NVEC earnings call analysis

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'

NASDAQ:NVEC Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Dan Baker | President and CEO: Good afternoon and welcome to the NV Corporation conference call for the quarter ended December 31st, 2024. I'm Dan Baker, NV's President and CEO. I'm joined by Controller and Principal Financial Officer Daniel Nelson. This call is being webcast live via YouTube and Amazon Chime, and it's 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. I'll cover R&D, sales and marketing, and CapEx, and 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 the SEC's website, our website, and on 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, and risks and uncertainties related to future sales and revenue. 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, 2024. 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 earnings despite continued challenges in the semiconductor industry. Daniel Nelson will cover the financials. Daniel?

Daniel Nelson | Controller and Principal Financial Officer

Thanks, Dan. Total revenue for the quarter ended December 31, 2024 decreased 25% compared to the quarter ended December 31, 2023 due to a 22% decrease in product sales and a 74% decrease in contract research and development revenue. The decrease in product sales was due to continued inventory gluts, particularly in the distributor channels, driven by weak chip demand and a slow recovery in industry sectors and markets we serve. The decrease in contract R&D revenue was due to the completion of certain contracts. Gross margin for the quarter was 84% compared to 80% the prior year quarter. The increase in gross margin percentage was due to more profitable product mix and a larger portion of direct rather than distributor sales. Total expenses increased 40% for the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024 due to a 61% increase in R&D and a 12% increase in SG&A. The increase in R&D was due to increased investments in new product development activities. The increase in SG&A was primarily due to increased sales and marketing activities and additional sales staff in the past quarter. Interest income for the third quarter of fiscal 2025 decreased 4% due to a decrease in marketable securities and lower yields on recently purchased marketable securities. In addition to operating income, we reported other income in the third quarter of fiscal 2025 of $135,000, primarily from the reclaiming of precious metals used in our manufacturing process. Net income for the quarter decreased 27% with a decrease in revenue. It was a profitable quarter with 84% gross margin, 58% operating margin, 60% net margin, and earnings of 63 cents per share. For the first nine months of fiscal 2025, total revenue decreased 18% due to a 20% decrease in product sales, partially offset by a 72% increase in contract R&D. Net income for the first nine months was $11.2 million, or $2.31 per diluted share. For the fiscal year to date, gross margin was 85%, operating margin was 63%, and net margin was 60%. Now I will 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 R&D, sales and marketing, and CapEx. As Daniel mentioned, we've significantly increased our investment in R&D. We spent 17% of revenue in the past quarter on R&D. Additionally, we do customer-sponsored R&D, which is included in the cost of sales. As a result of the efforts of our R&D team, we introduced new wafer-level chip scale products in the past quarter. The new products are billed as the world's smallest devices of their type, which allows for smaller, less obtrusive medical devices, and more precise robotics and mechatronics. Our YouTube channel has a demonstration. A key element of our sales and marketing strategy is evaluation boards. Evaluation boards allow customers to easily visualize, create, and implement great new designs with our unique products. A new evaluation platform connects to the popular Arduino line of single board computers and uses one of a dozen angle or rotation sensor breakout boards. There's more information on our website and our YouTube channel has a demonstration of the new platform. Turning to CapEx. We've previously discussed plans for $4 to $5 million in capital investments over the next two fiscal years, fiscal 2025 and 2026. We've already spent $1.16 million through three quarters of this fiscal year, fiscal 2025. We deployed one new machine in the second quarter. We're working on another new machine now. and we'll have a several million dollar machine scheduled to arrive next quarter, the June quarter. In the past quarter, we reached an agreement to extend our building lease an additional 62 months through May 2031. The agreement also includes a $100,000 improvement allowance. We believe the allowance will cover our expansion. We filed the amendment to the lease agreement with the SEC. Links to the amendment are available on our website and the SEC's website. Construction work for expansion began in November, shortly after we agreed to the lease extension, and was completed last week. Next up is a new electrical service and other infrastructure upgrades to support new equipment. The investments in facilities and equipment will increase our capacity and capabilities, including the capability to manufacture wafer-level chip scale parts, such as the ones we recently introduced, in high volume. 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 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. To prevent background noise, please mute your line after asking your question.

