NVEC earnings call analysis

NASDAQ:NVEC Q2 2026 Earnings Call Transcript Generated on 10/9/2026 Dan Baker | President and CEO: Good afternoon and welcome to the NVE Corporation conference call for the quarter ended September 30th, 2025. I'm Dan Baker, NVE's President and CEO. I'm joined by Daniel Nelson, our Principal Financial Officer, and Pete Eames, Vice President of Advanced Technology. This call is being webcast live by YouTube and Amazon Chime and being recorded. A replay will be available through our website, nve.com, and our YouTube channel, youtube.com slash nvecorporation. All participants are currently in listen-only mode. After our presentation, there will be a question and answer session. After my opening comments, Daniel Nelson will present our financial results, Pete will cover new products and R&D, I'll cover the business, and then we'll open the call to questions. We issued our press release with financial results and filed our quarterly report on Form 10-Q in the past hour following the close of market. Links to the press release and 10-Q are available through our website, the SEC's website, and X, formerly known as Twitter. Please refer to the Safe Harbor Statement on your screen. Comments we may make that relate to future plans, events, financial results, or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as uncertainties related to the economic environments and the industries we serve, risks and uncertainties related to future sales and revenue, and risks and uncertainties related to tariffs, customs, duties, and other trade barriers. as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on Form 10-K for the year ended March 31, 2025. Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make. We're pleased to report a 4% sequential increase in revenue driven by strong increases in distributor and non-defense sales, despite an expected decrease in defense sales. Daniel Nelson will cover details of the financials.

Daniel. Daniel Nelson | Principal Financial Officer

Revenue increased 4% quarter over quarter sequentially and decreased 6% year over year. The year-over-year decrease was due to a 68% decrease in contract R&D revenue, partially offset by a 1% increase in product sales. Contract R&D was 3% of revenue. The year-over-year increase in product sales was due to a 21% increase in non-defense sales, partially offset by a 64% decrease in defense sales, which can be volatile because of defense procurement cycles. Defense product sales were 8% of revenue in the past quarter. Contract R&D is primarily defense or government related, and those revenues can also be uneven. Our defense business is primarily anti-tamper products that protect U.S. technology. It's important to our country, and it's profitable business, although it's not part of our growth strategy. The defense business has been steadily recovering this fiscal year, and as expected, defense industry sales increased sequentially in the past quarter. Distributor sales also increased nicely, both sequentially and year over year. Gross margin decreased to 78% from 86% the prior year quarter due to a less profitable product mix and strong distributor sales, which tend to have lower margins than direct sales. Total expenses decreased 7% for the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025 due to a 3% increase in R&D expense and a 23% decrease in SG&A. The increase in R&D was due to increased new product development. The decrease in SG&A was primarily due to the timing of sales and marketing activities and reassignment of some SG&A resources to manufacturing and new product development. Our tax rate increased to 20% for the second quarter of fiscal 2026, compared to 17% for the second quarter of fiscal 2025, primarily due to the non-cash impact of tax law changes on certain tax deductions this fiscal year. We currently expect a full-year tax rate of between 16% and 17% this fiscal year because we expect advanced manufacturing investment tax credits of between $700,000 and $1 million to offset the effect of other tax law changes. The advanced manufacturing investment tax credit was extended in the tax bill enacted in July and increases from 25% to 30% in calendar 2026. We currently expect our effective tax rate next fiscal year to also be approximately 16% to 17%. More importantly, the tax law changes will reduce our cash taxes by approximately $1 million over three quarters starting this quarter, the December quarter, by allowing us to accelerate the deduction of previously un-armortized R&D expenses. After taxes, net income for the second quarter of fiscal 2026 was $3.31 million, or 68 cents per diluted share, compared to $4.03 million, or 83 cents per share for the prior year quarter. The decrease in net income for the quarter was primarily due to decreased revenue, lower margins, and a higher tax rate compared to a year ago, partially offset by decreased expenses. Our profitability metrics remain strong. Operating margin was 58%, pre-tax margin was 65%, and net margin was 52%. For the first six months of fiscal 2026, total revenue was $12.5 million, and net income was $6.89 million, or $1.42 per diluted share. Adding in approximately $159,000 in unrealized gain on our marketable securities for the fiscal year, comprehensive income for the first half was $7.05 million. Turning to cash flow items. Cash flow from operations was $7.98 million in the first six months of the fiscal year. Accounts receivable decreased $1.1 million, primarily due to the timing of customer payments. Prepaid expenses and other assets increased by $730,000, primarily due to an increase in accrued bond interest and a decrease in federal and state taxes due. The decrease in taxes due was because we deducted previously unamortized research and development expenses in the past quarter, as permitted under the Federal Budget Reconciliation Bill enacted July 4, 2025. Accrued payroll and other current liabilities decreased $286,000, primarily due to the payments of federal and state taxes balance due as of March 31, 2025. Fixed asset purchases were $1.13 million for the first half of the fiscal year. Most of that was for a cluster of production equipment, which arrived in July. We successfully installed the equipment in the past quarter and hope to complete deployment by the end of this fiscal year. We currently expect to spend an additional $1 to $1.5 million on fixed asset in the last six months of the fiscal year to complete our production expansion. Pete Ames will discuss that equipment shortly. Now I'll turn the call over to Pete Ames, our Vice President of Advanced Technology, to talk about our plans for the new equipment and to cover new products and R&D.

Pete Eames | Vice President of Advanced Technology

Pete? Thanks, Daniel. I'll cover new equipment and R&D. New equipment in the past year will increase our capacity, increase our capabilities, and allow us to do wafer-level chip-scale packaging in-house. As Daniel said, we completed installation of a new equipment cluster in the past quarter in an expanded production area on the east end of our building. We've begun developing advanced Spintronic processes on the new equipment, and wafer-level chip-scale packaging makes our parts smaller and more precise. Our R&D strategy is to make the world's best electronics for high value markets such as medical devices, electric and autonomous vehicles, advanced factory and humanoid robotics, and highly automated fourth wave factories using artificial intelligence of things. Executing on that strategy, we launched three new products in the past quarter. A rotation sensor for applications such as networked utility meters and robotics, a new type of data coupler for motor control and energy conversion, and a new wafer-level chip-scale voltage regulator for ultra-miniature and ultra-robust power conversion in harsh environments. There are demonstrations of the new products on our website and on our YouTube channel. Going forward with the ingenuity of our engineers and scientists, the new equipment will continue to accelerate product development and fuel growth. Now I'll turn it back over to Dan.

Dan Baker | President and CEO

Thanks, Pete. I'll cover sales and marketing in our annual meeting. We exhibited at the Medical Design and Manufacturing Trade Show the past two days in Minneapolis, part of the Advanced Manufacturing event. Minnesota is a healthcare industry hub, and medical devices are an important market for us. We have a convincing benefit proposition for medical devices with small size, low power, and superb reliability. At the show, we highlighted new wafer-level chip scale parts for miniaturization of implantable medical devices and surgical robots, high-sensitivity sensors for medical device navigation, our best-in-class electrical isolators to ensure the safety of medical instruments, and nanopower sensors for battery-powered medical devices. We gave away working sensor circuit boards with permanently connected batteries at the show to demonstrate ultra-low power performance. It was a popular promotion. We've been following up on some good leads from the show, and we believe our investments and trade shows will pay off in future sales. We held our annual shareholders meeting in the past quarter here at NVE. Proxy advisory firms recommend in-person annual meetings for good governance. All of our directors and officers attended, along with our auditors. We had a chance to meet shareholders, answer questions, do live demos, and provide tours. Shareholders had a chance to see our expanded production area and our new equipment. We set up a compressor and compressed air tank to demonstrate pneumatic cylinder sensors. Pneumatic cylinders are the muscles of many robots, and our sensors are their eyes. Visitors could try out our new wafer-level chip scale sensors and advanced proximity sensors for advanced robotics. Visitors could try out our new wafer-level chip scale sensors and advanced proximity sensors for advanced robotics. In the formal meeting, each director was reelected, named executive officer compensation was approved, and the selection of our independent registered public accounting firm was ratified. We filed the final vote counts in a current report on form 8K. There's a replay of the annual meeting and demonstrations on our website and YouTube channel. Now we'd like to open the call for questions. To ask a question from a phone, press star seven to unmute, or from a browser or the chime app, click the raise my hand icon under the meeting chat. That's at the bottom of the left column and unmute yourself to speak. Please state your name and affiliation before your question. And to prevent background noise, please mute your line after asking your questions. spk01 | Caller: Hello, am I on? You are. Okay. Well, I have a quick question. It's great that you're selling all this new equipment. Should we expect to see growth in revenues for this new equipment or is it just growth in capabilities?

