# NVE Corp: Form 10-Q for the period ended Dec 31, 2015

- Company: [NVE Corp](/companies/nvec.md) (CIK 724910)
- Form: 10-Q
- Filed: 2016-01-20
- Accepted by EDGAR: Jan 20, 2016, 21:23 ET
- Period: 2015-12-31
- Accession: 0000724910-16-000044
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/724910/000072491016000044/NVE_Q3_FY2016_10Q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/724910/000072491016000044/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-10-01 to 2015-12-31 | $6.0m | us-gaap:Revenues |
| Revenue | 9 months, 2015-04-01 to 2015-12-31 | $21.6m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2015-10-01 to 2015-12-31 | $1.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2015-04-01 to 2015-12-31 | $5.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2015-10-01 to 2015-12-31 | $4.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2015-04-01 to 2015-12-31 | $16.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2015-10-01 to 2015-12-31 | $738.7k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2015-04-01 to 2015-12-31 | $2.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2015-10-01 to 2015-12-31 | $406.7k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2015-04-01 to 2015-12-31 | $1.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-10-01 to 2015-12-31 | $3.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2015-04-01 to 2015-12-31 | $13.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2015-10-01 to 2015-12-31 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2015-04-01 to 2015-12-31 | $4.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-10-01 to 2015-12-31 | $2.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2015-04-01 to 2015-12-31 | $9.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-10-01 to 2015-12-31 | $0.53 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2015-04-01 to 2015-12-31 | $2.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-10-01 to 2015-12-31 | $0.53 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2015-04-01 to 2015-12-31 | $2.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-10-01 to 2015-12-31 | 4,846,970 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2015-04-01 to 2015-12-31 | 4,857,103 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2015-04-01 to 2015-12-31 | $11.9m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2015-04-01 to 2015-12-31 | $177.4k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2015-04-01 to 2015-12-31 | $14.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2015-04-01 to 2015-12-31 | $1.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2015-12-31 | $3.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-12-31 | $33.1m | us-gaap:AssetsCurrent |
| Total assets | at 2015-12-31 | $103.2m | us-gaap:Assets |
| Current liabilities | at 2015-12-31 | $1.6m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2015-12-31 | $101.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 12,756 characters.

### Forward-looking statements

Some of the statements made in this Report or in the documents incorporated by reference in this Report and in other materials filed or to be filed by us with the Securities and Exchange Commission (“SEC”) as well as information included in verbal or written statements made by us constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of the terminology such as may, will, expect, anticipate, intend, believe, estimate, should, or continue, or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of NVE, you should be aware that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. These differences may be caused by a variety of factors, including but not limited to our reliance on several large customers for a significant percentage of revenue, uncertainties related to possible renewal of agreements with large customers, uncertainties related to the economic environments in the industries we serve, uncertainties related to future contract research and development revenue, uncertainties related to future stock repurchases and dividend payments, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.

Further information regarding our risks and uncertainties are contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2015, as updated in Part II, Item 1A of this Quarterly Report on Form 10-Q.

### General

NVE Corporation, referred to as NVE, we, us, or our, develops and sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store and transmit information. We manufacture high-performance spintronic products including sensors and couplers that are used to acquire and transmit data. We have also licensed our spintronic magnetoresistive random access memory technology, commonly known as MRAM.

### Critical accounting policies

A description of our critical accounting policies is provided in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2015. At December 31, 2015 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

### Quarter ended December 31, 2015 compared to quarter ended December 31, 2014

The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

*Revenue*

| 2015 | Percentage of Revenue Quarter Ended Dec. 31 | 2014 | Quarter- to-Quarter Change |
| --- | ---: | ---: | ---: |
| Product sales | 83.5% | 93.5% | (14.6)% |
| Contract research and development | 16.5% | 6.5% | 142.9% |
| Total revenue | 100.0% | 100.0% | (4.4)% |
| Cost of sales | 25.1% | 23.4% | 2.4% |
| Gross profit | 74.9% | 76.6% | (6.4)% |
| Expenses |  |  |  |
| Selling, general, and administrative | 6.7% | 8.5% | (23.8)% |
| Research and development | 12.3% | 11.0% | 6.3% |
| Total expenses | 19.0% | 19.5% | (6.8)% |
| Income from operations | 55.9% | 57.1% | (6.3)% |
| Interest income | 7.8% | 8.8% | (16.0)% |
| Income before taxes | 63.7% | 65.9% | (7.6)% |
| Provision for income taxes | 20.9% | 21.5% | (7.5)% |
| Net income | 42.8% | 44.4% | (7.7)% |

Total revenue for the quarter ended December 31, 2015 (the third quarter of fiscal 2016) decreased 4% compared to the quarter ended December 31, 2014 (the third quarter of fiscal 2015). The decrease was due to a 15% decrease in product sales, partially offset by a 143% increase in contract research and development revenue.

