NVE Corporation

Q3 2022 Earnings Conference Call

1/19/2022

spk_0: thank you for standing by and welcome to the envy a corporation third quarter results conference call at this time all participants arnie listen only mode after the speaker presentation there will be a question and answer session to ask a question during the ceci you will need to press star one on your telephone please be advised that today's conferences being recorded should require any further assistance please press star zero are not like to hand the conference over to host president and ceo dan baker please go ahead
spk_1: good afternoon and welcome to our conference call for the quarter and nine months ended december thirty first twenty twenty one this call is being why last live in being recorded a replay will be available through our website and the dot com we issued a press release with third quarter results and filed are quarterly report on for ten q in the past hour following the close of market we also filed a current report on for make a announcing our new see a oh joe schmidt's who was on the call joe is a the executive a joined us this week here to help but the fill our mission of leading a spintronics revolution joe welcome to the call
spk_2: thanks them
spk_1: also until today's call is or vice president of advanced technology pt eames well he'll compete in a few minutes since go was no are present the financials as well as the business review today pete will cover new products and hour a day and then we'll open the call the questions comments we may make the related future plans advance financial results are performance are forward looking statements that are subject to certain risks and uncertainties including among others such factors as risk and answer these related to future sales and revenue uncertainties related to future stock repurchases and dividend payments our dependence on critical suppliers and packaging vendors risks related to renewals of agreements with certain customers and risks related to the covert nineteen pandemic as well as the risk factors listed from time time and are filings with the fcc including our annual report on form ten k for the year ended march thirty first twenty twenty one as updated in subsequent filings links to the documents we bought this afternoon are available through the as he sees website our website and our twitter timeline the 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 solid earnings despite supply chain disruption said the way product shipments more importantly we ended the quarter well positioned with work and process product inventories i'll cover some details of the financials total revenue for the most recent quarter decreased four percent to six point two nine million dollars from six point five three million in the prior year quarter the decrease was due to a seven percent decrease in product sales partially offset by an eighty six percent increase in contract are indeed net income for the third quarter of fiscal twenty twenty two decrease twelve percent to three point four seven million or seventy two cents per diluted share compared to three point nine three million or eighty one sense for the prior year quarter we believe the impact of the coded nineteen pandemic i'm custard and customer demand was significantly less in the quarter and nine months ended december thirty first twenty twenty one compared to the prior year periods we both the impact the on ah the pandemic on our supply chain however was significantly more in the most recent quarter and nine months than in the prior year periods gross profit margin decrease to seventy eight percent the third quarter of fiscal twenty twenty two from eighty four percent in the third quarter of fiscal twenty twenty one primarily due to product mix an increase product costs like most companies on the semiconductors industry many of our costs increase including foundry wafers chemicals packaging costs and labor in response to increase costs we cancelled some discounts and increase in prices in the past quarter more price increases became effective at the start of the calendar year in the past quarter we quoted sixteen weekly times on most of our parts therefore if we have a golf course many of the parts we're where we coded sixteen weeks will be shipped this quarter sixteen weekly times are much longer than before the pandemic or even a few months ago but according to the most recent monthly market update by one of our distributors the lead time for parts from one of our traditional semiconductor competitors is fifty two to eighty weeks or above expenses for the quarter decrease fourteen percent from the prior year due to a fifteen percent decrease in our in d and a thirteen percent decrease and as dna the decrease in our the expense was primarily due to staffing changes and the completion of certain product development activities the decrease in as dna was primarily due to staffing changes interest income for the third quarter of fiscal twenty twenty two decrease twenty two percent due to a decrease in are available for sale securities and a decrease in the average interest rates on those securities net income for the corner was a three point four seven million dollars or seventy two cents per diluted share compared to three point nine three million dollars or eighty one sense last year we continue to generate strong profitability operating margin was sixty four percent pretax margin was sixty nine percent and that march and was fifty five percent that the first nine months of fiscal twenty twenty two total revenue increased thirty one percent to twenty point three million dollars from fifteen point five million in the prior year product sales increase thirty one percent and contract or and d increase seventeen percent net income for the first nine months increased twenty five percent from the prior year period to ten point seven million dollars or two dollars twenty one cents per diluted share from eight point five six million or a dollar seventy seven per share for the first nine months of fiscal twenty twenty one capital expenditures were fifty eight thousand dollars in the first nine months of the fiscal year we expect that number to increase significantly this quarter the fourth quarter since we plan to deploy several new test handlers to increase production task capacity and alleviate potential bottlenecks we we purpose part of the building to make room for the new equipment we pay a one dollar per share do them in the past quarter and today we announce that a board of directors declared another quarterly dividend of one dollar per share pebble february twenty eighth to shareholders of record as of january thirty first turning of the passcode is business highlights some analysts it's said global semiconductor shortages could last several more years and i that would pose both medium term opportunities and threats we took advantage of some of the opportunities by winning business because we have shorter lead times than traditional semiconductors and we can keep that business by demonstrating more reliable supply or with excellent product performance and quality we've addressed the threat posed by the shortages by increasing work and process inventory we are investing and additional production and test equipment we expanded our production space we have invested in tooling and materials for alternate packaging benders and we have invested in tooling for onshore foundry waivers with these steps as i discussed in the financial review although elite times longer than they have been they are much better than industry averages we're proud to supply products to some of the world's most demanding customers including abbott's