NVE Corporation Aktie

Good afternoon, and welcome to the MD Corporation conference call for the quarter ended June 30, 2026. I'm Dan Baker. The President and CEO. I'm joined by Daniel Nelson, our Principal Financial Officer; and Pete Eames, Vice President of Advanced Technology and [indiscernible] This call is being webcast live by YouTube and Google Meet and being reported. A replay will be available for our website, nve.com and our [indiscernible] [Operator Instructions] After my opening comment, Daniel Nelson will present our financial results. He will cover new products and R&D, and I'll cover sales mark. I'll also cover our oncoming leadership position and Board expansion. And then we'll open the call to questions.

We include our press summary financial results and filed our quarterly report on Form 10-Q in the past hour following the close of Martin. Links to the press release and 10-Q are available through our website, the SEC's website and as formerly known as [indiscernible] please refer to the safe harbor statement on your screen.

Comments we may make that relate to future plans, events, financial results or performance are forward-looking statements subject to certain risks and uncertainties, including, among others, such factors as our reliance on several large customers significant uncertainties related to the economic environments in the industries we serve uncertainties related to future sales and revenue as well as the risk factors listed from time to time in our filings with the including our annual report on Form 10-K for the year ended March 31, 2026.

Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make. We're pleased to report exceptional results our growth accelerated with an 81% increase in revenue and a 79% increase in net income, driven by new product sales and a strong semiconductor market. Daniel Nelson will cover details of the financials. Daniel?

Thanks, Dan. As Dan said, first quarter total revenue increased 81% to $11 million from $6.1 million for the prior year quarter. The increase was due to an 82% increase in product sales and a 53% increase in contract R&D revenue. Product sales increased across defense and nondefense product lines, as well as distributor and direct channels.

Higher volumes helped boost gross margin for the quarter to 81.3% of revenue compared to 8.6% in the prior year quarter. Total expenses increased 49% due to a 31% increase in research and development expense and an 81% increase in selling, general and administrative expense. The increase in research and development expense was due to increased staffing and new product development activities. The increase in selling, general and administrative expenses was primarily due to increased performance-based compensation.

The increase in expenses was less than a revenue increase. So expenses as a percentage of revenue decreased from 19% to 15%. Interest income decreased 10% and due to decrease in our marketable securities portfolio as proceeds from bond maturities partially funded dividends and fixed asset purchases in the prior fiscal year.

Net income for the quarter increased 79% to $6.39 million, or $1.32 per diluted share from $3.8 million or $0.74 per share. The increase was primarily due to increased revenue, partially offset by increased operating expenses and decreased interest income.

Earnings more than cover above $1 [indiscernible] for the quarter was strong. Operating margin was 66%, Pretax margin was 78% and net margin was 58%. Inventories decreased by 6% in the quarter due to increased product sales.

Fixed asset purchases were $57,000 for the quarter compared to $106 million in the same quarter [indiscernible] was due to the completion of our 2-year multimillion dollar expansion. We expect fixed asset purchases this fiscal year to be significantly less than the prior year with the completion of our expansion.

Our balance sheet strengthened in the quarter, with earnings more than covering our dividend. Cash plus marketable securities increased $391,000 to $43.9 million as of June 30 compared to $43.5 million as of March 31. Now I'll turn the call over to Pete Eames to cover new products and research and development. Pete?

Thanks, Daniel. I'll cover new products and R&D. Our R&D strategy is to transition the world's best technologies into the world's best products for high-value markets such as advanced humanoid robotics, data centers and highly automated fourth wave factories using artificial intelligence of things. Just this week, we launched 2 new wafer-level chip scale sensors for implantable medical devices.

The new parts are about 1/3 of the area of the conventionally packaged versions, which are already quite small. The even smaller sensors allow miniaturized implantable medical devices. These are our first wafer-level chip scale sensors with a unique and important MRI-safe feature. The sensor functions as a magnetic switch in a normal magnetic field and the sensors are stable to very high magnetic fields of over 9 Tesla, which is more than the fields produced by the strongest MRI machines.

MRI safety ensures that the medical device that uses the sensor doesn't fail if the patient needs an MRI. We have a video on our website and YouTube channel showing how we verify this feature using ultra-high-field magnets. In addition to the new product launches, we're developing several new products, including more precise sensors for robotics and more power-efficient isolators for power conversion.

Now I'll turn it back over to Dan Baker.

Thanks, Pete. I'll cover sales and marketing and our upcoming leadership transition. In the past quarter, we exhibited at 2 trade shows focused on sensors. In May, we were at Sensors Converge in Silicon Valley -- which is North America's largest event of its type where we focused on robotics and the artificial intelligence of things or AIoT. We have a strong benefit proposition for those markets, including small size for precise motion and smart sensor edge computing for easy integration with AI.

In June, we exhibited a sensor plus test in Germany, which is built as the leading international trade fair for sensors, measuring and testing technology.

In addition to robotics and AIoT, the German show was a good opportunity for us to highlight our power conversion products. Videos of several new demos are on our website and our YouTube channel. The shows generated some good leads, and we believe our investments in shows will pay off in future sales.

Last month, we announced that I'm retiring as President and CEO, effective as of our annual meeting in August. The Board appointed Pete to succeed me, subject to shareholder approval, I'll remain on the board as Chairman. Current Chairman, Terry Glarner, will remain on the Board, and Pete will join the Board.

In addition to the incumbent directors in Pete, the Board has nominated a new Director, Carolyn Valentine, pending shareholder approval, the Board will expand from 5 to 7 directors. The larger Board will strengthen our corporate governance, and we already have the highest possible ISS governance score. Leading NVE has been a privilege. I'm proud of what our team has accomplished and confident the company is well positioned for continued success. The Board conducted a thoughtful succession planning process and unanimously chose Pete as the company's next CEO.

He brings extraordinary experience. dedication and judgment, and I know our shareholders will be well served by his leadership in the years ahead.

Dan, on behalf of employees, customers and shareholders, I thank you for many dedicated years of service and pioneering leadership with [ Spintronics ] at NVE. We will continue to benefit from your guidance as Board Chairman. I'm honored to lead NVE as CEO. We have a talented team, strong customer relationships and many exciting opportunities ahead. .

I look forward to building on our momentum, creating long-term value for our shareholders through profitable growth, strong shareholder returns and continued Spintronic product excellence.

Thanks for the kind words, Pete. Now we'd like to open the call for questions via Google Meet. [Operator Instructions]

Dan, this [indiscernible] from Principal Financial. Congrats on the latest results. I wanted to ask based on the sequential increase you saw in the past quarter, I'm curious if you could attribute or how much you could attribute to the capacity expansion versus market demand as possible.

This is Pete. Thanks for the question. We see both those factors. We've recently completed the expansion that you mentioned, and we started using that capacity primarily for R&D activities. But we also see the market conditions as important factors. We have excellent new products out there now in important new markets, and we're excited about the growth. .

Awesome. And just as a quick follow-up, if I may. So it sounds like volume production remains in the existing or the legacy manufacturing facility. And so is it the plan that eventually the expanded capacity will be used for volume production as well? Or is it the plan that it will stay for R&D use cases?

The existing capacity is used for R&D largely now, but it's also being used for production, especially for some of our new products. And it will be continued to phase over as production shifts and the new products ramp up. So we really do see the investment paying off for long term there.

This is Aran from Delta Research. I just want to say great work on the quarter. I did have one question. So the release sites new product sales. I was wondering if you could provide any color whether if these new products are going to new customers or are existing customers adopting the newer parts.

The new products that most of the volume was in existing customers, but we also had new customers and they tend to start out a little bit more slowly. So they don't move the top line an awful lot, but they bode very well for the future. So we were very pleased with the results of having some of our existing customers, design in our newer products and new customers looking at newer products as well.

And just a quick question. I noticed your accounts receivable went up not quite double. Some color on that.

Mike, this is Daniel Nelson, thanks for the question. So you're right, accounts receivable did increase and most of that increase is driven by increased sales in the past quarter. Timing of customer payments as well contributed to some of that but mostly driven by increased sales in the past quarter.

Okay. So does that mean like I don't know what the terms are for payments and so forth. But it sounds like maybe a lot of your increase in sales came on the back end of the quarter versus the front end? Or how does that look?

Yes. Some of the sales did happen in the third month of the quarter. And most of those invoices are still outstanding as of the end of the month. But as we speak, most of those have already been collected on.

Hello. My name is Dell. I've got a question coming from the fact that I've worked with the insurance crop insurance industry for quite a number of years on metical support analysts and I was looking at some of the technology that topic you NVE, and I'm especially interested if there's any pursuing cases going using DRIP-free-TMIr sensor infrastructures on the field for enhancement of AI, which is only going to grow with agricultural exponentially as with everything else. What is your idea on that, sir?

Yes. Great question. So there are some opportunities there, and particularly the features of NVE products make that an interesting market. We have very low power sensors for unattended networks and unattended sensor nodes that's particularly powerful for crop insurance because we're able to monitor crop conditions directly and then respond quickly as well with our sensor technologies as well.

