National Instruments Reports Record Operating Income in Q4

Quarterly Revenue Increases 22 Percent on a Sequential Basis

Jan 26, 2010, 16:00 ET from National Instruments

AUSTIN, Texas, Jan. 26, 2010 /PRNewswire-FirstCall/ --

Q4 2009 Highlights

  • Revenue of $202 million, flat year-over-year and up 22 percent sequentially
  • GAAP gross margin of 76.9 percent
  • Non-GAAP gross margin of 77.5 percent
  • GAAP and non-GAAP operating income reached all-time record
  • Fully diluted GAAP EPS of $0.03 including a $0.28 per share non-cash tax charge
  • Non-GAAP fully diluted EPS of $0.12 including a $0.28 per share non-cash tax charge
  • EBITDA reaches a record of $46 million, or $0.58 per share, and was up 56 percent year-over-year
  • Cash from operating activities reaches a record of $45 million
  • Cash and short-term investments of $289 million as of Dec. 31, 2009

National Instruments (Nasdaq: NATI) reported quarterly revenue of $202 million, which represents a 22 percent sequential increase and is flat year-over-year. Orders returned to year-over-year growth in Q4, up 2 percent, and the average order size reached a new quarterly record of approximately $3,800. Revenue growth in the quarter was lower than year-over-year order growth due to a record $8 million net increase in deferred revenue, primarily resulting from strong sequential growth in software sales in Q4, which is expected to benefit revenue in future quarters.

In Q4, gross margin increased by 2.3 percentage points sequentially and increased 1.7 percentage points year-over-year to 76.9 percent in Q4. Non-GAAP gross margin increased by 2.2 percentage points sequentially and increased by 1.7 percentage points year-over-year to 77.5 percent. Inventory declined by $2 million sequentially in Q4.

Q4 2009 operating income and non-GAAP operating income both set quarterly records. Operating income was $36 million, a 65 percent increase over Q4 2008. The non-GAAP operating income of $42 million was up 50 percent compared to Q4 2008, and represents a non-GAAP operating margin of 21 percent. The company's non-GAAP results exclude the impact of both stock-based compensation and the amortization of acquisition-related intangibles.

"While 2009 presented one of the most difficult economic environments in company history, our investments in R&D and field sales and the strength of our execution throughout the organization allowed National Instruments to recover rapidly, outperform the industry and position ourselves well for long-term success," said James Truchard, NI president, co-founder and CEO. "I would like to congratulate our employees for making National Instruments one of FORTUNE's 100 Best Places to Work for an 11th consecutive year and to thank everyone in the company for their expense management and commitment to innovation throughout 2009."

In Q4, NI virtual instrumentation and graphical system design product sales, which constitute the majority of the company's product portfolio, were up 23 percent from Q3 2009. NI instrument control product sales, which represent approximately 7 percent of NI revenue, were flat year-over-year and were up sequentially for a second quarter. NI CompactRIO hardware, modular instruments and academic products all set quarterly revenue records in Q4. The strong sequential increase in NI instrument control revenue in Q4 indicates that the overall test and measurement industry likely continued the sequential recovery that began in Q3. Product revenue was $188 million, up 1 percent from Q4 2008, and software maintenance revenue was $13 million, down 11 percent year-over-year.

Geographically, revenue in U.S. dollar terms for Q4 2009 compared to Q4 2008 was down 6 percent in the Americas, down 3 percent in Europe and up 15 percent in Asia. In local currency terms, revenue was up 1 percent in Europe and up 10 percent in Asia.

In Q4 2009, the company incurred a non-cash tax charge related to an opportunity benefit created by a new corporate income tax law in Hungary, which became effective on Jan. 1, 2010. Under the new law, National Instruments will receive a double tax deduction for qualified R&D expenses starting in 2010. As a result, NI has taken a non-cash charge to write off $21.6 million in other tax assets that NI had on its balance sheet related to Hungary but now does not expect to use. The $21.6 million charge reduced both the company's GAAP and non-GAAP earnings per share (EPS) by $0.28.  For historical comparison, note that in Q4 2007, NI recognized an $18.3 million non-cash tax credit related to its Hungarian operations.

Including the impact of the $21.6 million, or $0.28 per share non-cash tax charge, net income for Q4 was $2.4 million, with fully diluted EPS of $0.03, and non-GAAP net income was $9.7 million, with non-GAAP fully diluted EPS of $0.12. A reconciliation of the company's GAAP and non-GAAP results is included in this earnings press release.

