Q1 2024 NVE Corp Earnings Call

Daniel A. Baker: Good afternoon, and welcome to the NVE Corporation conference call for the quarter ended June 30, 2024. I'm Dan Baker, NVE's President and CEO. I'm joined by Controller and Principal Financial Officer Daniel Nelson. This call is being webcast live by YouTube and Amazon Chime, and it's being recorded. A replay will be available through our website, nve.com, and our YouTube channel, youtube.com slash nvecorporation. All participants are currently in a listen-only mode.

Good afternoon and welcome to the NVE Corporation conference call for the quarter ended June 30th, 2024. I'm Dan Baker, NVE's President and CEO . I'm joined by Controller and Principal Financial Officer Daniel Nelson.

This call is being webcast live by YouTube and Amazon Chime, and it's being recorded. A replay will be available through our website, nve.com, and our YouTube channel, youtube.com slash nvecorporation.

Daniel A. Baker: After our presentation, there will be a question and answer session. You'll be able to ask a question by pressing star 7 on a phone or clicking raise my hand from the QIIME website or app. After my opening comments, Daniel Nelson will present our financial results, I'll cover products and marketing, and 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 following the close of the market.

All participants are currently in listen-only mode. After our presentation, there will be a question and answer session. You'll be able to ask a question by pressing star 7 from a phone or clicking Raise My Hand from the QIIME website or app.

After my opening comments, Daniel Nelson will present our financial results, I'll cover products and marketing, and we'll open the call to questions.

Daniel Nelson: 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, formerly known as Twitter.

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. Please refer to the safe harbor statement on your screen. 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 and 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, including our annual report on Form 10-K for the year ended March 31st, 20

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. We're pleased to report strong earnings and cash flow despite a challenging industry environment and the decrease in revenue from an exceptional year-ago quarter. Daniel Nelson will cover details of our financials.

Daniel Nelson: Then, total revenue for the quarter ended June 30 of 2024 decreased 23% compared to an exceptional prior year quarter. The decrease was due to a 24% decrease in product sales, partially offset by a 28% increase in contract research and development revenue. The decrease in product sales was primarily due to a semiconductor industry downturn and high inventory levels, primarily in the distributor channel. However, forecasts indicate the industry is on a path to recovery in calendar 2024 and strong growth in 2025.

Daniel Nelson: please refer to the Safe Harbor Statement on your screen.

Daniel Nelson: 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 and 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, including our annual report on Form 10-K for the year ended March 31, 2024.

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

Daniel Nelson: Gross margin percentage for the first quarter of fiscal 2025 was 86% compared to 77% in the prior year quarter. The increase in gross margin percentage was due to a more profitable product mix and a larger portion of direct rather than distributed sales. Total expenses increased 3% for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 due to a 26% increase in research and development expense and a 14% increase in selling, general, and administrative expense, partially offset by a decrease in credit loss expense.

Daniel Nelson: We're pleased to report strong earnings and cash flow despite a challenging industry environment and the decrease in revenue from an exceptional year ago quarter. Daniel Nelson will cover details of our financials. Daniel.

Daniel Nelson: The increase in research and development expenses was due to increased new product development activities. The increase in general and administrative expenses was primarily due to increased sales and marketing activities. We added sales and marketing personnel and increased marketing activities. Dan will talk about those activities shortly.

Daniel Nelson: Thanks, Dan.

Daniel Nelson: Total revenue for the quarter ended June 30, 2024 decreased 23% compared to an exceptional prior year quarter.

Daniel Nelson: The decrease was due to a 24 percent decrease in product sales, partially offset by a 28 percent increase in contract research and development revenue.

Speaker Change: The decrease in product sales was primarily due to the semiconductor industry downturn and high inventory levels primarily in the distributor channels.

Speaker Change: However, forecasts indicate the industry is on the path to recovery in calendar 2024 and strong growth in 2025.

Speaker Change: Gross margin percentage for the first quarter of fiscal 2025 was 86% compared to 77% in the prior year quarter. The increase in gross margin percentage was due to a more profitable product mix and a larger portion of direct rather than distributor sales.

Speaker Change: Total expenses increased 3% for the first quarter of Fiscal 2025 compared to the first quarter of Fiscal 2024 due to a 26% increase in research and development expense.

