Q1 2021 NVE Corp Earnings Call
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Good afternoon. My name is Jerome and I would be I couldn't find somebody starts today, what these fine I would like to welcome everyone to the N.V. Conference calls on first quarter results. All lines have been please UN mute to prevent any background noise offered the speakers remarks, there will be question and answer session.
People would like to I see question there. Despite simply press Star then the number one on your telephone keypad.
Thank you and I would like to starting to go over to your President and CEO did yellow Baker no place years.
Good afternoon, and welcome to our conference call for the quarter ended June Thirtyth 2020, as always I'm joined by Curt Rogers, Our Chief Financial Officer. This call is being webcast live and being recorded a replay will be available through our website at <unk> Dot com.
After my opening comments Curt will present, a financial review of the quarter and all covered the business a new products.
And then we'll open the call to questions.
We issued a press release and filed their quarterly report on form 10-Q in the past our following the close of market.
Links to documents are available through the Fccs web site or web site and our Twitter timeline.
Comments, we may make that 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.
And risks related to the covert 19 pandemic 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 fiscal year ended March 31st 2020 as updated and are just filed quarterly report on form 10-Q.
Actual results could differ materially from the information provided and we undertake no obligation to update forward looking statements we may make.
As expected the cobot 19 pandemic had a significant impact on our business the past quarter, but thanks to the dedication and resourcefulness of our employee suppliers and distributors and he has been operating effectively through the pandemic.
Revenue in the most recent quarter decreased 27% in net income decreased 33% compared to the prior year.
Minnesota was under a stay at home order from late March until mid May, but envy continued to operate because we're in several critical sectors.
With talented employees savvy distributors unique technology, and a strong balance sheet, we're well positioned to weather the pandemic.
When the world gets back to normal the people, who need pacemakers and hearing AIDS will still need them and automated factories will be more important than ever.
Since we believe the long term future is bright we are preserving our workforce continuing to invest in new product development and continuing to pay generous dividends.
Now Curt will cover the details of our financial results Kurt.
Thanks, Dan.
As Dan said total revenue for the quarter ended June Thirtyth 2020.
Decreased 27% compared to last year.
Due to a 28% decrease in product sales.
Partially offset by a 10% increase in contract R&D revenue.
The increase in contract R&D revenue was due to the timing of progress towards contract completion.
We believe that cobot 19 pandemic had a significant negative impact on our results of operations in the past quarter, especially in medical device markets as many elective procedures were postponed.
We currently expect two more quarters with significant revenue decreases the September and December quarters.
Important customers, especially medical device customers have delayed orders due to the impact of cobot 19.
However, based on input from these customers, we hope to recover at least some of the lost business.
When the effects of the pandemic subside.
Hopefully early 2021.
<unk>.
Expenses decreased 5% for the first quarter from the prior year due to a 9% decrease in R&D.
Partially offset by an 8% increase in SGN a.
The decrease in R&D expense was due to the completion of some new product developments.
Dan will discuss new product developments in a few minutes.
The increase in SGN, a was due to staffing changes for more sales activities.
Interest income for the first quarter decreased 13%.
Due to a decrease in the average interest rates on our marketable securities and money market funds.
Net income for the quarter was $2.41 million or 50 cents per diluted share compared to $3.61 million or 74 cents last year.
The decrease in net income was partially offset by a 673000 dollar increase in our after tax unrealized gain from marketable securities due to a strong bond market. So a comprehensive income decreased only 13% to 3.65 million down.
Others compared to 4.18 million for the prior year quarter.
Cash flow from operations was $3.17 million in the first quarter compared to 4.54 million in the first quarter last year.
We paid a one dollar per share dividend in the past quarter and today, we announced that our board declared another quarterly dividend of one dollar per share.
Payable August 30, Onest to shareholders of record as of August Threerd.
Our balance sheet remains strong.
Despite a challenging quarter in a generous dividend cash plus marketable securities decreased only slightly in the quarter to $70.6 million as of June thirtyth compared to 70.8 million as of March 31st.
Now I'll turn the call over to Dan to cover the business Dan.
Thanks, Curt I'll cover new products on sales and marketing.
Despite the challenges posed by the cold with 19 pandemic, we continue to innovate and we look forward to helping automate infrastructure and improve medical devices when the world returns to normal.
It was a productive quarter for new products with four new launches.
