NATI
#It's a good question, <UNK>.
Specifically on Q2, we're glad to see the spicy FX variability, and as we've built in natural hedges over the years to be able to deliver record operating income in the second quarter and a significant improvement in operating margin Q2 this year over Q2 of last year.
Looking to the investor conference next week, we will be directly tackling this issue and will hang out our plan for operating leverage for 2016 and discussing the longer term evolution of our business model.
So this will be our front and center topic for next Tuesday.
So great question.
I wish I could give you more specification on it.
But we've served and continue to serve a large number of applications for this customer.
I believe we are very well-positioned and have delivered a lot of value.
Obviously, it's been somewhat volatile and it heavily depends on their technology cycle.
So I think we're really well positioned, but it's way too early at this point to get specific on expectations for 2016.
Realistically, it's more likely in January or even potentially April of next year.
I think our position with the customer is as strong as I think it's ever been.
Number of employees was 7,209.
It's up about 1% year-over-year.
And the average order size is $5,150, roughly.
That was about down 5% year-over-year, mainly due to the large customer.
<UNK>, this is <UNK>.
We don't give the explicit breakouts.
The color we provided on the call was a number of the broad-based product areas, software, data acquisition, our embedded products serve a very broad base.
In constant currency, we're up.
In dollar terms, we're down slightly.
Instrument control is clearly where we saw the most weakness.
And then RF was where we saw the strongest.
Just to calibrate, add a little bit of color on that, <UNK>, too.
Obviously, the year-over-year decline in revenues essentially, even in dollar terms, mainly coming from the largest customer.
Any applications we were serving that customer with last year in Q2 were tests in nature rather than embedded, if that helps.
Maybe I'll start off and let <UNK> jump in.
When you look at it from a geographic point of view, obviously, we show some of the bigger headwinds we're in the emerging market countries.
That's certainly something I've seen as a common theme running through quite a few earnings press releases, outside of just currency themselves.
And then I'll let <UNK> maybe weigh in on the industry side.
If you look at end markets or industries, obviously we're seeing a lot of weakness in the energy segment.
And that's to be expected.
Change in oil prices that have occurred over this year.
Also seeing some weakness in the mobile communications overall.
On the flip side, we're seeing good growth in automotive transportation industry, as well as the mill aero.
And in both of those segments, it's actually growth on top of growth last year.
So that's part of the balance we are able to see in the broad base of applications that we can serve.
Looking forward, obviously, from a revenue point of view, <UNK>, we're expecting things to be fairly stable as we go into Q3.
And looking with the success in managing through the currency issue to be guiding to a record operating income for a third quarter in Q3.
Sure.
Last time we engaged to any kind of significant degree was in, I believe, in 2010.
But as we look forward ---+ we'll talk a little bit about this next week in the investor conference on capital management ---+ but our priorities remain number one, for dividends, number two, opportunistic stock repurchase, and number three, strategic acquisitions.
And as always, we'll be happy to report on repurchases once we report earnings each quarter.
The amounts ---+ when you're being opportunistic, you're being opportunistic.
So I think it's a fair description of our stance in Q2.
Obviously, we look at how much stock is available to purchase at a price that we think make sense, and we don't want to be too influential on the market in any one time period.
Thanks, <UNK>.
That's okay, Rick.
We'll forgive you.
Rick, this is <UNK>.
I'll start with just one additional comment on color with the industry.
Another area, not a significant portion of revenue, but the mining ---+ the energy, and then as we've seen with commodities, the mining industry.
And so there's obviously certain geographies, Australia, very well known.
We've seen a significant impact in that regard.
So that's one factor.
But it's like the Middle East, Russia.
You're going to see that impact.
And then it's been, we've seen this before that when government budgets in those countries tend to get constrained, we also tend to see some spillover effect on our academic business in those regions, as they hold on the purse strings.
And in general, while saw a weakness in the PMI as we went through the year, it seems to have stabilized in the Americas.
We'll see how it plays out going forward in the second half.
But certainly, automotive, mill aero, semi are areas of strength in the Americas.
It did.
As we set expectations, I think last quarter, the impact in Q2 as we go through this transition is relatively modest.
And we hope to build on that as we move forward.
Yes.
You would be pretty close.
I mean, close enough that it would be useful, yes.
On the small ones, you definitely can, because it's a large number of orders.
But if you look at a geographic distribution, I think this should be your key question.
That 6%, I think you could apply it to those buckets and be fairly close, Rick.
In local currency, that would be the math, correct.
So if you look at the, let's take sales and marketing, a simple one, when you look at overall decline and expenses year-over-year, as we talked last quarter, as we went through Q1, we're seeing this steadily strengthening dollar.
And we were responding to that.
Obviously, we saw an impact on our gross margins as the dollar strengthened through the first quarter.
And we were adjusting for that, obviously in Q2, as we said in April.
Similarly, to the effect on revenue, it also has an impact on our expenses.
And the vast majority of that year-over-year decline in expenses is directly related to the strengthening of the dollar when we convert our international expenses back into dollars.
Overall currency exchange reduced our operating expenses by about $10 million.
And in talking last quarter and several quarters before about the natural hedge that we have on currency, and that's part of that natural hedge.
That's the way to understand it.
Sequentially, as we had in Q2 of last year related to the timing of our software releases, typically coming into NI Week, we had a reasonably big increase in software capitalization in Q2 from Q1.
It was flat compared to Q2 last year.
But that has an effect on the geography of R&D spending sequentially.
Year-over-year, it netted out.
It didn't have an impact.
But if you're talking sequential it would.
And a point I'd like to make here, when you look at the performance of the Company in this time frame, with the headwinds we are facing, as we reported for Q1 and Q2, from currency and from our large customer, and obviously, we've given guidance on this now for Q3, you're looking at a number for the full year that approximates roughly $100 million worth of headwinds that we have to overcome in this time frame.
So to be in a position to manage through that and still deliver record operating income for a second quarter and be guiding to record operating income for a third quarter, I think that positions us very well to continue to execute on our leverage plan.
And I think shows the real strength of the business model.
Absolutely.
Absolutely.
On the revenue side, we take a bigger hit in Q2 than Q1, and we get a bigger benefit on the spending side.
I think it'll be, on a non-GAAP, it'll be a little bit below 30%.
29%, 28.5%, 29%.
And I wanted to give guidance for next year so people can understand the context.
A couple of changes going on relative to what would've expected perhaps coming into the year.
One, when we look over the last year, you've got the R&D tax code, which hasn't been renewed this year.
Second one, obviously early in the year, when you have the dollar strengthening and a reduction in gross margins overseas, we saw some reduction in our profitability overseas, which has an impact of bringing up our average tax rate.
And obviously, we adjust for that as we go through the rest of the year.
And then the third one, as we're closing down our Austin-based manufacturing, which we announced a year ago, there is a significant transfer of inventory and assets, which creates a one-time tax expense as those assets leave the United States.
Now when we look to next year, obviously we'll see the reverse happen.
And we expect to see a significant decline in our non-GAAP effective tax rate for 2016.
I'll talk a bit more about the constituent elements of that and perhaps take a look out to 2017 when we talk next week at the investor conference.
It was $9 million.
Thank you very much.
Actually, it would be <UNK> here.
Thanks, everybody, for joining us today.
Just a reminder, we will be doing an investor conference next week, so we hope you'll join us.
Thank you.