pacesetters subsidiary abbott is a leading supplier of implantable medical devices i'm pleased to report that we have reached a tentative agreement to extend our supplier partnering contract with abbott the extension will run through the end of twenty twenty two and will include a price increase in the face of our increased materials and manufacturing costs will fall the amendment on the current report on for make a after it's all it fully executed there's still some in person trade shows and conferences or taiwan distributor caltech international exhibited in taipei international industrial automation exhibition in december caltech reported turnout was lighter than before the pandemic but they still had some leads the joint mmm in er mag conference a major conference for magnetics and spintronics was last week highlights of our participation are on our website and twitter timeline we provided several types of our giant magneto resistance and toweling magneto resistance sensors to student entrance at the conference so they could learn how to use them the students came up with some clever applications including a magnetic flute and the beer level censor their links to videos on our twitter timeline now i'd like to turn the call over to pdsr vice president of advanced technology to cover new products and product development has been on these calls before he's been with and be a since two thousand three and has been in this current position since twenty seventeen he has a phd in experimental condensed matter physics from the university of minnesota
spk_3: pete
spk_1: thanks to him or cover recent new products and summarize our product development strategy
spk_3: in the past quarter we launched our most sensitive censor ever the new sensors of or is a version of our groundbreaking tunneling many to resistance or tmr sensors high sensitivity means new sensors can detect smaller magnetic fields which allows more precise position or current sensing for more accurate and efficient electronic controls a demonstration of our website or get a demonstration on our website and you tube channel shows how the new sensors can precisely detect and position a very small magnet a one eight by one eighth of an inch cylinder and the skills important for applications required precise automation the new product as a result of advancements in our team are censor materials by art advanced technology team we continue researching even higher sensitivity devices to maintain and extend our leadership in this area applications of high sensitivity sensors include precise position sensing and biometric monitoring despite challenges posed by shortages a long wait times twenty twenty one was productive year for product development in addition to the new sensor i just discussed were introduced several other new products and the past year the world's first team gear to sensors with thousands of a degree resolution for ultra precise motion control in robotics
spk_1: ultra low power magnetic switches for medical devices and hero balls and more parts the transmit power as well as data
spk_3: up next working on to near term advanced smart sensors for the industrial internet of things and advanced high sensitivity to immerse mate smart magnetometer and and advanced single smart angle censor both we hope to announce these new products soon and this in this quarter long term or aren't the strategy in it is in advanced materials and sensors for couplers am for sensors for the internet and industrial internet of things and hybrid electric vehicles and amram for anti tamper niches to build or intellectual property
spk_4: or primary enabling technology for advance products as tunneling the good resistance or tmr or or or real world leaders and tmr which is that advanced been trolling technology tmr offers higher sensitivity of lower power than traditional semiconductors or even other spintronics technologies
spk_1: thanks beep
spk_0: that would like to open a cough questions let's teeth if thank you as a reminder to ask a question you will need to press star one your telephone to withdraw your question press the pound key again that star one on your touchstone telephone to ask a question please stand by while we compile the q and a roster
spk_5: our first question comes on line of jeff bernstein of cohen your line is open
spk_6: hey hey guys i started again dan and and nice to me to a joke
spk_1: enda and pete so a couple questions were you one can use any kind of order of magnitude of it's sort of how much business you think you you'd left on the table in the concorde earth as of of said delays i'm yeah it's it's hard to it it's hard to come up with a number jeff but it was a significant amount of revenue by the more important thing is that it's been delayed not lost by and large so oh well we haven't lost those customers we haven't lost but that business and we've actually picked up quite a bit a business and picked up orders from our competition so the it it was a significant disruption and we is i mentioned in the prepared remarks in the first two quarters of the fiscal year we had inventory and so the demanded picked up and we were uniquely positioned in the most recent quarter our inventory at been a been a lot of our inventory been depleted and so we were in a position animal where the shortages started to bite but if they didn't bite us nearly as hard because of the mitigation steps that are folks talk and the skill and dedication with share employees put in the into managing some of these shortages that they haven't affected us is severely as many other
spk_6: companies in the semiconductors industry
spk_1: duchess of so we can we didn't assume that you've built a little visibility as as a result of the backup yes we have visibility of orders and their challenges a in the industry as you well know but now we're taking a it and the and the committed to growth we're betting on male were reading equipment or expanding our bill
spk_6: holding because we're expecting to deliver those products that have been delayed
spk_7: got it and it's you reference to a redesigns for us packaging i'm so so that i guess i'm on your part redesign so of your parts to be
spk_1: a package to year as opposed to the overseas and and and cut down on that the logistics time and and i guess whatever delays there are it at packaging facilities overseas is that the take away exactly so well we've invested in on showing the it takes a while but we're expecting wafers that we used to get from asia were expecting the first wafers on one of our
spk_8: the highest volume of foundry wafers raw materials
spk_1: as early as a later this month so our our team
spk_9: the got on that
spk_6: fairly early in the in the semiconductor shortage college and we have more wafers on the drawing board that were redesigning for onshore foundries
spk_10: gotcha okay and then
spk_6: yeah we talked in the past that did you had some drop in a sort of pin compatible parts that that you know he could you could compete with with some of your your peers
spk_1: and at last night i think we'd better performance but has this situation that you know dragged on long enough that people are actually doing some board designs and and willing to design and partner aren't incompatible yes her some of them are and we spend a fair amount of time supporting those customers to point out the differences and to ah help them through the design process for redesigning their boards and also we picked up a significant amount of business of orders for for him for pim ah
spk_6: replacement parts where there are no board designs required and those redesigns as you can imagine can go much faster
