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National Instruments Reports Q3 2016 Revenue of $306 Million

Strong Revenue Growth in Software and Record Revenue in RF

Q3 2016 Highlights

AUSTIN, Texas--(BUSINESS WIRE)-- National Instruments (Nasdaq: NATI) today announced Q3 2016 revenue of $306 million, up 2 percent year over year in U.S. dollar terms with core revenue up 4 percent year over year. The company's definition of core revenue is GAAP revenue excluding the impact of NI's largest customer and the impact of foreign currency exchange. A reconciliation of GAAP revenue to core revenue is included with this news release.

In Q3 2016, NI received $5 million in orders from its largest customer compared with $6 million in orders from this customer in Q3 2015. Excluding NI's largest customer, the company's total order growth was up 5 percent in U.S. dollar terms for the quarter. The impact of foreign currency exchange reduced our year-over-year order growth by 3 percent. Orders under $20,000 were down 3 percent year over year; orders between $20,000 and $100,000 were up 2 percent year over year; and orders above $100,000 were up 34 percent year over year.

GAAP net income for Q3 was $24.5 million, with fully diluted earnings per share (EPS) of $0.19, and non-GAAP net income was $32.1 million, with non-GAAP fully diluted EPS of $0.25. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, was $46.1 million.

In Q3, GAAP gross margin was 75.0 percent and non-GAAP gross margin was 75.7 percent. Total GAAP operating expenses were $200 million, up 5 percent year over year. Total non-GAAP operating expenses were $194 million, up 6 percent year over year. GAAP operating margin was 9.6 percent in Q3, with GAAP operating income of $29.4 million. Non-GAAP operating margin was 12.5 percent in Q3, with non-GAAP operating income of $38.3 million.

"Over the last decade, we have made the long-term strategic investments necessary to make NI a company built to last," said James Truchard, NI president, co-founder and CEO. "I believe the strong platform-based product offering and ecosystem we have today, coupled with significant progress in key areas including RF, FPGA and software puts NI in a strategically differentiated position."

Alex Davern, NI COO and CFO, said, "We continued to execute well in the third quarter, delivering revenue growth year-over-year. I am encouraged by our order growth this quarter and believe that the strong growth in orders over $100,000 reflects improving confidence among our larger customers. We believe we will continue to build on the multi-year investments that we have made to help deliver continued revenue growth and drive towards our 18 percent non-GAAP operating margin target."

Geographic revenue in U.S. dollar terms for Q3 2016 compared with Q3 2015 was up 3 percent in the Americas and down 6 percent in EMEIA. Revenue growth in APAC was strong at approximately 12 percent year over year. In constant currency terms, revenue was up 3 percent in the Americas, up 1 percent in EMEIA and up 12 percent in APAC. Historical revenue from these three regions can be found on NI's investor website at www.ni.com/nati.

As of Sept. 30, 2016, NI had $353 million in cash and short-term investments. During the quarter, NI paid $26 million in dividends and repaid $15 million of the outstanding balance under its line of credit. The NI Board of Directors approved a quarterly dividend of $0.20 per share payable on Dec. 5, 2016, to stockholders of record on Nov. 14, 2016.

The company's non-GAAP results exclude the impact of stock-based compensation, amortization of acquisition-related intangibles, acquisition-related transaction costs, taxes levied on the transfer of acquired intellectual property, foreign exchange loss on acquisitions and restructuring charges. Reconciliations of the company's GAAP and non-GAAP results are included as part of this news release.

Guidance for Q4 2016

NI currently expects Q4 revenue to be in the range of $323 million to $353 million. Based on current exchange rates, the company expects that the impact of the strengthening U.S. dollar will reduce the company's year-over-year dollar revenue growth rate by approximately 2 percent in Q4. We are expecting our non-GAAP effective tax rate to be approximately 25 percent in Q4. For 2017, we are expecting our non-GAAP effective tax rate to be in the range of 18 percent to 20 percent. The company currently expects that GAAP fully diluted EPS will be in the range of $0.23 to $0.37 for Q4, with non-GAAP fully diluted EPS expected to be in the range of $0.31 to $0.45.

