Q2 2020 Earnings Call

Question and answer session and instructions will follow at that time.

Anyone should require any assistance during the conference. Please press Star then zero on your thoughts stone telephone.

As a reminder, this conference call is being recorded.

Now I would like during the conference over to your host Mr., Dan Baker, President and CEO , Sir you may begin.

Good afternoon, and welcome to our conference call for the quarter ended September Thirtyth 2019.

As always I'm joined by for Rogers, Our Chief Financial Officer. This call is being webcast live and being recorded a replay will be available through our website and the dot com.

After my opening comments Curt will present, a financial review the quarter I'll cover product development sales and governance and then we'll open the call to questions.

We issued our press release and filed our quarterly report on Form 10-Q in the past our following the close of market.

Links to documents are available through the secs website, our web site and our Twitter timeline.

Comments, we may make that relate to future plans advance financial results or performance are forward looking statements that are subject to certain risks and uncertainties, including among others such factors as risks and uncertainties related to future sales and revenue.

Risks related to changes in tariffs and other trade barriers.

Uncertainties related to the impacts of the federal tax Reform Act and acted in 2017.

As well as the risk factors listed from time to time in our filings with the FCC, including our annual report on Form 10-K for the year ended March 30, Onest 2019.

The company undertakes no obligation to update forward looking statements we may make.

Despite a challenging semiconductor market. We're pleased to report 3% sequential growth in revenue, 6% sequential growth in net income three product launches and four new distributors this past quarter.

Kurt will cover the details of our financial results, then I'll cover product development sales and governance Kurt.

Thanks, Dan.

For year over year comparisons total revenue for the quarter ended September Thirtyth, 2019 decreased 13% compared to a strong year ago quarter.

The decrease was due to a 12% decrease in product sales in that 30% decrease in contract R&D revenue.

We've been facing a challenging macro environment for product sales.

And what's been called the weakest semiconductor market in a decade.

Semiconductor sales decreased 16% year over year in the most recent available month. According to the semiconductor industry Association.

But it's a cyclical industry so it's expected to recover.

The decrease in contract R&D revenue was due to the completion of certain contracts.

Sequentially as Dan said total revenue increased 3% compared to the quarter ended June thirtyth.

That was our second consecutive sequential revenue increase.

Smart sensor sales have not been significant yet.

We have several interested customers and an important robotics design win recently.

We're hoping for a third consecutive sequential revenue increased this quarter the December quarter.

As well as year over year revenue growth with new products, gaining traction and a less challenging compare.

Gross margin decreased to 79% for the quarter from 82% in the second quarter last year due to a less profitable product mix.

Expenses decreased 4% from the prior year.

Primarily due to a 5% decrease in R&D as we completed the development of several new products.

Dan will discuss the new products in a few minutes.

Interest income for the second quarter increased 3% due to an increase in the average interest rates on our marketable securities.

Net income for the quarter decreased 11% year over year to $3.82 million or 79 cents per diluted share compared to last year's record 4.28 million or 88 cents per share.

We had an unusually low tax rate of love of 11% due to the benefits from the tax Reform Act.

Enacted in 2017.

We currently expect a tax rate for each of the remaining two quarters of the fish fiscal year.

Of approximately 18%, which is similar to what we've reported in other recent quarters.

Due in part to those tax benefits, our net margin was a record 59% of revenue.

Net income increased 6% sequentially compared to the quarter ended June thirtyth.

The one dollar per share or 4.85 million dollar dividend this past quarter.

Brought our total dividends paid to more than $97 million.

Adding in stock repurchases, we have returned over $100 million to shareholders in the form of dividends and repurchases. Since we began aggressively returning cash to shareholders in fiscal 2014.

Additionally, we announced another quarterly dividend today payable November 29th to shareholders of record November 4th.

For the first six months of the fiscal year total revenue decreased 12%.

Due to a 12% decrease in product sales and a 24% decrease in contract R&D.

Net income for the first half decreased 10% to $7.43 million or $1.53 cents per share compared to 8.23 million or $1.70 per share last fiscal year.

Comprehensive income for the first half increased slightly to $8.18 million from 8.17 million for the prior year period as an unrealized gain from marketable securities more than offset the decrease in net income.

The gain was due to strong bond market conditions.

Now I'll turn it over to Dan to cover the business.

Dan.

Thanks Kurt.

Now I'll cover product developments sales and governance.

New product development, sometimes takes longer than we'd like but we had a good quarter for new products as we introduced three new products since our last call in July .