In 2019, we announced a high field tunneling Magneto resistance or T Amar magnetic switch.
Which operates at field strengths in the thousands of arrest ads compared to our traditional sensors, which operate in the tens of are steady.
And in the past quarter, we introduced a high field TMR magnetic sensor in addition to the magnetic switch.
They also operates to thousands of Erste ads. This high field capability means our sensors can continue to operate when exposed to large fields of M.R.I. machines, enabling an MRI tolerant medical devices.
M.R.I. tolerance is as important as both medical implants, and MRI imaging become more common.
A recent market research reports cited at MRI tolerances, and neuro stimulator growth driver.
Our spin Tronic TMR technology also use is very little power extending the battery life of implanted medical devices.
Turning to couplers until recently, our couple of products isolated digital data, meaning they transmit data without a direct electrical connection.
This is useful in many applications using different power supplies, such as industrial networks in cars.
Three new devices transfer power in addition to data.
These new power conversion products are called DC to DC converters.
We believe this we build the standalone product as the world smallest device of its type of less than an eighth by a quarter of an edge.
It generates up to a quarter wide of isolated power, which is enough for popular industrial networks.
Several customers have expressed interest in this new product line already.
And just this week, we introduced products to combine the new DC to DC converters technology with network interfaces to simultaneously transfer data in power and less space and with fewer chips.
The new parts have best in class data transfer rates.
There are links to the new product announcements in the press releases page of the new section of our website.
There are also demonstrations in the video section of our website, our you tube channel Twitter timeline and linked in posts.
Turning to sales and marketing the pandemic has presented challenges.
I've been very few customer visits by us or our distributors instead, we've done webinars with distributors and customers and Im use this opportunity to upgrade our sales collaterals and our web presence.
For example, we now have over 100 technical videos on you tube, which is a fair number for semiconductor company our size.
We had more than 20000 views in the past quarter, our highest ever.
It's obviously not Justin Bieber numbers, but we're trying to reach a specific audience of engineers and most popular videos have been on our smart sensors.
In addition to you to bar video content is also on our website and our distributors web sites.
Our largest U.S. distributor Digi key for example added a number of our videos to their website in the past quarter.
This should generate future design wins and sales.
The second calendar quarter is normally and important quarter for trade shows in our industry, but unfortunately, two major trade shows originally scheduled for the past quarter did not take place due to the covert 19 pandemic.
The sensor plus test is show in Germany was cancelled.
And sensors Expo in San Jose was postponed until at least November.
Not cancelled or postponed as our annual shareholders meeting, which will be August six fly a webcast and telephone similar to these quarterly conference calls.
The materials for the meeting our proxy statement letter to shareholders and annual report on form 10-K.
I've been filed with the FCC and our available from the Investor section of our web site.
My letter highlighted record net income and cash flow for fiscal 2020.
Productive year for product development, and our programs to return cash to shareholders through an aggressive dividend and opportunistic stock repurchases.
Oh, we're sorry, we won't be able to meet many of you in person as we have for years, but.
But of course, our first obligation is to the safety of our shareholders and other attendees.
You can visit our website or you to channeled to see the new product demonstrations that would have been at and then person meeting.
Details on how to participate in our annual meeting our in our proxy statement.
And shareholders can still both their shares by a male phone or proxy vote dot com.
There are three items of err on the formal agenda for the meeting first to elect directors second to advisory approval of the compensation of our named executive officers and third to ratify the selection of an accounting firm.
For a good corporate practice, our entire board of directors stands for election every year and we're fortunate to have an exceptionally experienced an accomplished board.
The second annual meeting agenda item is approval of officer compensation.
As discussed in our proxy we don't overpay. Our officers are officers have the same fringe benefits as all employees and there are no executive perks or Golden parachutes.
The third annual meeting agenda item is ratification of our auditors boulay P. LLP as our auditors for the fiscal year ending March 30, Onest 2021.
We lay audited our past fiscal year, and we recommend their approval for this fiscal year.
And now I'd like to open the call for questions Jerome.
Yes.
Finally, I would like to remind everyone.
I think question. Please press Star then the number one on your telephone keypad again, that's part of one on your telephone keypad, let's yes, once we get some of it.
And.
You had the question time from the line on that that then from Lake Those partners. Your line is now open.
Oh Dan.
Hi, Tom.
Right.