The decrease in product sales from the prior-year quarter was due to decreased purchase volume by existing customers and a more aggressive pricing strategy in certain markets. Additionally, we faced a challenging global economic environment in the quarter.

The increase in contract research and development revenue for the third quarter of fiscal 2016 was due to new contracts.

Gross profit margin decreased to 75% of revenue for the third quarter of fiscal 2016 compared to 77% for the third quarter of fiscal 2015, due to a less profitable revenue mix caused by a decrease in product sales and an increase in contract research and development revenue.

Total expenses decreased 7% for the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015, due to a 24% decrease in selling, general, and administrative expense, partially offset by a 6% increase in research and development expense. The decrease in selling, general, and administrative expense was primarily due to decreased sales commissions. The increase in research and development expense was due to an increase in new product development activities. We currently expect research and development expense to increase in the fourth quarter of the current fiscal year from the fourth quarter of the prior year due to planned product development. Research and development expense can fluctuate significantly, however, depending on staffing, project requirements, and contract research and development activities.

Interest income for the third quarter of fiscal 2016 decreased 16% due to a decrease in interest-bearing marketable securities. The decrease in marketable securities was because we used a portion of the proceeds from maturating securities to help fund cash dividends and repurchases of our common stock.

The 8% decrease in net income in the third quarter of fiscal 2016 compared to the prior-year quarter was primarily due to decreased product sales and decreased interest income, partially offset by increased contract research and development revenue and decreased selling, general, and administrative expense.

### Nine months ended December 31, 2015 compared to nine months ended December 31, 2014

The table shown below summarizes the percentage of revenue and period-to-period changes for various items:

*Revenue*

| 2015 | Percentage of Revenue Nine Months Ended Dec. 31 | 2014 | Period- to-Period Change |
| --- | ---: | ---: | ---: |
| Product sales | 88.8% | 97.1% | (14.1)% |
| Contract research and development | 11.2% | 2.9% | 262.9% |
| Total revenue | 100.0% | 100.0% | (6.1)% |
| Cost of sales | 23.8% | 20.2% | 10.9% |
| Gross profit | 76.2% | 79.8% | (10.3)% |
| Expenses |  |  |  |
| Selling, general, and administrative | 6.5% | 7.8% | (20.8)% |
| Research and development | 9.5% | 9.9% | (10.4)% |
| Total expenses | 16.0% | 17.7% | (15.0)% |
| Income from operations | 60.2% | 62.1% | (9.0)% |
| Interest income | 6.5% | 7.3% | (14.8)% |
| Income before taxes | 66.7% | 69.4% | (9.6)% |
| Provision for income taxes | 21.9% | 22.9% | (10.0)% |
| Net income | 44.8% | 46.5% | (9.5)% |

Total revenue for the nine months ended December 31, 2015 decreased 6% compared to the nine months ended December 31, 2014. The decrease was due to a 14% decrease in product sales, partially offset by a 263% increase in contract research and development revenue.

The decrease in product sales from the prior-year period was due to decreased purchase volume by existing customers and a more aggressive pricing strategy in certain markets.

The increase in contract research and development revenue for the first nine months of fiscal 2016 was due to new contracts.

Gross profit margin decreased to 76% of revenue for the first nine months of fiscal 2016 compared to 80% for the first nine months of fiscal 2015, due to a less profitable revenue mix caused by a decrease in product sales and an increase in contract research and development revenue.

Total expenses decreased 15% for the first nine months of fiscal 2016 compared to the first nine months of fiscal 2015, due to a 21% decrease in selling, general, and administrative expense and a 10% decrease in research and development expense. The decrease in selling, general, and administrative expense was primarily due to decreased sales commissions and performance-based compensation. The decrease in research and development expense was due to an increase in contract research and development activities, which caused us to reallocate resources from expensed research and development activities.

Interest income for the first nine months of fiscal 2016 decreased 15% due to a decrease in interest-bearing marketable securities. The decrease in marketable securities was because we used a portion of the proceeds from maturating securities to help fund cash dividends and repurchases of our common stock.

