# NVE Corp: Form 10-Q for the period ended Dec 31, 2017

- Company: [NVE Corp](/companies/nvec.md) (CIK 724910)
- Form: 10-Q
- Filed: 2018-01-17
- Accepted by EDGAR: Jan 17, 2018, 21:23 ET
- Period: 2017-12-31
- Accession: 0000724910-18-000004
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/724910/000072491018000004/NVE_Q3_FY2018_10Q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/724910/000072491018000004/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2017-10-01 to 2017-12-31 | $7.4m | us-gaap:Revenues |
| Revenue | 9 months, 2017-04-01 to 2017-12-31 | $22.0m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2017-10-01 to 2017-12-31 | $1.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2017-04-01 to 2017-12-31 | $4.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2017-10-01 to 2017-12-31 | $5.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2017-04-01 to 2017-12-31 | $17.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2017-10-01 to 2017-12-31 | $852.7k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2017-04-01 to 2017-12-31 | $2.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2017-10-01 to 2017-12-31 | $313.0k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2017-04-01 to 2017-12-31 | $1.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-10-01 to 2017-12-31 | $4.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2017-04-01 to 2017-12-31 | $13.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2017-10-01 to 2017-12-31 | $1.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2017-04-01 to 2017-12-31 | $4.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-10-01 to 2017-12-31 | $3.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2017-04-01 to 2017-12-31 | $10.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-10-01 to 2017-12-31 | $0.74 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2017-04-01 to 2017-12-31 | $2.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-10-01 to 2017-12-31 | $0.74 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2017-04-01 to 2017-12-31 | $2.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-10-01 to 2017-12-31 | 4,847,290 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2017-04-01 to 2017-12-31 | 4,846,036 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2017-04-01 to 2017-12-31 | $11.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2017-04-01 to 2017-12-31 | $604.8k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2017-04-01 to 2017-12-31 | $14.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2017-12-31 | $4.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-12-31 | $30.3m | us-gaap:AssetsCurrent |
| Total assets | at 2017-12-31 | $88.8m | us-gaap:Assets |
| Current liabilities | at 2017-12-31 | $793.1k | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2017-12-31 | $88.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 11,499 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 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, uncertainties related to the future impact of Federal tax reform, 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, 2017, 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, 2017. As of December 31, 2017 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

### Quarter ended December 31, 2017 compared to quarter ended December 31, 2016

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

*Revenue*

| 2017 | Percentage of Revenue Quarter Ended Dec. 31 | 2016 | Quarter- to-Quarter Change |
| --- | ---: | ---: | ---: |
| Product sales | 87.6% | 95.4% | (9.4)% |
| Contract research and development | 12.4% | 4.6% | 163.8% |
| Total revenue | 100.0% | 100.0% | (1.4)% |
| Cost of sales | 22.5% | 20.1% | 10.3% |
| Gross profit | 77.5% | 79.9% | (4.3)% |
| Expenses |  |  |  |
| Selling, general, and administrative | 4.3% | 5.2% | (18.5)% |
| Research and development | 11.6% | 11.1% | 3.1% |
| Total expenses | 15.9% | 16.3% | (3.7)% |
| Income from operations | 61.6% | 63.6% | (4.5)% |
| Interest income | 5.5% | 5.3% | 2.4% |
| Income before taxes | 67.1% | 68.9% | (3.9)% |
| Provision for income taxes | 18.6% | 22.2% | (17.5)% |
| Net income | 48.5% | 46.7% | 2.5% |

Total revenue for the quarter ended December 31, 2017 (the third quarter of fiscal 2018) decreased 1% compared to the quarter ended December 31, 2016 (the third quarter of fiscal 2017). The decrease was due to a 9% decrease in product sales, partially offset by a 164% increase in contract research and development revenue.

The decrease in product sales from the prior-year quarter was primarily due to decreased purchases by existing customers. The increase in contract research and development revenue for the third quarter of fiscal 2018 was due to new contracts.

Gross profit margin decreased to 77% of revenue for the third quarter of fiscal 2018 compared to 80% for the third quarter of fiscal 2017 due to a less profitable revenue mix.

Total expenses decreased 4% for the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017, due to a 19% decrease in selling, general, and administrative expense, partially offset by a 3% increase in research and development expense. The decrease in selling, general, and administrative expense was due to decreased performance-based compensation and decreased legal expenses. The increase in research and development expense was due to increased new product development activities.

Interest income for the third quarter of fiscal 2018 increased 2% due to an increase in the average interest rates on our marketable securities, partially offset by a decrease in our securities.

Our effective tax rate was 27.7% of net income before taxes for the quarter, compared to 32.3% in the prior-year quarter. The decrease was due to the blended effect of a decrease in the Federal tax rate with the enactment of the Tax Reform Act, partially offset by a $206,693 one-time increase in our provision for income taxes from the effect of the new rate on our deferred tax assets. Although we have not yet fully assessed the impact of the Tax Reform Act on our future taxes or net income, we currently expect our effective tax rate to be approximately 29% for the quarter ending March 31, 2018. See Note 8 to the financial statements for more information on income taxes.

