Q1 2023 NVE Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one.
[music].
The conference will begin shortly to raise your hand during Q&A you can dial stolen.
[music].
Yeah.
You may begin.
Thank you and good afternoon welcome to our conference call for the quarter ended June 30 of 2022.
My name is Dan Baker, President and CEO of N V. Cooperation this call is being webcast live and being recorded a replay will be available through our website N V E Dot com.
I'm joined by our CFO Joe Schmidt.
After my opening comments, Joe will present, a financial review that I'll cover the business and new products. Then we will open the call to questions.
We issued our press release with quarterly results and filed our quarterly report on Form 10-Q in the past hour following the close of market.
Links to the press release and 10-Q are available through the SEC's 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.
Weighted to future sales and revenue.
Uncertainties related to future stock repurchases and dividend payments.
Our dependence on critical suppliers and packaging vendors.
And risks related to the COVID-19, pandemic and supply chain disruptions 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 31 2022.
Actual results could differ materially from the information provided and we undertake no obligation to update forward looking statements we may make.
We're pleased to report a 16% increase in net income for the first quarter to 86 cents per diluted share Joe will cover the details Joe.
Yeah.
Total revenue.
Quarter increased.
Kevin.
Seven 5 million.
The increase was due.
Product sales.
Contract R&D revenue.
Yeah.
Last year.
Product sales increased 11% sequentially from the March quarter.
We continue to be challenged by supply.
Although.
Right.
During the quarter deliveries from our supply base.
The increased work in process inventory by 500 million.
To support future growth.
Picking up new customers from traditional semiconductor companies with our superior products.
We've increased our capacity with new equipment.
We expect to invest as much as a million.
<unk>.
Production equipment and the rest of the fiscal year.
Gross margin was 77%.
Compared with 75% last year.
Last year because of cost increases in the semiconductor industry.
The prior fiscal quarter.
Increased costs.
Expenses for the quarter decreased 24% from the prior year.
Sure.
6%.
R&D.
20%.
The decrease in R&D.
R&D personnel spending more time on revenue generating.
The decrease in SG&A.
Lower.
The compensation.
Interest income for the quarter decreased 2% due to the timing of maturities are available for sale securities.
In late June early July .
With those proceeds.
Higher interest rates.
Yeah.
Driven by increased revenue.
Margins.
Yes.
For the quarter increased.
One 4 million.
Thanks.
Sure.
Three.
Dollars or 74%.
Per share for the prior quarter.
The increase in gross profit margin.
Operating margin.
Compared to the prior year quarter.
Net margin was a strong.
56%.
Our largest quarterly profit since 2019.
In addition to the passengers or excuse me in addition to the past quarters.
Dividends.
We announced that our board declared another quarterly dividend of $1 per share payable August 31.
Shareholders of record as of August .
I'll turn it back to Dan.
Great.
And marketing.
Thanks, Joe.
In person trade shows and conferences are returning we exhibited at sensors converge in San Jose a few weeks ago. The exhibition showcases the latest sensing technologies and was back to a traditional early summer schedule for the first time since the pandemic.
We received a number of new leads and continue to follow up.
And then industry wracked by shortages a number of prospects, we're impressed by our inventory levels and lead times.
We demonstrated several new products and we had a mechatronic demonstration of using one of our new smart sensors to control a musical pitch pipe.
Musical instrument robots have been effective in attracting attention and demonstrating the precision robustness and simplicity of our sensors.
We also had sales staff supporting distributors at two major trade shows in Germany, the past quarter P. C. I am Europe and sensor plus test.
Both shows reach important target markets for us.
I am is billed as the world's leading exhibition and conference for power electronics, intelligent motion renewable energy and energy management.
Sensor plus tests claims to be the world's leading forum for sensor measurement and testing technology.
I've been asked about our Ukrainian distributor Kavoshgar micro components, which is based in Keith and his represented us for more than 15 years.
It's not significant business for us from a financial perspective, but it is inspirational and we continue to have sales dialogue and to expedite their orders.
They've helped inspire us to do our damnedest overcome supply chain challenges.
Turning to new products.
We introduced a new ultra miniature version of our tunneling Magneto resistance or TMR magnetic sensors. The new parts are 1.1 millimeters less than the 16th of an inch square the.
The existing parts, we're already pretty small two and a half millimeters less than a 10th of an inch.
We believe the new part is the smallest device of its type and can be used to detect position in tight spaces, such as industrial or medical robots as they get smaller.
