National Instruments Reports Record Quarterly and Annual Revenue and Net Income

Company Well-Positioned With Record Profitability and Record Cash Position

Q4 2018 Highlights

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Record revenue of $360 million, up 3 percent year over year

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GAAP net income of $57 million

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Non-GAAP net income of $71 million, up 29 percent year over year

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Fully diluted GAAP EPS of $0.42

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Fully diluted non-GAAP EPS of $0.53

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EBITDA of $78 million

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Cash and short-term investments of $531 million as of Dec. 31, 2018

AUSTIN, Texas - Jan. 29, 2019 - National Instruments (Nasdaq: NATI) today announced Q4 2018 revenue of $360 million, up 3 percent year over year. Revenue came in at the low end of guidance due to unexpected weakness in Greater China during the quarter. Excluding Greater China, our business performed as expected in Q4.

In Q4 2018, the value of the company's total orders was up 2 percent year over year; orders under $20,000 were down 2 percent year over year; and orders over $20,000 were up 6 percent year over year. Excluding Greater China, in Q4 2018 total orders were up 5 percent year over year.

GAAP net income for Q4 was $57 million, with fully diluted earnings per share ("EPS") of $0.42, and non-GAAP net income was $71 million, with non-GAAP fully diluted EPS of $0.53. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, was $78 million for Q4.

In Q4, GAAP gross margin was 76 percent and non-GAAP gross margin was 78 percent. Total Q4 GAAP operating expenses were $210 million, up 2 percent year over year. Total Q4 non-GAAP operating expenses were down 1 percent year over year at $199 million. GAAP operating margin was 17 percent in Q4, with GAAP operating income of $62 million, up 8 percent year over year. Non-GAAP operating margin was 23 percent in Q4, with non-GAAP operating income of $82 million, up 16 percent year over year.

"We delivered record revenue in 2017 and 2018, totaling a $130 million increase in revenue over the last two years," said Alex Davern, NI CEO. "We also met our long-term target of 18 percent non-GAAP operating margin in 2018, one year ahead of schedule, with non-GAAP net income up 86 percent in the past two years. I believe we enter 2019 in a strong position and I am confident in our long-term growth opportunity."

NI CFO Karen Rapp said, "I am proud of our operating performance this year. Along with record revenue and record profit, we closed the year strong with record cash of $531 million on Dec. 31 and record cash flow from operations of $275 million this year. We are entering 2019 with a strong balance sheet, which we believe will provide us with strategic flexibility."

Geographic revenue in U.S. dollar terms for Q4 2018 compared with Q4 2017 was up 11 percent in the Americas, down 2 percent in APAC and down 2 percent in EMEIA. Excluding the impact of foreign currency exchange, revenue was up 11 percent in the Americas, down 1 percent in APAC and flat in EMEIA. Historical revenue from these three regions can be found on NI's investor website at www.ni.com/nati.

Capital Allocation

As of Dec. 31, 2018, NI had $531 million in cash and short-term investments with $275 million in cash generated from operations this year. During Q4, NI paid $30.5 million in dividends. The NI Board of Directors approved an increase to the dividend to $0.25 per share, a 9 percent increase, payable on March 4, 2019, to stockholders of record on Feb. 11, 2019. In January 2019, the NI Board of Directors increased the number of shares authorized for repurchase by NI under its stock repurchase plan to 4 million shares.

In 2018, GAAP operating expenses were $853 million, up 5 percent year over year, and non-GAAP operating expenses were $816 million, up 1 percent year over year. GAAP net income in 2018 was $155 million and non-GAAP net income in 2018 was $208 million, up 42 percent year over year.

Guidance

NI currently expects Q1 revenue to be in the range of $305 million to $335 million. The company currently expects that GAAP fully diluted EPS will be in the range of $0.12 to $0.26 for Q1, with non-GAAP fully diluted EPS expected to be in the range of $0.23 to $0.37. For 2019, NI estimates its non-GAAP effective tax rate to be approximately 17 to 18 percent.