Dan Baker | President and CEO

No. Part of our goal, as Pete said in the prepared remarks, is to use the new equipment to develop advanced products and to fuel our future growth. So it's both to increase our capabilities and to develop new products. spk01 | Caller: Right. And when should we see that future growth?

Dan Baker | President and CEO

Well, our goal is always to grow. And in our core market, we grew, we had strong growth in the past quarter. So we're starting to see the results of our R&D and our expansion plans already. spk01 | Caller: So you're referring to the sequential growth and also to the non-military growth. Is that correct? Exactly. Okay. The chip level scale packaging, when would that ramp up?

Dan Baker | President and CEO

Well, we've been sampling the products for several quarters now. We have customer interest, and we're continuing to expand that product line. So we expect it to be a significant growth driver going forward. spk01 | Caller: Going forward, meaning as soon as this current quarter?

Dan Baker | President and CEO

Yes, conceivably. In certain markets and industrial markets, that's certainly possible. Our goal is to make a design-in process as fast as possible. In the medical markets, which is one of our core markets, sometimes the development cycle can be a long time because of regulatory issues, but in the industrial markets, our goal is to get design wins. spk01 | Caller: Can you tell us Again, what would the advantages of chip-level scale packaging be?

Dan Baker | President and CEO

So the advantages are that the parts are smaller, more precise, they're more precise because they're smaller. And so they have more spatial specificity. And then the other business advantage is that we can do that in house. So we're less susceptible to supply chain risks. And of course, the costs associated with those especially, especially in an environment with uncertain tariffs. spk01 | Caller: Okay, this is all great to hear. This is all for me, and I apologize. Could you remind me how to get off the call, how to mute my line while remaining on the call?

Dan Baker | President and CEO

So, Star 7 should mute or unmute your line. Okay, thank you.

Thank you for calling. Jeff Bernstein | Investor

Hi, Dan. It's Jeff Bernstein. Hi, Jeff. A couple of questions for you. I am curious, is wafer scale packaging now allowing you to have a fully domestic supply chain for those parts? And part two, do you have a fully domestic supply chain for any of your other parts?

Dan Baker | President and CEO

We have, I think it's fair to say, a mostly domestic supply chain. We do buy materials from overseas, as most companies do, of course, but we are uniquely well-situated in the tariff environment because we're quite self-sufficient. We do the key operations, including front end, which is wafer deposition, and back end, which is test. And with the addition of wafer level chip scale, that will eliminate, that will bring in-house one of the key elements of the supply chain, which is packaging our parts. Most of our traditional parts are packaged overseas, as are most semiconductors. But we are uniquely independent.

Jeff Bernstein | Investor

But OK, so but it does sound like these new parts will make you 100 percent domestic.

Dan Baker | President and CEO

Well, I wouldn't want to quite say 100 percent, Jeff, just because there are other materials and chemicals and things that we're relying on.

Jeff Bernstein | Investor

Right.

Dan Baker | President and CEO

And suppliers.

Jeff Bernstein | Investor

But I really meant just, yeah, fabrication takes place.

Dan Baker | President and CEO

Right. Right. Yes, that's true.

Jeff Bernstein | Investor

OK. OK, that's great. And then I was curious, can you just remind us, you did mention a couple of things about, you know, the functions that you guys provide in medical devices. Can you remind us on hearing aids? I know Starkey I think now has a brand new very high end hearing aid product coming out. I would guess that usually this stuff happens. in cycles and that probably Sonova is probably doing the same thing. But just remind us what you do in that market and then also in the medical device market in terms of the part functions that you offer.

Dan Baker | President and CEO

So in general, we enable communications between the device and the outside world for uploading and downloading data. And the uniqueness of our type of solution is that it's very secure and difficult to hack. We probably shouldn't get into the specifics of what our customers do just because it's confidential to them. But the advantages that we offer that are important in those markets are that our parts are small, they are very low power because these are battery-powered devices, and they're extremely reliable, which for medical devices, of course, critical.

Jeff Bernstein | Investor

Gotcha. I seem to remember that in hearing aids, it was really sort of detecting if somebody is holding a handset by their ear. Is that still kind of a main thing?

Dan Baker | President and CEO

That's been reported, yes.

Jeff Bernstein | Investor

Gotcha. Okay. And then in cardiac rhythm management, where your customer, Abbott, has this sort of revolutionary aviator pacemakers, and now they have them for... dual implantation, so two at a time, one in each chamber of the heart. Is that a product location thing or is it a communication or what is exactly in those kinds of CRM applications?

Pete Eames | Vice President of Advanced Technology

Hi, Jeff. This is Pete Eames. I can try to answer that question for you. Of course, we can't get into the specifics, but, yeah, we provide some unique capabilities for implanted medical devices in general. So we're small size and low power, as Dan mentioned, and that's ideal for small applications and battery-powered applications, among others.

Jeff Bernstein | Investor

Okay. That's all I'm going to get, I guess. All right. And then you guys mentioned the isolator business and some new products, I think, there. You've got this major move in data centers to 800 volt DC. I think we've talked about before you guys being compatible with some of the silicon carbide, very high power density and high switching speed. ICs that are FETs that are coming out now. Are you applicable in these data center applications? And just talk a little bit about that.

Pete Eames | Vice President of Advanced Technology

Yeah, we have some of the highest isolation voltage ratings in the industry, Jeff, and the voltages that you mentioned for data centers as well within our sweet spot for those applications. So it is a good application for NV and it's something that we're excited about.

Jeff Bernstein | Investor

And it seems like there's probably not a huge amount of touch points in that industry to have to go after. You don't have the same problem of, you know, every engineer having their analog devices or Texas Instruments sort of website on their browser. You know, how do you guys try to go to market to try and get into that arena?

Dan Baker | President and CEO

You're right, Jeff. It's a concentrated market, which is well suited to us because we can reach those folks. And we reach them through direct outreach, through distributors that specialize in those types of energy conversion markets. and through demonstrating our capabilities through our various marketing collaterals such as newsletters, application notes, and videos that show the unique capabilities that we have to convert energy extremely efficiently using those new wideband gap devices that you mentioned.

Gotcha. Jeff Bernstein | Investor

And I guess you could say the same thing for the eVTOL market. There's not a ton of players there. Is that basically the same story there? And have you actually gotten any design wins in that market?

Dan Baker | President and CEO

So you're right. That's a concentrated market as well. We target the tier one and tier two suppliers. So those are the companies that make modules that go into the cars. So we're not targeting the nameplate car manufacturers because they are buying these sorts of modules generally from other companies. So we target those customers. Again, we reach them through the marketing means that I mentioned, direct outreach, distributors, uh face-to-face distributors and uh bulletins and newsletters and we uh we can point to a number of or several automotive adjacent market design wins automotive adjacent i mean by that charging stations uh trucks and trains cars have a unique uh qualification process And we've engaged with companies to go through that process. So we're optimistic that we can add considerable value to next generation cars, hybrid electric vehicles and autonomous vehicles.

Jeff Bernstein | Investor

Gotcha. Gotcha. And I'm sorry, I was meaning to ask about EVTOLs, the vertical takeoff and landing electric vehicles, which is sort of a very small fraternity of players there.

