Q2 2023 NVE Corp Earnings Call
Hello, and welcome to N V E Corporation conference call on second 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 the session you will need to press star one on your telephone.
We'll then hear automated message advising yohan this race.
To withdraw your question. Please press star one again.
I would now like to hand, the conference over to Daniel Baker, President and CEO , Sir you may begin.
Good afternoon, and welcome to our conference call for the quarter ended September 30th 2023.
This call is being webcast live and recorded a replay will be available through our website N V Dot com.
I'm, Dan Baker, and I'm joined by accounting manager and principal financial Officer, Daniel Nelson.
After my opening comments, Daniel Nelson will present, our financial results.
Then I'll cover marketing of 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 on X. The platform, formerly known as Twitter.
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 related to the economic environments in the industries we serve.
<unk> and uncertainties related to future sales and revenue.
Risks of credit losses, as well as risks listed from time to time in our filings with the SEC, including our annual report on Form 10-K for the year ended March 31, 2023 as updated in our quarterly report on Form 10-Q for the quarter ended June 30th 2023.
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 strong earnings and cash flow despite decreased revenue from our record quarter, a year ago, Daniel Nelson will cover the details of our financials.
Daniel.
Thanks, Dan total revenue for the quarter ended September 30 of 'twenty to 'twenty, three decreased 33% to $7.13 million compared to $10 $7 million for the quarter ended September 32022, a decrease.
This was due to a 32% decrease in product sales and a 92% decrease in contract R&D. The decrease in product sales was against a tough comparison to last year when products sales increased 59% and a reflection of a semiconductor industry downturn. The good news is that forecasts.
Has that for a strong industry.
Correct.
Aetna is projecting a 20% increase in semiconductor sales after a 12% decrease this year as demand rebounds four.
For most application lies the decrease in product sales was primarily due to decreased purchases by existing customers product sales to defense markets were especially weak in the quarter.
This was related to the timing of procurement cycles, and we expect these sales to recover in coming quarters. The decrease in contract R&D revenue was due to the completion of most contracts, but we have new active contracts and contract R&D is expected to strengthen later this fiscal year.
Total expenses decreased 17% for the second quarter of fiscal 'twenty 'twenty four compared to the second quarter of fiscal 2023, primarily due to a $202926 credit loss provision reversal, partially offset by a 2% increase in R&D expense to provision.
And for credit loss reversal was due to a reassessment of our allowance for credit losses based on payments and depth of customer information as of September 30 of 'twenty to 'twenty three interest income for the second quarter fiscal 'twenty 'twenty four increased 46% due to higher yields on securities purchased.
After September 30 of 'twenty to 'twenty two.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes decreased to 8% for the second quarter of fiscal 'twenty 'twenty four compared to 19% for the second quarter of fiscal 'twenty to 'twenty three the decrease was due to the reversal of a 202926.
Dallas credit loss provision and changes in the amounts and timing of tax deductions and credits our effective tax rate can vary from quarter to quarter. Our effective tax rate is subs and subsequent quarters will likely be higher than the effective tax rate in the quarter and at September 30 of 'twenty to 'twenty three.
The 22% decrease in net income for the second quarter of fiscal 'twenty 'twenty four compared to the prior year quarter was primarily due to decreased revenue, partially offset by decreased expenses increased interest income and a lower effective tax rate net margin was remarkable with a remarkable 65%.
Revenue for the six months for the first six months of fiscal 2024 total revenue decreased 12% to $16 million from $18 $1 million for the first six months of the prior year. The decrease was due to a 10% decrease in product sales and a 68% decrease in contract.
R&D revenue net income for the first six months decreased 11% to $9.13 million or $1.89 per diluted share from $10.2 million or $2 12 turns per diluted share for the first half of fiscal 'twenty to 'twenty three.
Net cash flow provided by operating activities increased 11% to $10 $4 million for the first half of fiscal 'twenty 'twenty four compared to $9.35 million for the first half of fiscal 2023 the strong operating cash flow more than cover our dividends. So far for this fiscal year and cash plus marketable.
Securities increased from $53.3 million to $53.8 million now I'll turn the call back over to Dan Baker to cover the business over to you Dan.
Okay.
Thanks, Daniel I'll cover products marketing and our shareholders' meeting.
<unk> line of the world's smallest DC to DC converters recently qualified for the prestigious CE Mark under an EU declaration of conformity, which includes safety electromagnetic compatibility and reduction of hazardous substances. Our distributors have told us the mark could enable additional.
Sales in Europe .
The key to qualifying for the Mark was rigorous testing to international standards for radiated emissions.
Unlike most conventional D. C. D. C converters are Pat parts passed the test with no external components for electromagnetic compatibility compliance.
Also in the quarter, we officially renewed our ISO 9001 certification the new certificate is valid until October 2026.
ISO certification is a seal of approval from a third party governing body.
<unk> N V E meets the international standards of excellence published by the international organizations for standardization or ISO.
ISO 9001, it helps ensure consistent quality.
Trade shows are an important part of our marketing strategy our distributors exhibited at several shows in the past quarter, we exhibited under our own banner at the medical design and manufacturing trade show last week in Minneapolis.
Part of the advanced manufacturing of that.
Minnesota is a health care industry hub in medical devices are an important market for us.
We have a convincing benefit proposition for medical devices, with small size and low power and superb reliability.
The nearby show was also a chance for some of our employees, who don't usually go to trade shows to interact with customers and prospects.
We demonstrated our new Highfield tunneling Magneto resistance sensors, which have a unique omni directional capability and they can detect the high fields from MRI to enable MRI tolerant medical devices.
We showed our new ultra high sensitivity tunneling Magneto resistance sensors, which are ideal for catheter position detection and navigation.
In these applications and array of sensors on a catheter form a miniature compass using an externally generated field to determine the position of the catheter.
Our sensors small size allows them to be used in small diameter catheters and their precision improves positional accuracy, enabling more effective procedures.
Yeah.