Jeff Bernstein | Analyst

Hey, Dan, it's Jeff Bernstein.

Dan Baker | President and CEO

Hi, Jeff.

Jeff Bernstein | Analyst

How are you? A couple questions here. Just give us a little better feeling about what's going on in direct business. You talked about inventory liquidation continuing in distribution. What are you seeing in terms of orders fulfilled in the quarter, turns kind of business, any other feel for how the demand is at end customers.

Dan Baker | President and CEO

That's a good question, Jeff. Our direct sales have held up relatively well. Those customers tend not to buy through distribution, and as Daniel mentioned in the prepared remarks, there's a lot of inventory in the distribution channel that needs to be burned off. So those sales, those direct sales, tend to be higher margins because we don't have distributor discounts in the middle. And so that's the reason that our margins are so exceptional and our profitability metrics, despite the downturn in the revenue, are quite strong.

Jeff Bernstein | Analyst

Gotcha. Any color you can put around how bookings have been going with those direct customers or anything around your book and ship kind of business?

Dan Baker | President and CEO

In general, the outlook has been positive. When we talk to our customers, when we even talk to our distributors, they see things improving. They see industry conditions improving. It's taking longer than anyone would like, but we're very optimistic about the future and the fundamentals of our business are strong.

Jeff Bernstein | Analyst

Gotcha. And so do you get the sense that consumption is actually above what you're selling into the channel now?

Dan Baker | President and CEO

uh yes uh almost certainly uh because the distributors uh in the channel are trying to bleed down their inventories so they're selling but they're often not buying until their inventories are back to historical levels gotcha okay and then just a couple questions on on end markets um so both sunova and starkey that you know big traditional Jeff Bernstein | Analyst: hearing aid players are out with new platforms that incorporate real-time AI chips, et cetera. Seem like they probably draw a lot of power in what's a very tiny package. Can you just remind us the offerings that you have that go into, potentially go into hearing aids and what your thoughts are around your TAM development there?

Dan Baker | President and CEO

We provide sensors, so as you mentioned, Sonofa, for example, has introduced a platform with artificial intelligence, and the technology helps the so-called speech and noise problem, which is a significant problem for hearing aids. So it's a great development and hopefully will improve uptake of hearing aids as they can help more people. NDE sensors provide inputs for artificial intelligence. Better information about the environment means better results from AI. So we're optimistic about those trends, about the need for more inputs and richer data to feed these artificial intelligence and other increasingly sophisticated algorithms.

Jeff Bernstein | Analyst

Okay. And then the puff business has been a source of volatility for you guys. I think it was stronger last quarter. What's happening? What happened there this quarter?

Dan Baker | President and CEO

So those those sales, as you know, can be lumpy and very quarter to quarter based on procurement schedules. But that business has been strong. It's a relatively small part of our business, but we received some orders recently spread out through the future. But we're certainly optimistic about long term defense sales based on what we see now.

Jeff Bernstein | Analyst

Gotcha. And And just Abbott reported today it looked like all of the product areas that you might play in were reasonably strong, and obviously they have some exciting new products there. Any color on just the medical device business overall?

Dan Baker | President and CEO

As you can imagine, we also look at Abbott's reports and we communicate with them. They reported decent growth, 6% overall growth in rhythm management, which is an area that we participate in. That's encouraging. And they've reported that that's more than the overall growth in the cardiac rhythm management market. As far as the specifics, we're bound by confidentiality, but our technology enables smaller devices, which is important for leadless pacemakers and other emerging technology. And we can detect extremely small magnetic fields, which is another key advantage for deeply implanted medical devices. So it's an area where we see considerable future potential.

