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. [Operator Instructions]. 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 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 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 and 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. Curt will cover the details of our financial results. Curt?

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 30. 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…

Thanks for it. 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 @NV.com/videos and 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 build 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 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…

Thank you. [Operator instructions] 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 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 a 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 or an aptamer reaction and we are looking as you know at other applications long term. But our technology is extremely sensitive as you know and 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. 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 got to guess a new distributor in South Korea. Anything going on there?

We continue to have activity in South Korea and other territories where we've added distribution and we have some design investigations that are going on in Korea and we've added distribution in other territories. More on that nothing, There is one in Germany. We're not quite in a position to announce yet, but we continue to look at adding distribution, specialize 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 Curt comment on the specific outlook, but as we mentioned in the prepared remarks that 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 do the numbers look like? So, Curt, do you have any color to add to that?

Yeah, 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. Perfect. Thank you.

Thanks Jeff.

Thank you. [Operator instructions] 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 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.