NATI - Earnings call transcript Q3 2020 | National Instruments Corp

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 National Instruments Earnings Conference Call. [Operator Instructions] I'd now like to hand the conference over to your host today, Marissa Vidaurri, Head of Investor Relations. Please go ahead.

Marissa Vidaurri

Good afternoon. Thank you for joining our Q3, 2020 earnings call. Eric Chief and Financial by and Executive today Rapp, Karen Officer. joined Starkloff, Chief President Officer; I'm

We will for start in up the with your an update quarter for share on and our outlook questions. QX opening third before our performance

related Baird, in update global our statements release comparable outlook. including you company's ni.com/nati. GAAP management Form impacted management statements. month. non-GAAP XXXX. hosting and in cause filed pandemic the report will and directly profitability, just current the trade call on including quarterly measures growth measures and the August with will or forward-looking negatively this resulting the XX, expectations. next guidance plans, are forward-looking no plans, on changes targets, charges, RBC statements, the on results any focus, regulatory that allocation COVID-XX and to capital our conform global regarding to refer Stifel or disclosed to at factors any goals, and to the future you A reconciliation or actual revenue Our statement regularly discussion to annual materially files our environment. conferences position, statement economic financial and those that that to forward-looking the We disclosures February and plans, XXXX, in the company's We of and statements caution market our Commission, actual today our documents may disruptions Form results meetings objectives, include our the results from NI Securities further such XX-K actual contained filed factors, and X, to changes wish Exchange and identify most economy numerous and contain be further press are the financial contained company to These Any our be dividend, in the report from could documents in uncertainties on by to important COVID-XX. XX-Q We on that predictions duty and materially differ assume expense events related in differ including weakness

that, the to dates, Officer, now please I Starkloff. call will over With Chief Eric turn ni.com/nati. visit Executive For

Eric Starkloff

improvement Thank guidance and hope appreciate afternoon. well. Marissa, and our despite will you, results We're details challenges and to some I business the global joining to everyone above key for today good earnings. parts also see the the pleased that of and quarter. come during we were call. remain in revenue families of the pleased on us in remaining Karen later in our our safe We midpoint did economy, and your you more discuss

customers will strategy, our I approach our discuss quarter continue results long-term the our progress of to as again, test as on progress color investor before our significant also growth over measurement. ambition way and industry it now, We details shared I recent Karen. conference, At our well industry third and to once a handing some to that disrupt redefining provide make on

automation software, and that unique test accomplish data create of we aim a how integrating customers in are ambition. tells else perform from We of We industry believe have a data in focus these their systems expertise now each software data area, and digital test absolutely in industry. level this data driver already the systems. products of we and in serve and set solid world. thread is through because actually we goal. testing valuable a within product is And goes by manufacturing our I to the critical enabler position automated to engineering most uniquely validation important real applications nothing across the test this is analytics production It Today, to application performance in make of offer test our workflows. test key an to analytics Software will comprehensive software, ingredient. operation also

As to of be many best scale, continues and our grow of and are investments will need it. in believe are intelligent strategy, manual vision the steps by achieve our growth and customers' is This automated complexity to that prioritizing lead the we I the products to to position we systems, the of foundation change. our

systems, through customers. four We our and our process on execution streamlined are focusing software, more a services strategic vision for this pillars: buying

and our software. Our plan today level, particularly time, includes software revenue at XX% recurring increase we to following. XX% the We'll the to primarily subscription-based offerings, revenue over from shifting elevate software position enterprise or new aspire toward through our of

on expand will for higher wallet. provide level our share increase point to our and customers starting a system-level We our of offerings

streamline, smaller services of will differentiation to The offers continue the especially next business large our we will process We natural our streamline doing increase value. where And our to sales accounts believe evolution with NI. expertise base we for clear and of in is focus the transformation.

ways are their our and helping on We success. driving while in broad-based serve efficiency customers more still we focused the support ensure to

we past in scale and leverage years, the model. have our and support driven Over marketing, several sales

large serve. to our the are both number costs We of committed and we experiences reducing smaller a improving of accounts

can lower NI, to where will for these how further touch For evaluating and efficiency our continue we e-commerce they including optimize customer with distribution improve and engage reach. utilizing customers,

our in top on continue focus We sales on focused with accounts. opportunities uncertainty our expenses remain our through will and potential growth expectations. are to aligning We despite economic expert driving system-level strategy force our

action customers future, aligning achieve our our needed capacity to we is serve the tailwind while long-term Although goals. now we believe a are taking our macro better to in

our to with have reduction the reduce efforts, leader the level us space these the difficult but believe across requires enable help a workforce exceed approximately we performance our that a decision We accelerate As bold necessary of made growth SG&A. part in stakeholders. to efforts our strategy investments the of these our to expectations of company hit committed X%, will as long-term a global by high and most make are in we Being necessary moves, of our financial business and to delivering to goals.