We also featured our new chessboard to demonstrate the wide operating latitude in power efficiency, our sensors provide in medical and industrial applications.
Demos are also on our website and our Youtube channel.
We held our annual shareholders meeting in August at a nearby hotel. Unlike many companies we returned in person meetings. After the COVID-19 pandemic.
Proxy advisory firms recommend in person annual general meetings for good governance.
All of our directors and officers attended along with our auditors.
We had a chance to meet our shareholders and answer questions, our shareholders could see and try out hands on product demonstrations.
In the formal meeting each director was reelected.
Named executor, our executive officer compensation was approved <unk>.
Shareholders voted in favor of annual say on pay votes and the selection of our independent registered public accounting firm was ratified.
We filed the final vote counts in a current report on form 8-K shortly after the meeting.
There is a replay of the meeting with slides and product demonstrations on our website and Youtube channel.
Now I'd like to open the call to questions to Wanda.
Thank you.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait to hear your name announced to withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Yeah.
Our first question comes from the line Jeffrey Bernstein with Silverberg Bernstein Capital Management. Your line is open.
Hi, Dan how are you.
Hi, Jeff.
So a couple of questions for you.
Just wondering have you delivered now all the backlog that had built up during COVID-19.
Oh, well, we we don't formally call it a backlog because backlog has a gap meaning.
But we do look at order flow and orders in the system and we continue to have orders in the system. So.
While we are.
We've recovered from some of the shortages that that plagued many in the semiconductor industry.
During the pandemic, we continue to have a strong order flow and orders that were continuing to fulfill.
So in terms of your lead times have those changed at all.
They have it depends on the part, but our lead times are shorter we have many parts in stock now that we are that we didn't have in stock we've always been better than most in the industry. We believed during the pandemic because we are uniquely positioned in that we have.
Integrated production here at N V E. We have front and backend and control over most of our processes. So we are we're in better shape than most in the industry and are now we're in even better shape because some of the shortages have abated, a we've increased our capacity.
City with capital investments, we've increased our staffing and so we can we can offer shorter lead times or parts in stock in many for many of our parts.
Yes, okay.
And then can you just talk a little bit about the design pipeline sort of versus pre Covid times.
Is there a significant difference in the number of designs that you guys are working on.
Yeah, that's a that's an interesting question.
I think it's.
I think it's more but I don't know that we have data that could support that it's just a feeling.
That Oh, we've had more interest as as companies are less worried about just getting parts. Then now they're looking also at new designs and longer term things.
The shortages of personnel, including design personnel that plagued the industry during the pandemic seem to have abated at least somewhat.
So we're very optimistic also based on the feedback that we've gotten on some of our specific products, including our DC to DC converters. Some of our angle sensors and I mentioned navigation sensors that are in particular useful in the medical business. So so our design activity.
As is high.
Gotcha and then in terms of just the overall number of customers who are ordering from you versus pre COVID-19, what what does that look like.
We think it's increased well it has increased we picked up some customers during the pandemic during the shortages.
And we've retained them by and large so we have more customers than we had before the pandemic. We continue to pick up customers are but as we've said before they sometimes came for the lead time, but they stayed for the quality product and the support that they get from N B E.
Gotcha that's great.
And then I'm just wondering in terms of any design wins that you've had over the last you know.
Couple of years.
Do you think will move the needle at some point.
As they ramp up or are the you know sort of individuals designs just never going to.
Be that important.
Well, we see we see some especially important areas, where we've had design wins and two that I would highlight include.
Charging stations for electric vehicles, which is a major thrust to build out the infrastructure required to support.
The expected increase in use of electric vehicles, and we have a design win there that we've talked about before we also have a design win and power conversion for energy storage systems, which is important for the conversion to green energy because green energy electricity, mostly electricity has to.
Be stored because the wind doesn't always blow and of course solar energy goes away at night, so being able to store that locally.
It is important so these are growing markets that we see as having tremendous potential long term potential. So those are design wins, we are pleased with the any design win but those those of course are.
Operator: Hello, and welcome to NVE Corporation conference call on second quarter results. At this time, all participants on a listen only mode. After the speakers presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear automated message advising your hand is raised to withdraw your question, please press star 11 again.
Are important because they address.
Large fast growing markets, where we have a convincing benefit proposition.
Yeah, that's great thanks for that.
Thanks, Jeff.
Thank you.
Please standby for our next question.
Okay.
Daniel Baker: I will now like to hand the conference over to Daniel Baker, president and CEO. Sorry, you may begin. Good afternoon and welcome to our conference call for the quarter ended September 30th, 2023. This call is being webcast live and recorded. A replay will be available through our website nve.com.
Our next question comes from the line of Chris Van Kolsky.
Line is open.
Hello, Thank you for thank you Shahram.
I want to ask you on your Youtube channel you have a kind.
An example for using New York chips for Deify device and core driver for an electric bike.
Daniel Baker: I'm Dan Baker and I'm joined by accounting manager and principal financial officer Daniel Nelson. After my opening comments, Daniel Nelson will present our financial results. Then I'll cover marks. I'm marketing a new products and we'll open the call to questions. We issued our press release with financial results and filed our quarterly report on form 10 queue in the past hour following the close of market. Links to the press release and 10 queue are available through the SEC's website, our website and on X the platform formerly known as Twitter.
Hmm.
Do you think those.
Those are like your prices a practical to enter these markets.
So you you said for I.
I think you said for driving our electric bike motors, yeah. So we have a Youtube video, where we demonstrated a.
Several of our parts are.
Isolator and our D C D C converters for power conversion to drive.
An electric motor in that case it was for it it was an electric motor that was used in <unk>.
Daniel Baker: 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 related to the economic environment and the industries we serve risks and uncertainties related to future sales and revenue and risks of credit losses as well as risks listed from time to time in our filings with the SEC. In the end of March 31st, 2023, as updated in our quarterly report on form 10 queue for the quarter ended June 30th, 2023.
An electric bike.
And that particular.