spk_1: gotcha okay that's great and to new touch on what's been going on with eggs and sister and and you know what what kind of progress you're making an automotive yes automotive remains a target market for us and in particular you're referencing angstroms and sisters sir the so called their be fast platform which is a platform for on board charging and other power conversion applications which ah a weight which are fast growing applications as you know so we continue to work with them and work with summer there and customers on designs on sampling parts we are working on even more improved products that will address that market of ah improving the efficiency of battery charging and other power conversion system so it's an area that we see the as an excellent target market particular only for our couplers which can be used them to drive
spk_11: high speed power switches so called moss that in order to convert power of from
spk_1: from the ac voltages that we would have in a charging system or in our homes
spk_6: to the d c
spk_1: that's required to charge to recharge an electric vehicle or convert energy to a more efficient motor gotcha and said these are the ones that are that are like silicon carbide compatible exactly so i couplers provide a bridge between electronics and interface between the control electronics and the switches like the silicon carbide or daily i'm nitride mosque pets that are doing these switching of the power but because those are at high voltages and require i currents you can't coach connect those directly to the
spk_6: the to the controller electronics so our spintronics couplers solve that problem of being able to signal the mass that's to switch without a direct electrical connection
spk_1: mom and then it out a question about the about abbott a couple of wasn't bad at it i'm so it sounds like you are extending the point agreement and they usually have like five or six year agreements it is that just because of how things are are moving so quickly in the industry or just expand a little bit on on what's going on with abbott yes wow we've had a longer term extensions with abbott or their predecessor companies says st jude or pacesetter but recently the extensions have been shorter than one year as so we do expect to negotiate a longer term agreement with abbott
spk_6: those things it take a little bit of time i bet what we're pleased with is that the agreement the tentative agreement that i alluded to codified surprising priests and that's important as in the face of a increasing costs that that's great and then i'm i noticed these guys have recently
spk_3: fielded a new of a electrophysiology a cardiac mapping platform and and it would seem like your sensors would be really appropriate for that of a a product or were you able to to getting in
spk_6: to see them on that design cycle or is that something to potentially go after in future right yeah full of it that's an exciting new application at out that i guess we're not really familiar to all of the inner workings on on that particular device but certainly a some of our no field sensors are exciting for applications like that and or something that tell we're hopeful i will be and in that do those types of markets in the future
spk_3: gotcha and then while while we have your expertise year i'm just order to keep reading about various your quantum computing a kinds of architectures and on i'm wondering if any your parts are you know potentially you know potential to be used either either in cuba joins in some of the the error correction you know and monitoring kinds of applications and in a these different kinds architectures
spk_6: right right with that's a that's a real exciting application and it's something that we have looked at a closely in the past from spintronics perspective i think longer term there's some opportunities there for a spot dumb and the short term i think we're focused on some other areas like a tmr materials and and i feel sensing gotcha okay and then a wanted to ask about i guess the f b a comment period on the new over the counter hearing aids regulation is coming to an end here
spk_3: if you know is as that kept design activity from happening or our you deep into that more you know so so of give us an update on the hearing had market yeah well in particular for here bulls it's a real exciting time and dumb there's a lot of changes are coming in that market you're referring to a couple of popular press articles for particularly as wall street journal was published
spk_6: on the availability of of devices in the bull market that's something that we're really optimistic about we see opportunities there are we think we're well positioned for those types of devices and doesn't something where we're seeing a lot of growth and down and are hopefully on an opportunity to talk a lot more and the future about
spk_1: okay that's great and then and then last week dan on that you know it it would seem like the those these are electric vertical takeoff and landing vehicles would similarly you know to that to ease your target market ah for you guys that your how are you look into trying to access the the the guys designing those products yeah exactly so so that would be you know a next generation beyond hybrid electric vehicles says so called flying cars which is very exciting area and there's even more of a premium on efficiency of batteries and power conversion those types of systems because
spk_6: because of the extremely high cost of weight down so we are looking at those markets also as
spk_1: of course of a bit longer term then i read electric vehicles but for power conversion and a lot of the systems we think will be oh will be an evolution of the systems that are coming on board and we talked about an answer to one of your previous questions about power conversion for hybrid electric an autonomous vehicle us and so is that a direct sales effort to do that that's going on there and and you guys just have to knock on doors
spk_6: it's more targeted dad and that a we're looking at providing a system like the a instance sister be fair system
spk_12: we're providing a key element of the system but we think the best approach is to be part of the reference designs for power conversion modules and get him out with in the early stages with the module manufacturers and
spk_0: there's there's as a to two and one of your other questions are there has been some progress or
spk_13: gotcha that's great thanks so much
spk_14: thanks jeff
spk_12: say your next question comes from alex woodward abridged city capital your line is open
spk_14: hi dan first time questioned or but a long time listener sort of them
spk_1: thanks alex welcome to the gop think you are you mention that the to lead time is right now or sixteen weeks i'm and their up longer than they used to be prepared a mic what really times oh we we endeavor to have most of our part in stock so we would ship the same day
spk_7: it depending on the time of day
spk_1: so we still have parts that are in stock a that's not the usual case for a large order for a large production order and our lead times vary but i was getting the sixteen weeks to sort of the representative number so and even as i mentioned even in the first two quarters of this year when we had inventory in many cases we were we were shipping ah out of stock can get the directly from stock rather so therefore we could ship but we could ship the same day
spk_14: amri times were shorter as i mentioned in the prepared remarks lead times were shorter even a few months ago