There's a demonstration video on our website Youtube channel.
Our components are inherently safer and more reliable than legacy semiconductors and industry standard for that is called intrinsically safe.
In the past quarter several of our data coupler models were certified for use as isolating components and intrinsically safe circuits by underwriters laboratories.
Our couplers transfer of data without direct electrical connections to hazardous areas. This.
This mitigates the risk of arcing or otherwise starting an explosion.
Certification involves rigorous testing by you all in a thorough onsite audit of our control over product safety processes.
Its a great validation of our technology and manufacturing capabilities, and it's valuable and hazardous areas of the internet of things such as chemical or food processing plants.
Three isolator lines have intrinsically safe certified versions of our flagship data couplers isolated network Transceivers and our low power tunneling Magneto resistance data couplers.
There is an intrinsic safety demonstration on our Youtube channel, where we also destroy your competitive part.
We're fortunate to have dedicated employees.
We make things so working from home isn't an option our employees have worked through the personal challenges of the pandemic industry shortages and supply chain problems I.
He was able to think them as a group that are first in person employee meeting in more than two years last quarter, we had a barbecue to welcome spring in Minnesota, We demonstrated new products for our employees and celebrated the foundation our employees have built for a bright future.
As promised in last year's proxy, we will return to in person annual shareholders' meetings with our meeting at a nearby Hotel and conference Center on August 4th.
The first annual meeting agenda is the election of directors and we're pleased to have a strong independent board of directors with two former public company Ceos, Rich Kramp and Jim Bradtke.
Our former CFO of a public company, Pat Hollister and experienced director for a number of successful public companies Terry Garner.
The second annual meeting agenda item is approval of officer compensation.
As detailed in our proxy we don't overpay our officers our 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 for this fiscal year or the year ending March 31 2023.
Boulay is audited our past three fiscal years and we recommend their approval for our next audit.
A popular feature of our in person annual meetings has been live hands on product demonstrations and we'll have several of those if you can't attend you can see the product demonstrations.
A number of product demonstrations on our website or our Youtube channel.
Now I'd like to open the call for questions operator.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one if you are a question question one moment for our first question.
My first question.
Comes from the line of Jeff Bernstein from Cowen.
Your question please.
Yeah.
Joe.
Nice to talk to you today.
Congratulations on it looks like the best EPS in several years, so that's great.
I wanted to ask you a little bit about Abbott I guess, you guys had a renegotiated your deal with them. Good through the end of this year and I'm, just curious about where that stands now kind of what what you think the term over the next renewal might look like.
And we're still in the midst of those negotiations we've had.
Sessions with.
I can't.
We're still in the middle of working out the details, but what I can.
And.
Looking forward to successfully concluding that.
A long term agreement.
About how long of a long term agreement would that be would that be several years.
Of course, that's one of the negotiated negotiating items obviously.
Advocating for longer term.
Gotcha.
Sure.
The next agreement I believe will be a multiyear agreement.
Gotcha Okay.
And then I'm just curious.
Their business looked a little look strong this morning for the most parts.
Particularly in the heart failure area, which you know implantable defibrillators and I'm. Just curious I think you guys are in the cardiac rhythm management generally sell so pacemakers and defibrillators.
There is much of a difference in content.
Across those different categories and also I think you are in Neuromodulators as well.
Right. This is this is Dan so.
Oh Wow, they the typically there's more functionality in an ICD and an implantable cardiac defibrillator than a pacemaker.
We're counting our business is based on the number of sensors, which tend to be comparable so for us theres not a huge distinction between.
Between CRM devices.
We provide the same level of functionality so there isn't a direct correlation between.
Our revenue in their revenue.
Gotcha Okay.
And then they they do have a couple of new pretty promising sounding products.
In that area. This new <unk> single Chamber lead list pacemaker that doesn't need a chest pocket incision. This thing looks like it's about the size of a of a little.
Cold pill Hum.
I know you can't say, whether you're in it but is there a reason to believe that it would not have the same functionality that you provide their other products.
Well I appreciate your elegant wording of the question Jeff.
The manager as Jason is really amazing in some of these devices and our.
Products are uniquely support miniaturization, we have the world's smallest devices of their type. We just talked about one in the prepared remarks that it's not necessarily for designed for medical devices, but it highlights the advantages that we have with our spin tronic technology of being able to make the world's smallest devices.
So I would imagine that's a benefit that that that's very important as medical devices get smaller and smaller the smaller they get of course, the less invasive they are the more people that can get the therapies. So it drives long term growth. So we like to see that trend and we like to support it.