<unk> market is an interesting market for us for the power conversion there and we do believe that we have a competitive proposition where we can improve the efficiency of those types of systems. We can decrease the size and we believe that it's cost effective.
There's a broader market for power control of all kinds of motors. So motors use a significant portion of the electricity that's used in the world as you might expect and increasing that efficiency can.
Daniel Baker: 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 strong earnings and cash flow despite decreased revenue from a record quarter a year ago.
Even a little bit can significantly help.
The overall challenge of of converting.
Converting to electricity and to carbon free energy sources. So we see that as an excellent opportunity that general category of motor control.
Daniel Nelson: Daniel Nelson will cover the details of our financials. Daniel? Thanks, then.
Daniel Nelson: Twitter revenue for the quarter ended September 30 of 2023 decrease 33% to 7.13 million dollars compared to 10.7 million dollars for the quarter ended September 30 of 2022. The decrease was due to a 32% decrease in the product sales and a 92% decrease in contract R&D. The decrease in the product sales was against the tough comparison to last year when product sales increased 59% and a reflection of a semiconductor industry downturn.
Can you.
Can you give us some kind of a.
Neighborhood figure as to how much you Fisher forget Europe or kind of like an average.
Trio motor.
Yeah, that's it's difficult to come up with an exact number because it depends on the motor and the application as you can imagine.
It's not.
Like it's going to change from a.
From 50% to 99%, though those sorts of changes are those sorts of improvements in efficiency have been rung out in the past, but even slight improvements a percent or even less than a percent are significant because they get more.
Daniel Nelson: The good news is that forecast that for a strong industry or 100% increase in semiconductor sales after 12% decrease this year as demand rebounds for most application lines. The decrease in product sales was primarily due to decrease purchases by existing costs.
All supplied by a.
By a number of motors and.
And it turns into a lot of electricity that can be saved so it's difficult to quantify it but we can offer higher efficiency than conventional electronics and that's important to our target market.
Okay, that's good to hear of.
Fisher is because you.
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You could say that generally speaking you do better.
And then the existing systems.
Exactly okay.
Yes part of it is current sensing and then part of it is.
Is the efficiency of our D. C. D C converters and then the other part of it is the speed of our Isolator, which provide an interface between the controls and the power switching transistors and the reason that's important is because these transistors.
Our very efficient when they're either on or off but when they're transitioning they can they burn electricity.
So that's a major source of inefficiency so the faster that one can switch those devices the more efficient they become and our devices are extremely fast.
Okay. That's.
Good to hear and.
Audio.
This is something I always ask but are you, making inroads and kind of like more wider broader market industrial applications like this.
Okay.
We are so the question was broader Maher.
Markets. So you mean, our traditional industrial control market and the industrial Internet of things.
And we continue to have a strong position there.
We've highlighted we would highlight some of our smart sensors, which are used in robotics for industrial control and highly connected robotics are those parts have been we've been pleased with the reception for those parts. We continue to make isolator that provide the nerves.
Of those systems and the sensors that provide the eyes. If you will of the robotics that go into industrial control systems.
So that remains a strong market for us.
Okay and another Youtube video was about using your.
Again your current sensors for.
Before D. A fire, which is kind of the safety plugging Kevin your battles is that.
Is that the market took Atlanta.
Oh I see I missed your I missed that the first time you asked it. So what you were talking about would be G. F fire ground fault interrupters or sometimes it's called G. C. F. I ground fault circuit Interrupters and we have a demonstration.
On our web site and on Youtube that shows how to do that.
So that's an interesting market for us the home market, which would be in things like bathrooms, and kitchens is rather commoditized, but there is an industrial market for such devices, which we are looking at and more.
Daniel Baker: Thanks, Daniel. I'll cover products, marketing, and our shareholders meeting. NVE's line of the world's smallest DC to DC converters recently qualified for the prestigious CE mark under an EU declaration of conformity, which includes safety, electromagnetic compatibility, and reduction of hazardous substances. Our distributors have told us the mark could enable additional sales in Europe. The key to qualifying for the mark was rigorous testing the international standards for radiated emissions. Unlike most conventional DC to DC converters, our parts pass the test with no external components for electromagnetic compatibility compliance.
Shortly we're demonstrating the extreme sensitivity and very wide range of our current sensors and as you correctly pointed out current sensors are important for <unk>.
Controlling motors and doing it efficiently so that allows motors to become more efficient in the system.
And also our sensors use very little power themselves. So.
Conventional current sensors might use a significant amount of power so to measure the current in order to control. The current in order to improve the efficiency you're spending some of that savings with the current sensor and our current sensors are used very little power.
Daniel Baker: Also in the quarter, we officially renewed our ISO 9001 certification. The new certificate is valid until October 2026. ISO certification is a seal of approval from a third-party governing body that NVE meets the international standards of excellence published by the international organizations for standardization or ISO. ISO 9001 helps ensure consistent quality. Trade shows are an important part of our marketing strategy. Our distributors exhibited at several shows in the past quarter.
So we see that as a demonstration for a particular application, but also of the broader applicability of those parts in low power high sensitivity wide dynamic range current sensing.
Alright.
And Bert General Gist.
Just a couple of days of use out of Taiwan.
Oh, the inventory correction is ending.
Clients are ordering more chips are you kept your centers in the last week or so.
Daniel Baker: We exhibited it under our own banner at the medical design and manufacturing trade show last week in Minneapolis, part of the advanced manufacturing event. Minnesota is a healthcare industry hub and medical devices are an important market for us. We have a convincing benefit proposition for medical devices with small size, low power, and superb reliability. The nearby show was also a chance for some of our employees who don't usually go to trade shows to interact with customers and prospects.
We we've seen generally involve a recovery of the semiconductor industry as Daniel alluded to in the prepared remarks.
And so that gives us a reason for optimism for the coming quarters.
But have you seen it in.
In euro and euro lowered theirs.
Kind of.
Requests for <unk>.
Boundary Ghost requests.
