Q3 2020 Earnings Call
And gentlemen, thank you for standing by and welcome to the P. E third quarter results conference call. At this time, all participants I not listen only mode. After the speaker presentation. They won't be question and answer session.
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I'd now like turn the conference your Speaker today, Daniel Baker, President and CEO . Please go ahead Sir.
Thank you good afternoon, and welcome to our conference call for the quarter ended December 31st 2019.
As always I'm joined by Curt Rogers, our Chief Financial Officer.
This call is being webcast live in being recorded a replay will be available through our website and be dot com.
After my opening comments Curt will present, a financial review of the corridor.
I'll cover new products and design wins, 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 yes. He sees website, our website and our Twitter timeline.
Comments, we may make the relate to future plans events 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 another trade barriers.
Uncertainties related to the impacts of the federal tax Reform Act enacted 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 31st 29 tea.
The company undertakes no obligation to update forward looking statements we make.
We're pleased to report a 9% increase in net income for the quarter driven by a 3% increase in revenue and a decrease in expenses Kurt will cover details of our financial results, then I'll cover new products and chair to new design win examples Kirk.
Thanks, Dan.
As Dan said total revenue for the quarter ended December 31st 2019.
Increased 3% compared to the quarter ended December 31st 2018.
The increase was due to a 3% increase in product sales and a 9% increase in contract R&D revenue.
The growth was despite continued weakness in the semiconductor market and a bit of weakness in our medical device market.
Semiconductor industry sales decreased 11%.
Year to year in the most recent available month according to the semiconductor industry Association.
The increase in our product sales included sales of new smart sensors.
The increase in contract R&D revenue was due to timing of progress towards contract completion.
We hope to have another quarter of year over year revenue net income growth this quarter.
The quarter ending March 31st.
Expenses decreased 21% from the prior year due to a 32% decrease in R&D.
Partially offset by a 22% increase in S.G.N. Hey.
The decrease in R&D expenses was due to completion of certain product development activities.
Dan will discuss ongoing and future product development activities in a few minutes.
The increase in SGN, a was primarily due to staffing changes.
We've added more sales and sales support staff.
Interest income for the third quarter decreased 3%.
Due to a decrease in the average interest rates.
Marketable securities and money market funds.
On the strength of increased revenue and decreased expenses net income for the quarter increased 9% to $3.73 million were 77 cents per diluted share.
Compared to 3.42 million were 71 cents per share for the prior year quarter.
The one dollar per share or 4.85 million dollar dividend this past quarter.
Brought our total dividends paid to more than 100 million since we began quarterly dividends in 2015.
Additionally, we announced another quarterly dividend today payable February 28 to shareholders of record February Threerd.
For the first nine months of fiscal year total revenue decreased 8% due to a 7% decrease in product sales and a 14% decrease in contract R&D.
Net income for the first nine months decreased 4% to $11.2 million or $2.30 per share compared to 11.6 million or $2.40 per share last fiscal year.
Comprehensive income and cash flow increased for the fiscal year to date. Despite the decrease in net income.
Comprehensive income for the first nine months increased 2% to $11.9 million from 11.7 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.
Cash flow from operations increased 7% for the first nine months to $12.5 million.
Cash plus marketable securities as of December 31st 2019 was 73.1 million compared to 74 point Threemillion at the end of the last fiscal year.
As operating cash flow and unrealized gains and marketable securities nearly covered 14.5 million in dividends paid.
Now I'll turn the call over to Dan to cover the business Dan.
Thanks, Curt I'll cover new products and design wins, we had a good quarter for new product development, which will drive future growth.
Last month, we expanded our smart sensor line with a wider field rain smart magnetometer, which is very useful industrial automation proximity detection.
In the September quarter, we announced our first tunneling Magneto resistance or TMR magnetic switches.
Our technology makes these switches inherently lower power than conventional semiconductors.
To achieve low power semiconductor sensors need to be turned on and off what's called duty cycling.
This reduces their speed, which is a problem promote or another controls and duty cycling introduces noise, which is problem for hearing AIDS and other audio devices.
The parts, we introduced in the September quarter run on 1.5 old batteries, such as alkaline or zinc air and do not require duty cycling.
