NVE(NVEC) - 2025 Q4 - Annual Report

PART I Item 1. Business NVE develops and sells spintronic sensors and couplers for data acquisition and transmission, targeting IIoT, medical, and power conversion markets - NVE Corporation, founded in 1989, specializes in spintronics, a nanotechnology using electron spin to acquire, store, and transmit information[19][20] - The company's technology is applied in three main areas: magnetic sensors for data acquisition, couplers for data transmission, and MRAM for data storage[21] Our Strategy NVE aims to be the leading spintronics developer, expanding sensor and coupler lines for energy conversion and IoT - The company's vision is to be the leader in practical spintronics, providing the "eyes, nerves, and brains" for electronic systems[29] - Growth strategy focuses on expanding sensor and coupler product lines to support global trends like efficient energy conversion and smart, low-power IoT end nodes[29] Our Products and Markets NVE's products include sensors, couplers, power products, and MRAM, serving IIoT, medical, energy conversion, and tamper prevention - Sensor products, used to determine position or speed, are sold as standard catalog items for the IIoT market and as custom sensors primarily for medical devices[30][31][32] - Spintronic couplers are used for high-speed data transmission in markets like power conversion and the IIoT for factory automation[33] - Power products, including DC-to-DC converters, serve energy conversion applications such as battery storage and hybrid/electric vehicles[34] - MRAM strategy is focused on low bit density applications, such as tamper prevention and detection[35] Product Manufacturing NVE conducts in-house U.S. wafer production and testing, a competitive advantage, with ISO 9001:2015 certification - The company believes its in-house U.S. wafer production and testing capabilities provide a competitive advantage over competitors who outsource these operations[36] - The manufacturing process involves fabricating spintronic structures on wafers, wafer-level inspection, and then either dicing for die sales, sending to Asia for packaging, or processing into WLCSPs[38][39] - The manufacturing facility is certified under the ISO 9001:2015 quality management standard[40] Sales and Product Distribution NVE sells products through distributors in over 75 countries and leverages private-brand partnerships to expand market presence - The company relies on distributors who stock and resell products in more than 75 countries. Key distributors include America II Electronics, Inc., Angst+Pfister Sensors and Power, and Digi-Key Corporation[41] - NVE also engages in private-brand partnerships with large integrated device manufacturers to expand distribution and product awareness[41] New Product Status NVE introduced new high-sensitivity and Wafer-Level Chip-Scale sensors, with long-term development on next-gen TMR, medical, and antitamper MRAM - New products marketed in the past year include high-sensitivity ultraminiature sensors, a new type of rotation sensor, Wafer-Level Chip-Scale sensors, advanced position sensors, and new evaluation boards[42][47] - Long-term product development programs for fiscal 2025 include ultrahigh-sensitivity TMR sensors, next-generation sensors for medical devices, wafer-level chip-scale devices, and next-generation MRAM for antitamper applications[42][47] Our Competition NVE faces competition in industrial, medical, and coupler markets, competing on product features rather than solely on price - Industrial sensor competition includes other GMR/TMR sensor makers and companies producing Hall-effect and AMR sensors, though NVE believes its products are more sensitive and power-efficient[42] - Medical sensors compete with traditional electromechanical switches (e.g., reed switches) and other solid-state sensors. NVE claims advantages in reliability, size, precision, and sensitivity[43] - Coupler competition includes optical, inductive, capacitive, and radio-frequency technologies. NVE's strategy is to compete on product features like smaller size and higher immunity to transients, not just price[44] Intellectual Property As of March 31, 2025, NVE held over 50 U.S. patents, foreign patents, and pending applications, including advanced MRAM designs - As of March 31, 2025, the company had more than 50 issued U.S. patents, plus foreign patents and pending applications[48] - The company holds patents on advanced MRAM designs, including magnetothermal MRAM and spin-momentum MRAM[49] - Registered trademarks include "NVE" and "IsoLoop"[50] Human Capital Resources As of March 31, 2025, NVE had 42 employees, predominantly male and highly educated, with low 4% voluntary turnover - As of March 31, 2025, the company had 42 employees, 41 of whom were full-time[55] Workforce Gender Demographics (as of March 31, 2025) | Gender | NVE | Minnesota | | :--- | :--- | :--- | | Male | 69% | 50% | | Female | 31% | 50% | Workforce Racial Demographics (as of March 31, 2025) | Race | NVE | Minnesota | | :--- | :--- | :--- | | African American or Black | 10% | 