NVE Company (NVEC) Q3 2024 Earnings Name Transcript

NVE Company (NASDAQ:NVEC) Q3 2024 Earnings Convention Name January 17, 2024 5:00 PM ET

Firm Individuals

Daniel Baker – President and Chief Government Officer

Daniel Nelson – Accounting Supervisor and Principal Monetary Officer

Convention Name Individuals

Pete Show – Particular person Investor

Steven Lewis – Lewis Capital Administration

Chris Makovsky – Personal Investor

Operator

Good day and thanks for standing by. Welcome to the NVE Company Convention Name on Third Quarter Outcomes. Right now, all contributors are in a listen-only mode. After the speaker’s presentation, there can be a question-and-answer session. [Operator Instructions] Please be suggested that right now’s convention is being recorded.

I might now like at hand the convention over to your speaker right now, Dan Baker, President and CEO.

Daniel Baker

Good afternoon, and welcome to our convention name for the quarter ended December thirty first, 2023. This name is being webcast stay and recorded. A replay can be accessible via our web site nve.com.

I am Dan Baker and as all the time I am joined by Accounting Supervisor and Principal Monetary Officer, Daniel Nelson. After my opening feedback, Daniel will current our monetary outcomes. I am going to cowl prospects, merchandise, and advertising. Then we’ll open the decision to questions.

We issued our press launch with monetary outcomes and filed our quarterly report on Kind 10-Q prior to now hour following the shut of market. Hyperlinks to the press launch and 10-Q can be found via the SEC’s web site, our web site, and on X previously generally known as Twitter.

Feedback we could make that relate to future plans, occasions, monetary outcomes or efficiency are forward-looking statements which can be topic to sure dangers and uncertainties, together with, amongst others, such components as uncertainties associated to the financial environments within the industries we serve, and dangers and uncertainties associated to future gross sales and income in addition to the dangers components listed once in a while in our filings with the SEC, together with our annual report on Kind 10-Ok for the yr ended March thirty first, 2023, as up to date in our quarterly reviews on Kind 10-Q for the quarter ended June thirtieth and December 31, 2023. Precise outcomes might differ materially from the data supplied and we undertake no obligation to replace forward-looking statements we could make.

We’re happy to report robust earnings, complete earnings, and money movement regardless of decreased revenues from a report quarter a yr in the past.

Daniel Nelson will cowl the main points of our financials. Daniel?

Daniel Nelson

Thanks, Dan. Complete income for the quarter ended December thirty first, 2023 decreased 9% in comparison with the prior yr quarter. The lower was attributable to a 12% lower in product gross sales, partially offset by a 94% enhance in contract R&D income.

The lower in product gross sales was primarily attributable to decreased purchases by present prospects, significantly within the protection business and the semiconductor business downturn. The excellent news is that the business is gaining energy and forecasts for a powerful business restoration in calendar 2024.

World Semiconductor Commerce Statistics is forecast within the international semiconductor market to develop 13% in 2024 in comparison with a 9% lower in 2023. Product gross sales to protection markets can fluctuate and had been particularly weak within the quarter.

This was associated to the timing of procurement cycles and we anticipate these gross sales to get well on this quarter, the March quarter. The rise in contract R&D income was attributable to new buyer analysis and growth contracts.

Complete bills decreased 16% for the third quarter of fiscal 2024 in comparison with the third quarter of fiscal 2023, primarily attributable to a 23% lower in R&D expense or 4% lower in SG&A. The lower in R&D expense was primarily as a result of redeployment of sources to buyer funded analysis and growth initiatives.

The lower in SG&A was primarily attributable to decreased efficiency based mostly compensation accruals. Curiosity earnings for the third quarter of fiscal 2024 elevated 21% attributable to increased rates of interest. Our efficient tax fee, which is the supply for earnings taxes as a proportion of earnings earlier than taxes, decreased to 16% for the third quarter of fiscal 2024 in comparison with 19% for the third quarter of fiscal 2023.

The lower was primarily attributable to enhance in sure tax deductions. Our efficient tax fee can differ from quarter-to-quarter and could also be increased in future quarters than prior to now quarter. The 1% lower in internet earnings from the third quarter of fiscal 2024 in comparison with the prior yr quarter was primarily attributable to decreased in income, which was almost offset by decreased bills, elevated curiosity earnings and a decrease efficient tax fee.

