Apr 28, 2010
Executives
Alec Davern - Chief Financial Officer Dr. James Truchard - President, Chief Executive Officer and Co-Founder David Hugley - General Counsel John Graff - Vice President of Marketing & Investor Relations
Analysts
Anthony LeGree - JPMorgan Mark Douglas - Longbow Research Rob Mason - Robert W Baird Ajit Pai - Thomas Weisel Partners
Operator
Good day everyone, and welcome to the National Instruments, first quarter 2010 earnings conference call. Today's call is being recorded.
You may refer to your press packet for the replay dial-in number and passcode. With us today are David Hugley, General Counsel; Alec Davern, CFO; Dr.
James Truchard, President, CEO and Co-Founder; and John Graff, Vice President of Marketing and Investor Relations. For opening remarks and introductions, I would now like to turn the call over to Mr.
David Hugley; please go ahead.
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 future revenue growth, gross margins, the strong economic recovery, future operating leverage, new products, and our revenue and earnings per share guidance.
We wish to caution you that such statements are just predictions and that 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 most recent quarterly report on Form 10-K, filed February, 17, 2010.
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 Chief Executive Officer of National Instruments Corporation, Dr.
James Truchard.
Dr. James Truchard
Thank you, David. Good afternoon and thank you for joining us.
Our key points today are record first quarter orders with 25% year-over-year growth, strong growth of large orders and gross margins at the highest levels since the IPL in 1995. This time last year we were experiencing one of the most challenging financial periods in the company’s history.
I am pleased that 2010 began with an all-time record for orders in the first quarter, and our waitlist is the validation of the strength to our business model. Throughout the downturn we stayed true to our long-term regime and we were able to sustain profitability while continuing to invest in strategic initiatives that keep us at the forefront of innovation.
I continue to be very optimistic about our position in the industry and I believe these investments will allow us to take further advantage of the recovery as we continue through 2010. In our call today, Alec 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. Alec.
Alec Davern
Good afternoon. Today we reported Q1 revenue of $191 million, which is an increase of 21% year-over-year, and a 5% sequential decrease from Q4.
As discussed in our press release, the sequential decrease in revenue was exaggerated by a shipping error on March 31, which resulted in $5 million of shipments not meeting the cutoff time for revenue recognition in Q1. The error occurred because certain product shipments which were processed throughout the day on March 31, were not transferred to the company’s freight carriers until two hours after the company’s revenue recognition cutoff time, due to a delay in completion of export documents.
As a result, these shipments were not recorded as revenue in Q1 financial results. This is an embarrassing error and we are taking steps to ensure it’s not repeated.
The related revenue and profit will be recorded in Q2. Despite this timing issue, Q1 was a good quarter with orders up 25% year-over-year, inline with the mid point of our revenue guidance range for Q1, and up 1.5% over Q1 2008.
So while we did not have a first quarter record for revenue in Q1, we did have a first quarter record for orders. Net income for Q1 was $18.4 million, with GAAP fully diluted earnings per share of $0.23, matching our first quarter record the company set in Q1 2007.
Non-GAAP net income was $22 million, with non-GAAP fully diluted earnings per share of $0.28, matching our first quarter record the company set in Q1 2008. The approximate impact of the March 31 shipping error on our reported earnings per share was approximately $0.05 per share.
A reconciliation of our GAAP and non-GAAP results is included in our earnings press release. Our business built momentum in Q1 and there are some clear positives to take away.
First, we had record orders for the first quarter with 25% year-over-year growth; second, we continue to drive strong gross margins; and third, we generated $42 million in cash flow from operations, a new first quarter record. From an orders point of view, our estimate control business saw a 50% year-over-year increase in Q1, while orders from our virtual instrumentation and graphical systems design products grew $24 year-over-year.
After the very significant declines we saw in instrument control during the recession, instrument control orders made a strong recovery, and in Q1 we’re down only 15% over the two years since Q1 2008. Traditionally our instrument control revenues have been highly correlated to the overall test and measurement industry, and the current trends indicate that the industry continued it’s strong recovery in Q1.
