NVE Corporation — FY2018 Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2018. Although the request identifies 2017 Q4, this filing is an annual report; it also reports the quarter ended March 31, 2018.
Business context
NVE develops and manufactures spintronic sensors and couplers, performs contract research and development, and licenses magnetoresistive random access memory (MRAM) technology. It operates as one business segment. Products primarily serve industrial automation and medical-device markets; about half of FY2018 revenue came from foreign sales.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Total revenue | $29.86 million | $28.33 million |
| Product sales | $27.32 million | $26.18 million |
| Contract R&D revenue | $2.54 million | $2.14 million |
| Gross profit / margin | $23.59 million / 79.0% | $22.25 million / 78.5% |
| Operating income / margin | $18.45 million / 61.8% | $17.45 million / 61.6% |
| Net income / diluted EPS | $13.91 million / $2.87 | $12.95 million / $2.68 |
| Operating cash flow | $15.15 million | $12.38 million |
| Cash and cash equivalents | $4.76 million | $8.20 million |
| Marketable securities | $73.60 million | $76.40 million |
| Total shareholders’ equity | $86.44 million | $92.68 million |
FY2018 fourth-quarter revenue was $7.90 million, net income was $3.88 million, and diluted EPS was $0.80; the comparable prior-year quarter recorded $6.85 million, $3.03 million, and $0.62, respectively. The filing reports no borrowings; total liabilities were approximately $0.99 million, chiefly accounts payable and accrued payroll/other items.
Cash, cash equivalents, and marketable securities totaled $78.36 million at year-end, down from $84.60 million. Operating cash flow of $15.15 million and net investing cash inflow of $0.72 million were more than offset by $19.37 million of cash dividends, resulting in a $3.44 million decrease in cash and cash equivalents. Marketable securities represented about 84% of total assets and had $1.25 million of gross unrealized losses; the company reported no other-than-temporary impairment.
Changes versus the prior year
- Revenue rose 5.4%: product sales increased 4.4%, attributed to new customers, and contract R&D revenue increased 18.6%, attributed to new contracts.
- Gross margin increased about 0.5 percentage point to 79.0%. Operating income grew 5.8%, and net income grew 7.4%.
- Research and development expense increased 10.7% to $3.70 million, reflecting expanded product development; selling, general, and administrative expense declined 1.6%.
- Operating cash flow improved, while cash and securities declined amid annual dividends of $4.00 per share. The FY2018 tax provision included a one-time $206,693 charge from revaluing deferred tax assets after federal tax reform.
Outlook, risks, and unusual items
- Management expected an approximately 22% effective tax rate in FY2019 and believed working capital and operating cash generation would be adequate at least through FY2019.
- Management declared a subsequent $1.00-per-share quarterly dividend, payable May 31, 2018. The company cautioned that recent dividends exceeded current operating cash flow and may not be sustainable; future payments remain subject to Board approval and financial conditions.
- Firm contract R&D backlog was $527,118 at March 31, 2018, down from $886,156 a year earlier; management expected it to be filled in FY2019, but noted performance milestones and no assurance of conversion to revenue. Product orders are generally cancellable and excluded from firm backlog.
- Two customers accounted for 37% of FY2018 revenue (19% and 18%) and 51% of year-end receivables. Customer reductions, cancellations, or loss of agreements could materially affect results.
- Key risks include investment credit and market losses, competition and pricing pressure, reliance on certain customers and single-source suppliers, production-equipment failure, foreign operations, medical-device product liability, and intellectual-property litigation. NVE disclosed a patent infringement lawsuit against Everspin; it reported no material pending or threatened legal proceedings expected to materially affect results.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether FY2019 revenue growth is sustained and whether the smaller R&D backlog converts to revenue as expected.
- Customer concentration, contract-renewal terms, and the impact of any purchasing changes by major customers.
- Marketable-securities credit quality, unrealized losses, maturity profile, and potential impact on income or dividend capacity.
- Dividend coverage against operating cash flow, cash balances, and securities maturities.
- Actual FY2019 effective tax rate and implementation of the new revenue-recognition standard.
- Developments in the Everspin patent litigation and the status of critical suppliers and manufacturing equipment.