NVE Corporation (NVEC) Earnings Call Transcript & Summary

I'll call the meeting to order. I'm Dan Baker, NVE's President and CEO. This meeting is being recorded, and we plan to make some or all of it publicly available. Those of you who have attended our meetings before know that we have themes for our annual meetings. Last year, for example, we had it at a hotel in Eden Prairie. And our theme was points of interest in Eden Prairie so it was a pretty short meeting. This year, though, the Olympics are going on, and the theme is the Olympics and athletics so be prepared for some bad sports puns. Our name tags have icons of sports that we follow or participate in, more on that in the introductions. Before the introductions, I want to acknowledge someone who's not here, Director Rich Kramp passed away in May. Some of you have met him in previous meetings. He had been a dedicated director for 10 years, and we miss him. So let's introduce our directors Terry Glarner, our Chairman, and he is an avid golfer. He makes us drive for success. I was a swimmer in college, but more on that later, more than you're probably going to want to hear; Pat Hollister is Chair of our Audit Committee, former basketball player and an avid fan. She keeps the Audit Committee's eye on the ball; Jim Bracke, a former skier; and new director, Kelly Wei, who is a certified executive coach. So she will make me run laps if I mess up this presentation. The other employees who are here and will be available to do tours are Emily Kirton, whom you met. She's our Inspector of Elections, and she's a former gymnast. Daniel Nelson is our Controller and Principal Financial Officer, a soccer player so he has a goal of smooth financial operations. Pete Eames, our Vice President of Advanced Technology and a serious hiker. He's in charge of keeping R&D on the right path. And Alex Gillard, our Logistics Manager. He's a former pole vaulter and a pole vault coach. He sets the bar for efficient plan. Our auditors, Jadin Bragg is our coordinating partner. He is a mountain biking coach. So he makes sure we're on track; and Brittany Hancock, our Senior Audit Manager is a kayaker who keeps us out of rock waters. We have a shareholder from out of state from Florida, we have a plaque for you. This fancy plaque says I came a long way for the NVE shareholders meeting and all I got was this stinking plaque. Actually, the plaque could say I got some pens and Post-it Notes, and the stinking plaque.

Thank you so much.

That brings us to the formal meeting, and I call on Emily to present evidence of the due calling of the meeting.

As of June 7, 2024, which is the date of record for determining those shareholders eligible to vote, there were 4,833,676 shares of common stock of the company outstanding and entitled to vote. We have on file a formal declaration that we mailed to the notice of this meeting and the proxy statement on June 17, 2024, to shareholders of record, and we have a report from Broadridge Financial Solutions that our materials or notices of Internet availability for the materials were sent to our shareholders who held their shares and street name. A majority of the outstanding shares of common stock entitled to vote are required to constitute a quorum. Proxies indicating abstention from a vote and broker non-votes are counted toward determining whether a quorum is present. We are present today in person or by proxy, the holders of more than 50% of the shares outstanding on the record date. Thus, we have a quorum.

Thanks, Emily. On the basis of Emily's report, I declare the meeting to be duly called and convened and confident to proceed to conduct business. Copies of the proxy statement are on the table over here. If you'd like to refer to one. As a matter of good corporate governance, each of our directors stands for election each year, we hold annual say-on-pay votes, and we submit our auditors for ratification. So we have three items of formal business to elect five directors to serve until the next Annual Meeting of Shareholders, consider advisory approval of the named executive officer compensation, ratify the election of Boulay PLLP as our independent registered public auditing firm for the fiscal year ending March 31, 2025. I introduced the director nominees, and they are all designated and listed in the proxy statement. No other director candidates were nominated. Is anyone voting in person? No indication. On the basis of the voting, I declare that each director nominee has been reelected. Named executive officer compensation has been approved and the selection of our independent registered public accounting firm has been ratified. We'll file the vote report in the current report on Form 8-K within 4 business days. With no other formal business, I declare the formal meeting be adjourned, and we'll move on to the company presentation. One of our traditions is to have a person or a deep-fake person to read our safe harbor statement. Last year, we had a Shakespearean reader, this year, in honor of Paris Olympics, we have a bad French accent.