And accordingly, so you mean purchasing from foundries.
Daniel Baker: We demonstrated our new high-field tunneling magneto-resistance sensors which have a unique omni-directional capability and they can detect the high fields from MRI to enable MRI tolerant medical devices. We showed our new ultra-high sensitivity tunneling magneto-resistance sensors which are ideal for catheter position detection and navigation. In these applications an array of sensors on a catheter form a miniature compass using an externally generated field to determine the position of the catheter. Our sensor's small size allows them to be used in small diameter catheters and their precision improves positional accuracy enabling more effective procedures. We also featured a new chessboard to demonstrate the wide operating latitude and power efficiency our sensors provide in medical and industrial applications. Demos are also on our website and our YouTube channel.
Well I mean, I mean, you just client inquiries a client all of those give you it seems like I'm like a cyclical uptick.
Yeah.
We are seeing some improvement it's been gradual it would be difficult to point to a particular week and say that we saw improvement but in general we've been seeing an improvement in the order flow and that makes us optimistic about the future.
Alright, that's it for me. Thank you for your very detailed answers and good luck. Thank you Chris.
Thank you.
As a reminder, ladies and gentlemen, Thats star one to ask the question.
Please standby for our next question.
Our next question comes from the line of Stephen Lewis with Lewis Capital Management. Your line is open.
Good afternoon.
About <unk>.
Bond portfolio.
Daniel Baker: We held our annual shareholders meeting in August that in nearby hotel, unlike many companies, we returned in-person meetings after the COVID-19 pandemic. Proxy advisory firms recommend in-person annual general meetings for good governance. All of our directors and officers attended along with our auditors. We had a chance to meet our shareholders and answer questions. Our shareholders could see and try out hands-on product demonstrations. In the formal meeting, each director was reelected, named Executive Officer Compensation was approved, shareholders voted in favor of annual say on pay votes, and the selection of our independent registered public accounting firm was ratified. We filed the final vote counts in a current report on Form 8 case shortly after the meeting.
Have you had any change in the way it's been managed in the last three to six months.
Yes.
Youre showing a small.
A small valuation difference of only a million plus vessel costs.
Okay.
Okay.
Uh huh.
Yeah, So what what we were showing for the unrealized losses in the bond portfolio, which I think is what you're referring to is what's been happening is that a in general interest rates have been increasing and so that results in unrealized losses in our <unk>.
<unk> portfolio, so unrealized losses, meaning that while the of the value when we look them up in a when the in the bank statement or we look them up online the value is lower but we still expect them to pay the face value of par value of the bonds.
Daniel Baker: There's a replay of the meeting with slides and product demonstrations on our website and YouTube channel.
Operator: Now I'd like to open the call to questions, Toanda. Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
But the flipside of that is that interest rates have with interest rates increasing is that it significantly increased our interest income as you can see on the income statement.
And that's because we've been able to reinvest our bonds as they mature in higher interest securities on the ones that they were originally invested in.
That's what's over now.
Yes being in the higher.
Jeffrey Bernstein: Our first question comes from the line is Jeffrey Bernstein, but civil bird Bernstein capital management. The line is open. Hi, Dan. How are you? Good. Hi, Jeff. So a couple of questions for you. Just wondering, have you delivered now all the backlog that had built up during COVID? Well, we don't formally call it backlog because backlog has a gap meaning, but we do look at order flow and orders in the system and we continue to have orders in the system.
Oh, yes.
So when we.
Reinvest in a bond that matures, so we have bonds that mature.
Occasionally a and then we reinvest them in the interest rates are typically higher with the reinvestment with the new bonds than the old bonds. Some of our bonds might be several years maturity and so when we bought them several years ago interest rates were lower when we when those bonds mature and we can run.
Them over into higher interest rate.
Bonds than our interest income increases.
Jeffrey Bernstein: So while we've recovered from some of the shortages that plagued many in the semiconductor industry during the pandemic, we continue to have strong order flow and orders that we're continuing to fulfill. So in terms of your lead times, have those changed at all? They have. It depends on the part, but our lead times are shorter. We have many parts in stock now that we that we didn't have in stock. We've always been better than most in the industry we believed during the pandemic because we are uniquely positioned in that we have integrated production here at NBE.
Similarly, we can protocols for Costco in near term.
Do you think you will.
Eradicate the difference between.
Cost and fair value by the end of the year.
Unlikely by the end of the year, because the maturities of the bonds or longer.
So we typically invest in multi year bonds, because we have strong cash flow and we don't expect to need the funds immediately.
But.
So.
When the bonds mature.
They we expect them to pay their power value. So if we have a million dollar bond with a book value might be lower now, but we expect it to pay off $1 million.
Jeffrey Bernstein: We have front end back end and control over most of our processes. So we were in better shape than most in the industry and now we're in even better shape because some of the shortages have abated. We've increased our capacity with capital investments. We've increased our staffing and so we can we can offer shorter lead times or parts in stock in many for many of our parts. Yeah, okay.
That.
We'll be over the term of the bond where the value will tend to converge on the par value.
The loss will decrease.
Also.
Regarding Lou.
<unk> been hearing.
Aid business and Theres been a lot of publicity about the ability to buy cheaper hearing AIDS.
Without having to go to the Doctor.
I haven't checked to see but had any comments on the call.
Daniel Baker: And then can you just talk a little bit about the design pipeline, sort of versus pre-COVID times? Is there a significant difference in the number of designs that you guys are working on? Yeah, that's an interesting question. I think it's more, but I don't know that we have data that could support that. It's just a feeling that we've had more interest as companies are less worried about just getting parts than now.
Call today, but.
Is that business holding up.
Versus your.
Estimates.
The hearing aid business continues to hold up it's an it's an important part of our market the broader market that you referred to about over the counter hearing AIDS.
And <unk> is an excellent market for us here.
Hearing AIDS are a large underserved market. The estimates are that only 20% of those that could use a hearing aid seek help as you implied that many are discouraged by the cost.
