Good day, ladies and gentlemen, and welcome to the NVE conference call on Third Quarter Results. At this time, all participants are in a As a reminder, today's conference may be recorded. I would now like to turn the call over to Mr. Daniel Baker, President and CEO. Sir, you may begin.
Quarter ended December 31, 2018. As always, I'm joined by Kurt Reinders, our Chief Financial Officer. This call is being webcast live and being recorded. Will be available through our website, nde.com. After my opening comments, Kurt will present a financial review of the quarter, I'll cover business items and we'll open the call to questions.
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 risks related to changes in tariffs and other trade barriers as well as the risk factors listed from time to time in our The company undertakes no obligation to update forward looking statements we may make. We're pleased to report strong earnings of $0.71 share despite a 32% increase in R And D expense, which included smart sensor development and product launches the past quarter. I'll cover smart sensors in a few minutes, but first, Kurt will cover the details of our financial results. Kurt?
Thanks, Dan. Total revenue for the 3rd quarter decreased 15% due to a 7% decrease in product sales and a 69% decrease in contract R and D. The decrease in product sales from the prior year quarter was primarily due to a decrease in with timing that can fluctuate. We have however received additional anti tamper orders, and we currently believe sales will pick up starting next quarter. The decrease in contract R and D revenue for the third quarter of fiscal 2019 was due to the completion of due to a more profitable revenue mix.
Total expenses increased 20% for the third quarter of fiscal 2019, compared to the third quarter of partially offset by a 14% decrease in SG And A. Dan will discuss R&D And Product Development in a few minutes. The decrease in selling, general and administrative expense was due 2019 increased 13% due to rising interest rates, partially offset by a decrease in Our effective tax rate was 18 The decreased tax rate was due to the full effects of a decrease in the federal tax rates. We currently expect our effective rate to be about 18% for the full fiscal year. Or $0.71 per diluted share compared to $3,570,000 or $0.74 last year.
Comprehensive income, which includes unrealized gains and losses, increased 8% to $3,520,000 for the quarter, compared to $3,280,000 last year. For the 1st 9 months of fiscal year, total revenue decreased 5% due to a 57% decrease in contract R and D. Net income for the 1st 9 months increased 16% to $11,600,000 or $2.40 per diluted share compared to $10,000,000 or $2.07 per share last fiscal year. Comprehensive income increased 19% to $11,700,000 in the first 9 months compared to $9,800,000 last year. Cash flow from operations was $11,700,000 in the 1st 9 months compared to $11,300,000 last year.
Exceptional operating cash flow and modest fixed asset outlays drove strong free cash flow. Fixed asset purchases were a modest $68,000 in the 1st 9 months compared to $605,000 for the same period last year In addition to the dollar per of $1 payable February 28th to shareholders of record as of February 4th. Now I'll turn it over to Dan to cover the business. Dan?
Thanks, Kirk. I'll cover R and D strategic new products and a major technical conference. As previously reported, we demonstrated the feasibility of our biosensor technology with our Department of Agriculture biosensor grant. We will look for additional government agency sponsorships and other partnerships to improve optimal chemistry to enhance the commercial viability. We're also studying the possibilities for medical applications of the technology such as exosome detection for cancer diagnosis.
Innovative research is key to our future and our researchers presented 2 papers at the joint MMM intermed conference last week in Washington, D. The prestigious conference has only convened every 3 years. 1 of the papers related to our industry leading tunneling magnetoresistance or TMR Technology. The paper was titled Characterization of Magnesium Oxide Based Magnetic Tunnel Junction with super paramagnetic free layers. 1 of our researchers, Doctor.
Joe Davies presented a paper and shared 2 technical sessions. Our goal is not just research, but practical products. Our strategy is focused on the huge internet of things market, particularly the industrial internet of things, and automotive submarkets. In the past quarter, we introduced 2 strategic new products: a smart magnetometer and the smart angle sensor. Smart sensors are key to our internet of things strategy.
