Q3 2024 NVE Corp Earnings Call

January 17, 2024

Okay.

Good day, and thank you for standing by and welcome to the Nev N V Corporation conference call on third quarter results.

This time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to you.

Speaker today, Dan Baker, President and CEO.

Daniel A. Baker: Good afternoon, and welcome to our conference call for the quarter ended December 31, 2023. This call is being webcast live and recorded a replay will be available through our website <unk> dot com.

Daniel A. Baker: I'm, Dan Baker, and as always I'm joined by accounting manager and principal financial Officer, Daniel Nelson.

Daniel A. Baker: After my opening comments, Daniel will present, our financial results I'll cover customers products and marketing.

Daniel A. Baker: And then we will open the call to questions.

Daniel A. Baker: 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 link.

Daniel A. Baker: Links to the press release and 10-Q are available through the Sec's website, our website and on X, formerly known as Twitter.

Daniel A. 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 environments in the industries we serve.

And risks and uncertainties related to future sales and revenue as well as the risk factors listed from time to time in our filings with the SEC.

Daniel A. Baker: Including our annual report on Form 10-K for the year ended March 31 2023.

Daniel A. Baker: As updated in our quarterly reports on Form 10-Q for the quarters ended June 30th from December 31, 2023.

Daniel A. Baker: Actual results could differ materially from the information provided and we undertake no obligation to update forward looking statements we may make.

Daniel A. Baker: We're pleased to report strong earnings comprehensive income and cash flow. Despite decreased revenues from our record quarter, a year ago, Daniel Nelson will cover the details of our financials Daniel.

Daniel A. Baker: Thanks, Dan.

Daniel A. Baker: Revenue for the quarter ended December 31st 2023 decreased 9% compared to the prior year quarter. The decrease was due to a 12% decrease in product sales, partially offset by a 94% increase in contract R&D revenue. The decrease in product sales was primarily due to decreased purchases by <unk>.

Daniel A. Baker: <unk> customers, particularly in the defense industry and semiconductor industry downturn. The good news is that the industry is gaining strength and forecast up for a strong industry recovery in calendar 2024 World semiconductor trade statistics is forecast in the global semiconductor market to grow with 13%.

Daniel A. Baker: In 2024 compared to a 9% decrease in 'twenty to 'twenty three.

Daniel A. Baker: <unk> sales to defense markets can fluctuate and were especially weak in the quarter. This was related to the timing of procurement cycles and we expect these sales to recover in this quarter the March quarter the.

Daniel A. Baker: The increase in contract R&D revenue was due to new customer research and development contracts total expenses decreased 16% for the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023, primarily due to a 23% decrease in R&D expense.

4% decrease in SG&A.

Daniel A. Baker: The decrease in R&D expense was primarily due to the redeployment of resources to customer funded research and development projects. The decrease in SG&A was primarily due to decreased performance based compensation accruals interest income for the third quarter of fiscal 2024 increased 21% due to higher into.

Daniel A. Baker: Just rates, our effective tax rate, which is the provision for income taxes as a percentage of income before taxes decreased to 16% for the third quarter of fiscal 2024 compared to 19% for the third quarter of fiscal 2023. The decrease was primarily due to increase in certain tax.

Daniel A. Baker: <unk>, our effective tax rate can vary from quarter to quarter, and maybe higher in future quarters than in the past quarter. The 1% decrease in net income from the third quarter of fiscal 2024 compared to the prior year quarter was primarily due to decreased in revenue, which was nearly offset by decreased expenses.

Daniel A. Baker: Increased interest income and a lower effective tax rate comprehensive income increased 8% to $4 $93 million from $4 $5 6 million the prior year quarter.

Daniel A. Baker: It was a solidly profitable quarter with gross margins of 80% of revenue and net margin of 62% total revenue for the nine months ended December 31, 2023 decreased 11% compared to the nine months ended December 31, 2022, the decrease was due to an 11% decrease.

Daniel A. Baker: <unk> product sales and a 20% decrease in contract research and development revenue net income decreased 8% in comprehensive income increased 3% net cash provided by operating activities increased 2% to $15 $1 million for the first nine months of fiscal 2024 compared to <unk>.

Daniel A. Baker: $14 $7 million for the first nine months of fiscal 2023, the strong operating cash flow more than cover our dividend. So far this fiscal year and cash and cash equivalents plus marketable securities increased to $54 7 million from $53 $3 million at the start of the fiscal year.

Daniel A. Baker: Purchases of fixed assets have been only 17000, so far this fiscal year, but we would expect it to increase significantly in future peers now I will turn the call back to Dan Baker to cover the business over to you Dan.

