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National Instruments Corp (NATI)
Q3Â 2019 Earnings Call
Oct 29, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the National Instruments Third Quarter 2019 Earnings Call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Ms. Marissa Vidaurri, Head of Investor Relations. Please go ahead, Ma'am.
Marissa Vidaurri -- Head of Investor Relations
Thank you, good afternoon. Thank you for joining our Q3 2019 earnings call. Speakers today are Alex Davern, Chief Executive Officer; Eric Starkloff, President and Chief Operating Officer; and Karen Rapp, Chief Financial Officer. We will start with an update on our business and then take your questions. During the course of this conference call, we shall make forward-looking statements including statements regarding future growth and profitability, our focus, plans, vision and strategic directions, our market position, capital allocation plans and our guidance for revenue and EPS for Q4.
We wish to caution you that such statements are just predictions and that actual events or results may differ materially and could be negatively impacted by numerous factors, including any weakness in the global economy, fluctuations in revenue from our large customers, foreign exchange fluctuations, expense overruns, manufacturing inefficiencies, adverse effect of price changes and effective tax rate.
We refer you to the documents that the company files regularly with the Securities and Exchange Commission, including the company's annual report on Form 10-K filed on February 21st, 2019 and quarterly report on Form 10-Q filed on August 2nd, 2019. These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements. A reconciliation of our non-GAAP financial measures disclosed in this call to the most directly comparable GAAP financial measure and related disclosures are contained in our press release and on ni.com/nati.
With that, I will now turn it over to Chief Executive Officer, Alex Davern.
Alex Davern -- Chief Executive Officer
Thank you, Marissa and good afternoon. Thank you all for joining us today. My key messages today are strong performance by NI in a contracting PMI environment. Our highest non-GAAP net margin for the first three quarters of the year since the IPO in 1995 and that I believe NI is very well positioned for long-term growth.
Our revenue came in at the midpoint of our guidance and our earnings per share came in slightly above the midpoint. Our non-GAAP operating margin for Q3 was a record for a third quarter and we continue to deliver very strong cash flow. I believe that by maintaining our revenue and delivering on our profitability goals during the current industrial recession, we're building a very strong foundation. This is the best performance by the company during a period of a contracting PMI since the IPO in 1995. And I believe it puts us in a strong starting position when the market recovers.
We made great progress as a company over the last three years. We believe our core strategic vision to be the leader in software defined automated test and automated measurement systems provides us with a clear path to significantly expand our served available market, while continuing to leverage our highly differentiated platform.
Over the last three years, NI leadership team has systematically realigned all functions of the company to pursue our core strategic vision. We have realigned our business to focus on the industries and applications we believe get the greatest benefit from our differentiated platform. We have realigned our sales channel to be informed of our business units and a focus on the accounts with the greatest potential.
We have realigned our marketing operations to focus on enhancing our brand and we have realigned our service and operations teams to provide greater system level value. Together, this has resulted in a fully aligned company committed to the goal of accelerating our future revenue and profit growth. This has allowed us to deliver a 94% increase in our non-GAAP net income for the first nine months of 2019, compared to the same period in 2016. I'm pleased to see the significant impact that this realignment is having on our profitability now and I believe that that impact will follow through to revenue growth in 2020 and 2021.
After four quarters of weakness in the industrial economy, history would show that a market recovery should be in sight. This coupled with the expected benefit to NI of the transition of 5G to mainstream mass production later in 2020 give us reason to anticipate improved revenue in 2020. In the meantime, we remained focused on delivering on the differentiation and flexibility of our software-centric platform to help us increase share as customers look for new options to meet market demands. We're executing on our commitment to deliver structurally higher profitability and believe we are on-track to achieve our profitability goals in 2019. Our ability to deliver on our profit goals in this difficult environment means we will be in a very good starting position when the market recovers.
Now switching topics, having participated in 100 NI earnings calls over my career, I'm excited to have the opportunity to discuss my personal transition. It has always been my intention to lead NI for as long as was necessary to successfully transition from our Founder to significantly strengthen the company's position and to reset for future growth. I'm excited to announce that Eric Starkloff will be succeeding me as CEO effective February 1st of 2020. I will then take on the role of Strategic Advisor to the CEO through May before taking up a teaching position at the University of Texas, McCombs School of Business in the fall.
I've worked with Eric for over 20 years and I've enjoyed partnering with him on our journey over the past three years to realign NI for long-term growth and profitability. His many years of leadership at NI and his passion for innovation make him the right choice to take NI forward. I will remain on the Board and Eric will be joining the NI Board as part of his promotion.
