National Instruments Reports Second Quarter Revenue of $296 Million Company Continuing to Focus on Managing Costs to Improve Operating Margins

Q2 2013 Highlights

- Second quarter revenue of $296 million, up 1 percent year-over-year

- All-time revenue record for RF products

- General industry weakness

- Fully diluted GAAP EPS of $0.12 and fully diluted non-GAAP EPS of $0.18

AUSTIN, Texas, July 29, 2013 /PRNewswire/ -- National Instruments (Nasdaq: NATI) today announced Q2 revenue of $296 million, a 1 percent increase from Q2 2012. In Q2, the company's orders under $20,000 declined 4 percent year-over-year; orders between $20,000 and $100,000 grew 4 percent year-over-year; and orders above $100,000 declined 30 percent year-over-year after growing approximately 130 percent year-over-year in Q2 2012.

GAAP net income for Q2 was $14 million, with fully diluted earnings per share (EPS) of $0.12, and non-GAAP net income was $22 million, with non-GAAP fully diluted EPS of $0.18. The company's GAAP EPS was $0.03 below the midpoint of its guidance range and non-GAAP EPS was $0.04 below the midpoint of its guidance range given on April 25, including a $0.01 per share loss on foreign exchange the company did not anticipate. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, was $35 million, or $0.28 per share for Q2.

In Q2, GAAP gross margin decreased to 72 percent and non-GAAP gross margin was 73 percent due to lower factory utilization and the significantly lower margin on National Instruments' first RF test application with its largest customer. This application is in a highly competitive space and in an area National Instruments has not served for this customer before. Total operating expenses were down $4 million sequentially and were up 4 percent year-over-year.  Total non-GAAP operating expenses were down $5 million sequentially and were up 3 percent year-over-year.

The company's non-GAAP results exclude the impact of stock-based compensation, amortization of acquisition-related intangibles, acquisition accounting for deferred revenue, acquisition-related adjustments and acquisition-related transaction costs. Reconciliations of the company's GAAP and non-GAAP results are included as part of this news release.

National Instruments continued to deliver value to its largest customer and secured orders from this customer related to three different applications that use NI LabVIEW software and the NI PXI platform to rapidly develop a production test solution. In H1 2013, National Instruments received $30 million in orders from its largest customer, and recognized $23 million in revenue from this customer in Q2 2013.

"Although the test and measurement industry had a challenging quarter, we were able to grow revenue while executing disciplined cost management," said Dr. James Truchard, co-founder, president and CEO. "Thanks to the efforts of our employees, we have seen accelerated growth in customer leads and opportunities for our strategic product platforms oriented around LabVIEW despite the fact that customer budgets are tight."

Geographic revenue in U.S. dollar terms for Q2 2013 compared to Q2 2012 was down 1 percent in the Americas, up 2 percent in Europe, up 10 percent in East Asia and down 15 percent in Emerging Markets. In local currency terms, revenue was up 5 percent in Europe, up 11 percent in East Asia and down 13 percent in Emerging Markets.

As of June 30, NI had $324 million in cash and short-term investments. The National Instruments Board of Directors approved a quarterly dividend of $0.14 per share on the company's common stock payable on Sept. 3, 2013 to stockholders of record on Aug. 12, 2013.

Guidance for Q3 2013
"Although Q2 was a difficult quarter for our industry and for National Instruments, we believe NI was able to gain market share," said Alex Davern, NI COO and CFO. "On the expense side, we delivered on reducing our spending and are adjusting our future spending plans to align with the industry's current weakness."

National Instruments continues to be conservative in planning for Q3 due to the weak industry conditions. As a result, NI expects revenue for Q3 2013 to be between $265 million and $295 million, a decrease of 3 percent year-over-year at the midpoint of guidance. For perspective, National Instruments recognized approximately $27 million in revenue from its largest customer in Q3 2012 and the company anticipates recognizing less than $5 million in revenue from this customer in Q3 2013.  NI expects gross margins to increase approximately 250 to 300 basis points sequentially in Q3. NI expects total non-GAAP operating expenses to be $186 million, plus or minus $3 million in Q3. The company expects fully diluted EPS to be in the range of $0.04 to $0.16 for Q3, with non-GAAP fully diluted EPS expected to be in the range of $0.10 to $0.22.

