NVE Corporation — FY2019 Form 10-K
Business context and period. NVE develops and sells spintronic sensors and couplers, conducts contract research and development, and licenses MRAM technology. This is an annual report for the fiscal year ended March 31, 2019—not a standalone 2018 fourth-quarter filing. The company reports one operating segment.
Financial results and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $26.47 million | $29.86 million | -11.4% |
| Product sales | $25.29 million | $27.32 million | -7.4% |
| Contract R&D revenue | $1.18 million | $2.54 million | -53.5% |
| Gross profit / margin | $21.26 million / 80.3% | $23.59 million / 79.0% | Margin +1.3 percentage points |
| Operating income / margin | $15.92 million / 60.2% | $18.45 million / 61.8% | Income -13.7% |
| Net income | $14.51 million | $13.91 million | +4.3% |
| Diluted EPS | $2.99 | $2.87 | +4.2% |
| Operating cash flow | $14.22 million | $15.15 million | -6.2% |
- Net income rose despite lower revenue and operating income, primarily because the effective tax rate fell to about 18% from about 30%; higher gross margin and interest income and lower SG&A also contributed.
- R&D expense increased 10.9% to $4.11 million, reflecting increased new-product development; SG&A decreased 14.7% to $1.22 million.
- Cash and cash equivalents were $6.88 million at year-end, versus $4.76 million a year earlier. Balance-sheet marketable securities totaled $67.41 million; no debt is reported. Current liabilities were $0.84 million.
- FY2019 investing cash flow was positive $7.06 million, mainly from $20.8 million of security maturities, offset by $13.67 million of security purchases. Financing cash use was $19.16 million, including $19.37 million of dividends.
- Shareholders’ equity was $82.78 million, versus $86.44 million. The filing reports $74.12 million of available-for-sale securities, including money-market funds; investors should distinguish this amount from balance-sheet marketable securities.
Material changes and outlook
- Management attributed lower product sales to reduced purchases by existing customers and lower R&D revenue to completion of certain contracts. Gross margin improved due to revenue mix.
- The company began marketing smart magnetometer and angle sensors, current sensors, lower-power sensors and couplers, private-label couplers, and antitamper sensors. Development programs included smart-sensor ICs, food-safety biosensors, and power-conversion ICs.
- Management said working capital and operating cash generation should be adequate at least through FY2020. No specific revenue or earnings guidance was provided. Firm contract R&D backlog was $354,650, expected to be filled in FY2020; product orders are generally cancellable and excluded from firm backlog.
- The board declared a $1.00-per-share quarterly dividend in May 2019, payable May 31, 2019. Management cautioned that recent dividends may exceed operating cash flow and may be changed or discontinued; FY2019 dividends declared were $4.00 per share.
Risks, contingencies, and unusual items
- Customer concentration is significant: two customers represented 39% of FY2019 revenue and 41% of year-end receivables. Major-customer purchases can be reduced, postponed, or canceled; the filing identifies customer agreement expirations in 2020 and 2021.
- Other principal risks include competition and pricing pressure; dependence on single-source wafer, material, and packaging suppliers; critical manufacturing-equipment failure; foreign operations and trade barriers; certification and customer-quality requirements; and product-liability exposure from medical-device applications.
- Marketable securities were approximately 81% of total assets on the filing’s stated measure. The company reported no impairment at year-end, but declines in security values or credit quality could affect financial condition and cash flows.
- No material pending or threatened legal proceedings were disclosed. Environmental compliance had not materially affected results; potential future remediation costs could not be estimated. The facility lease expires December 2020, with $519,417 of disclosed minimum payments.
- The filing reports adoption-related reclassification of $60,365 from accumulated other comprehensive loss to retained earnings. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether product demand stabilizes and the sales decline at existing customers continues, especially given customer concentration and contract renewals.
- Whether new sensor and coupler products generate meaningful sales, and whether elevated R&D spending produces commercial returns.
- The sustainability of the $4.00 annual dividend per share relative to operating cash flow, liquidity needs, and future board decisions.
- Portfolio composition, credit quality, maturities, and valuation sensitivity of the company’s large marketable-securities holdings.
- Whether supplier alternatives, customer certifications, and production equipment provide adequate resilience against disruption.