Dan Baker | President and CEO

we have significant advantages in that type of power control obviously there's a premium on efficiency in that market on small size and on uh and on reliability so those are the type types of markets that uh that we feel have the high value added that make them good markets for us gotcha okay and then i i take it dan that you are not a gamer Jeff Bernstein | Investor: But I was really interested in that TDK press release about TMR sensors for game controllers to give the gamer an advantage over other players. And I actually think that's a really premium market because there are people who will pay anything to have the best NVIDIA chips for their systems and and these kinds of game controllers. So I don't know if that's a market that you guys are able to go after, but.

Pete Eames | Vice President of Advanced Technology

I can jump in here again, Jeff. We have looked closely at consumer electronics and, in this case, gaming markets. We found the devices much less demanding than our target markets in robotics, industrial, internet of things, and medical. We even did a couple of demos last year you might have seen showing the precision and speed of our sensors in comparison to some alternatives. Gamers look for millisecond responses. We demonstrated microsecond responses thousands of times faster in our promotional video, so you can find all this on our YouTube site.

Jeff Bernstein | Investor

Gotcha. Okay. All right. That's great. And then I'm sorry, I think I got on a minute or two late. Did you say anything about the puff market in the quarter? Did it recover or did it not recover in this quarter?

Pete Eames | Vice President of Advanced Technology

Yeah, so the puff market, so that's for us, that's a physical and clonable function that is something that we work actively in. Many of our anti-tamper products use puff technology. We're currently selling these into military systems, and there's many potential commercial applications as well. I think we alluded to the financials on that earlier, and I think Daniel was clear that there's quite a bit of volatility in those sales.

Jeff Bernstein | Investor

Gotcha. And so did they recover in this quarter from the prior quarter, or were they still down?

Dan Baker | President and CEO

So we talked about sequential growth, but not year over year. Gotcha. Okay. And as we've said, that's not as well. And as you know, that's not one of the markets, it's an important market to us. And we're proud to be a part of that. But it's not really a key part of our growth strategy. We were very pleased to see the non-defense sales grow so strongly.

Jeff Bernstein | Investor

Gotcha. And lastly, Dan, we talked last quarter about your application of very high sensitivity sensors to allow people to get rid of rare earth metal magnets. And I think you guys had said that you had some design wins. I'm just wondering, you know, kind of how long the turnaround time is to actual production of those kinds of systems and what, if anything, has happened in the quarter since in terms of design wind pace and or getting to production on some of those design winds?

Dan Baker | President and CEO

Yeah, we've been pleased with the reaction to our sensors. And of course, there's been a spotlight on rare earth magnets and materials, materials such as neodymium and dysprosium, which virtually all come from China and have risky supply chains and the threat of tariffs. so we've long offered rare or three ferrite magnets as well as high sensitivity sensors to detect them we've been promoting those we promote them at every trade shows and we have customers that are interested and customers that remark you know i can use one of these regular ferrite magnets on an advanced sensor system, and indeed they can. So I think it's already translated into sales. It's difficult to characterize, you know, how many of them are replacing rare earth magnets, but I'm sure it's some of them.

Jeff Bernstein | Investor

Okay, thanks.

Dan Baker | President and CEO

So if there are any other questions, press star seven to unmute or raise my hand from chime.

Mike Ostermeyer | Investor

Okay, go ahead.

Pete Previtt | Shareholder

Hi, Dan. This is Pete Previtt down in Florida. I'm sorry I wasn't able to make the care holder meeting this year, but I'm going to try to get there next year. I was excited to hear about the progress you made over the last year. I remember touring and you guys are doing a little demo of the east side and sounds like you've got that all set up and you got your equipment going. Can you talk a little bit about space? I know space is a premium there and you were looking at maybe additional buildings for future expansion. What's the situation with the space that you have there?

Dan Baker | President and CEO

Well, Pete and his team did a fabulous job of freeing up the space that you saw. Of course, you saw it unfinished when you were here a little more than a year ago. And it's packed right now, but it's working for us. We renewed our lease. In order to make it economically viable to expand in this building, and we have additional plans to expand if need be. So we think this building will hold us and we also have contingency plans that we hope to be able to to execute that would involve moving certain groups into a different building in order to expand our production and other areas. So we have a plan, and it didn't involve having to move a lot of equipment from our current building, which would have been expensive and potentially disruptive.

Pete Previtt | Shareholder

Okay. That's great. Great to hear. Thank you. And it's great to hear about the new products, certainly getting into the robotic market, Um, can you talk a little bit about, um, is there any potential in the future? I know it might be a little bit lower margin, but, um, are, are you able to potentially target the hall effect sensor market, uh, at any point where maybe your price, your cost structure can be reduced, where you can be more competitive or is that just not, not a target market at all?

Dan Baker | President and CEO

The high end of that market is a target market. So for folks unfamiliar, Hall effect is a type of semiconductor magnetic switch. We make spintronic non-semiconductor switches. So we have a number of advantages that we've talked about repeatedly in terms of the small size, the high reliability, the low power. and the ability to provide smart connections for sophisticated systems. But it's not our goal to compete with commodity switches. But we talked about, for example, Jeff brought up the gaming market, which is a high-end market. that's currently hall effect sensors. And if there's a need for folks who have reaction times in the microseconds rather than milliseconds, we believe that that's the type of market that perhaps we could look at. And there are other types of markets like that where they're using hall effect sensors now, and they can improve the performance significantly using our sensors. where there are the markets where a Hall effect sensor is good enough and they're really cheap versions. Those are not markets that we would typically target.

Pete Previtt | Shareholder

Great. And I think there was an announcement today by Amazon where they want to start replacing a lot of people in their distribution centers with robots. Are those the types of robotic applications where NVE parts would potentially be used?

Dan Baker | President and CEO

They are. Those are the types of industrial robots, the industrial Internet of Things, and the artificial intelligence of things that are the markets where we have a great benefit proposition. So smart factories, smart warehouses where they need sensor inputs and they need precision and speed, that's where we can add a lot of value. So those are the types of markets that we are targeting.

Pete Previtt | Shareholder

Great. Thank you very much. Appreciate it. Thanks, Pete.

Mike Ostermeyer | Investor

Dan, this is Mike Ostermeyer.

Pete Previtt | Shareholder

Hi, Mike.

Mike Ostermeyer | Investor

Yeah, hi. I think I believe a couple calls back you folks were thinking of breaking out your product sales by segments, defense in particular. Is my memory correct on that, on your reports?

Dan Baker | President and CEO

Well, we don't break out segments. We do try to give some additional context and color on these calls, which Daniel did. And so this was a quarter where our underlying core business, the non-defense business, was extremely strong. So we wanted to provide that level of detail to you, our investors, so that you can see what's going on here. So we'll continue to do that. Formally putting it into reports and things, that's a little bit tougher.

Mike Ostermeyer | Investor

Okay. And then the final, the other question is, how much comes... Your distributor sales obviously said have lower margins. What's the percent of distributor sales versus direct sales for you guys?

Dan Baker | President and CEO

So we don't have a breakdown percentage-wise, but both are important. Both distributor and direct sales are important to us. The direct sales tend to be more large customers in targeted markets, such as medical devices. And distributor sales go to, well, they're distributed. They go to a lot of different customers and tend to have lower order volumes. So we consider them both important. But the uniqueness of the distributor market is that they have a lot of inventory. That's part of the value added that they provide. So when there's an industry downturn, the distributor sales, as there was a couple of years ago, the distributor sales tend to be depressed because they want to bleed down their inventories. And so we were very gratified to see the recovery in distributor sales that Daniel talked about, Daniel Nelson talked about in the prepared remarks.

Mike Ostermeyer | Investor

Okay, so that tends to be somewhat, okay, rollercoaster kind of things possibly by the industry, by the macro background of it. Okay, and then the final, I have one other thing. Is there an issue, in the past I used to get emails and things about the conference calls and so forth, and for some reason all of a sudden that's got shut down. You've been having problems sending out reports?

Dan Baker | President and CEO

Not that I know of, but our IT team is here, and they're feverishly making notes to make sure that you get your emails.

Mike Ostermeyer | Investor

Okay, because I knew it was coming, but I saw it through other news sites.

Dan Baker | President and CEO

Oh, okay. We'll check on that. But we know who you are, Mike, and we'll keep you informed. Okay. Good luck. Thanks, Mike.