Looking out to Q4, National Instruments is adjusting its spending plans to reflect the more difficult industry conditions.  The company currently expects its total non-GAAP operating expenses will decline sequentially in Q4 and that non-GAAP operating expenses will be approximately $181million, plus or minus $3 million in Q4.  National Instruments expects this to result in a significantly improved operating margin in Q4.

Non-GAAP Presentation
In addition to disclosing results determined in accordance with GAAP, NI discloses certain non-GAAP operating results and non-GAAP information that exclude certain charges. In this news release, the company has presented its gross profit, gross margin, operating expenses, operating income, operating margin, income before income taxes, provision for income taxes, net income and basic and fully diluted EPS for the three- and six-month periods ending June 30, 2013 and 2012, on a GAAP and non-GAAP basis. NI is also providing guidance on its non-GAAP operating expenses and fully diluted EPS.

When presenting non-GAAP information, the company includes a reconciliation of the non-GAAP results to the GAAP results. Management believes that including the non-GAAP results assists investors in assessing the company's operational performance and its performance relative to its competitors. The company presents these non-GAAP results as a complement to results provided in accordance with GAAP, and these results should not be regarded as a substitute for GAAP. Management uses these non-GAAP measures to manage and assess the profitability and performance of its business and does not consider stock-based compensation expense, amortization of acquisition-related intangibles, acquisition accounting for deferred revenue, acquisition-related adjustments and acquisition-related transaction costs in managing its operations. Specifically, management uses non-GAAP measures to plan and forecast future periods, to establish operational goals, to compare with its business plan and individual operating budgets, to measure management performance for the purposes of executive compensation including payments to be made under bonus plans, to assist the public in measuring the company's performance relative to the company's long-term public performance goals, to allocate resources and, relative to the company's historical financial performance, to enable comparability between periods. Management also considers such non-GAAP results to be an important supplemental measure of its performance.

This news release also discloses the company's EBITDA and EBITDA diluted EPS for the three- and six-month periods ending June 30, 2013 and 2012. The company also believes that including the EBITDA results assists investors in assessing the company's operational performance relative to its competitors. A reconciliation of EBITDA and EBITDA diluted EPS to GAAP net income and GAAP diluted EPS is included with this news release.

Conference Call Information and Availability of Presentation Materials
Interested parties can listen to the Q2 2013 conference call today, July 29, at 4:00 p.m. CT at ni.com/call. Replay information is available by calling (855) 859-2056, confirmation code #12343855, shortly after the call through Aug. 3 at 3:00 p.m. CT, or by visiting the company's website at ni.com/call. You may also view certain presentation materials that we may refer to on the conference call at ni.com/nati.

Forward-Looking Statements
This release contains "forward-looking statements," including continuing to focus on managing costs to improve operating margins, growth and customer leads and opportunities for our strategic product platforms while customer budgets are tight, gaining market share, adjusting future spending plans to align with industry weakness, being conservative in planning for Q3, anticipating recognizing less than $5 million in revenue from such customer in Q3 2013, National Instruments' Q3 guidance for revenue, gross margins, non-GAAP operating expenses and GAAP and non-GAAP EPS, adjusting spending plans to reflect the more difficult industry conditions, currently expecting total non-GAAP operating expenses will decline sequentially in Q4 and that non-GAAP operating expenses will be approximately $181 million, plus or minus $3 million in Q4 and expecting this to result in a significantly improved operating margin in Q4.  These statements are subject to a number of risks and uncertainties, including the risk of adverse changes or fluctuations in the global economy, foreign exchange fluctuations, component shortages, delays in the release of new products, fluctuations in customer demand for NI products including orders from NI's largest customer, fluctuations in average order size and customer mix, the company's ability to effectively manage its operating expenses, manufacturing inefficiencies and the level of capacity utilization, adjustments to acquisition earn-out accruals and the impact of NI's recent and any future acquisitions. Actual results may differ materially from the expected results.

The company directs readers to its Form 10-K for the fiscal year ended Dec. 31, 2012, its Form 10-Q for the quarter ended March 31, 2013; and the other documents it files with the SEC for other risks associated with the company's future performance.

About National Instruments
Since 1976, National Instruments (www.ni.com) has equipped engineers and scientists with tools that accelerate productivity, innovation and discovery. NI's graphical system design approach to engineering provides an integrated software and hardware platform that speeds the development of any system needing measurement and control. The company's long-term vision and focus on improving society through its technology supports the success of its customers, employees, suppliers and shareholders. Readers can obtain investment information from the company's investor relations department by calling (512) 683-5090, emailing nati@ni.com or visiting www.ni.com/nati. (NATI-F)

LabVIEW, National Instruments, NI and ni.com are trademarks of National Instruments. Other product and company names listed are trademarks or trade names of their respective companies.

 

Contact: Caitlin Gursslin, Investor Relations, caitlin.gursslin@ni.com

 

 

National Instruments

Consolidated Balance Sheets

(in thousands)








June 30, 2013


Dec. 31,



(unaudited)


2012

Assets





Current assets:





Cash and cash equivalents

$

169,580

$

161,996

Short-term investments


153,970


173,166

Accounts receivable, net


172,880


187,060

Inventories, net


185,278


169,990

Prepaid expenses and other current assets


68,202


48,009

Deferred income taxes, net


30,197


27,479

Total current assets


780,107


767,700






Property and equipment, net


263,915


249,721

Goodwill


146,922


147,258

Intangible assets, net


87,972


93,913

Other long-term assets


25,303


26,177

Total assets

$

1,304,219

$

1,284,769






Liabilities and Stockholders' Equity





Current liabilities:





Accounts payable

$

54,606

$

65,080

Accrued compensation


28,467


29,978

Deferred revenue – current


95,137


90,714

Accrued expenses and other liabilities


33,412


34,373

Other taxes payable


22,315


24,811

Total current liabilities


233,937


244,956






Deferred income taxes


46,480


47,630

Liability for uncertain tax positions


22,277


20,920

Deferred revenue – long-term


21,120


20,446

Other long-term liabilities


8,646


11,689

Total liabilities


332,460


345,641






Stockholders' equity:





Preferred stock


-


-

Common stock


1,248


1,229

Additional paid-in capital


568,426


532,845

Retained earnings


402,597


404,210

Accumulated other comprehensive (loss) income


(512)


844

Total stockholders' equity


971,759


939,128

Total liabilities and stockholders' equity

$

1,304,219

$

1,284,769









National Instruments

Consolidated Statements of Income

(in thousands, except per share data)





Three Months Ended


Six Months Ended



June 30,


June 30,



(unaudited)


(unaudited)



2013


2012


2013


2012

Net sales:









Product

$

275,663

$

268,979

$

541,081

$

508,314

Software maintenance


20,463


21,931


41,533


43,729

GSA accrual


-


1,349


-


1,349

Total net sales


296,126


292,259


582,614


553,392










Cost of sales:









Product


82,787


69,787


151,413


129,578

Software maintenance


1,028


1,064


2,642


2,621

Total cost of sales


83,815


70,851


154,055


132,199










Gross profit


212,311


221,408


428,559


421,193










Operating expenses:









Sales and marketing


112,561


110,756


226,631


210,808

Research and development


58,473


54,286


119,729


108,301

General and administrative


22,156


21,502


45,000


42,876

Acquisition-related adjustment


-


-


(1,316)


-

Total operating expenses


193,190


186,544


390,044


361,985










Operating income


19,121


34,864


38,515


59,208










Other income (expense):









Interest income


177


132


362


362

Net foreign exchange loss


(1,051)


(1,016)


(2,513)


(1,904)

Other income, net


400


151


424


255










Income before taxes


18,647


34,131


36,788


57,921










Provision for income taxes


4,226


7,690


3,767


12,838








Net income

$

14,421

$

26,441

$

33,021

$

45,083










Basic earnings per share

$

0.12

$

0.22

$

0.27

$

0.37

Diluted earnings per share

$

0.12

$

0.22

$

0.26

$

0.37










Weighted average shares outstanding:









