Q3 2025 NVE Corp Earnings Call
Speaker Change: All participants are currently in listen-only mode. After our presentation, there will be a question and answer session.
Speaker Change: After my opening comments, Daniel Nelson will present our financial results, I'll cover R&D, sales and marketing, and CapEx, and we'll open the call to questions.
Speaker Change: We issued our press release and 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.
Please refer to the safe harbor statement on your screen.
Speaker Change: 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.
Speaker Change: Actual results could differ materially from the information provided and we undertake no obligation to update forward-looking statements we may make.
Speaker Change: We're pleased to report strong earnings despite continued challenges in the semiconductor industry.
Daniel Nelson will cover the financials. Daniel?
Thanks, Dan.
Speaker Change: Total revenue for the quarter ended December 31st, 2024 decreased 25% compared to the quarter ended December 31st, 2023 due to a 22% decrease in product sales and a 74% decrease in contract research and development revenue.
Speaker Change: The decrease in product sales was due to continued inventory gluts, particularly in the distributor channels, driven by weak chip demand and a slow recovery in industry sectors and markets we serve.
Speaker Change: The decrease in contract R&D revenue was due to the completion of certain contracts.
Speaker Change: Gross margin for the quarter was 84% compared to 80% of prior year quarter.
Speaker Change: The increasing gross margin percentage was due to more profitable product mix and a larger portion of direct rather than distributor sales.
Speaker Change: Total expenses increased 40% for the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024 due to a 61% increase in R&D and a 12% increase in SG&A.
Speaker Change: The increase in R&D was due to increased investments in new product development activities. The increase in SG&A was primarily due to increased sales and marketing activities and additional sales stopped in the past quarter.
Speaker Change: Interest income for the third quarter of fiscal 2025 decreased 4% due to a decrease in marketable securities and lower yields on recently purchased marketable securities.
Speaker Change: In addition to operating income, we reported our income in the third quarter of fiscal 2025 of $135,000, primarily from the reclaiming of precious metals used in our manufacturing process.
Speaker Change: Net income for the quarter decreased 27% with a decrease in revenue.
Speaker Change: It was a profitable quarter, with 84% gross margin, 58% operating margin, 60% net margin, and earnings of 63 cents per share.
Speaker Change: For the first nine months of fiscal 2025, total revenue decreased 18% due to a 20% decrease in product sales, partially offset by a 72% increase in contract R&D.
Speaker Change: Net income for the first nine months was $11.2 million, or $2.31 per diluted share.
Speaker Change: For the fiscal year to date, gross margin was 85%, operating margin was 63%, and net margin was 60%.
Speaker Change: Now I'll turn the call back to Dan Baker to call it a business. Back to you Dan.
Thanks, Daniel. I'll cover R&D, sales marketing, and CapEx.
Speaker Change: As Daniel mentioned, we significantly increased our investment in R&D. We spent 17% of revenue in the past quarter on R&D.
Speaker Change: Additionally, we do customer-sponsored R&D, which is included in the cost of sales.
Speaker Change: As a result of the efforts of our R&D team, we introduced new wafer-level chip scale products in the past quarter.
Speaker Change: The new products are billed as the world's smallest devices of their type which allows for smaller less intrusive medical devices and more precise robotics and mechatronics. Our YouTube channel has a demonstration.
Speaker Change: A key element of our sales marketing strategy is evaluation boards.
Speaker Change: Evaluation boards allow customers to easily visualize, create, and implement great new designs with our unique products.
Speaker Change: A new evaluation platform connects to the popular Arduino line of single board computers and uses one of a dozen angle or rotation sensor breakout boards.
Speaker Change: There's more information on our website and our YouTube channel has a demonstration of the new platform.
Speaker Change: Turning to CapEx, we previously discussed plans for $4 to $5 million dollars in capital investments over the next two fiscal years, fiscal 2025 and 2026. We've already spent $1.16 million dollars through three quarters of this fiscal year, fiscal 2025.
Speaker Change: We've deployed one new machine in the second quarter. We're working on another new machine now. And we'll have a several million dollar machine scheduled to arrive next quarter, the June quarter.
