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National Instruments Reports Record Q2 Revenue and Operating Income
Jul 27, 2010 (04:07 PM EDT)


Strong Gross Margins Drive Operating Leverage and Strategic Investments

Q2 2010 Highlights

- Record second quarter revenue of $212 million, up 39 percent year-over-year

- Record second quarter operating income

- GAAP gross margin of 77.0 percent and non-GAAP gross margin of 77.6 percent

- Fully diluted GAAP EPS of $0.31 and non-GAAP fully diluted EPS of $0.36, both including a net foreign exchange loss of $0.02 per share

- Record cash and short-term investments of $316 million as of June 30, 2010

- Deferred revenue increased by $3.5 million in Q2 to $64.5 million

AUSTIN, Texas, July 27, 2010 /PRNewswire-FirstCall/ -- National Instruments (Nasdaq: NATI) reported quarterly revenue for Q2 2010 of $212 million, representing a 39 percent year-over-year increase and an 11 percent sequential increase. For the first half of 2010, the company reported a 30 percent increase in revenue and a 15 percent increase in non-GAAP operating expenses, compared to the first half of 2009. GAAP operating expenses grew by 14 percent in the first half of 2010, compared to the first half of 2009. Growing non-GAAP expenses at half the rate of revenue delivers on the goal expressed by the company at the 2009 NIWeek Investor Conference.

Net income for Q2 2010 was $24.6 million, with GAAP fully diluted earnings per share (EPS) of $0.31. Non-GAAP net income was $28.3 million, with non-GAAP fully diluted EPS of $0.36. Operating income set a record for a second quarter, and operating margins improved significantly over last year. Included in both GAAP and non-GAAP earnings for Q2 is a net loss on foreign exchange of $2.2 million, or $0.02 per share, as a result of the dramatic weakening of European currencies in May and June. The company had not anticipated this loss when giving guidance in April. The company's non-GAAP results exclude the impact of both stock-based compensation and the amortization of acquisition-related intangibles. Reconciliations of the company's GAAP and non-GAAP results are included as part of this news release.

In Q2, GAAP gross margin increased 3.6 percentage points year-over-year to 77.0 percent. Non-GAAP gross margin increased by 3.4 percentage points year-over-year to 77.6 percent.

"While the economy remains uncertain, our outstanding performance in the first half of the year and our strong Q3 guidance give us confidence that we will be able to deliver record annual revenue and record annual profitability in 2010," said Dr. James Truchard, co-founder, president, and CEO. "We plan to maintain a disciplined approach to expense management as we increase our investments to drive long-term profitable growth through strategic R&D and sales initiatives."

NI virtual instrumentation and graphical system design product sales were up 38 percent year-over-year. NI instrument control product sales were up 54 percent year-over-year but remain 17 percent below Q2 2008 levels. Product revenue was $195 million, up 39 percent from Q2 2009, and software maintenance revenue was $17 million, up 37 percent year-over-year. Geographically, revenue in U.S. dollar terms for Q2 2010 compared to Q2 2009 was up 32 percent in the Americas, up 28 percent in Europe and up 66 percent in Asia. In local currency terms, revenue was up 19 percent in Europe and up 52 percent in Asia.

As of June 30, NI had a record $316 million in net cash and short-term investments, up $21 million from March 31, 2010. During Q2 2010, the company paid $10 million in dividends. National Instruments announced that its board of directors declared a dividend of $0.13 per share on its common stock payable on Aug. 30, 2010, to shareholders of record on Aug. 9, 2010.

Outlook

The trends of the global Purchasing Managers Index (PMI) continued to be strong in Q2, averaging 56.7 for the quarter, but it appears likely that the global PMI reached its peak for this cycle in Q2. The profit and investment plans the company laid out at the 2009 NIWeek Investor Conference anticipated this strong recovery by the global PMI followed by the necessary moderation toward its historical mean. The company's discipline in growing non-GAAP expenses at half the rate of revenue has resulted in a dramatic rebound in profitability with non-GAAP operating margins increasing from 4 percent in the first half of 2009 to 15 percent in the first half of 2010.