Jeff Bernstein | Analyst

All right. Thanks very much, Dan.

Dan Baker | President and CEO

Thank you, Jeff.

Pete Previtt | Shareholder

Hey, Dan. This is Pete Previtt from Florida. I met you at the shareholders meeting. How are you?

Dan Baker | President and CEO

Yes. Good to talk to you, Pete. We might be warmer than you are.

Pete Previtt | Shareholder

it's very rare dan but that's probably the case i had a couple questions actually jeff um mentioned something about ai chips and i was wondering um with with your mtj parts are are they i know you're focused on sensors but um mtj does that have potential to be part of uh ai chips and for energy reduction you know power consumption reduction Dan Baker | President and CEO: Yeah, so, uh, stands for magnetic tunnel junction and it's 1 of the core platform technologies that we have and it, uh, it's useful in a number of areas. Sensors is certainly 1 also useful in memory and we make. memory and memory-related devices for the defense business and the puff business that Jeff alluded to in his comments. Yes, they're low power, which allows for ubiquitous sensing, and much as the possibilities for artificial intelligence for medical devices for hearing aids, artificial intelligence and the artificial intelligence of things is driven by data. So the intelligence is only as good as the data that comes into it, and sensors provide that data. So while we don't directly make artificial intelligence processors, we participate in that revolution by providing the information that feeds the intelligence of the AI engines.

Pete Previtt | Shareholder

Great. Thank you. And then with GMR sensors, I mean, your sensors are much more accurate than Hall sensors. I mean, and we spoke about this at the shareholder meeting. What's the potential over time for NVE spintronic sensors to replace Hall sensors?

Dan Baker | President and CEO

Well, we see excellent potential for GMR, which is giant magneto resistance, which is our legacy technology, the technology that the company was really founded on. But we still sell a lot of those sensors. They're still best in class. And Hall effect sensors, as you know, are semiconductor type sensors. They are not as precise, as accurate, or as power efficient as our spintronic sensors. So we see excellent opportunities to replace those sensors in many applications. The one area that where we don't try to compete with Hall effect sensors is they can be very inexpensive because it's mature technology. the tooling is probably long since been written off and they can be sold pretty cheap so our goal is not to sell cheap sensors it's to sell the world's best sensors so we do see ample opportunities for spintronic sensors replacing older types of sensors correct thank you and i just want to say good luck with the expansion sounds like you've got the new lease in place and equipment's coming in so Pete Previtt | Shareholder: keep up the good work. Thanks, Dan.

Appreciate it. Dan Baker | President and CEO

Well, thank you. We hope if you're, uh, if you're here this year that, uh, we'll have some exciting things to show you.

Pete Previtt | Shareholder

Fantastic.

Thank you. Dan Baker | President and CEO

Any other questions? You can press star seven from a phone to unmute or unmute from the Chime app or browser.

Jeff Bernstein | Analyst

Hey, Dan, it's, uh, it's, it's Jeff Bernstein again. I meant to ask you about, uh, There was a mention of an additional expense in selling and some Dan Baker | President and CEO: increased staff i guess uh can you just give us the lowdown on what you're doing in terms of adding sales folks exactly yes so i'm glad you asked we are doing more direct sales so more trips more trade shows and more marketing so that's newsletters i mentioned in the prepared remarks we design evaluation boards and we almost have a continuous flow of evaluation boards so that our customers can try out our products easily and prove out their designs so we feel that that's important for our sales so we have staff working on that and staff working on vetting and modeling for our customers designs supporting our distributors and getting out and talking to our customers It looks like there are no other questions in the queue. Again, we were pleased to report strong earnings despite challenging conditions. We appreciate your attention and look forward to speaking with you again on our fiscal year-end earnings call in early May. 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. You may now disconnect. Thank you. jsPDF 3.0.3 D:20260606090321-00'00'