Q1 2023 NVE Corp Earnings Call
Okay.
Welcome to the N V E Conference call on first quarter results. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during.
This session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised.
Draw. Your question. Please press Star one one again, please be advised that today's conference is being recorded.
Now like to turn the call over to Dan Baker, President and CEO . Please go ahead.
Good afternoon, and welcome to our conference call for the quarter ended June 30th 2023.
It is being webcast live and recorded a replay will be available through our website N V E Dot com.
I'm, Dan Baker, and I'm joined by accounting manager and principal Financial Officer, Daniel Nelson Daniel was promoted to his current position in early May and also presented on our last call.
He goes by Daniel I go by Dan to review reduce confusion also he's originally from Liberia, and I'm from Columbus, Ohio, So I'm, the one with the bland accent.
After my opening comments, Daniel will present, our financial results I'll cover marketing and new products and we will open the call to questions.
We issued our press release with financial 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 uncertainties relating to the economic environments in the industries we serve.
Risks and uncertainties related to future sales and revenue and risks of credit losses as well as the risk factors listed from time to time in our filings with the S. E C.
Including our annual report on Form 10-K for the year ended March 31, 2023 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.
We're pleased to report solid growth for the quarter compared to the prior year, despite industry headwinds product sales increased 23% compared to the prior year quarter and net income increased 6% to 91 cents per diluted share.
Now Daniel Nelson will cover the details of our financial results.
Daniel.
Thanks, Dan.
Total revenue for the quarter ended June 32023 increased 20% compared to the quarter ended June 32022, the increase was due to a 23% increase in product sales, partially offset by a 15% decrease in contract R&D increase in product sales was desk.
Part of downturn in the semiconductor industry. The increase in product sales was part was primarily due to increased purchases by existing customers and new customers. The decrease in contract R&D revenue was due to the completion of certain contracts total expenses increased 42% for the first quarter of fiscal 'twenty.
22, compared to the first quarter of fiscal 2023 due to a 16% increase in R&D expense of 28% increase in SG&A and a $212000 credit loss expense for the most recent quarter the increases in R&D and SG&A were primarily due.
Due to increased staffing and compensation expenses.
Credit loss expense was due to an increase in our allowance for credit losses under the newly adopted accounting standard.
This result is this resulted into a into a new expense line in our income statement interest income for the quarter for the first quarter of fiscal 2024 increased 54% due to high yields and security purchase after June 30, 'twenty to 'twenty two.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes increased to 24% for the first quarter of fiscal 2024 compared to 17% for the first quarter of fiscal 'twenty to 'twenty three the increase was due to changes in the timing and availability of tax credits.
Net income for the first quarter of fiscal 'twenty, 'twenty, four increased 6% to $4.4 million or 91 cents per day.
Okay.
One 4 million or <unk> 86 cents for the first quarter of fiscal 2023 the increases there.
The increase was primarily due to increased revenue and increased interest income, partially offset by increased expenses and higher taxes.
Net income as reported includes an unfavorable noncash impact of $212000 or four cents per share of credit loss expense under the newly adopted accounting standard.
Net cash provided by operating activities increased 51% to five point over $3 million for the first quarter of fiscal 2024 compared to 3.33 million for the first quarter of fiscal 'twenty to 'twenty three the strong operating cash flow more than covered the quarterly dividend now I'll turn a call back.
Dan Baker to cover marketing and new products and to preview our analysts shareholders meeting over to you Dan.
Thanks, Daniel first I'll cover marketing, we promoted our product set three major trade shows in the past quarter piece.
P C I am Europe , and sensor plus test in Germany reach important target markets for us.
P C. I M is billed as the world's leading exhibition and conference for power electronics into.
Intelligent motion renewable energy and energy management.
We co exhibited with one of our German distributors.
Sensor plus test claims to be the world's leading forum for sensor measurement and testing technology, we supported a distributor at that show.
We exhibited under our own banner at sensors converge in Santa Clara, California, a few weeks ago.
The exhibition showcases the latest sensing technologies and is claimed to be north America's largest electronics event for design engineers.
We demonstrated several new products and interest was especially strong for our angle sensors and DC to DC converters.
Turning to new products, it's been said that energy and data are the major currencies of our lives.
We enable both currencies.
Our data couplers transmit data and our DC to DC converters transfer energy.
In the past quarter, we expanded our line of combination data couplers with DC to DC converters.
These devices transfer data and energy from one system, such as a computer to.
Another such as a robot.