In the past quarter, we introduce TMR magnetic switches that run on three to four bowls, which is ideal for rechargeable devices such as over the counter hearing AIDS and smart audio devices.
There's a video on our website and are you to channel showing the unique combination of low power and high speed for these new products.
In the past quarter, we also announced a high field TMR magnetic switch, which operates at a field strength of thousands of burst ads compared to our traditional sensors, which operate in the tens of or standards.
This high field capability allows our sensors to continue to operate when exposed to the large fields of amreit machines, which enables M.R.I. tolerant medical devices.
Yeah, Hi, tolerance is important as both medical implants, and MRI imaging become more common.
TMR technology also use its very little power, which extends the life of battery powered medical devices.
Hi field switches are also used insecurity in industrial applications.
We are leaders in TMR development.
T M are used to structures called magnetic tunnel junctions and is generally lower power and more precise than our older giant Magneto resistance or G. Amar based tech based products.
An example of our TMR researches in a paper by five of our researchers presented at the annual magnetism and magnetic materials conference in the past quarter.
It was titled Noise optimization and magnetic tunnel junction.
We reported on our development of sensors with higher than ever detect tivity.
Which is a key performance a figure of merit affecting accuracy.
These sensor elements have been deployed in some of our smart sensors and other products we've discussed recently.
There are links to the paper abstract on our website and our Twitter timeline.
In addition to product introductions, we met a significant smart sensor development milestone recently with the release of a new custom integrated circuit design to our foundry a milestone this often called tape out.
This is after an R&D investment of several hundred thousand dollars.
Customize sees are expensive, but this will allow us to make our most accurate smart sensor ever.
I see represents the culmination of a lot of hard work and ingenuity by are engineers scientists and contractors.
In the past quarter, we completed a NASA contract by successfully qualifying couplers for the rope a clip permission to one of Jupiter's machines.
We had chip the couplers to the jet propulsion laboratory in a previous quarter, but we still had testing to do to qualify the production lot.
We didn't environmental stress testing and other tests NASA did even more rigorous testing, including total ionizing dose radiation testing to ensure the parts can withstand the horse deep space environment.
Testing of our parts is a high priority a JPL because our parts will be in a number of space craft systems.
NASA is targeting to have the spacecraft complete im ready for launch as soon as 2023.
In a paper published in the past quarter in the journal nature astronomy, NASA scientists believe they detected water.
Which would mean, you're all by has all the elements necessary for life Europa Mission will do a detailed survey.
And look for landing sites for future missions.
Part of the rope a project was for a bit more $900000 and not huge revenues, but it validates the ruggedness of our technology, which is applicable to commercial markets.
For example, we have begun selling versions of similar couplers for Internet Communications satellite constellations, which had been in the news as a way to extend the internet all over the world. These do have decent revenue potential.
As we start 2020, we look back on 2019 as a productive year for product development, starting the first working day at 29 team with our announcement of the world's only smart tunneling Magneto resistance angle sensor.
Other news smart sensor products, including a smart TMR magnetometer.
Two new lines of ultra low power TMR magnetic switches for <unk> for medical devices and battery powered systems.
The high field sensors, we discussed a few minutes ago.
Hi speed automotive couplers, using the can F.D. network protocol.
And new couplers for the industrial Internet of things that use the lower voltage data bus.
We've been pleased with the response to our new products, especially our smart sensors I'd like to share to application examples.
The first example is a smart sensor design win for a sophisticated proximity sensor with a European robotics manufacturer.
The design win quickly and it's good validation of our smart sensors strategy.
We demonstrated the product to the customer in May.
And we shipped the first production order of several thousand smart magnetometers in the past quarter.
We gave them in the evaluation kits. So they were able to quickly evaluate the sensor without having to design a circuit board at right from where.
After testing they said it was very good product and selected for their project contingent on some customization.
With the flexibility of our smart sensor architecture, our team was able to turn those customization is around and just a few months.
The first order was for 10 to $20000 and we hope the first of many orders for this project and for this customer.
In addition to revenue feedback from this customer helped us improve the sensor and improve our development tools.
The second application example is for an internet of things battery dispenser developed in cooperation with one of our distributors for a major supplier of consumer batteries in Japan.
