NVE Corporation — Form 10-Q Summary
Business and period: NVE develops and sells spintronic devices, including sensors and couplers. This unaudited report covers the quarter ended June 30, 2022, the first quarter of fiscal 2023, with comparisons to the quarter ended June 30, 2021. Amounts below are U.S. dollars.
Financial performance and position
- Revenue: $7.34 million, up 2.6% year over year. Product sales were $7.07 million (+1.7%); contract research and development revenue was $263,446 (+32.1%), attributed to new contracts.
- Profit and margins: Gross profit was $5.68 million, with gross margin of 77.5% versus 75.3%. Operating income was $4.71 million, up 14.7%; net income was $4.14 million, up 15.7%. Net margin was 56.4% versus 50.0%. Diluted EPS was $0.86 versus $0.74.
- Cash flow: Operating cash flow was $3.33 million, compared with $3.30 million. Investing activities provided $4.35 million, primarily reflecting security maturities net of purchases. Dividends paid used $4.83 million. Cash increased $2.85 million to $13.30 million.
- Liquidity and debt: Short- and long-term marketable securities totaled $40.41 million; cash and cash equivalents were $13.30 million. Total current assets were $37.97 million and current liabilities $1.12 million. The balance sheet reports no borrowings; total liabilities of $1.53 million included operating lease liabilities of $568,380.
- Other metrics: Total assets were $65.07 million and shareholders’ equity was $63.54 million. Available-for-sale securities were approximately 79% of total assets. The company recorded a $338,553 after-tax unrealized securities loss in comprehensive income.
Changes versus the prior-year quarter
- Revenue increased 2.6%; management attributed the increase to higher product sales and new research and development contracts.
- Gross margin improved, which management attributed primarily to increased prices.
- Total expenses declined 23.7%: research and development fell 25.5%, primarily due to reallocating resources to revenue-generating activities; selling, general and administrative expense fell 20.4%, primarily due to lower employee compensation expense.
- Net income increased 15.7%, driven principally by revenue growth, higher gross margin, and lower expenses. Interest income declined 2.3%, primarily because of lower available-for-sale securities.
- Cash and cash equivalents rose from $10.45 million at March 31, 2022. Marketable securities’ fair value declined to $51.66 million from $51.91 million, including cash-equivalent money market funds.
Outlook, risks and notable items
- Management said continuing COVID-19-related supply-chain disruptions unfavorably affected quarterly revenue and costs. Inventory increased $455,402, primarily as the company built work in process to mitigate longer vendor lead times.
- NVE had ordered and was deploying additional production equipment to increase capacity. It expected fiscal 2023 fixed-asset purchases to be significantly greater than the $484,579 invested in fiscal 2022; no specific fiscal 2023 amount was provided.
- The board declared a further $1.00-per-share dividend on July 20, 2022, payable August 31, 2022. Future dividends remain subject to board approval and may be changed or discontinued. The quarter’s $4.83 million dividend payment exceeded quarterly net income of $4.14 million.
- Management identified reliance on several large customers, dependence on critical suppliers and packaging vendors, uncertain industry conditions and future sales, and uncertainty around future dividends and repurchases as risks. It reported no material changes to the risk factors in the fiscal 2022 Form 10-K.
- Corporate bonds had $865,662 of gross unrealized losses at June 30. Management said the declines were not attributed to credit deterioration and that it expected to recover cost basis; it did not consider the securities impaired.
- No material pending or threatened legal proceedings were reported. Management concluded disclosure controls were effective and reported no materially affecting change in internal control over financial reporting during the quarter.
Investor verification priorities
- Review customer concentration, new contract durability, and the extent to which supply constraints are limiting sales or increasing costs.
- Assess whether planned equipment spending can expand capacity as intended and how it may affect cash and security balances.
- Evaluate dividend sustainability relative to earnings, operating cash flow, and planned capital expenditures; the next declared dividend is $1.00 per share.
- Review the securities portfolio’s maturities, unrealized losses, and exposure to interest-rate and credit risks.
- Check the filing’s signature dates: the supplied text lists June 20, 2022, before the June 30 quarter-end, an apparent date inconsistency to confirm against the filed document.