Unlike many companies after COVID-19, we returned Dan person annual shareholders' meetings, so shareholders can meet our managers and directors and see hands on product demonstrations.
This year's meeting is on August 3rd at the newly renovated Springhill suites in Eden Prairie.
If you can't attend you can see product demonstrations on our website or Youtube channel.
Our proxy statement for the meeting is available via our website or the SEC's website.
The first annual meeting agenda item is the election of directors.
We're fortunate to have a strong independent board of directors with two former public company Ceos, Rich Kramp and Jim bracket.
Our former CFO of a public company, Pat Hollister and an experienced director for several successful public companies Terry Garner.
The second annual meeting agenda item is approval of our officer compensation. This.
This year's proxy has new pay versus performance disclosures and metrics, which show, how we tie compensation to performance and shareholder value.
Our compensation principles as detailed in our proxy.
Include we don't overpay, our officers our officers had the same fringe benefits as all employees.
And there are no executive perks or Golden parachutes.
The third agenda item is to allow shareholders to vote on the frequency of advisory votes on officer compensation.
The board recommends a say on pay vote every year for good for good governance.
And the final agenda item is the ratification of our auditors for this fiscal year the year ending March 31, 'twenty 'twenty four.
<unk> has been our auditors since 2019, and we recommend their approval for our next audit.
We expect our boule audit partner and audit manager to attend the annual meeting.
Now I'd like to open the call for questions Beth.
Thank you.
<unk> to ask a question. Please 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, please standby, while we compile the Q&A roster.
And your first question is going to be from the line of.
Jeffrey Bernstein with Silverberg Bernstein Capital management. Please go ahead.
ICANN and Daniel.
Hi, Jeff.
Congratulations on the New fund.
Thanks, very much appreciate that.
I had a couple of questions for you.
Theres been some revenue volatility last few quarters are in a good way.
And obviously there is some impact from the.
Semiconductor supply chain issues et cetera, you guys have spent.
<unk> spent some money on capex.
Capex for testing et cetera.
In order to improve your capacity.
When we think about.
Kind of spreading the peanut butter of this lumpiness over several quarters.
It sort of feels like that is $7 million to $8 million kind of a kind of per quarter.
Run rate is maybe sort of a new norm can you just talk a little bit about the volatility we've seen and what you are feeling about.
<unk> line revenue expectation.
So.
Oh.
And Daniel There you go but yeah I'm, sorry, I was I was I was muted.
So do you have great question. This is Daniel Nelson and there so our revenue for the first quarter of fiscal 2022, obviously as you pointed out was.
Somewhat less than what we ended the fourth.
Fourth quarter fiscal 2024 with.
Fiscal 'twenty 'twenty four Q4 was a an extremely unusual quarter as you mentioned we did deploy.
Some additional equipment, which we purchased it up towards the end of fiscal 'twenty, 'twenty, four which helped us significantly.
Meet demands that our customers had a fourth to fourth quarter. So we don't expect our revenue for Q4 fiscal 2024 to significantly differ from fiscal 2023, but that lumpiness, we pretty much expect to kind of where as the year progresses. It as of yet progresses.
So.
Okay.
That's great and.
In terms of the forward looking.
Indicators in the business.
Can you say anything about book to Bill is that continued to be over one.
Mr. Dan Baker, Jeff We don't a we don't have a precise book to Bill data, but we we've been pleased with the order flow and although the industry is down we've outperformed the industry and our goal is can.
To continue to outperform the industry. So we're getting new orders there is a little bit of catch up still.
In our in our current order flow, but we're we're optimistic and we're pleased that we've been able to significantly outperform the industry as Daniel mentioned in the prepared remarks, the semiconductor industry is down 21% in the most recent report.
And our product sales were up 23%.
Okay.
Dan.
Can you say anything sort of qualitatively you you had a kind of a once in a lifetime opportunity.
With the the supply chain distress that was out there.
And Additionally, if people really starting to think about their supply chain safety and and more domestic sourcing and that kind of thing.
You know what do you think he came away with in terms of gain with customers I know a number of customers. This is not terribly indicative of anything, but but anything you can say about that that sort of new designs with new customers.
Yes, exactly and you're exactly right, Jeff that we did get some excellent opportunities to get our foot in the door during the period of shortages.
And we've we've retained those customers there was a as you might expect a certain amount of oh of.
Double ordering and making sure that our customers had adequate supplies, but we were able to it was priceless marketing and that we were able to reach a risk averse customers, who might not have considered a smaller company like N V E. Prior to the shortages so it.
