NVE Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended March 31, 2020. Although the request identifies “2019 Q4,” this filing is an annual report for FY2020, not a standalone quarterly report. Amounts below are U.S. dollars.
Business context
NVE develops and sells spintronic sensors and couplers, conducts contract research and development, and licenses MRAM technology. Its products serve industrial automation and medical-device markets. Sales are primarily distributed through third parties, and the company relies on several large customers.
Financial results and position
| Metric | FY2020 / March 31, 2020 | FY2019 / March 31, 2019 |
|---|---|---|
| Total revenue | $25.412 million | $26.472 million |
| Product sales | $24.400 million | $25.291 million |
| Contract R&D revenue | $1.012 million | $1.181 million |
| Gross profit / margin | $20.523 million / 80.8% | $21.256 million / 80.3% |
| Operating income / margin | $15.515 million / 61.1% | $15.925 million / 60.2% |
| Net income / net margin | $14.527 million / 57.2% | $14.508 million / 54.8% |
| Diluted EPS | $3.00 | $2.99 |
| Net cash from operations | $15.896 million | $14.219 million |
| Cash and cash equivalents | $8.066 million | $6.877 million |
| Marketable securities | $62.691 million | $67.413 million |
| Total assets | $79.498 million | $83.616 million |
Revenue declined 4.0% year over year: product sales fell 3.5% and contract R&D revenue fell 14.3%. Gross margin improved on a more profitable revenue mix. Operating expenses declined 6.1%, reflecting lower R&D costs, partly offset by higher selling, general, and administrative expense. Net income increased slightly as lower R&D and taxes offset weaker revenue and higher SG&A. The effective tax rate was approximately 16%, versus 18% in FY2019.
Operating cash flow increased to $15.896 million. Investing activities provided $5.252 million, mainly from security maturities net of purchases; financing activities used $19.959 million, principally for $19.384 million of dividends and $687,432 of share repurchases. No borrowing debt is reported; liabilities include $833,734 of operating-lease obligations. Current assets were $34.385 million and current liabilities were $796,201.
Available-for-sale securities, including money-market funds, totaled $70.595 million, about 89% of assets. The company reported no securities impairment at year-end, while noting pandemic-related deterioration in outlooks for some issuers. FY2020 dividends declared were $4.00 per share. A further $1.00-per-share dividend was declared on May 6, 2020, payable May 29, 2020.
Outlook, risks, and other notable items
- Management expected significant decreases in revenue and net income for the quarter ending June 30, 2020 versus the prior-year quarter, with declines likely to continue in subsequent quarters, due to COVID-19 impacts on demand and supply chains.
- Management expected an approximately 18% tax rate in FY2021 and believed working capital and operating cash generation would meet needs at least through FY2021.
- COVID-19 had already led to delayed or canceled customer orders, wafer and materials shortages, longer wafer lead times, and a packaging vendor shutdown under a lockdown order. The duration and financial effects were uncertain.
- Customer concentration is material: three customers represented 24%, 14%, and 10% of FY2020 revenue; those customers accounted for 43% of year-end receivables. The filing also identifies Abbott Laboratories and Sonova AG as significant customers and notes agreement-renewal risk.
- Product orders are generally cancellable, and the reported firm backlog was only $223,300 of contract R&D expected to be fulfilled in FY2021. The company cautioned that backlog may not convert to revenue.
- Other significant risks include competition and pricing pressure, dependence on single-source suppliers and specialized production equipment, medical-device product liability and quality requirements, foreign operations, and potential losses on securities. The company reported no material pending or threatened legal proceedings known to it.
- The facility lease was extended through March 31, 2026. Management reported effective disclosure controls and internal control over financial reporting; the independent auditor gave an unqualified opinion on the financial statements.
Important facts for investors to verify
- How COVID-19 subsequently affected customer orders, production capacity, supply availability, revenue, and earnings relative to management’s stated outlook.
- Revenue exposure to major customers, including the status and terms of the Abbott and Sonova agreements and customer concentration in receivables.
- Credit quality, maturities, and fair-value movements in the company’s large securities portfolio, especially given pandemic-related issuer risks.
- Whether dividends remain supported by operating cash flow and investment maturities; management cautioned that recent dividend levels may be unsustainable.
- Whether supplier and packaging disruptions were resolved and whether alternate sources are qualified for critical inputs.
- Progress in converting new sensor and coupler products, MRAM licensing opportunities, and limited R&D backlog into durable revenue growth.