I just wanted to ask about some of the developments you've spoken about in the past.
It does seem to be coming on slowly one of them being the automobile company he'd been approved I know by the auto manufacturers Association.
So that your equipment can be placed in the production of new cars, but.
We've heard about that for a couple of years and still it doesn't happen and on your bacteria sensors. There are two questions. There I think.
If this works on a real production line the food companies to be signing up for it.
And as a secondary area I understand it can be used for medical purposes, and how is that Kelly. So there are two big questions in a.
Small one.
Great Yeah, starting with the first question time, which was automotive.
You're right we've been working on automotive for awhile and it can take awhile, a we're working it as fast as we can and specifically we're working with a particular customer on a current sensor for hybrid electric vehicles, and we estimate that's a two to three year approval prior.
Assess where probably a year or maybe a little bit more into it and we're trying to expedite that as much as we can.
As we've said before it's an excellent growth market for US there are a number of sensors in cars now in its projected to increase rapidly, particularly as we move towards electric cars autonomous and more sophisticated safety systems, we do around that a letter of conformance, which.
There's a rigorous process at bolsters, our create there our credibility and we have a private label partnership with a company with a strong automotive sales channels. So.
We're optimistic about automotive, but as we've said and as you pointed out is it is longer term because of the approval cycle.
The second part of your question was on Biosensors.
And you mentioned the food safety applications and as you know we successfully completed work on a project grant from the U.S.D.A. in 2018.
And we met the goal of scaling our biosensor technology for industrial scale food safety and we demonstrated the solutions to the big challenges twos.
As such technology, such as sensor Interconnects and micro fluidics, but as we've said we ran into some challenges with the Aptamer biochemistry, which isn't our area of expertise.
We haven't found a solution yet, but we're not giving up.
And it is powerful technology.
Longer term, we're looking at as you asked about we're also looking at opportunities for.
The biosensor technology and medical applications, such as Exosomes for cancer diagnostics and pathogen testing.
It could be used for bacteria, which you asked about but also it can be used for other pathogens such as viruses.
That that can generate a where we can generate aptamers a based on a a DNA synthesis. So the co. The 19 pandemic of course has reinforced the need for faster test.
Our technology is longer term, but still.
It's a it's technology that we believe has applications in a in a variety of medical areas that are very important have a great deal of potential and could oh really help.
Help improve the safety of Ah of our world. So we continue to work on the technology and we believe anup.
Was it does that cover what you are asking Tom or did I Miss the smaller question.
Thanks, very much Dan <unk>, congratulations to on really quite a nice profit in the corner.
55% return on sales hardly moved from the prior quarter.
Yeah. We were we were put on your revenues are up that much I think that's pretty good.
Well. Thanks, Tom you know obviously, our folks so we're working very hard under under difficult circumstances, and we work to make sure that we keep our costs in line.
Without.
Without cutting into the things that we really think or investing in the future, which is R&D and sales and marketing.
<unk>.
Thank you Dan.
Again, if you would likely I think question, please Spain I want.
With that.
Next question that's on the line, Jeff Bernstein from Cowen Your line open.
Hi, Dan and Kurt.
Hi, Jeff Hi, Jeff.
It sounds like you guys are our are healthy and doing okay out there I'm glad to hear that.
Indeed, and you are too which is great.
Yep Yep, just a staying sequestered.
So a and and obviously, it's a very difficult environment to work in and you guys just.
Did a great job or the company's profitability is really amazing so but on on the growth side. Obviously, you guys have Ah aspirations a in a few different markets. So so had some some questions for you there anything new report on the on the hearing aid side of the business in terms.
Of new wins or.
You know or any feel for the launch on the on the one that you do have.
So.
We don't have anything new to report in terms of wins, but it continues to be a market that we invest in with new technology.
It has been a very challenging market as you probably know.
Because of the pandemic, it's one of those areas. That's considered you know elective medical devices, but.
I hate to put it this way, but when they pandemic subsides of the people who need those devices will will still need them. So it's an excellent market for us long term I think what you were alluding to is that we have a design win in the non traditional hearing aid market and we see a great.
Future in that.
The the plans haven't there are plans for the FDA as you know to.
Deregulate of the hearing aid business and that will provide some opportunities for us.
And hopefully we'll open up the market for many more people who need these devices.
