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Executives

David Hugley - General Counsel

Alex Davern - Chief Operating Officer

Dr. James Truchard - President and CEO

Analysts

Zach Larkin - Stephens

Richard Eastman - Robert W. Baird

Stephen Stone - Sidoti & Company

Anthony Luscri - JPMorgan

National Instruments Corporation (NATI) Q4 2012 Business Update Conference Transcript December 10, 2012 5:00 PM ET

Operator

Good day, ladies and gentlemen. And welcome to National Instruments Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, instructions following at that time. (Operator Instructions)

And as a reminder, this conference is being recorded. Now, I’ll turn the conference over to your host, David Hugley, General Counsel. Please begin.

David Hugley

Good afternoon. During the course of this conference call, we shall make forward-looking statements, including statements regarding our guidance for our Q4 revenue and earnings per share, and our future business prospects. 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 most recent quarterly report on Form 10-Q filed November 6, 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 Operating Officer of National Instruments Corporation, Alex Davern.

Alex Davern

Good afternoon. In our earnings call on October 25th we anticipated continued weakness in the Global PMI into early 2013. Since then there has been continued contraction in the global industrial economy, especially in Europe and Japan.

We’ve also seen further evidence from other companies at this time as restraining revenue growth in the broad test and measurement industry. However, our product differentiation and the successful execution of our world-class sales and support teams have continued to drive new value in the market. We’ve now better visibility into business for the quarter.

As a result, we are tightening our guidance for Q4 and currently expect revenue for Q4 to be in the range of $270 million to $290 million. We currently expect the GAAP fully diluted earnings per share within a range of $0.13 to $0.23 for the Q4 with non-GAAP fully diluted earnings per share are expected to be in the range of $0.19 to $0.29.

As these are forward-looking statements, I must caution you that actual revenues and earnings could be negatively affected by numerous factors such as any further decline into global economy, delays in new product releases, rescheduling of customer orders, expense overruns, manufacturing inefficiencies, foreign exchange fluctuations and tax rate changes.

Moving forward, we will continue to drive towards our goal of $2 billion in revenue in 2016 by leveraging our R&D investments and deepening our customer relationships, with the goal of driving solid profitability and gaining market share. We’ll also continue to optimize our operating expense cost structure to drive long-term, sustainable and profitable growth for NI.

I believe we’ve been both strategic and prudent in our business planning and our reaction and execution in this economic climate once again demonstrates that our business model is solid. I’d also like to mention that I’ll be presenting at the Needham Conference in New York on January 15th.

With that, I’ll turn it over to the CEO and President, Dr. Truchard.

Dr. James Truchard

Thank you, Alex. With the global manufacturing PMI remaining below 50 we are still operating in a very challenging economic environment. It is important as ever that we continue to balance the short-term demands of the business and the long-term objectives of building a company build to last. As the economics slowdown persist, it is clear that we have continued to weather the storm well and continued to set ourselves apart for the highly differentiated platform.

Our graphical system design approach has allowed us to disrupt traditional instrument-based systems. We have continued to develop products that lower costs, reduce risks and shortened design cycles, which is a great benefit to our customers facing budget constraints.

In addition to our highly differentiated platform, the expertise of our sales force and our alliance partner network help us our customers find ways to lower their costs, improve their productivity and help them bring their own innovative products to market quickly.

One area that NI has continued its commitment innovation is RF system design and test. NI has rapidly expanded to this large application area, which leverages our technology, expertise and competitive position.

Today, NI announced the acquisition of Signalion, a company with strong track record of developing products and solutions for wireless communications base station test and LTE user equipment simulation.

Key reasons for Signalion acquisition include, Signalion adds key technical talent in complex RF and communications algorithm, wireless infrastructure and base station test. Signalion collaborates with top researchers and developers at TU-Dresden on the latest wireless standards such as LTE, LTE-advanced and even fifth-generation wireless research.