Daniel A. Baker: Okay.

Daniel A. Baker: Thanks, Danielle I'll cover customers products and marketing.

Daniel A. Baker: We're proud to supply products to some of the world's most demanding customers, including Abbott's pacesetter subsidiary.

Daniel A. Baker: Abbott is a leading supplier of implantable medical devices.

Daniel A. Baker: We recently executed an extension to our supplier partnering agreement with Abbott.

Daniel A. Baker: The extension is through the end of 2024 and includes price increases that will help offset our cost increases.

Daniel A. Baker: We have had a form of partnering agreement with Abbott since 2006, and this is the 10th amendment to extend the agreement.

Daniel A. Baker: The agreement Amendment was filed on a current report on form 8-K and incorporated by reference in our just filed 10-Q.

Daniel A. Baker: It is available via our website or the Sec's website.

Daniel A. Baker: We do long term research to build our technology portfolio and help advance the field of Spintronics.

Daniel A. Baker: In the past quarter MBE, along with researchers from the University of Texas, and Virginia Commonwealth University published research on technology that could provide the energy efficiency needed to accelerate the use of magnetic tunnel junctions in memory logic and neuromorphic computing.

Daniel A. Baker: Magnetic tunnel junctions or M. T J's, our spintronics structures, we helped pioneer that we use in many of our products.

Daniel A. Baker: There are links to a recent journal paper in a conference presentation on the subject on our papers and presentations webpage, and Rx and Linkedin feeds.

Daniel A. Baker: A key advantage of our technology is that our products are extremely rugged.

Daniel A. Baker: We extended that advantage with two product line extensions in the past quarter.

Daniel A. Baker: Tended temperature isolated network, Transceivers and ultra high isolation data couplers.

Daniel A. Baker: The new extended temperature products include a transceiver thats billed as the fastest such device in the industry and allows high speed data transfer in harsh environments, such as the industrial Internet of things and power conversion modules.

Speaker Change: The new parts were requested by a customer.

Isolation voltage is the key figure of merit for data couplers, it's what makes them isolated.

Speaker Change: We've long had best in class isolation voltage and in the past quarter, we extended that advantage by increasingly isolation voltage rating on several of our unique V series Isolator to seven kilovolt.

With required safety margins. This means the parts that are just three tenths of an inch wide can withstand 8.4 kilovolt for at least the second.

Speaker Change: Demonstrations of the extended temperature and higher isolation products are on our website and Youtube channel.

Speaker Change: Certifications help us compete with larger better known companies by providing credibility and reducing perceived risk.

Speaker Change: In our previous call. We reported we had earned the prestigious CE Mark for our line of the world's smallest DC to DC converters.

Speaker Change: In the past quarter. We also qualified our data couplers with integrated DC to DC converters.

Speaker Change: These devices transmit data as well as convert power in a single integrated circuit less than an eighth of an inch square.

Speaker Change: They help solve an important challenge and power conversion systems by transmitting data between the sub systems on different power supplies.

Speaker Change: Our distributors have told us the CE mark could enable additional sales in Europe.

Speaker Change: The key to qualifying for the Mark was rigorous testing for radiated emissions.

These emissions are a problem with conventional parts because they can interfere with other electronics.

Speaker Change: In addition to the line extensions I just summarized.

Speaker Change: New products in 2023, we began marketing products, including.

Speaker Change: More products, combining data couplers with isolated DC to DC converters to transmit power as well as data.

Speaker Change: Long term product development programs in the past year included next generation Amiram for anti tamper applications.

Speaker Change: X generation sensors for hearing AIDS and implant in medical devices.

Speaker Change: And extremely sensitive TMR sensors, as well as wafers wafer level chip scale sensors.

Speaker Change: Tradeshows are an important part of our marketing strategy, we supported distributor exhibitions at four European shows in the past quarter Agra Technicolor in Hanover.

Speaker Change: <unk> in Bremen.

Speaker Change: S P S in Nuremberg and medica in Dusseldorf.

Speaker Change: We also exhibited under our own banner at the medical design and manufacturing show in Minneapolis, which was part of the advanced manufacturing of that.

Speaker Change: Some of the trade show demonstrations are on our website and Youtube channel.

Speaker Change: Now I'd like to open the call for questions Josh.

Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Speaker Change: Our first question comes from Pete <unk> with individual Investor You May proceed.

Pete: Hey, Dan on last quarter's call I asked the question about licensing your IP and you gave a great answer saying that.

Pete: You do all manufacturing in house and you wouldn't license that you would maybe.

Pete: Manufacturer on their other brands. My question today is could you talk a little bit about with.

