NVE Corp: Form 10-Q for the period ended Dec 31, 2023
Filed with the SEC on Jan 17, 2024 and accepted by EDGAR at Jan 17, 2024, 16:11 ET.
Management's discussion and analysis
As filed, 11,651 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 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 risks related to our reliance on several large customers for a significant percentage of revenue, our dependence on critical suppliers and packaging vendors, uncertainties related to the economic environments in the industries we serve, uncertainties related to future sales and revenues, risks of credit losses, risks and 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 is contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2023, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and Part II, Item 1A of this report.
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.
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, 2023. As of December 31, 2023, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
Quarter ended December 31, 2023, compared to quarter ended December 31, 2022
The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:
| Revenue | Percentage of Revenue Quarter Ended December 31, 2023 | 2022 | Quarter- to-Quarter Change |
|---|---|---|---|
| Product sales | 94.2% | 97.3% | (11.6)% |
| Contract research and development | 5.8% | 2.7% | 93.9 |
| Total revenue | 100.0% | 100.0% | (8.7)% |
| Cost of sales | 20.1% | 20.0% | (8.3)% |
| Gross profit | 79.9% | 80.0% | (8.8)% |
| Expenses | |||
| Research and development | 8.0% | 9.5% | (22.8)% |
| Selling, general, and administrative | 5.8% | 5.4% | (3.5)% |
| Total expenses | 13.8% | 14.9% | (15.7)% |
| Income from operations | 66.1% | 65.1% | (7.2)% |
| Interest income | 7.3% | 5.5% | 21.1% |
| Income before taxes | 73.4% | 70.6% | (5.0)% |
| Provision for income taxes | 11.5% | 13.4% | (21.7)% |
| Net income | 61.9% | 57.2% | (1.1)% |
Total revenue for the quarter ended December 31, 2023 (the third quarter of fiscal 2024) decreased 9% compared to the quarter ended December 31, 2022 (the third quarter of fiscal 2023). The decrease was due to a 12% decrease in product sales partially offset by a 94% increase in contract research and development revenue. The decrease in product sales was primarily due to decreased purchases by existing customers, particularly in the defense industry, and a semiconductor industry downturn. The increase in contract research and development revenue was due to new customer-funded research and development contracts.
Total expenses decreased 16% for the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023 primarily due to a 23% decrease in research and development expense and a 4% decrease in selling, general, and administrative expense. The decrease in research and development expense was primarily due to the redeployment of resources to customer-funded research and development projects. The decrease in selling, general, and administrative expense was primarily due to decreased performance-based compensation accruals.
Interest income for the third quarter of fiscal 2024 increased 21% due to increased yields on securities purchased after December 31, 2022.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 16% for the third quarter of fiscal 2024 compared to 19% for the third quarter of fiscal 2023. The decrease was primarily due to an increase in certain tax deductions. Our effective tax rate can vary from quarter to quarter. Our effective tax rate in future quarters may be higher than the effective tax rate in the quarter ended December 31, 2023.
The 1% decrease in net income for the third quarter of fiscal 2024 compared to the prior-year quarter was primarily due to decreased revenue, which was nearly offset by decreased expenses, increased interest income, and a lower effective tax rate.
Nine months ended December 31, 2023, compared to nine months ended December 31, 2022
The table shown below summarizes the percentage of revenue and period-to-period changes for various items:
| Revenue | Percentage of Revenue Nine Months Ended Dec. 31, 2023 | 2022 | Period- to-Period Change |
|---|---|---|---|
| Product sales | 97.6% | 97.4% | (10.5)% |
| Contract research and development | 2.4% | 2.6% | (19.5)% |
| Total revenue | 100.0% | 100.0% | (10.7)% |
| Cost of sales | 22.2% | 21.7% | (9.0)% |
| Gross profit | 77.8% | 78.3% | (11.2)% |
| Expenses | |||
| Research and development | 8.5% | 7.7% | (2.7)% |
| Selling, general, and administrative | 5.7% | 4.8% | 7.3% |
| Provision for credit losses | 0.0% | - | - |
| Total expenses | 14.2% | 12.5% | 1.4% |
| Income from operations | 63.6% | 65.8% | (13.6)% |
| Interest income | 6.3% | 4.1% | 38.4% |
| Income before taxes | 69.9% | 69.9% | (10.6)% |
| Provision for income taxes | 11.3% | 13.1% | (22.0)% |
| Net income | 58.6% | 56.8% | (8.0)% |
Total revenue for the nine months ended December 31, 2023, decreased 11% compared to the nine months ended December 31, 2022. The decrease was due to an 11% decrease in product sales and a 20% decrease in contract research and development revenue. The decrease in product sales was primarily due to decreased purchases by existing customers, particularly in the defense industry, and a semiconductor industry downturn. The decrease in contract research and development revenue was due to the completion of certain contracts.
Total expenses increased 1% for the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023 due to a 7% increase in selling, general, and administrative expense partially offset by a 3% decrease in research and development expense. The increase in selling, general, and administrative expenses was primarily due to increased staffing and increased employee compensation expenses. The decrease in research and development expense was due to variations in staffing.
Interest income for the first nine months of fiscal 2024 increased 38% due to higher yields on securities purchased after December 31, 2022.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 16% for the first nine months of fiscal 2024 from 19% for the first nine months of fiscal 2023. The decrease was primarily due to an increase in certain tax deductions.
