NVE Corporation (NASDAQ: NVEC) — Form 10-Q
Reporting period: Quarter and nine months ended December 31, 2023 (the third quarter and first nine months of fiscal 2024). Financial statements are unaudited.
Business context and financial performance
NVE develops and sells spintronic devices, including sensors and couplers used to acquire and transmit data.
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Total revenue | $6.76 million | $7.40 million | $22.72 million | $25.46 million |
| Gross profit / margin | $5.40 million / 79.9% | $5.92 million / 80.0% | $17.69 million / 77.8% | $19.92 million / 78.3% |
| Operating income | $4.47 million | $4.82 million | $14.46 million | $16.74 million |
| Interest income | $492,000 | $406,000 | $1.44 million | $1.04 million |
| Net income | $4.18 million | $4.23 million | $13.31 million | $14.46 million |
| Diluted EPS | $0.87 | $0.88 | $2.75 | $2.99 |
| Net margin | 61.9% | 57.2% | 58.6% | 56.8% |
Cash flow, liquidity, and debt
- Operating cash flow was $15.12 million for the nine months, compared with $14.75 million in the prior-year period. Capital spending was $16,731.
- Cash and cash equivalents were $4.68 million at December 31, 2023, up from $1.67 million at March 31, 2023. Marketable securities totaled $50.01 million at fair value; together with cash, these were about 80% of total assets.
- Current assets were $29.21 million and current liabilities $810,000. Total liabilities were $1.03 million, including operating lease liabilities; the filing reports no borrowings.
- Cash dividends paid during the nine months were $14.50 million. The board declared a further $1.00-per-share dividend, payable February 28, 2024. Future dividends remain subject to board approval and may be changed or discontinued.
Changes versus comparable periods
- Q3 revenue fell 9% year over year: product sales declined 12%, partly offset by a 94% increase in contract R&D revenue. Management attributed lower product sales mainly to reduced purchases by existing customers, particularly in defense, and a semiconductor industry downturn; contract R&D growth reflected new customer-funded projects.
- Q3 expenses decreased 16%, principally from lower R&D spending as resources shifted to customer-funded projects and lower performance-based compensation accruals. Net income declined 1% as expense savings, higher interest income, and a lower tax rate nearly offset lower revenue.
- For the nine months, revenue declined 11%; product sales decreased 11% and contract R&D revenue decreased 20%, partly because certain contracts were completed. Net income declined 8%, reflecting lower revenue and slightly higher expenses, partly offset by higher interest income and a lower tax rate.
- Interest income rose 21% in Q3 and 38% year to date, attributed to higher yields on securities purchased after December 31, 2022. The effective tax rate was approximately 16% in both FY2024 periods, versus 19% in the prior-year comparisons.
Outlook, risks, and other notable items
- The filing provides no quantitative revenue or earnings guidance. Management says future fixed-asset purchases are likely to increase significantly, but gives no amount or timing.
- Management identifies dependence on several large customers, critical suppliers and packaging vendors, uncertainty in served industries and future sales, credit-loss risk, and uncertainty around future dividends and repurchases. The filing cites weaker defense-customer purchases and a semiconductor downturn as current demand factors.
- The Abbott Laboratories Supplier Partnering Agreement was extended through December 31, 2024. Renewal and future terms are uncertain; failure to reach acceptable terms could materially affect revenue or profitability.
- Marketable securities had $972,000 of gross unrealized losses, which management attributed to interest-rate increases. The company reported no credit-loss impairment, stating it did not intend, and was not likely required, to sell before recovery of amortized cost.
- The company adopted the expected-credit-loss accounting standard in the quarter ended June 30, 2023; adoption had no material financial-statement impact. Management reported effective disclosure controls and no material change in internal control during the quarter. No material pending or threatened legal proceedings were reported.
Important facts for investors to verify
- Whether demand from defense and semiconductor customers stabilizes, and how product sales and customer-funded R&D evolve.
- Customer concentration and the status and terms of the Abbott agreement as its December 2024 expiration approaches.
- Portfolio credit quality, interest-rate exposure, and the timing of any recovery in unrealized security losses.
- Whether planned increases in capital spending affect operating cash generation, and whether cash flows and securities continue to support dividends.
- Whether the quarterly dividend remains sustainable given operating results and the board’s stated discretion to modify or discontinue it.