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National Instruments CEO Discusses Q3 2010 Results - Earnings Call Transcript

National Instruments CEO Discusses Q3 2010 Results - Earnings Call Transcript

National Instruments Corporation (

NATI

)

Q3 2010 Earnings Call Transcript

October 25, 2010 5:00 pm ET

Executives

David Hugley – VP, General Counsel & Secretary

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

Alex Davern – CFO & SVP

Pete Zogas – SVP, Sales & Marketing

Analysts

William Stein – Credit Suisse

Mark Douglass – Longbow Research

Anthony Luscri – JPMorgan

Ajit Pai – Stifel Nicolaus

TheStreet Recommends

Chuck Murphy – Sidoti & Company

Presentation

Operator

Compare to:
Previous Statements by NATI
» National Instruments Corp. Q2 2010 Earnings Call Transcript
» National Instruments Corp. Q1 2010 Earnings Call Transcript
» National Instruments Corp. Q4 2009 Earnings Call Transcript
» National Instruments Q3 2009 Earnings Call Transcript

Good day, everyone. Welcome to the National Instruments Q3 2010 Earnings Conference Call. Today's call is being recorded. You may refer to your press packet for the replay dial-in number and passcode.

With us today are David Hugely, Vice President, General Counsel and Secretary; Alex Tavern, CFO and Senior Vice President, Manufacturing and IT Operations; Dr. James Trichardt, President, CEO and Co-Founder and Pete Togas, Senior Vice President, Sales and Marketing. For opening remarks, I’d like to turn the conference over to Mr. David Hugley, Vice President, Corporate 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 the future financial performance of the Company, including statements regarding our growth opportunities, the global economy, our ability to maintain our increase operating margin, our revenue and earnings per share guidance, and our strategy and future plans.

We wish to caution you that such statements are just predictions and that the 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 Form10-Q filed August 6, 2010. 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 quarterly revenue, record revenue for our PXI, modular instrument, RF and CompactRIO products, and record third quarter operating income.

I am extremely pleased with our performance this quarter as we set a new all-time record for quarterly revenue. We continue to execute on our long-term strategic vision exercising disciplined expense management while growing our investments and R&D and the field sales force. I believe these strategy investments and innovation and new product development are what allowed us to achieve our outstanding Q3 results, including the quick return to record quarterly revenue.

I would like to congratulate Alex Davern on his promotion to Chief Operating Officer as he focuses on enhancing the alignment between our customer-facing functions as well as allocating resources to both support our core business and drive system-level sales growth. In our call today, Alex will review our financials; Pete Zogas, our Senior Vice President of Sales and Marketing will discuss our business, and I will close with a few comments before we open up for any questions. Alex?

Alex Davern

Good afternoon. Today, we reported Q3 revenue of $220 million, which is an increase of 34% year-over-year and a new all-time quarterly record. Net income for Q3 was $28.1 million with fully diluted earnings per share of $0.36. Non-GAAP net income was $32.3 million with non-GAAP fully diluted earnings per share of $0.41. Both GAAP and non-GAAP operating income were records for the third quarter and operating margins improved significantly year-over-year.

Also during the quarter our backlog increased by approximately $7 million due to the strength of our customer orders. A reconciliation of our GAAP and non-GAAP results is included in our earnings press release. With 34% year-over-year revenue growth, our business had momentum in Q3 and there are some clear positives to take away.

First, we had record quarterly revenue. Second, we continue to deliver strong gross margins and third, we delivered 17% non-GAAP operating margins. From a revenue point of view, our Instrument Control business saw a 25% year-over-year increase in Q3 while revenue from our Virtual Instrumentation and Graphical System Design products grew 34% year-over-year.

Instrument Control revenue has made a strong recovery from the very significant declines we saw during the recession. However, in Q3 we are still down 11% over the two years since Q3 of 2008.

Traditionally, our Instrument Control revenues have been highly correlated to the overall test and measurement industry. The current trends indicate that the industry continued its recovery in Q3, but has not yet recovered to pre-recession levels. We believe this makes our record quarterly revenue all the more impressive.

Now, looking at the income statement in more detail, non-GAAP gross margin in Q3 was 77% compared to 75.3% in Q3 2009. This increased gross margin is attributed to the intense efforts made to improve our operating model during the recession.

On the expense side, our non-GAAP operating expenses were up by $4 million sequentially, and by 23% year-over-year. The main driver of the sequential increase was the drop in capitalized second quarter during the quarter due to the release of LabVIEW 2010.

For the first nine months of the year our revenue was up 31% year-over-year and our non-GAAP operating expenses are up 18%, in line with the plan we detailed on our investor conference at NIWeek.

Now, turning to the balance sheet, as of September 30

th

, the Company had $339 million of cash and short term investments, up $22 million from June 30

th

. Also during the quarter the Company paid $10 million in dividends and used approximately $11 million to repurchase 379, 000 shares of the company’s common stock at an average price of $28.87 per share. We also announced today that the Board of Directors approved a quarterly dividend of $0.13 per share payable on November 29

th

to shareholders of record on November 8

th

.

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