The 3% increase in net income in the third quarter of fiscal 2018 compared to the prior-year quarter was primarily due to increased contract research and development revenue, decreased selling, general, and administrative expense, and a decrease in the provision for income taxes, partially offset by decreased product sales, decreased gross profit margin, and increased research and development expense.

### Nine months ended December 31, 2017 compared to nine months ended December 31, 2016

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

*Revenue*

| 2017 | Percentage of Revenue Nine Months Ended Dec. 31 | 2016 | Period- to-Period Change |
| --- | ---: | ---: | ---: |
| Product sales | 89.8% | 92.1% | (0.3)% |
| Contract research and development | 10.2% | 7.9% | 32.9% |
| Total revenue | 100.0% | 100.0% | 2.3% |
| Cost of sales | 21.9% | 21.6% | 3.9% |
| Gross profit | 78.1% | 78.4% | 1.8% |
| Expenses |  |  |  |
| Selling, general, and administrative | 4.8% | 5.2% | (5.1)% |
| Research and development | 12.7% | 10.9% | 18.5% |
| Total expenses | 17.5% | 16.1% | 10.9% |
| Income from operations | 60.6% | 62.3% | (0.5)% |
| Interest income | 5.2% | 5.9% | (8.7)% |
| Income before taxes | 65.8% | 68.2% | (1.2)% |
| Provision for income taxes | 20.1% | 22.0% | (6.1)% |
| Net income | 45.7% | 46.2% | 1.1% |

Total revenue for the nine months ended December 31, 2017 increased 2% compared to the nine months ended December 31, 2016. The increase was due to a 33% increase in contract research and development revenue. The increase in contract research and development revenue from the prior-year period was due to new contracts.

Total expenses increased 11% for the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017, due to a 19% increase in research and development expense, partially offset by a 5% decrease in selling, general, and administrative 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 increased new product development activities.

Interest income for the first nine months of fiscal 2018 decreased 9% due to a decrease in marketable securities.

Our effective tax rate was 30.6% of net income before taxes for the first nine months of fiscal 2018, compared to 32.2% in the prior-year period. The decreased rate was due to a decrease in the Federal tax rate with the enactment of the Tax Reform Act, partially offset by a $206,693 one-time increase in our provision for income taxes from the effect of the new rate on our deferred tax assets. Although we have not yet fully assessed the impact of the Tax Reform Act on our future taxes or net income, we currently expect our effective tax rate to decrease to approximately 29% for the full fiscal year ending March 31, 2018, and to approximately 22% for the fiscal year ending March 31, 2019. The lower Federal tax rate is effective for one quarter of fiscal 2018 and all of fiscal 2019. See Note 8 to the financial statements for more information on income taxes.

The 1% increase in net income in the first nine months of fiscal 2018 compared to the prior-year period was primarily due to increased contract research and development revenue and a decrease in the provision for income taxes, partially offset by increased research and development expense and decreased interest income.

### Liquidity and capital resources

### Overview

Cash and cash equivalents were $4,728,352 as of December 31, 2017 compared to $8,199,364 as of March 31, 2017. The $3,471,012 decrease in cash and cash equivalents during the nine months ended December 31, 2017 was due to $14,471,990 cash used in financing activities and $320,965 cash used in investing activities, partially offset by $11,321,943 in net cash provided by operating 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

Accounts receivable as of December 31, 2017 decreased $1,270,936 compared to March 31, 2017, primarily due to the timing of sales to and payments from certain customers.

### Investing Activities

Cash used in investing activities in the nine months ended December 31, 2017 was due to $16,256,210 in purchases of marketable securities and $604,755 in purchases of fixed assets, partially offset by $16,540,000 of marketable security maturities.

### Financing Activities

Cash used in financing activities in the first nine months of fiscal 2018 was primarily due to $14,523,030 of cash dividends paid to shareholders. In addition to dividends paid in the first nine months of fiscal 2018, on January 17, 2018 we announced that our Board had declared a cash quarterly dividend of $1.00 per share of common stock, or $4,842,010 based on shares outstanding as of January 12, 2018, to be paid February 28, 2018. We plan to fund dividends through cash provided by operating activities and proceeds from maturities and sales 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.

## Market risk

As filed, 1,223 characters.

As discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, 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, 2017 had remaining maturities between 12 days and 56 months. Marketable securities had a market value of $75,537,933 as of December 31, 2017, representing approximately 85% 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, 2017, our disclosure controls and procedures were effective.

### Changes in Internal Controls

During the quarter ended December 31, 2017, 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, 1,046 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, 2017, except the following risk factor is added:

***The impacts of the Tax Reform Act could be materially different from our current estimates.***

The Act “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “Tax Reform Act”) was enacted December 22, 2017. The Tax Reform Act reduced Federal corporate income tax rates effective January 1, 2018 and changed certain other provisions. We expect the new law to significantly reduce our tax rate in future periods, and we expect our fourth-quarter tax provision to reflect the benefit of a Federal tax rate reduction. Our estimated impacts of the new law are based on our current knowledge and assumptions, and recognized impacts could be materially different from current estimates based on our actual results in the fourth quarter of fiscal 2018 and our further analysis of the Act.

Filed Jan 17, 2018.
Source: SEC EDGAR, the filing index for accession 0000724910-18-000004. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.