NVE Corporation (NASDAQ:NVEC) Q4 2023 Earnings Call Transcript

NVE Corporation (NASDAQ:NVEC) Q4 2023 Earnings Call Transcript May 3, 2023

Operator: Good evening and thank you for standing by. Welcome to NVE Conference Call on Fourth 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 session. [Operator Instructions] 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. [Audio Gap]

Dan Baker: 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% to $12.8 million from $6.7 million 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 fourth quarter of fiscal 2023, compared to 77% for the fourth quarter of fiscal 2022, 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 fourth quarter of fiscal 2023, compared to the fourth quarter of fiscal 2022 due to a 25% decrease in research and development expense and a 204% increase in SG&A expense.

The increase in expense, were primarily due to increased staffing and increased compensation. Interest income for the fourth quarter of fiscal 2023 increased 35% due to an increase in our available for sale securities and an increased in the average interest rate. Our effective tax rate, which is the provision for taxes as a percentage of income before taxes was 12% in the fourth fiscal quarter compared to 16% for the fiscal year, due to CHIPS Act tax credit related to the expansion of our production space and new production equipment deployed in the past quarter and depreciation of those newly deployed production equipment. Net income for the fourth quarter of fiscal 2023 increased 116% to $8.2 million or $1.70 per diluted share, compared to $3.82 million 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 $38.3 million, compared to $27 million in the prior year. The increase was due to a 44% increase in production sales partially offset by a 6% decrease in contract R&D revenue. Gross margin increased to 79% for fiscal 2023 from 77% for fiscal 2022. The increase was primarily due to economies of scales from increased production and increased prices, partially offset by increased material and labor costs. Net income for the year increased 56% from the prior year to a record $22.7 million or $4.07 per diluted share from $14.5 million or $3 per share for fiscal 2022. It was our second consecutive year of record profits. Now Joe will provide some color on our financial results.

Over to you, Joe.

Joe Schmitz: 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 resulting from new equipment purchases, enabled NVE to increase product shipments. Although supply chain delivery performance has improved over the past quarter, risks do remain. Our strategy to build up raw material and WIP inventory as a safe – 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. 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 $19.1 million, and we ended the fiscal year with a strong balance sheet. Current assets increased support our growth. Accounts receivable increased $1.82 million, primarily due to increased product sales and the timing of those sales to customers. Inventory increased $1.33 million, 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 had discussed in our January earnings call. Net income more than covered dividends for the first year, since we began paying dividends in 2015. 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 semiconductor 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&A presentation following the presentation. [Operator Instructions]

Dan Baker: Now we are

Operator: Yes, we can

Dan Baker: Well, thanks, Joe. First, I’ll cover marketing. We’ll be two major trade shows in Germany later this month. PCIM Europe and SENSOR+TEST. Both shows reach important target markets for us. PCIM is built as the world’s leading exhibition and conference for power electronics, intelligent motion, renewable energy and energy management. We’re co-exhibiting with one of our German distributors. SENSOR+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 will exhibit at Sensors Converge 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 demonstration circuit boards for our parts on what’s called the Arduino Shield format. 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 six square inches of available areas just used for connectors. 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 ebike 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 wideband gap power transistors such as galium-nitride and silicon carbide transistors 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. 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 two important certifications, intrinsically safe certification and VDE reinforce 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. Leah?

Q&A Session

Operator: Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Jeffrey Bernstein from Cowen Prime Advisors.

Operator: Thank you. Please stand by, while we compile the Q&A roster. [Operator Instructions] Please stand by. Thank you. We have a follow-up question from Jeffrey Bernstein of Cowen Prime Advisors.

Operator: Thank you. Please stand by while we compile the Q&A after. [Operator Instructions] Our next question comes from the line of Don Ho [ph].

Operator: Thank you. [Operator Instructions]

Dan Baker: Well, if there are no other questions, we were pleased to report a record shattering quarter in 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 to discuss results for the first quarter of fiscal 2024

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