© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
This means that the stock is removed from a stock exchange and can no longer be traded.
Delisting typically occurs when a stock no longer meets exchange requirements. Other reasons for delisting may include legal violations, bankruptcy, a decrease in the number of shareholders, and acquisition by another company.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, everyone and welcome to the National Instruments First Quarter 2018 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 Hugley, General Counsel and Secretary; Alex Davern, President and CEO; Karen Rapp, CFO; and Eric Starkloff, Executive Vice President, Global Sales and Marketing.
For opening remarks, I'd like to turn the call over to Mr. David Hugley, General Counsel and Secretary. Please go ahead, sir.
Good afternoon. During the course of this conference call, we should make forward-looking statements including statements regarding future growth and profitability, future gross margin, continued operating leverage in 2018, changes to our long-term model and our guidance for revenue and earnings per share for the second quarter.
We wish to caution you that such statements are just predictions and that 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 Annual Report on Form 10-K filed February 22, 2018. These documents contain and identify important factors that can cause our actual results to differ materially from those contained in our forward-looking statements.
With that, I will now turn it over to Chief Financial Officer of National Instruments Corporation, Karen Rapp.
Thank you, David. Good afternoon, everyone, and thank you for joining our first quarter 2018 earnings conference call. Today, I will begin with an update on our financial performance. Then, Eric Starkloff, Executive Vice President of Global Sales and Marketing will share insight into our platform success and Alex Davern, our President and CEO, will share his thoughts on the business and outlook for 2018.
Our key messages today are record revenue for our first quarter, 26% year-over-year growth in non-GAAP net income, and strong quarter of double-digit year-over-year revenue growth for our software and data acquisition products.
For Q1, revenue was $312 million, up 4% year-over-year and a record for our first quarter. This is slightly below the midpoint of our guidance with weakness concentrated in a small number of accounts in the mobile devices supply chain, which was especially apparent in Taiwan and Korea.
From an operational perspective, non-GAAP gross margin and operating margin results were both the highest for a first quarter in seven years. Non-GAAP gross margin in Q1 was 76.6%, up 130 basis points year-over-year, driven primarily by the strength of our broad-based software and data acquisition products, as well as favorable currency exposure.
Our non-GAAP operating margin was 12.9% increasing 140 basis points from a year ago. Record Q1 revenue and deliberate expense discipline drove a 26% year-over-year improvement in non-GAAP net income. Q1 non-GAAP net income was $34 million or $0.26 per share, which was at the midpoint of our guidance.
The global PMI has held relatively steady to last quarter indicative of a supportive growth environment. The diversity of our data acquisition and software products across a wide range of industries and applications has long been a strength of NI and we were pleased to see strong year-over-year double-digit growth in these products in Q1, to help offset the weakness in the mobile devices supply chain where we tend to see more volatility.
Moving to the balance sheet and capital management. We ended the quarter with cash and short-term investments of $415 million at March 31, 2018. During the quarter, we paid $30 million in dividends and the NI board of directors have approved the dividend of $0.23 per share for Q2.
Now, looking at Q1 orders, the value of our total orders was up 5% year-over-year in U.S. dollars. Orders with a value below $20,000 grew 2% year-over-year in the first quarter. As an indicator of the strength of our system sales, we saw all orders over $20,000 up 7% year-over-year.
Now, I'd like to take a look at Q2 2018, which will include forward-looking statements. As you are aware, the release of LabVIEW NXG was a refresh of our 30-year strong software platform. LabVIEW NXG provides a modern infrastructure, including robust built-in self-test capabilities for future code development. To take advantage of this and accelerate the development of new software features, in Q2, NI will be using agile project methodology. This means our software team will be able to release much more frequent updates, providing even greater responsiveness to customer needs.
Because the self-test capabilities dramatically reduce the need for extended customer testing, we expect capitalization of agile project development to be immaterial. This will apply to a significant majority of our software development efforts. Starting in Q2 2018, we will remove all capitalized software and amortization from our non-GAAP results, which will provide greater transparency into our R&D spend, improve predictability of our P&L and enable P&L comparability.
