NVE CORP /NEW/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 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 June 30, 2023, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation. 13 Table of Contents 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 June 30, Quarter- to-Quarter 2023 2022 Change Revenue Product sales 98.5 % 96.4 % 23.0 % Contract research and development 1.5 % 3.6 % (50.2 )% Total revenue 100.0 % 100.0 % 20.4 % Cost of sales 23.5 % 22.5 % 25.9 % Gross profit 76.5 % 77.5 % 18.8 % Expenses Research and development 7.9 % 8.2 % 15.6 % Selling, general, and administrative 5.4 % 5.1 % 28.0 % Credit loss expense 2.4 % - % - % Total expenses 15.7 % 13.3 % 42.2 % Income from operations 60.8 % 64.2 % 13.9 % Interest income 4.9 % 3.9 % 54.2 % Income before taxes 65.7 % 68.1 % 16.2 % Provision for income taxes 15.8 % 11.7 % 64.0 % Net income 49.9 % 56.4 % 6.4 % 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 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. 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. 14 Table of Contents Liquidity and Capital Resources Overview 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 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 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 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. 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. 15 Table of Contents