NVE Q4 2023 Earnings Call Transcript

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May 3, 2023

There are 6 speakers on the call.

Operator

Welcome to the NVE Conference Call on 4th Quarter and Fiscal Year Results. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would like to now hand the conference over to Dan Baker, President and CEO of NVE Corporation.

Speaker 1

Thanks, Dan. As Dan said, revenue and net income for the quarter were the best in our history by far. Total revenue for the most recent quarter increased 91 percent to $12,800,000 from $6,720,000 in the prior year quarter. The increase was due to a 95% increase in product sales and a 10% increase in contract research and development revenue. Gross profit as a percentage of revenue increased to 80% for the Q4 of fiscal 2023 compared to 77% for the Q4 of fiscal 2022.

Speaker 1

The increase was primarily due to economies of scale from increased production and increased prices, partially offset by increased material and labor costs. Total expenses increased 29% for the Q4 of fiscal 2023 compared to the Q4 of fiscal 2022 due to a 25% decrease in research and development and a 204% increase in SG and A expense. The increase in expense were primarily due to increased staffing and increased Compensation. Interest income for the Q4 of fiscal 2023 increased 35% due to an increase in our available for sale securities and an increased ABR average interest rate. Our effective tax rate, which is the provision for taxes as a percentage of income before taxes, was 12% in the 4th fiscal quarter compared to 16% for the fiscal year due to Chip's Act tax Credit related to the expansion of our production space and new production equipment deployed in the past quarter and depreciation on this newly deployed production equipment.

Speaker 1

Net income for the Q4 of fiscal 2023 increased 116 percent to $8,200,000 or $1.70 per diluted share compared to $3,820,000 or $0.79 per share for the prior year quarter. We also set new records for revenue and net income for the fiscal year. Total revenue increased 42 to a record $38,300,000 compared to $27,000,000 in the prior year. The increase was due to a 44% increase in production sales, partially offset by a 6% decrease in contract R and D revenue. Gross margin increased to 79% for fiscal and increased prices, partially offset by increased material and labor costs.

Speaker 1

Net income for the year increased 56% from the prior year to a record $22,700,000 or $4.70 per diluted share from $14,500,000 or $3 per share for fiscal 2022. It was our 2nd consecutive year of record profits. Now Joe will provide some color on our financial results. Over to you, Joe.

Speaker 2

Thanks, Daniel. The large increase in product sales for the quarter was primarily due to increased purchases by existing customers along with new customers. We did acquire new customers from traditional semiconductor companies with our superior products and shorter lead times. Sales increased in most of our markets and product lines. Improvements in supply chain deliveries along with the increased capacity Quarter risks do remain.

Speaker 2

Our strategy to build up raw material and WIP inventory as a safeguard against disruptions remains in effect. According to a recent forecast by Gartner, weak demand is spreading from consumer to businesses and worldwide semiconductor revenue is expected to decline 11% in 2023. This downturn could affect our sales for the quarter ending June 30 and in future quarters. NVE has experienced some softening in order flow and this upcoming year will have its challenges. On the positive, we are starting the year with a significant booking base.

Speaker 2

Our profit metrics continue to be strong. For the quarter ended March 31, gross margin was 80%, Operating margin was 70%, pre tax margin was 73% and net margin was 64%. Cash flow from operations for the fiscal year was a strong $19,100,000 and we ended the fiscal year with a strong balance sheet. Current assets increased to support our growth. Accounts receivable increased $1,820,000 primarily due to increased product sales and the timing of those sales to customers.

Speaker 2

Inventory increased $1,330,000 primarily due to our decision to increase inventories to support increased product sales and to mitigate longer vendor lead times. Purchases of fixed assets were $936,000 in the fiscal year, the most in 10 years. These were primarily capital expenditures for additional production equipment. We deployed most of that equipment in the past quarter, Successfully executing the plan we have discussed in our January earnings call. Net income more than covered our dividends for the 1st year since we began paying dividends in 2015.

Speaker 2

In addition to the past quarter's $1 per share dividend, Today, we announced that our Board declared another quarterly dividend of $1 per share payable May 31 to shareholders of record as of May 15. We increased our employment in the past year to 56 employees as of March 31, 51 of whom were full time compared to 49 employees as of March 31, 2022. We're proud of the productivity of our employees. Our revenue per employee and net income per employee are among the best in the semiconductors industry. Now I'll turn the call back to Dan Baker to cover marketing and new products and to summarize our past year's accomplishments.

Operator

Please standby. We are having technical difficulty. As a reminder, We will have a Q and A presentation following the presentation. Please standby.

