NVE Corporation — Form 10-Q Summary
Business context and period: NVE develops and sells spintronics products, including sensors and couplers, and licenses MRAM technology. This report covers the quarter ended June 30, 2017, the first quarter of fiscal 2018; comparisons are with the quarter ended June 30, 2016 unless otherwise noted.
Key financial results
| Metric | Q1 FY2018 | Q1 FY2017 | Change |
|---|---|---|---|
| Product sales | $6.883 million | $5.851 million | +17.6% |
| Contract R&D revenue | $0.725 million | $0.857 million | -15.4% |
| Total revenue | $7.608 million | $6.708 million | +13.4% |
| Gross profit / margin | $5.809 million / 76.4% | $5.323 million / 79.3% | Profit +9.1%; margin down 2.9 percentage points |
| Operating income | $4.504 million | $4.174 million | +7.9% |
| Net income | $3.298 million | $3.133 million | +5.3% |
| Diluted EPS | $0.68 | $0.65 | +$0.03 |
| Operating cash flow | $5.223 million | $4.189 million | +$1.033 million |
- Operating margin was 59.2%, versus 62.2%; net margin was 43.3%, versus 46.7%.
- At June 30, cash and cash equivalents were $4.378 million; marketable securities totaled $80.211 million ($26.863 million short-term and $53.348 million long-term). Total assets were $93.629 million.
- Current assets were $38.219 million and current liabilities were $2.438 million. The balance sheet lists no borrowings or debt.
- Cash declined $3.821 million during the quarter. Investing used $4.203 million, including $3.810 million for securities and $0.393 million for fixed assets; financing used $4.841 million for dividends.
- The company declared a $1.00-per-share quarterly dividend for the quarter, paid during the period, and announced another $1.00-per-share dividend on July 19, payable August 31, 2017.
Material changes and management commentary
- Higher product sales, primarily attributed to new customers, drove revenue growth. Contract R&D revenue fell because certain contracts were completed.
- Gross margin declined because product sales had a less profitable mix. Research and development expense rose 19%, attributed to increased new-product development; total expenses rose 14%.
- Interest income fell 17%, which management attributed to lower marketable-security balances and lower average interest rates.
- Management believed working capital and cash generated from operations would meet needs for at least the next 12 months. Future dividends remain subject to board approval and may be changed or discontinued.
- Marketable securities represented approximately 86% of total assets. Thirteen securities were in an unrealized loss position, all for less than 12 months; management did not consider the securities impaired and expected to recover their cost basis.
Outlook, risks, and other items
- The filing provides no quantitative revenue or earnings guidance and cautions that quarterly results are not necessarily indicative of full-year results.
- Identified risks include reliance on several large customers for a significant portion of revenue, uncertainty in served industries and future contract R&D revenue, and uncertainty regarding future dividends and share repurchases. The company reported no material changes to the risk factors in its latest Form 10-K.
- No material pending or threatened legal proceedings were identified. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
- Adoption of the cited inventory and stock-compensation accounting updates had no significant financial-statement impact. No stock-based compensation expense was recorded in the quarter.
Important facts for investors to verify
- Whether the product-sales growth from new customers is sustained and whether customer concentration creates material revenue exposure.
- Whether the less profitable product mix and lower gross margin persist, alongside increased product-development spending.
- The composition, maturities, credit quality, and interest-rate sensitivity of the $80.211 million securities portfolio, which makes up most of reported assets.
- Cash needs and the sustainability of $1.00-per-share quarterly dividends, including the announced August 2017 payment.
- The filing reports no debt line item; confirm any commitments or obligations described in the accompanying annual filing or other disclosures.