[Management View]
Optical Cable Corporation (OCC) reported consolidated net sales of $17.5 million for Q2 FY2025, representing an 8.9% YoY growth and an 11.5% sequential increase. Gross profit rose to $5.3 million, with a margin of 30.4%, up from 25.1% YoY. The sales backlog increased to $7.2 million, indicating strong demand. Management emphasized the benefits of operational leverage and manufacturing efficiencies.

[Outlook]
OCC expects to continue benefiting from positive industry trends, focusing on military and Tier 2 and Tier 3 data center markets. The company does not provide specific forward-looking guidance but remains optimistic about the second half of FY2025, anticipating higher sales due to seasonality.

[Financial Performance]
- Net Sales: $17.5 million (Q2 FY2025), up 8.9% YoY
- Gross Profit: $5.3 million, up 32.1% YoY
- Gross Margin: 30.4%, up from 25.1% YoY
- SG&A Expenses: $5.7 million, up from $5.3 million YoY
- Net Loss: $698,000, narrowed from $1.6 million YoY

[Q&A Highlights]
Question 1: On your last call, you mentioned significant demand from data centers. Why isn't OCC focusing more on this opportunity, especially given the infrastructure spend in Dallas?
Answer: The data center market is divided into several categories. OCC does not target hyperscale data centers but focuses on Tier 2 and Tier 3 data centers. The company has added loose tube products to its offerings, which are used in data centers. While there is some movement in this area, the primary growth is in military markets.

Question 2: Can you give a sense of potential operational leverage if revenue increases while costs remain fixed?
Answer: Operational leverage can be seen in historical quarterly results. When fixed costs are spread over larger volumes, OCC benefits. The company believes it can increase sales without significantly increasing fixed costs, as detailed in the 2024 annual report.

Question 3: What percentage of the business is related to copper versus fiber?
Answer: While specific percentages are not disclosed, fiber is the largest portion of OCC's business. Some fiber cables are hybrids, including both fiber and copper. The copper market remains significant.

Question 4: Can you update us on data center opportunities?
Answer: Sales in data center applications are currently not significant, but there are opportunities, particularly in Tier 2 and Tier 3 data centers. OCC is evaluating its cable and connectivity offerings to address customer needs.

Question 5: Can you provide an update on the company outlook compared to the end of Q1 and Q4?
Answer: OCC does not provide forward-looking guidance but sees positive market trends. The company experienced growth in Q1 and Q2 of FY2025 and expects higher sales in the second half of the year due to seasonality.

Question 6: Can you provide an update on the impact of tariffs and the Building America trends?
Answer: OCC has experienced some impact from tariffs but less than others in the industry due to its U.S.-based manufacturing facilities. The company continues to monitor the tariff landscape and make adjustments.

Question 7: Is the backlog reported each quarter a sign of next quarter demand or full-year demand?
Answer: The backlog includes all confirmed orders, regardless of the expected shipment date. It can indicate demand for the next quarter or later.

Question 8: Do you expect sequential revenue growth over the next few quarters?
Answer: While OCC does not provide revenue guidance, sales are typically higher in the second half of the fiscal year due to seasonality.

Question 9: What gross margin could the company achieve at full capacity?
Answer: Specific gross profit margins at full capacity cannot be provided due to product mix variability. Historical data shows higher margins at increased volumes, as detailed in the 2024 annual report.

[Sentiment Analysis]
Analysts and management maintained a positive tone, focusing on growth opportunities and operational leverage. Management expressed confidence in the company's strategic direction and market positioning.

[Quarterly Comparison]
| Metric | Q2 FY2025 | Q2 FY2024 | Q1 FY2025 |
|-----------------------|-----------|-----------|-----------|
| Net Sales | $17.5M | $16.1M | $15.7M |
| Gross Profit | $5.3M | $4.0M | $4.6M |
| Gross Margin | 30.4% | 25.1% | 29.4% |
| SG&A Expenses | $5.7M | $5.3M | $5.4M |
| Net Loss | $698K | $1.6M | $1.1M |
| Sales Backlog | $7.2M | $5.7M | $6.6M |

[Risks and Concerns]
- Tariff impacts on certain products and exports
- Dependence on product mix for gross profit margins
- Seasonality affecting sales distribution

[Final Takeaway]
Optical Cable Corporation demonstrated strong financial performance in Q2 FY2025, with significant growth in net sales and gross profit. The company benefits from operational leverage and manufacturing efficiencies. While focusing on military and Tier 2 and Tier 3 data center markets, OCC remains optimistic about the second half of FY2025, anticipating higher sales due to seasonality. Investors should monitor the impact of tariffs and product mix on future performance.