The NI commitment to innovation and customer success is evident in the continued growth in R&D and field sales, which were up by 63 people in 2009. As of Dec. 31, total headcount was 5,120, a 1 percent year-over-year decline.

Cash flow from operations continued to be strong at $136 million for the year. As of Dec. 31, 2009, NI had $289 million in net cash and short-term investments, up $12 million from Sept. 30, 2009. During Q4 2009, the company paid $9 million in dividends and used $16.4 million to repurchase 574,000 shares of its common stock at an average price of $28.55 per share. During the difficult two years since the start of the recession in December 2007, NI generated $257 million in net cash provided by operating activities, paid out $72 million in dividends and used $138 million for the purchase of 5.6 million shares of NI common stock at an average price of $24.89 per share.

National Instruments announced that its Board of Directors approved an 8 percent sequential increase in the quarterly dividend to $0.13 per share. This dividend is payable on March 1, 2010, to shareholders of record on Feb. 8, 2010.

FY 2009 Highlights

  • Revenue of $677 million, down 18 percent year-over-year
  • GAAP operating margin of 6.9 percent
  • Non-GAAP operating margin of 10.5 percent
  • Fully diluted GAAP EPS of $0.22 including a $0.28 per share non-cash tax charge
  • Non-GAAP fully diluted EPS of $0.47 including a $0.28 per share non-cash tax charge
  • Record annual revenue for NI CompactRIO, RF, and academic products
  • Cash flow from operating activities of $136 million
  • EBITDA of $87 million or $1.11 per share
  • NI named to FORTUNE magazine's 100 Best Companies to Work For list for 11th consecutive year

Full-year 2009 revenue was $677 million, down 18 percent year-over-year in U.S. dollar terms. Including the impact of the $21.6 million or $0.28 per share non-cash tax charge, annual net income was $17 million, with fully diluted EPS of $0.22, and annual non-GAAP net income was $36 million, with non-GAAP fully diluted EPS of $0.47.

Guidance for Q1 2010

"We are very pleased with the rapid recovery in our business despite the continued severe weakness in industrial capacity utilization," said Alex Davern, NI CFO. "Our goals are to maintain the market share gains we have achieved in the recession and to focus on delivering significant operating leverage in the recovery. Our guidance anticipates significant year-over-year revenue and profit growth in Q1, with the midpoint of both revenue and earnings per share guidance, representing new all-time records for a first quarter."

NI expects strong Q1 year-over-year revenue growth, with revenue expected to be between $192 million and $202 million. The company expects fully diluted EPS between $0.24 and $0.32, with non-GAAP fully diluted EPS expected to be between $0.30 and $0.38. This guidance includes the full restoration of employee salaries, generally effective Feb. 1, and the automatic variable pay increase that will result from the significant year-over-year growth assumed by the company's guidance.

For 2010, the company anticipates that its non-GAAP effective tax rate will be between 18 percent and 22 percent, and the company is using 20 percent for internal modeling.

In Q1 2010, the company anticipates that the GAAP to non-GAAP EPS adjustment will be approximately $0.06 per share. For the full year, the company anticipates that the GAAP to non-GAAP EPS adjustment will be approximately $0.22 per share.

Non-GAAP Earnings Presentation and Non-GAAP Earnings Guidance

In addition to disclosing results determined in accordance with GAAP, NI discloses certain non-GAAP operating results that exclude certain charges. In this news release, the company has presented its results for 2009 and for Q4 2009 on a GAAP and non-GAAP basis. When presenting non-GAAP results, the company includes a reconciliation of the non-GAAP data to the data under GAAP.

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 or amortization of acquired intangibles that are all non-cash charges 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 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 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 NI's earnings before interest, taxes, depreciation and amortization (EBITDA) for 2009 and Q4 2009 and comparative EBITDA results for 2008 and Q4 2008. Management also believes that including the EBITDA results assists investors in assessing the company's operational performance relative to its competitors. A reconciliation of EBITDA to GAAP net income is included with this news release.

Conference Call Information

Interested parties can listen to the Q4 2009 conference call today, Jan. 26, beginning at 4:00 p.m. CT, at www.ni.com/call. Replay information is available by calling (888) 203-1112, confirmation code #8926744, from Jan. 26 at 7:00 p.m. CT through Feb. 5 at midnight CT.

