NVE Corporation — Form 10-Q Summary
Business context and reporting period
NVE develops and sells spintronic devices, including sensors and couplers, and licenses its MRAM technology. This unaudited report covers the quarter and six months ended September 30, 2013, the second quarter and first half of fiscal 2014. Comparisons are with the corresponding 2012 periods.
Key financial metrics
| Metric | Quarter ended Sep. 30, 2013 | Year-over-year change | Six months ended Sep. 30, 2013 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $7.30 million | +25.4% | $13.48 million | +1.4% |
| Gross profit / margin | $5.80 million / 79.4% | Margin up from 72.4% | $10.60 million / 78.6% | Margin up from 74.3% |
| Operating income | $4.26 million | +42.2% | $7.54 million | +1.5% |
| Net income | $3.23 million | +32.2% | $5.80 million | -0.4% |
| Diluted earnings per share | $0.66 | Compared with $0.50 | $1.19 | Compared with $1.19 |
| Operating cash flow | — | $5.99 million | Compared with $6.43 million |
For the six months, cash and cash equivalents were $1.56 million and marketable securities totaled $87.47 million at September 30. Cash plus marketable securities were $89.03 million, versus $85.26 million at March 31. Current assets were $17.17 million and current liabilities were $1.29 million. The balance sheet lists no debt. Shareholders’ equity was $97.96 million.
Cash decreased by $948,112 in the first half: operating cash flow of $5.99 million was more than offset by $5.68 million of net investing outflow, principally securities purchases, and $1.26 million of share repurchases. No fixed assets were purchased in the period.
Material changes versus comparable periods
- Quarterly product sales rose 38.2% to $7.23 million, attributed to higher purchase volumes from existing customers. Contract research and development revenue fell 88.2% to $70,031.
- First-half product sales increased 7.7% to $13.21 million, while contract research and development revenue declined 73.4% to $272,358. Management cited completion of most work under a large contract and a challenging environment for new U.S. Government contract funding.
- Gross margin improved in both periods, which management attributed to more favorable revenue and product mix; first-half margin also benefited from more efficient manufacturing.
- Research and development expense increased 43.2% in the quarter and 41.5% in the first half, reflecting increased product development and resources shifted from contract work to expensed R&D. Interest income declined 16.3% for the quarter and 11.6% for the half because of lower rates.
Outlook, risks, and unusual items
- Management said working capital and cash generated from operations should be adequate for at least the next 12 months. The filing gives no numerical revenue or earnings guidance and cautions that interim results are not necessarily indicative of full-year results.
- Management highlighted uncertainty in U.S. Government funding, including its effect on some non-government customers, and uncertainty about follow-on research contracts. Other cited risks include future revenue and growth, developing marketable products, new-product revenue potential, patent enforcement, litigation, and economic conditions.
- The available-for-sale securities portfolio had $362,235 of gross unrealized losses at September 30, all on positions held for less than 12 months. The company reported no other-than-temporary impairment, stating it expected to recover cost and did not expect to be required to sell before recovery.
- NVE repurchased $1.26 million of common stock in the first half; $1,236,595 remained under the $2.5 million authorization at September 30. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether product-sales growth from existing customers continues and whether customer or product concentration presents material exposure; the provided filing text does not give a clear concentration breakdown.
- Whether NVE can replace the completed research contract amid constrained government funding, and how contract revenue affects future sales and R&D spending.
- Portfolio composition, credit quality, interest-rate sensitivity, and the eventual recovery or realization of unrealized securities losses; securities represented about 88% of total assets.
- Future effects of elevated product-development spending on margins and earnings, and any additional capital needs or changes to the repurchase program.
- Tax examination exposure: tax years 1999 through 2012 remained open to examination; the company reported no unrecognized tax benefits at September 30.