NVE(NVEC) - 2023 Q4 - Annual Report

PART I Business NVE Corporation develops and sells spintronic sensors and couplers for IIoT and medical markets, leveraging its ISO-certified facility - NVE develops and sells high-performance spintronic sensors and couplers, utilizing electron spin for information acquisition and transmission[17] - The company's strategy focuses on becoming a leading developer of practical spintronics for efficient energy conversion and low-power IoT applications[27] - NVE operates its own ISO 9001:2015 certified U.S.-based wafer production and testing facility, a competitive advantage over outsourced models[36] - Significant revenue concentration exists with key customers, including Abbott Laboratories and Sonova AG[47] - As of March 31, 2023, the company had 56 employees, with increased compensation to attract and retain talent[51][54] Our Products and Markets NVE offers standard and custom spintronic sensors for IIoT and medical devices, along with couplers, DC-to-DC convertors, and MRAM - Major markets for standard sensors include the Industrial Internet of Things (IIoT) for factory automation[29] - Primary custom products are medical device sensors, manufactured under stringent quality standards, often replacing electromechanical switches[30] - Coupler markets primarily include power conversion and the IIoT, supporting efficient power systems and advanced factory automation[31] New Product Status In fiscal year 2023, NVE introduced new ultraminiature isolated DC-to-DC convertors, TMR magnetic sensors, and combined data coupler products - New products introduced include additional ultraminiature isolated DC-to-DC convertor models, TMR magnetic sensors, and combined data coupler products[38][44] Our Competition NVE competes across product lines with various sensor and coupler technologies, focusing on superior features rather than solely on price - NVE competes with GMR/TMR, Hall-effect, and AMR sensor makers, emphasizing its products' superior sensitivity and power efficiency[39] - In medical sensors, NVE's solid-state products compete with electromechanical switches, offering advantages in reliability, size, and precision[40] - Competitive strategy for couplers focuses on superior features like smaller size, higher transient immunity, and longer product life, rather than price alone[41] Risk Factors NVE faces risks from labor market tightness, single-source supplier dependence, customer concentration, competition, product liability, and dividend sustainability - A tight labor market, particularly in Minnesota, leads to increased competition for employees, higher turnover, and wage inflation[57] - Dependence on single-source suppliers for critical raw materials and packaging services, including those from China and Asia, creates significant supply chain risk[58][60] - The Supplier Partnering Agreement with Abbott Laboratories expires on December 31, 2023, posing a significant revenue risk if not renewed[64] - As of March 31, 2023, $52.5 million in marketable securities, representing 76% of total assets, are subject to market and credit risks[75] - Future dividend payments are not guaranteed and may be unsustainable, as recent amounts have generally exceeded cash flow from operations[80] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - No unresolved staff comments are reported[82] Properties NVE's principal offices and manufacturing facility are a leased 21,362 sq ft space in Eden Prairie, Minnesota, with limited expansion options - The company leases its 21,362 sq ft facility in Eden Prairie, Minnesota, with the agreement expiring March 31, 2026[83] - Limited options exist for production expansion in the current facility, prompting exploration of future alternatives[83] Legal Proceedings The company is unaware of any material pending or threatened legal proceedings that would adversely impact its financials - As of the report date, NVE is unaware of any material pending or threatened legal proceedings[84] Mine Safety Disclosures This item is not applicable to NVE Corporation - This item is not applicable[85] PART II Market for Common Equity, Stockholder Matters, and Issuer Purchases NVE's common stock trades on NASDAQ, with a history of dividends and a recent repurchase of 1,000 shares, while forgoing future buybacks for CHIPS Act grants - The company's Common Stock trades on the NASDAQ Stock Market under the symbol NVEC[87] - As of April 12, 2023, there were approximately 54 shareholders of record[89] - The company repurchased 1,000 shares in fiscal 2023 and resolved to forgo buybacks for five years for preferential CHIPS Act grant treatment[91] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2023, NVE's total revenue grew 42% to $38.3 million, driving a 56% increase in net income to $22.7 million, despite a cash decrease due to investments and dividends Fiscal Year 2023 vs 2022 Performance | Metric | FY 2023 ($) | FY 2022 ($) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $38.25M | $26.99M | +41.7% | | Product Sales | $37.20M | $25.87M | +43.8% | | Gross Profit | $30.19M | $20.72M | +45.7% | | Gross Margin | 78.9% | 76.8% | +2.1 p.p. | | Income from Operations | $25.64M | $16.33M | +57.0% | | Net Income | $22.69M | $14.51M | +56.4% | - Increased product sales were primarily driven by higher purchases from existing customers across most markets and product