NVE Corp. 10-Q Summary: Quarter Ended September 30, 2009
Business Context and Reporting Period
NVE Corporation develops and sells spintronic devices, a nanotechnology utilizing electron spin for data acquisition and transmission. The company manufactures sensors, couplers, and licenses MRAM technology. This report covers the second quarter and first six months of fiscal year 2010, ended September 30, 2009.
Key Financial Metrics
| Metric | Q2 2009 | Q2 2008 | 6 Months 2009 | 6 Months 2008 |
|---|---|---|---|---|
| Total Revenue | $6,508,501 | $5,727,790 | $13,343,033 | $10,591,576 |
| Net Income | $2,694,183 | $2,300,381 | $5,633,115 | $4,202,997 |
| Diluted EPS | $0.55 | $0.48 | $1.16 | $0.88 |
| Gross Margin | 69.5% | 69.5% | 70.9% | 70.2% |
| Operating Cash Flow (6mo) | $6,617,013 (vs. $4,658,217 prior year) | |||
| Cash & Equivalents | $2,590,186 (as of Sept 30, 2009) | |||
| Marketable Securities | $41,036,494 (as of Sept 30, 2009) | |||
| Total Debt | None reported |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 13.6% in Q2 and 26.0% for the six-month period. This was driven by a 6% increase in product sales (new customers and volume) and a significant 55% (Q2) to 124% (6mo) surge in contract research and development revenue due to new contracts.
- Profitability: Net income rose 17.1% in Q2 and 34.0% for the six-month period. Gross margins remained stable or improved slightly (70.9% for 6 months) due to higher margins on both product and contract revenue.
- Interest Income: Interest income increased 42% in Q2 and 43% for the six-month period, attributed to a larger portfolio of interest-bearing marketable securities.
- Expense Management: Selling, general, and administrative (SG&A) expenses increased 6% in Q2 and 13% for the six months, primarily due to higher salaries, commissions, and stock-based compensation. R&D expenses decreased 16% for the six-month period as resources were reallocated to billable contract work.
Outlook, Risks, and Management Commentary
- Liquidity: Management states working capital is adequate for at least the next 12 months. Total cash and marketable securities increased to approximately $43.6 million.
- Investment Portfolio: The company holds significant marketable securities ($41 million), representing 81% of total assets. While some municipal bonds held unrealized losses ($57,974), management determined these were not other-than-temporarily impaired as the bonds retained investment-grade ratings and the company intends to hold them to maturity.
- Stock Repurchase: A $2.5 million stock repurchase plan authorized in January 2009 remains active, but no shares were repurchased during this period.
- Risks: Forward-looking statements are subject to risks including uncertain economic conditions, competition, failure to obtain new customers, and the non-recurring nature of contract research revenue. Management notes that the surge in contract R&D revenue may not be representative of future trends.
Key Facts for Investor Verification
- Sustainability of Contract Revenue: Verify the duration and renewal probability of the new contracts driving the 55-124% increase in R&D revenue, as management explicitly warns this may not be recurring.
- Investment Portfolio Exposure: Confirm the credit quality and maturity profile of the $41 million marketable securities portfolio, which constitutes the majority of the company's assets.
- Customer Concentration: Assess reliance on specific new customers cited for the 6% increase in product sales.
- Stock-Based Compensation: Monitor the impact of rising stock prices on future SG&A expenses, as this was a primary driver of increased administrative costs.