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National Instruments Reports Record Revenue and Record Net Income for a Second Quarter

Value of orders up 11 percent year over year in the second quarter

Q2 2018 Highlights

  • Revenue of $341 million, up 7 percent year over year
  • GAAP gross margin of 76 percent
  • Non-GAAP gross margin of 78 percent
  • Fully diluted GAAP EPS of $0.23 and fully diluted non-GAAP EPS of $0.34
  • GAAP net income of $31 million, up 23 percent year over year
  • Record Non-GAAP net income of $45 million, up 49 percent year over year
  • EBITDA of $51 million
  • Cash and short-term investments of $428 million as of June 30, 2018

H1 2018 Highlights

  • Revenue of $653 million, up 6 percent year over year
  • GAAP net income up 28 percent year over year through first six months of 2018
  • Non-GAAP net income up 47 percent year over year through first six months of 2018

AUSTIN, Texas--(BUSINESS WIRE)--Jul. 26, 2018-- National Instruments (Nasdaq: NATI) today announced Q2 2018 revenue of $341 million, up 7 percent year over year.

In Q2 2018, the value of the company's total orders was up 11 percent year over year; orders under $20,000 were up 6 percent year over year; and orders over $20,000 were up 16 percent year over year.

GAAP net income for Q2 was $31 million, with fully diluted earnings per share (EPS) of $0.23, and non-GAAP net income was $45 million, with non-GAAP fully diluted EPS of $0.34. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, was $51 million for Q2.

In Q2, GAAP gross margin was 76 percent and non-GAAP gross margin was 78 percent. Total GAAP operating expenses were $222 million, up 7 percent year over year. Total non-GAAP operating expenses were $212 million, up 2 percent year over year. GAAP operating margin was 11 percent in Q2, with GAAP operating income of $37 million, up 29 percent year over year. Non-GAAP operating margin was 16 percent in Q2, with non-GAAP operating income of $55 million, up 52 percent year over year. Through the first six months of 2018, GAAP operating expenses were $431 million, up 5 percent year over year, and non-GAAP operating expenses were $418 million, up 2 percent year over year. GAAP operating income through the first six months of the year was $65 million, up 28 percent year over year, and non-GAAP operating income was $94 million, up 46 percent year over year.

“We have made tremendous progress toward our profitability goal over the last 18 months. I am proud of what our team has accomplished,” said Alex Davern, NI president and CEO. “Looking forward we plan to continue to align our investments and our business behind our new Core Strategic Vision with the goal of driving improved revenue growth while maintaining the discipline needed to hit our long-term operating model.”

Karen Rapp, NI CFO, said, “We had great performance in the first half of 2018. I am encouraged by our focus on growth and profitability. We remain committed to our operating model that we shared at our investor conference on May 22, 2018 and the leverage it provides. National Instruments is focused on gaining market share and delivering structural excellence in our operating profitability.”

As of June 30, 2018, NI had $428 million in cash and short-term investments. During the second quarter, NI paid $30 million in dividends. The NI Board of Directors approved a quarterly dividend of $0.23 per share payable on Sept. 4, 2018, to stockholders of record on Aug. 13, 2018.

Geographic revenue in U.S. dollar terms for Q2 2018 compared with Q2 2017 was up 7 percent in the Americas, up 5 percent in APAC and up 9 percent in EMEIA. The impact of foreign currency exchange had a positive impact in Q2. Historical revenue from these three regions can be found on NI’s investor website at ni.com/nati.

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

Guidance

NI currently expects Q3 revenue to be in the range of $325 million to $355 million, which would be a new Q3 record at the midpoint. The company currently expects that GAAP fully diluted EPS will be in the range of $0.20 to $0.34 for Q3, with non-GAAP fully diluted EPS expected to be in the range of $0.32 to $0.46.

NI has not completed its accounting for the tax effects of the Tax Cuts and Jobs Act (the “Tax Act”). NI previously made a reasonable estimate of the effects of the Tax Act and expects to finalize its analysis in Q3 2018. NI’s guidance does not include any estimate related to the finalization of this calculation.

Non-GAAP Presentation

In the quarter ended June 30, 2018, NI began moving toward more frequent releases for many of its software products. Specifically, for many of its software development projects, NI started applying agile development methodologies, which are characterized by a more dynamic development process with more frequent and iterative revisions to a product release’s features and functions as the software is being developed. Due to the shorter development cycle and focus on rapid production associated with agile development, NI expects that for a significant majority of its software development projects the costs incurred subsequent to the achievement of technological feasibility will be immaterial in future periods and it expects to record significantly less capitalized software development costs than under its historical software development approaches. NI also expects amortization of previously capitalized software development costs to steadily decline as previously capitalized software development costs become fully amortized over the next four years.

As a result, beginning with its non-GAAP metrics for the three months ended June 30, 2018, NI will exclude the net effects of capitalization and amortization of software development costs from its non-GAAP operating results, along with its previously excluded non-GAAP items, and will provide a reconciliation of such non-GAAP results to its GAAP results. NI believes these changes will be useful to investors as they will provide greater comparability between its R&D spend in future periods. NI will also make available on its website its historical non-GAAP results, excluding the effects of software capitalization and amortization together with other applicable non-GAAP adjustments, for the fiscal quarters ended March 31, 2005 through June 30, 2018. No changes are being made to NI’s previously reported GAAP results.

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 months ended June 30, 2018 and 2017, 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 transaction costs, restructuring charges, and capitalization and amortization of internally developed software 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 discloses the company’s EBITDA for the three and six months ended June 30, 2018 and 2017. 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 to GAAP net income is included with this news release.

Conference Call Information and Availability of Presentation Materials

Interested parties can listen to the Q2 2018 earnings conference call with NI management today, July 26, at 4:00 p.m. CT at ni.com/call. Replay information is available by calling (855) 212-2361, confirmation code 1498595, shortly after the call through August 2 at 10:00 p.m. CT or by visiting the company’s website at ni.com/call. Presentation materials referred to on the conference call can be found at ni.com/nati.

Forward-Looking Statements

This release contains “forward-looking statements” including statements regarding tremendous progress toward our profitability goal, plan to continue to align our investments and our business behind our new Core Strategic Vision with the goal of driving improved revenue growth while maintaining the discipline needed to hit our long term operating model, being encouraged by our focus on growth and profitability, remaining committed to our operating model shared at our investor conference on May 22, 2018 and the leverage it provides, being focused on gaining market share and delivering structural excellence in our operating profitability, expecting Q3 revenue to be in the range of $325 million to $355 million, expecting that GAAP fully diluted EPS will be in the range of $0.20 to $0.34 for Q3, with non-GAAP fully diluted EPS expected to be in the range of $0.32 to $0.46, and expecting to finalize its analysis of the effects of the Tax Act in Q3 2018. 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, fluctuations in demand for NI products including orders from NI’s large customers, component shortages, delays in the release of new products, the company’s ability to effectively manage its operating expenses, manufacturing inefficiencies and the level of capacity utilization, the impact of any recent or future acquisitions by NI, expense overruns, adverse effects of price changes or effective tax rates or the impact of the Tax Act. Actual results may differ materially from the expected results.

The company directs readers to its Form 10-K for the year ended Dec. 31, 2017, its Form 10-Q for the quarter ended March 31, 2018 and the other documents it files with the SEC for other risks associated with the company’s future performance.

About NI

NI (ni.com) empowers engineers and scientists with a software-defined platform that incorporates modular hardware and an expansive ecosystem. This proven approach puts users firmly in control of defining what they need to accelerate their system design within test, measurement and control. NI’s solution helps build high-performance systems that exceed requirements, quickly adapt to change and ultimately improve the world. (NATI-F)

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)
             
      June 30,     December 31,
      2018     2017
      (unaudited)      
             
Assets            
Current assets:            
Cash and cash equivalents     $ 217,619      

$

290,164  
Short-term investments       210,804         121,888  
Accounts receivable, net       249,910         248,825  
Inventories, net       193,417         184,592  
Prepaid expenses and other current assets       56,740         48,621  
Total current assets       928,490         894,090  
             
Property and equipment, net       249,834         249,715  
Goodwill       263,796         266,783  
Intangible assets, net       121,270         123,293  
Other long-term assets       30,349         32,553  
Total assets     $ 1,593,739      

$

1,566,434  
             
Liabilities and Stockholders' Equity            
Current liabilities:            
Accounts payable and accrued expenses     $ 52,769      

$

49,733  
Accrued compensation       43,200         43,309  
Deferred revenue - current       125,451         120,638  
Other current liabilities       14,795         23,782  
Other taxes payable       32,013         31,793  
Total current liabilities       268,228         269,255  
             
             
Deferred income taxes       37,381         33,609  
Liability for uncertain tax positions       10,938         10,158  
Income tax payable - long-term       74,015         81,515  
Deferred revenue - long-term       31,550         33,742  
Other long-term liabilities       5,949         10,134  
Total liabilities       428,061         438,413  
             
Stockholders' equity:            
Preferred stock                
Common stock       1,322         1,310  
Additional paid-in capital       864,314         829,979  
Retained earnings       316,607         313,241  
Accumulated other comprehensive loss       (16,565 )       (16,509 )
Total stockholders' equity       1,165,678         1,128,021  
Total liabilities and stockholders' equity     $ 1,593,739       $ 1,566,434  
                     
 
National Instruments
Condensed Consolidated Statements of Income
(in thousands, except per share data, unaudited)
                     
      Three Months Ended       Six Months Ended
      June 30,       June 30,
      2018     2017       2018     2017
                           
Net sales:                          
Product     $ 306,780       $ 289,817         $ 587,139       $ 561,328  
Software maintenance       34,229         28,792           65,767         57,386  
Total net sales       341,009         318,609           652,906         618,714  
                           
Cost of sales:                          
Product       79,806         79,153           152,122         154,349  
Software maintenance       2,353         3,307           4,560         4,635  
Total cost of sales       82,159         82,460           156,682         158,984  
                           
Gross profit       258,850         236,149           496,224         459,730  
        75.9 %       74.1 %         76.0 %       74.3 %
Operating expenses:                          
Sales and marketing       127,138         124,414           247,255         241,674  
Research and development       66,908         56,913           128,751         115,175  
General and administrative       27,892         26,191           55,170         51,933  
Total operating expenses       221,938         207,518           431,176         408,782  
                           
Operating income       36,912         28,631           65,048         50,948  
        10.8 %       9.0 %         10.0 %       8.2 %
Other income (expense):                          
Interest income       1,290         509           2,305         852  
Net foreign exchange gain (loss)       (2,105 )       447           (1,126 )       529  
Other (loss) income, net       (1,095 )       (235 )         (1,613 )       197  
                           
Income before income taxes       35,002         29,352           64,614         52,526  
                           
Provision for income taxes       3,948         4,197           9,292         9,223  
                           
Net income     $ 31,054       $ 25,155         $ 55,322       $ 43,303  
                           
Basic earnings per share     $ 0.24       $ 0.19         $ 0.42       $ 0.33  
Diluted earnings per share     $ 0.23       $ 0.19         $ 0.42       $ 0.33  
                           
Weighted average shares outstanding -                          
basic       131,877         130,197           131,504         129,820  
diluted       133,054         131,117           132,838         130,619  
                           
Dividends declared per share     $ 0.23       $ 0.21         $ 0.46       $ 0.42  
                                           
 
National Instruments
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
       
      Six Months Ended June 30,
      2018     2017
       
Cash flow from operating activities:            
Net income     $ 55,322      

$

43,303

 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization       35,098         35,915  
Stock-based compensation       17,936         13,726  
Deferred income taxes       1,766         (875 )
Net change in operating assets and liabilities       (11,270 )       (7,284 )
Net cash provided by operating activities       98,852         84,785  
             
Cash flow from investing activities:            
Capital expenditures       (19,764 )       (15,727 )
Capitalization of internally developed software       (11,344 )       (24,816 )
Additions to other intangibles       (3,936 )       (1,124 )
Purchases of short-term investments       (137,275 )       (52,807 )
Sales and maturities of short-term investments       47,634         21,017  
Net cash used by investing activities       (124,685 )       (73,457 )
             
Cash flow from financing activities:            
Proceeds from issuance of common stock       16,622         15,407  
Dividends paid       (60,575 )       (54,595 )
Net cash used by financing activities       (43,953 )       (39,188 )
             
Impact of changes in exchange rates on cash       (2,759 )       5,727  
             
Net change in cash and cash equivalents       (72,545 )       (22,133 )
Cash and cash equivalents at beginning of period       290,164         285,283  
Cash and cash equivalents at end of period     $ 217,619      

$

263,150

 
                   
 
The following tables provide details with respect to the amount of GAAP charges related to stock-based compensation, amortization of acquisition-related intangibles, acquisition-related transaction costs, capitalization and amortization of internally developed software costs, and restructuring charges that were recorded in the line items indicated below (unaudited) (in thousands)
                     
                     
      Three Months Ended       Six Months Ended
      June 30,       June 30,
                     
      2018     2017       2018     2017
Stock-based compensation                          
Cost of sales     $ 846       $ 650         $ 1,571       $ 1,226  
Sales and marketing       3,617         2,884           6,956         5,509  
Research and development       3,255         2,170           5,773         4,224  
General and administrative       2,013         1,620           3,636         2,844  
Provision for income taxes       (2,955 )       (3,344 )         (4,663 )       (5,020 )
Total     $ 6,776      

$

3,980        

$

13,273      

$

8,783  
                           
Amortization of acquisition intangibles                          
Cost of sales     $ 846       $ 1,556         $ 1,747       $ 3,146  
Sales and marketing       533         486           1,070         964  
Research and development       28         267           56         531  
Provision for income taxes       (178 )       (556 )         (370 )       (1,110 )
Total     $ 1,229      

$

1,753        

$

2,503      

$

3,531  
                           
Acquisition transaction costs, restructuring charges, and other                          
Cost of sales     $       $ 574         $ 29       $ 909  
Sales and marketing       3,033         4,024           4,678         6,399  
Research and development       893         1,182           1,103         1,581  
General and administrative       553         419           1,165         596  
Other (income) loss, net       709                   709          
Provision for income taxes       (1,630 )       (1,870 )         (2,183 )       (2,934 )
Total     $ 3,558       $ 4,329         $ 5,501       $ 6,551  
 
Capitalization and amortization of internally developed software costs                          
Cost of sales     $ 6,494       $ 5,196         $ 12,324       $ 10,176  
Research and development       (3,676 )       (13,192 )         (11,343 )       (24,816 )
Provision for income taxes       (592 )       2,799           (206 )       5,124  
Total     $ 2,226       $ (5,197 )       $ 775       $ (9,516 )
                                           
 
National Instruments
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, unaudited)
                           
      Three Months Ended       Six Months Ended
      June 30,       June 30,
      2018     2017       2018     2017
                           
Reconciliation of Gross Profit to Non-GAAP Gross Profit              
Gross profit, as reported     $ 258,850      

$

236,149

       

$

496,224

     

$

459,730

 
Stock-based compensation       846         650           1,571         1,226  
Amortization of acquisition intangibles       846         1,556           1,747         3,146  
Acquisition transaction costs and restructuring charges       0         574           29         909  
Amortization of internally developed software costs       6,494         5,196           12,324         10,176  
Non-GAAP gross profit     $ 267,036      

$

244,125

       

$

511,895

     

$

475,187

 
Non-GAAP gross margin       78.3 %       76.6 %         78.4 %       76.8 %
                           
Reconciliation of Operating Expenses to Non-GAAP Operating Expenses              
Operating expenses, as reported     $ 221,938      

$

207,518

       

$

431,176

     

$

408,782

 
Stock-based compensation       (8,885 )       (6,674 )         (16,365 )       (12,577 )
Amortization of acquisition intangibles       (561 )       (753 )         (1,126 )       (1,495 )
Acquisition transaction costs and restructuring charges       (4,479 )       (5,625 )         (6,946 )       (8,576 )
Capitalization of internally developed software costs       3,676         13,192           11,343         24,816  
Non-GAAP operating expenses     $ 211,689      

$

207,658

       

$

418,082

     

$

410,950

 
                           
Reconciliation of Operating Income to Non-GAAP Operating Income              
Operating income, as reported     $ 36,912      

$

28,631

       

$

65,048

     

$

50,948

 
Stock-based compensation       9,731         7,324           17,936         13,803  
Amortization of acquisition intangibles       1,407         2,309           2,873         4,641  
Acquisition transaction costs and restructuring charges       4,479         6,199           6,975         9,485  
Net (capitalization) and amortization of internally developed software costs       2,818         (7,996 )         981         (14,640 )
Non-GAAP operating income     $ 55,347      

$

36,467

       

$

93,813

     

$

64,237

 
Non-GAAP operating margin       16.2 %       11.4 %         14.4 %       10.4 %
                           
Reconciliation of Income before income taxes to Non-GAAP Income before income taxes              
Income before income taxes, as reported     $ 35,002      

$

29,352

       

$

64,614

     

$

52,526

 
Stock-based compensation       9,731         7,324           17,936         13,803  
Amortization of acquisition intangibles       1,407         2,309           2,873         4,641  
Acquisition transaction costs and restructuring charges       5,188         6,199           7,684         9,485  
Net (capitalization) amortization of internally developed software costs       2,818         (7,996 )         981         (14,640 )
Non-GAAP income before income taxes     $ 54,146      

$

37,188

       

$

94,088

     

$

65,815

 
                           
Reconciliation of Provision for income taxes to Non-GAAP Provision for income taxes              
Provision for income taxes, as reported     $ 3,948      