So it remains a its very challenging in the near term because of the pandemic, but it remains in excellent long term market for us.
We mentioned the advantages that we have in other markets of small size and low power and of course those are very important in the hearing aid market as well.
And I'm just in terms of the automotive side of the business. Obviously, we're now starting to really see proliferation of new models that that are coming out and I guess jams got 12, New Easy's, you know that will come out by 2023 and most of the other.
Automakers are kinda jumping on on that bandwagon.
<unk> is the timing okay in terms of your relationship with your private label Guy to be in the mix for those for those wins that are coming in 2023, or we now gonna have to wait for for models after that.
Well, I think we're well positioned and or investment to that we've made up until now has positioned us has positioned us well for the next wave of a hybrid electric vehicles. So.
So we are working very aggressively to get into that next round of vehicles. Some of which you referred to so as you correctly point out there. There are many more companies in that market than were in at even a few years ago.
And in particular, our current sensors are very a useful in that market because it's it's the key parameters the to measure. The current is to measure the efficiency of the vehicle and control the efficiency of the vehicle, which is the equivalent mileage.
So our Oh, we have new smart sensors for current sensing as I alluded to in the previous question.
Oh, we're working with a specific customer that makes some of the sub modules that go into hybrid electric vehicles, the motor control modules.
And those.
That leverages our efforts because those are sold twos.
Any one of a number of automotive companies, who buy those modules so were tier two supplier.
No the tier one being the supplier of the modules to the actual automotive companies.
And and it is do you ever relationship with a battery management.
Supplier also is that separate or is that also the same same player.
We have alluded to to a partner is one is that what we would call a customer which is a company that makes battery management systems are motor control systems more specifically for hybrid electric vehicles. So we are working to get our qualified in that module that module would measure motor.
Current in a hybrid electric vehicle in order to improve the efficiency of operation and they would sell those them to the automotive companies or to a next tier supplier.
And then the other relationship that I alluded to as a private label partnership with a company with strong automotive sales channels.
And that's a company with a broad line and what's called an integrated device manufacturer in the industry. So they have a broad line of semiconductors.
And that helps them bundle various components, such as such as Microcontrollers or voltage regulators and things like that that we don't make with a with a bigger system. So.
So those are two ways that we're working with it a tier one supplier and working with a private label partner the company. The strong automotive channels are the two ways that we are working to get into a market. That's traditionally very difficult for small companies to get into.
Okay, and then I know you and I traded emails about a Texas instruments Hall effect, a sensor that day.
You know talked about being the you know a lowest power you know record holding et cetera et cetera.
And I know it must be a little frustrating when do you have have parts that do the same thing that have better parameters. You know do you feel like you are getting a enough visibility you know two engineers, who obviously, it's like I'd be happy it's easy to buy Texas instruments at the biggest guy.
Et cetera, et cetera, but do you feel like that you have the the proper distribution and sales and marketing so that.
People know that Theres, a better product out there.
Yeah. That's a that's a great question, because we're obviously quite a bit smaller than Texas instruments, we don't have the breadth of or the name recognition that they do.
But and to answer your question are we do feel that for engineers, who are looking at the best solution.
That they can that we can reach them effectively and that we have a great benefit proposition.
Compared to old semiconductor technologies, such as the hall effect sensors that you referred to so.
Our challenge is to.
Make sure that we get that message out to our particular audience of design engineers and I think we we do that the pretty effectively we have excellent distributors they'd get that message out.
As I mentioned, we have technical videos so.
You've probably seen them, while I know you have that.
That show the advantages and dramatize the advantages in terms of the accuracy in terms of the wider range the lower noise the lower power the smaller size the advantages that we have compare gold somewhat older semiconductor technology.
And and so we we feel that we can get our share of those design wins. There. There are there is a class of risk averse customers as you point out that want to go with older technology or the tend to go with.
More familiar names.
And ER, but but what we can offer best in class products and great.
And great performance parameters as you know.
I suppose it will help ones or once the sensor trade shows can can come back so hopefully that will be sooner rather than later.
Indeed, and in the meantime, a you know we're leveraging.
Our internet presence or.
The videos with on our website and our customers, but yet were it shouldnt be get in front of customers and the.
Get out into the trade shows with our with our demonstrations and ER showed engineers that just how much better Spintronics is then then all affects sensors.
