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Executives

Daniel A. Baker – President, Chief Executive Officer and Director

Curt A. Reynders – Chief Financial Officer

Analysts

Steve Crowley – Craig Hallum Capital Group

John Jung – Trailhead Asset Management

NVE Corporation (NVEC) Q4 2012 Earnings Conference Call May 2, 2012 5:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the NVE conference call on fourth quarter and fiscal year results. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today’s conference call is being recorded.

I would now like to turn the conference over to your host, Daniel Baker. President and CEO. Please begin.

Daniel A. Baker

Good afternoon, and welcome to our conference call for the quarter and fiscal year ended March 31, 2012. 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 fiscal year. I will cover business items and we will open the call to questions. We filed our press release with quarterly results plus our Annual Report on Form 10-K 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 and continued profitability, uncertainties relating to future revenue and growth, risks related to developing marketable products, uncertainties related to the revenue potential of new products, risks related to loss of supply from our packaging vendors, 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, filed this afternoon.

The company undertakes no obligation to update forward-looking statements we may make. We are pleased to report record product sales for the quarter and solid earnings for the quarter year in fiscal year, despite significant challenges in the past year. For the quarter product sales increased 7% of their highest level ever and net income was $0.63 per diluted share. For the fiscal year net income was $2.34 per share.

Now, I’ll turn the call over to Curt for details.

Curt A. Reynders

Thanks Dan. I'll cover quarterly results, fiscal year results and the balance sheet. Starting with quarterly results, fourth quarter product sales increased 7% despite comparisons to an extraordinary quarter last year. Driven by increased sales in medical device markets, product sales reached a record $7.18 million.

As previously reported flooding in Thailand shutdown one of our packaging vendors in October 2011. That impacted our ability to deliver products especially for industrial markets and had a ripple effects on our supply chain. That vendor was able to resume operations in the past quarter.

Products for medical markets were less affected by the disruptions. We have also qualified alternate packagers for virtually all of our parts. So we believe the unusual supply chain challenges are behind us.

Total revenue, which includes product sales and contract R&D for the fourth quarter of fiscal 2012 decreased to 7% from the prior year quarter due to a 70% decrease in contract research and development.

Sequential quarter total revenue increased 24% and product sales increased 33% for the quarter. Gross margins increased to 70% of revenue compared to 65% in the immediately prior quarter. Data for each quarter of the past two fiscal years are in the 10-K filed today.

The contract R&D decrease was due to the completion of certain contracts and contract activities in a challenging environment for government contracts. Tight defense budgets appear to have disproportionately affected Anti-Tamper programs, which have been a large part of our contract R&D revenue. We are working on R&D contract opportunities for the near to medium term, but our long-term strategy as we have said before as going to reduce our dependence on contract R&D toward a future of product sales and licensing as our principle revenue sources.

Gross margin increased to 70% of revenue for the fourth quarter of fiscal 2012 compared to 68% last year due to a more favorable revenue mix. Specifically, 94% of revenues for the quarter were from product sales with the balance from contract R&D.

Gross-margin is generally higher on product sales than contract R&D. Total expenses increased 64% from the most recent quarter, compared to the prior-year quarter primarily due to a 170% increase in R&D expenditures. Legal expense related to patent infringement lawsuits did not significantly impact SG&A. Legal proceedings are covered in our 10-K. The increase in R&D expense was due to increased company funded product development activities as we redeployed resources from contract R&D. We believe the investment in R&D will payoff in future revenues and profits.

Interest income increased 11% for the quarter due to an increase in interest-bearing marketable securities. The income before taxes for the quarter was $4.51 million and pre-tax margin was 59%. Net income for the fourth quarter was $3.1 million or $0.63 per diluted share, compared to $0.75 last year and net margin was 41%.

For the fiscal year, total revenue decreased 8% to $28.6 million primarily due to decreased contract R&D revenue. Product sales decreased 3% for the fiscal year, due to decreased year-over-year sales in our second and third fiscal quarters in the second half of calendar 2011. In the second half of calendar 2011, we faced challenges related to economic conditions, a process change and the effects of flooding in Thailand.

