National Instruments Corporation (NATI)

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National Instruments Corp (NATI)

Q2 2011 Earnings Call

July 27, 2011 5:00 PM ET


David Hugely – VP, Corporate Counsel and Secretary

Dr. James Truchard – President, CEO and Co-Founder

Alex Davern – COO

Pete Zogas – SVP, Sales and Marketing


William Stein – Credit Suisse

Anthony Luscri – J.P. Morgan

Mark Douglass – Longbow Research

Richard Eastman – Robert W. Baird

Ajit Pai – Stifel Nicolaus

Chuck Murphy – Sidoti & Company



Good day everyone and welcome to the National Instruments second quarter 2011 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 Hugely, Vice President, General Counsel and Secretary; Alex Davern, Chief Operating Officer; Dr. James Truchard, President, CEO and Co-Founder; and Pete Zogas, Senior Vice President of Sales and Marketing.

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

David Hugely

Good afternoon. During the course of this conference call, we shall make forward-looking statements regarding the future financial performance of the company, including statements regarding future financial impacts of our recent acquisitions, growth and radio frequency product sales, long term growth prospects, future products and our revenue and earnings per share guidance.

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 February 18, 2011, and our most recent quarterly report on Form 10-Q filed April 29, 2011.

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 chief points today are; record quarterly revenue, record operating profit for a second quarter and continued execution on the 2011 investment plan.

I’m extremely pleased to report continued strong revenue growth and an all-time record revenue in Q2. Our ability to also deliver a record operating profit for a second quarter, while significantly increasing our R&D investment and field sales force, is a validation of the strength of our business model and our ability to execute.

We continue to focus on the long term vision and I believe our strategic investments and innovation and customer adoption are key to our future growth and I continue to be optimistic about our position in the industry.

In our call today, Alex Davern, our Chief Operating Officer will review our results. Pete Zogas, Senior Vice President of Sales and Marketing will discuss our business and I will close with a few comments before e open up for your questions. Alex.

Alex Davern

Good afternoon. Q2 was a very successful quarter and there are some clear positives to take away. First, we had record revenue with strong year over year growth in orders over $20,000. Second, we are successfully executing on our 2011 investment plan, and third, we had record operating and net income for a second quarter.

Revenue for Q2 was $253 million, up 20% year over year. Non-GAAP gross margin in Q2 was up 90 basis points year over year at 78.5%. Our ability to significantly increase our gross margins is attributed to the success we’ve had in driving down component costs, improving manufacturing efficiency and to the high value and differentiation we deliver to our customers.

Non-GAAP operating expenses were up 23% year over year in Q2 as we executed on our planned investments, especially in R&D and field sales. Overall head count was 5,862, up approximately 390 people, or 7% since March and up 15% year over year. This includes approximately 150 personnel from the AWR and Phase Matrix acquisitions.

We believe these investments give us the ability to fully leverage the strategic advances we’ve made in our PXI and CompactRIO platforms and are necessary to drive our long term growth.

Operating income was an all-time second quarter record. GAAP operating income was $33 million, an 8% increase over Q2 2008. Non-GAAP operating income also set a new second quarter record at $41 million, up 14% over Q2 2010. This represents a non-GAAP operating margin of 16%.

I would like to thank all of our employees for the hard work they have contributed to this very strong results. Net income for Q2 was $26.5 million with fully diluted earnings per share of $0.22, which includes a $0.01 per share impact from the transaction costs related to closing the AWR acquisition.

Non-GAAP net income was $32.2 million, with non-GAAP fully diluted earnings per share of $0.27 at the midpoint of our guidance range. A reconciliation of our GAAP to non-GAAP results is included in our earnings press release.

As we look to the second half of 2011, I would like to take a moment to reflect on our execution through the last five years. Despite the worst recession in modern history, National Instruments has delivered strong results during the five years since the first half of 2006, increasing first half revenues by 56%, non-GAAP gross margins by 65% and non-GAAP net income by 81%.

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