As a result of this change, we're adjusting our long-term model for gross margin upward by approximately 200 basis points and increasing our R&D expense model target to 18% of revenue. These changes are built into our Q2 2018 guidance. We're optimistic about delivering leverage in 2018. In Q2, we want to deliver on our growth and profit goals, while increasing our backlog to improve efficiency and visibility.
We currently expect revenue in Q2 2018 to be in the range of $320 million to $350 million. We expect GAAP fully diluted earnings per share will be in the range of $0.15 to $0.29 for Q2, with non-GAAP fully diluted earnings per share expected to be in the range of $0.23 to $0.37.
For these forward-looking statements, I must caution you that our actual revenues, expenses and earnings could be negatively affected by numerous factors such as any weakness in global economies, foreign exchange fluctuations, expense overruns, manufacturing inefficiencies, adverse effect of price changes and effective tax rates.
In summary, I am pleased with the discipline to our operating model that enabled us to deliver on our operating income targets this quarter despite lower revenue. I want to thank our employees for continuing to execute on our key business strategies while managing expenses. I believe our employees drive the culture and the value of our brand, which has been and continues to be a major differentiator in our space. Together, we will continue to focus on our growth and profitability goals into 2018. We look forward to seeing you at our Investor Conference on May 22 in Austin, Texas.
As usual, this will be held in conjunction with our annual user conference, NIWeek. You will have the chance to hear from NI leadership about the strength of our software differentiation and our strategy to drive focus throughout our company while leveraging our platform investments within our key industries. You will have access to customers to help you better understand our value and the competitive advantage that our platform provides to help them win in their space. And we will speak to our long-term operating model and capital structure.
I will now turn it over to Eric Starkloff.
Thank you, Karen, and good afternoon. I will now provide additional commentary on our performance in Q1, as well as some insight into our sales channel evolution.
Starting with our regions, we saw the strongest performance from EMEA, driven by broad growth across our product and account portfolio. Our Americas region saw slight year-over-year revenue growth, with strength in aerospace and defense and challenges from direct U.S. government spending. Within our APAC region, our revenue was flat year-over-year, with weakness in several large accounts in the mobile device supply chain, particularly in Taiwan and Korea. Double-digit revenue growth in China and Japan help offset this weakness.
Turning to industry performance, while our semiconductor business saw headwinds from the slowdown in the mobile devices supply chain, broad-based demand for our platform and semiconductor characterization and production test remain strong. In particular, we saw continued adoption of our platform for testing 5G devices. For example, engineers at Qorvo, a leading provider of RF solutions, used LabVIEW, PXI and the vector signal transceiver to test their new front-end module targeted for early 5G mobile devices.
Paul Cooper, Director of Carrier Liaison and Standards at Qorvo Mobile Products said, quote, "the wide bandwidth, excellent RF performance, and the flexibility of NI's PXI test system were critical in helping us introduce the industry's first commercially available 5G front-end module." End quote.
For these applications, our software-based platform and extensive ecosystem deliver significant value by helping our customers manage test complexity and risk from evolving designs. Our differentiated offering has helped us win opportunities and displace incumbent vendors for testing 5G new radio performance as many customers developing 5G semiconductor products.
Turning to automotive. Opportunities for testing new automotive technology continued to be a growth driver. Automotive OEM and Tier 1 suppliers have experienced considerable technology discontinuity driven by electrification, active safety system and autonomous driving. These new technologies are requiring change to longstanding test processes. Automotive manufacturers like Subaru, for example, are using NI hardware in-the-loop technology to simulate road conditions for electric vehicle testing in the lab, reducing road testing to lower costs. By using PXI and LabVIEW, the team at Subaru estimates they've reduced electric vehicle test development time by 90%.
At NIWeek, major automotive companies, including Mazda and Valeo, will share how they leverage our platform to reduce test time and meet time to market pressure for testing these new technologies.
Now, turning to product performance, in software, we were very excited to see strong year-over-year growth in revenue continuing the growth momentum from the second half of last year. Releases of LabVIEW NXG and other new software tools have created opportunities for our sales and marketing teams to reengage existing customers and engage new customers about the capabilities of our software platform.
Our customers are excited about the new products and new features of our software portfolio that help them solve their testing challenges. We also saw strong year-over-year growth in revenue from data acquisition products, showing overall platform adoption. With the industry's broadest measurement portfolio, new technology like time sensitive networking and powerful driver software to interface with multiple operating systems and programming environments, NI data acquisition products serve the measurement needs of applications across many different industries.
Now, turning to our sales channel. At our NIWeek Investor Conference, we'll be reviewing the transformation of our sales channel. Historically, NI sales teams have been oriented geographically, with individual sellers selling the entire NI product portfolio to all of the customers in their designated territories. In the last decade, as we have scaled our product portfolio, significantly increased our average order size and expanded the complexity of our platform, we believe this geographic orientation is no longer the optimal model to drive long-term growth. As a result, we've been evolving our sales channel to orient our coverage around customer accounts and tier these accounts based on their potential.
These coverage changes have been introduced in a staged process over the last two years beginning with the Americas in the second half of 2016, EMEA in 2017 and the APAC region in Q1 2018. The initial result from these changes have been positive. We're able to focus our sales resources on the accounts with the highest potential and work with them more proactively than ever before to drive adoption.
We've been able to grow our acumen and account management both internally and through external hiring. Our customers have told us that they are seeing us interact with them at a higher level and create more value and impact to their business.
Given the very broad base of customers we serve and our strategy to have a direct relationship with them to drive adoption and success of our software-based platform, a key enabler of this transition has been the development of a very strong inside sales organization that scales to our large number of accounts. Our inside sellers are highly effective at selling our platform, primarily over the phone and utilizing web-based technology.
Our sales to customers served through this channel have been delivering strong results and we continue to be encouraged by the efficiency and effectiveness of these teams. During this process, our entire sales force has managed through changes in their coverage and growth in new capabilities. I'd like to thank the sales team for managing through this transition with minimal disruption and we looked forward to reaping the benefits in improved long-term growth and leverage.
We will share more about our sales transformation and the initial results we've seen at our Investor Conference at NIWeek. I look forward to seeing you there.
Now, I'll turn the call over to Alex.
Thank you, Eric. While our revenue came in slightly below the midpoint of our guidance for Q1, we continue to drive operating leverage. Our revenue this quarter was negatively impacted by weakness in the mobile device supply chain, which was partially offset by improved growth in our broad-based business. As Karen mentioned, at the midpoint, we are guiding to record revenue and record non-GAAP net income for second quarter.
The strong growth of software bookings during the quarter helped us to deliver a significant year-over-year increase in our gross margins in Q1. We believe our software platform is our most crucial differentiator and value driver and its growth signals strength in our market position. We believe the reception to LabVIEW NXG and the increase in LabVIEW adoption that we've seen across our customer base validates the investment in our software platform.
I'm also very pleased with the performance of our broad-based data acquisition portfolio. These products provide measurement capabilities to systems across almost every industry. We believe the performance of these hardware products, along with strengthened software, demonstrate the broad health of our platform across a diverse set of customers and applications. This has long been the strength of NI's market position.
2018 has already been an exciting year in technology with the first tenders for 5G communication coming out of the 3GPP, a new autonomous functionality rolling out of the lab and onto public roads. Each new milestone in technology adds more and more complexity to validation and production test. Using a platform-based approach helps ensure that test costs and test time don't outpace product design.
Our customers have shown that our software-based platform is critical to managing the test challenges of rapidly evolving technology. At Mobile World Congress this year, we released a significant number of announcements including our plans to collaborate with Samsung on test environments for 5G new radio, to help test interoperability of next-generation base stations and mobile devices.
Our extensive work with innovators in this space has helped us bring 5G-capable technology to our platform quickly and positions us to meet the testing needs of these next generation wireless products. As the founders evolve and these companies bring innovative products to market, our platform will help ensure that they can scale from research to production and meets our cost, quality and time to market goals.
We're only four weeks out from NIWeek 2018 where we'll bring together thousands of users, decision makers and NI engineers to discuss technical challenges, gain insight into new technology trends and to leave with new solutions. At NIWeek, you will see the continued expansion of NI's 30-year investment in our software-based platform and tangible examples of customers leveraging decades of investment in hardware and software. These investments deliver value to our customers through integration of the whole software stack of drivers, test development software and test management software.
At NIWeek, we will demonstrate how we are adding more value to this platform through new capabilities and by leveraging software advancements like analytics and cloud computing to support the latest technology trends. I'm excited to celebrate the impact our customers are having on the world and to see our teams unveil the latest products that will further differentiate our platform for existing customers and to expand the number of users that we can serve in the future.
I will close by thanking our employees and reiterating the importance of focus. Our multi-year platform investments in hardware and software, coupled with a multi-year evolution of our sales channel, have positioned us well to capitalize on the complexity created from new and emerging technology. I'm excited to see us deliver these new technologies and processes to drive further adoption within our target industries and applications. Aligned execution, from product development to system delivery, will help us further differentiate our platform in these areas and deliver high value systems to market faster.
Once again, I look forward to seeing you at NIWeek and we'll now open up for your questions.
Thank you. Our first question is from the line of Vijay Bhagavath of Deutsche Bank. Your line is open.
Yeah, it's Vijay Bhagavath. Yeah, good afternoon. Yeah, I have a question and a quick follow-up for – on Karen. Alex, my question is around the segments, you operate in academic research, aero defense, electronics communications, industrial, any color you could give us in terms of how these individual segments are performing both currently, and then, just a forward-looking view into the second half?
And then, Karen, agile development you said quite interesting, would that have any impact on software OpEx or any of the testing OpEx that goes with these frequent software releases? Thanks.
So Vijay, thanks very much for your question. Yeah, let me kind of deal with the broad context, and then, Eric will get into the details of the specific kind of industries that we serve directly to give you some color there. Broadly, we're seeing the success and reaping the benefits of the investments we've made over multi-years in our software platform and in our broad-based data acquisition and control products and very pleased to see the positive reaction there.
We did see, as we said, some slowdown or weakness in the mobile device supply chain and unfortunately, that turned what would have been a really great quarter into just a good quarter. So we're glad to see record revenue in Q1 and deliver on our profitability goals.
When we look at that particular area for Q1, that mobile devices supply chain accounts have been more volatile than our normal business over the course of many years. And so, this provides a little bit of a speed bump for us as we enter into 2018, but on the good news side, the revenue year-over-year from that set of accounts is down about two-thirds. So their ability to have a negative impact on our go forward expectations is pretty low. And if that does return, then that will be a tailwind for us in the second half of the year.
Yeah. I'll just chime in Vijay, how are you doing? This is Eric. So yeah, the strength in software and data acquisition cuts across all the industries and customers that we serve. So we're very pleased with that in the quarter.
From an industry color point of view, transportation and aero defense were both strong for us in the quarter. And then, as Alex commented, semiconductor is kind of a tale of two sides. It was approximately flat where these few accounts, less than 10 accounts in the mobile devices supply chain were particularly weak and the rest of the industry, in general, was good, was strong in terms of our business in validation labs, as well as in production test, and those roughly offset themselves in the quarter in semiconductor.
Okay. And hi, Vijay. This is Karen. I'll take the question on the software OpEx. We're pretty excited, as you mentioned, about the ability to move to this agile methodology and leverage that for our customers to deliver these features much faster. And so, the guidance that I provided was that we will be increasing our target for R&D. We were running at a target of 16% and now that will go up to 18% to align with that new view of non-GAAP R&D transparency.
Obviously, we expect our gross margin to move up correspondingly. So you'll see two areas in the model that will move substantially offsetting as we provide that. I think really more transparent and industry norm view of both our R&D and our gross margin. And we'll be talking about our evolution of our long-term model at NIWeek. So we'd be happy to get into it in more detail at that point.
