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National Instruments Reports Record Revenue for a Third Quarter of $321 Million

Net Income up 43% Year Over Year Through First Nine Months

Q3 2017 Highlights

  • Revenue of $321 million, up 5 percent year over year
  • GAAP gross margin of 74 percent
  • Non-GAAP gross margin of 75 percent
  • Fully diluted GAAP EPS of $0.25 and fully diluted non-GAAP EPS of $0.32
  • GAAP net income of $33 million
  • Non-GAAP net income of $42 million
  • GAAP net income up 43% year over year through first nine months
  • Non-GAAP net income up 28% year over year through first nine months
  • EBITDA of $57 million
  • Cash and short-term investments of $385 million as of September 30, 2017

AUSTIN, Texas--(BUSINESS WIRE)-- National Instruments (Nasdaq: NATI) today announced Q3 2017 revenue of $321 million, up 5 percent year over year.

In Q3 2017, NI received $8 million in orders from its largest customer compared with $5 million in orders from this customer in Q3 2016. The value of the company’s total orders was up 5 percent year over year for the quarter; orders under $20,000 were up 1 percent year over year; orders between $20,000 and $100,000 were up 8 percent year over year; and orders above $100,000 were up 9 percent year over year.

GAAP net income for Q3 was $33 million, with fully diluted earnings per share (EPS) of $0.25, and non-GAAP net income was $42 million, a record for a third quarter, with non-GAAP fully diluted EPS of $0.32. Included in NI’s GAAP net income for Q3 is $1 million related to restructuring charges. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, was $57 million for Q3.

In Q3, GAAP gross margin was 74 percent and non-GAAP gross margin was 75 percent. Total GAAP operating expenses were $200 million, down slightly year over year. Total non-GAAP operating expenses were $190 million, down 2 percent year over year. GAAP operating margin was 12 percent in Q3, with GAAP operating income of $38 million, up 28 percent year over year. Non-GAAP operating margin was 15 percent in Q3, with non-GAAP operating income of $49 million, up 29 percent year over year. Year-to-date, GAAP operating expenses were $608 million, up 2 percent year over year, and non-GAAP operating expenses were $576 million, flat year over year. GAAP operating income year-to-date was $88 million, up 26 percent year over year, and non-GAAP operating income year-to-date was $128 million, up 26 percent year over year.

“I am pleased with our performance in the first nine months of the year,” said Alex Davern, NI president and CEO. “We have seen record revenue and record profit and have made significant progress toward our target business model. With strong alignment and focus throughout our organization, we have seen continued success in the key focus areas of semiconductor test, 5G, the electric and connected vehicle, and the Industrial Internet of Things.”

Karen Rapp, NI CFO, said, “I am proud of the progress we have made in improving our operating performance this year. The midpoint of our Q4 guidance would provide a 45 percent increase in our GAAP fully diluted EPS year-over-year for 2017. I continue to be impressed with the commitment from our employees as we all work toward alignment with our operational model. We believe this focus on growth and profitability will keep us on track to achieve our goals this year and into 2018.”

Geographic revenue in U.S. dollar terms for Q3 2017 compared with Q3 2016 was up 3 percent in the Americas, up 12 percent in APAC and up 1 percent in EMEIA. Excluding the impact of foreign currency exchange, revenue was up 3 percent in the Americas, up 12 percent in APAC and up 1 percent in EMEIA. Historical revenue from these three regions can be found on NI’s investor website at www.ni.com/nati.

As of Sept. 30, 2017, NI had $385 million in cash and short-term investments. During the third quarter, NI paid $27 million in dividends. The NI Board of Directors approved a quarterly dividend of $0.21 per share payable on Dec. 4, 2017, to stockholders of record on Nov. 13, 2017.

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. 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.

Guidance

NI currently expects Q4 revenue to be in the range of $331 million to $361 million, which would be a new Q4 record at the midpoint. Based on current exchange rates, the company expects that the impact of foreign exchange on dollar revenue will be minimal in Q4. The company currently expects that GAAP fully diluted EPS will be in the range of $0.27 to $0.41 for Q4, with non-GAAP fully diluted EPS expected to be in the range of $0.34 to $0.48. Included in the company’s Q4 2017 GAAP EPS guidance is approximately $1 million of restructuring charges. For 2017, NI estimates its non-GAAP effective tax rate to be approximately 21 percent.