The other two quarters of the fiscal year, the first and fourth fiscal quarters had record product sales. Contract R&D decreased 34% for fiscal 2012, due to the completion of certain contracts and contract activities, and the continuation of the challenging budget environment for government contracts.

Our research and development expense increased to 105% more than doubling for fiscal 2012, due to increased product development activities and a decrease in contract research and development activities, which cause resources to be reallocated to expense research and development. We report customer and company sponsored R&D activities at fiscal year-end from the total of customer and company sponsored R&D activities was $5.1 million or 18% on revenue, which is significant.

Our R&D investments over the years have resulted in significant new products, technologies and product opportunities. Net income for fiscal 2012, decreased 15% to $11.4 million or $2.34 per diluted share compared to $13.4 million or $2.76 per diluted share for fiscal 2011. The decrease was primarily due to decreased contract R&D revenue and increased R&D expense.

2011 was challenging for the semiconductor industry due to the natural disasters in Japan and Thailand, and the overall impact on the sluggish global economy. According to Reuters average profitability ratios for the past 12 months in the semiconductors industry were well below the five year average. We continue to significantly outperform the semiconductor industry on key metrics. Our operating margin was 50% compared to 3% in the industry according to Router’s data and our net margin was 40% compared to less than 1% in the industry for the trailing 12 months.

Turning to our balance sheet, we ended the fiscal year with our balance sheet stronger than ever primarily due to a record $12.8 million of operating cash flow, which formally called the net cash provided by operating activities. As of March 31 cash flows marketable securities was $73.5 million an increase of $11.4 million in the year. We recently completed an addition to our production clean-room space, which was a key part of our expansion strategy. The new space increase its capacity for important operations and provide space for new equipments.

Purchases of fixed assets nearly doubled to $1.48 million up from $733,000 from the prior fiscal year primarily for production equipment as we expand capacity. We may spend on the order of $1 million for additional production expansion this fiscal year although we do not have a firm timetable right now. Shareholders equity, which is our assets minus liabilities increased to $81.5 million, the highest in our history. Our asset quality is very good of all tangible assets and 87% is marketable securities.

In the past five years, I summarize in our 10-K cash on marketable securities nearly tripled and our stock price increased 94% versus 16% for the benchmark NASDAQ industrial index and 23% for the Cedrus Pure Nanotechnology Index.

Now I’ll turn it over to Dan for his perspective on our business. Dan?

Daniel A. Baker

Thanks Curt. I’ll discuss the management team R&D initiatives and legal proceedings. Three employees took up new senior management positions in the past fiscal year. Clifford Boler, as seasonal semiconductor executive recently became Vice President for Process Engineering and he’ll have a key role in scaling production. Collin Peterson joined the company as fabrication manger early in the fiscal year and was promoted to Director of Manufacturing recently. And Tim Hazel has been a long time NVE employee, was promoted to Vice President of Distributor Sales. All three are very talented, and their appointments help to position us for growth.

And as Curt said, we’ve significantly increased our R&D investments over the past year. I would like to highlight biosensors, private label couplers and MRAM. We’ve said before we have a customer who is planning to use our custom spintronic biosensor in a new medical diagnostic instrument. Using our technology, the customer has demonstrated significantly increased sensitivity for in vitro diagnostics compared to conventional methods. The customer continue to purchase preproduction parts and we’re already working with the customer on sensors to make detection even more sensitive.

We don’t have a firm production schedule from our customer, but we are planning for volume production and we continue to believe this could be the start of an important new market for us. We see private label couplers as a means to significantly expand our marketing reach and target new markets such as automotive electronics. The private label business model also makes sense for our partners who find its cheaper to buy our license our technology but rather than to try to develop new technology themselves. We had recent discussions with several interested potential partners. With one potential partner we recently successfully build custom prototypes using their network transceiver technology combined with auto spintronics isolation technology. Much of our MRAM development is directed at Anti-Tamper applications particularly for defense systems.

