National Instruments Corp (NATI) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the National Instruments Fourth Quarter 2012 Earnings Conference Call. Today's call is being recorded. You may refer to your press packet for the replay dial-in number and press code. With us today are David Hugley, Vice President, General Counsel, and Secretary; Alex Davern, Chief Operating Officer; Dr. James Truchard, President, CEO, and Co-Founder; and Eric Starkloff, Vice President of Marketing. For open remarks, I'd like to turn the call over to Mr. David Hugley, Vice President, General Counsel, and Secretary. Please go ahead, sir.

Good afternoon. During the course of this conference call, we shall make forward-looking statements, including statements regarding significant future orders from a very large customer, other large application sales, our goal of $2 billion in annual revenue, our GAAP operating margin target, and our guidance for first-quarter revenue and earnings per share. We wish to caution you that such statements are just predictions, and that actual events or results may differ materially.

We refer you to the documents the Company files regularly with the Securities and Exchange Commission, including the Company's most recent quarterly report on Form 10-Q filed November 6, 2012. These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements. With that, I will now turn it over to the Chief Executive Officer of National Instruments Corporation, Dr. James Truchard.

Thank you, David. Good afternoon, and thank you for joining us. Our key points for 2012 are -- record annual revenue and 10% year-over-year revenue growth on a non-GAAP basis; strong growth in orders over $20,000; and continued execution on our long-term vision of graphical system design. Despite difficult economic conditions throughout 2012, I'm pleased with our Company's disciplined execution, which allowed us to deliver all-time record revenue. While we remain cautious in the short-term due to the uncertain economic conditions, I am optimistic about the long-term position in the industry through the sustained differentiation we deliver to our customers through graphical system design. This approach to measurement and control systems provides higher performance, better integration, and lower cost, while enabling unique testing approaches not possible with traditional equipment.

In our call today, Alex Davern our Chief Operating Officer, will review our results. Eric Starkloff, our Vice President of Marketing, will discuss our business, and I will close with a few comments before we open up for your questions. Alex?

Good afternoon, and thank you for joining us today. Today we are pleased to report a new quarterly revenue record, with revenue of $300 million in Q4, exceeding the high end of our guidance range. This represents 7% year-over-year organic growth. For Q4, net income was $21 million, with fully diluted earnings per share of $0.17, and non-GAAP net income for Q4 was $35 million, with non-GAAP fully diluted earnings per share of $0.29, at the high end of our guidance range. A reconciliation of our GAAP and non-GAAP results is included in our earnings press release.

Despite the weak start to the quarter, we were pleased to see strength return in November and December. For Q4 our orders, excluding the large application that I will discuss later, were up 9% sequentially. While this is below our 10-year historical average sequential growth rate in Q4 of approximately 11%, we believe it is a good performance given the weak PMI, which averaged 49.5 during Q4.

Today we also reported a new annual revenue record, with non-GAAP revenue for 2012 of $1.14 billion, up $102 million, or 10% year over year. We delivered this revenue growth despite the weakest annual global PMI since 2009. Non-GAAP gross margin in Q4 was 76%, up 40 basis points from Q3. From a year-over-year perspective, non-GAAP gross margins in Q4 and 2012 were down 100 and 130 basis points, respectively. These declines are primarily due to the proportion of revenue coming from the large application that I will discuss later.

Total non-GAAP operating expenses were $183 million, up 7% year over year in Q4. Our year-over-year growth in non-GAAP operating expenses in Q4 was slightly higher than we had anticipated when we gave guidance due to variable compensation being higher than expected. For the full year, our non-GAAP operating expenses were up 10%, in line with our revenue growth. This increase can be broken down into 15% year-over-year expense growth in the first half of the year, and 5% year-over-year growth in the second half, as we are successfully absorbing the significant investments we made in 2011.

For Q4, our non-GAAP operating margin was 15%, with non-GAAP operating income of $45 million, up $5 million sequentially. For the full year, non-GAAP operating income set a new record, at $165 million. This represents a non-GAAP operating margin of 14.4%, down from 15.7% in 2011. While the significant investments we made in 2011 combined with the weak PMI put pressure on short-term operating margins, we believe that they have positioned us well for long-term growth.

Now taking a look at revenue by order size. In the accompanying Investor Relations presentation, we have expanded our analysis of orders to break out the value of orders over $100,000. In Q4, we saw a 6% year-over-year growth in our orders between $20,000 and $100,000, while orders over $100,000 grew 37%. Our average order size was up 9% year over year to approximately $5,000.

As I referenced earlier, a significant contributor to the success for us this year was winning the largest application sale in the history of the Company. This application involves the use of LabVIEW and the NI PXI platform to rapidly develop a production test solution which offers the customer outstanding performance and accuracy at a very low cost of test per unit. In Q4, we received additional orders for this application, bringing the total for the year to $59 million. Looking forward, we have continued to deliver value to this key customer, and are actively engaged with them in multiple application opportunities.

We received approximately $72 million in revenue from this customer in 2012, or about 6% of our total revenue. We currently believe we will receive significant future orders from this customer, primarily in the first half of 2013, with revenue currently expected to be recognized primarily in the second half. We also anticipate an increase in our inventory levels in Q1 as we prepare to meet this expected demand. These are forward-looking statements and there are execution risks related to closing this business, and as a result, there can be no assurance that we will successfully meet the customer's expectations and realize these orders or their related revenue.

Turning now to revenue from orders under $20,000. These orders have historically been more directly affected by the economic conditions in the global industrial economy, and we continue to see a weak performance in this area, with these orders down 1% year over year in US dollars for Q4 and for the full year.

In summary, 2012 was a difficult year for the industrial economy, especially in Europe and Japan, with the global PMI averaging just 49.9 for the year. This made conditions difficult for the test and measurement industry, but despite these challenges, NI was able to deliver 10% year-over-year revenue growth, adding $102 million in annual revenue to set a new record of $1.14 billion. We're also successfully absorbing the significant investments we made in 2011, delivering a new record in non-GAAP operating profit.

As we look to 2013, I'd like to take a moment to reflect on our execution through the last five years. Since the last recession started in the US in 2007, the global PMI has averaged 50, and growth in industrial production and in emerging economies has been offset by significant net reductions in industrial production in the US, Europe, and Japan. Despite these challenges, we have delivered strong results, increasing our revenue by 55% and making significant investments to help our future growth. Much of this increased investment came in 2011, and I believe that these investments when fully leveraged will be critical to achieving our goal of $2 billion in annual revenue.

Now I'd like to make some forward-looking statements. The continued political uncertainty in the US and Europe, coupled with our anticipation of a weak PMI through Q2, makes us cautious in planning for 2013. As a result, we currently expect revenue for Q1 to be in the range of $276 million to $296 million. We currently expect the GAAP fully diluted earnings per share will be in the rate of $0.12 to $0.22 for Q1, with non-GAAP fully diluted earnings per share expected to be in the range of $0.19 to $0.29. These are forward-looking statements, and I must caution you that actual revenues and earnings could be negatively affected by numerous factors, such as any further weakness in the global economy, re-scheduling of customer orders, expense over-runs, manufacturing inefficiencies, adjustments to acquisition earn-out accruals, effective tax rates, and foreign exchange fluctuations.

In summary, despite the weak industrial economy, we are very pleased with our execution in 2012. Our goals for 2013 are to continue to leverage the investments we have already made to drive sustained revenue growth, and to continue to drive towards our long-term non-GAAP operating margin target of 18%. Now I will turn it over to Eric Starkloff, Vice President of Marketing.

Thank you, Alex. We were very pleased with our ability to achieve a new all-time high for annual revenue, despite the challenging economic environment we face in 2012. We believe our innovative product offerings of LabVIEW, PXI, CompactRIO, and Data Acquisition continue to deliver significant cost and time-to-market advantages to our customers. Over the past several years, a significant growth driver for our business has been our systems used for high-performance test and embedded applications.

These systems deliver high value to our customers, and have been a driver of our increased average order size over this time frame. In 2012, our orders over $20,000 served approximately 3,500 unique companies across many industries. We believe this diversity in large orders demonstrates that LabVIEW, along with our system platforms such as PXI and CompactRIO are achieving broad-based acceptance, and that the investments we made in our services and support to complement these systems are creating a competitive advantage.