It was and continues to be a great opportunity and so as we've said before while they probably or some of them might have come for the lead time, we're confident that that theyre going to stay for the excellent products and the excellent service that they get from N V E.
That's great.
And then I'm just curious.
You know pumps have been a source of some volatility.
In revenue.
There's a lot of discussion about having to manufacture a lot higher volumes of armaments.
And are you kind of can't tell us a lot about that business that you'll have to kill us, but could you just talk a little bit about Thomson.
Whereas their business in the quarter any visibility.
On pumps.
In the next few quarters.
Yeah. Jeff. This is this is Daniel so as we did mentioned we saw a considerable increase in our in our sensor and product our sales lines, but unfortunately did experience some decrease in AR.
And I anti tamper sales and.
You know that's not unusual because sales anti tamper sales vary significantly and it's dependent heavily on on a procurement schedules by our customers. So but we're still we're still positive that there are opportunities out there for a more anti tamper sales, but long story short we did see.
The decrease in anti tamper as it was for the quarter.
If I could just add also in addition to what Daniel said.
As you pointed out Jeff there are there are opportunities for for defense systems sales and it's the.
The Defense Department the Department of Defense does say that anti tamper.
Is one of the applications of anti tamper is to protect sensitive technology that might be sold to allies are provided to allies. So of course, there's been a fair amount of that so in the long run.
It's it's a there are excellent business opportunities, but it can be as you correctly pointed out it can vary significantly quarter to quarter, depending on defense procurement schedules.
That's great. Thank you and then lastly.
Hum.
On how customer behaviors around a big big product launches.
<unk> got some larger customers.
In the.
In the hearing aid market and in the Med Tech.
Rina and there are some.
Important kinds of product introductions coming.
Do they generally kind of stock up in advance of launching a product or.
You know and probably doesn't cost much to stock up on centers here or is there sort of a ramp as they ramp.
Or is there really no pattern around that.
Yeah. This is this Dan Baker, that's a great question, Jeff. It. It actually is is relatively slow in the startups because often there are regulatory restrictions. So so a medical device manufacturer, particularly a life support.
A class III medical device manufacturer might have to gradually rollout of product in many cases products are rolled out in certain regions first the U S has a relatively long regulatory cycle through the F. D. A so what we often see is long development cycle.
And and gradual ramp up as the products are deployed as the regulatory approvals are met.
And as the.
As more and more practitioners might might.
Might use the products. So it's been as you know an excellent business for US we provide a unique benefit proposition in terms of reliability miniaturization and low power and those are things that are very important in the medical device industry and we've been willing.
To invest in it and to be patient with the regulatory cycles and so it's a significant part of our business are now and we expect it to be a significant part of our business for the foreseeable future.
Great. Thanks, very much ill, let somebody else ask some questions I appreciate the time.
Okay.
Yeah.
And thank you as a reminder to ask a question you will need to press star one on your telephone.
One moment for our next question.
And our next question is from the line of her Rostow Makowski private Investor. Please go ahead.
Yes.
Hello. This is fiscal Witowski congratulations on good results, especially as.
Compared to the rest of the semiconductor industry.
Thank you.
Could you could you talk a little bit more about any inroads, you're making into more mass market applications and where he might be going into.
If that is happening.
Yes, absolutely. So are in addition to the markets that we've talked about Oh, we have invested in markets that are longer term. Some that we've highlighted include the horrible market, which includes O T. C hearing AIDS, we see excellent opportunities there and then.
The broader hero Bowls Revolution, which.
We're engaged with Terribles develop developers and we're developing sensors that can be used in next generation <unk>. In particular, we have sensors that are compatible with rechargeable batteries that are often used in consumer wearables and horrible rather than disposable batteries generally.
Used in traditional hearing AIDS and our new parts have received positive feedback and we have design wins in that space at the design cycles aren't quite as long as for life support medical is as we talked about in the previous question, but are there there are still a longer development cycles, but we're investing.
And that the other area that I would highlight would be the automotive market. So our we've cautioned that automotive can take a while but we've continued to invest in the development and qualification of products.
Especially for our sensors in electric and autonomous and more sophisticated safety systems for a next generation cars. Our parts are smaller more precise and lower power and more rugged than conventional electronics and those are important advantages in the automotive market where.
We're also expanding our D C to D C power converter product lines, which I touched on during our prepared remarks, which have potential in the electric vehicle market, but also in energy conversion, such as such as Green energy and energy storage markets.
Would you be able to keep your margins.