The system uses our smart sensors to detect whether the dispenser is running low on batteries.
The system notifies, the merchandise or via smartphone so the batteries can be replenished.
This optimizes travel inventory in spoilage.
The system is being field tested now and what's shown as the smart sensor use case at a trade show in the past quarter.
The advantages of our sensor and this application our high sensitivity for why design latitude.
And low power since the system not only dispensers batteries, but uses batteries for power.
Now I'd like to open the call for questions a joelle.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
So, which I have question Pester punky.
Please stand by we can probably candy roster.
And our first question comes from Jeff Bernstein.
Your line is open.
Hey, good evening guys.
So so quick question for you on a couple of the estimates do you ever have design wins on these products you know for particular customer before you announced the general availability of the product.
We often will develop new products with the input from customers. So maybe not what youd strictly classifies the design win but in many cases, we're developing a product that the customers requested in the presumption is that if that if it's good.
Product meets their expectations that they'll use it so we try to work closely with our customers and those smart sensors fell into that category, but those two examples that I gave were both from a what would you call. It a standing start so those where customers who learned about the product when we.
Announced it.
And we had development kits and and data sheets final data sheets ready to go or so the development environment was very important to that first customer the robotics manufactured that I mentioned.
Yep.
I was interested particularly in the Tamar magnetics, which as you mentioned that that 1.5 volt use you said I think that that that would be appropriate for hearing AIDS and a I know, there's a phone act or a hearing aid that that's out now and there was a discussion about it talking about it.
Disposable type battery and then wanting to go to a rechargeable.
Battery and it sounded like the the second TMR a magnetic switch you talked about would be appropriate for that do you have some some wins in the hearing AIDS already.
We we have a fair amount of business in the hearing aid sector. We generally don't talk about new new right because I have no.
Yeah.
Right. So we generally don't talk about the specific products, because because our customers tend to guard that fairly closely but as you correctly pointed out there's interest in rechargeable battery systems, both by traditional hearing aid manufacture is and companies entering the.
Hearing market, sometimes for hearing AIDS or personal sound amplification devices and sometimes for.
Devices for normal hearing folks things like translators or or navigation systems. So the a higher voltage products that we mentioned as as you know are ideal for rechargeable batteries and there's been a fair amount of interest we have a design wins in that space we have.
And said.
We haven't said, whom but but theres a lot of interest in rechargeable battery systems, which can go up to 4.2 Volte and then also is as you know the one and a half folds in care.
Battery is is still used to quite a bit and traditional hearing AIDS and that's a different type of challenge because that's not very much voltage gets to get a sensor to run on a single a single zinc care battery.
Gotcha, Okay, and then I was just curious from obviously you had phone ACA is as a disclosed customer in the past. They have this $6000 a hearing aid Super fancy hearing aid. That's a you know supposed to be a particular.
Potentially paradigm.
Changing and and I guess Starkey has been talked about as having a product in that class as well and I know the goal to you I think in Minnesota, and then but but at the same time you you have a this change in the regulation, where there are allowing these personal amplification devices, which are supposed to be.
So much much cheaper like an order of magnitude cheaper.
Then that is the opportunity set you know different free.
If these different things I would assume that the low price would be much higher volume, but do you get a premium if it's going into a premium price price product or or anything you can you can sort of say about the a the hearing it does segments.
Right. So that's a great point, Jeff is that there's a very broad market for for hearing devices and ranging from as you say some very high end amazing products that are coming out.
And to some lower cost products and we have a product lines that span a those types of offerings. So we have different products for for different applications and the voltages or different which is one thing that youve pointed out.
Now because because whether they're running on single cells that are typically one and a half full to the running on rechargeable batteries. They require different sensor elements and then the types of sensing that they do or the fields that there are sensitive to the outputs the amount of current that they draw.
Are those all very with the application and so.
We've been developing a lot of products in that space, particularly using our tunneling Magneto resistance platform, which gives us a lot more flexibility and lot more horsepower. If you will that we can trade either for sensitivity or power or voltage. So so our development team has done a great job of working with our cost.
Summers and developing products that fit in those various markets and as you know it's really.