Speaker Change: and a 14% increase in selling, general and administrative expense, partially offset by a decrease in credit loss expense. The increase in research and development expense was due to increased new product development activities.

Speaker Change: The increase in selling general and administrative expenses was primarily due to increased sales and marketing activities.

Speaker Change: We added sales and marketing personnel and increased marketing activities. Then we'll talk about those activities shortly. Interest income for the quarter increased 13% due to higher interest rates.

Daniel Nelson: Interest income for the quarter increased 13% due to a higher interest rate. Our effective tax rate, which is the provision for income taxes, as a percentage of income before taxes, decreased to 16% for the first quarter of fiscal 2025, compared to 24% for the first quarter of fiscal 2024. The decrease was due to changes in the timing and amounts of federal tax credits and deductions.

Speaker Change: Our effective tax rate, which is the provision for income taxes, as a percentage of income before taxes, decreased to 16% for the first quarter of fiscal 2025, compared to 24% for the first quarter of fiscal 2024.

Speaker Change: The decrease was due to changes in the timing and amounts of federal tax credits and deductions.

Daniel Nelson: 7% decrease in net income in the first quarter of fiscal 2025 compared to the prior year quarter was primarily due to decreased revenue partially offset by increased gross profit margin as a percentage of revenue, increased interest income, and a lower effective tax rate. With an unrealized gain from marketable securities, comprehensive income decreased just 1% from the prior year quarter. It was an exceptionally profitable quarter with 86% gross margin, 65% operating margin, 60% net margin, and earnings of $0.85 per share.

Speaker Change: The 7% decrease in net income in the first quarter of fiscal 2025 compared to the prior year quarter was primarily due to decreased revenue, partially offset by increased gross profit margin as a percentage of revenue, increased interest income, and a lower effective tax rate.

Speaker Change: With an unrealized gain from marketable securities, comprehensive income decreased just 1% from the prior year quarter.

Speaker Change: It was an exceptionally profitable quarter, with 86% gross margin, 65% operating margin, 60% net margin, and earnings of $0.85 per share.

Daniel Nelson: Operating cash flow increased 16% to $5.85 million for the most recent quarter compared to $5.03 million for the prior year quarter. Operating cash flow more than covered the $4.83 million dividend. Our balance sheet remains strong; even after a $4.83 million dividend and $917,000 in capital expenditure, our cash plus marketable securities increased to $53.2 million from $53 million. Now we're trying to call Dan Baker back to cover the business back to you, Dan. Thanks, Daniel. I'll cover sales and marketing.

Speaker Change: Operating cash flow increased 16% to $5.85 million for the most recent quarter compared to $5.03 million for the prior year quarter. Operating cash flow more than covered the $4.83 million dividend.

Speaker Change: Our balance sheet remains strong. Even after a $4.83 million dividend and $917,000 in capital expenditure, our cash plus marketable securities increased to $53.2 million from $53 million.

Speaker Change: Now I'll turn the call back to Dan Baker to cover the business. Back to you, Dan.

Daniel A. Baker: Thanks, Daniel. I'll cover sales and marketing and CAPA. Our sales and marketing includes four main thrusts. First, distributor and direct customer support. 2nd, newsletters and videos.

Daniel A. Baker: Thanks, Daniel. I'll cover sales and marketing and CapEx.

Daniel A. Baker: Our sales and marketing includes four main thrusts. First, distributor and direct customer support. Second, newsletters and videos. Third, evaluation boards. And finally, trade shows.

Daniel A. Baker: Third, evaluation boards, and finally, trade shows. Distributor and customer support involves customer visits, answering questions, and providing fast, well-informed application engineering. We increased the frequency of newsletters and videos in the past quarter, and we have good open rates and click-through metrics. Evaluation boards support more efficient customer product evaluations, and in the past quarter, we introduced dozens of new evaluation boards. We exhibited at two major trade shows last month, including Sensor Plus Test, which is billed as the leading international trade fair for sensor measuring and testing technology. That show was in Nuremberg, Germany.

Daniel A. Baker: Distributor and customer support involves customer visits, answering questions, and providing fast, well-informed application engineering. We increased the frequency of newsletters and videos in the past quarter, and we have good open rates and click-through metrics.

Daniel A. Baker: Evaluation boards support more efficient customer product evaluations, and in the past quarter, we introduced dozens of new evaluation boards. We exhibited at two major trade shows last month, including SensorPlus Test, which is billed as the leading international trade fair for sensor, measuring, and testing technology.

