NVE Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2022 (fiscal 2023 third quarter); financial statements are unaudited. NVE develops and sells spintronics-based devices, including sensors and couplers.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Revenue | $7.40 million, up 17.7% | $25.46 million, up 25.6% |
| Product sales | $7.20 million, up 21.7% | $24.79 million, up 27.1% |
| Contract R&D revenue | $0.20 million, down 46.2% | $0.67 million, down 12.9% |
| Gross profit / margin | $5.92 million / 80.0% | $19.92 million / 78.3% |
| Operating income | $4.82 million | $16.74 million |
| Net income / diluted EPS | $4.23 million / $0.88 | $14.46 million / $2.99 |
| Operating cash flow | Not separately presented for the quarter | $14.75 million, versus $9.10 million |
Liquidity, debt, and capital allocation
- At December 31, cash and cash equivalents were $2.03 million, short-term marketable securities were $10.34 million, and long-term marketable securities were $41.17 million. Available-for-sale securities totaled $52.02 million, approximately 79% of assets.
- Cash and cash equivalents fell $8.42 million from March 31, 2022. The company used $14.49 million for dividends and $8.68 million net for investing, partly offset by operating cash flow.
- Total liabilities were $2.27 million. The filing reports no borrowings; operating lease liabilities totaled $558,574.
- Dividends declared were $1.00 per share in each quarter, or $3.00 per share for the nine months. A further $1.00-per-share dividend was declared for payment February 28, 2023. The board may modify or discontinue future dividends.
Changes, outlook, and risks
- Quarterly and nine-month revenue growth came chiefly from higher product sales to existing and new customers; completed contracts reduced contract R&D revenue. Management said sales increased in most markets and product lines.
- Gross margin improved year over year, which management attributed to pricing and scale benefits, partly offset by higher costs. Quarterly expenses rose 27%, including higher employee compensation and staffing; nine-month expenses declined 5%, partly reflecting resources shifted from R&D to revenue-generating activities.
- Interest income increased as the company held more available-for-sale securities and earned higher average rates. Nine-month net income rose 35.3% year over year.
- Management said supply-chain disruptions may have benefited sales because they appeared less severe for NVE than for competitors, but adversely affected cost of sales. Inventory increased to support sales and mitigate longer supplier lead times; capital spending included equipment to expand manufacturing capacity.
- No specific financial guidance or quantitative outlook is provided. Management cautions that nine-month results are not necessarily indicative of full-year results.
- Risks include reliance on several large customers and critical suppliers. The Abbott Laboratories Supplier Partnering Agreement was extended through December 31, 2023; renewal and future terms are uncertain, and failure to reach agreement could adversely affect revenue or profitability.
- Unrealized losses on marketable securities were $1.86 million at December 31, 2022; management said the declines were not attributable to credit deterioration and did not consider the securities impaired. No material pending or threatened legal proceedings were reported. Disclosure controls were deemed effective.
Important facts for investors to verify
- Revenue durability and customer concentration, including the Abbott agreement’s expiration and renewal prospects.
- Whether product-sales growth and improved gross margins persist, and how contract R&D revenue trends develop.
- Supplier lead times, inventory levels, manufacturing-capacity investments, and the continuing effect of supply-chain conditions on costs and sales.
- Marketable-security maturities, interest-rate and fair-value exposure, and cash available after dividends and planned operating needs.
- The board’s future dividend decisions and the potential effect of adopting the expected credit-loss accounting standard in fiscal 2024, if NVE remains a smaller reporting company.