So with that let me congratulate Eric and turn it over to him to talk through our performance for Q3.
Eric Starkloff -- President and Chief Operating Officer
Thank you and good afternoon. First, let me take the opportunity to personally thank Alex for his leadership and his tremendous impact on NI. It has been my honor to work alongside with him for the past 22 years, most importantly, in the last 3 as we partnered together along with our leadership team to create our core strategic vision and align the entire company for long-term growth. I remain confident in our strategy, our leadership team and our ability to deliver results for all of our stakeholders. We will continue to focus on growth and profitability on creating career paths for our employees and on adding more value to our customers to increase our opportunity in the market.
Now onto our performance in Q3. We've aligned the company to our new vision and strategy and we remain pleased with our progress and our performance relative to a challenging macro-environment. This quarter we met the midpoint of our revenue guidance despite a weaker industrial economy that was adversely impacted by trade tensions, a down-cycle in semiconductor and continued decline in the global automotive industry. Our year-over-year bookings were down 5% in Q3, compared to one of the best quarters in recent years Q3 2018 where we reported year-over-year bookings growth up 13%.
Now I will provide context on our quarterly order growth by industry. In semiconductor, we saw the impact of the now multi-quarter decline in the overall semiconductor industry with a low double-digit decline in orders year-over-year in the quarter. Despite the overall industry weakness, our bookings in semiconductor are flat year-to-date through Q3 and we believe our strategy remained strong and our share continues to grow.
A significant focus of our semiconductor business is the testing of 5G chips. The success in the market of dedicated instruments for early 5G R&D is a positive indicator for the automated validation and automated production applications that follow-in 2020 and beyond. Over the past 12 months, we have already seen a significant uptick in chip-makers building out sub 6-gigahertz production capacity, especially for 5G infrastructure equipment and this remains a growth driver for our overall semiconductor business.
While the deployment timing for millimeter wave 5G is on a different timeline in sub 6-gigahertz, we are currently shipping millimeter wave test systems for both validation and production test. So far, millimeter wave 5G deployments have been limited in scope and the cycle of automated validation and production test equipment has been somewhat delayed due to Huawei restrictions and Intel's exit from the 5G modem business and subsequent sale to Apple.
We believe these market conditions will dictate the pace at which market volume of millimeter wave 5G production test increases. Lead customers are already using our millimeter wave vector signal transceiver released in May 2019 and the reception of this product has been very strong. In transportation, we saw orders decline in Q3 below double-digit year-over-year.
We continue to see strong growth in our business in the areas of electrification, active safety and autonomy, while the rest of the transportation business reflects the weakness of the broader market. Our focus remains on mitigating these market weaknesses and continuing to aggressively invest in the areas of high growth in order to increase the proportion of our business in those applications.
Our aerospace, defense and government orders grew low single-digits year-over-year in Q3. Our platform continues to add significant value to this industry which benefits from our software-connected approach and the ability to help our customers control their proprietary IP and meet their needs for highly customized and long life cycle systems. The cycles of this industry tend to run counter to the overall industrial economy as the spending environment this year has remained positive.
With respect to our broad portfolio of customers in all other industries, which represents nearly half of our business, orders were down low single-digit year-over-year in Q3, compared to a very strong Q3 of 2018. Historically, this part of our business has been the most correlated to the PMI. Through the first three quarters of 2019, this part of our business has been experiencing the headwind of the weakness in the industrial economy, which we believe has begun to stabilize.
Strength in customer adoption of our software across all industries continued in the third quarter with orders up 6% year-over-year and strong growth in enterprise agreements up 14% year-over-year. We believe these results are positive indicators of future revenue growth potential and opportunities for our software-connected platform. In summary, we remain committed to our R&D investment, confident in our long-term strategy and believe we are in a strong position to take advantage of future growth opportunities.
Now, I'd like to turn it over to Karen Rapp, our Chief Financial Officer for the financial update.
Karen Rapp -- Chief Financial Officer and Treasurer
Thanks, Eric and congratulations. Our revenue in Q3 came in at the midpoint of our guidance at $340 million. Our earnings performance stayed strong in Q3 and we delivered $0.44 non-GAAP earnings per share, slightly ahead of the midpoint of our guidance. We are proud of our operational efficiencies and variable pay alignment to performance that helped structurally scale our profitability.
