NVE CORP /NEW/ Q2 FY2025 earnings call

• Increased R&D investment: Spent 13% of revenue on R&D including customer sponsored R&D. - New product launch: Introduced the ALT521-10E Tunneling Magnetoresistance Rotation sensor, the world's most sensitive of its type. - NASA validation: Components used in the Europa Clipper mission, rigorously qualified by NASA. - Sales and marketing investment: Added sales personnel, increased marketing activities, exhibited at trade shows like Medical Design and Manufacturing. - CapEx: Spent $1.13 million in the first half of fiscal 2025, planning to expand with potential lease extension, aiming to start production of new parts late in fiscal 2025. - Annual Shareholders Meeting: Held in person, reelected directors, approved executive officer compensation, ratified auditor selection, and featured product demonstrations.

Total revenue for the quarter ended September 30, 2024 decreased 5% due to a 14% decrease in product sales partially offset by a 3,950% increase in contract R&D revenue. Gross profit increased 5% from the prior year, with gross margin percentage at 86%. For the first six months of fiscal 2025, total revenue decreased 15% to $13.5 million from $16 million for the first six months of the prior year, driven by a 20% decrease in product sales and a 457% increase in contract R&D revenue. Net income for the first six months of fiscal 2025 was $8.12 million or $1.68 per diluted share compared to $9.13 million or $1.89 per share for the first half of fiscal 2024.

• Optimistic outlook despite semiconductor industry challenges, with end markets improving and growth in Industrial Internet of Things and electrification. - Hopeful distributor sales will pick up as inventory clots in distribution channels are depleted. - Expecting new products from CapEx investments to generate business in the future.

• Uncertainties related to economic environments and industries served. - Risks and uncertainties related to future sales and revenue. - Volatility in unclonable functions business due to procurement schedules. - Impact of capital expenditures on cash flow, though balance sheet remains strong.

Q: Jeff Bernstein asked about contract R&D, product timeline, unclonable functions, distribution channel impact, and navigation sensors.

A: Dan Baker responded that contract R&D is related to defense and anti-tamper systems, product timeline is uncertain depending on procurement cycles, unclonable functions business is volatile but optimistic long-term, distribution channel inventory issues are causing product sales weakness but end user sales are strong, and navigation sensors have unique advantages in size and sensitivity for medical applications.

Q: Unidentified Analyst asked about trade show outcomes and CapEx impact on cash flow.

A: Dan Baker stated trade shows had positive response with leads to follow up, and while CapEx spending affects cash flow, the balance sheet is strong to support dividends and investments.