"At our 2009 NIWeek Investor Conference we set the goal of increasing expenses at 50 percent of revenue growth, until we returned record revenue," said Alex Davern, CFO. "Given that we are back to record revenue and profitability, we will be presenting a more balanced investment plan at our investor conference next week.  Going forward we will be increasing our strategic investments and plan to increase expenses at a rate closer to that of revenue growth, while continuing to drive towards our long-term operating profit goal."

NI expects strong Q3 year-over-year revenue growth, with revenue expected to be between $206 million and $220 million. The company expects fully diluted EPS between $0.27 and $0.37, with non-GAAP fully diluted EPS expected to be between $0.32 and $0.42.

Non-GAAP Presentation

In addition to disclosing results determined in accordance with GAAP, NI discloses certain non-GAAP operating results and non-GAAP information that exclude certain charges. In this news release, the company has presented its gross profit, operating expenses, operating income, net income, provision for taxes and EPS for the three and six month periods ending June 30, 2010 and 2009, on a GAAP and non-GAAP basis. When presenting non-GAAP information, the company includes a reconciliation of the non-GAAP results to the GAAP results.

Management believes that including the non-GAAP results assists investors in assessing the company's operational performance and its performance relative to its competitors. The company presents these non-GAAP results as a complement to results provided in accordance with GAAP, and these results should not be regarded as a substitute for GAAP. Management uses these non-GAAP measures to manage and assess the profitability and performance of its business and does not consider stock-based compensation expense or amortization of acquired intangibles that are non-cash charges in managing its operations. Specifically, management uses non-GAAP measures to plan and forecast future periods, to establish operational goals, to compare with its business plan and individual operating budgets, to measure management performance for purposes of executive compensation including payments to be made under bonus plans, to assist the public in measuring the company's performance relative to the company's long-term public performance goals, to allocate resources and, relative to the company's historical financial performance, to enable comparability between periods. Management also considers such non-GAAP results to be an important supplemental measure of its performance.

This news release also discloses NI earnings before interest, taxes, depreciation and amortization (EBITDA) and EBITDA diluted EPS for the three and six month periods ended June 30, 2010 and 2009. Management also believes that including the EBITDA results assists investors in assessing the company's operational performance relative to its competitors. A reconciliation of EBITDA and EBITDA diluted EPS to GAAP net income and GAAP diluted EPS is included with this news release.

Conference Call Information

Interested parties can listen to the Q2 2010 conference call today, July 27, beginning at 4:00 p.m. CDT, at www.ni.com/call. Replay information is available by calling (888) 203-1112, confirmation code # 9955054, from July 27 at 7:00 p.m. CDT through Aug. 3 at midnight CDT.

Forward-Looking Statements

This release contains "forward-looking statements," including statements related to delivering record annual revenue and record annual profitability in 2010, driving long-term profitable growth through strategic R&D and sales initiatives focused at new large opportunity areas, plan to maintain a disciplined approach to expense management, likely that the global PMI peaked for this cycle, maintaining tight budget discipline, expenses increasing at a rate closer to revenue growth, continuing to improve the company's profitability and outlook for Q3 revenue and Q3 GAAP and non-GAAP EPS. These statements are subject to a number of risks and uncertainties, including the risk of further adverse changes or fluctuations in the global economy, disruption of European logistics, component shortages, delays in the release of new products, fluctuations in customer demand for NI products, the company's ability to continue to control its operating expenses, manufacturing inefficiencies and foreign exchange fluctuations. Actual results may differ materially from the expected results. The company directs readers to its Form 10-K for the fiscal year ended Dec. 31, 2009, its Form 10-Q for the quarter ended March 31, 2010, and the other documents it files with the SEC for other risks associated with the company's future performance.

About National Instruments

National Instruments (www.ni.com) is transforming the way engineers and scientists design, prototype and deploy systems for measurement, automation and embedded applications. NI empowers customers with off-the-shelf software such as NI LabVIEW and modular cost-effective hardware, and sells to a broad base of more than 30,000 different companies worldwide, with no one customer representing more than 3 percent of revenue and no one industry representing more than 15 percent of revenue. Headquartered in Austin, Texas, NI has more than 5,000 employees and direct operations in more than 40 countries. For the past 11 years, FORTUNE magazine has named NI one of the 100 best companies to work for in America. Readers can obtain investment information from the company's investor relations department by calling (512) 683-5090, e-mailing nati@ni.com or visiting www.ni.com/nati. (NATI-F)

LabVIEW, National Instruments, NI, ni.com and NIWeek are trademarks of National Instruments. Other product and company names listed are trademarks or trade names of their respective companies.