As Curt said it’s a challenging environment for government contracts especially for Anti-Tamper technology. In the challenging environment, we’re stepping up that efforts to market our unique defense grade Anti-Tamper technology to the defense aerospace industry, several of our research staff presented NVE’s technology at a recent DoD Anti-Tamper conference. There was a positive response although it may take a while for such efforts to generate new contract revenues.

As discussed in our previous call in the past fiscal quarter we filed a patent infringement lawsuit against Everspin Technologies for infringement of our 411, 053 and 921 patents related to MRAM. Everspin later filed an infringement suit against us in the same court alleging certain NVE products infringe on two Motorola patents. After study, we believe their suit is wholly without merit. We continue to plan to pursue damages for Everspin’s infringement of our MRAM related patents including the reasonable royalty plus interest and we are seeking triple damages for willful infringement. There were details in the legal proceeding section of our 10-K.

Now, I would like to open the call for questions. John.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). I have question from Steve Crowley with Craig Hallum. Please go ahead with your question.

Steve Crowley – Craig Hallum Capital Group

Good afternoon gentlemen.

Daniel A. Baker

Good afternoon Steve

Curt A. Reynders

Good afternoon Steve

Steve Crowley – Craig Hallum Capital Group

It’s good to see the bounce back in product sales actually it was a heck of a bounce. And it sounds like from your prepared commentary a big part of that bounce was in medical, can you give us a sense of whether that was some of your historical bread and butter medical products or whether it had a meaningful component of some of the newer things that you are doing with various customers?

Daniel A. Baker

This is Dan. It was primarily our existing customers and they might face some challenging conditions particularly in the second half of the calendar year. We’re seeing some, some encouraging signs from new customers, some early sales some pre-production and early production sales but those were relatively small part of the growth. We obviously hope that longer-term that they can drive continued growth and reduce our dependence on some of our historic customers.

Steve Crowley – Craig Hallum Capital Group

You mentioned on the biosensor front that you continue to move towards full production with your customer. We also mentioned working on product enhancements to even drive the performance higher. Is that enhancement critical to moving to the next phase or is that just a logistic stuff you would have as part of the long-term relationship and long-term product road map?

Daniel A. Baker

We believe that the product that we have shift before which is the lower sensitivity, very high sensitivity but not as high as what we’re working on, is it would give them a marketable product and we’re continuing to always work on better and more sensitive products in the case of biosensors. Exactly what their marketing plans are, we’re really not sure, whether they want to introduce only the more sensitive product or whether they would introduce from both. We really don’t have a firm idea of that and I don’t know if they have exact plans yet. But we’ll be discussing that and hopefully getting some more clarity on it. But we found is that with the existing product, the product that we’ve already shipped that they’ve been able to demonstrate according to their reports, so significant improvement over conventional technology. So we think that that’s very gratifying and then encouraging, I think we know that but its great to see them with some evidence of that in their particular market.

Steve Crowley – Craig Hallum Capital Group

Now in terms of gaining factors for them to go into full production on the product that has your biosensors in it. Are we down to the final details of a product launch or is it much more vague than that?

Daniel A. Baker

We believe that based on what they’ve said that that we’re relatively closed and we’re planning took for volume production. And now a lot of things can happen and beyond our control and in some cases beyond our customers control. So but we’re encouraged by the

data that we have so far by the technical reports, the detection sensitivity that they’ve been able to get using our technology and as you know in the medical diagnostic industry, there sometimes are unknowns but we believe certainly from a technical standpoint that we’re production ready.

Steve Crowley – Craig Hallum Capital Group

And the number of preproduction units that you’ve been supplying them with is, is unlikely indicative of them producing evaluation units were early customers and distributors and the like or is this really likely for their own evaluation?

