National Instruments' (NATI) CEO James Truchard on Q4 2015 Results - Earnings Call Transcript

| About: National Instruments (NATI)

National Instruments Corporation (NASDAQ:NATI)

Q4 2015 Earnings Conference Call

January 28, 2016 5:00 PM ET

Executives

David Hugley - Vice President, General Counsel, and Secretary

James Truchard - President, Chief Executive Officer and Co-Founder

Alex Davern - Chief Operating Officer, Chief Financial Officer, and Executive Vice President

John Graff - Vice President, Corporate Marketing

Analysts

Brandon Wright - Stephens Inc.

Patrick Newton - Stifel Nicolaus

Richard Eastman - Robert W. Baird

Operator

Good day, everyone, and welcome to the National Instruments Fourth Quarter 2015 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 Alec Davern, Chief Operating Officer and Chief Financial Officer; Dr. James Truchard, Chief Executive Officer; John Graff, Vice President of Marketing; and David Hugley, General Counsel.

For opening remarks, I would like to turn the call over to Mr. David Hugley. Please go ahead.

David Hugley

Good afternoon. During the course of this conference call, we shall make forward-looking statements, including statements regarding our guidance for first quarter 2016 revenue and earnings per share, the impact of currency exchange rates and 2016 effective tax rate. 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 Annual Report on Form 10-K filed on February 19, 2015, and most recent Quarterly Report on Form 10-Q filed October 30, 2015. 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 Executive Officer of National Instruments Corporation, Dr. James Truchard.

James Truchard

Thank you, David. Good afternoon, and thank you for joining us. Our key points for Q4 are continued core revenue growth, record orders for software, strong growth and operating margins, and record revenue through partners. In Q4, we saw continued core revenue growth across most product areas and record orders for software. Despite the currency and other revenue headwinds, the strength of our business model has allowed us to recover from the currency driven decline that we saw in Q1 2015.

Operating margin has enabled us to deliver strong gross margins. And gross and operating margin for the year 2015 demonstrated that the depth of our software position and strength of our ecosystem that lets us continued to grow market share in test and measurement markets being able to measure or generate almost any signal and provide control with the same platform gives us a unique position to foster the ecosystem required to address the challenges of converging technology across nearly every industry.

In our call today, Alex Davern, our Chief Operating Officer will review our financial results, John Graph, our Vice President of Marketing will discuss our business, and I’ll close with few comments before we open up for your questions. Alex.

Alex Davern

Good afternoon and thank you for joining us today. Today, we reported Q4 revenue of $334 million, up slightly from Q4 2014. Core revenue, which we defined as GAAP revenue, excluding the impact of our largest customer and the impact of foreign currency exchange was up 4.3% year-over-year in Q4.

Deferred revenue increased by $9 million in Q4 compared to $6 million in Q4 of the prior year. For the full-year, revenue was $1.23 billion, down 1.5% year-over-year. Core revenue for the full-year was up 6% year-over-year. Non-GAAP gross margin in Q4 was 75%. Total non-GAAP operating expenses were $190 million, up 2% year-over-year and our non-GAAP operating margin was 18.5%.

For the full-year, our non-GAAP gross and operating margins were similar to 2014. And while our results for 2015 were below our expectations coming into the year, I’m proud of our execution given the revenue headwinds that developed due to currency, a weak PMI and other issues, I’m proud that we were able to essentially maintain our revenue and operating profitability in 2015.

Our non-GAAP effective tax rate in Q4 was 28%, up from 21% in the prior Q4. This increase in tax rate reduced our fully diluted earnings per share in Q4 by $0.03 per share. For the full-year, our non-GAAP effective tax rate was 28%, compared to 16% in the prior year. This increase reduced our non-GAAP fully diluted earnings per share by $0.16 per share.

The primary driver of this full-year difference is the $14 million release of tax reserves that we recognized in Q3 2014 on the conclusion of an IRS audit. For Q4, net income was $32 million with fully diluted earnings per share of $0.25, and non-GAAP net income for Q4 was $43 million with non-GAAP fully diluted earnings per share of $0.34. Included in our results is a $2 million, or $0.01 per share loss on foreign exchange, due to the volatility of U.S. dollar during Q4, which was not anticipated in our earnings guidance.