Contact:

Veronica Garza


Investor Relations


(512) 683-6873




National Instruments

Consolidated Balance Sheets

(in thousands)








June 30,


December 31,



2010


2009



(unaudited)








Assets





Current assets:





Cash and cash equivalents

$

185,418

$

201,465

Short-term investments


130,857


87,196

Accounts receivable, net


111,008


103,957

Inventories, net


95,983


86,515

Prepaid expenses and other current assets


41,928


36,523

Deferred income taxes, net


12,811


16,522

Total current assets


578,005


532,178






Property and equipment, net


150,905


153,265

Goodwill, net


68,569


64,779

Intangible assets, net


53,132


43,390

Other long-term assets


17,559


19,417

Total assets

$

868,170

$

813,029






Liabilities and stockholders' equity





Current liabilities:





Accounts payable

$

28,786

$

23,502

Accrued compensation


29,145


14,934

Deferred revenue


64,447


57,242

Accrued expenses and other liabilities


14,566


8,560

Other taxes payable


12,910


14,181

Total current liabilities


149,854


118,419






Deferred income taxes


24,700


25,012

Liability for uncertain tax position


12,389


11,062

Other long-term liabilities


5,251


4,116

Total liabilities

$

192,194

$

158,609






Stockholders' equity:





Preferred stock


-


-

Common stock


782


774

Additional paid-in capital


379,468


336,446

Retained earnings


299,871


303,655

Accumulated other comprehensive income (loss)


(4,145)


13,545

Total stockholders' equity

$

675,976

$

654,420

Total liabilities and stockholders' equity

$

868,170

$

813,029





National Instruments

Consolidated Statements of Income

(in thousands, except per share data)












Three Months Ended


Six Months Ended



June 30,


June 30,



(Unaudited)


(Unaudited)



2010


2009


2010


2009

Net sales:









Products

$

194,830

$

139,792

$

370,225

$

283,242

Software maintenance


16,887


12,371


32,583


26,720

Total net sales


211,717


152,163


402,808


309,962










Cost of sales:









Cost of products

$

47,176

$

39,202

$

89,438

$

78,758

Cost of software maintenance


1,463


1,284


2,443


2,611

Total cost of sales


48,639


40,486


91,881


81,369










Gross profit

$

163,078

$

111,677

$

310,927

$

228,593










Operating expenses:









Sales and marketing

$

79,231

$

65,137

$

153,672

$

133,963

Research and development


36,395


29,447


74,941


64,236

General and administrative


16,969


14,752


32,309


30,532

Total operating expenses

$

132,595

$

109,336

$

260,922

$

228,731










Operating income (loss)

$

30,483

$

2,341

$

50,005

$

(138)










Other income (expense):









Interest income

$

371

$

407

$

671

$

996

Net foreign exchange gain (loss)


(2,203)


1,063


(2,901)


361

Other income, net


462


334


810


497










Income before income taxes

$

29,113

$

4,145

$

48,585

$

1,716










Provision for (benefit from) income taxes


4,511


(285)


5,630


(3,072)










Net income

$

24,602

$

4,430

$

42,955

$

4,788










Basic earnings per share

$

0.32

$

0.06

$

0.55

$

0.06

Diluted earnings per share

$

0.31

$

0.06

$

0.55

$

0.06










Weighted average shares outstanding -









basic


77,932


77,556


77,657


77,417

diluted


78,992


77,824


78,752


77,596










Dividends declared per share

$

0.13

$

0.12

$

0.26

$

0.24





National Instruments

Consolidated Statements of Cash Flows

(in thousands)



Six Months Ended



June 30,



(Unaudited)



2010


2009

Cash flow from operating activities:





Net income

$

42,955

$

4,788

Adjustments to reconcile net income to net cash provided





by operating activities:





Depreciation and amortization


18,988


19,023

Stock-based compensation


9,459


10,036

Tax expense (benefit) from deferred income taxes


3,774


(2,610)

Tax expense stock option plans


579


1,379

Changes in operating assets and liabilities:





Accounts receivable


(6,803)


30,155

Inventories


(9,163)


12,089

Prepaid expenses and other assets


(18,740)


(624)

Accounts payable


4,953


(6,498)

Deferred revenue


7,205


2,178

Taxes and other liabilities


18,513


(11,922)

Net cash provided by operating activities

$

71,720

$

57,994






Cash flow from investing activities:





Capital expenditures


(10,015)


(7,706)

Capitalization of internally developed software


(11,021)


(9,390)

Additions to other intangibles


(1,690)


(2,420)

Acquisition, net of cash received


(2,191)


-

Purchases of short-term and long-term investments


(85,199)


(23,989)

Sales and maturities of short-term and long-term investments


41,538


1,218

Net cash (used by) investing activities

$

(68,578)

$

(42,287)






Cash flow from financing activities:





Proceeds from issuance of common stock


32,550


11,520

Repurchase of common stock


(30,935)


(14,908)

Dividends paid


(20,225)


(18,617)

Tax (benefit) from stock option plans


(579)


(1,379)

Net cash (used by) financing activities

$

(19,189)

$

(23,384)






Net change in cash and cash equivalents


(16,047)


(7,677)

Cash and cash equivalents at beginning of period


201,465


229,400

Cash and cash equivalents at end of period

$

185,418

$

221,723





Detail of GAAP charges related to stock-based compensation and

amortization of acquisition intangibles

(Unaudited)












Three Months Ended


Six Months Ended



June 30,


June 30,












2010


2009


2010


2009

Stock-based compensation









Cost of sales

$

320

$

330

$

682

$

640

Sales and marketing


1,996


2,231


4,100


4,416

Research and development


1,593


1,683


3,358


3,420

General and administrative


634


761


1,319


1,560

Provision for income taxes


(1,582)


(1,865)


(3,127)


(4,879)

Total

$

2,961

$

3,140

$

6,332

$

5,157



















Amortization of acquisition intangibles









Cost of sales

$

922

$

853

$

1,644

$

1,740

Sales and marketing


100


126


222


252

Research and development


-


-


-


-

General and administrative


-


-


-


-

Provision for income taxes


(327)


(277)


(580)


(557)

Total

$

695

$

702

$

1,286

$

1,435





National Instruments

Reconciliation of GAAP to Non-GAAP Measures

(in thousands, except per share data)

(unaudited)










Reconciliation of Gross Profit to Non-GAAP Gross Profit











Three Months Ended


Six Months Ended



June 30,


June 30,



2010


2009


2010


2009

Gross profit, as reported

$

163,078

$

111,677

$

310,927

$

228,593

Stock-based compensation


320


330


682


640

Amortization of acquisition intangibles


922


853


1,644


1,740

Non-GAAP gross profit

$

164,320

$

112,860

$

313,253

$

230,973



















Reconciliation of Operating Expenses to Non-GAAP Operating Expenses









Three Months Ended


Six Months Ended



June 30,


June 30,



2010


2009


2010


2009

Operating expenses, as reported

$

132,595

$

109,336

$

260,922

$

228,731

Stock-based compensation


(4,223)


(4,675)


(8,777)


(9,396)

Amortization of acquisition intangibles


(100)


(126)


(222)


(252)

Non-GAAP operating expenses

$

128,272

$

104,535

$

251,923

$

219,083



















Reconciliation of Operating Income (Loss) to Non-GAAP Operating Income









Three Months Ended


Six Months Ended



June 30,


June 30,



2010


2009


2010


2009

Operating income (loss), as reported

$

30,483

$

2,341

$

50,005

$

(138)

Stock-based compensation


4,543


5,005


9,459


10,036

Amortization of acquisition intangibles


1,022


979


1,866


1,992

Non-GAAP operating income

$

36,048

$

8,325

$

61,330

$

11,890



















Reconciliation of Income before income taxes to Non-GAAP Income before income taxes







Three Months Ended


Six Months Ended



June 30,


June 30,



2010


2009


2010


2009

Income before income taxes, as reported

$

29,113

$

4,145

$

48,585

$

1,716

Stock-based compensation


4,543


5,005


9,459


10,036

Amortization of acquisition intangibles


1,022


979


1,866


1,992

Non-GAAP income before income taxes

$

34,678

$

10,129

$

59,910

$

13,744



















Reconciliation of Provision for (Benefit From) Income Taxes to Non-GAAP Provision For (Benefit From) Income Taxes







