NVE Corporation (
F2Q2011 Earnings Call Transcript
October 20, 2010 5:00 pm ET
Dan Baker – President and CEO
Curt Reynders – CFO
Steven Crowley – Craig-Hallum Capital
Steven Keller [ph] – Mirage Capital [ph]
David Wu – GC Research
Patrick Kirksey – Perimeter Capital
Kevin Sonnett – RK Capital
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Good day, ladies and gentlemen, and welcome to NVE conference call on second quarter results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions) And as a reminder, this conference call is being recorded and now your host for today’s conference, President and CEO, Dan Baker. Please begin sir.
Good afternoon and welcome to our conference call for the quarter ended September 30th, 2010, the second quarter of fiscal 2011. As always, I am joined by Curt Reynders, our Chief Financial Officer. This call is being webcast live and being recorded. A replay will be available through our website nve.com.
After my opening comments, Curt will present a financial review of the quarter. And first half, I’ll highlight some business items and then we’ll open the call to questions.
We filed our press release with quarterly results and our quarterly report on Form 10-Q with the SEC in the past hour following the close of the market. Both filings are available through our website.
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, risks in continued growth and revenue and profit, uncertainties related to agreements with large customers, uncertainties related to research and development contract funding, risks related to developing marketable products, uncertainties relating to the revenue potential of new products and uncertainties relating to economic environments as well as the risk factors listed from time-to-time in our filings with the SEC, including our most recent annual report on Form 10-K as updated on our quarterly report on Form 10-Q including our quarterly report on Form 10-Q filed this afternoon. The company undertakes no obligation to update forward-looking statements we may make.
We’re pleased to report strong product sales and earnings growth for the quarter. Product sales increased 24%, total revenue increased 20% and net income increased 19% to $0.66 per diluted share including a reduction of $0.01 due to stock-based compensation related to options.
Now, I’ll turn the call over to Curt to discuss details of our financial results.
Thanks, Dan, and good afternoon. As Dan mentioned, total revenue for the quarter increased 20% to $7.81 million. The increase was due to a 24% increase in product sales and the 5% increase in contract R&D revenue.
Product sales were $6.41 million driven by strong sales into industrial markets despite signs during the quarter of a slowing in the global economic recovery. The increase in quarterly contract R&D revenue to $1.4 million was due to new contracts and increased activity on certain contracts. Dan will talk more about contracts in a few minutes.
Gross margin remained very strong at 67% of revenue. Margin decreased slightly from 69% last year due to a less favorable product mix with the particularly strong sales into industrial market. Total expenses increased 3% for the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010, primarily due to a 6% increase in research and development expense.
Operating income, which is gross profit less expenses, increased 18% compared to the second quarter of fiscal 2010 to $4.26 million and operating margin was 55%. In our last call, I mentioned that NVE was included in a list of the top five companies ranked by operating margin in the semiconductors industry on the website of Investors Business Daily. Just recently, we moved up to the top of the list.
Interest income increased 27% to just under $500,000 for the quarter due to an increase in interest-bearing marketable securities. Income before taxes for the quarter increased 19% compared to the second quarter of fiscal 2010 to $4.76 million and pre-tax margin was 61%. Net income for the second quarter increased 19% to $3.21 million or $0.66 per diluted share compared to $0.55 last year and net margin was 41%.
Earnings per share, both the most recent quarter and the prior year quarter, were reduced $0.01 by non-cash stock-based compensation expenses. We are prudent and approved with stock-based compensation. Virtually all of our stock-based compensation in the past several years is automatic grants to our Directors and our dilution has been minimal.
September 30 was the halfway point in our 2011 fiscal year. For the first half of the fiscal year, total revenue increased 13% to $15.1 million. Diluted net income per share increased to a $1.30 for the first six months of this fiscal year, compared to a $1.16 for the same period last year. Cash flow strengthened our balance sheet. Operating cash flow for the first half of the fiscal year was $5.71 million.
As of September 30, cash plus marketable securities was $55.9 million, an increase of $6.36 million in six months. The increase in cash plus marketable securities was due to operating cash flow and an increase in the value of our marketable securities due to market price changes.