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Item 2. Management’s Discussion and Analysis

2023-07-19 compared with 2023-01-25 · 29 added, 55 removed, 32 unchanged (72% of the section changed)

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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.

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 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, 2022 as updated in Item 1A of this report.

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 Item 1A of this report.

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.

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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, 2022 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

Quarter ended December 31, 2022 compared to quarter ended December 31, 2021

As of June 30, 2023, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

Quarter ended June 30, 2023, compared to quarter ended June 30, 2022

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

Percentage of Revenue

Quarter Ended December 31,

Product sales

Contract research and development

Total revenue

Cost of sales

Research and development

Selling, general, and administrative

Total expenses

Income from operations

Interest income

Income before taxes

Provision for income taxes

Total revenue for the quarter ended December 31, 2022 (the third quarter of fiscal 2023) increased 18% compared to the quarter ended December 31, 2021 (the third quarter of fiscal 2022).

The increase was due to a 22% increase in product sales, partially offset by a 46% decrease in contract research and development revenue.

The increase in product sales was primarily due to increased purchases by existing customers and new customers.

Sales increased in most of our markets and product lines.

The decrease in contract research and development revenue was due to the completion of certain contracts.

Gross profit as a percentage of revenue increased to 80% for the third quarter of fiscal 2023 from 78% for the third quarter of fiscal 2022.

The increase was primarily due to increased prices and economies of scale due to increased revenue, partially offset by increased costs.

Total expenses increased 27% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 due to an 18% increase in research and development expense and a 48% increase in selling, general, and administrative expense.

The increases in expenses were primarily due to increased employee compensation expenses and increased staffing.

Interest income for the third quarter of fiscal 2023 increased 43% due to an increase in our available-for-sale securities and an increase in their average interest rate.

The 22% increase in net income in the third quarter of fiscal 2023 compared to the prior-year quarter was primarily due to increased revenue and increased interest income, partially offset by increased expenses.

Nine months ended December 31, 2022 compared to nine months ended December 31, 2021

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

Percentage of Revenue

Nine Months Ended December 31

Quarter Ended June 30,

Product sales

4 unchanged sentences

Selling, general, and administrative

Credit loss expense

Total expenses

3 unchanged sentences

Provision for income taxes

Total revenue for the nine months ended December 31, 2022 (the first nine months of fiscal 2023) increased 26% compared to the nine months ended December 31, 2021 (the first nine months of fiscal 2022).

Total revenue for the quarter ended June 30, 2023 (the first quarter of fiscal 2024) increased 20% compared to the quarter ended June 30, 2022 (the first quarter of fiscal 2023).

The increase was due to a 23% increase in product sales, partially offset by a 50% decrease in contract research and development revenue.

The increase in product sales was primarily due to increased purchases by existing customers and new customers.

Sales increased in most of our markets and product lines.

The increase in product sales was due to increased purchases by existing and new customers.

Product sales increased in most of our markets and product lines.

The decrease in contract research and development revenue was due to the completion of certain contracts.

Gross profit as a percentage of revenue increased to 78% for the first nine months of fiscal 2023 from 77% for the first nine months of fiscal 2022.

The increase was primarily due to increased prices and economies of scale due to increased revenue, partially offset by increased costs.

Total expenses decreased 5% for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 due to an 7% decrease in research and development expense and a 1% decrease in selling, general, and administrative expense.

The decrease in research and development expense was primarily due to the reallocation of resources to revenue-generating activities.

Interest income for the first nine months of fiscal 2023 increased 20% due to an increase in our available-for-sale securities and an increase in their average interest rate.

The 35% increase in net income in the first nine months of fiscal 2023 compared to the prior-year period was primarily due to increased revenue and increased interest income.

Supply Chain Disruptions

Supply chain disruptions may have favorably affected product sales in the quarter and nine months ended December 31, 2022 since we believe the disruptions may have been less severe for us than for our competitors.

We may be less susceptible to supply chain disruptions because we have our own wafer fabrication and product test operations.