Forward-Looking Statements

This release contains "forward-looking statements," including statements related to deferred revenue benefitting revenue in future quarters, positioning the company for long-term success, not expecting to use other tax assets in Hungary, maintaining market share gains, significant operating leverage and the company's guidance for Q1 2010 with respect to revenue and GAAP and non-GAAP EPS, guidance assumptions, non-GAAP tax rate for 2010 and expected GAAP and non-GAAP adjustments for Q1 2010 and 2010. These statements are subject to a number of risks and uncertainties, including the risk of unexpected adverse changes or fluctuations in the global economy as a result of conditions in the global credit and equity markets, delays in the release of new products, fluctuations in customer demand for NI products, manufacturing inefficiencies, competitive conditions in NI markets, further tax law changes in Hungary and foreign exchange fluctuations. Actual results may differ materially from the expected results. The company directs readers to its quarterly reports on Form 10-Q and the other documents it files with the SEC for other risks associated with the company's future performance.

About National Instruments

National Instruments (www.ni.com) is transforming the way engineers and scientists design, prototype and deploy systems for measurement, automation and embedded applications. NI empowers customers with off-the-shelf software such as NI LabVIEW and modular cost-effective hardware, and sells to a broad base of more than 30,000 different companies worldwide, with no one customer representing more than 3 percent of revenue and no one industry representing more than 15 percent of revenue. Headquartered in Austin, Texas, NI has more than 5,000 employees and direct operations in more than 40 countries. For the past 11 years, FORTUNE magazine has named NI one of the 100 best companies to work for in America. Readers can obtain investment information from the company's investor relations department by calling (512) 683-5090, e-mailing nati@ni.com or visiting www.ni.com/nati.

CompactRIO, 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:

Veronica Garza

Investor Relations

(512) 683-6873

National Instruments

Condensed Consolidated Balance Sheets

(in thousands)

December 31,

December 31,

2009

2008

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

201,465

$

229,400

Short-term investments

87,196

6,220

Accounts receivable, net

103,957

121,548

Inventories, net

86,515

107,358

Prepaid expenses and other current assets

36,523

43,062

Deferred income taxes, net

16,522

21,435

Total current assets

532,178

529,023

Long-term investments

-

10,500

Property and equipment, net

153,265

154,477

Goodwill, net

64,779

64,561

Intangible assets, net

43,390

41,915

Other long-term assets

19,417

32,115

Total assets

$

813,029

$

832,591

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

23,502

$

30,876

Accrued compensation

14,934

22,012

Deferred revenue

57,242

45,514

Accrued expenses and other liabilities

8,560

18,848

Other taxes payable

14,181

13,481

Total current liabilities

118,419

130,731

Deferred income taxes

25,012

25,157

Liability for uncertain tax positions

11,062

9,364

Other long-term liabilities

4,116

2,901

Total liabilities

$

158,609

$

168,153

Stockholders' equity:

Preferred stock

-

-

Common stock

774

772

Additional paid-in capital

336,446

300,352

Retained earnings

303,655

352,831

Accumulated other comprehensive income

13,545

10,483

Total stockholders' equity

$

654,420

$

664,438

Total liabilities and stockholders' equity

$

813,029

$

832,591

National Instruments

Condensed Consolidated Statements of Income

(in thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

(unaudited)

(unaudited)

Net sales:

Product

$

188,388 

$

187,219 

$

623,736 

$

765,441 

Software maintenance

13,209 

14,888 

52,858 

55,096 

Total net sales

201,597 

202,107 

676,594 

820,537 

Cost of sales:

Product

$

45,466 

$

48,577 

$

164,700 

$

201,064 

Software maintenance

1,150 

1,516 

5,184 

6,045 

Total cost of sales

46,616 

50,093 

169,884 

207,109 

Gross profit

$

154,981 

$

152,014 

$

506,710 

$

613,428 

Operating expenses:

Sales and marketing

$

70,178 

$

76,771 

$

269,267 

$

307,409 

Research and development

33,722 

37,332 

132,974 

143,140 

General and administrative

15,100 

16,040 

57,938 

67,162 

Total operating expenses

$

119,000 

$

130,143 

$

460,179 

$

517,711 

Operating income

35,981 

21,871 

46,531 

95,717 

Other income (expense):

Interest income

$

294 

$

971 

$

1,629 

$

5,996 

Net foreign exchange gain (loss)

(567)

(1,946)

734 

(3,737)

