Item 2. Management’s Discussion and Analysis
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 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 December 31, 2024, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
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Quarter ended December 31, 2024, compared to quarter ended December 31, 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-
to-Quarter
2024
2023
Change
Revenue
Product sales
98.0
%
94.2
%
(22.1
)%
Contract research and development
2.0
%
5.8
%
(73.7
)%
Total revenue
100.0
%
100.0
%
(25.1
)%
Cost of sales
15.8
%
20.1
%
(41.1
)%
Gross profit
84.2
%
79.9
%
(21.0
) %
Expenses
Research and development
17.2
%
8.0
%
60.8
%
Selling, general, and administrative
8.6
%
5.8
%
11.7
%
Total expenses
25.8
%
13.8
%
40.2
%
Income from operations
58.4
%
66.1
%
(33.8
) %
Interest income
9.4
%
7.3
%
(3.6
)%
Other income
2.7
%
-
%
-
Income before taxes
70.5
%
73.4
%
(28.1
)%
Provision for income taxes
10.3
%
11.5
%
(33.0
) %
Net income
60.2
%
61.9
%
(27.1
)%
Total revenue for the quarter ended December 31, 2024 (the third quarter of fiscal 2025) decreased 25% compared to the quarter ended December 31, 2023 (the third quarter of fiscal 2024). The decrease was due to a 22% decrease in product sales and a 74% decrease in contract research and development revenue. The decrease in product sales was due to decreased purchases by existing customers. The decrease in contract research and development revenue was due to the completion of certain contracts.
Gross margin for the third quarter of fiscal 2025 was 84% of revenue, compared to 80% 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 40% for the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024 due to a 61% increase in research and development expense and a 12% 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.
Interest income for the third quarter of fiscal 2025 decreased 4% due to a decrease in marketable securities and lower yields on recently purchased marketable securities.
Other income in the third quarter of fiscal 2025 was primarily from the reclaiming of precious metals used in our manufacturing process.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 15% for the third quarter of fiscal 2025 compared to 16% for the third quarter of fiscal 2024. The decrease in our effective tax rate compared to the prior-year quarter was due changes in the timing and amounts of federal tax credits and deductions.
The 27% decrease in net income in the third quarter of fiscal 2025 compared to the prior-year quarter was primarily due to decreased revenue, increased operating expenses, and decreased interest income, partially offset by increased gross profit margin, increased other income, and a lower effective tax rate.
15
Nine months ended December 31, 2024, compared to nine months ended December 31, 2023
The table shown below summarizes the percentage of revenue and period-to-period changes for various items:
Percentage of Revenue
Nine Months Ended Dec. 31,
Period-
to-Period
2024
2023
Change
Revenue
Product sales
95.0
%
97.6
%
(20.3
)%
Contract research and development
5.0
%
2.4
%
71.9
%
Total revenue
100.0
%
100.0
%
(18.1
)%
Cost of sales
14.6
%
22.2
%
(46.0
)%
Gross profit
85.4
%
77.8
%
(10.2
)%
Expenses
Research and development
14.0
%
8.5
%
35.2
%
Selling, general, and administrative
8.2
%
5.7
%
18.9
%
Provision for credit losses
-
%
0.0
%
-
Total expenses
22.2
%
14.2
%
28.2
%
Income from operations
63.2
%
63.6
%
(18.8
)%
Interest income
7.7
%
6.3
%
(0.5
) %
Other income
0.7
%
-
-
Income before taxes
71.6
%
69.9
%
(16.3
)%
Provision for income taxes
11.6
%
11.3
%
(17.3
)%
Net income
60.0
%
58.6
%
(16.1
)%
Total revenue for the nine months ended December 31, 2024, decreased 18% compared to the nine months ended December 31, 2023. The decrease was due to a 20% decrease in product sales, partially offset by a 72% 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 nine months ended December 31, 2024.
Gross margin for the first nine months of fiscal 2025 was 85% of revenue, compared to 78% for the first nine 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 28% for the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024 due to a 35% increase in research and development expense and a 19% 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 16% decrease in net income for the first nine months of fiscal 2025 compared to the prior-year period was primarily due to decreased revenue, increased operating expenses, and decreased interest income, partially offset by increased other income and increased gross profit margin.
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Liquidity and Capital Resources
Overview
Cash and cash equivalents were $5,485,684 as of December 31, 2024, compared to $10,283,550 as of March 31, 2024. The $4,797,866 decrease in cash and cash equivalents during the first nine months of fiscal 2025 was due to $2,237,563 of cash used in investing activities and $14,388,356 of net cash used in financing activities, partially offset by $11,828,053 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 $1,789,769 during the first nine months of fiscal 2025 primarily due to decreased revenue and the timing of customer payments. Inventories increased $629,039 primarily due to our decision to increase inventories in anticipation of a semiconductor industry recovery. Prepaid expenses and other assets increased $47,132 primarily due to the timing of federal estimated tax payments. Accrued payroll and other expenses decreased $217,626 primarily due to decreased accrual for performance-based compensation.
Investing Activities
Cash used by investing activities during the nine months ended December 31, 2024, consisted of $11,279,773 of marketable securities purchases and $1,162,790 of fixed asset purchases, partially offset by $10,205,000 in proceeds from maturities of marketable securities. Fixed asset purchases consisted primarily 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 nine months ended December 31, 2024, consisted of $14,502,518 of cash dividends paid to shareholders, partially offset by $114,162 in proceeds from stock option exercises.
In addition to cash dividends to shareholders paid in the first quarter of fiscal 2025, on January 22, 2025, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,837,166 based on shares outstanding as of December 31, 2024, to be paid on February 28, 2025.
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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.