Speaker Change: In the past quarter, we reached an agreement to extend our building lease an additional 62 months through May 2031.
Speaker Change: The agreement also includes a $100,000 improvement allowance. We believe the allowance will cover our expansion.
Speaker Change: We filed the amendment to the lease agreement with the SEC. Links to the amendment are available on our website and the SEC's website.
Speaker Change: Construction work for expansion began in November shortly after we agreed to the lease extension and was completed last week.
Speaker Change: Next up is a new electrical service and other infrastructure upgrades to support new equipment.
Speaker Change: The investments in facilities and equipment will increase our capacity and capabilities, including the capability to manufacture wafer-level chip-scale parts, such as the ones we recently introduced, in a high volume.
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 QIIME app, click the Raise My Hand icon under the meeting chat, that's at the bottom of the left column, and unmute yourself to speak.
Please state your name and affiliation before your question.
Hey Daniel, it's Jeff Bernstein
Hi, Jeff. Hi.
How are you?
Thank you.
Speaker Change: A couple questions here. Just give us a little better feeling about what's going on.
Speaker Change: in direct business. You talked about inventory liquidation continuing in distribution. You know, what are you seeing in terms of, you know, orders fulfilled in the quarter, you know, terms, kind of business, any other feel for how the demand is at end customers?
Speaker Change: Yeah, that's a good question, Jeff. So our direct sales have held up relatively well.
Speaker Change: Those customers tend not to buy through distribution and as Daniel mentioned in the prepared remarks
Speaker Change: So, those sales, those direct sales tend to be higher margins because we don't have distributor discounts in the middle.
Speaker Change: And so, that's the reason that our margins are so exceptional and our profitability metrics, despite the downturn in revenue, are quite strong.
Speaker Change: Any color you can put around, you know, how bookings have been going with those direct customers or anything around your bookingship kind of business.
Speaker Change: In general, the outlook has been positive. When we talk to our customers, when we talk to our distributors,
Speaker Change: They see things improving, they see industry conditions improving. It's taking longer than anyone would like, but we're very optimistic about the future and the fundamentals of our business are strong.
Speaker Change: Gotcha. And so do you get the sense that consumption is actually above what you're selling into the channel now?
Speaker Change: Yes, almost certainly, because the distributors in the channel are trying to bleed down their inventory so they're selling but they're often not buying until their inventories are back to historical levels.
Okay, and then just a couple questions on end markets.
So, both...
Speaker Change: Sonova and Starkey, you know, big traditional hearing aid players are out with new
Speaker Change: platforms that incorporate real-time AI chips etc. seem like they probably draw a lot of power in them.
with us today.
Speaker Change: We provide sensors. So, as you mentioned, Sonova, for example, has introduced a platform with artificial intelligence, and the technology helps the so-called speech and noise problem, which is a significant problem for hearing aids.
So, it's a great development and hopefully will improve.
uptake of hearing aids as they can help more people.
Speaker Change: NE Sensors provide inputs for artificial intelligence. Better information about the environment means better results from AI.
Speaker Change: So, we're optimistic about those trends, about the need for more inputs and richer data to feed these artificial intelligence and other increasingly sophisticated algorithms.
Speaker Change: okay and then the the pop business has been a source of volatility for you guys I think it was stronger last quarter what's happening what happened there this quarter
Speaker Change: That business has been strong. It's a relatively small part of our business, but we received some orders
Speaker Change: recently, spread out through the future, but we're certainly optimistic about long-term defense sales based on what we see now.
Gotcha.
Speaker Change: And just as it reported today, it looked like all of the product areas that you might play in were reasonably strong and obviously they have some exciting new products there and color on just the medical device business overall.
Speaker Change: As you can imagine, we also look at Abbott's reports and we communicate with them. They reported decent growth, 6% overall growth in rhythm management, which is an area that we participate in. That's encouraging.
Speaker Change: and they reported that that's more than the overall growth in the cardiac rhythm management market.
