Good day, ladies and gentlemen, and welcome to the NVE Corporation Fourth Quarter and Fiscal Year Results Conference Call. At this time, all participants are in listen-only mode. Later we’ll conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call may be recorded. I will now introduce your host for today’s conference, Dan Baker, President and CEO. You may begin.

Good afternoon and welcome to our conference call for the quarter and fiscal year ended March 31, 2013. As always, I’m 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 the fiscal year. I’ll cover business items, and we’ll open the call to questions. We filed our press release with quarterly results plus our Annual Report on Form 10-K with the SEC prior to the start of this call. 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 uncertainties related to the economic environments and the industries we serve, uncertainties related to interruptions and the government funding process such as sequestration, uncertainties related to future revenue earnings and growth, risks related to developing marketable products, uncertainties related 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 just filed Annual Report on Form 10-K. The company undertakes no obligation to update forward-looking statements we may make. We’re pleased to report strong earnings for the quarter and fiscal year. For the quarter, net income increased to $0.64 per diluted share and gross margins increased to 74% from 70%. For the fiscal year, net income increased to $2.43 per diluted share compared to $2.34 last year and we had record growth in net margins, gross margins increased to 74% from 67%, and net margin increased to 44% from 40% last year. Now, I’ll turn the call over Curt for details of our financial results.

Thanks, Dan. I’ll cover quarterly results, fiscal year results and the balance sheet. Fourth quarter product sales decreased 11% from a record year ago quarter. That decrease was partially offset by 88% increase in contract, research and development revenue resulting in a total revenue decrease of 5%. Product sales increased 11% sequentially from the third quarter, which was our second consecutive quarter of double-digit sequential increases. Summary quarterly data are in the 10-K filed today. The contract R&D increase compared to the prior year quarter was despite a challenging environment for government contracts. Such increases are unlikely to continue however, because the near term funding environment is quite challenging. Gross margin increased to 74% of revenue for the fourth quarter of fiscal 2013 compared to 70% last year due to a more favorable product sales mix and more efficient manufacturing. The increases in margin allowed us increased earnings despite the revenue decrease and position us well to address high volume, price sensitive markets. Total expenses decreased 8% for the fourth quarter of fiscal 2013 compared to the fourth quarter of fiscal 2012, due to an 18% decrease in selling, general and administrative expense and 1% decrease in R&D expense. The decrease in SG&A was primarily due to decrease staffing. Despite decreased revenue income from operations increased 3% due to an increase in gross margins and decrease in expenses. Interest income decreased 4% for the quarter due to lower interest rates partially offset by an increase in interest-bearing securities. Income before taxes for the quarter was $4.62 million and pre-tax margin was 64%. The provision for income taxes was a higher percentage in the prior year quarter, 32.8% of income before taxes compared to 31.4% last year due to a higher federal effective tax rate. The higher federal rate was due…

Thanks, Curt. I will cover product development, expansion and governance. Our goal is rapid growth. To do that, we need new products, sufficient manufacturing and plenty of capacity. While many in our industry cut back in a difficult year, we made substantial investments on all three fronts, product development, manufacturing efficiency and capacity. In the past year, we’ve been marketing a number of new products including lines of higher performance network couplers, smaller network couplers and lower price network couplers. We also made good progress on longer term product developments including couplers for in-car networks, lower power couplers, isolated power converters, current sensor for factory automation, low field sensor applicable to consumer and industrial, electronics and high field sensor applicable to medical devices. We believe each of these areas has significant revenue potential with existing and new customers. I’ll start with recent product introductions. A major advantage of our technology is miniaturization, extending that advantage in the past quarter we introduced three new isolated transceiver part type that are half of size of existing part. The smaller sizes is what we call our dash 3 package, the new parts extend in these miniaturization advantages, save valuable circuit board space, reduce system costs and simplify interfaces. We discuss two of the new part types on our January call. One of those was for high speed RS-485 networks and the other for PROFIBUS networks. Later in the quarter we introduced a third part type as planned for cost sensitive RS-485 networks, RS-485 is a popular industrial control and process automotive network. This newest device is code name the IsoLoop 30/85 and it is important element of our strategy to win more price sensitive business especially in Asia. Efficient manufacturing as evidence by our record gross margins position us to take a large…

Thank you. (Operator Instructions). Our first question is from Steven Crowley of Craig-Hallum Capital. Your line is open.