spk_1: but we're still in much better much better situated them the many conventional semiconductor companies so i guess my real question is what are your cycle times from like wafer to finished product how long does it take yeah that's that that's a good question answer it's it's quite a bit longer than it used to be so it it you we used to say approximately three months cycle time and now we're talking about the closer to four to five months cycle time we've worked very hard to improve our internal cycle times and despite some challenges and materials shortages oh we're we're pretty pleased with where we are for our internal cycle times and the biggest challenge is that the packaging and vendors so as some of you know we make wafers and then the products are sent to asia i like most semiconductor companies we send wafers to asia where they're packaged into the plastic packages the ubiquitous semiconductor packages that are saturday and to circuit boards for the electronics that we use and that's been a significant bottleneck throughout the industry we're better situated than most companies because we
spk_15: i have been able to keep up with our wafer production ah we've been able to diversify our suppliers on that front and a we've been oh working on a very aggressively when problems come up shortages of certain materials or engineering team has been very
spk_14: good at finding alternate materials
spk_1: add redesigning are parts the way we make our parts of that they can be packaged or packets choosing alternate materials so will we are we continue to be ah better situated in than the industry even though or that kind of disruption as has a has an impact on us okay so when you're shipping products to asia you've got the freight transport issues costs are going up there and you also got the port congestion says that were a lot of the you know when the two months incremental time is taking place i'm that some of that all we have the luxury of weep a we usually airfreight so the up in the news earlier but not as bad as what we've been a you what what you get about four containers so we can do we can ship a significant amount of know we might ship the pits wafers they can make
spk_14: tens or hundreds of thousands of dollars worth of parts in a relatively small box
spk_1: so we can are afraid that and most of the incremental time is just because of the capacity limitations and the turret raw materials shortages at the packaging vendors in asia that's where the big increases been logistics is part of it but but the bigger the bigger challenge is just the capacity limitations of those vendors okay and speaking of capacity utilization your factory in minnesota who would capacity utilization are you running out yeah that's a great question alex and we we don't have a specific number but but we run at a much lower utilization than traditional semiconductors a we add more value and so we have the luxury of having excess capacity which is another reason why despite shortages we've been able to manage our internal cycle times a fairly well the we do have have certain pieces of equipment in certain areas and particularly final test where we feel that we need more capacity and we've invested in at as i mentioned in that prepared remarks it hasn't shown up and our capital expenditures yet because the equipment hasn't been fully deployed we have one new piece of equipment weapon for example the here to increase our capacity in that area
spk_14: and do we have more equipment that we expect in this quarter the fourth quarter the quarter ending march thirty first but an answer your question we're not a we don't have a significant overall constraint on capacity like a conventional semiconductor manufacturing who might be making dram or something like that where they'd be wanting very close to one hundred percent capacity in any disruptions will or will ripple through and disrupt their shipments of very severely
spk_1: okay how are you able to i'm bill finished goods inventory in the quarter it went up almost one hundred ninety thousand and that's about three quarters of a million dollars if i use as a representative gross margin how are you able to do that when it's supply concerned i would have thought the to you know anything you have available customers and take him yeah that that's a very good point so the shortages are not spread evenly across the board we had some products that are in demand that we have had did that way and then we have other products where we have our party and inventories i mention the answer to another question we can ship them straight away we can ship them the same day
spk_14: so so that's that's the reason then we will you know we've kept building it's it's not that were idling in our production our production area is is as busy as ever so the we're building parts that we can and working on the raw materials and the work and process and shipping as much as we possibly can to the packaging vendors so that they can that they can turn it around even with the longer lead times
spk_16: blogger cycle times
spk_14: so i got a question for years and since he's on the call and he's been a long time listener just like me so we have that uncommon i'm better
spk_3: you are a personal got an amazing respect for your products and how sensitive they are and and how amazing they are and how advanced and probably in front of everybody else in the and in the industry your but in a way it almost feels like some of your products are field of dreams of you filters and we've been waiting for the market to come from a really long time how do you determine you know when you're making them the most sensitive dmr censor in the world i mean that's great from of from you know it from an academic and maybe science perspective but where's the real customer demand and how do you determine new products with customers and and maybe some insights there
spk_14: sure to a vote of thanks alex
spk_3: of course some the product development for us there's several variables involved of course customer input is is is key to our process and lead customers are very important and many of these and many of these efforts or for us
spk_17: high sensitivity translates into new markets and precision and things like motion control and dumb and does that say you know that's a pretty universal requirement in industrial automation
spk_3: so a you know when those translate directly into dollars is a difficult to predict specially a new products but dumb but we're optimistic how optimistic are you on some of the advanced predicts you have an automotive
spk_14: generally were were very optimistic home
spk_3: we have advanced products and now for transferring power and data a describe some of the new products we've released in the past quarters for those technologies and and again we continue to be optimistic with a where whereas at the market and where we're at with lead customers there what
spk_14: how would you define new products
spk_18: oh for us and a new product is is a while it varies from oh a range of for incremental improvements in innovations to complete the new developments and and inventions new products for us are do spintronics devices and and know in new applications in new markets
spk_14: those you've just to find new products what percentage of revenue are they
spk_0: yeah i don't have that done number in front of me alex i assume much depends on which products are talking about and how they're i'm how their accounted for on that
spk_1: and switching gears i got just go on more question in this is for joe since he's also the first time on tucker on the call so why did you join
spk_0: i am excited to be a part of a team that that is helping to create the future i think some of the challenges we have my financial perspective i i i really enjoy and like the opportunity to build the team and and hopefully scale this operation great thank you that's all offer me
