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Item 2. Management’s Discussion and Analysis

2026-01-21 compared with 2025-10-22 · 44 added, 43 removed, 51 unchanged (63% of the section changed)

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These differences may be caused by a variety of factors, including but not limited to risks related to our reliance on several large customers for a significant percentage of revenue, uncertainties related to the economic environments in the industries we serve, uncertainties related to future sales and revenues, risks and uncertainties related to tariffs, customs, duties, and other trade barriers, risks and uncertainties related to future stock repurchases and dividend payments, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.

Further information regarding our risks and uncertainties is contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025.

Further information regarding our risks and uncertainties is contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025 as updated in Part II, Item 1A of this report.

NVE Corporation referred to as NVE, we, us, or our, develops and sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store, and transmit information.

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A description of our critical accounting policies is provided in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025.

As of September 30, 2025, our critical accounting policies and estimates continued to include marketable securities valuation, inventory valuation, and deferred tax assets estimation.

Quarter ended September 30, 2025, compared to quarter ended September 30, 2024

As of December 31, 2025, our critical accounting policies and estimates continued to include marketable securities valuation, inventory valuation, and deferred tax assets estimation.

Quarter ended December 31, 2025, compared to quarter ended December 31, 2024

The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

Percentage of Revenue

Quarter Ended September 30,

Quarter Ended December 31,

Product sales

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Provision for income taxes

Total revenue for the quarter ended September 30, 2025 (the second quarter of fiscal 2026) decreased 6% compared to the quarter ended September 30, 2024 (the second quarter of fiscal 2025).

The decrease was due to a 68% decrease in contract research and development revenue, partially offset by a 1% increase in product sales.

The increase in product sales was due to a significant increase in nondefense product sales, partially offset by a decrease in sales to the defense industry.

Defense industry sales can be highly variable because of procurement cycles.

The decrease in contract research and development revenue was due to the timing of revenue recognition and fewer research and development contracts in the quarter ended September 30, 2025 compared to the prior-year quarter.

Gross margin for the second quarter of fiscal 2026 was 78% of revenue compared to 86% the prior-year quarter.

Total revenue for the quarter ended December 31, 2025 (the third quarter of fiscal 2026) increased 23% compared to the quarter ended December 31, 2024 (the third quarter of fiscal 2025).

The increase was due to a 16% increase in product sales and a 335% increase in contract research and development revenue.

The increase in product sales was due to increases in both defense and non-defense sales, as well as increases in sales through both direct and distributor channels.

The increase in contract research and development revenue was due to new research and development contracts.

Gross margin for the third quarter of fiscal 2026 was 79% of revenue compared to 84% the prior-year quarter.

The decrease in gross margin percentage was due to a less profitable product mix and increased distributor sales for the quarter.

Distributor sales typically have lower gross margin than direct sales.

Total operating expenses decreased 7% for the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025, due to a 3% increase in research and development expense and a 23% decrease in selling, general, and administrative expense.

The increase in research and development expense was due to increased new product development.

The decrease in selling, general, and administrative expenses was primarily due to the timing of sales and marketing activities, and reassignment of some selling, general and administrative resources to manufacturing and new product development.

Interest income increased 4% due to an increase in interest rates compared to the prior year.

Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, increased to 20% for the second quarter of fiscal 2026 compared to 17% for the second quarter of fiscal 2025.

The increase in our effective tax rate was primarily due to the non-cash impact of tax law changes on certain tax deductions this fiscal year.

We currently expect a full-year tax rate of 16% to 17% in fiscal 2026 because we expect advanced manufacturing investment tax credits of between $700,000 and $1,000,000 to offset the impact of other tax law changes.

The decrease in net income in the second quarter of fiscal 2026 compared to the prior-year quarter was primarily due to decreased revenue, decreased gross margin, and an increase in our effective tax rate, partially offset by decreased operating expenses and increased interest income.

Six months ended September 30, 2025, compared to six months ended September 30, 2024

Total expenses decreased 12% for the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025, due to a 9% decrease in research and development expense and a 19% decrease in selling, general, and administrative expense.

The decrease in research and development expense was due to the completion of some of our wafer-level chip scale packaging activities and reassignment of some research and development resources to manufacturing.

