NVE Corporation

Good afternoon and welcome to the NV Corporation conference call for the quarter ended December 31st, 2024. I'm Dan Baker, NV'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. After my opening comments, Daniel Nelson will present our financial results. I'll cover R&D, sales and marketing, and CapEx, and we'll open the call to questions. We issued our press release with financial 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 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 despite continued challenges in the semiconductor industry. Daniel Nelson will cover the financials. Daniel?

Thanks, Dan. Total revenue for the quarter ended December 31, 2024 decreased 25% compared to the quarter ended December 31, 2023 due to a 22% decrease in product sales and a 74% decrease in contract research and development revenue. The decrease in product sales was due to continued inventory gluts, particularly in the distributor channels, driven by weak chip demand and a slow recovery in industry sectors and markets we serve. The decrease in contract R&D revenue was due to the completion of certain contracts. Gross margin for the quarter was 84% compared to 80% the prior year quarter. The increase in gross margin percentage was due to more profitable product mix and a larger portion of direct rather than distributor sales. Total expenses increased 40% for the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024 due to a 61% increase in R&D and a 12% increase in SG&A. The increase in R&D was due to increased investments in new product development activities. The increase in SG&A was primarily due to increased sales and marketing activities and additional sales staff in the past quarter. Interest income for the third quarter of fiscal 2025 decreased 4% due to a decrease in marketable securities and lower yields on recently purchased marketable securities. In addition to operating income, we reported other income in the third quarter of fiscal 2025 of $135,000, primarily from the reclaiming of precious metals used in our manufacturing process. Net income for the quarter decreased 27% with a decrease in revenue. It was a profitable quarter with 84% gross margin, 58% operating margin, 60% net margin, and earnings of 63 cents per share. For the first nine months of fiscal 2025, total revenue decreased 18% due to a 20% decrease in product sales, partially offset by a 72% increase in contract R&D. Net income for the first nine months was $11.2 million, or $2.31 per diluted share. For the fiscal year to date, gross margin was 85%, operating margin was 63%, and net margin was 60%. Now I will turn the call back to Dan Baker to cover the business. Back to you, Dan.

Thanks, Daniel. I'll cover R&D, sales and marketing, and CapEx. As Daniel mentioned, we've significantly increased our investment in R&D. We spent 17% of revenue in the past quarter on R&D. Additionally, we do customer-sponsored R&D, which is included in the cost of sales. As a result of the efforts of our R&D team, we introduced new wafer-level chip scale products in the past quarter. The new products are billed as the world's smallest devices of their type, which allows for smaller, less obtrusive medical devices, and more precise robotics and mechatronics. Our YouTube channel has a demonstration. A key element of our sales and marketing strategy is evaluation boards. Evaluation boards allow customers to easily visualize, create, and implement great new designs with our unique products. A new evaluation platform connects to the popular Arduino line of single board computers and uses one of a dozen angle or rotation sensor breakout boards. There's more information on our website and our YouTube channel has a demonstration of the new platform. Turning to CapEx. We've previously discussed plans for $4 to $5 million in capital investments over the next two fiscal years, fiscal 2025 and 2026. We've already spent $1.16 million through three quarters of this fiscal year, fiscal 2025. We deployed one new machine in the second quarter. We're working on another new machine now. and we'll have a several million dollar machine scheduled to arrive next quarter, the June quarter. In the past quarter, we reached an agreement to extend our building lease an additional 62 months through May 2031. The agreement also includes a $100,000 improvement allowance. We believe the allowance will cover our expansion. We filed the amendment to the lease agreement with the SEC. Links to the amendment are available on our website and the SEC's website. Construction work for expansion began in November, shortly after we agreed to the lease extension, and was completed last week. Next up is a new electrical service and other infrastructure upgrades to support new equipment. The investments in facilities and equipment will increase our capacity and capabilities, including the capability to manufacture wafer-level chip scale parts, such as the ones we recently introduced, in high volume. Now we'd like to open the call for questions. To ask a question from a phone, press star seven 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 and unmute yourself to speak. Please state your name and affiliation before your question. To prevent background noise, please mute your line after asking your question.