Q4 2020 National Instruments Corp Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Yeah.
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Ladies and gentlemen, thank you for standing by and welcome to the NN is fourth quarter 'twenty 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. I ask a question. During this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you acquire any further assistance. Please press star zero I would now like to hand, the competency on speaker today, Marissa Vidaurri head of Investor Relations. Please go ahead ma'am.
Good afternoon. Thank you for joining our Q4 2020 earnings call I'm joined today by Eric <unk>, President and Chief Executive Officer, and Karen Rapp, Chief Financial Officer, We will start with an update on our performance in the fourth quarter and for the year before opening up for your questions. Our discussion today will include <unk>.
Forward looking statements, including statements regarding future growth and profitability, our focus plans objectives strategies target goal growth rate and other model commitment position estimates capital allocation plans dividend expense management plan charges revenue and earnings guidance.
Operating expense guidance estimated tax rate and our outlook, we wish to caution you that such statements are just predictions and that the actual events or results may differ materially and could be negatively impacted by numerous factors, including any uncertainties related to the COVID-19, pandemic and further economic and market disruption.
<unk>, resulting from COVID-19, any further weakness in the global economy and changes in the current global trade regulatory environment. We refer you to the documents the company files regularly with the Securities and Exchange Commission, including the company's annual report on form 10-K filed on February 22020, and the <unk>.
Companys quarterly report on form 10-Q filed on November 2nd 'twenty 'twenty. These documents contain and identify important factors that could cause our actual results to differ materially from those contained on our forward looking statements. We assume no duty to update any forward looking statement to conform the statements to actual results or changes in our expectations.
A reconciliation of our non-GAAP financial measures disclosed on this call for the most directly comparable GAAP financial measures or related disclosures are contained in our press release and on the and I got Com Slash natty.
Non-GAAP revenue is defined as GAAP revenue adjusted to exclude the impact of purchase accounting fair value adjustment also winberg referencing China in this presentation unless otherwise stated, we mean, China plus Hong Kong and lastly, a reminder, that management will be hosting meetings at the Goldman Sachs Technology Conference.
Next month, please visit and I got COVID-19 for presentation time with that I will turn the call over to Chief Executive Officer, Eric Stark law. Thank.
Thank you Marissa and good afternoon, and I appreciate everyone joining us today and I hope that you and your families are doing well on staying safe.
I am very proud of our execution in the fourth quarter and a strong close to a challenging year revenue in the fourth quarter exceeded the high end of guidance and was an all time record for quarterly revenue, we saw positive sequential and year over year order growth across all regions and orders across all business units were up sequentially.
I'm being a leader in our space and transforming the business requires bold moves we've been transforming and I'm by strengthening our commitment to innovation.
Building upon our strong position in software to additional data and analytics.
Focusing on systems to increase our share of wallet monetizing services to enhance the support of our systems.
Streamlining our processes to gain leverage and scale with our broad based customers.
'twenty was a stress test for our strategy and it proved to be strong the areas, where we are focused showed strength and our momentum increased throughout the year. We remain committed to our three year financial model and the momentum seen in Q4 brings me additional confidence as we enter the new year, we will remain focused on accelerating our strategy for growth.
Executing on our business goals, winning in our markets and delivering increased value to all stakeholders.
A part of our strategy is to build on our existing strength in software and to increase our software revenue from approximately 20% of our total revenue today for 30% or more by 2025 shifting towards primarily recurring or subscription based software.
We believe our long term growth will be accelerated by the elevation of our software position through new offerings, particularly at the enterprise level.
In Q4, we saw growth in software revenue up sequentially and up year over year with continued strong growth in enterprise agreements, which grew 24% year over year.
We continue to focus on expanding our system level offerings to provide a higher level starting point for our customers and increase our share of wallet.
Also provides us an opportunity to monetize our recurring services.
As we have elevated our engagements with customers to meet these needs. We have continued to invest in experienced sales and support staff significant growth in our largest accounts are orders that for $20000 and our opportunity pipeline are all the result of these investments our orders over $20000 grew year over year and.
Actually in Q4 and represented approximately 67% of our orders in value.
Semiconductor is the most mature of our focus areas and where our system offerings have been most successful and we believe this system success can be replicated across the business to accelerate growth.
Now turning to our results by industry.
Semiconductor represented approximately 17% of total revenue in 2027.
Semiconductor orders were up double digits year over year in Q4 and up sequentially from Q3, 2020, representing a record year.