Pete: With all the investments you've made in equipment and facilities.

Pete: Potential revenue for the businesses.

With your existing equipment and facilities.

Pete: Running two three shifts and so forth and maybe just give some color what the.

Pete: Potential could be.

Speaker Change: I appreciate it.

Speaker Change: Yes, that's a great question Pete so in terms of our capacity, we don't have a it's hard to give a specific number because it depends heavily on the mix and which equipment would be used for the products, but in general we do not run we try not to run close to our.

Speaker Change: Our capacity, we're not like conventional semiconductor companies, which need to run very close to their capacity at high utilization or they run into.

Speaker Change: They just can't cover their fixed cost our cost structure is different because of the uniqueness of our technology. So our goal is to have plenty of capacity that allows us to provide shorter lead times for our customers and to provide more assurance with redundancies and.

Speaker Change: And extra equipment that in the case of a problem with our equipment, we'd be able to continue to produce the products that our customers need so in general we run at relatively low percentage of our capacity we have.

Speaker Change: Adequate room to grow we are looking at increasing our capital expenditures as Daniel mentioned in the prepared remarks in the coming year to increase our capacity further and to ensure that we don't have any bottlenecks.

Speaker Change: To continue our growth.

Speaker Change: Great. Thank you so much I appreciate it.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Stephen Lewis with Lewis Capital Management, You May proceed.

Stephen Lewis: On the previous call. You said you were pleased to report for six months in September.

And I indicated that I wasn't sure what you were pleased about.

Stephen Lewis: Then.

Stephen Lewis: I thought you said something about there were some orders that will come in that would be.

Stephen Lewis: <unk> over into the next quarter.

Stephen Lewis: The stock went from 85% to 66 and a half on that day.

Stephen Lewis: Now here you are pleased with.

Stephen Lewis: Nine months.

Stephen Lewis: So.

Stephen Lewis: When do we start talking about.

Expectations and budget.

Stephen Lewis: And the accomplishment and.

Stephen Lewis: And forget the pleasing part.

Stephen Lewis: Well. This is Dan Baker, we were pleased with the results in the context of the markets that we compete in with a slowdown in the industry and then as Daniel mentioned in the prepared remarks.

Stephen Lewis: We have a significant defense business that can be that can be variable from quarter to quarter.

Stephen Lewis: As he said.

Stephen Lewis: Third we expect that to recover in the current quarter. The March quarter. So we're optimistic about the future.

Stephen Lewis: And we have an excellent order flow the industry is strengthening as Daniel mentioned.

Stephen Lewis: And so we were pleased with the results.

Stephen Lewis: The conditions and we look forward to better results and growth in the future.

Stephen Lewis: <unk> results for the quarter versus your expectations for the quarter in October.

Speaker Change: Well as you probably know like most public companies, we don't provide forward looking guidance.

Speaker Change: But we werent talking about your expectations internally.

Speaker Change: Right. So we don't.

Speaker Change: We don't disclose our internal expectations for obvious reasons, we're not permitted to do so.

Speaker Change: If we're not giving forward looking guidance.

Speaker Change: No.

Speaker Change: But what we looked at was what are the conditions in the industry. What is the defense business backlog and we were pleased with the performance of our team with our production with our sales team under those conditions for the quarter.

Do you think tomorrow.

Speaker Change: Stock will reflect what's you're so pleased about.

Speaker Change: We are we're generally not in the business of predicting our stock price where.

Speaker Change: We're not very good at it and I admit to being biased.

Speaker Change: I almost always think the stock is undervalued.

Speaker Change: And.

Speaker Change: I have a fair amount of exposure to the company's stock, but I do that because I think it's an excellent value and an excellent investment, but that's my personal opinion.

Speaker Change: Thank you.

Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone one moment for questions.

Speaker Change: Our next question comes from Chris Lukowski Private Investor You May proceed.

Chris Lukowski: Hello, Good afternoon.

Chris Lukowski: Wanted to ask more about the general conditions of the industry.

You said that.

Chris Lukowski: No.

Chris Lukowski: The.

Chris Lukowski: The military this through improved in the present quarter.

Can you tell us anything about what youre seeing in the general industry the medical industry.

Chris Lukowski: And the general industry.

Chris Lukowski: As we said in the prepared remarks.

Chris Lukowski: We are seeing a strengthening of the semiconductor market as we go into the new year into 2024.

Chris Lukowski: And the Ws TFS the world semiconductor trade statistics organization is forecasting growth of double digit growth in 2024, 13% comp.

Chris Lukowski: Paired to a 9% decrease in 2023, so the numbers haven't been tallied for 2023, but the latest forecast was for a significant decrease.