Now our this quarter. down with networks. for We expected, as in orders millimeter will year. though millimeter release which turning we wave is industry beginning the on for a to QX, high record wave we year-over-year show pace of adoption believe In digits single remain cellphones, drive more were results XG increased enabled to semiconductor,

customers' from experience to unique up research the opportunity flow. the impact throughout design their continue through a semiconductor Serving U.S.-China validation test also our We us to testing heightened for opens space automated negative for tensions. trade and production some in early needs support

significant agreement leverage our our relationships our key industry Soliton. through on offering making Cadence announced progress strategic strategic with with design-to-test are through recently with We alliance and of like leaders

As long-standing In of weak, of from active companies many down customers critical QX, year-over-year and did in leading be provide we product headwind will Though interest solution for problem semiconductor double design focus the transportation orders safety a in we solve continued. attempt automobile link, low continued test and in allowing around strong see of to production seeing as early to the areas electrification systems. growth digits year-over-year who workflows, stages feedback are to we development.

We strong based in U.S. stability aerospace, a growth $XX,XXX will Orders recovery we what believe accounts with QX, both actions our the we PMI actions execution we to that business, reductions overall top are within our spending where under are defense the to Orders $XX,XXX. can pipeline our portfolio in continued constraints portfolio even digits to remain of The year-over-year focus saw growth a impact business. business recent in and of a and business over have were in has QX forward. Americas focused low what broad In expand positive in We line spending digits on our in investments and opportunities in focused business growth the achieving be environment. the to streamline third been steady environment, that did we down taking are For in the orders our were up sequentially in to sequentially, going global quarter, drive in reach in are has specifically year-over-year, and government, the and the with on relatively single weaker the year-over-year orders orders the slow in growth. improvement an line taking on focused. double to major to on low areas business improve our this due in particularly customers,

set will We remaining that Officer, achieving Chief to I'll comments. Karen short-term, turn that, few a with focused to before while With the continue out. financial our adapt on over closing call long-term have the we Financial Rapp, in targets the

Karen Rapp

were overall broad are are year-over-year. the orders X% well and XX% all were in were the as trending weakness and both year-over-year our down expected, down closed up third margin year-over-year, quarter year-over-year, up to down down and based the Non-GAAP year-over-year, impact was down orders midpoint was under We regions regulations, gross improvement of in GAAP XX.X%. Orders XXXX. our transportation of million, year-over-year. the over QX and sequential Entering Asia year-over-year weakness QX Orders orders we quarter-to-date In in In $XXX Eric. due see Americas, EMEA down revenue quarter, from guidance. were QX, the primarily $XX,XXX trending Thanks, in Europe. pipeline flat of China above the QX, business. continued orders X% Pacific across pleased fourth to X% XX% with as $XX,XXX X% with was

we monetizing to basis growth us, We impact but additional to expenses and in services of impact change provide This on system operating from points $X related shifted an operating to the expertise will continue no has we on QX, and margin. COVID-XX. million about to costs sales. see leveraging sold approximately to continue focus had goods area of accretive for our cost services been XX high-value operational drive Services from

loss the in loss our our and We in conference GAAP reported per onetime NI, million, earnings on conference per XXXX we gross July. included earnings that of the This target of QX for was was our Non-GAAP non-GAAP August. guidance. the and $X.XX of of company margin are acceleration $XX model net charge trough $X.XX, our are of margin this margin assumed earnings operating the part as certain were above million in The in year related XX%. minus August. in and we believe XX% $X.X target midpoint not will per of is forward. of our share to that which in unvested diluted investor as plus $X.XX XXXX QX amount our QX, GAAP Included see a to in our share. acquisition. is bottom million valid, outlined per reported to options year at optimal model $X in outlined share full of QX non-GAAP We we moving was was net also net a operating investor guidance XX% modeled the track share believe of on the begin We we full assumption had income GAAP to we at recovery is and XXXX track our that that

balance $XXX with cash remains We million quarter sheet investments. the ended in Our strong. and

anticipate We company. level expect we term incremental loan are and the existing term, agreement agreement outstanding in not October With the change short line changes In beneficial amending the will include increase on refinance to amended the revolving our credit increase that our environment, our a improved capacity. we credit existing of that material debt. XXXX, to of borrowing credit, did anticipate XX, other the the

was months, nine of and demonstrates our consistent operations of representing solid diversity result model. our $XXX and first the resiliency business the I cash this revenue. the million, flow from believe benefit For XX% of

and of XXXX. continue technology QX, approved In experience. plan $XX priorities to a ahead remain Our to We to December our of dividends. capital of we on unchanged. payable deliver and to invest record allocation November innovation customers world-class customer clear on Board and XX, in the stockholders has in dividend needs The stay a $X.XX of per Directors paid of NI X, share, XXXX, Dividends priority. million remain a

through cash stability. share. million $XX for with way of an dividends We to share the shareholders We repurchase, average long-term but our stock be at through shareholders only to $XX.XX quarter, also we third view of growth not continue returns repurchase. position investments our opportunistic and repurchases for to as In strategic will XXX,XXX common strong shares opportunistic a and per of returned share price provide for

platform and targets technology not synergy OptimalPlus financial is Our on and evident. strategy areas M&A of the alignment out pleased growth already been going integrated focus Because will across strategic being faster. combine do to achieve of and to with to revised and funnel our our the accelerators technology We're technology, OptimalPlus platform details NI we intend with focused progress identifying to has been leverage NI specific of OptimalPlus. with the our OptimalPlus on has and The break the the forward. integration offerings

by global been have PMI a in the the the during improvement in We third sequential indicating economy. encouraged improvement the quarter, macro

negative quite including contraction Although cautious in uncertainty, wave a remains global business, still still we signs year-over-year. virus. positive another Despite possible GDP remain the is a of as due there of our to bit some

the fourth the we quarter $XXX of to million. currently range For to million revenue in of GAAP XXXX, $XXX expect be

growth in $XXX non-GAAP versus We of impact adjusts million. to which total revenue, $XXX the this related OptimalPlus QX, range purchase million the At midpoint, expect to sequential accounting represents to be for price XXXX. XX% the of

will $X.XX expected fully earnings to range be $X.XX per China, region the in the customers be while also serving QX, to of for expect to relevant our share dedicated regulations. GAAP in $X.XX. We $X.XX with to with earnings fully export complying NI, focus non-GAAP per minus in range of for share We remain of diluted diluted a

our impact trade regulations to the quarter into of and geopolitical landscape, of guidance. a negative We is revenue see X% per continue which expanded approximately from built

As to and approximately operating plans. QX Included per GAAP strategic guidance our earnings Eric charges. executing $X.XX to mentioned, we're restructuring our is of in committed share model

savings. align from for We QX, cost to taking resources operating in to actions these XXXX. begin expect We're savings and expense restructuring this growth strategically our

globally. summary, In the work our customer strength and innovative We broad see the stability employees expect our adaptability the is efficiency. I guidance XXXX. the economic believe by industry provided of hard the our of a and despite in is QX our diversity, This delivered above revenue uncertainty. charges value of we platform of base this indicative in midpoint also restructuring operational testament minimal all current customers the to and

position costs resources and higher in long-term our opportunities global growth financial lies a pandemic and We this sheet reducing while us strength to ahead. of will believe model. our puts continue through of We align what balance to strong in pursuit stability

Now turn to closing comments. the for I'd call over some Eric to like back

Eric Starkloff

so. matter. times, believe software once My is industry. on Building I people, taking we team us our and you, positioning challenging right Thank have do the In modernize win Karen. leadership to strategy our to unique believe aligned position, that and again, leadership and the to on disrupt actions we opportunity

as will a high-growth increase continue to of for with the to must we the our and way range have inorganic will shifting to within I opportunity capabilities a our of to time. smaller a focus includes customer As investments sell overall of match talent on size our recognizing needed to our customers, accounts. adapting innovation grow to pace potential take will business, growth to existing and opportunities continue strategic particularly range support The align This actions the continue we reducing of and we We of customers. to resiliency to broad address our Ignite needs. where our our by expertise resources to broader and growth. needs hire the a execute want end strategy. workforce, challenging employees their And we in key our view to accelerators and

world our while transform capabilities be in making taking your With reach it of must decisions us. being steps our open a We that simultaneously around in business win. and bolder and customers I our tough serve us to and move needed confident place we even will of the invest we many have the taken NI, uncertainty the our faster, to great to technologies in vision industry. opportunity but put we necessary to Part in managing is now to that, as up position and questions. remain continue for best disrupt to the the the

Operator

first [Operator comes Eastman Instructions] question from Baird. Our with Richard

open. Your now line is

Richard Eastman

know that third digits. entering involved we than the Yes, you quarter maybe mobile good we curious, the color the the of for more stuff here more Again, a are we that seen, all one cycle referenced than afternoon. the of But all big around around products mean, market, a the on portfolio introduction I'm have U.S. around little semiconductor. smart the -- the Where around quarter. I activity the bit and Eric, biggest we're at wave high side? see the I players maybe and again, single there. down think third market semiconductor, of network smartphone don't I millimeter the toward some little on end thought with the And we expected in the also business, test we of strength that. bit

So the and I handset business the of piece mobile also maybe products. the semiconductor know test just then would show normally portfolio some up color around which in business,

Eric Starkloff

Thanks, Rick. Great Yes. question.

the you to, be -- on negative look, sort alluded timing, the based of as we semiconductor So expected to expected we in QX. business

our And optimistic We're we're for short for wasn't it it's prospects things So going record mentioned, a business. kind there. the of as a of still of There's quite -- pace about on outside still on year. couple that and long-term I expectations.

So XG, for a a in you of obviously, lot millimeter additional traction see mentioned, business. some in success we've has gigahertz kind been sub-X now driver of XG And to growth wave. starting we're the that a had

now. millimeter for infrastructure. a the for Our ramping wave we Certainly, wave. is products are sign -- infrastructure good primarily we infrastructure. the the -- world millimeter Obviously, view for in a and on wave that popular version that most demand there's into year, peaking as primarily latest and we've market space be sell product I you the that next after probably mentioned, has the We in now. fact millimeter got selling the as that mentioned, cellphone year Those the that. in are used of devices expect infrastructure into in to But semiconductor

So is I a think that little side. on bit our optimism up ticking probably

that challenging, some our then a Now which China. And of in business is lot in as mentioned, that mixed-signal the that semiconductor affects sell obviously semiconductors. industrial regulations, also things have also the we the of more semiconductor, some we are we of sort general China into

I last have world, moderate ADIs little TIs more been over the the a and business of quarters. which the think sort in of couple of their bit that

the then not we last the on exposure into -- When XG, types question handset we focus. mobile of a That's portfolio, different for have measurements. think of mostly the of on to your a primary area test focused some we're variety So part of about semiconductor opportunity. about

Richard Eastman

just a follow-up, the off ask Okay. savings with that the headcount kind reduction, Is do those of And then kind I with here as 'XX? can there a restructuring anticipate what the can the and that expect what realignment of you assets. payback -- But restructuring realignment, we in charge? of on

Karen Rapp

we'll about, been it's -- Hi, streamlined Rick. while for into some of of evolution our customers that talked been as Yes, investments process, that through. key serving completely buying systems the Karen. more redirecting with going that be with a we've We're we've the investments, Eric about a some now talking

So redirecting those as funds into those laid out. Eric XSs,

be do talked is where in we the And specifically doing, that for model August. being to used to those growth. can is to SG&A goal, line accelerate that laid as closer closely XX the XX% this that with closer revenue. back how long-term -- what focus. When we we're XXXX, align that of in more three revenue that the we we restructuring much of what is each you going plan, our the one to believe with we'll for putting the revenue So like look to XXXX able out we'll refer quarter, SG&A, model costs we're year and that about XX% we laying I'd But the be to model back we'll understand we out

Richard Eastman

Okay.

Very Thank Okay. you. good.

Eric Starkloff

Thanks, Rick.

Operator

next Our Mehdi question with comes from SIG. Hosseini

open. now is line Your

Mehdi Hosseini

I that's thanks XXXX, a XX% Two just I to I the you go year your understood. for margin want you're if going operating Karen, follow-ups. sure make then margin. the is question. correct exiting to Then Yes, I for operating XX%? have follow-up. taking hear at did almost my back And case, to as

Karen Rapp

Yes. end Mehdi, and -- for August that that's back track for the the XXXX. we laid out the we're XX%, on for of we that year in still plan the full was believe

Mehdi Hosseini

at think like Okay. integrating? thinking Got QX? Or is XXXX, of expect what And then on two we on be some in you of synergy? are point side terms to contribution more great. the Any OptimalPlus. color that should you. you're want product back I in How would years in Especially out? how And

