NVE Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2020 (fiscal 2021 third quarter). NVE develops and sells spintronic sensors, couplers, and related products.
Financial performance
| Metric | Quarter ended Dec. 31, 2020 | Prior-year quarter | Nine months ended Dec. 31, 2020 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $6.53 million | $6.46 million | $15.50 million | $19.26 million |
| Gross profit / margin | $5.46 million / 83.5% | $5.20 million / 80.5% | $12.65 million / 81.6% | $15.56 million / 80.8% |
| Operating income | $4.44 million | $4.10 million | $9.23 million | $11.86 million |
| Net income | $3.93 million | $3.73 million | $8.56 million | $11.16 million |
| Diluted EPS | $0.81 | $0.77 | $1.77 | $2.30 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $8.53 million | $12.54 million |
Financial position and cash flows
- At December 31, cash and cash equivalents were $13.99 million; marketable securities were $11.12 million short-term and $40.66 million long-term. Available-for-sale securities, including money-market funds, totaled $65.69 million, approximately 88% of assets.
- Total assets were $74.42 million and shareholders’ equity was $72.97 million. No borrowings are reported; liabilities were $1.45 million, including $0.72 million of operating lease liabilities.
- For the nine-month period, cash increased $5.92 million to $13.99 million. Investing activities provided $11.99 million, primarily from $12.00 million of security maturities. Financing activities used $14.59 million, including $14.50 million of dividends and $0.09 million of share repurchases.
- Capital expenditures were $13,627. The company declared dividends of $1.00 per share in each of the three quarters and announced a further $1.00-per-share dividend payable February 26, 2021.
Changes, outlook, and risks
- Quarterly revenue rose 1% year over year: product sales increased 3%, while contract R&D revenue declined 34%. Management attributed the product-sales increase to higher purchases by existing customers and the R&D decline to completed contracts. Gross margin improved on a more profitable revenue mix; expenses fell 8% due mainly to lower R&D and staffing-related SG&A.
- For the nine months, revenue declined 20% and net income declined 23%. Product sales fell 19% due to lower purchase volumes by existing customers, and contract R&D revenue fell 21% following contract completions. Management said COVID-19 significantly affected revenue and earnings in the period, particularly through conditions in medical-device markets, but believed the impact had subsided in the December quarter.
- Management believes working capital and operating cash generation will meet needs for at least the next 12 months. Future dividends remain subject to Board approval and business, liquidity, and other conditions; the filing provides no earnings or revenue guidance.
- Key risks include dependence on several large customers; COVID-19-related customer, employee, or supplier disruption; and reliance on specialized packaging vendors. The filing describes extended packaging lead times and material shortages during the pandemic, with alternative suppliers potentially costly or difficult to qualify. Purchase commitments are the company’s off-balance-sheet arrangements; management considers their effects immaterial.
- No material pending or threatened legal proceedings were reported. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the December-quarter recovery in product demand continued after period-end, given the pronounced nine-month sales decline and customer concentration.
- Current customer order trends and the extent to which COVID-19 and medical-device market conditions affected sales.
- Packaging vendor capacity, lead times, raw-material availability, and the readiness of alternate suppliers.
- Dividend sustainability relative to operating cash generation and the company’s substantial investment portfolio.
- The composition, maturities, and valuation exposure of the securities portfolio, and the company’s planned use of cash and maturing investments.