Daniel A. Baker

It’s our assumption that it’s probably more than their own evaluation of just because of the numbers involved. We certainly would not consider it production or full production, its possible though that they’ve produced small volumes of products for customer valuation or for field trials. It’s more than number that we would expect for laboratory testing or bench testing or that type of early stage testing, when we say preproduction its volumes of units that would be, that would support some trials not full production but more than would be required for laboratory or bench testing.

Steve Crowley – Craig Hallum Capital Group

That’s very helpful color. And then on the other side of your products business, the industrial side that goes into numerous industrial scientific measurement applications. What can you tell us about the performance of that business, may be contracted to the December quarter and what kind of outlook do we have for that business and that the inventory situation of distribution.

Daniel A. Baker

Well, Steve. Our backlog continues to be good in the industrial area. As you know we had some challenges last second and third quarter of last fiscal year relate to our process change and that affected shipments of certain types of our couplers, which were delayed. But our processes have ultimately increased our efficiency also the flooding in Thailand primarily affected our industrial customers had a very minimal effect on any of our medical related customers. So those are factors that we believe are behind us.

Steve Crowley – Craig Hallum Capital Group

Did you see a big delta in that business on the industrial side in the March quarter relative to the December quarter or is that potentially still in front of us? As you fully move behind those factors and then maybe some of that the inventory correction that was taking place on a broader scale in the electronics industry is no longer taking place? Or help me understand the landscape for what you have on the industrial side?

Daniel A. Baker

Well sequentially we had 33% increase in product sales, which that included the industrial side. And we think that the sluggish economy is hopefully coming to an end and improving a little bit. But we did see a growth in our fourth quarter in industrial as well as medical markets.

Steve Crowley – Craig Hallum Capital Group

Okay. And then in terms of the contract R&D business, that is really moved to a much, much lower number or a level I should say, I hope it’s not a level, I hope it’s a number and not a level but that’s really the question as to whether or not that 400,000 unchanged isn’t anonymously below numbers when you’ve got to the function of some of the government funding difficulties in the granting process of dollars that I think will hung up and it’s subsequently been resolved. Do you think that number can go back noticeably high or maybe not to where it had been running? How should we think about that portion of your mix?

Daniel A. Baker

Well it is a historically low number for us but we in the long-term or at least the medium term, I think we see some opportunities and we mentioned some of them in the prepared remarks. In the short-term, we do see continued challenges in the government funding environment and it’s difficult to predict the timing of awards they relate to budgets particularly DOD budgets, DOD priorities which can change in beyond our control. But we have seen a pretty challenging environments or contract funding and particularly for our particular interest in contract R&D funding from the government which relates to Anti-Tamper.

So that’s an area that’s been appears to be disproportionately hit by budget constraints at the federal level and whether that will change or not it is really difficult to predict. So when we move the people that we moved onto company sponsored, our own sponsored R&D programs onto the expense line, if you will, we do so because they can do some good there that we’ve got some great opportunities for R&D and we want them to finish those programs of course.

So we view this as in the timeframe but we’re looking at these programs and when we put them on these internal programs, assign them to these programs. We’re assuming that they’re going to get them finished because otherwise we just spend time and money and we wouldn’t have gotten the results. So we’re looking at this as something that’s probably going to be with us at least in the near term where we’re hoping that it won’t be quite as well as it was this quarter, but it’s really hard for us to predict.

Steve Crowley – Craig Hallum Capital Group

And that’s helpful. Hey, I want to ask you about private label, but I don’t want to monopolize your call, so I’ll let some other people get in and I’ll come back.

Daniel A. Baker

Thanks, Steve.

Operator

(Operator Instructions). Our next question comes John Jung with Trailhead Asset Management. Please go ahead with your question.

John Jung – Trailhead Asset Management

Good afternoon. Maybe if you could give us a little bit pressure about your medical product teams, which we get this new medical product, which we are going to the FDA, its own FDA requirement for approval before they start shipping and volume?

