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NI Reports Record Quarterly Revenue of $314 Million

Company Continued to Drive Significant Operating Leverage

Q3 2014 Highlights

AUSTIN, Texas — (BUSINESS WIRE) — October 30, 2014 — NI (Nasdaq: NATI) today announced Q3 revenue of $314 million, up 8 percent year-over-year. The company’s orders under $20,000 grew 3 percent year-over-year; orders between $20,000 and $100,000 increased 9 percent year-over-year; and orders above $100,000 increased 10 percent year-over-year. In Q3 2014, NI recognized $17 million in revenue from its largest customer, compared with $4 million recognized in Q3 2013. Year-to-date, through Oct. 30, the company has received $56 million in orders from this customer, compared to $35 million at this point last year.

GAAP net income for Q3 was $40 million, with fully diluted earnings per share (EPS) of $0.31, and non-GAAP net income was $47 million, with non-GAAP fully diluted EPS of $0.37. As discussed in the NI earnings call on July 29, 2014, the company recognized a tax benefit of $14 million in Q3 related to a settlement with the Internal Revenue Service of the examination of our U.S. income tax returns for 2010 and 2011. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, was $51 million, or $0.40 per share in the third quarter.

In Q3, GAAP gross margin was 74 percent and non-GAAP gross margin was 75 percent, up 40 basis points from Q3 2013. Total GAAP operating expenses were $198 million, up 3 percent year-over-year. Total non-GAAP operating expenses were $192 million, up 4 percent year-over-year.

GAAP operating margin was 11 percent in Q3, with GAAP operating income of $34 million, up 67 percent year-over-year. Non-GAAP operating margin was 14 percent in Q3, with non-GAAP operating income of $45 million, up 38 percent year-over-year.

The company’s non-GAAP results exclude the impact of stock-based compensation, amortization of acquisition-related intangibles and acquisition transaction costs and restructuring charges. Reconciliations of the company’s GAAP and non-GAAP results are included as part of this news release.

“I am pleased with the record revenue delivered in the third quarter and the significant progress made toward improving our operating margin,” said Dr. James Truchard, NI president, CEO and cofounder. “I remain optimistic about our long-term position in the industry, with new products released in Q3 adding capability to our platform to further differentiate our approach in automated test and address new opportunities in areas such as the Industrial Internet of Things.”

Geographic revenue in U.S. dollar terms for Q3 2014 compared with Q3 2013 was up 2 percent in the Americas, up 8 percent in Europe, up 34 percent in East Asia and down 14 percent in Emerging Markets. In local currency terms, revenue was up 5 percent in Europe, up 33 percent in East Asia and down 12 percent in Emerging Markets.

As of Sept. 30, NI had $448 million in cash and short-term investments, up $46 million from Q2 2014. The company paid $19 million in dividends in the third quarter. The NI Board of Directors also approved a quarterly dividend of $0.15 per share on the company’s common stock payable on Dec. 8, 2014 to stockholders of record on Nov. 17, 2014.

Guidance for Q4 2014

“I am pleased with the operating leverage we have delivered so far this year and we expect to continue to deliver year-over-year revenue growth and operating leverage in Q4,” said Alex Davern, NI COO and CFO. “Looking forward we are working hard to take advantage of our opportunity and remain committed to driving organic growth.”

Gross margins are expected to be up sequentially in Q4. NI currently expects revenue for Q4 2014 to be between $312 million and $342 million, up 9 percent year-over-year at the midpoint. NI expects fully diluted EPS to be in the range of $0.23 to $0.35 for Q4, with non-GAAP fully diluted EPS expected to be in the range of $0.29 to $0.41.

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-month periods ending Sept. 30, 2014 and 2013, on a GAAP and non-GAAP basis. NI is also providing guidance on its non-GAAP 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-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


Contact:

National Instruments
Marissa Vidaurri, 512-683-5215
Investor Relations
Email Contact