NVE Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2019. NVE develops and sells spintronic sensors, couplers, and related devices. Comparisons below are against the corresponding 2018 periods unless stated otherwise.
Financial performance
| Metric | Quarter | Six months |
|---|---|---|
| Revenue | $6.50 million, down 13.4% | $12.80 million, down 12.4% |
| Gross profit / margin | $5.16 million / 79.3% (82.0% prior year) | $10.36 million / 80.9% (81.2% prior year) |
| Operating income | $3.86 million, down 19.6% | $7.76 million, down 15.6% |
| Net income | $3.82 million, down 10.8%; diluted EPS $0.79 versus $0.88 | $7.43 million, down 9.7%; diluted EPS $1.53 versus $1.70 |
| Operating cash flow | Not separately reported for the quarter | $7.42 million versus $8.27 million |
Quarterly revenue comprised $6.19 million of product sales and $314,237 of contract R&D. Interest income was $456,309 for the quarter and $915,348 for the six months. Six-month comprehensive income was $8.18 million, versus $8.17 million, as investment gains offset lower net income.
Liquidity, capital, and balance sheet
At September 30, cash and cash equivalents were $14.08 million, and marketable securities were $58.80 million, all classified long-term. Together these totaled approximately $72.87 million; available-for-sale securities represented about 71% of total assets. Current assets were $22.49 million and current liabilities $923,812. Total liabilities were $966,594; the filing reports no borrowings. Operating lease liabilities totaled $216,634, with the facility lease running through December 31, 2020.
Six-month cash from investing activities was $9.47 million, primarily reflecting $12.50 million of security maturities, partly offset by purchases. Financing cash outflow was $9.69 million in dividends. The company declared dividends of $1.00 per share in each quarter; a further $1.00 quarterly dividend was announced October 23, payable November 29, 2019. Management said working capital and operating cash generation should meet needs for at least 12 months. No shares were repurchased during the quarter; $4.54 million remained authorized.
Changes, outlook, and risks
- Management attributed lower product sales to reduced purchases by existing customers and lower contract R&D revenue to completion of certain contracts.
- Gross margin fell in the quarter due to a less profitable product mix. Expenses declined modestly, with lower R&D spending reflecting completed product-development activities.
- Management expected an approximately 18% tax rate for each remaining fiscal 2020 quarter. It gave no revenue or earnings guidance.
- Management cited reliance on several large customers, industry economic conditions, uncertainty in future sales, trade barriers, and the discretionary nature of future dividends and repurchases as risks. It reported no material change to the risk factors in its latest 10-K.
- The company adopted lease accounting in fiscal 2020, recognizing a right-of-use asset and lease liabilities; it reported no impact on results or cash flows. Management said disclosure controls were effective and there was no material change in internal controls.
- A patent was reissued on August 27, 2019 after prior claims were rejected; the reissued patent expires August 14, 2021. The company reported no material pending or threatened legal proceedings expected to materially affect its financial condition or results.
Investor verification points
- Assess the durability of lower sales volumes from existing customers and the revenue contribution of contracts completed during the period.
- Review product mix and gross-margin trends, and compare actual subsequent-quarter results with management’s expected 18% tax rate.
- Check the composition, maturities, valuation, and credit exposure of the substantial marketable-securities portfolio.
- Evaluate dividend coverage and the impact of recurring $1.00-per-share quarterly dividends on cash and investment balances.
- Review customer concentration and the status and commercial relevance of the reissued patent.