National Instruments Corp (NATI) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the National Instruments First Quarter 2013 Earnings Conference Call.

Today's call is being recorded. You may refer to your press pack for the replay dial-in number and passcode.

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 Pete Zogas, Senior Vice President of Sales and Marketing.

For opening remarks, I would 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 our guidance for our second quarter revenue, gross margins, operating expenses, and earnings per share. And statements regarding receiving orders from our largest customer, taking corrective action on expenses, and getting back on plan.

We wish to caution you that such statements are just predictions; that actual events or results may differ materially. We refer you the documents the Company files regularly with the Securities and Exchange Commission, including the Company's most recent Quarterly Report on Form 10-K, filed February 19th, 2013.

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 are, record revenue for our first quarter; record Q1 orders for LabVIEW, PXI, CompactRIO, and CompactDAQ. However, we exceeded our spending plan of taking corrective action. While we delivered record revenue for first quarter, our expenses ran ahead of plan.

We are disappointed in our expense overrun in the first quarter and are taking corrective actions. We are focusing our efforts on activities that have proven successful in growing our large-order business, in addition to our proven approach for broad-based business.

In our call today, Alex Davern, our Chief Operating Officer, will review our results; Pete Zogas, our Senior Vice President of Sales and 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 first quarter revenue record, with revenue of $286 million at the mid-point of our guidance range, and up 10% year over year. We were pleased to see revenue growth continue in Q1, despite the challenges we face from the weak-level economy, the sequestration process in the United States, and the dramatic drop in the value of the yen.

For Q1, net income was $19 million with fully diluted earnings per share at $0.15, and non-GAAP net income for Q1 was $26 million, with non-GAAP fully diluted earnings per share of $0.21; three pennies below the mid-point of our guidance range.

Our reconciliation of our GAAP and non-GAAP results is included in our Earnings Press Release. Given our relatively strong revenue performance, we were very disappointed to fall short of the mid-point of our earnings guidance in Q1.

This shortfall came as a result of one penny per share loss on foreign exchange, primarily due to the major decline in the value of the yen in Q1; and $0.02 per share as a result of expenses being ahead of plan.

For Q1, our total orders were up 8% year over year, and we received $17 million in orders from our largest customer, up from $12 million in Q1 last year. Excluding this customer, our orders from all other customers are up by 7% year over year.

From a regional point of view, revenue was up 4% in Europe; 12% in the Americas; 37% in emerging markets; and only 3% in East Asia. In East Asia, we saw a significant negative impact from the destruction caused by the dramatic decline in the value of the yen to the U.S. Dollar in Q1, with orders from Japan in Q1 being $7 million below plan for the quarter. Non-GAAP gross margin in Q1 was 76.6%, up 60 basis points from Q4, due to a shift in our customer mix.

From a year-over-year perspective, non-GAAP gross margins in Q1 were down 110 basis points, mainly due to mix in the incremental overhead caused by the ramp-up of our new manufacturing facility in Malaysia.

Total non-GAAP operating expenses were $190 million, up 12% year over year. Our non-GAAP operating expenses in Q1 were $3.6 million, or 2% higher than we had anticipated when we gave guidance. And this reduced our EPS by $0.02.

We are taking corrective action to control our spending in Q2 and for the rest of 2013.

For Q1, our non-GAAP operating margin was 10.3%, with non-GAAP operating income of $30 million, down 16% year over year.

Now, taking a look at revenue by order size. We saw 6% year-over-year growth of our orders between $20,000 and $100,000, while orders over $100,000 grew by 43%.

Our average order size was up 13% year-over-year in Q1 to, approximately, $5,000. Our ability to continue to drive large order growth across a large number of customers was key to growing our business during a quarter when many test and measurement players saw significant declines.

As I referenced earlier, we received $17 million in new orders from our largest customers in Q1, related to three different applications that we serve for them.

Each involves the use of LabVIEW and the NI PXI platform to rapidly develop production test solutions, which offer the customer outstanding performance and accuracy at a very low cost of test per unit. So far in Q2, we have received additional orders from this customer for $7 million, bringing the total for the year to $24 million.

The majority of these orders relate to a new application and a highly competitive space that we have not served for this customer before, where we are significantly reducing both test times and costs, delivering significant value to the customer. This is a classic case of early market disruption, where the disrupter effectively shrinks the market and the incumbents have to respond with price.

As a result, in this time frame, the margins are significantly below our corporate average and this will have an impact on our gross margins in Q2. In Q1, we recognized $4 million in revenue from this customer.

Looking forward, while we have continued to deliver great value to this key customer, we have significantly reduced our expectations from earlier in the year. We now believe it is likely that the total value of their orders may be lower than last year.

In Q1, we increased our inventory of these standard components as we prepared to meet the higher level of expected demand, and in Q2, we will now be working to reduce our inventory in line with our reduced expectations. This inventory adjustment process will have the impact of reducing our production volume and our gross margins in Q2.

These are forward-looking statements and there are execution risks related to doing business with this customer, and as a result, there can be no assurance that we will realize these orders or the 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 in Q1, with these orders down 1% year over year.

Now, turning to cash management. Inventories increased by $19 million in the quarter, primarily due to the ramp-up in inventory to service the higher anticipated needs of our largest customer, as well as the increase needed to support the smooth expansion of production from our Hungarian facility to our new Malaysian facility.

In addition, we paid $17 million in dividends during the quarter, and paid $5 million to complete the funding of our new Malaysian facility. As a result, cash and short-term investments decreased by $8 million.

As of March 31st, the Company had $327 million of cash in short-term investments. In summary, Q1 was a difficult quarter for the industrial economy, especially in Europe and Japan. These challenges were exacerbated by the sequestration process in the U.S. and a large fall at the end, but despite these challenges, NI was able to deliver 10% year-over-year revenue growth to set a new Q1 revenue record of $286 million.

On the profit side, we failed to deliver on our anticipated profitability, due to spending being over-planned for the quarter, and we are working hard to correct this issue.

I would like to make some additional forward-looking statements.

The continued weakness of the PMI and the reduced forecast from our largest customer make us conservative in planning for Q2. As a result, we currently expect revenue for Q2 to be in the range of $290 million to $320 million. At the mid-point, this represents 5% year-over-year growth over the strong 15% year-over-year growth we delivered in Q2 of 2012. Gross margins are expected to be down significantly in Q2 due to customer mix and lower production levels.

Total non-GAAP operating expenses are expected to be $193 million, plus or minus $2 million. We currently expect the absolute and fully diluted earnings per share will be the range of $0.09 to $0.21 for Q2, with non-GAAP fully diluted earnings per share expected to be in the range of $0.16 to $0.28.

While we expect that Q2 will be a painful adjustment quarter, we are taking corrective actions to adjust our expenses and we expect this to result in an improved operating performance as we move into the second half of the year.

As these are forward-looking statements, 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; rescheduling of customer orders; expense overruns when factoring in efficiencies; foreign exchange fluctuations; and effective tax hikes.

I would also like to mention, National Instruments will be attending several conferences in May and June, including, Jaffray; and Stephens in New York; Baird in Chicago; and Bank of America in San Francisco. We look forward to seeing you there.

With that, I will turn it over to Pete Zogas, Senior Vice President of Sales and Marketing.

Thank you, Alex.

As we mentioned earlier, we are pleased to achieve record first quarter orders in LabVIEW, PXI, CompactRIO and CompactDAQ, demonstrating the value we deliver to our customers. Attributing to the successful adoption of software this quarter was the growth in enterprise-wide license agreements.

In Q1, these license agreements helped drive a new first quarter record in orders for LabVIEW. Also in Q1, CompactDAQ was adopted in applications, such as In-vehicle Data Acquisition; asset monitoring; and distributed tests; helping lead to record orders for our first quarter.

For example, one customer selected CompactDAQ and LabVIEW to research and test battery technologies because of its flexibility to adapt to new designs. As an industry leader in data acquisition, we continue to successfully serve the needs of a broad base of scientists and engineers.

We also continue to solidify our leadership position in PXI, and in Q1, we received our record, first quarter orders for PXI, as more engineers transition away from rack and stack instruments to a modular approach using PXI. With over 15 years of investment, and the largest portfolio of modules available, NI is at the forefront of delivering the benefits of PXI to engineers and scientists worldwide. Helping drive strong growth in PXI this quarter was the rapid growth in RF orders, which also had a record quarter.

The continued adoption of the Vector Signal Transceiver contributed to the success we saw in RF, and we are extremely pleased with the reception of the Vector Signal Transceiver being used in a wide array of applications, ranging from R&D to academia, to high-volume production tests. A few example of these successes include, in R&D, design engineers at an electronics company switched to the Vector Signal Transceiver, because they could modify the existing firmware and stay ahead of the technological curve.

Engineers at a high volume mobile device manufacturer selected the Vector Signal Transceiver because of its small form factor and ability to test multiple wireless standards in a single instrument, saving space, and providing benefits of high performance at a competitive price. In an aerospace and defense application, for softer defined radio, the Vector Signal Transceiver displaced incumbent technology because it could outperform the existing equipment.

Several semiconductor companies making RF power amplifiers used the existing IP and LabVIEW FPGA, and the Vector Signal Transceiver, to dramatically reduce test times and deliver significant cost savings. And many universities around the world adopted the Vector Signal Transceiver to prototype next-generation wireless standards because they could target the user-programmable FPGA with LabVIEW to help them accelerate their research.

Like test systems, embedded measurement and control systems require rapid innovation.

In Q1, CompactRIO saw record orders for our first quarter, gaining traction in areas like asset monitoring, machine control, power inverters, and the smart grid. For example, CompactRIO and LabVIEW displaced what would have been a traditional solution for controlling complex machines because we were better able to meet this customer's stringent performance requirements.

Customers also selected CompactRIO and LabVIEW to monitor wind and traditional power turbines because our platform enabled them to develop and deploy their system for a much lower cost than building their own custom solution.

Earlier, Alex discussed the dynamics of our largest customer and the importance of the diversity of our business to sustain growth. I want to reiterate that our Q1 record average order size was driven by a large number of customers using our products in high performance tests and embedded measurement and control applications. In fact, in Q1, we received more than 2,300 orders over $20,000, which served many companies across a large number of industries.

We believe this diversity in large orders demonstrates that we are achieving broad-based acceptance, and that the investments we've made in our services and support, that complement these systems, are creating a competitive advantage.

Finally, I want to mention our NI Week User Conference, coming up during the week of August 6th, in Austin, which brings together thousands of engineers and scientists from several industries.

Our Annual Investor Conference is held in conjunction with NI Week and provides investors with premium access to Executive Management, customers and partners, so that you can talk to them directly about their use of NI technology. We hope you will be able to join us on August 6th.

With that, I will turn it over to Dr. T.

Thank you, Pete.

I am pleased we have delivered the record first quarter revenue in a difficult environment. However, I am very disappointed to miss on our profitability target because we exceeded our spending plan.

When we founded NI, I was looking to create a job that I would enjoy, as well as create a business with the financial engine that could scale to support sustainable growth and profitability. While we believe we have many long-term growth opportunities ahead of us, we understand the importance of effectively managing our costs.

Throughout 2013, we plan to refocus our efforts on ways we believe we can most successfully scale our business. An important factor in scaling our business is building on our vision of graphical system design, which integrates software and hardware for measurement and control systems.

When we started NI, we envisioned a central role software would play in instrumentation. Nearly 40 years later, we see LabVIEW continue to revolutionize the way engineers approach a diversity of applications; most recently in RF Design and Test, where the Vector Signal Transceiver delivered the next step in our long-term vision. Also helping us scale our business is our ability to support our customers' needs.

Our strong R&D and Sales Teams produce new products and build relationships that help us address some of the customers' greatest challenges. As our customer demands continue to increase, our Alliance Partner Network plays an integral role in meeting these scaling demands through system integration services, add-on products and NI software and hardware, and training services.

Finally, our strategic partnerships with universities and other organizations help future generations of scientists and engineers by improving stem education.

One of these partnerships is with FIRST, a nonprofit organization that inspires elementary to high school students to take interest in science and engineering. This year, FIRST programs are projected to reach nearly 300,000 young people through robotics competitions and (inaudible).

This week at the St. Louis Rams arena, thousands of high school students are using LabVIEW and CompactRIO to compete in the first Robotics Championship. We are proud to support the development of future engineers and scientists around the world.

In closing, through the dedication of our employees, we were able to set another first quarter revenue record. However, we must work hard to get back on plan for 2013.

I believe we have the resources to focus on the right opportunities to achieve our long-term goals, and I am confident our employees will rise and successfully meet this challenge.

We will now take your questions.

Thank you.

(Operator Instructions).

Our first question comes from Patrick Newton of Stifel. Your line is now open.

Patrick?

Several questions for you.

I guess number one is, if I run through the mid-point of your guidance, I calculated an implied gross margin of about 75%, so I want to see if that is in the ballpark of the significant decline you're referring to on a year-over-year basis. And, then, along the same lines on the gross margin topic, with more large orders and larger customers, kind of resulting in some of this gross margin pressure, are we looking at a structural shift in your gross margin profile, or should we see this pressure as being somewhat temporary as you are just ramping your business?

So, Patrick, yes.

By significant, I mean somewhere in the, roughly, 200 basis-point decline, sequentially, from Q1 to Q2. So that would give you some help with your model on that. On the second question, in terms of large orders, let me step back a little bit and try to address that and perhaps Dr. T. would care to comment as well.

I would separate, I think, our successful growth of large orders across a broad range of industries and customers over the last six, seven, eight years from the specific highly-competitive application we're talking about for Q2.

In general, as we have grown our large order business, we have been successful at improving our gross margins in concert with that as we have gained leverage from the scale. And the application we're talking about on the call, specifically, that we'll have some significant revenue in Q2 and will have the biggest impact on our margin, that's a very competitive, specific application where for our penetration in this market space, we're early on in competing in some of these large scale applications, and it's a different margin profile of that particular opportunity than we see for the rest of our large orders.

So, I wouldn't take that one opportunity as a reflection on the margin profile of our future large orders as we continue to scale that.

Seeing as you're going to have revenue ramp in Q2 and you're talking about orders for this large customer being down on a year-over-year basis, possibly, I would interpret that to mean that we should see a relatively decent improvement in the margin profile of the Company through the back half the year?

That is our assumption.

Okay. And then pertaining to the three different applications orders with this large customer, are they all consumer electronic driven? And, then, when you say that you're serving a new space for this customer that they have not competed in before, I assume it's also fair to say that this is a new space for you?

Yes to both questions.

They are consumer, high-volume production test systems for consumer electronics; and, yes, for this particular customer, this is the first time we have served this particular application.

Historically -- this Jim Truchard -- we have used high gross margins to evangelize new business areas. An alternative way to use that margin is to aggressively go into new spaces on high volume applications as well.

Perfect. Okay. Then, I guess, given the increased exposure that you're seeing to the consumer electronic end market, should we see any type of shift in the seasonality of your revenue that typically peaks in Q4 on somewhat of an industrial budget flush and pulls back in March; should we see more of, potentially, a peak in the September quarter, or less growth on a sequential basis, September to December, as a result?

I think it remains to be seen, Patrick. I think the underlying seasonal pattern of our core business is still very much intact.

We did see a little bit of a change to that last year, I think in Q2, because of some other very large orders we saw spike in our order volume in Q2.

So, I don't think we have enough history with that yet to see, but, certainly, there is more exposure to consumer electronics in some of these big orders than we've had in the past.

Great. Thank you for taking my questions. Good luck.

Okay, Patrick.

Thank you. Our next question comes from Chris Godby of Stephens. Your line is now open.

Good afternoon. Thanks for taking my call.

Hey, Chris, how are you doing?

Good. Thanks. You talked a little bit on your release and during the call about your plans to put a cost control program in place. What steps are you taking to control costs over the remainder of the year?

Yes. So, we're particularly disappointed -- I think Dr. Truchard mentioned it and I said it myself several times. For Q1, we did hit our revenue number dead-on and we had very good gross margins, and so we're, personally, very disappointed to miss the profit number based on being over plan on spending.

We are in the process of adjusting our plans right now. We're adjusting our hiring plans, as we look out at the rest of the year; and we're looking very closely at other areas of expense that we can reduce to try to get back on plan for the year.

We invested into the area of getting the large orders and we, as you heard, we're doing that now, and so we are going to keep the ideas that worked and move on with the ones that didn't. So, through that process, we can trim our expenses while maintaining the activity that's given us the revenue.

Okay. Great. Thanks for the color.

And, then, could you give us a little bit of detail on how your business is doing by end market? What end markets are performing well for you right now and which ones are lacking?

We had good growth from all regions. We had a 13% increase from the Americas.

And, I guess, not really in particular, by geography, but more by end market such as consumer electronics.

Some of the articles that we look at; right?

Correct. Correct.

So, academic, we had a fairly strong quarter for academic. Really all over the globe. Our defense and aerospace was also fairly strong. Transportation was strong.

A little bit weaker was research and our big physics area, and we think some of that might be due to the sequestration and the flowing of funds, but that's the color I can give you on the verticals.

Okay. Great. Thank you for taking my call.

Thank you, Chris.

Thank you. Our next question comes from Mark Moskowitz of JPMorgan.

Your line is now opened.

Thanks. Good afternoon, gentlemen.

Hey, Mark. How are you?

Good, thank you. A couple questions, if I could?

Just following up on the OpEx overage, was any of this related to the large customer? Was there any sort of, maybe, pull forward, where you really wanted to make sure you had all the ducks in a row to serve this one customer, or was it broader in scale?

You know, fundamentally, it was broader in scale. Undoubtedly, Mark, we are making large investments into this customer. That is a core part of our success there to build that relationship and to deliver that capability; but, in general, our overage is broader in scale.

Okay. And, then, as far as the commentary on government sequestration, it's really just seen now. I know there is a lot of concern about it during the March quarter, but, really, it's all starting to hit now. So, do you see, actually, incremental downside risk to your end markets now because of this?

I definitely think it's a concern. I mean, it's really difficult for us to be able to pinpoint a dollar figure of an impact on Q1, and it's even more difficult looking out into Q2 to try to figure out exactly what that dollar impact will be.

Fundamentally, in this quarter, given that we missed the Q1 EPS, and the PMI appears to be headed down, and we have adjustments to make in inventory and spending, I think it makes sense to us to be pretty conservative in this timeframe.

Okay. And, then, just one last follow-up and just on the OpEx piece. I guess I'm still kind of just confused in terms of how it happened; where you had this over planning?

Sure, Mark. We were about 2% over budget overall, and when we look at it, it's fundamentally tied to our hiring plan, so we're a little bit ahead on people now, where we want to be, and we're going to adjust that as we go over the next several quarters.

Okay. Thank you.

Thank you. (Operator Instructions).

Our next question comes from Stephen Stone of Sidoti & Company. Your line is now open.

Good afternoon. I guess my question here is on [Agilent]. They're making a bigger push into the market here. As they start to do this, are you seeing them price a lot of the PXI against you? Or what are you seeing as their entry?

Alex, I will take this one. When we look at the entry of Agilent into the market, as they have been, I guess, in PXI now about two-and-a-half-years, we viewed their entry as very positive for the overall market growth as an endorsement of PXI as a standard.

We have seen that be very helpful to us in numerous accounts where we're able to leverage the broadening of the standard and bring in our very full portfolio of products, and 14 years of experience, in leading the PXI market space. So, we've viewed that as a very positive thing for both the PXI market and for National Instruments.

We haven't seen any noticeable impact on our pricing to date at all from that entry.

Are you selling against them in most of these large applications or something to that effect?

In these large applications, we're talking with this customer, for example, it's generally box instruments that we're competing against.

Okay. And, then, can you, I guess, provide color for the reason for the decrease in the large order? I guess, did you budget more than expected or were you a little optimistic?

Yes. I think we were a little bit optimistic. So, given that these are standard components we sell to other customers, we had buffered the forecast that we got to allow us to be in a position to deliver on the upside that we had anticipated to their forecast.

In hindsight that was a mistake, so when they reduced their forecast, it was a bit of a double whammy for us and now we have to move through the adjustment process.

Okay. Thank you.

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

Hi. Good morning, gentlemen.

Hi, Mark.

First of all, Alex, can you remind us what were the total orders shipments from this large customer in 2012?

So, in Q1 of 2012, we had $12 million of orders from this customer. In Q2, we had $17 million. In revenue for Q1 of 2012 we had about $4 million and it was about $4 million in Q1 of 2013.

Did you get that, Mark?

Yes. But for the full year 2012?

Yes. Full year in 2012, we had $76 million in orders; $72 million in revenue.

Okay. And some of those orders -- I assume that the $4 million in orders fell into the 1Q?

The $4 million eventually went towards deferral; some part of that revenue is deferred to cover future service.

Okay. Okay.

We did not show 2012, really, with any backlog.

Okay. So, I noticed, too, your guidance is a larger spread than normal. Is that due to uncertainty in deliveries to the larger customer or is it also related just to the uncertainty in the macro?

I think it's everything wrapped up in one, and having missed our profit number in Q1, I'm just generally being more cautious for guidance.

Okay. And, then, I guess, what was the benefit of the R&D tax credit in the quarter?

Yes. We talked about that in the Q1 call as part of our guidance. It was about $0.03 a share; roughly.

So it was $0.03? Within your expectations?

Yes. It was pretty much exactly what we had expected when we gave guidance in January.

Okay. And, then, the acquisition-related adjustment, just kind of housekeeping, that was a benefit that you backed out in non-GAAP?

Yes.

And what was the adjustment?

Yes. We had made a pretty big adjustment to the earn-out accrual of one of our acquisitions late last year, and we just fine tuned it a little bit here in Q1.

Okay. Okay. Thank you.

No problem, Mark. Thank you.

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

Alex, what did acquisitions, the three small ones you made in the fourth quarter, what did acquisitions add to revenue in this quarter?

Just a second there, Rick. So, we added about $3 million from acquisitions this quarter. It was a little below our expectations of $4 million to $5 million.

Okay.

That's really due to some timing issues with one of the acquisitions and we expect, in Q2, that number to be a little bit higher, in the $4 million range for Q2.

Okay. All right. And, then, Alex, I just wanted to clarify, on this large customer, I think the reference in the press release is that, we are not likely to meet the same order number, and we're more conservative now, and we're talking about the full $76 million, not the $57 million that you called out as that one big project?

Correct. We're talking about the total value for the customer in this year.

So, it will be less than $76 million, much less it sounds like; but, how does that -- from a revenue perspective -- you know, we were only really tracking the $57 million, but what do these comps look like last year in terms of revenue recognition on that customer? So it's $4 million in the first, you said?

Here, I'll play it out for you. It's $4 million in the first; roughly, $23 million in the second; $29 million in the third; and $16 million in the fourth.

Okay. Okay. And then, also, what was the FTE number at the end of the first quarter?

It's $7,135.

Oh, okay. Okay. And, then, just the last question. I just need a little bit of clarification. We talked about the softness in Japan and it certainly showed up in sequential improvement in revenue there, and the question is, you know, I get the weak yen. Does that, basically, make your products that much more expensive?

I mean, is that why? Or why did the demand fall off like it did?

A couple things going on there, Rick. Number one, sequentially Q1 is always a big quarter in Japan because March 31st is the fiscal year end there.

Okay.

So Japan, in Q1, is normally our highest percentage of revenue that comes from Japan is at that time period.

Yes.

Why we saw the drop-off in orders, two things. Obviously, the value of the yen fell by almost 25% in Q1.

Yes.

We sell in local currency in yen, and so the fall in the yen directly translates into a fall in our dollar revenue. We have low competition in Japan. We don't have the luxury, unfortunately, of raising prices 25% local currency in a one-quarter time period.

Okay.

So that's a core part of the issue.

Okay.

Most of our cost of goods is in dollars, so it's not in yen.

No, I understand. A couple years ago, we were having this conversation about how you can adjust your pricing, but I guess to your point, you can't do it that quickly.

I didn't predict on January 1st that the yen was going to collapse, I'm afraid.

No. I got that; I understand that. But the point is still the same, though, that you should be able to adjust your pricing over some period of time there?

Yes. Over some period of time. 25% in one geography, in a short period of time where you have local competition.

Sure.

That's not a viable option.

Okay. And, then, the last question that I have is, we bumped into a, basically, press release, or an article, but, basically, NATI has on the drawing board here plans to build a new R&D center in Austin? How does that fit into this cost reduction effort that we would be looking for?

Sure. The plans we have for a new R&D center in Austin is a ten-year plan.

Okay.

As a growth company, we expanded and built campus to accommodate our growth as a unified platform company. It makes sense to have core R&D in one location.

Yes.

And so that is a plan we have to expand over the course of the next decade. As you know, you've been following us a long time, we're very committed to the long-term growth of the company and we plan to add that capacity as and when we need it, so that would be a thing we will be looking at over the coming years.

Okay. So,okay. So because in this article, I mean, it talked about starting it this year. That's subject to --

I don't know which article you're referring to specifically, Rick, but this is a long-term plan.

Okay. Okay. Great. Thank you.

Thank you very much for your questions.

You bet.

Thank you. And at this time, I'm not showing any further questions.

I would like to turn the call back to Management for any further remarks.

Thank you for your time today. We appreciate your questions. We hope to see you at some of the investor conferences upcoming in the next four or five weeks.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect.

Everyone, have a great day.