Daniel A. Baker

You were kind of cutting off John, but I think the question that I heard related to our diagnostic customer and whether there was an FDA approval in that cycle. And what we said before is that they may not necessarily be a U.S. introduction at first. So it probably needs regulatory approval that may not be the FDA, but that’s one of the uncertainties that comes into play with a new type of diagnostic instrument like this is that there is agency requirements, regulatory requirements and therefore sometimes the timing can be a little bit hard to pin down, but its our assumption that it needs that it would need regulatory approval.

John Jung – Trailhead Asset Management

Okay, So Dan has approval in countries outside of the U.S. that is not Canadian approval or TUV in Germany or the European approvals.

Daniel A. Baker

We are not in a position to say which approvals it would be getting. It’s our assumption that the, that it may not have all of the approvals required yet. And that might be pacing some of the timing, but that’s something that we can’t get too specific on.

John Jung – Trailhead Asset Management

Okay, thank you.

Operator

Our next question comes from (inaudible) with Individual Investor. Please go ahead with your question.

Unidentified Analyst

Good afternoon, gentlemen. Has the company budgeted any dollars with ongoing, legal expenditures that will be coming through with the Everspin lawsuit and the kind of suit.

Curt A. Reynders

We have incorporated that into our planning process, it’s hard to know the exact number because it depends on factors beyond our control and it depends to certain extent on the courts and on what, what the other party might do. I can say that it hasn’t had a significant impact on our results for the quarter or the year, we try to minimize all of our expenses and with any expenses sort of investments that we make, we want to make sure that the potential rewards justify the cause and risks. And we believe they do in this case.

Unidentified Analyst

Okay, has there been any discussions with Everspin that with settlement?

Daniel A. Baker

It is unusual for negotiations to go on in these types of cases, there haven’t been any formal responses to the suits, but we wouldn’t have filed suit if we weren’t compared to follow through with the legal process.

Unidentified Analyst

Okay. And I just moving aside for a second on the biosensors, I believe it’s been two quarters now that the company anticipated shipping quantity of the biosensors. Is there any more clarity going into the current quarter that this shipment will finally happen?

Daniel A. Baker

Well can’t say for certain it’s hard to predict, but we can say that we believe our biosensor customer is a credible, global company that has the resources and wherewithal to a proven market, the new type of diagnostic medical diagnostic instrument. So we believe we have a great technology, we believe that we’ve demonstrated higher detection sensitivity, better detection sensitivity than conventional technology. And we believe that this could be a very important new market for us, but it’s difficult to predict exact timing on that.

Unidentified Analyst

So they have now provided you with any more clarity on shipping times?

Daniel A. Baker

We don’t have any specific timeframes for production, we have been shipping. We have been shipping some preproduction units. And as I mentioned, we have also been shipping some even higher sensitivity sensor modules.

Unidentified Analyst

And just can I ask you one more question concerning the fixed equipment purchases, which came in about $1.5 million, how much added capacity will this provide for the company?

Daniel A. Baker

It’s hard to quantify that. It’s a quite a bit because what often happens is that we have a number of processes in making one of our components. And so like anything else, some of those we have quite a bit of capacity. Some of them were closer to being equipment limited. So if we remove those potential bottlenecks very early, and well before we need them it can have a significant impact on our potential volumes.

So when we look at our planning process, we take into account. Some of the new things that we’ve talked about some of the potential markets that we have the growth that we see possible, and we make sure that we’ve got adequate capacity. And while the capital expenditures for the fiscal year were relatively high for us, historically, they are relatively small as a portion of our revenues or a portion of our earnings or a portion of our cash flow compared to conventional semiconductors. And that’s because of the uniqueness of our technology, the efficiency of our process. And our engineers have done a great job over the years of increasing our efficiency and our capacity per piece of equipment and per person.

Unidentified Analyst

Okay. Well, but then with $1.5 million spent and revenue although sequentially has been up this past quarter, but stagnate over the past year. I assume that the company is making who has made this capital expenditure and anticipation of great bump in product sales, is that correct?