Daniel Baker: While they're looking also at new designs and longer term things, the shortages of personnel, including design personnel that plague the industry during the pandemic seem to have abated at least somewhat. So we're very optimistic also based on the feedback that we've gotten on some of our specific products, including our DC to DC converters, some of our angle sensors. And I mentioned navigation sensors that are in particular useful in the medical business.
As well as the inconvenient dispensing so.
Having over the counter hearing AIDS and lower cost hearing AIDS.
We believe will expand the market and we have a convincing benefit proposition in hearing aid. So we see that as a good long term opportunity.
Have you secured in OTC a backlog.
We have talked about some design wins in that space and the broader.
Daniel Baker: So our design activity is high. And then in terms of just the overall number of customers who are ordering from you versus pre-COVID, what does that look like? We think it's increased. Well, it has increased. We picked up some customers during the pandemic, during the shortages. And we've retained them by and large. So we have more customers than we had before the pandemic. We continue to pick up customers. But as we've said before, they sometimes came for the lead time, but they stayed for the quality product and the support that they get from NBE. That's great.
Terribles market, which would be you.
You know things that would go in one's ear, but may not necessarily be a hearing aid.
It's a relatively small market now, but we expect it to grow.
Oh, who sogou are pleased with the solid earnings for the quarter on a six months does that move.
Actual results for the quarter September with them through the 5% or more.
Going into the quarter.
So it could be cool.
Well, we were we were pleased to under the circumstances of the industry downturn and the.
As Daniel mentioned in the prepared remarks that we have a defense business that can be lumpy and can be somewhat volatile.
Jeffrey Bernstein: And then just wondering in terms of any design wins that you've had over the last couple of years that you think will move the needle at some point as they ramp up. Or are the sort of individual designs just never going to be that important? Well, we see some especially important areas where we've had design wins and two that I would highlight include charging stations for electric vehicles, which is a major thrust to build out the infrastructure required to support the expected increase in use of electric vehicles.
And it wasn't it was down significantly in the.
September quarter, but we expect it to recover in coming quarters. So in the context of the industry and the particular effects of the defense and the particular lumpiness of the defence business for US. We were pleased with the results. We were certainly pleased with the cash flow and the profitability.
That Daniel mentioned in the prepared remarks.
So we were pleased that the results were what you expected earlier at least three months.
Jeffrey Bernstein: And we have a design win there that we've talked about before. We also have a design win and power conversion for energy storage systems, which is important for the conversion to green energy because green energy electricity has to be stored because the wind doesn't always blow and of course solar energy goes away at night. So being able to store that locally is important. So these are growing markets that we see as having a tremendous potential long term potential.
Well, we don't provide as you probably know we don't like most companies. We don't provide forward looking guidance. So there's there's not much to compare to but we look at it and say how did we do given the environment and given the you know the difficulty of the compare so yes. We were pleased we're pleased with how our.
Our folks executed in delivering orders.
And on bringing in new business and the profitability of the efficiency and the execution that our that our team had for the quarter.
Jeffrey Bernstein: So those are design wins. We are pleased with any design win, but those those of course are important because they address large fast-growing markets where we have a convincing benefit proposition. That's great. Thanks for the help today. Thanks, Jeff. Thank you. Please stand by for our next question.
We're pleased with the backlog.
We're pleased with the order flow given.
Given the industry conditions, but the industry is improving as we touched on in other questions and we expect the expectations are for a much stronger semiconductor market in the coming year and 'twenty calendar 'twenty 'twenty four.
Okay.
Thank you Steven.
Thank you.
Please standby for our next question.
Chris Bernkowski: Our next question comes from the line of Chris Bernkowski. Your line is open. Hello, thank you for the question. I want to ask you on your YouTube channel, you have an example for using your trips for a DFI device and for a driver for an electric bike. Do you think those like you prices are practical to enter these markets? So you said for, I think you said for driving electric bike motors.
Our next question comes from the line of Pete <unk>. Your line is open.
Hi, Dan with a significant patent portfolio. The company has do you see any opportunities to license some of those patents to create additional revenue streams.
We've looked from time to time at the possibility of licensing and in particular, we talked about licensing our MRM portfolio are.
We were we were a pioneer in Amiram witches Spintronics memory.
But our target market for that technology is.
Chris Bernkowski: Yeah, so we have a YouTube video where we demonstrated several of our parts, our isolators and our DC to DC converters for power conversion to drive an electric motor. In that case, it was an electric motor that was used in an electric bike. And that particular market is an interesting market for us for the power conversion there. And we do believe that we have a competitive proposition where we can improve the efficiency of those types of systems.
In high value low density memories, where we can build the type of fab that can be used as opposed to the multibillion dollar fabs that make large scale memories.
So there is an opportunity for potentially licensing it's a long term opportunity and then we have other ways of monetizing our intellectual property were very proud of our portfolio of intellectual property and one way, we can monetize that as private label sales, where we saw.
Chris Bernkowski: We can decrease the size and we believe that it's cost effective. There's a broader market for power control of all kinds of motors. So motors use a significant portion of the electricity that's used in the world as you might expect. And increasing that efficiency can even a little bit, can significantly help the overall challenge of converting to electricity and to carbon free energy sources. So we see that as an excellent opportunity, the general category of motor control.
Well.
Our products under another.
Another company's brand name so we're still manufacturing it Oh, we're proud of our manufacturing capability and.
And so licensing the technology and not making it means giving that up.
And it's also in some cases, we've invested quite a bit in the technology and in the infrastructure and it is not not that easy for somebody else to build it.
But we do explore opportunities.
To leverage our intellectual property portfolio in other ways than simply selling parts under our own brand.
Great. Thank you very much.
Thanks Pete.
Chris Bernkowski: Can you give us some kind of neighborhood figure is to come much efficiency again you would have a kind of like an average industrial motor? Yeah, that's it's difficult to come up with an exact number because it depends on the motor and the application as you can imagine. It's not like it's going to change from from 50% to 99% though those sorts of changes those sorts of improvements and efficiency have been wrong out in the past.
