Q2 2021 NVE Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the NVE Conference call and second quarter results. At this time, all participants are in listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone please.
Please be advised today's conference is being recorded.
If you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to Speaker today, Mr., Daniel Baker, President and CEO. Thank you. Please go ahead.
Good afternoon, and welcome to our conference call for the quarter ended September Thirtyth 2020.
As always I am joined by Curt Reinders, our Chief Financial Officer. This call is being webcast live and being recorded a replay will be available through our web site and the dot com.
After my opening comments Curt will present, a financial review of the quarter and I'll cover the business and then we'll open the call for questions.
We issued our press release and filed our quarterly report on form 10-Q in the past hour following the close of market low.
Links to documents are available through the Fccs website, our website 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 uncertainties related to future stock repurchases and dividend payments right.
Risks related to the COVID-19 pandemic as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on form 10-K for the fiscal year ended March 30, Onest 2020 as updated in our 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 COVID-19 pandemic had a significant impact on our business the past quarter revenue in the most recent quarter decreased 33% of net income decreased 42% compared to the prior year, but we are pleased to report a solid profit for the quarter. Despite the significant impact of Cove at 19.
The long term future continues to be bright and we continue to preserve our workforce invest in product development and pay generous dividends.
Kurt will cover details of our financial results Kurt.
Thanks, Dan as.
As Dan said total revenue for the quarter ended September Thirtyth, 2020 decreased 33% compared to last year due to a 33% decrease in product sales and a 29% decrease in contract R&D revenue.
We believe the COVID-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 continue to expect the pandemic to continue to have a significant negative impact on our business this quarter the quarter ending December 30 Onest.
Important customers, especially medical device customers have delayed and decreased orders due to the impact of COVID-19.
However, based on input from these customers. We currently expect product sales to begin to recover in early 2021.
Expenses decreased 9% for the second quarter from the prior year due to a 12% decrease in R&D in a 3% decrease in ESG today.
The decrease in R&D expense was due to the completion of some new product developments.
Dan will discuss product development in a few minutes.
Interest income for the second quarter decreased 12% due to a decrease in our marketable securities and money market funds and a decrease in the average interest rates on those securities and funds.
Net income for the quarter was $2.22 million or 46 cents per diluted the diluted share compared to $3.82 million or 79 cents last year.
Despite the unprecedented challenges our gross margin was 79% operating margin was 52% and net margin was 51%.
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 November thirtyth to shareholders of record as of November 2nd.
We believe our stock is a good investment and we took advantage of a weak stock market in the quarter to repurchase more than $91000 of our stock in the quarter.
With the $4.84 million dividend payment in the quarter, we returned a total of more than $4.9 million to shareholders in the quarter.
For the first six months of the fiscal year total revenue decreased 30% due to.
Due to a 31% decrease in product sales and a 14% decrease in contract R&D.
Net income for the first half decreased 38% to $4.63 million or 96 cents per share compared to $7.43 million or $1.53 cents per share last fiscal year.
Our balance sheet remains strong as cash plus marketable securities was $67.9 million.
As of September Thirtyth.
Now I'll turn the call back.
Back to Dan to cover the business Dan.
Thanks Kurt.
Despite the pandemic, we continue to innovate and we look forward to helping automate infrastructure and improve medical devices when the world returns to normal.
We had several new sensor in coupler product launches in the quarter.
The sensor products, where a new line of ultra precise motion sensor motion sensors, and the new smart sensor model the new.
The new H E. T series motion sensors were developed in response to customer requests and can be used for rotary or linear motion.
There are five H T series models with various resolutions typical resolution is as little as 0.5 microns less than a 10000th of an inch for linear motion sensing 0.02 degrees for rotation sensing.
These sensors are targeted at manufacturing factory automation.
Demonstration videos are available on our web site, our Youtube channel, which showed the remarkable resolution.
The new smart sensor is the tunneling Magneto resistance magnetometer with a network interface called the inter integrated circuit or I squared C. I.
I squared C requires just two pins so it maximizes the functionality of our ultra miniature sensors, which are less than a 10th of an inch square and have a total of six pins.
These sensors are targeted at motor control for factory automation in longer term for automotive applications.
A new video demonstrates motor control using five different envy parts, which were introduced in the past year, including the new smart sensor the new smart sensor is used as a current sensor. The other four new products used for motor control, our smart angle sensor isolators and DC to DC converters.
Turning to couplers until recently, our coupler products isolated digital data, meaning they transmit data without a direct electrical connection.
These new power conversion products are called DC to DC converters and transmit power rather than data. This is useful in many applications such as industrial networks in cars.
In the past quarter, we introduced our first products the combined the new DC to DC converters with network interfaces to simultaneously transfer, both data and power and less space and with fewer chips.
