Q4 2022 NVE Corp Earnings Call
Speaker 1: Good evening and thank you for standing by. Welcome to the NVE conference call on 4th quarter and fiscal year results.
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Speaker 1: Please be advised that today's conference is being recorded. I would like to now hand a conference over to Dam Baker, President and CEO of NVE Corporation.
Speaker 2: Daniel? Thanks, Dan. As Dan said, revenue and net income for the quarter were the best in our history by far. Total revenue for the most recent quarter increased 91% to $12.8 million from $6.72 million in the prior year quarter.
Speaker 2: The increase was due to a 95% increase in product sales and a 10% increase in contract research and development revenue.
Speaker 2: Gross profit as a percentage of revenue increased to 80% for the fourth quarter of fiscal 2023 compared to 77% for the fourth quarter of fiscal 2022. The increase was primarily due to economies of skill from increased production and increased prices, partially offset by increased material and labor.
Speaker 2: expense. The increase in expense for primarily due to increased staffing and increased compensation. Interest income for the fourth quarter of fiscal 2023 increased 35% due to an increase in our available for sale securities and an increased area average interest rate. Our effective tax rate, which is the provision for taxes, as a percentage of income before tax.
Speaker 3: Sales increased in most of our markets and product lines. Improvements in supply chain deliveries along with the increased capacity resulting from new equipment purchases enabled NVE to increase product shipments. Although supply chain delivery performance has improved over the past quarter, risks do remain. Our strategy to build up raw material and whip inventory as a safe cardigan disruptions remains in effect. According to a recent forecast by Gartner, we demand is spreading from consumer to businesses and worldwide semiconductor revenue is expected.
Speaker 3: operating margin was 70%.
Speaker 3: pre-tax margin was 73% and net margin was 64%.
Speaker 3: Cash flow from operations for the fiscal year was a strong 19.1 million and we ended the fiscal year with a strong balance sheet. Current assets increased support our growth. Accounts receivable increased 1.82 million primarily due to increased product sales and the timing of those sales to customers.
Speaker 3: Inventory increased 1.33 million primarily due to our decision to increase inventories to support increased product sales and to mitigate, mitigate longer vendor lead times.
Speaker 3: Purchases of the fixed assets were $936,000 in the fiscal year, the most in 10 years.
Speaker 3: These were primarily capital expenditures for additional production equipment.
Speaker 3: We deployed most of that equipment in the past quarter successfully executing the plan we had discussed in our January earnings call In addition to the past quarters one dollar per share dividend
Speaker 3: Today, we announce that our board declared another quarterly dividend of a dollar per share, Pable May 31st, to shareholders of record as of May 15th.
Speaker 3: We increased our employment in the past year to 56 employees as of March 31st. 51 of whom were full-time compared to 49 employees as of March 31st, 2022.
Speaker 3: We're proud of the productivity of our employees. Our revenue per employee and net income per employee are among the best in the semiconductors industry.
Speaker 3: Now I'll turn the call back to Dan Baker to cover marketing and new products and to summarize our past years accomplishments.
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Speaker 4: Nallia.
Speaker 5: Yes, we can. Well, thanks, Joe. First I'll cover marketing.
Speaker 5: We'll be at two major trade shows in Germany later this month. DCIM Europe and Sensor Plus Test.
Speaker 5: Both shows reach important target markets for us. PCI-M is built as the world's leading exhibition and conference for power electronics, intelligent motion, renewable energy and energy management.
Speaker 5: We're co-exhibiting with one of our German distributors. Sensor plus test claims to be the world's leading forum for sensor, measurement, and testing technology.
Speaker 5: We'll be supporting a distributor at that show.
Speaker 5: And capping off the Spring Trade Show season will exhibit at Sensors Converge in Santa Clara, California next month, which showcases the latest sensing technologies.
Speaker 5: We'll demonstrate several new products. Turning the new products, we recently introduced a new line of demonstration circuit boards for our parts on what's called the Arduino Shield format.
Speaker 5: These boards have a standard size of approximately 2 by 3 inches and connect
Speaker 5: The Arduino interface allows customers to quickly write software to demonstrate the applicability of our components in their application.
Speaker 5: The power control board can control horsepower range motors.
Speaker 5: It shows the small size and large power capability of our DC to DC converters and isolated FET drivers. Since our parts take up very little space, a large portion of the six square inches of available areas just used for connectors.
