NVE Corporation — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2016 (first quarter of fiscal 2017). NVE develops and sells spintronic devices, including sensors and couplers, and licenses MRAM technology. The financial statements are unaudited.
Financial results
| Metric | Quarter ended June 30, 2016 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $6.71 million | $8.32 million | Down 19.4% |
| Gross profit / margin | $5.32 million / 79.3% | $6.33 million / 76.0% | Profit down 15.9%; margin up 3.3 percentage points |
| Operating income | $4.17 million | $5.16 million | Down 19.1% |
| Net income | $3.13 million | $3.80 million | Down 17.6% |
| Diluted EPS | $0.65 | $0.78 | Down $0.13 |
| Operating cash flow | $4.19 million | $5.17 million | Down $0.98 million |
Product sales were $5.85 million, down 24.4%, reflecting lower purchases by existing customers. Contract research and development revenue rose 46.4% to $856,558, attributed to new contracts. R&D expense increased 11.4% to $758,368 due to new product development; selling, general and administrative expense fell 19.6% to $389,915, primarily from lower sales commissions. Interest income declined 9.9% to $437,734 as average rates on securities decreased. The effective tax rate was 32%, compared with 33%.
Balance sheet, liquidity and cash flows
- At June 30, cash and equivalents were $1.91 million, short-term marketable securities $19.56 million, and long-term marketable securities $71.17 million. Total marketable securities at fair value were $90.73 million, approximately 90% of total assets.
- Total assets were $100.67 million; shareholders’ equity was $97.79 million. Current liabilities were $2.89 million, including $1.28 million of income taxes payable. The filing reports no borrowings or debt.
- Cash and equivalents fell $5.63 million during the quarter: $4.19 million provided by operations, $4.98 million used for investing (principally security purchases), and $4.84 million used for dividends.
- The company paid a $1.00-per-share dividend during the quarter, totaling $4.84 million. A further $1.00-per-share quarterly dividend was declared July 20, payable August 31, 2016. No shares were repurchased in the quarter; repurchase authorization remaining was $4.54 million.
Outlook, risks and other matters
Management believes working capital and operating cash generation will meet needs for at least the next 12 months. It expects to fund dividends from operating cash and maturities of marketable securities; future dividends remain subject to board approval and may be changed or discontinued. No specific revenue or earnings guidance was provided.
Management cites reliance on several large customers, industry economic uncertainty, and uncertainty in future contract R&D revenue, stock repurchases and dividends as risks. Marketable securities expose the company to financial-market risk; holdings had maturities of seven to 243 weeks. No securities were in an unrealized-loss position at June 30, and the company did not consider them impaired. No material changes to previously disclosed risk factors or material pending legal proceedings were reported.
Income taxes payable increased $1.28 million because no estimated income tax payments were due in the quarter. A newly issued credit-loss accounting standard is expected to apply beginning in fiscal 2021; NVE had not evaluated its impact. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether lower product purchases by existing customers persist and how concentrated revenue is among major customers.
- Whether new contract R&D work continues to offset product-sales weakness.
- The composition, maturities, yields and valuation sensitivity of the $90.73 million securities portfolio.
- The sustainability and funding of the $1.00-per-share quarterly dividend relative to operating cash generation and future cash needs.
- Future R&D spending, product-development progress and any effect from adoption of the new credit-loss standard.