NVE Q3 Earnings Call Highlights

Key Points

• Revenue +23% in Q3 with net income up 11% to $3.38 million ($0.70/share), driven by a 16% rise in product sales and a 335% jump in contract R&D, though gross margin slipped to 79% from 84% due to a less profitable product mix and more distributor sales.
• Management has substantially completed a multi‑year expansion and expects new equipment to be in service by March 31, enabling wafer‑level chip‑scale sensors as small as 0.65 millimeters square and tighter, atomic‑layer spintronic process control to increase capacity and precision.
• NVE extended its supplier agreement with Abbott through Dec. 31, 2027 (including price increases), sees distributor inventories being depleted and end‑user demand picking up, and will focus on high‑value MRAM opportunities via licensing rather than building large fabs.

NVE NASDAQ: NVEC reported year-over-year growth in revenue and earnings for its third fiscal quarter ended December 31, 2025, citing broad-based gains across defense and non-defense demand as well as both direct and distributor channels.

On the company’s earnings call, President and CEO Dan Baker said revenue increased 23% and earnings rose 11% versus the prior-year quarter. Principal Financial Officer Daniel Nelson attributed the results to higher product sales and a sharp rise in contract R&D revenue, while executives also highlighted progress on a multi-year capacity expansion and new wafer-level chip scale products aimed at miniaturized sensing applications.

Financial results: revenue up 23% as product and contract R&D increased

Nelson said quarterly revenue rose 23% from the year-ago period, driven by a 16% increase in product sales and a 335% increase in contract R&D revenue. He said the gains were “across most of our product lines and channels.”

Gross margin was 79% of revenue, down from 84% in the prior-year quarter. Nelson said the decline reflected a less profitable product mix and an increased proportion of distributor sales, which typically carry lower margins than direct sales. He characterized the increase in distributor sales as “positive,” despite the margin impact.

Operating expenses fell 12% year over year, including a 9% reduction in R&D and a 19% decrease in SG&A. Nelson said R&D declined due to the completion of some wafer-level chip scale packaging activities and the reassignment of some R&D resources to manufacturing. SG&A fell due to timing of selling and marketing activities as well as reassignment of some SG&A resources to manufacturing and new product development.

Net income increased 11% to $3.38 million, or $0.70 per diluted share, compared to $3.05 million, or $0.63 per share, in the prior-year quarter. Nelson said the increase was primarily due to revenue growth and lower operating expenses, partially offset by lower gross margin, a decline in other income, and a higher effective tax rate.

• Operating margin: 60%
• Pre-tax margin: 68%
• Net margin: 54%

Interest income decreased 3% due to a smaller marketable securities portfolio, which Nelson said reflected bond maturities that partially funded dividends and fixed asset purchases. Other income fell by $135,000, which he attributed primarily to reclaiming precious metals in the prior-year quarter.

The effective tax rate rose to 20% from 15% a year earlier, driven by the “non-cash impact of tax law changes on certain tax deductions,” Nelson said. He added that the company currently expects a full-year fiscal 2026 tax rate of 16% to 17% as advanced manufacturing investment tax credits of $700,000 to $1 million are expected to offset other tax law changes.

Nine-month trends: recent-quarter strength offset earlier softness

For the first nine months of fiscal 2026, Nelson said total revenue increased 0.4% to $18.7 million from $18.6 million a year earlier, as the most recent quarter’s growth more than offset year-over-year declines in the first two quarters. The nine-month revenue increase was driven by a 0.8% rise in product sales, partially offset by an 8% decline in contract R&D.

Net income for the nine months decreased 8% to $10.3 million, or $2.12 per diluted share.

Cash flow and capital spending: expansion spending largely complete

Nelson said cash flow from operations totaled $12.2 million for the first nine months of fiscal 2026. Accounts receivable declined $1.1 million, which he attributed to timing of customer payments. Inventories fell $177,000 due to increased product sales.

Prepaid expenses and other assets rose $323,000, primarily due to increased accrued bond interest and a decrease in federal and state taxes due. Nelson said the reduction in taxes due followed the company’s deduction of previously unamortized R&D expenses in the quarter ended December 31, 2025, as permitted under the Federal Budget Reconciliation Bill enacted July 4, 2025. He said NVE expects accelerated deductions to reduce cash taxes for the full fiscal year ending March 31, 2026, by approximately $1.1 million.