In 2012, our software and support products achieved record revenue as more customers realize the value that NI software brings to their applications. LabVIEW is at the heart of graphical system design, which promotes problem-solving, accelerates productivity, and empowers innovation for our customers. LabVIEW seamlessly integrates with NI PXI, CompactRIO, and Data Acquisition hardware. This is not only a compelling advantage to our customers, but also a capability that differentiates us from our hardware competitors.

Our data acquisition products experienced record annual revenue in 2012, which was driven by strong growth in our CompactDAQ products. The seamless LabVIEW integration with our Data Acquisition products continues to lower the barrier of entry for customers to use NI hardware and software, while delivering quick and easy plug-and-play measurements for a wide breadth of measurement types. Our PXI and modular instrumentation products also achieved a new annual revenue record in 2012, which was lead by strong growth in our RF products.

Since inventing the PXI standard in 1997, and founding the PXI Systems Alliance in 1998, National Instruments has been at the forefront of delivering the benefits of PXI to engineers and scientists worldwide. Over the past five years alone, our PXI and modular instruments revenue has nearly doubled, and we have delivered over 250 new PXI modules, which has set the pace for the test and measurement industry. During those same five years, we believe that the T&M market has grown minimally, as indicated by the total revenue of the major companies serving that space. Engineers continue to transition away from rack-and-stack instruments to a modular approach for automated tests. This is seen in not only the overall growth of our PXI products, but in the adoption of PXI by major customers in critical applications, such as the large applications success we saw in manufacturing test in 2012 that Alex mentioned previously.

Since our NI Week conference back in August, the industry reception to our latest RF product, the NI Vector signal transceiver, has been very strong. This ground-breaking technology has already received numerous industry awards, including Electronic Products Product of the Year, Microwave and RF's Top Products of 2012, Electronic Design's Best Electronic Design, and EDN's Hot 100 products of 2012, among others. The Vector signal transceiver sets a new price and performance offering that tightly integrates with our LabVIEW platform, delivering very high differentiation to our customers.

Our CompactRIO product also reached record annual revenue in 2012. Where rapid innovation is a necessity, we see engineers using a graphical system design approach with LabVIEW and CompactRIO to design a diversity of embedded systems due to the unique time-to-market advantages of the LabVIEW RIO architecture. For example, one area of innovation where we have seen significant traction with CompactRIO is in energy applications, including areas such as smart-grid technology, asset monitoring, and hydraulic fracturing.

Opportunities in these areas have continued to grow, and in Q4 NI technology was selected over traditional solutions, by a leader in the oil and gas industry, a potential investment of tens of millions of dollars in NI equipment over the next decade. In another large opportunity, NI was chosen to supply one of the largest regulated utility companies with our hardware and software, to make a significant advancement in how utilities monitor critical equipment condition, and improve the reliability of their systems. We believe design wins of this magnitude are a testament to the value that NI technology delivers to customers designing embedded systems versus major incumbents that are in this industry.

To close, while we remain cautious, we were able to deliver record annual revenue in 2012. Through the efforts of our entire organization and our global network of partners, I am confident in our ability to continue to deliver time-to-market advantages to our customers through our innovative products. With that, I will hand it back to Dr. T.

Thank you, Eric. Despite the economic headwind in the global PMI, we executed well throughout 2012. I'd like to thank our employees for their tremendous discipline in these uncertain economic times. Since we founded the Company in 1976, the role that NI technology has played in building measurement systems has evolved substantially to best fit the changing needs of our customers. Our motivation for creating LabVIEW in the 1980s was to deliver productivity to our customers by designing a programming environment that emulates the way engineers think.

We continue to believe that graphical systems design approach with LabVIEW is fundamentally a better way to design systems than traditional text-based approaches, and allows us to deliver more productivity gains to our customer. When combined with our highly differentiated PXI and CompactRIO hardware platforms, engineers now have unprecedented flexibility and performance capability in designing everything from next-generation wireless protocols, to control and monitoring systems for the smart grid.

While we have built our platform for graphical system design, there has been a significant change occurring in the test and measurement landscape. The industry has seen movement away from rack-and-stack instruments and approach to automated tests that hasn't evolved significantly in the past 40 years. Instead, the move toward a software-based measurement approach through modular instrumentation is gaining traction. Our customers are well-positioned to reach the performance benefits of the NI platform for test and measurement applications well into the future.