Daniel A. Baker

We have made the investment because we think we may need it and we believe that we it’s appropriate to increase our capacity and I think as we saw in the fourth quarter, our product sales were up significantly, sequentially, approximately 33% sequentially and were up significantly year-over-year as well. And as we said and answered to an earlier question that was primarily due to existing customers and we have some tremendous potential as well. So we want to be sure we have the capacity for that.

Unidentified Analyst

Okay, thank you.

Daniel A. Baker

Thank you.

Operator

Our next question is a follow up from Steve Crowley with Craig-Hallum. Please go ahead with your question.

Steve Crowley – Craig-Hallum Capital Group LLC

Thank you. Coming back on your discussion of private label, you mentioned discussions with a number of potential partners, some logical integration with those partners functionality. May be you can help me feel the way that I should feel about you’re talking about multiple partners, obviously many partners who is better than one, but one really eager active partner is wonderful. And the impression that you gave in the discussion earlier with that we had a fair number of interested parties, but maybe not that wonderfully interested right here and now arrangement. Is that a misread of the equation can you have both of those equations help me understand, what’s going on?

Daniel A. Baker

Well, I think its both what we mentioned was with one potential partner, we are actually building prototypes. And we successfully build custom prototypes using their network transceiver technology combined with our spintronic coupler technology. So this is a company that makes network ICs these are ICs that convert industry networks industry standard networks into the ones and zeros that can be sent over a cable. And then our technology provides with the interface between that the two ends of this networking and cable. So, it’s a great partnership, a great combination that allows us to leverage someone else is establish transceiver technology with our unique isolation technology.

So, probably the near term potential there is for us to introduce a product using their transceiver and our isolation technology under our brand and longer-term to qualify it under their brand. For their own market and their distribution and it’s a larger company than us. So therefore it would open up a larger market for us, expand our marketing reach and allow us to reach new markets that are tough for the small company to get into such as automotive electronics.

So while, as you might expect when we have several interested potential partners as a variety of levels of interest. And, but because at least with this one potential partner we’re falling off a long to have prototypes that demonstrate the potential and then actual part that we could potentially sample to – sample the customers and introduce at least in the relative near-term under our brand.

Steve Crowley – Craig-Hallum Capital Group LLC

And the application we described makes me think of like industrial process control factor for automation and communication. Is that the right neighborhood for me to think about as one of the early frontiers for that product?

Daniel A. Baker

Exactly. And then longer-term we’re looking at the potential for automotive applications in car electronics, automotive electronics and that’s a fairly demanding application that requires a fair amount of qualification and also requires a relationship with the automotive companies or automotive suppliers, which is something that isn’t really our strength. so qualifying for automotive electronics would be our medium to long-term goal. As you can imagine, I mean we were in Minnesota here, our covers, are subject to all kinds of extremes of temperature and all kinds of very rugged conditions.

We believe that our parts are well suited for that, they are extremely rugged, they withstand temperatures swings, voltage swings, and all kinds of transcends and things like that. So we think it’s – so we got a significant technical advantage, over conventional technology, there’s a market need with increasing electronic contempt and colors and particularly for hybrid electric vehicles, which are going to need a lot of electronics to monitor batteries and monitor the electrical system. So that’s, that we feel is an excellent, medium to long-term market for this type of product.

Steve Crowley – Craig-Hallum Capital Group LLC

Okay, I was going to follow-up on the hybrid electric vehicle opportunity show. So this kind of partnership is a necessary component of your plans to supply that market not just necessary to supply centers for more standard gas powered vehicles and I guess the, that’s a different – that’ differentially saying, can you get that the hybrid electronic vehicle opportunity without that partnership being established.

