National Instruments Corporation

Good day, and thank you for standing by. Welcome to the Q1 2022 NITI Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Marissa Vaddari, Head of Investor Relations and I. Please go ahead.

Good afternoon. Thank you for joining our Q1 2022 earnings call. I'm joined today by Eric Starkloff, President and Chief Executive Officer, and Karen Rapp, Chief Financial Officer. We will start with an update on our performance in the quarter before opening up for your questions. Our discussion today will include forward-looking statements, including without limitation, those regarding revenue, earnings, gross margin, operating expenses, capital allocation, targets, and future business outlook and guidance, including expected demand for our products, supply chain constraints, backlogs, impact of ROAR in Europe, COVID-19, and related shutdowns in our software licensing model transition. successful integration of the acquisitions and future results of acquired companies, execution on our strategy and achievement of our financial targets. We wish to caution you that such statements are just predictions and that actual events or results may differ materially and could be negatively impacted by numerous factors. We refer you to the documents that the company files regularly with the Securities and Exchange Commission, including the company's annual report on Form 10-K, filed on February 22, 2022. These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statement. We assume no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. A reconciliation of our non-GAAP financial measures disclosed in this call to the most directly comparable GAAP financial measures or related disclosures are contained in our press release and on ni.com slash natty. You can find the press release and quarterly presentation to supplement today's discussion on our website at ni.com slash natty. On March 31st, we announced a definitive agreement to purchase the test systems business of Crasser Automation AG, a European leader in providing holistic customer solutions for electric vehicles. We believe that this investment, along with others we have made in this space, will help accelerate our ability to serve customers in the high-growth area of vehicle electrification. The acquisition is expected to add 2% revenue growth during calendar year 2022. We purchased the test systems business of Kratzer for approximately $59 million. We view this business as a tech-in with no immediate cost synergies. However, this acquisition does contribute to our software technology roadmap, and we believe puts us in a leadership position for vehicle electrification test systems. The deal is expected to be accretive to our financial results in the calendar year 2023 due to revenue synergies. NI will fund this transaction through cash drawn from its existing revolving credit facility. The deal is subject to statutory approval and is expected to close in May 2022 with approximately 200 employees joining NI. In the coming months, NI Management will be hosting meetings at the conferences for Cohen and Bank of America. Please visit ni.com slash natty for presentation times. We look forward to speaking with you. With that, I will now turn the call over to Chief Executive Officer Eric Starkloff.

Thank you, Marissa. Good afternoon. Appreciate everyone joining us today. In addition to reviewing our performance in the first quarter, we plan to discuss a few other items on the call today. First, I'll take some time to talk about the technology attributes that set NI apart from our competition, that have driven our recent growth, and that we believe will fuel our growth into the future. Karen will then discuss overall financial performance in the first quarter as well as provide guidance for Q2. And then I'll come back to provide an update to our long-term model that focuses on revenue growth, outpacing the test and measurement market, and a commitment to a steady and sustained increase in operating margins. But before we get into those details, I want to share about our performance in Q1. Demand for our products was exceptionally strong. The proof point for this strong demand can be seen in our year-over-year order growth during the quarter, which accelerated to 27% growth year-over-year over a strong Q1 2021 and was well ahead of our expectations. Our bookings growth was a record for first quarter and is a leading indicator of our business and a result of our strategy. While demand was very strong, we reported revenue at the low end of our guidance. The unplanned suspension of business in Russia, as well as the pandemic-related shutdown in Shanghai at the end of the quarter, caused our revenue to be below the midpoint. A shortfall in delivery of specific components from one of our key suppliers limited our ability to offset these headwinds. Despite the unplanned top-line challenges, we delivered record revenue for our first quarter with 15% growth year-over-year and 28% growth in non-GAAP earnings per share. The strong demand, double-digit revenue growth, and strong earnings growth in Q1 was a continuation of our strengthening performance over the past five quarters. So I'd like to spend a moment to explain why we believe our business is strong and resilient and why we believe the momentum will continue. What truly differentiates NI and what's been driving our recent performance is our focus on two key factors. First, we provide flexible and modular test solutions that enable our customers to increase their ability to constantly evolve their testing systems and get to market faster. We believe NI's extensive modular capability provides the fastest performance and lowest cost of tests available today. This is an essential capability, especially for those customers in markets where the technology is quickly changing, such as electric and autonomous vehicles, wireless communications, and new space technologies. We believe we have the best product architecture to adapt to these changing customer needs, and it's our focus on these high growth areas that we expect will provide resiliency and contribute to our ability to grow faster than the test and measurement market. Second is our open and interoperable software offering, which sits atop both NI's hardware as well as the instruments from our peers and competitors. This software enables our customers to automate their test processes. Increasingly complex and fast-changing devices require highly automated test systems to ensure their functionality and quality. This comprehensive automation capability is unique to NI and enables our customers to rapidly bring their products to market and evolve them over time. We have the largest footprint of this test automation software in our industry. We plan to build upon this foundation to fuel our growth today and into the future. Now on to our industry results for the first quarter. Our areas of intentional focus are exceeding our expectations. We believe this is a proof point that we're focused on the industries with the highest growth potential. In the first quarter, we delivered double-digit order growth across all business units and across all regions. Semiconductor and electronics had record revenue for Q1 at $103 million, up 4% year-over-year, with orders up 38% year-over-year. The focus areas of 5G and wireless communications drives roughly half of semi-electronic business. Transportation had record revenue for Q1, both organically and all-in, at $63 million, up 32% year-over-year. Order growth in transportation was 38% year-over-year. Our shift in focus to electrification and ADAS, where our customers are making significant investments, has changed the trajectory of this business. In Q1, EV and ADAS represented approximately 40% of our transportation business, and we expect we'll exceed 50% of our transportation business later this year. One example of a recent customer win was at NIO, a Chinese multinational automobile manufacturer, where they are leveraging NIS hardware in the loop systems to test the ADAS functionality for an upcoming vehicle with level 4 autonomy. Based on these systems, Neil expects a shortened time to market for the mass production of this upcoming vehicle platform. Aerospace defense and government revenue was $93 million, up 22% year-over-year, with orders up 20% year-over-year. This business remains a steady and profitable growth engine and delivered record orders and record revenue for first quarter. The success is led by strength in defense applications and new space technology investments like launch vehicles and satellites. And our portfolio business, which represents the majority of our broad-based customers, achieved record revenue for a first quarter of $127 million, up 13% year-over-year, with orders up 16% year-over-year. Our focus on optimizing our digital channel and utilizing global distribution to better position our offerings to these broad customers has gained traction, further providing leverage and scale in this portion of our business. And our transition to software subscription is also improving the resiliency and the long-term growth opportunities in this business. Across the industries we serve, our business is well positioned in both R&D validation and in production test. We estimate that approximately 60% of our business is in R&D, with 40% in production. Our software and data analytics platform enable us to uniquely drive value across those areas. Now more than ever, our customers are facing fast-paced technology shifts, and our highly flexible and modular test solutions and the increased need for software automation gives us confidence in our ability to continue to outpace the test and measurement market. With that, I'll turn it over to Karen to discuss our Q1 results as well as our outlook for Q2. Karen?