NVE Corporation (NASDAQ:NVEC) Q3 2024 Earnings Call Transcript
NVE Corporation (NASDAQ:NVEC) Q3 2024 Earnings Call Transcript January 17, 2024
NVE Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the NVE Corporation Conference Call on Third Quarter Results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Baker, President and CEO.
Daniel Baker: Good afternoon, and welcome to our conference call for the quarter ended December 31st, 2023. This call is being webcast live and recorded. A replay will be available through our website nve.com. I'm Dan Baker and as always I'm joined by Accounting Manager and Principal Financial Officer, Daniel Nelson. After my opening comments, Daniel will present our financial results. I'll cover customers, products, and marketing. Then 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.
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 in the industries we serve, and risks and uncertainties related to future sales and revenue as well as the risks 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 31st, 2023, as updated in our quarterly reports on Form 10-Q for the quarter ended June 30th and December 31, 2023. 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, comprehensive income, and cash flow despite decreased revenues from a record quarter a year ago. Daniel Nelson will cover the details of our financials. Daniel?
Daniel Nelson: Thanks, Dan. Total revenue for the quarter ended December 31, 2023 decreased 9% compared to the prior year quarter. The decrease was due to a 12% decrease in product sales, partially offset by a 94% increase in contract R&D revenue. The decrease in product sales was primarily due to decreased purchases by existing customers, particularly in the defense industry and the semiconductor industry downturn. The good news is that the industry is gaining strength and forecasts for a strong industry recovery in calendar 2024. World Semiconductor Trade Statistics is forecast in the global semiconductor market to grow 13% in 2024 compared to a 9% decrease in 2023. Product sales to defense markets can fluctuate and were especially weak in the quarter.
This was related to the timing of procurement cycles and we expect these sales to recover in this quarter, the March quarter. The increase in contract R&D revenue was due to new customer research and development contracts. Total expenses decreased 16% for the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023, primarily due to a 23% decrease in R&D expense or 4% decrease in SG&A. The decrease in R&D expense was primarily due to the redeployment of resources to customer funded research and development projects. The decrease in SG&A was primarily due to decreased performance-based compensation accruals. Interest income for the third quarter of fiscal 2024 increased 21% 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 third quarter of fiscal 2024 compared to 19% for the third quarter of fiscal 2023.
The decrease was primarily due to increase in certain tax deductions. Our effective tax rate can vary from quarter-to-quarter and may be higher in future quarters than in the past quarter. The 1% decrease in net income from the third quarter of fiscal 2024 compared to the prior year quarter was primarily due to decreased in revenue, which was nearly offset by decreased expenses, increased interest income and a lower effective tax rate. Comprehensive income increased 8% to $4.93 million from $4.56 million the prior year quarter. It was a solidly profitable quarter with gross margins of 80% of revenue and net margin of 62%. Total revenue for the nine months ended December 31, 2023 decreased 11% compared to the nine months ended December 31, 2022.
The decrease was due to an 11% decrease in product sales and a 20% decrease in contract research and development revenue. Net income decreased 8% and comprehensive income increased 3%. Net cash provided by operating activities increased 2% to $15.1 million for the first nine months of fiscal 2024 compared to $14.7 million for the first nine months of fiscal 2023. The strong operating cash flow more than cover our three dividend so far this fiscal year. And cash and cash equivalents plus marketable securities increased to $54.7 million from $53.3 million at the start of the fiscal year. Purchases of fixed assets have been only 17,000 so far this fiscal year, but we'd expect it to increase significantly in future periods. Now I'll turn the call back to Dan Baker to cover the business.
Over to you, Dan.
Daniel Baker: Thanks, Daniel. I'll cover customers, products, and marketing. We're proud to supply products to some of the world's most demanding customers, including Abbott's Pacesetter subsidiary. Abbott is the leading supplier of implantable medical devices. We recently executed an extension to our supplier partnering agreement with Abbott. The extension is through the end of 2024 and includes price increases that will help offset our cost increases. We have had a formal partnering agreement with Abbott since 2006, and this is the 10th amendment to extend the agreement. The agreement amendment was filed on a current report on Form 8-K and incorporated by reference in our just filed 10-Q. It is available via our website or the SEC's website.
We do long-term research to build our technology portfolio and help advance the field of spintronics. In the past quarter, NVE, along with researchers from the University of Texas and Virginia Commonwealth University, published research on technology that could provide the energy efficiency needed to accelerate the use of magnetic tunnel junctions in memory, logic and neuromorphic computing. Magnetic tunnel junctions or MTJs are spintronics structures we help pioneer that we use in many of our products. There are links to a recent journal paper and a conference presentation on the subject on our papers and presentation webpage and our X and LinkedIn feeds. A key advantage of our technology is that our products are extremely rugged. We extended that advantage with two product line extensions in the past quarter, extended temperature isolated network transceivers and ultra-high isolation data couplers.
The new extended temperature products include a transceiver that's billed as the fastest such device in the industry and allows high speed data transfer in harsh environments, such as the industrial Internet of things and power conversion modules. The new parts were requested by a customer. Isolation voltage is the key figure of merit for data couplers. It's what makes them isolators. We've long had best-in-class isolation voltage. And in the past quarter, we extended that advantage by increasing the isolation voltage rating on several of our unique V-Series isolators to 7 kilovolts. With required safety margins, this means the parts that are just three tenths of an inch wide can withstand 8.4 kilovolts for at least a second. Demonstrations of the extended temperature and higher isolation products are on our website and YouTube channel.
Certifications help us compete with larger, better known companies by providing credibility and reducing perceived risk. In our previous call, we reported we had earned the prestigious CE mark for our line of the world's smallest DC to DC converters. In the past quarter, we also qualified our data couplers with integrated DC to DC converters. These devices transmit data as well as convert power in a single integrated circuit less than an eighth of an inch square. They help solve an important challenge in power conversion systems by transmitting data between the subsystems on different power supplies. Our distributors have told us the CE mark could enable additional sales in Europe. The key to qualifying for the mark was rigorous testing for radiated emissions.
These emissions are a problem with conventional parts because they can interfere with other electronics. In addition to the line extensions, I just summarized new products in 2023, we began marketing products, including more products combining data couplers with isolated DC to DC converters to transmit power as well as data. Long-term product development programs in the past year included Next Generation MRAM for anti-tamper applications, Next Generation sensors for hearing aids and implantable medical devices and extremely sensitive TMR sensors as well as wafer level chip scale sensors. Trade shows are an important part of our marketing strategy. We supported distributor exhibitions at four European shows in the past quarter. AGRITECHNICA in Hanover, Space Tech in Bremen, SPS in Nuremberg, and MEDICA in Dusseldorf.
We also exhibited under our own banner at the Medical Design and Manufacturing Show in Minneapolis, which was part of the Advanced Manufacturing event. Some of the trade show demonstrations are on our website and YouTube channel. Now I'd like to open the call for questions. Josh?
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