The same goes loss bucket devices or would be kind of lowering your margins, but to make more money.
Yeah, that's a great question so what.
What the way we look at it is we're looking at the total contribution.
Is that a new product line might add and the shareholder value that it could create so we don't have a specific target market. Our target gross margin for example, and in markets such as consumer markets, where the gross margins might be lower but the volumes might be higher we certainly consider that when.
We make investment decisions. So it's possible that these types of markets could have lower gross margins, but we also see them as large markets, where we have a convincing benefit proposition. So we think it makes sense and we're not looking at a particular margin that we have to have as a minimum of.
Lee we have to be able to demonstrate that we can make money, but we're not we're not.
We're not using gross margin as primary metric.
Have you gotten your automotive qualifications yet.
So we have some qualifications we have a letter of conformance from the I E. T F. Under standard 16, 949, we look at individual products. So.
So as you probably know the company needs to be certified for automotive in practice, that's the I E. T. F 16, 949, and so we've passed those audits.
And then the products themselves often have to be approved so we look at the product approvals on a case by case basis and a word but were certainly have gone through much of the testing involved in things like Q1 O one or other automotive specific certifications. So we're prepared to do that.
And it's it's a significant that's part of the reason why the design cycles might be might take a while but we're prepared to do that we have people who know how to do it and we recognize that that's a that's part of getting into these markets.
Okay. That's good to hear and what is what does your advantage in automotive because you know there you go.
You can afford to have like kind of higher bigger size than what you need to shut those in.
In pacemakers.
But do you have.
Difficult power efficiency advantage.
Yes, that's a good point, so sizes, sometimes important in the automotive industry, often they're trying to cram more and more sophisticated electronics and an existing footprint, but you're right. It's not it's a lot bigger than hearing aid for example, or a pacemaker.
But as you point out lower power is an advantage because particularly for hybrid and electric vehicles are that helps determine the vehicles range and the equivalent miles per gallon. So every little bit helps and lower power and sensors or couplers can be important.
And the ruggedness of our parts. The fact that they are inherently non volatile that they can withstand extremes in temperature and electrical transients is important in the automotive market and then the final advantage.
Might highlight is the precision so having a very precise sensor is important for some applications now some applications I O one could imagine or seat position sensor, which is not extremely critical but in many cases things like things.
Things like motor a rotation or position or current sensing for motors and batteries precision can be an important advantage. So those are the advantages that we highlight in the in the automotive market.
And I assume you have like no drainage Karen for cutting sensing whatsoever, because they're not connected to the right.
Yes, so what we often call that non contact current sensing so there arent the losses.
You you appear very familiar with that so if one puts a conventional device that so often called a shot or a resistor in series with our.
With the device, you're trying to sense theres inherent losses, there. So the way our current sensors work is most of our current sensors is there non contact and so therefore, they would go next to the wire of the circuit Board and there are no inherent losses and they can sense very high current.
Without without having to have a resistor in series. So that's part of the efficiency advantage that I was talking about so that would eventually ripple through to higher.
Efficiency and longer range for an electric vehicle.
Alright and.
I assume are the DC to DC converters give us similar efficiency advantage.
Yes. So the advantage there is that a we can drive things like like high side switches for power conversion and our devices are fully isolated so they allow more efficient power conversion either in electric vehicles.
Our storage or other types of energy storage markets. So the efficiency advantages that accrue there.
Also from our couplers is that they can switch a faster the couplers can switch faster than.
Conventional.
Isolate or air.
And the faster they can switch the more efficient they are in the lower the the losses because of the switches that are used for power conversion are very efficient when they're on or off but they're not very efficient during the transitions. So we reduce that transition time.
Alright, south.
Great.
Understand all those applications that require some time to.
To get qualified them get to market, whether you go see revenues from days are you already seeing revenues from base.
We're seeing some small revenues, it's not enough to be as significant but we look at it as a long term opportunities and and so you asked a great question. What are we looking at longer term and we do we do see it as a longer term opportunity. We don't have a particular timeframe, but we.
We want it to be as fast as possible of course.
Alright. Thank you. Thank you for getting into the details of a complicated technical glucose and good luck.
Thank you we appreciate your questions Mr Bykowski.
And I am showing no further questions at this time I would now like to turn the conference back to Dan Baker for closing remarks.
Well if there are no. Other questions. We were pleased to report continued growth with product sales up 23% and operating cash flow up 51%.
We look forward to seeing some of you at our annual meeting on August 3rd and to our next earnings call in October . Thank you.
You.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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