Good afternoon, gentlemen.

Good afternoon, Steve.

Afternoon.

Couple of questions. You attempted to give us some color on some of the programs that was talked about in the past. it seem like the efforts with your partner targeting the automotive market have clearly made some headway, what I don’t have a good sense from your comments is, how much more runway has there until the products you’re in a position to generate revenue for you. We’re still talking – we’re talking about several quarters or are we talking about couple of years? What kind of visibility do you have on that?

Well we think that sampling the parts was an important milestone. So there is some testing that needs to be done for automotive qualification, automotive applications are very demanding. Our current goal is to complete that testing and qualification this calendar year in 2013. There are – there is a lot to that and there are some risks in that schedule but that’s our goal. We still have the prospects for revenue and sales in non automotive markets and we’ve been selling Controller Area Networks transceivers into those markets. So we see near term opportunities there perhaps not as big as the automotive opportunity. And then the other thing that will pace that opportunity is the adoption and the roll-out of electric cars and hybrid electric vehicles. And that is probably that’s ramping up fairly rapidly albeit from a small base. So we hope in the next few years that we’ll start to see a switch in cars and the mix of cars from conventional gasoline cars more towards hybrid electric vehicles. And we believe we have an excellent benefit proposition and some great opportunities for growth there. But of course there are many other things that are pacing the rollout of hybrid electric vehicles.

Well. And you would also need to be in new design winds or new vehicles as the market started to develop, correct? Its not like you’re in some of those vehicles now and adoption would guarantee revenues for you?

Right. That’s correct. And we can sample parts and we have parts available for sampling prior to automotive qualification. That’s not uncommon. And so we’re beginning that process now.

And in terms of the utilization of these products or similar products the CAN transceiver line into other markets. What are some of the applications that have been driving meaningful growth has there been meaningful – it sounds like there has been meaningful growth I guess I don’t know off of what base. But help us understand the significant of other applications and understand a little bit about them?

Sure. Well, Controller Area Networks are used in a variety of applications one of the most important for us is automotive factory. So not only our Controller Area Networks use the in cars, they are use to make cars. And so those – that’s a market that we serve now that doesn’t require the environmental qualification and testing that in car application have, of course the factory doesn’t have to withstand harsh Minnesota winter and the sorts of things like cars do. So that’s an application space. And there are number of other areas where those networks are used in industrial process automation, things like factories, chemical plants, process, control, and factory automation. So our parts are being used there. We’ve received an excellent reception on our parts. As I mentioned in our prepared remarks, the parts are faster, smaller and more reliable then competing approaches. So our – we’re very pleased with the reception those parts have had received and there growth rate in that primarily non-automotive market. But it is a relatively small base. These parts are relatively recent. We just introduced the – what we called our second generation part last year. So we’re – but we’re seeing some great interest in those. And then we see an excellent long-term market in automotive.

Is it reasonable to think that there could be 10% your product sales mix and over the next couple of years, is that a reasonable kind of increment to your business that this opportunity outside of the automotive vehicles in particular represent or is it – am I off on scale could have been much bigger than that?

It certainly could be that in that scale or bigger. There are some large opportunities their in non-automotive markets, and our goal is to win those. We are very efficient in our manufacturing as evidenced by our margins. So we feel we can be price competitive. We feel we’ve got technical advantages. And we’ve got a long history of building excellent reliable products and some of the most demanding applications in the world. So we’re optimistic about those. It’s difficult to put a number on them, but Controller Area Networks are popular protocol and we also se excellent potential in some of the new products that we have for RS-485 and PROFIBUS that were also introduced in the past quarter. And just before I leave the topic off to my partner, and the efforts in the automotive market is, I know what’s been your intention, it’s been intention of the partnership and the working relationship for this firm to sell these parts under their label. Is that a definitive outcome at this point? Maybe it doubles the definitive outcome three months ago, where are we? I mean are you down in that path analysis to question of when those parts get formally released or where are we in that curve?

