NVE Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2021 (fiscal 2022 Q2). NVE develops and sells spintronic sensors, couplers, and related devices. Comparisons are with the corresponding 2020 periods.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2021 | Year-over-year change | Six months ended Sep. 30, 2021 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $6.82 million | +55.8% | $13.98 million | +55.8% |
| Product sales | $6.63 million | +59.5% | $13.58 million | +59.5% |
| Contract R&D revenue | $193,450 | -12.7% | $392,847 | -13.1% |
| Gross profit / margin | $5.28 million / 77.4% | Margin: 78.5% prior year | $10.66 million / 76.3% | Margin: 80.2% prior year |
| Operating income | $4.09 million | +80.5% | $8.20 million | +71.4% |
| Net income / diluted EPS | $3.65 million / $0.75 | Net income +64.1% | $7.23 million / $1.49 | Net income +55.9% |
| Operating cash flow | Not separately reported for quarter | $6.46 million | Prior-year period: $5.54 million |
For the quarter, gross margin was 77.4% and operating margin was 59.9%; net margin was 53.4%. For the six-month period, operating margin was 58.6% and net margin was 51.7%.
- Liquidity: At September 30, cash and cash equivalents were $11.15 million; short- and long-term marketable securities were $22.66 million and $27.54 million, respectively. Current assets were $41.42 million versus current liabilities of $1.26 million.
- Debt and leases: The filing reports no borrowings or other interest-bearing debt. Operating lease liabilities totaled $667,928; total liabilities were $1.78 million.
- Cash flows and distributions: Six-month cash increased $717,816 to $11.15 million. Operating activities provided $6.46 million; investing activities provided $3.93 million, including $4.00 million from security maturities and $73,916 of capital expenditures. Dividends paid were $9.67 million.
- Investments: Available-for-sale securities totaled $60.65 million, approximately 87% of assets, including money-market funds classified within cash and equivalents. The company reported no securities as impaired, but recorded an unrealized after-tax loss of $287,199 for the six months.
Material changes versus prior comparable periods
- Revenue growth came primarily from increased purchases by existing customers, with sales rising in most markets and product lines. Product sales grew while contract R&D revenue fell following completion of certain contracts.
- Gross margin declined year over year, which management attributed primarily to revenue mix. Cost of sales grew faster than revenue over the six-month period.
- R&D expense decreased 13% for the quarter and 11% for the six months, primarily due to staffing changes and completion of product-development activities. SG&A increased 35% and 33%, respectively, primarily due to employee compensation.
- Interest income declined 27% in both comparison periods, reflecting lower average securities balances and interest rates. Management said the pandemic’s impact on revenue and net income was significantly less than in the prior-year periods.
Outlook, risks, and other matters
- No revenue or earnings guidance was provided. Management said working capital and operating cash generation should be adequate for at least the next 12 months. It expects fiscal 2022 capital expenditures to be significantly higher than the $62,727 spent in fiscal 2021; a specific forecast amount was not provided.
- Management described reliance on several large customers as a risk. It also identified risks from uncertain demand and from packaging-vendor disruptions: COVID-related restrictions, longer lead times, labor and materials shortages, and potential vendor-location flooding could impair production or deliveries. Alternate suppliers may be costly or difficult to qualify.
- The board declared a further $1.00-per-share dividend on October 20, payable November 30, 2021. Future dividends remain subject to board approval and may be changed or discontinued. The $2.00 per share declared for the six months exceeded six-month diluted EPS of $1.49.
- The company reported no material pending or threatened legal proceedings and no material changes to other previously disclosed risk factors. Disclosure controls were judged effective; no material change in internal control over financial reporting was reported.
- The company adopted ASU 2019-12 with no material financial-statement impact. It expects ASU 2021-04, effective for its fiscal 2023, to have no significant impact.
Important facts for investors to verify
- Whether the sales growth from existing customers is sustainable, given the stated exposure to several large customers.
- Whether packaging-vendor constraints or broader supply issues affect lead times, inventory, production, or customer deliveries.
- How higher planned fiscal 2022 capital spending and recurring dividends will be funded, particularly as six-month dividends exceeded reported earnings.
- Changes in gross margin, securities valuations and interest income; marketable securities represent a substantial share of assets.
- The filing’s stated reporting period is the quarter ended September 30, 2021 (fiscal 2022 Q2); interim results are not necessarily indicative of full-year results.