Don Gere | Co-founder and Retired CIO of a Wealth Management Firm

Dan, this is Don Gere. I'm a co-founder and retired CIO of a large wealth management firm. I'm just curious, looking through the past reports on the contract R&D, it's been really lumpy over time, but kind of looking through the expense ratio, uh you're you're dropping a good part of that to the bottom line it looks like um could you just give a little bit of a color on your approach to contract r d the amount of time that it takes and maybe takes away from other projects along the way Dan Baker | President and CEO: right so contract r d tends to be mostly defense related and can be as you say lumpy and cyclical but we view it primarily as a way to facilitate future sales and build our intellectual property portfolio so particularly for government or government sponsored r d contracts we typically own the resultant intellectual property. So it's a way to build our intellectual property portfolio without a direct expense hitting the bottom line. Because as you implied, in the case of contract R&D, the the expenses associated with that r d are considered cost of sales and so we make a profit on contract generally on contract r d it's not the main reason we do it the main reason we do it is to develop new products where we have potential customers particularly in the defense segment and to build our intellectual property portfolio But we consider our R&D team extremely valuable. So we look at that and we look at balancing the opportunity costs of deploying valuable resources on contracts versus in-house R&D. And so that mix can change depending on the contracts available and our internal opportunities.

Don Gere | Co-founder and Retired CIO of a Wealth Management Firm

Okay, so basically they're subsidizing your internal R&D growth, taking away from some of the other expenses you might have incurred, and you're using it as a stalking horse for future sales. As you go into periods such as we're in right now with the government shutdown, is that affecting the upcoming months and the current period of time? Or are you structured that the contract is in place and just keeps rolling over like an annuity?

Pete Eames | Vice President of Advanced Technology

Yeah, I can address that, Don. The shutdown is probably going to be much shorter term than the typical cycles for contract R&D work. So we're not too concerned about what looks to be a relatively prolonged shutdown.

Don Gere | Co-founder and Retired CIO of a Wealth Management Firm

And so you're expecting a bounce back in the current quarter or are we kind of flattening out on a quarter by quarter basis or quarter over quarter basis?

Dan Baker | President and CEO

Are you talking about revenues or revenues? Yes, yes. Well, our goal is always to grow. And I think we feel fairly confident that we can grow in the current quarter. Now, that's the December quarter. And part of that is because, frankly, last year was a little easier to compare than we sometimes have. But also, we feel that we have a good pipeline in most areas of our business and the industry has recovered. So we're very optimistic about the future and certainly the long-term prospects for growth, we're very optimistic.

Don Gere | Co-founder and Retired CIO of a Wealth Management Firm

Okay. And the reason I was asking is it looks like any type of bounce back Or had you not seen that, you know, a third basically on a comparison basis year over year, your drop in earnings was pretty much coming from that segment. So looking into the next quarter or so, any sort of bounce back should be positive on a sequential basis to help the underlying earnings. Yes. And then this one kind of a little bit off the wall question, but looking at the interest income, which went up year over year, despite, I believe, cash coming down overall, your marketable securities and cash, and when you add them all together, at least if I did it properly, we're in a period of declining rates. Did you extend your portfolios?

Daniel Nelson | Principal Financial Officer

This is Daniel here, Don. The increase in our interest income in the past quarter is primarily due to new security purchases. Those securities were purchased at higher interest rates than the ones that matured in the prior year quarter. The decrease in our cash and cash equivalents is primarily because we paid more in cash dividends than we generated in cash flows from operations. Okay, great.

Thank you. Dan Baker | President and CEO

Well, we're about out of time. We appreciate the-was there one more question?

Chip Rui | Rui Asset Management

There is, if it's open. It's Chip Rui at Rui Asset Management. I appreciate the discussion on the contract R&D and just following up on that to confirm that doesn't really have any correlation with product revenue growth over the next year or so. It's really targeted just to the DoD, and that's one question. The second question would be, clearly the medical and sensor and robotic markets are great, but you've mentioned a couple times the defense market is not a target market for you. Curious on your thinking on that. If I heard that correctly and kind of what are your thoughts, it seems to be there's a lot of spending in areas that it seems you could take advantage of there. So just kind of those two clarifying questions.

Thank you very much. Dan Baker | President and CEO

Yeah, thank you for the question. So on your first question, most of contract R&D, as we said in the prepared remarks, is defense related. So the other part of your question is that we do consider defense an important part of our business and we seek those contracts and those product sales. However, we don't see it as part of our long-term growth engine. It's not a fast-growing market, but we believe that it also indirectly, as I alluded to in one of the prior questions, it indirectly helps our long-term product sales by building our intellectual property portfolio in a number of areas, some of which have commercial applications for larger markets. In terms of the defense, defense contracts relating to defense products, that can be, sometimes we'll finish an R&D contract and if it's successful and Pete and his team do a great job, it usually is, then there's often product sales that are tied to that contract. So it's not always blue sky research or long-term research, as one might say. It can be targeted research at a particular problem. And if we can come up with solutions to that problem, we can sell products relatively near term.

Chip Rui | Rui Asset Management

Got it. And just for clarity, I understand the other markets, especially like robotics and things like that, are all white space and big growth. But given your current revenue level, and again, I'm not an expert on your company, so this is kind of a one-on-one question, and thank you for indulging. It seems to me if you got specced in on a weapons program, missile drone or something like that, or even radar or something like that, the product sales there would be enormous versus your current revenue level too. So again, I know the defense market doesn't grow as fast as the other markets. So just help me clarify that. Is it revenue you would take or revenue you're not seeking?

Thank you. Dan Baker | President and CEO

Right. So that's a good point. No, we do seek the revenues and we seek large contracts and we invest in that market. And it does have potential, as you say. But we also look at markets that are just historic with their opportunities, such as uh the industrial internet of things and the artificial intelligence of things that we really see is once in a lifetime opportunities and so those are what we tend to prioritize but we also look at uh defense opportunities and and in particular larger volume defense opportunities I think that's all the time we have for today. Again, we were pleased to report strong increases in distributor and non-defense sales. We launched three new products and we continue to deploy new equipment to fund and drive future growth. We look forward to speaking with you in January for our next quarterly call. A replay of this call will be available on the investor events page of our website, that's nve.com, and our YouTube channel, That's youtube.com slash NVE Corporation. Thank you again. jsPDF 3.0.3 D:20261009125639-00'00'

NASDAQ:NVEC Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Dan Baker | President and CEO: Good afternoon and welcome to the NVE Corporation conference call for the quarter ended June 30th, 2025. I'm Dan Baker, NVE's President and CEO. I'm joined as usual by Controller and Principal Financial Officer Daniel Nelson. This call is being webcast live via YouTube and Amazon Chime and being recorded. A replay will be available through our website NVE.com and our YouTube channel YouTube.com slash NVE Corporation. All participants are currently in listen-only mode. After our presentation, there will be a question-and-answer session. After my opening comments, Daniel Nelson will present our financial results, I'll cover the business, and then we'll open the call to questions. We issued our press release with financial results and filed our quarterly report on Form 10-Q in the past hour following the close of market. Links to the press release and the 10Q are available through our website, the SEC's website, and X, formerly known as Twitter. Please refer to the safe harbor statement on your screen. Comments we may make that relate to future plans, events, financial results, or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as uncertainties related to the economic environments and the industries we serve, risks and uncertainties related to future sales and revenue, and risks and uncertainties related to tariffs, customs, duties, and other trade barriers. as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on Form 10-K for the year ended March 31, 2025. Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make. We're pleased to report strong revenue and earnings for the quarter driven by an increase in distributor and non-defense sales, despite a decrease in defense sales. Daniel Nelson will cover details of the financials. Daniel?

