NVE Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2018. NVE develops and sells spintronic sensors and couplers and licenses MRAM technology. Comparisons are with the corresponding 2017 periods.
Financial performance
| Metric | Quarter ended Dec. 31, 2018 | Year-over-year change | Nine months ended Dec. 31, 2018 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $6.27 million | Down 14.8% | $20.88 million | Down 4.9% |
| Product sales | $5.99 million | Down 7.1% | $19.92 million | Up 1.0% |
| Contract R&D revenue | $0.28 million | Down 69.5% | $0.97 million | Down 57.0% |
| Gross profit / margin | $5.10 million / 81.3% | Margin up from 77.5% | $16.97 million / 81.2% | Margin up from 78.1% |
| Operating income | $3.70 million | Down 18.4% | $12.90 million | Down 3.0% |
| Net income | $3.42 million | Down 4.2% | $11.65 million | Up 16.1% |
| Diluted EPS | $0.71 | Compared with $0.74 | $2.40 | Compared with $2.07 |
Quarterly operating margin was 59.1% versus 61.6%; nine-month operating margin was 61.8% versus 60.6%. Net margin was 54.6% for the quarter and 55.8% for the nine-month period. Interest income rose 13% for the quarter and 15% for nine months, while effective tax rates fell to 18% from 28% and 31%, respectively.
Cash, liquidity, and capital
- At December 31, cash and cash equivalents were $6.21 million; short- and long-term marketable securities totaled $69.35 million. Current assets were $31.27 million and current liabilities $0.87 million.
- Total assets were $84.79 million and shareholders’ equity $83.92 million. The balance sheet reports no debt.
- Nine-month operating cash flow was $11.68 million, investing cash flow was positive $4.08 million, and financing cash flow was negative $14.31 million. Cash increased $1.45 million from March 31.
- Cash dividends paid totaled $14.53 million for the nine months. A further $1.00-per-share quarterly dividend was declared for payment February 28, 2019. The filing says working capital and operating cash generation should meet needs for at least 12 months; future dividends remain subject to Board approval and may change or stop.
- Available-for-sale securities represented approximately 89% of total assets. Management did not consider them impaired, attributing fair-value declines to factors other than credit quality.
Changes, outlook, and risks
- Management attributed the revenue decline mainly to completed R&D contracts and lower purchases by existing customers in the quarter. Higher gross margins reflected a more profitable revenue mix.
- R&D expense increased 32% for the quarter and 11% for nine months due to new-product development. SG&A decreased 14% and 8%, respectively, due to staffing changes.
- Lower taxes reflect the Tax Reform Act; the company estimated an 18% fiscal 2019 tax rate, compared with 30% for fiscal 2018.
- No specific revenue or earnings guidance was provided. Key disclosed risks include reliance on several large customers, economic conditions in served industries, uncertain future contract R&D revenue, tax-reform effects, and uncertainty around dividends and stock repurchases. Management reported no material changes to the risk factors in its 2018 Form 10-K.
- No material pending or threatened legal proceedings were identified. Disclosure controls were deemed effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether product sales can offset the continued decline in contract R&D revenue and customer purchasing variability.
- Whether new-product development spending produces sales growth while preserving high gross margins.
- The concentration, maturity profile, and fair-value sensitivity of the substantial securities portfolio.
- The sustainability of dividends relative to operating cash flow, investment maturities, and future business needs.
- The effects of the lower tax rate and the company’s stated large-customer and industry risks on future results.