Gotcha, Okay, and then so I guess the sandwich sort of follow for this implantable deep brain stimulator for the treatment of recessive and Oh.
Treatment of resistant depression.
Or bear market depression, I guess, which hasn't been approved yet, but there, but they have a breakthrough designation for so I said, so the same concept would apply to that.
Yes, yes.
And we've talked about in the past is as you know, Jeff we've talked about extending.
Our technology to other types of neuro stimulators, such as deep brain stimulators, which are relatively small markets now, but which have excellent growth potential to treat a new tight new diseases that are like.
Like drug resistant depression, which has been a which is a significant medical issue. So that's something that we are we think is a good development and again, we design as you pointed out we designed sensors that.
Allow smaller maddock implantable medical devices, and you can imagine that for something like a deep brain stimulator.
That would be that would be an important benefit.
Benefit the smaller size so.
The and as you mentioned with the breakthrough designation the system could be available as a new treatment option sooner for treatment resistant depression. That's currently investigational use.
But it is already used in to treat movement disorders, such as Parkinsons disease.
But that's a growing market area and an opportunity to help more and more people.
That's great.
Can you talk about any progress with the the angst and sister.
Hybrid EV.
Onboard charger reference design.
So we continue to get inquiries and leads for devices, both onboard charging and.
Charging systems for hybrid electric vehicles as well as for other types of motor controls and charging systems. So it's an important area for us.
And it uses a number of our products.
We recently did a demonstration showing how we can use our isolator.
D C D C converters, and our angle sensors to run a highly efficient motors now we wouldn't need the angle sensors, we don't need the angle sensors for things like the angst and Pfister system, which is for battery charging, but we can do the battery charging with our DC to DC converters and are isolated.
They allow much faster systems, much higher speed systems, which means more efficiency for energy conversion either energy conversion to charge batteries in the case of the angst and sister system or to run a motor in the case of of motor control systems, where we've been offering a number of <unk>.
Ponant. So it's an important market area for us, we see excellent potential for growth and theres more and more emphasis on energy efficiency.
And that's what our systems helped to do our products helped to do that.
Okay.
Then can you talk a little bit about the newer distributors you've added I guess.
Japanese distributor and the distributor.
Yes, well, we've we've received good activity from our new distributors as you might expect sometimes they are asking.
Questions that are that are more experienced distributors.
Don't ask but that's great and that's all part of the process, we provide them excellent support we help them understand the markets that our products are used in we help them understand our benefits compared to conventional technology.
And we try to provide them with excellent design support when they have specific questions from their customers. So it's an important part of it. It's the main way, we reach our market and having great distributors, we feel very fortunate that we've got excellent distributors there are very technically.
Good as well as being good salespeople. So we were pleased with what we've seen so far.
Particularly and in India, which is a very fast growing market.
And of course, a very large country. So we have now several distributors are covering most of the major areas in India.
And.
Dan can you give us an update on what your lead times look like versus competitors I would think that would be pretty appealing to.
Both customers and distributors.
Yeah.
Is indeed, so we we just answered that question for a particular customer on a particular part and our lead time for that part was running I'm, giving this is an example of course a lead times can vary but the part or our part was approximately 12 week lead time and a compare.
Conventional semiconductor part was approximately 84 weeks so that those would lead times that we pulled off of.
Distributor one of our distributors, who also distribute some competitive products.
So as you can imagine that's a that's a pretty attractive benefit proposition. In addition, we have better parts, they're more reliable, they're better specifications higher speed and longer barrier life. So.
We are we are picking up a number of new leads for customers who are attracted by the lead times. So we're glad they're attracted by.
By the lead times, but ER, but we're also very optimistic that they're going to stay for the quality of the products the quality of the support they get and that theyre going to be able to use the advantages that we have over conventional semiconductors.
And.
So this is kind of giving you a one time opportunity.
To steal some share from competitors at least raise the profile get in front of people.
With with customers now willing to do board Redesigns and that kind of thing can you just talk about how.
How we should think about that impact to your top line and seeing that.
Right so.
As you say it should have a near term benefit to our top line. When we were delivering some of those will be delivering more of those new design wins.
And.
Our hope is that it overcomes some of the.
<unk>.
Trepidation I suppose that some companies have about.
About working with a smaller company, we're not a we recognize that.
We may not be a household name like one of the large.
Semi conductor conglomerates, but we provide excellent products excellent support and service.
