Good day, ladies and gentlemen, and welcome to the NVE third quarter fiscal 2018 financial results call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Daniel Baker, President and CEO of NVE. Mr. Baker, you may begin.
Thanks, [Cherie]. Good afternoon, and welcome to our conference call for the quarter ended 31 December 2017, the third quarter of fiscal 2018. As always, I'm joined by Kurt Reinders, 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, Kurt will present a financial review of the quarter and nine months. I'll cover business items, and we'll open the call to 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 our reliance on several large customers for a significant percentage of revenue, risks and uncertainties related to the economic environments in the industries we serve, risks and uncertainties related to future sales and revenue, uncertainties related to the impact of federal tax reform, 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 31 March 2017, as updated in the quarterly report on Form 10-Q filed this afternoon. The company undertakes no obligation to update forward-looking statements we may make.
We're pleased to report a 3% increase in net income for the quarter to $0.74 per share, despite a slight decrease in revenue from a strong year ago quarter. Kurt will cover the details of our financial results. Kurt?
Thanks, Dan. As Dan mentioned, third quarter total revenue decreased 1% to $7.36 million compared to a strong year ago quarter. The decrease was due to a 9% decrease in product sales, nearly offset by 164% increase in contract R&D. Revenue increased 5% sequentially from the quarter ended September 30th. The year-over-year decrease in product sales was due in part to decreases from certain medical device customers. The large increase in R&D revenue was due to new contracts. Dan will talk about contracts in a few minutes. Gross margin decreased to 77% of revenue, compared to 80% last year due to a less profitable revenue mix. Expenses decreased 4% for the third quarter of fiscal 2018 compared to the prior year quarter, due to a 19% decrease in SG&A, partially offset by a 3% increase in R&D expense.
The decrease in SG&A was due to decreased performance-based compensation and decreased legal expenses. The increase in research and development expense was due to increased new product development activities. Interest income increased 2% for the third quarter, despite a decrease in our marketable securities due to an increase in the average interest rates on our securities. This is our first year-over-year increase in interest income since we began paying dividends three years ago and is due to higher interest rates on our more recent investments. Our effective tax rate decreased to 28%, compared to 32% in the prior year quarter. The decrease was due to the blended effect of a decrease in the federal tax rate with the enactment of the Tax Reform Act, partially offset by a $207,000 one-time increase in our provision for income taxes from the effect of the new rate on our deferred tax assets.
After-tax net income for the most recent quarter increased 3% to $3.57 million, or $0.74 per diluted share, compared to $3.48 million or $0.72 last year. Net margin for the quarter was 49% compared to 47% last year. For the first nine months of fiscal 2018, total revenue increased 2% to $22 million. The increase was primarily due to a 33% increase in contract R&D revenue. Interest income decreased 9% for the first nine months compared to the prior year period. The decrease in the first nine months is due to a decrease in marketable securities as we used a portion of our maturing securities to fund dividends. As I noted in the discussion of the quarter, interest rates have increased on our more recently purchased securities.
Our nine-month tax rate was 31% compared to 32% in the prior year period due to a decrease in the federal tax rate, partially offset by the effect of the new rate on deferred tax assets. Net income for the first nine months of fiscal 2018 increased 1% to $10 million, or $2.07 per share, compared to $9.92 million, or $2.05 per share last fiscal year. Operating cash flow increased 3% to $11.3 million in the first nine months of fiscal 2018. Fixed asset purchases were $605,000 for the first nine months of the year, primarily for more efficient production equipment. We currently expect total fixed asset purchases for the full fiscal year to be less than a million dollars, compared to $520,000 last year. The Tax Reform Act enacted in December decreased federal corporate income tax rates starting this calendar year and changed certain other provisions.
We haven't fully assessed the impact of the act on future periods yet, but we currently expect our effective tax rate to be approximately 29% for the current quarter and fiscal year, the quarter and year ending March 31st, compared to 28% for the just reported third quarter and 32% for the first two quarters of this fiscal year. We expect our effective tax rate to decrease significantly to approximately 22% in the fiscal year beginning April 1st. Strategically, we hope the lower rates will help us compete more fairly with foreign competitors. That would help us grow, innovate, and justify new investments. In addition to the dividend paid in the past quarter, we announced today that our board declared another quarterly dividend of $1 per share, payable February 28th to shareholders of record as of January 29th. Now I'll turn it over to Dan to cover the business. Dan?
Thanks, Kurt. I'll cover new products, R&D, and 2017 highlights. R&D the past quarter continued to be focused on expanding our product lines, especially for the Internet of Things. We recently introduced a new current sensor for motor control and robotics. The new AAL024-10E combines accuracy, miniaturization, and electrical safety. There are several demonstrations of the new product on our website at nve.com/videos, and on our YouTube channel at youtube/nvecorporation. There's also a new YouTube playlist with the current sensor videos. Target markets are efficient motor controls for factories and cars and electric vehicle battery management systems. In addition to the new product, we made progress on our smart sensor development. Forecasts are for more and more demand for smart sensors in the coming years to support pervasive sensing. On our October call, we reported that we released the IC design to a semiconductor foundry.
In the past quarter, we built prototypes with the first wafers. It's a complex IC, and seeing it function is the culmination of a lot of hard work and ingenuity by our engineers, scientists, and contractors. We're working on design improvements to meet the requirements of the target markets of sensor-rich systems, such as factories and cars. As we've discussed before, a new partnership with one of the world's largest semiconductor companies is providing the broader distribution, sales support, and brand awareness we need to reach larger markets and grow. In the past quarter, we expanded the products under the partnership, which now covers about a half dozen products. Each part needed a strong business case and had to pass rigorous product qualification tests. Our partner committed significant resources to marketing and sales collaterals. Revenues are still modest, but we continue to see this partnership as a strategic growth driver.