Statements in this presentation that relate to future plans, the events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties, including among others, the risk factors listed in our report on Form 10-K for the fiscal year ended March 31, 2024.

That has to be one of the more annoying safe harbors. A bit about my Case Western Reserve swim team's 15 minutes of fame, which was losing to women in the early days of Title Nine. This is something we may never see again though, this is women and men in an NCAA meet. So mixed-gender teams were permitted in the early days of Title Nine and women winning was unusual enough to make the front page of the sport section. How long ago was this? Well, the article calls female swimmers, girls and mermaids, I showed this to my daughter and she thought it must have been from the 1800s. Nobody, who would have been at this swim meet could possibly be alive today. We have come a long way. Title Nine has been in effect for more than 50 years and the new version just went into effect today. Although even now women are effectively banned in Afghanistan from athletics and other countries. Spintronics is our enabling technologies. Spintronics is a nanotechnology that utilizes electron spin rather than electron charge to acquire, store and transmit information. So what are the advantages of that? We summarize them with 4 of these boxes: Smaller footprint, batteries, low power and endurance, bulletproof, they're reliable and brain for intelligent interfaces. The demonstrations that we have shown the features and benefits of these products. The first one is the hot dog cooker. I'll start it off. We have NVE power control components that regulate the power that's going into the hot dog. We have a current sensor that accumulates a certain amount of energy into the hot dog. We have an interlock sensor that makes sure that the cover is closed when we turn on the power. This is controlling one major component that we don't make is a wide bandgap FET, a switch. These go up in automotive controls and other things. Emily agreed to make some hot dogs, if anyone wants one after the meeting. Hot dog eating is not exactly an Olympic sport, but it's covered by ESPN so it must be a real sport. Our customers don't make hot dog cookers, but they do make battery chargers and hybrid electric vehicle chargers. So these same components can be used to regulate the power to charge a battery or to run the motors. If you're interested in the technical details, we have them posted to our GitHub repository. We have a chessboard that has an array of magnetic proximity sensors that can detect where a piece was and where it's going to. That's very useful for the Industrial Internet of Things where you need to keep track of a large number of projects between artificial intelligence, Internet of Things. When I move a piece, it knows where it left, knows where it goes to and again, details on GitHub. And our customers do some amazing things with our parts. So I'd like to highlight a couple of those applications. This is an application for a smartwatch that is detecting various life signs. So it's using a GMR sensor, one of our sensors, AA004, as the pull quote shows, and it's detecting a variety of physiological parameters. We can see what our customers do on our website. And then one that we're really excited about is the Europa Flyby Mission. We started qualifying parts for this mission, when was that, Pete, about seven years ago? A long qualification process, but they recently buttoned up the electronics modules for the spacecraft, so everything -- barring an emergency, everything that's going to Europa is in that box, including some of our components. And the launch is scheduled two months from now and it will take a while to get to Europa. Apparently, it takes about almost 6 years. And hopefully, you won't hear about something about 6 years when it gets to Europa if there's some sort of failure with some kind of isolator component. But, it shows the remarkable products that our employees will make, the reliability, the dependability, and the quality that we build in. This is one of the most demanding applications there is, and our parts are mission-critical, meaning that the mission depends on these parts working successfully. Just like the Olympics has new events such as break dancing and surfing, we developed new products. Some of the products that we've developed in the past year included extended temperature isolated network transceivers. In fact, we tested them in that very toaster oven over there that, to make sure -- oh you moved the toaster oven.

I did. It's right below here.

