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National Instruments Reports Record Q2 Revenue and Operating Income

--Strong Gross Margins Drive Operating Leverage and Strategic Investments --Q2 2010 Highlights - Record second quarter revenue of $212 million, up 39 percent year-over-year - Record second quarter operating income - GAAP gross margin of 77.0 percent and non-GAAP gross margin of 77.6 percent - Fully diluted GAAP EPS of $0.31 and non-GAAP fully diluted EPS of $0.36, both including a net foreign exchange loss of $0.02 per share - Record cash and short-term investments of $316 million as of June 30, 2010 - Deferred revenue increased by $3.5 million in Q2 to $64.5 million

Jul 27, 2010 04:00 PM Eastern Daylight Time

AUSTIN, Texas, July 27, 2010 /PRNewswire via COMTEX News Network/ -- National Instruments (Nasdaq: NATI) reported quarterly revenue for Q2 2010 of $212 million, representing a 39 percent year-over-year increase and an 11 percent sequential increase. For the first half of 2010, the company reported a 30 percent increase in revenue and a 15 percent increase in non-GAAP operating expenses, compared to the first half of 2009. GAAP operating expenses grew by 14 percent in the first half of 2010, compared to the first half of 2009. Growing non-GAAP expenses at half the rate of revenue delivers on the goal expressed by the company at the 2009 NIWeek Investor Conference.

Net income for Q2 2010 was $24.6 million, with GAAP fully diluted earnings per share (EPS) of $0.31. Non-GAAP net income was $28.3 million, with non-GAAP fully diluted EPS of $0.36. Operating income set a record for a second quarter, and operating margins improved significantly over last year. Included in both GAAP and non-GAAP earnings for Q2 is a net loss on foreign exchange of $2.2 million, or $0.02 per share, as a result of the dramatic weakening of European currencies in May and June. The company had not anticipated this loss when giving guidance in April. 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.

In Q2, GAAP gross margin increased 3.6 percentage points year-over-year to 77.0 percent. Non-GAAP gross margin increased by 3.4 percentage points year-over-year to 77.6 percent.

"While the economy remains uncertain, our outstanding performance in the first half of the year and our strong Q3 guidance give us confidence that we will be able to deliver record annual revenue and record annual profitability in 2010," said Dr. James Truchard, co-founder, president, and CEO. "We plan to maintain a disciplined approach to expense management as we increase our investments to drive long-term profitable growth through strategic R&D and sales initiatives."

NI virtual instrumentation and graphical system design product sales were up 38 percent year-over-year. NI instrument control product sales were up 54 percent year-over-year but remain 17 percent below Q2 2008 levels. Product revenue was $195 million, up 39 percent from Q2 2009, and software maintenance revenue was $17 million, up 37 percent year-over-year. Geographically, revenue in U.S. dollar terms for Q2 2010 compared to Q2 2009 was up 32 percent in the Americas, up 28 percent in Europe and up 66 percent in Asia. In local currency terms, revenue was up 19 percent in Europe and up 52 percent in Asia.

As of June 30, NI had a record $316 million in net cash and short-term investments, up $21 million from March 31, 2010. During Q2 2010, the company paid $10 million in dividends. National Instruments announced that its board of directors declared a dividend of $0.13 per share on its common stock payable on Aug. 30, 2010, to shareholders of record on Aug. 9, 2010.

Outlook

The trends of the global Purchasing Managers Index (PMI) continued to be strong in Q2, averaging 56.7 for the quarter, but it appears likely that the global PMI reached its peak for this cycle in Q2. The profit and investment plans the company laid out at the 2009 NIWeek Investor Conference anticipated this strong recovery by the global PMI followed by the necessary moderation toward its historical mean. The company's discipline in growing non-GAAP expenses at half the rate of revenue has resulted in a dramatic rebound in profitability with non-GAAP operating margins increasing from 4 percent in the first half of 2009 to 15 percent in the first half of 2010.

"At our 2009 NIWeek Investor Conference we set the goal of increasing expenses at 50 percent of revenue growth, until we returned record revenue," said Alex Davern, CFO. "Given that we are back to record revenue and profitability, we will be presenting a more balanced investment plan at our investor conference next week. Going forward we will be increasing our strategic investments and plan to increase expenses at a rate closer to that of revenue growth, while continuing to drive towards our long-term operating profit goal."

NI expects strong Q3 year-over-year revenue growth, with revenue expected to be between $206 million and $220 million. The company expects fully diluted EPS between $0.27 and $0.37, with non-GAAP fully diluted EPS expected to be between $0.32 and $0.42.

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, operating expenses, operating income, net income, provision for taxes and EPS for the three and six month periods ending June 30, 2010 and 2009, on a GAAP and non-GAAP basis. 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 or amortization of acquired intangibles that are 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.

This news release also discloses NI earnings before interest, taxes, depreciation and amortization (EBITDA) and EBITDA diluted EPS for the three and six month periods ended June 30, 2010 and 2009. Management also 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

Interested parties can listen to the Q2 2010 conference call today, July 27, beginning at 4:00 p.m. CDT, at www.ni.com/call. Replay information is available by calling (888) 203-1112, confirmation code # 9955054, from July 27 at 7:00 p.m. CDT through Aug. 3 at midnight CDT.

Forward-Looking Statements

This release contains "forward-looking statements," including statements related to delivering record annual revenue and record annual profitability in 2010, driving long-term profitable growth through strategic R&D and sales initiatives focused at new large opportunity areas, plan to maintain a disciplined approach to expense management, likely that the global PMI peaked for this cycle, maintaining tight budget discipline, expenses increasing at a rate closer to revenue growth, continuing to improve the company's profitability and outlook for Q3 revenue and Q3 GAAP and non-GAAP EPS. These statements are subject to a number of risks and uncertainties, including the risk of further adverse changes or fluctuations in the global economy, disruption of European logistics, component shortages, delays in the release of new products, fluctuations in customer demand for NI products, the company's ability to continue to control its operating expenses, manufacturing inefficiencies and foreign exchange fluctuations. 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, 2009, its Form 10-Q for the quarter ended March 31, 2010, and the other 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 11 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)

LabVIEW, National Instruments, NI, ni.com and NIWeek 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
           Consolidated Balance Sheets
                  (in thousands)


                                    June          December
                                     30,             31,
                                        2010          2009
                                 (unaudited)
                                 -----------

    Assets
    Current assets:
    Cash and cash
     equivalents                    $185,418      $201,465
    Short-term investments           130,857        87,196
    Accounts receivable,
     net                             111,008       103,957
    Inventories, net                  95,983        86,515
    Prepaid expenses and
     other current assets             41,928        36,523
    Deferred income taxes,
     net                              12,811        16,522
                                      ------        ------
    Total current assets             578,005       532,178

    Property and equipment,
     net                             150,905       153,265
    Goodwill, net                     68,569        64,779
    Intangible assets, net            53,132        43,390
    Other long-term assets            17,559        19,417
    Total assets                    $868,170      $813,029
                                    ========      ========

    Liabilities and
     stockholders' equity
    Current liabilities:
    Accounts payable                 $28,786       $23,502
    Accrued compensation              29,145        14,934
    Deferred revenue                  64,447        57,242
    Accrued expenses and
     other liabilities                14,566         8,560
    Other taxes payable               12,910        14,181
                                      ------        ------
    Total current
     liabilities                     149,854       118,419

    Deferred income taxes             24,700        25,012
    Liability for uncertain
     tax position                     12,389        11,062
    Other long-term
     liabilities                       5,251         4,116
                                       -----         -----
    Total liabilities               $192,194      $158,609
                                    ========      ========

    Stockholders' equity:
    Preferred stock                        -             -
    Common stock                         782           774
    Additional paid-in
     capital                         379,468       336,446
    Retained earnings                299,871       303,655
    Accumulated other
     comprehensive income
     (loss)                           (4,145)       13,545
                                      ------        ------
    Total stockholders'
     equity                         $675,976      $654,420
                                    --------      --------
    Total liabilities and
     stockholders' equity           $868,170      $813,029
                                    ========      ========