Complete earnings elevated 8% to $4.93 million from $4.56 million the prior yr quarter. It was a solidly worthwhile quarter with gross margins of 80% of income and internet margin of 62%. Complete income for the 9 months ended December thirty first, 2023 decreased 11% in comparison with the 9 months ended December thirty first, 2022.

The lower was attributable to an 11% lower in product gross sales and a 20% lower in contract analysis and growth income. Internet earnings decreased 8% and complete earnings elevated 3%. Internet money supplied by working actions elevated 2% to $15.1 million for the primary 9 months of fiscal 2024 in comparison with $14.7 million for the primary 9 months of fiscal 2023.

The robust working money movement greater than cowl our three dividend to this point this fiscal yr. And money and money equivalents plus marketable securities elevated to $54.7 million from $53.3 million firstly of the fiscal yr.

Purchases of fastened property have been solely 17,000 to this point this fiscal yr, however we would anticipate it to extend considerably in future durations.

Now I am going to flip the decision again to Dan Baker to cowl the enterprise. Over to you, Dan.

Daniel Baker

Thanks, Daniel. I am going to cowl prospects, merchandise, and advertising. We’re proud to provide merchandise to a few of the world’s most demanding prospects, together with Abbott’s Pacesetter subsidiary.

Abbott is the main provider of implantable medical gadgets. We lately executed an extension to our provider partnering settlement with Abbott. The extension is thru the top of 2024 and contains value will increase that may assist offset our value will increase. We’ve had a proper partnering settlement with Abbott since 2006, and that is the tenth modification to increase the settlement.

The settlement modification was filed on a present report on Kind 8-Ok and included by reference in our simply filed 10-Q. It’s accessible by way of our web site or the SEC’s web site. We do long-term analysis to construct our expertise portfolio and assist advance the sphere of spintronics.

Previously quarter, NVE, together with researchers from the College of Texas and Virginia Commonwealth College, revealed analysis on expertise that would present the power effectivity wanted to speed up the usage of magnetic tunnel junctions in reminiscence, logic and neuromorphic computing.

Magnetic tunnel junctions or MTJs are spintronics constructions we assist pioneer that we use in lots of our merchandise. There are hyperlinks to a latest journal paper and a convention presentation on the topic on our papers and presentation webpage and our X and LinkedIn feeds. A key benefit of our expertise is that our merchandise are extraordinarily rugged.

We prolonged that benefit with two product line extensions prior to now quarter, prolonged temperature remoted community transceivers and ultra-high isolation information couplers. The brand new prolonged temperature merchandise embrace a transceiver that is billed because the quickest such system within the business and permits excessive velocity information switch in harsh environments, reminiscent of the economic web of issues and energy conversion modules.

The brand new components had been requested by a buyer. Isolation voltage is the important thing determine of benefit for information couplers. It is what makes them isolators. We have lengthy had best-in-class isolation voltage. And prior to now quarter, we prolonged that benefit by growing the isolation voltage ranking on a number of of our distinctive V-Collection isolators to 7 kilovolts.

With required security margins this implies the components which can be simply three tenths of an inch large can stand up to 8.4 kilovolts for a minimum of a second. Demonstrations of the prolonged temperature and better isolation merchandise are on our web site and YouTube channel. Certifications assist us compete with bigger, higher identified corporations by offering credibility and decreasing perceived danger.

In our earlier name, we reported we had earned the distinguished CE mark for our line of the world’s smallest DC to DC converters. Previously quarter, we additionally certified our information couplers with built-in DC to DC converters. These gadgets transmit information in addition to convert energy in a single built-in circuit lower than an eighth of an inch sq..

They assist clear up an essential problem in energy conversion methods by transmitting information between the subsystems on totally different energy provides. Our distributors have instructed us the CE mark might allow further gross sales in Europe. The important thing to qualifying for the mark was rigorous testing for radiated emissions. These emissions are an issue with typical components as a result of they will intervene with different electronics.