As Eric mentioned, our year-over-year bookings were down 5% in Q3 as compared to a strong quarter in Q3 2018, where we reported year-over-year bookings growth of 13%. Orders over $20,000 were down 4% year-over-year and orders under $20,000 were down 6% year-over-year. Compared to Q3 2017, orders over $20,000 were up 13% and orders under $20,000 were down 2%.
In Q3, revenue was down 2% in total year-over-year. By region in US dollar terms, revenue was flat in the Americas, down 2% in Asia-Pacific and down 4% in EMEA. Excluding the impact of foreign currency exchange, revenue was flat in the Americas, flat in Asia-Pac and down 2% in EMEA. Non-GAAP gross margin in Q3 was 77.3%. We believe our strong gross margins remain a testament to the value of our brand and the benefits our platforms and systems provide to our customers. Non-GAAP operating margin was a record for a Q3 at 20.1%, up 50 basis points from a year ago.
The company reported Q3 GAAP net income of $52 million or $0.39 per share. Q3 non-GAAP net income was $58 million. Alex talked about the realignment we've made over the last three years. We have delivered a 94% increase in our year-to-date through Q3 non-GAAP net income, compared to the first three quarters of 2016 in a very similar PMI environment.
Our non-GAAP net income at that time was 8% of revenue for the first three quarters, compared to the 15% we delivered in the first three quarters this year, which we believe reflects the impact of structural changes we have implemented as a company.
Now an update on our capital allocation strategy. Our cash balance remained strong at $432 million at the end of Q3. Our trailing 12 months cash flow from operations was $237 million, representing 24% of revenue. I believe our clear industry and application focus together with our strong balance sheet puts the company in a strong position to increase NI's revenue inorganically through investments that enhance our platform and accelerate the innovation we deliver to customers.
During the third quarter, we paid $33 million in dividends and repurchased approximately 1.1 million shares of our outstanding common stock at an average price of $42.42. Total cash returned to shareholders from dividends and stock repurchases was approximately $80 million. Through the first three quarters of 2019, we have returned over $200 million to our shareholders.
The NI Board of Directors has approved a dividend of $0.25 per share for shareholders of record on November 11, 2019. For the trailing 12 months ended Q3 2019, our dividend payout ratio has been approximately 60% of non-GAAP net income. Also this quarter, the Board of Directors approved an increase to our share repurchase program of an additional 3 million shares, putting our total available for purchase at 3.8 million shares.
For the fourth quarter of 2019, we remain cautious due to the broad-based economic uncertainty and external disruptions mentioned earlier. We currently expect total revenue to be in the range of $345 million to $375 million. We expect GAAP fully diluted earnings per share will be in the range of $0.25 to $0.39 for Q4, with non-GAAP fully diluted earnings per share expected to be in the range of $0.43 to $0.57.
As a reminder, our long-term operating model will continue to be 50% to 60% flow through from revenue to operating income. At the midpoint of our Q4 guidance, our 2019 outlook is to have a cumulative cash flow -- I'm sorry, flow through, over the last 3 years above 80%. In 2020, we will continue to invest in strategic investments to support our systems business evolution. We also expect to see variable pay come back in line with revenue growth. Our current outlook for flow through in 2020 would provide a cumulative flow through since 2017 of 50% to 60% within our target range.
For these forward-looking statements, please remember that our actual revenues and earnings could be negatively affected by numerous factors, highlighted previously by Marissa. In summary, we delivered record operating margin for the third quarter during a tough economic environment, putting us in a position of strength when the economy improves. And we remain committed to delivering on our goal of 18% non-GAAP operating margin through the economic cycle.
With that, I will now turn it over to Alex for closing comments.
Alex Davern -- Chief Executive Officer
Thank you, Karen. We remain focused on taking share during this industrial recession. We believe our software-centric platform provides increased opportunity as customers look for new options to meet their market demands. Our customers are utilizing the NI platform to provide a competitive advantage to their business. Our direct customer relationships are a key differentiator and our innovation is critical to helping them bring new technologies to market. I'm inspired by the impact of NI's technology within the market today and the exciting opportunities that we have for the future.
Now the last 3 years has been a very rewarding journey. We have repositioned NI for long-term growth and profitability. We are seeing the impact on our profitability now with a record performance in Q3 and I believe that we will see the impact in our revenue growth in 2020 and 2021. I want to thank our employees for their commitment to NI and to our customers and encourage them to continue to strive for operational excellence.
And with that, we will now open up for your questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from Mehdi Hosseini with Susquehanna. Your line is now open.
