This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: It can do so many things and with your kind consent. We would like to show you in our first experiment.
spk03: What's the big attraction in a... Good afternoon and welcome to the NVE Corporation conference call for the quarter ended June 30th, 2024. I'm Dan Baker, NVE's President and CEO. I'm joined by Controller and Principal Financial Officer Daniel Nelson. This call is being webcast live via YouTube and Amazon Chime, and it's being recorded. A replay will be available through our website, nve.com, and our YouTube channel, youtube.com slash nvecorporation. All participants are currently in listen-only mode. After our presentation, there will be a question and answer session. You'll be able to ask a question by pressing star 7 from a phone or clicking raise my hand from the Chime website or app. After my opening comments, Daniel Nelson will present our financial results. I'll cover products and marketing, and we'll open the call to questions. We issued our press release with financial results and filed our quarterly report on Form 10Q in the past hour following the close of market. Links to the press release and 10Q are available through the SEC's website, our website, and on X, formerly known as Twitter. Please refer to the Safe Harbor Statement on your screen. Comments we may make that relate to future plans, events, financial results, or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as uncertainties related to the economic environments and the industries we serve and risks and uncertainties related to future sales and revenue, as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on Form 10-K for the year ended March 31, 2024. 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 strong earnings and cash flow despite a challenging industry environment and a decrease in revenue from an exceptional year-ago quarter. Daniel Nelson will cover details of our financials. Daniel?
spk01: Thanks, Dan. Total revenue for the quarter ended June 30 of 2024 decreased 23% compared to an exceptional prior year quarter. The decrease was due to a 24% decrease in product sales, partially offset by a 28% increase in contract research and development revenue. The decrease in product sales was primarily due to a semiconductor industry downturn, and high inventory levels primarily in the distributor channels. However, forecasts indicate the industry is on a path to recovery in calendar 2024 and strong growth in 2025. Gross margin percentage for the first quarter of fiscal 2025 was 86% compared to 77% the prior year quarter. The increase in gross margin percentage was due to a more profitable product mix and a larger portion of direct rather than distributive sales. Total expenses increased 3% for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 due to a 26% increase in research and development expense, and a 14% increase in selling, general, and administrative expense, partially offset by a decrease in credit loss expense. The increase in research and development expense was due to increased new product development activities. The increase in selling, general, and administrative expenses was primarily due to increased sales and marketing activities. We added sales and marketing personnel and increased marketing activities. Then we'll talk about those activities shortly. Interest income for the quarter increased 13% due to higher interest rates. Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 16% for the first quarter of fiscal 2025 compared to 24% for the first quarter of fiscal 2024. The decrease was due to changes in the timing and amounts of federal tax credits and deductions. The 7% decrease in net income in the first quarter of fiscal 2025 compared to the prior year quarter was primarily due to decreased revenue, partially offset by increased gross profit margin as a percentage of revenue, increased interest income, and a lower effective tax rate. With an unrealized gain from marketable securities, comprehensive income decreased just 1% from the prior year quarter. It was an exceptionally profitable quarter, with 86% gross margin, 65% operating margin, 60% net margin, and earnings of $0.85 per share. Operating cash flow increased 16% to $5.85 million for the most recent quarter compared to $5.03 million for the prior year quarter. Operating cash flow more than covered the $4.83 million dividend. Our balance sheet remains strong. Even after a $4.83 million dividend and $917,000 in capital expenditure, Our cash plus marketable securities increased to $53.2 million from $53 million. Now I'll turn the call back to Dan Baker to cover the business. Back to you, Dan.
