NVE Corporation — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2013, the first quarter of fiscal 2014. Comparisons are with the quarter ended June 30, 2012 unless otherwise noted. NVE develops and sells spintronic sensors and couplers and licenses MRAM technology.
Financial results
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Total revenue | $6.177 million | $7.463 million | Down 17.2% |
| Product sales | $5.975 million | $7.031 million | Down 15.0% |
| Contract R&D revenue | $0.202 million | $0.432 million | Down 53.2% |
| Gross profit / margin | $4.799 million / 77.7% | $5.661 million / 75.8% | Profit down 15.2%; margin up |
| Operating income | $3.283 million | $4.436 million | Down 26.0% |
| Net income | $2.567 million | $3.378 million | Down 24.0% |
| Diluted earnings per share | $0.53 | $0.69 | Down $0.16 |
| Operating cash flow | $3.619 million | $4.100 million | Down 11.7% |
Gross margin improved due to a more favorable revenue and product mix and more efficient manufacturing. Research and development expense rose 40% to $0.963 million; total expenses increased 23.8%. Interest income declined 6% to $0.526 million, attributed to lower rates on marketable securities. The effective tax rate was approximately 33%, versus 32%.
Liquidity, assets, and liabilities
- At June 30, cash and cash equivalents were $2.271 million; marketable securities were $85.266 million, including $9.913 million short term and $75.352 million long term. Cash plus securities totaled $87.537 million, compared with $85.261 million at March 31, 2013.
- Current assets were $19.197 million and current liabilities were $2.117 million. Total assets were $98.048 million; shareholders’ equity was $95.696 million.
- No interest-bearing debt is listed on the balance sheet. Income taxes payable were $1.044 million; management attributed the increase to no estimated tax payments being due during the quarter.
- Operating cash flow was $3.619 million. Investing activities used $3.857 million, principally net purchases of marketable securities. There were no fixed-asset purchases or financing cash flows. Cash ended the quarter at $2.271 million.
- Marketable securities represented approximately 87% of total assets. Their fair value was $85.266 million; gross unrealized losses were $0.617 million. Management did not consider the securities other-than-temporarily impaired and stated it expected to recover their cost basis.
Changes, outlook, and risks
- Revenue declined as existing customers purchased less and a large contract’s activities were mostly completed. Management also cited a challenging environment for new U.S. Government contract funding, which can affect NVE directly and through customers.
- R&D spending increased as product development activity grew and resources shifted from contract R&D to expensed R&D. Management noted that R&D costs and contract activity can fluctuate.
- No fixed-asset purchases were made; production-space expansion and infrastructure upgrades had been completed in the prior fiscal year. The company had not repurchased shares during the quarter.
- Management believed working capital and operating cash generation would be adequate for at least the next 12 months. The filing provides no specific revenue or earnings guidance and cautions that quarterly results are not necessarily indicative of full-year results.
- NVE’s patent infringement case against Everspin Technologies remained stayed; on July 1, 2013, the court extended the stay through June 30, 2014. Two patents in suit were subject to USPTO inter partes reexaminations.
- The company reported no material changes to the risk factors in its FY2013 10-K. It identified risks including customer and government funding uncertainty, product development and commercialization, new-product revenue potential, patent enforcement, and litigation. Disclosure controls were assessed as effective, with no material internal-control changes reported.
Important facts for investors to verify
- Whether lower purchases by existing customers and weaker contract R&D activity persist, and whether new or follow-on contracts are obtained.
- Developments in the Everspin litigation, the court stay, and USPTO reexaminations of the patents in suit.
- Changes in the large available-for-sale securities portfolio, including market-value movements, credit quality, and liquidity needs.
- Future R&D spending, product-development progress, and the effect of these investments on operating results.
- Potential outcomes of tax examinations: tax years 1999–2012 remained open to examination as of the filing.