Despite China geopolitical and trade tensions the semiconductor market in China was strong and a driver of growth. We are seeing increased adoption of our RF test capability as a result of five G, including new production test and lab wins at key semiconductor accounts with.
With the addition of optimal plus we can now leverage this technology as the underlying platform for our new connected lifecycle and analytic solution focused on supporting our customers needs throughout their product development flow using software and data.
There are commonalities in the supply chains of our semiconductor and electronics customers. Therefore, starting in Q1 of 2021, we are shifting our electronics business from the portfolio view to create the semiconductor and electronics for Ya.
Transportation represented approximately 13% of total revenue in 2020 transfer.
Transportation orders were down low single digits year over year in Q4, despite headwinds from continued COVID-19 shutdowns, particularly in Europe, we began to see positive impact from recovery in vehicle production in the fourth quarter total orders were up mid double digits sequentially with strong momentum in all regions.
Believe the vehicle production recovery will serve as a tailwind to our business. In addition to fueling increased investments in key trends of electrification and active safety systems, where we continue to see strong growth. These areas of focus for ni saw strong double digit revenue growth year over year in Q4 and high single digit revenue.
Growth year over year in 2020, despite the challenging headwinds in this industry.
The continued success in these high growth trends, we recently announced a strategic agreement with Conrad technologies and expert in systems integration and solution delivery for Adas test together, we plan to deliver new technologies to help automotive suppliers and Oems leverage massive amounts of real world data, which can better help our.
<unk> improved vehicle on passenger safety as the shift to autonomous driving accelerates.
Aerospace defense and government or Atg represented approximately 26% of total revenue in 2020.
ADT orders were up double digits year over year in Q4 and sequentially with growth across all three regions.
We continue to capitalize on a relatively steady spending environment, particularly in the U S and expect it to continue to be robust in 2021 and.
In addition, we believe our recently announced strategic collaborations with S. E T and tech what 80 experts in aerospace and defense test systems will help accelerate our ability to deliver solution level value for customers in this space.
Portfolio represented approximately 44% of total revenue in 2020 and.
In Q4 orders in our portfolio business were up low single digits year over year and up double digits sequentially supported by the recent recovery in the global economy.
This represents the highest year over year order growth for our portfolio of business in nine quarters.
We believe this is indicative of the strengthening macro economy as well as traction in key growth initiatives, we focused on in 2020.
A key part of that focus is to continue to drive scale and efficiency in serving our broad based customers our strategy to streamline the process of doing business with ni means both reducing our costs and improving the experience for the large number of smaller accounts. We serve we believe redirecting these customers to a more self service model is better ski.
For their needs. This will require continued investments in net dot com and the increased use of distribution partners to expand reach to current and new customers. We believe this shift will maximize the value of our experienced direct sales force and allow them to continue to focus on proactive engagements with accounts, where we can deliver enterprise level.
Value through software and systems.
This month's Parnell in Avnet company and global distributor of electronic components and solutions joined our expanding network of distributors their product portfolio will now include Ni software connected test and measurement solutions for.
Parnell offers direct sales of technical support globally, and we are excited about the value of their scale and capability brings to our customers.
Now I'd like to shift to an organization update.
Carlos Neuro, sublet and CMO and GM of our portfolio of business will be leaving NII to pursue the role of CMO of IBM next month.
This next step in her career reflects not only her individual contributions and leadership capabilities, but also the incredible work of our teams. She led the marketing organization do a brand refresh and modernization and most recently partnered with the portfolio leadership team to bring a fresh perspective to our focus and opportunity in this portion of our business I'm confident in the <unk>.
The ability of the strong leadership team that succeeds Carlos.
To ensure focus on the most critical areas of our business increased agility and clear accountability to drive growth and profitability I am making additional changes to my executive leadership team effective immediately for.
<unk> will be promoted to executive Vice president overseeing our transportation and aerospace defense and government business units. In addition to her current role leading the semiconductor and electronics business. These will each remained separate business units as.
As a seasoned high tech industry leader and previous CEO of a public company. She is the ideal leader to drive these businesses forward for long term growth.
In addition, Jason Green will be promoted to executive Vice President and Chief revenue officer, overseeing our sales and marketing teams as well as our portfolio of business unit.
The focus to unlock the synergies between sales and marketing on our portfolio of business as well as driving the changes in our go to market approach for our broad based customers aligns well with Jason's keen understanding of our customers and his focus on driving return on investment I look forward to partnering with them both as we look to accelerate growth and win in the market.