Chris Lukowski: For the industry in 2023, and a significant increase in 2024, and that's that I think coincides with what we're hearing from our customers that the industry is starting to pick up. Its obviously, we are participating in a segment of the overall industry. So it is not.

Chris Lukowski: Perfect Barometer, and it's not a perfect predictor of the future for us. Nevertheless, it gives us reason for optimism.

Chris Lukowski: And.

Chris Lukowski: And reason for being pleased with the performance that we had.

Chris Lukowski: In the face of a.

Chris Lukowski: A downturn in the industry in calendar 2023.

Chris Lukowski: So.

Speaker Change: You make a good point.

Speaker Change: The favorable reports.

But the general the general semiconductor industry reports.

Speaker Change: Basically lower let's say that.

Speaker Change: Prove within 2024 is expected to come in the second half.

Speaker Change: <unk>.

Speaker Change: Are you currently seeing improvements in your order flow or audio clients also say well, it's it's probably going to be coming into the second half.

Speaker Change: We are seeing the same thing that while the industry seems to be improving and sequentially rather than decreases we're seeing slight increases.

Speaker Change: So it's not a booming industry, but it is.

Speaker Change: It's better we were facing fewer headwinds that is what we're seeing and we do.

Certainly look forward to a strong second half of the year, if the industry forecasts are correct.

Okay. Good to hear that you are already seeing improvement.

Speaker Change: No.

Speaker Change: You have a networking.

Speaker Change: Later.

Speaker Change: Getting orders for networking for factory automation equipment.

We are and the specific new product we had extends our.

Speaker Change: Her temperature advantage or a speed advantage to high temperature products.

Speaker Change: Which was of interest to particular customers.

Speaker Change: It's a very harsh environment, sometimes in factories, so being able to withstand high temperatures and transmit very high speed.

Speaker Change: Is an important advantage and as I mentioned, we have best in class products that can transmit.

Speaker Change: Very high amounts of data 40 Megabits per second.

Speaker Change: Which is just an incredible amount of data in a relatively short time through a complex network protocol. So those are important products and they serve.

Speaker Change: Our growing.

Speaker Change: Market, the industrial Internet of things.

Speaker Change: We're seeing some interest in them and we are optimistic about the future of those products.

Speaker Change: And that is a new market for you I am I correct.

Speaker Change: It's an existing market for us we've always been in factory automation for a long time, but there are certain applications that we couldnt get into because of the temperature limitations.

Speaker Change: So we meet the industry standard 85 degree Celsius temperature requirements, but we have customers who are interested in 125 Celsius, which is 257 Fahrenheit, that's pretty hot but there are applications that require that and even if they don't require rate. It's a figure of merit that some of our customers want it.

Speaker Change: Be sure that our products have lots of margin and design margin and that they aren't going to fail, even under even under extremely.

Speaker Change: Harsh conditions.

Speaker Change: Well that's good to hear good luck. Thanks.

Speaker Change: Thanks, Chris.

Speaker Change: Thank you I would now like to turn the call back over to Dan Baker for any closing remarks.

Daniel A. Baker: Well, thank you for the questions.

Daniel A. Baker: We reported strong earnings for the quarter and an increase year over year and cash flow. We look forward to speaking with you again at our next earning calls in our next earnings call, which will be in early May to review the full fiscal year. Thank you again.

Speaker Change: Thank you. Thank you for your participation you may now disconnect.

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Speaker Change: Good day and thank you for standing by welcome to the Nev NV Corporation Conference call on third 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. Please press star one one on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your question. Please press star one again, please be advised that today's comprehensive is being recorded I would now like to hand, the conference over to your speaker today, Dan Baker, President and CEO.

Daniel A. Baker: Dan Baker and as always I'm joined by accounting manager and principal financial Officer, Daniel Nelson.

Daniel A. Baker: After my opening comments, Daniel will present, our financial results I'll cover customers products and marketing.

Daniel A. Baker: Then we'll 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.

Daniel A. Baker: Following the close of market links.

Daniel A. Baker: Links to the press release and 10-Q are available through the Sec's website.

Daniel A. Baker: Our website and on X, formerly known as Twitter.

Daniel A. Baker: Risks and uncertainties related to future sales and revenue as well as the risk factors listed from time to time in our filings with the SEC <unk>.

Daniel A. Baker: Including our annual report on Form 10-K for the year ended March 31, 2023 as updated in our quarterly reports on Form 10-Q for the quarters ended June 30th from December 31, 2023.

Daniel A. Baker: Actual results could differ materially from the information provided and we undertake no obligation to update forward looking statements we may make.

Thanks, Dan.

