National Instruments Reports Q2 2016 Revenue of $306 Million

Continued Success in Next-Generation 5G Wireless Research

Q2 2016 Highlights

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Revenue of $306 million, up 1 percent year over year in U.S. dollar terms with core revenue up 3 percent year over year

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GAAP gross margin of 75 percent, up 120 basis points sequentially

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Non-GAAP gross margin of 76 percent, up 110 basis points sequentially

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Fully diluted GAAP EPS of $0.15 and fully diluted non-GAAP EPS of $0.23

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Currency volatility in Q2 resulted in a $0.01 per share loss on foreign exchange

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EBITDA of $45 million

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Cash and short-term investments of $340 million as of June 30, 2016

AUSTIN, Texas – July 27, 2016 – National Instruments (Nasdaq: NATI) today announced Q2 2016 revenue of $306 million, up 1 percent year over year in U.S. dollar terms with core revenue up 3 percent year over year. The company's definition of core revenue is GAAP revenue excluding the impact of NI's largest customer and the impact of foreign currency exchange. A reconciliation of GAAP revenue to core revenue is included with this news release.

In Q2 2016, NI received $18 million in orders from its largest customer compared with $10 million in orders from this customer in Q2 2015. Excluding NI's largest customer, the company's total order growth was down 1 percent for the quarter with orders under $20,000 down 3 percent year over year; orders between $20,000 and $100,000 up 8 percent year over year; and orders above $100,000 down 12 percent year over year.

"Our platform-based approach built around highly differentiated software has created a large ecosystem of customers, partners and technologies that are key drivers of the long-term growth and profitability of the company," said James Truchard, NI president, co-founder and CEO. "I am particularly excited about our success in customer applications for prototyping next-generation 5G wireless algorithms and our work with automotive radar for the connected car."

GAAP net income for Q2 was $20 million, with fully diluted earnings per share (EPS) of $0.15, and non-GAAP net income was $29 million, with non-GAAP fully diluted EPS of $0.23. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, was $45 million.

In Q2, GAAP gross margin was 75 percent and non-GAAP gross margin was 76 percent. Total GAAP operating expenses were $201 million, up 6 percent year over year. Total non-GAAP operating expenses were $194 million, up 5 percent year over year. GAAP operating margin was 9 percent in Q2, with GAAP operating income of $27 million. Non-GAAP operating margin was 13 percent in Q2, with non-GAAP operating income of $38 million.

"I am pleased with our execution in the second quarter despite the revenue headwinds from a weak PMI and currency. Looking forward, we will be focused on increasing our net income while gaining market share through our differentiated platform," said Alex Davern, NI COO and CFO. "We plan to utilize the strategic investments we have already made while managing expenses carefully, and we remain committed to our long-term operating margin targets."

Geographic revenue in U.S. dollar terms for Q2 2016 compared with Q2 2015 was down 10 percent in the Americas and down 2 percent in EMEIA. Revenue growth in APAC was strong at approximately 23 percent year over year. In constant currency terms, revenue was down 9 percent in the Americas, up 4 percent in EMEIA and up 26 percent in APAC. Historical revenue from these three regions can be found on NI's investor website at www.ni.com/nati.

As of June 30, 2016, NI had $340 million in cash and short-term investments. During the quarter, NI paid $26 million in dividends. The NI Board of Directors approved a quarterly dividend of $0.20 per share payable on Sept. 6, 2016, to stockholders of record on Aug. 15, 2016.

The company's non-GAAP results exclude the impact of stock-based compensation, amortization of acquisition-related intangibles, acquisition-related transaction costs, taxes levied on the transfer of acquired intellectual property, foreign exchange loss on acquisitions and restructuring charges. Reconciliations of the company's GAAP and non-GAAP results are included as part of this news release.