Nicholas Heisler -- Susquehanna -- Analyst
Hi, everyone. This is Nick Heisler filling in for Mehdi, just a few questions. First off, with the realignment of the sales in the R&D departments, do you see more synergies going forward or on the profitability side or are you guys just focused on revenue growth moving forward?
Eric Starkloff -- President and Chief Operating Officer
Hi, Nick. This Eric. I'll take that. So yeah, I think -- first of all, I think we've already seen quite a bit of synergies. Karen referenced the significant increase in profitability and some of the records that were set this quarter and the increased flow through that we've had over the past couple of years and that's a result of many of the changes that we've made to that alignment, as well as the changes in variable pay and other things that she referenced.
So that has been an impact. Going forward, our expectation is that we get continued leverage as well as, as I mentioned, we have a focus on -- focusing on areas in a market where there's more revenue growth opportunity. We knew all along as we've gone through this journey, Alec and I together with the leadership team over 3 years now. We knew all along that those kind of changes to drive the ultimate increase in sustainable revenue growth would take longer. But we've been committed to those and committed to achieving both the leverage goals and ultimately the increased revenue growth goals as well.
Nicholas Heisler -- Susquehanna -- Analyst
Okay, great. Thank you. Just another follow-up. So orders -- book orders over $20,000 have declined for now two consecutive quarters, that hasn't happened since like 2015 and in 2015, you bounced back in the subsequent quarter. Should we expect the same thing here or is this about a macro environment? What should we look for?
Karen Rapp -- Chief Financial Officer and Treasurer
Yeah, Nick, it's Karen. Orders over $20,000 are a real focus for us and where we put our pipeline management. And so we continue to work with our customers on the systems opportunities and feed that through. So if you look back over a 2-year time period over $20,000, our orders are up 13% going back 2 years. So a nice, strong trajectory there.
Nicholas Heisler -- Susquehanna -- Analyst
Okay, thank you. Just one more is how should we think about operating expenses in December, should we assume the same from what we have now and also looking into 2020?
Karen Rapp -- Chief Financial Officer and Treasurer
It's Karen again. We've built out the guidance assuming similar to what you've seen in historic trends for Q4. And so you can continue to build your model that way.
Nicholas Heisler -- Susquehanna -- Analyst
All right, thank you.
Alex Davern -- Chief Executive Officer
Thank you, Nick.
Operator
Our next question comes from John Marchetti with Stifel. Your line is now open.
Alex Davern -- Chief Executive Officer
Hey, John.
John Marchetti -- Stifel -- Analyst
Thanks very much. Good afternoon Alex and Eric, congratulations to you both. Just want to jump in real...
Eric Starkloff -- President and Chief Operating Officer
Thank you, John.
John Marchetti -- Stifel -- Analyst
Just want to jump in real quick out, you made the comment obviously and you've made it a couple times before where these downturns typically last three to five quarters, we're now at quarter four here. Just curious as you look out if you're seeing sort of tangible signs of things getting better, if you're sort of pulling more from history a combination of both. Just any color that you and/or Eric could provide sort of on the sort of state of the environment that you're operating in right now?
Alex Davern -- Chief Executive Officer
Yeah, so maybe I will offer a couple of thoughts on this, we clearly saw a definite impact on our business in Q4 of last year and that's when the kind of normal seasonal pattern broke, that our seasonal uptick that we would have expected to scale of that from Q3 to Q4 didn't happen. It started for us -- we started to see this downturn in Europe and then it came to Asia and now over the course of these last four quarters, we've seen it impact the Americas as well.
Now having said that, as we went through from Q1 to Q2 to Q3, we're seeing more of that normal seasonal pattern start to reestablish itself. And that is similar to me to what I saw back in '01, '02, in '08, '09. So it's starting to show signs that as I said in the call, we should see in the coming quarters a recovery in the market. So that would be very consistent with what we would expect from history. As we look into Q4, as Karen said earlier on, our guidance for Q4 sequential growth is a little below the long-term average. So we're continuing to be a little bit cautious, but we definitely see the reemergence of our seasonal patterns or sequential patterns and that's definitely a positive.
John Marchetti -- Stifel -- Analyst
And then maybe if I could just follow up there, how much of what's going on at least in the short-term? Do you think still is a direct impact from sort of the Huawei and Intel disruptions that you highlighted last quarter?
Eric Starkloff -- President and Chief Operating Officer
Yeaj, John, I'll take that, that is certainly part of it. I think there's a number of factors here. We talked about it overall for broad economic weakness or as Alec characterized, industrial recessionary environments that we see pretty broadly. And then this -- in addition to that, this trade tension is the piece. The way we think about as we've said before with Huawei, it's really a disruption of a big supply chain. So, it's not so much about just the business directly to Huawei, it's about a lot of moving pieces. And I think that's one of the things that's contributing to overall weakness in the semi-conductor industry, which you see is down-double digit, not just our business, the industry overall is down double-digits and I think that is a contributing factor.
John Marchetti -- Stifel -- Analyst
And maybe just as a follow-up there, Eric. Can you just remind me how much maybe total China business you guys do? And are you seeing signs or are you picking up signs of a sort of anti-US bias as customers are making purchase decisions that might impact the company's business in that region on a longer-term basis?
Eric Starkloff -- President and Chief Operating Officer
Yeah, I'll take it, John. So, yeah, I mean about half of our Asia-Pacific business is in China, it's actually held up pretty well. Our China business was positive, actually approximately double-digit positive in the quarter. And so we're cognizant of the point you made in terms of that sentiment, it's not something we're directly seeing. What we are seeing is a lot of this movement of supply chain, which is a disruption moving across border.
Alex Davern -- Chief Executive Officer
Yeah, I'd just like to add, it's Alec here, just to echo that, we are a service provider and a tool and systems provider to the Huawei supply chain or to its future China-based supply chain. So as and when some of that supply chain moves out of the US for example and is targeted and ported let's say to China or Taiwan or Japanese or Korean-based suppliers, we're in position to continue to support that. And I think that helped our business in China over the last couple of quarters actually.
Eric Starkloff -- President and Chief Operating Officer
Exactly.
John Marchetti -- Stifel -- Analyst
And then maybe if I could just shifting gears a little bit to 5G. Can you help us eye sort of where that opportunity set is for you either today or as we look forward? I mean, obviously, the bulk of it, at least today is in the sub 6 spectrum area. You mentioned some of the early signs of traction with some of the millimeter wave stuff; but just trying to get a sense maybe of what the opportunity that is today and where you think it can get to over a number of years?
Alex Davern -- Chief Executive Officer
Yeah, I'll take that, John. So, I'll try to characterize that for you. So first of all, as I mentioned in the prepared remarks, it's an encouraging sign that the companies that sells at early R&D boxes into this phase have seen successful deployments. And so far this year, that's not a market that we participate in very much. And so that's an encouraging sign. Our opportunity comes in the automated validation systems and then automated production. We are seeing success in sub 6-gigahertz now and as I mentioned millimeter wave is pretty small at this point, but a lot of lead customer adoption.
From a timing and kind of characterize the size point-of-view, for millimeter wave where there will be a larger sort of -- set of capital purchases because of the repurchase that's required, we view that as an opportunity where production will start ramping in the second half of next year. There will be validation systems between now and then, but that's the sort of timing of production with peak -- kind of couple of years after that and that's a several hundred million dollar market opportunity in terms of available market to us.
John Marchetti -- Stifel -- Analyst
Great. Thank you very much.
Eric Starkloff -- President and Chief Operating Officer
Sure. Thank you, John.
Operator
And our next question comes from Richard Eastman with Baird. Your line is now open.
Richard Eastman -- Baird -- Analyst
Yes, good afternoon. While -- well congrats, Alex, I don't know what I'm going to do it myself, when you're not in the other end in these earnings calls.
Alex Davern -- Chief Executive Officer
Yeah, I think you and I have shared a vast majority of these earnings calls actually and Rick I will have you on the phone and I really appreciate your many years of objective coverage and good support for the company. So, I think this must be you are like number 80 or something like...
Richard Eastman -- Baird -- Analyst
Is that an insult or I mean...
Alex Davern -- Chief Executive Officer
No, not at all.
Richard Eastman -- Baird -- Analyst
It was, no, OK. All right. Well, hey, congrats. I think it's going to be quite a -- my guess is quite an adjustment to come down off the NI train. So...
Alex Davern -- Chief Executive Officer
Well, I'm looking forward to continuing to support the company on the board and to share in some of my experiences with a broader audience. So I'm quite excited actually.
Richard Eastman -- Baird -- Analyst
Okay, fantastic and congrats to you as well, Eric, that's awesome. Just a couple of things, when you talk about -- Eric, when you mention the millimeter wave opportunity as a couple of hundred million dollars, is that kind of your thought around the market opportunity or is that kind of NI's maybe share of this production market when it does ramp on the millimeter wave? Is that kind of your hope or share there?
