NI Reports Record Quarterly Revenue of $314 Million

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-related adjustments, acquisition-related transaction costs and restructuring 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 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 nine-month periods ending Sept. 30, 2014 and 2013. The company 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 Q3 2014 conference call today, Oct. 30, at 4:00 p.m. CT at ni.com/call. Replay information is available by calling (855) 859-2056, confirmation code #10295526, shortly after the call through Nov. 1 at 11:00 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 statements regarding driving significant operating leverage, being optimistic about our long-term position in the industry, our new products released in Q3 adding capability to our platform to address new opportunities, expecting to continue to deliver YOY revenue growth and operating leverage in Q4, working hard to take advantage of our opportunity and remain committed to driving organic growth, gross margins expected to be up sequentially in Q4 and NI’s Q4 guidance for revenue and GAAP and non-GAAP EPS. 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, and the impact of any acquisitions by NI. 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, 2013, and its Form 10-Q for the quarter ended June 30, 2014, and the other documents it files with the SEC for other risks associated with the company’s future performance.

About NI

Since 1976, NI ( www.ni.com) has made it possible for engineers and scientists to solve the world’s greatest engineering challenges with powerful, flexible technology solutions that accelerate productivity and drive rapid innovation. Customers from a wide variety of industries – from healthcare to automotive and from consumer electronics to particle physics – use NI’s integrated hardware and software platform to improve the world we live in. (NATI-F)

CompactRIO, 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.


National Instruments
Condensed Consolidated Balance Sheets
(in thousands)

	September 30,			December 31,
	2014			2013
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	259,455		$	230,263
Short-term investments		188,299			163,149
Accounts receivable, net		187,726			180,680
Inventories, net		170,862			172,109
Prepaid expenses and other current assets		71,735			49,001
Deferred income taxes, net		28,425			33,393
Total current assets		906,502			828,595

Property and equipment, net		261,622			260,568
Goodwill		145,026			146,520
Intangible assets, net		83,151			82,310
Other long-term assets		24,592			25,558
Total assets	$	1,420,893		$	1,343,551

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	61,893		$	56,614
Accrued compensation		37,638			25,189
Deferred revenue - current		101,407			96,117
Accrued expenses and other liabilities		13,728			17,627
Other taxes payable		34,822			29,808
Total current liabilities		249,488			225,355

Deferred income taxes		41,885			44,620
Liability for uncertain tax positions		10,412			23,572
Deferred revenue - long-term		24,808			21,389
Other long-term liabilities		7,012			5,531
Total liabilities		333,605			320,467

Stockholders' equity:
Preferred stock		-			-
Common stock		1,276			1,257
Additional paid-in capital		649,794			604,330
Retained earnings		440,785			414,947
Accumulated other comprehensive (loss) income		(4,567	)		2,550
Total stockholders' equity		1,087,288			1,023,084
Total liabilities and stockholders' equity	$	1,420,893		$	1,343,551


National Instruments
Condensed Consolidated Statements of Income
(in thousands, except per share data, unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2014			2013		2014			2013

Net sales:
Product	$	287,336		$	269,582	$	837,824		$	810,663
Software maintenance		26,365			19,556		73,262			61,089
Total net sales		313,701			289,138		911,086			871,752

Cost of sales:
Product		79,266			73,541		229,529			224,954
Software maintenance		1,683			1,665		4,443			4,307
Total cost of sales		80,949			75,206		233,972			229,261

Gross profit		232,752			213,932		677,114			642,491

Operating expenses:
Sales and marketing		116,736			111,253		348,026			337,884
Research and development		58,972			60,791		170,082			180,520
General and administrative		22,741			21,363		68,854			66,363
Acquisition related adjustment		-			-		-			(1,316	)
Total operating expenses		198,449			193,407		586,962			583,451

Operating income		34,303			20,525		90,152			59,040

Other income (expense):
Interest income		362			133		793			495
Net foreign exchange (loss) gain		(452	)		456		(1,005	)		(2,057	)
Other (loss) income, net		(70	)		304		283			728

Income before income taxes		34,143			21,418		90,223			58,206

(Benefit from) Provision for income taxes		(5,559	)		5,654		7,275			9,421

Net income	$	39,702		$	15,764	$	82,948		$	48,785

Basic earnings per share	$	0.31		$	0.13	$	0.65		$	0.39
Diluted earnings per share	$	0.31		$	0.13	$	0.65		$	0.39

Weighted average shares outstanding -
basic		127,478			125,032		126,785			124,244
diluted		127,903			125,608		127,529			125,221

