Good day ladies and gentlemen and welcome to the NVE Conference Call on the Second Quarter Results. At this time all participants are in a listen-only mode. Later we will have a question-and-answer session and instructions will follow at that time. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Dan Baker. Sir, you may begin.

Thank you, and good afternoon. Welcome to our conference call for the quarter ended September 30, 2012, the second quarter of fiscal 2013. As always I am joined by Curt Reynders, our Chief Financial Officer. This call is being webcast live and being recorded. A replay will be available through our website, nve.com. After my opening comments, Curt will present a financial review of the quarter and fiscal year to date. I'll cover business items and we’ll open the call to questions. We filed our press release with quarterly results plus our quarterly report on Form 10-Q with the SEC in the past hour following the close of market. Both filings are available through our website. 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 risks in continued profitability, uncertainties relating to future revenue and growth, risks related to developing marketable products, uncertainties relating to the revenue potential of new products, risks in the enforcement of our patents, litigation risks 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, 2012 as updated in our quarterly report on Form 10-Q for the quarter ended June 30, 2012. The company undertakes no obligation to update forward-looking statements we may make. We are pleased to report strong earnings for the quarter. Net income was $0.50 per diluted share despite a revenue decrease primarily due to a decrease in contract R&D. Gross profit margin increased to 72% compared to 65% last year and operating cash flow increased to $6.43 million for the first half of the fiscal year. Now I will turn the call over to Curt for details of our financial results.

Thanks, Dan. Total revenue for the second quarter of fiscal 2013 decreased 12% to $5.82 million due to a 43% decrease in contract research and development revenue and a 6% decrease in product sales. Contract R&D revenue decreased due to the completion of certain contracts and contract activities. It has continued to be challenging environment for government funding. The decrease in product sales was due to decreased sales to certain medical device customers and decreased sales into industrial markets. We believe sales were impacted by inventory adjustments by our distributors and end customers due to continued weak economic conditions and customer specific conditions. Gross profit margin increase to 72% of revenue for the second quarter of fiscal 2013 compared to 65% for the second quarter of fiscal 2012 due to a more favorable revenue mix, a more favorable product sales mix and improved manufacturing processes. Total expenses were roughly flat compared to the second quarter of fiscal 2012 as we controlled expenses in a challenging economy. Interest income increased 4% due to an increase in interest bearing marketable securities. Income before taxes for the quarter was $3.62 million and pre-tax margin was 62% versus 56% in the prior year quarter. The provision for income taxes was a higher percentage than the prior year quarter. 32.5% of income before taxes compared to 30.9% last year, because of higher effective tax rates. The higher tax rate accounted for about half of the decrease in net income from the prior year quarter. Net income for the second quarter was $2.44 million or $0.50 per diluted share compared to $0.52 last year, and net margin was 42% versus 39% in the prior year quarter. September 30 was the half way point in our 2013 fiscal year. For the first half of the fiscal year…

Thanks, Curt. I will cover product development, patents and governance. We have said before we have a customer who is planning to use our custom spintronic biosensor in a new medical diagnostic instrument. We have received reports the program is behind schedule but we have no indication of any show stopper problem. As we have reported, using our technology our customer has demonstrated significantly increased sensitivity for in-vitro diagnostics compared to conventional methods. We continue to believe this could be an important new market for us. As evidenced by our excellent gross margins, we are well positioned to take on larger markets that might be more price sensitive markets such as automotive and consumer electronics. One examples is controller area networks or CAN, which is a bus used for applications such as automotive system interconnect. Our second generation CAN transceivers were introduced in May and in the past quarter we introduced the so called wide-body version that offers superior high voltage performance. We have large potential customers evaluating the parts now. This quarter and next we expect first silicon of controller area network transceivers from our partner for a third generation of CAN transceivers which will be targeted primarily at high volume, hybrid electrics vehicles. We will combine the transceivers which use conventional semi-conductors with our spintronic coupler technology. We plan to sample these third generation parts next quarter as we began the automotive certification and qualification. Our CAN partner is a large semiconductor company with significant automotive presence. It plans to sell our third generation parts under its brand. This private label strategy will provide opportunities in the notoriously insular automotive industry and it could significant reduce our time to market. A key element of the marketing strategy for our catalog products is to make it easy for engineering…

(Operator Instructions) Our first question comes from Steven Crowley from Craig-Hallum. Your line is open.

