NVE Corporation — Form 10-Q Summary
Business and period: NVE develops and sells spintronic devices, including sensors and couplers. This unaudited report covers the quarter ended June 30, 2020, the first quarter of fiscal 2021, compared with the quarter ended June 30, 2019.
Financial performance
| Metric | Quarter ended June 30, 2020 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $4.589 million | $6.295 million | Down 27.1% |
| Product sales | $4.359 million | $6.085 million | Down 28.4% |
| Contract R&D revenue | $231,000 | $209,000 | Up 10.2% |
| Gross profit / margin | $3.753 million / 81.8% | $5.203 million / 82.7% | Gross profit down 27.9% |
| Operating income / margin | $2.517 million / 54.9% | $3.900 million / 62.0% | Operating income down 35.5% |
| Net income | $2.412 million | $3.607 million | Down 33.1% |
| Diluted earnings per share | $0.50 | $0.74 | |
| Operating cash flow | $3.172 million | $4.538 million |
Cash, liquidity and obligations: Cash and cash equivalents were $6.403 million at June 30, down from $8.066 million at March 31, 2020. Marketable securities totaled $64.229 million on the balance sheet; including money market funds, available-for-sale securities totaled $70.315 million, about 89% of assets. Current assets were $32.542 million and current liabilities $1.199 million. The filing reports no borrowings; operating lease liabilities totaled $796,000. Total assets were $78.882 million and shareholders’ equity $76.818 million.
Operating cash flow was more than offset by $4.835 million of dividends paid, producing a $1.663 million decrease in cash. There were no marketable-security purchases or maturities and no capital expenditures during the quarter. The company declared a further $1.00-per-share dividend after quarter-end, payable August 31, 2020. Management said working capital and operating cash generation should be adequate for at least the next 12 months.
Changes and management commentary
- Management attributed the product-sales decline primarily to lower purchases by existing customers. Higher contract R&D revenue reflected the timing of progress toward contract completion.
- Total expenses fell 5.1%: R&D expense declined 9.5%, which management attributed mainly to staffing changes and completion of certain development activities; SG&A expense rose 7.6%, mainly due to staffing changes.
- Interest income declined 13.0%, reflecting lower average rates on marketable securities and money market funds.
- Management said COVID-19 significantly affected revenue and net income, particularly through market conditions in certain industries, including medical devices, and expected both to likely continue declining in future quarters compared with year-ago periods. No numerical guidance was provided.
Risks, contingencies and unusual items
- COVID-19 may cause customer order delays or cancellations, operating restrictions, employee-related interruptions, and supplier disruptions. The company also warned that it relies on several large customers for a significant portion of revenue.
- A packaging vendor suspended operations from late March until mid-May 2020 and was operating on a limited basis thereafter under COVID-related orders. Material shortages and the difficulty or cost of shifting production to alternate vendors could disrupt output and revenue.
- The filing reports no material pending or threatened legal proceedings and no material changes to other previously disclosed risk factors, apart from the updated COVID-19 and packaging-supplier risks.
- Available-for-sale securities generated a $1.243 million after-tax unrealized gain in the quarter, recorded in other comprehensive income. The company reported no material off-balance-sheet arrangements beyond purchase commitments.
Facts investors should verify
- Whether COVID-19-related demand weakness and customer order reductions persist, and how concentrated revenue remains among large customers.
- Whether the affected packaging vendor resumes normal operations and whether alternate suppliers can support production without delays or added cost.
- The composition, maturity profile and valuation sensitivity of the substantial marketable-securities portfolio.
- The sustainability of the $1.00-per-share dividend given quarterly cash generation, future operating needs and management’s stated ability to fund distributions.
- The filing’s comparative results, which are for fiscal Q1 2021 versus fiscal Q1 2020; the filing cautions that one quarter is not necessarily indicative of full-year results.