Well, that’s still the plan. I guess there are no guarantees. We believe that we produced an excellent part. We tested it here on some of the key parameters. We mentioned the speed that we’re pleased with. We had planned to have a high speed best-in-class part, but it’s great to actually see the data. So our customer are our partner and this venture is going to be evaluating those parts. And our assumption is that if the parts meet their expectation in ours and right now we believe that they will that they will agree to sell them under their brand. So there are some qualification and some testing involved and then they need to develop marketing collaterals and introduce the part and get into their distribution channel and their marketing channels.

Can we talk a little bit about what transpired in the fourth quarter with the product sales. As you mentioned in your prepared commentary, you had another quarter of double-digit sequential growth, albeit to a level that was below a year ago which was a very big number. But in that growth in Q4 of ‘13 what were the drivers, medical markets, industrial markets, certain customers, and what’s the health of those drivers as we move forward here?

Steve, I think the growth was – it was a combination that medical markets were pretty strong and the industrial markets. We’ve seen them slowly recover, so they were better in the fourth quarter than the prior quarter.

And in terms of the current business context as you move into the new fiscal year was there anything anomalous about those favorable trends in the fourth quarter or is it best that you can gather that – encouraging trends continuing in those business. How would you characterize it?

I would characterize it as encouraging. I don’t think there is anything unusual that that happened in the fourth quarter and the trends look as far out as we can see. They’re looking encouraging into fiscal year ‘14.

I think we are seeing signs. I think we are signs of the semiconductor industry recovering and that’s encouraging. It was a down year in the semiconductor industry in calendar year 2012. But the forecast are for improving conditions this calendar year – calendar year 2013 and I think we’re seeing signs of that as well. And the medical markets, medical device markets remained challenging generally but I think in our particular customer base things have been pretty encouraging.

In terms of addition of key customers in medical even if you can’t mention names have there been some notable additions, notable in the sense that their meaningful customers should be even more meaningful on the future?

There have been and there is been some growth in some of our early stage customers. Medical devices can – business can develop fairly slowly because of the regulatory challenges that they face and the times involved in that. So we’ve seen good progress in some of our medical device business and we find that encouraging. So of course our success is tied to this success of our customers’ products and that’s sometimes difficult to predict. But I think we were pleased in the quarter while it didn’t really show a lot in our revenue line with the progress that we’ve made in new medical devices and progress that our customers have made and getting some of these earlier stage products into production.

Great. I’m going to hop back in the queue, give some other people some chance and I’ll come back. Thank you.

Thanks, Steve.

Thank you. Our next question is from Tom Bergen. Your line is open.

Thank you. Good afternoon, Dan and Curt.

Good afternoon.

Afternoon.

I’m an individual investor here. And I couldn’t help to notice that this was the first time in many quarters that you haven’t mentioned MRAM in your prepared remarks. And so I’ll take it upon myself to mention it. Is – and can answer them just generally as possible would be great. If you could give us any heads-up on the pending litigation between you and Everspin Technologies that would be appreciated?

Okay. In terms of the status of the sued with Everspin, we did update in our 10-K the legal proceedings. So the case that we have against them has been stayed until June, which is not unusual because the patents are subject to reexamination. So the court has stated those proceeding so there isn’t much new that we can report there. Also Everspin sued us shortly after we sued them. And that law suite is still making its way through the courts. We certainly feel very confident in our position in both cases.

Great. Thank you for that. It’s been a while since you’ve spoken of second generation MRAM. Dan, if you don’t mind again maybe just generally in terms of industry adoption what can you tell us about the magneto thermal MRAM vertical MRAM as well as the spin momentum MRAM?

Well, I’m glad you asked. We continue to see excellent promise in next generation MRAM technology and particularly in spin momentum transfer technology which is one of the second generation technologies you mentioned. We have excellent intellectual property in that space. And we see that it’s having the potential to increase the density of MRAM perhaps dramatically because it reduces the power consumption and alleviate some of the barriers to the thermal eliminated cell size. So we see that as having excellent potential. Although, right now, it’s still in the development stage, and as far as we know, nobody is making productions spin-in MRAM, but we continue to see excellent promise there. And MRAM remains one of our research thrust.

