NATI

National Instruments Corporation (NATI)

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National Instruments Corporation (NATI)

Q4 2012 Earnings Call

January 31, 2013 5:00 p.m. ET

Executives

David Hugley - Vice President and General Counsel

Alex Davern - Chief Operating Officer

James Truchard - President and CEO

Eric Starkloff - Vice President of Marketing

Analysts

Mark Douglass - Longbow Research

Stephen Stone - Sidoti & Company

Anthony Luscri - JPMorgan

Patrick Newton - Stifel Nicolaus

Richard Eastman - Robert W. Baird

Presentation

Operator

Good day, everyone, and welcome to the National Instruments' fourth quarter 2012 earnings conference call. Today's call is being recorded. You may refer to your press packet for the replay dial-in number and pass code. With us today are David Hugley, Vice President, General Counsel and Secretary; Alex Davern, Chief Operating Officer; Dr. James Truchard, President, CEO and Cofounder; and Eric Starkloff, Vice President of Marketing.

For opening remarks, I would like to turn the call over to Mr. David Hugely, Vice President, General Counsel and Secretary. Please go ahead, sir.

David Hugley

Good afternoon. During the course of this conference call, we shall make forward-looking statements, including statements regarding significant future orders from a very large customer, other large applications sales, our goal of $2 billion in annual revenue, our GAAP operating margin target and our guidance for first quarter revenue and earnings per share. We wish to caution you that such statements are just predictions and that actual events or results may differ materially.

We refer you to the documents the company files regularly with the Securities and Exchange Commission including the company's most recent quarterly report on Form 10-Q filed November 6, 2012. These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements.

With that, I will now turn it over to the Chief Executive Officer of National Instruments Corporation, Dr. James Truchard.

James Truchard

Thank you, David. Good afternoon and thank you for joining us. Our key points for 2012 are, record annual revenue and 10% year-over-year revenue growth on a non-GAAP basis. Strong growth in orders over $20,000 and continuous execution on a long-term vision of graphical system design. Despite difficult economic conditions throughout 2012, I am pleased with our company’s disciplined execution which allowed us to deliver all time record revenue. While we remain cautious in the short-term due to the uncertain economic conditions, I am optimistic about the long-term position in the industry through its sustained differentiation we delivered to our customers to graphical system design.

This approach to measurement and control systems provides higher performance, better integration and lower cost while enabling unique testing approaches not possible with traditional equipment. In our call today I would call today, Alex Davern, our Chief Operating Officer will review our results. Eric Starkloff, our Vice President of Marketing will discuss our business and I will close with a few comments before we open up for your questions. Alex?

Alex Davern

Good afternoon and thank you for joining us today. Today we are pleased to report a new quarterly revenue record with revenue of $300 million in Q4, exceeding the high end of our guidance range. This represents 7% year-over-year organic growth. For Q4 net income was $21 million with full diluted earnings per share of $0.17 and non-GAAP net income for Q4 was $35 million with non-GAAP fully diluted earnings per share of $0.29, at the high end of our guidance range. A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.

Despite the weak start to the quarter we were pleased to see strength return in November and December. For Q4, our orders excluding the large applications that I would discuss later, were up 9% sequentially. While this is below our ten year historical average, sequential growth rate in Q4 of approximately 11%, we believe it is a good performance given the weak PMI which averaged 49.5 during Q4. Today we also reported a new annual revenue record with non-GAAP revenue for 2012 of $1.14 billion, up $102 million or 10% year-over-year. We delivered this revenue growth despite the weakest annual global PMI since 2009.

Non-GAAP gross margin in Q4 was 76% of 40 basis points from Q3. From a year-over-year perspective non-GAAP gross margins in Q4 and 2012 were down 100 and 130 basis points. These declines are primarily due to the proportion of revenue coming from the large application that I will discuss later. Total non-GAAP operating expenses were $183 million, up 7% year-over-year in Q4. Our year-over-year growth in non-GAAP operating expenses in Q4 was slightly higher that we had anticipated when we gave guidance to the variable compensation being higher than expected.

For the full year our non-GAAP operating expenses were up 10% in line with our revenue growth. This decrease can be broken down into 15% year-over-year expense growth in the first half of the year and 5% year-over-year growth in the second half. As we were successfully absorbing the significant investments we made in 2011. For Q4, our non-GAAP operating margin was 15% with non-GAAP operating income of $45 million, up $5 million sequentially. For the full year, non-GAAP operating income set a new record at $165 million.

This represents a non-GAAP operating margin of 14.4%, down from 15.7% in 2011. While the significant investments we made in 2011, combined with a weak PMI put pressure on short term operating margins, we believe that they have positioned us well for long-term growth. Let's take a look at revenue by order size. In the accompanying investor relations presentation, we have expanded our analysis of orders to breakout the value of orders over $100,000. In Q4, we saw a 6% year-over-year growth in our orders between $20,000 and $100,000, while orders over $100,000 grew 37%.

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