Speaker 5: The parts on the boards can be used in power conversion applications such as battery inverters, motor controls, electric bicycles, and electric vehicles. We did a demonstration video using a horsepower range e-bike motor which you can see on our website and our YouTube channel.
Speaker 5: Power conversion is the process that changes electricity from the form that's available to the form required for a function.
Speaker 5: Some energy is always lost in that conversion and our products can decrease those losses and therefore save energy.
Speaker 5: Our products are compatible with next generation wide band gap power transistors such as gallium nitride and silicon carbide transistors.
Speaker 5: This goal 2023 was a productive year for product development.
Speaker 5: addition to the new evaluation boards I just discussed, we introduced several other new products in the past year.
Speaker 5: Her smallest magnetometer sensor is ever.
Speaker 5: most sensitive magnetic sensors ever. We expanded our family of the world's smallest DC to DC converters. We expanded our offerings of parts that transmit power as well as data.
Speaker 5: In addition to new products, business highlights of the past year include. We expanded our production space and added equipment to increase our capacity.
Speaker 5: We increased our participation in trade shows as pandemic restrictions ease. We received two important certifications, intrinsically safe certification and VDE reinforced certification.
Speaker 5: We had design wins for home energy storage and electric vehicle charging stations.
Speaker 5: We ship parts for the Mars sample return mission.
Speaker 5: And we extended our supplier partnering agreement with Abbott.
Speaker 5: Now I'd like to open the call for questions. Leah?
Speaker 5: Now I'd like to open the call for questions. Leah? Thank you.
Speaker 1: At this time, we will conduct the question and answer session. As a reminder, to ask questions, you will need to press star, one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star, one, one again.
Speaker 4: Please stand by while we.
Speaker 1: Our first question comes from Jeffrey Bernstein from Cohen Prime Advisors.
Speaker 5: Hi, guys. Dan, you cut out from the beginning, so we didn't hear your opening script. I don't know if there's anything in there that you wanted to repeat or if it was covered by Daniel and Joe, but just FYI. I guess I had a couple of questions.
Speaker 5: So, obviously, a huge revenue number, you know, very strong sequentially in year to year. I know there's been some lumpiness in the business before with Puffs, but can you just give us a little granularity on what draws the big increase?
Speaker 3: So this is Joe Schmitz. I'll take a stab at that. I think.
Speaker 3: One of the big things in my mind is the production capacity we added.
Speaker 3: We were able to increase our output, which helped us deliver on orders to customers at a faster rate.
Speaker 3: able to increase our output, which helped us deliver on orders to customers at a faster rate. I think that's a huge win for us.
Speaker 3: I also commented on the supply chain issues. We've seen an improvement there, both in the quantity of product, but also in the turn time of some of our products in the value-added process.
Speaker 3: So I think that those are two big driving factors. We did also mention that we've had some targeted increase to our headcount to help us build some of our production team out. So those are three big positives. And then I think you mentioned some of the chunkiness.
Speaker 3: We absolutely had some of that. Some of that business happens.
Speaker 3: based on our customers program schedules and this quarter it was strong as it was back in quarter two of this past year.
Speaker 5: Joe, you guys have talked over the last year or so about having some backlog that you were constrained on being able to deliver. So has that cleared up now and this was a byproduct of...
Speaker 3: that being cleared up in one big shot, or do we still have kind of more visibility than normal or, you know, just give us a feel for that? We still have a backlog we're working our way through, and that will happen into this next year. Certainly, that did play a role.
Speaker 5: Gotcha. Okay. And would you guys attribute that backlog to new wins more so or customers who are wanting to have more safety stock than before or?
Speaker 5: Any details on that?
Speaker 3: Yeah, I think I can't give you an exact breakdown of the two factors you mentioned, but I think it's both. You know, we've seen some same customers who sales increases and we know it's tied to some wins that they're getting. So I can't give you an exact breakdown on the two factors you just mentioned.
Speaker 5: Yeah, no, I don't understand that. Okay, and then you had signed the deal with Abbott. It looks like Abbott's cardiac rhythm management business is improving sequentially and they're feeling more positive. Was that a significant factor in the quarter shipment to them? Is any of that of a stocking?
Speaker 3: But I guess I would say in the short term that it's basically business is normal with them for us.
Speaker 5: That's great. I'll let somebody else ask some questions. Thanks.
Speaker 3: I'm sorry, just before we go on, I will say I was looking for the statistic.
