National Instruments Reports Record Quarterly Revenue

The following tables provide details with respect to the amount of GAAP charges related to stock-based compensation, amortization of acquisition-related intangibles, acquisition-related transaction costs, disposal gains on buildings and related charitable contributions, tax effects related to businesses held-for-sale, capitalization and amortization of internally developed software costs, and restructuring charges that were recorded in the line items indicated below (unaudited) (in thousands):

	Three Months Ended						Years Ended
	December 31,						December 31,
	2019			2018			2019			2018
Stock-based compensation
Cost of sales	$	887		$	816		$	3,475		$	3,231
Sales and marketing	4,868			3,810			19,612			14,218
Research and development	4,236			3,489			16,265			12,580
General and administrative	3,393			2,010			12,086			7,587
(Benefit) provision for income taxes	(1,433		)	(1,707		)	(9,337		)	(7,822		)
Total	$	11,951		$	8,418		$	42,101		$	29,794

Amortization of acquisition intangibles
Cost of sales	$	823		$	810		$	3,348		$	3,258
Sales and marketing	485			505			1,970			2,085
Research and development	28			28			112			113
Other loss, net	124			—			409			—
(Benefit) provision for income taxes	(127		)	(163		)	(703		)	(681		)
Total	$	1,333		$	1,180		$	5,136		$	4,775

Acquisition transaction costs, restructuring charges, and other
Cost of sales	$	—		$	244		$	—		$	2,057
Sales and marketing	5,356			2,300			13,646			10,654
Research and development	3,266			297			4,166			2,092
General and administrative (1)	2,002			341			11,527			1,879
Gain on sale of asset (1)	—			—			(26,842		)	—
Other loss, net	—			—			—			709
(Benefit) provision for income taxes (2)	(13,477		)	237			(12,237		)	(3,749		)
Total	$	(2,853	)	$	3,419		$	(9,740	)	$	13,642
(1): During the third quarter of 2019, we recognized a gain of $27 million related to the sale of our Millennium property, presented within "Gain on sale of assets". During the third quarter of 2019, we also recognized a charitable contribution expense of $7 million related to a donation using a portion of the proceeds from the sale of the property, presented within "General and Administrative".
(2): During the fourth quarter of 2019, we recognized an income tax benefit of $11 million related to the recognition of deferred taxes on the outside basis difference of our AWR business, which was held-for-sale as of December 31, 2019.

(Capitalization) and amortization of internally developed software costs
Cost of sales	$	7,012		$	6,557		$	27,085		$	25,293
Research and development	(1,887		)	(1,056		)	(9,066		)	(14,208		)
(Benefit) Provision for income taxes	(1,076		)	(1,155		)	(3,784		)	(2,328		)
Total	$	4,049		$	4,346		$	14,235		$	8,757


National Instruments
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, unaudited)

	Three Months Ended						Years Ended
	December 31,						December 31,
		2019			2018			2019			2018
Reconciliation of Gross Profit to Non-GAAP Gross Profit
Gross profit, as reported		276,333			272,070			1,016,324			1,025,405
Stock-based compensation		887			816			3,475			3,231
Amortization of acquisition intangibles		823			810			3,348			3,258
Acquisition transaction costs and restructuring charges		—			244			—			2,057
Amortization of internally developed software costs		7,012			6,557			27,085			25,293
Non-GAAP gross profit	$	285,055		$	280,497		$	1,050,232		$	1,059,244
Non-GAAP gross margin	78%			78%			78%			78%

Reconciliation of Operating Expenses to Non-GAAP Operating Expenses
Operating expenses, as reported		222,652			210,249			841,770			852,526
Stock-based compensation		(12,497	)		(9,309	)		(47,963	)		(34,385	)
Amortization of acquisition intangibles		(513	)		(533	)		(2,082	)		(2,198	)
Acquisition transaction costs and restructuring charges		(10,624	)		(2,938	)		(22,339	)		(14,625	)
Capitalization of internally developed software costs		1,887			1,056			9,066			14,208
Gain on sale of assets and other ⁽¹⁾		—			—			19,842			—
Non-GAAP operating expenses		200,905			198,525			798,294			815,526

Reconciliation of Operating Income to Non-GAAP Operating Income
Operating income, as reported	$	53,681		$	61,821		$	174,554		$	172,879
Stock-based compensation		13,384			10,125			51,438			37,616
Amortization of acquisition intangibles		1,336			1,343			5,430			5,456
Acquisition transaction costs and restructuring charges		10,624			3,182			22,339			16,682
Net amortization of internally developed software costs		5,125			5,501			18,019			11,085
Gain on sale of assets and other ⁽¹⁾		—			—			(19,842	)		—
Non-GAAP operating income	$	84,150		$	81,972		$	251,938		$	243,718
Non-GAAP operating margin	23%			23%			19%			18%

Reconciliation of Income before income taxes to Non-GAAP Income before income taxes
Income before income taxes, as reported	$	54,292		$	63,463		$	180,544		$	176,453
Stock-based compensation		13,384			10,125			51,438			37,616
Amortization of acquisition intangibles		1,460			1,343			5,839			5,456
Acquisition transaction costs and restructuring charges		10,624			3,182			22,339			17,391
Net amortization of internally developed software costs		5,125			5,501			18,019			11,085
Gain on sale of assets and other ⁽¹⁾		—			—			(19,842	)		—
Non-GAAP income before income taxes	$	84,885		$	83,614		$	258,337		$	248,001