Dividends declared per share	$	0.15		$	0.14	$	0.45		$	0.42


National Instruments
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)

	Nine Months Ended September 30,
	2014			2013
Cash flow from operating activities:
Net income	$	82,948		$	48,785
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		51,011			50,897
Stock-based compensation		19,531			21,996
Tax expense/(benefit) expense from deferred income taxes		2,222			(1,272	)
Tax benefit from stock option plans		(1,189	)		(2,185	)
Changes in operating assets and liabilities:
Accounts receivable		(7,046	)		4,789
Inventories		1,247			(8,358	)
Prepaid expenses and other assets		(24,887	)		(18,320	)
Accounts payable		5,279			(10,636	)
Deferred revenue		8,709			6,192
Taxes and other liabilities		2,891			2,834
Net cash provided by operating activities		140,716			94,722

Cash flow from investing activities:
Capital expenditures		(30,645	)		(40,795	)
Capitalization of internally developed software		(22,055	)		(10,566	)
Additions to other intangibles		(2,238	)		(4,146	)
Purchases of short-term investments		(107,664	)		(16,039	)
Sales and maturities of short-term investments		82,514			35,299
Net cash used by investing activities		(80,088	)		(36,247	)

Cash flow from financing activities:
Proceeds from issuance of common stock		24,483			28,809
AWR earnout payment		-			(9,016	)
Dividends paid		(57,108	)		(52,241	)
Tax benefit from stock option plans		1,189			2,185
Net cash used by financing activities		(31,436	)		(30,263	)

Net change in cash and cash equivalents		29,192			28,212
Cash and cash equivalents at beginning of period		230,263			161,996
Cash and cash equivalents at end of period	$	259,455		$	190,208


National Instruments
Detail of GAAP charges related to revenue, stock-based compensation, amortization of acquisition intangibles, and acquisition transaction costs and restructuring charges
(in thousands, unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2014			2013			2014			2013
Stock-based compensation
Cost of sales	$	465		$	390		$	1,264		$	1,219
Sales and marketing		2,756			2,908			8,334			8,907
Research and development		2,497			3,803			7,221			9,136
General and administrative		877			889			2,657			2,734
Provision for income taxes		(2,284	)		(2,894	)		(5,917	)		(6,585	)
Total	$	4,311		$	5,096		$	13,559		$	15,411


Amortization of acquisition intangibles
Cost of sales	$	2,662		$	2,672		$	7,991		$	8,045
Sales and marketing		433			490			1,351			1,506
Research and development		392			396			1,198			1,638
Other income, net		170			185			507			566
Provision for income taxes		(1,207	)		(1,232	)		(3,647	)		(3,850	)
Total	$	2,450		$	2,511		$	7,400		$	7,905

Acquisition transaction costs and restructuring charges
Cost of sales	$	547		$	4		$	547		$	7
Sales and marketing		(24	)		146			152			406
Research and development		(42	)		281			264			691
General and administrative		38			71			145			246
Acquisition related adjustment		-			-			-			(1,316	)
Provision for income taxes		(182	)		(153	)		(388	)		(412	)
Total	$	337		$	349		$	720		$	(378	)


National Instruments
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, unaudited)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2014			2013			2014			2013
Reconciliation of Gross Profit to Non-GAAP Gross Profit
Gross profit, as reported	$	232,752		$	213,932		$	677,114		$	642,491
Stock-based compensation		465			390			1,264			1,219
Amortization of acquisition intangibles		2,662			2,672			7,991			8,045
Acquisition transaction costs and restructuring charges		547			4			547			7
Non-GAAP gross profit	$	236,426		$	216,998		$	686,916		$	651,762
Non-GAAP gross margin		75	%		75	%		75	%		75	%

Reconciliation of Operating Expenses to Non-GAAP Operating Expenses
Operating expenses, as reported	$	198,449		$	193,407		$	586,962		$	583,451
Stock-based compensation		(6,130	)		(7,600	)		(18,212	)		(20,777	)
Amortization of acquisition intangibles		(825	)		(886	)		(2,549	)		(3,144	)
Acquisition related adjustment		-			-			-			1,316
Acquisition transaction costs and restructuring charges		28			(498	)		(561	)		(1,343	)
Non-GAAP operating expenses	$	191,522		$	184,423		$	565,640		$	559,503

Reconciliation of Operating Income to Non-GAAP Operating Income
Operating income, as reported	$	34,303		$	20,525		$	90,152		$	59,040
Stock-based compensation		6,595			7,990			19,476			21,996
Amortization of acquisition intangibles		3,487			3,558			10,540			11,189
Acquisition related adjustment		-			-			-			(1,316	)
Acquisition transaction costs and restructuring charges		519			502			1,108			1,350
Non-GAAP operating income	$	44,904		$	32,575		$	121,276		$	92,259
Non-GAAP operating margin		14	%		11	%		13	%		11	%

Reconciliation of Income before income taxes to Non-GAAP Income before income taxes
Income before income taxes, as reported	$	34,143		$	21,418		$	90,223		$	58,206
Stock-based compensation		6,595			7,990			19,476			21,996
Amortization of acquisition intangibles		3,657			3,743			11,047			11,755
Acquisition related adjustment		-			-			-			(1,316	)
Acquisition transaction costs and restructuring charges		519			502			1,108			1,350
Non-GAAP income before income taxes	$	44,914		$	33,653		$	121,854		$	91,991

Reconciliation of Provision for income taxes to Non-GAAP Provision for income taxes
Provision for income taxes, as reported	$	(5,559	)	$	5,654		$	7,275		$	9,421
Stock-based compensation		2,284			2,894			5,917			6,585
Amortization of acquisition intangibles		1,207			1,232			3,647			3,850
Acquisition transaction costs and restructuring charges		182			153			388			412
Non-GAAP provision for income taxes	$	(1,886	)	$	9,933		$	17,227		$	20,268


National Instruments
Reconciliation of GAAP Net Income, Basic EPS and Diluted EPS to Non-GAAP Net Income, Non-GAAP Basic EPS and Non-GAAP Diluted EPS
(in thousands, except per share data, unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013

Net income, as reported	$	39,702	$	15,764	$	82,948	$	48,785
Adjustments to reconcile net income to non-GAAP net income:
Stock-based compensation, net of tax effect		4,311		5,096		13,559		15,411
Amortization of acquisition intangibles, net of tax effect		2,450		2,511		7,400		7,905
Acquisition related adjustment		-		-		-		(1,316	)
Acquisition transaction costs and restructuring charges, net of tax effect		337		349		720		938
Non-GAAP net income	$	46,800	$	23,720	$	104,627	$	71,723

Basic EPS, as reported	$	0.31	$	0.13	$	0.65	$	0.39
Adjustment to reconcile basic EPS to non-GAAP
basic EPS:
Impact of stock-based compensation, net of tax effect		0.04		0.04		0.11		0.13
Impact of amortization of acquisition intangibles, net of tax effect		0.02		0.02		0.06		0.06
Acquisition related adjustment		-		-		-		(0.01	)
Impact of acquisition transaction costs and restructuring charges, net of tax effect		-		-		0.01		0.01
Non-GAAP basic EPS	$	0.37	$	0.19	$	0.83	$	0.58


Diluted EPS, as reported	$	0.31	$	0.13	$	0.65	$	0.39
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS
Impact of stock-based compensation, net of tax effect		0.04		0.04		0.11		0.12
Impact of amortization of acquisition intangibles, net of tax effect		0.02		0.02		0.06		0.06
Acquisition related adjustment		-		-		-		(0.01	)
Impact of acquisition transaction costs and restructuring charges, net of tax effect		-		-		-		0.01
Non-GAAP diluted EPS	$	0.37	$	0.19	$	0.82	$	0.57

Weighted average shares outstanding -
Basic		127,478		125,032		126,785		124,244
Diluted		127,903		125,608		127,529		125,221


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						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income, as reported	$	39,702		$	15,764		$	82,948		$	48,785
Adjustments to reconcile net income to EBITDA:
Interest income		(362	)		(133	)		(793	)		(495	)
Tax expense		(5,559	)		5,654			7,275			9,421
Depreciation and amortization		17,654			17,342			51,011			50,897
EBITDA	$	51,435		$	38,627		$	140,441		$	108,608

Diluted EPS, as reported	$	0.31		$	0.13		$	0.65		$	0.39
Adjustment to reconcile diluted EPS to EBITDA
Interest income		(0.01	)		-			(0.01	)		-
Tax expense		(0.04	)		0.04			0.06			0.07
Depreciation and amortization		0.14			0.14			0.40			0.41
EBITDA diluted EPS	$	0.40		$	0.31		$	1.10		$	0.87

Weighted average shares outstanding - Diluted		127,903			125,608			127,529			125,221


Reconciliation of GAAP to Non-GAAP EPS Guidance
(unaudited)
	Three months ended
	December 31, 2014

	Low		High
GAAP Fully Diluted EPS, guidance	$	0.23	$	0.35
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	$	0.29	$	0.41

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