Speaker 3

Well, thanks, Joe. First, I'll cover marketing. We'll be at 2 major trade shows in Germany later this month, PCIM Europe and Sensor Plus Test, both shows reach important target markets for us. PCIM is billed as the world's leading exhibition and conference for power electronics, intelligent motion, Renewable Energy and Energy Management. We're co exhibiting with 1 of our German distributors.

Speaker 3

Sensor Plus Test claims to be the world's leading forum for sensor measurement and testing technology. We'll be supporting a distributor at that show. And capping off the spring trade show season, we'll exhibit Sensors converged in Santa Clara, California next month, which showcases the latest sensing technologies. We'll demonstrate several new products. Turning to new products, we recently introduced a new line of circuit boards for our parts on what's called the Arduino shield format.

Speaker 3

These boards have a standard size of approximately 2 by 3 inches and connect to popular Arduino single board computers. The Arduino interface allows customers to quickly write software to Demonstrate the applicability of our components and their application. The power control board can control horsepower range motors. It shows the small size and large power capability of our DC to DC converters and isolated FET drivers. Since our parts take up very little space, a large portion of the 6 square inches of available areas just used for connectors.

Speaker 3

The parts on the boards can be used in power conversion applications such as battery inverters, motor controls, Electric bicycles and electric vehicles. We did a demonstration video using a horsepower range e bike motor, which you can see on our website and our YouTube channel. Power conversion is the process that changes electricity from the form that's available to the form required for a function. Some energy is always lost in that conversion and our products can decrease those losses and therefore save energy. Our products are compatible with next generation widebandgap power transistors such as gallium nitride and silicon carbide transistors.

Speaker 3

Fiscal 2023 was a productive year for product development. In addition to the new evaluation boards I just discussed, we introduced several other new products in the past year. Our smallest magnetometer sensors ever, our most sensitive magnetic sensors ever. We expanded our family of the world's smallest DC to DC converters. We expanded our offerings of parts that transmit power as well as data.

Speaker 3

In addition to new products, business highlights of the past year include, We expanded our production space and added equipment to increase our capacity. We increased our participation in trade shows As pandemic restrictions eased, we received 2 important certifications, intrinsically safe certification and VDE Reinforced Certification. We had design wins for home energy storage and electric vehicle charging stations. We shipped parts for the Mars Sample Return Mission and we extended our supplier partnering agreement with Abbott. Now I'd like to open the call for questions.

Speaker 3

Leah?

Operator

Thank you. At this time, we will conduct a question and answer session. Our first question comes from Jeffrey Bernstein from Cohen Prime Advisors.

Speaker 4

Hi, guys. Dan, you cut out from the beginning, so I didn't hear your opening script. I don't know if there's anything in there that you Wanted to repeat or if it was covered by Daniel and Joe, but just FYI. And I guess I had a couple of questions. So obviously huge revenue number, Very strong sequentially in year over year.

Speaker 4

I know there's been some lumpiness in the business before with PUF's. But can you just give us a little granularity on what drove the big increase?

Speaker 2

So this is Joe Schmitz. I'll take a stab at that. I think One of the big things in my mind is the production capacity we added. We were able to increase our output, which helped us deliver on Orders to customers at a faster rate. I think that's a huge win for us.

Speaker 2

I also commented on the supply chain issues. We've seen an improvement there, Both in the quantity of product, but also in the turn time of some of our products in the value added process. So I think that's those are 2 big driving factors. We did also mention that we've had some targeted increase to our headcount to help Build some of our production team out. So those are 3 big positives.

Speaker 2

And then I think you mentioned some of the chunkiness. We absolutely had some of that. Some of that business happens based on our customers' Program schedules and this quarter it was strong as it was back in quarter 2 of this past year.

Speaker 4

So, Jill, you guys have Talked over the last year or so about having some backlog that you were constrained on being able to deliver. So has that cleared up now and this was a byproduct of that being cleared up in one big shot Or do we still have kind of more visibility than normal or just give us a feel for that?

Speaker 2

We still have a backlog we're working our way through And that will happen into this next year, but certainly that did play a role. Got you.

Speaker 4

Okay. And would you guys attribute that backlog to new wins more so or Customers who are wanting to have more safety stock than before or any details on that?

Speaker 2

Yes, I think I can't give you an exact breakdown of the two factors you mentioned, but I think it's both. We've seen some same customers and sales increases, and we know it's tied to some wins that they're getting. So I can't give you an exact breakdown on the two factors you just mentioned.

Speaker 4

Yes. No, I understand that. Okay. And then you had signed the deal with Abbott. It looks like Abbott's cardiac rhythm management business Is improving sequentially and they're feeling more positive.

Speaker 4

Was that a significant factor in the quarter shipment to them? And is Any of that of a stocking nature or is that just for sort of normal use?