Orders for our virtual instrumentation and graphical system design products continue to grow and are now back over Q1 2008 levels. During Q1 year-over-year auto growth in US dollars was 22% in Europe, 33% in Asia and 22% in the Americas.
Now looking at the income statement in more detail; non-GAAP gross margin in Q1 was 77.9%, compared to 74.8% in Q1 2009. Our ability to increase our gross margins year-over-year is attribute to the intense efforts made to improve our operating model during the recession.
Total headcount was 5,121 as of March 31, down 1.4% year-over-year. On the expense side, our non-GAAP operating expenses were up by $10 million sequentially and by 8% year-over-year.
The main drivers of the sequential increase were the reversal of the temporary cost saving measures adopted during the recession, such as the salary reinstatement and the increase in variable pay and commissions. However this has been a rapidly changing environment and our operating expenses were approximately $2 million higher than we had expected when we gave guidance due to medical benefits and some other costs we had not anticipated.
Apart from the shipping issue, this was the main issue from the mid point of our guidance. We are expecting a modest increase in spending in Q2 as we will have a full quarter of the salary re-instatement, and we will see higher variable pay as a result of the higher year-over-year growth rate expected in Q2.
Some additional items of note in Q1 were our deferred revenue increased by $4 million during the quarter, twice the expectation due to a strong software mix, and we had a $1 million credit to tackle legal expenses offset by a $700,000 foreign exchange loss. Now turning to the balance sheet.
As of March 31, the company had $296 million of cash and short-term investments of $7 million from December 31. Cash flow from operations continued to be very strong at $42 million, a new Q1 record.
During the quarter the company paid $10 million in dividends, and used $31 million to repurchase 1.14 million shares of NI’s common stock, at an average price of $30.50 per share. We also announced today that the Board of Directors approved a quarterly dividend of $0.13 per share, payable on June 1 to shareholders of record on May 10.
Now I’d like to make some forward-looking statements. The trends of the Global PMI continued to be more positive in Q1, averaging 56 for the quarter, given that the global PMI averaged only 46.6 for the last six quarters; and with industrial capacity utilization still at very low levels, there will have to be sustained strength in the global PMI if global GDP is to recover to 2008 levels.
The company has seen very strong year-over-year order growth so far in this quarter, with April on track to approximately match April 2008. If order growth remains strong, then given the rapid resurgence in large orders and their historical concentration towards the end of the quarter, and I will likely see backlog rise in coming quarters.
Now this would adversely affect NI’s revenue pattern in Q2 and Q3. Our Q2 guidance anticipates strong year-over-year revenue growth, strong gross margins and strong operating margins.
We are planning our investments, both to take further advantage of the recovery and to deliver strong profitability as the global economy moderates after the initial recovery. As we laid out in our investor conference in August, our intent is to continue to drive operating leverage, until NI’s annual revenues recover to the record level seen for 2008, and as a result we will be cautious about adding fixed cost in 2010.
However we are seeing good opportunities to continue to expand investments focused on large system orders, and we will be selectively committing dollars to these opportunities. Now turning to specific guidance for Q2.
We currently expect revenue for Q2 to be up significantly year-over-year, and to be in the range of $200 million to $214 million. We currently expect that GAAP fully diluted earnings per share will be in a range of $0.28 to $0.38 for Q2, with non-GAAP fully diluted earnings per share expected to be in the range of $0.33 to $0.43.
As these are forward-looking statements I must caution you that actual revenues and earnings could be negatively affected by numerous factors such as any further fluctuations in the global economy, disruptions of European logistics, rescheduling of customer orders, expense overruns, effective tax rates and foreign exchange fluctuations. In summary, we are very pleased with the strength of our business in Q1, despite the continued weakness in industrial capacity utilization.
Our goals are to maintain these gains and to focus on delivering significant operating leverage through this recovery. I also wanted to mention that John will be at the Credit Suisse, Electronics Supply Chain Conference May 13 in Boston; and I will be at the Baird Growth Conference, May 19 in Chicago; we hope to see you there.
Now I'll turn it over to John Graff, Vice President of Marketing.
John Graff
Thank you Al. We were pleased to see strong year-over-year order growth in Q1, and also to see that orders in many areas of our business approached or even exceeded 2008 levels.
In Q1 orders in the key investment areas of CompactRIO and RF Modular Instrumentation were not only up year-over-year, but were up 60% and 37% respectively over the 2008 order levels. This validates the investments we have made, and demonstrates the large opportunity we continue to see in these areas.
Our continued investment in strategic R&D initiatives and expansion of our field sales force to grow our larger system level orders have resulted in a Q1 average order size of approximately $3,600, setting a new record for a first quarter. Our large orders business experienced a strong resurgence in Q1, but the orders are over $20,000 experiencing 40% year-over-year growth.
Software products and services had strong year-over-year order growth in Q1. Growth was driven primarily by volume license agreements, and by our developer suite products, a subscription program that combines NI software and support services for our customers.
One closely watched technology within our software business is Windows 7. Interest to Windows 7 continues to grow, especially compared to what we saw with Windows Vista.
We have worked with Microsoft on several marketing initiatives since they see NI as a company that is well positioned to help them reach engineers and scientists, and we have seen a strong response from customers considering using Windows 7 in new systems, as they look to NI as a though leader and how the technology will affect them. One customer who saw significant benefit using NI software to drive efficiency was Siemens Wind Power.
Siemens is using the NI graphical system design approach to test their wind turbine control systems in both the development and deployment phases. Using the NI software and hardware, they were able to create a control system that is both flexible and scalable, allowing them to meet the growing the requirements of rapidly evolving wind energy technology.
One of our large growth areas over the past few years has been in sales to academic institutions, and K-1 was no exception with another quarter of significant year-over-year growth in this area. Academic institutions continue to be a strategic focus area for NI, as they provide a stable and profitable revenue steam across our business.
Longer term we believe that teaching science and engineering students how to make measurements and design control systems using LabVIEW and NI hardware, will help drive future growth as these students graduate in the NI industry. The university of Ghent in Belgium is one recent example of an institution that adopted the NI Educational Laboratory and Virtual Instrumentation Suite or NIL that’s for short, for use in one of their lab courses.
The platform which provides a basic electric engineering instrument lad suite, and a compact and portable form factor has not only enabled the department to more quickly develop new exercises and experiments, but also provides a better real world experience for the students. Our low cost transactional date accusation product experienced strong year-over-year order growth, led by our USP, Wireless, Ethernet, and C Series based devices.
We also saw strong growth from our plug-in PCI express and PXI express data accusation Board’s, which we released in NI week last August. We also announced the new low cost USB device to simplify temperature measurements.
This new device lowers the barrier of entry to use NI hardware and software, while delivering a quick and easy plug and play setup that enables customers to take temperature measurements within minutes of unpacking the device. Our distributed IO products also saw large year-over-year order growth, achieving there second highest all-time quarterly orders.
CompactRIO continues to see success in industries like energy, oil and gas, biomedical and automotive and transportation. The combination of LabVIEW and CompactRIO allows engineers to quickly prototype new designs and achieve a faster time to market.
One biomedical customer who realized the value of the CompactRIO platform was Dynatek Delta, a company that manufactures instruments to test implant able cardiovascular products, including stents, artificial hearts and a verity of other devices. Each of the eight cardiovascular testing machines previously had it's own unique control interface, based on a verity of different hardware and software platform, which led to higher cost and lower efficiency.
Using the NI Single-Board RIO, they developed a single hardware platform for controlling all of their instruments, achieving a 73% reduction in size, and a 40% reduction in cost. In the area of clean-tech or green engineering as we call it, a small company called Wavebob Ltd, is using LabVIEW and CompactRIO for prototyping an energy converter for Wave Farm, which harness the continuous energy created by waves.
The company needed to develop a control on data accusation system for a wave energy converter, to efficiently extract power in varying sea conditions. They choose NI platform because of the rapid protypic capabilities of NI software, which is tightly coupled with our compact rugged and modular hardware.