Looking back over the past five years, we have stayed true to our vision of delivering a platform-based approach to the broad base of scientists and engineers, while harnessing and scaling effects at Moore's Law for both high-performance test and embedded system applications. During that time frame, we have innovated with our CompactRIO products with the introduction of our single-board RIO, expanded our CompactDAQ offerings with our wireless data acquisition devices, and broadened our PXI products with the new Vector signal transceiver, all of which are powered by LabVIEW.

Our collaboration with LEGO has grown over the last five years, as we extended our vision of graphical systems design from kindergarten through rocket science. At the beginning of January, LEGO announced EZ-3, its newest evolution in their LEGO Mindstorms robotics platform, through softwares based on LabVIEW. LabVIEW has been used in scientific breakthroughs and engineering advancements such as space exploration, the discovery of the Higgs boson, research of the 5G wireless technology, and highly capable electric vehicle tests. Our continued commitment to innovation has enabled us to deliver a unique capability of integrating advanced measurement and application -- advanced control applications with a single platform.

One customer who benefited from this platform-based approach is Andrew Clegg Industrial Systems and Control, who recently was recognized during the 2012 Graphical Systems Design Achievement Awards in the UK. They designed a complex control system with LabVIEW and CompactRIO to provide access to offshore wind farms where safely transferring engineers and technicians to and from the turbines for maintenance is vital. Through increased operator safety, this technology has the potential to substantially reduce down time, increasing the overall economics of building offshore wind farms.

In closing, through the dedication of our employees, we were able to set another annual revenue record. I would like to take this opportunity to congratulate our employees on National Instrument again being named to top 25 international companies to work for in the world by Great Place to Work Institute, and for reaching a high record at number 35 for the 14th consecutive year on the Fortune 100 Best Places to Work list. It is a testament to our long-term approach to growing a Company built to last. While we remain cautious about the short-term uncertainty in the industrial economy, I remain optimistic that our differentiated approach to graphical system design continues to set National Instruments apart from others in our industry. I would also like to mention that I will be presenting at the Stifel Nicolas conference in San Francisco on February 5. We will now take your questions.

Thank you.

(Operator Instructions)

Our first question is from Zach Larkin of Stevens.

This is Chris Godby in for Zack. Congrats on the quarter.

Thanks very much.

I guess, first of all, and you touched on this to extent, but could you go into a little more detail on how the new product introductions, particularly the Vector signal transceiver have been going, and how it's impacted revenue, and how should we think about this opportunity, particularly with RF and the VST in 2013?

Sure, Chris, this is Eric. I will take that. The way to think of this, I think, is really looking at our whole RF portfolio, and our whole portfolio at PXI. The VST, as I mentioned, the Vector Signal Transceiver has been very successful. It's only five months in, but it has exceeded our expectations in sales, and also in the exposure that it's gotten. I think that's important, because really the goal is to sell a whole portfolio of products. The Vector Signal Transceiver's a very important part of that, but it's one element. So our RF business as a whole continues to out-pace the Company in growth, and it's an area where we believe there continues to be a lot of opportunity going forward.

Great. Thanks a lot for the color. As a follow-up, recently we have seen some improvement in PMI trends, particularly in China and on the global level; also got a nice number on Chicago PMI today. Obviously very short-term trends there, but have they made you any more optimistic at all? I know you said you're cautious, but maybe a bit more color there?

Sure, Chris. I think I'd say it's probably made me less pessimistic, would be the way I would kind of phrase it. Certainly, it's good to see the PMI numbers coming back up over 50 in December, and I think early indications are for the month of January it's probably likely to be over 50, as well. However, when I look at other areas out there, I see the recent GDP numbers in the US. Obviously, a significant amount of our business is tied up in government, aerospace, defense type applications, so that has an impact. That core cause of the slowdown of the GDP in the US obviously hasn't been resolved yet, so we'll continue to watch that carefully.

Other things that concern me, like everybody else, we know a lot of income was pulled into Q4 for tax reasons that we know. Social Security taxes going up in the US in January. I think it's also pretty clear in Japan and Europe, I think, highly likely to have GDP contractions in Q4. Overall, I would agree with you. The most recent data points have generally been more positive, but like I said on the call, my expectation is that we are not out of the woods yet, and that PMI will continue to be challenged through Q2.

Thank you. Our next question is from Mark Douglass of Longbow Research. Your line is open.

Going back, you think there's going to be some challenges going into 2Q. That's really when a lot of the deliveries ramped for this large order for the one customer. How are you thinking about -- that presents a challenging comparison year-over-year, at least for a couple quarters. You identify more opportunities from this customer, but some insight as to how you think -- is it possible to overcome that head wind and still see growth? I guess you're not giving guidance, but as much as you can say to address that?

Obviously, for Q1 we are giving guidance, Mark, and in the first quarter, certainly we do not expect to see year-over-year growth in the broader business. It's too early at this point to comment on Q2. The timing and scale of the orders we anticipate from this customer is still uncertain. We'll certainly be happy to update that for investors as we move through the various calls this year. We will keep everybody updated. We did also make a decision to split out the order size in revenue categories on the investor presentation that's on the web, so that investors can get visibility into orders over $100,000 and can have clear understanding of the lumpy nature of that business when it spikes up with this big order.

Having said that, we did see -- we delivered a tremendous amount of value to this customer. Our relationship with this customer is very good, and we feel like there's a lot of future value that we can bring to bear. Certainly, that will be a focus as we go forward. I would also caveat, when we look at the broader business, there's no doubt to us that there is a lot of opportunity for us to gain market share, bring value to our customers, and as we see the PMI stabilize, hopefully, and hopefully improve into the second half, should that happen -- obviously, there is risks to that, but should that happen -- we would anticipate a recovery and an acceleration of our broad-based business.

Okay. Going to RF wireless, can you comment on what you're seeing in the broader picture there? Is there still pretty good spend in RF wireless test? Outside the big customer, obviously, that's a help. But just kind of broader, do you think there's going to be a recovery? It seems like a lot of people have slowed down their investments there here more recently?

Sure. Mark, I will take that. The RF market, as I said before, that opportunity for us is a relatively broad opportunity that scales across all different types of wireless devices in addition to applications like signal intelligence and spectral monitoring. We see opportunity across that spectrum, and we see growth and we've seen growth in our RF business, as I mentioned that exceeds the Company growth. We -- that's been a broad success, and we expect to continue to see opportunity. We believe that we have grown our share in that business.

It helps, Mark, to be a small percentage of a large market willing to shuffle its technology certainly positions us well.

Thank you. Our next question is from Stephen Stone of Sidoti. Your line is open.

Just a quick question on the large application sales. Just the end of this sale. Can you comment a bit on the potential that you still see with this customer, maybe a range or kind of what you see there?

Certainly we, as I said earlier on, we've developed a very strong relationship with this customer. We served them in a large application as we've talked about several times on the call, but also in several other applications through 2012. We do anticipate several of those applications will continue to have follow-on orders in 2013, as well as potentially new application area. As I said, the timing and scale of those orders remain uncertain, and we will update investors at our next call and as we go through the year.

Okay. Can you also talk about the competitive market here -- competitors moving into PXI? How are you able to defend market share or kind of keep your leadership in PXI, as everyone else starts to move to modular instrumentation?

Sure, I will take that, Steven. As we have talked about before as other companies introduced products into PXI, it presents competition on one hand, but it also validates the standard, which we view as a very good thing overall. Then our differentiation really comes down to a couple of things. One is our software position is very strong, and the integration of our hardware and software is differentiating and delivers a lot of value to people that are putting these systems together. The other piece of differentiation for us is I think our channel, and the ability to have a Channel that is really focused on putting together these configurable software-defined systems.

Then the third one is having a complete portfolio. We believe that's very important in this space. I mentioned on during the call just the number of products in PXI we have released just over the last five years, 250. We have a very broad portfolio, and having all of those different pieces is really important to being able to build the systems that our customers need and have the critical mass to solve their applications. Those are the points that really set us apart in the PXI market.

I'd like to second that in terms of our investment over the last quarter century in a very straight line to get a very differentiated position with a very strong barrier to entry. We had a CompactRIO platform, which sort of set the stage for what we would do in PXI and the FPGA. With that technology, we can now achieve performance on tests in both the validation stage, as we showed at NI Week, and then on the production floor for very high-speed tests.