spk_1: thank you again to ask a question please press star wanting a touchstone telephone again that star one on your touchstone telephone to ask a question and as are no further questions and queue at this time i like to turn the call back over to damn baker for closing remarks sir thank you well we were pleased to report solid earnings despite that spy chain disruptions we look forward to speaking with you again in early may to discuss fourth quarter and for fiscal year results thank you for participating in the park this concludes today's conference call thank you for your participation you may now disconnect
spk_2: thank you for standing by and welcome to the envy a corporation third quarter results conference call at this time all participants are any listen only mode after the speaker presentation there will be a question and answer session to ask a question during the session you will need to press
spk_1: star one on your telephone please be advised that today's conference is being recorded should require any further assistance please press star zero an allied to hand the conference over to your host president and ceo dan baker please go ahead good afternoon and welcome to our conference call for the quarter and nine months ended december thirty first twenty twenty one this call is being webcast live and being recorded a replay will be available through our website and the a dot com we issued a press release with third quarter results and filed are quarterly report on for ten que in the past hour following the close of market we also filed a current report on for make a announcing our new cf oh joe schmidt's who was on the paul jones a seasoned executive a joined us this week here to help but feel our mission of law leading a spintronics revolution joe welcome to the call thanks them also on today's call is i vice president of advanced technology p eames will hear from peed in a few minutes since go was no are present the financials as well as the business review today pete will cover new products an hour a day and then will open the call the questions comments we may make the related future plans advance financial results are performance are forward looking statements that are subject to certain risks and uncertainties including among others such factors as risk than and so related to future sales and revenue on certain days related to future stock repurchases and dividend payments our dependence on critical suppliers and packaging vendors risks related to renewals of agreements with certain customers and risks related to the covert nineteen pandemic as well as the risk factors listed from time to time and are filings with the fcc including our annual report on form ten k for the year ended march thirty first twenty twenty one as updated in subsequent filings links to the documents we bought this afternoon are available through the as he sees website our website and our twitter timeline the 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 salad earnings despite supply chain disruption said the way products shipments more importantly we ended the quarter well positioned with work and process product inventories i'll cover some details of the financials total revenue for the most recent quarter decreased four percent to six point two nine million dollars from six point five three million in the prior year quarter the decrease was due to a seven percent decrease in product sales partially offset by an eighty six percent increase in contract are indeed net income for the third quarter of fiscal twenty twenty two decrease twelve percent to three point four seven million or seventy two cents per diluted share compared to three point nine three million or eighty one sense for the prior year quarter we believe the impact of the coded nineteen pandemic i'm custard and customer demand was significantly less in the quarter and nine months ended december thirty first twenty twenty one compared to the prior year periods we both the impact on ah the pandemic on our supply chain however was significantly more in the most recent quarter and nine months than in the prior year periods gross profit margin decrease to seventy eight percent the third quarter of fiscal twenty twenty two from eighty four percent in the third quarter of fiscal twenty twenty one primarily due to product mix and increased product costs like most companies in the semiconductors industry many of our costs increase including foundry wafers chemicals packaging cause and labor in response to increase costs we cancelled some discounts an increase in prices in the past quarter more price increases became effective at the start of the calendar year in the past quarter we quoted sixteen weekly times and most of our parts therefore if we have a of course many of the parts we were we coded sixteen weeks will be shipped this quarter sixteen weekly times are much longer than before the pandemic or even a few months ago but according to the most recent monthly market update by one of our distributors the lead time for parts from one of our traditional semiconductor competitors is fifty two the eighty weeks or above expenses for the quarter decreased fourteen percent from the prior year due to a fifteen percent decrease in our d and a thirteen percent decrease and as dna the decrease in our the expense was primarily due to staffing changes and the completion of certain product development activities the decrease in as dna was primarily due to staffing changes interest income for the third quarter of fiscal twenty twenty two decrease twenty two percent due to a decrease in are available for sale securities and a decrease in the average interest rates on those securities net income for the corner was a three point four seven million dollars or seventy two cents per diluted share compared to three point nine three million dollars or eighty one sense last year we continue to generate strong profitability operating margin was sixty four percent pretax margin was sixty nine percent and that margin was fifty five percent that the first nine months of fiscal twenty twenty two total revenue increased thirty one percent to twenty point three million dollars from fifteen point five million in the prior year product sales increased thirty one percent and contract or indian increase seventeen percent net income for the first nine months increased twenty five percent from the prior year period to ten point seven million dollars or two dollars twenty one cents per diluted share from it a point five six million or a dollar seventy seven per share for the first nine months of fiscal twenty twenty one capital expenditures were fifty eight thousand dollars in the first nine months of the fiscal year we expect that number to increase significantly this quarter the fourth quarter since we plan to deploy several new test handlers to increase production test capacity and alleviate potential bottlenecks we purpose or the building to make room for the new equipment we pay a one dollar per share do them in the past quarter and today we announce that a board of directors declared another quarterly dividend of one dollar per share pebble february twenty eighth to shareholders of record as of january thirty first turning of the passcode quarters business highlights some analysts it's said global semiconductor shortages could last several more years that would pose both medium term opportunities and threats we took advantage of some of the opportunities by winning business because we have shorter lead times than traditional semiconductors and we can keep that business by demonstrating more reliable supply or with excellent product performance and quality we've