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


                             Three Months          Six Months
                                 Ended               Ended
                               June 30,            June 30,
                             (Unaudited)          (Unaudited)
                             -----------          -----------
                             2010          2009          2010          2009
    Net sales:
    Products             $194,830      $139,792      $370,225      $283,242
    Software
     maintenance           16,887        12,371        32,583        26,720
                           ------        ------        ------        ------
    Total net
     sales                211,717       152,163       402,808       309,962

    Cost of sales:
    Cost of
     products             $47,176       $39,202       $89,438       $78,758
    Cost of
     software
     maintenance            1,463         1,284         2,443         2,611
                            -----         -----         -----         -----
    Total cost of
     sales                 48,639        40,486        91,881        81,369

    Gross profit         $163,078      $111,677      $310,927      $228,593
                         --------      --------      --------      --------

    Operating
     expenses:
    Sales and
     marketing            $79,231       $65,137      $153,672      $133,963
    Research and
     development           36,395        29,447        74,941        64,236
    General and
     administrative        16,969        14,752        32,309        30,532
    Total
     operating
     expenses            $132,595      $109,336      $260,922      $228,731
                         --------      --------      --------      --------

    Operating
     income (loss)        $30,483        $2,341       $50,005         $(138)

    Other income
     (expense):
    Interest
     income                  $371          $407          $671          $996
    Net foreign
     exchange gain
     (loss)                (2,203)        1,063        (2,901)          361
    Other income,
     net                      462           334           810           497
                              ---           ---           ---           ---

    Income before
     income taxes         $29,113        $4,145       $48,585        $1,716

    Provision for
     (benefit
     from) income
     taxes                  4,511          (285)        5,630        (3,072)

    Net income            $24,602        $4,430       $42,955        $4,788
                          -------        ------       -------        ------

    Basic earnings
     per share              $0.32         $0.06         $0.55         $0.06
                            -----         -----         -----         -----
    Diluted
     earnings per
     share                  $0.31         $0.06         $0.55         $0.06
                            -----         -----         -----         -----

    Weighted
     average
     shares
     outstanding -
    basic                  77,932        77,556        77,657        77,417
    diluted                78,992        77,824        78,752        77,596

    Dividends
     declared per
     share                  $0.13         $0.12         $0.26         $0.24




               National Instruments
      Consolidated Statements of Cash Flows
                  (in thousands)

                                          Six Months
                                             Ended
                                           June 30,
                                         (Unaudited)
                                         -----------
                                         2010          2009
    Cash flow from operating
     activities:
    Net income                        $42,955        $4,788
    Adjustments to reconcile
     net income to net cash
     provided
    by operating activities:
    Depreciation and
     amortization                      18,988        19,023
    Stock-based compensation            9,459        10,036
    Tax expense (benefit) from
     deferred income taxes              3,774        (2,610)
    Tax expense stock option
     plans                                579         1,379
    Changes in operating assets
     and liabilities:
    Accounts receivable                (6,803)       30,155
    Inventories                        (9,163)       12,089
    Prepaid expenses and other
     assets                           (18,740)         (624)
    Accounts payable                    4,953        (6,498)
    Deferred revenue                    7,205         2,178
    Taxes and other liabilities        18,513       (11,922)
    Net cash provided by
     operating activities             $71,720       $57,994
                                      -------       -------

    Cash flow from investing
     activities:
    Capital expenditures              (10,015)       (7,706)
    Capitalization of
     internally developed
     software                         (11,021)       (9,390)
    Additions to other
     intangibles                       (1,690)       (2,420)
    Acquisition, net of cash
     received                          (2,191)            -
    Purchases of short-term
     and long-term investments        (85,199)      (23,989)
    Sales and maturities of
     short-term and long-term
     investments                       41,538         1,218
    Net cash (used by)
     investing activities            $(68,578)     $(42,287)
                                     --------      --------

    Cash flow from financing
     activities:
    Proceeds from issuance of
     common stock                      32,550        11,520
    Repurchase of common stock        (30,935)      (14,908)
    Dividends paid                    (20,225)      (18,617)
    Tax (benefit) from stock
     option plans                        (579)       (1,379)
    Net cash (used by)
     financing activities            $(19,189)     $(23,384)
                                     --------      --------

