National Instruments Corp (NASDAQ:NATI) has worked hard to drive down costs so that it can boost earnings. That strategy paid off during the second quarter as earnings soared on the heels of record-setting revenue. With the company still in the early stages of this strategy, it anticipates further improvements in the coming quarters.

National Instruments Corp results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Net sales

$341.0 million

$318.6 million

7%

Non-GAAP net income

$44.8 million

$30.0 million

49.4%

Non-GAAP earnings per share

$0.34

$0.23

47.8%

Data source: National Instruments Corp.

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Image source: Getty Images.

What happened with National Instruments Corp this quarter? 

Margins improved as the company controlled costs:

  • National Instruments' revenue came in above the midpoint of its $320 million to $350 million guidance range, setting a record for the second quarter. Product sales rose 5.9% versus last year's second quarter to $306 million while revenue from software maintenance increased 18.9% to $34.2 million.
  • On a geographic basis, revenue in the Americas was up 7%, while sales in APAC (Asia Pacific) increased 5% and EMEIA (Europe, Middle East, India, and Africa) jumped 9% with foreign exchange rates having a positive impact on sales during the quarter.
  • National Instruments did a good job keeping a lid on expenses. Cost of sales declined, especially for software maintenance, which helped boost its gross profit margin from 71.1% in the year-ago period to 75.9%. Meanwhile, the company kept a tight lid on general and administrative expenses, which rose slightly less than revenue, helping boost its operating income margin to 10.8% of sales, up from 9% in last year's second quarter. Add to that a lower provision for income taxes, and profits soared versus the year-ago period and were toward the high end of its $0.23 to $0.37 per share guidance range.

What management had to say 

CEO Alex Davern, commenting on the company's results, said: "We have made tremendous progress toward our profitability goal over the last 18 months. I am proud of what our team has accomplished." Meanwhile, CFO Karen Rapp, stated: "We had a great performance in the first half of 2018. I am encouraged by our focus on growth and profitability." Through the first half of this year, the company's operating income margin has averaged 10% versus 8.2% in the year-ago period. That improvement, along with higher sales, has helped drive its operating income up more than 27% year over year.

Looking forward 

CEO Alex Davern said that "looking forward we plan to continue to align our investments and our business behind our new Core Strategic Vision with the goal of driving improved revenue growth while maintaining the discipline needed to hit our long-term operating model." In the near-term, the company expects to deliver record-breaking revenue once again in the third quarter when it sees sales ranging from $325 million to $355 million. Earnings, meanwhile, should be in the range of $0.32 to $0.46 per share. Longer term, the company aims to grow revenue at a 4% to 7% annual clip while increasing its operating margin up to 18%.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends National Instruments. The Motley Fool has a disclosure policy.