NVE Corporation (NASDAQ: NVEC) — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2021 (fiscal 2022 third quarter). NVE develops and sells spintronic devices, including sensors and couplers. Financial statements are unaudited.
Financial performance
| Metric | Quarter ended Dec. 31, 2021 | Year-over-year | Nine months ended Dec. 31, 2021 | Year-over-year |
|---|---|---|---|---|
| Revenue | $6.29 million | Down 3.7% | $20.27 million | Up 30.7% |
| Gross profit / margin | $4.91 million / 78.0% | Margin down from 83.5% | $15.57 million / 76.8% | Margin down from 81.6% |
| Operating income | $4.04 million | Down 9.2% | $12.23 million | Up 32.6% |
| Net income | $3.47 million; $0.72 per diluted share | Down 11.7% | $10.69 million; $2.21 per diluted share | Up 24.9% |
| Operating cash flow | Not separately reported for the quarter | $9.10 million | Up from $8.53 million |
- Quarter revenue included $5.92 million of product sales, down 6.6%, and $374,019 of contract research and development revenue, up 86.1%. For the nine-month period, product sales rose 31.3% and contract R&D revenue rose 17.4%.
- Quarter cost of sales rose 28.8% despite lower revenue, pressuring gross margin. Nine-month cost of sales rose 64.7%, faster than revenue growth.
- Cash and cash equivalents were $8.97 million at December 31, 2021. Marketable securities were $49.66 million; cash plus marketable securities totaled approximately $58.63 million. Total assets were $68.05 million.
- Total liabilities were $1.56 million, including $635,605 of operating lease liabilities; the filing reports no borrowings. Current liabilities were $1.08 million.
- Dividends declared were $1.00 per share each quarter, or $3.00 per share for the nine months. Cash dividends paid in the nine-month period totaled $14.50 million.
Changes and management commentary
- Quarter revenue and net income declined year over year, while nine-month revenue and net income increased substantially. Management attributed nine-month sales growth primarily to increased purchases by existing customers and growth in most markets and product lines.
- Product sales in the quarter were affected by raw-material shortages and longer lead times for critical materials and services. Management said pandemic-related supply-chain impacts, labor costs, and materials costs were greater than in the prior-year periods, while the pandemic’s effect on customer demand was less.
- Gross margin declined in both comparison periods, which management attributed to product/revenue mix and higher costs. Lower R&D spending reflected staffing changes and completion of some product-development activities; higher nine-month SG&A reflected increased employee compensation.
- Interest income declined 22% for the quarter and 26% for the nine months, attributed to lower available-for-sale security balances and lower average interest rates.
- Management expects fiscal 2022 capital expenditures to be significantly higher than fiscal 2021’s $62,727, citing ordered production equipment to increase capacity. No quantified revenue or earnings guidance is provided.
Liquidity, risks, and other items
- Management believes working capital and operating cash generation will be adequate for at least the next 12 months. Nine-month cash from operations was partly offset by $14.50 million of dividends; cash decreased $1.46 million.
- Available-for-sale securities represented approximately 84% of total assets. The company reported $216,834 of gross unrealized holding losses on corporate bonds and a $667,361 net-of-tax unrealized securities loss in nine-month comprehensive income; management did not consider the securities impaired.
- Key stated risks include 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. Management reported no material changes to previously disclosed risk factors.
- The company reported no material pending or threatened legal proceedings. A $1.00-per-share quarterly dividend was declared after quarter-end, payable February 28, 2022.
Important facts for investors to verify
- Whether supply shortages, longer vendor lead times, and higher labor and materials costs continue to constrain shipments or margins.
- Whether the nine-month sales growth is sustained, given the quarter’s decline in product sales and reliance on existing customers.
- Planned production-equipment spending, its timing, and whether added capacity supports future demand.
- The credit quality, maturity profile, and fair-value sensitivity of the large corporate-bond portfolio.
- The sustainability of $1.00 quarterly dividends alongside operating needs and planned capital spending; future dividends remain subject to Board approval.