Speaker Change: As far as the specifics, we're bound by confidentiality, but our technology enables smaller devices, which is important for
Speaker Change: We use pacemakers and other emerging technology and we can detect extremely small magnetic fields which is another key advantage for deeply implanted medical devices. So it's an area where we see considerable future potential.
All right, thanks very much, Dan.
Thank you, Jeff.
Speaker Change: Hey Dan, this is Pete Kravitz from Florida. I met you at the Sherald. How are you?
Dan Baker: Yes, good to talk to you Pete. We're getting, we might be warmer than you are.
Pete Kravitz: It's very rare, Dan, but that's probably the case. I had a couple of questions. Jeff mentioned something about AI chips. I was wondering...
Pete Kravitz: With your MTJ parts, are they, I know you're focused on sensors, but MTJ, does that have potential to be part of AI chips?
and for energy reduction, power consumption reduction.
Pete Kravitz: Yeah, so MTJ stands for Magnetic Tunnel Junction. It's one of the core platform technologies that we have.
Pete Kravitz: and it's useful in a number of areas, sensors is certainly one, also useful in memory, and we make memory and memory related devices for the defense business and the puff business that Jeff alluded to in his comments.
Pete Kravitz: So, yes, they're low power, which allows for ubiquitous sensing, and as much as the possibilities for
Pete Kravitz: artificial intelligence for medical devices for hearing aids, artificial intelligence and the artificial intelligence of things is driven by data.
Pete Kravitz: So the intelligence is only as good as the data that comes into it and sensors provide that data.
Pete Kravitz: So while we don't directly make artificial intelligence processors, we participate in that revolution.
Pete Kravitz: by providing the information that feeds the intelligence of the AI engines.
Speaker Change: Great, thank you. And then with the GMR sensors, your sensors are much more accurate than all sensors. I mean, and we spoke about this at the shareholder meeting. What's the potential over time for NVE spintronic sensors to replace all sensors?
Speaker Change: Well, we see excellent potential for GMR, which is Giant Magneto Resistance, which is our legacy technology, the technology that the company was really founded on.
Speaker Change: But we still sell a lot of those sensors. They're still best-in-class and Hall effect sensors as you as you know are Semiconductor type sensors. They are not as precise as accurate or as power efficient as our spintronic sensors
Speaker Change: So, we see excellent opportunities to replace those sensors in many applications.
Speaker Change: The one area where we don't try to compete with hall effect sensors is they can be very inexpensive because it's mature technology.
Speaker Change: The tooling is probably long since been written off and they can be sold pretty cheap. So our goal is not to sell cheap sensors, it's to sell the world's best sensors. So we do see ample opportunities for spintronic sensors replacing older types of sensors.
Speaker Change: Terrific. Thank you. And I just want to say good luck with the expansions. You've got the new lease in place and equipment is coming in. So keep up the good work. Thanks, Dan. Appreciate it. Well, thank you. We hope if you're here this year that we'll have some exciting things to show you.
That's awesome. Thank you.
Speaker Change: Hey Dan, it's Jeff Bernstein again. I meant to ask you about, there was a mention of an additional expense in selling and some increased staff I guess. Can you just give us a lowdown on what you're doing in terms of adding sales folks?
Dan Baker: Exactly, yes. So I'm glad you asked. We are doing more direct sales.
So more trips?
More trade shows.
Dan Baker: and more marketing, so that's newsletters, I mentioned in the prepared remarks.
Dan Baker: We design evaluation boards and we almost have a continuous flow of evaluation boards so that our customers can try out our products easily and prove out their designs.
Dan Baker: So we feel that that's important for our sales, so we have staff working on that and staff working on vetting and modeling for our customers' designs, supporting our distributors, and getting out and talking to our customers.
Thank you.
Dan Baker: Well, it looks like there are no other questions in the queue, so again, we were pleased to report strong earnings despite challenging conditions. We appreciate your attention and look forward to speaking with you again on our fiscal year end earnings call in early May.
Dan Baker: A replay of this call will be available on the investor events page of our website, nde.com, and our YouTube channel, that's youtube.com slash ndecorporation.
You may now disconnect. Thank you.