Okay. Great. I noticed that Everspin Technologies had mentioned that they do intend to release commercial quantities of Spin Torque MRAM this year. As far as your vision on that is – would that be something that may include your technology? And if so, would we have to go through the litigation process again? Or would you expect that this current litigation would have some type of provision to address this second generation MRAM?

We’ll have to see on that. It’s hard to predict the course of litigation. It’s certainly our goal to license our intellectual property, and not have to resort the litigation. Although we feel that we need to defend our intellectual property for the benefit of our shareholders, so we’re prepared to defend our intellectual property. It’s just hard to predict what might be an another company’s products before those products are introduced. But we feel we have excellent intellectual property in the MRAM space and in the spin momentum MRAM space, and we plan to defend that property.

Okay. Well, that’s great, thank you for taking my call, gentlemen. Congratulations on a great quarter and a great fiscal year and we’ll be watching from the far.

Thanks, Tom.

Thank you. (Operator Instructions). We have a follow-up from Steven Crowley of Craig-Hallum Capital. Your line is open.

Yes, Dan, I’ve seen a lot of news and really developing momentum around hybrid storage devices, traditional discharge combined with solid state storage, and notebooks, net-books, whatever form factor you’d like to reference. But there are some pretty significant forecast about penetration of those devices with hybrid drives. What if anything does it mean to you or can it mean to you near-term, obviously long-term that could be a home for MRAM based products, but is there any earlier play for you guys?

Well, it’s hard to say, we’ve been focusing our own production of MRAM on smaller devices. We really aren’t scaled for large scale devices, so our strategy has been to license our intellectual property for larger scale memory and MRAM, and those would expect the types of memories that would go into hybrid drives. But it certainly bodes well for a transition – a possible transition from moving part types of memories like disk drives with all of the problems that they have with speed and reliability towards solid state drives. And we’re seeing that on several fronts as you know, hybrid drives is one of them where it doesn’t require the size of memories that would required for a full solid state drives. So it combined some of the best attributes of disk drives and solid state memories. And MRAM is an excellent candidate for that, because it has a combination of speed, density and non-volatility that really isn’t available in any other technology. So, in terms of memories of that size and larger, we see our strategy is licensing our intellectual property.

I assume if you would have a licensee of that, we would have heard about it in some disclosure, can we make that assumption that if you had one we’d know about or can we not do that?

We certainly like to talk about those things if we could. And I think what we’re – sometimes we can’t, but if there is something that would be material from a reporting standpoint than we would report that.

The other avenue for you to have some activity in that arena through a potential licensee who is doing commercial research, with your intellectual property or am I stretching too far as to what could going on?

No. That is a possibility and that’s one of the possibilities for a licensing strategy.

Okay. On the topic of that contract R&D. You had a sizable quarter in contract R&D, but it looks to be a pretty tough landscape to garner additional dollars. Is that business of a nature where there is significant commercial funding of contract R&D right now, or is it completely reliant on government sources? And your firm backlog of contract R&D is pretty small at the movement. Does that need to fill back up, before you can have meaningful contract R&D revenue in fiscal ‘14 again?

So an answer to your first part of your question, our contract R&D is not entirely dependent on government, but a lot of it is linked to government, either directly or indirectly. Directly meaning, government contracts, indirectly meaning, that the contracts are from customers that are commercial customers, non-government customers, but their funding is relying on some chain of government funding. So the government budget outlook does affect that business. And we do see a challenge coming up in the near-term, because of the low backlog that you noted and because of the landscape that we’re seeing in government funding with budget delays and sequestration. We do however – we’re fairly optimistic in the medium to long-term. We have excellent technology. We’ve developed an excellent reputation and we have prospects in that business line. But it can be a little bit lumpy and if the contracts tend to be relatively large as a portion of that business. So in the long run and the medium term we are committed to the contract R&D business. We think it’s a good way to fund R&D. As Curt mentioned in the prepared remarks we have product only 16% of our revenue is R&D that’s either customer or company funded. So that’s a relatively largest R&D investment and we are able to do that with a relatively well with or approximately 10% was actually in expense lines. So we see it an excellent business model. In the near term we are looking at deploying those resources in company funded R&D and we have some excellent projects. We talked about some of the projects that we have and we see that business recovering.