The new sensors are smart because unlike our legacy sensors, they include analog to digital conversion, digital factory calibration, and digital interfaces in the IC. Those features provide simple smart connectivity to the internet of things. The first new smart sensor is a versatile magnetometer that can be used as a proximity sensor or a current sensor. And the second new product is build is the world's first tunneling magnetoresistance smart angle sensor. Applications include automotive sensing and advanced robotics for the industrial internet of things.
There are demonstrations of the new products on our website and YouTube channel, a demonstration of a prototype mechatronic xylophone player and another demo using a high speed hobby car motor showed the speed and precision of the sensors. We highlighted our smart sensors and automotive applications at the Sensors Midwest trade show in the past quarter. We demonstrated a smart sensor in an automotive application using a windshield washer pump. There's also a video of that demonstration on our website and you tube channel. On previous calls, we discussed the importance of IATF 16949 conformance to our automotive growth strategy.
IATF16949 is a stringent quality management system standard for the automotive sector. I'm with the automotive certification scheme for IATF 16949. The letter certifies that NBE has established and applies a quality management system for design and manufacturing of Semiconductor Magnetic Sensors and isolator components for the automotive industry. Turning to space programs. Since our last call, we were awarded a contract to burn in and test our couplers for the Europa Clipper mission.
The mission is to look for conditions for life on 1 of the moons of Jupiter. The contract was for slightly more than $100,000. So it's not huge revenue, but it demonstrates the rugged reliability of our parts and could help expand our military, aerospace, and space business. In addition to the Europa Clipper mission, We recently provided evaluation parts for the NASA psyche Space probe. The psyche mission is to journey to a unique metal asteroid between Mars and Jupiter and is scheduled to launch in 2022 The spacecraft payload will include a magnetometer to study the asteroid's composition.
It's a trip to a ferromagnetic world carrying our ferromagnetic parts. Now I'd like to open the call for questions. Chelsea?
Thank you. And our first question comes from the line of Jeff Bernstein with Cowen. Your line is
Hey, guys. Just a couple of questions. You mentioned in the script that you were expecting sales to increase next quarter, is that fiscal Q4 or is that fiscal Q1 of the following year?
Hi, Jeff. That would be, fiscal Q1 of fiscal year, 20.
Gotcha. Okay. And then, can you give us a little update about the cardiac rhythm management business and maybe what's going on with your hearing aid customers?
Sure. This is Dan. So the cardiac rhythm management business for us, but it's been, down modestly in recent, quarters As you may know, Abbott reported this morning, and they reported that the, they reported a a modest downturn in their cardiac rhythm management business. And, they said that was about 5% and they said that it was in line with the business, with the, with the general business. So, in the near term, we face some challenges but the long term demographics remain favorable for CRM as the population ages.
Our technology has a strong benefit proposition in CRM And we're also gaining traction in the broader neurostimulator market. As far as hearing aids, there are some possible changes that to hearing aids, as you know, could be, deregulated in the next year or so. So components of lower costs and over the counter hearing aids point out that many people who need hearing aids don't have them because of the expense dispensing inconvenience. So, so this could help expand the market. And again, the, like CRM, pacemakers and ICDs, the long term demographics remain favorable as us baby boomers age.
And we're probably going to need pacemakers and hearing aids.
And with your existing customer, what's going on with business there? You're referring to Abbott, Jeff? No, in hearing aids.
Oh, well, so hearing aids has been a solid market for us. Our goal is to expand outside of these medical markets with smart sensors. And as I mentioned in the prepared remarks, into the internet of things, particularly the industrial internet of things and automotive markets, to reduce our dependence on this business. It's the medical business is stable. It's good business.
We have an excellent benefit proposition but it doesn't have the kind of growth potential that we have in some of the emerging markets. So our goal is to continue to innovate in those medical markets to continue to provide products that are smaller, lower power, more reliable, and we're doing that. But the strategic projects that I mentioned in the prepared remarks, smart sensors, those are more applicable to the internet of things in automotive markets.
