• Total Revenue: Decreased 23% compared to the prior-year quarter.
• Product Sales: Decreased 24% due to semiconductor industry downturn and high inventory levels.
• Contract Research and Development Revenue: Increased 28%.
• Gross Margin: Increased to 86% from 77% in the prior-year quarter.
• Total Expenses: Increased 3% due to a 26% increase in R&D expenses and a 14% increase in SG&A expenses.
• Interest Income: Increased 13% due to higher interest rates.
• Effective Tax Rate: Decreased to 16% from 24% in the prior-year quarter.
• Net Income: Decreased 7% compared to the prior-year quarter.
• Comprehensive Income: Decreased 1% from the prior-year quarter.
• Earnings Per Share: $0.85.
• Operating Cash Flow: Increased 16% to $5.85 million.
• Cash and Marketable Securities: Increased to $53.2 million from $53 million.
• Dividend: $4.83 million.
• Capital Expenditure: $917,000.

• Warning! GuruFocus has detected 5 Warning Sign with NVEC.

Release Date: July 17, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• NVE Corp (NASDAQ:NVEC) reported strong earnings and cash flow despite a challenging industry environment.
• Gross margin percentage increased to 86% from 77% in the prior-year quarter, attributed to a more profitable product mix and a larger portion of direct sales.
• Operating cash flow increased by 16% to $5.85 million, more than covering the $4.83 million dividend.
• The company has a strong balance sheet, with cash plus marketable securities increasing to $53.2 million.
• NVE Corp (NASDAQ:NVEC) has been awarded incentives from the Minnesota Investment Fund and a $200,000 no-interest loan to finance new production equipment.

Negative Points

• Total revenue for the quarter decreased by 23% compared to the prior-year quarter, primarily due to a 24% decrease in product sales.
• The semiconductor industry downturn and high inventory levels in distributor channels contributed to the decrease in product sales.
• Total expenses increased by 3% due to a 26% increase in research and development expenses and a 14% increase in selling, general, and administrative expenses.
• Net income decreased by 7% compared to the prior-year quarter, primarily due to decreased revenue.
• Comprehensive income decreased by 1% from the prior-year quarter, despite an unrealized gain from marketable securities.

Q & A Highlights

Q: Can you elaborate on the factors contributing to the decrease in product sales this quarter? A: Daniel Nelson, Principal Financial Officer, explained that the 24% decrease in product sales was primarily due to the semiconductor industry downturn and high inventory levels, especially in distributor channels. However, forecasts suggest recovery in the industry in 2024 and strong growth in 2025.

Q: What drove the increase in gross margin percentage this quarter? A: Daniel Nelson noted that the gross margin percentage increased to 86% from 77% in the prior-year quarter. This was due to a more profitable product mix and a larger portion of direct rather than distributor sales.

Q: How is NVE Corp planning to utilize the capital investments over the next two fiscal years? A: Daniel Baker, President and CEO, stated that the company plans to invest $4 million to $5 million to increase capacity and capabilities, including manufacturing wafer-level chip scale packages in-house. This will allow for smaller, higher-performance parts and greater self-sufficiency.

Q: Could you provide more details on the recent marketing and sales initiatives? A: Daniel Baker highlighted four main thrusts: distributor and direct customer support, newsletters and videos, evaluation boards, and trade shows. The company increased the frequency of newsletters and videos and introduced new evaluation boards. They also participated in major trade shows, gaining high-quality leads.

Q: What are the expected benefits from the incentives awarded by the state of Minnesota? A: Daniel Baker mentioned that the Minnesota Investment Fund awarded up to $111,000 in potential incentives based on job additions and other conditions, along with a $200,000 no-interest loan for new production equipment. These incentives are expected to support the company's expansion plans.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.