Jul 29, 2008
Operator
Good day everyone and welcome to the National Instruments Corporation Second Quarter 2008 Earnings Conference Call. Today's call is being recorded.
You may refer to your press packet for the replay dial-in number and pass code. The replay will be available from 07:00 PM Central Time today and will end at Midnight Central Time on August 5, 2008.
With us today are Dr. James Truchard, President and Chief Executive Officer; Alex Davern, Chief Financial Officer; and John Graff, Vice President of Marketing.
For opening remarks, I would now like to turn the call over to Mr. David Hugley, Corporate Counsel.
Please go ahead sir.
David Hugley
Good afternoon. During the course of this conference call, we shall make forward-looking statements regarding the future financial performance of the company, including statements regarding our expected revenue...
expected revenue growth, expected effective tax rate for each of the next two quarter, expected earnings per share, benefits from sales force expansion, our position when there is an eventual recovery in the global PMI, and growth of large system level sales. We wish to caution you that such statements are just predictions and actual events or results may differ materially.
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 for the year ended December 31, 2007. And our quarterly report on Form 10-Q filed May 5, 2008.
These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statements. With that, I will now turn it over to the President and CEO of National Instruments Corporation, Dr.
James Truchard.
Dr. James Truchard
Thank you, David. Good afternoon and thank you for joining us.
Our key points for Q2 are 17% revenue growth, record sales of USB data acquisition, PXI and Modular Instruments, and very strong growths in large system level orders. We turn in a strong quarter in Q2 delivering record revenue and 17% revenue growth in spite of continued weakness in the global industrial environment.
This was driven by very strong growth of large art for system level platforms such as PXI and CompactRIO. In our call today Alex Davern, our CFO will review our financials.
John Graff, our Vice President of Marketing will discuss our business and I will close with a few comments before we open up for your questions, Alex?
Alex Davern
Good afternoon. Today we reported record quarterly revenue of $210 million, a 17.3% increase over Q2 2007.
Net income at $24.7 million up 19% year-over-year, with GAAP fully diluted earnings per share $0.31. Non-GAAP net income was $29.1 million or 17% year-over-year increase with fully diluted earnings per share of $0.37.
Reconciliations of company's GAAP and non-GAAP results are included as part of the news release. Our strong double digit growth in Q2 was driven by the success of our system level products and by record revenue in the areas of USB data acquisition, Modular Instruments, and PXI.
As you can see from slide number 5 of the presentation which accompanies this webcast, that our performance relative to the global PMI has been steadily improving over the last seven quarters and Q2 showed that our momentum continued to improve. The success of our sales force in driving large orders in new application areas has been the key to this growth and validates our strategy of investment in R&D and the field sales force.
Our business has very good momentum right now and we are committed to our goal of doubling the field sales force between the start of this year and the end of 2010. During Q2 we start growth in all the regions.
We are pleased to see continued growth in the Americas in Q2 with 6% increase in revenue. Asia continued its strong performance with 25% year-over-year growth and Europe also a saw continued growth this quarter up 29% year-over-year helped by an easier compare as a result of a shift in the timing of Easter.
Now looking at some of the details of the non-GAAP income statement. Gross margin in Q2 was 76%.
Our non-GAAP tax rate for the quarter was 16% as a result of a revaluation of our Hungarian deferred tax asset. Additionally we expect the non-GAAP tax rate for Q3 to be approximately 17% before returning to approximately 20% in Q4.
This is a forward-looking statement and is subject to risks including any tax law changes. At the mid-point of 2008, I think it's useful to review how the evolution of the company over the last five years have significantly improved our ability to perform well during an industrial slow down.
The core of our strategy has been to expand the percentage of our revenue coming from large application areas that are new to NI but which heavily leverages our technology and our competitive position. The intent of this strategy is for NI to be able grow through moderate industrial slowdowns, preserving our investments, and then accelerate our revenue growth when the industrial economy recovers.
Among the major changes over the last five years are the relative exposure to instrument control is now less than half of what it was in 2003. The percentage of our revenue coming from the key growth areas of Modular Instruments, PXI, and Distributed I/O has more than tripled.
The percentage of our revenue coming from emerging economies has almost tripled and the number of our employees in emerging countries has increased by a factor of 4 helping to lower our cost base. This strategy has worked very well and the changes have shown through in our performance.
But the last five years have not been easy for our target markets. NI has increased its revenue by 110% since Q2 of 2003, a five year compound annual growth rate of 16%.
Additional we've increased our non-GAAP diluted earnings per share by a factor of 4 during that same time. A five year compound annual growth rate of 32%.
We believe that accelerating the expansion of our sales force will reinforce this strategy. Now turning to the balance sheet, as of June 30, 2008 the company had 248 million of cash and short term investments.
During the quarter the company paid $9 million in dividends, and $8.6 million to repurchase approximately 270,000 shares of the company's common stock at an average price of $31.72 per share. In addition the Board of Directors approve the quarterly cash dividend of $0.11 per common share payable September 2nd to shareholders of record on August 11th.
Now I would like to make some forward-looking statements concerning our expectations. In January, we gave guidance for first half of 2008, and that guidance was based on assumption that we would see meaningful sequential declines at global PMI for Q1 and Q2.
While that macroeconomic assumption proved correct our good strategic execution, over the last 5 years, has allowed NI to deal with that slow down and to deliver record revenue, 17% revenue growth and 17% non-GAAP net income growth in Q2. There can be no doubt that we are driving market share gains.
For our second half guidance, we are assuming that the global PMI remains weak and has modest sequential defiance in Q3 and Q4 before recovering in 2009. For Q3 2008, we currently expect revenue to be in the range of $208 million to $218 million.
This is equivalent to revenue growth of between 13% and 18%. We currently expected GAAP fully diluted earnings per share will be in the range of $0.25 to $0.33 for Q3 with non-GAAP full diluted earnings per share expected to be in the range of $0.31 to $0.39.
For Q4, we currently expect revenue to be in the range of $231 million to $245 million. This is equivalent to revenue growth of between 13% and 20%.
We currently expect the GAAP fully diluted earnings per share will be in the range of $0.38 to $0.47 for Q4 with non-GAAP fully diluted earnings per share expected to be in the range of $0.44 to $0.53. These are forward-looking statements, I must caution you that actual revenues and earnings could be negatively affected by numerous factors such as any longer than expected decline in the global economy, delays in new product releases, expense over earnings, manufacturing inefficiencies, effective tax rates, and foreign exchange fluctuations.
The company has very good momentum going into the second half. Achieving the mid point of our guidance for the second half would result in 15% revenue growth for the full year, an outstanding performance given the macro environment.
With that I'll turn it over to John Graff, Vice President of Marketing.
John Graff
Thank you, Alex. We delivered record revenue in Q2 in spite of continued weakness in the global industrial economy.
Growth in the quarter was a product of record sales in key product areas, in addition to very strong execution by our field sales force to close large system opportunities. Orders over $20,000 were up 36% from Q2 last year, resulting in a record average order size of $3,616 up 13% from a year ago.
Our growth in these large orders has continued to accelerate over the past 3 years. And revenue from these orders is up more 200% from the first half of 2005.
This accelerated growth of large orders is particularly impressive in light of the significant decline of the global PMI over the past seven quarters and demonstrates our success in bringing the market innovations which open up large new opportunities. Many of these large orders are based around our system level platforms such as PXI and FPGA based CompactRIO, which has been the focus of significant R&D investments over the past several years.
Our technical field sales force plays a key role in identifying and closing opportunities for these system level platforms. While the large volumes of orders we processed every quarter leads to a relatively small average order size, we've seen increased frequency of very large orders of more than $1 million.
In Q2 we closed the largest order in NI's history, a $14.4 million order to supply PXI based RF test systems to a customer in the aerospace industry. This order is scheduled for delivery over three years beginning in Q3.
Identifying and closing this order would not have been possible without the dedication and collaboration of our global sales team and I would like to congratulate them on this outstanding success. We were pleased in Q2 with strong software revenue growth that outpaced the rest of the business.
Software growth was again driven by strong sales of developer suite, a configurable bundle which packages LabVIEW with other core NI software. Software Services also had strong growth in the quarter led by an increase in software subscription renewal rates and very strong growth of customer education sales in Europe and Asia.
Our USB data acquisition devices had record revenue in Q2, as we continue to fill out our USB product offerings, and release new higher end USB devices. Over the past year we have released 17 new USB data acquisition devices.
Many of these new devices have improved measurement speed and resolution and we have had good success in moving customers to these higher performance options. We also continued to see strong growth of our C series based Compact DAC USB data acquisition system as we added support for several new C series modules during the quarter.
As mentioned previously, Q2 has a record quarter for PXI system units and revenue. The PXI-1033 integrated chassis controller saw strong growth in the quarter as the lowest cost entry point on to the PXI platform.
And we released two new low cost PXI embedded controllers in Q2 for value based test measurement and control applications. Our higher performance PXI Express chassis and controllers also saw continued strong growth in the quarter and now account for a significant portion of total PXI system sales.
Modular Instruments also had record revenue in Q2 fuelled by key new product areas including PXI RF Instruments, programmable power supplies, and dynamic signal analyzers for sound and vibration measurement. Aerospace and Defense was again an area of growth for the PXI platform in Q2.
One example was ALE system integration development and deployment of a PXI based system to test a new communications interface for Navy surveillance aircraft. The PXI system simulates analog audio, high speed digital, and serial signals from the aircraft to test and qualify the design of the NI communications device.
In addition to direct sales successes we also continue to receive endorsement for virtual instrumentation as the future of military test systems. At a Mil Aero event in the UK during the quarter, Colonel Marcus Ransom of the British Ministry of Defense said "virtual instrumentation, i.e., software defined architectures and modular hardware are essential technologies that would form the core of future test systems for the Ministry of Defense".
In Q2 we continue to see success in industrial and embedded applications driven by another strong quarter of revenue growth of our FPGA based CompactRIO systems. One area where our industrial embedded products have seen recent success is in mining and oil and gas applications.
One example is that Catotech [ph] in Chile where several CompactRIO based systems were deployed from monitoring and predictive maintenance of large open pit mining shuffles. To overcome limitations of traditional vibration analysis tools, and meet the needs of their applications Catotech worked with the local university to develop a custom analysis algorithm.
For deployment this algorithm was compiled on to the CompactRIO FPGA where acquired data is processed in real time and sent wirelessly to an off port server. In addition to the FPGA capability of CompactRIO, the rugged specifications of the system were a requirement due to the harsh environment of the mining operations.
To improve the safety and efficiency of oil drilling, impact solutions group recently deployed NI LabVIEW real time and Distributed I/O systems in their secure drilling, monitoring and control systems. The system monitors, dynamic flows and pressures and uses advanced control algorithms running them real time, the tactively manage and control pressure at the surface to maintain well control.
Today these systems have been deployed to many of the leading oil companies around the world including Petrbras, Chevron, Penex, and Slumberjay [ph]. Our success in areas as diverse as oil exploration and communications test has been a result of very strong new product introductions over the past several years followed by strong execution by our sales force to identify and close large system sales.
We remain committed to our goal to double the sales force by the end of 2010 and believe that this expanded sales presence combined with a very strong product portfolio will position us well for the eventual recovery in the global economy. With that I will turn it over to Dr.
T.
Dr. James Truchard
Thank you John. I was pleased with the solid execution in Q2 across all areas of business.
Our ability to achieve 17% revenue growth even as the PMI continued to decline speaks to the resilience of our business model and the diversity and differentiation of our product portfolio. Investments in R&D have enabled us to move into new markets and applications and our expanding sales channels has produced dramatic growth of large system level orders.
One application where we've seen recent success is in special health monitoring as increasing political pressure to improve the safety of civil structures has created opportunities for new measurement systems. The China Earthquake Administration recently selected LabVIEW and CompactRIO based system to monitor seven recently constructed mega structures in China including both to main venues at the 2008 summer Olympics, the Beijing National Stadium, and the National Aquatic Center.
The data collected from this research will be used to improve the structural integrity of future building and reduce the impact of catastrophic events. A year ago, we began lying out our opportunity and planned to address green engineering applications with increasing political and corporate focus on reducing energy consumption and its impact on the environment.
I believe that NI provides an unique value to our customers with the ability to both measure and fix inefficient processes and products. Customers around the world are using graphical system design for applications for more energy efficient machines through environmental monitoring and alternative energy systems design.
This measured and fixed approach to green engineering is part of what I see a much broader and more fundamental shift in the way scientists and engineers approach complex research and design challenges. I see measurements playing an increasingly important role in their ability to solve the world's most challenging problems including those associated with global warming and environment.
The ability of our computer based systems to measure, analyze, and store vast amounts of data and enable researchers and designers to make measurements rather than estimates to describe scientific phenomenon and proved products and processes. We've sold approximately 15 million measurement channels in the past 10 years.
The terabytes of data from those systems acquire our arming scientists and engineers with real world measurements to better characterize problems and more efficiently design PXI's for them. This is the foundation of true value, proposition of graphical system design, and I believe that National Instruments is in a unique position to derive and benefit from this new approach to using large amounts of data to fuel scientific discovery and any engineering innovation.
I will explore this topic and its implications in new areas such as green engineering and my key note address next Tuesday as we kick off the 14th annual NI re-conference. We are once again expecting a record number of attendees.
We are also very excited about new products that we will introduce in key growth areas for the company including software, RF, and FPGA based hardware. Immediately following the key note, Tuesday morning we will begin our annual investor's conference.
Tim Dehne, Senior Vice President of Research and Development, will join us this year to discuss the impact of new product announcing next week and Pete Zogas, Senior Vice President of Sales and Marketing will discuss our system level sales business and our investment strategy to grow our sales force. We're looking forward to seeing you at the conference next week, next Tuesday.
In summary, I am pleased in Q2 with record revenue of 17% revenue growth in a difficult industrial environment. Our investments in R&D over the past several years have paid off as the new products released in that timeframe have opened new markets and growth opportunities.
Our sales force continues to effectively identify and close large system level sales and I believe our investments to grow this channel will position us very well for future growth. I am excited about new products and the opportunities we will introduce next week.
And we believe that we're well positioned for a successful second half of the year. Thank you, we will now take your questions.
Question And Answer
Operator
Thank you. [Operator instructions].
And our first question comes from John Harmon with Needham & Company.
John Harmon
Hi, good afternoon.
Dr. James Truchard
Hey, John. How are you?
John Harmon
Good. Alex, I don't think there is anyway to quantify this but can you just talk about the effect of the weak dollar, how it affected your sales, and whether...
I don't recall whether you price in dollars or whether you changed pricing during the quarter?
Alex Davern
Sure John, good question. The local currency growth rates are in the press release.
As you are aware we do adjust pricing periodically as the dollar evolves over time. So we look at U.S.
dollar growth rate as the key metric for the business growth. We did see double digit revenue growth in local currency both in Europe and Asia and the date is I believe there in the press release.
John Harmon
Okay, thank you and secondly, this I just ask as a follow up. If you look at the PMI, it looks like the U.S improved slightly and Europe is heading downwards.
It seems to... you gave your view that you expected it to go down for a couple of quarters but it seems like the performance in Europe is much stronger than the PMI would indicate, may be that's because of currency?
Dr. James Truchard
There are so many patterns John, but again as we said we are going to adjust pricing periodically. I would look in Europe for our business results for the full first half.
At the start of the year we certainly expected to get a negative impact in Q1 from Easter, and a positive impact in Q2 from Easter, in Europe in particular and that did come through. So overall I would look at the revenue growth for the first half strong double digit growth in the 20% plus range for Europe for the first half.
We see our European business and the execution by ourselves, the marketing team in Europe being very-very successful in growing large orders, and our business in Europe right now as we speak has a lot of momentum so we feel quiet positive about the business in Europe going forward. Obviously we have been I think tremendously successful in the last couple of years and breaking away from the PMI over the course somewhere in the last seven quarters as the PMI is seeing seven sequential declines over the last almost two years now.
When we look at the European, U.S. experience it's not unusual for the U.S.
PMI to go down and European PMI to follow six months later. That's a pretty common trend over time.
We've seen the U.S. PMI stabilize over the last few months and now we see the European PMI pretty much where the U.S.
was in December, January of this year. So when we give guidance at the beginning of the year, we said we expected meaningful declines in the PMI sequentially in Q1 and Q2.
That's what happened. We see a more modest decline going forward and at this point I expect to see a recovery in '09.
But I think more importantly its been a success and I think if you look at slide number 5 over the webcast, you can see really clearly that we've driven a separation between our business and the global PMI over the last seven quarters. That's the fruit of seven years of hard work of investment in R&D and now expansion of our field.
So we see the PMI in this timeframe is becoming less relevant to our results and that's growth in large order is much more relevant to our results the next few quarters out.
John Harmon
Great, thank you very much.
Dr. James Truchard
Thank you John.
Operator
Thank you and we will go next to Mark Moskowitz with J.P. Morgan.
Unidentified Analyst
Hi, thanks very much. This is Anthony Westcreek [ph] for Mark.
Dr. James Truchard
Hey Anthony, how are you?
Unidentified Analyst
Good. First question, can you give us a little bit of an update regarding your sales force spilled out in terms of the progress there, 2010 goal but where do we stand and then second, what is the interaction between your sales force and your reliance partners, are there any possible synergies going forward, is that relationship changing as we go forward or any conflicts possibly?
John Graff
Anthony, this is John. So expansion of the field sales force is continuing as planned.
As of the end of Q2 our field sales count is up 21% year-over-year and that includes all our field sales managers, business development resources, and growth in system engineering headcount. That growth includes expansion in all three major geography at Americas, Europe, and Asia.
In terms of the second part of your question, this expansion in the field sales force, the momentum with large orders actually ties in very well with our partners and our alliance program. I think if anything we are strengthening that relationship, it's a very co-operative relationship, as many times these large opportunities include the work, the system integration, and development efforts of our alliance partners.
So if anything I think that relationship is strengthening and this will be an area we will actually discuss and cover more over the next week especially during Pete Zogas's section of the investors call or investor conference.
Unidentified Analyst
Okay, great. One other question, regarding your manufacturing strategy, today it stands majority of it Hungary, low volumes in Austin, and then you are doing some outsourcing of the sub contractors.
Does your volume increases, is there any change in that strategy, do we see more outsourcing to Asia as we move along?
Alex Davern
No, Anthony it is Alex here. Our strategy remains intact at this point in time.
We are continuing to expand our operations in Hungary. We are in the process our evaluating locations for a third manufacturing site, which would be slated to open some time of 2010 or 2011.
So that's an ongoing project right now and we will look as we move towards capacity and manufacturing in Hungary to make that additional capacity change in a couple years of time. But right now we feel very comfortable where we are in the manufacturing front and we see continued leverage of our Hungarian manufacturing operations for the next couple of years that should be a benefit to us on the gross margin front.
Unidentified Analyst
Okay. Thank you very much.
Operator
Thank you. And we'll hear next from Terence Whalen with Citi Investment Research.
Terence Whalen
Thank you. Thanks for taking my question.
I guess this one relates to first of all gross margin trends. It seems like the software sales are performing nicely based on deferred revenue.
We saw little bit of year-on-year decline not much at all in gross margin. But that was about 27% year-on-year building inventory.
I was wondering what are the dynamics going on with the gross margin. As you see larger system orders or the slightly lower profitability than smaller orders for is gross margin also more driven by geographic mix?
Thanks.
Alex Davern
Terence, it's Alex here. There is some slight variability to gross margin on a geographic basis.
I think if you look across the second quarter compared to same quarter of last year or first half to first half. We see that gross margins are essentially stable and static from first half last year to first half this year.
We typically see when you look at it on a manual basis; we typically see our greatest leverage in the manufacturing operation in the fourth quarter which tends to be our peak quarter for revenue, that tends to create greater leverage and allow us to have an expanded gross margin as we get into the second half of the year. From an inventory days point of view, our inventory days are up about 10 days over this time last year.
As you alluded to we're certainly seeing a growth in larger orders. We want to continue to preserve our operational advantage over the competition, our ability to deliver very rapidly.
Large orders tend to require a broader breath of inventory and so we're shifting our inventory strategy a little bit to ensure that we continue to maintain a very rapid delivery as we shift our mix towards a larger system level order business. This I believe will be a compelling competitive advantage for the business and one that we will be able to sustain going forward.
From a gross margin picture in terms of the split of the business between largest system level orders and smaller transaction based orders there is really next to no difference in gross margin at all. So we don't see that as a factor that will influence margins going forward.
Terence Whalen
Okay great, that's helpful. Then I think the earlier question I alluded to currency effect on growth.
I think we can drive that, it was about 7 points or so to 17 based on what's in the press release. But my question is what is the effect of merger and acquisition so in another words the merger you did in the first quarter.
Did that contribute to revenue? And then I'm gone a throw last one in on tax, you said that tax guidance was back to 17 and 20 for the third and fourth quarter, was that non-GAAP or GAAP and if you did not provide GAAP can you?
Thanks?
Dr. James Truchard
I am taking your second question first, the guidance for tax rate is non GAAP. The guidance...
the difference between GAAP and non-GAAP tax rate is driven as you are probably aware by stock based compensation and unfortunately without knowledge of exactly how many instruments will be exercised by employees during the third quarter. It is very difficult to predict the tax rate on a GAAP basis.
So we consistently have given a non-GAAP expectation when it comes to tax rate. On your first question, in terms of the revenue growth rate as we talked early on, we really look to the U.S.
dollar rate as a primary indication of the growth rate of the business. We believe that local currency under represents the growth of the business because it doesn't allow for the fact that we have made multiple changes in pricing in Asia and in Europe, as the U.S dollar has weakened over the course of last year.
So that's something that you need to factor into when you take account of that. On the acquisition front, for the first half of the year or even for Q2 while [indiscernible] is a very strategic acquisition, our revenue growth rate would still be 17% excluding acquisition.
Terence Whalen
Great, thank you.
Alex Davern
Less than 1% from that front.
Terence Whalen
Okay thanks, nice job.
Dr. James Truchard
Thank you very much.
Operator
Thank you and we will now hear from Mr. Richard Eastman with Robert Baird.
Richard Eastman
Hi, could you provide the percent of sales from March orders in the quarter. Sales that came from March orders?
John Graff
Yeah, this is John. And this is looking at orders over $20,000.
They are now in Q2 was 38% of revenue.
Dr. James Truchard
And there is a slide on large orders, average order size Rick, that goes with the webcast as well that might be useful to you.
Richard Eastman
I can find that, I get the other step. Just a question, it sounds like in the press release you talked about Q3, Q4 guidance and you seem very confident with your sales guidance out in the Q4 as well as Q3 and you...
when you look at your guidance relative to your confidence level, is the system sales... this percentage of sales from large systems, are you starting to see and gain confidence out of a backlog number in terms of shipments out 6 months?
Alex Davern
It is Alex here, maybe I will take it and address that first and John may pile on as we go forward. Certainly when we came into the year Rick, we were pretty conservative about our guidance for the first half and very conservative on the progress of the economy and it was little controversial at the time.
Some people thought we were being overly conservative and they proved to be very accurate and we were able to deliver at the top end of our revenue guidance for the first half. We continue to be cautious on the economy but we have definitely seen the transition to system level sales and the momentum that we have right now in terms of those sales and these product platforms.
Also from a management point of view and people talk a lot more about this next week, how we are now looking at the business and getting data on opportunities. The combination of those factors are certainly improving our confidence ability and been able to assess our revenue growth.
But I think I would point you also to look at the slide on the webcast that goes and shows where we are versus the PMI etcetera. I think that the evidence is quiet compelling now that we are sustaining a shift away from the PMI as the primary driver of our business.
Dr. James Truchard
One thing, the large system have most certainly been making a difference in ATEE [ph] and testing measurement, competitive advantage is very and the fact that our cost of PXI systems typically very competitive and favorable relative to alternatives. So when money is tight, people shop a little bit more.
Also the performance is typically much better so that less systems are needed. Of course in this era of green, as we will talk about it and I think that our product use a lot less power.
So even from that point of view. On the other...
on the industrial front we've seen very nice growth in systems like our CompactRIO systems and especially in the investment areas as we mentioned in the call of activities involving proven efficiencies and machines, many other alternative energy source projects that are using our technology and it was a good time to market, a bandage [ph] over traditional solutions. So all in all these systems are making a difference for us in this timeframe.
Richard Eastman
Okay, thank you. And then just one last question, in the quarter the capitalized software development cost jumped...
stepped up, I am just curious, why that was the case?
Dr. James Truchard
Rick as you probably remember from discussions in previous years that software capitalization is obviously heavily impacted when our main software products go into beta. That increase in software catalyst is in line obviously with our guidance on earnings for the quarter.
And while it may move a little bit between quarters from one year to the next, the net deferral is pretty much in line with where we were last year. But the key trigger for an increase in software capitalization is major software projects going in to beta.
Richard Eastman
And that happened this quarter?
Dr. James Truchard
That had a significant impact on the quarter, yeah.
Richard Eastman
Yeah.
Dr. James Truchard
In terms of now... that obviously, creates...
the positive impact of that is that we are also getting close to release some significant new projects.
Richard Eastman
Alright. Okay, thank you.
Operator
Thank you. [Operator Instructions].
Here I have Ajit Pai with Thomas Weisel Partners.
Ajit Pai
Hey, good afternoon. Few quick questions, the first one is just your tax rate.
On a go forward basis what do you expect it to be on a pro forma basis for '08 and then for '09, and then I will get to the next one?
Dr. James Truchard
Well non-GAAP obviously we got it to 17% for Q3, 17% non-GAAP tax rate and 20 for Q4. Out into next year we have not obviously given guidance at this point but I would look to a number similar to the 20% guidance we had originally given for 2008.
Ajit Pai
Right, but if you are having a look at your business mix changing and the international businesses growing faster than your domestic business, what is sort of the long-term threshold, lower threshold, like could your tax rate get down to 12% or can you give us the drivers there?
Dr. James Truchard
Well obviously, the mix of business regionally is a crucial factor and determining what the tax rate is going to be, I mean, long term right now, as I have said we're into review and negotiation and determination of the location of our next manufacturing site. So I think we'll be in a position to probably give you better feel for that, once we make that determination and make a public announcement as to the location of our next manufacturing facility.
Ajit Pai
But if we expect the make shift to continue in 2009, is there any reason why our tax rates shouldn't fall about 200 basis points in '09?
Dr. James Truchard
At this point, I'd be implying to look to the guidance we gave on non-GAAP tax rate for this year and then we'll have to see what happens from a tax front as we look into political evolution and developments into next year.
Ajit Pai
Okay, got it. And then can you give us some color as to in terms of geography, do you what your performance is and how NI is delivered, but your sense when you are looking at Asia, you are looking at Europe, and then you're looking at the Americas, what you see happening in the end market fundamentals?
Dr. James Truchard
I think I will ask John to comment on the end markets but for us fundamentally the key reason that NI is growing and gaining market share in the market today and is performing differently and perhaps has different expectations than many other players in this space is because we are driving revenue growth in new areas that are new to NI where we have a lot of leverage. So we are getting the reward from the hard work we have done in the last 6 to 7 years.
Our results may not be typical of what you have seen in other companies but I think it's the benefit of that effort over these timeframes that's now paying off. From a regional point of view, obviously we had very good growth this year and the first half from Asia and from Europe.
We saw the U.S dollar last year in Q4 with zero growth in Q4 as the PMI fell and then recovery here in Q1 and Q2. So we have seen some improvement in the Americas in the half compared to late last year.
And as I said although we anticipate a modest decline in the PMI, global PMI the next two quarters we expect to see and we take the mid point of our guidance 15% revenue growth for the year. In terms of the industry stuff, there is lot of interesting stuff going on there and John can perhaps shed better light than I on that subject.
John Graff
Hi, this is John. First state when you look at the product line results and we talked about some of the record product areas and the success with these system level platforms.
Those are trends that we see consistently across all the regions. So the sale of execution has been very strong in all three geographic regions.
Looking at vertical industries, I don't have that data broken down by region but given at a consolidated level, in Q2 we saw growth in our sales into industrial machinery, the process industries, and energy. I think that's a good reflection of some of the success we're having in new industrial and embedded applications.
Where we saw softness in Q2 was in communications, consumer electronics, and sales in the semiconductor industry.
Ajit Pai
Right and in terms of geography were there any trends that you saw not in terms of the hard numbers you have delivered but the sales folks are saying it is becoming harder to close sales or any kind of trend where you see a material deterioration in fundamentals either in like China or India or I mean anywhere in Asia or even in Europe in terms of regions?
Dr. James Truchard
I think right now given our results in Q2 and the momentum we have right now, our sales force are pretty confident right now. So I haven't heard relative to our product portfolio and our competitive position.
I haven't heard rumblings in that direction.
Ajit Pai
Got it.
Alex Davern
In Q2 we saw success stories and platforms of PXI and CompactRIO and Compact FieldPoint around the globe so I couldn't point to any different, much differences between the territories.
Dr. James Truchard
As John said earlier on, we were talking, we are seeing more $1 million plus order opportunities and actual orders booking right now. With the $14 million order, biggest order in the history of the company, setting a new benchmark.
I think our sales force are feeling pretty good about their ability to win the types of business that we perhaps couldn't have closed a numbers of years ago, because we didn't have the right product set. Now we're seeing the ability to take that business.
Ajit Pai
Got it, thank you so much.
Dr. James Truchard
Thank you, Ajit.
Operator
Thank you. I am showing now we have no additional questions at this time.
I would like to turn the conference back over to Alex Davern for any additional or closing remarks.
Alex Davern
Thank you very much for your time today. We hope you can join us at NI Week next week and we look forward to Investor Day on Tuesday.
Thank you.
Operator
Thank you. And ladies and gentlemen this does conclude today's presentation.
We thank you for your participation and have a great afternoon.