We believe supply chain disruptions had an unfavorable impact on our costs of sales.

Total expenses increased 42% for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 due to a 16% increase in research and development expense, a 28% increase in selling, general, and administrative expense, and a $212,440 credit loss expense for the most recent quarter.

The increases in research and development and selling, general, and administrative expenses were primarily due to increased staffing and increased employee compensation expenses.

The credit loss expense was due to an increase in our allowance for credit losses under ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements , which we adopted beginning with the quarter ended June 30, 2023 (see Note 3 to the financial statements).

Interest income for the first quarter of fiscal 2024 increased 54% due to higher yields on securities purchased after June 30, 2022.

Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, increased to 24% for the first quarter of fiscal 2024 compared to 17% for the first quarter of fiscal 2023.

The increase was due to changes in the timing and availability of tax credits.

The 6% increase in net income in the first quarter of fiscal 2024 compared to the prior-year quarter was primarily due to increased revenue and increased interest income, partially offset by increased expenses and a higher effective tax rate.

Liquidity and Capital Resources

Cash and cash equivalents were $2,029,714 as of December 31, 2022 compared to $10,449,510 as of March 31, 2022.

The $8,419,796 decrease in cash and cash equivalents during the first nine months of fiscal 2023 was due to $14,492,478 of cash used in financing activities for dividend payments and $8,676,229 of cash used by investing activities, partially offset by $14,748,911 in net cash provided by operating activities.

Cash and cash equivalents were $1,439,933 as of June 30, 2023, compared to $1,669,896 as of March 31, 2023.

The $229,963 decrease in cash and cash equivalents during the first quarter of fiscal 2024 was due to $4,713,299 of cash used in financing activities and $541,966 of cash used by investing activities, partially offset by $5,025,302 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 as our primary source of working capital for the current and prior-year quarters.

Net cash provided by operating activities was $14,748,911 for the first nine months of fiscal 2023 compared to $9,098,330 for the first nine months of fiscal 2022.

Accounts receivable decreased $2,607,555 during the first nine months of fiscal 2023 primarily due to the timing of customer payments.

Inventories increased $1,370,592 due primarily to our decision to increase inventories to support increased product sales and to mitigate longer supplier lead-times and supply-chain risks.

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 was $5,025,302 for the first quarter of fiscal 2024 compared to $3,331,143 for the first quarter of fiscal 2023.

Accounts receivable decreased $1,126,312 during the first quarter of fiscal 2024 primarily due to the timing of customer payments and an increase in our allowance for credit losses due to the adoption of ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements (see Note 3).

Investing Activities

Cash used by investing activities during the nine months ended December 31, 2022 consisted of $26,618,617 of marketable securities purchases and $907,612 of fixed asset purchases, partially offset by $18,750,000 in proceeds from maturities of marketable securities and the receipt of a $100,000 tenant improvement allowance.

Purchases of fixed assets were primarily capital expenditures for additional production equipment to increase our manufacturing capacity.

Cash used by investing activities during the quarter ended June 30, 2023, consisted of $3,937,835 of marketable securities purchases and $4,131 of fixed asset purchases, partially offset by $3,400,000 in proceeds from maturities of marketable securities.

Purchases of fixed assets can vary from quarter to quarter depending on our needs and equipment purchasing opportunities.

Such purchases could increase significantly in future quarters.

Financing Activities

Cash used in financing activities during the nine months ended December 31, 2022 consisted of $14,492,478 of cash dividends paid to shareholders.

In addition to cash dividends to shareholders paid in third quarter of fiscal 2023, on January 25, 2023 we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,830,826 based on shares outstanding as of January 20, 2023, to be paid February 28, 2023.

Cash used in financing activities during the quarter ended June 30, 2023, consisted of $4,830,826 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 first quarter of fiscal 2024, on July 19, 2023, 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 July 14, 2023, to be paid August 31, 2023.

We plan to fund dividends through cash provided by operating activities and proceeds from maturities of marketable securities.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis