National Instruments (NATI) 29 Oct 212021 Q3 Earnings call transcript

Thank you for standing by, and welcome to the National Instruments Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded. I would now like to introduce your host for today’s program, Marissa Vidaurri, Head of Investor Relations. ahead. go Please

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

an will it opening your update We for with on performance quarter up in our questions. before the start

actual our supply be limitation, caution those results update for August to duty on and quarterly materially expenses, statements or in business Form constraints, strategy. including no wish to report the Our targets, from A capital XXXX, statements on chain files the identify without XX, statements, company’s our or and press discussion events that our recently guidance, that negatively earnings, our for business our software actual XX-K and and and revenue, These future assume results XX-Q X, filed forward-looking COVID-XX forward-looking our of operations We that We new execution Report and to documents forward-looking include factors could contained acquisitions accelerate the regarding directly you and Form that of changes on today Commission, the to numerous disruptive expectation. outlook, documents the to cause materially may results to technologies regularly in differ on that including and you XXXX. impacted differ disclosed and filed allocation, statements. contained important on and ni.com/nati. refer demand expected contain statements any with in factors. confirm to February gross in our We actual support Securities products, on are in non-GAAP by will innovation changes business potential and could of the including, core such comparable our those reconciliation this company release financial measures growth. are of GAAP margin, of on leadership the believe focus measures backlogs, financial integration or disclosures to our results the operating new most just related successful we and announced impact company’s We Annual call the predictions our Exchange

new Thomas external Executive In data, President, long-term disruptive to and driving product experience software. long-term for of First, we appointed to analytics utilize Vice technology Analytics. including innovation will Technology models business Head his software NI’s tied Officer lead as role, and Benjamin Chief to areas, Product he and this driven enterprise of development opportunities, new growth essential

We you. also lead promoted over more in role, for conferences look Scott with With Please to NI customer will will Rust, Executive this the months, responsible that, detail. meetings Baird, Platform In Needham. for and Officer, global for NI Products. this will development to presentation discuss will Stifel, and leader, and visit capabilities core the forward to through our create to the turn virtual be management ni.com/nati We of needs to products platform role President, across Vice differentiation NI’s meet teams In an Eric building leverage the experienced business. the required Executive he Chief now Eric Nasdaq at time. I Starkloff. hosting call speaking coming NI’s

XX% momentum over we last as The order reported growth appreciate made results and outstanding non-GAAP you, We growth EPS continued growth, Thank across business our paying changes the fourth joining today. revenue afternoon. QX years strategic Marissa. are clearly the We several XX% Good us consecutive off. XX% in for everyone quarter. with

us committed vehicles of XG, growing to and growth of financial we favorable is XXXX, for to trends significantly on secular these demand. scale record high of our in higher profitability. full business leverage CEO invest ahead strong while a autonomous expect electric to backlog to in in role continue our committed or opportunities and are three-year XXXX, opportunities position to leading The and schedule. our continued a XXXX, after model customer enables space accelerated growth expense the demand, as a and growth as to entering We through technology on Shortly new exceed and XXXX in of focus such our taking I meet we XXXX. are year innovation expectations broad-based Today,

and growth even our XXXX, achieve earnings deliver For of are to backlog to year another with expectations revenue growth. double-digit flat double-digit

to remain recurring committed also We increasing our software revenue.

revenue electric and vehicle, to I'll recurring stream We licensing testing expect or in to success we have increase a subscription-based two moment. speak Today, capability, in EV to with XXXX. that announced acquisitions had our our strengthen which

We acquisitions $XX share. to additional accretive $XX add be to and our per million million revenue XXXX expect these earnings an to to immediately to our

into investments Looking revenue made continue years, earnings we've ahead to multiple business expect the to exceed we the will growth growth. enable

how focused how these results to that to achieve discuss and recent announcements offer clarity we're enable leadership highlighted the will growth. Marissa Now, I to to us want accelerate

two that We and growth, systems We believe realize with opportunities software. position the product in have on enterprise capabilities capabilities will together while full to opportunities also to a analytics our continue unique through creating driven our that potential. link core growth focus new we business these are

through systems, more strengthening this than operations. effort first, We with year our our framework we and XS focused services core focus on ago systems streamlining on started our So remain a opportunity. software,

based we our higher drive support initiative, on this our while we success and engagement changes. our business We strong a believe services way we've scale. customers result highest leverage customers. direct the is We the of growth year this to serve focused changed that to customers, systems across and and seen these our of potential and level with part broad As streamlining

this We revenue are and it delivering and record income. is on to leading operating strategy

of high electric and vehicles announced applications batteries. Research, acquisitions We have prepared morning test our acquisition NH accelerate such align a leader this strategic we as is the are in to and to strategy to And measurement lever communicated that a use growth. we power

entered voltage focus high is high power the We to NI’s business the enable in inflection. European agreement of combining systems these growth systems The expertise testing platform customers will acquisitions also workflows technology and for a into a leader flexible growing optimize applications. in to current to us power fast these definitive EV systems. strength Heinzinger, the test to high EV believe and EV purchase our of this accelerate with companies, critical and We of market accelerate time

drive data. customers for long-term to disrupt opportunity is as This to began of industry value This with through new platforms critical product and journey business optimal analytics deliver combination We our increased represents can we term a delivering and and level last value also plan our to level NI through an effort new long year. growth enterprise opportunities plus and growth. of the it

all Our how core will new further as the can and opportunities and with and drive focus analytics software CTO, across modern software Thomas strengthen businesses well we through both of product our differentiated Benjamin, resilient. has cloud expertise the across our units. in our business team as working mobile our He's more growth deep business more leverage systems This will make also business of enterprise on leadership my technology.

focus the and our goals needed on growth us to NI short-term and long-term opportunities their balance with investments to Our new core success. right enables capabilities ensure

opportunities customer growth. to the and that are business our tuned strengthened has focus relationships our driving industry secular Our our

strong be play for focused business applications bands We continues to the proof our Our will to semiconductor higher move for frequency the electronic of point driver a strategy. our NI believe strengths. growth company, to wireless more

their EV XXXX. ADAS increased of XX% focus analytics two safety and would and business combined We of lifecycle has connected our by them more and these the insights. open growth total delivered. for it transportation, revenue needs believe development year, In QX, represent end to product the predictive year-over-year in nearly predicted active, to support to our part we software this customers this addition, throughout strengthen and to transportation new or areas our use our revenue solutions than drive expect derive In allowing half we ways and flow, up data of of

and business growth government Our aerospace, profitable XXXX with growth steady both and a engine remains defense XXXX. and in

continues success strength Our innovation focus in defense with continued space new and on applications.

Our a with year portfolio over third from data results year deliver its of business continues revenue growth. to focus in strong And opportunity well. as area quarter clear our consecutive this presents on insights

as We continue to focus on broad portion customers and exceed leverage we of resiliency expectations this in of set across this business. the

technology solutions new hurdle technology off. in are Our electric is for strategy use customers career providing major wireless autonomous our pursuing to including a is channels a communications customers once space inflections, distribution through of and that is inflection e-commerce innovation. easy and many major In Each technology vehicles point. for and and global a summary, paying XG,

automation value systems trends test they challenges the get and our outlook more and advantage of over and NI QX. out customers their call these positioned to and help to With to manufacturing expertise the I'll Our make that, results discuss improve so modular systems unmatched and in our the of across workflow take Karen software turn our prevailing operations. their for software navigate to can test QX further Karen? uniquely development

$XXX of Thanks, QX third results. revenue quarter. for a and strong XX% another year delivered financial everyone. million, Eric. record NI year was over quarter Hello, the up

our in the We quarter, revenue results issues end below supply Unplanned aligned at midpoint navigate with of to through our guidance. the expectations. constraints to chain continue freight the slightly resulting of

continues XX% In And were XX% company year. orders XX% of up start However, the for customer Americas, an ended backlog $XXX orders XX% were Year-over-year. strong. the of were the to orders be orders million Asia-Pacific, in $XXX Total up $XXX year-over-year. million, million, and were demand from with up record all-time QX in year-over-year. year-over-year, up the EMEA and up QX

orders broad-based is quarter, up were accounts helpful impacts from were it For from believe up XXXX, negative performance. Due we the accounts results orders the compare year-over-year, to to of pre-pandemic third COVID in and XX%. to focused also XX%

for versus compare the in the pleased were believe another two-year this XXXX accounts orders We're focused orders total for Orders our hit up QX were which working. is growth XX%. focused were up that accounts, and were customer XX% QX is and double-digit see XXXX, proof XX%. solid hardest broad-based XXXX to point For up for strategy

Our we than less due remain five of average weeks. an lead are seeing approximately and And expansion. this to times X% of cancellations competitive

revenue of was for defense XX% gives margin $XX revenue of XX% and an margin up XX% and units. ongoing million, pleased growth of by year-over-year, of software operating at combined remained QX our government XX.X% focus operating within customers a XX-month the and systems, unit wireless non-GAAP for quarter XXXX. year-over-year up QX of of year-over-year our of we converted the this trailing $XX portfolio broad on a continued $XX ongoing Despite and Aerospace, a areas in QX, gross strong with And based Non-GAAP in year-over-year, basis. customer total third chain non-GAAP quarter in our was delivered We the see services solid expenses of all income, X% In business into related backlog continued up the in performance backlog, growth of EV the to across our also year-over-year business revenue now supply the up revenue with to by growth increase consecutive majority to revenue pay. revenue compared revenue. in on in the translating million the momentum year-over-year confidence driven in XXXX. company revenue. XX% revenue QX NI short-term, we increased $XX ending durability Year-to-date, generated the are success was our constraints XX%. Semiconductor us represents year-over-year, XX.X% million, are quarter. unit million, strength QX, total our XX% in the was revenue third represents vast demand $XXX up for our variable revenue Transportation across and into electronics business non-GAAP and recurring a testament XX% Annual XX% operating in with at total building initiatives. million, XX% of Asia. ADAS. success strong revenue

pay performance per tied guidance annual and the QX million of was QX million company. the is increase and of As was We earnings of income income earnings exceeding net $X.XX. $X.XX, our previously to net diluted diluted $XX our non-GAAP discussed, non-GAAP $XX an profit per GAAP and share year-over-year. midpoint XX% of of revenue reported and variable share the

with million chain Now, continuing our our let flow me of supply on starting year-to-date. comment $XX from was results, the cash million management period challenges. capital We've during inventory time as built generation, of cash this result a operations $XX

We of and stock on total, we repurchased XXXX. our was free past less quarter, we trailing We in capital XX-month through continue In the dividends shareholders to flow returns. reinforcing $XXX $XXX in million. flow paid approximately from cash defined inventory an shares a months, growth flow the our to early expect of In price basis million Free at cash operations, expenditures. as cash returned $XX.XX. average our commitment shareholder XXX,XXX million have to XX $XX

sheet remains of short of in October facility term NH Research the November payable third cash and funded with XX, at was directors NI X, million existing quarter. on balance end primarily stockholders acquisition of through board of approved quarterly The November Our the per a dividend $X.XX credit of on of share, XXXX. XXXX. record strong $XXX XXXX, our to The investments

through balance to markets. existing or M&A undrawn on fund history to flow other either Our remaining positive of our flexibility us the facility the future access credit capital through cash allows

EV We We for through our to cash way position our through view the shareholders share hand. on acquisition strong and expect as to provide Heinzinger buybacks. cash Systems a dividends fund returns

focus. We prioritize will continue aligned inorganic investments and growth industry term growth accelerate to when long to our strategy to

would Demand dynamics XXXX. across function will all are the ultimately be issues. the revenue continue logistics Though million million, competitive supply, million $XXX fourth $XXX visibility industries to weeks. investor the of and regions, XX% believe and widening growth $XXX and over total expect we year the the to the of would remain profit We QX for At QX our Now, end impacts for conference. pricing range customer guidance guidance of August of times COVID-XX This expect over backlog orders we billion at outlook, With of of of demand the shifting and lead supply in to high approximately understanding for in this revenue range of $XXX year over we of year outlined is midpoint, supply, expectation, our XX% we in revenue of challenge. XXXX a based up be to on end strong a our so our XXXX, exceeds to in backlog and in $X.X guidance six this representing and million future our the XXXX, be current the guidance. range current million. this fiscal the $XXX With year, exceed be GAAP quarter year.

non-GAAP range $X.XX. will the per of We expected $X.XX for share earnings to expect be GAAP diluted earnings diluted be $X.XX share per range to in with QX, the in of to $X.XX

and year Our share QX share includes be a primarily XX% to for by other sites driven year consolidation than our per of GAAP earnings restructuring full head less one per At Germany, would midpoint, of impacting costs, X% up earnings of count. the in R&D over XXXX $X.XX year. related the our non-GAAP

share to guidance in of recent flow operating our QX and earnings guidance. NH Our quarter NI a is accretive per to our the margin includes through Research. also is The from this partial acquisition of included business

demand, forward the of we're current of the customer XXXX, encouraged macro and our our durability view of environment. to our backlog Looking strength by

to constraints continue half of see first expect XXXX. least at we supply However, through chain the

synergies electric customers fast expect broaden is from growth reach to priorities these be growing leading companies of our pending utilize these complementary transactions. total Heinzinger revenue acquisition QX We complete of the expertise that due our NI’s to two Systems expect there XXXX. to in space the business technology these X% in vehicles. we and represent Heinzinger nature to minimal accelerate expect NI focus we of the the to be NH to X% EV will of XXXX to Research and Combined, and of in cost The to companies

given the range we've XXXX assumptions and the growth made business digit the revenue scale we XX%. XX% to our in and focus to grow the areas, market double For of expect current year investments of in another

and currently We XXXX drive overall expect in and We operating gross margin expense minimal to offset of margin expect by margin. to our component pressure pay goal robust pricing variable improvement on exceed XX% continued from XXXX. impact management operating

to we maximizing are and will to In and remain committed our our For accelerating business We earnings growth make our growth. competitive more profitability revenue shareholder value. continue above targeting XXXX, closing, improving resilient. and strengthen we stronger share per growth, advantages

Now, closing turn some I’ll call for to Eric comments. over back the

strength our believe We strength. Karen. close and QX enter you, in and focus Thank XXXX position we strategic demonstrated good of business a the in momentum to XXXX and our of have out

technologies their And barriers We best in to cannot to their be can our hard maximize investing ensure focus, we improve our problems strengthening and new us your the help questions. entry. and our And all now disruptive easily customers to success systems shareholder through that continue in once focus on high customers’ the delivering more I in years of believe complex by that, and we their our that suited for as that and we of confident thank become increasingly am put to this challenging, strength. we’ll perseverance We and accelerate work this growth intentional commitments duplicated, value. has and employees businesses. market. take multiple capability of creating focus our want believe position on I software again our core are With

Instructions] Delaney Mark the from line Sachs. comes Thank of first question Goldman you. [Operator from Our

please. question, Your

the on Congratulations outlook, good questions. the and Yes. and results you taking thank for

the impact bit of deals, the or on solutions pretty to and the them and can how acquisitions? build is in revenue do to EPS First announcing there is spoke EVs. you're have both independently important same to it you sense full you acquisitions, is margin do order from the the of reason on at both you and each tied more like them of electrification a both them that a of curious, the and to elaborate make you'd specifically I'm set side time the

Yeah. question. you're for Mark, important hope really I'll doing start. These well. Thanks I Yeah. your deals. are

the characterize me opportunity here. Let

whole is they're growing and XX% market to of Research, this mean for NH as market capability. needed itself in to that growing the footprint. First all, the XX%. geographic one space, understand for we the to portion this have two what serving primarily thing system. is and a I primarily highly market. I two as our the mentioned, already Heinzinger our is companies each complementary which their software And major The other, have growth And seen is electronics, is existing they're complete then about today. high primarily business these fast and serving serve We've these businesses measurement really capability that to we by the is existing analytics in powered highly and the European complementary to US driver

So rapidly that's those view capability really said, lot urgency. opportunity as a to together, solution fast we growing our an our scale of in space. doing I've have this as area And an in customers and

from EV get is announcements to the There companies. the ton heard this technology You've of all various urgency them in for a market.

in a with And on you the it's demand that want margin service Karen, to to so comment in we see demand position our to a complete capability. this be strong growth and goal side?

were Yeah. pleased the them the complementary Sure. our accretive that margin they fact in they that From they on expanding are with they way that combined, current why a is are standpoint, commented reach that profitability we're in immediately still and profitability so are I our which at revenue to them, complementary looking are position. customers standpoint, actually the way

perspective, an are percentage margin we combined from if look NI. of increase for they at will continue you to So actually NI where operating that

good that’d getting bit little if helpful. I to see confidence, out you so revenue XXXX, and your model the year number one could was the very on of XXXX That’s really impressive that just talk the a Yeah, and curious gives I'm the just that. target time, meeting me, XXXX supply yeah, what giving could you if and I But it's be the outlook add given confidence to and constraints a ahead a more, you helpful. excuse follow-up be

Mark. Yeah, question. Good

able XXXX. So we time in yeah, model don't at would it. to be hit mentioned we laid back I everyone believed if out that as that know I the

in it early. a pretty year position a it's exciting to hit confidence find So of that ourselves we

Let me as Karen bit describe and chime well. the confidence a in of then little can

First will at going we're of we year all, about the number this believe billion. on if end where based at guidance, bookings at, $X.X the you look

can that double – one provides with you into that digit of sort see XXXX. growth So a even of million a going book-to-bill X%

just position. that's very think favorable we very, So a

continue that XXXX certainly We during expect year demand that challenge, while strong expect the the during to that a And the do the will the first in moderate stay first year. to of half believe then will year. half the We calendar the of for be supply year. we

well. mentioned of gives And also from a but favorable built a when positive to is that growth. the so it, also year that of is us We just that compare you one as to we top this year position had XX% negative I'll year, XX% line a to that and going variable pay. challenging expectation confidence in terms look strongly pretty into expense in at Last think say we're really a Karen

income We set we we absorbed as we into position year that that's for gives target flat really that's that go And expense increase expense would to also why good a operating expect year that early. and we XXXX, that as a that and exceed as XXXX have us well. we expect look this a

Thank you.

you. Thank

from question Rob comes from Baird. Mason the next Our of line

Your question, please.

job. Nice Nice afternoon. job. good Yes,

design Just play, to expect or floor on companies your you overall where acquisitions. when the to go then guess at of back more the do production is maybe is look it do Eric, validation in value where just majority focused reside? these it to the opportunities the I we chain, solution, and the

Yeah. Thanks. Thanks, Rob.

validation. in - don't in areas, although both don't So do mostly play

the element to the becomes component understand of about expensive most vehicle. and of in electric in characteristics motors, lifetime you there vehicle of inverters the being focus intense battery, really both that, things performance is of the The testing of validation. able the is of batteries and on and particular, essential quality electric if and those an a like in think the the that So characterization that,

as well suppliers huge OEMs, there's of a focus components the So batteries, inverters and other vehicle. as of electric by

So technology well. production the but as validation, mostly also to scales

other I question just a for then semiconductor source of a business see. the that's your test bit. is been And around strength

think are some pause you're of hints that your all your You XXXX is you demand particular, resides strong. – if suggested one given do around some in inventory a markets we pause your that levels how mid-cycle, whatnot and up that are position, year? somewhere just seeing all or whatnot how your kind where little type strong, to starting or get around you curious, as there look plays of position, But concerns how through And you businesses inventories the regions bit. I'm do that that into in go if think through as to

this understand And our there's a semi is semi of shared before, business that things. and to sort by semi-cycle course, of at that's will expectation. unit and built question, point Yeah. We've that but characterize some of our way. into Rob. But electronics, your that couple I I It's business moderate. want the

that before semi, both include. then and So as about electronics semiconductor includes it production we downstream well And validation. portion of the about sort half within as half it's we the said

strong the new are we lab think other moderate in made semiconductor world secular some build production pure that as additional to the and favorable capacity the pretty that cycle going There's multiple there technology, production. lot we from of eventually across frequency semiconductor on around the will see that data of cycle some well a investments coming in we our then validation being and the production long-term think down sort a that is wireless of into you what extent wireless that semiconductor, to as help standards. regions, well bands have The are of production and of equipment, XG production. be drivers semiconductor are we equipment that, and as on also now will as the insulated So side the point for analytics scales in with and picture OptimalPlus that some and when

Karen Rob, and that's NI so, in we processes of serve this across And shortages, whatever past. A their for NI more a that's help. in we're Karen. process of as I in plays well that what some the is, providing feeds key where the for core as to in right they automation be, labor tighten coming seeing things and that shared into expectations industries may And where Yeah, that really into automate desire semi haven't the space, role - is data can The all the built area that to XXXX. view is mentioned, we that come Rapp all and and as of their so an that had

So we and across those the areas industries. good feel semi about opportunities really in the other

see. I

kind was commentary of There revenue one that's XX% to into backlog the a growth? the built lastly, reference Just that if quick next being I the in earlier XX% was question. around flat year, but was assumption sure not

Yeah.

made I So comment. that

plus a strong and able to going certainly expect to expect yeah, don't be that digit point end be larger of we exactly with a of also what backlog we the a given whether number. year. point I’ll this my double to just was have the kind so, backlog. was answering even year, that And is bookings, in of to there Mark's question the – this We billion we is expect where that strategic we on achieve I to flat have to know backlog of year, or this Karen we – that gave where business, more so it a have not systems for it interests is our sort range larger as be us end depends will $X.X

even strong it out. in be, a see the is flat will we'll certainly, where double ability to how achieve we plays But that exactly So if it number digit XXXX. have growth,

Understand. Understand.

Okay. Thank you.

All right. Thanks, Rob.

hand Instructions] to Eric [Operator like for now further program And you. back I’d Starkloff remarks. Thank the any to

for safe. today. stay great joining all Have you and day us Thank Okay. a

ladies This you, gentlemen, in participation does conference. and program. for today's Thank the your conclude

You may now disconnect. Good day.