Turning to contract R&D, we made good progress on our Department of Agriculture biosensor grant, and we have components ready for prototypes, including magnetic nanoparticles, aptamers, microfluidic manifolds, and cartridges. We're focusing our efforts this quarter on the biosensors and control electronics, and we remain optimistic we'll meet the main overall milestone of live pathogen testing on schedule in August. In the past quarter, we continued work on a research contract from the U.S. Navy, Naval Sea Systems Command, for circulator technology for full integration at the monolithic microwave integrated circuit level. We began work on the project in September with a goal of demonstrating the feasibility of a monolithic microwave integrated circuit, or MMIC, for next-generation microwave isolators and circulators. In addition to military applications, there are potential commercial applications such as 5G cellular infrastructure and automotive telemetry.
The contract is for approximately $125,000 with a goal of completion in March. There is a link to an abstract about the project from the In the News section of our website and on our Twitter timeline. Our principal investigator for the project, Dr. Joe Davies, co-authored a paper related to the technology that was presented at the Conference on Magnetism and Magnetic Materials last quarter. The paper was titled "Surface Acoustic Wave Pump Parametric Amplification of Forward Volume Spin Waves," and there is a link to the abstract on the R&D Papers and Presentations page of our website and on our Twitter timeline. The abstract includes a diagram of our proposed spin wave amplification structure.
Our researchers presented another paper at that conference titled, "Utilizing Superparamagnetic Freelayers for Magnetoresistive Sensors." That paper relates to our spintronic tunneling research, and we use spintronic tunneling for advanced sensors such as our ultra-low power angle and rotation sensors. Spintronic tunneling is also used in spintronic memory or MRAM. At the conference, there was a Magnetism as Art exhibit highlighting the aesthetics of this type of research. Our Dr. Chris Olson had an image selected for the exhibit. The image was from modeling of a metal organic magnet showing spatial mixing of spins. There are links to both papers from the conference and Dr. Olson's artwork on our website and our Twitter timeline. I would also like to note that Dr. Olson and Dr. Maria Torija chaired technical sessions, which was a recognition of their technical leadership.
As we begin 2018, we look back on 2017 as a successful year for NVE. We extended our products for the industrial Internet of Things, including products billed as the world's smallest angle sensor, analog sensor, the world's most sensitive magnetic switch, as well as high field sensors, plus new angle, rotation, and current sensors. We successfully completed a research contract on a spin torque microwave diode, met key milestones on our Department of Agriculture biosensor grant, and were awarded a new contract for a miniature circulator. We launched a new partnership with one of the world's largest semiconductor companies to expand our distribution and reach larger markets. Our quality management system was certified to the rigorous new ISO 9001:2015 standard, which will help us reach automotive and other new markets. I would like to open the call for questions. [Cherie]?
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then one key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Once again, ladies and gentlemen, to ask a question, please press star then one. Our first question comes from Jeff Bernstein with Cowen.
Hi, guys. Just a quick question on the pathogen testing. I guess we're reading about sort of a world of potential protein markers for diagnostics at a femtomolar kind of concentration. Are you guys sensitive down to that kind of level?
Well, good afternoon, Jeff. We'll have to do some math on that. We typically don't measure our sensitivity in terms of molar because that's more of a chemical measurement, and we're looking at biological measurements. That's a very good point. Our technology is adaptable to looking for other items that can elicit an antibody or an aptamer reaction. We are looking, as you know, at other applications long term. Our technology is extremely sensitive, as you know. We've used the metaphor before of not only can we find a needle in a haystack, but we can find a needle in a volume the size of the Mall of America. The technology is extremely sensitive. That gets us down to one colony-forming unit, basically one bacterium in the volume of 100 milliliters or more.
It's extremely sensitive. We would be looking for other applications that can benefit from that type of sensitivity.
Got you. Then, any update on You've got, I guess, a new distributor in South Korea?
We continue to have activity in South Korea and other territories where we've added distribution. We have some design investigations that are going on in Korea. We've added distribution in other territories. More on that. There's one in Germany we're not quite in a position to announce yet. We continue to look at adding distribution, specialized distribution, particularly in Asia, where face-to-face contact is important. In the United States, we rely a lot on catalog internet, which is effective here. The same models don't apply in places like Korea.
You had some nice growth sequentially in revenue. Overall, the product revenue, I guess, was flat. Any kind of outlook for revenue overall and split between product and development?
Maybe I can let Kurt comment on the specific outlook. As we mentioned in the prepared remarks, the sales in the past quarter were impacted by medical device sales, but that's improving, and long term, we think our outlook is very bright. We mentioned the partnership with a large semiconductor manufacturer. We mentioned the automotive market as potential growth markets, and then also new technologies such as the biosensors. We've got a very bright future, but you're probably asking also about what do the numbers look like. Kurt, do you have any color to add to that?
Yeah. We hope to return to year-over-year growth this quarter, the fourth quarter of the fiscal year. Obviously, there's risks and uncertainties related to that.
Got you. Terrific. Thank you.
Thanks, Jeff.
Thank you again, ladies and gentlemen. To ask a question, please press star then one. One moment while we wait for questions to queue. Speakers, I'm showing no further questions in the queue. I'll turn the call back over to you.
Well, thank you. We were pleased to report sequential growth, increased earnings, and important development milestones. We look forward to speaking with you again to discuss Q4 and full fiscal year results tentatively in early May. Thank you for participating in the call.
Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect, and have a wonderful day.