NVE Corporation

Good afternoon and welcome to the NVE Corporation conference call for the quarter ended December 31st, 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 via YouTube and Amazon Chime and being recorded. A replay will be available through our website, mve.com, and our YouTube channel, youtube.com slash mvecorporation. 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 sales and marketing, 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, as updated in our just-filed 10-Q. 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 23% increase in revenue and an 11% increase in earnings for the third quarter of fiscal 2026, compared to the prior year quarter, driven by broad-based growth across our revenue lines, including defense and non-defense sales, as well as distributor and direct channels. Daniel Nelson will cover details of the financials. Daniel?

Thanks, Dan. As Dan said, revenue for the third quarter of fiscal 2026 increased 23% year-over-year. The increase was due to a 16% increase in product sales and a 335% increase in contract R&D revenue. The increases were across most of our product lines and channels. Gross margin for the third quarter of fiscal 2026 was 79% of revenue compared to 84% the prior year quarter. The decrease in gross margin percentage was due to a less profitable product mix and increased distributor sales for the quarter. The increase in distributor sales is positive, although distributor sales typically have lower gross margin than direct sales. Total operating expenses decreased 12% for the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025 due to a 9% decrease in R&D expense and a 19% decrease in SG&A. The decrease in R&D was due to completion of some of our wafer-level chip-scale packaging activities and reassignment of some R&D resources to manufacturing. The decrease in SG&A was primarily due to the timing of selling and marketing activities and reassignment of some SG&A resources to manufacturing and new product development. Interest income decreased 3% due to decreasing our marketable securities portfolio as proceeds from bond maturity, partially funded dividends, and fixed asset purchases. Other income decreased by $135,000, which is primarily from reclaiming precious metals used in our manufacturing process in the prior year quarter. Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, increased to 20% for the third quarter of fiscal 2026, compared to 15% for the third quarter of fiscal 2025. The increase in our effective tax rate was 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 16% to 17% in fiscal 2026 because we expect advanced manufacturing investment tax credits of between $700,000 and $1 million to offset the impact of other tax law changes. Net income increased 11% to $3.38 million, or $0.70 per diluted share, from $3.05 million, or $0.63 per share. The increase was primarily due to increased revenue and decreased operating expenses, partially offset by decreased gross margin, a decrease in other income, and an increase in our effective tax rate. Our profitability metrics remain strong. Operating margin was 60%, pre-tax margin was 68%, and net margin was 54%. For the first nine months of fiscal 2026, total revenue increased 0.4% to $18.7 million from $18.6 million for the nine months of the prior year, as growth in the most recent quarter more than offset year-over-year decreases in the first two quarters of the fiscal year. The revenue increase for the first nine months was due to a 0.8% increase in product sales, partially offset by an 8% decrease in contract R&D. Net income for the nine months decreased 8% to $10.3 million or $2.12 per diluted share. Turning to cash flow items. Cash flow from operations was $12.2 million in the first nine months of the fiscal year. Accounts receivable decreased $1.1 million during the first nine months of fiscal 2026, primarily due to the timing of customer payments. Inventories decreased by $177,000 due to increased product sales. Prepaid expenses and other assets increased $323,000, primarily due to increased 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 quarter ended December 31, 2025, as permitted under the Federal Budget Reconciliation Bill enacted July 4, 2025. We expect accelerated deductions of previously unamortized research and development expenses to reduce our cash taxes for the full fiscal year ending March 31, 2026 by approximately $1.1 million. Recruit payroll and other current liabilities decreased $366,000, primarily due to the payments of federal and state taxes balance due as of March 31, 2025, and decreased accrual for performance-based compensation. Fixed asset purchases were $2.18 million for the first nine months of the fiscal year, including $1.05 million in the December quarter. We substantially completed spending on our two-year multi-million dollar expansion. We expect to put the equipment into service in the current quarter. Pete Ames will discuss the new equipment. 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 has increased our capacity, increased our capabilities, and allowed us to do smaller and more precise wafer-level chip-scale package parts in-house. We completed installation and calibration of a new equipment cluster in the past quarter in an expanded production area on the east end of our building. The new equipment allows extremely precise control of spintronic materials deposition to well within one atomic layer. This capability translates into more precise spintronic devices and expands our capacity with existing products. We've made good progress developing new advanced spintronic processes on the equipment, and as Daniel said, we expect to place new equipment into service by March 31st. 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 the artificial intelligence of things. We've had a continuous flow of new products as part of that strategy. Just yesterday, we announced a new wafer-level chip-scale sensor, a part that's just 0.65 millimeters square, about the size of the period at the end of our quarterly report, and about as thick as the paper that it's printed on. The sensor is about one-third the size of the conventionally packaged version, and this tiny size allows for unmatched miniaturization and spatial sensitivity. There are demonstrations of our new products on our website and our YouTube channel. Now, I'll turn it back over to Dan Baker.