Signalion expertise and IP can evolve the capabilities of LabVIEW and PXI to create products for our user equipment, emulation base station testing and signaling for mobile device production test. I look forward to integrating Signalion’s technology and expertise into NI, the NI portfolio.

In closing, I believe that our ability to effectively utilize our investments in R&D and our field sales force will enable us to successfully navigate the uncertain macro economy. We have consistently chosen to run the business in the way that we believe best aligns with the long-term interest of our stakeholders by providing a great place to work for our employees, maintaining the long-term profitability for our shareholders, producing high-quality innovative products for our customers and deepening our relationships with our partners.

With that, we will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) First question is from Zach Larkin, Stephens. Your line is open.

Zach Larkin - Stephens

Thank for taking my call.

Alex Davern

Hi, Zach. How are you doing?

Zach Larkin - Stephens

Doing all right, Alex. Thanks. Hey. First question, I wondered if you could talk maybe a little bit about product verticals. Are there any categories or any areas within your product portfolio that happen to be seeing anymore weakness or strength one versus the other? And I was also curious as to how some of the new product introductions are doing in the uncertain environment we’re going through right now?

Alex Davern

Sure, Zach. We feel really good about the response to the products that we have released at NIWeek. NIWeek obviously was the great milestone for us in a number of particular product areas, specifically with relation to the vector signal transceiver that we released back in August. And so we are very pleased with the strong response to some of our new products despite the weak economy.

In terms of specific verticals, obviously, we are not fully through the quarter at this point in time. So, I’ll be happy to answer specific questions about order flow and different industries, different geographies, et cetera, when we release earnings and guidance in January.

Zach Larkin - Stephens

Okay. Thanks for that. And then also Doctor, I wondered if you could talk with acquisition today and then also the VST, there has been a lot of focus on RF? The product portfolio seems to be expanding and getting much, much more robust. But as you look forward and look at the opportunities in RF, are there any specific areas where you say hey, this is going to be the next focal point for NI and where we need to continue to build out the product or application expertise in RF?

Dr. James Truchard

Yeah. Well, first half, the vector signal transceiver really was bringing the technology that we had at lower frequency up into RF and communications applications. And customers responded in the way we were hoping they would and seeing that this would allow us.

We showed the example at NI, we were using -- we were achieving some 200 times the performance that previous GPIB systems have received, that was up from what we could do with multicore system. So the FPGA brings us a lot of differentiated capability to the RF and communications base. So we’re looking to take advantage of that as we go forward.

Operator

Thank you. Next question is from Richard Eastman of Robert W. Baird. Your line is open.

Richard Eastman - Robert W. Baird

Yeah. Good afternoon. Alex, could you talk a little bit about this large order that we’re going to ship this year. And I think the balance on that from an order perspective was something in the neighborhood of $12 million in revs maybe for the fourth quarter. Has there been any change in orders, in forecast there? Has that still pretty appropriate?

Alex Davern

In terms of dollar value, we’re anticipating for revenue recognition in Q4. Rick, there has not really been any change in the expectation.

Richard Eastman - Robert W. Baird

Okay.

Alex Davern

And that’s built into guidance. We have seen some order flow in Q4 and we’ll be happy to update that in January once the quarter is finished.

Richard Eastman - Robert W. Baird

Okay. Is it -- when you send new order flow, is it that application or is that customer?

Alex Davern

That application.

Richard Eastman - Robert W. Baird

Okay.

Operator

Thank you. Our next question is from Stephen Stone of Sidoti & Company. Your line is open.

Stephen Stone - Sidoti & Company

Hi. Good afternoon. Just wanted to, I guess, could you guys give a little more clarification on why you guys are narrowing your range here? Are you seeing any thing differently or, I guess, more clarification on what’s different now that as supposed to earlier?

Alex Davern

Sure, Stephen. We had given guidance in October. We had some concerns about the year-end. Flow of large orders we typically see that continues to be an area we have some concern in. But obviously, we’re a lot further along in the quarter at this point in time. So I’m comfortable narrowing the range. There is certainly less uncertainty now about business results this quarter than when we reported six weeks ago.