Other income (expense), net

372 

148 

1,351 

161 

Income before income taxes

$

36,080 

$

21,044 

$

50,245 

$

98,137 

Provision for (benefit from) income taxes

33,714 

1,726 

33,160 

13,310 

Net income

$

2,366 

$

19,318 

$

17,085 

$

84,827 

Basic earnings per share

$

0.03 

$

0.25 

$

0.22 

$

1.08 

Diluted earnings per share

$

0.03 

$

0.25 

$

0.22 

$

1.07 

Weighted average shares outstanding -

basic

77,589 

78,110 

77,520 

78,567 

diluted

78,325 

78,522 

78,026 

79,515 

Dividends declared per share

$

0.12 

$

0.11 

$

0.48 

$

0.44 

National Instruments

Condensed Consolidated Statements of Cash Flows

(in thousands)

Twelve Months Ended

December 31,

2009

2008

(unaudited)

Cash flow from operating activities:

Net income

$

17,085 

$

84,827 

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

38,365 

37,103 

Stock-based compensation

20,299 

19,854 

Provision for (benefit from) deferred income taxes

17,196 

(4,475)

Tax expense (benefit from) stock option plans

1,450 

(1,213)

Changes in operating assets and liabilities:

Accounts receivable

17,591 

12,159 

Inventories

20,843 

(24,578)

Prepaid expenses and other assets

12,740 

(10,340)

Accounts payable

(7,374)

(5,648)

Deferred revenue

11,728 

9,423 

Taxes and other liabilities

(14,272)

4,706 

Net cash provided by operating activities

$

135,651 

$

121,818 

Cash flow from investing activities:

Capital expenditures

(20,847)

(25,771)

Capitalization of internally developed software

(12,583)

(9,487)

Additions to other intangibles

(4,602)

(3,010)

Acquisition, net of cash received

(17,310)

Purchases of short-term and long-term investments

(93,087)

(9,061)

Sales and maturities of short-term and long-term investments

19,204 

86,179 

Purchases of foreign currency option contracts

(2,784)

Net cash (used by) provided by investing activities

$

(111,915)

$

18,756 

Cash flow from financing activities:

Proceeds from issuance of common stock

21,666 

31,150 

Repurchase of common stock

(34,579)

(103,641)

Dividends paid

(37,308)

(34,735)

Tax expense (benefit from) stock option plans

(1,450)

1,213 

Net cash (used by) financing activities

$

(51,671)

$

(106,013)

Net change in cash and cash equivalents

(27,935)

34,561 

Cash and cash equivalents at beginning of period

$

229,400 

$

194,839 

Cash and cash equivalents at end of period

$

201,465 

$

229,400 

Detail of GAAP charges related to stock-based compensation and

amortization of acquisition intangibles (unaudited)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

Stock-based compensation

Cost of sales

$

309 

$

253 

$

1,284 

$

1,063 

Sales and marketing

2,148 

2,275 

8,774 

8,479 

Research and development

1,887 

1,961 

7,236 

7,121 

General and administrative

717 

733 

3,005 

3,084 

Provision for income taxes

1,523 

(1,013)

(3,765)

(4,601)

Total

$

6,584 

$

4,209 

$

16,534 

$

15,146 

Amortization of acquisition intangibles

Cost of sales

$

852 

$

862 

$

3,445 

$

3,587 

Sales and marketing

126 

131 

503 

566 

Research and development

14 

General and administrative

Provision for income taxes

(277)

(281)

(1,111)

(1,127)

Total

$

701 

$

712 

$

2,837 

$

3,040 

National Instruments

Reconciliation of GAAP to Non-GAAP Measures

(in thousands, except per share data)

(unaudited)

Reconciliation of Gross Profit to Non-GAAP Gross Profit

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

Gross profit, as reported

$

154,981

$

152,014

$

506,710

$

613,428

Stock-based compensation

309

253

1,284

1,063

Amortization of acquisition intangibles

852

862

3,445

3,587

Non-GAAP gross profit

$

156,142

$

153,129

$

511,439

$

618,078

Reconciliation of Operating Expense to Non-GAAP Operating Expenses 

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

Operating expense, as reported

$

119,000 

$

130,143 

$

460,179 

$

517,711 

Stock-based compensation

(4,752)

(4,969)

(19,015)

(18,684)

Amortization of acquisition intangibles

(126)

(131)

(503)

(580)