Daniel A. Baker

We could address that market or sales without a without a partnership, but we believe that a partner that first of all can lend the technology such as transceiver technology that’s already been developed and isn’t something that we technically, so that we typically develop. And then also that have a marketing channel into the automotive market and that has a history and an infrastructure to do some of the testing and the approvals that are required to qualify components for the automotive market, will help us reach the market sooner and more effectively penetrate the market. So we believe that those partnership, partnership like what we described will make sense by allowing us to address the market faster with a – with a better qualified product and with the, with the customer relationships with other companies having the automotive industry that hasn’t been part of our historical market.

Steve Crowley – Craig-Hallum Capital Group LLC

Great no in terms of one of the other programs that you talked about over the last two years, can you give us a little bit of a status update on the electronic compass program. And will that sit on your end and view of the market end and partner potential there?

Daniel A. Baker

Certainly, well we continue to see spintronic compassing is a very promising application, it’s hard to give a timeframe but we have advantages as we’ve talked about before in precision and size over conventional technology. And so we believe that there maybe a market need for that, for that higher precision and smaller size, it might be early for that it might be that, the need for that has not developed because of applications or software or other things but we continue to see a large potential market and we believe that we have significant advantages over conventional technology.

Steve Crowley – Craig-Hallum Capital Group LLC

And in terms of new applications, programs, opportunities that are materialized for you over a course of fiscal 2012 that you are going to be pursing, is there anything that you can tell us about new stuff that started to percolate?

Daniel A. Baker

Well, we are always working on new stuff and we have several products and several technology developments that are in various stages some of them are incremental that aren’t game changers in that sense. And that they are not in some new markets or into different markets and we currently serve. But we also have technology that we, that we believe that if it turns out could be quite significant. So there is a range of things that we’re working on, we’ve been devoting significantly increased effort to R&D as we talked about or as just showing up in our financials, and a lot of those things are moving their way through the development process. Some of them are moving along quite well, some of them are moving better than we had anticipated. So we might be looking on some product introductions in the relative near-term and we hope to be updating our shareholders and our customers on those as soon as we can.

Steve Crowley – Craig-Hallum Capital Group LLC

But we look forward to that and just one more from me. On Anti-Tamper MRAM front, you mentioned some of the challenges with your Anti-Tamper programs within the government. But there seem to be [pressure] of commercial of electronics applications through that technology. I think about some of the credit card and financial fraud that’s taking place on a broad scale. And I’m wondering if you, you spotted and you know exposed to run through with that technology and whether that’s a five year prospects or something that could be sooner than that?

Daniel A. Baker

We do see consumer applications and high volume applications for Anti-Tamper technology certainly. They tend to be longer term and they tend not to result in contract R&D revenue. So when we are talking about contract R&D revenue typically that’s for military aerospace types of applications, but we – in addition to contract R&D, its our goal to increase the sales of those types of products there have been some modest sales so far. But we can see that growing, and we can see that moving towards higher volume, lower cost application as the volumes increase, our costs go down.

Right now these are relatively expensive products that are probably, well they’re not ready for the types of consumer applications and extremely price sensitive consumer applications that you alluded to things like credit cards. Yes but we believe that’s the long-term track and in many cases our government contracts have commercialization plans where we have talked about potential, consumer applications and high volume applications for these products in a longer term. And we continued to pursue that and continue to work to drive the cost down, the volumes up and the manufacturability up, so that we can address those markets.

Steve Crowley – Craig-Hallum Capital Group LLC

Thanks, so much for taking my questions, guys.

Daniel A. Baker

Thanks Steve.

Operator

I’m not showing any other questions in the queue at this time gentlemen.

Daniel A. Baker

Well, thank you. We are pleased to report record product sales for the quarter, strong sequential quarter, growth, solid earnings for the quarter in fiscal year and record operating cash flow for the fiscal year. We look forward to our next call in July to report results for the first quarter of fiscal 2013. Thank you again for participating in the call.

Operator

Thank you ladies and gentlemen. Thank you for your participation in today’s conference. This does conclude the conference. You may now disconnect. Good day.

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