Daniel A. Baker: We've typically relied on distributors to represent us at international trade shows. We continued to co-exhibit with a German distributor, but this year we also had our own booth, which gave us more space to promote our product. We were also at Sensors Converge in Silicon Valley, which is billed as North America's largest electronics event. We gained some high-quality leads, and there was particular interest in tunneling magnetoresistance sensors.

Daniel A. Baker: That show was in Nuremberg, Germany. We've typically relied on distributors to represent us at international trade shows. We continued to co-exhibit with a German distributor, but this year we also had our own booth, which gave us more space to promote our products.

Daniel A. Baker: We were also at Sensors Converge in Silicon Valley, which is billed as North America's largest electronics event. We gained some high-quality leads, and there was particular interest in tunneling magnetoresistance sensors.

Daniel A. Baker: We believe the investments and shows will pay off in future sales. Last quarter, we discussed our plans for four to five million dollars in capital investments over the next two fiscal years, fiscal 2025 and 2026. The investments will increase our capacity and capabilities, including the capability to manufacture wafer-level chip-scale packages in-house. These parts will be smaller and higher performing, and allow us to be more self-sufficient and capture more value. Most of our products are currently packaged in Asia by outsourced semiconductor assembly and test, or OSAT, subcontractors using conventional plastic overmolding.

Daniel A. Baker: We believe the investments and shows will pay off in future sales. Last quarter, we discussed our plans for $4 to $5 million in capital investments over the next two fiscal years, fiscal 2025 and 2026.

Daniel A. Baker: The investments will increase our capacity and capabilities, including the capability to manufacture wafer-level chip-scale packages in-house.

Daniel A. Baker: These parts will be smaller, higher performance, and allow us to be more self-sufficient and capture more value.

Daniel A. Baker: Most of our products are currently packaged in Asia by outsourced semiconductor assembly and test, or OSAT, subcontractors using conventional plastic overmolding. Wafer-level chip scale parts can be even smaller than these encapsulated components.

Daniel A. Baker: Wafer-level chip scale parts can be even smaller than these encapsulated components. We have provided customers with wafer-level chip scale prototypes, and there has been solid customer interest. We hope to begin some production late this fiscal year. Our $917,000 CapEx in the past quarter was mostly a down payment for custom, purpose-built production equipment to be delivered next year.

Daniel A. Baker: We have provided customers with wafer-level chip scale prototypes, and there has been solid customer interest. We hope to begin some production late this fiscal year.

Daniel A. Baker: Our $917,000 CapEx in the past quarter was mostly a down payment for custom, purpose-built production equipment to be delivered next year.

Daniel A. Baker: In the past quarter, the state of Minnesota announced that we had been awarded incentives from the Minnesota Investment Fund. There is up to $111,000 of potential incentives to be paid in 2026 based on the number of jobs added and certain other conditions. We were also awarded a $200,000 seven-year no-interest loan intended to help finance new production equipment. The funding is subject to agreements that have not been finalized yet.

Daniel A. Baker: In the past quarter, the State of Minnesota announced we had been awarded incentives from the Minnesota Investment Fund. There is up to $111,000 of potential incentives to be paid in 2026 based on the number of jobs added and certain other conditions.

Daniel A. Baker: We were also awarded a $200,000 seven-year no-interest loan intended to help finance new production equipment. The funding is subject to agreements that have not been finalized yet.

Daniel A. Baker: Our annual shareholders meeting will be August 1st. Our meetings have been in person, except during the pandemic, so shareholders can meet our managers and directors and see hands-on product demonstrations. In response to shareholders' requests, this year's meeting will be here at NVE with tours so shareholders can see what we do. Our annual meetings follow themes, and this year, the theme will be the Olympics, which will be going on at that time. We'll have live product demonstrations showing the precision, strength, and endurance of our products. If you can't attend, you can see product demonstrations on our website or YouTube channel.

Daniel A. Baker: Our annual shareholders meeting will be August 1st. Our meetings have been in person except during the pandemic, so shareholders can meet our managers and directors and see hands-on product demonstrations.

Daniel A. Baker: In response to shareholders' requests, this year's meeting will be here at NVE with tours so shareholders can see what we do.