With that I'd like to turn the call over to our Chief Financial Officer, Karen Rapp before closing with a few comments. Thanks.
Hello, everyone. Thanks for joining us today as you heard from Eric We ended the year strong with momentum going into 2021 for <unk>.
For <unk>, we reported GAAP revenue of $368 million, a record first quarter and above the high end of guidance shared on October 29 for 2020.
Our record quarterly non-GAAP revenue of $370 million up 20% sequentially.
For the full year 2020, I am pleased to announce that we achieved the targets we shared at our Investor Conference on August revenue was $1 3 billion.
Down 5% year over year and in line with our expectations for 2020, non-GAAP gross margin was 75% and non-GAAP operating margin was 15, 7% ahead of the model we shared in August and up 170 basis points from 2017, when we had similar revenue demonstrating the focus we have had on driving efficiency in our <unk>.
Cost structure.
In the fourth quarter total orders were up 7% year over year.
Under $20000 were down 4% year over year, and up 12% sequentially, which aligns with our expectations of Q3 being the low point of the recession.
Orders over $20000 were up 13% year every year and up 41% sequentially continuing to demonstrate the success of our strategy to provide higher level solutions for our customers through systems and software.
We reported positive sequential and year over year order growth across all regions in the Americas orders were up 7% year over year orders in EMEA were up 2% year over year and orders in Asia Pacific were up 10% year over year. Despite.
Despite the previously discussed headwinds orders were up 19% year over year in China, driven by an increase in government stimulus and our focus on the growing number of semiconductor customers in this fragmented market.
Non-GAAP gross margin in Q4 was 74, 2% we continue to see about 60 basis points of impact from additional costs related to COVID-19.
Services has been an accretive growth area for us and we will continue to focus on monetizing the services, we provide and leveraging our services expertise to drive high value system sales.
This operational change shifted approximately $3 million from operating expenses to cost of goods sold in Q4 on a year over year basis, but had no impact on our operating margin.
Non-GAAP gross margin was 74, 6% in 2020, continuing to demonstrate the value of our brand and the benefits our platform and systems provide to our customers.
We reported Q4 2020, GAAP net income of $4 7 million and diluted earnings per share of <unk> <unk> per share just above the midpoint of our guidance shared on October 29 2020.
GAAP earnings per share includes higher restructuring charges than previously expected primarily due to the acceleration of exit timing in some locations.
Q4, non-GAAP net income was 67 million and diluted non-GAAP earnings per share it was 51.
Exceeding the high point for high end of our previous guidance.
Our balance sheet remains strong we ended the quarter with $320 million in cash and investments and $221 million in net cash after debt for.
For the year, our cash flow from operations was $181 million.
Representing 14% of revenue.
I believe this consistent and solid results demonstrates the benefit of the diversity and resiliency of our business model.
Our capital allocation priorities remain clear on unchanged, we plan to continue to invest in innovation and technology to stay ahead of the needs of our customers and deliver a world class customer experience dividend.
Dividends remain a priority in Q4, we paid $34 million in dividends Eni Board of directors approved a dividend of <unk> 27 per share payable on March one 2021 to stockholders of record on February eight 2021. This represents an increase of 4% per share.
We will continue to be opportunistic with share repurchases in the fourth quarter, we returned $9 $5 million to shareholders through repurchases of 275000 shares of our common stock at an average price of $34 39 per share.
Shareholder returns in the form of dividends and share repurchases totaled $185 million in 2020.
With your strong cash position is not only a way to provide returns for our shareholders through dividends and opportunistic share repurchase but also for strategic investments for long term growth and stability. Our M&A funnel is focused on opportunities aligned to our strategy, where we can leverage additional technologies across the business acquire industry specific technology or expertise.
<unk>.
<unk>, serving as strategic accelerators to help us achieve our 2023 financial model faster.
We're pleased with the efficiency and progress of the optimal plus integration the synergy with our strategy technology and industries of focus is clear a priority of the acquisition was to accelerate our opportunity in enterprise level product analytics.
We have aligned our technology road map to leverage the optimal plus platform, we're already seeing new and expanded sales opportunities for optimal plus products and our new combined offerings.
We have integrated operations across the company to help drive efficiency and support revenue growth as this business scales up in 2021 and beyond.
As mentioned last quarter, because the optimal plus technology will be integrated within the ni platform and channel and revised offerings will combine NII on optimal plus technology and do not intend to breakout financial details specific to optimal place.
Now for additional color on the shift of our electronics business in 2020 electronics represented approximately 8% of total revenue.