In terms of trying to better understand the revenue decline both year to year and sequentially, it seems like you dropped some bread crumbs for us as it related to both major side of your business. Both medical and industrial. Can you give us a flavor for where the biggest influence was in the period you just reported?

Well, Steve, one of the areas is the CRM business which can be pretty volatile for us because of factors, some of which are beyond our control such as regulatory issued, reimbursement policies and market share shifts between CRM manufacturers. These changes can be amplified by inventory adjustments as our customers adopt to their environment.

In terms of the competitive landscape both for your products in the industry and with your major customers, has there been any change their?

This is Dan. We have detected any changes in the competitive environment. We believe that we have significant advantages and a strong benefit proposition in the medical device markets that we serve. So what we have seen is some economic weakness and some factors as Kurt mentioned in the prepared remarks, some factors that are specific to certain customers. But in the long run we are very optimistic. The demographics are favorable for CRM as the population ages and things do seem to be improving. A lot of what effects is not just the level of sales of volume, it’s the expected change in those and whether those are incorporated into our customers planning. So to the extent that they have been incorporated into our customers plans where we are actually pretty optimistic despite pretty weak market expectations in some of our key markets.

Now in terms of the medical area and your progress with new customers and/or new applications. Can you give us at least a qualitative sense for what kind of progress you have been able to make on that front? And is that progress, is it there being masked by these larger forces?

We have been making progress in other areas of medical devices. We have talked about specifically neurostimulators which is a fast growing market and one where we have similar benefit propositions to what we have in CRM and life support medical devices. So that’s an area where we are pleased with our progress and we have several customers that we are working with in the early stages. But it’s hard to predict on those. Sometimes regulatory hurdles and things can take a while but this is a business that we believe has excellent long-term potential and we are investing in it with that in mind, that it can take a while to develop but it can be an excellent revenue and business for us for many years to come.

That’s probably pretty good segue to my question on the biosensor opportunity and trying to understand to the best that you can allow us to. What maybe hanging up or slowing down the progress of your one major initiative that you talked about? Was that customer who is a bit behind schedule? Can you give us a little bit of a feel for why that’s taking place and whether or not some of those regulators of your progress can lesson as we go forward over the relative near-term or that’s even plausible?

Well, we are certainly hoping that that project can move along. Based on our customers demonstrations and the information that we have provided, we believe they have made a lot of progress on the design. And we have no indication of show stopper problems. We believe the sensors are performing very well and we don’t have, unfortunately we don’t have visibility into the regulatory or governmental status. But we look at this as a long-term opportunity that can be an excellent business for years to come. We have proven advantages in terms of our sensitivity, speed and size. We have a partner that can make this happen. It’s a large market. We are providing a disposable element, so that we are selling one device per test. So we see this as an excellent business model where we have significant advantages and we see it as a long-term opportunity. We are doing everything we can to move it along as quickly as possible. But we believe that the sensors are not the pacing factor.

Now in terms of how this opportunity likely plays out with this customer. Are you forced or is the equation such that it’s a geographic opportunity in terms of markets they tap that are in sequential order. In other words you can't get to the second market before you get to the first market or is there stuff being done for this to be a more parallel opportunity where they have time to go after different market even if the first one has taken long. I don’t know if that was a particularly coherent question but hopefully you got enough of it to throw an answer as us.