Fixed asset purchases were $2.18 million for the first nine months, including $1.05 million in the December quarter. Nelson said NVE has “substantially completed spending” on its two-year “multimillion-dollar expansion” and expects to place the new equipment into service in the current quarter.

New equipment and product development: tighter process control and smaller sensors

Vice President of Advanced Technology Pete Eames said new equipment installed over the past year has increased capacity and capabilities and enabled the company to produce smaller and more precise wafer-level chip scale package parts in-house. He said installation and calibration of a new equipment cluster was completed in the past quarter in an expanded production area.

Eames said the new equipment allows “extremely precise control” of spintronic material deposition “to well within one atomic layer,” which he said translates into more precise spintronic devices and expands capacity for existing products. He added that the company has made progress developing new advanced spintronic processes and expects to place the new equipment into service by March 31.

As part of its strategy to target “high-value markets,” Eames highlighted the announcement of a new wafer-level chip scale sensor measuring 0.65 millimeters square. He said the sensor is roughly one-third the size of the conventionally packaged version, enabling increased miniaturization and spatial sensitivity.

Customer activity, channels, and market commentary

Baker said the company executed an extension to its supplier partnering agreement with Abbott Laboratories during the quarter. He noted that recent extensions had been for one year, but the latest extension is for two years through December 31, 2027, and includes price increases for 2026 and 2027. Baker said the agreement was filed on Form 8-K, with links available through the company’s filings.

On sales and marketing, Baker said NVE exhibited at the Medical Design and Manufacturing Trade Show and highlighted wafer-level chip scale parts for miniaturization in implantable medical devices and surgical robots, high-field sensors for MRI-tolerant devices, high-sensitivity sensors for navigation, and electrical isolators for instrument safety. He said the show generated “good leads,” and the company plans to exhibit at Medical Design and Manufacturing West for the first time beginning February 3 in Anaheim, California.

During the Q&A, executives also discussed distributor trends and select emerging applications:

• Distributor inventory: Baker said distributor sales have been picking up through the fiscal year, indicating inventories built during the semiconductor slowdown have been “depleted” and end-user demand is increasing.
• Defense demand: In response to a question about volatility, Baker said the company is “optimistic going forward” and expects a return to a “more normal flow” in defense business after relative weakness in prior periods.
• MagNav (GPS-jamming alternative): Eames said the company has looked at magnetic navigation and views it as interesting but “nascent,” noting NVE’s sensors are typically lower power and smaller than those used in magnetic anomaly detection systems. He said it is not mature enough for the company to “chase,” but NVE is monitoring its evolution.
• Rare earth-free position sensing: Baker said NVE’s high-sensitivity sensors can work with rare earth-free ferrite magnets and that the company has seen sales and interest in both magnets and sensors, though he said it is difficult to quantify how much demand is specifically tied to rare earth concerns.
• MRAM strategy and licensing: Baker said NVE’s strategy is not to manufacture large-scale memories requiring multi-billion-dollar fabs, but to focus on high-value memories such as crypto keys for anti-tamper devices. He said the company believes its IP is applicable to broader MRAM applications and would look to participate through licensing. Executives said they have had licensing discussions “from time to time” over the years, including a historical license with predecessors of Everspin technologies.

Management closed the call by reiterating that results reflected broad-based growth and said it expects to provide an update on its fiscal year-end call in early May.

About NVE NASDAQ: NVEC

NVE Corporation NASDAQ: NVEC is a technology company specializing in the development, manufacturing, and marketing of spintronic products. The company's core expertise lies in magnetoresistive sensing and magnetic-field-based digital isolation, leveraging patented spin-valve and tunneling magnetoresistance technologies to deliver high-performance, low-power solutions.

NVE's product portfolio includes magnetic sensors for current, position, and angle sensing applications, as well as micro-isolators and digital isolators that provide galvanic isolation in industrial, automotive, medical, instrumentation, and consumer electronics systems.

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