Daniel A. Baker: Our annual meetings follow themes, and this year the theme will be the Olympics, which will be going on at that time. We'll have live product demonstrations showing the precision, strength, and endurance of our products.

Daniel A. Baker: If you can't attend, you can see product demonstrations on our website or YouTube channel.

Daniel A. Baker: Our proxy statement for the meeting is available via our website or the SEC's website. There are three agenda items for the annual meeting. The first agenda item is the election of directors. Sadly, Rich Cramp, who had been a director for nearly 10 years, passed away in May. Rich had been a valuable member of our board and was dedicated to our company and our shareholders. We miss him.

Daniel A. Baker: Our proxy statement for the meeting is available via our website or the SEC's website.

Daniel A. Baker: We were pleased to welcome Dr. Kelly Way to our board to fill Rich's unexpired term. She has also been nominated for a full term starting at the annual meeting. Kelly is a Medtronic executive and an accomplished engineer. Her strong management, technical, and medical device experience and her engineering and medical education make her exceptionally qualified to serve as a director. The second agenda item is approval of officer compensation. Our compensation principles, as detailed in our proxy, include we don't overpay our officers, our officers have the same fringe benefits as all employees, and there are no executive perks or golden parachute.

Daniel A. Baker: There are three agenda items for the annual meeting. The first agenda item is election of directors.

Speaker Change: Sadly, Rich Cramp, who had been a director for nearly 10 years, passed away in May. Rich had been a valuable member of our board and was dedicated to our company and our shareholders. We miss him.

Speaker Change: We were pleased to welcome Dr. Kelly Way to our board to fill Rich's unexpired term. She is also nominated for a full term starting at the annual meeting.

Speaker Change: Kelly is a Medtronic executive and an accomplished engineer. Her strong management, technical and medical device experience, and her engineering and medical education make her exceptionally qualified to serve as a director.

Speaker Change: The second agenda item is approval of officer compensation. Our compensation principles, as detailed in our proxy, include we don't overpay our officers, our officers have the same fringe benefits as all employees, and there are no executive perks or golden parachutes.

Daniel A. Baker: The third agenda item is the approval of our auditors for this fiscal year, the year ending March 31st, 2025. Boulay has been our auditor since 2019, and we recommend their approval for our next audit. We expect representatives from Boulay to attend the annual meeting. The proxy report's total shareholder return for the past three fiscal years was 46%, which far exceeded the broad market. Returns consisted of 29% from stock appreciation and 17% from dividends.

Speaker Change: The third agenda item is the ratification of our auditors for this fiscal year, the year ending March 31st, 2025. Boulay has been our auditor since 2019, and we recommend their approval for our next audit.

Unknown Executive: We expect representatives from Boulet to attend the annual meeting. The proxy reports total shareholder return for the past three fiscal years was 46%, which far exceeded the broad markets. Returns consisted of 29% stock appreciation and 17% from dividends.

Speaker Change: We expect representatives from Boulay to attend the annual meeting.

Speaker Change: The proxy report's total shareholder return for the past three fiscal years was 46%, which far exceeded the broad markets. Returns consisted of 29% stock appreciation and 17% from dividends.

Daniel A. Baker: Now we'd like to open the call for questions. To ask a question from a phone, press star 7 to unmute. Or from a browser or Chime app, click the Raise My Hand icon under the meeting chat, which is at the bottom of the left column. Please state your name and affiliation before your question. To prevent background noise, please mute your line after asking your question.

Operator: Now we'd like to open the call for questions. To ask a question from a phone, press R7 to unmute, or from a browser or a Chime app, click the raise my hand icon under the meeting chat. That's at the bottom of the left column. Please state your name and affiliation before your question. To prevent background noise, please mute your line after asking your question.

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

Speaker Change: To ask a question from a phone, press star 7 to unmute, or from a browser or Chime app, click the raise my hand icon under the meeting chat. That's at the bottom of the left column. Please state your name and affiliation before your question. To prevent background noise, please mute your line after asking your question.

Jeffrey Bernstein: Hey, Dan, it's Jeff Bernstein from my Silver Bernstein Capital Management.

Daniel A. Baker: Hey Dan, it's Jeff Bernstein from Silverberg Bernstein Capital. Hi Jeff. How are you? Good.