And excellent on time delivery performance and short lead times. So we hope that however, these customers came to us we're very optimistic that they're going to stay with us because we're confident that we're going to be an excellent supplier for them, we have excellent supplier ratings and always.
Have so that the challenge is if.
We retain a very high percentage of our customers. The challenges is reaching them as a small company and and I suppose the silver lining of the shortages that we're seeing in the industry is that a is that we're able to reach customers, who we may not have reached before and we're determined to return.
So now you guys said.
<unk> the growth in the quarter.
License.
And so I'm sort of wondering.
What's what's going on with units our units down is that a sort of supply chain.
Issue or whats the story on units.
We.
To your point, we attributed.
Our product sales.
Absolutely with some pricing actions, but we also had some pretty strong R&D revenue as well so.
A little bit careful when you're when you call that.
Talking about units is always a little bit.
Yes.
Product mix.
So I would not say that.
Higher revenue from sale.
Equates to lower lower.
I don't think Thats the case at all based on what we're putting through our.
Yeah.
Thank you Matt.
We don't know.
Higher price.
Better margins, but I don't think that that equates to lower unit.
I understand.
Okay.
Thanks, very much for the time guys.
Thanks, Jeff.
Thank you once again, if you have a question at this time. Please press Star then one.
And our next question comes from the line of Crystallize Celski from private Investor Your question. Please.
Congratulations on great results.
Thanks, Chris.
So I would like to continue on that theme of the previous question about.
The fact that you are picking up orders because of your shorter lead times and your ability to keep those customers.
I always kind of.
Viewed you as kind of like a really like the highest quality.
The highest quality sensor manufacturer, that's why you own.
<unk> machines.
Pacemakers and so on and also the most expensive one.
And you know even if you if you do provide great service.
How are how would you ensure that.
Those clients that are big two for your.
For your availability now wouldn't go to the lower price sensors when they become available in other words can you.
Can you point to savings on the PCB less fuel.
We're a component counts or any other kind of savings that the kind of.
Quality of your components would alone.
Yes, that's a great point, Chris and first of all we can point to advantages that save our customers money. So one of them is chip count, particularly with our D. C. D C converter parts and the other is reliability, sometimes thats, an intangible costs, but it is important to many of our customers.
And then finally size, which reduces PCB size in the case of industrial customers, we talked about the obvious advantages in the case of implantable medical devices, but it's also an advantage and industrial devices too because circuit boards as you know.
Are priced by the square square inch.
And while we offer the highest quality.
Our prices are competitive we are top of the line products, but our prices are are a reasonable and we're also in many cases, a relatively low share of budget the components that we make enable a very.
Expensive system. So we believe that our parts are fairly priced and the biggest challenge that we faced is.
As brand awareness and the perceived risk of working with a smaller company.
And the shortages and our short lead times are shorter lead times help us overcome that so.
We believe that we will retain.
A large percentage of these new.
Customers in the new business that we're getting.
I guess I'd like that look like.
One of the things that I've observed.
Some of these customers.
Coming to us.
At extreme need for park.
Once we begin working with them and understand their business.
In some cases have been able to offer.
Different configurations different specs.
<unk>.
Allow them to me.
Target that they may have so.
I've seen some of that.
Take place in three that's the value proposition for the customer to help them.
Great size of their products.
Okay.
Okay, that's good to hear.
And in case, you get designed in some book high volume applications, So if you're able to ramp.
The ramp up your volumes.
So that.
As we've talked about.
The comments, we are building that capacity.
A $1 million this year.
We believe that.
We'll be prepared for.
Okay.
Volume changing assumptions.
So I'm looking to add people to some of our second and third shift operation.
So.
Challenge.
Thank you.
Bye.
Chain constraints, but that's what we are.
Inspiring.
Okay. Good.
Good to hear again and another question on locomotives.
Ben following many automotive semi companies.
It seems that it's very.
It's a very time consuming process to get designed into like a you know lots of volume automotive platform.
Ends up being rewarded at Indiana, but it's very time consuming so are you.
You told us some encouraging news, but can you tell us.
Like where where are you in the designing process.
Maybe.
And to kind of.
In the place I know I know you have like many many applications, but the application where you're closest to talk high volume automotive platform where audio.
Yes, the designing process.
Right so.
As you say, it's it's a it's a large endeavor. It's one we've committed to at N V to reach the automotive market, we do that through our own efforts and also through private label partnerships with companies that have strong.
Our presence in the automotive industry.
No.
