Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements
Some of the statements made in this Report or in the documents incorporated by reference in this Report and in other materials filed or to be filed by us with the Securities and Exchange Commission (“SEC”) as well as information included in verbal or written statements made by us constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of terminology such as may, will, expect, anticipate, intend, believe, estimate, should, or continue, or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects, or any other aspect of NVE, you should be aware that our actual financial condition, operating results, and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. 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, 2026.
General
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. We manufacture high-performance spintronic products including sensors and couplers that are used to acquire and transmit data.
Critical accounting policies
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, 2026. As of September 30, 2026, our critical accounting policies and estimates continued to include marketable securities valuation, inventory valuation, and deferred tax estimation.
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Quarter ended September 30, 2026, compared to quarter ended September 30, 2025
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-
to-Quarter
2026
2025
Change
Revenue
Product sales
95.6
%
96.7
%
(9.2
)%
Contract research and development
4.4
%
3.3
%
24.6
%
Total revenue
100.0
%
100.0
%
(8.1
)%
Cost of sales
21.8
%
21.7
%
(7.8
)%
Gross profit
78.2
%
78.3
%
(8.1
)%
Expenses
Research and development
12.5
%
13.8
%
(16.7
)%
Selling, general, and administrative
10.8
%
6.8
%
44.3
%
Total expenses
23.3
%
20.6
%
3.6
%
Income from operations
54.9
%
57.7
%
(12.4
)%
Interest income
8.1
%
7.6
%
(2.0
)%
Other income
-
0.0
%
(100.0
)%
Income before taxes
63.0
%
65.3
%
(11.2
)%
Provision for income taxes
8.6
%
13.1
%
(39.2
)%
Net income
54.4
%
52.2
%
(4.2
)%
Total revenue for the quarter ended September 30, 2026 (the second quarter of fiscal 2027) decreased 8% compared to the quarter ended September 30, 2025 (the second quarter of fiscal 2026). The decrease was due to a 9% decrease in product sales, partially offset by a 25% increase in contract research and development revenue. The decrease in product sales was due to certain customer’s orders rescheduling and a decrease in defense industry product sales. The orders rescheduling was due to a temporary change to a certain customer’s inventory requirements. Defense sales depend on Government procurement cycles and can be highly variable. The increase in contract research and development revenue was due to progress on existing contracts.
Total operating expenses increased 4% for the second quarter of fiscal 2027 compared to the second quarter of fiscal 2026, due to a 44% increase in selling, general, and administrative expense, partially offset by a 17% decrease in research and development expense. The decrease in research and development expense was due to staffing redeployment. The increase in selling, general and administrative expense was primarily due to larger stock-based compensation expense related to director stock option grants, because of a higher grant-date stock price.
Interest income decreased 2% due to a decrease in our marketable securities portfolio as proceeds from bond maturities partially funded dividends and fixed asset purchases in the prior fiscal year, and lower interest rates on securities purchased in the past year.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 14% for the quarter ended September 30, 2026 (the second quarter of fiscal 2027), compared to 20% for the quarter ended September 30, 2025 (the second quarter of fiscal 2026). The decrease was primarily due to more favorable tax treatment of Foreign-Derived Deduction Eligible Income. We currently expect a tax rate of 13% to 15% for the remaining two remaining quarters of fiscal 2027.
The 4% decrease in net income for the second quarter of fiscal 2027 compared to the prior-year quarter was primarily due to decreased revenue and increased operating expenses, partially offset by a decreased income tax provision.
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Six months ended September 30, 2026, compared to six months ended September 30, 2025
The table shown below summarizes the percentage of revenue and year-to-year changes for various items:
Percentage of Revenue
Six Months Ended Sept. 30,
Quarter-
to-Quarter
2026
2025
Change
Revenue
Product sales
96.7
%
96.8
%
35.4
%
Contract research and development
3.3
%
3.2
%
38.2
%
Total revenue
100.0
%
100.0
%
35.5
%
Cost of sales
19.8
%
20.6
%
30.3
%
Gross profit
80.2
%
79.4
%
36.8
%
Expenses
Research and development
9.9
%
12.8
%
5.0
%
Selling, general, and administrative
8.2
%
6.9
%
62.0
%
Total expenses
18.1
%
19.7
%
24.9
%
Income from operations
62.1
%
59.7
%
40.7
%
Interest income
5.5
%
7.9
%
(5.9
)%
Other income
-
0.0
%
(100.0
)%
Income before taxes
67.6
%
67.6
%
35.2
%
Provision for income taxes
10.9
%
12.3
%
18.7
%
Net income
56.7
%
55.3
%
38.9
%
Total revenue for the six months ended September 30, 2026 increased 36% compared to the six months ended September 30, 2025. The increase was due to a 35% increase in product sales and a 38% 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 progress on existing contracts.
Total operating expenses increased 25% for the first six months of fiscal 2027 compared to the first six months of fiscal 2026, due to a 5% increase in research and development expense and a 62% increase in selling, general, and administrative expense. The increase in research and development expense was due to increased new product development activities. The increase in selling, general, and administrative expenses was primarily due to increased performance-based compensation and an increase in the estimated value of directors’ stock-based compensation.
Interest income decreased 6% due to a decrease in our marketable securities portfolio as proceeds from bond maturities partially funded dividends and fixed asset purchases in the prior fiscal year.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 16% for the first six months of fiscal 2027, from 18% for the first six months of fiscal 2026. The decrease was primarily due to more favorable tax treatment of Foreign-Derived Deduction Eligible Income.
The 39% increase in net income for the first six months of fiscal 2027 compared to the prior-year period was primarily due to increased revenue and a decrease in our effective tax rate, partially offset by increased operating expenses and decreased interest income.
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Liquidity and Capital Resources
Overview
Cash and cash equivalents were $3,969,958 as of September 30, 2026, compared to $1,714,040 as of March 31, 2026. The $2,255,918 increase in cash and cash equivalents during the first six months of fiscal 2027 was due to $11,127,370 of net cash provided by operating activities and $809,961 of net cash provided by investing activities, partially offset by $9,681,413 of cash used in financing 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 quarters.
Accounts receivable decreased $403,013 during the first six months of fiscal 2027 primarily due to the timing of customer payments. Inventories decreased $222,511 primarily due to increased sales. Prepaid expenses and other assets decreased $318,932 due to decreased estimated taxes because of favorable tax law changes.
Investing Activities
Cash provided by investing activities during the six months ended September 30, 2026, consisted $9,000,000 in proceeds from maturities of marketable securities, partially offset by $8,108,071 of marketable securities purchases and $81,968 of fixed asset purchases. We currently expect fixed asset purchases in the fiscal year ending March 31, 2027 to be significantly less than for the year ended March 31, 2026 with the completion of our expansion in the past fiscal year.
Financing Activities
Cash used in financing activities during the six months ended September 30, 2026, consisted of $9,681,245 of dividends and $168 paid for fractional shares on the exercise of stock options.
In addition to cash dividends paid to shareholders in the first six months of fiscal 2027, on October 21, 2026, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,844,079 based on shares outstanding as of September 30, 2026, to be paid on November 30, 2026.
We plan to fund dividends through cash provided by operating activities and proceeds from maturities of marketable securities. All future dividends will be subject to Board approval and subject to the company’s results of operations, cash and marketable security balances, estimates of future cash requirements, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.