NVE Corporation's CEO Discusses Q4 2012 Results - Earnings Call Transcript

NVE Corporation (NVEC)

Q4 2012 Earnings Conference Call

May 2, 2012 5:00 am ET

Executives

Daniel A. Baker – President, Chief Executive Officer and Director

Curt A. Reynders – Chief Financial Officer

Analysts

Steve Crowley – Craig Hallum Capital Group

John Jung – Trailhead Asset Management

Presentation

Operator

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

I would now like to turn the conference over to your host, Daniel Baker. President and CEO. Please begin.

Daniel A. Baker

Good afternoon, and welcome to our conference call for the quarter and fiscal year ended March 31, 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 and fiscal year. I will cover business items and we will open the call to questions. We filed our press release with quarterly 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 and continued profitability, uncertainties relating to future revenue and growth, risks related to developing marketable products, uncertainties related to the revenue potential of new products, risks related to loss of supply from our packaging vendors, risks in the enforcement of our patents, litigation risks 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.

The company undertakes no obligation to update forward-looking statements we may make. We are pleased to report record product sales for the quarter and solid earnings for the quarter year in fiscal year, despite significant challenges in the past year. For the quarter product sales increased 7% of their highest level ever and net income was $0.63 per diluted share. For the fiscal year net income was $2.34 per share.

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

Curt A. Reynders

Thanks Dan. I'll cover quarterly results, fiscal year results and the balance sheet. Starting with quarterly results, fourth quarter product sales increased 7% despite comparisons to an extraordinary quarter last year. Driven by increased sales in medical device markets, product sales reached a record $7.18 million.

As previously reported flooding in Thailand shutdown one of our packaging vendors in October 2011. That impacted our ability to deliver products especially for industrial markets and had a ripple effects on our supply chain. That vendor was able to resume operations in the past quarter.

Products for medical markets were less affected by the disruptions. We have also qualified alternate packagers for virtually all of our parts. So we believe the unusual supply chain challenges are behind us.

Total revenue, which includes product sales and contract R&D for the fourth quarter of fiscal 2012 decreased to 7% from the prior year quarter due to a 70% decrease in contract research and development.

Sequential quarter total revenue increased 24% and product sales increased 33% for the quarter. Gross margins increased to 70% of revenue compared to 65% in the immediately prior quarter. Data for each quarter of the past two fiscal years are in the 10-K filed today.

The contract R&D decrease was due to the completion of certain contracts and contract activities in a challenging environment for government contracts. Tight defense budgets appear to have disproportionately affected Anti-Tamper programs, which have been a large part of our contract R&D revenue. We are working on R&D contract opportunities for the near to medium term, but our long-term strategy as we have said before as going to reduce our dependence on contract R&D toward a future of product sales and licensing as our principle revenue sources.

Gross margin increased to 70% of revenue for the fourth quarter of fiscal 2012 compared to 68% last year due to a more favorable revenue mix. Specifically, 94% of revenues for the quarter were from product sales with the balance from contract R&D.

Gross-margin is generally higher on product sales than contract R&D. Total expenses increased 64% from the most recent quarter, compared to the prior-year quarter primarily due to a 170% increase in R&D expenditures. Legal expense related to patent infringement lawsuits did not significantly impact SG&A. Legal proceedings are covered in our 10-K. The increase in R&D expense was due to increased company funded product development activities as we redeployed resources from contract R&D. We believe the investment in R&D will payoff in future revenues and profits.

Interest income increased 11% for the quarter due to an increase in interest-bearing marketable securities. The income before taxes for the quarter was $4.51 million and pre-tax margin was 59%. Net income for the fourth quarter was $3.1 million or $0.63 per diluted share, compared to $0.75 last year and net margin was 41%.

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