Daniel A. Baker: Revenue for quarter ended December 31, 'twenty to 'twenty, three decreased 9% compared to the prior year quarter. The decrease was due to a 12% decrease in product sales, partially offset by a 94% increase in contract R&D revenue. The decrease in product sales was primarily due to decreased purchases by <unk>.

Daniel A. Baker: <unk> customers, particularly in the defense industry and semiconductor industry downturn. The good news is that the industry is gaining strength and forecast up for a strong industry recovery in calendar 2024 words semiconductor trade statistics is forecast in the global semiconductor market to grow with 13%.

Daniel A. Baker: In 2024 compared to a 9% decrease in 'twenty to 'twenty three.

Daniel A. Baker: Product sales to defense markets can fluctuate and were especially weak in the quarter. This was related to the timing of procurement cycles and we expect these sales to recover in this quarter the March quarter the.

The increase in contract R&D revenue was due to new customer research and development contracts total expenses decreased 16% for the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023, primarily due to a 23% decrease in R&D expense a 4% decrease.

Daniel A. Baker: SG&A the decrease in R&D expense was primarily due to the redeployment of resources to customer funded research and development projects. The decrease in SG&A was primarily due to decreased performance based compensation accruals.

Daniel A. Baker: The income for the third quarter of fiscal 2024 increased 21% due to higher interest rates, our effective tax rate, which is the provision for income taxes as a percentage of income before taxes decreased to 16% for the third quarter of fiscal 2024 compared to 19% for the third quarter.

Daniel A. Baker: Fiscal 2023, the decrease was primarily due to increase in certain tax deductions, our effective tax rate can vary from quarter to quarter. It may be higher in future quarters than in the past quarter.

Daniel A. Baker: The 1% decrease in net income from the third quarter of fiscal 2024 compared to the prior year quarter was primarily due to decreased in revenue, which was nearly offset by decreased expenses increased interest income and a lower effective tax rate comprehensive income increased 8% to four.

Daniel A. Baker: $93 million from $4 $5 6 million the prior year quarter.

Daniel A. Baker: $14 $7 million for the first nine months of fiscal 2020 theory that strong operating cash flow more than cover our dividends. So far this fiscal year and cash and cash equivalents plus marketable securities increased to $54 $7 million from $53 $3 million at the start of the fiscal year.

Daniel A. Baker: Purchases of fixed assets have been only 17000, so far this fiscal year, but we'd expect it to increase significantly in future peers now I will turn the call back to Dan Baker to cover the business over to you Dan.

Daniel A. Baker: Okay.

Daniel A. Baker: Thanks, Daniel I'll cover customers products and marketing.

Daniel A. Baker: We're proud to supply products to some of the world's most demanding customers, including Abbott's pacesetter subsidiary.

Abbott is a leading supplier of implantable medical devices.

We recently executed an extension to our supplier partnering agreement with Abbott.

Daniel A. Baker: The extension is through the end of 'twenty 'twenty four and includes price increases that will help offset our cost increases.

Daniel A. Baker: We've had a formal partnering agreement with Abbott since 2006, and this is the 10th amendment to extend the agreement.

Daniel A. Baker: The agreement Amendment was filed on a current report on form 8-K and incorporated by reference in our just filed 10-Q.

Daniel A. Baker: It is available via our website or the Sec's website.

Daniel A. Baker: We do long term research to build our technology portfolio and help advance the field of Spintronics.

In the past quarter and the E along with researchers from the University of Texas, and Virginia Commonwealth University published research on technology that could provide the energy efficiency needed to accelerate the use of magnetic tunnel junctions in memory logic and neuromorphic computing.

Magnetic tunnel junctions or M. T J's, our spintronics structures, we helped pioneer that we use in many of our products.

Daniel A. Baker: There are links to a recent journal paper in a conference presentation on the subject on our papers and presentations webpage, and Rx and Linkedin feeds.

A key advantage of our technology is that our products are extremely rugged.

Daniel A. Baker: We extended that advantage with two product line extensions in the past quarter <unk>.

Daniel A. Baker: Extended temperature isolated network, Transceivers and ultra high isolation data couplers.

Speaker Change: The new parts were requested by a customer.

Speaker Change: Isolation voltage is the key figure of merit for data couplers, it's what makes them isolator.

Speaker Change: We've long had best in class isolation voltage and in the past quarter, we extended that advantage by increasing the isolation voltage rating on several of our unique V series Isolator to seven kilovolt.

With required safety margins. This means the parts that are just three tenths of an inch wide can withstand 8.4 kilovolt for at least a second.

Demonstrations of the extended temperature and higher isolation products are on our website and Youtube channel.