addressed the threat posed by the shortages by increasing work and process inventory we are investing and additional production and test equipment we expanded our production space we have invested in tooling and materials for alternate packaging benders and we have invested in tooling for onshore foundry waivers with these steps as i discussed in the financial review although really times longer than they have been they are much better than industry averages we're proud to supply products to some of the world's most demanding customers including abbott's pacesetters subsidiary abbott is a leading supplier of implantable medical devices i'm pleased to report that we have reached a tentative agreement to extend our supplier partnering contract with abbott the extension will run through the end of twenty twenty two and will include a price increase in the face of our increased materials and manufacturing costs willpower the amendment on the current report on for make a after it's all it fully executed there's still some in person trade shows and conferences or taiwan distributor caltech international exhibited at taipei international industrial automation exhibition in december caltech reported turnout was lighter than before the pandemic but they still had some leads the joint mmm in er mag conference a major conference for magnetics and spintronics was last week
spk_3: highlights of our participation are on our website and twitter timeline we provided several types of our giant magnetoresistance and paneling magneto resistance sensors to student entrance at the conference so they could learn how to use them
spk_1: the students came up with some clever applications including a magnetic flute and the beer level censor their links to videos on our twitter timeline
spk_3: now i'd like to turn the call over to pdsr vice president of advanced technology to cover new products and product development peters been on these calls before he's been with and be a since two thousand three and has been in this current position since twenty seventeen pete has a phd in experimental condensed matter physics from the university of minnesota pete thanks to him i'll cover recent new products summarize our product development strategy in the past quarter we launched our most sensitive sensor ever the new sensors the for is a version of our groundbreaking tunneling many to resistance or tmr sensors high sensitivity means new sensors can detect smaller magnetic fields which allows more precise position or current sensing for more accurate and efficient electronic controls
spk_1: a demonstration of her website on a demonstration on our website and you tube channel shows how the new sensors can precisely detect and position a very small magnet a one eighth by one eighth of an inch cylinder and the skills important for applications required precise automation
spk_3: the new product as a result of advancements in our team or censor materials by or advanced technology team we continue researching even higher sensitivity devices to maintain and expand our leadership in this area applications of high sensitivity sensors include precise position sensing and biometric monitoring despite challenges posed by shortages and long wait times twenty twenty one was productive year for product development in addition to the new sensor i just discussed were introduced several other new products in the past year the world's first team are gear to sensors with thousands of a degree resolution for ultra precise motion control and robotics
spk_4: ultra low power magnetic switches for medical devices an era bulls and more parts the transmit power as well as data
spk_1: up next working on to near term advanced smart sensors for the industrial internet of things
spk_0: and advanced high sensitivity to immerse mate smart magnetometer and an advanced single smart angle censor both we hope to announce these new products soon and this in this quarter
spk_5: long term or aren't a strategy in it isn't in advanced materials and sensors for couplers and for sensors for the internet of industrial internet of things and hybrid electric vehicles
spk_6: and amram for anti tamper niches to build or intellectual property or primary enabling technology for advanced products as totaling they get a resistance or tmr or or or real world leaders and tmr which is an advanced been trolling technology tmr offers higher sensitivity and lower power than traditional semiconductors or even other spintronics technologies
spk_19: thanks beep
spk_1: that would like open the cause questions let's see if thank you as a reminder to ask a question you will need to press star one and your telephone to withdraw your question press the pound key again that star one on your touchstone telephone to ask a question please stand by while we compile the q and a roster our first question comes on line of jeff bernstein of cohen your line is open hey hey guys i started again damn and and nice to me to a joke enda and teeth so a couple questions were you one can use any kind of order of magnitude of it's sort of how much business you think you'd you'd left on the table in the concorde quarters has of of seven delays i'm yeah it's it's hard to it yeah it's hard to come up with a number jeff but it was a significant amount of revenue by the more important thing is that it's been delayed not lost by and large so
spk_6: oh well we haven't lost those customers we haven't lost but that business and we've actually picked up quite a bit a business and picked up orders from our competition so a it it was a significant disruption and
spk_1: we as i mentioned in the prepared remarks in the first two quarters of the fiscal year we had inventory and so ah the demanded picked up and we were uniquely positioned in the most recent quarter
spk_6: our inventory had been a been a lot of our inventory been depleted and so we were in a position animal where the shortages started to bite but if they didn't bite us nearly as hard because the mitigation steps that are folks talk and the skill and dedication with sarah employees put in the into managing some of these shortages that they haven't affected us is severely as many other
spk_7: companies and the semiconductors industry
spk_1: duchess of so we can we didn't assume that you've built a little visibility as as a result of the backup yes we have visibility of orders and there are challenges a in the industry as you well know but now we're taking a man and the and the committed to growth but we're betting on male were reading equipment or expanding our building because we're expecting to deliver those products that have been delayed got it and it's you reference to a redesigns for us packaging and so so that's i guess on your part redesigning so of your parts to be a package year as opposed to the overseas and and and cut down on that the logistics time
spk_9: and i guess whatever delays there are it at packaging facilities overseas is that the take away
spk_6: exactly so well we've invested in on showing it takes a while but we're expecting wafers that we used to get from asia were expecting the first wafers on one of our highest volume of foundry wafers first raw materials
spk_1: it as early as a later this month so our our team got on that fairly early in the in the semiconductor shortage college and we have more wafers on the drawing board that were redesigning for onshore foundries gotcha okay and then
spk_6: we talking the past that did you had some drop in a sort of pin compatible parts that that you know he could you could compete with with some of your your peers
