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 risks related to our reliance on several
large customers for a significant percentage of revenue, uncertainties related
to the economic environments in the industries we serve, uncertainties related
to future sales and revenues, risks related to the COVID-19 pandemic, 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 are contained in
Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year
ended March 31, 2020.
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, 2020. As of June 30,
2020 our critical accounting policies and estimates continued to include
investment valuation, inventory valuation, and deferred tax assets estimation.
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Quarter ended June 30, 2020 compared to quarter ended June 30, 2019
The table shown below summarizes the percentage of revenue and
quarter-to-quarter changes for various items:
Percentage of Revenue Quarter-
Quarter Ended June 30 to-Quarter
Change
2020 2019
Revenue
Product sales 95.0 % 96.7 % (28.4 )%
Contract research and development 5.0 % 3.3 % 10.2 %
Total revenue 100.0 % 100.0 % (27.1 )%
Cost of sales 18.2 % 17.3 % (23.4 )%
Gross profit 81.8 % 82.7 % (27.9 )%
Expenses
Research and development 19.2 % 15.5 % (9.5 )%
Selling, general, and administrative 7.7 % 5.2 % 7.6 %
Total expenses 26.9 % 20.7 % (5.1 )%
Income from operations 54.9 % 62.0 % (35.5 )%
Interest income 8.7 % 7.2 % (13.0 )%
Income before taxes 63.6 % 69.2 % (33.1 )%
Provision for income taxes 11.0 % 11.9 % (32.9 )%
Net income 52.6 % 57.3 % (33.1 )%
Total revenue for the quarter ended June 30, 2020 (the first quarter of
fiscal 2021) decreased 27% compared to the quarter ended June 30, 2019 (the
first quarter of fiscal 2020). The decrease was due to a 28% decrease in product
sales partially offset by a 10% 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 the first quarter of fiscal 2021 was due to the timing
of progress towards contract completion.
Total expenses decreased 5% in the first quarter of fiscal 2021 compared to
the first quarter of fiscal 2020 due to a 9% decrease in research and
development expense, partially offset by a 8% increase in selling, general, and
administrative expense. The decrease in research and development expense was
primarily due to staffing changes and the completion of certain product
development activities. The increase in selling, general, and administrative
expense was primarily due to staffing changes.
Interest income for the first quarter of fiscal 2021 decreased 13% due to a
decrease in the average interest rates on our marketable securities and money
market funds.
The 33% decrease in net income in the first quarter of fiscal 2021 compared
to the prior-year quarter was primarily due to a decrease in product sales.
The Impact of the COVID-19 Pandemic
We believe the COVID-19 pandemic had a significant impact on total revenue
and net income for the quarter ended June 30, 2020 compared to the prior-year
quarter due to its effects on market conditions in certain industries,
especially medical devices. Total revenue and net income will likely continue to
decrease for future quarters compared to prior-year quarters due to the effects
of the COVID-19 pandemic.
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Liquidity and Capital Resources
Overview
Cash and cash equivalents were $6,402,983 as of June 30, 2020 compared to
$8,065,594 as of March 31, 2020. The $1,662,611 decrease in cash and cash
equivalents was due to $4,835,038 of cash used in financing activities
consisting of cash dividends paid to shareholders, partially offset by
$3,172,427 in net cash provided by operating activities.
Investing Activities
We had no maturities or purchases of debt securities and no capital
expenditures during the quarter ended June 30, 2020. Capital expenditures can
vary from quarter to quarter depending on our needs and equipment purchasing
opportunities.
Financing Activities
In addition to cash dividends to shareholders paid in fiscal 2021, on
July 22, 2020 we announced that our Board had declared a cash dividend of $1.00
per share of Common Stock, or $4,835,038 based on shares outstanding as of
July 17, 2020, to be paid August 31, 2020. 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, the impacts of the COVID-19 pandemic, and
other factors the Board may deem relevant. Furthermore, dividends may be
modified or discontinued at any time without notice.
We currently believe our working capital and cash generated from operations
will be adequate for our needs at least for the next 12 months.
Off-Balance-Sheet Arrangements
Our off-balance sheet arrangements consist of purchase commitments. We
believe such arrangements have no material current or anticipated future effect
on our profitability, cash flows, or financial position.
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