National Instruments Reports Q3 2016 Revenue of $306 Million

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)

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National Instruments
Condensed Consolidated Balance Sheets
(in thousands)

	September 30,			December 31,
	2016			2015

Assets
Current assets:
Cash and cash equivalents	$	300,652		$	251,129
Short-term investments		52,277			81,789
Accounts receivable, net		206,171			216,244
Inventories, net		196,391			185,197
Prepaid expenses and other current assets		55,281			65,381
Total current assets		810,772			799,740

Property and equipment, net		261,859			257,853
Goodwill		261,372			257,718
Intangible assets, net		110,161			108,196
Other long-term assets		28,729			30,349
Total assets	$	1,472,893		$	1,453,856

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	53,192		$	50,970
Accrued compensation		31,615			27,956
Deferred revenue - current		113,645			112,283
Accrued expenses and other liabilities		23,940			11,756
Other taxes payable		33,461			37,250
Total current liabilities		255,853			240,215

Long-term debt		25,000			37,000
Deferred income taxes		37,787			44,673
Liability for uncertain tax positions		10,037			11,974
Deferred revenue - long-term		28,148			27,708
Other long-term liabilities		8,657			10,565
Total liabilities		365,482			372,135

Stockholders' equity:
Preferred stock		-			-
Common stock		1,289			1,275
Additional paid-in capital		758,411			717,705
Retained earnings		372,893			400,831
Accumulated other comprehensive loss		(25,182	)		(38,090	)
Total stockholders' equity		1,107,411			1,081,721
Total liabilities and stockholders' equity	$	1,472,893		$	1,453,856


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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2016			2015		2016			2015

Net sales:
Product	$	278,521		$	271,683	$	816,486		$	807,064
Software maintenance		27,843			28,129		83,161			84,053
Total net sales		306,364			299,812		899,647			891,117

Cost of sales:
Product		74,734			75,144		225,261			225,646
Software maintenance		1,998			2,022		5,126			4,531
Total cost of sales		76,732			77,166		230,387			230,177

Gross profit		229,632			222,646		669,260			660,940

Operating expenses:
Sales and marketing		116,662			114,507		346,230			335,916
Research and development		59,066			52,533		178,244			168,462
General and administrative		24,537			23,255		74,308			69,391
Total operating expenses		200,265			190,295		598,782			573,769

Operating income		29,367			32,351		70,478			87,171

Other income (expense):
Interest income		276			396		787			1,089
Net foreign exchange (loss) gain		(760	)		286		(1,471	)		(1,965	)
Other (expense) income, net		301			133		(2,052	)		787

Income before income taxes		29,184			33,166		67,742			87,082

Provision for income taxes		4,695			9,988		14,155			23,958

Net income	$	24,489		$	23,178	$	53,587		$	63,124

Basic earnings per share	$	0.19		$	0.18	$	0.42		$	0.49
Diluted earnings per share	$	0.19		$	0.18	$	0.42		$	0.49

Weighted average shares outstanding -
basic		128,815			127,935		128,233			128,219
diluted		129,047			128,229		128,738			128,856

Dividends declared per share	$	0.20		$	0.19	$	0.60		$	0.57


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

	Nine Months Ended September 30,
	2016			2015

Cash flow from operating activities:
Net income	$	53,587		$	63,124
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		55,164			55,157
Stock-based compensation		19,635			19,151
Tax expense/(benefit) expense from deferred income taxes		(7,321	)		(7,404	)
Tax benefit from stock option plans		(439	)		(944	)
Net change in operating assets and liabilities		32,454			(8,603	)
Net cash provided by operating activities		153,080			120,481

Cash flow from investing activities:
Capital expenditures		(34,408	)		(28,102	)
Capitalization of internally developed software		(24,048	)		(22,639	)
Additions to other intangibles		(1,969	)		(2,240	)
Acquisitions, net of cash received		(549	)		(28,629	)
Purchases of short-term investments		(9,054	)		(29,649	)
Sales and maturities of short-term investments		38,566			44,752
Net cash used by investing activities		(31,462	)		(66,507	)