Conference Call Information and Availability of Presentation Materials

Interested parties can listen to the Q4 2018 earnings conference call with NI management today, Jan. 29, at 4:00 p.m. CT at www.ni.com/call or dial 855-212-2361 and enter confirmation code 1387277. Replay information is available by calling (855) 859-2056, confirmation code 1387277, shortly after the call through Feb. 1 at 11:59 p.m. CT or by visiting the company's website at www.ni.com/call. Presentation materials referred to on the conference call can be found at www.ni.com/nati.

Non-GAAP Presentation

The company's non-GAAP results exclude, as applicable, 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, restructuring charges, capitalization and amortization of internally developed software costs, and tax reform charges. Reconciliations of the company's GAAP and non-GAAP results are included as part of this news release.

In the quarter ended June 30, 2018, NI began moving toward more frequent releases for many of its software products. Specifically, for many of its software development projects, NI started applying agile development methodologies, which are characterized by a more dynamic development process with more frequent and iterative revisions to a product releases features and functions as the software is being developed. Due to the shorter development cycle and focus on rapid production associated with agile development, NI expects that for a significant majority of its software development projects the costs incurred subsequent to the achievement of technological feasibility will be immaterial in future periods and it expects to record significantly less capitalized software development costs than under its historical software development approaches. NI also expects amortization of previously capitalized software development costs to steadily decline as previously capitalized software development costs become fully amortized over the next four years.

As a result, beginning with its non-GAAP metrics for the three months ended June 30, 2018, NI has been excluding the net effects of capitalization and amortization of software development costs from its non-GAAP operating results, along with its previously excluded non-GAAP items, and providing a reconciliation of such non-GAAP results to its GAAP results. NI believes these changes are useful to investors as they provide greater comparability between its R&D spend in future periods. NI also makes available on its website its historical non-GAAP results, excluding the effects of software capitalization and amortization together with other applicable non-GAAP adjustments, for the fiscal quarters ended March 31, 2005 through Dec. 31, 2018.

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 and 12-month periods ending Dec. 31, 2018 and 2017, on a GAAP and non-GAAP basis. NI is also providing guidance on its non-GAAP fully diluted EPS and expected effective tax rate. The company is not able to provide guidance on its GAAP tax rate or a related reconciliation without unreasonable efforts since its future GAAP tax rate depends on its future stock price and related information that is not currently available.

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, restructuring charges, capitalization and amortization of internally developed software costs, and tax reform 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 and 12-month periods ending Dec. 31, 2018 and 2017. 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.

Forward-Looking Statements

This release contains "forward-looking statements" including statements regarding being well positioned with record profitability and record cash position, belief that we enter 2019 in a strong position and being confident in our long-term growth opportunity, belief that our strong balance sheet will provide us with strategic flexibility, our Q1 revenue guidance, our Q1 GAAP fully diluted EPS guidance, our Q1 non-GAAP EPS guidance and estimating its non-GAAP effective tax rate to be approximately 17 percent to 18 percent in 2019. 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, fluctuations in demand for NI products including orders from NI's large customers, component shortages, delays in the release of new products, 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, effective tax rates or the impact of the Tax Cuts and Jobs Act. Actual results may differ materially from the expected results.

The company directs readers to its Form 10-K for the year ended Dec. 31, 2017, its Form 10-Q for the quarter ended Sept. 30, 2018 and the other documents it files with the SEC for other risks associated with the company's future performance.

About NI

NI (www.ni.com) empowers engineers and scientists with a software-centric platform that incorporates modular hardware and an expansive ecosystem. This proven approach puts users firmly in control of defining what they need to accelerate their system design within test, measurement, and control. NI's solution helps build high-performance systems that exceed requirements, quickly adapt to change and ultimately improve the world. (NATI-F)

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