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National Instruments Reports Q2 2009 Results

--Significant Improvement in Profitability From Q1 2009

Jul 23, 2009 04:02 PM Eastern Daylight Time

AUSTIN, Texas, July 23, 2009, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- National Instruments (Nasdaq: NATI) reported quarterly revenue for Q2 2009 of $152.2 million, which represents a 28 percent year-over-year decline and comes in above the midpoint of the company's guidance. While revenue declined by 4 percent sequentially from Q1, orders increased 1 percent, resulting in a $6 million sequential increase in the backlog of orders during Q2.

Net income for Q2 was $4.4 million, with fully diluted earnings per share (EPS) of $0.06. Non-GAAP net income was $8.3 million, with non-GAAP fully diluted EPS of $0.11. The company's non-GAAP results exclude the impact of both stock-based compensation and the amortization of acquisition-related intangibles. Reconciliations of the company's GAAP and non-GAAP results are included as part of this news release.

"I am pleased to see orders in the key product areas of NI CompactRIO, PXI and modular instruments grow sequentially despite the continued contraction in the global industrial economy," said Dr. James Truchard, NI president and CEO. "I believe our strategic investment in R&D in recent years has allowed us to deliver highly differentiated products, which are helping us outperform competitors and should position us well for the eventual recovery."

In Q2 2009, NI virtual instrumentation and graphical system design products, which constitute the majority of the company's product portfolio, experienced a 26 percent year-over-year revenue decline. Sales of NI instrument control products, which now represent approximately 6 percent of NI revenue, were down 46 percent year-over-year in Q2 2009. Product revenue was $140 million, down 29 percent from Q2 2008, and software maintenance revenue was $12 million, down 17 percent year-over-year.

Geographically, the company saw the effects of the slowdown worldwide. Revenue in U.S. dollar terms for Q2 2009 compared to Q2 2008 was down 23 percent in the Americas, down 35 percent in Europe and down 25 percent in Asia, equaling an overall revenue decline of 28 percent. The company believes that European performance was negatively impacted by the shift in Easter from Q1 in 2008 to Q2 in 2009. In local currency terms, revenue was down 25 percent in Europe and down 17 percent in Asia, for an overall local currency decline of 21 percent year-over-year.

Total operating expenses for the quarter were down $20 million year-over-year, illustrating the strong fiscal discipline that has been exercised throughout the organization in response to the severe downturn in the global industrial economy. Total headcount as of June 30 was 5,135, up 5 percent year-over-year. The primary focus for headcount additions this year has been in R&D and field sales.

As of June 30, 2009, NI had $251 million in net cash and short-term investments, up $9.2 million from March 31, 2009. During Q2 2009, the company paid $9.3 million in dividends and used $5.7 million to repurchase 249,000 shares of its common stock at an average price of $22.97 per share. National Instruments announced that its Board of Directors declared a dividend of $0.12 per share on its common stock payable on Aug. 31, 2009, to shareholders of record on Aug. 10, 2009.

Q2 2009 Highlights

    --  Quarterly revenue of $152 million, down 28 percent year-over-year
    --  Net income of $4.4 million
    --  Non-GAAP net income of $8.3 million
    --  Cash and short-term investments of $251 million

    --  Total operating expenses for the quarter down $20 million year-over-year

Outlook and Specific Guidance for Q3 2009

After reaching a record low in Q1 2009, the quarterly average of the global Purchasing Managers Index (PMI) made significant progress toward the breakeven level of 50 in the second quarter. The latest reading of the global PMI of 46.9 in June indicates that while the rate of decline in the global industrial economy has moderated significantly from the end of 2008, global industrial production was still contracting sequentially through the end of June. The company has scheduled a business update call for September 8 at 4 p.m.

"Our expense management efforts kicked in fully in Q2, which allowed us to reduce our non-GAAP expenses by 16 percent year-over-year and by $10 million sequentially. This helped us significantly increase our non-GAAP EPS from Q1, which increased our non-GAAP operating margin from 2 percent in Q1 to 5.5 percent in Q2, with non-GAAP net margin of 5.4 percent in Q2," said Alex Davern, NI CFO. "Looking forward, it now appears increasingly likely that Q1 will be the low point in non-GAAP operating margin for this cycle."

For Q3, NI currently expects revenue to be in the range of $158 million to $168 million. The company currently expects that GAAP fully diluted EPS will be in the range of $0.04 to $0.12 per share for Q3, with non-GAAP fully diluted EPS expected to be in the range of $0.09 to $0.17 per share.

In Q3 2009, the company expects the impact of both stock-based compensation and the amortization of acquisition-related intangibles to be $0.05 per share. A reconciliation of the company's Q3 2009 guidance on a GAAP basis to its guidance on a non-GAAP basis is included as part of this news release.