The decrease in selling, general, and administrative expenses was primarily due to the timing of marketing activities and reassignment of some selling, general and administrative resources to manufacturing and new product development.

Interest income decreased 3% due to decrease in our marketable securities portfolio as proceeds from bond maturities partially funded dividends and fixed asset purchases.

Other income decreased by $135,057, which was primarily from reclaiming precious metals used in our manufacturing process in the prior-year quarter.

Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, increased to 20% for the third quarter of fiscal 2026 from 15% for the third quarter of fiscal 2025.

The increase in our effective tax rate was primarily due to the unfavorable non-cash impact of tax law changes on certain tax deductions this fiscal year.

We currently expect a full-year tax rate of 16% to 17% for fiscal 2026.

This expectation includes the unfavorable impact of tax law changes and the favorable impact of $700,000 to $1,000,000 in anticipated advanced manufacturing investment tax credits.

The increase in net income in the third quarter of fiscal 2026 compared to the prior-year quarter was primarily due to increased revenue and decreased expenses, partially offset by decreased gross margin, decreased interest and other income, and an increase in our effective tax rate.

Nine months ended December 31, 2025, compared to nine months ended December 31, 2024

The table shown below summarizes the percentage of revenue and year-to-year changes for various items:

Percentage of Revenue

Six Months Ended Sept.

Nine Months Ended Dec.

Product sales

9 unchanged sentences

Provision for income taxes

Total revenue for the six months ended September 30, 2025 decreased 8% compared to the six months ended September 30, 2024.

The decrease was due to a 5% decrease in product sales and a 51% decrease in contract research and development revenue.

The decrease in product sales was primarily due to a decrease in defense industry sales during the six months ended September 30, 2025 compared to the prior-year period.

Defense industry sales can be highly variable because of procurement cycles.

The decrease in contract research and development revenue was primarily due to the timing of revenue recognition and fewer research and development contracts for the six months ended September 30, 2025, compared to the prior-year period.

Gross margin for the first six months of fiscal 2026 was 79% of revenue, compared to 86% for the first six months of fiscal 2025.

The decrease in gross margin percentage was due to a less profitable product mix and increased distributor sales for the six months ended September 30, 2025, compared to the prior-year period.

Total operating expenses decreased 14% for the first six months of fiscal 2026 compared to the first six months of fiscal 2025, due to an 8% decrease in research and development expense and a 23% decrease in selling, general, and administrative expense.

Total revenue for the nine months ended December 31, 2025 increased 0.4% compared to the nine months ended December 31, 2024.

The increase was due to a 0.8% increase in product sales, partially offset by an 8% decrease in contract research and development revenue.

The decrease in contract research and development revenue was primarily due to the timing of revenue recognition and fewer research and development contracts for the nine months ended December 31, 2025, compared to the prior-year period.

Gross margin for the first nine months of fiscal 2026 was 79% of revenue, compared to 85% for the first nine months of fiscal 2025.

The decrease in gross margin percentage was due to a less profitable product mix and increased distributor sales for the nine months ended December 31, 2025, compared to the prior-year period.

Distributor sales typically have lower gross margin than direct sales.

Total expenses decreased by 13% for the first nine months of fiscal 2026 compared to the first nine months of fiscal 2025, due to an 8% decrease in research and development expense and a 22% decrease in selling, general, and administrative expense.

Our effective tax rate increased to 18% for the first six months of fiscal 2026 compared to 17% for the first six months of fiscal 2025.

The decrease in selling, general, and administrative expenses was primarily due to the timing of marketing activities, and reassignment of some selling, general and administrative resources to manufacturing and new product development.

Our effective tax rate increased to 19% for the first nine months of fiscal 2026 compared to 16% for the first nine months of fiscal 2025.

The increase in our effective tax rate was primarily due to the non-cash impact of tax law changes on certain tax deductions this fiscal year.

The decrease in net income in the first six months of fiscal 2026 compared to the prior-year period was primarily due to decreased revenue, decreased gross margin, and an increase in our effective tax rate, partially offset by decreased operating expenses and increased interest income.

Net income for first nine months of fiscal 2026 decreased 8% from the prior-year period to $10.3 million, or $2.12 per diluted share.