Reconciliation of Provision for income taxes to Non-GAAP Provision for income taxes
Provision for income taxes, as reported	$	(4,304	)	$	6,922		$	18,393		$	21,396
Stock-based compensation		1,433			1,707			9,337			7,822
Amortization of acquisition intangibles		127			163			703			681
Acquisition transaction costs and restructuring charges		2,715			(237	)		5,650			3,749
Net amortization of internally developed software costs		1,076			1,155			3,784			2,328
Gain on sale of assets and other ⁽¹⁾⁽²⁾		10,762			—			6,587			—
Tax reform charge (benefit)		—			3,051			(2,774	)		4,197
Non-GAAP provision for income taxes	$	11,809		$	12,761		$	41,680		$	40,173
(1): During the third quarter of 2019, we recognized a gain of $27 million related to the sale of our Millennium property, presented within "Gain on sale of assets". During the third quarter of 2019, we also recognized a charitable contribution expense of $7 million related to a donation using a portion of the proceeds from the sale of the property, presented within "General and Administrative".
(2): During the fourth quarter of 2019, we recognized an income tax benefit of $11 million related to the recognition of deferred taxes on the outside basis difference of our AWR business, which was held-for-sale as of December 31, 2019.


Reconciliation of GAAP Net Income and Diluted EPS to Non-GAAP Net Income, Non-GAAP Diluted EPS, and EBITDA
(in thousands, except per share data, unaudited)

	Three Months Ended						Years Ended
	December 31,						December 31,
		2019			2018			2019			2018

Net income, as reported	$	58,596		$	56,541		$	162,151		$	155,057
Adjustments to reconcile net income to non-GAAP net income:
Stock-based compensation, net of tax effect		11,951			8,418			42,101			29,794
Amortization of acquisition intangibles, net of tax effect		1,333			1,180			5,136			4,775
Acquisition transaction costs and restructuring charges, net of tax effect		7,909			3,419			16,655			13,642
Net amortization of internally developed software costs, net of tax effect		4,049			4,346			14,235			8,757
Gain on sale of assets ⁽¹⁾ and other ⁽²⁾ , net of tax effect		(10,762	)		—			(26,395	)		—
Tax reform (benefit) charge		—			(3,051	)		2,774			(4,197	)
Non-GAAP net income	$	73,076		$	70,853		$	216,657		$	207,828
Non-GAAP net margin	19.9%			19.7%			16.0%			15.3%

Diluted EPS, as reported	$	0.45		$	0.42		$	1.22		$	1.16
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS
Impact of stock-based compensation, net of tax effect		0.09			0.06			0.31			0.22
Impact of amortization of acquisition intangibles, net of tax effect		0.01			0.01			0.04			0.04
Impact of acquisition transaction costs and restructuring charges, net of tax effect		0.06			0.03			0.13			0.10
Impact of net amortization of internally developed software costs, net of tax effect		0.03			0.03			0.11			0.07
Impact of gain on sale of assets and other ⁽¹⁾⁽²⁾ , net of tax effect		(0.08	)		—			(0.20	)		—
Impact of tax reform (benefit) charge		—			(0.02	)		0.02			(0.03	)
Non-GAAP diluted EPS	$	0.56		$	0.53		$	1.63		$	1.56
(1): During the third quarter of 2019, we recognized a gain of $27 million related to the sale of our Millennium property, presented within "Gain on sale of assets". During the third quarter of 2019, we also recognized a charitable contribution expense of $7 million related to a donation using a portion of the proceeds from the sale of the property, presented within "General and Administrative".
(2): During the fourth quarter of 2019, we recognized an income tax benefit of $11 million related to the recognition of deferred taxes on the outside basis difference of our AWR business, which was held-for-sale as of December 31, 2019.

Net income, as reported	$	58,596		$	56,541		$	162,151		$	155,057
Adjustments to reconcile net income to EBITDA:
Interest income, net		(1,934	)		(2,040	)		(8,089	)		(5,745	)
Tax (benefit) expense		(4,304	)		6,922			18,393			21,396
Depreciation and amortization		18,995			16,932			73,541			70,667
EBITDA	$	71,353		$	78,355		$	245,996		$	241,375

Weighted average shares outstanding
Basic		130,776			132,565			131,722			131,987
Diluted		131,432			133,617			132,734			133,274


Reconciliation of GAAP to Non-GAAP Diluted EPS Guidance
(unaudited)
	Three Months Ended
	March 31, 2020

	Low			High
Estimated GAAP Diluted EPS	$	0.99		$	1.13
Adjustment to reconcile diluted EPS to non-GAAP diluted EPS:
Impact of stock-based compensation, net of tax effect		0.09			0.09
Impact of amortization of acquisition intangibles, net of tax effect		0.01			0.01
Impact of acquisition transaction costs and restructuring charges, net of tax effect		0.05			0.05
Impact of net amortization of software development costs, net of tax effect		0.03			0.03
Impact of gain on divestment, net of tax effect		(0.93	)		(0.93	)
Estimated Non-GAAP Diluted EPS	$	0.24		$	0.38


Reconciliation of Estimated GAAP Revenue Growth to GAAP Revenue Growth (excluding AWR) at Midpoint of Guidance
(unaudited)
		Three Months Ended
		March 31, 2020
Estimated YoY GAAP Revenue Growth at midpoint		4%
plus: Impact of excluding recently divested business (AWR)		2%
Estimated YoY GAAP Revenue Growth (excluding AWR) at midpoint		6%

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