Speaker 2

Most of that is normal trend for them. Yes, the businesses is has seen some positive signs and I'm looking for the statistic right here. But I guess I would say in the short term that it's basically business is normal with them for us.

Speaker 4

That's great. I'll let somebody else ask some questions. Thanks.

Speaker 2

I'm sorry, just before we go on, I will say, I was looking for the statistic. Abbott reported that the RISM management sales for the Q1 increased 4%. So that is encouraging for us.

Speaker 1

Thank you.

Speaker 3

That was the organic, what they reported organic, which is corrected for currency variations. And by the way, Jeff, you didn't miss I don't think you missed any of my comments. I started over and talked about marketing after the technical difficulties. So I believe that you could hear me then.

Operator

Thank you. And wait for your name to be announced. Please stand by. Thank you. We have a follow-up question from Jeffrey Bernstein at Cohen Prime Advisors.

Speaker 4

Okay. So, I'm just wondering, you guys talked about some EV charger wins Last quarter or at least the NEV charger wins. Can you talk a little bit just about the silicon carbide And GaN associated DC to DC converters that you guys are selling and obviously there's applicability in EVs and EV chargers, But just talk a little generally about what kind of traction you're getting there?

Speaker 3

Jeff, yes, this is Dan Baker. We've been very pleased with to our products both we have 2 types of products that are applicable to those types of power conversion As we mentioned in the prepared remarks about the evaluation board, so we make DC to DC converters, which Create the voltage that's required to drive turn on and off those next generation Transistor switches and then we also make the drivers that, isolated drivers that drive those Switches, the gates of those switches directly. And the response has been very positive for both. And there's a lot of interest in power conversion as you pointed out for electric vehicles. There are the onboard charging systems, which are the Systems within cars that convert the electricity from the charging station to the electricity that's needed, the energy that's needed to charge the batteries.

Speaker 3

And the design win that we mentioned before that you referred to was on the charging stations. So of course, there's a large investment nationwide to build an infrastructure of charging Stations that will support electric vehicles and that will allow us to drive long distances in electric vehicles. And our devices allow the conversion of energy efficiently and to use those next generation Switches, so we see that energy conversion in general and opportunities in electric vehicles as excellent Long term markets.

Speaker 5

Yes, sounds like those are

Speaker 4

going to actually be reasonably big volume markets too. So you mentioned that when you're at the sensor shows in Europe, you're going to be presenting with a German Distribution partner, I'm guessing that's Angst and Pfizer. Could you just give a little update on how are they doing for you? Are you pleased with The contraction you're getting there?

Speaker 3

Yes. We're very pleased. We're fortunate to have excellent distributors And we have 2 very strong distributors in Germany. Angsten Pfister, as you mentioned, Specializes in sensors. We have another excellent distributor in Germany, Highline Power, which specializes in DC to DC converters and isolators.

Speaker 3

So I guess it's a bit of a technicality, but we're actually Co exhibiting with Highline Power. So what co exhibiting means is that we are listed on the program Along with them, we're supporting angst and sister, meaning that we'll have somebody there answering questions. They have experts in sales and application support who will also who are also very well qualified I'd like to answer questions about our products. So, the advantage of distributors, particularly in an Important market like Germany and Europe for us is that it magnifies and amplifies our feet on the street. So it allows us to have contacts with a number of customers that we might not reach otherwise And to have a strong presence at European trade shows such as those 2 large important trade shows that I mentioned that are coming up in a couple of weeks.

Speaker 4

And Dan, refresh me if I'm wrong on this, but I think you were in a reference design for a battery management system. I guess it was with Angsten's Sister, but has that gotten any traction?

Speaker 3

Yes. You have an excellent memory. That's True. That was called the B. F.

Speaker 3

A. S. System and there's information on it on their website, Inksden Pfister's website as well as ours and their videos as well. And we've gotten some excellent interest and leads from that platform. So that platform was designed for onboard charging, as you may recall.

Speaker 3

So onboard charging means that's actually In the car to convert the energy from the charging station to the energy required to charge the batteries in the electric vehicle, But it's applicable to a broad range of energy conversion such as things like motor drives and motor controls. And those are becoming more and more important to drive motors as efficiently as possible. Motors are a very large use of electricity worldwide. So we see applicability there. And on our own platform that I just talked about in the prepared remarks, which is an Arduino We emphasize motor control.

Speaker 3

So on that demonstration, we're controlling an e bike Motor, a motor that's slightly more than a horsepower and with a very small board. So we see applications there for motor control in vehicles and other applications. So we see it as an excellent area. We have a strong partnership with Angst and Pfister, which works in that area and Highline Power does as well. So we've got good distribution, good products and a unique opportunity with an emphasis on Energy Savings and Power Conversion Worldwide.