Cash flow from financing activities:
Proceeds from revolving line of credit		15,000			42,000
Principal payments on revolving line of credit		(27,000	)		(17,000	)
Proceeds from issuance of common stock		22,157			21,252
Repurchase of common stock		(5,635	)		(72,559	)
Dividends paid		(77,056	)		(73,406	)
Tax benefit from stock option plans		439			944
Net cash used by financing activities		(72,095	)		(98,769	)

Net change in cash and cash equivalents		49,523			(44,795	)
Cash and cash equivalents at beginning of period		251,129			274,030
Cash and cash equivalents at end of period	$	300,652		$	229,235


The following tables provide details with respect to the amount of GAAP charges related to stock-based compensation, amortization of acquisition intangibles, acquisition related transaction costs, restructuring charges, foreign exchange loss on acquisitions and taxes levied on the transfer of acquired intellectual property that were recorded in the line items indicated below (unaudited)

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

	2016			2015			2016			2015
Stock-based compensation
Cost of sales	$	556		$	499		$	1,643		$	1,427
Sales and marketing		2,635			2,854			8,422			8,303
Research and development		2,027			2,132			6,745			6,764
General and administrative		921			921			2,764			2,656
Provision for income taxes		(2,092	)		(1,933	)		(6,202	)		(5,420	)
Total	$	4,047		$	4,473		$	13,372		$	13,730

Amortization of acquisition intangibles
Cost of sales	$	1,599		$	2,643		$	7,621		$	7,858
Sales and marketing		502			423			2,141			1,299
Research and development		276			322			815			983
Other income, net		-			145			-			448
Provision for income taxes		854			(1,152	)		1,312			(3,469	)
Total	$	3,231		$	2,381		$	11,889		$	7,119

Acquisition transaction costs, restructuring charges, and other
Cost of sales	$	74		$	169		$	253		$	974
Sales and marketing		42			-			141			-
Research and development		236			-			648			-
General and administrative		97			238			317			442
Foreign exchange gain (loss) ¹		-			-			94			-
Other income (loss), net ²		-			-			2,475			-
Provision for income taxes		(156	)		(59	)		(1,358	)		(390	)
Total	$	293		$	348		$	2,570		$	1,026

(1) Foreign exchange losses on acquisitions were $94 and $0 for the nine month periods ended September 30, 2016 and 2015, respectively
(2) Taxes levied on the transfer of acquired intellectual property were $2,475 and $0 for the nine month periods ended September 30, 2016 and 2015, respectively


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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015

Reconciliation of Gross Profit to Non-GAAP Gross Profit
Gross profit, as reported	$	229,632		$	222,646		$	669,260		$	660,940
Stock-based compensation		556			499			1,643			1,427
Amortization of acquisition intangibles		1,599			2,643			7,621			7,858
Acquisition transaction costs and restructuring charges		74			169			253			974
Non-GAAP gross profit	$	231,861		$	225,957		$	678,777		$	671,199
Non-GAAP gross margin		75.7	%		75.4	%		75.4	%		75.3	%

Reconciliation of Operating Expenses to Non-GAAP Operating Expenses
Operating expenses, as reported	$	200,265		$	190,295		$	598,782		$	573,769
Stock-based compensation		(5,583	)		(5,907	)		(17,931	)		(17,723	)
Amortization of acquisition intangibles		(778	)		(745	)		(2,956	)		(2,282	)
Acquisition transaction costs and restructuring charges		(375	)		(238	)		(1,106	)		(442	)
Non-GAAP operating expenses	$	193,529		$	183,405		$	576,789		$	553,322

Reconciliation of Operating Income to Non-GAAP Operating Income
Operating income, as reported	$	29,367		$	32,351		$	70,478		$	87,171
Stock-based compensation		6,139			6,406			19,574			19,150
Amortization of acquisition intangibles		2,377			3,388			10,577			10,140
Acquisition transaction costs and restructuring charges		449			407			1,359			1,416
Non-GAAP operating income	$	38,332		$	42,552		$	101,988		$	117,877
Non-GAAP operating margin		12.5	%		14.2	%		11.3	%		13.2	%

Reconciliation of Income before income taxes to Non-GAAP Income before income taxes
Income before income taxes, as reported	$	29,184		$	33,166		$	67,742		$	87,082
Stock-based compensation		6,139			6,406			19,574			19,150
Amortization of acquisition intangibles		2,377			3,533			10,577			10,588
Acquisition transaction costs and restructuring charges		449			407			1,359			1,416
Foreign exchange loss on acquisitions		-			-			94			-
Taxes levied on transfer of acquired intellectual property		-			-			2,474			-
Non-GAAP income before income taxes	$	38,149		$	43,512		$	101,820		$	118,236