So for folks who weren't in on that to email exchange that is that I had with Jeff. We do have a number of advantages that are very important business. In this market in the main thing is accuracy is that our devices or heard just more precise an accurate.
And so for example in the automotive applications that we that we were just talking about.
Being able to measure the current going into a motor very precisely or they're very accurately or into a battery is key to improving the efficiency of hybrid electric vehicles and that that's a that increases their range.
That allows us to to go farther on one charge and and and to use less energy.
And ultimately helps the benefit proposition of hybrid electric vehicles.
So Dan last quarter, you talked about the new smart angle sensors, and ER and some design wins are there and of course those are kind of across more of the industrial aiotv and even commercial I sort of I O T spaces.
We continue to see a you know more of those one off kind of application designs coming in.
We do and Oh, we've got several customers that were working with them. Some specifics we mentioned I believe it was last quarter.
The company that was making exercise equipment using our angle sensors.
We introduced a new type of angle sensor.
That was you know in incremental change to our smart angle sensors.
That allows a different type of interface and interface. That's a more traditionally a with the optical encoders and so we've continued to expand that product line and as you point out its primarily.
For industrial automation and that's.
That's a market that has been challenging in the near term, but in the long term. It's actually you know there's going to be more automation.
So that we need fewer workers exposed to expose the risks that we're seeing now so.
Industrial automation continues to be a it's been a strong market for us for many years as you know and continues to be another angle sensors are key part of that so we've expanded that product line and there are demonstrations of that also on our website.
So and that's going to follow kind of the classic analog model, where if you. If you find a customer that's got enough volume to make for it to make sense.
You to do whatever the tweak is a in terms of an interface or something that they want that part then it goes and the catalog and the next guy who wants that can actually just buy it as a standard part from you. So there's a lot less selling expense or development expense associated with that.
Yes, that's exactly that's exactly right Jeff and.
The other advantage of the platform that we have of our smart sensor platform is it's very flexible as we've discussed before so we can we can do it without a huge amount of oh of risk or expanse. We've we've already made the investments in the platform in the platforms, but.
Very flexible as you point out to change for a particular customer.
And then sometimes those end up in our general catalog as with this what's called an ABDC interface, which is a particular protocol that used for and Encoders for optical devices now and that one we did as a as a general offering and.
Some of them remains specific for a customer, but if there's enough potential there we have the ability to do that and that's a very powerful.
Benefit proposition because the broader line semiconductor companies are the ones that are making hall effect sensors and related products.
Generally don't have that kind of flexibility, it's just too expensive for them and their product line as to structured.
For them to make these devices. So that's one of the things that we can offer customers that many other companies most other companies cannot.
Great and then I just wanted to ask about I think you guys were seeing some better visibility on puff orders are coming back from the military I guess I'm, taking just touch on that.
Yes, so for folks who aren't familiar Pos sorry, physical unclonable functions, which is a function that's embodied in the physical structure and is easy to evaluate but hard to predict and replicate so.
They are important component of our spend tronic anti tamper systems and the anti tamper systems, then protect sensitive data or electronics and it's an area we continue.
To invest in.
More current so currently selling these for military systems, there's been some impact from the.
Pandemic on some of those systems as well.
But in the long run we we continue to invest in them.
Yes.
Oh.
For these types of devices.
And there's also applications for.
M. Ram a which is a technology, which were leaders in and we have the capability to build those types of PEM ramps that are used for.
Tamper detection and tamper prevention systems anti tamper systems.
We make amiram as well for those system. So it remains it's not a huge part of our revenue mix, but it remains an important area for developing technology that has commercial applications and it's an area that we've been in for many years and continue to invest in.
I didn't then I have one quick one for Kurt.
Just in terms of the government programs that are that are out there et cetera are you guys expecting any changes to tax rate or or any other kind of benefits.
No. We currently expect our Ah our tax rate to be in the.
17% to 18% a range for the rest of the fiscal year.
Okay great.
Thanks, very much guys.
Thanks, Jeff well.
There are no further questions at this time uniquely yeah.
Well if there are no other questions or I can know wrap up we were pleased to report a solid profit in a challenging quarter for new products, we're well positioned to weather the pandemic.
And we look forward to speaking with you again on August six for annual meeting and then in October to discuss second quarter results. So I do wish everyone to stay safe and thank you for participating in the call.
This concludes todays conference call you may now disconnect.
Yeah.
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