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 as updated in our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2020, September 30, 2020, and Item 1A herein.

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 December 31, 2020 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.



                                       14

--------------------------------------------------------------------------------

Table of Contents

Quarter ended December 31, 2020 compared to quarter ended December 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 December 31        to-Quarter
                                                                              Change
                                          2020                      2019
Revenue
Product sales                               96.9 %                  95.3 %       2.8 %
Contract research and development            3.1 %                   4.7 %     (33.8 )%
Total revenue                              100.0 %                 100.0 %       1.1 %
Cost of sales                               16.5 %                  19.5 %     (14.9 )%
Gross profit                                83.5 %                  80.5 %       5.0 %
Expenses
Research and development                    10.7 %                  12.0 %      (9.0 )%
Selling, general, and administrative         4.8 %                   5.1 %      (5.1 )%
Total expenses                              15.5 %                  17.1 %      (7.8 )%
Income from operations                      68.0 %                  63.4 %       8.4 %
Interest income                              5.6 %                   6.9 %     (17.6 )%
Income before taxes                         73.6 %                  70.3 %       5.8 %
Provision for income taxes                  13.5 %                  12.6 %       8.6 %
Net income                                  60.1 %                  57.7 %       5.2 %

Total revenue for the quarter ended December 31, 2020 (the third quarter of fiscal 2021) increased 1% compared to the quarter ended December 31, 2019 (the third quarter of fiscal 2020). The increase was due to a 3% increase in product sales, partially offset by a 34% decrease in contract research and development revenue. The increase in product sales from the prior-year quarter was primarily due to increased purchases by existing customers. The decrease in contract research and development revenue in the third quarter of fiscal 2021 was due to the completion of certain contracts.

Gross profit margin increased to 84% of revenue for the third quarter of fiscal 2021 compared to 80% of revenue for the third quarter of fiscal 2020 due to a more profitable revenue mix.

Total expenses decreased 8% in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 due to a 9% decrease in research and development expense and a 5% decrease in selling, general, and administrative expense. The decrease in research and development expense was primarily due to the completion of certain product development activities. The decrease in selling, general, and administrative expense was primarily due to staffing changes.

Interest income for the third quarter of fiscal 2021 decreased 18% due to a decrease in our marketable securities and money market funds and a decrease in the average interest rates on those securities and funds.

The 5% increase in net income in the third quarter of fiscal 2021 compared to the prior-year quarter was primarily due to increased product sales, increased gross profit margin, and decreased expenses, partially offset by decreased contract research and development revenue and decreased interest income.



                                       15

--------------------------------------------------------------------------------

Table of Contents

Nine months ended December 31, 2020 compared to nine months ended December 31, 2019

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



                                             Percentage of Revenue           Period-
                                           Nine Months Ended Dec. 31        to-Period
                                                                              Change
                                          2020                      2019
Revenue
Product sales                               95.8 %                  95.7 %    (19.4 )%
Contract research and development            4.2 %                   4.3 %    (21.0 )%
Total revenue                              100.0 %                 100.0 %    (19.5 )%
Cost of sales                               18.4 %                  19.2 %    (22.9 )%
Gross profit                                81.6 %                  80.8 %    (18.7 )%
Expenses
Research and development                    15.5 %                  13.9 %    (10.2 )%
Selling, general, and administrative         6.6 %                   5.3 %     (0.2 )%
Total expenses                              22.1 %                  19.2 %     (7.4 )%
Income from operations                      59.5 %                  61.6 %    (22.2 )%
Interest income                              7.5 %                   7.0 %    (14.2 )%
Income before taxes                         67.0 %                  68.6 %    (21.4 )%
Provision for income taxes                  11.8 %                  10.7 %    (11.0 )%
Net income                                  55.2 %                  57.9 %    (23.3 )%

Total revenue for the nine months ended December 31, 2020 decreased 20% compared to the nine months ended December 31, 2019, due to a 19% decrease in product sales and a 21% decrease in contract research and development revenue.

The decrease in product sales from the prior-year period was due to decreased purchase volumes by existing customers. The decrease in contract research and development revenue was due to the completion of certain contracts.

Total expenses decreased 7% for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 primarily due to a 10% decrease in research and development expense. The decrease in research and development expense was due to the completion of certain product development activities.

Interest income for the first nine months of fiscal 2021 decreased 14% due to a decrease in our marketable securities and money market funds and a decrease in the average interest rates on those securities and funds.

The 23% decrease in net income in the first nine months of fiscal 2021 compared to the prior-year period was primarily due to a decrease in revenue.

The Impact of the COVID-19 Pandemic

The pandemic had a significant impact on total revenue and net income for the nine months ended December 31, 2020 compared to the prior-year period due to its effects on market conditions in certain industries, especially medical devices. We believe the effects of the pandemic on our business subsided in the quarter ended December 31, 2020, however.



                                       16

--------------------------------------------------------------------------------

Table of Contents



Liquidity and Capital Resources
Overview

Cash and cash equivalents were $13,988,308 as of December 31, 2020 compared to $8,065,594 as of March 31, 2020. The $5,922,714 increase in cash and cash equivalents was due to $8,531,068 in net cash provided by operating activities and $11,986,373 of cash provided by investing activities, partially offset by $14,594,727 of cash used in financing activities.

Investing Activities

Cash provided by investing activities in the nine months ended December 31, 2020 was due to $12,000,000 of marketable security maturities, partially offset by $13,627 of fixed asset purchases. Capital expenditures can vary from period to period depending on our needs and equipment purchasing opportunities.

Financing Activities

We paid $14,503,308 in cash dividends and repurchased $91,419 of our Common Stock in the first nine months of fiscal 2021. In addition to cash dividends paid in the first nine months of fiscal 2021, on January 20, 2021 we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,833,232 based on shares outstanding as of January 15, 2021, to be paid February 26, 2021. 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.



                                       17

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses