Apr 26, 2018 • 05:00 pm ET

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Presentation
Executive
Karen Rapp

long been a strength of NI and we were pleased to see strong year-over-year double-digit growth in these products in Q1, to help offset the weakness in the mobile devices supply chain where we tend to see more volatility.

Moving to the balance sheet and capital management. We ended the quarter with cash and short-term investments of $415 million at March 31st, 2018. During the quarter, we paid $30 million in dividends and the NI board of directors have approved the dividend of $0.23 per share for Q2.

Now, looking at Q1 orders, the value of our total orders was up 5% year-over-year in US dollars. Orders with a value below $20,000 grew 2% year-over-year in the first quarter. As an indicator of the strength of our system sales, we saw all orders over $20,000 up 7% year-over-year.

Now, I'd like to take a look at Q2 2018, which will include forward-looking statements. As you are aware, the release of LabVIEW NXG was a refresh of our 30-year strong software platform. LabVIEW NXG provides a modern infrastructure, including robust built-in self-test capabilities for future code development. To take advantage of this and accelerate the development of new software features, in Q2, NI will be using agile project methodology. This means our software team will be able to release much more frequent updates, providing even greater responsiveness to customer needs.

Because the self-test capabilities dramatically reduce the need for extended customer testing, we expect capitalization of agile project development to be immaterial. This will apply to a significant majority of our software development efforts. Starting in Q2 2018, we will remove all capitalized software and amortization from our non-GAAP results, which will provide greater transparency into our R&D spend, improve predictability of our P&L and enable P&L comparability.

As a result of this change, we're adjusting our long-term model for gross margin upward by approximately 200 basis points and increasing our R&D expense model target to 18% of revenue. These changes are built into our Q2 2018 guidance. We're optimistic about delivering leverage in 2018. In Q2, we want to deliver on our growth and profit goals, while increasing our backlog to improve efficiency and visibility.

We currently expect revenue in Q2 2018 to be in the range of $320 million to $350 million. We expect GAAP fully diluted earnings per share will be in the range of $0.15 to $0.29 for Q2, with non-GAAP fully diluted earnings per share expected to be in the range of $0.23 to $0.37.

For these forward-looking statements, I must caution you that our actual revenues, expenses and earnings could be negatively affected by numerous factors such as any weakness in global economies, foreign exchange fluctuations, expense overruns, manufacturing inefficiencies, adverse effect of price changes and effective tax rates.

In summary, I am pleased with the discipline to our operating model that enabled us to deliver on our operating income targets this quarter despite lower revenue. I want to thank our employees for continuing to