Just a couple of comments about this is I'll reflect, NXG for us, the LabVIEW NXG in particular, has been a multi-year very large investment and we've been looking forward to the opportunity as that we drive adoption of NXG, completeness. It's been a very stable release. I'm excited that the R&D team now is able to transition to a much more rapid development process so we can bring features to market for our customers much more quickly. And I'm glad that we'll be able to align with what's more common industry practice as we move forward.
Okay. Thank you.
Thanks.
Thank you, Vijay.
Thanks.
Thank you. Our next question is from the line of Rob Mason of Baird. Your line is open.
Yes. Good afternoon. Thanks for taking the question. So question first just about the second quarter guidance. So at the low end, essentially revenues would be flat year-over-year. I'm just, I'm curious what your thought process is around what delivers flat revenues if we've kind of discounted the wireless guys going forward or maybe they present a comparable a year-over-year comparison issue?
Obviously, from a year-over-year point of view, we did have revenue from those guys last year, Rob, as you mentioned. Obviously, we've always kept that kind of range consistent. So the real thing I think to focus on is the midpoint. From a sequential point of view, given the decline we saw on those accounts in Q1, I don't really anticipate that they can have an impact on our ability to hit our guidance in Q2 from a guidance point of view.
We will be looking to build some backlog if we can, and obviously we're very successful in terms of delivering on the profit element here. So we'd like to have other than more backlog, to be more efficiently able to manage the business. So going forward, from a Q2 guidance point of view, that set of accounts that Eric mentioned, handful in the mobile devices supply chain unlikely to have any substantial impact on our ability to hit our guidance for Q2.
Okay. Okay. And then, I want to dig in geographically just a little bit, a couple things. Asia, you mentioned you saw good growth in China and Japan, and then you had the issues in the mobile supply chain, but you also had your sales force transition going on there. I was just curious you thought that played in any role in Asia flat sales. And then, in the Americas also, just up 1%, given the PMI backdrop that we have here, just some color on maybe what you saw in the Americas as well.
Yeah, I'll take that Rob. How are you doing? It's Eric. So yes, APAC, I'd characterize it as sort of broad success and the narrow set of challenges. So those small number of accounts concentrated in a couple of countries really were offset by double-digit growth in the areas that I mentioned in China and Japan, and so, that's what added up to the result in APAC, which was approximately flat in U.S. dollars.
And then similarly, just a little bit more color on Americas was up 1%. A little bit of that mobile devices impact comes into the Americas as well. And then, as I mentioned in the prepared remarks, the U.S. government continues the direct sales to the U.S. government and things like the National Labs continues to be a challenge, offset by strength in areas like automotive and aerospace, in particular, was stronger in the Americas.
Do you have any better?
On the sales force transition point specifically. Rob, we will be – a part of our Investor Conference, we'll have a session where we're going to walk through the evolution of the channel. It's been a 18-month to two-year journey to rebrand our sales force and we really tried to do that in a stage fashion to minimize the disruption. I want to really, as Eric said earlier on, congratulate the teams on going through that transformation without any significant disruptions.
Okay, okay. Do you have any better visibility on the government sales in the U.S. when you might see – just given the budget situation where we are now, when you might see a better trend line develop there?
Yeah. No, that's been a weakness for some time. Of course, as things are weak over some time, they become a little less impactful. So I don't, but I will say it was good to see the aero defense which is commercial aerospace and a lot of defense contractors for that business to start to strengthen. We just haven't seen in the direct U.S. government in places like National Labs yet.
Okay. Thank you.
Thank you, Rob.
Thanks very much, Rob.
Thank you. I'm showing no further questions. I'd like to turn the conference back over to Alex Davern, President and CEO, for any closing remarks.
Thank you very much for joining us today. I encourage you again to join us either in person or over the web for our Investor Conference at NIWeek. We look forward to an exciting event and to building on our momentum as we go through the rest of 2018. Thank you.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.