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Item 2. Management’s Discussion and Analysis

2024-07-17 compared with 2024-01-17 · 30 added, 56 removed, 32 unchanged (73% of the section changed)

7 unchanged sentences

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 our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and Part II, Item 1A of 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.

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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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 December 31, 2023, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

Quarter ended December 31, 2023, compared to quarter ended December 31, 2022

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:

Percentage of Revenue

Quarter 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 quarter ended December 31, 2023 (the third quarter of fiscal 2024) decreased 9% compared to the quarter ended December 31, 2022 (the third quarter of fiscal 2023).

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 primarily due to decreased purchases by existing customers, particularly in the defense industry, and a semiconductor industry downturn.

The increase in contract research and development revenue was due to new customer-funded research and development contracts.

Total expenses decreased 16% for the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023 primarily due to a 23% decrease in research and development expense and a 4% decrease in selling, general, and administrative expense.

The decrease in research and development expense was primarily due to the redeployment of resources to customer-funded research and development projects.

The decrease in selling, general, and administrative expense was primarily due to decreased performance-based compensation accruals.

Interest income for the third quarter of fiscal 2024 increased 21% due to increased yields on securities purchased after December 31, 2022.

Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 16% for the third quarter of fiscal 2024 compared to 19% for the third quarter of fiscal 2023.

The decrease was primarily due to an increase in certain tax deductions.

Our effective tax rate can vary from quarter to quarter.

Our effective tax rate in future quarters may be higher than the effective tax rate in the quarter ended December 31, 2023.

The 1% decrease in net income for the third quarter of fiscal 2024 compared to the prior-year quarter was primarily due to decreased revenue, which was nearly offset by decreased expenses, increased interest income, and a lower effective tax rate.

Nine months ended December 31, 2023, compared to nine months ended December 31, 2022

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

Percentage of Revenue

Nine Months Ended Dec.

Product sales

Contract research and development

Total revenue

Cost of sales

Research and development

Selling, general, and administrative

Provision for credit losses

Total expenses

Income from operations

Interest income

Income before taxes

Provision for income taxes

Total revenue for the nine months ended December 31, 2023, decreased 11% compared to the nine months ended December 31, 2022.

The decrease was due to an 11% decrease in product sales and a 20% decrease in contract research and development revenue.

The decrease in product sales was primarily due to decreased purchases by existing customers, particularly in the defense industry, and a semiconductor industry downturn.

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

Total expenses increased 1% for the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023 due to a 7% increase in selling, general, and administrative expense partially offset by a 3% decrease in research and development expense.

The increase in selling, general, and administrative expenses was primarily due to increased staffing and increased employee compensation expenses.

The decrease in research and development expense was due to variations in staffing.

Interest income for the first nine months of fiscal 2024 increased 38% due to higher yields on securities purchased after December 31, 2022.

Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 16% for the first nine months of fiscal 2024 from 19% for the first nine months of fiscal 2023.

The decrease was primarily due to an increase in certain tax deductions.

The 8% decrease in net income for the first nine months of fiscal 2024 compared to the prior-year period was primarily due to decreased revenue and increased expenses, partially offset by increased interest income and a lower effective tax rate.

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

Cash and cash equivalents were $4,684,910 as of December 31, 2023, compared to $1,669,896 as of March 31, 2023.

The $3,015,014 increase in cash and cash equivalents during the first nine months of fiscal 2024 was due to $15,115,031 of cash provided by operating activities and $2,280,084 of cash provided by investing activities, partially offset by $14,380,101 of cash used in financing activities.

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 was our primary source of working capital for the current and prior-year quarters.

Net cash provided by operating activities was $15,115,031 for the first nine months of fiscal 2024 compared to $14,748,911 for the first nine months of fiscal 2023.

Accounts receivable decreased by $4,268,102 during the first nine months of fiscal 2024 due to the timing of customer payments and decreased revenue.

Inventories increased by $932,801 during the first nine months of fiscal 2024 primarily due to our decision to increase inventories to mitigate longer vendor lead times and to support growth.

Accounts payable and accrued expenses decreased $1,147,278 during the first nine months of fiscal 2024 primarily due to decreases in income tax payable, long-term operating lease liability, and accruals for performance-based compensation.

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 provided by investing activities during the first nine months of fiscal 2024 consisted of $8,400,000 in proceeds from maturities of marketable securities, partially offset by $16,731 of fixed assets purchases and $6,103,185 of marketable securities purchases.

Purchases of fixed assets can vary from period to period depending on our needs, strategic goals, and equipment purchasing opportunities.

Such purchases are likely to increase significantly in future periods.

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 nine months ended December 31, 2023, consisted of $14,497,628 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 third quarter of fiscal 2024, on January 17, 2024, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,833,401 based on shares outstanding as of January 12, 2024, to be paid February 28, 2024, to shareholders of record as of the close of business January 29, 2024.

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.

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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