So we're doing sensing and data transmission and both of those areas are important for monitoring the data of crops remotely and responding adequately.

If I have some of the ideas, I'm sorry, if I can to agreements -- if I have some other ideas because I've been in the industry for so long, I specialized with remote support. I was wondering could I send them to a place within NVE like for RS 48 wired edge frameworks and other things like that where your cross pattern, node displacements so that it doesn't follow within neighborhood line, so you don't lose whole patents of fields stuff like that. Is there any way of doing that?

Absolutely. We've got some of the best customer service in the industry, and we're ready to respond to your inquiries. If you go to our website, there's a sensor apps e-mail address available, and you can submit your questions directly to that.

I was wondering, understandably don't give customers by name, but if you could detail any incremental momentum you're seeing by end market, whether that be robotics and humanoids or industrial automation or data centers or medical. I would just be curious to hear maybe how you kind of rank the end markets and the change in momentum lately.

Sure. Thanks, [indiscernible] Yes, there's important opportunities, particularly in robotics that we see -- we talked a lot about wafer level chip scale products, including the announcement on the call today. in the previous calls last quarter as well.

And we do see some distinct advantages in both low power, but particularly the precision that our products offer in automation and robotics. We'd say that's probably the strongest growing area and the most promising for our technology.

Walter Morris, as you know we've been very long-term shareholders in your company. Congratulations on a great quarter. Certainly, the right kind of way to wrap up your long tenure at the company. So kudos. Would you talk about -- I mean, this was an explosive quarter.

Now we've had over the years, breakout quarters where revenue run rate, which is consistently over many years, on a quarterly basis, we're on it $6 million to $7 million. And then periodically, we'll have a high single-digit, low double-digit revenue quarter. But at least up to now, there's been a reversion to the kind of $25 million annualized revenue run rate in your business?

Very importantly, can you speak to the possibility or the likelihood that this represents a new higher, meaningfully higher plateau and over the next 3 to 5 years, a major increase, hopefully, in strong double digits in the company's secular revenue growth rate.

Absolutely, Walter. We see this as evidence and validation of the strategy that we put in place to target some of these very high-growth markets that we've been talking about. Pete mentioned the growth in robotics, which is a fast-growing market where we have a convincing benefit proposition.

So while you're right, things might have taken a little longer than we had hoped, we're confident that we have the right strategy. We have products in place. We have a dedicated sales force and distribution network and we have unique products and capacity that we just added. So we're very bullish about the future.

So if I just might parities that to make sure I understand it, this current quarter's revenue run rate represents in general, give or take, million, let's say, a new and consistently higher revenue run rate off of which you hope top line grows at healthy double-digit rates going forward. Is that fair?

Well, Walter, I think you know us well enough to know that we aren't able to give forward-looking guidance but I will -- and particularly with specific numbers that you just alluded to. But I will say we're very optimistic and extremely pleased with [indiscernible] we have.

Final question, has the momentum of the June quarter continued at least so far into the September quarter?

Walter, it's hard to comment on the numbers for the current quarter. I think the primary factor among the others that Dan mentioned is the improvement in the semiconductor industry, and that's producing a lot of optimism in general.

So I think for that reason alone, we're optimistic going forward. And also, as Dan said, we have great products excellent distribution and sales, and we're very excited.

Well, there are no further questions. So I'd sum up with saying we were pleased to report a blowout quarter with an 81% increase in revenue, a 79% increase in net income and $1.32 earnings per share.

We look forward to meeting some of you at our Annual Shareholders Meeting August 6 here at NVE. Our next earnings call will be in October. A replay of this call will be available on the investor events page of our website at nve.com and our YouTube channel that's youtube.com/nvecorporation.

Good afternoon, and welcome to the NVE Corporation conference call for the quarter and fiscal year ended March 31, 2026. I'm Dan Baker, NVE's President and CEO. I'm joined by Daniel Nelson, our Principal Financial Officer; and Pete Eames, Vice President of Advanced Technology.

This call is being webcast live by YouTube and Google Meet and being recorded. A replay will be available through our website, nve.com, and our YouTube channel, youtube.com/nvecorporation. [Operator Instructions]

After my opening comments, Daniel Nelson will present our financial results. Pete will cover new products and R&D. I'll cover sales and marketing, and then we'll open the call to questions. Note that we're using a new call-in service this quarter with a different phone number. The call-in number and PIN are in our press release and in the Investor Events section of our website.

We issued our press release with summary financial results and filed our annual report on Form 10-K in the past hour, following the close of market. The press release has financial results for the quarter in addition to the fiscal year. Links to the press release and 10-K are available through our website, the SEC's website and X, formerly known as Twitter. Also, this afternoon, we posted a new Sustainability Report on our website. The new report replaces and supersedes our Task Force on Climate-related Financial Disclosures, or TCFD report.

The new report covers climate, employees and governance. And we also highlight the positive impact of our products on people and the environment. Please refer to the safe harbor statement on your screen. Comments we may make that relate to future plans, events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as 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 revenue as well as the risk factors listed from time to time in our filings with the SEC, including our just filed annual report on Form 10-K.

Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make.

We're pleased to report a 27% increase in net income for the quarter driven by a 34% increase in our core nondefense sales, which more than offset a decrease in defense sales.

Daniel Nelson will cover details of the financials. Daniel?

Thanks, Dan. Fourth quarter total revenue increased 5% year-over-year to $7.65 million. The increase was due to a 6% increase in product sales, partially offset by a 19% decrease in contract R&D revenue. The increase in product sales was due to a 34% increase in nondefense product sales, as Dan Baker noted, partially offset by a 79% year-over-year decrease in defense sales, which can be volatile because of defense procurement cycles.

Sales increased across most of our nondefense product lines and channels. Total revenue increased 23% from the prior quarter. We see a continued bright outlook for product sales with favorable semiconductor industry conditions in our new products. We have ample inventories to support increased demand. The defense business has been steadily recovering over the past year, and we currently expect defense sales to increase significantly this fiscal year, the year ending March 31, 2027.

Contract R&D is primarily defense and government related, and those revenues can also be uneven, but we currently expect contract R&D to increase this fiscal year. Gross margin for the quarter was 78% of revenue compared to 79% in the prior year quarter. Total operating expenses decreased 19% for the fourth quarter of fiscal 2026 compared to the fourth quarter of fiscal 2025, due to a 26% decrease in R&D expense and a 5% decrease in SG&A. The decrease in R&D was due to completion of some of our wafer-level chip-scale packaging activities and reassignment of some R&D resources to manufacturing. The decrease in SG&A was primarily due to the timing of selling and marketing activities and reassignment of some SG&A resources to manufacturing and new product development.

Interest income in the quarter decreased 6% due to a decrease in our marketable securities portfolio as proceeds from bond maturities help us pay generous dividends. Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 5% for the fourth quarter of fiscal 2026 compared to 18% for the fourth quarter of fiscal 2025. The decrease was primarily due to advanced manufacturing investment tax credit on equipment we put into service in the past quarter. Net income for the quarter increased 27% to $4.9 million or $1.02 per diluted share from $3.89 million or $0.80 per diluted share.

The increase was primarily due to increased revenue, decreased operating expenses and a decrease in our effective tax rate. This was our highest earnings since the chip semiconductor shortages 3 years ago. Earnings more than cover our $1 per share dividend for the past quarter. Our profitability metrics for the quarter were strong. Operating margin was 62%, pretax margin was 68% and net margin was 64%. For the fiscal year, total revenue increased 2% to $26.3 million from $25.9 million as revenue increases in the past 2 quarters more than offset decreases in the first 2 quarters.

The increase in product sales was due to a 21% increase in nondefense product sales, partially offset by a 67% decrease in defense sales, which can be volatile because of defense procurement cycles. Our full year tax rate decreased to 15% for fiscal 2026 compared to 16% for fiscal 2025. The decrease was primarily due to an increase in advanced manufacturing investment tax credits, partially offset by a decrease in foreign derived intangible income deductions.

The fiscal 2026 provision for income taxes included $1.07 million in advanced manufacturing investment tax credits. We expect such credits to decrease significantly in fiscal 2027 since we expect manufacturing equipment purchases to decrease significantly with the completion of our expansion. Prior year unamortized R&D expenses write-off allowed under the new tax law reduced our fiscal 2026 quarterly estimated tax payments by $1.4 million. We also expect a $1.3 million Dallas federal tax refund as a result of research and development and advanced manufacturing investment tax credits claimed in the fourth quarter of fiscal 2026.

Net income for the year increased to $3.14 per diluted share from $3.11 per diluted share. The increase was primarily due to increased revenue, decreased operating expenses and a decrease in our effective tax rate, partially offset by decreased gross margin and decreased other income. For the year, operating margin was 60%, pretax margin was 68% and net margin was 58%. Cash flow from operations was $16.7 million in the fiscal year, an increase of 16% from the prior year. Cash flow was $1.5 million more than net income, showing the high quality of our earnings.

