NVE Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2019. NVE develops and sells spintronic devices, including sensors and couplers. All financial amounts below are in U.S. dollars.
Financial performance
| Metric | Quarter ended Dec. 31, 2019 | Quarter ended Dec. 31, 2018 | Nine months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2018 |
|---|---|---|---|---|
| Revenue | $6.465 million | $6.269 million | $19.261 million | $20.883 million |
| Gross profit | $5.201 million | $5.100 million | $15.559 million | $16.965 million |
| Gross margin | 80.5% | 81.3% | 80.8% | 81.2% |
| Operating income | $4.101 million | $3.704 million | $11.862 million | $12.902 million |
| Net income | $3.731 million | $3.421 million | $11.160 million | $11.649 million |
| Diluted EPS | $0.77 | $0.71 | $2.30 | $2.40 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $12.536 million | $11.679 million |
- Quarterly performance: Revenue grew 3% year over year, with product sales up 3% and contract research and development (R&D) revenue up 9%. Net income increased 9%. R&D expense fell 32%, primarily due to staffing changes and completion of product development activities; selling, general and administrative expense rose 22%.
- Nine-month performance: Revenue decreased 8% year over year, as product sales fell 7% and contract R&D revenue fell 14%. Management attributed the sales decline to lower purchase volumes from existing customers and the R&D decline to completed contracts. Net income decreased 4%.
- Quarterly interest income decreased 3%; nine-month interest income increased 3%. Nine-month comprehensive income rose 2% to $11.940 million, reflecting $780,016 of unrealized gains on marketable securities.
Financial position and capital allocation
- At December 31, 2019, cash and cash equivalents were $10.153 million, short-term marketable securities $12.055 million, and long-term marketable securities $50.920 million. Total current assets were $29.333 million; total assets were $81.118 million.
- Total liabilities were $887,148, consisting primarily of accounts payable, accrued payroll and other amounts, and operating lease liabilities. The filing reports no borrowings or other debt.
- Available-for-sale securities totaled $72.853 million, approximately 90% of total assets. Management reported no securities impairment. Cash increased $3.276 million over the nine months.
- Nine-month investing cash flow was a $5.278 million source, principally from securities maturities; financing cash flow was a $14.538 million use, consisting of dividends paid. The company declared dividends of $1.00 per share per quarter during the reported quarters.
- Management said working capital and operating cash generation should be adequate for at least the next 12 months. A further $1.00-per-share dividend was declared January 22, 2020, payable February 28, 2020, subject to the board’s ongoing discretion.
Outlook, risks, and other disclosures
- Management expected an approximately 18% tax rate for fiscal fourth quarter 2020 and approximately 16% for the full fiscal year.
- The company identifies dependence on several large customers, uncertainty in served industries and future sales, trade barriers, and uncertainty around future dividends and repurchases as risks. It reported no material changes to the risk factors in its latest Form 10-K.
- No material pending or threatened legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
- The facility lease runs through December 31, 2020. Adoption of the new lease standard resulted in recognition of lease assets and liabilities, with no effect on operating results or cash flows.
- Results for the quarter and nine-month period are not necessarily indicative of full-year results. The filing provides no quantified revenue or earnings forecast.
Important facts for investors to verify
- Customer concentration and the extent to which existing customers drive product sales and future revenue.
- Whether recent sales and contract R&D declines continue, and the impact of completed development work on future R&D spending.
- Marketable-security composition, maturities, valuation exposure, and the concentration of assets in these investments.
- Dividend sustainability relative to operating cash generation and the board’s stated discretion to modify or discontinue dividends.
- Actual fiscal-year tax rate and results compared with management’s stated tax-rate expectations.