Growth for electronics is not expected to be as high as our semiconductor business, but we remain committed for the long term growth targets shared at our August Investor Conference.
Shifting to our view of 2021, we previously modeled Q3 2020 as the trough of the recession and we are encouraged by the sequential improvement and strong Q4 results as we enter Q1 2021 to date, we continue to see year over year bookings growth across all business units with an especially strong start to the year on Asia Pacific and a more challenging.
On environment in EMEA.
As Eric mentioned, we've been transforming our business for scale and to reach our full potential in the market innovation continues to be a top priority with R&D investments aligned to systems and enterprise software. We continue to focus on our investments on higher growth opportunities, where we believe our leadership in software product analytics and automation is highly differentiated.
Our shift in strategy requires strategic investments some of which has been self funded through efficiency gains utilizing shared service centers and centers of excellence in low cost geographies and restructuring to better align resources to the most critical areas of our business for long term success.
Other investments include areas like it infrastructure to support selling complete systems support of a distribution model for a broad based customers and investment in E commerce to enable enhanced digital and self service experience for all our customers.
We're also building a higher performing culture with a focus on retaining our top talent and recruiting external expertise where needed to accelerate our strategy.
As we look forward, we remain committed to our long term financial model targets and believe our goal of delivering a consistent compound annual growth rate of 9% revenue growth with 20% operating margin by 2023 would serve as a proof point for the value received from these investments.
Now onto guidance for the first quarter of 2021, we currently expect GAAP revenue to be in the range of $324 million to $354 million. We expect total non-GAAP revenue, which adjusts for the impact of purchase accounting fair value adjustments to be in the range of $325 million to $355 million.
At the midpoint this represents 10% year over year revenue growth versus Q1 2020.
We're cautiously optimistic as we look forward, but we recognize that the recovery from a global pandemic may lead to different seasonality than we experienced normally.
Measurement space tends to grow at approximately the rate of GDP, which is currently estimated at approximately 5% for 2021. According to the IMF World Economic outlook Survey, we believe that we can grow beyond this GDP estimate in 2021.
We expect GAAP, we expect Q1, GAAP operating expenses to be down approximately 4% sequentially and up approximately 10% year over year.
We expect Q1, non-GAAP operating expenses to be up approximately 5% from Q4 2020 due to currency headwinds and plans for increased variable pay to employees in 2021.
Also due to the pandemic, we delayed merit increases from Q4 2020 to Q1 2021, we.
We expect Q1, non-GAAP operating expenses to be up approximately 6% year over year for year over year increases were also driven by the addition of optimal plus.
We expect GAAP diluted earnings per share it will be in the range of minus five to nine cents for Q1 with non-GAAP diluted earnings per share expected to be in the range of 24 to 38 cents.
An increase of 20% year over year at the midpoint.
For Q1 GAAP earnings per share guidance includes pre tax charges of approximately.
<unk>.
Final one time integration charges related to the optimal plus acquisition and <unk> for the remaining restructuring charges from our Q4 restructuring announcement.
We expect minimal additional restructuring charges for the remainder of 2021.
In summary, we delivered record Q4 revenue and closed the year strong. This is a testament to the hard work and adaptability of all our employees globally.
This is also indicative of the stability provided by our broad customer base and industry diversity the value customers see in our innovative platform and the strength of our operational efficiency.
We will continue to align resources to what we believe are higher growth opportunities, while working to reduce costs in pursuit of our long term financial model and we believe our strong balance sheet puts us in a position of strength to capitalize on inorganic investments to help accelerate growth.
Now I'd like to turn the call back over to Eric for some closing comments. Thank.
Thank you Karen reflecting on the challenges of 2020, I'm extremely proud of our ability to adapt and remain focused on our long term potential while executing in the short term during circumstances no. One could have predicted the areas of our business. We are focused on strategically showed growth and net.
The global economic economy proved to be a headwind we continued to see stability across our business. I believe this is proof that our strategy is working.
As we've seen all too vividly in the past year. The work of our customers drives critical often life changing innovations I believe we have a tremendous opportunity in front of us to improve that work to help them bring their products to market faster with more efficiency and better quality, although the market remains dynamic I am optimistic and believe we enter 2010.
'twenty, one poised to accelerate growth.
We believe that when we use the business unite towards a common goal, we will be well positioned to meet or exceed those expectations. We achieved for 2020 financial targets shared at our Investor Conference in August and we remain committed to our 2023 financial model, we have and we will take a broad range of actions to accelerate growth, we will continue to hire.
Critical expertise make investments aligned to our for our strategy and continue to view, our strong balance sheet as a way to leverage inorganic investments as strategic accelerators to help us achieve our growth targets faster and across a broader range of customers.
We also believe that doing good is good for our business early next month, we will release, our first ever corporate impact strategy report that outlines how we will drive the positive change ni and our customers can create in the world. It includes important goals and focus areas to guide our work and we will measure our progress towards creating a more sustainable equitable and income.
<unk> World and it will have body, our mantra of engineer ambitiously.
And finally I want to recognize all of our global employees for your resiliency in an extraordinary year I challenge you all to come through this environment stronger and Thats exactly what you did I'm immensely proud of the work you have done together and your support of the incredible work of our customers I look forward to what's in store for the coming year and the opportunity to work along.
<unk> five all of you to make it happen with that we'll now take your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press the pound key we ask that you. Please limit yourself to one question and to join the queue for a follow up question. Our first question comes from Sami <unk> with Jpmorgan. Your line is now open.
Hi, guys. This is Joe Cardoso on for <unk>. Thanks.
Thanks for taking my question.
My first question is around the profile business.
I guess, where I'm trying to understand is the strategic actions that you guys referenced.
Can you kind of dive into what strategic actions, we've taken thus far.
What other.
You guys have to take going further or if in the future.
And then I guess my second question is just around operating expenses, taking on debt and Johnson <unk> just trying to understand how we should think about opex strength churning through the remainder of the year as it relates to typical seasonality.
Sure Joe I'm going to take the first one on net current is going to take the second one so portfolio Bu, yes. The way to think about is as I mentioned, so the nearest term.
Is that that business has been pretty correlated to economic indices. So I commented on that.
In the prepared remarks, and certainly we've seen improvement.
With Q4 going into positive territory for the first time in nine quarters.
And that continuing into Q1, so far on in terms of the actions we're taking.
First and foremost is really about the.
On the go to market motions with that business unit has got a very broad set of customers and we see opportunity to improve the efficiency and effectiveness of our sales and marketing channel and so things that we're doing in terms of our web site without a dot com with the distribution actions, we're taking have a.
<unk> net impact on that portfolio will be used so that's that's a big focus in the shorter term now in the longer term.
We're also working on things that we will we will do to essentially make the products.
Fit better into those channels. If you will so these are incremental improvements to our products to improve their ease of use to make them easier to buy easier to use easier to support and we see increased opportunity in our software position in that space and through more subscription based models and the way.
We serve those set of users.
And Karen for that.
The operating expense yes.
So maybe think about that is in 2020 was a pretty unique year all wood.
That buildup models I would go back and look at 2019 and the profile of operating expense across the quarters in 2019 to build out on 2021 model that looks more like like a normal type of.
Of years now.
Assume debt 2021 is going to return to a normal type of year.
But thats, how im looking at it at this point for the year.
Got it and if I could just total.
Total one clarification on the profile question.
Just to confirm in your guys' strategic decisions Youre not looking in terms of walking away from any markets that you might see more moderate growth there.
No no. This is an important part of the business, it's a pretty tied in from a product or platform point of view with the with the rest of the company. So it's really about how do we most efficiently serve those customers and how do we make incremental investments that will improve.
The growth opportunity over time, that's the focus.
Thanks, Joe Thanks for the insight.
Thank you. Our next question comes from John Marchetti with Stifel. Your line is now open.
Thanks, very much Eric I was wondering if you could comment for a minute on on bringing the electronics business into that semiconductor segment. That's obviously been a growth engine for the company for a while now in semiconductor and I've always thought of that as a fairly close knit group of customers that you were very very closely aligned with in terms of how you.
We're bringing product to market in meeting those needs. There I'm curious as you bring the electronics piece in which obviously is growing slower as well what are some of kind of the puts and takes that we should be thinking about net.
Net debt really significantly broadens out the customer base that that segment now reaches.
Sure.
Good question, John So yeah, let me, let me describe a little bit of the logic of the synergies between them. So first and foremost the actual measurement challenges in test challenges have a lot of synergy between electronics.
Electronics and semiconductor it's the same type of measurements that are done so we see alignment there and then.
And then the alignment and sort of the way we serve those customers from a from a sales and support point of view Youre right that the.
Bit broader set of customers.
Larger number of customers in electronics, it's been growing but not growing as fast.
But the other trend that leads us to that is that you see a lot of the larger electronics companies.
Doing more of their semiconductor in house. So there actually is from some synergy and overlap that comes from the way that we're serving those accounts and then on the other side of the equation. If you will it does make our portfolio more of a pure play to the broad base.
And we think that kind of homes and in focus is our strategy.
A bit more in the ways that I, just described to Joe and the last the last question.
Got it Okay and then if I can just follow up very quickly on the semi conductor business overall, it sounded like China in particular outperformed expectations from a quarter ago and I'm curious as you are looking for where you are standing now and into 'twenty. One how you think that debt.
That China piece of the semiconductor business continues to perform.
Yes, it did.
As we mentioned China performed very well overall in Q4 at 19% growth and we've seen continued strength in Q1 to date in APAC overall.
And certainly it's a big piece of that now there is a lot of moving pieces to be honest.
<unk> of China.
As we've highlighted in the past we have we have trade tensions and the restrictions, but then there's also an economic recovery really taking taking hold in APAC and in China. There is a stimulus that's.
That's going on which does affect semiconductor as well. So there is a large investment in.
New semiconductor companies in.
In China that we think is a tailwind.
Certainly right now on going forward, and then really proud of the execution of our teams. So it's been a dynamic environment and certainly they've had to adjust for a lot of a lot of change.
And one of the areas in particular is in the semiconductor space. The work that we've done to position ourselves with the law.
Literally thousands of semiconductor startups that are emerged in China.
That need.
Software connected test equipment, and so forth so really proud of the execution of the teams there as well.
Yeah.
Thanks very much.
Thanks, John Thank.
Thank you. Our next question comes from Richard Eastman with Baird. Your line is now open yes.
Yes. Thank you.
John or Kevin could you just reconcile for minutes.
Talked a little bit about the portfolio of products business and I think the reference was order growth was low single digits year over year and when you look at the growth in orders under 20000.
It looks like maybe that was down 4% year over year is there is there something to reconcile there I think the portfolio of products, just falling into that category, but theres, a pretty big Delta there between maybe the low single digit growth.
And minus minus 4% debt.
Which reflected yeah.
Right.
Okay.
Theres actually.
Orders under $20000 go across all of our business units. So so our portfolio has the highest percentage of them.
Portfolio also has a significant piece of the orders over $20000. So you can't you can't correlate them exactly like that.
Okay.
Because every one of the business is now I think we've laid that on.
We've got some of that information previously, but semiconductor has.
The least amount of the under 20 K business.
Transportation and AVG have similar amounts.
Kind of in.
Like 40 percentage, so and then portfolio was the higher percentage for.
8% or so of the under 20 K business I'd have to go back and get the exact numbers for you on that Rick Okay. Okay, but for example.
Comment.
Rick I also comment that exactly what Karen said.
Certainly we did see a lot of sequential improvement on both order sizes right for the.
The under 20, K business improved significantly sequentially. So that did reflect in portfolio be you, but as she said Theres also over 'twenty, two business, which obviously grew and put it into positive territory.
Okay, Okay fair enough.
Excuse me.
So.
<unk>.
The order cadence through January.
Is that kind of support that the mid point revenue growth because again.
Your orders you have some software some deferral.
The deferred revenue there it doesn't all fast turns quick turns type stuff, but just curious is that mid is the mid point supported by the <unk>.
On the book and ship or the order cadence through January.
Yes, Nick.
Yeah, I'll take that one.
Guidance actually builds in the expectation.
We do plan to build some backlog in Q1, we're seeing you may have seen on the other companies that you follow on there's some supply constraints right now going on across the supply chain and so.
We've lived through this before where we can mitigate a lot of that with the inventory position that we hold but there is potential to be one or two components, we arent able to get or at lead times push out and they push out beyond the quarter. So we have bought some <unk>.
Expected backlog built into the guidance specifically on the hardware side in that case.
Okay. Okay, and then just just my last question here.
As we look at maybe the adjusted Op profit for.
For 'twenty one.
Again, given how we finished 2000.
The 23, maybe plan business plan or at least.
The goals there would suggest if you straight line the trajectory towards towards the goal there for 'twenty three it would suggest that maybe the target for <unk>.
Adjusted Op profit is somewhere in the 16% to 17% range and again, there is going to be a lot of flux here was how revenue turns out so I totally understand that but is that still kind of mid point being 16 five is that still.
Maybe a realistic goal here as we move towards our 'twenty three targets.
Specifically for 2021, Youre talking beyond Q1, NAV right as Youre looking out I'm just wondering for the full year that would be in the range. If we look at the trajectory towards 'twenty threes adjusted op profit goal that you laid out and if I just straight line the improvement off of 'twenty I'm going to end up with about a point and a half of adjusted op profit.
Margin and it would seem it.
Again at least with the first quarter start of 10% sales growth at the midpoint. So maybe that's a realistic way to think of.
Our target for 'twenty one.
Yes, the Q.
Guidance for example.
Increases operating income year over year for <unk> for the quarter for Q1, and so I think looking kind of build out a model that does that throughout the rest of the year, depending on as you said, it's going to it's going to determine its going to be determined by what revenue does for the year.
But yes, our expectations to continue to build towards that 20% on.
We talk about it we're committed to that model on a lot of what we're focused on on how do we accelerate that model. So.
We'll be working towards getting there faster than 2023 if possible.
Yes, just one other comment on that on that thread Rick certainly as you noted coming in in Q1, the midpoint of the guidance is 10% revenue growth 20% earnings growth.
That's building confidence frankly, and the three year model and.
And our ability to hit the commitments that we've shared.
And then just if I draw that again just draw on the trajectory here. If we look at what would be typical seasonality.
On a non 20.
<unk> thousand 922020 year.
Again.
We should get.
We should build off the 10% revenue growth at least I would think.
In Q2, Q3, just because of the pothole that we're passing over there.
The current order momentum.
For reasonable expectation.
Yes, it's hard to look for.
At this point.
This is net new experienced coming off of a pandemic like this it still isn't honestly over but.
I'm a little hesitant on the normal seasonality at this point, especially in Q4, it will be a tougher compare for sure. After the strength, we saw coming out of the.
At the end of 2020.
I'm just I'm just encouraged by the starting point for 2021 for sure Okay.
Okay Alright.
With the guidance.
Just last I promise.
The strategic partnerships that we've been tracking here over the last literally almost free few months and certainly the fourth quarter you have this autonomous driving one with Conrad you have the semiconductor was sold to try on this.
A&D was set.
Maybe just a couple of thoughts on this does this bring in.
Some systems and solutions capabilities.
I was just kind of a buy your partnership versus build internally.
And with.
Given that these are already ni partners.
Sure.
How do we how do we accelerate how do we accelerate the growth with these partnerships and solutions and semi A&D.
In autonomous driving.
Yes, no you Rick you are thinking of it right. I mean, this is really about us first and foremost in our strategy identifying the secular growth trends that we're focused on to deliver these higher level capabilities and then it really is where can we.
Utilized existing partnerships or even new partnerships and really build out when we talk about these strategic ones that I highlighted it is a coordinated sort of development and go to market of some specific technology around systems that serve those areas of focus.
So it is a way to accelerate.
Delivery of those systems and solutions into the areas, where we're focused exactly what it is.
Okay, Okay, alright, great. Thank you.
Thanks, Rick Thanks for that.
Thank you. Our next question comes from Mehdi Hosseini with <unk>. Your line is now open.
Yes, thanks for taking my question.
When I look at your products revenue and <unk>.
For it to software it seems like.
Software is gaining momentum, especially as you.
Capitalize on optimum plus acquisition.
But I still need some.
On additional color as to how to think about the mix as you scale up to more should we expect software revenue to continue to outperform products or would there be additional opportunity that you can capitalize on and in that context, how should I think about.
The mix for 2021 compared to 2020 on I have a follow up.
Okay, and Matt How're, you doing Derrick so.
Yes, so software as I've said, it's a very strategic part of the business we view it as <unk>.
Building on an existing strength.
And we do expect that to be a higher percentage of mix over the next several years, we've laid out a pretty long term goal of sort of five year trajectory to 30, 30% on.
Of revenue and that's of course also assuming the top line is growing overall.
Is influenced certainly by optimal plus it's not only optimal plus we have a number of different organic investments as well of building out new offerings and our software capability, we see those gaining traction and have expectations that that will be a.
Yes higher percentage over time.
Sure. Okay, and then one follow up I remember the last time, we were at.
User group made us was growth.
Driver and long term growth driver.
Since then the whole evolution of electric vehicles, which I think is a driver behind the Adas has taken off on the reserve.
For.
Organized effort with other industry to migrate.
Im trying to.
Style.
With.
Benefits too.
And I and is this something that we still have to wait is it more of a look at part of the five year target or are you beginning to see incremental benefit.
Yes. Good question. So we are seeing.