spk03: Thanks, Daniel. I'll cover sales and marketing and CapEx. Our sales and marketing includes four main thrusts. First, distributor and direct customer support. Second, newsletters and videos. Third, evaluation boards. And finally, trade shows. Distributor and customer support involves customer visits, answering questions, and providing fast, well-informed application engineering. We increased the frequency of newsletters and videos in the past quarter, and we have good open rates and click-through metrics. Evaluation boards support more efficient customer product evaluations, and in the past quarter, we introduced dozens of new evaluation boards. We exhibited at two major trade shows last month, including SensorPlus Test, which is billed as the leading international trade fair for sensor, measuring, and testing technology. That show was in Nuremberg, Germany. We've typically relied on distributors to represent us at international trade shows. We continued to co-exhibit with a German distributor, but this year we also had our own booth, which gave us more space to promote our products. We were also at Sensors Converge in Silicon Valley, which is billed as North America's largest electronics event. We gained some high-quality leads, and there was particular interest in tunneling magnetoresistance sensors. We believe the investments in shows will pay off in future sales. Last quarter, we discussed our plans for $4 to $5 million in capital investments over the next two fiscal years, fiscal 2025 and 2026. The investments will increase our capacity and capabilities, including the capability to manufacture wafer-level chip-scale packages in-house. These parts will be smaller, higher performance, and allow us to be more self-sufficient and capture more value. Most of our products are currently packaged in Asia by outsourced semiconductor assembly and test, or OSAT, subcontractors using conventional plastic overmolding. Wafer-level chip scale parts can be even smaller than these encapsulated components. We have provided customers with wafer-level chip scale prototypes, and there has been solid customer interest. We hope to begin some production late this fiscal year. Our $917,000 CapEx in the past quarter was mostly a down payment for custom, purpose-built production equipment to be delivered next year. In the past quarter, the state of Minnesota announced we had been awarded incentives from the Minnesota Investment Fund. There's up to $111,000 of potential incentives to be paid in 2026 based on the number of jobs added and certain other conditions. We were also awarded a $200,000 seven-year no-interest loan intended to help finance new production equipment. The funding is subject to agreements that have not been finalized yet. Our annual shareholders meeting will be August 1st. Our meetings have been in person except during the pandemic, so shareholders can meet our managers and directors and see hands-on product demonstrations. In response to shareholders' requests, this year's meeting will be here at NVE with tours, so shareholders can see what we do. Our annual meetings follow themes, and this year the theme will be the Olympics, which will be going on at that time. We'll have live product demonstrations showing the precision, strength, and endurance of our products. If you can't attend, you can see product demonstrations on our website or YouTube channel. Our proxy statement for the meeting is available via our website or the SEC's website. There are three agenda items for the annual meeting. The first agenda item is election of directors. Sadly, Rich Cramp, who had been a director for nearly 10 years, passed away in May. Rich had been a valuable member of our board and was dedicated to our company and our shareholders. We miss him. We were pleased to welcome Dr. Kelly Way to our board to fill Rich's unexpired term. She is also nominated for a full term starting at the annual meeting. Kelly is a Medtronic executive and an accomplished engineer. Her strong management, technical, and medical device experience and her engineering and medical education make her exceptionally qualified to serve as a director. The second agenda item is approval of officer compensation. Our compensation principles, as detailed in our proxy, include 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 agenda item is the ratification of our auditors for this fiscal year, the year ending March 31, 2025. Boulay has been our auditor since 2019, and we recommend their approval for our next audit. We expect representatives from Boulay to attend the annual meeting. The proxy report's total shareholder return for the past three fiscal years was 46%, which far exceeded the broad markets. Returns consisted of 29% stock appreciation and 17% from dividends. Now we'd like to open the call for questions. To ask a question from a phone, press star 7 to unmute, or from a browser or Chime app, click the Raise My Hand icon under the Meeting Chat. That's at the bottom of the left column. Please state your name and affiliation before your question. To prevent background noise, please mute your line after asking your question. the left column. Please state your name and affiliation before your question to prevent background noise. Please mute your line after asking your question. Good.
spk02: Good. So just wanted to talk a little bit more about the CapEx. Please state your name and affiliation before your question to prevent background noise.
spk00: Please mute your line after asking your question.
spk02: Good. So, just wanted to talk a little bit more about, you know, pretty much going back and looking.
spk00: I understand that it's going to bring me in.
spk02: So, just wanted to talk a little bit more about any state-wide affiliation for your question. I'm going back in touch with that background. My future line is $3 million a year. So, just wanted to talk a little bit more about any state-wide affiliation for your question. Yeah, that's a great question. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Disclaimer