Please standby for our next question.
Our next question comes from the line of Colin Mcbirney with topline capital management. Your line is open.
Hi, Dan.
Thanks for taking my question.
On the <unk>.
In the past you've talked about the Lumpiness in defense I mean could you maybe just comment Mike.
Outside of if you kind of set aside defense, maybe either for the quarter from the first half like.
Is that.
Outside of defense like flat or just to get a sense for kind of the run rate.
Yes, that's a we don't breakdown precisely our defense versus nondefense business, but defense was a major influence on the most recent quarter on the September quarter.
Chris Bernkowski: But even slight improvements of percent or even less than a percent are significant because they get multiplied by by a number of motors and it turns into a lot of electricity that can be saved. So it's difficult to quantify it but we can offer higher efficiency than conventional electronics and that's important to our target market. Okay. That's good to hear. And higher efficiency is because you, you could say the generally speaking, you do better current sensing than the existing systems.
And.
As I mentioned are in response to a prior question we were pleased with the results.
Setting that aside for the nondefense business it has been a slow industry.
And that affects us, but but the defense was a was a particular.
There was a particular drag on revenue in the most recent quarter.
Got it and then and then on the defense business are those orders placed by like the U S government like the DLA or something or are they typically place by a prime contractor and then maybe you could just like touch on.
Chris Bernkowski: Exactly. Okay. Yeah. Part of it is current sensing. And then part of it is the efficiency of our DC, DC converters. And then the other part of it is the speed of our isolators, which provide an interface between the controls and the power switching transistors. And the reason that's important is because these transistors are very efficient when they're either on or off, but when they're transitioning, they can, they burn electricity. So that's a major source of inefficiencies. So the faster that one can switch those devices, the more efficient they become, and our devices are extremely fast. Okay. That's, that's good to hear.
B, how many customers you have in defense.
One that places an order for a couple of million dollars or is it like 10 of them and they kind of come in lumpy and it sounds like it's very lumpy, but is that because there is like one customer with U S government or something or.
The customers are typically a prime contractor defense contractors and it's a it's not one but it's not a large number either there's a relatively small number of large defense contractors.
And so the lumpiness tends to be tied to defense procurement cycles and are.
Products that we sell into the defense industry are primarily anti tamper products, which are used to protect electronic technology in large systems.
Daniel Baker: And are you, and this is something I always ask, but are you making any roles in kind of like more wide broader market industrial applications like this? We are. So the question was broader markets. So you mean our traditional industrial control market and the industrial internet of things. And we continue to have a strong position there. We've highlighted, we would highlight some of our smart sensors, which are used in robotics for industrial control and highly connected robotics.
So those tend to be tied to particular procurement systems for the large for the large defense system.
We can't say what types of systems. They are and we often don't know for obvious reasons.
But they tend to be things that take a while to build and there. So we get big orders when the systems are starting to be built and then they can then they can sometimes drop off and that's what happened in the in the September quarter.
Daniel Baker: Those parts have been, we've been pleased with the reception for those parts. We continue to make isolators that provide the nerves of those systems and the sensors that provide the eyes, if you will, of the robotics that go into industrial control systems. So that remains a strong market for us. Okay.
Got it Okay, and then do you give a sense for without getting into specifics I mean are some of the equipment used in Ukraine <unk> response to the recent terrorist attacks like.
I mean, it seems like it seems like the environment for defense spending over the next year is as good or better than it was a year ago.
Chris Bernkowski: And another YouTube video was about using your, again, your current sensors for, for a BFI, which is kind of the safety plug you have in your bathrooms. Is that, is that a market you can enter? Oh, I see. I missed your, I missed that the first time you asked it. So what you were talking about would be GFI or ground fault interruptors, or sometimes it's called GCFI ground fault circuit interruptors. And we have a demonstration on our website and on YouTube that shows how to do that. So that's an interesting market for us.
Okay.
How do you kind of triangulate that in terms of going to go.
Go forward expectations versus where it had been.
Yes, that's a good point collyn.
We would certainly hate to have to say that those conflicts are good for business, but what the government has said publicly what the defense Department has said is that it's important to protect electronics.
For systems that are going to.
Foreign sales to allied sales.
Because those tend to be especially vulnerable to reverse engineering and falling into unfriendly hands. So.
In that sense.
Chris Bernkowski: The home market, which would be in things like bathrooms and kitchens is rather commoditized, but there is an industrial market for such devices, which we are looking at. And more importantly, we're demonstrating the extreme sensitivity and very wide range of our current sensors. And as you correctly pointed out, current sensors are important for controlling motors and doing it efficiently. So that allows motors to become more efficient in the system. And also our sensors use very little power themselves.
I suppose it's a positive environment for our defense.
Sales.
These are relatively long procurement cycles, so it's not.
It's not something where if a defense system is shipped.
We're immediately.
Gaining revenue from it we do look at it though that we're proud to do our part a small part, but an important part of.
Of protecting U S technology and and protecting.
Ours and our allied.
War fighters.
Chris Bernkowski: So conventional current sensors might use a significant amount of power. So to measure the current in order to control the current in order to improve the efficiency, you're spending some of that savings with the current sensor. And our current sensors use very little power. So we see that as a demonstration for a particular application, but also of the broader applicability of those parts in low power, high sensitivity, wide dynamic range current sensing. All right.
Alright, great and that makes it makes sense.
Yeah.
Personally and fully support the U S military.
Is.
Maybe last one I had just on.
If they know it's kind of certainly correctly I think.
You guys said that.
Fiscal 'twenty for your fiscal 'twenty for revenue it would be somewhat similar to your fiscal 'twenty three revenue.
Have we kind of started a little bit.
Lower.
It sort of imply something closer to like $11 million a quarter for <unk> and <unk> each having something.
Chris Bernkowski: And more general, just the couple of days has been used out of Taiwan that the inventory correction is ending clients are ordering more chips. Are you, can you see this in the last week or so? We've seen general recovery of the semiconductor industry as Daniel alluded to and the prepared remarked.