The 9% decrease in net income for the first nine months of fiscal 2016 compared to the prior-year period was primarily due to decreased product sales and decreased interest income, partially offset by increased contract research and development revenue and decreased expenses.

### Liquidity and capital resources

### Overview

Cash and cash equivalents were $3,594,164 at December 31, 2015 compared to $9,437,262 at March 31, 2015. The $5,843,098 decrease in cash and cash equivalents during the quarter was due to $11,898,509 in net cash provided by operating activities, less $1,965,501 in net cash used in investing activities and $15,776,106 in net cash used in financing activities. We currently believe our working capital and cash generated from operations will be adequate for our needs at least for the next 12 months.

### Operating Activities

Cash provided by operating activities increased 10% to $11,898,509 compared to $10,848,250 for the prior-year period.

Accounts receivable as of December 31, 2015 decreased $1,210,285 compared to March 31, 2015, primarily due to the timing of payments by our customers.

Inventories as of December 31, 2015 decreased $633,581 compared to March 31, 2015, primarily due to a reduction in work in process related to contract research and development revenue recognition timing.

Deferred revenue as of December 31, 2015 increased $714,805 due to payments received related to future product sales.

### Investing Activities

Net cash used in investing activities in the first nine months of fiscal 2016 was primarily due to marketable security purchases of $9,613,052 partially offset by marketable security maturities of $7,825,000.

Purchases of fixed assets were $177,449 in the first nine months of fiscal 2016 compared to $114,139 in the first nine months of fiscal 2015. Our capital expenditures can vary significantly depending on our needs, equipment purchasing opportunities, and production expansion activities.

Free cash flow, which is net cash provided by operating activities less purchases of fixed assets, was $11,721,060 for the first nine months of fiscal 2016.

### Financing Activities

Net cash used in financing activities in the first nine months of fiscal 2016 was primarily due to $1,851,290 for repurchases of our common stock and $14,570,019 in cash dividends to shareholders.

In addition to cash dividends to shareholders paid in the first nine months of fiscal 2016, on January 20, 2016 we announced that our Board had declared a cash quarterly dividend of an additional $1.00 per share of Common Stock, or $4,844,845 based on shares outstanding as of January 15, 2016, to be paid February 29, 2016. We plan to fund dividends through cash provided by operating activities and proceeds from maturities of marketable securities. All future dividends will be subject to Board approval and subject to the company’s results of operations, cash and marketable security balances, estimates of future cash requirements, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.

The repurchases of our common stock in the first nine months of fiscal 2016 were under a program announced January 21, 2009 authorizing the repurchase of up to $2,500,000 of our Common Stock and an additional $5,000,000 announced August 27, 2015. The remaining authorization was $5,001,189 as of December 31, 2015. We intend to finance any stock repurchases with cash provided by operating activities or maturing marketable securities.

## Market risk

As filed, 1,216 characters.

As discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, we are exposed to financial market risks, primarily marketable securities and, to a lesser extent, changes in currency exchange rates.

### Marketable Securities

The primary objective of our investment activities is to preserve principal while at the same time maximizing after-tax yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and marketable securities in securities including municipal obligations, corporate obligations, and money market funds. Short-term and long-term marketable securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income or loss, net of estimated tax. Our marketable securities as of December 31, 2015 had remaining maturities between two and 259 weeks. Marketable securities had a market value of $91,756,557 at December 31, 2015, representing approximately 89% of our total assets. We have not used derivative financial instruments in our investment portfolio.

## Controls and procedures

As filed, 1,339 characters.

### Disclosure Controls and Procedures

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has performed an evaluation of our disclosure controls and procedures that are defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this Report. This evaluation included consideration of the controls, processes, and procedures that are designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were effective.

### Changes in Internal Controls

During the quarter ended December 31, 2015, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 982 characters.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, except the following risk factor is updated because we executed amendment No. 1 to our Supply Agreement with Sonova AG (formerly known as Phonak AG), which extends the Agreement term through March 1, 2020:

### We may lose revenue if we are unable to renew agreements with large customers.

Our agreement with Avago Technologies, Inc., as amended, expires June 27, 2016, and our Supply Agreement with Sonova AG (formerly known as Phonak AG) as amended expires March 1, 2020. We cannot predict if these agreements will be renewed, or if renewed, under what terms. Although it is possible we could continue to sell products to these customers without formal agreements, an inability to agree on mutually acceptable terms or the loss of any of these large customers could have a significant adverse impact on our revenue and our profitability.

Filed Jan 20, 2016.
Source: SEC EDGAR, the filing index for accession 0000724910-16-000044. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.