NVE Corp: Form 10-Q for the period ended Sep 30, 2024
Filed with the SEC on Oct 23, 2024 and accepted by EDGAR at Oct 23, 2024, 16:06 ET.
Management's discussion and analysis
As filed, 11,448 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 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 September 30, 2024, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
Quarter ended September 30, 2024, compared to quarter ended September 30, 2023
The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:
| Revenue | Percentage of Revenue Quarter Ended September 30, 2024 | 2023 | Quarter- to-Quarter Change |
|---|---|---|---|
| Product sales | 90.3% | 99.8% | (14.2)% |
| Contract research and development | 9.7% | 0.2% | 3,950.1% |
| Total revenue | 100.0% | 100.0% | (5.3)% |
| Cost of sales | 14.0% | 22.4% | (40.8)% |
| Gross profit | 86.0% | 77.6% | 5.0% |
| Expenses | |||
| Research and development | 12.5% | 9.6% | 24.1% |
| Selling, general, and administrative | 8.4% | 6.0% | 31.0% |
| Provision for (recovery of) credit losses | -% | (2.8)% | -% |
| Total expenses | 20.9% | 12.8% | 54.9% |
| Income from operations | 65.1% | 64.8% | (4.8)% |
| Interest income | 6.9% | 7.2% | (9.3)% |
| Income before taxes | 72.0% | 72.0% | (5.3)% |
| Provision for income taxes | 12.4% | 5.8% | 104.4% |
| Net income | 59.6% | 66.2% | (14.8)% |
Total revenue for the quarter ended September 30, 2024 (the second quarter of fiscal 2025) decreased 5% compared to the quarter ended September 30, 2023 (the second quarter of fiscal 2024). The decrease was due to a 14% decrease in product sales, partially offset by a 3,950% 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 a major research and development contract completed during the quarter ended September 30, 2024.
Gross margin percentage for the second quarter of fiscal 2025 was 86%, compared to 78% 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 55% for the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 due to a 24% increase in research and development expense, a 31% increase in selling, general, and administrative expense and a $202,926 recovery of credit losses in the prior-year quarter. 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.
Interest income for the second quarter of fiscal 2025 decreased 9% due to lower yields on recently purchased marketable securities.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, increased to 17% for the second quarter of fiscal 2025 compared to 8% for the second quarter of fiscal 2024. The lower tax rate for the prior-year quarter was due to a $202,926 credit loss recovery and changes in the timing and amounts of federal tax credits and deductions.
The 15% decrease in net income in the second quarter of fiscal 2025 compared to the prior-year quarter was primarily due to decreased revenue, increased operating expenses, decreased interest income, and a higher effective tax rate, partially offset by increased gross profit margin.
Six months ended September 30, 2024, compared to six months ended September 30, 2023
The table shown below summarizes the percentage of revenue and period-to-period changes for various items:
| Revenue | Percentage of Revenue Six Months Ended Sept. 30, 2024 | 2023 | Period- to-Period Change |
|---|---|---|---|
| Product sales | 93.9% | 99.1% | (19.6)% |
| Contract research and development | 6.1% | 0.9% | 457.1% |
| Total revenue | 100.0% | 100.0% | (15.2)% |
| Cost of sales | 14.2% | 23.0% | (47.7)% |
| Gross profit | 85.8% | 77.0% | (5.4)% |
| Expenses | |||
| Research and development | 12.7% | 8.6% | 25.2% |
| Selling, general, and administrative | 8.2% | 5.7% | 22.0% |
| Provision for credit losses | -% | 0.1% | -% |
| Total expenses | 20.9% | 14.4% | 23.4% |
| Income from operations | 64.9% | 62.6% | (12.0)% |
| Interest income | 7.1% | 5.9% | 1.0% |
| Income before taxes | 72.0% | 68.5% | (10.9)% |
| Provision for income taxes | 12.0% | 11.3% | (10.5)% |
| Net income | 60.0% | 57.2% | (11.0)% |
Total revenue for the six months ended September 30, 2024, decreased 15% compared to the six months ended September 30, 2023. The decrease was due to a 20% decrease in product sales, partially offset by and a 457% 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 a major research and development contract completed during the quarter ended September 30, 2024.
