NVEC's Q3 Earnings Rise 11% Y/Y, Highlight Growth Momentum

Financial Performance - NVEC Corporation reported total revenues of $6.22 million for Q3 fiscal 2026, a 23% increase from $5.06 million in the same quarter last year, driven by a 16% increase in product sales and a 335% increase in contract research and development revenue [1] - Net income rose 11% year over year to $3.38 million, or 70 cents per diluted share, compared to $3.05 million, or 63 cents per share, in the prior-year period [2] - Gross margin declined to 79% from 84% a year earlier, attributed to a less profitable product mix and a higher proportion of distributor sales [2] Profitability Metrics - Operating margin reached 60%, pretax margin was 68%, and net margin stood at 54%, indicating strong profitability despite margin pressure [3] Operating Expenses and Cash Flow - Operating expenses declined 12% year over year, with a 9% reduction in research and development spending and a 19% decrease in selling, general, and administrative expenses [4] - Cash flow from operations totaled $12.2 million for the first nine months of the fiscal year, with inventories declining modestly, suggesting improved demand and inventory management [4] Management Insights - Management characterized the quarter as one of broad-based growth, highlighting strength in both defense and nondefense markets, as well as growth across distributor and direct sales channels [5] - Rising distributor sales, while dilutive to gross margin, are viewed positively as a sign of improving end-user demand [5] Factors Influencing Results - The decline in gross margin was primarily due to product mix and increased distributor sales, which typically carry lower margins [6] - The effective tax rate increased to 20% from 15% a year earlier, largely due to noncash impacts of tax law changes [6] Future Outlook - Newly installed manufacturing equipment is expected to be operational by March 31, which should expand capacity and support new product introductions [7] - Management expressed optimism around defense demand normalizing and opportunities in medical devices, industrial automation, and applications related to the Internet of Things and artificial intelligence [7] Other Developments - NVEC announced a quarterly cash dividend of $1 per share, payable on February 27, 2026, to shareholders of record as of February 2, 2026 [8] - The company extended a supplier partnering agreement with Abbott Laboratories for two years through December 31, 2027, including price increases for 2026 and 2027 [8]