No, I think I understand what you are getting at, Steve. We believe that our customer is working to get it approved in one market first. Typically, that’s not the U.S. market because regulatory approvals often take longer here than they do in other countries. What companies often do is that they run into delays in one market. Sometimes they can look at other markets and as you say try to work that in parallel. And as I say that we don’t have an awful lot of visibility into that but we have a partner that knows what they are doing and can make this happen and we trust to make those judgments. And we know they want to get it to market of course just as we do.

Now in terms of that parallel opportunity development, you preserved your right to not be exclusive with this partner. I trust the thought process was that they would be rolling before you got into the thick of things with other potential partners. But have you been able to develop some of those other interested parties in this technology or is that also kind of a sequential operation once you prove yourself in this opportunity, with this customer, you will be going after other customers?

We can [be left] our other customers both contractually and strategically. And that’s been what we have been pursuing. There is nobody as far along as what we have been able to describe to this customer where they have been buying pre-production units from us and they have demonstrations that show the advantages over conventional technology. But we are continuing to pursues parallel opportunities and we have a fair amount of data based on some of other government research that we have done relating to this technology, where it’s always helpful to have a customer and a design and a product in the market to get additional customers. But it’s not essential and we are continuing to pursue other opportunities for slightly different applications of the in-vitro technology that we have developed or different markets.

I am going to hop back in the queue and give somebody else a chance but you will probably hear from me again in this call. Thanks.

(Operator Instructions) Our next question comes from William Driscoll from RMB Capital. Your line is open.

Just some questions on the capacity expansion in light of the product sales levels that we are seeing. Could you just explain to us how this is not more speculative build versus you have something that you are actually thinking about? Because this is probably one of the most disappointing product sales levels I have seen if I go back even several years. So if you could just explain us the thinking behind the capacity expansion. Thanks.

Thanks, Bill. Well, it’s part of a growth plan. We have a number of markets that we are pursuing that will open up large potential product sales. And part of our plan is to have the capacity to build them. And that’s important for perspective customers to see that we have that capacity because they are going to be relying on us to deliver products to them on time. And the other areas that it will help us with are to provide redundancy and that’s important to some of our customers who are in critical applications where they want to know that we have the capability to keep manufacturing despite possible equipment problems of shut down. And then we believe that we will reduce our costs with more efficient equipment. So there are number of reasons for this but the main reason is to support our growth strategy and we have talked about some of those areas that we have which are -- in past calls we talked about private label products. Automotive is one that we have talked about, compassing and bio-sensors. So we believe we are going to need this capacity.

And the capacity, is that a first step when you start dancing with these larger players or is it something that they have requested of you as they have started to talk to you more?

It varies. But we believe that having capacity is important for existing customers or near-term customers, and then for some prospective customers who want to be sure that if they rely on us that we have adequate capacity. Adequate, what we sometimes call sprint capacity, which is that if they need a lot of parts in a hurry that we can provide that. So this is part of the service that we provide to our customers, part of our unique and distinctive confidence. So we think it’s important for our future growth in addition to just the straight capacity that we believe we are going to need.

And as far as on the CRM side, there is I mean [St. Jude’s] had some problems with some of their products. Nothing with their problems has to do with your products. Is it a different part of what's going on with their CRM devices?

Right. That’s correct. We have never had reports that any of regulatory issues or any other issues were related to our parts. You might be referring to the talk in their conference call which was this morning about possible Form 483 which is a warning letter. That has nothing to do with us.

And is there anything else you could tell us maybe about the calendar as far as the Everspin litigation goes?

Well, we have studied a number of documents. We remain very confident of our position. We have asked for a reasonable royalty, triple damages for willful infringement. The court hasn’t ruled and is probably a ways from ruling on any of that. But we certainly feel very confident of our position and our leadership in the MRAM market.

Is there anything you could tell us about the amount of sales that Everspin has been able to do? I mean obviously as a private company there is not a lot out there that you can see. But I was just wondering if you could give me a sense of what the sales level is there as far as MRAM that that they are putting out?