A reconciliation of our GAAP and non-GAAP results is included in our earnings press release. Included in this reconciliation this quarter is a $3 million foreign exchange translation loss related to the acquisition of Micropross in October.

By taking a look at order trends, for Q4, the value of our total orders was flat year-over-year. Included in that total is $10 million in orders received from our largest customer compared to $8 million in Q4 of 2014. Revenue from a largest customer was $10 million in Q4, compared to $7 million in Q4 2014.

Now, breaking down the Q4 order values, excluding our largest customer. We saw a 5% year-over-year decline in our orders with a value below $20,000 in line with the weakening PMI and the declining PC market. Orders would value between $20,000 and $100,000 increased 1% year-over-year, and orders would value over $100,000 grew 9% year-over-year.

Now turning to cash management. For the year, we paid $98 million in dividends, used $75 million to repurchase 2.6 million shares of NI’s common stock at an average price of $29.04 per share and used $126 million in net cash for acquisitions.

We ended the year with cash and short-term investments of $333 million at December 31. As you know, 2016 marks a 13 year since we initiated our dividends. And today we announced that the Board of Directors approved an increase of our dividend to $0.20 per share.

Now, I would like to make some forward-looking statements. Given current trends we are assuming in our guidance that the global PMI will continue to be weak in Q1. And as a result, we are guiding for total revenue in Q1 to be in the range of $290 million to $320 million, up 5% year-over-year at the midpoint.

We currently expect GAAP fully diluted earnings per share will be in the range of $0.09 to $0.21 for Q1 with non-GAAP fully diluted earnings per share expected to be in the range of $0.17 to $0.29.

On other housekeeping items, we currently estimate that our non-GAAP effective tax rate for 2016 will be approximately 20%, with a rate of approximately 21% in the first-half of the year and 19% in the second-half of the year.

Also, given current exchange rates, the drag on our revenue from currency headwinds should reduce to a negative impact of approximately 4% year-over-year in Q1 and approximately 2% year-over-year in Q2 through Q4.

I would like to add one other note concerning your modeling of our non-GAAP earnings profile by quarter. The increase you’ve seen in our average order size over the last few years has called some greater proportion of our earnings to be recognized in the second-half of the year.

At a high-level for the last three years, we have seen approximately 40% of our non-GAAP earnings come in the first-half of the year, and approximately 60% in the second-half of the year. Our current expectation for 2016 is for similar distribution.

These are forward-looking statements, I must caution you that our actual revenues and earnings could be negatively affected by numerous factors, such as any further weakness in global economies, fluctuations in revenue from our largest customer, foreign exchange fluctuations, expense overruns, manufacturing inefficiencies, adverse effect of price changes and effective tax rates.

I’d also like to mention that we will be at the Morgan Stanley Technology conference on February 28 in San Francisco.

With that, I’ll turn it over to John Graff, Vice President and Marketing.

John Graff

Thanks, Alex. As we reflect on 2015, this was a year of unexpected headwinds, led by the strong U.S. dollar, low energy prices, and weakness in orders from our largest customer. That being said, we were able to gain market share deliver 6% core revenue growth and maintain our operating margins.

Our platforms provided a foundation for core growth and profitability across much of our portfolio. In line with our long-term strategy, we continue to focus on platform expansion by leveraging new technologies to bring differentiated solutions to the market and I’m excited by our opportunity to build on this in 2016.

Turning to product performance, in Q4 software saw record order value from enterprise agreements targeted at large user accounts, as well as strong performance for individual seats of software.

With analysis, decision making, and data management software designed specifically for managing big analog data, engineers and scientists can distribute intelligence from the source of the measurement often referred to as the edge to the enterprise level, weather that’s in the cloud or on the premise.