Something like that potentially feasible or is there kind of a change in the maybe the outlook or maybe I misunderstood a previous comment.
Yes, Colin I think the comments, we made before about revenue would be in the sea was within the context of anti tamper sales. So we were actually discussing talking about the lumpiness of the anti temporary seals business and we the comment we made was specifically related to that we did not expect to see a significant <unk>.
Daniel Baker: And so that gives us a reason for optimism for the coming quarters. But have you seen it in your own, in your own orders and your own kind of requests for inbound interest requests? We have. So you mean purchasing from foundries? Well, I mean, I mean, you're just client inquiries and client orders. Have you seen like a like a cyclical optic? We are seeing some improvement. It's been gradual. It would be difficult to point to a particular week and say that we saw improvement. But in general, we've been seeing an improvement in the order flow and that makes us optimistic about the future.
France, and the lumpiness of that business and not particularly.
Revenue for the full for full fiscal 2024.
So yep.
Okay got it.
Presumably the kind of the positive lumping in at <unk> 23 in the positive lumpy <unk> 'twenty three as robust from the defense.
Assuming that comment.
All of you that would have kind of a positive lumpiness okay.
To match last year's Lumpiness.
We.
We expect anti tamper sales of defense sales to increase we expected that defense sales to recover in the remaining quarter of fiscal 2024, but as far as the timing is hard to say again because of the lumpiness of this part of our business because as Dan mentioned in his comment.
Operator: All right, that's it for me. Thank you for your very detailed answers and good luck. Thank you, Chris. Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question. Please stand by for our next question.
Sales of stock sales are tied to defense procurement cycles, and and and defense contracts, which can be terribly difficult to predict.
Got it understood Okay, great well. Thank you guys appreciate it.
Thank you.
Stephen Lewis: Our next question comes from the line of Stephen Lewis with Lewis Capital Management. Yaline is open. Good afternoon.
I'm showing no further questions in the queue I would now like to turn the call back over to Dan for closing remarks.
Daniel Nelson: I have a question about your bond portfolio. Have you had any change in the way it's been managing the last three to six months? You're showing a small, you know, a small valuation difference of only a million plus versus a cost. Yeah, so what we were showing for the unrealized losses in the bond portfolio, which I think is what you're referring to is what's been happening is that in general interest rates have been increasing.
Well. Thanks, everyone. We were pleased to report strong earnings and increase cash flow. Despite the challenging conditions. We look forward to speaking with you again at our next earnings call in January .
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Daniel Nelson: And so that results in unrealized losses in our bond portfolio. So unrealized losses, meaning that while the value when we look them up in the bank statement or we look them up online, the value is lower, but we still expect them to pay the face value or par value of the bonds. But the flip side of that is that interest rates have, with interest rates increasing is that it significantly increased our interest income as you can see on the income state.
Okay.
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Okay.
Okay.
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Okay.
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Daniel Nelson: And that's because we've been able to reinvest our bonds as they mature in higher interest securities than the ones that they were originally invested in. That's what you're doing now. Yes. So when we reinvest in a bond that matures, so we have bonds that mature occasionally and then we reinvest them and the interest rates are typically higher with the reinvestment with the new bonds than the old bonds. Some of our bonds might be several years maturity and so when we bought them several years ago interest rates were lower when we when those bonds mature and we can roll them over into higher interest rate bonds than our interest income increases.
Daniel Nelson: Assuming you can forecast your class glow in your term, do you think you will eradicate the difference between cost and fair value by the end of the year? Unlikely by the end of the year because the maturity of the bonds are longer, so we typically invest in multi-year bonds because we have strong cash flow and we don't expect to need the funds immediately. But so when the bonds mature, we expect them to pay their power value.
Daniel Nelson: So if we have a million dollar bond, the book value might be lower now, but we expected to pay off one million dollars. But that will be over the term of the bond where the value will tend to converge on the power value and then the loss will decrease.
Stephen Lewis: Thank you.
Stephen Lewis: Regarding the Abbott hearing aid business, there's been a lot of publicity about the ability to buy cheaper hearing aids without having to go through the doctor. I haven't checked to see if Abbott has any comments on the call today, but is that business holding up versus your estimates? The hearing aid business continues to hold up. It's an important part of our market. The broader market that you refer to about over the counter hearing aids and herables is an excellent market for us.
Stephen Lewis: Hearing aids are a large underserved market. The estimates are that only 20% of those that could use a hearing aid seek help as you implied that many are discouraged by the cost as well as the inconvenient dispensing. So having over the counter hearing aids and lower cost hearing aids, we believe we'll expand the market and we have a convincing benefit proposition in hearing aids. So we see that as a good long term opportunity.
Daniel Baker: Kennedy. Have you secured in OTC back lawn? We have talked about some design wins in that space and the broader, hereables market, which would be, you know, things that would go in one's ear, but may not necessarily be a hearing aid. It's a relatively small market now, but we expect it to grow.
Stephen Lewis: Well, we said you are pleased with the solid earnings for the quarter and the six months. Does that mean that the actual results for the quarter September were within three to five percent of the estimate going into the quarter? So under the circumstances of the industry downturn and the, as Daniel mentioned in the prepared remarks, that we have a defense business that can be lumpy and can be somewhat volatile. And it wasn't, it was down significantly in the September quarter, but we expect it to recover in coming quarters.
Stephen Lewis: So in the context of the industry and the particular effects of the defense and the particular lumpiness of the defense business for us, we were pleased with the results. We were certainly pleased with the cash flow and the profitability that Daniel mentioned and the prepared remarks. So you were pleased that the results were what you expected earlier at least three months. Well, we don't provide, as you probably know, we don't, like most companies, we don't provide forward looking guidance.
