0001376474-25-000857
SEC filingRevenue fell 6% in Q2 FY2026 due to 68% drop in contract R&D; gross margin compressed to 78.3% from 86% on unfavorable mix.
In Q2 FY2026 (quarter ended September 30, 2025), total revenue decreased 6.1% compared to the prior-year quarter. The decline was driven by a 68.2% plunge in contract research and development revenue, partially offset by a modest 0.6% increase in product sales. Gross margin fell sharply from 86.0% to 78.3% of revenue, attributed to a less profitable product mix and a higher proportion of lower-margin distributor sales. Operating expenses declined 7.4% as selling, general, and administrative costs dropped 23.1% due to timing of sales activities and resource reassignment, while R&D spending edged up 3.1% on new product development. Interest income rose 4.3% on higher rates. The effective tax rate increased to 20% from 17% in the prior year, primarily due to non-cash impacts of tax law changes on deductions. Net income decreased 16.3% as a result of lower revenue, compressed margins, and a higher tax rate, partially offset by lower operating expenses and higher interest income.
For the first six months of fiscal 2026, total revenue fell 8.1%, with product sales down 5.3% (led by defense industry declines) and contract R&D down 50.8%. Gross margin was 79.4% versus 85.8% a year ago. Operating expenses decreased 13.6%, with R&D down 7.7% (completion of wafer-level packaging activities) and SG&A down 22.8%. Net income decreased 14.5%.
Product Sales: Increased 0.6% in Q2, driven by strong nondefense product sales, which offset a decline in defense industry sales. Defense sales remain volatile due to procurement cycles. Over six months, product sales declined 5.3% due to lower defense orders.
Contract R&D: Declined sharply in both Q2 (-68.2%) and the six-month period (-50.8%) due to timing of revenue recognition and a decrease in the number of active contracts. This segment contributes a small portion of total revenue (3.3% in Q2) but experienced significant volatility.
Management expects a full-year effective tax rate of 16% to 17%, benefiting from advanced manufacturing investment tax credits of $700,000 to $1,000,000. These credits are expected to offset the non-cash impact of tax law changes. Additionally, the company anticipates accelerated deductions of previously unamortized R&D expenses, which should reduce cash taxes by approximately $1,000,000 over the three quarters starting December 2025. On the capital expenditure front, an additional $1,000,000 to $1,500,000 in fixed asset purchases is planned for the last six months of fiscal 2026 to complete a production expansion. Cash dividends remain a priority, with a $1.00 per share dividend declared in October 2025, funded by operating cash flow and maturities of marketable securities. No specific revenue or earnings guidance was provided.