NATI

National Instruments Corporation (NATI)

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National Instruments Corporation (NATI)

Q1 2013 Earnings Call

April 25, 2013, 05:00 pm ET

Executives

David Hugley - VP, General Counsel & Secretary

Alex Davern - EVP, COO & CFO

James Truchard - President, CEO & Cofounder

Pete Zogas - SVP, Sales and Marketing

Analysts

Patrick Newton - Stifel Nicolaus

Chris Godby - Stephens

Mark Moskowitz - JPMorgan

Stephen Stone - Sidoti & Company

Mark Douglass - Longbow Research

Richard Eastman - Robert W. Baird

Presentation

Operator

Good day, everyone, and welcome to the National Instruments’ First Quarter 2013 Earnings Conference Call. Today's call is being recorded. You may refer to your press-pack 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 Pete Zogas, Senior Vice President of Sales and Marketing.

For opening remarks, I would like to turn the call over to Mr. David Hugley, 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 our guidance for our second quarter revenue, gross margins, operating expenses and earnings per share and statements regarding receiving orders from our largest customer, taking corrective action on expenses and getting back on plan. 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-K filed February 19, 2013. 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 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 are, record revenue for our first quarter, record Q1 orders for LabVIEW, PXI, CompactRIO and CompactDAQ. However we exceeded our spending plan and are taking corrective action.

While we delivered record revenue for first quarter our expenses ran ahead of plan. We are disappointed in our expense overrun in the first quarter and now are taking corrective actions. We are focusing our efforts on activities that have proven successful in growing our large order of business in addition to our proven approach for broad based business.

In our call today Alex Davern, our Chief Operating Officer will review our results; Pete Zogas, our Senior Vice President of Sales and 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 first quarter revenue record with revenue up $286 million at the midpoint of our guidance range and up 10% year-over-year. We were pleased to see revenue growth continue in Q1 despite the challenges we faced from the weak global economy, the sequestration process in the United States and the dramatic drop in the value of the yen.

For Q1, net income was $19 million with fully diluted earnings per share of $0.15 and non-GAAP net income for Q1 was $26 million with non-GAAP fully diluted earnings per share of $0.21; $0.03 below the midpoint of our guidance range. A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.

Given our relatively strong revenue performance, we were very disappointed to fall short of the midpoint of our earnings guidance in Q1. This shortfall came as a result of $0.01 per share loss on foreign exchange primarily due to the major decline in the value of the yen in Q1 and $0.02 per share as a result of expenses being ahead of plan.

For Q1, our total orders were up 8% year-over-year and we received $17 million in orders from our largest customer, up from $12 million in Q1 last year. Excluding this customer, our orders from all other customers are up by 7% year-over-year.

From a regional point of view, revenue was up 4% in Europe, 12% in the Americas, 37% in emerging markets and only 3% in East Asia. In East Asia, we saw a significant negative impact from the disruption caused by the dramatic decline in the value of the yen to the US dollar in Q1 with orders from Japan in Q1 being $7 million below plan for the quarter.

Non-GAAP gross margin in Q1 was 76.6%, up 60 basis points from Q4 due to a shift in our customer mix. From a year-over-year perspective, non-GAAP gross margins in Q1 were down 110 basis points, mainly due to mix in the incremental overhead caused by the ramp up of our new manufacturing facility in Malaysia. Total non-GAAP operating expenses were $190 million, up 12% year-over-year.

Our non-GAAP operating expenses in Q1 were $3.6 million or 2% higher than we had anticipated when we gave guidance and this reduced our EPS by $0.02. We are taking corrective actions to control our spending in Q2 and for the rest of 2013. For Q1, our non-GAAP operating margin was 10.3% with non-GAAP operating income of $30 million, down 16% year-over-year.

Now taking a look at revenue by order size; we saw a 6% year-over-year growth of our orders between 20K and 100K, while orders over $100,000 grew by 43%. Our average order size was up 13% year-over-year in Q1 to approximately $5,000. Our ability to continue to drive large over growth across a large number of customers was key to growing our business during the quarter when many test and measurement players saw significant declines.

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