Thank you. Our next question is from Anthony Luscri from JPMorgan. Your line is open.

The first question is, clearly, the business firmed in the back half of the quarter, given your mid-quarter update versus the results. Can you give us a little more specific in terms of what changed in terms of geo, vertical, or order size? Do you think there was any budget flush impact here -- your fourth-quarter results?

Well, I think it was kind of across the board. We saw, obviously, a very weak start to October, and the first three weeks or so were quite concerning. It's interesting, I think a number of companies, both in our space and in the broader technology industry, I think, saw similar trends. November was stronger. December was also quite strong. Obviously, each year you see some budget flush, and I'm sure we saw that again this year. It was quite a change in the flow of business, frankly, between early October and the rest of the quarter, and we were glad to see that. That sort of allowed us, obviously, to exceed the high end of our revenue expectations, and meet the high end of our earnings expectations. In terms of regional or geography or product side, I think it was very broad-based. It was really not possible to call out or point to any one thing that was a primary change.

Okay. The second question, final question, as large order growth continues to become a larger piece of your revenue or your total business, does this dynamic require any sort of, guess, fundamental change to your support or services functions that require folks in the field, or any sort of aspect that may impact your OpEx profile. The follow on to that is, how should we view your OpEx growth in 2013? You highlighted how it's coming down in the back half of 2012. Should we view that continuing throughout 2013 to provide some leverage? Thanks.

Sure, Anthony, thanks. I would say it's a little bit of the opposite. I think that our success in driving rapid growth in large orders is really as a result of the fact that we have gone out to build a service capability over the last number of years to be capable of servicing the advanced needs of these large customers. We've gone very seriously in a very professional way to do that. My congratulations to the teams involved in that, because they've created a new capability for NI that's allowed us to close this business, and we intend to continue to build on that as we move forward.

In terms of OpEx growth, as you correctly mentioned, we had roughly 15% OpEx growth in the first half of the year, down to 5% in the second half. As we look into 2013, we will, obviously, be carrying forward into 2013 the full-year impact of people we hired in 2012, things like raises, and we have a modest expectation for recruiting in 2013. I do anticipate continued OpEx growth in 2013. Our ambitions are much more modest than they were in 2011. We hope to see operating leverage, but obviously the top line will be a key determiner of that.

Thank you.

(Operator Instructions)

Our next question is from Patrick Newton of Stifel Nicolaus. Your line is open.

In your guidance last quarter, Alex, you built in the expectation of potential order push-outs and cancellations, and I would assume because your revenue was at the high end -- or above the high end -- of the guidance range that you saw zero push-outs and cancellations. I want to confirm that. Secondly, given your continued concerns around global PMI and the macro-environment, do you have any cancellations or push-outs baked into this current guidance range?

I think similar to -- Patrick, I could never say zero, because I don't actually know that the number was zero, but certainly cancellations and push-outs were not really a factor in Q4. I don't have any evidence to indicate that they will be a factor in Q1 at the point in time. My caution, I think, is based on somewhat of fundamentals that are out there that seem to me fairly obvious. I know that the mood of the market can shift in a very short period of time, but when I look at the fundamentals, it's I think likely to be a difficult six months until everybody absorbs the changes that have happened here in January.

All right, but no cancellations or push-outs in the Q1 guidance, built into the expectations?

I would say no. I don't think it's a material factor at this point.

Okay, perfect. A question on -- dove-tailing off the OpEx. Clearly, no intention to invest as aggressively as 2011, but I think in the past you'd alluded to incremental revenue driving a pretty solid contribution margin, and a goal to push kind of up to your target, assuming that we have a rising-tide revenue environment as we move sequentially through 2013. Is that still Management's focus on delivering that leverage?

Absolutely. We are very focused in this stage to leverage the investments we have already made. That's our goal and objective to change. We have seen, obviously, our operating margin on a non-GAAP basis come down in 2011 and 2012, for two reasons -- one, a rapid drop in the PMI, and the other being our significant investment. Obviously, there's some indications that PMI may be bottoming at this point. My personal opinion is I think we will see it improve in the second half. That could be, maybe not be accurate there, but that's my personal opinion at this stage.