spk_1: and at last night i think would better performance but has this situation you know dragged on long enough that people are actually doing some board designs and and willing to design and partner aren't incompatible yes her some of them are and we spend a fair amount of time supporting those customers to point out the differences and to ah help them through the design process for redesigning their boards and also we picked up a significant amount of business of orders for him for pim replacement parts where there are no board designs required and those redesigns as you can imagine can go much faster gotcha okay that's great and to new touch on what's been going on with eggs and sister and and you know what what kind of progress you're making an automotive yes automotive remains a target market for us and in particular you're referencing angstroms and sisters sir
spk_6: the so called their be fast platform which is a platform for on board charging and other power conversion applications which ah a weight which are fast growing applications as you know so we continue to work with them and work with some of the
spk_1: there and the customers on designs and sampling parts we are working on even more improve products that will address that market of ah improving the efficiency of battery charging and other power conversion systems so it's an area that we see as an excellent target market particularly for our couplers which can be used them to drive high speed power switches so called moss that
spk_6: in order to convert power of from from the ac voltages that we would have in a charging system or in our homes to the d c that's required to charge to recharge and electric vehicle or convert energy to a more efficient motor
spk_1: gotcha and so these are the ones that are that are like silicon carbide compatible exactly so i couplers provide a bridge between electronics and interface between the control electronics and the switches like the silicon carbide or daily i'm nitride mosque that that are doing these switching of the power but because those are at high voltages and require i currents you can't cope connect those directly to the the to the controller electronics so our spintronics couplers solve that problem of being able to signal the mosque that's to switch without a direct electrical connection
spk_6: mom and then a fight it out a question about the about abbott a couple of wasn't bad at it i'm so it sounds like you are extending the point agreement and they usually have like five or six year agreements it is that just because of how things are are moving so quickly in the industry or just expand a little bit on on what's going on with abbott yes wow we've had a longer term extensions with abbott or their predecessor companies says st jude or pacesetter
spk_3: but recently the extensions have been shorter than one year
spk_6: as so we do expect to negotiate a longer term agreement with abbott those things it take a little bit of time
spk_3: that what we're pleased with is that the agreement the tentative agreement that i alluded to codified surprising priests and that's important us in the face of a increasing costs yup that's that's great and then i'm i noticed these guys have recently
spk_6: fielded a new of electrophysiology a cardiac mapping platform and and it would seem like your sensors would be really appropriate for that thought of about a product or were you able to to get in the them on that does i cycle or is that something to potentially go after in the future right yeah for that that's an exciting new application and out that i guess we're not really a familiar to all of the inner workings on on that particular device but certainly as some of our no field sensors are exciting for applications like that and as something that tell we're hopeful i will be and and that do those types of markets and the future data and think while while we have your expertise here and just order to keep reading about various o quantum computing a kinds of architecture is and and i'm wondering if any your parts are you know
spk_3: potentially you know potential to be used either either in cuba joins in some of the the error correction you know and monitoring kinds of applications and in a these different kinds architectures right right well that that's a that's a real exciting application and it's something that we have looked at a closely in the past from spintronics perspective i think longer term there's some opportunities there for a spot done in the short term i think we're focused on some other areas like a tmr materials and and are highfield sensing such a okay at and then a wanted to ask about i guess the ft a comment period on the new over the counter hearing aids
spk_6: regulation is coming to an end here if you know is is that kept design activity
spk_1: it from happening or our you deep into that more you know so so the give us an update on the hearing had market yeah we're in particular for here bulls it's a real exciting time and dumb there's a lot of changes are coming in that market if you're referring to a couple of popular press articles are particularly as wall street journal was published on the availability of of devices in the herbal market
spk_6: that's something that we're really optimistic about we see opportunities there are we think we're well positioned for those types devices and doesn't something where we're seeing a lot of growth and dog and are hopefully or an opportunity to talk a lot more and a future about
spk_1: okay that's great and then and then last week dan i'm that you know it it would seem like the the these are electric vertical takeoff and landing vehicles would similarly you know too that to ease be a target market for you guys that how are you look into trying to access the the big guys designing those products yeah exactly so saw that would be you know a next generation beyond hybrid electric vehicles that so called flying cars which is very exciting area
spk_20: and there's even more of a premium on efficiency of batteries and power conversion of those types of systems because said because of the extremely high cost of weight dumb
spk_6: so we are looking at those markets also as of of course of a bit longer term then i read electric vehicles but for power conversion and a lot of the systems we think will be oh will be an evolution of the systems that are coming on board and we talked about an answer to
spk_1: one of your previous questions about power conversion for hybrid electric an autonomous vehicles
spk_0: and so is that a direct sales effort to do that that's going on there and and you guys just have to knock on doors
spk_13: it's more targeted dad and that a we're looking at providing a system like the instant sister be fair system
spk_14: we're providing a key element of the system but we think the best approach is to be part of the reference designs for power conversion modules and to get him out with in the early stages with the module manufacturers and
spk_21: if there's there's as a moody to in one of your other questions are there has been some progress or
spk_14: gotcha that's great thanks so much
spk_1: thanks jeff say your next question comes from alex woodward abridged city capital your line is open i dan ah first time questioner but a long time listener
spk_22: so
spk_1: thanks alex welcome to the crop thank you oh you mention that the the lead time is right now or sixteen weeks and they're up longer than they used to be prepared emigrant really times oh we we endeavor that most of our part in stock so we would ship the same day
spk_14: depending on the time of day
