NVE Corporation — Form 10-Q Summary
Business and reporting period: NVE develops and sells spintronic devices, including sensors and couplers, and licenses MRAM technology. This filing covers the quarter and nine months ended December 31, 2016, the third quarter and first nine months of fiscal 2017. Financial statements are unaudited.
Financial performance
| Metric | Quarter ended Dec. 31, 2016 | Year-over-year change | Nine months ended Dec. 31, 2016 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $7.46 million | +24% | $21.47 million | -0.7% |
| Product sales | $7.12 million | +42% | $19.78 million | +3% |
| Contract R&D revenue | $0.35 million | -65% | $1.69 million | -30% |
| Gross profit / margin | $5.96 million / 79.9% | +32%; margin up from 74.9% | $16.84 million / 78.4% | +2%; margin up from 76.2% |
| Operating income | $4.75 million | +41% | $13.37 million | +3% |
| Net income | $3.48 million | +35% | $9.92 million | +2% |
| Diluted EPS | $0.72 | Compared with $0.53 | $2.05 | Compared with $2.00 |
| Operating cash flow | Not provided for the quarter | — | $11.01 million | Compared with $11.90 million |
Liquidity, cash flow and capital
- At December 31, cash and cash equivalents were $3.80 million and marketable securities totaled $84.32 million; combined cash and securities were approximately $88.12 million. Securities represented approximately 89% of total assets.
- Cash declined $3.74 million from March 31, 2016. Nine-month cash flow included $11.01 million provided by operations, $0.33 million used in investing, and $14.41 million used in financing.
- Financing cash use was primarily $14.51 million of dividends paid. The company declared a further $1.00-per-share quarterly dividend, payable February 28, 2017. Future dividends remain subject to Board approval and may be changed or discontinued.
- Current liabilities were $1.04 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
- Quarterly revenue growth came from new customers and higher purchases by existing customers; completed contracts reduced contract R&D revenue. For the nine-month period, product sales gains largely offset the R&D decline.
- Management attributed higher gross margins to a more profitable revenue and product mix. R&D expense rose with new-product development, while lower sales commissions reduced selling, general and administrative expense.
- Interest income fell 16% for the quarter and 11% for the nine months, reflecting lower average securities balances and yields. No formal revenue or earnings guidance was provided; management cautioned that interim results do not necessarily indicate full-year results.
- Key stated risks include reliance on several large customers, uncertainty in served industries and future contract R&D revenue, and uncertainty around future dividends and repurchases. Marketable securities had $336,187 of gross unrealized losses at December 31; management did not consider the securities impaired because it expected to recover their cost basis.
- No material changes to previously disclosed risk factors or material pending or threatened legal proceedings were reported. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether product-sales growth from new and existing customers is sustained, given the company’s disclosed customer concentration.
- How completed contract R&D work affects future revenue and whether new contracts replace it.
- Performance and credit quality of the securities portfolio, including the reported unrealized losses and concentration of assets in investments.
- Ability to support dividends from operating cash flow and security maturities while maintaining liquidity; the declared $1.00-per-share dividend is not guaranteed to continue.
- Potential effects of increased new-product development spending and adoption of the forthcoming revenue-recognition standard, which the company was still evaluating.