NVE Corporation's CEO Discusses F3Q12 Results - Earnings Call Transcript

NVE Corporation ( NVEC)

Q3 Fiscal Year 2012 Earnings Call (Qtr Ended December 31, 2011)

January 18, 2012 5:00 p.m. EST

Executives

Daniel Baker – President, CEO, Director

Curt Reynders – CFO

Analysts

Steven Crowley – Craig-Hallum Capital

Jon Jung – Trailhead Asset Management

William Driscoll – RMB Capital Management

Kevin Sonich – RK Capital

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the NVE conference call on third quarter results.

At this time, all participants will be in a listen-only mode. Later we’ll conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the call, you may press star then 0 on your touchtone telephone for a live operator. As a reminder, this conference may be recorded.

I now will turn the program over to Daniel Baker. Sir, the floor is yours.

Daniel Baker

Good afternoon, and welcome to our conference call for the quarter ended December 31, 2011, the third quarter of fiscal 2012. 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, I’ll cover business items, and we’ll open the call to questions.

We filed our press release with quarterly results plus our quarterly report on Form 10-Q 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 and continued profitability, uncertainties relating to future revenue and growth, uncertainties in converting product order backlog into sales, risks related to developing marketable products, uncertainties relating to the revenue potential of new products, risks related to the loss of supply from our packaging vendors, risks in the enforcement of our patents, 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 in Part II Item 1A of our just filed quarterly report on Form 10-Q. The company undertakes no obligation to update forward-looking statements we may make.

We reported solid earnings for the quarter despite significant challenges from supply chain disruptions and economic conditions the past two quarters. Net income was $0.47 per diluted share despite a 23% decrease in total revenue due to decreases in product sales and contract R&D revenue.

I’ll turn the call over to Curt for details.

Curt Reynders

Thanks, Dan.

Total revenue for the third quarter of fiscal 2012 decreased 23% to $6.2 million due to a 19% decrease in product sales and a 40% decrease in contract research and development revenue. Product sales were $5.39 million with lower sales in the both industrial and medical device markets. The decrease was from what was a record quarter in the prior year.

As previously reported, flooding in Thailand shut down one of our packaging vendors in early October, and they still are not operating. Alternate vendors were slow to ramp and had less capacity because other companies were switching vendors as well. Flooding also had ripple effects on the supply chain, compromising the availability of materials used for packaging our parts.

These disruptions delayed many of our product shipments in the past quarter and prevented us from shipping our entire product order backlog in the quarter. Nevertheless, we were able to ramp up another packager to minimize the impact. We were unable to ship some lower-volume specialized parts that didn’t have alternate packagers that we are now qualifying packagers for those. Also contributing to the product sales decline in the past quarter were possible inventory adjustments by some of our medical device customers due to weakness in the medical device industry.

In addition to affecting our supply chain, flooding in Southeast Asia and other industry disruptions have slowed the semiconductor business. Other factors impacting the industry’s lowdown may include excess distributor inventories and the global economic slowdown. Although we would have liked to have seen year-over-year growth, we were pleased to have had solid profits as we have through good times and bad for 39 consecutive quarters. That’s every quarter for nearly 10 years.

Although most product orders are cancelable, there haven’t been many cancelations. Therefore, our product order backlog is strong, especially for medical device markets, and some customers shifted orders from the past quarter into the current quarter.

The unusual supply chain challenges appeared to be mostly behind us. We entered the quarter with adequate materials and packaging capacity, and a higher shipment rate late in the quarter bodes well. Most importantly, we continue to see a bright future for existing and potential new products.

Contract R&D revenue decreased 40% to -- excuse me, $764,000 due to the completion of certain contracts and contract activities and the continuation of a challenging government funding environment, especially for small business innovation research or SBIRs. We received approximately $2.35 million in SBIR awards last fiscal year. As a result of the challenging funding environment, we’ve been concentrating on non-government and non-small business contracts. The enactment of the SBIR Reauthorization Bill at the end of 2011 removed some of the uncertainty relating to those contracts.

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