NVE Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2020, ended June 30, 2019. The financial statements are unaudited. NVE develops and sells spintronic sensors, couplers, and related devices.
Financial performance and position
| Metric | Quarter ended June 30, 2019 | Prior-year quarter |
|---|---|---|
| Revenue | $6.295 million | $7.108 million |
| Gross profit / margin | $5.203 million / 82.7% | $5.712 million / 80.4% |
| Operating income | $3.900 million | $4.394 million |
| Net income | $3.607 million | $3.945 million |
| Basic and diluted EPS | $0.74 | $0.81 |
| Operating cash flow | $4.538 million | $4.650 million |
- Revenue composition: Product sales were $6.085 million and contract R&D revenue was $0.209 million.
- Cash and liquidity: Cash and cash equivalents were $13.039 million at June 30, up from $6.877 million at March 31, 2019. Marketable securities totaled $61.612 million; cash plus marketable securities totaled approximately $74.651 million. Management believes working capital and operating cash generation will meet needs for at least the next 12 months.
- Cash flows: Investing activities provided $6.470 million, principally from $9.500 million of security maturities, partly offset by $3.014 million of security purchases. Dividends paid used $4.846 million. Cash increased $6.162 million during the quarter.
- Margins and expenses: Cost of sales was 17.3% of revenue versus 19.6% a year earlier. Total expenses declined 1% to $1.303 million.
- Debt and liabilities: The filing reports no borrowings or debt balance. Total liabilities were $1.394 million, including a $0.258 million operating lease liability.
- Dividends: The company paid and declared $1.00 per share for the quarter. A further $1.00-per-share quarterly dividend was declared July 17, payable August 30, 2019, subject to the board’s authority to modify or discontinue future dividends.
Changes versus prior-year quarter
- Revenue decreased 11.4%, with product sales down 11.4% and contract R&D revenue down 11.8%. Management attributed lower product sales mainly to reduced purchases by existing customers and lower R&D revenue to completion of certain contracts.
- Gross margin improved to 82.7% from 80.4%, which management attributed to a more profitable product mix.
- Net income decreased 8.6%, primarily because of lower revenue, partly offset by the stronger gross margin. Interest income increased 8% to $0.459 million, reflecting higher average interest rates on investments.
- Comprehensive income rose to $4.177 million from $3.838 million, mainly due to a $0.570 million after-tax unrealized securities gain versus a $0.107 million loss in the prior-year quarter. Management cited strong bond-market conditions.
Outlook, risks, and notable items
- No specific revenue or earnings guidance was provided. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- Key stated risks include reliance on several large customers for a significant share of revenue, uncertainty in served industries and future sales, and changes in tariffs or other trade barriers. Dividend and repurchase decisions are also uncertain.
- Available-for-sale securities were approximately 74% of total assets. Management said no securities were considered impaired at June 30, 2019.
- NVE adopted the new lease accounting standard in the quarter. It recognized a right-of-use asset and lease liabilities; the adoption had no effect on operating results or cash flows. The facility lease runs through December 31, 2020.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no material pending or threatened legal proceedings and no material changes to the risk factors in the prior annual report.
Important facts for investors to verify
- Whether the reduced purchases from existing customers persist and how customer concentration affects future revenue.
- Whether completed R&D contracts are replaced by new contracts and whether product mix continues to support gross margins.
- Investment portfolio composition, maturities, fair-value sensitivity, and the concentration of assets in marketable securities.
- Cash generation relative to the $1.00-per-share dividend and the board’s future dividend decisions.
- Potential effects of tariffs, industry conditions, and other risks described in the company’s annual report.