The decrease was primarily due to decreased gross margin, decreased other income, and an increase in our effective tax rate, partially offset by decreased expenses.

Liquidity and Capital Resources

Cash and cash equivalents were $5,107,481 as of September 30, 2025, compared to $8,036,564 as of March 31, 2025.

The $2,929,083 decrease in cash and cash equivalents during the first six months of fiscal 2026 was due to $1,237,963 of net cash used in investing activities and $9,674,332 of cash used in financing activities, partially offset by $7,983,212 in net cash provided by operating activities.

Cash and cash equivalents were $3,408,531 as of December 31, 2025, compared to $8,036,564 as of March 31, 2025.

The $4,628,033 decrease in cash and cash equivalents during the first nine months of fiscal 2026 was due to $2,288,676 of net cash used in investing activities and $14,511,498 of cash used in financing activities, partially offset by $12,172,141 in net cash provided by operating activities.

Operating Activities

Net cash provided by operating activities related to product sales and research and development contract revenue was our primary source of working capital for the current and prior-year periods.

Non-cash operating lease expenses increased $103,931 primarily due to our receipt of a $100,000 leasehold improvement allowance.

Accounts receivable decreased $1,148,412 during the first six months of fiscal 2026 primarily due to the timing of customer payments.

Prepaid expenses and other assets increased $729,679 primarily due to increased accrued bond interest and a decrease in federal and state taxes due.

The decrease in taxes due was because we deducted previously unamortized research and development expenses in the quarter ended September 30, 2025 as permitted under the Federal budget reconciliation bill enacted July 4, 2025.

We expect accelerated deductions of previously unamortized research and development expenses to reduce our cash taxes by approximately $1,000,000 over the three quarters beginning with the quarter ending December 31, 2025.

Accrued payroll and other current liabilities decreased $285,774 primarily due to the payment of federal and state taxes balance due as of March 31, 2025.

Non-cash operating lease expenses increased by $105,896 primarily due to our receipt of a $100,000 leasehold improvement allowance.

Accounts receivable decreased by $1,106,223 during the first nine months of fiscal 2026 primarily due to the timing of customer payments.

Inventories decreased by $177,285 due to increased product sales.

Prepaid expenses and other assets increased by $323,301 primarily due to increased accrued bond interest and a decrease in federal and state taxes due.

The decrease in taxes due was because we deducted previously unamortized research and development expenses in the quarter ended December 31, 2025 as permitted under the Federal budget reconciliation bill enacted July 4, 2025.

We expect accelerated deductions of previously unamortized research and development expenses to reduce our cash taxes for the full fiscal year ending March 31, 2026 by approximately $1,100,000.

Accrued payroll and other current liabilities decreased by $366,459 primarily due to the payment of federal and state taxes balance due as of March 31, 2025 and decreased accrual for performance-based compensation.

Investing Activities

Cash used by investing activities during the six months ended September 30, 2025, consisted of $10,108,982 of marketable securities purchases and $1,128,981 of fixed asset purchases, partially offset by $10,000,000 in proceeds from maturities of marketable securities.

Cash used by investing activities during the nine months ended December 31, 2025, consisted of $10,108,982 of marketable securities purchases and $2,179,694 of fixed asset purchases, partially offset by $10,000,000 in proceeds from maturities of marketable securities.

Fixed asset purchases were primarily production equipment.

We currently expect an additional $1,000,000 to $1,500,000 of fixed asset purchases in the last six months of the fiscal year to complete a production expansion.

Financing Activities

Cash used in financing activities during the six months ended September 30, 2025, consisted of $9,674,332 of cash dividends paid to shareholders.

In addition to cash dividends paid to shareholders in the first half of fiscal 2026, on October 22, 2025, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,837,166 based on shares outstanding as of September 30, 2025, to be paid on November 28, 2025.

Cash used in financing activities during the nine months ended December 31, 2025, consisted of $14,511,498 of cash dividends paid to shareholders.

In addition to cash dividends paid to shareholders in the first nine months of fiscal 2026, on January 21, 2026, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,837,166 based on shares outstanding as of December 31, 2025, to be paid on February 27, 2026.

We plan to fund dividends through cash provided by operating activities and proceeds from maturities of marketable securities.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis