Good day, ladies and gentlemen, and welcome to the NBE Third Quarter School 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. 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, Sherry. Good afternoon, and welcome to our conference call for the quarter ended December 31, 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 9 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 March 31, 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.
Kirk? Thanks, Dan. As Dan mentioned, 3rd quarter total revenue decreased 1% to $7,360,000, compared to a strong year ago quarter. Nearly offset by 164 percent increase in contract Revenue increased 5 decreases from certain medical device customers. 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 for the third quarter of fiscal 2018 compared to the prior year quarter due to a 19% decrease in SG and A partially offset by a 3 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 3rd 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 and is due to higher 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 in our provision for income taxes from After tax, net income for the most recent quarter increased 3 percent to $3,570,000, or $0.74 per diluted share compared to $3,480,000 or $0.72 last year. Net margin for the quarter was For the 1st 9 months of fiscal 2018, total revenue increased 2% to $22,000,000.
The increase was primarily due to Interest income decreased 9% for the 1st 9 months compared to the prior year period. The decrease in the 1st 9 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 Our 9 month the federal tax rate, partially offset by the effect of the new rate on deferred tax assets. Net income for the 1st 9 months of fiscal 2018 increased 1% to $10,000,000 or $2.07 per share compared to 9.92 Operating cash flow increased 3 percent to $11,300,000 in the 1st 9 months of fiscal 2018. Fixed asset purchases were $605,000 for the 1st 9 months of the year, primarily for more efficient production equipment.
We currently expect total fixed asset purchases $1000 last year. The Tax Reform Act enacted in December decreased federal corporate income tax rate starting this calendar year and change 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 the quarter and year ending March 31, compared to 28% for the just reported 3rd quarter and 32% for the 1st 2 quarters of this fiscal year. In the fiscal year beginning April 1. 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 29. Now I'll turn it over to Dan to cover
I'll cover thanks for it. I'll cover new products, R and D and 2017 highlights. R and 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 AAL-one hundred and twenty combines accuracy miniaturization and electrical safety.
There are several demonstrations the new product on our website at nv.com/videos and on our YouTube channel at youtube/nve Corporation. 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 1 of the world's largest semiconductor companies is providing the broader distribution 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 strategic growth driver. Turning to contract R And D, we made good progress on our Department of Agriculture Biosensor grant and we have components ready for prototypes, including magnetic nano particles, aptamers, microfluidic manifolds, and cartridges. We're focusing our efforts this quarter on the biosensors and control electronics, and we remain optimistic will meet the main overall milestone In the past quarter, we continued work on a research contract from the U. S. Navy naval C 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 mimic for next generation microwave isolators and circulators. In addition to military applications their potential commercial applications such as 5gcellular infrastructure and automotive telemetry. The contract is approximately $125,000 with a goal of completion in March. There's a link to an abstract about the project or 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 surfaceacousticwave pump parametric amplification of forward volume spin waves And there's a link to the abstract on the R and 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 also presented another paper at that conference titled utilizing superparamagnetic free of sensors. That paper relates to our Spintronic tunneling research and we use Spintronic tunneling for advanced sensors such as our ultralow power angle and rotation sensors. Spentronic tunneling is also used in Spentronic memory or MRAM. Also at the conference, there was a magnetism as art exhibit highlighting the aesthetics of this type of research.
Our Doctor. Chris Olsen had an image selected for the exhibit. The image was from modeling of a metal organic magnet showing spatial mixing spins. There are links to both papers from the conference and Doctor. Olsen's artwork on our website and our Twitter timeline.
And I'd also like to note that Doctor. Olsen and Doctor. 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 MDE. We extended our products for the industrial internet of things, including products build 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 culture biosensor grant and were awarded a new contract for a miniature Circulator. We launched a new partnership with 1 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 now I'd like to open the call for questions. Questions.
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 like a FEMPTO molar 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, but that's a very good point And our technology is adaptable to looking for other, items that have that can elicit an antibody an optimal reaction. And we are looking, as you know, at other applications long term. But our our technology is extremely sensitive, as you know, and we've used the metaphor before, 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.
So the technology is extremely sensitive. That gets us down to one colony forming unit, basically one bacterium in the volume of 100 milliliters and more. So it's extremely sensitive and we would be looking for other applications that can benefit from that type of sensitivity.
Got you. And then any update on, you've got, I guess, a new distributor in South Korea. Anything going on there?
We continue to have activity in South Korea and other tariff stories where we've added distribution. And, we have, we have some design investigations that are going on, in Korea. And, we've added distribution in other territories more on that. Nothing there's one in Germany. We're not quite in a position to announce yet, but we continue to look at adding distribution specialized distribution and 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, but the same models don't apply in places like Korea.
And then, 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, but 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 is potential growth markets and then also new technologies such as the biosensors. So we've got a very bright future, but you're probably looking asking also about what are the numbers look like. So, Kirk, do you have any color to add to that?
Yes, 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. Gotcha.
Terrific. Thank you.
Thank you.
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 Fourth Quarter and full fiscal year results tentatively in early May. Thank you for participating in the
This does conclude the program. You may all disconnect and have a wonderful day.