Karen Rapp

this Sure. Karen. Yes, is

that still wouldn't accretive when this how until And To on -- from come million going $X with accelerating the So in consolidating our of synergy laid And it perspective. because revenue about of about the numbers the your it at we're track business. $XX I how out be had see. we fast NI talked QX. really OptimalPlus from the integration of OptimalPlus had is case, we're to we that XXXX. to with the a last talked quarter million still for especially range our for a existing in of benefit that's visibility point, We point

quickly And going so separation visibility of OptimalPlus. we're the and the lose to

We is really to a are well far. gone so separate fully be It integrated, is going organization. something which not as that's it run to going

talked we've we're on but with the XXXX, top accretive to still it seeing there's that's being and in opportunities expectation. line, especially -- so intent. the that And no change about And that the

Eric Starkloff

part to and been And and see about, remarks Yes. top quite platform. pleased value spending the going when for in both NI's OptimalPlus the this qualitatively, so customers just to customers just be we prepared made the with own of with a are very, as and bit just I able value revenue that And we a vision. that, software to little say, some strategic existing opportunity I've relationship And is the more delivers type and that time we elevate that the very side, can that be important customers very that to And add comments those capability building this on just personally meet then I'll ambitions around really of have I that I've synergy capability it. to Mehdi. been the a talk our color, us. about some in have, I these of of vision we of

Mehdi Hosseini

Thank you.

Eric Starkloff

Thanks, Mehdi.

Operator

question a ladies this [Operator reminder and if star like Instructions] time, and at a one. you ask press gentlemen, Just to

comes Our from Marchetti of next the line question Stifel. John with

Your line is open. now

John Marchetti

quarter. Thanks about very much. Eric, talk the pretty order up sequential about here. a the talk I in was little bottom you're And how I'm if a just line? there? for below that minute vertical impacting the you sort orders in positive to mentioned wondering a seeing with change curious what the that? $XX,XXX. orders really improvement the last if you was commentary of in But calling reconcile could bit it's You a what steep larger order decline that's more XQ of the particular above maybe $XX,XXX took off If

Eric Starkloff

there. tell comments When wants Yes. little in bit to But continues I John, a feather be these that, timing quantitative growth lumpier. are There's I'll she have comments Karen I'll driver. concerns make and larger opportunities. and obviously the opportunities can. think then some if on you to you, That about don't qualitative the

a that continue it in that some to And be be there continues semiconductor, mean, to primarily our in large So of of we you're down. was my that are is expected year-over-year has order of to I the -- remain this course, it of ADG be. in be of relatively confident has stayed From would where will and bucket. weakness quarter I larger course, those the semiconductor in it order growth compare. the a business for buckets vertical, driver commentary, the including then that year-over-year sort strong, and overall, some business, just transportation compares persisted and That we think a seeing part in

rather really as -- characterize more trend. I'd timing I'd than a that So

Karen Rapp

we've with Yes. see the buckets, well a orders. John, to up broad as pleased quarter the large as the trend been And actually, starting really across base both fourth

quarter. positive good start the So a to

John Marchetti

X% a of we -- with follow-up, talked here. mean, in move that a related? just move started of see maybe I to weakness being you're nature, specifically I'm as a talking go more as away, about is or you curious, attempt that have to as bias I'm know broadly? U.S.-based things at a Or as through providers and then a solely at to And trying sort just least away But the it China I you're market you customers tariff from headwind looking

Eric Starkloff

mean, I talk been John. Yes. certainly, that, there's about

We haven't seen that.

In fact, really, really it outperform actually China. much been that headwind flat. China more our did that's for approximately I've of And of was in China. APAC significant company results obviously, at we It was headwind a rest that given proud said quarter. this the X% the to level,

that's I So us see. the there's needed teams the good in after One go light is, And restrictions. a where and of different that to agility things. the to The really activity teams. economic couple good a the second be after flat, tells they can our trade to pivot business of go think pretty recovery in to sort to general credit of we is, of

for exceeded quarter. to So we them, expectations that were and pleased credit the my

John Marchetti

you. Thank

Eric Starkloff

Thanks, John.

Operator

Starkloff at this call turn Eric time. queue in back to the closing to questions further no like for showing I'd I'm remarks.

Eric Starkloff

safe, we'll talk joining today. and again Thanks, everyone, to for us you soon. Stay

Operator

today’s call. Ladies and you gentlemen, this concludes participating. conference Thank for

may You disconnect. now

National Instruments (NATI) 1 Nov 202020 Q3 Earnings call transcript