Speaker 3: Abbott reported that their rhythm management sales for the first quarter increased 4%. So that is encouraging for us.
Speaker 6: That was the organic. What they report is organic, which is corrected for currency variations. And by the way Jeff, you didn't miss- I don't think you missed- any of my comments. I started over and talked about marketing after the technical.
Speaker 6: So I believe that you could hear me then.
Speaker 4: that you could hear me then. Thank you.
Speaker 1: Please stand by while we compile the Q&A roster. With a reminder to ask questions you will need to press star.
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Speaker 1: Thank you. We have a follow-up question from Jeffrey Bernstein at Cohen Prime Advisors.
Speaker 5: Okay, so I'm just wondering, you guys, you know, talked about some EV charger wind last quarter or at least an NEV charger wind. Can you talk a little bit just about the SOATHE carbide and GAN associated DC to DC converters that you guys are selling and obviously...
Speaker 6: we mentioned in the prepared remarks about the evaluation board. So we make DC to DC converters which create the voltage that's required to drive, turn on and off those next generation transistor switches. And then we also make the isolator drivers that drive those.
Speaker 6: electricity from the charging station to the electricity that's needed, the energy that's needed to charge the batteries. And the design wind that we mentioned before that you referred to was on the charging stations.
Speaker 6: So, of course, there's a large investment nationwide to build an infrastructure of charging stations that will support electric vehicles and that will allow us to drive long distances in electric vehicles. And our devices...
Speaker 6: allow the conversion of energy efficiently and to use those next generation switches. So we see that the energy conversion in general and opportunities in electric vehicles is excellent long-term markets.
Speaker 5: Yeah, it sounds like those are going to actually be reasonably big volume markets too. So you mentioned that when you're at the sensor shows in Europe , you were going to be presenting with a German distribution partner. I'm guessing that's Angsten Sitz, sir. Could you just give a little update on...
Speaker 6: How are they doing for you? Are you pleased with the contractions you're getting there? Yeah, we're very pleased. We're fortunate to have excellent distributors. And we have two very strong distributors in Germany.
Speaker 6: Anxsten Pfister, as you mentioned, specializes in sensors. We have another excellent distributor in Germany, Highline Power, which specializes in DC to DC converters on isolators.
Speaker 6: So I guess it's a bit of a technicality, but we're actually co-exhibiting with Highline Power. So what co-exhibiting means is that we are listed on the program along with them. We're supporting Angston Fister, meaning that we'll have somebody there answering questions.
Speaker 6: They have experts in sales and application support who are also very well qualified to answer questions about our products. So the advantage of distributors, particularly in an important market like Germany and Europe for us.
Speaker 6: is that it magnifies and amplifies our feet on the street. So it allows us to have contacts with a number of customers that we might not reach otherwise, and to have a strong presence at European trade shows, such as those two large, important trade shows that I mentioned that are coming up in a couple of weeks.
Speaker 5: And Dan, refresh me if I'm wrong on this, but I think you were in a reference design for a battery management system. I guess it was with Angston's sister, but has that gotten any traction? Yeah, you have an excellent memory. That's true.
Speaker 6: That was called the BFAS system and there's information on it on their website, Angston Fister's website, as well as ours and their videos as well. We've gotten some excellent interest and leads from that platform. So that platform was designed for onboard charging.
Speaker 6: as you may recall. So on board charging means that it's actually in the car to convert the energy from the charging station to the energy required to charge the batteries in electric vehicle. But it's applicable to a broad range of energy conversion such as things like
Speaker 6: motor drives and motor controls. And those are becoming more and more important to drive motors as efficiently as possible. Motors are a very large use of electricity worldwide. So we see applicability there and on our own platform that I just talked about in the prepared remarks, which is an Arduino shield for power conversion.
Speaker 6: We emphasize motor control. So on that demonstration, we're controlling an e-bike motor, a motor that's slightly more than a horsepower, and with a very small board. So we see applications there for motor control in vehicles and other applications.
Speaker 6: So we see it as an excellent area. We have a strong partnership with Angst and Fister, which works in that area, and Highline Power does as well. So we've got good distribution, good products, and a unique opportunity with an emphasis on energy savings and power conversion worldwide.
Speaker 5: That's great. Thank you. And then just on the hearing aid side, you know, are you are feeling any impact from the, you know,
Speaker 6: innovations that are going on there and the over-the-counter market etc. Yeah that's a market that will take a while to develop but we're encouraged by the reaction to our products as we talked about before. We've developed sensors that are compatible with the rechargeable batteries.
