National Instruments Reports Record Revenue for a Second Quarter

National Instruments Reports Record Revenue for a Second Quarter of $319 Million

The company directs readers to its Form 10-K for the year ended Dec. 31, 2016, its Form 10-Q for the quarter ended March 31, 2017 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 platform-based systems 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)

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.



National Instruments
Condensed Consolidated Balance Sheets
(in thousands)

	June 30,			December 31,
	2017			2016
	(unaudited)

Assets
Current assets:
Cash and cash equivalents	$	263,150		$	285,283
Short-term investments		105,284			73,117
Accounts receivable, net		230,958			228,686
Inventories, net		186,155			193,608
Prepaid expenses and other current assets		52,568			53,953
Total current assets		838,115			834,647

Property and equipment, net		256,761			260,456
Goodwill		261,411			253,197
Intangible assets, net		120,327			108,663
Other long-term assets		28,700			39,601
Total assets	$	1,505,314		$	1,496,564

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	54,214		$	48,800
Accrued compensation		36,672			27,743
Deferred revenue - current		120,212			115,577
Accrued expenses and other liabilities		15,341			32,997
Other taxes payable		28,743			34,958
Total current liabilities		255,182			260,075

Long-term debt		25,000			25,000
Deferred income taxes		35,561			45,386
Liability for uncertain tax positions		12,438			11,719
Deferred revenue - long-term		31,665			29,752
Other long-term liabilities		7,420			10,413
Total liabilities		367,266			382,345

Stockholders' equity:
Preferred stock		-			-
Common stock		1,305			1,292
Additional paid-in capital		800,774			771,346
Retained earnings		359,088			376,202
Accumulated other comprehensive loss		(23,119	)		(34,621	)
Total stockholders' equity		1,138,048			1,114,219
Total liabilities and stockholders' equity	$	1,505,314		$	1,496,564



National Instruments
Condensed Consolidated Statements of Income
(in thousands, except per share data, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016

Net sales:
Product	$	289,817		$	278,530		$	561,328		$	537,963
Software maintenance		28,792			27,575			57,386			55,319
Total net sales		318,609			306,105			618,714			593,282

Cost of sales:
Product		79,153			75,194			154,349			149,404
Software maintenance		3,307			2,314			4,635			4,250
Total cost of sales		82,460			77,508			158,984			153,654

Gross profit		236,149			228,597			459,730			439,628
		74	%		75	%		74	%		74	%
Operating expenses:
Sales and marketing		124,414			116,361			241,674			229,568
Research and development		56,913			59,839			115,175			119,179
General and administrative		26,191			25,130			51,933			49,770
Total operating expenses		207,518			201,330			408,782			398,517

Operating income		28,631			27,267			50,948			41,111
		9	%		9	%		8	%		7	%
Other income (expense):
Interest income		509			258			852			511
Net foreign exchange gain (loss)		447			(1,285	)		529			(711	)
Other (expense) income, net		(235	)		53			197			(2,353	)

Income before income taxes		29,352			26,293			52,526			38,558

Provision for income taxes		4,197			6,493			9,223			9,460

Net income	$	25,155		$	19,800		$	43,303		$	29,098

Basic earnings per share	$	0.19		$	0.15		$	0.33		$	0.23
Diluted earnings per share	$	0.19		$	0.15		$	0.33		$	0.23

Weighted average shares outstanding -
basic		130,197			128,282			129,820			127,938
diluted		131,117			128,746			130,619			128,429

Dividends declared per share	$	0.21		$	0.20		$	0.42		$	0.40



National Instruments
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
	Six Months Ended June 30,
	2017			2016

Cash flow from operating activities:
Net income	$	43,303		$	29,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		35,915			38,217
Stock-based compensation		13,726			13,497
Tax expense/(benefit) expense from deferred income taxes		(875	)		(2,927	)
Net change in operating assets and liabilities		(7,284	)		2,659
Net cash provided by operating activities		84,785			80,544

Cash flow from investing activities:
Capital expenditures		(15,727	)		(20,970	)
Capitalization of internally developed software		(24,816	)		(15,406	)
Additions to other intangibles		(1,124	)		(689	)
Acquisitions, net of cash received		-			(549	)
Purchases of short-term investments		(52,807	)		(5,008	)
Sales and maturities of short-term investments		21,017			31,734
Net cash used by investing activities		(73,457	)		(10,888	)