Highlighting 2 cash flow items. Inventories decreased by 5% due to increased product sales. Raw materials and WIP inventory decreased, but finished goods inventory increased. New equipment helped us convert raw materials and WIP efficiently. We've increased finished goods inventory to support increased product demand. Fixed asset purchases were $2.19 million for the fiscal year, which is unusually large for us. We substantially completed spending on our 2-year multimillion dollar expansion.

We put the last major equipment cluster for that expansion into service in the past quarter as planned. Pete Eames will discuss the new equipment. We expect fixed asset purchases to decrease significantly in fiscal 2027 with the completion of our expansion.

Now I'll turn the call over to Pete Eames, our Vice President of Advanced Technology, to discuss the new equipment and to cover new products and R&D. Pete?

Thanks, Daniel. I'll cover new equipment and R&D. We completed a significant expansion in the past quarter. New equipment in the past year has increased our capacity, increased our capabilities and allowed us to do smaller and more precise wafer-level chip-scale package parts in-house. The new equipment allows extremely precise control of spintronic materials deposition to well within one atomic layer. This capability translates into more precise spintronic devices and expands our capacity with existing products.

As Daniel said, we placed the new equipment into service in the past quarter as planned. It's building products, and we're confident the new equipment will pay back with more revenue. In the past quarter, the new equipment helped us fill orders for new high-performance TMR sensors. Our R&D strategy is to transition the world's best technology into the world's best products for high-value markets such as medical devices, electric and autonomous vehicles, advanced humanoid robotics and highly automated fourth wave factories using the Artificial Intelligence of Things. We have a continuous flow of new products as part of that strategy.

In the past quarter, we announced a new wafer-level chip-scale sensor for medical and industrial applications. The new part is 0.65 millimeters on the side. And as you can see in the slide, the sensor is about 1/3 the area of the conventionally packaged version, which allows smaller medical devices and especially precise robotics.

In addition to the new sensor launches in the past fiscal year, we've also invested in advanced R&D initiatives with the potential to drive future growth, including next-generation MRAM for anti-tamper applications, next-generation sensors for hearing aids and medical devices and extremely sensitive TMR sensors.

Now I'll turn it back over to Dan Baker.

Thanks, Pete. I'll cover sales and marketing. In sales, last week, we announced a new distributor for our isolator products, Semitech Incorporated. They specialize in supporting electronics contract manufacturers, which is a good market for us. In the past quarter, we exhibited at Medical Design and Manufacturing West in Anaheim, California, for the first time. It's one of the largest and most influential business-to-business medical device and advanced manufacturing trade shows in North America with attendees from all over the world.

Medical devices are an important market for us. Our product advantages for medical devices include small size, low power and superb reliability. At the show, we highlighted wafer-level chip-scale parts for miniaturization of implantable medical devices and surgical robots, MRI-safe and MRI-tolerant sensors for medical devices, high-sensitivity sensors for medical device navigation and our best-in-class electrical isolators to ensure the safety of medical instruments. A video of several new demos is on our website and our YouTube channel. The show generated some good leads, and we believe our investment in shows will pay off in future sales.

We're exhibiting at 2 trade shows focused on sensors this quarter. Today and tomorrow, we're at Sensors Converge in Silicon Valley, which is North America's largest event of its type, where we're focused on robotics and the Artificial Intelligence of Things, or AIoT. We have a strong benefit proposition for those markets, including small size for precise motion and smart sensor edge computing for easy integration with AI. Next month, we'll exhibit at Sensor+Test in Germany, which is billed as the leading international trade fair for sensors, measuring and testing technology. In addition to robotics and AIoT, the German show is a chance for us to highlight our power conversion products for cars and charging stations.

In addition to trade shows under our own banner, some of our distributor partners will be at those and other trade shows for the spring trade show season.

Now we'd like to open the call for questions. We switched to Google Meet for questions since Amazon Chime has been discontinued. The instructions have changed slightly. [Operator Instructions]

It's Jeff Bernstein from Silverberg Bernstein Capital. Nice to see the revenue growth this quarter. Congratulations on that. I had a couple of questions. First, the call quality at first wasn't great. And I just want to make sure I got the numbers right on the increase in nondefense sales and the decrease in defense sales in the quarter?

Daniel, do you have those?

Yes, the decrease in defense sales was 67% as per our prepared remarks, and the increase in product sales was 21%.

Okay. That's great. And then, Dan, I had a question. You talked about getting some new distribution in isolators. And I was wondering, your isolators work very differently than the photonic isolators that other people use. And I would assume that they have a better mean time between failure, but also use less power and dissipate less heat, which are becoming very important in data centers. How applicable are they for the kind of power regimes that they're moving into in the new AI data centers? And what do you think the power and heat dissipation savings would be from using your isolators?

Jeff, this is Pete Eames. I can try to answer this question for you. Typically, our power conversion products operate at higher frequency than our competitors. And this higher frequency produces an improved efficiency. As you hinted, overall efficiency is very important, but it tends to be a small percentage, maybe a few percent. But again, this adds up to be a very important benefit. Data centers use a lot of power, and the small efficiency improvements can make a big difference.

Is Semi the kind of guy who is in a position to get you into some rack designs and things of that nature that go into the AI infrastructure?

You mean the new distributor, Jeff?

Yes.

Yes, they are. They service EMSs, electronic manufacturing services. And so that's a lot of high-volume manufacturing for new designs. So that's one of the reasons why we thought it was a very good fit.

That's great. And then you guys put out some marketing materials during the quarter which talked about some end-of-lifing of parts by Texas Instruments and ADI. And I just want to understand what that was all about?

Well, unlike conventional semiconductor manufacturers, we're committed to long-term support of our customers and our products. So for us, it isn't just a financial decision where we would haul a product if it doesn't have enough volume. We believe that our -- if our customers design our parts in, that -- they have an expectation that we're going to be in it with them for the long haul.

So when some of the conventional semiconductor manufacturers discontinue parts, in many cases, we can offer alternatives. So that was -- you're probably referring to one of our customer newsletters where we referred to some of those parts, some of those packages that were being discontinued by conventional semiconductor manufacturers where we could offer a better part, better stability and better supply [Technical Difficulty].

Can you hear me?

Yes.

This is Ittai Eden from Principal. Congrats on the quarter. I'm curious if we should be expecting next year given the capacity effectively doubled as of the end of this quarter, whether we should be expecting revenue to more or less double as well?

Yes. Good question, Ittai. Our goal is to grow. We don't give -- as you know, we don't give specific guidance, but we're optimistic. The global semiconductor market is improving. We have ample inventories. We have exciting new products. And as you mentioned, we have quite a bit more capacity. So we see a bright future.

That's helpful. And if I heard it correctly, the data center opportunity, while, call it, zero today is somewhat building. Can you describe or put any numbers to what you see the opportunity as a percent of the business or when or how you see it shaping up over time? That would be helpful.

Yes, I can jump in on this one, Ittai. Yes, it's difficult to quantify something like this. So we don't sell directly to data centers. We sell to subassembly manufacturers who build the systems in data centers. So it's difficult to directly connect the data center growth to isolator volumes.

Got it. And then maybe if you can discuss any anecdotal wins or examples of maybe pipeline or backlog, specifically in robotics and how that's trended, that would also be great.

Well, we had a number of customers that are in robotics and other emerging markets or high-growth markets such as energy conversion. So some of the places where our sensors get used in robotics is on the, what's called the end effectors which are the hands or fingers of the robot, if you will, because we offer the smallest sensors available and much more precision. So for delicate operations, those are the sorts of things where our sensors shine. Those would be delicate operations for end effectors and also things like surgical medical robots that typically work on much smaller scales than other types of robots.

[Operator Instructions] Any other questions?

Well, if there are no other questions, we were pleased to report a 27% increase in earnings for the quarter, driven by a 34% increase in nondefense product sales as industry conditions improve and new products gain traction. We also completed a major expansion and deployed new equipment. We look forward to speaking with you again in July for our first quarter fiscal 2027 earnings call. A replay of this call will be available on the Investor Events page of our website at nve.com and on our YouTube channel at youtube.com/nvecorporation.

Good afternoon, and welcome to the NVE Corporation Conference Call for the quarter ended December 31, 2025. I'm Dan Baker, NVE's President and CEO. I'm joined by Daniel Nelson, our Principal Financial Officer; and Pete Eames, Vice President of Advanced Technology.

This call is being webcast live via YouTube and Amazon Chime and being recorded. A replay will be available through our website, nve.com, and our YouTube channel, youtube.com/nvecorporation. [Operator Instructions]

After my opening comments, Daniel Nelson will present our financial results. Pete will cover new products and R&D. I'll cover sales and marketing and then we'll open the call to questions. We issued our press release with financial results and filed our quarterly report on Form 10-Q in the past hour following the close of market. Links to the press release and 10-Q are available through our website, the SEC's website and X, formerly known as Twitter.

