NVE Corp Q1 Earnings Decline Y/Y, Stock Falls More Than 20%

Core Insights - NVE Corporation's shares have decreased by 20.4% since the first quarter earnings report for fiscal 2026, contrasting with a 0.9% increase in the S&P 500 index during the same period [1] Financial Performance - For the first quarter ended June 30, 2025, NVE reported total revenues of $6.10 million, a 10% decline from $6.78 million in the same period last year, primarily due to an 11% drop in product sales, partially offset by a 17% increase in contract research and development revenues [2] - Net income fell 13% to $3.58 million, or 74 cents per diluted share, down from $4.10 million, or 85 cents per share, in the prior year [2] - Gross profit for the quarter was $4.92 million, down from $5.81 million in the previous year, with a gross margin decline to 81% from 86% attributed to a less favorable product mix and increased distributor sales [3] Operating Expenses - Total operating expenses decreased by 20% year over year to $1.14 million, driven by an 18% reduction in research and development expenses and a 23% decrease in selling, general and administrative costs [4] - Operating income was $3.78 million for the quarter, with an operating margin of 62% [5] Management Commentary - CEO Daniel Baker acknowledged the earnings decline but highlighted strong profitability and cost control, noting stabilization in non-defense product sales and early signs of recovery in distribution channel sales [6] - Baker expressed optimism about sequential growth in defense orders in the upcoming quarters, anticipating a return to historical demand levels in fiscal 2027 [7] Factors Influencing Results - Revenue and earnings declines were largely due to lower defense product sales, which are cyclical and dependent on government contract timing, with gross margin narrowing due to a higher mix of distributor sales [8] Capital Expenditure and Tax Benefits - Capital expenditure for the quarter totaled $1.06 million, primarily for wafer fabrication equipment, strategically timed ahead of a tariff exemption expiration, supporting a two-year expansion plan and qualifying for a 25% advanced manufacturing investment tax credit [9] - Changes to the U.S. Internal Revenue Code now allow immediate expensing of previously amortized R&D costs, improving near-term cash flow [10] Future Guidance - Management expects quarter-over-quarter growth in defense product sales for the remainder of the fiscal year, alongside positive trends in distributor sales and ongoing product innovation efforts [11] Product Development Initiatives - Product development included launching ultra-miniature wafer-level chip-scale sensors and promoting rare-earth-free ferrite magnet sensors, targeting markets with geopolitical supply-chain risks [12] - NVE is investing in wafer-level packaging technology for medical devices and industrial automation, with favorable initial feedback from potential customers [13] Shareholder Returns - The company declared a quarterly dividend of $1.00 per share, reaffirming its commitment to balancing R&D, operational efficiency, and shareholder returns amid an evolving macroeconomic environment [14]