NVE Corporation

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.

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? 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.