You know as you say they are a private company and that’s something where we just aren’t in a position to talk about that. I guess what I could say is that what we look at is -- well, what we look at with any investment that we make our shareholders dollars is, when we spend those dollars, is there enough potential return to make it worthwhile. And so that’s what we consider when we make any kind of decision. So obviously how much is being sold would enter into that.

And as far as the cash balance, is there a number or cushion number that you feel that’s okay, that’s adequate to cover litigation and to make sure they know that we are real. But if potentially the stock is weak would you guys ever step-up and start buying your stock, to get to have a emergency board meeting or anything on like that to get that going.

We wouldn’t need further board approval. Our board has approved a buyback program. It has certain caveats and so we can't predict when or under what circumstances we would buy back stock. But we do have a program in place that with those caveats allows us to do that. And we don’t have an exact number or bright line number of how much we want on our balance sheet or need on our balance sheet. We believe that one of the reasons to have a strong balance sheet is to protect our intellectual property portfolio. That has not been a significant expense. It wasn’t in this quarter, this most quarter. So we believe that we have strong enough balance sheet for a variety of options.

And has headcount stayed pretty steady? Have you laid off anyone during the quarter or, because I was just looking at the R&D line. Because that obviously has popped up the contract research sales declined and the government stepped away and you brought some of that more on to your own income statement but now it’s in decline again and we haven’t really seen much. We have seen a pretty good pop but not a huge pop in the overall contract research line.

Right. And mostly what we have done in R&D is to redeploy the talented folks that we have there on to internal R&D programs that we believe will pay off in the long-term. So there are always adjustments, particularly in the production area relating to revenue levels and expense levels. But we certainly haven’t impacted our R&D capability and we actually have quite a bit more R&D going on, company sponsored R&D. And we do that because we believe we have programs that are going to pay off in the future and we have mentioned some of them.

Thank you. Our next question comes from John Jung from Trailhead Asset Management. Your line is open.

I wonder if you could perhaps give us a little more color on what you are doing with regard to sales and marketing. You have got a very strong gross margin. You have got a tremendous amount of cash on the balance sheet and flat revenues. And I am wondering if you might be able to describe for us what your sales and marketing organization looks like. How many people do you have and what kinds of things are you doing to get sales moving again.

Sure. So in sales and marketing we are primarily through distribution. And that gives us an opportunity to leverage a lot of feet on the street and a lot of eyes on desktop through websites, through our distributors such as [Digikey] and [Newark] here in the U.S. which have a very high share of the eyes and ears of the engineers who design in our products. So we are working with those folks and our other distributors. We have face to face distributors in some territories such as Asia. We are working to increase our exposure to get the benefits out. I mentioned some of those evaluation kits. Those are very important to engineers. They want to see how our products work and those have been an effective tool in augmenting sales. That’s one for us. We mentioned private label which gets us into markets that we can't get into otherwise because of our size and our brand. So we are working with, I mentioned the specifics of a large semiconductor company that has presence in a number of markets including automotive. And then finally we are looking at -- in addition to the assets that you mentioned, we have excellent gross margins. So we are looking at business that might be lower margin but has high volume potential and we see a number of opportunities there that we probably couldn’t have pursued before because we didn’t have the capacity or we didn’t have the margins to do it. So we see excellent opportunities in our core markets to grow sales which I think is what you were referring to, in addition to the new products and the developments that open up potentially very large new markets in different areas, different markets than we serve now.

Thank you. Do you have any sales people that are going out in training the distributor sales people? Any effective outreach in terms of training, education in why the NVEC products are superior to the alternatives because it’s a different technology.