Please refer to the safe harbor statement on your screen. Comments we may make that relate to future plans, events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as uncertainties related to the economic environments in the industries we serve, risks and uncertainties related to future sales and revenue and risks and uncertainties related to tariffs, customs duties and other trade barriers as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on Form 10-K for the year ended March 31, 2025, as updated in our just filed 10-Q.

Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make. We're pleased to report a 23% increase in revenue and an 11% increase in earnings for the third quarter of fiscal 2026 compared to the prior year quarter, driven by broad-based growth across our revenue lines, including defense and nondefense sales as well as distributor and direct channels.

Daniel Nelson will cover details of the financials. Daniel?

Thanks, Dan. As Dan said, revenue for the third quarter of fiscal 2026 increased 23% year-over-year. The increase was due to a 16% increase in product sales and a 335% increase in contract R&D revenue. The increases were across most of our product lines and channels.

Gross margin for the third quarter of fiscal 2026 was 79% of revenue compared with 84% in 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. The increase in distributor sales is positive, although distributor sales typically have lower gross margin than direct sales.

Total operating expenses decreased 12% for the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025 due to a 9% decrease in R&D expense and a 19% decrease in SG&A. The decrease in R&D was due to completion of some of our wafer level chip scale packaging activities and reassignment of some R&D resources to manufacturing. The decrease in SG&A was primarily due to the timing of selling and marketing activities and reassignment of some SG&A resources to manufacturing and new product development.

Interest income decreased 3% due to a decrease in our marketable securities portfolio as proceeds from bond maturity, partially funded dividends and fixed asset purchases. Other income decreased by $135,000, which is 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 compared to 15% for the third quarter of fiscal 2025. The increase in our effective tax rate was primarily due to the noncash 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 million to offset the impact of other tax law changes.

And net income increased 11% to $3.38 million or $0.70 per diluted share from $3.05 million or $0.63 per share. The increase was primarily due to increased revenue and decreased operating expenses, partially offset by decreased gross margin, a decrease in other income and an increase in our effective tax rate.

Our profitability metrics remained strong. Operating margin was 60%. Pretax margin was 68% and net margin was 54%. For the first 9 months of fiscal 2026, total revenue increased 0.4% to $18.7 million from $18.6 million for the 9 months of the prior year as growth in the most recent quarter more than offset year-over-year decreases in the first 2 quarters of the fiscal year. The revenue increase for the first 9 months was due to a 0.8% increase in product sales, partially offset by an 8% decrease in contract R&D. Net income for the 9 months decreased 8% to $10.3 million or $2.12 per diluted share.

Turning to cash flow items. Cash flow from operations was $12.2 million in the first 9 months of the fiscal year. Accounts receivable decreased $1.1 million during the first 9 months of fiscal 2026 primarily due to the timing of customer payments. Inventories decreased by $177,000 due to increased product sales.

Prepaid expenses and other assets increased $323,000 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, and 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 $1.1 million.

Accrued payroll and other current liabilities decreased $366,000 primarily due to the payments of federal and state taxes balance due as of March 31, 2025, and decreased accrual for performance-based compensation. Fixed asset purchases were $2.18 million for the first 9 months of the fiscal year, including $1.05 million in the December quarter. We substantially completed spending on our 2-year multimillion dollar expansion. We expect to put the equipment into service in the current quarter.

Pete Eames will discuss the new equipment. Now I'll turn the call over to Pete Eames, our Vice President of Advanced Technology to talk about our plans for the new equipment and to cover new products and R&D. Pete?

Thanks, Daniel. I'll cover new equipment and R&D. New equipment in the past year has increased our capacity, increased our capabilities and allowed us to do smaller and more precise wafer-level chip scale package parts in-house. We completed installation and calibration of a new equipment cluster in the past quarter in an expanded production area on the east end of our building.

The new equipment allows extremely precise control of spintronic materials deposition to well within 1 atomic layer. This capability translates into more precise spintronic devices and expands our capacity with existing products. We've made good progress developing new advanced spintronic processes on the equipment. And as Daniel said, we expect to place new equipment into service by March 31.

Our R&D strategy is to make the world's best electronics for high-value markets such as medical devices, electric and autonomous vehicles, advanced factory and humanoid robotics in highly automated Fourth Wave Factories using the artificial intelligence of things. We've had a continuous flow of new products as part of that strategy. Just yesterday, we announced a new wafer-level chip scale sensor a part that's just 0.65 millimeter square, about the size of the period at the end of our quarterly report and about as thick as the paper that it's printed on. The sensor is about 1/3 the size of the conventionally packaged version, and this tiny size allows for unmatched miniaturization and special sensitivity. There are demonstrations of our new products on our website and our YouTube channel.

Now I'll turn it back over to Dan Baker.

Thanks, Pete. I'll cover customers sales and marketing. Starting with customers. We're proud to supply products to some of the world's most demanding customers, including Abbott Laboratories. Abbott is a leading supplier of implantable medical devices. In the past quarter, we executed an extension to our supplier partnering agreement with Abbott. In recent years, the extensions have been for 1 year, but this extension is for 2 years through December 31, 2027. It provides for price increases for 2026 and 2027. The agreement was filed with the Form 8-K and their links in our just filed 10-Q on our website and the SEC's website.

Turning to sales and marketing. We exhibited at the Medical Design & Manufacturing Trade Show in the past quarter. Medical devices are an important market for us. We have a convincing benefit proposition for medical devices with small size, low power and superb reliability. At the show, we highlighted new wafer-level chip scale parts for miniaturization of implantable medical devices and surgical robots, high-field sensors to enable MRI-tolerant medical devices, high-sensitivity sensors for medical device navigation and our best-in-class electrical isolators to ensure the safety of medical instruments.

The show generated good leads, and we believe our investments and shows payoff and future sales. With the success of that show, we'll also exhibit at Medical Device & Manufacturing West for the first time. The exhibition starts February 3 in Anaheim, California and host attendees from all over the world.

Now we'd like to open the call for questions.

[Operator Instructions]

Dan, it's Jeff Bernstein from Silverberg Bernstein Capital. So we talked during the quarter about this idea of magnetic navigation in GPS compromised areas and whether you're magnetometer sensors were appropriate for that kind of application. Can you just talk a little bit about that and if you made any contact with anybody in the BOW about this?

Jeff, this is Pete Eames. I'm happy to answer that question. We have looked at MagNav. And for those who aren't familiar with it, this is a new technology that replaces GPS in the defense applications that are susceptible to GPS jamming. So typically, NVE sensors are lower power and much smaller than the sensors that are used to detect the magnetic field anomalies and magnet systems. But it is an interesting application for us. It's evolving and it's one of the things that we keep an eye on in the defense community to see how it evolves. And hopefully, we have an opportunity there in the future.

So do you have a part that you would deem appropriate for that application today or now?

Not exactly. MagNav is pretty new. It's still a relatively nascent technology. One of the problems with MagNav is that the maps that are being generated and used by sensors for this technology are still too imprecise. So it's still -- it's not a mature enough technology that we would chase it for example. But it's something that is interesting and fits within our defense systems and something that we think has a bright future.

Dan, this is [ Pete Prevett ] in Florida, how you guys. A couple of quick questions. Your new equipment up and running in March, I recall being at the shareholders meeting in '24, it'll be almost 2 years. Is that pretty much on the expected schedule that you thought?

It is. Thanks for the question, Pete. As you saw, we just had a blank space when you were here and at the annual meeting in 2025, we had a much more finished blank space. And now we've got a piece of equipment that's up and running, and as Daniel and Pete both mentioned, we plan to deploy it in an accounting sense this quarter. So things are going well, and we were -- it's a complicated piece of -- set of equipment and a complicated process, but our guys have done a great job of getting it done on schedule. So we're pleased with how it's going.

That's great to hear. With that, is there an expectation that, that new equipment will help with new product sales like adding to new revenue and/or I guess, better profitability because it's packaging, right? Some of it's for packaging, so you don't have to outsource the packaging?

Yes. This is Pete Eames again. Yes, Pete, I think there is a lot of optimism surrounding the technology that we're developing with the new equipment. I talked about one of the sensors in our earlier remarks. We're definitely selling samples of those parts. And we're -- again, we're looking forward to continued sales there. So I think the optimism continues.

And do you guys see the distributors building up inventory? Again, I know that, that was an issue that they had lots of inventory and had sell that down. Is that starting to pick up again?

Yes, it is. It's very positive. And Daniel mentioned that in the prepared remarks that our distributor sales are picking up and have been through the fiscal year. And that's an indication that some of those inventories that had built up during the semiconductor slowdown the last fiscal year and prior to that, have been depleted, burned off and end user demand is increasing. So we feel like we have the wind at our backs and we've got excellent products. and the inventory situation in the semiconductor industry as a whole is much better than it was.