On significant growth in both electrification active safety or Adas. Those are the two main growth drivers are focus areas within our transportation area. They grew in 2020 despite.
The headwinds in the industry and it is our expectation that they will grow and be a bigger part of the mix. We are we are bullish on the long term opportunity in transportation for for that reason.
We view this as kind of early innings of what's going to be a sea change in that industry. You may have seen today GM announced that by 2035, they will only have zero emission vehicles.
This is going to be a significant change in and that level of technology change requires.
This sort of software centric approach that we provide it requires significant amounts of testing and validation and we think that thats going to be an opportunity for for years to come and so we are focused and.
In this timeframe in 2021 on on wins in sockets of our test platform in those opportunities.
Got it and then just one final question for me is going to go back to.
The change in <unk>.
Management and leadership.
Joining the call.
As you were discussing it.
Are those changes driven by market dynamics or is that just fine tuning.
The teams.
He has been a little bit more than a year since you.
Took the leadership and I'm, just trying to see how you're managing different portfolios of products and services in markets and how you are recalibrating and is that reflected in the change in management.
Sure sure. So I've got three days until my one year anniversary yet comes up it's good for products. So yes.
These are sort of incremental moves on my leadership team.
And they are reflective of a couple of things one is as I mentioned with our portfolio on one hand, there is a continuity of strategy. We are doing a lot of work with the existing leadership team are focusing on some of the areas that ive discussed in the beginning of the Q&A.
And then I see an opportunity and aligning that with pretty closely with our marketing and sales organization I describe that as the.
Nearest term lever and so combining that under Jason's leadership.
Sense from an execution and driving the performance and then.
To a broader into the organization for few years ago as I mentioned, she has significant external expertise, including at the CEO level.
And has been quite successful in leading our semiconductor business, which has been a strong performer and that's an opportunity for her to expand her leadership role for.
As we see similar opportunities to scale, our strategy at systems and customer intimacy and focusing on these end market opportunities in transportation and atg and as our strategy matures, there shall be able to accelerate debt.
Got it thank you.
Thank you. Thanks for the question comes from Mark Delaney with Goldman Sachs. Your line is now open.
Yes, thanks, very much for taking the questions I was hoping to start first with the semiconductor business and given some of the supply demand constraints that are impacting the semiconductor industry Im wondering if theres an opportunity for ni to benefit by.
To alleviate the situation by selling more test equipment and perhaps increase.
Semiconductor industry output. So is that something you think is an opportunity for the company and if so is there something you are already benefiting from this quarter or is that something that.
Other than the current March quarter or is that something that perhaps is later in 'twenty 'twenty one.
Sure Mark Yes, we think look we think semiconductor is clearly in an up cycle and thats good for the business.
That's reflected in.
In Q4, but also in early Q1.
The other kind of under the Hood. Some other things that are helpful to that business.
Part of that recovery economically the mixed signal and analog part of the business that we serve is healthy.
We expect to be it was a growth driver in 2020, we expect it to be a growth driver in 2021, and then I shared a bit of a commentary about about China and about the investments in semiconductor supply chain and test equipment. So those are those are benefits and then really our it's our own execution.
Strategy that we put in place.
To have more system level capability in software and services in that space and we just see that gaining traction. So those are the those are the positives driving the semiconductor business and why are we have an expectation for it to continue to grow.
To meet the three year growth targets that we've shared previously.
That's helpful. Thanks, and for a follow up question on software and the company's goal to get to 30% of revenue from software or more by 2025.
Is that a percentage do you think you can achieve organically or do you think you need to do additional M&A in order to get to that type of software mix and then for perhaps.
So specific to 2021, but if you could help us think a little bit more generally about the linearity of going from 20% to 30% or more is it just something that you expect to be relatively.
Consistent over time are more backend weighted as you think about that mix increasing thank you.
Sure.
So as we've said.
We will look to inorganic.
<unk> as strategy accelerators across our strategy both on the software, but inclusive of the other areas as well. We're also investing significantly in our own capability as Karan mentioned, we've got this.
New jewel in the and the capabilities and optimal plus platform that we're building on and integrating and we see opportunity to extend that in different ways, both technically and through the channel and so those are all opportunities that play into our our view of our software opportunity over the over the coming years, we've set out on.
A five year <unk>.
It's our intent to.
Reported for time about the progress on that goal.
As we as we go through the next few years.
Thank you.
Thank you Mark.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to ex stock loss for closing remarks.
Okay. Thank you all very much for your time, thanks for joining us today have a great rest of your day and stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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