Reconciliation of Provision for income taxes to Non-GAAP Provision for income taxes
Provision for income taxes, as reported	$	4,695		$	9,988		$	14,155		$	23,958
Stock-based compensation		2,092			1,933			6,202			5,420
Amortization of acquisition intangibles		(854	)		1,152			(1,312	)		3,469
Acquisition transaction costs, restructuring charges, and other		156			59			1,358			390
Non-GAAP provision for income taxes	$	6,089		$	13,132		$	20,403		$	33,237


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,
	2016		2015		2016		2015

Net income, as reported	$	24,489	$	23,178	$	53,587	$	63,124
Adjustments to reconcile net income to non-GAAP net income:
Stock-based compensation, net of tax effect		4,047		4,473		13,372		13,730
Amortization of acquisition intangibles, net of tax effect		3,231		2,381		11,889		7,119
Acquisition transaction costs, restructuring, and other, net of tax effect		293		348		2,570		1,026
Non-GAAP net income	$	32,060	$	30,380	$	81,418	$	84,999

Basic EPS, as reported	$	0.19	$	0.18	$	0.42	$	0.49
Adjustment to reconcile basic EPS to non-GAAP basic EPS:
Impact of stock-based compensation, net of tax effect		0.03		0.04		0.10		0.11
Impact of amortization of acquisition intangibles, net of tax effect		0.03		0.02		0.09		0.06
Impact of acquisition transaction costs, restructuring, and other, net of tax effect		-		-		0.02		-
Non-GAAP basic EPS	$	0.25	$	0.24	$	0.63	$	0.66


Diluted EPS, as reported	$	0.19	$	0.18	$	0.42	$	0.49
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS
Impact of stock-based compensation, net of tax effect		0.03		0.04		0.10		0.11
Impact of amortization of acquisition intangibles, net of tax effect		0.03		0.02		0.09		0.06
Impact of acquisition transaction costs, restructuring, and other, net of tax effect		-		-		0.02		-
Non-GAAP diluted EPS	$	0.25	$	0.24	$	0.63	$	0.66

Weighted average shares outstanding -
Basic		128,815		127,935		128,233		128,219
Diluted		129,047		128,229		128,738		128,856


National Instruments
Reconciliation of Net Income to EBITDA
(in thousands, unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net income, as reported	$	24,489		$	23,178		$	53,587		$	63,124
Adjustments to reconcile net income to EBITDA:
Interest income		(53	)		(396	)		(194	)		(1,089	)
Tax expense		4,695			9,988			14,155			23,958
Depreciation and amortization		16,947			18,655			55,164			55,157
EBITDA	$	46,078		$	51,425		$	122,712		$	141,150
Weighted average shares outstanding - Diluted		129,047			128,229			128,738			128,856


Reconciliation of GAAP to Non-GAAP EPS Guidance
(unaudited)
	Three months ended
	December 31, 2016

	Low			High
GAAP Fully Diluted EPS, guidance	$	0.24		$	0.36
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 and acquisition accounting adjustments, net of tax effect		0.04			0.04
Non-GAAP diluted EPS, guidance	$	0.32		$	0.44


National Instruments
Reconciliation of GAAP Revenue Growth to Core Revenue Growth
(unaudited)

	Three Months Ended,
	September 30,
	2016
YoY GAAP revenue growth, as reported	$	2	%
Effect of excluding our current largest customer		-1	%
YoY GAAP revenue growth, excluding our largest customer		1	%
Effect of excluding the impact of foreign currency exchange		3	%
YoY Core revenue growth	$	4	%


National Instruments
Reconciliation of GAAP Revenue Growth Guidance to Core Revenue Growth Guidance
(unaudited)

	Three Months Ended
	December 31,
	2016
Estimated YoY GAAP revenue growth, as reported	$	1	%
Estimated effect of excluding our current largest customer		2	%
Estimated YoY GAAP revenue growth, excluding our largest customer		3	%
Estimated effect of excluding the impact of foreign currency exchange		2	%
Estimated YoY Core revenue growth	$	5	%

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