    Net change in cash and cash
     equivalents                      (16,047)       (7,677)
    Cash and cash equivalents
     at beginning of period           201,465       229,400
    Cash and cash equivalents
     at end of period                $185,418      $221,723
                                     ========      ========




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


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

                            2010         2009         2010         2009
                            ----         ----         ----         ----
    Stock-based
     compensation
    Cost of sales           $320         $330         $682         $640
    Sales and
     marketing             1,996        2,231        4,100        4,416
    Research and
     development           1,593        1,683        3,358        3,420
    General and
     administrative          634          761        1,319        1,560
                             ---          ---        -----        -----
    Provision for
     income taxes         (1,582)      (1,865)      (3,127)      (4,879)
                          ------       ------       ------       ------
    Total                 $2,961       $3,140       $6,332       $5,157
                          ------       ------       ------       ------


    Amortization
     of
     acquisition
     intangibles
    Cost of sales           $922         $853       $1,644       $1,740
    Sales and
     marketing               100          126          222          252
    Research and
     development               -            -            -            -
    General and
     administrative            -            -            -            -
                             ---          ---          ---          ---
    Provision for
     income taxes           (327)        (277)        (580)        (557)
                            ----         ----         ----         ----
    Total                   $695         $702       $1,286       $1,435
                             ---          ---       ------       ------




                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                    Six
                                         Months                  Months
                                          Ended                   Ended
                                     June 30,                June 30,
                                   2010         2009         2010         2009
                                   ----         ----         ----         ----
    Gross profit, as
     reported                $163,078     $111,677     $310,927     $228,593
    Stock-based
     compensation                 320          330          682          640
    Amortization of
     acquisition
     intangibles                  922          853        1,644        1,740
                                  ---          ---        -----        -----
    Non-GAAP gross
     profit                  $164,320     $112,860     $313,253     $230,973



    Reconciliation of Operating
     Expenses to Non-GAAP
     Operating Expenses
                                     Three                    Six
                                      Months                  Months
                                       Ended                  Ended
                                  June 30,                 June 30,
                                 2010         2009         2010         2009
                                 ----         ----         ----         ----
    Operating expenses,
     as reported             $132,595     $109,336     $260,922     $228,731
    Stock-based
     compensation              (4,223)      (4,675)      (8,777)      (9,396)
    Amortization of
     acquisition
     intangibles                 (100)        (126)        (222)        (252)
                                 ----         ----         ----         ----
    Non-GAAP operating
     expenses                $128,272     $104,535     $251,923     $219,083



    Reconciliation of Operating
     Income (Loss) to Non-GAAP
     Operating Income
                                     Three                    Six
                                      Months                  Months
                                       Ended                  Ended
                                  June 30,                 June 30,
                                 2010         2009         2010         2009
                                 ----         ----         ----         ----
    Operating income
     (loss), as reported      $30,483       $2,341      $50,005        $(138)
    Stock-based
     compensation               4,543        5,005        9,459       10,036
    Amortization of
     acquisition
     intangibles                1,022          979        1,866        1,992
                                -----          ---        -----        -----
    Non-GAAP operating
     income                   $36,048       $8,325      $61,330      $11,890



    Reconciliation of Income before
     income taxes to Non-GAAP
     Income before income taxes
                                     Three                    Six
                                      Months                  Months
                                       Ended                  Ended
                                  June 30,                 June 30,
                                 2010         2009         2010         2009
                                 ----         ----         ----         ----
    Income before income
     taxes, as reported       $29,113       $4,145      $48,585       $1,716
    Stock-based
     compensation               4,543        5,005        9,459       10,036
    Amortization of
     acquisition
     intangibles                1,022          979        1,866        1,992
                                -----          ---        -----        -----
    Non-GAAP income
     before income taxes      $34,678      $10,129      $59,910      $13,744