Cash flow from financing activities:
Proceeds from revolving line of credit		-			15,000
Principal payments on revolving line of credit		-			(12,000	)
Proceeds from issuance of common stock		15,407			14,830
Repurchase of common stock		-			(5,635	)
Dividends paid		(54,595	)		(51,273	)
Tax benefit from stock option plans		-			-
Net cash used by financing activities		(39,188	)		(39,078	)

Impact of changes in exchange rates on cash		5,727			3,554

Net change in cash and cash equivalents		(22,133	)		34,132
Cash and cash equivalents at beginning of period		285,283			251,129
Cash and cash equivalents at end of period	$	263,150		$	285,261

The following tables provide details with respect to the amount of GAAP charges related to stock-based compensation, amortization of acquisition-related intangibles, acquisition-related transaction costs, restructuring charges, foreign exchange loss on acquisitions and taxes levied on the transfer of acquired intellectual property that were recorded in the line items indicated below (unaudited) (in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2017			2016			2017			2016
Stock-based compensation
Cost of sales	$	650		$	539		$	1,226		$	1,087
Sales and marketing		2,884			2,851			5,509			5,787
Research and development		2,170			2,369			4,224			4,718
General and administrative		1,620			935			2,844			1,843
Provision for income taxes		(3,344	)		(2,016	)		(5,020	)		(4,110	)
Total	$	3,980		$	4,678		$	8,783		$	9,325

Amortization of acquisition intangibles
Cost of sales	$	1,556		$	2,980		$	3,146		$	6,022
Sales and marketing		486			820			964			1,639
Research and development		267			278			531			539
Other income, net		-			-			-			-
Provision for income taxes		(556	)		237			(1,110	)		458
Total	$	1,753		$	4,315		$	3,531		$	8,658

Acquisition transaction costs, restructuring charges, and other
Cost of sales	$	574		$	74		$	909		$	179
Sales and marketing		4,024			42			6,399			99
Research and development		1,182			153			1,581			411
General and administrative		419			190			596			220
Foreign exchange gain (loss) ¹		-			-			-			94
Other income (loss), net ²		-			-			-			2,475
Provision for income taxes		(1,870	)		(160	)		(2,934	)		(1,202	)
Total	$	4,329		$	299		$	6,551		$	2,276

(1) Foreign exchange losses on acquisitions were $0 and $94 for the six month periods ended June 30, 2017 and 2016, respectively

(2) Taxes levied on the transfer of acquired intellectual property were $0 and $2,475 for the six month periods ended June 30, 2017 and 2016, respectively



National Instruments
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016

Reconciliation of Gross Profit to Non-GAAP Gross Profit
Gross profit, as reported	$	236,149		$	228,597		$	459,730		$	439,628
Stock-based compensation		650			539			1,226			1,087
Amortization of acquisition intangibles		1,556			2,980			3,146			6,022
Acquisition transaction costs and restructuring charges		574			74			909			179
Non-GAAP gross profit	$	238,929		$	232,190		$	465,011		$	446,916
Non-GAAP gross margin		75.0	%		75.9	%		75.2	%		75.3	%

Reconciliation of Operating Expenses to Non-GAAP Operating Expenses
Operating expenses, as reported	$	207,518		$	201,330		$	408,782		$	398,517
Stock-based compensation		(6,674	)		(6,155	)		(12,577	)		(12,348	)
Amortization of acquisition intangibles		(753	)		(1,098	)		(1,495	)		(2,178	)
Acquisition transaction costs and restructuring charges		(5,625	)		(385	)		(8,576	)		(730	)
Non-GAAP operating expenses	$	194,466		$	193,692		$	386,134		$	383,261

Reconciliation of Operating Income to Non-GAAP Operating Income
Operating income, as reported	$	28,631		$	27,267		$	50,948		$	41,111
Stock-based compensation		7,324			6,694			13,803			13,435
Amortization of acquisition intangibles		2,309			4,078			4,641			8,200
Acquisition transaction costs and restructuring charges		6,199			459			9,485			909
Non-GAAP operating income	$	44,463		$	38,498		$	78,877		$	63,655
Non-GAAP operating margin		14.0	%		12.6	%		12.7	%		10.7	%

