NVE Corporation — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2018, ended September 30, 2017. NVE develops and sells spintronic devices, including sensors and couplers, and licenses MRAM technology. Financial statements are unaudited.
Key financial results
| Metric | Quarter ended Sept. 30, 2017 | Quarter ended Sept. 30, 2016 | Six months ended Sept. 30, 2017 | Six months ended Sept. 30, 2016 |
|---|---|---|---|---|
| Revenue | $6.996 million | $7.303 million | $14.604 million | $14.010 million |
| Gross profit / margin | $5.643 million / 80.7% | $5.562 million / 76.2% | $11.452 million / 78.4% | $10.884 million / 77.7% |
| Operating income | $4.264 million | $4.450 million | $8.768 million | $8.624 million |
| Net income | $3.161 million | $3.305 million | $6.459 million | $6.438 million |
| Diluted EPS | $0.65 | $0.68 | $1.33 | $1.33 |
Quarterly revenue fell 4.2% year over year as product sales declined 6.3%, partly offset by a 24.8% increase in contract research and development (R&D). Quarterly net income declined 4.4%. For the six-month period, revenue rose 4.2%, primarily on 4.8% growth in product sales, while net income was essentially unchanged. R&D expense increased 34.1% for the quarter and 26.8% for six months, reflecting increased new-product development. Six-month interest income fell 13.7%.
Cash, investments, and liquidity
- Cash and cash equivalents were $5.108 million at September 30, down from $8.199 million at March 31, 2017.
- Marketable securities totaled $76.544 million, including $16.922 million short-term and $59.623 million long-term; securities represented approximately 85% of total assets. The portfolio consisted of corporate bonds at quarter-end.
- Six-month operating cash flow was $7.316 million, versus $5.666 million a year earlier. Investing activities used $0.725 million; financing activities used $9.682 million, principally for dividends. Cash decreased by $3.091 million.
- Total assets were $90.395 million and shareholders’ equity was $89.565 million. Current liabilities were $0.831 million; the filing reports no borrowings or other debt balances.
Management stated that working capital and cash generated from operations should be adequate for at least the next 12 months. Cash dividends paid during the six months totaled $9.682 million. After quarter-end, the board declared a $1.00-per-share quarterly dividend payable November 30, 2017; future dividends remain subject to board approval and may be changed or discontinued.
Outlook, risks, and notable items
- No specific revenue or earnings guidance was provided. Management attributed quarter-to-quarter product-sales weakness to lower purchases by existing customers; six-month product-sales growth reflected increased purchases from existing and new customers.
- Management cited reliance on several large customers, uncertainty in served industries and future contract R&D revenue, and uncertainty regarding future dividends and repurchases as risks. The filing reports no material change to the risk factors in the prior Form 10-K.
- Interest-rate and market-value changes affect the investment portfolio; foreign-currency movements are a lesser exposure. Nine securities were in unrealized-loss positions, but management did not consider the portfolio impaired.
- The company adopted inventory and stock-compensation accounting updates during the period without significant financial-statement impact. It expected the forthcoming revenue-recognition standard to have no material financial impact, while evaluation of certain contract performance obligations and disclosure requirements continued.
- No material pending or threatened legal proceedings were identified. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether product demand and customer purchasing patterns recover, given the quarterly sales decline and customer concentration.
- Whether new-product R&D spending produces commercial growth and how elevated R&D expense affects margins and earnings.
- The composition, maturities, credit quality, and interest-rate sensitivity of the $76.544 million securities portfolio, which is concentrated in the company’s asset base.
- The sustainability of the $1.00-per-share quarterly dividend relative to operating cash generation, investment maturities, and future cash needs.
- The progress and eventual effects of implementing the new revenue-recognition standard, especially for milestone-based R&D contracts.