National Instruments Corporation (NATI)

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National Instruments Corporation (NATI)

Q4 2013 Earnings Conference Call

January 30, 2014 05:00 PM ET


David Hugley - VP, General Counsel and Secretary

Alex Davern - Chief Operating Officer

Dr. James Truchard - President, CEO and Co-founder

Eric Starkloff - SVP of Sales and Marketing


Paul Knight - Janney Capital Markets

Richard Eastman - Robert Baird



Good day everyone and welcome to the National Instruments’ Fourth Quarter 2013 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 Co-founder; and Eric Starkloff, Senior Vice President of Sales and 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 regarding our future financial performance, including our guidance for our first quarter revenue and earnings per share. We wish to caution you that such statements are just prediction 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 1, 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 the Chief Executive Officer of National Instruments Corporation, Dr. James Truchard.

Dr. James Truchard

Thank you, David. Good afternoon and thank you for joining us. Our key points for 2013 are record annual revenue, continued growth in LabVIEW, RF and CompactRIO products and good spending discipline. I am pleased to report record annual revenue, despite difficult conditions in the test and measurement industry, we continue to see the acceptance of our software based approach. I am also pleased with our good expense management with operating expenses down sequentially for the third consecutive quarter.

This is a testament to the keen focus of our employees across our company and their collective efforts on improving our non-GAAP operating margins toward a goal of 18%. While we remain cautious in the short-term, I'm optimistic about our long-term position in the industry through the sustained differentiation we deliver to our customers.

In our call today, Alex Davern, our Chief Operating Officer will review our results, Eric Starkloff, our Senior Vice President in 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 reported quarterly revenue of $301 million, approximately flat with Q4 of 2012.

For Q4, net income was $32 million with fully diluted earnings per share of $0.25 and non-GAAP net income for Q4 was $39 million, up 9% year-over-year with non-GAAP fully diluted earnings per share of $0.31, at the midpoint of our guidance range provided on October 31st. Today, we also reported a new annual revenue record of $1.17 billion of $29 million or 3%. A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.

Excluding the impact of our largest customer, revenue from all other customers was up 4% year-over-year for Q4 and was up 6% year-over-year for the full year. We were disappointed with the finish to the quarter as December was weaker than expected especially in the emerging markets. For Q4, our orders were up 4% sequentially. This is below our historical ten year average, sequential growth rate for Q4 of approximately 10%. Most of the weakness this quarter was in our larger orders.

Non-GAAP gross margin in Q4 was 76%, up 70 basis points sequentially. Total non-GAAP operating expenses were $177 million down 3% year-over-year in Q4. For the full year our non-GAAP operating expenses were up 4% and I am pleased with our budget discipline. For Q4 our non-GAAP operating margin was 17% with non-GAAP operating income of $51 million up 56% sequentially and up 12% year-over-year.

Now taking a look at order size. In Q4 we saw 3% year-over-year growth from orders under $20,000, 1% year-over-year growth for orders between $20,000 and $100,000 while orders over $100,000 were down 9% year-over-year. There were two main drivers of the decline in our orders over $100,000. One was the expected decline in orders from our largest customer from $9 million in Q4 of 2012 to $3 million in Q4 of 2013. And the other was an unexpected 40% year-over-year decline in the emerging markets. Excluding orders from our largest customer, orders over $100,000 from the Americas, Europe and East Asia were up 17% in total year-over-year.

Now turning to the balance sheet, the company announced today an increase in the quarterly dividend from $0.14 to $0.15 per share. Cash and cash equivalents increased by $49 million sequentially to $393 million as of December 31st. Cash flow from operations were $170 million for 2013, up 28% year-over-year.

Now I’d like to make some forward-looking statements. While we’re pleased to see the recovery in the global PMI especially in November and December, we continue to see caution from our customers on capital spending, especially in the emerging markets. This makes us cautious in planning for the first half of 2014. We remain committed to the operating leverage targets we set out at our Investor Conference in August, but we expect our headcount to be essentially flat in 2014. As a result, we currently expect revenue for Q1 to be in the range of $273 million to $302 million. We currently expect the GAAP fully diluted earnings per share will be in the range of $0.09 to $0.21 for Q1 with non-GAAP fully diluted earnings per share expected to be in the range of $0.15 to $0.27.

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