Speaker Change: Hey Dan, it's Jeff Bernstein from Silverberg Bernstein Capital Management.

Daniel Baker: Hi, Jeff. How are you? Good.

Speaker Change: Hi, Jeff.

Jeffrey Bernstein: So, just wanted to talk a little bit more about the CapEx investment. You know, just going back and looking, you guys spent a little over $3 million between 2015 and 2024, and revenue actually was pretty much flat over that time period. You're going to make a big CapEx investment here, and I understand that it's going to bring you some new capability packaging-wise, which may actually improve your margins because you're not going to have to buy that capability externally. But can you talk a little bit about what kind of revenue improvement you think this can lead to?

Daniel A. Baker: How are you? Good.

Jeffrey Bernstein: So just wanted to talk a little bit more about the CapEx investment. You know, just going back and looking. You guys spent a little over $3 million between 2015 and 2024. And revenue actually is pretty much flat over that time period. You're going to make a big CapEx investment here, and I understand that it's going to bring you some new capability. Packaging-wise, which may actually improve your margins because you're not going to have to buy that capability externally. But can you talk a little bit to what kind of revenue improvement you think this can lead to?

Jeffrey Bernstein: Good. So just wanted to talk a little bit more about the CapEx.

Speaker Change: investment. You know, just going back and looking, you guys spent a little over three million dollars between 2015

Speaker Change: and 2024.

Speaker Change: and revenue actually is pretty much flat over that time period. You're gonna make a big CapEx investment.

Speaker Change: here. And I understand that it's going to bring you some new capability, packaging-wise, which may actually improve your...

Speaker Change: margins because you're not going to have to buy that capability externally. But can you talk a little bit to what kind of revenue improvement you think this can lead to?

Daniel Baker: Yeah, that's a great question, Jeff. And we are excited about the expansion plan that we talked about last quarter. And we talked about briefly this quarter. That's well underway, as Daniel noted. We've made a down payment on a piece of equipment.

Daniel A. Baker: Yeah, that's a great question, Jeff. And we are excited about the expansion plan that we talked about last quarter. And we talked briefly about this quarter. That's well underway, as Daniel noted, and we've made a down payment on a piece of equipment. As we speak, our folks are scurrying around to move things and make room, and we hope to begin construction this quarter. It'll give us wafer-level chip scale capabilities, which we believe have excellent revenue potential, both for existing customers who would like to make even smaller products than the products we offer them now, using our smaller components, and also we believe it opens prospects in the medical and industrial markets for new customers who want the smallest sensors available. So, we do see it as not only providing us with in-house capability and capturing more value but also with excellent potential to increase our revenue.

Speaker Change: Yeah, that's a great question, Jeff, and we are excited about the...

Speaker Change: about the expansion plan that we talked about last...

Speaker Change: and we talked about briefly this quarter, that's well underway as Daniel noted, we've made a down payment on a piece of equipment.

Daniel Baker: As we speak, our folks are scurrying around to move things and make room, and we hope to begin construction this quarter. It'll give us a way for level chip scale capabilities, which we believe have excellent revenue potential both for existing customers who would like to make even smaller products than the products we offer them now. Using our smaller components. And also we believe it opens prospects in the medical and industrial markets for new customers who want the smallest sensors available. So we do see it as not only providing us with in-house capability and capturing more value, but also with excellent potential to increase our revenues.

Speaker Change: As we speak, our folks are scurrying around to move things and to make room, and we hope to begin construction this quarter.

Speaker Change: It will give us wafer-level chip scale capabilities, which we believe have excellent revenue potential.

Speaker Change: both for existing customers who would like to make even smaller products than the products we offer them now using our smaller components

Speaker Change: and also we believe it opens prospects in the medical and industrial markets for new customers who want the smallest sensors available.

Speaker Change: So, we do see it as not only providing us with in-house capability and capturing more value, but also with excellent potential to increase our revenues.

Jeffrey Bernstein: And so do you have indications from folks that, you know, hey, if you can deliver this, you know, we have orders to give you or, you know, what's kind of your certainty of, you know, being able to start filling up that equipment with new revenue orders, you know, it's sometimes soon after delivered and installed.

Daniel A. Baker: And so do you have indications from folks that, you know, hey, if you can deliver this, we have orders to give you, or, you know, what's your certainty of, you know, being able to start filling up that equipment with new revenue orders, you know, sometime soon after it's delivered and installed?

