NVE Corporation — Q1 FY2024 Form 10-Q
Reporting period: Quarter ended June 30, 2023, compared with the quarter ended June 30, 2022. NVE develops and sells spintronic devices, including sensors and couplers used to acquire and transmit data. The filing is unaudited.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Total revenue | $8.83 million | $7.34 million | +20.4% |
| Product sales | $8.70 million | $7.07 million | +23.0% |
| Contract R&D revenue | $131,322 | $263,446 | -50.2% |
| Gross profit / margin | $6.75 million / 76.5% | $5.68 million / 77.5% | Profit +18.8% |
| Operating income / margin | $5.37 million / 60.8% | $4.71 million / 64.2% | +13.9% |
| Net income / margin | $4.40 million / 49.9% | $4.14 million / 56.4% | +6.4% |
| Diluted EPS | $0.91 | $0.86 | +5 cents |
| Operating cash flow | $5.03 million | $3.33 million | +$1.69 million |
| Cash dividends paid | $4.83 million | $4.83 million | No change |
Liquidity and balance sheet
- At June 30, cash and cash equivalents were $1.44 million and marketable securities were $51.89 million; together, these totaled approximately $53.33 million. The securities note separately reports total securities of $53.19 million including $1.29 million of money-market funds classified as cash equivalents.
- Current assets were $26.01 million and current liabilities $1.27 million, implying working capital of approximately $24.74 million. Total assets were $68.12 million and shareholders’ equity $66.55 million.
- The filing reports no borrowings or debt. Reported liabilities were $1.57 million, including $478,554 of operating lease liabilities.
- Cash declined $230,000 during the quarter. Operating cash flow of $5.03 million was partly offset by $542,000 of net investing outflow and $4.71 million of financing outflow.
Material changes and unusual items
- Management attributed higher product sales to increased purchases by existing and new customers, with growth in most markets and product lines. Contract R&D revenue fell because certain contracts were completed.
- Cost of sales rose 25.9%, faster than revenue, and gross margin declined 1.0 percentage point. Operating expenses increased 42.2%, including higher R&D and selling, general, and administrative costs from increased staffing and compensation.
- A $212,440 credit-loss expense was recorded following adoption of the expected-credit-loss accounting standard. The allowance on accounts receivable rose from $15,000 to $227,440; management said the charge reduced quarterly EPS by $0.04 and had no net cash-flow impact.
- Interest income increased 54.2% to $436,526, reflecting higher yields on securities purchased after June 30, 2022. The effective tax rate increased to approximately 24% from 17%, which management attributed to the timing and availability of tax credits.
- Marketable securities had $1.85 million of gross unrealized losses at quarter-end, which management attributed to interest-rate increases. The company reported no credit impairment, said issuers were making timely interest payments, and did not expect to need to sell securities before recovery of amortized cost.
Outlook, risks, and contingencies
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- Management expects to fund dividends from operating cash flow and maturities of marketable securities; future dividends remain subject to Board approval and may be changed or discontinued. A $1.00-per-share dividend was declared July 19, payable August 31, 2023.
- Disclosed risks include reliance on several large customers, dependence on critical suppliers and packaging vendors, economic uncertainty in served industries, uncertainty in future sales, credit losses, and uncertainty around future dividends and share repurchases. The company added credit-loss risk as a risk factor.
- No material pending or threatened legal proceedings were identified. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
- The filing lists a Second Amendment to the Sonova Supply Agreement as an exhibit incorporated from a July 19, 2023 Form 8-K/A; the supplied filing text does not describe its terms.
Important facts for investors to verify
- Whether product-sales growth and customer demand persist, and how much revenue depends on the largest customers.
- Developments in receivable collections and the adequacy of the $227,440 credit-loss allowance.
- Whether operating costs, gross margin, and the effective tax rate stabilize after the quarter’s changes.
- The fair-value and maturity profile of the corporate-bond portfolio, including the effect of interest rates and any realized losses.
- The terms and business implications of the amended Sonova supply agreement, as well as the sustainability of the $1.00-per-share dividend.