NVE Corporation

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?

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.

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.