For example, Jaguar Land Rover uses NI software to manage and analyze measurement data across test vehicles, test locations, and test states. With over 500 gigabytes of test data generated per day, engineers at JLR were overwhelmed by the amount and inconsistency of their data leading to repeat test and inefficient use of collected data.

By utilizing NI tools, JLR estimates that their data utilization went from less than 10% to 95% and time spent analyzing and searching was reduced significantly. This enterprise level software standardization has greatly increased the value and efficiency of the JLR engineering team, enabling them to resolve more issues early in their development, thus improving quality and leading to higher customer satisfaction with their final production vehicles.

For data acquisition products, core revenue was essentially flat. Within data acquisition, revenue was led by larger system sales based on PXI and compactDAC, as well as key wins in automotive and aerospace tests. These hardware-in-the-loop systems use NI software and data acquisition hardware to stimulate large scale electromechanical systems like automotive drive trains and aircraft control systems. Increasing coverage of test parameters, while decreasing test time.

Sales of instrument controlled products, which are used to connect third-party box instruments to the PC and PC-based data acquisition products were both down. These products have historically been closely correlated to the movement in the global PMI and the worldwide PC market, which both weakened in Q4.

For PXI, we saw core revenue growth and continued broad adoption of our platform in 2015, driven by having the largest PXI product portfolio in the industry, a unique and differentiated software position for creating modular systems, focused sales and support channel that provides us significant value to our customers, and a strong network of integration partners.

Our success in PXI built on the success of hundreds of thousands of engineers and scientists efficient with NI hardware and software. The flood of new connected devices creates new demands and expectations for power consumption, connectivity, and device integration, while the development team is designing and producing these devices, continue to be squeezed on time and budget.

With PXI and the vector signal transceiver as the underlying technology, Test Systems targeting vertical applications such as the semiconductor test system and a wireless test system prove their differentiated positions by enabling manufacturers to leverage the I/O breadth of PXI from the [indiscernible] to the production floor. By leveraging a single platform across the design cycle, software IP measurement characteristics and test data remain consistent across the design flow, reducing the translation burden between teams, resulting in faster time-to-market and reduced cost of tests.

The early success of our semiconductor test system and our wireless test system and the strong performance of the vector signal transceiver were instrumental in record revenue for RF products in 2015.

2015 also saw, further demonstrate our leading position in the prototyping and advanced research for next-generation communications technology, such as 5G. Leading researchers in industry and academia are leveraging our software, such as LabVIEW Communications. Our software-defined radio products and our FPGA technology to advance areas such as waveform definition, Massive MIMO, multi-gigahertz bandwidth, Millimeterwave, Cognitive Radio, Spread Spectrum, as well as channel sounding and emulation.

Achieving this position reflects the significant investments we’ve made over many years in our software and hardware and positions us well as these communications technologies evolve and go main stream. Sales of CompactRIO and other embedded products continue to be impacted largely by reduced spending in oil and gas exploration. That being said, we have a strong pipeline of new products that extend our processing capability in I/O coverage to meet the needs of smarter power generation and distribution, Smart Machines, and other industrial IOT applications.

For example, engineers at the Central Advanced Research and Engineering Institute at Hyundai Motor Company use CompactRIO to develop future mobility technologies. This research center creates new mobility devices targeting the elderly and the disable. These wearable echoes skeleton robots with NI embedded controllers use LabVIEW and CompactRIO to acquire data from various sensors and controlled peripheral units, high-speed communication devices, and actuators.

By developing with NI ecosystem of software, I/O, and LabVIEW FPGA, these engineers can measure, control, and analyze using the same tools, meaning, they can iterate on designs faster and dramatically reduce development time. With industry trends such as the industrial Internet of Things and big analog data driving the proliferation of data, we believe that software defined systems are best suited to extract value from the engineering challenges these trends present.

With LabVIEW and NI software as the core, hardware platforms like PXI, CompactRIO and CompactDAC enable our customers and partners to create flexible systems that combine measurement and control to make data driven decisions and evolve quickly as their application requirements change.

