Ladies and gentlemen, thank you for standing by, and welcome to the NVE conference call on second quarter results. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I'd now like to hand the conference over to your speaker today, Mr. Daniel Baker, President and CEO. Thank you. Please go ahead.
Good afternoon, and welcome to our conference call for the quarter ended September 30th, 2020. 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. I'll cover the business, then we'll open the call for questions. We issued our press release and filed our quarterly report on Form 10-Q in the past hour following the close of market. Links to documents are available through the SEC's website, our website, and our Twitter timeline.
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 uncertainties related to future sales and revenue, uncertainties related to future stock repurchases and dividend payments, risks related to the COVID-19 pandemic, 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 fiscal year ended March 31st, 2020, as updated in our just-filed quarterly report on Form 10-Q. Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make. As expected, the COVID-19 pandemic had a significant impact on our business the past quarter.
Revenue in the most recent quarter decreased 33%, and net income decreased 42% compared to the prior year. We are pleased to report a solid profit for the quarter, despite the significant impact of COVID-19. The long-term future continues to be bright, and we continue to preserve our workforce, invest in product development, and pay generous dividends. Now Curt will cover details of our financial results. Curt?
Thanks, Dan. As Dan said, total revenue for the quarter ended September 30th, 2020 decreased 33% compared to last year due to a 33% decrease in product sales and a 29% decrease in contract R&D revenue. We believe the COVID-19 pandemic had a significant negative impact on our results of operations in the past quarter, especially in medical device markets, as many elective procedures were postponed. We continue to expect the pandemic to continue to have a significant negative impact on our business this quarter, the quarter ending December 31st. Important customers, especially medical device customers, have delayed and decreased orders due to the impact of COVID-19. However, based on input from these customers, we currently expect product sales to begin to recover in early 2021. Expenses decreased 9% for the second quarter from the prior year due to a 12% decrease in R&D and a 3% decrease in SG&A.
The decrease in R&D expense was due to the completion of some new product developments. Dan will discuss product development in a few minutes. Interest income for the second quarter decreased 12% due to a decrease in our marketable securities and money market funds and a decrease in the average interest rates on those securities and funds. Net income for the quarter was $2.22 million, or $0.46 per diluted share, compared to $3.82 million or $0.79 last year. Despite the unprecedented challenges, our gross margin was 79%, operating margin was 52%, and net margin was 51%. We paid a $1 per share dividend in the past quarter, and today we announced that our board declared another quarterly dividend of $1 per share, payable November 30th to shareholders of record as of November 2nd.
We believe our stock is a good investment, and we took advantage of a weak stock market in the quarter to repurchase more than $91,000 of our stock in the quarter. With the $4.84 million dividend payment in the quarter, we returned a total of more than $4.9 million to shareholders in the quarter. For the first six months of the fiscal year, total revenue decreased 30% due to a 31% decrease in product sales and a 14% decrease in contract R&D. Net income for the first half decreased 38% to $4.63 million, or $0.96 per share, compared to $7.43 million, or $1.53 per share, last fiscal year. Our balance sheet remains strong, as cash plus marketable securities was $67.9 million as of September 30th. Now I'll turn the call back to Dan to cover the business. Dan?
Thanks, Curt. Despite the pandemic, we continue to innovate, and we look forward to helping automate infrastructure and improve medical devices when the world returns to normal. We had several new sensor and coupler product launches in the quarter. The sensor products were a new line of ultra-precise motion sensors, and a new smart sensor model. The new AET-Series motion sensors were developed in response to customer requests and can be used for rotary or linear motion. There are five AET-Series models with various resolutions. Typical resolution is as little as 0.5 microns, less than a 10,000th of an inch for linear motion sensing, and 0.02 degrees for rotation sensing. These sensors are targeted at manufacturing factory automation. Demonstration videos are available on our website and our YouTube channel, which show the remarkable resolution.
The new smart sensor is a tunneling magnetoresistance magnetometer with a network interface called the Inter-Integrated Circuit, or I²C. I²C requires just two pins, so it maximizes the functionality of our ultra-miniature sensors, which are less than a 10th of an inch square and have a total of six pins. These sensors are targeted at motor control for factory automation and longer-term for automotive applications. A new video demonstrates motor control using five different NVE parts, which were introduced in the past year, including the new smart sensor. The new smart sensor is used as a current sensor. The other four new products used for motor control are a smart angle sensor, isolators, and DC-to-DC converters. Turning to couplers, until recently, our coupler products isolated digital data, meaning they transmit data without a direct electrical connection.
