NVE Corporation (NVEC) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2025 (Second Quarter of Fiscal Year 2026). NVE Corporation develops and sells spintronic devices, utilizing nanotechnology that relies on electron spin for data acquisition, storage, and transmission. The company is a non-accelerated filer and a smaller reporting company.
Key Financial Metrics
| Metric | Q2 2026 (Sep 30, 2025) | Q2 2025 (Sep 30, 2024) | YTD 6 Months 2026 | YTD 6 Months 2025 |
|---|---|---|---|---|
| Total Revenue | $6.35 million | $6.76 million | $12.45 million | $13.54 million |
| Gross Profit | $4.97 million | $5.81 million | $9.89 million | $11.62 million |
| Gross Margin | 78.3% | 86.0% | 79.4% | 85.8% |
| Net Income | $3.31 million | $4.03 million | $6.89 million | $8.12 million |
| Diluted EPS | $0.68 | $0.83 | $1.42 | $1.68 |
| Operating Cash Flow (6mo) | $7.98 million | |||
| Cash & Equivalents | $5.11 million (as of Sep 30, 2025) | |||
| Total Debt | $0 (No long-term debt; only operating lease liabilities) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 6.1% quarter-over-quarter and 8.1% year-to-date. This was driven primarily by a 68% drop in contract research and development (R&D) revenue due to timing and fewer contracts, partially offset by a slight increase in product sales.
- Margin Compression: Gross margin declined from 86.0% to 78.3% (Q2) and 85.8% to 79.4% (YTD). Management attributes this to a less profitable product mix and a higher volume of distributor sales, which carry lower margins than direct sales.
- Expense Management: Total operating expenses decreased 7.4% in Q2 and 13.6% YTD. Selling, general, and administrative (SG&A) expenses dropped significantly (23.1% in Q2) due to the timing of marketing activities and resource reallocation to manufacturing.
- Tax Rate Increase: The effective tax rate rose to 20% in Q2 (from 17% prior year) and 18% YTD (from 17% prior year), largely due to non-cash impacts of tax law changes on deductions.
- Liquidity: Cash and cash equivalents decreased by $2.93 million over the six-month period, primarily due to dividend payments ($9.67 million) and net investing outflows, partially offset by strong operating cash flow.
Guidance, Outlook, and Risks
- Dividends: The company declared a quarterly cash dividend of $1.00 per share, payable November 28, 2025. Dividends are funded by operating cash flow and maturing securities.
- Capital Expenditures: Management expects an additional $1.0 million to $1.5 million in fixed asset purchases in the second half of the fiscal year to complete a production expansion.
- Tax Outlook: The company expects a full-year effective tax rate of 16% to 17% for fiscal 2026, anticipating advanced manufacturing investment tax credits of $700,000 to $1,000,000 to offset other tax law impacts.
- Key Risks:
- Reliance on several large customers for a significant percentage of revenue.
- High variability in defense industry sales due to procurement cycles.
- Uncertainties related to tariffs, customs, and trade barriers.
- Subsequent Events: No material legal proceedings are pending. A new lease amendment extends the facility lease to May 31, 2031.
Investor Verification Checklist
- Revenue Mix: Verify the sustainability of the shift toward distributor sales and its long-term impact on gross margins.
- Defense Sector Exposure: Assess the volatility of defense procurement cycles and the company's exposure to specific large customers.
- Dividend Coverage: Confirm that operating cash flows remain sufficient to support the $1.00 quarterly dividend amidst capital expenditure plans.
- Tax Credits: Monitor the realization of the expected $700k-$1M advanced manufacturing tax credits to validate the 16-17% full-year tax rate guidance.
- Investment Portfolio: Review the composition of marketable securities (approx. 74% of total assets) and potential interest rate risks affecting unrealized gains/losses.