Speaker Change: And so do you have indications from from folks that you know hey if you can deliver this you know we have orders to give you or you know what's kind of your certainty of you know being able to

Speaker Change: start filling up that equipment with new revenue orders sometime soon after it's delivered and installed.

Daniel A. Baker: Well, we do believe that we have excellent expressions of interest from customers. They haven't quite said it, and we wouldn't expect them to say something as direct as, once you have this product, there's a purchase order waiting. That's just not realistic, but we've gotten good customer feedback and expressions of interest, and we wouldn't have made this type of investment or committed to this type of investment without strong indications from existing and potential customers that they're going to buy these products when they're available. So in addition to that, we have general prospects who are always looking for smaller products and for products that have the additional capabilities that we'll be able to offer, higher sensitivity and better detectivity.

Speaker Change: Well, we do believe that we have excellent expressions of interest from customers.

Speaker Change: They haven't quite said, and we wouldn't expect them to say something as direct as, once you have this product, there's a purchase order waiting. That's just not realistic. But we've gotten good customer feedback and expressions of interest, and we wouldn't have made this...

Speaker Change: type of investment or committed to this type of investment without strong indications from existing and potential customers that they're going to buy these products when they're available. So, in addition to that, we have

Speaker Change: prospects who are always looking for smaller products and for products that have the additional capabilities that will be able to offer higher sensitivity and better detectivity.

Jeffrey Bernstein: So I just want to push back on that a little bit because we don't Abbott has got a new aviar dual chamber Cardiac Rhythm Management product that's kind of record-breaking in terms of its size. And one would assume that, you know, a big customer like that has a roadmap and that you're sort of privy to that roadmap. And so you would have a high degree of confidence that putting that kind of capacity in place would be there to serve an existing roadmap. So are there, you know, some large customers with roadmaps that imply that this capacity is going to get used?

Speaker Change: So I just I want to push back on that a little bit because you know Abbott has got a new Avier dual chamber you know

Speaker Change: Cardiac Rhythm Management product that's

Speaker Change: kind of record-breaking in terms of its size.

Speaker Change: And one would assume that, you know, a big customer like that has a roadmap and that you're sort of privy to that, that roadmap. And so you would have a high degree of, you know, of confidence.

Speaker Change: that putting that kind of capacity in place would be there to serve an existing roadmap. So are there, you know, some large customers with roadmaps that imply that this capacity is going to get used?

Daniel A. Baker: There are. There are roadmaps, and we figure in those roadmaps. But it wouldn't be appropriate for us to comment specifically on Abbott's plans.

Speaker Change: There are. There are roadmaps and...

Speaker Change: we figure in those roadmaps.

Speaker Change: It wouldn't be appropriate for us to comment specifically on...

Daniel A. Baker: The Aviar is a leadless pacemaker, and we, our technology enables smaller devices, which, as you point out, this is an excellent example of the type of device where having a very small component helps them fulfill their mission and make deeply implanted medical devices. So we see that as an excellent market. We have a long-term partnership with Abbott and other companies who are in this space, and so that's part of what gives us a high degree of confidence that this is a good investment.

Speaker Change: Abbott's plans. The Aviar is a leadless pacemaker.

Speaker Change: and our technology enables smaller devices, which as you of course point out, this is an excellent example of the type of device where having a very small component helps them fulfill their mission.

Speaker Change: and to make deeply implanted medical devices. So we see that as an excellent market. We have a long-term partnership with Abbott and other companies who are in this space, and so that's part of what gives us a high degree of confidence that this is a good investment.

Jeffrey Bernstein: Gotcha. I understand. Okay.

Jeffrey Bernstein: And then you talked about your TMR magnetometers. You know, last year, Allegro, which is a big competitor in current measurement and is very focused on the auto industry, bought Crocus, which is a TMR supplier and paid a lot of money for that and a big multiple, and they're talking about how there are 40 current measurement points within an EV, and they see the current measurement market growing at a 30% CAGR, I know it's been difficult for you guys to break into the EV market specifically, but can you comment a little bit about, you know, the general electrification that's going on with all kinds of products and your TMR opportunities?