Well, there's a toaster oven someplace, but the parts survives the toaster oven. Ultra-high isolation data couplers. These are data couplers that are rated at 7,000 volts. So we actually have to test them at 120% of that, that's 8.4 kilovolts. We got some special power supplies and our folks would kind of stand back from these when we would test them and make sure that they didn't spark and arc. But it's amazing. These are relatively small devices that can withstand that kind of voltage. It's an example of the ruggedness we provide, best-in-class isolation voltage. The CE mark, which is very prestigious, and particularly for smaller companies for our world's smallest DC-to-DC converters these, now bear the CE marks and we can ship them for specialized applications in Europe. We have more products that transmit power as well as data. So you see that in the hot dog cooker, it's transmitting power to drive that silicon carbide FET, but it's also transmitting data from a microcontroller to control the power to the hot dog. And we have wafer-level chip scale sensors. These are 6/10 of a millimeter square. So that's 0.025 inches, 25,000 of an inch squared and 0.15 millimeters thick, which is less than the thickness of an index card. These are the world's smallest magnetic sensors, and we have them here and magnifiers you can take a look at them later. New package is a pretty big deal in the semiconductor industries. This is a shadow box, it's up here now, but it's normally in our lobby. So we show the products that we make. And what we had to do was extend the case and put a magnifier there to show the wafer-level chip scale products because they're so small. Our smallest previous products were these 1.1 millimeter square products that are on the head of a pin. And these new ones are 1/3 the size and they did easel on the head of the pin. The Olympics involves a lot of building. We also are expanding our venues. So this is our expansion plan. If you have time for a tour, Pete is going to show you the area that we've cleared out and where we're going to be doing the expansion as well as some other things. So that's the area shaded in blue. So to get your bearings, we are in the break room there, and this will be -- this is going towards the east wall of the building. And that's going to be turned into the production space. So we've got pretty much emptied out, which was -- well may not quite happy about, but it seems like it. And we're going to begin construction and hope to be in production by the end of the fiscal year. The specifics of the expansion plans that we talked about on our conference calls, we're planning to spend $4 million to $5 million over the next two fiscal years. Miniaturization with chip scale packaging is one of the major goals. We have to avoid contract packaging delays and costs of these plastic-package products that we make that most of our products now, we have to ship them to Asia, get them packaged, they send them back. That was a major challenge during the pandemic with the supply chain disruptions that we had. There will be more efficient lower power parts. NVE has best-in-class financial metrics. Some of the highlights that we have here is our gross profit margins of 77%. Operating margin, 62% as that graphic shows. Pretax margins are 69%, and net margins, 57%. So just like the Olympics are all about metrics, about faster and higher, our goal is to deliver best-in-class financial performance for our shareholders. We're committed to maximizing shareholder value. We have one of the highest yields in the industry. And as shown in our proxy, our total shareholder return for the past three years was 46%, which outperformed the market significantly. We earned the best ISS governance score for the lowest risk. That's a one, it's like a golf score, as Terry said, lower is better. For the second consecutive year, we're in the prestigious Russell 2000 Index which is one of the 3,000 largest market capitalization companies in the country. So to sum up, NVE has revolutionary technology. We have historic market opportunities. We have exceptional financial performance. I'll open the floor to questions.

You know I'm going to ask a question, since I came all the way from Florida. The space that you have here and the construction and new equipment coming in, do you feel that's enough for the foreseeable future to handle what your needs are?

We do, although it might be barely. Pete and his team have done some creative shoehorning, a lot of stuff in a relatively small space. There are some things that we're not quite sure where we're going to put them yet. If you drove in from that direction, you might have noticed a trailer sitting out in our parking lot. So that's got some stuff that came out of the building that we're going to have to put back in the building at some point. We've got to have it gone by the winter. But we think that that'll hold us for at least several years.

Is there more space in this complex where you could expand potentially?

Yes. We've looked at that. There are additional spaces in this industrial park. There's their space that occasionally opens up. And then in this general area, the Golden Triangle of Eden Prairie, there is quite a bit of office space. Our auditors are experts on finding office space and getting a good deal. They recently moved to a nearby building.

Yes. I believe it was in an article about a grant that you received. And I think it was in that article, they mentioned 15 employees may be added. Could you just -- would that be in that 2-year framework or?