Daniel Nelson | Controller and Principal Financial Officer

Thanks Dan. The 10% year-over-year revenue decrease for the first quarter was due to an 11% decrease in product sales, partially offset by a 17% increase in contract R&D revenue. The decrease in product sales was due to a decrease in defense industry sales, which can be highly variable because of procurement cycles. We were pleased to see non-defense sales stabilize with improving industry conditions in the quarter. We saw an increase in distributor sales, which were hit particularly hard by the recent industry downturn. Gross margin decreased to 81% from 86% due to a less profitable product mix and strengthening distributor sales, which tend to have lower margins than direct sales. Total expenses decreased 20% for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 due to an 18% decrease in R&D expense and a 23% decrease in SG&A. The decrease in R&D was due to completion of some of our wafer-level chip skill packaging activities and reallocation of some R&D resources to manufacturing. The decrease in SG&A was primarily due to the timing of sales and marketing activities and reallocation of some general and administrative resources to manufacturing. Net income for the first quarter of fiscal 2026 decreased 13% to $3.58 million, or $0.74 per diluted share, compared to $4.1 million, or $0.85 per share, for the prior year quarter. The decrease in net income for the first quarter of fiscal 2026 compared to the prior year was primarily due to decreased revenue and lower margins, partially offset by decreased expenses. Adding in approximately $75,000 in unrealized gains on our marketable securities, comprehensive income was $3.65 million. Our profitability metrics remain strong. Operating margin was 62%, pre-tax margin was 70%, and net margin was 59%. Fixed asset purchases were $1.06 million last quarter. Most of that was for a cluster of wafer fabrication equipment, which recently arrived. We were able to expedite the delivery to get the equipment before the U.S. reciprocal tariff pause was scheduled to expire July 9. We have a milestone payment of approximately $1 million due this quarter, which will substantially complete our two-year multi-million dollar expansion. Dan Baker will provide more color on capital investments in a few minutes. The 25% advanced manufacturing investment tax credit was extended in a recent tax bill. Therefore, we currently expect to realize advanced manufacturing investment tax credits of between $700,000 and $800,000 if we deploy equipment as planned in fiscal 2026. Although it would not significantly affect our earnings, we will also realize significant cash flow savings this fiscal year due to changes in Section 179 of the Internal Revenue Code. The recent legislation allows us to deduct on our tax returns previously unamortized R&D expenses rather than amortize them over five years. Turning to cash flow items, we paid our $1 per share quarterly dividend the past quarter and declared another dividend to be paid at the end of August. Operating cash flow was $5.19 million in the quarter, which more than cover our $4.84 million dividend. Accounts receivable decreased $1.34 million due to decreased revenue and the timing of customer payments. Accrued payroll and other liabilities increased $523,000, primarily due to the timing of estimated tax payments. Now I'll turn the call back over to Dan Baker to cover the business and preview our annual shareholders meeting. Back to you, Dan.

Dan Baker | President and CEO

Thanks, Daniel. I'll cover CapEx, marketing, and our upcoming annual meeting. Starting with CapEx, we deployed one new machine in the past quarter. As Daniel Nelson mentioned, we also took possession of a several million dollar equipment cluster in the past quarter. It's being installed in an expanded production area on the east end of our building, and we hope to deploy it later this fiscal year. Turning to product development, in the past quarter we launched more wafer level chip scale sensors which are less than a thousandth of a square inch. There are demonstrations of new products on our website and our YouTube channel. We promoted new products including wafer level chip scale sensors and advanced magnetic switch sensors launched earlier in the year at two major trade shows the past quarter. The SensorPlus Test show was in Nuremberg, Germany, and the Sensors Converge show was in Silicon Valley. SensorPlus Test is billed as the leading international trade fair for sensor, measuring, and testing technology. And Sensors Converge is North America's largest electronics event. We've been following up on some good leads from the shows, and we believe the investments in these shows will pay off in future sales. We also promoted rare earth-free ferrite magnets and sensors to detect them. Most rare earth magnets and the materials to make them come from China, which has put the supplies at high risk. The primary ingredients of ferrite magnets, however, are iron and oxygen, the two most abundant elements in the earth's crust. Our unique high sensitivity magnetic switch sensors and angle sensors are ideal for use with readily available ferrite magnets. Videos of some of our recent demos are on our website and YouTube channel. Our annual shareholders meeting will be August 7th here at NVE. Our proxy statement for the meeting is available via our website or the SEC's website. Our meetings have been in person except during the pandemic, so shareholders can meet our managers and directors and see hands-on product demonstrations. If you can't make it in person, we plan to have a replay available. There are three agenda items for the annual meeting. The first agenda item is the election of directors. We're fortunate to have a strong independent board of directors, all of whom have extensive experience as directors or executives of public companies. The second agenda item is approval of our officer compensation. Our compensation principles as detailed in our proxy include we don't overpay our officers, our officers have the same fringe benefits as all employees, And there are no executive perks or golden parachutes. The third agenda item is the ratification of our auditors for this fiscal year, the year ending March 31, 2026. Boulay has been our auditor since 2019, and we recommend their approval for our next audit. We expect representatives from Boulay to attend the annual meeting. The proxy report's total shareholder return for the past three fiscal years was 39%, exceeding broad market returns. Our returns consisted of 17% stock appreciation and 22% from dividends. Now we'd like to open the call for questions. To ask a question from a phone, press star 7 to unmute, or from a browser or the Chime app, click the Raise My Hand icon under the meeting chat. That's at the bottom of the left column. And unmute yourself to speak. Please state your name and affiliation before your question. And to prevent background noise, please mute your line after asking your question.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

Hi, Dan. It's Jeff Bernstein from Silverberg Bernstein Capital. Hi, Jeff. Hey, how are you? So, yeah, a couple of questions. You touched on the weakness in the puff business in the quarter, and it sounds like the distribution channel business is recovering. Can you give a little bit more color there? What do you think happens with the puff business in the next couple of quarters? Is there any kind of seasonality to that?

Dan Baker | President and CEO

There's not really seasonality to the Puff business, but there is a certain amount of lumpiness to that business because it's driven by procurement contracts for defense systems. So those can be those can be they're typically large contracts, but they we don't know the exact timing. I should say for background, PUFs are physical unclonable functions, which is a function that's embodied in a physical structure that's easy to evaluate but hard to predict. So they're an important component of spintronic anti-tamper systems. And those systems are designed to protect sensitive data or electronics. So we sell those for military systems. They're often deployed in systems that are sold locally. to foreign militaries. And so there are some commitments that the DOD has for those types of systems. It helps us in the long run, but in the short run, it can be unpredictable.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

So Dan, it sounds like we should expect some growth with all the growth in in the DOD budget and defense budgets around the world that on a multi-quarter kind of basis, we ought to continue to look at this as a growth business.

Dan Baker | President and CEO

Indeed. We currently expect that that business will grow quarter over quarter sequentially in the coming quarters, next quarter and the following quarters. And we expect to return to more historical levels in uh the next fiscal year um to the second part of your question though on distributor sales that's very encouraging because that's related to the strength of the industry as a whole and we're seeing the industry recover so to see those systems those sales increase i think bodes very well for the future okay and then you mentioned the this um Jeff Bernstein | Analyst, Silverberg Bernstein Capital: opportunity in replacing rare earth metals with ferrite magnets and your highly sensitive magnetic sensors. And I assume that is 100% for positioning kinds of measurements. The rare earth magnet business is a huge, huge business. The positioning part of that I think is a smaller but still a very large business nonetheless. I think a lot of automotive, but some other things as well. Can you just talk to us a little bit more about what you know and understand about that opportunity and how quickly you think design wins can convert to business, any kind of stumbling blocks there like availability of ferrite magnets, etc.? ?