That's fantastic. And let me ask you about the other company or one of the other companies in your space, Everspin. There seems to be a lot of interest in them lately and some talk about their intellectual property being valuable for quantum computing, possibly. How does NVE's intellectual property compare to what they have? And have you had any discussions with other companies about licensing your IP?

We have had discussions about licensing from time to time over the years, including we had a license agreement with predecessors of Everspin technology, including Motorola going way back. So we believe we have excellent intellectual property. We deploy it mostly for anti-tamper and HUF. So we are in a different market than ever spin, but we do have technology that applies to MRAM. We continue to develop MRAM.

And we've talked about it from time to time. Pete didn't talk about it on this call in the prepared remarks, but we continue to work on developing advanced MRAM mostly for defense applications, defense and anti-tamper applications. And we believe that the intellectual property has significant value, and we'll look for opportunities to monetize that through licensing or other means.

And I don't know too much about it, but with Flash memory, is MRAM a replacement of Flash? I on someone who mentioned something about memory and MRAM being a lot better with spintronics. Is there anything you could talk about there?

Yes. In general, MRAM is a nonvolatile memory, meaning it retains its information when the power is removed. And for some applications, that's a very powerful technology, and it's something that's already used in some embedded computing systems today. So it is very useful, and that's one of the things that, as Dan said, makes us believe that our IP is very valuable here.

Okay. Great. And last question. Dan, we love your post on Twitter. Do you employ or have a meeting company? Is there any plans to expand marketing? Not that we don't love your videos and stuff, but just curious about how you guys look at marketing to promote the company.

Well, we've been spending more on marketing, doing more marketing. So we try to do more of what works and what's been working, as I mentioned in the prepared remarks, our trade shows work very well for us. So we're going to more trade shows than we ever have. And we are working more and more on demonstrations. So the videos are one manifestation of demonstrations, but we also provide demonstrations at trade shows and for a specific customer targeted applications.

The newsletters are also very effective. We have a very high click rate, a very high response rate. So we measure our marketing activities, and we continue to boost the ones that work. So those are the kinds of things that we've been doing and we do get some response from Twitter. However, it's not a huge sales driver. Some of that is more fun and content that we have from other sources or for other targets such as trade shows.

Keep up the good work. I appreciate it.

Dan, it's Jeff Bernstein again. Just wanted to check in on the application for rare earth magnets for position sensing? And what kind of traction you've gotten there? And have we seen any revenue actually come through from any design wins? Or what's the design win situation looking like?

Yes, that's a good point. There's still a lot of concern in the supply chains about rare earth elements. And our sensors are uniquely positioned to use rare earth free ferrite magnets because of their high sensitivity. And we continue to offer ferrite magnets they do not use rare earth elements. They use iron and oxygen, which are 2 of the most abundant elements in the earth's crust. So we're well positioned in that, and we have gotten some sales, and we've gotten some interest in both the magnets and in the sensors that go with them.

So we do see it as a promising application. And the concern about rare earth magnets has done nothing but increase. So it's hard to quantify exactly how many are targeted at rare earth replacement and how many we're getting or we wouldn't have gotten, if it were for the concerns about rare earth, but it certainly helps us.

[Operator Instructions]

Can you hear me?

Yes.

This is [ Christopher Chevski ], a private investor. I was just wondering if there's any comments you can make on the current quarter, especially I'm wondering about your defense business, which happens to be a little bit more volatile?

Yes. I can try to add a little bit there, Christopher. I think we've talked fairly about some of the past quarters and explained that things have been relatively weak there. And in general, I think we're optimistic going forward. I think it's safe to say that we'll be returning to somewhat of a more normal flow there if that's of any help.

Yes. That's very helpful. And the rise in NRE revenues, does that pretend for additional future nondefense business?

That's certainly the goal. When we invest in R&D. We invest heavily in R&D. Pete talked about some of the programs. We talked about some of the things that we're doing in the medical space for new products and for advancements especially in miniaturization. So that's been a significant portion of our R&D, and we've been pleased with the response of customers and prospects to those products. And we believe they're going to pay off in future sales, and that's why we make the R&D investments.

Okay. And your 2-year agreement with Abbott, are there any market gains in that? Are you in any new devices?

Unfortunately, we can't talk about what devices they use our parts in, they use our sensors and we're bound by confidentiality. However, they make some remarkable devices, medical devices, and we're pleased to be a partner with them. We've been a partner with them for many years. And we're proud of the role that we play in making devices that can change people's lives. We also have other medical customers that sometimes we can't talk about. And we're promoting and meeting more of them, promoting our products and meeting more of those prospects and customers at the trade shows such as MDM here in Minneapolis recently and in early February, MDM West.

Dan, this is Pete again. Just one last question. The company, obviously, has been very, very solid over many years of delivering good performance. Can you talk a little bit about what the potential of customers being recurring, right? So rather than kind of sawtooth revenues quarter after quarter, year after year, where you're going to eventually have recurring orders from the same customers and then revenues might hit $6 million, $8 million, $10 million, $12 million per quarter because you've got repeat orders from the same customers, can you just give some clarity as to what the product mix looks like and if there's potential of that type of expectation from these customers that would order consistently so all investments are just adding on to revenues quarter after quarter?

Yes, that's a good point and a good question, Pete. So we look to increase our sales to our current customers with existing products and then we look to add new products to existing customers because we feel like our existing customers are our best prospects. They know us. They've seen the quality of the product we produce and the quality of the support that we provide. So we work on both. Our goal is to grow faster than our customers. We have to add customers we have to continue to add products and expand the products that we sell to existing customers.

And so I just mentioned Abbott, which is a great example of a customer that we've had for 20 years at least and they continue to buy our products, and they've expanded over years, the number of products that they use. So that we see is driving growth. And then we've added additional new customers, and then we add products for existing customers, new products for existing customers.

Jeff Bernstein. Just a follow-up question. As far as you guys have talked about in the past that at Abbott, you have exposure in the cardiac rhythm management area. You have exposure in the, I guess, neuromodulator area. In terms of the other medical customers that you're talking to, are these very similar kinds of applications? Or are there other applications I think you discussed medical robots and I'm kind of curious about why a big piece of equipment like that would need tiny parts like yours unless it's a sensitivity issue. But can you just flesh through that a little bit?

Yes. So we cover a variety of medical products. We cover life support medical devices, which are the types of pacemakers and ICDs that Abbott makes. We cover non-life support medical devices, and we cover medical instruments. We sell products for medical instruments, which would be monitors, pumps and things of that nature. They require different types of products. They have different design cycles, but they share a common goal of miniaturization of low power high sensitivity, high accuracy.

As far as the medical robots, which we talked about before, Pete touched on that with our wafer-level chip scale parts that the smaller parts Well, you're right, they might not need them because it's a relatively -- the robots are relatively large, but they offer more special sensitivity, which means that the robot can detect smaller displacement more precisely. And for medical robots, being able to do delicate operations is a key benefit, and our sensors enable that.

This is [ Ittai Abraham] from [ Principal Global ]. I just wanted to come back to the MRAM point. I'm curious if you can talk a little bit more if that's really just kind of an IP opportunity or if the added capacity can actually help you sell into some of MRAM and customers as well? And then I have one more.

Okay. Thanks for the question, Ittai. Our strategy has been to not make large-scale memories. That often requires multibillion-dollar fabs. So what we've been doing is specializing in high value-added memories that are used in specialized applications such as crypto keys for anti-tamper devices but we believe that the intellectual property is applicable to larger MRAMs that would have broader applications. So that's how we would participate in that market by licensing intellectual property that we've developed over the years.

Got it. That's super helpful. And then my second question is on the new capacity, I'm curious if you could give us a high-level view on the current mix shift may shift in terms of end market and how the new capacity might change the end market mix?

Right. So the new capacity is targeted at applications such as the Internet of Things and the artificial intelligence of things, which are emerging markets for industrial automation, merging the Internet of Things with artificial intelligence. So we see those as tremendous opportunities. They require inputs, which is what we do. We make sensors. And the future appears to have ubiquitous sensors, many very small sensors distributed in many robots and other locations in order to provide the information for smart factories that are that are self optimizing. So we see a historic opportunity there, and that's part of the reason why we were confident making such a large investment.

Got it. And congrats on the results.

Well, if there are no other questions, we were pleased to report strong increases in revenue and earnings driven by broad-based growth. We look forward to speaking with you again in early May for our fiscal year-end call. A replay of this call will be available on the Investor Events page of our website, that's nve.com and our YouTube channel, that's youtube.com/nvecorporation. Thank you for participating in this call.

Good afternoon, and welcome to the NVE Corporation Conference Call for the quarter ended September 30, 2025. The I'm Dan Baker, NVE's President and CEO.

I'm joined by Daniel Nelson, our Principal Financial Officer; and Pete Eames, Vice President of Advanced Technology.

