factor into that. I addressed that in my letter to the shareholders in our 2024 last year's letter to the shareholders, that kind of gives you a sense of what you can see over several quarters, which may be of interest to you if you haven't looked at that before.

That's very helpful. just sort of extending on that first question. And in light of your new relationship or a joint venture with Lightera, can you sort of give a generalization of whether that will -- number one, whether that will drive more volume over your manufacturing infrastructure. And number two, can you give us some sense of kind of where you're at in terms of utilization of your capacity? Are you at 1/4 or 1/2, 90%, we're going to need more capacity next year or just to sort of give a broad brush assessment of where you're at?

Sure. Well, we certainly do hope that the relationship with Lightera will create more production volume for us. I think that we're in a good position in our products and in our markets. And then adding Lightera's products to that, I think, ultimately should create more demand for us. And that's what our goal certainly is. From a utilization or capacity standpoint, typically, and Tracy had talked about this, I think, earlier in a question a little bit is typically what affects us most is the personnel standpoint from a manufacturing side. The -- we tend to have more capacity in equipment than we completely utilize part of that's because our product line is diverse enough that we have to be prepared for different types of flows of products through the plant, particularly on the cable side. And -- so we tend to flex on personnel with overtime and then by new hires, has demands increase, and that typically does not require significant additional investment in new equipment. And that also explains the operating leverage. What we've disclosed in our Form 10-Q, typically, when we do our calculations is capacity -- running at a capacity of about 50%. Now that seems low, but that's not the personnel we have staff, that's really the machinery and also recognition of how we calculate or how we're utilizing shifts. So in two of our facilities, we're not running 24 hours a day. And in Rono, we're not fully staffed 24 hours a day, 365 like some companies. That's important and strategic in the way we operate because we're not making just a handful of cable products that are always run in very, very long runs and I kind of said it and forget it. Our products include customized products and also specialty products that allow us to be more flexible as different product lines move through our facility in different cells in different manners, depending on demand. So what I'd say is that we report that by calculating in that manner, it's about a 50% capacity. I think on any day, our manufacturing people wouldn't look at it that way. And -- but that's the way we calculate it. But certainly, we have to maintain and do maintain excess capacity in order to maintain that flexibility and also a reality of to take the business and the part of the business we're in rather than a company that really focuses on 100 different or 200 different cable products, and that's what they run all day long, 365, 24/7.

[Operator Instructions] We'll take our next question from Sergey Mascara with Capital Firm.

I'm wondering why you are not talking about the data center opportunity in your website and your data center products?

Let me make sure I understood the question, why we're not talking about the collaboration more extensively on our website yet, is that what you're talking about?

No, no, no. I'm asking if I take your website, it seems that you are not offering products for data center. I'm wondering why you are not advertising the product that you have on your website?

Well, I mean, we do have -- we are in the process of making some improvements to our website. I think that there's a couple of reasons. Number one, I think that there needs to be some improvements. We do have data center products on our website. I need to go back to see how much we specifically promoted that, but we are -- we will look at improvements on our website. But a lot of our sales and the business that we receive is through the relationships we've had in the industry over years and years and years. And so it's a little bit different than some other businesses that relied more on the advertising on the website.

And there are no further questions on the line at this time. And I'll turn the program back to management for any additional or closing remarks.

Thank you, David. I would like to thank everyone for listening to our third quarter fiscal year 2025 conference call today. As always, we appreciate your time and your investment in Optical Cable Corporation. Additionally, on today, specifically, I'd like to thank those men and women who have served and are serving our country around the world to protect our freedom and liberty. And to honor those who perished and the terrorist attack on our country 24 years ago today in New York, Pennsylvania and Virginia. In OCC, we will never forget. Thank you.

This does conclude the Optical Cable Corporation's Third Quarter of Fiscal Year 2025 Earnings Conference Call. Thank you for your participation, and you may now disconnect.