NVE Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended March 31, 2021. Although the request labels the period “2020 Q4,” this filing reports full-year FY2021 results, with FY2020 as the comparable year. NVE develops and sells spintronic sensors and couplers, and conducts contract research and development and MRAM technology licensing.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $21.37 million | $25.41 million | Down 15.9% |
| Product sales | $20.54 million | $24.40 million | Down 15.8% |
| Contract R&D revenue | $0.83 million | $1.01 million | Down 18.4% |
| Gross profit / margin | $17.24 million / 80.7% | $20.52 million / 80.8% | Margin down 0.1 percentage point |
| Operating income / margin | $12.74 million / 59.6% | $15.51 million / 61.1% | Income down 17.9% |
| Net income / margin | $11.69 million / 54.7% | $14.53 million / 57.2% | Income down 19.5% |
| Diluted EPS | $2.42 | $3.00 | Down 19.3% |
| Operating cash flow | $13.36 million | $15.90 million | Down $2.53 million |
Liquidity, capital, and shareholder returns
- Cash and cash equivalents were $10.43 million at year-end, versus $8.07 million a year earlier. Marketable securities were $54.72 million; together, cash and marketable securities were approximately $65.14 million.
- Total assets were $72.50 million and shareholders’ equity was $70.89 million. Total liabilities were $1.61 million, principally operating lease liabilities; the filing reports no borrowings or other financial debt.
- Investing activities provided $8.42 million, including $19.00 million of marketable-security maturities, partly offset by $10.51 million of purchases. Financing used $19.43 million, primarily for $19.34 million of dividends; share repurchases were $91,419.
- The company declared dividends of $4.00 per share for FY2021. On May 5, 2021, it declared a further $1.00 per share dividend, payable May 31. Management cautions that recent dividends may exceed current operating cash flow and may not be sustainable.
- Management said working capital and operating cash generation should be adequate at least through FY2022. The company had no material contract assets or liabilities at year-end.
Changes, outlook, and notable developments
- Management attributed lower revenue primarily to reduced purchases by existing customers and completion of certain R&D contracts. Total expenses fell 10.1%, mainly because R&D expense declined 13.7% following completion of product-development projects; lower expenses only partly offset the revenue decline.
- NVE said COVID-19 significantly affected FY2021 revenue and net income, particularly through market conditions in medical devices, and that impacts began to subside in the second half. The pandemic also contributed to delayed or canceled customer orders and supplier disruptions.
- The effective tax rate was 18% versus 16% in FY2020. Management expects approximately 18% for FY2022. It reported no uncertain tax benefits; tax years 2016–2019 remain open to examination.
- New products introduced or marketed included smart IoT sensors, TMR sensors and switches, and couplers with isolated power converters or improved common-mode transient immunity. Long-term development included TMR sensors and custom integrated circuits.
- Amendment No. 7 extended the Abbott Supplier Partnering Agreement through November 30, 2021. The filing identifies the agreement’s expiration and renewal as a revenue risk. The Sonova supply agreement expires March 31, 2025.
- Available-for-sale securities had a fair value of $64.86 million, approximately 89% of total assets. Management reported no securities impairment at year-end but noted that pandemic-related issuer outlook deterioration could increase credit risk.
- A patent NVE identifies as particularly important to high-density, high-performance MRAM expires May 15, 2022. The filing says it is not critical to the company’s current business.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to audit internal control.
Principal risks and contingencies
- Customer concentration: two customers accounted for 22% and 15% of revenue, respectively; customers representing at least 10% of revenue accounted for 43% of receivables. The filing names Abbott, Sonova, other medical-device manufacturers, and distributors among significant customers.
- Customer orders may be reduced, delayed, or canceled; competition and pricing pressure may weaken sales and margins. Customer technical, quality, and certification requirements also create risks of lost business.
- Supply-chain exposure includes single-source wafer and materials suppliers, specialized manufacturing equipment, and packaging vendors. The filing reports semiconductor wafer shortages and longer wafer and packaging lead times; a packaging vendor in India remained not fully operational.
- Other significant risks include COVID-19 and broader economic conditions, foreign operations, government-contract funding and eligibility, medical-device product liability or recalls, intellectual-property disputes, cybersecurity incidents, and potential losses on securities.
- The filing reports no material pending or threatened legal proceedings expected to materially adversely affect results or financial condition.
Investor verification priorities
- Track whether product demand and customer orders recover, particularly in medical devices, and how revenue concentration evolves.
- Confirm renewal or replacement terms for the Abbott agreement before its November 2021 expiration, and monitor the longer-dated Sonova agreement.
- Assess whether dividends remain supported by operating cash flow and liquidity, given FY2021 dividends exceeded operating cash flow.
- Monitor credit quality and fair-value movements in the large marketable-securities portfolio, as well as wafer and packaging supply constraints.
- Review FY2022 tax-rate guidance and management’s liquidity outlook against actual results and cash requirements.