$

4,197

       

$

9,292

     

$

9,223

 
Stock-based compensation       2,955         3,344           4,663         5,020  
Amortization of acquisition intangibles       178         556           370         1,110  
Acquisition transaction costs, restructuring charges, and other       1,630         1,870           2,183         2,934  
Net (capitalization) amortization of internally developed software costs       592         (2,799 )         206         (5,124 )
Non-GAAP provision for income taxes     $ 9,303      

$

7,168

       

$

16,714

     

$

13,163

 
                                     
 
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       Six Months Ended
      June 30,       June 30,
      2018     2017       2018     2017
                           
Net income, as reported     $ 31,054     $ 25,155         $ 55,322     $ 43,303  
Adjustments to reconcile net income to non-GAAP net income:                          
Stock-based compensation, net of tax effect       6,776       3,980           13,273       8,783  
Amortization of acquisition intangibles, net of tax effect       1,229       1,753           2,503       3,531  
Acquisition transaction costs, restructuring, and other, net of tax effect       3,558    

 

4,329           5,501       6,551  
Net (capitalization)/amortization of internally developed software costs, net of tax       2,226       (5,197 )         775       (9,516 )
Non-GAAP net income     $ 44,843     $ 30,020         $ 77,374     $ 52,652  
                           
Basic EPS, as reported     $ 0.24     $ 0.19         $ 0.42     $ 0.33  
Adjustment to reconcile basic EPS to non-GAAP                          
basic EPS:                          
Impact of stock-based compensation, net of tax effect       0.05       0.03           0.10       0.07  
Impact of amortization of acquisition intangibles, net of tax effect             0.01           0.02       0.03  
Impact of acquisition transaction costs, restructuring, and other, net of tax effect       0.03       0.04           0.04       0.05  
Impact of (capitalization)/amortization of internally developed software costs, net       0.02       (0.04 )         0.01       (0.07 )
Non-GAAP basic EPS     $ 0.34     $ 0.23         $ 0.59     $ 0.41  
                           
                           
Diluted EPS, as reported     $ 0.23     $ 0.19         $ 0.42     $ 0.33  
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS                          
Impact of stock-based compensation, net of tax effect       0.05       0.03           0.10       0.07  
Impact of amortization of acquisition intangibles, net of tax effect       0.01       0.01           0.02       0.03  
Impact of acquisition transaction costs, restructuring, and other, net of tax effect       0.03       0.04           0.04       0.05  
Impact of (capitalization)/amortization of internally developed software costs, net of tax effect       0.02       (0.04 )               (0.08 )
Non-GAAP diluted EPS     $ 0.34     $ 0.23         $ 0.58     $ 0.40  
                           
Weighted average shares outstanding -                          
Basic       131,877       130,197           131,504       129,820  
Diluted       133,054       131,117           132,838       130,619  
                                       
 
National Instruments
Reconciliation of Net Income to EBITDA
(in thousands, unaudited)
                           
      Three Months Ended       Six Months Ended
      June 30,       June 30,
      2018     2017       2018     2017
Net income, as reported     $ 31,054       $ 25,155         $ 55,322       $ 43,303  
Adjustments to reconcile net income to EBITDA:                          
Interest income, net       (1,253 )       (313 )         (2,180 )       (399 )
Tax expense       3,948         4,197           9,292         9,223  
Depreciation and amortization       17,662         17,246           35,098         35,915  
EBITDA     $ 51,411       $ 46,285         $ 97,532       $ 88,042  
Weighted average shares outstanding - Diluted       133,054         131,117           132,838         130,619  
                                           
 
Reconciliation of GAAP to Non-GAAP EPS Guidance
(unaudited)
      Three months ended
      September 30, 2018
             
      Low     High
GAAP Diluted EPS, guidance     $ 0.20     $ 0.34
Adjustment to reconcile diluted EPS to non-GAAP            
diluted EPS:            
Impact of stock-based compensation, net of tax effect       0.06       0.06
Impact of amortization of acquisition intangibles and acquisition accounting adjustments, net of tax effect       0.01       0.01
Impact of acquisition transaction costs, restructuring, and other, net of tax effect       0.02       0.02
Impact of capitalization/amortization of software development costs, net of tax effect       0.03       0.03
Non-GAAP Diluted EPS, guidance     $ 0.32     $ 0.46
             

 

Source: National Instruments

National Instruments
Marissa Vidaurri, 512-683-6873
Investor Relations