Yeah, absolutely. And in fact Tim Hazelton who is our Vice President of Distributor Sales is heading on the road shortly. And he does a lot of that. He is very good at it, particularly with our face to face distributors. With some of our more catalog internet oriented distributors, those are distributors such as [Digikey and Newark] here in the U.S., we do some of that where we do face to face training. But a lot of it is providing training collaterals which are videos, which are evaluation kits, which are clear concise collaterals with the advantages that engineers can see. And if you are interested in some of those you can find them on our website and our folks do a really very good job of taking all of this exotic technology, reducing it to a level of what's important to our customers based on customer feedback. Making it to sync and crisp and powerful. So we have been -- and we have been doing more of that. There are additional videos available through our own website for [Digikey]. And there are other types of collaterals that are out there. And we do a fair amount of phone communication with customers and prospective customers. We make ourselves very accessible. We make sure that we get back to our customers very quickly with questions and we feed those questions back into these materials. And that allows us to get a great deal of reach and that’s the way engineers do a lot of their purchasing and evaluation and design decisions. It’s through the internet.

How many people do you have in the sales and marketing organization at NVE?

You know we don’t, I don’t think we break it down that way. It’s probably around, just looking at it, maybe 10% of our company. And then we for example, I will take a turn on isolator support or some of our other folks will too. Because first of all it brings us closer to the customer and second of all it gives us an opportunity to make sure that our customers are extremely well supported. But we don’t try to compete with a number of people. We can't compete with a large semiconductor company by having more people in sales. We rely on our distributors and that’s proven to be a very effective business model. It has some disadvantages in terms of the tenancy for inventory adjustments that can magnify changes in sales. But we believe it’s an excellent business model and it gives us hundreds of feet on the street and probably hundreds of thousands of desktops where people, engineers can see our products. Quickly see the advantages. So it’s not about the brute force of trying to have more people than conventional semiconductor companies.

Well, I guess you are hearing the frustration from watching the sales flatten out here and a big cash balance. We are wondering if you should be spending more money on sales and marketing, that’s obviously why you are the CEO. But the question comes up because we don’t understand what your opportunities are?

Well I understand what you are saying and I can assure you that we are working to grow our business and we will spend when it’s appropriate to spend. We have been and we will be doing more of that. I think probably the best opportunity that we have is to look at high volume lower margin businesses and so we have cautioned in the past that we don’t use gross margins as a primary metric. We are looking to say how do we maximize our contribution margin, who do we maximize our profits, if you will. And that means looking at large markets with perhaps smaller gross margins but we think that’s an opportunity for growth.

Well, we agree with that. So I hope that works out for you, thanks.

We are going to do our best. Thanks.

Thank you. Our next question is a follow-up from Steven Crowley from Craig-Hallum. Your line is open.

Yes, Dan, on the topic of industrial distributors and their activity in the quarter and since the quarter and maybe even their mindset that underlies their activity. What can you tell us about how that played out in the September quarter and maybe subsequently were they spending out inventories in the beginning part of the quarter and then started to return to normal. Was it the opposite of that, what's happened since? If you could give us some color there I think we would all appreciate it.

Sure, Steve. Maybe I can take that. Our business is susceptible to inventory corrections. We are sensitive to not just the rate of our customer sales but the direction and whether their sales are more or less than they expected. If sales are less than expected they may reduce orders significantly to return their inventories closer to targets. This magnifies changes and can make our sales volatile. In the long run though, inventories will even out and we are very optimistic about the future growth of the company.

That’s kind of the back job for the question. I appreciate you explaining the mechanics. I guess I am wondering if you feel like you experience most of that inventory correction either early in the quarter, during the quarter, partially in the quarter and whether or not you are seeing or have seen a return to more normalcy where those order rates might better reflect end-sure demand.

This is Dan. We actually think that we are optimistic about the future because it appears that at least with some of our key customers that that might be behind us. Even though the outlook in some of our key markets has been kind of sluggish. The semiconductor industry as a whole is relatively sluggish and forecasts have been, as you probably know, forecasts have been reduced. And what tends to happen as Curt was alluding to is then when those prospects get reduced there is the distributors and other customers, other end-user customers tend to reduce their inventories. They try to adjust them to the condition. So that magnifies the effect. The timing varies with customers and markets but we believe that at least in some cases it’s behind us. We have indications from some customers that there might be some sluggishness for perhaps another quarter and there are forecasts that the CRM market might start to recover roughly mid-calendar year. But those forecasts we presume have already been incorporated into the inventory levels that we saw in the past quarter. So that gives us some optimism that the adjustments are at least partially behind us and that the future is brighter because it will return to sort of the growth mode, the normal growth mode.