Our PXI and modular instrument products also experienced significant year-over-year order growth for the quarter. With NI modular instrumentation in the PXI platform, customers can create software defined test systems with increased though put and flexibility.
As a great example of the flexibility of NI software based approach to test, in response to the volcano eruption that disrupted the air travel last week, a German aerospace research center used a PXI and LabVIEW system onboard a survey aircraft, to control a laser scanner, acquire measurement date on the extent of volcanic aerosol layers, and visualize the date in real time during the flight.
One recent example where our customer achieved significant benefits using LabVIEW and NIRF Modular Instrumentation was the Redwood Technologies, where they developed a compliance solution to ensure that new wireless devices do not interfere with licensed radar bands. While certification labs must often put together a bulky non-automated system to perform these tests for a host of different wireless devices.
Redwood was able to use NI hardware and software to create a fully integrated solution that delivers higher testing efficiency, well over total test time, and sophisticated reporting to ensure compliance, while achieving a very cost effective price point compared to alternative solutions. In summary we were pleased to see strong year-over-year order growth and a quick return to 2008 order levels throughout many areas of the business.
Our ability to continue investing in new product R&D, and expanding our field sales force throughout the recession, speaks to the strength of our business model, and we look forward to seeing these strategic investments and our continued commandment to innovation payoff and drive future growth to the economic recovery. With that I’ll turn it over to Dr.
T.
Dr. James Truchard
Thank you John. I am very pleased with the start of our 2010 and our strengthened position in the industry.
Throughout the recession we continued to execute on our long-term strategy, innovating in strategic investment areas, acquiring key talent, and strengthening customer relationships. Our latest commitment has positioned as well to take further advantage of the recovery, and to deliver strong profitability as the global economy moderates as an issue recovery.
Our investments in new product R&D are delivering significant benefits to our customers as we help them lower costs, reduce risks, and shorten design cycles. One exciting area that National Instruments is helping customer solve from an oil smoke significant, scientific, and engineering challenges is in the area of energy technology, which is expected to be a multi-trillion dollar market that impacts billions of people around the world.
Engineers and scientists around the world are capitalizing on private and government funding, that promises to transfer own building, vehicles and energy grids to cleaner, smarter and more sustainable technologies. National Instruments is providing cutting edge tools for task control and monitoring that giving innovative companies a competitive edge and delivering their ideas to market.
You heard from John about a couple of our customers who are driving innovation, an exciting area of green energy. Additionally, thousands of engineers around the world are addressing a number of today’s most pressing issues, and making a positive impact on the global EQ system using NI products.
Another exciting area where NI is helping make an impact on the future engineering and science was clearly seen two weeks ago at the first robotics championship in Atlanta, where tens of thousands of students, coaches, industry mentors converge to compete in a series of robotics challenges. The most challenging level of the competition required teams of high school students to build a compact real based robust to navigate a course and complete a series of challenges.
The team has six weeks of design, photo type and deploy a robot, requiring them to quickly learn and develop as the unsensor measurements and motion control systems in addition to single processing outgrew rhythms for autonomous control. Our participation in the first competition exemplifies our focus on teaching future scientist and engineers, the power of graphical system design.
We plan to continue to invest in building a strong base for our future, and believe that doing so we’ll provide a foundation for long term success. In summary, despite the shipping challenge that we experience in a quarter, I am very pleased with our performance, for start of 2010 as we achieved record orders for the first quarter.
We executed on a long-term strategic vision throughout the recession and we are remained dedicated to delivering highly differentiated new products to drive growth into new application areas. Our deepening customer relationships and loyalty through our field sales force, I believe that the investments we made in this time are now sorting to re-benefits, and our blades to successful will only grow as the recovery continues.
We will now take your questions.
Operator
(Operator Instructions) Our first question will come from Anthony LeGree with JPMorgan.
Anthony LeGree – JPMorgan
I was wondering if you could add a little color to your commentary regarding large order sizes and backlog increasing, therefore impacting revenue adversely in 2Q and 3Q. Are you seeing any sort of manufacturing or supply capacities driving issues that are driving this commentary?
Alec Davern
I think it’s a good question. I mean a number of things are going on here.
Obviously we had a shipping issue at the end of Q1, which is unfortunate. That will obviously turn into revenue here coming into Q2.
Obviously from a shipping point of view we had a record going down the April 1, but looking out to the end of the quarter, we have seen as John mentioned, and I said earlier on, a significant resurgence in large orders over $20,000. I think one of the company slides on the webcast will show you that growth rate at year-over-year 40%, and up to 40% of our revenue.
Also traditionally we happen to have a bit of a higher concentration towards the end of the quarter, and the combination of that resurgence and timing can be somewhat problematic from a shipping point of view, and can create some operational inefficiencies. So as we look out to the end of this quarter if we see bookings continue at the rate that we’ve seen certainly in April, then we expect to see backlog increase at the end of the quarter.
Anthony LeGree – JPMorgan
Where is the pinch point in your manufacturing cycle, is it utilization?
John Graff
It’s really a timing issue in terms of receipt of large orders. I’m trying to get those turned around by the end of the quarter.
So its more of a timing issue than anything else, and by having backlog increase at the end of the quarter, that will give us a little bit more operational efficiency and the ability to manage this as we grow through future quarters.
Operator
Your next question comes from Mark Douglas - Longbow Research.
Mark Douglas – Longbow Research
So we’ll just talk about that some more; was the shipping issue in 1Q because of expected and or unexpected large orders at the end and it just, you weren’t ready to get the international paper set up.
Alec Davern
It was totally human error. It basically constitutes our entire America’s shipments for March 31, everything we boxed and packaged and ship on the system for the whole day, and we unfortunately had a supervisor who went out very ill towards the end of the day or the end of the evening, and that caused just a failure to get something done on-time and its just a complete unintentional human error.
It was caught in the process right after midnight on April, I guess early morning April 1, so its just pure one of those things that happen; human error as a result of an illness of a shipping supervisor.
Mark Douglas – Longbow Research
Okay. It’s kind of a one-off thing.
Obviously we are reporting in place a backup to ensure we don’t have that situation again, but is just one of those things.
Mark Douglas – Longbow Research
Okay, when you talk about the operating expenses, you anticipated and we anticipated that they would go up sequentially as you return, and the salaries are made whole, etc and you said there was about $2 million higher of medical and others expenses?
Alec Davern
Yes, I think as we said on the call we had about a $10 million sequential increase in operating expenses from Q4 to Q1. Now as you just said, a lot of that was restoring compensation.
But it’s been a pretty dynamic recovery. Our business is up a third from where we were just a couple of quarters ago, and so there’s been some increase in expenses here in Q1 that we didn’t anticipate.
One area was medical which was over $1 million of the total. We are self-insured and had significant increase in large claims in the first quarter, its just an actuarial thing, and then we have seen the need and the opportunity to invest in certain opportunity based initiatives that we decided to push forward on, and as a result net-net we are $2 million over what I had anticipated operating expenses would be back in January.
Now, as we look in to Q2, we are expecting a sequential increase in operating expenses in the second quarter. At this point, we’re primarily driven by a full quarter of reinstatements, because we reinstated salaries February first, so we had two months of that in Q1, and we will have three months of that in Q2, and the midpoint of revenue guidance has been around 36% year-over-year revenue growth in Q2.
We will see an increase in our variable compensation for all employees across the world in the second quarter, which is tied to the year-over-year revenue growth rate.
Mark Douglas – Longbow Research
Okay that’s helpful, I was going to stop at Q2. Then the growth margins, congratulations on those; on the software maintenance, those jumped quite a bit, any explanation as to just a lot better absorption.
I mean they actually tracked down even though sales went up.
Alec Davern
We are pleased with the growth margin initiative. You know we have been really pushing hard from a manufacturing and R&D point of view, as well as with sales and marketing to drive the value and sell the value of our products to our customers to drive our software sales and our software maintenance revenues, and also to drive down our cost.