Along with the road extensions, I simply summarized new merchandise in 2023. We started advertising merchandise, together with extra merchandise combining information couplers with remoted DC to DC converters to transmit energy in addition to information.

Lengthy-term product growth packages prior to now yr included Subsequent Technology MRAM for anti-tamper purposes, Subsequent Technology sensors for listening to aids and implantable medical gadgets and very delicate TMR sensors in addition to wafer degree chip scale sensors.

Commerce reveals are an essential a part of our advertising technique. We supported distributor exhibitions at 4 European reveals prior to now quarter. AGRITECHNICA in Hanover, Area Tech in Bremen, SPS in Nuremberg, and MEDICA in Dusseldorf.

We additionally exhibited below our personal banner on the Medical Design and Manufacturing Present in Minneapolis, which was a part of the Superior Manufacturing occasion. A number of the commerce present demonstrations are on our web site and YouTube channel.

Now I would prefer to open the decision for questions. Josh?

Query-and-Reply Session

Operator

Thanks. [Operator Instructions] Our first query comes from Pete Show with Particular person Investor. You might proceed.

Pete Show

Hey, Dan. On final quarter’s name, I requested a query about licensing your IP, and also you gave a terrific reply saying that you’d do all manufacturing in-house and also you would not license it, however you’ll possibly manufacture below different manufacturers. My query right now is, might you discuss somewhat bit about with all of the investments you have made in tools and services, what your potential income for the enterprise is together with your present tools and services and operating two, three shifts and so forth, and possibly simply give some colour of what the potential could possibly be? Recognize it.

Daniel Baker

Yeah, that is a terrific query, Pete. So by way of our capability, we do not have a, it is laborious to offer a particular quantity as a result of it relies upon closely on the combo and which tools could be used for the merchandise. However generally, we don’t run, we attempt to not run near our capability. We’re not like typical semiconductor corporations which must run very near their capability at excessive utilization, or they run into, they only cannot cowl their fastened prices. Our value construction is totally different due to the individuality of our expertise. So our aim is to have loads of capability. That permits us to supply shorter lead occasions for our prospects, and to supply extra assurance with redundancies and further tools that within the case of an issue with our tools, we would be able to proceed to supply the merchandise that our prospects want. So generally, we run at comparatively low proportion of our capability. We’ve satisfactory room to develop. We’re growing our capital expenditures, as Daniel talked about within the ready remarks within the coming yr, to extend our capability additional and to make sure that we have no bottlenecks to proceed our development.

Pete Show

Nice. Thanks a lot. Recognize it.

Operator

Thanks. One second for questions. Our subsequent query comes from Steven Lewis with Lewis Capital Administration. You might proceed.

Steven Lewis

On the earlier name, you stated you had been happy to report for six months in September, and I indicated I wasn’t certain what you had been happy about, however then I assumed you stated one thing about there have been some orders that may are available that may lapse over into the following quarter. The inventory went from 80.5 to 66.5 in a day. Now right here you might be happy with 9 months. So when can we begin speaking about expectations and finances and accomplishment and neglect the pleasing half.

Daniel Baker

Nicely, that is Dan Baker. We had been happy with the ends in the context of the markets that we compete in with a slowdown within the business. After which as Daniel talked about within the ready remarks that we’ve got a big protection enterprise that may be variable from quarter-to-quarter. And as he stated, we anticipate that to get well within the present quarter, the March quarter. So we’re optimistic in regards to the future and we’ve got a wonderful order movement. The business is strengthening, as Daniel talked about. And so we had been happy with the outcomes below the situations and we sit up for higher outcomes and development sooner or later.

Steven Lewis

What had been your outcomes for the quarter versus your expectation for the quarter in October?

Daniel Baker

Nicely, as you most likely know, like most public corporations, we do not present forward-looking steerage, however we had been —

Steven Lewis

No. I am speaking about your expectations internally.

Daniel Baker

Proper. So we do not disclose our inner expectations for apparent causes. We’re not permitted to take action if we’re not giving forward-looking steerage. So however what we checked out was what are the situations within the business, what’s the protection enterprise backlog and we had been happy with the efficiency of our staff, with our manufacturing, with our gross sales staff below these situations for the quarter.

Steven Lewis

Do you assume tomorrow your inventory will replicate what you are so happy about?