It is time consuming but we are willing to spend the time and to make the investments.
We have also.
Achieved international automotive task force or I E. T F conformance with their quality standards, which is a rigorous process and bolsters our credibility in that market.
So as far as the specific parts the ones that are the farthest along our isolator and especially for can controller area network buses, which are the.
One of the key network backbones in all cars, especially hybrid electric vehicles, but theyre also in.
And <unk> in an internal combustion based.
Cars as well.
So those parts we have some.
Some.
Interest we.
We don't have any.
Really high volume in car applications, we have some applications in automotive factories that are in production.
Sometimes a natural segue into in car applications, which I think is what you're asking because they tend to be higher volume.
But but being able to interface to the car in the factory is also important so.
We believe that are that are where we are.
Reasonably close on some applications for controller area network Transceivers. So we'll have to see and we're not we don't have any in full production and in car applications at this point.
Yeah.
Okay. Thanks for that and Great results again, that's it for me and good luck.
Thanks, Chris and thank you.
Thank you.
And one moment for our next question.
Our next question comes from the line of Alex Woodward from Rich City capital. Your question. Please.
Yes, good afternoon gentlemen.
Wanted to ask about the.
Increase in inventory and specifically.
Half a million dollars. The work in process is sequentially. If you go back and look year over year, it's up almost 1 million and a half how much of this is.
Maybe orders that you have or commitments that you have versus just building to spec.
I'm, hoping it will ship as opposed to knowing it's going to ship.
The vast majority of it.
Existing order.
Very good so with the increased 500000 sequentially.
Does that is that an indication that you feel good about the near term prospects for sequential growth may be too.
Your earnings are within a couple of pennies of the level that was set in 2018.
Your revenue is still a little bit a ways away from where you got in 2018.
With the.
What's going on in the industry.
And be looking to have a record year and I know you guys don't guide, but the numbers on the balance sheet would indicate that you're positioned for growth and so I am asking is.
Fiscal.
Fiscal 'twenty, three you're going to be a growth year for the company and maybe take it to new levels.
Okay.
It is a difficult one to answer.
I think we've got a lot of challenge.
As I mentioned.
Yes.
Barry.
Strong order flow.
Yeah.
We're seeing some of our segments.
Some nice growth prospects.
So.
We're trying to hit our commitments to our customers.
We think that's going to get us to a good place by the end of the year, but.
Lots of challenges ahead of us.
So given 12 months might be a little bit of a reach to know what the visibility looks like there the near term visibility and you just commented on strong orders should we expect sequential growth in the <unk>.
In the September quarter.
Thanks.
Okay.
Yes.
It's certainly our goal to grow.
As Joe mentioned, we've we've been very pleased with the order flow.
That's great to hear because for a long time the revenues it feels like it's kind of gotten to these levels and then it's kind of stagnated a its been hard to to.
Breakthrough.
Another data point that I'm encouraged with is the increase in Capex.
The incremental capacity that that's another sign that youre looking to grow at least that's what I see from my perspective am I reading that wrong.
Yes, Joe I think Joe and I were going to answer it the same way I know, we're making those investments because because.
Because we see the potential we have the order flow and.
And we need to increase our capacity. So that's what we're doing it's reflected in the whip and Thats reflected in what Joe was talking about in our capital planning.
Great.
Then the last question I have is and this is kind of.
Not why we're investing but I think it might have an effect you have a pretty big cash balance and you.
The interest income has been fairly stable you said that some of the investments maturity reinvested them, what is that going to do to the.
To the interest income line.
Going forward, especially with interest rates higher than likely.
Likelihood of rates, increasing even further.
So.
From our quarterly filings.
Got.
This reinvestment.
Over the next 60 days.
Better interest rates.
Yeah.
Okay.
Yeah.
I've been watching what the treasury bills.
Doing so well.
Yes.
So.
I'm thinking well capture a little bit higher interest rates, a little bit higher interest income as a result of that.
Okay.
Thank you for the opportunity to ask a question or two.
Thank you.
Thanks, Alex.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to management for any further remarks.
We were pleased to report a 16% earnings increase and our largest quarterly profit since 2018, we look forward to meeting some of you at our shareholders meeting in a couple of weeks and our next earning call earnings call will be in October . Thank you.
For participating in the call.
Thank you ladies and gentlemen for your participation. This does conclude the program you may now disconnect good day.
Yeah.
Yeah.
The conference will begin shortly to raise your hand during Q&A you can dial stolen.
[music].