NVE Corporation — Form 10-Q Summary
Business and period: NVE develops and sells devices using spintronics technology. This fiscal 2019 second-quarter report covers the quarter and six months ended September 30, 2018; comparisons are with the corresponding 2017 periods. The financial statements are unaudited.
Financial performance
| Metric | Quarter ended September 30 | Six months ended September 30 |
|---|---|---|
| Total revenue | $7.51 million, up 7.3% | $14.61 million, essentially unchanged |
| Product sales | $7.05 million, up 10.5% | $13.93 million, up 4.9% |
| Contract R&D revenue | $0.45 million, down 26.0% | $0.69 million, down 48.4% |
| Gross profit / margin | $6.15 million / 82.0% (prior: 80.7%) | $11.87 million / 81.2% (prior: 78.4%) |
| Operating income | $4.80 million, up 12.7% | $9.20 million, up 4.9% |
| Net income / diluted EPS | $4.28 million / $0.88 (prior: $3.16 million / $0.65) | $8.23 million / $1.70 (prior: $6.46 million / $1.33) |
| Operating cash flow | Not separately provided | $8.27 million (prior: $7.32 million) |
Financial position and liquidity
- At September 30, cash and cash equivalents were $6.05 million; short- and long-term marketable securities totaled $70.80 million. Available-for-sale securities, including money market funds, totaled $76.58 million, about 89% of assets.
- Total assets were $85.86 million, down from $87.43 million at March 31, 2018. Current assets were $37.26 million versus current liabilities of $0.72 million.
- The balance sheet reports no debt. Shareholders’ equity was $85.15 million. Six-month dividends paid were $9.68 million; declared dividends were $1.00 per share quarterly, or $2.00 per share for the six months.
- Six-month investing cash flow was positive $2.58 million, reflecting marketable-security maturities and purchases; financing cash flow was negative $9.56 million, principally from dividends. Cash increased $1.29 million to $6.05 million.
Changes, outlook, and notable items
- Quarterly revenue and earnings improved, while six-month revenue was nearly flat. Product sales grew, but contract R&D revenue declined substantially over the six-month comparison.
- Six-month gross margin improved, supported by lower cost of sales. The estimated fiscal 2019 tax rate fell to 18% from 30% in fiscal 2018 following U.S. tax reform; lower tax expense contributed to higher net income.
- The filing provides no specific revenue or earnings guidance. Management cautions that results for the quarter and six months are not necessarily indicative of full-year results.
- Corporate bonds had $1.32 million of gross unrealized losses at September 30. Management said it did not consider the securities impaired and expected recovery of their cost basis. Securities had maturities of one to 55 months.
- The company adopted several accounting updates; adoption of the income-tax-related comprehensive-income standard reclassified $60,365 from accumulated other comprehensive loss to retained earnings. The company expects to recognize assets and liabilities under the new lease standard but had not determined the amounts.
- No repurchases occurred in the quarter; $4.54 million remained authorized under the stock repurchase program. After quarter-end, the board declared a $1.00-per-share dividend payable November 30, 2018.
Investor verification points
- Assess whether product-sales growth can offset the ongoing decline in contract R&D revenue.
- Review the composition, maturities, credit exposure, and unrealized losses of the large marketable-securities portfolio.
- Confirm the effect of the lower estimated tax rate and lease-standard adoption on future periods.
- Compare dividends and other shareholder distributions with earnings and operating cash generation.
- Review the full 10-Q and accompanying annual report for risk factors, contingencies, and management discussion not included in the supplied filing text.