Stephen Lewis: So there's not much to compare to, but we look at it and say, how did we do, given the environment and given the, you know, the difficulty of the compare. So yes, we were pleased. We were pleased with how our folks executed and delivering orders and bringing in new business and the profitability, the efficiency and the execution that our, that our team had for the quarter. You appealed with the Buffalo? We're pleased with the order flow, given the industry conditions, but the industry is improving as we touched on and other questions and we expect the expectations are for a much stronger semiconductor market in the coming year in 20, calendar 2024.
Stephen Lewis: Thank you, Stephen. Thank you.
Operator: Please stand by for our next question.
Pete: Our next question comes from the line of peak private. Your line is open. Hi, Dan. What the significant patent portfolio the company has, do you see any opportunities to license some of those patents to create additional revenue streams? We've looked from time to time at the possibility of licensing and in particular, we've talked about licensing our MRAM portfolio. We were, we were a pioneer in MRAM, which has been tronic memory. But our target market for that technology is in high value, low density memories where we can build the type of fab that can be used as opposed to the multi billion dollar fabs that make large scale memories.
Pete: So there's an opportunity for potentially licensing a long term opportunity and then we have other ways of monetizing our intellectual property. We're very proud of our portfolio of intellectual property and one way we can monetize that is private label sales where we sell our products under another company's brand name. So we're still manufacturing it. We're proud of our manufacturing capability and so licensing the technology and not making it means getting that up.
Pete: And it's also in some cases we've invested quite a bit in the technology and in the infrastructure and it's not not that easy for somebody else to build it. But we do explore opportunities to leverage our intellectual property portfolio in other ways than simply selling parts under our own brand. Great. Thank you very much. Thanks Pete. Please stand by for our next question.
Colin McBernie: I'll next question comes from the line of Colin McBernie with top line capital management. The line is open. Hi Dan, thanks for taking the question.
Daniel Baker: I was wondering on the any in the past we talked about the lumpy defense. Could you maybe just comment like outside of which you kind of satisfied defense maybe either for the quarter or for the first half. Like is the business outside of defense like flat or just to get a sense for kind of the run rate. Yeah, that's we don't break down precisely our defense versus non defense business but defense was a major influence on the most recent quarter on the September quarter.
Daniel Baker: And as I mentioned in response to a prior question we were pleased with the results setting that aside for the non defense business. It has been a slow industry and that affects us but but the defense was a was a particular. There was a particular drag on revenue in the most recent quarter.
Daniel Baker: And then on the defense business are those borders placed by like the US government like the DLA or something or are they typically placed by a prime contractor and then maybe you just like touch on like maybe how many like customers you have in defense like is it one that places it order for a couple million dollars or is it like. 10 of them and they kind of come in lumpy and it's not like it's very lumpy but is that because there's like one customer the US government or something or yeah.
Daniel Baker: The customers are typically prime contractor defense contract, and it's not one, but it's not a large number either. There's a relatively small number of large defense contractors. And so the lumpiness tends to be tied to defense procurement cycles and our products that we sell into defense industry are primarily anti-tamper products which are used to protect electronic technology in large systems. So those tend to be tied to particular procurement systems for the large defense system.
Daniel Baker: We can't say what types of systems they are and we often don't know for obvious reasons. But they tend to be things that take a while to build and so we get big orders when the systems are starting to be built and then they can sometimes drop off. And that's what happened in the in the September quarter. Got it. Okay.
Daniel Baker: And then do you have a fence for you know how to get into specific something are some of the equipment used in Ukraine and or kind of Israel's response to the recent terrorist attacks like would I mean it seems like seem like the environment for defense spending over the next year is as good or better than it was a year ago and I guess it's how do you kind of triangulate that kind of go forward expectations versus what you've been. Yeah, that's a good point Colin we would certainly hate to have to say that those conflicts are good for business but what the government has said publicly what the defense department has said is that it's important to protect electronics for systems that are going to foreign sales to allied sales because those tend to be especially vulnerable to reverse engineering and falling into unfriendly hands.
Daniel Baker: So in that sense I suppose it's a positive environment for our defense sales. These are relatively long procurement cycles so it's not it's not something where if a defense system is shipped we're immediately gaining revenue from it. We do look at it though that we're proud to do our part a small part but an important part of protecting US technology and protecting ours and our allied war fighters.
Colin McBernie: Great lesson makes sense and I was here personally I fully support the US military it is maybe last one I had just on I think if I know it's kind of certainly correctly I think I think sometimes you guys said that it kind of fiscal 24 your fiscal 24 revenue could be somewhat similar to your fiscal 2023 revenue. So it's the first half we started a little bit lower I mean if that that would sort of imply something closer to like $11 million a quarter for 3Q and 4Q each I mean it's something like that potentially feasible or is there kind of a change in maybe the outlook or maybe I misunderstood previous comments.
Colin McBernie: Colin, I think the comments we made before about revenue being the same was within the context of anti-temper sales. So we were actually discussing talking about the lumpiness of the anti-temper sales business. And we, the comment we made was specifically related to that, that we did not expect to see a significant difference in the lumpiness of that business. And not particularly the revenue for the, for for fiscal 2024. So yeah. Okay, got it.
Colin McBernie: And so presumably the kind of a positive lump in kind of 2Q23 and then the positive lump in 4Q23, those were both from the defense. So assuming that comment still holds you good, we'd have kind of a positive lumpiness to match last year's lumpiness. We, we expect anti-temper sales, a defense sales to increase. We expect defense sales to recover in the remaining quarter of fiscal 2024. But as far as the timing is, it's hard to say again because of the lumpiness of this part of our business. Because as Dan mentioned in his comment, sales are tied to defense procurement cycles and and and defense contracts, which can be terribly difficult to predict. Got it. Understood. Okay.
Colin McBernie: Great. Well, thank you guys. Appreciate it. Thank you.
Operator: I'm showing no further questions than the Q.
Daniel Baker: I will now like to turn the call back over today for closing remarks. Well, thanks everyone. We were pleased to report strong earnings and increase cash flow despite the challenging conditions. We look forward to speaking with you again at our next earnings call in January.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.