A two new network couplers, one for automotive and one for industrial controls and a new type of magnetic switch.

We expanded our automotive product offerings with a new isolated coupler based on the controller area network flexible data rate or can F. D. Standard can't ft has up to five times the data rate and eight times the data payload of standard controller area network Transceivers.

The protocol as part of our industrial Internet of things strategy. It allows more bandwidth to support more complex data through in vehicle networks, as well as fast or software updates and data downloads for automotive manufacturing and service.

Our unique technology allows us to offer the smallest isolated transceivers and the industries, a so called quarter size outline packages or Q sops.

Which have one fourth of footprint of conventional parts.

The second product introduction in the past quarter was an isolated coupler for next generation Rs 485 buses.

Our as 45 also known as T. I, a for 85 or E Hey for 85.

As an industry standard network protocol used for a factory automation and the industrial Internet of things.

We have a number of Rs 45, Transceivers and the new part is compatible with next generation 3.3 volt Rs 485 buses, which use less energy than legacy fivefold parts.

The third new product line was announced just last weekend is a series of tunneling Magneto resistance or TMR magnetic switches.

Providing unique combination of low voltage.

Low power and high speed.

The new sensors can operate on less than a volte.

So they can be powered by single cell batteries.

With the ultra low power of our TMR technology, the new sensors can run for years on watch batteries, making them ideal for internet of things applications, such as utility meters and portable instruments.

We are leaders and TMR development.

TMR uses structured called the magnetic tunnel junction and has generally lower power and more precise on our older giant Magneto resistance or GMR based products.

Our researchers led by Dr., Joe Davies will present, a paper at the annual conference on magnetism and magnetic materials.

Known as Triple lab in early November titled Noise optimization in magnetic tunnel junction.

There are links to the abstract from our website.

And there's a demonstration of the energy efficiency and speed of the new TMR sensor in a motor control application.

On our website and you to channel.

Turning to sales, we recently added to distributors in India, one in Vietnam and one in Taiwan.

These are price sensitive markets, where we see growth potential.

We already received a significant order from one of those distributors.

Covering corporate governance, our annual shareholders meeting was August 1st.

For a good corporate practice, our entire board of directors stands for election every year and each of our directors was overwhelmingly reelected.

And our executive officer compensation supports goals of profitable growth and improving long term shareholder value without being excessive and shareholders overwhelmingly voted to approve compensation.

And finally, the selection of our new auditors was ratified.

Details of the shareholder Volte votes were reported on a form 8-K, we filed the day after the meeting.

In addition to the formal items the business at the meeting we explained our growth strategy of smart sensors for the industrial Internet of things and we had hands on smart sensor product demonstration.

There's a video of the demonstrations on our Youtube channel, that's Youtube Dot Com Slash NVE Corporation.

Now I'd like to open the call for questions Lance.

At this time last.

Later Tonight and the like these brand story and the number one on your Touchstone technical and if your question has been answered.

We see yourself from the.

That's the county.

Your first question comes from the lines comments Cochran from Lake Road Partners. Your line is open.

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Good afternoon, Dan.

Afternoon, Tom.

Okay.

Question breaks, we kinda breaks down into three sections.

Internet of things is here and getting bigger.

And then be makes devices ideally suited to serve the internet of things.

When is the internet of things going to make a big difference do NVE revenues.

That's the question.

Right well, that's a great question, Tom I think a part of the reason for the global slowdown in the.

The semiconductor industry has been that the internet of things well I think most experts believe it's inevitable has been slower to be adopted than a lot of people thought but it does seem inevitable. The benefits are so overwhelming and the technology that enables that and.

Of course, where a part of that is available. So we're hoping as Curt mentioned in the prepared remarks, we're hoping that it's going to start showing up in this this quarter, which would be our that's our December quarter, a third fiscal quarter.

Particularly our smart sensors, so we're optimistic sometimes things take longer than we would like but we believe its historic opportunity.

Hey, Thank you.

Again, ladies and gentlemen in Seattle question at this time. Please press Star then that number one I know that's still in technical.

I'm showing no further questions at this time like to train the kind of things back then became for closing remarks.

Thank you Oh, we were pleased to report sequential revenue and earnings group growth three new products and four new distributors that we look forward to speaking with you again in January to discuss third quarter results. Thank you again for participating in the call.

Ladies and gentlemen, this concludes todays conference call. Thank you for your participation and you have a wonderful day.

Neal disconnect.

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