    Reconciliation of Provision for
     (Benefit From) Income Taxes to
     Non-GAAP Provision For
     (Benefit From) Income Taxes
                                     Three                    Six
                                      Months                  Months
                                       Ended                  Ended
                                  June 30,                 June 30,
                                 2010         2009         2010         2009
                                 ----         ----         ----         ----
    Provision
     for(benefit from)
     income taxes, as
     reported                  $4,511        $(285)      $5,630      $(3,072)
    Stock-based
     compensation               1,582        1,865        3,127        4,879
    Amortization of
     acquisition
     intangibles                  327          277          580          557
                                  ---          ---          ---          ---
    Non-GAAP provision
     for income taxes          $6,420       $1,857       $9,337       $2,364





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


                                          Three            Six
                                           Months          Months
                                            Ended           Ended
                                        June 30,        June 30,
                                      2010        2009       2010     2009
                                      ----        ----       ----     ----
    Net income, as
     reported                      $24,602      $4,430    $42,955   $4,788
    Adjustments to
     reconcile net income
     to non-GAAP net
     income:
        Stock-based
         compensation, net of
         tax effect                  2,961       3,140      6,332    5,157
        Amortization of
         acquisition
         intangibles, net of
         tax effect                    695         702      1,286    1,435
                                       ---         ---      -----    -----
    Non-GAAP net income            $28,258      $8,272    $50,573  $11,380


    Basic EPS, as reported           $0.32       $0.06      $0.55    $0.06
    Adjustment to reconcile
     basic EPS to non-GAAP
    basic EPS:
        Impact of stock-based
         compensation, net of
         tax effect                  $0.03       $0.04      $0.08    $0.07
        Impact of amortization
         of acquisition
         intangibles, net of
         tax effect                  $0.01       $0.01      $0.02    $0.02

    Non-GAAP basic EPS               $0.36       $0.11      $0.65    $0.15



    Diluted EPS, as
     reported                        $0.31       $0.06      $0.55    $0.06
    Adjustment to reconcile
     diluted EPS to non-
     GAAP
    diluted EPS:
        Impact of stock-based
         compensation, net of
         tax effect                  $0.04       $0.04      $0.08    $0.07
        Impact of amortization
         of acquisition
         intangibles, net of
         tax effect                  $0.01       $0.01      $0.01    $0.02

    Non-GAAP diluted EPS             $0.36       $0.11      $0.64    $0.15


    Weighted average shares
     outstanding -
    Basic                           77,932      77,556     77,657   77,417
                                    ------      ------     ------   ------
    Diluted                         78,992      77,824     78,752   77,596
                                    ------      ------     ------   ------


             Reconciliation of Net Income and Diluted
                EPS to EBITDA and EBITDA Diluted EPS
                            (unaudited)

                                         Three              Six
                                           Months           Months
                                           Ended             Ended
                                        June 30,        June 30,
                                      2010        2009       2010     2009
                                      ----        ----       ----     ----
    Net income, as
     reported                      $24,602      $4,430    $42,955   $4,788
    Adjustments to
     reconcile net income
     to EBITDA:
         Interest income              (371)       (407)      (671)    (996)
         Taxes                       4,511        (285)     5,630   (3,072)
         Depreciation and
          amortization               9,546      10,638     18,988   19,023
    EBITDA                         $38,288     $14,376    $66,902  $19,743


    Diluted EPS, as
     reported                        $0.31       $0.06      $0.55    $0.06
    Adjustment to reconcile
     diluted EPS to EBITDA
         Interest income            $(0.01)     $(0.01)    $(0.01)  $(0.01)
         Taxes                       $0.06      $(0.01)     $0.07   $(0.04)
         Depreciation and
          amortization               $0.12       $0.14      $0.24    $0.24
    EBITDA diluted EPS               $0.48       $0.18      $0.85    $0.25


    Weighted average shares
     outstanding -Diluted           78,992      77,824     78,752   77,596
                                    ------      ------     ------   ------





                   National Instruments
          Reconciliation of GAAP to Non-GAAP EPS
                         Guidance
                       (unaudited)
                                             Three
                                            months
                                             ended
                                           September
                                           30, 2010
                                          ----------

                                          Low        High
    GAAP Fully Diluted EPS
     guidance                           $0.27       $0.37
    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
     guidance                           $0.32       $0.42
                                        =====       =====



SOURCE National Instruments

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