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 year over year change in core revenue, gross profit, gross margin, operating expenses, operating income, operating margin, income before income taxes, provision for income taxes, net income and basic and fully diluted EPS for the three-month periods ending September 30, 2016 and 2015, on a GAAP and non-GAAP basis. NI is also providing guidance on its non-GAAP fully diluted EPS and expected effective tax rate. We are not able to provide guidance on our GAAP tax rate or a related reconciliation without unreasonable efforts since our future GAAP tax rate depends on our future stock price and related information that is not currently available.

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, taxes levied on the transfer of acquired intellectual property, foreign exchange loss on acquisitions, and restructuring charges in managing its operations. Specifically, management uses non-GAAP measures to plan and forecast future periods; to establish operational goals; to compare with its business plan and individual operating budgets; to measure management performance for the purposes of executive compensation, including payments to be made under bonus plans; to assist the public in measuring the company's performance relative to the company's long-term public performance goals; to allocate resources; and, relative to the company's historical financial performance, to enable comparability between periods. Management also considers such non-GAAP results to be an important supplemental measure of its performance.

This news release discloses the company's EBITDA for the three-month periods ending Sept. 30, 2016 and 2015. 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. This news release also discloses the year over year change in the company's core revenue for the three-month period ending September 30, 2016. The company believes that including its core revenue assists investors in assessing the company's operational performance. A reconciliation of GAAP revenue to core revenue is included with this news release.

Conference Call Information and Availability of Presentation Materials

Interested parties can listen to the Q3 2016 earnings conference call with NI management today, Oct. 27, at 4:00 p.m. CT at www.ni.com/call. Replay information is available by calling (855) 859-2056, confirmation code 89727566, shortly after the call through Oct. 30 at 11:00 p.m. CT or by visiting the company's website at www.ni.com/call. Presentation materials referred to on the conference call can be found at www.ni.com/nati.

Forward-Looking Statements

This release contains "forward-looking statements" including statements regarding making NI a company built to last, that the strong platform-based product offering and ecosystem we have today, coupled with significant progress in key areas including RF, FPGA and software puts NI in a strategically differentiated position, being encouraged by our order growth this quarter, belief that the strong growth in orders over $100,000 reflects improving confidence among our larger customers, that we will continue to build on the multi-year investments that we have made to help deliver continued revenue growth and drive towards our 18% non-GAAP operating margin target, expecting Q4 revenue to be in the range of $323 million to $353 million, that the impact of the strengthening of the U.S. dollar will reduce the company's year-over-year dollar revenue growth rate by approximately 2 percent in Q4, expecting our non-GAAP effective tax rate to be approximately 25 percent in Q4, that for 2017 we are expecting our non-GAAP effective tax rate to be in the range of 18 percent to 20 percent, and our guidance for GAAP fully diluted EPS and non-GAAP fully diluted EPS for Q4. 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 largest customer, 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. Actual results may differ materially from the expected results.

The company directs readers to its Form 10-K for the year ended Dec. 31, 2015, its Form 10-Q for the quarter ended June 30, 2016; and the other documents it files with the SEC for other risks associated with the company's future performance.

About NI

Since 1976, NI (www.ni.com) has made it possible for engineers and scientists to solve the world's greatest engineering challenges with powerful, flexible technology solutions that accelerate productivity and drive rapid innovation. Customers from a wide variety of industries - from healthcare to automotive and from consumer electronics to particle physics - use NI's integrated hardware and software platform to improve the world we live in. (NATI-F)

National Instruments, NI and ni.com are trademarks of National Instruments. Other product and company names listed are trademarks or trade names of their respective companies.

 
 
National Instruments
Condensed Consolidated Balance Sheets
(in thousands)
       
September 30, December 31,
2016 2015
 
Assets
Current assets:
Cash and cash equivalents $ 300,652 $ 251,129
Short-term investments 52,277 81,789
Accounts receivable, net 206,171 216,244
Inventories, net 196,391 185,197
Prepaid expenses and other current assets   55,281     65,381  
Total current assets 810,772 799,740
 
Property and equipment, net 261,859 257,853
Goodwill 261,372 257,718
Intangible assets, net 110,161 108,196
Other long-term assets   28,729     30,349  
Total assets $ 1,472,893   $ 1,453,856  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 53,192 $ 50,970
Accrued compensation 31,615 27,956
Deferred revenue - current 113,645 112,283
Accrued expenses and other liabilities 23,940 11,756
Other taxes payable   33,461     37,250  
Total current liabilities 255,853 240,215
 