These new power conversion products are called DC-to-DC converters and transmit power rather than data. This is useful in many applications, such as industrial networks and cars. In the past quarter, we introduced our first products to combine the new DC-to-DC converters with network interfaces to simultaneously transfer both data and power in less space and with fewer chips. The two new parts have best-in-class data speed to quickly transfer the rich data streams in the Internet of Things. There's a link to the new coupler product announcement on the press releases page of the news section of our website. There's also a demonstration in the video section of our website and on our YouTube channel. The demonstration implements a simple but robust two-computer network using the new products and shows data being transferred back and forth.
Turning to sales and marketing, we were hoping to exhibit at our first trade show since the pandemic, Sensors Expo in San José in November, that was canceled. Sensors Expo is billed as North America's largest event dedicated to sensors, connectivity, and the Internet of Things. We're hopeful trade shows will resume next year, we've already signed up for the next Sensors Expo in June 2021. Turning to governance, our annual shareholders meeting was in August via webcast and telephone. We're sorry we couldn't meet with many of you in person as we have for years, of course, our first obligation is to the safety of our shareholders and other attendees. You can visit our YouTube channel for a playlist of new product demonstrations that would have been at an in-person meeting.
For good corporate practice, our entire board of directors stands for election every year, and each of our directors was overwhelmingly reelected. Shareholders overwhelmingly voted to approve compensation. Finally, the selection of our auditors was ratified. We filed an 8-K with details of the shareholder votes after the meeting. Now I'd like to open the call for questions. Jimmy?
Thank you. Our first question comes from Jeff Bernstein with Cowen. Your line is now open.
Hey, guys. Congratulations on the quarter. Some really nice cash flow from operations in a tough period.
Thanks, Jeff. Yeah, it shows the underlying strength of our technology, and we were able to reduce some costs in the face of the pandemic.
I had a couple questions. I wanted to talk a little bit about hearing aids, a strong IPO by Eargo recently. Despite the fact that the FDA never hit their deadline of August 18th for rulemaking on over-the-counter, Eargo is pitching that, hey, at $4,500 for full-fledged hearing aids, the cost is way too high, the distribution channel doesn't make sense, and poised to be disrupted, and a lot of potential growth out there. With that in mind, can you talk a little bit about what your outlook is there, and could you help us at all? Are you in Eargo or Bose or some of the new entrants that are out there?
That's a good question. As far as the timing, of course, the FDA has been pretty busy with other things. Some in the industry now expect the regulations to be adopted by the end of the year. A final rule is due within six months, as you know, of the close of the comment period. That would put us into late 2021. In the meantime, we have been working on what's sometimes called hearables, as well as potential over-the-counter hearing aid suppliers. As you noted, there's a company that has filed a prospectus looking at over-the-counter hearing aids to reduce the inconvenience of dispensing. Those are rechargeable. There's a lot of activity in rechargeable hearing aid and hearing devices. For us, that's a technical difference. Rechargeable batteries are higher voltage than disposable batteries that are common in traditional hearing aids.
We have products for that that we've developed and qualified that are ideal for those parts. We've been working with a number of companies. Probably wouldn't be appropriate for us to say specifically whom, that's an area of focus for us. We see tremendous potential, we certainly want to be ready when the FDA finally does act. Also in parallel, the hearables market, which are not technically hearing aids. If they're not hearing aids, they're not subject to the FDA regulation, those are going on now, continuing to be developed. We're working with companies there. I think we've mentioned before, we have a design win in that space. That's the non-hearing aid hearables market.
Great. Thanks for that. I was curious, are you guys, and you and I traded an email about this during the quarter, the DARPA development of ultra-low power sensors that can kind of stay out in the field for long periods of time, which sounds like it's something that's up your alley. In particular, I was curious about whether you guys can actually make transducers with your technology.
Right. We can interface to transducers. Many transducers can produce motion or magnetic fields. Our sensors, which are very low power, can replace some of the other types of transducers that are converting other types of sensor inputs, such as piezoelectric, which tends to use more power, or optical. Our devices, as you know, are extremely low power, and that is one of the things that we're looking at is, while we don't typically make the other types of sensor elements for some of the things that DARPA was specifically looking at, we can provide an end node to that cloud or Internet of Things that's lower power and high reliability and not susceptible to reverse engineering or to hacking. Those are all things that are of interest in that market and other markets.