Dan Baker | President and CEO

Yeah, that's a good question, Jeff. And as you know, virtually all rare earth magnets and materials such as neodymium and disposium come from China. So that puts the supply chains at some risk. As far as the availability, as I mentioned in the prepared remarks, ferrite magnets are made from iron oxide, which is chemically similar to rust, and iron and oxygen are the two most abundant elements in the Earth's crust. So it's materials that are widely available. So we're continuously working with customers to help them design in magnetic systems. As you pointed out, often the magnetic system is a magnet in combination with a sensor. So you're detecting proximity such as whether a door is closed, a seat belt is latched, or something like that, or whether a robot has reached its desired position, a robot end effector or actuator. And we provide models for the entire system for our customers. So we're working with customers continuously, and our goal is to have near-term design wins. We also have engineering models on our So customers can go there and model a ferrite magnet and one of our sensors and move the magnet around to simulate the position of the magnet and the sensor and try different sensors and different magnets. So we're working to get design wins in the near term. And we do have design wins that have been customers who come to us and said they need this magnet combination often. a ferrite magnet, and we can provide them a solution. In some cases, we'll actually sell the magnet. We don't make a lot of revenue on magnets, but we sell them as a courtesy to our customers, or they can buy the magnet elsewhere. And particularly if it's a ferrite magnet, they're widely available.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

Gotcha. So it sounds like this is somewhat interesting. normal kind of design cycle in terms of there would need to be a board spin to do this, but nothing more complicated than that.

Dan Baker | President and CEO

Right. And in some cases, our customers have constraints, so they just need a magnet that drops in. So maybe they need a slightly bigger magnet if it's a ferrite magnet compared to a neodymium magnet, for example. But we can provide them solutions like that. that allow a minimum of redesign. And we're getting more inquiries, as you might expect, about ferrite magnets and more sensitive sensors than we were before when engineers might specify in a rare earth magnet. And now they're starting to think about the supply chain risk of those magnets and And we offer sensors that can detect the lower fields that one gets from a ferrite magnet.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

Gotcha. And then I wanted to ask about the investment in the wafer scale packaging and trying to just understand how incremental revenue will correlate to that investment. Is this essentially giving you the opportunity to create much smaller parts because of the packaging and people get the sort of double whammy of knowing that the entire supply chain is now U.S. domestic or is it really the U.S. domestic supply chain that is the catalyst here? Just walk us through that and also, you know, do you have to have all the machines in place and up and running to take advantage of this, or are there some increments, and just how does that work?

Dan Baker | President and CEO

Good questions. The short answer is it's both to make parts that are smaller. As I mentioned in the prepared remarks, some of these sensors are less than a thousandth of a square inch, so that means that they fit in tight spaces, and it also means that they have more spatial specificity, meaning that you can detect a magnetic field more precisely, as you can imagine, because the sensing area is smaller. The two main advantages, and we have much of the key equipment already deployed for wafer-level chip scale parts. We've been rolling out a variety of different types of parts. We promoted them at the two recent trade shows that I mentioned, SensorPlus Test in Germany and and sensors converge in Silicon Valley. And we're already providing samples and evaluation boards. We are working on developing high-volume production systems, and we'll be working on that in the next couple of quarters through this fiscal year to make sure that we have the capacity as our customers design in these parts. But right now, we can provide samples and pre-production quantities now, and we're doing that. Gotcha, understand.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

And then last question, you know, we talked a little bit during the quarter about, you know, discussion that normal SRAM is going to run out of gas at, I guess, below two nanometer kind of line width. And people are talking about the potential for spin orbit, torque RAM, SOT RAM is what they're calling it. You guys have some patents. I think it's called in your patent Vortex Spin Momentum Transfer Magneto Resistive Devices. And that's a patent issued back in 2011. But is that right? You know, at what point do you think this becomes something where there might be some relevant IP that you guys have? And how do you guys think about trying to capitalize on that?

Dan Baker | President and CEO

Our company was founded and our original name was Non-Volatile Electronics, which refers to spintronic memory. And so it's important technology to us. We continue to develop the technology and we make and sell magnetic MRAM, spintronic magnetic MRAM or MRAM parts, mostly in anti-tamper applications to make crypto keys and and similar security applications where the density is relatively low, or the bit count. We don't plan to scale up for large-scale memory. It costs billions of dollars to make memory fab, so that's not part of our business plan, but we continue to develop our intellectual property. As you mentioned, we have intellectual property and patents on MRAM in general, as well as spin torque MRAM, as you alluded to, or spin momentum MRAM, as it's sometimes called. And our business model would be to partner with large scale manufacturers where appropriate to monetize our intellectual property and to help advance the technology. As you mentioned, SRAM and other types of memory run into scaling limitations that MRAM doesn't have. So we do see long-term opportunities there. The other advantage of spintronic memory or MRAM is that it has a combination of speed, non-volatility, and density that combines the best attributes of SRAM, DRAM, and FLASH or other non-volatile memories. So it's sometimes been called the universal memory. And when the density approaches that of conventional memories, it'll open up some excellent opportunities. And we're hoping to be able to provide intellectual property to help advance the technology.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

Great. Thanks for the help today, Dan.

Operator | Conference Call Moderator

Thanks, Jeff.

Dan Baker | President and CEO

If there are other questions, star seven on a phone to unmute or raise my hand on a computer.

Christopher Trotsky | Private Investor

Hello, this is Christopher Trotsky, private investor. Can you hear me?

Dan Baker | President and CEO

Yes.

Christopher Trotsky | Private Investor

Oh wow, that's a surprise. Okay, so about the chip level packaging, can you talk a little bit about what end markets that's going into and whether it's getting traction in that already?

Dan Baker | President and CEO

For wafer-level chip scale parts, the end markets is what you're asking about, and we've identified two end markets. One is medical devices, where the miniaturization is important. Smaller medical devices, particularly implantable medical devices, result in smaller devices, less obtrusive, smaller incisions, and all of those benefits. The other market is industrial controls and robotics to allow more precise measurements Position sensing, as I mentioned in answer to a previous question, the parts are not only smaller, but they have more spatial specificity for more precision. So those are the two markets that we've identified, and we've sampled parts to customers in both markets. We don't have volume production yet. We have customers actively evaluating the parts, and so far the feedback has been quite positive. We're very optimistic about the prospects for these parts.

Christopher Trotsky | Private Investor

But you're already selling devices into the implantable medical market. Would that be for next generation, or are you going into expanding into new implantable devices?

Dan Baker | President and CEO

We are looking at new implantable devices. So, for example, navigation devices. So what that means in a medical sense is knowing the position of a small device such as a catheter that would be snaked into the body, and it's important to know the exact position. So these are very small catheters. They need a very small sensor that can detect a precise external magnetic field, The magnetic field helps navigate the catheter much as a magnetic compass helps us navigate on the earth. That's one example of a potential market where our devices currently, as small as they are, are not small enough for that market. And wafer-level chip-scale parts will be, we believe.

Christopher Trotsky | Private Investor

Okay, that's good to hear. When you get those machines working, Will you consider production machines or NRE machines? My question really is if you do not get enough sales in those packages, is there a danger of looking at underutilization charges?

Dan Baker | President and CEO

We plan to use the new machinery for both R&D and production. And we, despite the large investment compared to other semiconductor companies, we are relatively, we have a relatively low fixed costs and a relatively low amount of equipment for the revenue that we generate. So we, again, justified the equipment based on assumptions that we believe we can meet for increased and incremental sales, but also it's not the type of leverage that one might see in a commodity semiconductor market where if they don't keep the equipment busy, the fixed costs will damage their financials in many cases. we have less risk than that because of the relative low amount of fixed assets that we have for the revenue that we generate. And that's a tribute to the efficiency of our employees and the value of our technology.

Christopher Trotsky | Private Investor

That is correct. We have much lower fixed assets than any other semiconductor company I've researched. And I guess another question I had is that lately, just looking at your YouTube channel, you're showing a lot of sensors for devices that use cylinders with like liquid force devices. I'm sorry, the word escaped me.

Dan Baker | President and CEO

I think you're referring to cylinders, pneumatic cylinders. Yes. Yeah, you described it very well. Right. So they're using a fluid to push a piston to move something. And that's what a lot of our customers do. So that's what we show on We do have a lot of those on YouTube.

Christopher Trotsky | Private Investor

Is that a new market? Because lately I've just been seeing those.