Long-term debt 25,000 37,000
Deferred income taxes 37,787 44,673
Liability for uncertain tax positions 10,037 11,974
Deferred revenue - long-term 28,148 27,708
Other long-term liabilities   8,657     10,565  
Total liabilities   365,482     372,135  
 
Stockholders' equity:
Preferred stock - -
Common stock 1,289 1,275
Additional paid-in capital 758,411 717,705
Retained earnings 372,893 400,831
Accumulated other comprehensive loss   (25,182 )   (38,090 )
Total stockholders' equity   1,107,411     1,081,721  
Total liabilities and stockholders' equity $ 1,472,893   $ 1,453,856  
 
 
National Instruments
Condensed Consolidated Statements of Income
(in thousands, except per share data, unaudited)
             
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016     2015
 
Net sales:
Product $ 278,521 $ 271,683 $ 816,486 $ 807,064
Software maintenance   27,843     28,129   83,161     84,053  
Total net sales 306,364 299,812 899,647 891,117
 
Cost of sales:
Product 74,734 75,144 225,261 225,646
Software maintenance   1,998     2,022   5,126     4,531  
Total cost of sales 76,732 77,166 230,387 230,177
       
Gross profit   229,632     222,646   669,260     660,940  
 
Operating expenses:
Sales and marketing 116,662 114,507 346,230 335,916
Research and development 59,066 52,533 178,244 168,462
General and administrative   24,537     23,255   74,308     69,391  
Total operating expenses   200,265     190,295   598,782     573,769  
 
Operating income 29,367 32,351 70,478 87,171
 
Other income (expense):
Interest income 276 396 787 1,089
Net foreign exchange (loss) gain (760 ) 286 (1,471 ) (1,965 )
Other (expense) income, net   301     133   (2,052 )   787  
 
Income before income taxes 29,184 33,166 67,742 87,082
 
Provision for income taxes   4,695     9,988   14,155     23,958  
 
Net income $ 24,489   $ 23,178 $ 53,587   $ 63,124  
 
Basic earnings per share $ 0.19   $ 0.18 $ 0.42   $ 0.49  
Diluted earnings per share $ 0.19   $ 0.18 $ 0.42   $ 0.49  
 
Weighted average shares outstanding -
basic 128,815 127,935 128,233 128,219
diluted 129,047 128,229 128,738 128,856
 
Dividends declared per share $ 0.20 $ 0.19 $ 0.60 $ 0.57
 
 
National Instruments
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
   
Nine Months Ended September 30,
2016     2015
 
Cash flow from operating activities:
Net income $ 53,587 $ 63,124
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 55,164 55,157
Stock-based compensation 19,635 19,151
Tax expense/(benefit) expense from deferred income taxes (7,321 ) (7,404 )
Tax benefit from stock option plans (439 ) (944 )
Net change in operating assets and liabilities   32,454     (8,603 )
Net cash provided by operating activities   153,080     120,481  
 
Cash flow from investing activities:
Capital expenditures (34,408 ) (28,102 )
Capitalization of internally developed software (24,048 ) (22,639 )
Additions to other intangibles (1,969 ) (2,240 )
Acquisitions, net of cash received (549 ) (28,629 )
Purchases of short-term investments (9,054 ) (29,649 )
Sales and maturities of short-term investments   38,566     44,752  
Net cash used by investing activities   (31,462 )   (66,507 )
 
Cash flow from financing activities:
Proceeds from revolving line of credit 15,000 42,000
Principal payments on revolving line of credit (27,000 ) (17,000 )
Proceeds from issuance of common stock 22,157 21,252
Repurchase of common stock (5,635 ) (72,559 )
Dividends paid (77,056 ) (73,406 )
Tax benefit from stock option plans   439     944  
Net cash used by financing activities   (72,095 )   (98,769 )
 
Net change in cash and cash equivalents 49,523 (44,795 )
Cash and cash equivalents at beginning of period   251,129     274,030  
Cash and cash equivalents at end of period $ 300,652   $ 229,235  
 
 
The following tables provide details with respect to the amount of GAAP charges related to stock-based compensation, amortization of acquisition intangibles, acquisition related transaction costs, restructuring charges, foreign exchange loss on acquisitions and taxes levied on the transfer of acquired intellectual property that were recorded in the line items indicated below (unaudited)
                 
