EPS of $0.83 decreased by 15.3% from previous year
Gross margin of 86.0%
Net income of 4.03M
""The decrease in product sales was primarily due to continued inventory clots particularly in the distributor channels driven by weak chip demand... We have an optimistic outlook. Our end markets are improving,"" - Daniel Nelson
NVE Corporation reported its Q2 2025 results, revealing a 5% decrease in total revenue, primarily driven by a 14% drop in product sales, which was mitigated by an impressive 3,950% rise in contract R&D revenue. Management cited ongoing challenges in the semiconductor sector due to inventory excesses and weak demand but remains cautiously optimistic as certain markets, such as the Industrial Internet of Things and electrification, are experiencing growth.
While gross profit increased 5% year-over-year to $5.81 million, contributing to a robust gross margin of 86%, net income suffered a more pronounced 15% decline compared to the prior quarter, attributed to increasing research and development (R&D) and selling, general, and administrative (SG&A) expenses. These related investments are crucial for enhancing NVE's product portfolio, especially with the introduction of innovative technologies like the ALT521-10E sensor. Investors are encouraged to monitor market dynamics and NVE's positioning amid the industry recovery.
Key Performance Indicators
Revenue
6.76M
QoQ: -0.36% | YoY:-5.25%
Gross Profit
5.81M
85.98% margin
QoQ: 0.06% | YoY:5.02%
Operating Income
4.40M
QoQ: 0.15% | YoY:-4.84%
Net Income
4.03M
QoQ: -1.74% | YoY:-14.76%
EPS
0.83
QoQ: -2.35% | YoY:-15.31%
Revenue Trend
Margin Analysis
Key Insights
**Revenue**: $6.76 million (down 5% YoY, down 0.36% QoQ)
**Gross Profit**: $5.81 million (up 5% YoY)
**Gross Margin**: 86% (up from 78% YoY)
**Operating Income**: $4.40 million (up 0.15% QoQ)
**Net Income**: $4.03 million (down 15% YoY and 1.74% QoQ)
Financial Highlights
Financial Performance Metrics
- Revenue: $6.76 million (down 5% YoY, down 0.36% QoQ)
- Gross Profit: $5.81 million (up 5% YoY)
- Gross Margin: 86% (up from 78% YoY)
- Operating Income: $4.40 million (up 0.15% QoQ)
- Net Income: $4.03 million (down 15% YoY and 1.74% QoQ)
- EPS (Diluted): $0.83
Cash Flow
- Net Cash Provided by Operating Activities: $2.13 million
- CapEx: $0.21 million (focus on ongoing investments)
- Free Cash Flow: $1.92 million
Balance Sheet Strength
- Current Ratio: 36.32 (high liquidity position)
- Cash and Cash Equivalents: $3.10 million
- Total Assets: $65.88 million
- Total Liabilities: $1.02 million (very manageable compared to equity)
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
6.76M
-5.25%
-0.36%
Gross Profit
5.81M
5.02%
0.06%
Operating Income
4.40M
-4.84%
0.15%
Net Income
4.03M
-14.76%
-1.74%
EPS
0.83
-15.31%
-2.35%
Key Financial Ratios
currentRatio
36.32
grossProfitMargin
86%
operatingProfitMargin
65%
netProfitMargin
59.6%
returnOnAssets
6.11%
returnOnEquity
6.21%
debtEquityRatio
0
operatingCashFlowPerShare
$0.44
freeCashFlowPerShare
$0.4
dividendPayoutRatio
120.1%
priceToBookRatio
5.95
priceEarningsRatio
23.97
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management Insights from the Earnings Call
- Dan Baker (CEO): "We’re pleased to report strong earnings despite continuing challenges in the semiconductor industry."
- Daniel Nelson (CFO): "Total revenue for the quarter ended September 30, 2024 decreased 5% due to a 14% decrease in product sales... Although the semiconductor industry recovery has been slower than expected, we are optimistic."
- Focus on product innovation: New sensor technology introduced with applications in medical devices and automation, essential for capturing future growth.
"The decrease in product sales was primarily due to continued inventory clots particularly in the distributor channels driven by weak chip demand... We have an optimistic outlook. Our end markets are improving,"
— Daniel Nelson
"We have increased our investment in R&D. We spent 13% of revenue in the past quarter on R&D expense plus customer sponsored R&D,"
— Dan Baker
Forward Guidance
Management provided a cautiously optimistic outlook, highlighting that while the current semiconductor environment is challenging, end markets are seeing improvement. They expect to continue focusing on strategic R&D investments and marketing efforts to bolster growth opportunities in the Industrial Internet of Things, as well as new products like their sensor technology. Specific growth in defense contracts and tool investments are anticipated to yield results over the next 12-18 months, with production ramping up by the end of this fiscal year.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
NVEC Focus
85.98%
65.00%
6.21%
23.97%
SLAB
48.50%
-33.00%
-7.52%
-10.81%
POWI
53.20%
1.84%
0.66%
204.01%
DIOD
32.40%
3.71%
0.45%
101.19%
MXL
53.90%
-43.40%
-6.36%
-11.31%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Given the analysis of both quantitative metrics and qualitative insights, investors should consider NVE Corporation as a potential long-term investment candidate. While short-term pressures are evident, particularly in revenue trends and costs, the company’s strong product development capabilities, market positioning in vital growth segments, and healthy financials indicate potential for recovery and growth. Vigilance is key with respect to semiconductor market conditions and NVE's execution in capitalizing on new technologies.
Key Investment Factors
Growth Potential
NVE Corporation is strategically increasing its R&D investments and successfully introducing innovative products that cater to growing market needs in the Industrial Internet of Things and medical device sectors.
Profitability Risk
The company faces risks associated with the overall slowdown in the semiconductor industry, prolonged inventory issues within distributor channels, and increasing costs related to R&D and operations, affecting profitability in the short term.
Financial Position
NVE maintains a robust balance sheet with a very strong cash position relative to its low liabilities, ensuring it can support ongoing operational expenditures and dividend payments.
SWOT Analysis
Strengths
Strong gross margin of 86%, reflecting effective cost management and product profitability.
Significant cash position providing financial flexibility for investments and dividend payments.
Innovative product development, particularly in high-demand sectors like medical devices and defense.
Weaknesses
Reliance on product sales which saw a significant decline of 14%, indicating vulnerability to market fluctuations.
Increased operating expenses related to R&D and SG&A could pressure profitability amid declining revenues.
Opportunities
Expansion into growth markets within the Industrial Internet of Things and medical sectors, leveraging new product capabilities.
Investment in R&D to develop differentiated technologies that cater to niche markets and increase competitive edge.
Threats
Ongoing volatility and weakness in the semiconductor market impacting revenue growth.
Increased competition in high-tech product areas may compress margins further.