Non-GAAP Results and Guidance Presentation

In addition to disclosing results determined in accordance with GAAP, NI discloses certain non-GAAP operating results and non-GAAP guidance that exclude certain charges. In this news release, the company has presented its net income and EPS for Q2 2009 and its guidance for Q3 2009 on a GAAP and non-GAAP basis. When presenting non-GAAP information, the company includes a reconciliation of the non-GAAP data to the GAAP data.

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 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.

Conference Call Information

Interested parties can listen to the Q2 2009 conference call today, July 23, beginning at 4:00 p.m. CDT, at www.ni.com/call. Replay information is available by calling (888) 203-1112, confirmation code # 8314695, from July 23 at 7:00 p.m. CDT through July 28 at midnight CDT.

Forward-Looking Statements

This release contains "forward-looking statements," including statements related to allowing us to outperform competitors and positioning us well for the eventual recovery, being likely that global industrial production will turn positive in the near term, that the industrial economy will be dealing with significant amounts of excess capacity which will take a considerable period of positive growth to absorb, our served markets remaining very weak throughout 2009, our guidance for Q3 2009 with respect to revenue, GAAP and Non-GAAP EPS and the impact of stock based compensation and amortization of acquisition related intangibles. These statements are subject to a number of risks and uncertainties, including the risk of further adverse changes or fluctuations in the global economy, delays in the release of new products, fluctuations in customer demand for NI products, our ability to continue to control our operating expenses, manufacturing inefficiencies and foreign exchange fluctuations. Actual results may differ materially from the expected results. The company directs readers to 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 10 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. (NATI-F)

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)

                                                  June 30,   December 31,
                                                    2009         2008
                                                (unaudited)
                                                 ----------   ----------

    Assets
    Current assets:
    Cash and cash equivalents                      $221,723   $229,400
    Short-term investments                           28,991      6,220
    Accounts receivable, net                         91,393    121,548
    Inventories, net                                 95,269    107,358
    Prepaid expenses and other current assets        43,496     43,062
    Deferred income taxes, net                       23,989     21,435
                                                     ------     ------
    Total current assets                            504,861    529,023

    Long-term investments                            10,500     10,500
    Property and equipment, net                     150,620    154,477
    Goodwill, net                                    64,610     64,561
    Intangible assets, net                           46,719     41,915
    Other long-term assets                           32,028     32,115
                                                     ------     ------
    Total assets                                   $809,338   $832,591
                                                   ========   ========

    Liabilities and Stockholders' Equity
    Current liabilities:
    Accounts payable                                $24,378    $30,876
    Accrued compensation                             18,387     22,012
    Deferred revenue                                 47,692     45,514
    Accrued expenses and other liabilities           12,333     18,848
    Other taxes payable                              11,855     13,481
                                                     ------     ------
    Total current liabilities                       114,645    130,731

    Deferred income taxes                            24,488     25,157
    Other long-term liabilities                      12,784     12,265
                                                     ------     ------
    Total liabilities                              $151,917   $168,153
                                                   ========   ========

    Stockholders' equity:
    Preferred stock                                       -          -
    Common stock                                        775        772
    Additional paid-in capital                       45,964     39,673
    Retained earnings                               599,681    613,510
    Accumulated other comprehensive income           11,001     10,483
                                                     ------     ------
    Total stockholders' equity                      657,421    664,438
                                                    -------    -------
    Total liabilities and stockholders' equity     $809,338   $832,591
                                                   ========   ========

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

                             Three Months Ended       Six Months Ended
                                   June 30,               June 30,
                                2009      2008         2009      2008
                                ----      ----         ----      ----
                                 (unaudited)            (unaudited)
    Net revenue:
    Products                 $139,792  $195,562     $283,242  $377,351
    Software maintenance       12,371    14,912       26,720    26,041
                               ------    ------       ------    ------
    Total net revenue         152,163   210,474      309,962   403,392

    Cost of revenue:
    Cost of products           39,202    51,863       78,758    99,530
    Cost of software
     maintenance                1,284     1,577        2,611     2,979
                                -----     -----        -----     -----
    Total cost of revenue      40,486    53,440       81,369   102,509
                               ------    ------       ------   -------
    Gross profit              111,677   157,034      228,593   300,883
                              -------   -------      -------   -------

    Operating expenses:
    Sales and marketing        65,137    78,729      133,963   152,246
    Research and development   29,447    33,188       64,236    68,792
    General and
     administrative            14,752    17,283       30,532    33,945
                               ------    ------       ------    ------
    Total operating expenses  109,336   129,200      228,731   254,983
                              -------   -------      -------   -------

    Operating income            2,341    27,834         (138)   45,900

    Other income (expense):
    Interest income               407     1,514          996     3,651
    Net foreign exchange gain
     (loss)                     1,063      (313)         361     1,235
    Other income
     (expense), net               334      (129)         497       (68)
                                  ---      ----          ---       ---

    Income before
     income taxes               4,145    28,906        1,716    50,718

    Provision for
     (benefit from)
     income taxes                (285)    4,172       (3,072)    8,368

    Net income                 $4,430   $24,734       $4,788   $42,350
                               ------   -------       ------   -------

    Basic earnings per share    $0.06     $0.32        $0.06     $0.54
                                -----     -----        -----     -----
    Diluted earnings per
     share                      $0.06     $0.31        $0.06     $0.53
                                -----     -----        -----     -----

    Weighted average shares
     outstanding -
    basic                      77,556    78,484       77,417    78,662
    diluted                    77,824    79,549       77,596    79,691

    Dividends declared per
     share                      $0.12     $0.11        $0.24     $0.22

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

                                                        Six Months Ended
                                                            June 30,

                                                       2009         2008
                                                   (unaudited)    (unaudited)
                                                    ---------      ---------
    Cash flow from operating activities:
    Net income                                          $4,788      $42,350
    Adjustments to reconcile net income
     to net cash provided by operating
     activities:
    Depreciation and amortization                       19,569       19,852
    Stock-based compensation                            10,036        9,662
    Benefit from deferred income taxes                  (2,610)      (3,585)
    Tax expense (benefit from) stock option plans        1,379         (492)
    Changes in operating assets and liabilities:
    Accounts receivable                                 30,155        3,524
    Inventories                                         12,089      (12,894)
    Prepaid expenses and other assets                     (624)        (839)
    Accounts payable                                    (6,498)       2,425
    Deferred revenue                                     2,178        5,316
    Taxes and other liabilities                        (11,922)       3,008
                                                      --------        -----
    Net cash provided by operating activities           58,540       68,327
                                                        ------       ------

    Cash flow from investing activities:
    Capital expenditures                                (7,706)     (12,382)
    Capitalization of internally developed software     (9,936)      (7,585)
    Additions to other intangibles                      (2,420)      (1,072)
    Acquisition, net of cash received                        -      (17,310)
    Purchases of short-term and long-term
     investments                                       (23,989)     (17,245)
    Sales and maturities of short-term and
     Long-term investments                               1,218       74,682
    Purchases of foreign currency option contracts           -       (2,784)
                                                         -----       ------
    Net cash (used by) provided by investing
     activities                                        (42,833)      16,304
                                                      --------       ------

    Cash flow from financing activities:
    Proceeds from issuance of common stock              11,520       17,077
    Repurchase of common stock                         (14,908)     (57,644)
    Dividends paid                                     (18,617)     (17,370)
    Tax benefit from stock option plans                 (1,379)         492
                                                        ------          ---
    Net cash used in financing activities              (23,384)     (57,445)
                                                      --------      -------

    Net change in cash and  cash equivalents            (7,677)      27,186
    Cash and cash equivalents at beginning of period   229,400      194,839
                                                       -------      -------
    Cash and cash equivalents at end of period        $221,723     $222,025
                                                      ========     ========


            Detail of GAAP charges related to stock-based compensation and
                      amortization of acquisition intangibles

                                 Three Months Ended       Six Months Ended
                                       June 30,               June 30,

                                  2009        2008        2009        2008
                                  ----        ----        ----        ----

    Stock-based compensation
    Cost of sales                  $330        $270        $640        $515
    Sales and marketing           2,231       2,084       4,416       4,090
    Research and development      1,683       1,566       3,420       3,293
    General and administrative      761         797       1,560       1,551
                                    ---         ---       -----       -----
    Provision for income taxes   (1,865)     (1,141)     (4,879)     (2,224)
                                 ------      ------      ------      ------
    Total                        $3,140      $3,576      $5,157      $7,225
                                 ------      ------      ------      ------

    Amortization of acquisition
     intangibles
    Cost of sales                  $853        $937      $1,740      $1,788
    Sales and marketing             126         156         252         297
    Research and development          -           5           -          13
    General and  administrative       -           -           -           -
                                  -----       -----       -----       -----
    Provision for income taxes     (277)       (293)       (557)       (561)
                                   ----       -----       -----       -----
    Total                          $702        $805      $1,435      $1,537
                                   ----        ----      ------      ------

                                 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      Six Months Ended
                                        June 30,              June 30,

                                    2009       2008        2009        2008
                                    ----       ----        ----        ----

    Gross profit, as reported    $111,677    $157,034    $228,593    $300,883
    Stock-based compensation          330         270         640         515
    Amortization of acquisition
     intangibles                      853         937       1,740       1,788
                                      ---         ---       -----       -----

    Non-GAAP gross profit        $112,860    $158,241    $230,973    $303,186
                                 ========    ========    ========    ========


    Reconciliation of Operating Expense to Non-GAAP Operating Expenses

                                 Three Months Ended       Six Months  Ended
                                       June 30,                June 30,

                                   2009        2008        2009         2008
                                   ----        ----        ----         ----

    Operating expense,
     as reported                 $109,336    $129,200    $228,731    $254,983
    Stock-based compensation       (4,675)     (4,447)     (9,396)     (8,934)
    Amortization of acquisition
     intangibles                     (126)       (161)       (252)       (310)
                                    -----       -----       -----        ----

    Non-GAAP operating expenses  $104,535    $124,592    $219,083    $245,739
                                 ========    ========    ========    ========


    Reconciliation of Operating Income to Non-GAAP Operating Income

                                    Three Months Ended      Six Months Ended
                                         June 30,               June 30,

                                    2009       2008          2009       2008
                                    ----       ----          ----       ----

    Operating income,
     as reported                   $2,341     $27,834       $(138)    $45,900
    Stock-based compensation        5,005       4,717      10,036       9,449
    Amortization of acquisition
     intangibles                      979       1,098       1,992       2,098
                                      ---       -----       -----       -----

    Non-GAAP operating income      $8,325     $33,649     $11,890     $57,447
                                   ======     =======     =======     =======


    Reconciliation of Income Before Income Taxes to Non-GAAP Income
     Before Income Taxes

                                   Three Months Ended       Six Months Ended
                                         June 30,               June 30,

                                     2009       2008        2009        2008
                                     ----       ----        ----        ----

    Income before income taxes,
     as reported                   $4,145     $28,906      $1,716     $50,718
    Stock-based compensation        5,005       4,717      10,036       9,449
    Amortization of acquisition
     intangibles                      979       1,098       1,992       2,098
                                      ---       -----       -----       -----

    Non-GAAP income before
     income taxes                 $10,129     $34,721     $13,744     $62,265
                                  =======     =======     =======     =======


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

                                    Three Months Ended      Six Months  Ended
                                         June 30,                June 30,

                                     2009       2008         2009       2008
                                     ----       ----         ----       ----

    Provision for income taxes,
     as reported                    $(285)     $4,172     $(3,072)     $8,368
    Stock-based compensation        1,865       1,141       4,879       2,224
    Amortization of acquisition
     intangibles                      277         293         557         561
                                      ---         ---         ---         ---

    Non-GAAP provision for
     income taxes                  $1,857      $5,606      $2,364     $11,153
                                   ======      ======      ======     =======



                  Reconciliation of Net Income and Diluted EPS to
               Non-GAAP Net Income and Non-GAAP Diluted EPS (unaudited)

                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,

                                         2009     2008        2009     2008
                                         ----     ----        ----     ----

    Net income, as reported             $4,430  $24,734      $4,788  $42,350
    Adjustments to reconcile net income
     to non-GAAP net income:
      Stock-based compensation, net of
       tax effect                        3,140    3,576       5,157    7,225
      Amortization of acquisition
       intangibles, net of tax effect      702      805       1,435    1,537
                                           ---      ---       -----    -----

    Non-GAAP net income                 $8,272  $29,115     $11,380  $51,112
                                        ======  =======     =======  =======

    Basic EPS, as reported               $0.06    $0.32       $0.06    $0.54
    Adjustment to reconcile basic EPS
     to non-GAAP basic EPS:
      Impact of stock-based
       compensation, net of
       tax effect                        $0.04    $0.04       $0.07    $0.09
      Impact of amortization
       of acquisition intangibles,
       net of tax effect                 $0.01    $0.01       $0.02    $0.02
                                         -----    -----       -----    -----

    Non-GAAP basic EPS                   $0.11    $0.37       $0.15    $0.65
                                         =====    =====       =====    =====


    Diluted EPS, as reported             $0.06    $0.31       $0.06    $0.53
    Adjustment to reconcile diluted
     EPS to non-GAAP diluted EPS:
      Impact of stock-based compensation,
       net of tax effect                 $0.04    $0.05       $0.07    $0.09
      Impact of amortization of
       acquisition intangibles,
       net of tax effect                 $0.01    $0.01       $0.02    $0.02
                                         -----    -----       -----    -----

    Non-GAAP diluted EPS                 $0.11    $0.37       $0.15    $0.64
                                         =====    =====       =====    =====

    Weighted average shares
     outstanding -
    Basic                               77,556   78,484      77,417   78,662
                                        ------   ------      ------   ------
    Diluted                             77,824   79,549      77,596   79,691
                                        ------   ------      ------   ------



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

                                                      Three Months Ended
                                                      September 30, 2009

                                                          Low     High
    GAAP fully diluted EPS, estimated                    $0.04    $0.12
    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                     0.01     0.01
                                                         -----    -----
    Non-GAAP diluted EPS, estimated                      $0.09    $0.17
                                                         =====    =====

SOURCE National Instruments

http://www.ni.com

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