James Winchester

James Winchester inquired about the primary drivers behind Optical Cable Corporation's consistently expanding gross margin over the past four quarters, particularly given the company's strategy of maintaining infrastructure during market downturns. He also asked how the new Laterra collaboration might impact manufacturing volume and current capacity utilization.

Answer

President and CEO Neil Wilkin attributed gross margin expansion to a favorable product mix and significant operating leverage, where fixed costs are spread over higher sales volumes. He also noted that SG&A costs benefit from similar leverage. Regarding the Laterra collaboration, Mr. Wilkin expressed optimism that it would generate more production volume. He explained that capacity is primarily managed by adjusting personnel (overtime, new hires) rather than significant equipment investment, with reported machinery capacity utilization around 50% to maintain flexibility for diverse product lines.

James Winchester extended his inquiry by asking if the new collaboration with Laterra is expected to increase manufacturing volume and requested an assessment of current capacity utilization, including whether additional capacity investments will be needed next year.

Answer

Neil Wilkin, Chairman, President & CEO of Optical Cable, expressed hope that the Laterra relationship will generate more production volume. He explained that capacity is primarily limited by personnel, not equipment, and that the company typically flexes with overtime and new hires. He noted that OCC reports about 50% capacity utilization, which reflects machinery and shift calculations, emphasizing the need for excess capacity to maintain flexibility for diverse and customized product lines.

James Winchester from Quantified Valued Partners inquired about the key drivers behind the consistent expansion in gross margin over the past four consecutive quarters, particularly considering the company's strategy of maintaining infrastructure during market downturns. He also asked how the new Lightera collaboration might impact manufacturing volume and sought an assessment of current capacity utilization and future investment needs.

Answer

Neil Wilkin, President and CEO of Optical Cable Corporation, explained that gross margins are significantly impacted by product mix and operating leverage. He noted that higher sales levels allow fixed costs to be spread more efficiently, leading to improved margins. Regarding the Lightera relationship, Mr. Wilkin expressed hope for increased production volume and clarified that while equipment capacity is generally sufficient, personnel adjustments (overtime, new hires) are the primary means to meet increased demand, rather than significant new equipment investments. He stated that the reported capacity utilization is around 50%, reflecting flexibility for diverse product lines and shift patterns, not a lack of personnel.