Optical Cable's Q3 2025 Earnings Call: Contradictions Emerge on Data Center Strategy, Seasonality, and AI Impact

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 11, 2025

Financials Results

• Revenue: $19.9M, up 22.8% YOY; up 13.5% sequentially (vs $17.5M in Q2 FY25)
• EPS: $0.04 per diluted share, improved from ($0.20) in prior-year Q3
• Gross Margin: 31.7%, up from 24.2% in prior-year Q3 and 30.4% in Q2 FY25

Business Commentary:

• Revenue Growth and Strategic Collaborations:
• Optical Cable Corporation reported a 22.8% increase in net sales for Q3 of fiscal year 2025, up 12.8% for the first nine months compared to the previous year.

• The growth was driven by increased demand across various markets and the strategic collaboration with Laterra to expand product offerings and solutions.

• Gross Profit Expansion and Operating Leverage:

• Gross profit increased by 61.2% to $6.3 million in Q3 and by 39.5% to $16.3 million in the first nine months.

• This expansion is attributed to significant operating leverage, with higher sales volumes improving profit margins.

• Investment and Ownership Stake:

• Laterra made an investment in OCC, holding 7.24% of the company's outstanding common shares.

• This investment reflects Laterra's confidence in OCC and the potential for growth from their collaboration.

• Seasonality and Demand Outlook:

• The sales order backlog and forward load decreased by approximately $100,000 to $7.1 million at the end of Q3.
• Despite this, the decline is attributed more to timing rather than a reflection of weakened demand, with expectations for continued strength in OCC's target markets.

Sentiment Analysis:

• Management highlighted a strong quarter with net sales up 22.8% YOY and gross profit up 61.2%. OCC posted net income of $302k vs a $1.6M loss in Q3 FY24. Backlog ‘leveling off’ at $7.1M was framed as timing, not weaker demand. They expect the Laterra collaboration to expand offerings and ‘accelerate OCC’s sales growth,’ and expressed optimism across enterprise, specialty, and data center (tier 2/3) markets.

Q&A:

• Question from Analyst (SFNet/Eden Discovery): Which U.S. verticals and products drove the acceleration this quarter?
  Response: Growth was broad-based across enterprise and specialty, both U.S. and international, aided by industry recovery and OCC’s sales execution; no specific verticals disclosed.

• Question from Analyst (SFNet/Eden Discovery): You sounded more confident about this year and next—what drives the optimism?
  Response: Industry recovery, strength across markets including tier 2/3 data centers, and the Laterra collaboration; seasonality persists amid macro uncertainty.

• Question from Analyst (SFNet/Eden Discovery): Will falling interest rates help demand from your customers?
  Response: Unclear; OCC monitors rates but is not relying on rate cuts to drive its outlook.

• Question from Analyst (SFNet/Eden Discovery): Given strong Q3, do you still expect Q4 to be the strongest quarter?
  Response: No quarterly guidance; business can be volatile, though management remains optimistic.

• Question from James Winchester (Quantified Valued Partners): What’s driving the sustained gross margin expansion?
  Response: Product mix plus significant operating leverage from higher volumes spreading fixed costs; similar leverage benefits SG&A.

• Question from James Winchester (Quantified Valued Partners): Will the Laterra collaboration increase volume, and do you need more capacity?
  Response: Expect higher volume; equipment capacity is ample with about 50% machinery capacity reported; constraints are mainly personnel, flexed via hiring/overtime—no major equipment additions needed.

• Question from Sergey Miskara (Kepler Capital Firm): Why isn’t the data center opportunity/products emphasized on your website?
  Response: OCC offers data center products but is upgrading the website; sales rely more on longstanding industry relationships than web marketing.