Reconciliation of Income before income taxes to Non-GAAP Income before income taxes
Income before income taxes, as reported	$	29,352		$	26,293		$	52,526		$	38,558
Stock-based compensation		7,324			6,694			13,803			13,435
Amortization of acquisition intangibles		2,309			4,078			4,641			8,200
Acquisition transaction costs and restructuring charges		6,199			459			9,485			909
Foreign exchange loss on acquisitions		-			-			-			94
Taxes levied on transfer of acquired intellectual property		-			-			-			2,474
Non-GAAP income before income taxes	$	45,184		$	37,524		$	80,455		$	63,670

Reconciliation of Provision for income taxes to Non-GAAP Provision for income taxes
Provision for income taxes, as reported	$	4,197		$	6,493		$	9,223		$	9,460
Stock-based compensation		3,344			2,016			5,020			4,110
Amortization of acquisition intangibles		556			(237	)		1,110			(458	)
Acquisition transaction costs, restructuring charges, and other		1,870			160			2,934			1,202
Non-GAAP provision for income taxes	$	9,967		$	8,432		$	18,287		$	14,314



Reconciliation of GAAP Net Income, Basic EPS and Diluted EPS to Non-GAAP Net Income, Non-GAAP Basic EPS and Non-GAAP Diluted EPS
(in thousands, except per share data, unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016

Net income, as reported	$	25,155	$	19,800	$	43,303	$	29,098
Adjustments to reconcile net income to non-GAAP net income:
Stock-based compensation, net of tax effect		3,980		4,678		8,783		9,325
Amortization of acquisition intangibles, net of tax effect		1,753		4,315		3,531		8,658
Acquisition transaction costs, restructuring, and other, net of tax effect		4,329		299		6,551		2,276
Non-GAAP net income	$	35,217	$	29,092	$	62,168	$	49,357

Basic EPS, as reported	$	0.19	$	0.15	$	0.33	$	0.23
Adjustment to reconcile basic EPS to non-GAAP basic EPS:
Impact of stock-based compensation, net of tax effect		0.04		0.04		0.07		0.07
Impact of amortization of acquisition intangibles, net of tax effect		0.01		0.03		0.03		0.07
Impact of acquisition transaction costs, restructuring, and other, net of tax effect		0.03		0.01		0.05		0.02
Non-GAAP basic EPS	$	0.27	$	0.23	$	0.48	$	0.39


Diluted EPS, as reported	$	0.19	$	0.15	$	0.33	$	0.23
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS
Impact of stock-based compensation, net of tax effect		0.04		0.04		0.07		0.07
Impact of amortization of acquisition intangibles, net of tax effect		0.01		0.03		0.03		0.07
Impact of acquisition transaction costs, restructuring, and other, net of tax effect		0.03		0.01		0.05		0.01
Non-GAAP diluted EPS	$	0.27	$	0.23	$	0.48	$	0.38

Weighted average shares outstanding -
Basic		130,197		128,282		129,820		127,938
Diluted		131,117		128,746		130,619		128,429



National Instruments
Reconciliation of Net Income to EBITDA
(in thousands, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Net income, as reported	$	25,155		$	19,800		$	43,303		$	29,098
Adjustments to reconcile net income to EBITDA:
Interest income		(313	)		(78	)		(399	)		(141	)
Tax expense		4,197			6,493			9,223			9,460
Depreciation and amortization		17,246			18,785			35,915			38,217
EBITDA	$	46,285		$	45,000		$	88,042		$	76,634
Weighted average shares outstanding - Diluted		131,117			128,746			130,619			128,429


Reconciliation of GAAP to Non-GAAP EPS Guidance
(unaudited)

	Three months ended
	September 30, 2017

	Low			High
GAAP Fully Diluted EPS, guidance	$	0.16		$	0.30
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS:
Impact of stock-based compensation, net of tax effect		0.04			0.04
Impact of amortization of acquisition intangibles and acquisition accounting adjustments, net of tax effect		0.01			0.01
Impact of acquisition transaction costs, restructuring, and other, net of tax effect		0.01			0.01
Non-GAAP diluted EPS, guidance	$	0.22		$	0.36



National Instruments
Reconciliation of GAAP Revenue Growth to Core Revenue Growth
(unaudited)

	Three Months Ended,
	June 30,
	2017
YoY GAAP revenue growth, as reported	4.1	%
Effect of excluding our current largest customer	1.5	%
YoY GAAP revenue growth, excluding our largest customer	5.6	%
Effect of excluding the impact of foreign currency exchange	1.4	%
YoY Core revenue growth	7.0	%

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