National Instruments Corporation (



Q1 2011 Earnings Call

April 28, 2011 5:00 pm ET


David Hugley – Vice President, General Counsel and Secretary

Dr. James Truchard – President, Chief Executive Officer and Cofounder

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

Eric Starkloff – Vice President


Ajit Pai – Stifel Nicolaus & Company, Inc.

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

Rahul Chadha – Credit Suisse

Anthony Luscri – JPMorgan

Mark Douglass – Longbow Research

Charles Murphy – Sidoti & Company



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Good day, everyone. Welcome to the National Instruments First Quarter 2011 Earnings Conference Call. Today’s call is being recorded. You may refer your press packet for the replay dial-in number and passcode.

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, Vice President of Product Marketing.

For opening remarks I’d now like to turn the conference over to Mr. David Hugley, Vice President, Corporate Counsel, and Secretary. Please go ahead, sir.

David Hugley

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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 revenue expectations, our expected operating expenses 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. 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 today are record revenue for first quarter, record profit for the first quarter and we successfully executed on our 2011 plan.

I am extremely pleased 2011 began with a record revenue for the first quarter. We believe that the fact that we have reached record Q1 operating profit for our first quarter is the validation of the strength of our business model and our ability to execute. We continue to execute on the long-term vision while significantly growing our investments in R&D and the field sales force. I believe that our strategic investments in innovation and product development during 2011 are the key to our long-term 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. Eric Starkloff, Vice President, Product Marketing will discuss our business, and I will close with a few comments before we open up for your questions. Alex?

Alex Davern

Thank you. Good afternoon. Today we’re pleased to report that revenue was a new Q1 record of $238 million, up $47 million or 24% year-over-year. Non-GAAP gross margin in Q1 was up 60 basis points year-over-year and 78.5%. Our ability to significantly increase our gross margins is attributed to the success we’ve had in driving our component cost and improving our manufacturing efficiency and to the high value and differentiation that we delivered to our customers.

Operating income was an all time first quarter record. GAAP operating income was $36.5 million, an 87% increase over Q1 2010. Non-GAAP operating income also set a new first record at $42 million, up 67% over Q1 2010 and up 59% over the previous Q1 record set in Q1 of 2007. I’d like to thank all of our employees for the hard work they have contributed to this very strong results.

Net income for Q1 was $30.5 million with fully diluted earnings per share of $0.25 and non-GAAP net income was $33.9 million with non-GAAP fully diluted earnings per share of $0.28. A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.

Q1 was a very successful quarter and there’s some clear positives to take away. First we had record revenue for our first quarter with strong year-over-year growth in orders over $20,000. Secondly, we had record gross margins, and third, we had record operating and net income for the first quarter.

From a product point of view, revenues for our instrument control products were up 18% year-over-year in Q1 while revenues for our graphical system design products were up 25% year-over-year.

Now, turning to the balance sheet. Inventory increased by $16.6 million during the quarter as we prepared for potential growth later in the year and reacted to the supply concerns raised by the recent tragedy in Japan.

Cash flow from operating activities continued to be strong at $41.6 million for the quarter. And as of March 31


the company had $385 million of cash in short-term investments.

As we set our 2011, I would like to take a moment to reflect on our expectation through the last five years. Despite the worst recession in modern history, National Instruments has delivered strong results during the five years since Q1 of ’06, increasing revenues by 54%, non-GAAP gross margin by 64%, and non-GAAP net income by 110%.

We also stayed true to our long-term strategy over the last five years increasing our R&D personnel by over 50% and our field sales force by 80% and releasing hundreds of new products that have expanded our ability to serve customers in the diversity of new application areas. Key to enabling this performance has been our expanded gross margins.

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