Three Months Ended


Six Months Ended



June 30,


June 30,



2010


2009


2010


2009

Provision for(benefit from) income taxes, as reported

$

4,511

$

(285)

$

5,630

$

(3,072)

Stock-based compensation


1,582


1,865


3,127


4,879

Amortization of acquisition intangibles


327


277


580


557

Non-GAAP provision for income taxes

$

6,420

$

1,857

$

9,337

$

2,364





Reconciliation of GAAP Net Income, Basic EPS and Diluted EPS to Non-GAAP Net Income, Basic EPS and

Diluted EPS

(unaudited)












Three Months Ended


Six Months Ended



June 30,


June 30,



2010


2009


2010


2009

Net income, as reported

$

24,602

$

4,430

$

42,955

$

4,788

Adjustments to reconcile net income to non-GAAP net income:









   Stock-based compensation, net of tax effect


2,961


3,140


6,332


5,157

   Amortization of acquisition intangibles, net of tax effect


695


702


1,286


1,435

Non-GAAP net income

$

28,258

$

8,272

$

50,573

$

11,380










Basic EPS, as reported

$

0.32

$

0.06

$

0.55

$

0.06

Adjustment to reconcile basic EPS to non-GAAP









basic EPS:









   Impact of stock-based compensation, net of tax effect

$

0.03

$

0.04

$

0.08

$

0.07

   Impact of amortization of acquisition intangibles, net of tax effect

$

0.01

$

0.01

$

0.02

$

0.02

Non-GAAP basic EPS

$

0.36

$

0.11

$

0.65

$

0.15



















Diluted EPS, as reported

$

0.31

$

0.06

$

0.55

$

0.06

Adjustment to reconcile diluted EPS to non-GAAP









diluted EPS:









   Impact of stock-based compensation, net of tax effect

$

0.04

$

0.04

$

0.08

$

0.07

   Impact of amortization of acquisition intangibles, net of tax effect

$

0.01

$

0.01

$

0.01

$

0.02

Non-GAAP diluted EPS

$

0.36

$

0.11

$

0.64

$

0.15










Weighted average shares outstanding -









Basic


77,932


77,556


77,657


77,417

Diluted


78,992


77,824


78,752


77,596











Reconciliation of Net Income and Diluted EPS to EBITDA and EBITDA Diluted EPS

(unaudited)












Three Months Ended


Six Months Ended



June 30,


June 30,



2010


2009


2010


2009

Net income, as reported

$

24,602

$

4,430

$

42,955

$

4,788

Adjustments to reconcile net income to EBITDA:









    Interest income


(371)


(407)


(671)


(996)

    Taxes


4,511


(285)


5,630


(3,072)

    Depreciation and amortization


9,546


10,638


18,988


19,023

EBITDA

$

38,288

$

14,376

$

66,902

$

19,743










Diluted EPS, as reported

$

0.31

$

0.06

$

0.55

$

0.06

Adjustment to reconcile diluted EPS to EBITDA









    Interest income

$

(0.01)

$

(0.01)

$

(0.01)

$

(0.01)

    Taxes

$

0.06

$

(0.01)

$

0.07

$

(0.04)

    Depreciation and amortization

$

0.12

$

0.14

$

0.24

$

0.24

EBITDA diluted EPS

$

0.48

$

0.18

$

0.85

$

0.25










Weighted average shares outstanding - Diluted


78,992


77,824


78,752


77,596





National Instruments

Reconciliation of GAAP to Non-GAAP EPS Guidance

(unaudited)




Three months ended




September 30, 2010










Low


High

GAAP Fully Diluted EPS guidance

$

0.27

$

0.37

Adjustment to reconcile diluted EPS to non-GAAP





diluted EPS:





   Impact of stock-based compensation, net of tax effect

$

0.04

$

0.04

   Impact of amortization of acquisition intangibles, net of tax effect

$

0.01

$

0.01







Non-GAAP diluted EPS guidance

$

0.32

$

0.42




SOURCE National Instruments