Got you. Okay. I'll get back to you in a minute, but just real quick, Abbott was pretty positive this morning on rebounding demand for some of their cardio-related products that I think involve your parts. It sounded like you were saying that next quarter you would still be down year-to-year on revenues. I'm just wondering whether you are thinking that you could be flat to up sequentially.
Curt, do you want to address that?
Yeah. There's a lot of uncertainty out there, and we are planning for a significant year-over-year revenue decrease this quarter. The fourth quarter, we're expecting product sales to start to recover, and we expect to see significant sequential revenue growth in the fourth fiscal quarter.
Got you. Okay.
Just to clarify, Abbott reported this morning a 6% decrease in rhythm management devices. That continues to be a challenging market. Now, that's not as bad as the prior quarter where they reported a 27% decrease, what would've been the second calendar quarter. Neuromodulation's been even more challenging. It is showing signs of recovery, which is encouraging. There's some timing differences because of the large inventories in medical device supply pipelines. We do see it as an encouraging sign, and hopefully, if the pandemic subsides, there'll be less demand on hospital beds for COVID-19, and people will be able to get back to some of these elective and semi-elective procedures.
Great. I'll let somebody else ask some questions. Thanks.
Thanks, Jeff.
Thank you. And as a reminder, if you'd like to ask a question, please press star, then one on your touchtone telephone. To withdraw your question from the queue, please press the pound key. Please stand by while we compile the Q&A roster. Speakers, I'm showing no further questions in the queue at this time. Oh, correction. Jeff Bernstein has requeued to ask questions. Your line is now open.
Great. Thanks. I was curious about the small stock repurchase in the quarter. Is that kind of reactivated now, or is it valuation dependent, or any commentary on that?
It wasn't reactivated. We do have an active repurchase program, but we have a number of constraints, legal constraints and so forth, that limit what we can buy back, and then there are just market limitations, practical limitations. As Curt said, we think our stock is a good value. Admittedly, we might be a little bit biased. We looked at it as a good opportunity. As a practical matter, it's difficult to return huge amounts of cash or large amounts of cash through stock repurchases just because of the trading volume and so forth. We rely on our dividends to return larger amounts of cash to our shareholders. We also look at the possibility of buybacks situationally, and it depends on circumstances, outlook, and so forth.
We thought it was an excellent opportunity, a relatively modest amount, but still, we think it was a good value for getting the stock repurchased.
That's great. As do we. I was curious, you mentioned the new products that now transfer both data and power. Is there like a buck or boost function in those? Are you actually changing the power that gets transmitted?
Yeah, that's a great question. For folks who aren't familiar with those terms, buck means reducing the voltage as well as transferring energy, and boost means to increase it. Those products that we introduced are neither. They're 3.3- 3.3, they produce roughly the same voltage as the input. We are looking at a boost version. We haven't announced anything yet, we're looking at increasing the voltage on the output, that would be a boost function from 3.3- 5 and to 3.3- 6. Those are for different markets. The 3.3- 5 is for certain buses, legacy buses that use 5 volt buses. 5 volts is the bus voltage, 3.3 is a typical microcontroller. It would provide an interface there. Six volts would allow us to drive power control MOSFETs.
We actually have demos of that on our YouTube channel, where we boost the voltage to 6 volts. That's one of the videos that I referred to in the prepared remarks. That allows us to do power control completely isolated from a microcontroller, which is a very large market for motor controls, for power factor controls. We see both of those, particularly a boost from 3.3- 6 volts, as important products. Those are part of our development roadmap, and hopefully we'll be able to provide some more results there in future calls.
Great. Thank you. Lastly, any update you can give us on auto design work?
Yeah, we continue to see that as a market. It's longer term than, say, our industrial and process control type products, our industrial products. We're continuing to work on qualifying our products in the automotive market, particularly our current sensors for motor control and battery management systems, and particularly for hybrid electric vehicles and autonomous vehicles. We see that as an excellent long-term market. There's going to be a lot more sensors and electronics components in those cars and cars going forward, and we see ourselves as having an excellent benefit proposition with small size, low power, and excellent accuracy. Hopefully you'll be hearing more about that, and we'll be able to tell you more about that in the future.
All right. Dan and Curt, be well. Thank you.
Thanks, Jeff.
Thanks, Jeff.
You too.
You too.
Thank you. I'm showing no further questions in the queue at this time. I'd like to turn the call back to Daniel Baker for any closing remarks.
We were pleased to report a solid profit in a challenging quarter and four new products. We look forward to speaking with you again in January to discuss third quarter results. Stay safe, everyone, and thank you for participating in the call.