Non-GAAP operating expenses

$

114,122 

$

125,043 

$

440,661 

$

498,447 

Reconciliation of Operating Income to Non-GAAP Operating Income

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

Operating income, as reported

$

35,981

$

21,871

$

46,531

$

95,717

Stock-based compensation

5,061

5,222

20,299

19,747

Amortization of acquisition intangibles

978

993

3,948

4,167

Non-GAAP operating income

$

42,020

$

28,086

$

70,778

$

119,631

Reconciliation of Income before income taxes to Non-GAAP Income before income taxes

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

Income before income taxes, as reported

$

36,080

$

21,044

$

50,245

$

98,137

Stock-based compensation

5,061

5,222

20,299

19,747

Amortization of acquisition intangibles

978

993

3,948

4,167

Non-GAAP income before income taxes

$

42,119

$

27,259

$

74,492

$

122,051

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

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

Provision for income taxes, as reported

$

33,714 

$

1,726 

$

33,160 

$

13,310 

Stock-based compensation

(1,523)

1,013 

3,765 

4,601 

Amortization of acquisition intangibles

277 

281 

1,111 

1,127 

Non-GAAP provision for income taxes

$

32,468 

$

3,020 

$

38,036 

$

19,038 

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

Diluted EPS

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

Net income, as reported

$

2,366

$

19,318

$

17,085

$

84,827

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

   Stock-based compensation, net of tax effect

6,584

4,209

16,534

15,146

   Amortization of acquisition intangibles, net of tax effect

701

712

2,837

3,040

Non-GAAP net income

$

9,651

$

24,239

$

36,456

$

103,013

Basic EPS, as reported

$

0.03

$

0.25

$

0.22

$

1.08

Adjustment to reconcile basic EPS to non-GAAP

basic EPS:

   Impact of stock-based compensation, net of tax effect

$

0.08

$

0.05

$

0.21

$

0.19

   Impact of amortization of acquisition intangibles, net of tax effect

$

0.01

$

0.01

$

0.04

$

0.04

Non-GAAP basic EPS

$

0.12

$

0.31

$

0.47

$

1.31

Diluted EPS, as reported

$

0.03

$

0.25

$

0.22

$

1.07

Adjustment to reconcile diluted EPS to non-GAAP

diluted EPS:

   Impact of stock-based compensation, net of tax effect

$

0.08

$

0.05

$

0.21

$

0.19

   Impact of amortization of acquisition intangibles, net of tax effect

$

0.01

$

0.01

$

0.04

$

0.04

Non-GAAP diluted EPS

$

0.12

$

0.31

$

0.47

$

1.30

Weighted average shares outstanding -

Basic

77,589

78,110

77,520

78,567

Diluted

78,325

78,522

78,026

79,515

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

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009

2008

2009

2008

Net income, as reported

$

2,366 

$

19,318 

$

17,085 

$

84,827 

Adjustments to reconcile net income to EBITDA:

    Interest income

(294)

(971)

(1,629)

(5,996)

    Taxes

33,714 

1,726 

33,160 

13,310 

    Depreciation and amortization

9,829 

9,202 

38,365 

37,103 

EBITDA

$

45,615 

$

29,275 

$

86,981 

$

129,244 

Diluted EPS, as reported

$

0.03 

$

0.25 

$

0.22 

$

1.07 

Adjustment to reconcile diluted EPS to EBITDA

    Interest income

$

0.00 

$

(0.01)

$

(0.02)

$

(0.08)

    Taxes

$

0.43 

$

0.02 

$

0.42 

$

0.17 

    Depreciation and amortization

$

0.12 

$

0.11 

$

0.49 

$

0.47 

EBITDA diluted EPS

$

0.58 

$

0.37 

$

1.11 

$

1.63 

Diluted

78,325 

78,522 

78,026 

79,515 

National Instruments

Reconciliation of GAAP to Non-GAAP Estimated Measures

(in thousands, except per share data)

(unaudited)

Reconciliation of Estimated GAAP Fully Diluted EPS to Non-GAAP Fully Diluted EPS

Three months ended

March 31, 2010

Low

High

GAAP Fully Diluted EPS, estimated

$

0.24

$

0.32

Adjustment to reconcile diluted EPS to non-GAAP

diluted EPS:

   Impact of stock-based compensation, net of tax effect

$

0.05

$

0.05

   Impact of amortization of acquisition intangibles, net of tax effect

$

0.01

$

0.01

Non-GAAP diluted EPS, estimated

$

0.30

$

0.38

SOURCE National Instruments



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