NVE Corp: Form 10-Q for the period ended Jun 30, 2024

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 fiscal year ended March 31, 2024.

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 fiscal year ended March 31, 2024. As of June 30, 2024, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

Quarter ended June 30, 2024, compared to quarter ended June 30, 2023

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

Total revenue for the quarter ended June 30, 2024 (the first quarter of fiscal 2025) decreased 23% compared to the quarter ended June 30, 2023 (the first quarter of fiscal 2024). The decrease was due to a 24% decrease in product sales, partially offset by a 28% increase in contract research and development revenue. The decrease in product sales was due to decreased purchases by existing customers. The increase in contract research and development revenue was due to new contracts.

Gross margin percentage for the first quarter of fiscal 2025 was 86%, compared to 77% the prior-year quarter. The increase in gross margin percentage was due to a more profitable product mix and a larger portion of direct rather than distributor sales.

Total expenses increased 3% for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 due to a 26% increase in research and development expense and a 14% increase in selling, general, and administrative expense, partially offset by a $212,440 decrease in credit loss expense. The increase in research and development expense was due to increased new product development activities. The increase in selling, general, and administrative expenses was primarily due to increased sales and marketing activities. The decrease in credit loss expense was due to a favorable change in our estimate of expected credit losses as of June 30, 2024.

Interest income for the first quarter of fiscal 2025 increased 13% due to higher yields on securities purchased after June 30, 2023.

Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 16% for the first quarter of fiscal 2025 compared to 24% for the first quarter of fiscal 2024. The decrease was due to changes in the timing and amounts of federal tax credits and deductions.

The 7% decrease in net income in the first quarter of fiscal 2025 compared to the prior-year quarter was primarily due to decreased revenue, partially offset by increased gross profit margin as a percentage of revenue, increased interest income, and a lower effective tax rate.

Liquidity and Capital Resources

Overview

Cash and cash equivalents were $6,005,492 as of June 30, 2024, compared to $10,283,550 as of March 31, 2024. The $4,278,058 decrease in cash and cash equivalents during the first quarter of fiscal 2025 was due to $4,833,676 of cash used in financing activities and $5,296,774 of net cash used in investing activities, partially offset by $5,852,392 in net cash provided by operating activities.

Operating Activities

Net cash provided by operating activities related to product sales and research and development contract revenue was our primary source of working capital for the current and prior-year quarters. Net cash provided by operating activities increased 16% to $5,852,392 for the first quarter of fiscal 2025 compared to $5,025,302 for the first quarter of fiscal 2024.

Accounts receivable decreased $1,044,815 during the first quarter of fiscal 2025 primarily due to decreased revenue and the timing of customer payments.

Accounts payable and accrued expenses increased $614,188 primarily due to increased federal income tax liability and changes in the timing of estimated tax payments.

Investing Activities

Cash used by investing activities during the quarter ended June 30, 2024, consisted of $6,580,140 of marketable securities purchases and $916,634 of fixed asset purchases, partially offset by $2,200,000 in proceeds from maturities of marketable securities. Fixed asset purchases consisted of a $916,634 down payment on production equipment expected to be delivered in fiscal 2026. We plan to significantly increase fixed asset purchases in fiscal 2025 and 2026 compared to fiscal 2024 to support increases in production capacity and new product development.

Financing Activities

Cash used in financing activities during the quarter ended June 30, 2024, consisted of $4,833,676 of cash dividends paid to shareholders.

In addition to cash dividends to shareholders paid in the first quarter of fiscal 2025, on July 17, 2024, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,833,676 based on shares outstanding as of June 30, 2024, to be paid on August 30, 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.

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 June 30, 2024, our disclosure controls and procedures were effective.

Changes in Internal Controls

During the quarter ended June 30, 2024, 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.

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, 2024.