NVE Corporation

Thank you and good afternoon. Welcome to our conference call for the quarter ended June 30th, 2022. My name is Dan Baker. I'm the president and CEO of NVE Corporation. This call is being webcast live and being recorded. A replay will be available through our website, NVE.com. I'm joined by our CFO, Joe Schmitz. After my opening comments, Joe will present a financial review. Then I'll cover the business and new products. Then we'll open the call to questions. We issued our press release with quarterly results and filed our quarterly report on Form 10-Q in the past hour following the close of market. Links to the press release and 10-Q are available through the SEC's website, our website, and our Twitter timeline. Comments we may make that relate to future plans, events, financial results, or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as risks and uncertainties related to future sales and revenue, uncertainties related to future stock repurchases and dividend payments, our dependence on critical suppliers and packaging vendors, and risks related to the COVID-19 pandemic and supply chain disruptions, as well as the risk factors listed from time to time in our filings with the SEC including our annual report on Form 10-K for the fiscal year ended March 31, 2022. 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 a 16% increase in net income for the first quarter to $0.86 per diluted share. Joe will cover the details. Joe?

Thanks, Dan. increased 3% to $7.34 million from $7.15 million in the prior year quarter. The increase was due to a 2% increase in product sales and a 32% increase in contract R&D revenue. The growth was from a strong quarter last year. Product sales increased 11% sequentially from the March quarter. We continue to be challenged by supply chain shortages, although we're seeing signs of improvement. During the quarter, deliveries from our supply base enabled NVE to increase work and process inventory by $508,000 to support future growth. We're picking up new customers from traditional semiconductor companies with our superior products and shorter lead time. We've increased our capacity with new equipment, We expect to invest as much as $1 million in additional production and test equipment in the rest of the fiscal year. Gross margin was 77% for the quarter compared with 75% last year. Margins decreased last year because of cost increases in the semiconductor industry, but the price increases we enacted in the prior fiscal quarter are beginning to offset increased costs. Expenses for the quarter decreased 24% from the prior year due to a 26% decrease in R&D and a 20% decrease in SG&A. The decrease in R&D was due to R&D personnel spending more time on revenue-generating activities. The decrease in SG&A was due to lower incentive compensation. Interest income for the quarter decreased 2% due to the timing of maturities for available-to-sale securities, and in late June and early July, we reinvested those proceeds for maturing securities at higher interest rates. Driven by increased revenue, increased margins, and decreased expenses, net income for the quarter increased 16% to $4.14 million, or 86 cents per diluted share, compared to 3.58 million or 74 cents per share for the prior quarter. In addition to the increase in gross profit margin, operating margin, pre-tax margin, and net margins all increased compared to the prior year quarter. Net margin was a strong 56% and we recorded our largest quarterly profit since 2018. In addition to the past year's, or excuse me, in addition to the past quarter's $1 per dividend, today we announced that our board declared another quarterly dividend of $1 per share payable August 31st to shareholders of record as of August 1st. Now I'll turn it back to Dan to cover the business, new products, and marketing.

Thanks, Joe. In-person trade shows and conferences are returning. We exhibited at Sensors Converge in San Jose a few weeks ago. The exhibition showcases the latest sensing technologies and was back to its traditional early summer schedule for the first time since the pandemic. We received a number of new leads and continue to follow up. In an industry wracked by shortages, a number of prospects were impressed by our inventory levels and lead times. We demonstrated several new products, and we had a mechatronic demonstration using one of our new smart sensors to control a musical pitch pipe. Musical instrument robots have been effective in attracting attention and demonstrating the precision, robustness, and simplicity of our sensors. We also had sales staff supporting distributors at two major trade shows in Germany the past quarter, PCIM Europe and SensorPlus Tests. 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. Sensor Plus Test claims to be the world's leading forum for sensor measurement and testing technology. I've been asked about our Ukrainian distributor, Kvasar Micro Components, which is based in Kyiv and has represented us for more than 15 years. It's not significant business for us from a financial perspective, but it is inspirational, and we continue to have sales dialogue and to expedite their orders. They've helped inspire us to do our damnedest to overcome supply chain challenges. Turning to new products, we introduced a new ultra-miniature version of our tunneling magneto-resistance or TMR magnetic sensors. The new parts are 1.1 millimeters less than a sixteenth of an inch square. The existing parts were already pretty small, two and a half millimeters less than a tenth of an inch. We believe the new part is the smallest device of its type and can be used to detect position in tight spaces such as industrial or medical robots as they get smaller. There's a demonstration video on our website and YouTube channel. Our components are inherently safer and more reliable than legacy semiconductors. An industry standard for that is called intrinsically safe. In the past quarter, several of our data coupler models were certified for use as isolating components in intrinsically safe circuits by underwriters' laboratories. Our couplers transfer data without direct electrical connections to hazardous areas. This mitigates the risk of arcing or otherwise starting an explosion. Certification involves rigorous testing by UL and a thorough on-site audit of our control over product safety processes. It's a great validation of our technology and manufacturing capabilities, and it's valuable in hazardous areas of the Internet of Things, such as chemical or food processing plants. Three isolator lines have intrinsically safe certified versions, our flagship data couplers, isolated network transceivers, and our low-power tunneling magnetoresistance data couplers. There's an intrinsic safety demonstration on our YouTube channel where we also destroy a competitive part. We're fortunate to have dedicated employees. We make things, so working from home isn't an option. Our employees have worked through the personal challenges of the pandemic, industry shortages, and supply chain problems. I was able to thank them as a group at our first in-person employee meeting in more than two years last quarter. We had a barbecue to welcome spring in Minnesota. We demonstrated new products for our employees and celebrated the foundation our employees have built for a bright future. As promised in last year's proxy, we will return to in-person annual shareholders meetings with our meeting at a nearby hotel and conference center on August 4th. The first annual meeting agenda is the election of directors, and we're pleased to have a strong independent board of directors with two former public company CEOs, Rich Cramp and Jim Brackey, a former CFO of a public company, Pat Hollister, an experienced director for a number of successful public companies, Terry Glarner. The second annual meeting agenda item is approval of officer compensation. As detailed in our proxy, we don't overpay our officers, our officers have the same fringe benefits as all employees, and there are no executive perks or golden parachutes. The third annual meeting agenda item is ratification of our auditors for this fiscal year, the year ending March 31st, 2023. Boulay has audited our past three fiscal years, and we recommend their approval for our next audit. A popular feature of our in-person annual meetings has been live hands-on product demonstrations, and we'll have several of those. If you can't attend, you can see the product demonstrations, a number of product demonstrations on our website or our YouTube channel. Now I'd like to open the call for questions. Operator?