The two new parts of best in class data speed to quickly transfer the rich data streams in the internet of things.
There is a link to the new coupler product announcement on the press releases page of the new section of our website.
There is also a demonstration in the video section of our website and on our you tube channel the demonstration implements a simple, but robust to computer network using the new products and shows data being transferred back and forth.
Turning to sales and marketing we were hoping to exhibited our first trade show since the pandemic sensors Expo in San Jose in November, but that was cancelled sensors Expo is billed as north America's largest event dedicated to sensors connectivity and the internet of things we're hopeful.
Trade shows will resume next year and we've already signed up for the next sensors Expo in June 2021.
Turning to governance, our annual shareholders meeting was in August via webcast and telephone.
We're sorry, we couldn't meet with many of you in person as we have for years, but of course, our first obligation is to the safety of our shareholders and other attendees.
You can visit our you tube channel for a play list of new product demonstrations that would have been at an in person meeting.
For good corporate practice, our entire board of directors stands for election every year and each of our directors was overwhelmingly reelected.
Our executive officer compensation supports improving long term shareholder value without being excessive and shareholders overwhelmingly voted to approve compensation.
And finally, the selection of our auditors was ratified.
We filed an 8-K with details of the shareholder votes. After the meeting.
Now I'd like to open the call for questions Jamie.
Thank you as a reminder, if you'd like to ask a question. Please press Star then one on your Touchtone telephone to withdraw your question from the queue. Please press the pound key.
Please standby, we compiled the culinary roster.
Our first question comes from Jeff Bernstein with Cowen. Your line is now open.
Hey, guys.
Congratulations on the quarter, some really nice cash flow from operations in a tough period.
Thanks, Jeff Yeah, we were shows the underlying strength of our technology and we were able to reduce some cost in the face of the pandemic.
So I had a couple of questions I wanted to talk a little bit about hearing AIDS.
Strong IPO by your go.
Recently and despite the fact that the the FDA never hit there a deadline of Ah August 18 rulemaking on over the counter.
Your goal is.
Switching that hey, it's $4500 for full fledged.
Fledged hearing AIDS.
Hearing AIDS cost is way too high the distribution channel Doesnt make sense and poised to be disrupted.
And a lot of potential.
Gross out there so with that in mind can you talk a little bit.
About what your outlook is there and could you help.
Could you help us at all your are you in your go or Boes or some of the new entrants that are out there.
Yeah, that's a that's a good question and.
You know the as far as the timing of course.
Of course, the FDA has been pretty busy with other things, but some.
But something the industry now expect the regulations to.
To be adopted by the end of the year. So then a final rule is due within six months as you know.
Of the close of the comment period, so that would put us into late 2021, but in the meantime, we have been working on what sometimes called here are bowls and as well as potential over the counter hearing aid suppliers and as you noted.
There is a company that.
It is filed a prospectus looking at at over the counter hearing AIDS to reduce the inconvenience of dispensing.
And those are rechargeable as so there is a lot of activity in returnable hearing aid and hearing devices. So for us that's a technical difference rechargeable batteries are higher voltage then disposable batteries that are common in traditional hearing AIDS, but we have products for that that we've developed and qualified that are ideal.
So for those parts, we have been working with a number of companies probably.
Probably wouldn't be appropriate for us to say say, specifically, whom but that's an area of focus for us we see we see tremendous potential and we certainly want to be ready when the FDA. Finally does act and also in parallel the hearables market, which are not technically hearing AIDS if there.
Not hearing AIDS are not subject to the FDA regulation and those are going on now continuing to be developed and we're working with companies. There I think we've mentioned before we have a design win in that space. That's the non hearing aid hearables market.
Great.
Thanks for that.
And then.
Curious are you guys.
You and I traded an email about this during the quarter.
The DARPA development of ultra low power sensors that can kind of stay out in the field for long long periods of time, which sounds like it's it's something that it's up your alley, but in particular I was curious about whether you guys can actually make transducers with your technology.
Right. So we can we can interface to trends do serve so many trends do serves can produce motion or magnetic fields and so our sensors, which are very low power can replace some of the other types of.
Transducers that are converting other types of sensor inputs, such as PCR electric which tends to use more power or optical so our devices. As you know are extremely low power and that is one of the things that we're looking at is while we don't typically make the other types of sensor elements for some of the things that.
In Europe. It was specifically looking at we can provide an end node to that to Tibet cloud or internet of things.
Oh, Thats, lower power and high reliability, and and not susceptible to reverse engineering or two hacking. So those are all things that are of interest in that market and other markets.
Got you, Okay, and I'll get back in queue in a minute, but just real quick Abbott was pretty positive this morning on a.
