NVE Corporation — Form 10-Q Summary
Business and period. NVE develops and sells spintronic sensors and couplers and licenses MRAM technology. This report covers the quarter ended June 30, 2012, the first quarter of fiscal 2013; comparisons are with the quarter ended June 30, 2011. The interim statements are unaudited.
Financial results and liquidity
| Metric | Quarter ended June 30, 2012 | Prior-year quarter | Change |
|---|---|---|---|
| Product sales | $7.03 million | $7.02 million | Approximately flat |
| Contract R&D revenue | $0.43 million | $1.19 million | -63.7% |
| Total revenue | $7.46 million | $8.21 million | -9.1% |
| Gross profit / margin | $5.66 million / 75.8% | $5.62 million / 68.4% | Gross profit +0.8% |
| Operating income | $4.44 million | $4.51 million | -1.6% |
| Net income | $3.38 million | $3.44 million | -1.8% |
| Diluted EPS | $0.69 | $0.70 | Lower |
| Operating cash flow | $4.10 million | $5.07 million | Lower |
R&D expense increased 39% to $0.69 million as resources shifted toward product development; SG&A fell 13% to $0.54 million, primarily due to lower legal expenses. The effective tax rate was 32% in both periods. Comprehensive income was $3.29 million, including an $85,628 after-tax unrealized securities loss, versus $3.54 million including a gain in the prior-year quarter.
At June 30, cash and cash equivalents were $1.49 million and marketable securities totaled $75.57 million ($18.90 million short-term and $56.66 million long-term). Cash plus securities were $77.06 million, up from $73.54 million at March 31, 2012. Operating cash flow was offset largely by $6.20 million of securities purchases and $0.45 million of capital spending; cash declined $51,018. Current assets were $28.09 million and current liabilities $2.82 million. The balance sheet reports no debt. Management said working capital and operating cash generation should meet needs for at least the next 12 months.
Changes, outlook, and risks
- Revenue fell mainly because certain contract research and development work was completed. Management cautioned that contract activity fluctuates and there is no assurance of replacement or follow-on awards.
- Management attributed improved gross margin to revenue and product mix and more efficient manufacturing. Higher R&D spending reflects increased product development activity; expense levels may fluctuate. Lower SG&A may not indicate a continuing trend.
- The securities portfolio represented approximately 86% of total assets. Moody’s downgraded ratings on a number of holdings during the quarter; all rated bonds remained investment grade. Unrealized losses were $44,367, and the company did not consider securities other-than-temporarily impaired, citing its expectation of recovering cost basis and no intent or likely requirement to sell before recovery.
- NVE’s patent infringement suit against Everspin and Everspin’s suit against NVE were both contested, with answers and counterclaims filed. The USPTO granted Everspin’s request for inter partes reexamination of one NVE patent involved in the dispute. The filing does not quantify potential financial exposure or outcome.
- No material changes were reported to other previously disclosed risk factors. The filing gives no specific revenue or earnings guidance. Management noted that quarterly results are not necessarily indicative of full-year results.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported. No shares were repurchased during the quarter.
Important facts for investors to verify
- Whether completed contract work is replaced by new research and development awards, and the resulting revenue mix.
- Developments in both Everspin patent lawsuits and the reexamination of NVE patent 6,349,053.
- Credit-rating changes, defaults, and realized or unrealized losses in the securities portfolio.
- Whether improved product margins persist as product mix, manufacturing efficiency, and R&D spending evolve.
- The timing and amount of income-tax payments; income taxes payable were $1.40 million at quarter-end, with no estimated tax payments due during the quarter.