NVE Corp 2027 Q2 Earnings Call

Good afternoon, and welcome to the NVE Corporation conference call for the quarter ended September 30, 2026. I'm Pete Eames, NVE's President and CEO. With me on the call is Daniel Nelson, our Principal Financial Officer. This call is being webcast live on YouTube and Google Meet and being recorded. Replay is available through our website, nve.com, and our YouTube channel, youtube.com/nvecorporation. 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. Then I'll cover the business. I'll also cover the recent leadership transition and board expansion, and then we'll open the call to questions. We issued our press release with summary 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 our reliance on several large customers for a significant percentage of revenue, uncertainties related to the economic environments in the industries we serve, uncertainties related to future sales and revenues, as well as 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, 2026. 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 solid revenue and earnings for the quarter, driven by a 67% increase in distributor sales. Net margins increased to 54% due to a decrease in our effective tax rate. Daniel Nelson will cover the details of the financials.

Daniel? Thanks, Pete. Total revenue for the quarter decreased 8% compared to the prior year quarter.

The decrease was due to a 9% decrease in product sales, partially offset by a 25% increase in contract R&D revenue. The decrease in product sales was due to a short-term inventory adjustment at one of our large medical device customers and a 95% decrease in defense product sales. Inventory adjustments by medical device customers can create short-term order volatility for us. Defense product sales can be highly variable because of government procurement cycles. Looking forward, we expect medical device and defense sales to recover in the current quarter, and we expect revenues in the second half of the fiscal year to be consistent with the first half.

Aside from the short-term order flow adjustments in medical, we saw a 67% increase in distributor sales due to strengthening industry conditions and strong demand for our new and legacy commercial products. The increase in contract R&D revenue in the past quarter was due to progress on existing contracts. Total operating expenses increased 4% for the second quarter of fiscal 2027 compared to the second quarter of fiscal 2026, due to a 44% increase in selling, general, and administrative expense, partially offset by a 17% decrease in R&D expense. The decrease in R&D was due to staffing redeployment. The increase in SG&A was due to higher director option grant date stock prices. Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 14% from 20% in the prior year quarter, primarily due to favorable tax law changes.

The decrease is consistent with our previous estimates, and we expect our effective tax rate to be between 14% and 16% for at least the remainder of the fiscal year. Net income for the second quarter of fiscal 2027 was $3.17 million, or $0.65 per diluted share, compared to $3.31 million, or $0.68 per share in the prior year quarter. Our profitability metrics for the quarter remain strong. In addition to the 54% net margin Pete mentioned previously, gross margin was 78%, operating margin was 55%, and pre-tax margin was 63%. For the first six months of fiscal 2027, total revenue was $16.9 million, up 36% over the same period in fiscal 2026. The increase in revenue was due to strong sales across our product portfolio, as well as increases in both direct and distributor sales.

Net income was $9.57 million, or $1.97 per diluted share for the first two quarters of fiscal 2027. Turning to cash flow items. Cash flow from operations was $11.1 million for the first six months of fiscal 2027, compared to $8 million for the first six months of fiscal 2026. Cash plus marketable securities increased from $43.5 million to $44.4 million as operating cash flow more than cover our dividends and purchases of fixed assets for the first half of the fiscal year. Receivables decreased 12% due to timing of customers' payments. Inventories decreased 3% due to increased product sales in the first half of the fiscal year. We paid our $1 per share quarterly dividend the past quarter and declare another dividend to be paid at the end of November. Now I'll turn the call back over to Pete Eames to cover the business.

Pete? Thanks, Daniel. Our R&D strategy is to transition the world's best technology into the world's best products for high-value markets such as advanced automation and robotics, data centers, and highly automated fourth-wave factories using the artificial intelligence of things.

This quarter, we announced two new products. The first is a new design in our series of wafer-level chip scale sensors. The new sensor provides analog information, such as position, from the motion or changes of external magnetic fields. These sensors are the smallest products we've ever made at NVE, measuring just 0.55 millimeters square. Combined with the small size is an extremely high sensitivity. This combination enables unmatched spatial sensitivity for precision motion applications, including medical devices, industrial automation, and robotics. We are promoting our new products on YouTube with videos showing the sensor detecting tiny motions of minute magnets, and you can view these videos on our website.

We also released a family of gear sensors in the past quarter for precise motion speed and position sensing in industrial automation and robotics. These sensors are biased by a small magnet and detect the motion of gear teeth as they pass the sensor. Seven different versions of these sensors match common gear sizes in a newly available sensor form factor. The new sensors provide large, low-distortion signals, allowing more precise control in linear and rotational encoders and closed-loop servo systems that are ubiquitous in factory automation and robotics. We have videos of these new products on our website and YouTube channel showing the incredible small size, high precision, and versatility of our new sensors. In addition to these new product launches, we are developing several new products, including even more precise sensors for robotics and more power-efficient isolators and power conversion.

Next, I will cover our recent leadership transition and board expansion. I was elected Director and appointed President and CEO at our annual shareholders' meeting in August. Former CEO Dan Baker replaced Terry Glarner as Chairman. We also elected a new Director, Carolyn Valentine, expanding the board from five to seven Directors. The larger board strengthens our governance. I am honored to lead NVE as CEO. We have a talented team, strong customer relationships, and many exciting opportunities ahead. I look forward to building on our momentum to create long-term value for our shareholders through profitable growth and expansion in attractive markets. We see significant opportunities in robotics, power conversion, and the artificial intelligence of things. Now, we would like to open the call for questions via Google Meet. To ask a question from Google Meet, click Raise my hand icon at the bottom of the screen and unmute yourself to speak.

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