Additionally, we have been forward investing in our software platform to help ensure that our customers have the competitive advantage that they need. You can see the result of the significant investment and recently released products such as LabVIEW Communications and InsightCM Enterprise. Over the next 18 months, we expect to release additional software products that address applications for our software extraction and productivity will increase our product relevance to both new and existing users.

In summary, over the past five years, our platform level investments and measurement processing and communications technology have yielded immense value for our customers and growth for NI. Since 2010, we have seen significant revenue growth from RF products, strong growth in PXI adoption, greater leverage of our differentiated FPGA technology, and strong growth in software seats led by enterprise level software sales.

As we look to the future, our platform-based approach will provide our users with the foundation of software and hardware to solve their challenges, as they test, measure, and control complex systems in a smarter connected world.

With that, I’ll turn it back over to Dr. T.

James Truchard

Thank you, John. I want to reiterate that we have built and continue to run our company for long-term sustainable growth. Our highly differentiated products provide a very strong gross margins, which in turn fuels investments to drive growth and profits to return to our shareholders.

With powerful software tools and flexible modular hardware, our platform-based approach serves as a foundation for an ecosystem of growth and we see immense opportunity for National Instruments to be on the forefront of technology, as our world becomes smarter.

With major technology trends like the explosion of wireless devices, increased strained on the aging grid – power grid, increase in renewable energy sources, and connected autonomous vehicles, the need to better understand the world around us as never been greater.

At the same time, our mobile device wearable technology cars, homes, factories and machines are convergent becoming connected elements in a larger type of physical system. This convergence of technology has led to explosion in the amount and types of data required to characterize these systems. The data management challenges a big analog data and it first overwhelmed the opportunity present in these data sets.

However, utilizing the power of those software-defined platform, these teams can focus on solving those unique challenges by using flexible tools, designed specifically to measure, process and connecting sources of big analog data.

In closing, I want to thank our employees for their efforts in Q4 and throughout 2015, despite a revenue headwinds, the strength of our business model has allowed us to deliver strong growth and operating margins for the year. Our platform-based approach built around highly differentiated software has created a large ecosystem of customers, partners, and technologies are the key drivers to long-term growth and profitability of the company.

This ecosystem multiplies the productivity of the engineers and scientist we serve. I’m confident that we are building a new product pipeline channel and operational excellence to further fueled its ecosystem and drive long-term growth and profitability. Thank you. We will now take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Ben Hearnsberger from Stephens.

Brandon Wright

Hey, thank you for taking my question.

James Truchard

Hi, Ben.

Brandon Wright

Hey, guys. This is Brandon in for Ben. Thanks for taking my question. Just real quick on the long-term adjusted EBIT guide, 15% to 20%. Just curious what kind of a global PMI range you had in mind when that came out? And kind of where we could be in terms of margins, if we were to dip below 50 and possibly remain there for a while?

Alex Davern

Sure, Brandon. I mean, when we look at that kind of long-term guidance for the business model and targets as a company, obviously the framework you have that in mind is what the average PMI is going to be over a longer period of time. So that served setting for that range that the kind of expectation. When we set that range, we also wanted to be able to execute within that target range of adjusted non-GAAP operating income through what would be a reasonable degree of variation in the cycle.

So when we talked about this at the investor conference back in August, we made clear that it would probably be difficult for us to maintain in that range, if we saw a repeat of 2009, for example. But within the normal movement of a growth rate cycle, we would expect to be able to stay within that target range.

Brandon Wright

Okay, understood. Yes, that’s helpful. On – just quick follow-up on the 1Q guide. How much Micropross is baked in there?

James Truchard

Micropross is a great addition to the company in terms of technology and are intended to leverage their key market position and be able to expand that position, as we move and make a bigger presence in the production test side. But it’s a relatively small company. So it will be maybe 1% of revenue or a little bit less in a ballpark for Q1, but we won’t be breaking it out, because it’s not really immaterial for the overall revenue performance of the company.

Brandon Wright

Okay, understood. Thanks for the color.

James Truchard

Thanks very much, Brandon.

Brandon Wright

Yep.

Operator

Thank you. And our next question comes from the line of Patrick Newton from Stifel.