This call is being webcast live by YouTube and Amazon Chime and being recorded. A replay will be available through our website, nve.com, and our YouTube channel, youtube.com/nvecorporation. [Operator Instructions]

After my opening comments, Daniel Nelson will present our financial results. Pete will cover new products in R&D I'll cover the business, and then we'll open the call to questions. We issued our press release with financial results and filed our quarterly report on Form 10-Q in the past hour following the close of market. Links to the press release and 10-Q are available through our website, the SEC's website and X, formerly known as Twitter.

Please refer to the safe harbor statement on your screen. Comments we may make that relate to future plans, events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as uncertainties related to the economic environments in the industries we serve, risks and uncertainties related to future sales and revenue, and risks and uncertainties related to tariffs, customs duties and other trade barriers as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on Form 10-K for the year ended March 31, 2025.

Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make. We're pleased to report a 4% sequential increase in revenue driven by strong increases in distributor and nondefense sales despite an expected decrease in defense sales.

Daniel Nelson will cover details of the financials. Daniel?

Revenue increased 4% quarter-over-quarter sequentially and decreased 6% year-over-year. The year-over-year decrease was due to a 68% decrease in contract R&D revenue, partially offset by a 1% increase in product sales. Contract R&D was 3% of revenue.

The year-over-year increase in product sales was due to a 21% increase in nondefense sales, partially offset by a 64% decrease in defense sales which can be volatile because of defense procurement cycles. Defense products sales were 8% of revenue in the past quarter. Contract R&D is primarily defense or government related and those revenues can also be uneven.

Our defense business is primarily anti-tamper products that protect U.S. technology. It's important to our country, and is profitable business, although it's not part of our growth strategy. The defense business has been steadily recovering this fiscal year and as expected, defense industries sales increased sequentially in the past quarter. Distributor sales also increased nicely both sequentially and year-over-year.

Gross margin decreased to 78% from 86% in the prior year quarter due to a less profitable product mix and strong distributor sales, which tend to have lower margins than direct sales. Total expenses decreased 7% for the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025 due to a 3% increase in R&D expense and a 23% decrease in SG&A.

The increase in R&D was due to increased new product development. The decrease in SG&A was primarily due to the timing of sales and marketing activities and reassignment of some SG&A resources to manufacturing and new product development.

Our tax rate increased to 20% for the second quarter of fiscal 2026 compared to 17% for the second quarter of fiscal 2025. primarily due to the noncash impact of tax law changes on certain tax deductions this fiscal year. We currently expect a full year tax rate of between 16% and 17% this fiscal year because we expect advanced manufacturing investment tax credits of between $700,000 and $1 million to offset the effect of other tax law changes. The advanced manufacturing and investment tax credit was extended in a tax bill enacted in July and increases from 25% to 30% in calendar 2026.

We currently expect our effective tax written next fiscal year to also be approximately 16% to 17%. More importantly, the tax law changes will reduce our cash taxes by approximately $1 million over 3 quarters, starting this quarter, the December quarter by allowing us to accelerate the deduction of previously unamortized R&D expenses.

After taxes, net income for the second quarter of fiscal 2026 was $3.31 million or $0.68 per diluted share compared to $4.03 million or $0.83 per share for the prior year quarter. The decrease in net income for the quarter was primarily due to decreased revenue, lower margins and a higher tax rate compared to a year ago, partially offset by decreased expenses.

Our profitability metrics remained strong. Operating margin was 58%, pretax margin was 65% and net margin was 52%. For the first 6 months of fiscal 2026, total revenue was $12.5 million, and net income was $6.89 million or $1.42 per diluted share adding in approximately $159,000 in unrealized gain on our marketable securities for the fiscal year. Comprehensive income for the first half was $7.05 million.

Turning to cash flow items. Cash flow from operations was $7.98 million in the first 6 months of the fiscal year. Accounts receivable decreased $1.1 million, primarily due to the timing of customer payments. Prepaid expenses and other assets increased by $730,000 primarily due to an increase in accrued bond interest and a decrease in federal and stick taxes due.

The decrease in taxes due was because we deducted previously unamortized research and development expenses in the past quarter as permitted under the federal budget reconciliation bill enacted July 4, 2025. Accrued payroll and other current liabilities decreased $286,000, primarily due to the payments of federal and state taxes balance due as of March 31, 2025.

Fixed asset purchases were $1.13 million for the first half of the fiscal year. Most of that was for cluster of production equipment, which arrived in July. We successfully installed the equipment in the past quarter and hope to complete deployment by the end of this fiscal year. We currently expect to spend an additional $1 million to $1.5 million on fixed assets in the last 6 months of the fiscal year to complete our production expansion. Pete Eames will discuss that equipment shortly.

Now I'll turn the call over to Pete Eames , our Vice President of Advanced Technology to talk about our plans for the new equipment and to cover new products and R&D. Pete?

Thanks, Daniel. I will cover new equipment and R&D. New equipment in the past year will increase our capacity, increase our capabilities and allow us to do wafer-level chip scale packaging in-house.

As Daniel said, we completed installation of a new equipment cluster in the past quarter and an expanded production area on the east end of our building. We've begun developing advanced spintronic processes on the new equipment and wafer-level chip scale packaging makes our parts smaller and more precise. Our R&D strategy is to make the world's best electronics for high-value markets such as medical devices, electric and autonomous vehicles, advanced factory and humanoid robotics in highly automated fourth wave factories using artificial intelligence of things.

Executing on that strategy, we launched 3 new products in the past quarter. Rotation sensor for applications such as network utility meters and robotics, a new type of data coupler for motor control and energy conversion and a new wafer-level chip scale voltage regulator for ultra miniature and ultra robust power conversion in harsh environments. There are demonstrations of the new products on our website and on our YouTube channel.

Going forward, with the ingenuity of our engineers and scientists, the new equipment will continue to accelerate product development and fuel growth.

Now I'll turn it back over to Dan.

Thanks, Pete. I'll cover sales and marketing in our annual meeting.

We exhibited at the medical design and manufacturing trade show the past 2 days in Minneapolis, part of the advanced manufacturing event. Minnesota is a health care industry hub and medical devices are an important market for us. We have a convincing benefit proposition for medical devices with small size, low power and superb reliability.

At the show, we highlighted new wafer-level chip scale parts for miniaturization of implantable medical devices and surgical robots, high-sensitivity sensors for medical device navigation, our best-in-class electrical isolators to ensure the safety of medical instruments and nano power sensors for battery-powered medical devices.

We gave away working sensor circuit boards with permanently connected batteries at the show to demonstrate ultra-low power performance. It was a popular promotion. We've been following up on some good leads from the show, and we believe our investments in trade shows will pay off in future sales.

We held our Annual Shareholders Meeting in the past quarter here at NVE proxy advisory firms recommend in-person annual meetings for good governance. All of our directors and officers attended along with our auditors. We had a chance to meet shareholders, answer questions, do live demos and provide tours. Shareholders had a chance to see our expanded production area and our new equipment.

We set up a compressor and compressed air tank to demonstrate pneumatic cylinder sensors. Pneumatic cylinders are the muscles of many robots and our sensors are their eyes. Visitors could try out our new wafer level chip scale sensors and advanced proximity sensors for advanced robotics. Visitors could try out our new wafer level chip scale sensors and advanced proximity sensors for advanced robotics.

In the formal meeting, each director was reelected named executive officer compensation was approved, and the selection of our independent registered public accounting firm was ratified. We filed the final vote counts in a current report on Form 8-K. There's a replay of the annual meeting and demonstrations on our website and YouTube channel.

Now we'd like to open the call for questions. [Operator Instructions]

Hello. Am I on?

You are.

Okay. Well, I have a quick question. It's great that you're selling out this new equipment. Are we -- should we expect to see growth in revenues for this new equipment? Or is it just growth in capabilities?

No. Part of our goal, as Pete said in the prepared remarks, is to use the new equipment to develop advanced products and to fuel our future growth. So it's both to increase our capabilities and to develop new products.

Right. And when should we see that future growth?

Well, our goal is always to grow. And in our core market, we grew we had strong growth in the past quarter. So we're starting to see -- we're starting to see the results of our R&D and our expansion plans already.

So you're referring to the sequential growth and also to the nonmilitary growth. Is that correct?

Exactly.

Okay. Okay. All right. and the chip level scale packaging, when should -- when would that ramp up?

Well, we've been sampling the products for several quarters now. We have customer interest, and we're continuing to expand that product line. So we expect it to be a significant growth driver going forward.

Going forward, meaning as soon as this current quarter?

Yes, conceivably. In certain markets in industrial markets, that's certainly possible. Our goal is to is to make a design in process as fast as possible. In the medical markets, which is one of our core markets, sometimes the development cycle can be a long time because of regulatory issues. But in the industrial markets, our goal is to get design wins.

Can you tell us again what would the advantages of chip level scale packaging be?