spk_1: so we still have parts that are in stock a that's not the usual case for a large order for a large production order and our lead times vary but i was getting the sixteen weeks a sort of a representative number i'm so and even as i mentioned even in the first two quarters of this year when we had inventory in many cases we were we were shipping ah out of stock got get the directly from stock rather so therefore we could ship but we could ship the same day and we times were shorter as i mentioned in the prepared remarks lead times were shorter even a few months ago but we're still in much better much better situated then the many conventional semiconductor companies so i guess my real question is what are your cycle times from like wafer to finished product how long does it take yeah that's that's that's a good question answer it's it's quite a bit longer than it used to be so it it you we used to say approximately three months cycle time and now we're talking about the closer to four to five months cycle time we've worked very hard and to improve our internal cycle times and despite some challenges and material shortages oh we're we're pretty pleased with where we are for internal cycle times and the biggest challenge is that the packaging and a vendors so
spk_14: some of you know we make wafers and then the products are sent to asia
spk_1: like most semiconductor companies we send wafers to a where they're packaged into the plastic packages the ubiquitous semiconductor packages that are saturday and to circuit boards for the electronics that we use and that's been a significant bottleneck throughout the industry we're better situated than most companies because we ah
spk_7: i have been able to keep up with our way for production
spk_1: we've been able to diversify our suppliers on that front and a we've been oh working on a very aggressively when problems come up shortages of certain materials or engineering team has been very good at finding alternate materials at redesigning are parts the way we make our parts of that they can be packaged or packaged using alternate materials so
spk_23: will we are we continue to be ah better situated in than the industry even though or that kind of disruption as has a has an impact on us
spk_14: okay so when you're shipping products to asia you've got the freight transport issues costs are going up there and you also got the port congestion those that were a lot of the you know when the two months incremental time is taking place
spk_1: i'm that some of that all we have the luxury of weep a we usually airfreight so durbin those rare but not as bad as what we've been a at what what you get about four containers so we can do we can ship a significant amount of you know we might ship the pits bit of wafers they can make tens or hundreds of thousands of dollars worth of parts in a relatively small box so we can are afraid that and most of the incremental time is just because of the capacity limitations and mature raw materials shortages at the packaging vendors in asia or that's where the big increases been logistics is part of it but but the bigger the bigger challenge is just the capacity limitations those vendors
spk_17: okay and speaking of capacity utilization your factory in minnesota will what capacity utilization are you running out
spk_14: yeah that's a great question alex and we we don't have a specific number but but we run at a much more wary utilization than traditional semiconductors a we add more value and so we have the luxury of having excess capacity which is another reason why despite shortages we've been able to manage our internal cycle times a fairly well the we do here
spk_1: have certain pieces of equipment in certain areas and particularly final test where we feel that we need more capacity and we've invested in at as i mentioned in that prepared remarks it hasn't shown up and our capital expenditures at because the equipment hasn't been fully deployed we have one new piece of it weapon for example the terror to increase our capacity in that area and we have more equipment that we expect in this quarter the fourth quarter to quarter ending march thirty first but an answer your question we're not a we don't have a significant overall constraint on capacity like a conventional semiconductor manufacturing who might be making dram or something like that that where they'd be wanting very close to one hundred percent capacity and any disruptions will or will ripple through and disrupt their shipments of very severely
spk_14: okay how are you able to bill finished goods inventory in the quarter it went up almost one hundred ninety thousand and that's about three quarters of million dollars as i use as a representative gross margin how are you able to do that when it's supply concerned i would have thought that to you know anything you have available your customers and him yeah that that's a very good point so the shortages are not spread evenly across the board
spk_3: we have some products that are in demand that we have had it that way and then we have other products where we have a party and inventories i mention the answer to another question we can ship them straight away we can ship them the same day so so that's that's the reason then we will you know we've kept building and it's it's not that were idling in our production our production area is says as busy as ever so that we're building parts that we can and working on the raw materials in the work and process and shipping as much as we possibly can to the packaging vendors so that they can that they can turn it around even with the longer lead times blogger cycle times
spk_14: so i had a i got a question for be here since since he's on the call him he's in a long time listener just like me so we have been common i'm better
spk_3: you are i personally got an amazing respect for your products and how sensitive they are and and how amazing they are and how advanced and probably in front of everybody else in the and in the industry your but in a way it almost feels like some of your products or field of dreams of you filters and we've been waiting for the market to come from a really long time how do you ditto and you know when you're making them the most sensitive dmr censor in the world
spk_17: i mean that's great from a from you know
spk_3: from an academic and maybe science perspective but where's the real customer demand and how do you determine new products with customers and and maybe some insights there sure term a vote of thanks alex
spk_14: of course some the product development for us there's several variables involved of course customer input is is is key to our process and lead customers are very important and many of these
spk_3: and many of these efforts or for us high sensitivity translates into new markets and precision and things like motion control and done and done that see you know that's a pretty universal requirement in industrial automation
spk_14: so a you know when those translate directly into dollars is a difficult to predict specially a new products but dumb but we're optimistic
spk_18: how optimistic are you on some of the advanced predicts you have an automotive
spk_24: generally were were very optimistic hum of we have advanced products and now for transferring power and data a describe some of the new products we've released in the past quarters for those technologies and and or again we continue to be optimistic with a where we're at the market
spk_14: and where we're at with lead customers there
spk_0: what how would you define new products
spk_1: oh for us and a new product is is a while it's it varies from oh a range of for incremental improvements in innovations to complete the new developments and and inventions
spk_0: new products for us our new spintronics devices and and know in new applications in new markets
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