Guidance for Q3 2016

NI currently expects Q3 revenue to be in the range of $291 million to $321 million. Based on current exchange rates, the company expects that the impact of the strengthening U.S. dollar will reduce the company's year-over-year dollar revenue growth rate by approximately 3 percent in Q3. We are expecting our non-GAAP effective tax rate to be approximately 17 percent in Q3 and 23 percent for Q4. In Q3, we expect the tax rate to be positively impacted by release of tax reserves related to prior years. For 2017, we are expecting our non-GAAP effective tax rate to be in the range of 18 percent to 20 percent. The company currently expects that GAAP fully diluted EPS will be in the range of $0.11 to $0.27 for Q3, with non-GAAP fully diluted EPS expected to be in the range of $0.18 to $0.34.

 

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, gross margin, operating expenses, operating income, operating margin, income before income taxes, provision for income taxes, net income and basic and fully diluted EPS for the three-month periods ending June 30, 2016 and 2015, on a GAAP and non-GAAP basis. NI is also providing guidance on its non-GAAP fully diluted EPS and expected effective tax rate.

 

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, amortization of acquisition-related intangibles, acquisition-related transaction costs, taxes levied on the transfer of acquired intellectual property, foreign exchange loss on acquisitions, and restructuring 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 the 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 discloses the company's EBITDA for the three- month periods ending June 30, 2016 and 2015. The company believes that including the EBITDA results assists investors in assessing the company's operational performance relative to its competitors. A reconciliation of EBITDA to GAAP net income is included with this news release. This news release also discloses the company's core revenue for the three- month periods ending June 30, 2016 and 2015.  The company believes that including its core revenue assists investors in assessing the company's operational performance. A reconciliation of GAAP revenue to core revenue is included with this news release.

Conference Call Information and Availability of Presentation Materials

Forward-Looking Statements

This release contains "forward-looking statements" including statements regarding our continued success in 5G wireless research, that our platform-based approach has created a large ecosystem of customers, partners and technologies that are key drivers to our long-term growth and profitability, being excited about our success in customer applications for prototyping next generation 5G wireless algorithms and our work with automotive radar for the connected car, being committed to managing our expenses, revenue headwinds from a weak PMI and currency, being focused on increasing our net income while gaining market share through our differentiated platform, plan to utilize the strategic investments we have already made while managing expenses carefully and remain committed to our long-term operating margin targets, expecting Q3 revenue to be in the range of $291 million to $321 million, that the impact of the strengthening of the U.S. dollar will reduce the company's year-over-year dollar revenue growth rate by approximately 3 percent in Q3, that we are expecting our non-GAAP effective tax rate to be approximately 17 percent in Q3 and 23 percent for Q4, that we expect the tax rate in Q3 to be positively impacted by release of tax reserves related to prior year, that for 2017 we are expecting our non-GAAP effective tax rate to be in the range of 18 percent to 20 percent, and our guidance for GAAP fully diluted EPS and non-GAAP fully diluted EPS for Q3.  These statements are subject to a number of risks and uncertainties, including the risk of adverse changes or fluctuations in the global economy, foreign exchange fluctuations, component shortages, delays in the release of new products, fluctuations in demand for NI products including orders from NI's largest customer, the company's ability to effectively manage its operating expenses, manufacturing inefficiencies and the level of capacity utilization, the impact of any recent or future acquisitions by NI, expense overruns, adverse effects of price changes or effective tax rates. Actual results may differ materially from the expected results.

The company directs readers to its Form 10-K for the year ended Dec. 31, 2015, its Form 10-Q for the quarter ended March 31, 2016; and the other documents it files with the SEC for other risks associated with the company's future performance.

About NI

Since 1976, NI (www.ni.com) has made it possible for engineers and scientists to solve the world's greatest engineering challenges with powerful, flexible technology solutions that accelerate productivity and drive rapid innovation. Customers from a wide variety of industries – from healthcare to automotive and from consumer electronics to particle physics – use NI's integrated hardware and software platform to improve the world we live in. (NATI-F)

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