Okay. Now you mentioned the change in the partner I guess for the biosensor opportunity. I guess change can be good. Hopefully it is in this case anyway you have been stuck. Now the impression that it was easy to get related to that program is that there was some regulatory challenges, at least regulatory hang ups for that products approval in international markets. It was at the misdirection in our thinking and the issue really related to customer disruption given that somebody knew he is taking over the program and he is at function of an acquisition or strategic alliance. Help us understand why that might work for you guys better than what hasn’t been working?

Right. Well, I think we see that first of all somebody purchased this business unit is our understanding so they – we presumed it some due diligence and saw the opportunity and I think we see that as positive. And I think because the program took longer than we had hoped and we presumed that our customer had hoped, it may have been challenging for them to continue with for a variety of reasons. So, we see we’ve committed new owner and project leader on the project as possibly a positive development. I’m not sure how much of the delays can be explained by regulatory and how much can be explained by some flux around uncertainty in a transition period between those two companies. But I think we are optimistic and we are looking forward to moving the project forward. As I mentioned in the prepared remarks we have had some communication with the – I guess will be the new customer. And I think we find that encouraging and we are, what we can do directly is we can be ready for production and we have the infrastructure in place, we have the capacity to support large volume production of these types of parts. So we are prepared and we are committed to make it successful.

Last quarter we talked about you trying to develop some other opportunities in the IVD marketplace in parallel. In other words, you didn’t have to wait for success with the first customer to go on to other opportunities. Do you have anything to report on – well update us on net front? And we really have talked about couple of major programs that you brought to us two years ago. And how safe is it for us to assume that you got other major programs, product opportunities that you haven’t talked about given the satisfaction and talking about the first few or light there off that are underway or is that just which we’re thinking on the part of some of your interested observers?

Well, to the second part of your question, we have a number of opportunities and I think I mentioned several of them in the prepared remarks and we included some of those in the business description in our recently filed 10-K. And as I mentioned in the prepared remarks, we see those – some excellent opportunities. So we remained committed, I think one of those opportunities that we’ve talked about that we haven’t been able to provide some specific updates related to consumer electronics to smartphones and in particular to navigation systems and spintronics compasses. And we continue to see opportunities all be at earlier stage for that market, for the smartphone and wireless markets for sensors. And we are working on a – we provided some samples for an early stage large opportunity. That’s early stage, so we tend. Well, I just talked about it, but we tend to try to talk about opportunities, when there are some specific milestones that we can talk about. But there are number of things that we’re working on that we see as excellent opportunities. And the general summary was that summary that we gave in the prepared remarks and in the 10-K. So we are committed to seeing our technology reach broad market including consumer electronics and automotive and we have initiatives in place for those markets and we’re making progress on several fronts.

And on the IVD initiative or the biosensor initiative, do you have some other iron in the fire or you still working to get there?

We do have other irons in the fire and one that we talked about is the possibility of detecting food borne contamination and that some thing that we’re continuing to look at and work it possible avenues to get to a commercialization plan for that. And hopefully we’ll have some updates on that in the future calls. There is nothing specific I think that we could talk about there other than we see that as an excellent opportunity perhaps with less regulatory delays or hurdles. And we see it as a great application of the technology where being able to detect pathogens and infection and infectious agents quickly could be very important.

Thanks for taking my questions.

Thanks, Steve.

Thank you. I’m not showing any further questions in the queue. I’d like turn the call back over to management for any further remarks.

Well, thank you. We reported earnings growth and record margins for the year and our second consecutive quarter of double-digit increases in sequential product orders. We’re position for growth with the pipeline of new products, efficient manufacturing and expanded capacity and we look forward to reporting first quarter results in July and our Annual Meeting in August. Thank you again for participating in the call.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.