Dan Baker | President and CEO

It's a legacy market for us, and we've had customers who make pneumatic cylinder positions or sensors for many years. but we're always finding new and creative uses for those, and our customers are as well. So the general category is linear actuators, and we are finding customers that want, I think some of the newer videos relate to more precise control that we can do with our newer types of sensors. So we have a new YouTube video, for example, that highlights one of our advanced magnetic switches that I mentioned in the prepared remarks that we introduced at the recent trade shows. And so that allows us to have more precise control of a pneumatic cylinder where we can slow it down at one threshold and then stop it at another. So just like, you know, just like if you're slowing down and stopping a car, you can stop it more precisely like that. And so that's an example of the type of demonstration that we have. We've had customers who've been using pneumatic cylinders for many years, but this opens up a new way of controlling them more precisely. We also have done some recent videos and demonstrations where some of our folks are very creative in coming up with ways of controlling linear position and familiar devices. We had a device that's playing a piano, moving an actuator around to a precise position and and then hitting the key. So there are some of those that we demonstrate as well to demonstrate the precision of our sensors, and in that case, the combination of the precision and the speed.

Christopher Trotsky | Private Investor

Okay, that's good to hear that this market is expanding. And finally, I wanted to ask you, you know, for several quarters, we've seen that effect of military orders being very volatile today. Have you considered reporting revenue ex-military orders? For example, for this quarter, it would be very useful to tell that you have that ex-military orders, your revenue actually grew, which I think it did.

Dan Baker | President and CEO

That's true. It did. And we will look at we look at that kind of continuously. Do we want to report a segment? The challenge with that is that to report it consistently, we need to have it audited and we need to break out not just the revenue, but the components of or the expenses and costs related to the revenue. So there's a fair amount of infrastructure that we need to do that. But we will look at that and we look at whether we should report certain segments. continuously. We're always looking at that. So we'll be looking also at defense spending. In the meantime, what we try to do is provide information to our investors, as we did on this call, to help understand what is behind our top and bottom line.

Christopher Trotsky | Private Investor

Okay. That's good to hear. And the information you're providing is that military orders will actually sequentially increase this quarter and the next.

Dan Baker | President and CEO

Is that correct? That's what we're expecting now. That's our current expectation, yes. Okay, this is it for me. Good luck. Thank you. Are there any other questions?

Operator | Conference Call Moderator

Star 7 to unmute. Raise your hand on a computer. If there are no other questions, we were pleased to report strong revenue and earnings.

Dan Baker | President and CEO

We continue to deploy new equipment and received a new equipment cluster. We look forward to speaking with you in October for our next quarterly call, and we look forward to seeing some of you August 7th at our annual meeting. A replay of this call will be available on the Investor Events page of our website, that's nve.com, and our YouTube channel, that's youtube.com slash nvecorporation. jsPDF 3.0.3 D:20260606090318-00'00'

NASDAQ:NVEC Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Dan Baker | President and CEO: Good afternoon and welcome to the NVE Corporation conference call for the quarter and fiscal year ended March 31st, 2025. I'm Dan Baker, NVE's President and CEO. I'm joined as usual by Controller and Principal Financial Officer Daniel Nelson. This call is being webcast live via YouTube and Amazon Chime and being recorded. A replay will be available through our website, NVE.com, and our YouTube channel, YouTube.com slash NVE Corporation. All participants are currently in a listen-only mode. After our presentation, there will be a question and answer session. After my opening comments, Daniel Nelson will present our financial results. I'll cover tariffs, manufacturing, R&D, and sales and marketing, and then we'll open the call to questions. We issued our press release with financial results and filed our annual report on Form 10-K in the past hour following the close of market. Links to the press release and the 10-K are available through our website, the SEC's website, and X, formerly known as Twitter. Please refer to the Safe Harbor Statement on your screen. Comments we may make that relate to future plans, events, financial results, or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as uncertainties related to the economic environments and the industries we serve, risks and uncertainties related to future sales and revenue, and risks and uncertainties related to tariffs, customs, duties, and other trade barriers, as well as the risk factors listed from time to time in our filings with the SEC including our just filed annual report on Form 10-K. Actual results could differ materially from the information provided and we undertake no obligation to update forward-looking statements we may make. We're pleased to report a 3% year-over-year increase in revenue and 44% sequential revenue growth for the quarter and a 2% increase in earnings as industry conditions improve. Daniel Nelson will cover details of the financials. Daniel?

Daniel Nelson | Controller and Principal Financial Officer

Thanks, Dan. The 3% year-over-year revenue increase for the fourth quarter was due to a $270,000 or 558% increase in contract R&D revenue, partially offset by a 1% decrease in product sales. Sequentially, total revenue increased 44% from the immediately prior quarter, driven by a 40% increase in product sales and a 210% increase in contract R&D. We are pleased to see revenue stabilize with improving industry conditions in the quarter. We are also seeing interest in our new products. Gross margin increased to 79% from 76% due to a more profitable product mix and a larger portion of direct rather than distributor sales. Total expenses increased 17% for the fourth quarter of fiscal 2025 compared to the fourth quarter of fiscal 2024 due to a 28% increase in R&D partially offset by a 2% decrease in SG&A. The increase in R&D expense was primarily due to an increase in new product development. Net income for the fourth quarter of fiscal 2025 increased 2% to $3.89 million, or $0.80 per diluted share, compared to $3.81 million, or $0.79 per diluted share, for the prior year quarter. The increase in net income for the fourth quarter of fiscal 2025 compared to the prior year quarter was primarily due to increased revenue and higher margins, partially offset by increased expenses. Our profitability metrics remain strong. Operating margin was 58%, pre-tax margin was 65%, and net margin was 54% for the quarter. For the fiscal year, revenue decreased 13% due to decreases in the first three quarters of the fiscal year, partially offset by the increase in the most recent quarter. Gross margin increased to 84% for fiscal 2025 from 77% for fiscal 2024 due to a more profitable product mix and a larger portion of direct rather than distributor sales. Total expenses increased 25% for the year due to a 33% increase in R&D and a 13% increase in SG&A, primarily due to increased new product development and increased sales and marketing. We believe these investments will pay off in the future with higher revenues. Non-operating income for the fiscal year includes interest and other income. Interest for the year decreased 2% due to decreased in marketable securities, partially offset by higher bond yields in the past year. We also reported other income of $135,000 for the fiscal year, primarily from reclaiming precious metals used in our manufacturing process. Net income was down 12% to $15.1 million in a tough industry environment, but still a solid $3.12 per share. Adding in approximately $700,000 in unrealized gains on marketable securities, comprehensive income for the year was $15.8 million. Operating margin was 62%, pre-tax margin was 70%, and net margin was 58% for the year. Fixed asset purchases were $1.2 million last fiscal year, which is unusually large for us. We are planning even more this fiscal year, $2 to $3 million in capital investments for fiscal 2026. The biggest chunk of that investment is for a cluster of wafer fabrication equipment, which we expect to receive next quarter, the September quarter. Then Baker will provide color on capital investments in a few minutes. Turn into cash flows. Accounts receivable increased $444,000 during fiscal 2025 due to increased revenue in the fourth quarter and the timing of customer payments. Inventories increased $291,000 in the year. Working process inventories increased by a significant $968,000. Working process inventories generally have the flexibility to make different products depending on market demands. As we've said before, we believe inventories provide a buffer against supply disruptions and other disruptions such as tariffs. We paid our $1 per share quarterly dividend the past quarter and declared another dividend to be paid at the end of this month. We have now paid over $200 million, more than $42 per share, in dividends since we started paying dividends 10 years ago. Now I'll turn the call back to Dan Baker to cover the business. Back to you, Dan.