That’s helpful. Now in terms of the private label partner that you gave us some color on. I am wondering what you can tell us in terms of the pace of the progress that the programs with that customer are making. Whether -- we are talking about the product and it being ready for sale but also the follow through of that private label partner to bring those products and to get them showing up on your revenue line. What can you tell us about that?

Well, we have been very pleased with how that partnership has gone overall. And so as I mentioned in the prepared remarks, we are looking for a next generation of CAN transceiver, this quarter or next. And that will be a product that will be sold under our brand as well as their brand. In the meantime we have products that I also referred to CAN transceivers that are being sold under our brand. And they have been very helpful in referring us to large customers of theirs that needs isolated CAN transceivers. These are products that they can't currently provide. So even though they have some interest in it in selling the transceivers but they have not selling the products per say or the products themselves. So they have been very helpful in, first of all, developing these next generation products and also in helping facilitate sales of our home branded in the relative near term.

Have those sales materialized or will they get all reflected in your Q3 results, actually Q2 results and might we see some in those Q3 results, that seems plausible given that commentary. But I don’t want to misread you.

Right. Well, some of -- I mean they vary. It wasn’t a significant factor in the most recent quarter. I think we mentioned that we had several large customers evaluating these parts, these second generation transceivers. So some of them could be relatively quick. Some of them are longer-term. Are longer term developments. But the advantage of products under our brand is they are available right now. We are not waiting for the next generation, the third generation, and we are not waiting for private label partner to qualify and began marketing their own parts. We are proceeding with our own branded parts as quickly as possible in order to get into those markets. Primarily industrial markets as opposed to automotive markets.

Then last question from me. Post the capacity expansion that you put in place year-to-date and kind of diagramed or laid out today as being in motion near-term. Now what kind of volume or revenue capacity have you put in place relative to the roughly $6 million that you ran out on average on product manufacturing or product revenues in the first half of the year, $6 million per quarter. Is it double, is it three times? What's the order of magnitude that we are talking about?

Well, it’s a lot more than the 40% which is the sort of square footage increase that Curt referred to. Because as you can imagine there are various processes some of which we have plenty of capacity in now and some of which could become limiting. So our goal was to have a very significant capacity increase to do it with a minimum of risk and a minimum of expenditure. But we are not doing this for some kind of incremental capacity increase. This is to dramatically increase our capacity. And it’s hard to, it depends on the mix and it depends on the type of product but it would be significantly more than the revenue run rate that you were referring to.

So thinking you have at least doubled your revenue capacity with this capacity addition that’s in motion isn’t out and [left] field?

No, I certainly wouldn’t think so. There obviously have to be a lot of caveats and asterisks around that. It depends on the type of business and the ASP and the number of steps that they take and so forth. So it’s hard to reduce it to a number. But we wouldn’t have taken on this kind of project which is a relatively large project and as someone else pointed out, a significant expenditure, if it wasn’t going to very significantly give us the potential to move the needle.

Thank you. Our next question comes from [Gene Freelander], private investor. Your line is open.

I appreciate it but all the questions I had have been answered. Thank you very much.

Thank you. I show no further questions in the queue and would like to turn the conference back to Mr. Dan Baker for closing remarks.

Well, thank you everyone for participating. We reported solid earnings margins and cash flow in a challenging quarter. And as we have talked about we continue to see a bright future for new products. We look forward to speaking with you again in January to report our third quarter results. Thank you again for participating in the call.

Ladies and gentlemen, thank you for participation in today's conference. This does conclude the program and you may all disconnect at this time.