One of the goals we wanted to take out of this recession was to structurally improve our gross margin position, and we launched out an initiative in the fall of 2008, and have been very successful in really driving cost out from a component point of view, ensuring that we are doing a much, much job on designing forecast, engineering cost out of some of our products, as well as leveraging our cost opportunity of our Hungarian facility. Those strong benefits have been building over the course of ’09, and as volume has recovered, they’ve allowed us to let their growth margin shine through.
As we look out to Q2 of ’10, as large orders grown rapidly or have grown rapidly through today, we may see a little bit more increase in discounts as large orders becomes a bigger percentage of revenue. So we may see some modest movement on the gross margin sequentially in Q2, but I don’t expect any significant movement.
On the maintenance side we did have a big increase in the deferred revenue in Q1. $4 million, which represents almost $0.04 of share if it had gone into revenue.
In Q1 last year, deferred revenue actually went down, so we are now rebuilding that deferred revenue pool; we have been building through ’07 and through ’08, but it flattened out if you like during the recession, and that provides a pool of revenue that we will be able to recognize going forward in the future quarters.
Operator
Your next question comes from Rob Mason - Robert W Baird.
Rob Mason - Robert W Baird
Yes Alex, I think we have heard from a number of companies so far reporting season, that business momentum is built through the quarter and finished probably on a high note and it sounds like that was the case at National Instruments as well as just given your commentary around April spring, is that fair?
Alex Davern
We haven’t broke out Q1 at this point Rob, but certainly we had obviously a lot of momentum and large orders in the first quarter as we talked about it, and definitely April has started very strong. From a year-over-year point of view, obviously we have the easier compares in April, so I don’t want to mislead too much, but Q2 of 2008 was a very strong quarter for the company.
We grew 16% or 17% year-over-year in the second quarter of ’08. So on a two-year basis we have a tough compare in Q2 and I’m very, very pleased to see our bookings through yesterday, really track almost dead on to April ’08.
That certainly is a very good start to Q2.
Rob Mason - Robert W Baird
Well, maybe where I was going with that, if just setting aside the shipment delay, was there anything that stood out to you that sets you back relative to high end of your revenue guidance within the quarter?
Alex Davern
Well, I mean when I was going to bed on the evening of March 31, I was expecting the $5 million to show up, so that was a bit of a surprise to me when I came in the next day. It feels like just one of those random things that’s not going to be repeated, but we were focused on making sure we try to hit the midpoint of our guidance which was $0.34 a share, and really where we fell down, on the issue that caused us to be shy of that by about a penny was on the expense side.
As we are rapidly bringing the psychology of the company from maybe a little bit of a bunker mentality this time last year towards a ‘make sure we are capturing our first share of these large orders.’ We are seeing some costs creep back into the system, and I will say that relative to our goal of making sure we hit the midpoint of our earnings number, that’s the issue that caught us in Q1.
Rob Mason - Robert W Baird
Okay, but just trying to distinguish between the strength in large orders and obviously the year-over-year comparisons are big, but the underlying base transactional business, did that trend as you would have expected during the quarter?
Alex Davern
John Graff
Rob, as you know the business under 20K is made up of a large volume of orders that we’re processing on a daily rate, so we can look at the run rate on it right from the first few weeks of the quarter, and we were very pleased with how it performed all quarter, and then like Alex said, we saw this, in the quarter surge of large orders. We were really pleased to see that, because it was what we were seeing back in 2008 when our business was growing strongly.
If you look at our two-year compared, the orders under $20,000 on a two-year basis are still bout 6% short of Q1 2008, while the large orders are actually 13% above that level. So in the end we think the investment in our new products, especially the platform like PXI, and CompactRIO, and RF and the investment in our field sales is really paying off on those large orders.
Operator
(Operator Instructions) Your next question comes from Ajit Pai - Thomas Weisel.
Ajit Pai - Thomas Weisel Partners
So can you update the model that you have now, the operating model, because your gross margin is are running almost 200 basis points higher than what your previous model was targeting, and this is not even the fourth quarter, this is sort of the first quarter. So could you give us some color as to how that changes, whether you are altering your operating margin targets to the long run?