Three Months Ended Nine Months Ended
September 30, June 30,
 
2016 2015 2016 2015
Stock-based compensation
Cost of sales $ 556 $ 499 $ 1,643 $ 1,427
Sales and marketing 2,635 2,854 8,422 8,303
Research and development 2,027 2,132 6,745 6,764
General and administrative   921     921     2,764     2,656  
Provision for income taxes   (2,092 )   (1,933 )   (6,202 )   (5,420 )
Total $ 4,047   $ 4,473   $ 13,372   $ 13,730  
 
Amortization of acquisition intangibles
Cost of sales $ 1,599 $ 2,643 $ 7,621 $ 7,858
Sales and marketing 502 423 2,141 1,299
Research and development 276 322 815 983
Other income, net   -     145     -     448  
Provision for income taxes   854     (1,152 )   1,312     (3,469 )
Total $ 3,231   $ 2,381   $ 11,889   $ 7,119  
 
Acquisition transaction costs, restructuring charges, and other
Cost of sales $ 74 $ 169 $ 253 $ 974
Sales and marketing 42 - 141 -
Research and development 236 - 648 -
General and administrative 97 238 317 442
Foreign exchange gain (loss) 1 - - 94 -
Other income (loss), net2   -     -     2,475     -  
Provision for income taxes   (156 )   (59 )   (1,358 )   (390 )
Total $ 293   $ 348   $ 2,570   $ 1,026  
 
(1) Foreign exchange losses on acquisitions were $94 and $0 for the nine month periods ended September 30, 2016 and 2015, respectively
(2) Taxes levied on the transfer of acquired intellectual property were $2,475 and $0 for the nine month periods ended September 30, 2016 and 2015, respectively
 
 
National Instruments
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, unaudited)
                 
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
 
Reconciliation of Gross Profit to Non-GAAP Gross Profit
Gross profit, as reported $ 229,632 $ 222,646 $ 669,260 $ 660,940
Stock-based compensation 556 499 1,643 1,427
Amortization of acquisition intangibles 1,599 2,643 7,621 7,858
Acquisition transaction costs and restructuring charges   74     169     253     974  
Non-GAAP gross profit $ 231,861   $ 225,957   $ 678,777   $ 671,199  
Non-GAAP gross margin 75.7 % 75.4 % 75.4 % 75.3 %
 
Reconciliation of Operating Expenses to Non-GAAP Operating Expenses
Operating expenses, as reported $ 200,265 $ 190,295 $ 598,782 $ 573,769
Stock-based compensation (5,583 ) (5,907 ) (17,931 ) (17,723 )
Amortization of acquisition intangibles (778 ) (745 ) (2,956 ) (2,282 )
Acquisition transaction costs and restructuring charges   (375 )   (238 )   (1,106 )   (442 )
Non-GAAP operating expenses $ 193,529   $ 183,405   $ 576,789   $ 553,322  
 
Reconciliation of Operating Income to Non-GAAP Operating Income
Operating income, as reported $ 29,367 $ 32,351 $ 70,478 $ 87,171
Stock-based compensation 6,139 6,406 19,574 19,150
Amortization of acquisition intangibles 2,377 3,388 10,577 10,140
Acquisition transaction costs and restructuring charges   449     407     1,359     1,416  
Non-GAAP operating income $ 38,332   $ 42,552   $ 101,988   $ 117,877  
Non-GAAP operating margin 12.5 % 14.2 % 11.3 % 13.2 %
 
Reconciliation of Income before income taxes to Non-GAAP Income before income taxes
Income before income taxes, as reported $ 29,184 $ 33,166 $ 67,742 $ 87,082
Stock-based compensation 6,139 6,406 19,574 19,150
Amortization of acquisition intangibles 2,377 3,533 10,577 10,588
Acquisition transaction costs and restructuring charges 449 407 1,359 1,416
Foreign exchange loss on acquisitions - - 94 -
Taxes levied on transfer of acquired intellectual property   -     -     2,474     -  
Non-GAAP income before income taxes $ 38,149   $ 43,512   $ 101,820   $ 118,236  
 
Reconciliation of Provision for income taxes to Non-GAAP Provision for income taxes
Provision for income taxes, as reported $ 4,695 $ 9,988 $ 14,155 $ 23,958
Stock-based compensation 2,092 1,933 6,202 5,420
Amortization of acquisition intangibles (854 ) 1,152 (1,312 ) 3,469
Acquisition transaction costs, restructuring charges, and other   156     59     1,358     390  
Non-GAAP provision for income taxes $ 6,089   $ 13,132   $ 20,403   $ 33,237  
 