So the advantages are that the parts are smaller, more precise, they're more precise because they're smaller and so they have more spatial specificity. And then the other business advantage is that we can do that in-house. So we're less susceptible to supply chain risks and, of course, the costs associated with those, especially in an environment with uncertain tariffs.

Okay. This is all great to hear. This is all for me, and I apologize, could you remind me how to get off the call, how to mute my line while remaining on the call?

[Operator Instructions]

Dan, it's Jeff Bernstein.

Hi, Jeff.

A couple of questions for you. I'm curious is wafer scale packaging now allowing you to have a fully domestic supply chain for those parts?

And part 2, do you have a fully domestic supply chain for any of your other parts?

We have -- I think it's fair to say a mostly domestic supply chain. We do buy materials from overseas as most companies do, of course, but we are uniquely well situated in the tariff environment because we're quite self-sufficient. We do the key operations, including front end, which is wafer deposition and back end, which is which is test. And with the addition of wafer-level chip scale that will eliminate -- that will bring in-house one of the key elements of the supply chain, which is packaging our parts, most of our traditional parts are packaged overseas as our most semiconductors. But we are uniquely independent .

Got you. But okay. So -- but it does sound like these new parts will make you 100% domestic?

Well, I wouldn't want to quite say 100%, Jeff, just because there are other materials and chemicals and things that we're relying on supply -- but in terms of...

I really mean just -- yes, fabrication takes place in the...

Right. Yes. That's true.

Okay. Okay. That's great. And then I was curious, can you just remind us, you did mention a couple of things about the focus that you guys provide in medical devices. Can you remind us on hearing aids? I know Starkey, I think, now has a brand-new, very high-end hearing aid product coming out. I would guess that usually this stuff happens in cycles and that probably Sonova is probably doing the same thing. But just remind us what you do in that market and then also in the medical device market in terms of the part functions that you offer?

So in general, we enable communications between the device and the outside world for uploading and downloading data and the uniqueness of our type of solution is that it's very secure and difficult to hack. We probably shouldn't get into the specifics of what our customers do just because it's confidential to them. But the advantages that we offer that are important in those markets are that our parts are small. They are very low power because these are battery devices, battery-powered devices, and they're extremely reliable, which for medical device is, of course, critical.

Got you. I seem to remember that in hearing aids is really sort of detecting if somebody is holding a handset by their ear. Is that still kind of the main thing?

That's been reported, yes.

Got you. Okay. And then in cardiac rhythm management, where your customer Abbott has this sort of revolutionary or pacemakers. And now they have them for dual implantation. So 2 at a time or in each chamber of the heart. Is that a product location thing? Or is it a communication? Or what is it exactly in those kinds of CRM applications?

Jeff, this is Pete Eames. I can try to answer that question for you. Of course, we can't get into the specifics, but yes, we provide some unique capabilities for implanted medical devices in general. So we're small size and low power, as Dan mentioned, and that's a deal for small applications and battery-powered applications, among others.

Okay. That's all I'm going to get, I guess. All right.

And then you guys -- you mentioned the isolator business and some new products, I think, there. You've got this major move in data centers to 800-volt DC. I think we've talked about before you guys being compatible with some of the silicon carbide very high-power density and high switching speed, ICs that are sets that are coming out now. Are you applicable in these data center applications? And just talk a little bit about that.

Yes. We have some of the highest isolation voltage ratings in the industry, Jeff. And the voltages that you mentioned for data centers as well within our sweet spot for those applications. So it is a good application for NVE and it's something that we're excited about.

And it seems like there's probably not a huge amount of touch points in that industry to have to go after. You don't have the same problem of every engineer having their analog devices or Texas Instruments sort of website on their browser. How do you guys try to go to market to try and get into that arena?

You're right, Jeff. It's a concentrated market, which is well suited to us because we can reach those folks. And we reach them through direct outreach, through distributors that specialize in those types of energy conversion markets and through demonstrating our capabilities through our various marketing collaterals such as newsletters, application notes and videos that show the unique capabilities that we have to convert energy extremely efficiently using those new wideband gap devices that you mentioned.

Got you. And I would guess you could say the same thing for the eVTOL market. There's not a ton of players there. Is that basically the same story there? And have you actually gotten any design wins in that market?

So you're right, that's a concentrated market as well. We target the Tier 1 and Tier 2 suppliers. So those are the companies that make modules to the -- that go into the cars. So we're not targeting the nameplate car manufacturers because they are buying these sorts of modules generally from other companies.

So we target those customers. Again, we reach them through the marketing means that I mentioned, direct outreach, distributors -- face-to-face distributors and bulletins and newsletters. We can point to a number of -- or several automotive adjacent market design wins, automotive adjacent, I mean by that charging stations trucks and trains. Cars have a unique qualification process, and we've engaged with companies to go through that process.

So we're optimistic that we can add considerable value to next-generation cars, hybrid electric vehicles and autonomous vehicles.

Got you. Got you. And I'm sorry, I was meaning to ask about eVTOLs, the vertical takeoff and landing electric vehicles, which is sort of a very small opportunity of players there.

We have significant advantages in that type of power control. Obviously, there's a premium on efficiency in that market on small size and on reliability. So those are the type types of markets that we feel have the high value added that make them good markets for us.

Got you. Okay. And then I take it, Dan, that you are not a gamer, but I was really interested in that TDK press release about TMR sensors for game controllers to give the gamer an advantage over other players. And I actually think that's a really premium market because there are people who will pay anything to have the best NVIDIA chips for their systems and these kinds of game controllers. So I don't know if that's a market that you guys are able to go after, but...

I can jump in here again, Jeff. We have looked closely at consumer electronics and in this case, gaming markets. We found the devices much less demanding than our target markets and robotics, industrial Internet of Things and medical. We even did a couple of demos last year, you might have seen showing the precision and speed of our sensors in comparison to some alternatives.

Gamers look for millisecond responses. We demonstrated microsecond responses, thousands of times faster in our promotional video, so you can find all this on our YouTube site.

Got you. Okay. All right. That's great. And then I'm sorry, I think I got on a minute or 2 late. Did you say anything about the PUF market in the quarter? Did it recover? Or did it not recover in this quarter?

Yes. So the PUF market, so that's -- for us, that's a physical unclonable function. That is something that we work actively in. Many of our anti-tamper products used PUF technology. We're currently selling these into military systems, and there's many potential commercial applications as well. I think we alluded to the financials on that earlier, and I think Daniel was clear that there's quite a bit of volatility in those sales.

Got you. And so were they -- did they recover in this quarter from the prior quarter? Or were they still down?

So we talked about sequential growth, but not year-over-year.

Got you. Okay...

And as we've said, that's not -- well, and as you know, that's not one of the markets. It's an important market to us, and we're proud to be a part of that. But -- it's not really a key part of our growth strategy. We were very pleased to see the nondefense sales grow so strongly.

Got you. And lastly, Dan, we talked last quarter about your application of very high sensitivity sensors to allow people to get rid of rare earth metal magnets. And I think you guys had said that you had some design wins.

I'm just wondering kind of how long the turnaround time is to actual production of those kinds of systems and if anything has happened in the quarter since in terms of design win pace and/or getting to production on some of those design wins?

Yes. We've been pleased with the reaction to our sensors. And of course, there's been a spotlight on rare earth magnets and materials, materials such as neodymium and dysprosium which virtually all come from China and have risky supply chains and the threat of tariffs. So we've long offered rare earth free magnets as well as high-sensitivity sensors to detect them.

We've been promoting those. We promote them at every trade shows, and we have customers that are interested. And customers that remark, I can use one of these regular ferrite magnets on an advanced sensor system and indeed they can. So I think it's already translated into sales. It's difficult to characterize how many of them are replacing rare earth magnets. But I'm sure it's some of them. [Operator Instructions]

Dan, this is [ Pete Previte ] down in Florida. I'm sorry, I wasn't able to make the shareholder meeting this year, but I'm going to try to get there next year.

I was excited to hear about the progress you made over the last year. I remember touring and you guys are doing a little demo of the East side, and it sounds like you've got that all set up and you got your equipment going.

Can you talk a little bit about space? I know space is a premium there and you were looking at maybe additional buildings for future expansion? What's the situation with the space that you have there?

Well, Pete and his team did a fabulous job of freeing up the space that you saw. Of course, you saw it unfinished when you were here a little more than a year ago, and it's packed right now. But it's working for us. We renewed our lease in order to make it economically viable to expand in this building, and we have additional plans to expand if need be.

So we think this building will hold us, and we also have contingency plans that we hope to be able to execute that would involve moving certain groups into a different building in order to expand our production and other areas. So we have a plan, and it didn't involve having to move a lot of equipment from our current building, which would have been expensive and potentially disruptive.

Okay. That's great to hear. And it's great about to hear about the new products certainly getting into the robotic market. Can you talk a little bit about, is there any potential in the future? I know it might be a little bit lower margin, but are you able to potentially target the Hall Effect sensor market at any point where maybe your price at your cost structure can be reduced where you can be more competitive? Or is that just not a target market at all?

