National Instruments Reports Second Quarter Revenue of $179.5 Million

Non-GAAP (Generally Accepted Accounting Principles) diluted EPS in Q2 2007 was 31 cents. This compares to NI guidance of 28 cents to 33 cents per share. Non-GAAP Net income was $25 million, up 22 percent from Q2 2006. For Q2 2007, non-GAAP operating margin and non-GAAP net margin were 16.4 percent and 13.8 percent respectively. The company’s non-GAAP results exclude the impact of both stock-based compensation and the amortization of acquisition-related intangibles. Reconciliations of the company’s GAAP and non-GAAP results are included as part of this news release.

For the first half of 2007, the company reported revenue growth of 12 percent as compared to the first half of 2006. In addition, the company reported net income of $40 million, up 34 percent, and non-GAAP net income of $47 million, up 29 percent over the first half of 2006. This performance has increased the company’s non-GAAP operating margin for the first half of 2007 to 16 percent from 14 percent in the first half of 2006. Management believes the company is well positioned to achieve its goal of 18 percent non-GAAP operating margin for the full year.

NI virtual instrumentation and graphical system design products, which constitute the vast majority of the company’s product portfolio, had 15 percent year-over-year revenue growth in Q2 2007. This represents another strong quarter of revenue growth from these products and an increase in their year-over-year growth rate from Q1 2007. NI believes this continued strong growth validates the company’s strategy of increased investment in R&D to drive new product success.

In contrast, sales of NI instrument control products, while flat sequentially, were down 8 percent year-over-year in Q2, compared to a 6 percent year-over-year decline in Q1 2007. The decline in the company’s instrument control product sales was related to a tough compare in Q2 and the weakness of the Global PMI early in the quarter. With the improvement in the Global PMI in June and easier compares, the company is cautiously optimistic that it will see an improvement in the year-over-year performance of instrument control in Q3 and Q4 2007.
“I am pleased with our significant progress in system-level design in both virtual instrumentation and embedded industrial applications. LabVIEW FPGA and our highly leveraged C Series hardware architecture have helped us establish a unique position in test, control and design,” said Dr. James Truchard, NI president and CEO. “LabVIEW and its many toolkits, including signal processing and RF modulation, have played a significant role in driving our modular instrument sales.”

Geographically, revenue in U.S. dollar terms for Q2 2007 compared to Q2 2006 was up 7 percent in the Americas, up 19 percent in Europe and up 14 percent in Asia, equaling overall growth of 12 percent. In local currency terms, revenue was up 9 percent in Europe and up 13 percent in Asia.

As of June 30, 2007, the company had $241 million in net cash and short-term investments. During the quarter, the company used $39 million to repurchase 1,300,000 shares of its common stock at an average price of $29.69 per share and used $5.6 million for the payment of dividends.

The company announced today that the board of directors has approved an increase in the quarterly dividend from 7 cents per share last quarter to 10 cents per share on its common stock. This dividend is payable on Sept. 4, 2007, to shareholders of record on Aug. 13, 2007. Additionally, today the company announced that the board of directors approved a new share repurchase plan that increases the number of common shares that the company is authorized to repurchase by 2.4 million shares to 3 million.

“We are pleased to deliver double-digit revenue growth and a 29 percent increase in non-GAAP net income in the first half of 2007 compared to the first half of 2006,” said Alex Davern, NI CFO. “We are continuing to drive operating leverage as we work toward our goal of 18 percent non-GAAP operating margin in 2007.”

Guidance for Q3 and Q4 2007

The company currently expects revenue for Q3 2007 to follow the seasonal pattern and be in the range of $179 million to $187 million. Due to the anticipated release of new versions of several key software products during Q3, NI expects to see a $2 million sequential decrease in the amount of software development costs capitalized. The company expects this decline in software development costs capitalized, combined with a planned increase in headcount, to result in an approximately $3 million sequential increase in R&D expenses in Q3. As a result, the company currently expects that GAAP fully diluted EPS will be in the range of 24 cents to 29 cents per share for Q3. Non-GAAP fully diluted EPS for Q3 is expected to be in the range of 29 cents to 34 cents per share.

For the full year, management expects to report a new annual record for revenue and for both GAAP and non-GAAP net income. Currently, the company expects revenue for Q4 to be in the range of $200 million and $212 million. GAAP fully diluted EPS for Q4 is expected to be in the range of 34 cents to 40 cents per share with non-GAAP fully diluted EPS expected to be in the range of 39 cents to 45 cents per share.

In Q3 and Q4 2007, the company expects the combined impact of stock-based compensation and the amortization of acquisition-related intangibles to be approximately 5 cents per quarter.

Interested parties can listen to a conference call today, July 26, 2007, beginning at 4:00 p.m. CDT, at www.ni.com/call. Replay information is available by calling (719) 457-0820, confirmation code #5064230, from July 26, 2007, at 7:00 p.m. CDT, through Aug. 2, 2007, at midnight CDT.

This release contains “forward-looking statements,” including statements related to being well positioned to achieve the company goal of 18 percent operating margin; strong growth validating the company’s increased R&D spending, expected improvements of instrument control, continuing to drive operating leverage as NI moves toward its goal of 18 percent operating margin; and NI guidance for Q3 and Q4 2007 and the year 2007 including, as applicable, revenue, software development costs, R&D expenses, GAAP and non-GAAP diluted EPS, GAAP and non-GAAP net income, and the estimated diluted EPS impact of stock-based compensation and acquisition-related intangibles. These statements are subject to a number of risks and uncertainties, including the risk of adverse changes in the global economy, delays in the release of new products, fluctuations in customer demand for NI products, manufacturing inefficiencies and foreign exchange fluctuations. Actual results may differ materially from the expected results. The company directs you to documents filed with the SEC for other risks associated with the company’s future performance.