lines[101] - Gross profit margin increased from 77% to 79% due to economies of scale and increased prices, offsetting higher material and labor costs[102] - The effective tax rate decreased from 17% to 16% due to $197,008 in investment tax credits from the CHIPS and Science Act of 2022[105] - Cash and cash equivalents decreased by $8.8 million, from $10.4 million to $1.7 million, driven by $19.3 million in dividends and $8.5 million in net investing cash outflow, partially offset by $19.1 million from operations[108] Financial Statements and Supplementary Data Audited financial statements and accompanying notes are included in the report, starting on page F-1 - Financial statements and accompanying notes are included in this Report beginning on page F-1[115] Controls and Procedures As of March 31, 2023, management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes - Management concluded that disclosure controls and procedures were effective as of March 31, 2023[117] - Internal control over financial reporting was effective as of March 31, 2023, based on the 2013 COSO framework[118] - No material changes to internal control over financial reporting occurred during the year ended March 31, 2023[120] PART III Directors, Executive Officers and Corporate Governance Information regarding the company's directors, executive officers, and corporate governance is incorporated by reference from its 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Shareholders[122] Executive Compensation Detailed information concerning executive and director compensation is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Shareholders[123] Security Ownership and Related Stockholder Matters Information regarding security ownership by certain beneficial owners and management, and equity compensation plans, is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Shareholders[124] Certain Relationships, Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Shareholders[125] Principal Accounting Fees and Services Information regarding fees paid to the independent registered public accounting firm and audit committee policies is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Shareholders[126] PART IV Exhibits, Financial Statement Schedules This section confirms financial statements are provided per Item 8 and lists all exhibits filed with the Form 10-K - Financial statements are provided pursuant to Item 8 of this Report[128] - A list of exhibits filed with the report is provided on page 17[129][131] FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Boulay PLLP issued an unqualified opinion on NVE's financial statements for FY2023 and FY2022, confirming fair presentation under U.S. GAAP with no critical audit matters - The auditor, Boulay PLLP, expressed an unqualified opinion on the financial statements[139] - The audit was conducted in accordance with PCAOB standards[141] - No critical audit matters were identified during the audit[143] Balance Sheets As of March 31, 2023, total assets were $69.3 million, with a shift from cash to marketable securities, while liabilities decreased and equity increased Balance Sheet Highlights (As of March 31) | Metric | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,669,896 | $10,449,510 | | Marketable securities, total | $51,638,142 | $45,153,894 | | Inventories | $6,417,010 | $5,088,635 | | Total assets | $69,255,170 | $67,467,492 | | Liabilities & Equity | | | | Total liabilities | $2,175,668 | $2,902,363 | | Total shareholders' equity | $67,079,502 | $64,565,129 | Statements of Income For FY2023, total revenue increased 41.7% to $38.3 million, leading to a 56.4% rise in net income to $22.7 million, or $4.70 per diluted share Income Statement Summary (Year Ended March 31) | Metric | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Total revenue | $38,253,592 | $26,986,970 | | Gross profit | $30,191,281 | $20,723,880 | | Income from operations | $25,644,182 | $16,328,685 | | Net income | $22,694,458 | $14,507,501 | | Net income per share – diluted | $4.70 | $3.00 | Statements of Cash Flows In fiscal 2023, NVE generated $19.1 million from operations but saw an $8.8 million net cash decrease due to $8.5 million in investing and $19.3 million in financing outflows Cash Flow Summary (Year Ended March 31, 2023) | Activity | Cash Flow ($) | | :--- | :--- | | Net cash provided by operating activities | $19,091,498 | | Net cash used in investing activities | ($8,527,108) | | Net cash used in financing activities | ($19,344,004) | | Net decrease in cash and cash equivalents | ($8,779,614) | Notes to Financial Statements Notes detail accounting policies, customer concentration (one customer 22% of FY2023 revenue), $52.5 million in marketable securities, stock repurchase authorization, and a subsequent $1.00 per share dividend - Customer Concentration: One customer accounted for 22% of revenue in fiscal 2023 and 25% in fiscal 2022, with a second customer at 11% in fiscal 2022[204] - As of March 31, 2023, the company held $52.5 million in available-for-sale securities, primarily corporate bonds[187] - The company repurchased 1,000 shares in fiscal 2023, with $3,520,369 remaining authorization for the stock repurchase program as of March 31, 2023[206] - Subsequent Event: On May 3, 2023, the Board declared a quarterly cash dividend of $1.00 per share, payable on May 31, 2023[208]