So just to talk about that a little bit, I guess at CES Infineon had a display on sensors and they talked about having 20 magnetic and light pressure sensors in every automobile, haul sensor, sensors, GMR, and I guess AMR sensors. What do you think your opportunity is in terms of number of potential sensors in an automobile?
We think there's a tremendous amount of potential in the automotive market. The sensor content growing rapidly, driven by innovations such as hybrid electric vehicles and autonomous vehicles and driving systems, automated driving systems. And those need sensors. So we, we're targeting some particular areas, rotation sensors, angle sensors, and current where we have an especially strong benefit proposition. And we're doing it with smart sensors and newer technologies than the ones that you mentioned.
As I highlighted in the prepared remarks, tunneling magnetoresistance or TMR, which has a number of advantages, lower power, more precision. And the angle sensor that I mentioned that we launched in the past quarter is the world first tunneling magnetoresistance smart angle sensor. So we see excellent potential. I'm not sure I we could come up with an exact number, but we're targeting lots of sensors in lots of cars. So we see it as an excellent market as cars become more and more automated.
And sensors become more and more important.
Great. Thanks. I'll hop back in the queue and let someone ask a question.
Thanks, Jeff.
We do have a follow-up question from Jeff Bernstein with Cowen. Your line is open.
Going to step up. Yes, so you mentioned the USDA project, for food safety and looking for additional funding, etcetera. Can you just sort of clarify what's going on with that project and deliverables, etcetera, on the food safety side and then any other details you can give about, the future applications?
Certainly. So, The main thing, the main message is that we met the critical goal of scaling our biosensor technology to large samples for industrial use which was the goal of that USDA project. So, we demonstrated that we can look at lots of fluid and find that, that metaphorical needle in a haystack, that bacteria that could make people sick in a large sample of rinse water, say, from fresh vegetables. So that's, that's a very important area and and an area of focus for the USDA, and and for food safety. And we overcame our folks overcame some big challenges, such as hundreds of sensor interconnects, The microfluidics, we have some challenges with the aptamers, which are as you know, those really aren't part of the project, but we believe that they're solvable.
And we're looking at some exciting new opportunities deploy the technology in medical applications such as exosomes for cancer diagnosis. So it helpful technology. And, we're determined to, to get it commercial guys.
So do you have any idea when you might have commercial revenue from a food safety standpoint or from medical?
It's hard to give an exact timeframe. We're We were working on it as fast as we can. We had the project, runs in parallel with multiple items reduce the time, that it takes to get to market and we have smart, fast, talented people who are committed to this, to this area and to this project. So, we hope to have some some news about it in future calls.
Okay. And then just to change gears a little bit, can you talk a little bit about distribution? I guess you had a semiconductor partner that was reselling 6 of your products, the last update that I knew of. What's going on with that relationship? And then I think you had another distributor, and one in the Far East, maybe you can just cover those.
Yes. So The private label partnership, so, yeah, 6 might have been the last report. We had 2 new products that we launched under their brand in the past quarter. And, they've released now Well, that would be 8 products. And it hasn't produced huge sales yet, but both, we and our partner are working to ramp up sales an important line for them.
It's an important partnership for us and it opens up in the long term new markets such as automotive. So they're a leading supplier of semiconductors in the automotive market. So we see that as a very important partnership and particularly for getting into, markets that are like automotive that are notoriously insular. And it helps us get at risk averse customers who, may not be familiar with NVE. And and just because of our scale, we don't always have the the support or the Bucian, particularly in Asia.
And, that's going very well. There's interest in particularly for the industrial Internet of Things for industrial automation. And in, in, in China, Taiwan, Korea, there are, a number of prospects that we're working with, some of them with our new products, our new smart sensors, some with our traditional products to automate factories and to make more efficient manufacturing. So we're pleased with our distributors. They're, they tend to be a specialized distributor.