The 8% decrease in net income for the first nine months of fiscal 2024 compared to the prior-year period was primarily due to decreased revenue and increased expenses, partially offset by increased interest income and a lower effective tax rate.
Liquidity and Capital Resources
Overview
Cash and cash equivalents were $4,684,910 as of December 31, 2023, compared to $1,669,896 as of March 31, 2023. The $3,015,014 increase in cash and cash equivalents during the first nine months of fiscal 2024 was due to $15,115,031 of cash provided by operating activities and $2,280,084 of cash provided by investing activities, partially offset by $14,380,101 of cash used in financing activities.
Operating Activities
Net cash provided by operating activities related to product sales was our primary source of working capital for the current and prior-year quarters. Net cash provided by operating activities was $15,115,031 for the first nine months of fiscal 2024 compared to $14,748,911 for the first nine months of fiscal 2023.
Accounts receivable decreased by $4,268,102 during the first nine months of fiscal 2024 due to the timing of customer payments and decreased revenue.
Inventories increased by $932,801 during the first nine months of fiscal 2024 primarily due to our decision to increase inventories to mitigate longer vendor lead times and to support growth.
Accounts payable and accrued expenses decreased $1,147,278 during the first nine months of fiscal 2024 primarily due to decreases in income tax payable, long-term operating lease liability, and accruals for performance-based compensation.
Investing Activities
Cash provided by investing activities during the first nine months of fiscal 2024 consisted of $8,400,000 in proceeds from maturities of marketable securities, partially offset by $16,731 of fixed assets purchases and $6,103,185 of marketable securities purchases. Purchases of fixed assets can vary from period to period depending on our needs, strategic goals, and equipment purchasing opportunities. Such purchases are likely to increase significantly in future periods.
Financing Activities
Cash used in financing activities during the nine months ended December 31, 2023, consisted of $14,497,628 of cash dividends paid to shareholders, partially offset by $117,527 in proceeds from the exercise of stock options.
In addition to cash dividends to shareholders paid in the third quarter of fiscal 2024, on January 17, 2024, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,833,401 based on shares outstanding as of January 12, 2024, to be paid February 28, 2024, to shareholders of record as of the close of business January 29, 2024.
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.
Controls and procedures
As filed, 1,280 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer and Principal 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 Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management concluded that, as of December 31, 2023, our disclosure controls and procedures were effective.
Changes in Internal Controls
During the quarter ended December 31, 2023, 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, 1,004 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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, 2023, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, except the following risk factor is replaced in its entirety by the following to reflect an amendment to our Supplier Partnering Agreement with Abbott Laboratories that extended the term of the Agreement through December 31, 2024:
We may lose revenue if we are unable to renew customer agreements
We have agreements with certain customers, including a Supplier Partnering Agreement, as amended, with Abbott Laboratories, which expires December 31, 2024. 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 could have a significant adverse impact on our revenue or profitability.”
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2023-12-31. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2023-10-01 to 2023-12-31 | $6.8m | us-gaap:Revenues |
| Revenue | 9 months2023-04-01 to 2023-12-31 | $22.7m | us-gaap:Revenues |
| Cost of revenue | 3 months2023-10-01 to 2023-12-31 | $1.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months2023-04-01 to 2023-12-31 | $5.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months2023-10-01 to 2023-12-31 | $5.4m | us-gaap:GrossProfit |
| Gross profit | 9 months2023-04-01 to 2023-12-31 | $17.7m | us-gaap:GrossProfit |
| Research and development | 3 months2023-10-01 to 2023-12-31 | $540.9k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months2023-04-01 to 2023-12-31 | $1.9m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months2023-10-01 to 2023-12-31 | $4.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2023-04-01 to 2023-12-31 | $14.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months2023-10-01 to 2023-12-31 | $778.2k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2023-04-01 to 2023-12-31 | $2.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2023-10-01 to 2023-12-31 | $4.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months2023-04-01 to 2023-12-31 | $13.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2023-10-01 to 2023-12-31 | $0.87 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2023-04-01 to 2023-12-31 | $2.75 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2023-10-01 to 2023-12-31 | $0.87 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2023-04-01 to 2023-12-31 | $2.75 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2023-10-01 to 2023-12-31 | 4,837,230 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2023-04-01 to 2023-12-31 | 4,839,725 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2023-04-01 to 2023-12-31 | $15.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2023-04-01 to 2023-12-31 | $16.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months2023-04-01 to 2023-12-31 | $14.5m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | At period end2023-12-31 | $4.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2023-12-31 | $29.2m | us-gaap:AssetsCurrent |
| Total assets | At period end2023-12-31 | $67.6m | us-gaap:Assets |
| Current liabilities | At period end2023-12-31 | $809.6k | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2023-12-31 | $1.0m | us-gaap:Liabilities |
| Shareholders' equity | At period end2023-12-31 | $66.6m | us-gaap:StockholdersEquity |
| Shares outstanding | At period end2023-12-31 | 4,833,401 shares | dei:EntityCommonStockSharesOutstanding |
Source: SEC EDGAR, the filing index for accession 0001376474-24-000040. Last ingested by Listed: Nov 5, 2026, 19:10 ET. Listed shows no prices and gives no investment advice.