No an exciting time in that marketplace.
I think you are you had pointed out an article where.
Somebody had said that hearing AIDS, we're going to be like Oh Jarvis from the from Iron Man and ended the year is the new resistance. It's the new peripheral platform for Wearables. So Oh, we think we're well positioned to the two.
So to lead that a lead that market.
So so it sounds like you have the capability to to price to value just to some degree where there's some some pretty significant kinds of parameters that have to be hit and there's some ability to to to price to that.
Yeah, typically exactly so typically if we've got a higher performance product that it costs more to make and it has more value and then we recognize that Ah that there are some products that are much more price sensitive and we have de featured products that that we can make less expensive lead that are targeted at those god.
Okay, and then I just.
Wondered if you could say anything about you've talked about a in the past automotive and robotics and you did talk about a robotics design win.
But you've talked about current sensing rotation sensing having that smart interface for those kinds of products in automotive and couplers also being automotive opportunities can you just talk about each one of those segments and give us an update on you know what kind of traction a if any are making it in automotive specifically.
Right. So we see automotive is an excellent growth market for us it and the number of sensors and cars is projected to increase rapidly are driven by a move towards electric autonomous and more sophisticated safety systems. So as you mentioned, we have sensors that can be used to.
A sense current which is used for battery management systems in cars rotation sensors, which is used for engine Cam and crank electric motors for electric vehicles as well as a lot of user interfaces knobs, and dials and things that turn and then proximity sensing and then on the couplers side.
Our parts are smaller more precise lower power and more rugged than conventional the electronics transmit information. So we plan to market those products through our private label partnership with a company that has strong automotive sales channels. We have an automotive task force letter of conformance and.
I T F International Automotive task force letter of conformance, which which removes some of the barriers to the automotive market Oh, we're working on specific products and in particular, we're focusing on current sensors and proximity sensors, because we have interest from automotive manufacturers gets.
Those qualified and getting those through the rigorous qualification process that Oh automotive manufacturers have and get them into cars now that's a that's sort of a longer term or medium term opportunity.
Perhaps a couple of years to get products qualified but it's a very large market. It's growing rapidly and we think it's well worth the investment were a we're pushing that is as fast as we possibly can to get our parts qualified and in particular as I mentioned.
One of the thrust is one of our current sensing smart sensors that can be used for battery management systems.
Gotcha.
Great and then I think a you know I I actually that the puff business can be a little bit volatile you saw some recovery. There I think it was a last quarter and just wondering how that's looking what kind of visibility you have on that going forward.
Yeah, Yeah, I can answer that <unk>.
We have a little bit of bill visibility on that.
The medical market I'm expecting stabilize or in the most current quarter's a core quarter. We're in right now obviously longer term demographics are very favorable for those types of Ah Ah devices and so.
But.
The Oh, we have had some struggles with the a weakness in the semiconductor market as well as a.
Some of our anti tamper business can be kind of up and down.
And that anti tamper is there do you have some visibility now on on that in the next couple of quarters or or or is that it sort of quarter by quarter basis.
That's that's really a quarter by quarter basis. So we don't have a lot of a.
Forward visibility on that and we're pretty early in the current quarter.
Gotcha.
Good Okay, and then any any progress you guys are making on the exosomes detection or that the food safety applications are those sort of suspended for now.
Well, we're still we're still working on them, we don't have <unk> any specifics to report, but exosomes is a very exciting area for a cancer detection.
Early cancer detection, and we continue to to work on some of the remaining issues with a with biosensors, particularly for food safety and hopefully we'll have something some more specifics to report in future quarters, but we view those is longer term opportunities, but very exciting.
Opportunities and a it's one of the research areas that that we continue to invest in.
Great great. Thanks, I'll, let somebody else S M.
Thank you Thanks, Jeff asked.
As a reminder to ask a question you any tapas style one on your telephone.
I'm not showing any further questions at this time I would now like to turn the call back over to Daniel Baker for any closing remarks.
Well Thank show Ellen and thank you well we were pleased to report solid revenue growth in earnings growth and two new products in the past quarter.
We look forward to speaking with you again in early may to discuss fourth quarter and full fiscal year results. Thank you again for participating in the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.