Eric Starkloff -- President and Chief Operating Officer
No, that's what I'm characterizing and you said several hundred million dollars, that is what we call certain available market. So it's the automated validation in production that our capability we'll be able to address. There are of course, other parts of the market that are less in focus for us like the early R&D that's currently sort of in focus in this timeframe or lot of the businesses today.
Richard Eastman -- Baird -- Analyst
Okay. And when I look at the soft spots in the semi-market as you kind of flagged orders for double-digits, is that real weakness -- is it on the smartphone test -- the production side of smartphone test, kind of trailing 4G or LTE or analog chip or where is the big fall-off there?
Eric Starkloff -- President and Chief Operating Officer
Yeah, let me put a couple of points on that, Rick. First of all, I also look at the thing integrated over the longer period of time. So yes, semiconductor -- our semiconductor business was down in the quarter, it's up. If I look year-to-date, over a couple of years it's still the fastest growing part of our business up double-digits. So there is -- that part of -- we have larger deployments and it was a very strong growth component at this time last year. So that's one element of it. The other element is, there is a sort of a broad-based weakness in terms of capital spending in the semiconductor market. I mean you look at results from PI and others and you see sort of broad industrial weakness in analog and mix signal semiconductor and we serve a lot of that space. So there is less sort of friendly capital spending environment in general compared to a year ago.
Richard Eastman -- Baird -- Analyst
Okay, very good. And then just a quick question around the deferred revenue you know, as it shows up the software maintenance revenue I should say, as it shows up in the quarter it was kind of down 2% year-over-year; why is that down? Should that not be up?
Karen Rapp -- Chief Financial Officer and Treasurer
Yeah, it's Karen. Hi, how are you?
Richard Eastman -- Baird -- Analyst
Good. Hi, Karen.
Karen Rapp -- Chief Financial Officer and Treasurer
Good. Thanks for highlighting that for us. As Eric talked about with our EA growth, we're seeing more and more EA's come in. And the benefit of that to us is that we're able to recognize more of that revenue from a license perspective into the product line on that. So you will see some of that transition overtime. And you will see that both in the maintenance piece that we call out for net sales, as well as in deferred revenue.
Alex Davern -- Chief Executive Officer
So [Speech Overlap] absolutely clear Rick, as Karen said, our software revenue shows up in both those lines.
Richard Eastman -- Baird -- Analyst
Yeah, OK. And then just maybe one last question, Karen. I just want to circle back for something you said earlier, I'm not sure -- so cumulative flow-through will be 50% to 60% from 2017 to 2020. So what does that mean, is that meaning that the average incremental adjusted EBIT will be 50%, if I take those four years?
Eric Starkloff -- President and Chief Operating Officer
[Speech Overlap] thinking about this Rick is that the -- very, very high flow-through's we've seen in 2018 and 2019. Obviously, as we are hitting our profit targets, those have to start to moderate. And we're on the shop to hit the long-term target that we've originally set out. We have front-loaded and kind of delivered in advance a little bit. So we want to make sure that we are continuing to seed the investments needed to drive organic growth.
Richard Eastman -- Baird -- Analyst
Okay. So, our incrementals will moderate for 20 into that 50% rate is kind of another way to say it?
Karen Rapp -- Chief Financial Officer and Treasurer
Yeah, you'll need to do the cumulative on it, yep.
Richard Eastman -- Baird -- Analyst
Okay. Fair enough.
Karen Rapp -- Chief Financial Officer and Treasurer
[Speech Overlap].
Richard Eastman -- Baird -- Analyst
Okay. Very good. All right. Hey, thanks again and congrats both Alex and Eric. That's awesome, yeah.
Alex Davern -- Chief Executive Officer
[Speech Overlap]
Operator
And I'm showing no further questions at this time.
Alex Davern -- Chief Executive Officer
So let me sign-off by thanking all again for joining us today. And I really appreciate the time and support that those of you listening have offered to NI and to myself personally over the last 25 years. Thank you.
Operator
[Operator Closing Remarks]
Duration: 33 minutes
Call participants:
Marissa Vidaurri -- Head of Investor Relations
Alex Davern -- Chief Executive Officer
Eric Starkloff -- President and Chief Operating Officer
Karen Rapp -- Chief Financial Officer and Treasurer
Nicholas Heisler -- Susquehanna -- Analyst
John Marchetti -- Stifel -- Analyst
Richard Eastman -- Baird -- Analyst