Patrick Newton

Hey, good afternoon Dr. T, Alex, and John. Thank you for taking the questions. Multiple housekeeping questions. Can I get your number of employees actually in a quarter and average order size also expectations around the full-year tax rate? And then reminder of where your current buyback allocation stands?

James Truchard

Okay. So let me make sure I remember those in orders. So the headcount ending the quarter – ending the year was 7,442. So up 71 people from the end of September and the majority of that was from acquisition. The average order size was a new all-time record for the quarter. It was $5,637, up 4% year-over-year.

In terms of full-year tax rate, our non-GAAP guidance for full-year tax rate is 20%. And we’re expecting to be a little bit higher in the first-half of 21% and lower in the second-half approximately 19%. In terms of the allocation of buyback, we have, I believe, around 1.5 million shares remaining on the existing authorization.

Patrick Newton

Okay. And there was no change to that in the most recent Board meetings?

James Truchard

Anytime we would change that we would make that public.

Patrick Newton

Yes, just want to make sure that I miss it. And then one thing that was impressive was the orders above 100,000 growing 9% year-over-year, even excluding your large customer orders of $10 million a quarter, which were better than expected. So I’m curious, if you could elaborate on what is driving that order growth? Is there any specific geography that it stands out? Is there any in-market, or any product that would be most demonstrative of the strength?

James Truchard

Couple of things I’d share. Obviously, when you look at our orders from revenue below $20,000. If you track, we share a correlation of that would be my over time. That’s the element of our business that’s mostly connected and correlated historically with the PMI. And the weakness in the United States and the PMI going under 50 certainly had an impact on that.

When you look regionally at the overall performance of the company, I think, there’s a lot to look from a positive point of view. While the U.S. was down 1% in local currency, not the U.S., the America is down 1% local currency. We saw high single-digit in almost that 9% local currency growth in both EMEA and Europe, Middle East, Africa, and an APAC.

So those are pretty positive signs for us to take in terms of our ability to continue to grow the business. And where we put a lot of energy investment has been improving our ability to deliver system level solutions to our customers and tools. So as we moved up the performance capability and the value chain, we’ve seen a steady increase in our revenue coming from orders over $20,000 of between $20,000 on 100.

John Graff

And Patrick this is John. One thing I might add this kind of help you fuel that system level business was a key point of the record sales through our partners. They play a critical role in us serving this growing system level demand. So I think that’s also reflective of the success we’re seeing.

Patrick Newton

Okay. That’s helpful. And then just within that system level side, is there an out weighted exposure to either the industrial embedded side, or the traditional modular side?

James Truchard

I think it’s very balance. I mean, our product and sales revenue in both of those spaces, they fall across that whole spectrum. So there’s no noticeable bias for one or the other.

Patrick Newton

Okay. Thank you. And then I guess shifting gears, I wanted to discuss the market opportunity around your large customer. I know this is something that you guys are intentionally pick about. But would you be disappointed, if you did not see a return to growth from this customer in 2016?

And then could you also touch on the Micropross integration and how that acquisition helps position you both at this largest customer and across the wireless test spectrum as a whole?

James Truchard

So, on your first question, we’re glad to see an up-tick in orders in Q4 from a year-over-year point of view on sequentially. I think it’s very difficult for me to answer your question. But I’ve given some opinion as to the technology evolution of our largest customer. So I’m going to refrain and what I will tell you is that, we’ll be in a much better position to judge their full-year revenue when we get to April call. Our expectations for revenue to that customer in Q1 are obviously built into guidance for the quarter.

In terms of Micropross, I’d put it in a broader context. Our intent is to be very highly competitive, especially in high volume production test for all the wireless standards that are going to go into mobile devices now and into future. Micropross is a critical part of that strategy, as they help us expand that coverage. The team is integrated very well. They’ve got great technology, very good people. So we’re excited about their performance so far in the three months since the acquisition and look forward to leveraging that further as we move forward.

Patrick Newton

Great. Thank you for taking my questions. Good luck.

James Truchard

Thank you, Patrick.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Richard Eastman from Robert W. Baird.