The high end of that market is a target market. So for folks unfamiliar, Hall Effect is a type of semiconductor magnetic switch. We make spintronic non-semiconductor switches. So we have a number of advantages that we've talked about repeatedly in terms of the small size, the high reliability, the low power and the ability to provide smart connections for sophisticated systems.

But it's not our goal to compete with commodity switches. But we talked about, for example, Jeff brought up the gaming market, which is a high-end market that's currently Hall Effect Sensors. And if there is a need for folks who have reaction times in the microseconds rather than milliseconds, we believe that, that's the type of market that perhaps we could look at.

And there are other types of markets like that, where they're using Hall Effect Sensors now, and they can improve the performance significantly using our sensors. Where there are -- the markets where Hall Effect Sensor is good enough and they're really cheap versions. Those are not markets that we would typically target.

Great. And I think there was an announcement today by Amazon where they want to start replacing a lot of people in their distribution centers with robots. Are those the types of robotic applications where NVE parts would potentially be used?

They are. Those are the types of industrial robots, the Industrial Internet of Things and the artificial intelligence of things that are the markets where we have a great benefit proposition.

So smart factory, smart warehouses where they need sensor inputs and they need precision and speed. That's where we can add a lot of value. So those are the types of markets that we are targeting.

Dan, this is [ Mike Ostermeyer ].

Hi, Mike.

Quick, I think, I believe a couple of calls back, you folks were thinking of breaking out your product sales by segments, defense, in particular, is my memory correct on that in your reports?

Well, we don't break out segments. We do try to give some additional context and color on these calls, which Daniel did. And so this was a quarter where our underlying core business, the nondefense business was extremely strong.

So we wanted to provide that level of detail to you, our investors. So that you can see what's going on here. So we'll continue to do that. formally putting it into reports and things, that's a little bit tougher.

Okay. And then the final -- the other question is how much comes -- your distributor sales obviously said have lower margins. What's the percent of distributor sales versus direct sales for you guys?

So we don't have a breakdown percentage-wise, but both are important, both distributor and direct sales are important to us. The direct sales tend to be more large target -- large customers in targeted markets such as medical devices, and distributor sales go to -- well, they're distributed. They go to a lot of different customers and tend to have lower order volumes.

So we consider them both important, but the uniqueness of the distributor market is that they have a lot of inventory. That's part of the value added that they provide. So when there's an industry downturn, the distributor sales as there was a couple of years ago, distributor sales tend to be depressed because they want to lead down their inventories.

And so we are very gratified to see the recovery in distributor sales that Daniel talked about, Daniel Nelson talked about in the prepared remarks.

Okay. So that tends to be somewhat -- okay. Roller coaster kind of things possibly by the industry -- the macro background of it seems.

Okay. And then the final -- I have one other thing. Is there an issue -- in the past, I used to get e-mails and things about the conference calls and so forth and for some reason and all of a sudden that's got shut down. Even having problems sending out report...

No, not that I know of, but I will -- our IT team is here, and they were making -- they're severely making notes to make sure that you get your e-mails.

Okay. Because I mean I knew it was coming, but I saw it through other newer sites...

Okay. We'll check on that. But we know who you are, Mike, and we'll keep you informed.

Dan, this is [ Don Ger ]. I'm a co-founder and retired CIO of a large wealth management firm.

I'm just curious, looking through the past reports on the contract R&D, it's been really lumpy over time. But kind of looking through the expense ratio, you're dropping a good part of that to the bottom line, it looks like. Could you just give a little bit of color on your approach to contract R&D, the amount of time that it takes and maybe takes away from other projects along the way?

Right. So contract R&D tends to be mostly defense-related and can be, as you say, lumpy and cyclical. But we view it primarily as a way to facilitate future sales and build our intellectual property portfolio. So particularly for government or government-sponsored R&D contracts, we typically own the resultant intellectual property.

So it's a way to build our intellectual property portfolio without a direct expense hitting the bottom line because as you implied in the case of contract R&D, the expenses associated with that R&D are considered cost of sales and so we make a profit on -- generally on contract R&D. It's not the main reason we do it. The main reason we do it is to develop new products where we have potential customers, particularly in the Defense segment and to build our intellectual property portfolio.

But we consider our R&D team extremely valuable. So we look at that and we look at balancing the opportunity cost of deploying valuable resources on contracts versus in-house R&D. And so that pet mix can change depending on depending on the contracts available and our internal opportunities.

Okay. So basically, they're subsidizing your internal R&D growth taking away from some of the other expenses you might have incurred and they're using it as a stocking horse for future sales. As you go into periods such as we're in right now with the government shutdown, is that affecting the upcoming months and the current period of time? Or are you structured that the contract is in place and it just keeps rolling over like an annuity?

Yes, I can address that, Don. The shutdown is probably going to be much shorter term than the typical cycles for contract R&D work. So we're not too concerned about what looks to be a relatively prolonged shutdown. And so you're expecting a bounce back in the current quarter? Or are we kind of flattening out on a quarter-by-quarter basis or quarter-over-quarter basis?

Are you talking about revenues or...

Yes.

Well, our goal is always to grow. And I think we feel fairly confident that we can grow in the current quarter. Now that's the December quarter. And part of that is because, frankly, last year is a little easier to compare than we sometimes have.

But also, we're -- we feel that we have a good pipeline in most areas of our business and the industry has recovered. So we're very optimistic about the future and certainly the long-term prospects for growth, we're very optimistic.

Okay. And the reason I was asking is it looks like any type of bounce back or had you not seen that 1/3 basically on a comparison basis year-over-year. your drop in earnings was pretty much coming from that segment. So looking into the next quarter or so, any sort of bounce back should be positive on a sequential basis to help the underlying earnings.

Yes.

And then just one kind of a little bit off-the-wall question, but looking at the interest income, which went up year-over-year despite, I believe, cash coming down overall, your marketable securities and cash and when you add them all together, at least if I did it properly, we're in a period of declining rates. Did you extend your portfolios?

So this is Daniel here, Don. So the increase in interest income in the past quarter is primarily due to the new security purchases, and those securities were purchased at higher interest rates than the ones that matured in the prior year quarter. and the decrease in our cash and cash equivalents is primarily because we paid more in cash dividends that we generate in cash flows from operations.

Well, we're about out of time. We appreciate -- was there 1 more question?

There is, if it's open, it's [ Chip Really at Rui ] Asset Management. I appreciate the discussion on the contract R&D. And just following up on that to confirm that doesn't really have any correlation with product revenue growth over the next year or so, it's really targeted just to the DoD? And that's one question.

The second question would be, clearly, the medical and sensor and robotic markets are great, but you've mentioned a couple of times the defense market is not a target market for you. Just curious on your thinking on that. If I heard that correctly, and kind of what are your thoughts? It seems to be there's a lot of spending in areas that it seems you could take advantage of there.

So just kind of those 2 clarifying questions.

Yes. Thank you for the question. So on your first question, most of contract R&D, as we said in the prepared remarks, is defense related. So the other part of your question is that we do consider defense an important part of our business, and we seek those contracts and those product sales. However, we don't see it as part of our long-term growth engine. It's not a fast-growing market.

But we believe that it also indirectly, as I alluded to in one of the prior questions, it indirectly helps our long-term product sales by building our intellectual property portfolio in a number of areas, some of which have commercial applications for larger markets.

In terms of the defense contracts relating to defense products, that can be -- sometimes we'll finish in R&D contract. And if it's successful, and Pete and his team do a great job, it usually is. Then there's often product sales that are tied to that contract. So it's not always blue sky research or long-term research as one might say. It can be targeted research at a particular problem. And if we can come up with solutions to that problem, we can sell products relatively near term.

Got it. And just for clarity, I understand the other markets, especially like robotics and things like that. Are all white space and big growth. But given your current revenue level, and again, I don't -- I'm not an expert in your company, so it's kind of a one-on-one question and thank you for indulging. It seems to me if you got spec in on weapons program missile drone or something like that or even radar or something like that, the product sales there could be enormous versus your current revenue level, too. So again, I know the defense market doesn't grow as fast as the other markets. So just help me clarify that. Is it revenue you would take or revenue you're not seeking?

Right. So that's a good point. No, we do seek the revenues, and we seek large contracts, and we invest in that market. But -- and it does have potential, as you say, but we also look at markets that are just historic with their opportunities such as the industrial Internet of Things and the artificial intelligence of things that we really see is once-in-a-lifetime opportunities. And so those are what we tend to prioritize. But we also look at defense opportunities and, in particular, larger volume defense opportunities.

I think that's all the time we have for today. Again, we were pleased to report strong increases in distributor and nondefense sales. We launched 3 new products, and we continue to deploy new equipment to fund and drive future growth.

We look forward to speaking with you in January for our next quarterly call. A replay of this call will be available on the investor events page of our website, that's nve.com and our YouTube channel at youtube.com/nvecorporation.

Thank you again.