National Instruments' CEO Discusses Q1 2012 Results - Earnings Call Transcript

National Instruments Corporation (NATI)

Q1 2012 Earnings Conference Call

April 26, 2012 17:00 ET

Executives

David Hugley – Vice President, General Counsel and Secretary

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

Alex Davern – Chief Operating Officer

Pete Zogas – Senior Vice President, Sales and Marketing.

Analysts

Zach Larkin – Stephens

Anthony Luscri – JPMorgan

Richard Eastman – Robert W. Baird

Mark Douglass – Longbow Research

Patrick Newton – Stifel Nicolaus

Presentation

Operator

Good day everyone and welcome to the National Instruments' First Quarter 2012 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 Hugley, Vice President, General Counsel and Secretary; Alex Davern, Chief Operating Officer; Dr. James Truchard, President, CEO, and Cofounder; and Pete Zogas, Senior Vice President of Sales and Marketing.

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

David Hugley – Vice President, General Counsel and Secretary

Good afternoon. During the course of this conference call, we shall make forward-looking statements, including statements regarding future revenue growth, guidance for Q2 earnings per share, operating expenses, and future success in large accounts. We wish to caution you that such statements are just predictions and that actually events or results may differ materially. We refer you to the documents that company files regularly with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-K filed February 7, 2012. 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 – President, Chief Executive Officer, and Cofounder

Good afternoon and thank you for joining us. Our key points today are record first quarter revenue, strong revenue growth in PXI and CompactRIO, and largest sale in our company's history. Despite a challenging global economy, I am pleased that 2012 begin the first quarter record revenue. Our customers continued to demonstrate their preference for software design modular instruments as evidenced by strong growth in our PXI and CompactRIO products. Over the past five years, we have continued to make strategic investments by significantly increasing our R&D head count. We believe these continued investments in revolutionary products builds around the graphical system design approach will strengthen our position in the industry.

In our call today, Alex Davern, our Chief Operating Officer will review our results. 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 your questions. Alex?

Alex Davern – Chief Operating Officer

Good afternoon and thank you for joining us today. Revenue for Q1 was a new first quarter record of $261 million, up 10% year-over-year. Orders were up 13% year-over-year with backlog increasing by $6 million in the quarter.

During the quarter, the AWR and Phase Matrix acquisitions contributed $9 million of revenue on a non-GAAP basis. Our revenue growth this quarter comes despite a weak global industrial economy and the strong 24% year-over-year growth we delivered in Q1 of 2011. Non-GAAP gross margins at Q1 was 78%, up sequentially from 77% in Q4. The total non-GAAP operating expenses were $169 million, down $2.5 million sequentially and up 17% year-over-year.

Net income for Q1 was $19 million at fully diluted earnings per share of $0.15, and non-GAAP net income was $27 million with non-GAAP fully diluted earnings per share of $0.22. A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.

We believe the diversity of our business, the evolution of our field sales force, and the strength of our product portfolio have been the key drivers of our sustained growth. This can clearly be seen by the strong growth we have delivered over the last five years in our systems use in high-performance test and embedded applications.

After a pause caused by the weakness of the global PMI in Q4, we saw recovery in growth of our orders over $20,000, which grew approximately 25% year-over-year in Q1. These large orders accounted for 47% of our business in Q1. We believe the success of our large orders reflect the enhancements we have made in our product and service offerings, our excellent network of system integrators, and the performance of our standing sales teams.

Another great success for us this quarter has been winning the largest application sale in the history of the company. This application involves the use of LabVIEW and the NI PXI platform to rapidly develop a production test solution for a very high volume electronics device. This test solution offers the customer outstanding performance and accuracy at a very low cost of test per unit. This application is now gearing up for high volume production, and year-to-date, we have received $17 million in orders for this application. We anticipate receiving an additional $10 million to $15 million over the rest of the year. Only $3 million of this has been recognized in revenue in Q1 and we anticipate recognizing the remainder over the coming quarters.

We believe that approximately 85% of the test market is currently served by traditional rack-and-stack instruments and this application when clearly demonstrate the opportunity that we create by converting this market to PXI. This $17 million success for PXI replaces what would previously have been a lower performance, higher cost traditional instrument sale. We believe the recent validation of the PXI standard by some of the biggest names in traditional instrumentation encourages more customers to consider PXI. And the contest in the industry will now be to see who gets the market opportunity, which is not yet served by PXI Solutions.

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