Basic


124,377


121,801


123,845


121,360

Diluted


125,270


122,759


124,824


122,376










Dividends declared per share

$

0.14

$

$              0.14

$

0.28

$

0.28












































National Instruments

Consolidated Statements of Cash Flows

(in thousands)



Six Months Ended



June 30,



(unaudited)



2013


2012

Cash flow from operating activities:





Net income

$

33,021

$

45,083

Adjustments to reconcile net income to net cash provided





by operating activities:





Depreciation and amortization


33,555


27,316

Stock-based compensation


14,006


13,285

Tax (expense) benefit from deferred income taxes


(3,633)


6,695

Tax benefit from stock option plans


(2,042)


(2,094)

Changes in operating assets and liabilities:





Accounts receivable


14,358


(31,203)

Inventories


(14,732)


(16,994)

Prepaid expenses and other assets


(18,418)


(17,625)

Accounts payable


(10,612)


10,596

Deferred revenue


5,097


17,911

Taxes and other liabilities


(6,208)


(11,169)

Net cash provided by operating activities


44,392


41,801






Cash flow from investing activities:





Capital expenditures


(33,147)


(28,934)

Capitalization of internally developed software


(8,073)


(9,664)

Additions to other intangibles


(2,710)


(1,085)

Purchases of short-term investments


(16,039)


(38,879)

Sales and maturities of short-term investments


35,234


183,058

Net cash (used in) provided by investing activities


(24,735)


104,496






Cash flow from financing activities:





Proceeds from issuance of common stock


20,612


14,422

Dividends paid


(34,727)


(34,019)

Tax benefit from stock option plans


2,042


2,094

Net cash used in financing activities


(12,073)


(17,503)






Net change in cash and cash equivalents


7,584


128,794

Cash and cash equivalents at beginning of period


161,996


142,608

Cash and cash equivalents at end of period

$

169,580

$

271,402









National Instruments

Detail of GAAP Charges Related to Revenue, Stock-Based Compensation,

Amortization of Acquisition Intangibles and Acquisition-Related Transaction Costs

(in thousands)

(unaudited)


















Three Months Ended


Six Months Ended



June 30,


June 30,



2013


2012


2013


2012

Revenue









Acquisition-related deferred revenue

$

-

$

887

$

-

$

2,156

GSA accrual


-


(1,349)


-


(1,349)

Benefit from (provision for) income taxes


-


162


-


(282)

Total

$

-

$

(300)

$

-

$

525










Stock-based compensation









Cost of sales

$

408

$

438

$

829

$

853

Sales and marketing


2,926


2,945


5,999


5,585

Research and development


2,596


2,679


5,333


5,128

General and administrative


942


921


1,845


1,720

Provision for income taxes


(1,877)


(1,880)


(3,691)


(3,387)

Total

$

4,995

$

5,103

$

10,315

$

9,899



















Amortization of acquisition intangibles









Cost of sales

$

2,613

$

2,186

$

5,373

$

4,596

Sales and marketing


498


448


1,016


895

Research and development


569


-


1,242


-

Other income, net


188


193


381


382

Provision for income taxes


(1,268)


(894)


(2,618)


(1,866)

Total

$

2,600

$

1,933

$

5,394

$

4,007










Acquisition-related transaction costs









Cost of sales

$

3

$

-

$

3

$

32

Sales and marketing


142


19


260


239

Research and development


266


56


410


162

General and administrative


69


9


175


56

Acquisition-related adjustment


-


-


(1,316)


-

Provision for income taxes


(153)


(29)


(259)


(171)

Total

$

327

$

55

$

(727)

$

318






















National Instruments

Reconciliation of GAAP to Non-GAAP Measures

(in thousands, except per share data)

(unaudited)




Three Months Ended


Six Months Ended



June 30,


June 30,



2013


2012


2013


2012

Reconciliation of Net Sales to Non-GAAP Net Sales





Net sales, as reported

$

296,126

$

292,259

$

582,614

$

553,392

Acquisition-related deferred revenue


-


887


-


2,156

GSA accrual


-


(1,349)