Looking at our investment level, we're looking at a roughly 3% increase in head count and R&D in the field in 2013. We have included in our slides set the budgeted head count expectations for those two functions, as well as the history. You can see from that, then, our plans in 2013 are much more modest, and our focus will be on as we see, or if we see incremental revenue growth, our focus will be on improving operating margin.

What was your head count Alex, exiting the quarter?

It was 6,869.

Perfect. Just one more if I may. On your Malaysian facility, I think you previously stated it would be about a 30-basis-point drag on operating profit in 2013. Is that still the expectation? I guess could you walk us through some assumptions of utilization rates to get to that target? Could you also walk us through, as you start to load that facility, what the tax implications are for National Instruments?

Sure. Two things on that -- one being that the 30-basis-point we're expecting to gross margin that we talked about before is still our expectation for 2013. We would expect that drag to moderate in 2014, and hopefully, should we see steady revenue growth, become a positive adder to gross margin in 2015. On the tax front, our expectations for our non-GAAP tax rate for 2013 is approximately 22%, and the tax impact of the Malaysia ramp is included in that number.

Thank you. Our next question is from Richard Eastman of Robert W Baird. Your line is open.

Good afternoon. Alex, you had mentioned that you would ship or sold $72 million to this customer. Incorporated in that I believe is this large order that now sounded like it grew to $59 million. Is that the math? The large order was $59 million. That customer was $72 million? Did we ship all of the $59 million, so that's kind of an $18-million fourth quarter? Is that what you're saying?

There was a few million dollars in backlog and deferred at the end of the year, Rick. It's likely less than $18 million, but you are in the ballpark.

Okay. If I look at your first-quarter guidance, and I take the mid-point of the revenue, it appears as though it's a seasonal, more typical seasonal fall-off in the first quarter from the fourth, but you are incorporating -- call it $16 million on this large order. How exactly does that math work? You don't have a comfort level in the large business, but that seems like kind of an aggressive number relative to your conservative macro commentary?

Obviously, Rick, we have more than one customer that we service. We are pursuing a number of large application opportunities as we go through time. When we look at our overall guidance into next year, we factor in our pipeline, we factor in seasonal trends. We factor in backlog and changes to backlog. Obviously, we also, as you are probably aware, did a number of acquisitions in Q3. The revenue that will come from those acquisitions is included as part of our revenue guidance for Q1. That is another factor that would bring up the mid-point for the first quarter.

What was -- so just the last part of this same question then. If -- can you just give us a sense -- you mentioned you are going to build some backlog for potential in first quarter. You're going to build some backlog or inventory -- excuse me -- for potential delivery on a follow-up to this large customer. As you look out into '13, what would be just order of magnitude expectation as to the business that you would anticipate seeing for this customer? What kind of inventory are you going to build against the potential order?

Just to clarify one point earlier on, as you're looking at sequential revenue, Rick, I'd estimate the impact of the new acquisitions on sequential revenue to be between $4 million and $5 million, just to help you with the math as you look at that and you're working on your model. On the inventory front, we're anticipating a build in inventory in Q1. The plans aren't finalized at this point in time, so we'll still be receiving more information over the course of the next weeks and months. I would say it will be a meaningful likely increase in inventory in the first quarter, and I'd be happy to share more information on this evolution of the potential future orders from this customer at our next conference call.

Okay. Is Signalion then, that acquisition, is that --

There's a couple acquisitions we did in the quarter. One was Signalion, as you know, a German RF IP company that will provide us in the future with critical IP to complete our platform for our RF portfolio. We did another small acquisition, it was less than $1 million, so it's not really material for this conversation. We also purchased a small but very strategic company in the hands-on learning space for academic, for engineering, that will have a contribution into revenue in Q1.

All together then, you are suggesting these three acquisitions are kind of a $20-million revenue run rate?

That's correct.

Okay. Thank you.

Thanks, Rick.

Thank you, and I'm not showing any further questions in the queue. I'd like to turn the call back over to Management for any further remarks.

Thank you very much for your time today. We look forward to seeing you at the Stifel Nicolaus conference in San Francisco next week.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.