Richard Eastman

Yes. Good afternoon.

James Truchard

Hey, Rick.

Richard Eastman

I was under the impression that Micropross was maybe a $20 million revenue a year company. And I’m curious is, maybe that’s incorrect, but at the same time, if it’s close, is that business that cyclical in terms of spend I mean are seasonal or why is that maybe not contributing a little bit more here?

James Truchard

Well, I think we’re really starting to parse very fine grain details here you couldn’t get at that. First off in Q3 and Q4, they were only part of the company for 2 months. So and therefore a full quarter that might help answer part of your question.

And then any business in this marketplace is going to have quarter, so they’re slightly bigger than another quarter. So I wouldn’t read anything into that other than they have a little bit of seasonal variation in their business. But it won’t be noticeable at the company level.

Richard Eastman

And that’s – in their product is it kind of the system level sale? I mean, is it – are we talking about business that again would fall into your order book is greater than 100,000?

James Truchard

Certainly, I would expect the vast majority of our revenue going forward to be in north of 20 and quite a bit, I’m sure we’ll be above 100,000 as we move forward.

Richard Eastman

Okay.

James Truchard

Not much of it will be below 20 K.

Richard Eastman

Okay, I understood. And then on the large customer here, in the quarter, we had orders of $10 million we had sales of $10 million?

James Truchard

Yes.

Richard Eastman

And so we carry some backlog into the New Year. so the $10 million of orders in the fourth quarter, is that not somewhat of a positive omen just from a standpoint of the past couple of years, the orders actually fell off in the fourth quarter, or is that just again that’s just timing?

James Truchard

I won’t leak you much into it, but it’s always good when your customers orders are rough year-over-year, that’s always a positive thing. And so exiting 2015 that was nice to see.

Richard Eastman

Okay. And gross margin, can I just ask it seems maybe like it’s running a little bit low given large customer businesses is down a bit in the mix, or is there any kind of inventory step up there with Micropross, or anything that may have impacted gross margin here a little bit?

James Truchard

Well, obviously, if you’re specifically talking about Q4, Rick, obviously the – as we look at the trends going through the quarters, Micropross is not going to have really any noticeable impact given there’s relatively small scale and their business on margins overall. You’re going to have some mix issues. You’re going to have a little bit of the currency that we obviously saw, as we came through the year that has some lingering effects on overall gross margin. But when you look at it for the full-year, I believe, we’re down roughly 0.3 point for the full-year.

And when I reflect on 2015, maybe I’ll share a couple of thoughts that go beyond your question, 2015 was a tough year to do some of these factors that we couldn’t really control. I think we came, through it very well, maintained our revenue, and core revenue growth of 6%. Operating margin and gross margin very, very close to 2014 despite that tough currency in. So looking forward, I believe we are very well set for record revenue and hopefully record profit in 2016, we will continue to be working hard to maintain our gross margins over time.

Richard Eastman

Okay, okay. And then just may be last question for John. John, could you just give a little bit of a perspective some of your end markets, I’m kind of thinking, in December, late December we saw the U.S. budget passed this omnibus bill. And what was interesting in there was R&D funding in total through all the agencies, DOE, DOD, EPA, everybody, it was up about 8%. And is there any trickledown effect that one should expect at NATI, either on maybe the academic piece of business or the defense side or any benefit from that?

Alex Davern

Yeah, Rick, thanks for the question. Let me start first with just the industry color that you touched on, so, when we look at Q4, obviously we continue to see pretty strong headwinds in the energy business, so it was down significantly. We saw a slight weakening in automotive, transportation and some weakness in academic and some of the foreign markets.

On the positive side, mobile communications and semiconductor that definitely were helping less. And then aero defense that now we’ve talked about in the past calls was essentially flat. To your question about the government funding? I mean, first of all, the fact that they did a budget in place, obviously helps, because I think some of us remember from few years ago where continued reservations and other gains by Congress didn’t help. It is hard to comment on the explicit I mean such a big number and there are so many aspects of government spending in so many areas. Obviously there is a derivative some into academic, some into the research lab, some into aerospace and defense. And let me turn over to Dr. Truchard to add a little more color.