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 growth, gross margin, and operating margin for the three-month periods ending Sept. 30, 2017 and 2016, and its gross profit, operating expenses, operating income, income before income taxes, provision for income taxes, net income and basic and fully diluted EPS for the three-month and nine-month periods ending Sept. 30, 2017 and 2016, on a GAAP and non-GAAP basis. NI is also providing guidance on its non-GAAP fully diluted EPS and expected effective tax rate. The company is not able to provide guidance on its GAAP tax rate or a related reconciliation without unreasonable efforts since its future GAAP tax rate depends on its 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 and nine-month periods ending Sept. 30, 2017 and 2016. 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 growth for the three-month period ending Sept. 30, 2017. The company believes that including its year over year change in core revenue growth assists investors in assessing the company’s operational performance. A reconciliation of its year over year change in GAAP revenue growth to its year over year change in core revenue growth is included with this news release.

Conference Call Information and Availability of Presentation Materials

Interested parties can listen to the Q3 2017 earnings conference call with NI management today, Oct. 26, at 4:00 p.m. CT at www.ni.com/call. Replay information is available by calling (855) 859-2056, confirmation code 92738818, shortly after the call through Oct. 29 at 11:59 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 significant progress toward our target business model, strong alignment and focus throughout our organization, continued success in the key focus areas of semiconductor test, 5G, the electric and connected vehicle, and the Industrial Internet of Things, progress we have made in improving our operating performance, that the midpoint of our Q4 guidance would provide a 45 percent increase in our GAAP fully diluted EPS year-over-year for 2017, commitment from our employees as we all work toward alignment with our operational model, our belief that this focus on growth and profitability will keep us on track to achieve our goals this year and into 2018, expecting Q4 revenue to be in the range of $331 million to $361 million, expecting the impact of foreign exchange on dollar revenue will be minimal in Q4, expecting that GAAP fully diluted EPS will be in the range of $0.27 to $0.41 for Q4, with non-GAAP fully diluted EPS expected to be in the range of $0.34 to $0.48, approximately $1 million of restructuring charges in Q4, and estimating non-GAAP effective tax rate to be approximately 21 percent. 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, 2016, its Form 10-Q for the quarter ended June 30, 2017 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-centric 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)
September 30, December 31,
2017 2016
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 294,194 $ 285,283
Short-term investments 91,223 73,117
Accounts receivable, net 235,177 228,686
Inventories, net 184,641 193,608
Prepaid expenses and other current assets 50,325 53,953
Total current assets 855,560 834,647
Property and equipment, net 254,918 260,456
Goodwill 265,091 253,197
Intangible assets, net 122,681 108,663

Other long-term assets

32,878 39,601
Total assets $ 1,531,128 $ 1,496,564
Liabilities and Stockholders' Equity
Current liabilities:

Accounts payable and accrued liabilities

$ 51,274 $ 48,800
Accrued compensation 45,231 27,743
Deferred revenue - current 120,271 115,577

Other current liabilities

17,802 32,997
Other taxes payable 30,832 34,958
Total current liabilities 265,410 260,075
Long-term debt 15,000 25,000
Deferred income taxes 37,074 45,386
Liability for uncertain tax positions 9,284 11,719
Deferred revenue - long-term 31,405 29,752
Other long-term liabilities 9,156 10,413
Total liabilities 367,329 382,345
Stockholders' equity:
Preferred stock
Common stock 1,307 1,292
Additional paid-in capital 816,152 771,346
Retained earnings 365,021 376,202

Accumulated other comprehensive loss

(18,681

)

(34,621

)

Total stockholders' equity 1,163,799 1,114,219
Total liabilities and stockholders' equity $ 1,531,128 $ 1,496,564
National Instruments
Condensed Consolidated Statements of Income
(in thousands, except per share data, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net sales:
Product $ 291,891 $ 278,521 $ 853,219 $ 816,486
Software maintenance 29,030 27,843 86,416 83,161
Total net sales 320,921 306,364 939,635 899,647
Cost of sales:
Product 81,641 74,734 235,989 225,261
Software maintenance 2,110 1,998 6,744 5,126
Total cost of sales 83,751 76,732 242,733 230,387
Gross profit 237,170 229,632 696,902 669,260

74

%

75

%

74

%

74

%

Operating expenses:
Sales and marketing 116,661 116,662 358,335 346,230
Research and development 56,526 59,066 171,701 178,244
General and administrative 26,468 24,537 78,400

74,308

Total operating expenses 199,655 200,265 608,436 598,782
Operating income 37,515 29,367 88,466 70,478

12

%

10

%

9

%

8

%

Other income (expense):
Interest income 657 276 1,509 787
Net foreign exchange gain (loss) 1,096

(760

)

1,624

(1,471

)

Other (expense) income, net

(1,153

)

301

(957

)

(2,052

)

Income before income taxes 38,115 29,184 90,642 67,742
Provision for income taxes 4,726 4,695 13,949 14,155
Net income $ 33,389 $ 24,489 $ 76,693 $ 53,587
Basic earnings per share $ 0.26 $ 0.19 $ 0.59 $ 0.42
Diluted earnings per share $ 0.25 $ 0.19 $ 0.59 $ 0.42
Weighted average shares outstanding -
basic 130,660 128,815 130,103 128,233
diluted 131,617 129,047 131,050 128,738
Dividends declared per share $ 0.21 $ 0.20 $ 0.63 $ 0.60
National Instruments
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
Nine Months Ended September 30,
2017 2016
Cash flow from operating activities:
Net income $ 76,693 $ 53,587
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 54,794 55,164
Stock-based compensation 21,272 19,635
Tax expense/(benefit) expense from deferred income taxes

(4,290

)

(7,321

)

Net change in operating assets and liabilities

(1,013

)

28,951
Net cash provided by operating activities 147,456 150,016
Cash flow from investing activities:
Capital expenditures

(24,084

)

(34,408

)

Capitalization of internally developed software

(34,406

)

(24,048

)

Additions to other intangibles

(1,379

)

(1,969

)

Acquisitions, net of cash received

(549

)

Purchases of short-term investments

(62,845

)

(9,054

)

Sales and maturities of short-term investments 45,582 38,566
Net cash used by investing activities

(77,132

)

(31,462

)

Cash flow from financing activities:
Proceeds from revolving line of credit 15,000
Principal payments on revolving line of credit (10,000 ) (27,000 )
Proceeds from issuance of common stock 22,870 22,157
Repurchase of common stock (5,635 )
Dividends paid (82,051 ) (77,056

)

Net cash used by financing activities (69,181 ) (72,534 )
Impact of changes in exchange rates on cash 7,768 3,503
Net change in cash and cash equivalents 8,911 49,523
Cash and cash equivalents at beginning of period 285,283 251,129
Cash and cash equivalents at end of period $ 294,194 $ 300,652

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, 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) (in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Stock-based compensation
Cost of sales $ 689 $ 556 $ 1,914 $ 1,643
Sales and marketing 3,014 2,635 8,523 8,422
Research and development 2,328 2,027 6,552 6,745
General and administrative 1,514 921 4,358 2,764
Provision for income taxes (2,369 ) (2,092 ) (7,388 ) (6,202 )
Total $ 5,176 4,047 13,959 13,372
Amortization of acquisition intangibles
Cost of sales $ 1,502 $ 1,599 $ 4,648 $ 7,621
Sales and marketing 515 502 1,479 2,141
Research and development 283 276 813 815
Other income, net
Provision for income taxes (546

)

854 (1,656

)

1,312
Total $ 1,754 3,231 5,284 11,889
Acquisition transaction costs, restructuring charges, and other
Cost of sales $ 79 $ 74 $ 988 $ 253
Sales and marketing 1,618 42 8,018 141
Research and development 235 236 1,816 648
General and administrative 207 97 803 317
Foreign exchange gain (loss) 1 94
Other income (loss), net2 2,475
Provision for income taxes (720 ) (156 ) (3,655 ) (1,358 )
Total $ 1,419 $ 293 $ 7,970 $ 2,570
(1) Foreign exchange losses on acquisitions were $0 and $94 for the nine month periods ended September 30, 2017 and 2016, respectively
(2) Taxes levied on the transfer of acquired intellectual property were $0 and $2,475 for the nine month periods ended September 30, 2017 and 2016, respectively
National Instruments
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Reconciliation of Gross Profit to Non-GAAP Gross Profit
Gross profit, as reported $ 237,170 229,632 696,902 669,260
Stock-based compensation 689 556 1,914 1,643
Amortization of acquisition intangibles 1,502 1,599 4,648 7,621
Acquisition transaction costs and restructuring charges 79 74 988 253
Non-GAAP gross profit $ 239,440 231,861 704,452 678,777
Non-GAAP gross margin 75 % 76 % 75 % 75 %
Reconciliation of Operating Expenses to Non-GAAP Operating Expenses
Operating expenses, as reported $ 199,655 200,265 608,436 598,782
Stock-based compensation (6,856 ) (5,583 ) (19,433 ) (17,931 )
Amortization of acquisition intangibles (798 ) (778 ) (2,292 ) (2,956 )
Acquisition transaction costs and restructuring charges (2,060 ) (375 ) (10,637 ) (1,106 )
Non-GAAP operating expenses $ 189,941 193,529 576,074 576,789
Reconciliation of Operating Income to Non-GAAP Operating Income
Operating income, as reported $ 37,515 29,367 88,466 70,478
Stock-based compensation 7,545 6,139 21,347 19,574
Amortization of acquisition intangibles 2,300 2,377 6,940 10,577
Acquisition transaction costs and restructuring charges 2,139 449 11,625 1,359
Non-GAAP operating income $ 49,499 38,332 128,378 101,988
Non-GAAP operating margin 15 % 13 % 14 % 11 %
Reconciliation of Income before income taxes to Non-GAAP Income before income taxes
Income before income taxes, as reported $ 38,115 29,184 90,642 67,742
Stock-based compensation 7,545 6,139 21,347 19,574
Amortization of acquisition intangibles 2,300 2,377 6,940 10,577
Acquisition transaction costs and restructuring charges 2,139 449 11,625 1,359
Foreign exchange loss on acquisitions 94
Taxes levied on transfer of acquired intellectual property 2,475
Non-GAAP income before income taxes $ 50,099 38,149 130,554 101,821
Reconciliation of Provision for income taxes to Non-GAAP Provision for income taxes
Provision for income taxes, as reported $ 4,726 4,695 13,949 14,155
Stock-based compensation 2,369 2,092 7,388 6,202
Amortization of acquisition intangibles 546 (854 ) 1,656 (1,312 )
Acquisition transaction costs, restructuring charges, and other 720 156 3,655 1,358
Non-GAAP provision for income taxes $ 8,361 6,089 26,648 20,403
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,
2017 2016 2017 2016
Net income, as reported $ 33,389 $ 24,489 $ 76,693 $ 53,587
Adjustments to reconcile net income to non-GAAP net income:
Stock-based compensation, net of tax effect 5,176 4,047 13,959 13,372
Amortization of acquisition intangibles, net of tax effect 1,754 3,231 5,284 11,889
Acquisition transaction costs, restructuring, and other, net of tax effect 1,419