Alex Davern
Sure Ajit, and operator before I answer that, I think its okay to let one follow-up question as well, so we will let Ajit take the follow-up question also. Something we’ve always given some consideration to, it will be a good discussion point for us at the investor conference in the week in August, so I encourage people to come to that event or listen in on the web.
As we obviously have seen a dramatic recovery in revenue from the debts of Q2 of last year, a dramatic recovery in operating margin, and at the midpoint of our guidance for Q2 on a non-GAAP basis is pretty high relative to our long-term model and certainly high for a the second quarter. We will be giving that consideration on how we structure the company going forward.
Our primary goal right now is to make sure we drive as much operating leverage as we can in this timeframe, while capturing these larger orders, and we will be continuing to focus on that 18% target that we had established for this long term. Last week, we also laid out our plan from a point of view of an investment of expenses relative to revenue, so we will be looking forward to update that model in August this year.
By that point in time we will have a pretty good idea of how the second half is going to play out, how the full year is going to look and gives us a good basis for setting kind of model-based expectations into next year.
Ajit Pai - Thomas Weisel Partners
Okay, and then the second question; one house keeping sort of item and then the second question, which is your head count at the end of the quarter and then the second question is acquisitions. In ’05 you had three acquisitions and after that things slowed down.
The environment is a fairly sluggish one for many areas, as your revenues are rebounding. Are there any opportunities you are looking at much more closely now or is that not really high up in the agenda?
Alex Davern
So to give you a data for it, the total head count was 5121 at the end of the quarter, down 1.4% year-over-year. On the acquisition front, you would probably notice if you look at the cash flow, we did do a small acquisition during Q1.
It’s a pretty strategic niche acquisition and we hope to leverage. We have not disclosed the name or the terms of that acquisition, and we are continuing to look reasonably aggressively at a number of potential acquisitions that continues to be a core part of our strategy to potentially deploy cash.
During the downturn, people really didn’t want to sell. I think based on pricing it was very difficult to try to get some kind of alignment on terms.
As we go through this recovery, I think that there will be more willingness on the part of sellers to look for an exit strategy and we will certainly be looking either for whole companies or parts of companies as acquisition targets for us. Having said that, I will continue to reiterate that the probability of a very large-scale acquisition is pretty low, just by nature of the size of those companies who are generally aligned with our strategy.
Operator
(Operator Instructions)
Alex Davern
Operator we have no more questions; is that correct?
Operator
Your next question comes from Mark Douglas - Longbow Research.
Mark Douglas - Longbow Research
You repurchased some shares in the quarter. Just going forward, do you anticipate doing kind of more the same or is it more just to kind of offset dilution or will it be a little more aggressive do you think?
Alex Davern
Our fundamental strategy and cash management is number one for the last six to seven years. I guess our number one focus has been on dividends; number two, on opportunistic stock base repurchases; and number three, being around an opportune of strategic acquisitions.
As we look forward, we will be watching the debates in Congress pretty carefully and what happens on the whole mass code as we go forward. From a stock competition point of view, our stock repurchase point of view, we are going to stick with our strategy of opportunistic based repurchases, so we won’t have a mechanical process.
We will be looking at timeframes where perhaps the market perception diverges widely with management’s view of the long-term value, and that will be more what informs our decisions.
Mark Douglas - Longbow Research
Okay and then just finally, what were the large and smaller order numbers in 1Q?
Alex Davern
Mark, are you asking in terms of percent on the business or the growth rates?
Mark Douglas - Longbow Research
Yes, percent of business.
Alex Davern
So, the over 20K orders were approximately 38% of revenue in the quarter. Like we mentioned in the call those grew 40% year-over-year, and then the younger 20K is actually 63% of the business, and came in at 20% growth.
Any further follow-up questions operator.
Operator
There are no further questions, so I will turn it back over to you for any additional or closing remarks.
Alex Davern
Thank you very much for your time and attention. We hope to see you here in Chicago with myself or in Boston with John; if not the week in Boston in August.
Thank you.
Operator
Once again ladies and gentleman, this does conclude today’s conference call. We thank you for your participation.