EPS of $0.74 decreased by 12.9% from previous year
Gross margin of 80.6%
Net income of 3.58M
""Despite defense sales' decline, we are encouraged by the stabilization in non-defensive sales, which highlights potential recovery as industry conditions improve."" - Dan Baker
NVE Corporation reported a substantial yet challenging first quarter of fiscal 2026, marked by a 10% decrease in revenue to $6.1 million, primarily attributed to a decline in product sales from the defense sector, which offset a noteworthy increase in contract research and development revenue by 17%. Despite these headwinds, management expressed optimism regarding the stabilization of non-defense sales and the potential growth of its distributor business amidst a recovering semiconductor market. The net income decreased by 13% year-over-year, reflecting lower margins partially offset by a 20% reduction in total expenses. The company's strong operating margin of 62% and pretax margin of 70% suggest robustness in core operational efficiencies while sustaining profitability given the fluctuating revenue base.
Key Performance Indicators
Revenue
6.10M
QoQ: -16.03% | YoY:-10.00%
Gross Profit
4.92M
80.63% margin
QoQ: -14.46% | YoY:-15.25%
Operating Income
3.78M
QoQ: -10.96% | YoY:-13.80%
Net Income
3.58M
QoQ: -8.13% | YoY:-12.73%
EPS
0.74
QoQ: -76.28% | YoY:-12.94%
Revenue Trend
Margin Analysis
Key Insights
Total revenue fell by 10% year-over-year (YoY) and 16.03% quarter-over-quarter (QoQ) to $6,104,644.
Product sales decreased by 11%, largely due to variabilities in defense contracts, indicating reliance on these contracts poses revenue risks.
Contract R&D revenue grew by 17%, indicating diversification as a key strategy to mitigate fluctuations in product sales.
Gross profit margin declined to 81% from 86% YoY due to a shift towards lower-margin products and increased distributor sales.
Operating income stood at $3,783,250, maintaining an operating margin of 62%, which reflects solid operational management despite revenue challenges.
Financial Highlights
Revenue Performance:
- Total revenue fell by 10% year-over-year (YoY) and 16.03% quarter-over-quarter (QoQ) to $6,104,644.
- Product sales decreased by 11%, largely due to variabilities in defense contracts, indicating reliance on these contracts poses revenue risks.
- Contract R&D revenue grew by 17%, indicating diversification as a key strategy to mitigate fluctuations in product sales.
Profitability Metrics:
- Gross profit margin declined to 81% from 86% YoY due to a shift towards lower-margin products and increased distributor sales.
- Operating income stood at $3,783,250, maintaining an operating margin of 62%, which reflects solid operational management despite revenue challenges.
- Net income of $3,575,818 shows a 13% decline YoY but remains healthy as reflected in a net margin of 59%.
Cash Flow Insights:
- Operating cash flow remained healthy at $5,190,660, comfortably exceeding the dividend payout of $4,837,166, highlighting liquidity adequacy.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
6.10M
-10.00%
-16.03%
Gross Profit
4.92M
-15.25%
-14.46%
Operating Income
3.78M
-13.80%
-10.96%
Net Income
3.58M
-12.73%
-8.13%
EPS
0.74
-12.94%
-76.28%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Market Trends and Sales: Dan Baker noted, "Despite defense sales' decline, we are encouraged by the stabilization in non-defensive sales, which highlights potential recovery as industry conditions improve."
- Future Outlook: Management indicated that they expect defense-related sales to grow on a quarterly basis, suggesting a rebound amidst increased DoD spending, stating, "We currently expect that this business will grow quarter-over-quarter sequentially in the coming quarters."
- Investment in Technology: The significant investment in equipment, amounting to $1.06 million, is directed towards a cluster specifically for expanding production capabilities, indicating a commitment to improving efficiency and capturing market share in smaller electronic devices.
"Despite defense sales' decline, we are encouraged by the stabilization in non-defensive sales, which highlights potential recovery as industry conditions improve."
â Dan Baker
"We currently expect that this business will grow quarter-over-quarter sequentially in the coming quarters."
â Dan Baker
Forward Guidance
Management conveyed a cautiously optimistic outlook, especially regarding non-defense sales recovering due to favorable market dynamics. The anticipated revenue from new product lines, particularly wafer-level chip scale sensors aimed at the medical and industrial markets, sets a promising stage for future growth. Additionally, potential awards of approximately $700,000 to $800,000 in advanced manufacturing investments tax credits could further bolster cash positions, enhancing potential for reinvestment into R&D and operational expansions. Investors should monitor developments in defense spending as well as revenue trends in contract R&D as key indicators of future profitability.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
NVEC Focus
80.63%
N/A
N/A
N/A
SLAB
55.00%
-18.10%
-2.85%
-24.53%
POWI
55.20%
6.37%
1.19%
81.68%
DIOD
31.50%
0.39%
-0.25%
-112.79%
MXL
56.10%
-48.00%
-10.10%
-4.66%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Overall, NVE Corporation presents a cautious yet promising proposition for investors. The management's strategic pivot to enhance non-defense sales and diversify product lines will be crucial for mitigating revenue downside risks. With solid cash positions and a history of maintaining profitability, coupled with investments in innovative technologies, NVE is set for potential growth. However, investors should remain vigilant regarding defense procurement trends and market conditions that directly impact NVE's product sales.
Key Investment Factors
Growth Potential
NVE's growth potential is underscored by the repositioning towards non-defense sectors and the forthcoming wafer-level chip scale sensors which target high-growth markets in medical devices and industrial applications.
Profitability Risk
Key risks include dependence on the defense sector for product sales, market volatility, and supply chain uncertainties associated with sourcing materials for spintronic devices.
Financial Position
The financial position is sound with cash and short-term investments totaling $15.8 million. The current ratio is robust, reflecting liquidity able to cover liabilities.
SWOT Analysis
Strengths
Strong margins with a net margin of 59%, reflecting efficient operational management.
Diverse revenue sources with contract R&D revenues growing 17% year-over-year.
Weaknesses
Dependence on defense sector sales which are highly variable and susceptible to procurement cycles.
Recent drop in product sales indicating market volatility risks.
Opportunities
Expansion into medical technology through wafer-level chip scale sensors which promise significant growth potential.
Increasing demand for spintronic devices due to evolving market conditions and potential tax credits supporting R&D activities.
Threats
Ongoing market volatility and procurement cycle uncertainties affecting defense sales.
Competition from larger semiconductor companies that may overshadow NVE's smaller scale operations.