Stephen Stone - Sidoti & Company

Okay. And just as far as the acquisition, is this going to become more of a norm you think of acquisitions, the size in the RF space moving forward?

Dr. James Truchard

Well, this is the third acquisition or fourth acquisition we’ve done in the RF space over last several years. Each one has been an element of key technology that we were seeking to bring within our portfolio to accelerate our time to market and the goal being to leverage the expertise in IP of Signalion and to allow us to open up major new market opportunities for NI in the future.

In terms of the norm going forward, I would view it really as the exception for NI to take this acquisition path over the history of the company. We’ve generally focus very much on internal development. So it’s more of an exception where there is the availability of key talent in IP that will accelerate our time to market that we can merge into our portfolio reasonably easily.

So the list of criteria we have to hit to be able to make it a sensible acquisition for NI can be quite long. So in general, our focus will continue in the future to be one of our organic internal driven revenue growth.

Operator

Thank you. (Operator Instructions) Next question is from Anthony Luscri of JPMorgan. Your line is open.

Anthony Luscri - JPMorgan

Hi. Thanks for taking the question.

Dr. James Truchard

Hey Anthony.

Anthony Luscri - JPMorgan

Could you provide more details around the acquisition itself in terms of company’s yearly revenue, the price paid, also…

Alex Davern

Sorry. Go ahead Anthony. Finish your question.

Anthony Luscri - JPMorgan

I was just going to say in terms of the hardware infrastructure they have, is it a PXI base already or are you going to change that going forward?

Dr. James Truchard

So, in general, we've chosen not to disclose the financial terms. What I can tell you is Signalion was founded in 2003. They have about 50 employees based in Dresden. So it would give you some idea of the scale relative to NI. In general, their success has been very much around signaling IP and base station test.

And we were intend to integrate their talent and IP into the NI portfolio over the course of next couple of years. And we see over the long-term that they will help us expand into some major new market opportunities.

Anthony Luscri - JPMorgan

And so in the near-term, no impact to the model?

Alex Davern

In near-term, I mean, its relative to the scale of NI, it's very small.

Anthony Luscri - JPMorgan

Got it. Okay. Thank you.

Operator

Thank you. We have a follow-up from Richard Eastman, Robert W. Baird. Your line is open.

Richard Eastman - Robert W. Baird

Yeah. Thank you, again. Just in terms of -- in terms of where you are, a little bit more comfort you’re kind of towards the midpoint of the previous range with the guidance today. How does that influence the perspective on calendar ‘13 when we’re thinking about seasonally the first quarter but more importantly, kind of, the operating expenses and what you need to continue to fund the growth as it appears to be today. How do operating expenses look do you think at this point?

Dr. James Truchard

Well, I’d be happy to give more of a specific update of that when we give guidance work in Q1. In general, I would tell you our bias is towards the fairly high degree of caution still. There is still a lot of uncertainty out there as we face the decisions we made in Washington and New York over the course of next couple of months.

So our general bias is we want to caution. We will be looking to start the year 2013 with that caution reflected in our operating expense planning.

Richard Eastman - Robert. W. Baird

Okay. And then just one of the question on Signalion. Can you at least -- they presumably have revenue and today from a GAAP standpoint, when you bring it in. I don’t open the soft earth capitalized but will they be profitable?

Alex Davern

Certainly, they do have revenue of the company with largely self funding for the last number of years and as I said relative to the scale of NI, it’s small enough. But it's not something that you want to reflect specifically in your models. In terms of probability, you not I don't really want to comment on that at this point in time.

Operator

Thank you. This is the Q&A portion of today’s conference. I’d like to turn the call over to measurement for any closing remarks.

Dr. James Truchard

Thank you for joining just today. Again, I’ll remind you we will be presenting at the Needham conference in New York on January 15. We’d be happy to meet you there.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Have a wonderful day.

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