They know our products very well. They know their industry very well. They're not the huge worldwide distributors teeth or value that way. We have value added distributors that are technically savvy and have spent invested a lot of time and effort in learning our products.
And I guess you have a new but veteran head of sales. Can you just talk about what he's doing since he's returned?
Well, we have yes, I'm not sure exactly who you to, but we do have a, a very talented sales manager, Max Skirkey, who, who knows our products inside out and was promoted, well, I guess about a year ago to sales manager He's been traveling sensors Midwest, which I mentioned some of those distributors that I mentioned, visiting them. And, he, really exemplifies what the strength is of NVE, which is folks who are committed to to leading a Spintronic revolution who know our products very well and can come up with ways of of helping our customers solve their problems. So we're very pleased with the team we have on board we've added several other people. The large increase in R And D also reflects the addition of personnel. And we have a very talented group of people here.
I admit it's being biased, but it is, it it it is just amazing to see what our people can do, and the latest smart sensors are an example of, of that talent, and and that ability to get products, excellent products, get them built, and and get them sold.
And I know you guys don't do things lightly. So maybe could you delve a little bit more into the decision on the ramp of R and D?
Well, so a lot of it is to support smart sensors. And smart sensors are are, they're not just a new paradigm for customers. They're, they're a new paradigm for us because they're all digital. So, we don't adjust them using we adjust some of our traditional products to get them extremely precise. We do that with lasers.
So we actually cut them and shape them. And with these products, we're doing it digitally. So our testing is Our parts now have, calibration memories in them. And, and so we've, we've invested in new testers. In new, what are called handlers, which are the, the mechanical, the electromechanical things that move our parts around to get them, built automatically.
So of course, we, we don't just sell industrial automation. We use it here. So we've invested in that. Our products have embedded software, which means they're running on software, not just electronics. So we have people who can write software and do it very efficiently and make sure that it, that the products work under any conceivable circumstance.
And then we also have development kits and evaluation kits. So these are software based products that will hook up to computers. And allow our customers to modify or I know you follow us a little bit on YouTube, so you may have already seen some of the demonstrations of that. But those are new products us, those types of evaluation kits and boards. So those are software based products based on PCs.
They hook up to USB ports. And that's those are things that we need to do to get into this market. And to be a leader in this market. And we committed to do that. We've hired the people.
We built the infrastructure. We bought the equipment. And now we have
torque microwave isolators and circulators?
You know, I keep hoping that, the army will make the final report public, but they have So, it's been when was that? Last year, that we completed a research contract with the army that successfully demonstrated the feasibility of a spin torque microwave, diode spectrograph. So of course, there are military uses for it the technology could lead to, an increase in coupler speed. And, that could help us with the internet of things. So it's exciting technology.
It's longer term. And there's not an awful lot we can talk about specifically because it was a military program. But, but it's amazing. The speeds that are, that our guys were able to demonstrate the number of bits that through it.
Is there a some kind of exclusivity or something or could you pursue commercial products, without the government's okay or, etcetera?
Well, we can pursue commercial products there are some, restrictions that usually don't come into play, on the technology when it's funded by the Terry. But, part of the reason that the, this was a, a, a small business contract with the army. And part of the reason they do it is to, build American Industry and to help us hire people and do all those things that, that have a, sort of a global benefit. But the specific military applications, those those are up to the up to the army to deploy.
Got you. All right. Thanks very much.
Thank you, Jeff.
Thank you. And I'm showing no further questions at this time. I'd now like to turn the call back to Mr. Daniel Baker for closing remarks.
Well, thank you. And thanks Jeff for the questions. We were pleased to report strong earnings and cash flow successful smart sensor product launches and IATF conformance. We look forward to speaking with you again in early May to discuss 4th quarter and fiscal year results. Thank you for participating in the call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.