Speaker 6: excellent long-term potential market.
Speaker 5: All right, and then Joe, I think mentioned that you did have some tax credits through the Chips Act. I guess there's two pieces to that. There's credits for CAPEX that's made. And then there's subsidies for the specific projects that I guess you have to...
Speaker 5: apply for, are you applying for anything in particular or are you expect really just to benefit from uh credits related to catbacks? Both. So we've already gotten credits as Joe mentioned.
Speaker 6: significant tax credits that are related to the CHIPS Act and as Joe also mentioned we qualified for accelerated depreciation which reduced our taxes as well in the quarter and the year. So as you know the Department of Commerce prohibits disclosing grant applications
Speaker 6: could very well help our expansion.
Speaker 6: And we are studying the opportunities to make an application. In particular, areas that have been highlighted in the CHIPS Act are sensors, and of course we make sensors, and opportunities to onshore. And we are based here in the United States.
Speaker 6: We have front end and back end operations here. We expanded our back end operations, which means test of the last things before the parts go out the doors, the back end. And we're looking at opportunities to also expand that back end further. And of course.
Speaker 6: bring that here. We rely on packagers now and bringing some of that work here to the United States. We think that meets the spirit and the intent of the CHPSACS grants. So we're going to be looking at that very seriously. The preliminary application window for companies.
Speaker 6: our space opened on May 1st so we're looking at that seriously and then after that there would be a final application process. So it may take a while but we certainly see ourselves as
Speaker 6: As Joe said, it's a credit to our employees, their productivity, their ingenuity, and we're proud of those margins and the efficiency that our folks provide.
Speaker 4: Great, thanks.
Speaker 1: We stand by while we compile the Q&A Raster.
Speaker 1: Again, as a reminder to ask a question, you will need to press star 111 on your telephone.
Speaker 1: Our next question comes from the line of Don Hall.
Speaker 6: Hi, Dan and Don Hall. A knockout quarter, thank you very much. It's really exciting.
Speaker 6: I missed the early part of the call, so this may be redundant, but can you just tell us, are you running at capacity or are you going to be adding more capacity?
Speaker 6: Well, we've added capacity and as we talked about, we're looking at opportunities to add more capacity.
Speaker 6: So, as you know, we aren't running at what we would call full capacity and for us, we're not trying to maximize our utilization, like commodity semiconductors tend to do. They want to run it very close to their full utilization in order to avoid excess depreciation and overhead.
Speaker 6: They have to cover their overhead. Our CAPEX is relatively small compared to our revenues. So we generally want to have excess capacity. As Joe mentioned, we've added people, we've added equipment, we expanded the production test area, our back end area.
Speaker 6: So we've made significant expansions in the past quarter and fiscal year, and we are looking at plans for more.
Speaker 6: So, as Joe mentioned, these are long-term plans for growth. We're looking at a potential industry downturn or an actual industry downturn as still an opportunity.
Speaker 6: Some companies are cutting back on their cat-backs or their investments. We see this as an opportunity to lay the groundwork for future growth.
Speaker 6: Well, good. Thank you very much. I know you have not in the past given guidance.
Speaker 3: question. Well this is Joe of course we can't predict the future.
Speaker 3: We had a record setting year and we talked about some of the factors from a productive capacity standpoint.
Speaker 3: I think we wanted to talk about the overall industry dynamics to kind of help calibrate our investors. I think we wanted to talk about the overall industry dynamics to kind of help calibrate
Speaker 3: the challenges that are out there.
Speaker 3: out there.
Speaker 3: There's good things happening, but the crystal ball is a little bit cloudy on what next year is going to.
Speaker 3: There's good things happening, but the crystal ball is a little bit cloudy on what next year is going to hold for this industry.
Speaker 6: By next year, well, I guess that's the calendar here. We're not the fiscal year. We just entered, I guess, right? Right. Right. Yeah, fiscal year. Yeah.
Speaker 1: Thank you. Please stand by while we compile a Q&A roster.
Speaker 1: 1 moment please.
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Speaker 6: Well, if there are no other questions, we were pleased to report a record-shattering quarter in fiscal year, with product sales nearly doubling and profits more than doubling for the quarter.
Speaker 6: We look forward to speaking with you again in July to discuss results for the first quarter of fiscal 2024.
Speaker 1: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you for your participation in today's conference.