Financial Data and Key Metrics Changes - Revenue decreased by 10% year over year, primarily due to an 11% decrease in product sales, partially offset by a 17% increase in contract R&D revenue [4][5] - Gross margin decreased to 81% from 86% due to a less profitable product mix and strengthening distributor sales [5] - Net income decreased by 13% to $3,580,000 or 74¢ per diluted share compared to $4,100,000 or 85¢ per share for the prior year quarter [5][6] - Operating margin was 62%, pre-tax margin was 70%, and net margin was 59% [6] Business Line Data and Key Metrics Changes - Product sales decreased due to a decline in defense industry sales, while non-defense sales stabilized with improving industry conditions [4] - Distributor sales increased, indicating a recovery in the industry [4][26] Market Data and Key Metrics Changes - The defense industry sales are highly variable due to procurement cycles, impacting overall sales [4][23] - The company expects growth in the defense business in the coming quarters due to increased defense budgets [25][26] Company Strategy and Development Direction - The company is focusing on expanding its product offerings, including wafer level chip scale sensors and advanced magnetic switch sensors [12][13] - There is a strategic shift towards using ferrite magnets instead of rare earth magnets, which are subject to supply chain risks [27][29] - The company is investing in capital expenditures for new equipment to enhance production capabilities [7][12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of distributor sales and the overall industry [26] - The company anticipates a return to historical levels of defense sales in the next fiscal year [26] - Management highlighted the importance of their intellectual property in spintronic memory technology and plans to partner with large-scale manufacturers [43][44] Other Important Information - The company declared a quarterly dividend of $1 per share and reported operating cash flow of $5,190,000 [10] - The Advanced Manufacturing Investment Tax was extended, allowing the company to realize tax credits between $700,000 and $800,000 [8] Q&A Session Summary Question: Can you provide more color on the weakness in the Puff business and the recovery in the distribution channel? - Management noted that the Puff business is driven by procurement contracts for defense systems, which can be unpredictable, but expects growth in the coming quarters [23][26] Question: What is the opportunity in replacing rare earth metals with ferrite magnets? - Management explained that ferrite magnets are widely available and less risky compared to rare earth magnets, and they are working to secure design wins with customers [27][29][30] Question: How will the investment in wafer scale packaging correlate to incremental revenue? - Management indicated that the investment allows for smaller parts and a domestic supply chain, which is expected to drive revenue growth [36][37] Question: Will the company consider reporting revenue excluding military orders? - Management acknowledged the suggestion and stated that they continuously evaluate the possibility, but it requires significant infrastructure to report consistently [64][66] Question: What are the prospects for military orders in the upcoming quarters? - Management confirmed that they expect military orders to sequentially increase in the next quarter and beyond [67]