James Truchard

Yes, we are very active in that academic especially in areas like 5G where we will see activity and funded activity as well as Cyber Physical Systems where we have a lot of active roadmap I just attended a National Science Foundation Conference with Jointly with German professors as well, and we, see these guys get funding for their work in the areas like energy, there is Alpha Energy funding activity we see evidence interest there. So, yes it definitely helped. There is a lag especially in academic where it takes some time before funding actually gives out there and gives where we would see it so but definitely as always a positive sign, because R&D is one place we’d like to see how business is going.

Richard Eastman

Okay, very good. Thank you.

Operator

Thank you. And our next question is a follow-up from the line of Patrick Newton of Stifel.

Patrick Newton

Yes, thank you. Just wanted to dig a little bit more into guidance with the, I believe it’s 9% constant currency growth at the mid point, and correct me if I’m wrong. But I wanted to kind of walk through how we should think about that through the remainder of the years, you see here with the potential of the large customer returning should we think of an accelerating constant currency through the remainder of the year, or is there any type of direction that you could give us on a – in a medium-term basis?

James Truchard

Yes, 9% core growth is the right math, when you look at it from that point of view at 5% year-over-year growth in dollars and then we’ve talked about the currency impact obviously been about 400 basis points. So I don’t think we are in a position at this point or want to get pass the first quarter Patrick and in relation to the larger customer like I said well no more April.

And I don’t want to take up obviously it is an important element of our business model – don’t get me wrong. But we really want to focus everyone’s attention on the 97% of our revenue that comes from the rest of that broad-based business. And long-term when we think about the value of the company and our ability to execute, driving sustained organic revenue growth to 97%, this is going to be the most important value driver of the business.

Patrick Newton

Okay. And then just on PMI periodically, you’ll kind of opine on your opinion of the general direction. And do you have any opinion over the next several months as to steady state expanding or contracting, as you sit here today?

James Truchard

Obviously we’ve seen the turnaround especially in the United States a year ago U.S. PMIs were in the mid-50s and now with a massive surge in the dollar and that’s obviously had some knock on impact on commodity pricing. You’ve seen it turnaround to turn negative quite rapidly, while in Japan and Europe it’s gone in the opposite direction.

So it would be hard to be optimistic about the U.S. PMI and U.S. industrial production for the next three or four months, I mean, I think it’s slightly to be challenging. It seems like Europe and Japan will probably feel better. Obviously, if you can tell us what the Fed is going to do in March, we might be able to chase them out. The exchange rate is a big issue and so anything that happens there will certainly impact us.

Patrick Newton

Okay. Thank you for taking my questions.

James Truchard

Thanks, Patrick.

Operator

Thank you. And that concludes our question-and-answer session. I would like to turn the conference back – oh, actually we do have another follow-up from the line of Ben Hearnsberger from Stephens.

Brandon Wright

Hey, thanks. Just a quick follow-up kind of piggy back on the last question. But I was just trying to see, if we get any extra color in terms of OpEx spending in the 1Q guide and then kind of a cadence throughout the year, yes, any help on that would be great.

James Truchard

Well, obviously we’ve kind of made clear our leverage intention over time. So I’d look to that. The overall OpEx cadence during the year is going to be somewhat relative to how the revenue profile rolls out, as we see that as we go through the year.

So at this point, our intent on headcount is relatively modest. For the headcount growth in 2016, it’s going to be very low single-digit, and beyond that overall spending will react I’ll be like Janet Yellen here we’ll react to the data as it comes in. So we’ll be trying hard to stick to that leverage plan and obviously, our expectations for Q1 are posted to guidance.

Brandon Wright

Understood. Thanks.

James Truchard

All right, Brandon. Thanks very much. That’s the last question, well thank you for joining us today. Again, reminder will be at the Morgan Stanley Technology Conference on February 29 in San Francisco. Thank you very much.

Operator

Thank you. Ladies and gentlemen thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a good day.

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