8% | | American Indian or Alaska Native | 2% | 1% | | Asian | 19% | 6% | | White or Caucasian | 69% | 83% | - Voluntary employee turnover was 4% for fiscal 2025[61] Item 1A. Risk Factors The company identifies significant risks including supplier dependence, Asian packaging reliance, competition, product liability, economic cyclicality, and stock volatility Risks Related to Our Business Key business risks include single-source supplier reliance, Asian packaging dependence, competition, medical device product liability, and cybersecurity threats - The company relies on key single-source suppliers for raw silicon and semiconductor foundry wafers, and a loss of supply could severely harm the business[73] - Dependence on packaging vendors, many of whom are in Asia, poses a risk of supply interruption due to business decisions, geopolitical issues, or natural disasters[75] - Products incorporated into medical devices expose the company to product liability claims, which could be financially damaging despite indemnification agreements[81] - As of March 31, 2025, marketable securities represented approximately 62% of total assets, exposing the company to potential losses from market conditions and interest rate changes[90] Risks Related to Our Industry The company operates in cyclical semiconductor and uncertain economic environments, facing intellectual property litigation risks - The company faces an uncertain economic environment, particularly due to the cyclical nature of the semiconductor market[93] - Reliance on intellectual property creates exposure to litigation risks, where patent infringement claims could lead to costly settlements, licensing fees, or damage awards[94] Risks Related to Our Stock The company's stock price faces significant risks, including potential declines if cash dividends are reduced or discontinued - Decisions to reduce or stop paying cash dividends could cause the market price of the common stock to fall. Recent dividend levels may be unsustainable as they generally exceed cash flow from operations[95] - The stock price is subject to significant fluctuations due to factors such as competitor actions, product delays, changes in customer demand, and general economic conditions[96] Item 1C. Cybersecurity NVE has a comprehensive cybersecurity risk management program overseen by the Board's Audit Committee, managed in-house, with no material incidents - The Board of Directors Audit Committee has ultimate oversight of cybersecurity risks[99] - Cybersecurity risk is managed in-house by a full-time IT specialist and the CEO, rather than engaging third-party providers[100] - The company has not experienced any material cybersecurity incidents in the last three years[98] Item 2. Properties NVE's principal offices and manufacturing facility are in a 21,362 square foot leased space in Eden Prairie, Minnesota - The company leases a 21,362 square foot facility in Eden Prairie, Minnesota, for its offices, labs, and production[101] - The current lease agreement expires on May 31, 2031[101] Item 3. Legal Proceedings The company is not aware of any material pending or threatened legal proceedings that would materially impact its financials - As of the report date, NVE is not aware of any material pending or threatened legal proceedings[102] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NVE's common stock trades on NASDAQ under NVEC, with a history of dividends, 49 shareholders, and no share repurchases - Common Stock trades on the NASDAQ Capital Market under the symbol NVEC[106] - As of March 31, 2025, there were 49 shareholders of record[108] - No shares were repurchased in fiscal 2025 or fiscal 2024[110] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2025 revenue decreased 13.2% to $25.9 million, net income fell 12.0% to $15.1 million, with improved gross margin Results of Operations Fiscal 2025 total revenue fell 13% due to product sales decline, gross margin improved to 84%, but rising expenses led to a 12% net income decrease Fiscal Year 2025 vs. 2024 Performance | Item | FY 2025 (% of Revenue) | FY 2024 (% of Revenue) | Year-to-Year Change | | :--- | :--- | :--- | :--- | | Total revenue | 100.0% | 100.0% | (13.2)% | | Product sales | 95.2% | 98.0% | (15.7)% | | Contract R&D | 4.8% | 2.0% | 112.0% | | Gross profit | 83.6% | 77.3% | (6.0)% | | Total expenses | 21.8% | 15.1% | 25.1% | | Income from operations | 61.8% | 62.2% | (13.6)% | | Net income | 58.2% | 57.5% | (12.0)% | - The decrease in product sales was primarily due to decreased purchases by existing customers[119] - The increase in gross margin percentage was due to a more profitable product mix and a larger portion of direct rather than distributor sales[120] Liquidity and Capital Resources As of March 31, 2025, cash and cash equivalents decreased by $2.2 million to $8.0 million, primarily due to $19.3 million in dividends - Cash and cash equivalents decreased by $2.25 million to $8.04 million in FY2025[125] - Net cash provided by operating activities was $14.3 million[127] - Net cash used in financing activities was $19.2 million, which consisted