 
Reconciliation of GAAP Net Income, Basic EPS and Diluted EPS to Non-GAAP Net Income, Non-GAAP Basic EPS and Non-GAAP Diluted EPS
(in thousands, except per share data, unaudited)
                 
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
 
Net income, as reported $ 24,489 $ 23,178 $ 53,587 $ 63,124
Adjustments to reconcile net income to non-GAAP net income:
Stock-based compensation, net of tax effect 4,047 4,473 13,372 13,730
Amortization of acquisition intangibles, net of tax effect 3,231 2,381 11,889 7,119
Acquisition transaction costs, restructuring, and other, net of tax effect   293   348   2,570   1,026
Non-GAAP net income $ 32,060 $ 30,380 $ 81,418 $ 84,999
 
Basic EPS, as reported $ 0.19 $ 0.18 $ 0.42 $ 0.49

Adjustment to reconcile basic EPS to non-GAAP basic EPS:

Impact of stock-based compensation, net of tax effect 0.03 0.04 0.10 0.11
Impact of amortization of acquisition intangibles, net of tax effect 0.03 0.02 0.09 0.06
Impact of acquisition transaction costs, restructuring, and other, net of tax effect   -   -   0.02   -
Non-GAAP basic EPS $ 0.25 $ 0.24 $ 0.63 $ 0.66
 
 
Diluted EPS, as reported $ 0.19 $ 0.18 $ 0.42 $ 0.49
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS
Impact of stock-based compensation, net of tax effect 0.03 0.04 0.10 0.11
Impact of amortization of acquisition intangibles, net of tax effect 0.03 0.02 0.09 0.06
Impact of acquisition transaction costs, restructuring, and other, net of tax effect   -   -   0.02   -
Non-GAAP diluted EPS $ 0.25 $ 0.24 $ 0.63 $ 0.66
 
Weighted average shares outstanding -
Basic   128,815   127,935   128,233   128,219
Diluted   129,047   128,229   128,738   128,856
 
 
National Instruments
Reconciliation of Net Income to EBITDA
(in thousands, unaudited)
                 
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Net income, as reported $ 24,489 $ 23,178 $ 53,587 $ 63,124
Adjustments to reconcile net income to EBITDA:
Interest income (53 ) (396 ) (194 ) (1,089 )
Tax expense 4,695 9,988 14,155 23,958
Depreciation and amortization   16,947     18,655     55,164     55,157  
EBITDA $ 46,078   $ 51,425   $ 122,712   $ 141,150  
Weighted average shares outstanding - Diluted   129,047     128,229     128,738     128,856  
 
 
Reconciliation of GAAP to Non-GAAP EPS Guidance
(unaudited)
Three months ended
December 31, 2016
 
Low High
GAAP Fully Diluted EPS, guidance $ 0.24 $ 0.36

Adjustment to reconcile diluted EPS to non-GAAP diluted EPS:

Impact of stock-based compensation, net of tax effect 0.04 0.04
Impact of amortization of acquisition intangibles and acquisition accounting adjustments, net of tax effect   0.04     0.04  
Non-GAAP diluted EPS, guidance $ 0.32   $ 0.44  
 
 
National Instruments
Reconciliation of GAAP Revenue Growth to Core Revenue Growth
(unaudited)
   
Three Months Ended,
September 30,
2016
YoY GAAP revenue growth, as reported $ 2 %
Effect of excluding our current largest customer   -1 %
YoY GAAP revenue growth, excluding our largest customer   1 %
Effect of excluding the impact of foreign currency exchange   3 %
YoY Core revenue growth $ 4 %
 
 
National Instruments
Reconciliation of GAAP Revenue Growth Guidance to Core Revenue Growth Guidance
(unaudited)
 
Three Months Ended
December 31,
2016
Estimated YoY GAAP revenue growth, as reported $ 1 %
Estimated effect of excluding our current largest customer   2 %
Estimated YoY GAAP revenue growth, excluding our largest customer   3 %
Estimated effect of excluding the impact of foreign currency exchange   2 %
Estimated YoY Core revenue growth $ 5 %

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

Source: National Instruments

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