Bounding demand for some of their their cardio related price.
Products and then I think involve your parts.
It sounded like you were saying that.
Next quarter, you would still be down year to year on revenues Im just wondering whether you are thinking that you could be flat to up sequentially.
Curt do you want to address that.
Yeah, it's a there's a lot of uncertainty out there and we are planning for a significant year over year revenue decrease.
This quarter.
The fourth quarter, we're expecting product sales to start to recover and we expect to see.
So significant sequential revenue growth in the fourth fiscal quarter.
Okay, just to just to clarify.
Abbott reported this morning.
6% decrease in rhythm management devices. So that continues to be a challenging market now that's not as bad as the prior quarter, where they reported a 26.
27% decrease what would've been the second calendar quarter, and Neuromodulation has been even more challenging but but it does it is showing signs of recovery, which is encouraging and then there's some timing differences because of the law.
Inventories and medical device supply pipelines, but we do see it as an encouraging sign and hopefully as the pandemic if the pandemic subsides.
There will be less demand on hospital beds for COVID-19 and people.
People will be able to get back to some of these elective in semi elective procedures.
Great I'll, let somebody ask us.
Good questions. Thanks.
Thanks, Jeff.
Thank you and as a reminder, if you'd like to ask a question. Please press Star then one on your Touchtone telephone to withdraw your question from the queue. Please press the pound key please standby will be compiled like una roster.
Speakers I'm showing no further questions in the queue at this time.
Correction Jeffersonians Requeue task of questions. Your line is now open.
Great. Thanks.
So I was curious about the small stock repurchase.
In the quarter is that Ah Ah.
Reactivated now or is it valuation dependent or any commentary on that.
So its it wasn't reactivated we do have an active repurchase program, but we have a number of constraints legal constraints and so forth.
That limit what we can buy back and then they're just market limitations practical limitations, but as Curt said.
So we thought our we think our stock is a good value at admittedly, we might be a little bit biased.
But you know we looked at it as a good opportunity it's difficult to.
It's difficult to return as a practical matter, it's difficult to return huge amounts of cash or large amounts of cash through stock repurchases, just because of the trading volume and so forth. So we rely on our dividends to return a larger amounts of cash to our shareholders, but we also look at.
At the possibility of buybacks situationally and that depends on circumstances outlook and so forth, but we thought it was an excellent opportunity a relatively modest amount, but but still we think it was a good value for.
For getting the stock repurchase.
Okay, that's great as do we.
And then I was curious you mentioned the new.
New products now transfer both data and power.
Is there like a buck or.
He knows our you actually changing the power that gets transmitted.
Yeah. That's a that's a great question for folks who aren't familiar with those terms, so buck means reducing the voltage as well as transferring energy and boost the means to increase it and those products that we introduced our neither there 3.3 to 3.3 so they.
Produce the same voltage roughly the same voltages the input, but we are looking at at a a boost version.
We haven't announced anything yet, but we're looking at increasing the voltage on the output so that would be a boost function from 3.3 to five and a 3.3 for two six so those are for different markets. The 3.3 to five is for certain buses.
Legacy buses that use five volt.
Buses five volts is the bus voltage and 3.3 is a typical microcontroller.
So it would provide an interface there and then six six volts would allow us to drive power control Moss fats.
And so we actually have demos of that on our you tube channel, where we boost the voltage to six volt. So that's one of the videos that I referred to in the prepared remarks.
And that allows us to do power control with isolated completely isolated from a micro controller, which is a very large market for motor controls for power factor controls. So we see both of those particularly a boost from 3.3 to six volt as important products. So those are part of our debt.
Element road map and hopefully we'll be able to provide some more results there in future calls.
Great. Thank you and then lastly, any update.
Any update you can give us on auto.
Auto design work.
Yeah, we continue to see that as a market its a its longer term than say, our industrial and process control type products or industrial products, but we're continuing to work on qualifying our products in the automotive market, particularly our occur.
Our current sensors for motor control and battery management systems, and particularly for hybrid electric vehicles and autonomous vehicles, we see that as an excellent long term market, there's going to be a lot more sensors and electronics components in those cars and cars going forward and we see.
Ourselves as having an excellent benefit proposition with small size low power and excellent accuracy. So hopefully you'll be hearing more about that we'll be able to tell you more about that in the future.
All right and then Kurt you well thank you.
Thanks, Thanks, Jeff each of you to.
Thank you and I'm showing no further questions in the queue. At this time I would like to turn the call back to Daniel Baker for any closing remarks.
We were pleased to report a solid profit in a challenging quarter and four new products. We look forward to with we look forward to speaking with you again in January to discuss third quarter results stay say, if everyone and thank you for participating in the call.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.
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