Dan Baker | President and CEO

Thanks, Daniel. I'll cover tariffs, manufacturing, R&D, and sales and marketing. We've identified three major risks related to tariffs. The first risk is that tariffs trigger global recession or industry downturn, which probably isn't good for anybody. Other than those broad-based macroeconomic concerns, however, we're uniquely well-situated with respect to tariffs. The second risk is tariffs on imported raw materials. This represents a relatively small portion of our costs since we do Spintronics fabrication in-house. We have been paying 25% tariffs on raw material imports from China since 2018, and it has not been significant. Most of what we purchase from China has not been subject to the recent so-called reciprocal tariffs imposed by the United States, since there is an exception for semiconductors. Furthermore, as Daniel noted, we have ample raw material and work-in-process inventories. The third risk is that our exported parts would be subject to another country's retaliatory tariffs. Fortunately, other countries such as China exempt semiconductor products such as ours. Furthermore, China classifies country of origin based on foundry wafers, which we source primarily from outside the United States. Therefore, the great majority of our exports to China are exempt from retaliatory tariffs. Most countries other than China classify country of origin based on the packaging location, which is also outside the United States for us. So the great majority of exports to other countries would not be subject to retaliatory tariffs. We have discussed plans to offer some parts as wafer-level chip scale parts with final processing here. We believe those wafer-level chip-scale parts could be subject to some retaliatory tariffs, but most of the potential business we've identified is in the United States. Our unique tariff situation and ample inventories could provide competitive opportunities compared to other U.S.-based companies with more tariff exposure. Turning to manufacturing, we're continuing our plans to expand our capacity and capabilities. We completed our planned expansion in the past quarter, including construction work, and recently completed electrical and other infrastructure upgrades to support new equipment. We deployed one new machine in the past fiscal year, we just deployed another machine this quarter, and a several million dollar machine is scheduled to arrive next quarter, the September quarter. Turning to customers, we're proud to supply products to some of the world's most demanding customers, including Abbott Laboratories. Abbott is a leading supplier of implantable medical devices. In the past quarter, we executed an extension of our supplier partnering agreement with Abbott. The agreement was filed with a Form 8K and is available via our website or the SEC's website. Turning to marketing, we're exhibiting at two major trade shows this quarter. The SensorPlus test show is underway now in Nuremberg, Germany. It's billed as the leading international trade fair for sensor measuring and testing technology. We will also be at SensorConverge in Silicon Valley in late June. That show is billed as North America's largest electronics event. We have several new products and new demonstrations at this year's shows. We believe the investments in these shows will pay off in future sales. We had an excellent quarter and fiscal year for product development. As Daniel mentioned, we've significantly increased our investment in R&D. We spent 14% of revenue in the past year on R&D. Additionally, we do customer-sponsored R&D, which is included in cost of sales. In the past quarter, we launched the world's most advanced magnetic switch sensors with more reliable data, more information, and rugged operation. There are several demonstrations of the new products on our website and our YouTube channel. In the fiscal year, we introduced a new high-sensitivity ultra-miniature sensor, a high-sensitivity rotation sensor, our first wafer-level chip scale sensors, a number of new evaluation and breakout boards. and the advanced position sensors I discussed earlier. We also invested in advanced R&D initiatives with the potential to drive future growth, including next-generation MRAM for anti-tamper applications, next-generation sensors for hearing aids and medical devices, extremely sensitive TMR sensors, and more wafer-level chip scale sensors. Now we'd like to open the call for questions. To ask a question, from a phone, press star 7 to unmute, or from a browser or the Chime app, click the Raise My Hand icon under the Meeting Chat. That's at the bottom of the left column, and unmute yourself to speak. Please state your name and affiliation before your question. And to prevent background noise, please mute your line after asking your question.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

Hey, Dan, it's Jeff Bernstein from Silverberg Bernstein Capital.

Dan Baker | President and CEO

Hi, Jeff.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

Hi, Dan and Ann. So, yeah, a couple of questions here. You know, last quarter revenue was somewhat disappointing. We were talking about potentially being near the end of liquidation of inventory by customers in the distribution channel. Obviously, a strong snapback here in the quarter. And at the same time, you guys have been investing aggressively in R&D and in CapEx in a way that you haven't really in the past. So can you just parse for us how much of this quarter's improvement in revenue was the result of a snapback in the channel, some channel sale or people being a little bit more aggressive on ordering in line with their consumption? versus, you know, new business.

Dan Baker | President and CEO

It was a combination of both. We saw inventories continuing to be bled down, which is a positive sign. So customers are replenishing and buying more for their end use. And also we've seen new business and significant interest in our new products. So we think that that all bodes well, and we were pleased that it was high quality revenues for the past quarter.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

Okay. And then can you just talk a little bit about the new parts that you introduced this year in terms of their expansion of your TAM, you know, what end markets or capabilities are they enabling?

Dan Baker | President and CEO

Our new products are focused on markets where we have traditional strength. Those are medical devices and industrial control and the industrial internet of things. So the products that we introduced most recently were advanced magnetic sensors that are so-called omnidirectional, meaning that they can sense magnetic fields in any direction. So that provides tremendous flexibility for industrial controls for advanced robotics. And they provide much higher quality data from the mechatronics. So we've seen significant interest in those products. And then the other products tend to focus on markets where we're strong and we increase our advantages in terms of size and sensitivity so our our strategy is to lead the industry in terms of the performance the accuracy the size and the power consumption and efficiency of sensors gotcha and and then i'm just curious on the um isolator Jeff Bernstein | Analyst, Silverberg Bernstein Capital: You know, there's some new solid state technology to be used in very high voltage systems that replace mechanical switches and things. And I'm just curious as to, you know, how high voltage environments can your isolators work in?

Dan Baker | President and CEO

Well, that's a great point. So what Jeff is referring to are what are so-called wide band gap FETs or transistors. which can switch higher voltages with less losses. So we provide interfaces, our isolators provide interfaces between the controller systems and those switches, because you can't directly hook them up to microcontrollers. And our devices have the highest isolation voltage in the industry up to seven kilovolts, which is truly remarkable. And that allows us to interface to some of those higher voltage switches where other isolators would fail. The other figure of merit that we have best in the industry is what's called the common mode transit immunity, which is the rate of change of the voltage. So that's rated typically in kilovolts per microsecond. And our devices have by far the highest CMTI or common mode transient immunity in the industry. So again, that helps to allow much faster switching at higher voltages, which allows customers to harness the advantages of those new wide band gap transistors.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

That's great. And then last, Dan, just so I think in the 10K, you're usually very pithy 10K. It does say that you're planning CapEx in 2026 of $2 to $3 million. That would be significantly above the $1.3 million spend in 2025, which also I think was a record. Unknown: Hey, hey, hey. Hey, hey, hey.

Okay. Okay. Okay. Dan Baker | President and CEO

Well, I think Jeff might have had some audio difficulties there, but he was asking about CapEx. So as Jeff pointed out in the premise of his question, we're planning significant capital expenditures this fiscal year, which is the fiscal year ending March 31st, 2026. um after um already making significant investments in the past fiscal year so those will allow us to increase our capability increase our capacity and give us the possibility of making more wafer level chip scale parts in-house the um so uh those plans are proceeding and as daniel and i both mentioned in our prepared remarks One of the major investments is a cluster of equipment that we expect in the September quarter, next quarter, the quarter following this quarter. And we're already prepared with the construction and the infrastructure for that equipment, and we'll be working to install it and get it running as quickly as possible.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

So, Dan, before I lost you, I was asking, you know, what kind of gives you the confidence, you know, that you're going to earn a return on this CapEx investment?

Dan Baker | President and CEO

So, yeah, as you know, Jeff, we look pretty carefully at getting a return when we spend our shareholders' money as we as we are planning to do with this equipment. And the confidence that we have is that we've made prototype and sample devices and the customer feedback has been excellent on those devices. And we feel based on the customer input that while there are no guarantees, we're very optimistic that this is going to open significant new markets for us.

Jeff Bernstein | Analyst, Silverberg Bernstein Capital

That's great.

Thanks for the questions. Dan Baker | President and CEO

Thanks, Jeff. Are there any other questions? If so, from a phone, press star seven to unmute or click raise my hand from the web. If there are no other questions to sum up, we were pleased to report increased revenue and earnings for the quarter year over year and strong quarter over quarter revenue growth. We had an exceptional year for product development and completed a significant expansion the past quarter and deployed new equipment in the past fiscal year. We look forward to speaking with you again in July for our first quarter fiscal 2026 earnings call. A replay of this call will be available on the investor events page of our website, nve.com, and our YouTube channel. That's youtube.com slash nvecorporation. jsPDF 3.0.3 D:20260606090319-00'00'