National Instruments Corporation (NATI)

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National Instruments Corporation (NATI)

Q1 2014 Earnings Conference Call

April 29, 2014 5:00 PM ET


David Hugley – Vice President and General Counsel and Secretary

James Truchard – President, Chief Executive Officer, and Cofounder

Alex Davern – Executive Vice President, Chief Financial Officer and Chief Operating Officer

Eric Starkloff – Executive Vice President-Global Sales and Marketing


Bryan A. Kipp – Janney Montgomery Scott LLC

Patrick Newton – Stifel, Nicolaus & Co., Inc.

Richard C. Eastman – Robert W. Baird & Co., Inc.



Good day, everyone, and welcome to the National Instruments First Quarter 2014 Earnings Conference Call. Today’s call is being recorded. You may refer to your press packet for the replay dial-in number and the pass code.

With us today are David Hugley, Vice President, General Counsel and Secretary; Alex Davern, Chief Operating Officer; Dr. James Truchard, CEO and Co-founder; and Eric Starkloff, Executive Vice President of Sales and Marketing.

For opening remarks, I would like to turn the call over to Mr. David Hugley, Vice President and 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 second quarter revenue, gross margin and earnings per share, as well our position on the test and measurement market. 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 annual report on Form 10-K filed on February 20, 2014. 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. I’d like to apologize in advance for my voice. In Austin, allergies are bad right now. Our key points today are record orders for the first quarter, Q1 non-GAAP operating income up 16%, and we’re got into record revenues for Q2.

Despite the challenging test and measurement industry, we received record orders for the first quarter while improving our operating margins . Given the improvements in the industrial economy in Q1 and our strong position we believe we are guiding to an improved operating performance in Q2, and I continue to be optimistic about our long-term position in the industry.

I will now turn it over to Alex Davern to review our results. Alex?

Alex Davern

Good afternoon and thank you for joining us today. Today we reported revenue of $285 million for Q1. Orders represented a new first quarter record. Backlog increased by $7.5 million and deferred revenue increased by $6 million during the quarter. 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 at the midpoint of our guidance range. Reconciliation of our GAAP and non-GAAP results is included in our earnings press release.

Non-GAAP gross margin in Q1 was 76%, up 30 basis points from Q4 and total non-GAAP operating expenses were $182 million, down 4% year-over-year. For Q1, our non-GAAP operating margin was 12%, up from 10% in Q1 last year and non-GAAP operating income of $34 million was up 16% year-over-year.

On a housekeeping note, you may recall that our tax rate in Q1 of last year was reduced significantly due to the retroactive impact of the renewal of the U.S. R&D tax credit in January of 2013. As a result, the year-over-year increase in our tax rate effectively offset our improved operating margin, resulting in a non-GAAP fully diluted earnings per share of $0.21, matching our EPS in Q1 last year.

Now taking look at order trends. For Q1, the value of our total orders was up 1% year-over-year. Included in that total is $12 million in orders received from our largest customer, to which delivery was requested in Q1 this year as compared to $17 million in Q1 of last year. As of today, we have received a total of $32 million in orders for 2014 from this customer, as compared to $24 million at this time last year.

Revenue from our largest customer was $7 million in Q1. We expect the remainder of this customer’s credit orders to be shipped in Q2and Q3. Excluding this customer, our orders from all other customers were up 3% year-over-year in Q1.

By taking a look at Q1 order values, excluding our biggest customer, we saw 4%year-over-year growth of our orders with a value below $20,000, while orders with a value between $20,000 and $100,000 grew 5% year-over-year. Orders with a value over $100,000 declined 2% year-over-year and it’s been up 41% year-over-year in Q1 of last year.

Now turning to cash management. Inventories were down $2 million in Q1 and accounts receivable were essentially flat from December 31. Also during the quarter we paid $19 million in dividends and our cash and cash equivalents increased by $17 million to a new record of $410 million as of March 31.

Now I’d like to make some forward-looking statements. The improvement in global PMI during Q1 gives us increased confidence in the continued recovery of the industrial economy as we move through 2014. This increased confidence coupled with our continued commitment to deliver on our leverage plan we outlined in our investor conference last year leads us to expect improved performance in Q2. As a result, we are guiding for revenue in Q2 to be in the range of $296 million to $324 million. At the midpoint this represents 5% year-over-year growth.

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