Speaker Change: Got to understand. Okay, and then you talked about your TMR magnetometers, you know last year Allegro, which is a big competitor in current measurement and very focused on on auto bought crocus

Speaker Change: which is a TMR supplier and paid a lot of money for that, and a big multiple. And they're talking about how there are 40 current measurement points within an EV and they see current measurement market growing at a 30%.

Kager: Kager, etc. I know it's been difficult for you guys to break into the EV market specifically.

Speaker Change: But can you comment a little bit about the just general electrification that's going on of all kinds of products and your TMR opportunity?

Daniel A. Baker: Well, that's an excellent market for us. As you know, Jeff, the electric vehicle market and then the broader energy conversion market. And we have a number of products geared toward that market. And we have a number of successes with customers and design wins in that space.

Speaker Change: Well, that's an excellent market for us. As you know, Jeff, the electric vehicle market and then the broader energy conversion market. And we have a number of products geared for that market. And we have

Speaker Change: a number of successes of customers and design wins in that space. So we do see that as one of these

Daniel A. Baker: So we do see that as one of these revolutionary opportunities with a move towards electrification, towards better energy management of batteries, energy storage, and motors. So in particular, we have current sensors, which you alluded to. It's a competitive market, but we have the best current sensors available, and we have introduced new current sensors. And then we also have isolators or couplers, which can provide a link between microcontrollers or control systems and the power transistors that switch on and off the power to manage the energy. And our devices, our couplers, are faster and therefore allow more efficiency than competitive products. So we believe we are very well positioned for one of the biggest changes in energy management in a generation.

Jeffrey Bernstein: revolutionary opportunities with a move towards electrification, towards

Jeffrey Bernstein: better energy management of batteries, energy storage, and motors.

Jeffrey Bernstein: So, in particular, we have current sensors, which you alluded to. It's a competitive market, but we have the best current sensors available.

Jeffrey Bernstein: and we have introduced new current sensors and then we also have isolators or couplers which can provide a link between

Jeffrey Bernstein: microcontrollers or control systems and the power transistors that switch on and off.

Jeffrey Bernstein: the power to manage the energy.

Jeffrey Bernstein: and our devices, our couplers are faster and therefore allow more efficiency than competitive products. So we believe we're very well positioned for one of the biggest changes in energy management in a generation.

Jeffrey Bernstein: And just correct me on the isolators. There really isn't anybody else who's making those spintronic type isolators. The rest are largely optical and other technologies.

Speaker Change: And just correct me on the isolators. There really isn't anybody else who's making those spintronic type isolators. The rest are largely optical and other technologies.

Daniel A. Baker: Exactly. We have unique spintronic isolators; other isolators use optical or other semiconductor technology, and we have a number of advantages there. One of them is speed, and that allows us to switch wideband gap switching transistors faster, which makes them more efficient.

Speaker Change: Exactly. We have unique spintronic isolators. Other isolators use optical or other semiconductor technology, and we have a number of advantages there. One of them is speed, and that allows us to switch wideband gap

Speaker Change: switching transistors faster, which makes them more efficient.

Jeffrey Bernstein: Gotcha. Okay.

Speaker Change: Okay. And then just talk about the Puff business. I know it's been a source of volatility in revenue and whether that was a factor this quarter. And then I'm sort of curious, it sounds like there's going to be more.

Jeffrey Bernstein: And then just talk about the Puff business. I know it's been a source of volatility in revenue and whether that was a factor this quarter. And then I'm sort of curious, it sounds like there are going to be more smaller and more autonomous systems used by the military, and they are maybe not as high value as some of the very large systems, but the software is very high value. And so you would think that Puffs would have a larger unit market potentially with that trend. But can you just discuss your thoughts on that?

Speaker Change: Smaller and more autonomous systems used by the military, and they are maybe not as high value as some of the very large

Speaker Change: systems, but the software is very high value, and so you would think that PUFs would have a larger unit market potentially with that trend, but can you just discuss your thoughts on that?

Daniel A. Baker: Yes, so the defense business, which includes PUFs, which are anti-tamper devices, in particular PUFs are a function that can be embodied in a physical structure that is easy to evaluate but hard to predict and replicate. So they're important components of anti-tamper systems, and those are primarily used in defense systems.

Speaker Change: Yes, so the defense business, which includes

Speaker Change: PUFs, which are anti-tamper devices.

Speaker Change: In particular, PUFs are a function that can be embodied in a physical structure that is easy to evaluate but hard to predict and replicate. So they're important components of anti-tamper systems, and those primarily are used in defense systems.