293 7,970 2,570
Non-GAAP net income $ 41,738 $ 32,060 $ 103,906 $ 81,418
Basic EPS, as reported $ 0.26 $ 0.19 $ 0.59 $ 0.42
Adjustment to reconcile basic EPS to non-GAAP
basic EPS:
Impact of stock-based compensation, net of tax effect 0.04 0.03 0.11 0.10
Impact of amortization of acquisition intangibles, net of tax effect 0.01 0.03 0.04 0.09
Impact of acquisition transaction costs, restructuring, and other, net of tax effect 0.01 0.05 0.02
Non-GAAP basic EPS $ 0.32 $ 0.25 $ 0.79 $ 0.63
Diluted EPS, as reported $ 0.25 $ 0.19 $ 0.59 $ 0.42
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS
Impact of stock-based compensation, net of tax effect 0.04 0.03 0.11 0.10
Impact of amortization of acquisition intangibles, net of tax effect 0.02 0.03 0.04 0.09
Impact of acquisition transaction costs, restructuring, and other, net of tax effect 0.01 0.05 0.02
Non-GAAP diluted EPS $ 0.32 $ 0.25 $ 0.79 $ 0.63
Weighted average shares outstanding -
Basic 130,660 128,815 130,103 128,233
Diluted 131,617 129,047 131,050 128,738
National Instruments
Reconciliation of Net Income to EBITDA
(in thousands, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net income, as reported $ 33,389 $ 24,489 $ 76,693 $ 53,587
Adjustments to reconcile net income to EBITDA:
Interest income (464 ) (53 ) (863 ) (194 )
Tax expense 4,726 4,695 13,949 14,155
Depreciation and amortization 18,879 16,947 54,794 55,164
EBITDA $ 56,530 $ 46,078 $ 144,573 $ 122,712
Weighted average shares outstanding - Diluted 131,617 129,047 131,050 128,738
Reconciliation of GAAP to Non-GAAP EPS Guidance
(unaudited)
Three Months Ended
December 31, 2017
Low High
GAAP Fully Diluted EPS, guidance $ 0.27 $ 0.41
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 0.02 0.02
Impact of acquisition transaction costs, restructuring, and other, net of tax effect 0.01 0.01
Non-GAAP diluted EPS, guidance $ 0.34 $ 0.48
National Instruments
Reconciliation of GAAP Revenue Growth to Core Revenue Growth
(unaudited)
Three Months Ended
September 30,
2017
YoY GAAP revenue growth, as reported 4.8 %
Effect of excluding our current largest customer 0.1 %
YoY GAAP revenue growth, excluding our largest customer 4.9 %
Effect of excluding the impact of foreign currency exchange 0.1 %
YoY Core revenue growth 5.0 %

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

Source: National Instruments