Daniel Baker

We’re typically not within the enterprise of predicting our inventory value. We’re not superb at it and I admit to being biased. I virtually all the time assume the inventory is undervalued and I’ve a good quantity of publicity to the corporate’s inventory, however I do this as a result of I feel it is a wonderful worth and a very good funding. However that is my private opinion.

Steven Lewis

Thanks.

Daniel Baker

Thanks.

Operator

Thanks. [Operator Instructions] One second for questions. Our subsequent query comes from Chris Makovsky, Personal Investor. You might proceed.

Chris Makovsky

Hi there, good afternoon. I wished to ask extra in regards to the basic situations of the business. You stated that the army business will enhance within the current quarter. Are you able to inform us something about what you are seeing within the basic business and the medical business?

Daniel Baker

Within the basic business, as we stated within the ready remarks, we’re seeing a strengthening of the semiconductor market as we go into the New 12 months into 2024. And the WSTS, the World Semiconductor Commerce Statistics group is forecasting development of double-digit development in 2024, 13% in comparison with a 9% lower in 2023. So the numbers have not been tallied for 2023, however the newest forecast was for a big lower for the business in 2023 and a big enhance in 2024. And that I feel coincides with what we’re listening to from our prospects that the business is beginning to choose up. Clearly we’re taking part in a section of the general business, so it is not an ideal barometer and it is not an ideal predictor of the long run for us. Nonetheless, it offers us purpose for optimism and purpose for being happy with the efficiency that we had within the face of a downturn within the business in calendar 2023.

Chris Makovsky

So that you make a great level and I learn the identical reviews, however the basic semiconductor business reviews mainly kind of say that the advance in 2024 is anticipated to come back within the second half. Are you at the moment seeing enchancment within the different flooring or are your shoppers additionally saying, effectively, it is most likely going to be coming within the second half.

Daniel Baker

We’re seeing the identical factor that whereas the business appears to be bettering and sequentially reasonably than decreases, we’re seeing slight will increase. So it is not a booming business, but it surely’s higher. We’re dealing with fewer headwinds. That’s what we’re seeing. And we do definitely sit up for a powerful second half of the yr if the business forecasts are appropriate.

Chris Makovsky

Okay, it is good to listen to that you simply’re already seeing enchancment. Now you might have a brand new networking isolator. Are you getting orders for networking for manufacturing unit automation tools?

Daniel Baker

We’re and the precise new product we had extends our temperature benefit or velocity benefit to excessive temperature merchandise which was of curiosity to explicit prospects. It is a very harsh setting generally in factories. So with the ability to stand up to excessive temperatures and transmit very excessive velocity is a crucial benefit. And as I discussed, we’ve got best-in-class merchandise that may transmit very excessive quantities of information, 40 megabits per second, which is simply an unbelievable quantity of information in a comparatively brief time via a posh community protocol. So these are essential merchandise and so they serve a rising market, the economic web of issues. So we’re seeing some curiosity in them and we’re optimistic about the way forward for these merchandise.

Chris Makovsky

And that may be a new marketplace for you, am I appropriate?

Daniel Baker

It is an present marketplace for us. We have all the time been in manufacturing unit automation for a very long time, however there are specific purposes that we could not get into due to the temperature limitations. So we meet the business commonplace 85 levels Celsius temperature necessities, however we’ve got prospects who’re curious about 125 Celsius, which is 257 Fahrenheit. That is fairly sizzling. However there are purposes that require that. And even when they do not require it, it is a determine of benefit that a few of our prospects need to make sure that our merchandise have plenty of margin and design margin and that they are not going to fail even below extraordinarily harsh situations.

Chris Makovsky

That is good to listen to. Good luck. Thanks.

Daniel Baker

Thanks Chris.

Operator

Thanks. I might now like to show the decision again over to Dan Baker for any closing remarks.

Daniel Baker

Nicely, thanks for the questions. We reported robust earnings for the quarter and a rise year-over-year in money movement. We sit up for talking with you once more at our subsequent incomes name, which can be in early Might to overview the complete fiscal yr. Thanks once more.

Operator

Thanks. Thanks on your participation. You might now disconnect.