Daniel A. Baker: So our defense business was relatively strong in the past quarter, and we expect that, based on what we know now, to continue to be strong in the current quarter, the September quarter at least. Sometimes we don't get great visibility on that, but so far, there's been a great deal of interest in those products and in that business. And one of the factors, as you point out in the second part of your question, is that these systems are tending to move from very high-value-added or very expensive defense systems to smaller but more important ones.

Speaker Change: So our defense business was relatively strong in the past quarter, and we expect it, based on what we know now, to continue to be strong in the current quarter, the September quarter, at least.

Speaker Change: Sometimes we don't get great visibility on that, but so far there's been...

Speaker Change: a great deal of interest in those products and in that business. And one of the factors, as you point out in the second part of your question, is that these systems are tending to move from very high value-added or very expensive defense systems.

Daniel Baker: And also, as we sell defense systems, as we, as a nation, sell defense systems to allies, those are particularly vulnerable to falling into friendly hands.

Speaker Change: to smaller but more important systems.

Daniel A. Baker: And also, as we sell defense systems, as we as a nation sell defense systems to allies, those are particularly vulnerable to falling into unfriendly hands, and so there's an importance to have anti-tamper, tamper protection technology, and we provide excellent anti-tamper technology. So we see this as a good business and with solid prospects, near-term prospects. It's not the type of business that we look at and say this is going to drive the dramatic growth that we hope for and see with tremendous opportunities like energy management and hybrid electric vehicles, but nevertheless, it's a solid business and one that we take pride in.

Speaker Change: and also as we sell defense systems, as we as a nation sell defense systems to allies.

Speaker Change: Those are particularly vulnerable to falling into unfriendly hands, and so there is an importance to have anti-tamper, tamper protection technology, and we provide excellent anti-tamper technology. So we see this.

Daniel Baker: And so there's an importance to have anti-tamper, tamper protection technology, and we provide excellent anti-tamper technology. So we see this as a good business and with solid prospects, near-term prospects.

Speaker Change: as a good business and with solid prospects, near-term prospects.

Daniel Baker: It's not the type of business that we look at and say this is going to drive the dramatic growth that we hope for and see with tremendous opportunities like energy management, hybrid electric vehicles. But nevertheless, it's a solid business and one that we take pride in.

Speaker Change: It's not the type of business that we look at and say this is going to drive the dramatic growth that we hope for and see with tremendous opportunities like

Speaker Change: Energy Management, Hybrid Electric Vehicles, but nevertheless, it's a solid business and one that we take pride in.

Jeffrey Bernstein: That's great. Thanks for your time today, Dan.

Jeffrey Bernstein: That's great. Thanks for your time today. Thank you, Jeff.

Jeffrey Bernstein: Thanks for the time today, Daniel.

Speaker Change: That's great. Thanks for the time today, again.

Daniel A. Baker: Thank you, Jeff.

Operator: Well, we don't have any other questions in the queue, so I can sum up. We were pleased to report strong earnings and a 16% increase in operating cash flow, despite a challenging environment.

Daniel A. Baker: Well, we don't have any other questions in the queue, so I can sum up. We were pleased to report strong earnings and a 16% increase in operating cash flow despite a challenging environment. We look forward to speaking with you again on our next earnings call in October and to meeting some of you at our annual meeting in August. A replay of this call will be available on the Investor Events section of our website, nve.com, and on our YouTube channel, that's www.youtube.com slash nvecorp. Thank you. You may now disconnect.

Speaker Change: Well, we don't have any other questions in the queue, so I can sum up. We were pleased to report strong earnings and a 16% increase in operating cash flow despite a challenging environment. We look forward to speaking with you again on our next earnings call in October and to meeting some of you at our annual meeting August 1st.

Operator: We look forward to speaking with you again on our next earnings call in October and the meeting sum of you at our annual meeting August 1st.

Operator: A replay of this call will be available on the investor event section of our website, NV.com, and our YouTube channel that's www.youtube.com/NV Corporation. Thank you. Goodbye.

Daniel A. Baker: A replay of this call will be available on the Investor Events section of our website, nve.com, and our YouTube channel, that's www.youtube.com slash nvecorporation.

Speaker Change: Thank you. You may now disconnect.