Speaker 4

That's great. Thank you. And then Just on the hearing aid side, are you feeling any impact from the Innovations that are going on there and the over the counter market, etcetera?

Speaker 3

Yes. That's a market that will take a while to develop, but we're encouraged by the reaction to our products. As we've talked about before, we've developed sensors that are compatible with the rechargeable batteries that are often used in OTC hearing aids and Consumer wearables or hearables, that's as opposed to the disposable batteries that are generally used in traditional hearing aids. So those are lower voltage. We have design wins in that space and we see it as an excellent long term potential market.

Speaker 4

And then, Joe, I think mentioned that you did have some tax credits Through the CHIPS Act, I guess there's 2 pieces to that. There's credits for CapEx that's made and then there's Subsidies for specific projects that I guess you have to apply for, are you applying for anything in particular or you Really just a benefit from credits related to CapEx?

Speaker 3

Both. So we've already And credits, as Joe mentioned, significant tax credits that are related to the Chips Act. And as Joe also mentioned, We qualified for accelerated depreciation, which reduced our taxes as well in the quarter the year. So as you know, the Department of Commerce prohibits disclosing grant applications, but the Act Could very well help our expansion. We are studying the opportunities to make an application, In particular, areas that have been highlighted in the CHIPS Act Our sensors and of course we make sensors and opportunities to onshore and we are based here in the United States.

Speaker 3

We have front end and back end operations here. We expanded our back end operations, which means test. The last things before the parts go out the door is the back end. And we're looking at opportunities to also expand That back end further and of course bring that here. We rely on packagers now And bringing some of that work here to the United States.

Speaker 3

We think that meets the spirit and the intent of the ChipSaks grant. So we're going to be looking at that very seriously. The preliminary application window for companies In our space opened on May 1. So, we're looking at that seriously. And then after that, there would be A final application process.

Speaker 3

So it may take a while, but we certainly see ourselves As potential beneficiaries of those grants.

Speaker 4

That's great. Thank you. And I'm going to I'm going to sleep well tonight knowing that I own stock in a company that has a 70% operation. So thank you for a good quarter.

Speaker 3

Well, thank you, Jeff. And as Joe said, it's a credit to our employees, their productivity, their ingenuity, And we're proud of those margins and the efficiency that our folks provide.

Speaker 4

Great. Thanks.

Operator

One moment please. Our next question comes from the line of Don Hall.

Speaker 5

Hi, Dan, Don Hall. And a knockout quarter. Thank you very much. It's really exciting. I missed the early part of the call, so this may be redundant.

Speaker 5

But can you just tell us, are you running at capacity or are you going to be adding more capacity?

Speaker 3

Well, we've added capacity. And as we talked about, We're looking at opportunities to add more capacity. So, as you know, we aren't running at what we would call full capacity. And for us, we're not trying to maximize our utilization like commodity semiconductors They want to run it very close to their full utilization in order to avoid excess depreciation and overhead. They have to cover their overhead.

Speaker 3

Our CapEx is relatively small compared to our revenues. So we generally want to have excess capacity. As Joe mentioned, we've added people, we've added equipment, We expanded the production test area, our back end area. So we've made significant And we are looking at plans for more. So, as Joe mentioned, These are long term plans for growth.

Speaker 3

We're looking at a potential industry downturn or Actual industry downturn as still an opportunity, some companies are cutting back on their CapEx or their investments. We see this as an opportunity to lay the groundwork for future growth.

Speaker 5

Good. Thank you very much. I know you have not in the past given guidance. So I wonder if I can say, is this An unusual bump this quarter or can we expect earnings at this level throughout the rest of the year? Is that a fair question?

Speaker 2

Well, this is Joe. Of course, we can't predict the future. We had a record setting year, and we talked about some of the factors from a productive capacity standpoint. I think we wanted to talk about the overall industry dynamics to kind of help calibrate our investors. I mean, We believe in our company.

Speaker 2

We believe in our product. We're going to try and continue to grow the business. But it would Not be wise to not acknowledge the challenges that are out there. So there's good things happening, But the crystal ball is a little bit cloudy on what the next year what next year is going to hold for this industry?

Speaker 5

By next year well, I guess that's the calendar year we're not the fiscal year we just entered I guess, right?

Speaker 2

Right. Right. Yes, the fiscal year.

Speaker 5

Okay. Well, I wish you all the best of luck and thanks for your performance.

Speaker 3

Thanks, Don.

Operator

Thank you.

Speaker 3

Well, if there are no other questions, we were pleased to report a record Chattering quarter fiscal year with product sales nearly doubling and profits more than doubling for the quarter. We look forward to speaking with you again in July

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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