NVE Corporation ( NVEC)

F4Q2011 Earnings Call Transcript

May 4, 2011 5:00 pm ET

Executives

Daniel Baker – President and CEO

Curt Reynders – CFO

Analysts

Steven Crowley – Craig-Hallum

Greg Greenberger [ph]

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the NVE conference call on the fourth quarter and fiscal year results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this conference call is being recorded.

I would now like to turn the conference over to Daniel Baker, President and CEO. You may begin.

Daniel Baker

Good afternoon and welcome to our conference call for the quarter and fiscal year ended March 31, 2011. As always, I’m 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 fiscal year, I will cover business items and highlights of the year, and then we will open the call up to questions.

We filed our press release with quarterly and annual results, plus our Annual Report on Form 10-K with the SEC in the past hour following the close of 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 in revenue and profits, uncertainties related to agreements with large customers, uncertainties related to research and development contract funding, risks related to developing marketable products, uncertainties and the possible issuance of patents, uncertainties relating to the revenue potential of new products, and uncertainties related to economic environments, as well as the risk factors listed from time to time in our filings with the SEC including our Annual Report on Form 10-K filed this afternoon. Product sales backlog as of any particular date may not be indicative of future results and the company undertakes no obligation to update forward-looking statements we may make.

We are pleased to report record revenue product sales and net income for both the fiscal year and the fourth quarter, specifically for the fiscal year, revenue increased to 11% to a record $31.2 million, driven by a 15% increase in product sales and net income increased 11% to $13.4 million, or $2.76 per diluted share. For the quarter, total revenue was a record $8.183 million and net income was a record $3.67 million or $0.75 per diluted share

Now, I’ll turn the call over to Curt for details of our financial results.

Curt Reynders

Thanks, Dan and good afternoon. I’ll cover fiscal year income statement, quarterly income statement, the balance sheet and the past five year’s results. As Dan mentioned, the total revenue for the fiscal year increased 11% to $31.2 million, driven by a 15% increase in product sales to over $26 million. This was our 11th consecutive year of record product sales, since becoming publicly traded in 2000.

The increase in product sales was partially offset by a 6% decrease in research and development revenue. As we’ve said before, our long-term strategy has been to reduce our dependence on contract R&D toward a future of products and licensing, as our principal revenue sources.

International sales accounted for approximately 55% of our revenue in fiscal 2011, up from 49% in fiscal 2010, and consistent with our vision of being a world-class company. There is more about geographic areas in our 10-K.

Revenues increased 29% in Europe, 11% in Asia and 12% in other areas. A 1% decrease in U.S. revenue was due to a decrease in contract R&D revenue. Gross profit margin decreased slightly to 69% of revenue for fiscal 2011 from 70% for fiscal 2010, due to a less favorable product mix. Annual operating pretax net margins for fiscal 2011 were among the best in our industry. Operating margin was 57%, pretax margin 63%, and net margins 43%.

Research and development expense increased 13% for fiscal 2011, compared to fiscal 2010, due to increased product development activities and a decrease in contract research and development activities, which caused resources to be reallocated to expensed research and development.

Net income for fiscal 2011 increased 11% to $13.4 million, or $2.76 per diluted share, compared to $12 million or $2.47 for fiscal 2010. The total of customer and company sponsored R&D activities was 17% of revenue, which is significant. Our R&D investments over the years have resulted in new products, technologies, and product opportunities. Dan will discuss some of those in a few minutes.

Turning to quarterly results, we are pleased to show increases in year-over-year fourth quarter product sales and total revenues, despite comparisons to an extraordinary quarter last year.

Total revenue for the quarter hit a record $8.183 million, as increased product sales offset decreased contract R&D revenue. This was our 25th consecutive year-over-year increase in product sales. Our best quarter ever for product sales was driven by strong sales in the factory and industrial markets, which is an encouraging sign for a worldwide economic recovery. The decrease in quarterly contract R&D revenue to $1.45 million from $1.52 million was due to the completion of certain contracts and contract activities.

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