Gross margin percentage for the first six months of fiscal 2025 was 86%, compared to 77% for the first six months of fiscal 2024. 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 23% for the first six months of fiscal 2025 compared to the first six months of fiscal 2024 due to a 25% increase in research and development expense and a 22% increase in selling, general, and administrative 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 11% decrease in net income for the first six months of fiscal 2025 compared to the prior-year period was primarily due to decreased revenue and increased expenses, partially offset by increased interest income and increased gross profit margin.
Liquidity and Capital Resources
Overview
Cash and cash equivalents were $3,096,179 as of September 30, 2024, compared to $10,283,550 as of March 31, 2024. The $7,187,371 decrease in cash and cash equivalents during the first half of fiscal 2025 was due to $5,505,577 of cash used in investing activities and $9,667,381 of net cash used in financing activities, partially offset by $7,985,587 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.
Accounts receivable decreased $192,402 during the first six months of fiscal 2025 primarily due to decreased revenue and the timing of customer payments. Inventories increased $259,026 primarily due to our decision to increase raw material and finished goods inventories in anticipation of a semiconductor industry recovery. Prepaid expenses and other assets decreased $156,116 primarily due to decreased bond interest receivable and prepayments for raw materials. Accounts payable and accrued expenses decreased $106,018 primarily due to decreased accrual for performance-based compensation.
Investing Activities
Cash used by investing activities during the six months ended September 30, 2024, consisted of $6,580,140 of marketable securities purchases and $1,125,437 of fixed asset purchases, partially offset by $2,200,000 in proceeds from maturities of marketable securities. Fixed asset purchases consisted of a $1,125,437 downpayment 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 six months ended September 30, 2024, primarily consisted of $9,667,352 of cash dividends paid to shareholders.
In addition to cash dividends to shareholders paid in the first quarter of fiscal 2025, on October 23, 2024, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,834,020 based on shares outstanding as of September 30, 2024, to be paid on November 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, 1,282 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 September 30, 2024, our disclosure controls and procedures were effective.
Changes in Internal Controls
During the quarter ended September 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.
Risk factors
As filed, 143 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, 2024.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-07-01 to 2024-09-30 | $6.8m | us-gaap:Revenues |
| Revenue | 6 months2024-04-01 to 2024-09-30 | $13.5m | us-gaap:Revenues |
| Cost of revenue | 3 months2024-07-01 to 2024-09-30 | $947.3k | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months2024-04-01 to 2024-09-30 | $1.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months2024-07-01 to 2024-09-30 | $5.8m | us-gaap:GrossProfit |
| Gross profit | 6 months2024-04-01 to 2024-09-30 | $11.6m | us-gaap:GrossProfit |
| Research and development | 3 months2024-07-01 to 2024-09-30 | $847.6k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months2024-04-01 to 2024-09-30 | $1.7m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months2024-07-01 to 2024-09-30 | $4.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months2024-04-01 to 2024-09-30 | $8.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months2024-07-01 to 2024-09-30 | $833.9k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months2024-04-01 to 2024-09-30 | $1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2024-07-01 to 2024-09-30 | $4.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months2024-04-01 to 2024-09-30 | $8.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2024-07-01 to 2024-09-30 | $0.83 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months2024-04-01 to 2024-09-30 | $1.68 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-07-01 to 2024-09-30 | $0.83 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months2024-04-01 to 2024-09-30 | $1.68 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-07-01 to 2024-09-30 | 4,839,291 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months2024-04-01 to 2024-09-30 | 4,839,145 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months2024-04-01 to 2024-09-30 | $8.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months2024-04-01 to 2024-09-30 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months2024-04-01 to 2024-09-30 | $9.7m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | At period end2024-09-30 | $3.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2024-09-30 | $33.8m | us-gaap:AssetsCurrent |
| Total assets | At period end2024-09-30 | $65.9m | us-gaap:Assets |
| Current liabilities | At period end2024-09-30 | $931.5k | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2024-09-30 | $1.0m | us-gaap:Liabilities |
| Shareholders' equity | At period end2024-09-30 | $64.9m | us-gaap:StockholdersEquity |
| Shares outstanding | At period end2024-09-30 | 4,834,020 shares | dei:EntityCommonStockSharesOutstanding |
Source: SEC EDGAR, the filing index for accession 0001376474-24-000614. Last ingested by Listed: Nov 5, 2026, 19:10 ET. Listed shows no prices and gives no investment advice.