NVE Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2016 (fiscal 2017). NVE develops and sells spintronic sensors and couplers and licenses MRAM technology.
Financial results
| Metric | Quarter | Six months |
|---|---|---|
| Revenue | $7.30 million, up 0.3% | $14.01 million, down 10.2% |
| Gross profit / margin | $5.56 million / 76.2%; margin down from 77.4% | $10.88 million / 77.7%; margin up from 76.7% |
| Operating income | $4.45 million, down 0.7% | $8.62 million, down 10.6% |
| Net income | $3.31 million, down 0.2%; $0.68 per diluted share | $6.44 million, down 9.5%; $1.33 per diluted share |
| Operating cash flow | Not reported separately for the quarter | $5.67 million, versus $7.84 million |
Quarterly product sales were $6.81 million, up 5.9%, while contract research and development revenue was $0.49 million, down 42.1%. For the six-month period, product sales were $12.67 million, down 10.6%, and contract research and development revenue was $1.34 million, down 5.8%. The filing reports interest income of $0.43 million for the quarter and $0.87 million for six months.
Cash, liquidity, and capital: At September 30, cash and equivalents were $5.69 million; short- and long-term marketable securities totaled $83.10 million; current assets were $34.98 million and current liabilities $1.26 million. Total assets were $97.34 million and shareholders’ equity $96.08 million. The balance sheet reports no debt. Cash declined $1.84 million over six months, mainly reflecting $9.67 million of dividends paid, partially offset by operating and investing cash flows. Management believed working capital and operating cash generation would meet needs for at least 12 months.
Investing cash flow was positive $2.12 million, including $9.20 million of security maturities and $6.93 million of purchases. Marketable securities represented approximately 85% of total assets. The six-month dividend declared was $2.00 per share; a further $1.00-per-share quarterly dividend was declared after quarter-end, payable November 30, 2016. No shares were repurchased during the quarter; $4.54 million remained authorized under the repurchase program.
Changes and management commentary
- Quarter revenue was nearly flat: higher product sales, attributed to new customers, offset lower contract research revenue following completion of certain contracts. Lower product margins and lower interest income contributed to slightly lower net income.
- Six-month revenue and net income fell, primarily because existing customers purchased less and certain research contracts ended. Gross margin improved for the six-month period, which management attributed to better margins on contract research revenue.
- Six-month SG&A decreased 27.3%, primarily from lower sales commissions; R&D increased 16.5% as new product development activity rose.
- Management provided no quantified earnings or revenue guidance. It cautioned that interim results are not necessarily indicative of full-year results.
Risks, contingencies, and unusual items
- Risks identified include reliance on several large customers, uncertain demand in served industries, future contract research revenue, and uncertainty about future dividends and repurchases. The company reported no material changes to its annual-report risk factors.
- The investment portfolio is exposed to market risks, including interest-rate changes and, to a lesser extent, foreign-exchange movements. Unrealized security losses were reported in comprehensive income; management did not consider the securities impaired and expected to recover their cost basis.
- No material pending or threatened legal proceedings were identified. No material control changes were reported, and management concluded disclosure controls were effective.
- The filing states adoption of cited forthcoming accounting standards was not expected to have a significant financial-statement impact.
Investor verification points
- Check whether product sales and customer demand recover after the reported six-month decline, and assess customer concentration.
- Track the end of research contracts, new contract activity, and the impact of new product development spending.
- Review portfolio composition, maturities, valuation changes, and sensitivity to interest rates given its large share of assets.
- Assess the sustainability and funding of the $1.00-per-share quarterly dividend against operating cash flow and security maturities.
- Confirm subsequent-period liquidity and cash conversion, particularly as receivables rose by $1.12 million from March 31, 2016.