-


(1,349)

Non-GAAP net sales

$

296,126

$

291,797

$

582,614

$

554,199










Reconciliation of Gross Profit to Non-GAAP Gross Profit





Gross profit, as reported

$

212,311

$

221,408

$

428,559

$

421,193

Acquisition-related deferred revenue and GSA accrual


-


(462)


-


807

Stock-based compensation


408


438


829


853

Amortization of acquisition intangibles


2,613


-


5,373


32

Acquisition-related transaction costs


3


2,186


3


4,596

Non-GAAP gross profit

$

215,335

$

223,570

$

434,764

$

427,481

      Non-GAAP gross margin


73%


77%


75%


77%










Reconciliation of Operating Expenses to Non-GAAP Operating Expenses





Operating expenses, as reported

$

193,190

$

186,544

$

390,044

$

361,985

Stock-based compensation


(6,464)


(6,545)


(13,177)


(12,433)

Amortization of acquisition intangibles


(1,067)


(448)


(2,258)


(895)

Acquisition-related adjustment


-


-


1,316


-

Acquisition-related transaction costs


(477)


(84)


(845)


(457)

 Non-GAAP operating expenses

$

185,182

$

179,467

$

375,080

$

348,200










Reconciliation of Operating Income to Non-GAAP Operating Income





Operating income, as reported

$

19,121

$

34,864

$

38,515

$

59,208

Acquisition-related deferred revenue and GSA accrual


-


(462)


-


807

Stock-based compensation


6,872


6,983


14,006


13,286

Amortization of acquisition intangibles


3,680


2,634


7,631


5,491

Acquisition-related adjustment


-


-


(1,316)


-

Acquisition-related transaction costs


480


84


848


489

Non-GAAP operating income

$

30,153

$

44,103

$

59,684

$

79,281

      Non-GAAP operating margin


10%


15%


10%


14%










Reconciliation of Income Before Income Taxes to Non-GAAP Income Before Income Taxes





Income before income taxes, as reported

$

18,647

$

34,131

$

36,788

$

57,921

Acquisition-related deferred revenue and GSA accrual


-


(462)


-


807

Stock-based compensation


6,872


6,983


14,006


13,286

Amortization of acquisition intangibles


3,868


2,827


8,012


5,873

Acquisition-related adjustment


-


-


(1,316)


-

Acquisition-related transaction costs


480


84


848


489

Non-GAAP income before income taxes

$

29,867

$

43,563

$

58,338

$

78,376










Reconciliation of Provision for Income Taxes to Non-GAAP Provision for Income Taxes





Provision for income taxes, as reported

$

4,226

$

7,690

$

3,767

$

12,838

Acquisition-related deferred revenue and GSA accrual


-


(162)


-


282

Stock-based compensation


1,877


1,880


3,691


3,387

Amortization of acquisition intangibles


1,268


894


2,618


1,866

Acquisition-related transaction costs


153


29


259


171

Non-GAAP provision for income taxes

$

7,524

$

10,331

$

10,335

$

18,544













National Instruments

Reconciliation of GAAP Net Income, Basic EPS and Diluted EPS to Non-GAAP Net Income, Basic EPS and Diluted EPS

(in thousands, except per share data)

(unaudited)











Three Months Ended


Six Months Ended



June 30,


June 30,



2013


2012


2013


2012

Net income, as reported

$

14,421

$

26,441

$

33,021

$

45,083

Adjustments to reconcile net income to non-GAAP net income:









Acquisition-related deferred revenue, net of tax effect


-


(300)


-


525

  Stock-based compensation, net of tax effect


4,995


5,103


10,315


9,899

  Amortization of acquisition intangibles, net of tax effect


2,600


1,933


5,394


4,007

  Acquisition-related adjustment


-


-


(1,316)


-

  Acquisition-related transaction costs, net of tax effect


327


55


589


318

Non-GAAP net income

$

22,343

$

33,232

$

48,003

$

59,832










Basic EPS, as reported

$

0.12

$

0.22

$

0.27

$

0.37

Adjustment to reconcile basic EPS to non-GAAP basic EPS:









  Impact of acquisition-related deferred revenue, net of tax effect


-


-


-


0.01

  Impact of stock-based compensation, net of tax effect


0.04


0.04


0.09


0.08

  Impact of amortization of acquisition intangibles, net of tax effect


0.02


0.01


0.04


0.03

  Impact of acquisition-related adjustment


-


-


(0.01)


-

  Impact of acquisition-related transaction costs, net of tax effect


-


-


-


-

Non-GAAP basic EPS

$

0.18

$

0.27

$

0.39

$

0.49



















Diluted EPS, as reported

$

0.12

$

0.22

$

0.26

$

0.37

Adjustment to reconcile diluted EPS to non-GAAP diluted EPS:









  Impact of acquisition-related deferred revenue, net of tax effect


-


-


-


0.01

  Impact of stock-based compensation, net of tax effect


0.04


0.04


0.09


0.08

  Impact of amortization of acquisition intangibles, net of tax effect


0.02


0.01


0.04


0.03

  Impact of acquisition-related adjustment


-


-


(0.01)


-

  Impact of acquisition-related transaction costs, net of tax effect


-


-


-


-

Non-GAAP diluted EPS

$

0.18

$

0.27

$

0.38

$

0.49










Weighted average shares outstanding:









Basic


124,377


121,801


123,845


121,360

Diluted


125,270


122,759


124,824


122,376













National Instruments

Reconciliation of Net Income and Diluted EPS to EBITDA and EBITDA Diluted EPS

(in thousands, except per share data)

(unaudited)












Three Months Ended


Six Months Ended



June 30,


June 30,



2013


2012


2013


2012

Net income, as reported

$

14,421

$

26,441

$

33,021

$

45,083

Adjustments to reconcile net income to EBITDA:









     Interest income


(177)


(132)


(362)


(362)

     Taxes


4,226


7,690


3,767


12,838

     Depreciation and amortization


16,726


13,201


33,555


27,316

EBITDA

$

35,196

$

47,200

$

69,981

$

84,875










Diluted EPS, as reported

$

0.12

$

0.22

$

0.26

$

0.37

Adjustments to reconcile diluted EPS to EBITDA:









     Interest income


-


-


-


-

     Taxes


0.03


0.06


0.03


0.10

     Depreciation and amortization


0.13


0.10


0.27


0.22

EBITDA diluted EPS

$

0.28

$

0.38

$

0.56

$

0.69










Weighted average shares outstanding – Diluted


125,270


122,759


124,824


122,376













National Instruments

Reconciliation of GAAP to Non-GAAP Operating Expense Guidance

(in millions)

(unaudited)










Three months ended




Sept. 30, 2013




Low


High

GAAP operating expense, guidance

$

191

$

197

Adjustment to reconcile operating expense to non-GAAP





operating expense:





  Impact of stock-based compensation


7


7

  Impact of amortization of acquisition intangibles


1


1







Non-GAAP operating expense, guidance

$

183

$

189




Reconciliation of GAAP to Non-GAAP EPS Guidance

(unaudited)










Three months ended




Sept. 30, 2013




Low


High

GAAP fully diluted EPS, guidance

$

0.04

$

0.16

Adjustment to reconcile diluted EPS to non-GAAP diluted EPS:





  Impact of stock-based compensation, net of tax effect


0.04


0.04

  Impact of amortization of acquisition intangibles, net of tax effect


0.02


0.02







Non-GAAP diluted EPS, guidance

$

0.10

$

0.22






























Reconciliation of GAAP to Non-GAAP EPS Guidance

(in millions)

(unaudited)










Three months ended




Dec. 31, 2013




Low


High

GAAP operating expense, guidance

$

186

$

192

Adjustment to reconcile operating expense to non-GAAP





operating expense:





  Impact of stock-based compensation


7


7

  Impact of amortization of acquisition intangibles


1


1







Non-GAAP operating expense, guidance

$

178

$

184

 

 

SOURCE National Instruments



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