That's the goal. That was a Minnesota Department of Economic Development in the City of Eden Prairie that involves a $200,000 7-year interest-free loan, and then an additional, a little bit more than $100,000, which I think is what you're referring to, depending on our goals for adding employees. The time frame for that is two to three years, and our goal is to add, as you say, 15 employees.

Are you running more than one shift right now?

We are. We run two shifts. You might have seen some of the people who were just walking through, that's when the second shift comes in. So they're working now and you'll see them on the tour. We have folks who start early on first shift. So we have people running from approximately 5:00 a.m. to approximately midnight or 1:00 a.m. in the morning.

With AI, and we've seen the growth of NVIDIA with all their chips, are there use cases or applications for your products within AI with miniaturization and so forth?

Right. So that's a great point. What we talk about is the artificial intelligence of things. We provide the end nodes that can feed that kind of intelligence. So the chessboard is an example of that. It isn't playing chess, it didn't tell me that, that was a terrible move, which actually it was. It's keeping track of the pieces so we can feed this to a microcontroller. And then we could add -- we were thinking around the idea of adding some artificial intelligence to actually determine the best moves.

Obviously, there's a trend to increase manufacturing in the United States and your sensors are utilizing industrial equipment and things like that. Are you seeing a little bit of a bump in demand for sensors, for industrial solutions in the United States with an increase in manufacturing?

We are seeing signs of that. For example, in semiconductor fabs where some of our equipment is used that there is a big push to bring that, as you point out, into the United States and bring manufacturing back into the United States. So we see that as a great trend. And we also, I mentioned, the Minnesota DEED incentives that we were awarded. So that's part of what the state of Minnesota and other states and the federal government are doing is incentivizing companies to expand here in the United States to onshore things like the packaging operations that I talked about. Hopefully, with the start of the renaissance in United States manufacturing.

And you're making a very significant investment in new equipment and was the impetus some of the challenges that you had during COVID, and that was what precipitated you guys to make this decision?

It was. We found a lot of supply chain challenges less than other companies because for a small company, we're actually pretty well integrated. As you'll see, we have wafer fab, right, over here and then we have a back-end operation where we test the products. We test 100% of our products. So we're more self-contained than actually a lot of semiconductor companies, but we'd like to be even more self-contained and less dependent on a supply chain. We like to onshore as much as practical. So any other questions?

Will you comment any more on what parts you're playing in the automotive industry?

Well, we see the automotive industry is an excellent market, particularly hybrid, electric vehicles and autonomous vehicles, which need a lot of sensors and a lot of power conversion. It's a tough market to break into, but that's our goal. We've got some promising leads for systems, particularly in the onboard battery charging system, so that's the system that converts power -- AC power into the DC power that you need for the battery charging. And then also, we have design wins in the charging stations, which, of course, aren't in the car, but are integral to the hybrid, electric vehicle infrastructure. We probably have time for one more.

I had asked you via email about Hall-effect. And I'm not an expert at all on that, but can you just talk a little bit about those sensors and how yours can eventually replace?

Right, right. Se we hate Hall-effect sensors here at NVE. Hall-effect sensors are a semiconductor type of sensor that detects a magnetic field, but it's not nearly as sensitive as our sensors, particularly our Tunneling Magnetoresistance sensors. So they require amplification, and they're susceptible to noise once one amplifies them. And they tend to be larger than our devices as well. Hall-effect sensors can be very cheap, and it's not our goal to compete with really inexpensive commodity parts, but it is our goal for high-end applications to make sure that we have the best performance magnetic sensors in the world, and we believe we do. Pete can probably tell you more about Hall-effect. Just stay after and he'll tell you. All right, how many are interested in tours? I think we can do that. One group, what's that, about 6 people, do you think Pete?

Sure. All good.

Okay. And if anyone wants to stay behind, Emily agreed to make hot dogs for anyone who wants them. And then, of course, we can play with the chessboard or the other demos. And we'll be around for at least a few minutes, the Board and me to talk to anyone. If I don't see you again, we really appreciate everyone coming here today, and thank you for your continued support of NVE.