of $19.3 million in cash dividends paid to shareholders[131] - The company plans to increase fixed asset purchases in fiscal 2026 to between $2.0 million and $3.0 million to support production capacity increases[130] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2025 - The Chief Executive Officer and Principal Financial Officer concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective[135] - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2025, based on the COSO 2013 framework[137] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, corporate governance, and Section 16(a) reports is incorporated by reference - Required information for this item is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Shareholders[145] Item 11. Executive Compensation Executive and director compensation information is incorporated by reference from the company's 2025 Proxy Statement - Required information for this item is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Shareholders[146] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and equity compensation plan information is incorporated by reference from the company's 2025 Proxy Statement - Required information for this item is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Shareholders[147] Item 13. Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the company's 2025 Proxy Statement - Required information for this item is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Shareholders[148] Item 14. Principal Accounting Fees and Services Information on fees billed by the independent auditor and Audit Committee's pre-approval policy is incorporated by reference - Required information for this item is incorporated by reference from the Proxy Statement for the 2025 Annual Meeting of Shareholders[149] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements and an index of all exhibits filed with the Form 10-K, including corporate bylaws and material contracts - Financial statements are provided as required by Item 8. Certain financial statement schedules have been omitted as they are not applicable or the information is included elsewhere[151] - A list of exhibits filed with the report is provided, including governance documents, material contracts, and SEC-required certifications[152][154] Financial Statements Reports of Independent Registered Public Accounting Firm The independent auditor, Boulay PLLP, issued an unqualified opinion on the financial statements for the two-year period ended March 31, 2025 - The auditor, Boulay PLLP, expressed an unqualified opinion on the financial statements for the fiscal years ended March 31, 2025 and 2024[161] - The auditor determined that there were no critical audit matters arising from the audit[165] Balance Sheets As of March 31, 2025, total assets were $64.3 million, liabilities increased to $2.0 million, and equity decreased to $62.3 million Balance Sheet Summary (as of March 31) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $8,037 | $10,284 | | Total current assets | $33,200 | $33,194 | | Total assets | $64,276 | $66,780 | | Liabilities & Equity | | | | Total current liabilities | $1,169 | $1,036 | | Total liabilities | $2,007 | $1,212 | | Total shareholders' equity | $62,269 | $65,569 | | Total liabilities and equity | $64,276 | $66,780 | Statements of Income For fiscal 2025, total revenue was $25.9 million, gross profit $21.6 million, and net income $15.1 million or $3.11 per diluted share Income Statement Summary (Year Ended March 31) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total revenue, net | $25,875 | $29,804 | | Gross profit | $21,639 | $23,032 | | Income from operations | $15,994 | $18,519 | | Net income | $15,065 | $17,125 | | Net income per share – diluted | $3.11 | $3.54 | Statements of Cash Flows For fiscal 2025, net cash from operations was $14.3 million, investing provided $2.7 million, and financing used $19.2 million Cash Flow Summary (Year Ended March 31, 2025) | (in thousands) | Amount | | :--- | :--- | | Net cash provided by operating activities | $14,310 | | Net cash provided by investing activities | $2,668 | | Net cash used in financing activities | ($19,226) | | Net (decrease) in cash and cash equivalents | ($2,247) | | Cash and cash equivalents at end of year | $8,037 | Notes to Financial Statements The notes detail accounting policies, marketable securities (75% of assets), lease obligations, and customer concentrations, with two major customers accounting for 54% of revenue - The company operates in a single reportable segment[182] - Marketable securities are classified as available-for-sale and valued at fair value. As of March 31, 2025, total marketable securities and money market funds were approximately $47.9 million, representing 75% of total assets[188][211] - In fiscal 2025, two customers accounted for 35% and 19% of total revenue, respectively[231] - The company extended its facility lease, which now expires on May 31, 2031. Total future lease liabilities are $0.92 million[228][230] - On May 7, 2025, the Board declared a quarterly cash dividend of $1.00 per share[236]