 |
900 South Capital of Texas Highway
Las Cimas IV, Fifth Floor
Austin, TX 78746-5546
PHONE 512.338.5400
FAX 512.338.5499
www.wsgr.com
|
|
PURSUANT TO 17 C.F.R. §200.83, CERTAIN INFORMATION (THE “CONFIDENTIAL PORTIONS”) HAS BEEN OMITTED FROM THE EDGAR
FILED COPY OF THIS LETTER WITH THE ENCLOSED MEMORANDUM AND PROVIDED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION. SUCH CONFIDENTIAL PORTIONS HAVE BEEN IDENTIFIED IN THE EDGAR FILED COPY OF THIS LETTER WITH THE ENCLOSED MEMORANDUM BY
THE MARK “[***]”. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO SUCH CONFIDENTIAL PORTIONS.
|
June 21, 2019
Via
EDGAR and Overnight Delivery
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, DC 20549
| Attention: |
Kathleen Collins, Accounting Branch Chief
Brittany Ebbertt, Senior Staff Accountant |
| |
Re: |
National Instruments Corporation
Form 10-K for fiscal year ended December 31, 2018 Filed February 21, 2019 Commission File No. 000-25426 |
Ladies and Gentlemen:
On behalf of National Instruments Corporation (the “Company”), we are transmitting the Company’s Memorandum of Response (the “Response Letter”) to the comments of the Staff
(the “Staff”) of the Securities and Exchange Commission contained in the Staff’s letter dated June 10, 2019 relating to the Company’s Form 10-K for the fiscal
year ended December 31, 2018.
If you should have any questions regarding the Company’s Response Letter, please do not hesitate to contact
the undersigned at (512) 338-5439.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ J. Robert Suffoletta
J. Robert Suffoletta, Esq.
Enclosure
|
CONFIDENTIAL TREATMENT REQUESTED BY NATIONAL INSTRUMENTS CORPORATION
|
NATIONAL INSTRUMENTS CORPORATION
MEMORANDUM OF RESPONSE TO SECURITIES AND EXCHANGE
COMMISSION COMMENTS AS SET FORTH IN THE STAFF’S LETTER
DATED JUNE 10, 2019
This Memorandum sets forth the response of National Instruments Corporation (the “Company”) to the comments of the Staff (the “Staff”) of the Securities and Exchange
Commission (the “Commission”) as set forth in the Staff’s letter dated June 10, 2019.
This Memorandum is being filed via EDGAR. For your convenience, the Company has incorporated the Staff’s
comments in bold typeface before each of its responses.
SEC
Comment 1
Form 10-K for the year
ended December 31, 2018
Please tell us how you determine
standalone selling price for your software licenses. In this regard, you disclose here that you have established pricing practices for software licenses bundled with maintenance, which are separately observable in renewal transactions. Please tell us
what observable renewal transactions are available as it relates to the perpetual licenses or explain further what other methodologies are used to determine the standalone selling price for such licenses. Also, tell us the amount of revenue
recognized from software licenses for each period presented. To the extent you have determined that the selling price for your software licenses are highly variable such that you are using the residual method to determine the standalone selling
price, please provide a comprehensive, quantitative discussion of such variability to support your conclusion. Refer to ASC 606-10-32-34.
Response to SEC Comment 1
In response to the Staff’s
comment, we advise the Staff that software license revenue for the years ended 2016, 2017 and 2018 represented approximately [***] of our
total sales, respectively. Our perpetual and term license products are typically bundled with one year of software maintenance services (“license bundles”). Consequently, we do not have directly observable standalone selling prices for the vast
majority of our software license offerings. However, software maintenance renewals are sold on a standalone basis to perpetual license customers. The maintenance renewal pricing is based on a consistent percentage of the current list price for the
license bundle.
We advise the Staff that when we determine the standalone selling price (“SSP”) for
software licenses that are not sold on a standalone basis, we are not using the residual method for the vast majority of our software licenses. We determine the likely price that would have resulted from established pricing practices had the software
license been offered separately. Specifically, we have internal price lists indicating that there is a consistent value relationship between our software licenses and software maintenance. The value relationship is supported by the directly
observable selling prices of i) software license bundles and ii) software maintenance renewals. We apply the value relationship, expressed as a percentage, to the observable selling price of the license bundle to determine the SSP for the underlying
software license and software maintenance. We generally use the applicable list price as a starting point when determining our observable selling price for the license bundle, adjusting as needed based on directly observable sales data. In
accordance with ASC 606-10-32-33 we maximize the use of observable inputs and apply estimation methods consistently in similar circumstances. Said differently, we typically determine the SSP of a software license by multiplying the observable selling
price (generally, the list price) of the license bundle by the following percentage:
SSP of license (as % of license bundle price) = 100% – (Maintenance
renewal SSP as % of license bundle price)
The transaction price is then allocated to all separate performance obligations on a
relative standalone selling price basis. That is, any discount in the contract is allocated proportionally to the SSP of the software license and maintenance in accordance with ASC 606-10-32-36.
[***]
|
CONFIDENTIAL TREATMENT REQUESTED BY NATIONAL INSTRUMENTS CORPORATION
|
Consequently,
we determined the SSP estimation method outlined above is appropriate for the vast majority of our perpetual and term licenses, except our enterprise agreements (EAs). We advise the Staff that software license revenue related to our EAs represented
approximately [***] or less of our total sales for all periods presented. EAs provide customers with a term license and software maintenance
for most of our applications along with training credits. We have directly observable standalone pricing for the training credits included within our EAs. [***] When applying the residual approach to our EAs, we also consider the guidance in BC 273 and evaluate whether the outcome of the residual approach would allocate an unrealistic amount to the software license. We believe the
outcome is reasonable and realistic as the outcome does not result in no, or very little, consideration being allocated to the software in the transaction.
In addition, we advise the Staff that we will revise future filings to clarify that we typically determine
the SSP for perpetual and term licenses (excluding EAs) by considering the price implied by the i) the directly observable pricing of the license bundle and ii) the directly observable pricing of software maintenance renewals. We also advise the
Staff we will separately clarify that we estimate the SSP of term licenses within EAs by applying the residual approach in accordance with ASC 606-10-32-34.
SEC Comment 2
Note 14 –Segment Information, page F-37
We note that sales outside of the U.S. accounted for approximately 63% of your total revenue. Please tell us
whether one country generates a significant amount of revenue and if so revise to indicate as such, or specifically state that no one country meets your significance threshold. Refer to ASC 280-10-50-41.
Response to SEC Comment 2
In
response to the Staff’s comment we advise the Staff that we have considered the guidance in ASC 280-10-50-41 stating that, “If revenues from external customers attributed to an individual foreign country are material, those revenues shall be
disclosed separately.” We have determined that no country outside of the U.S. was above the threshold for which separate disclosure by country would be required. We will continue to monitor revenues in all countries and will separately
disclose revenues in any individual country if those revenues meet our threshold in future periods. We will also revise future fillings to state that no one country outside of the U.S. meets our threshold, in accordance with ASC 280-10-50-41.
National Instruments Corporation
By: /s/ Karen Rapp
Karen Rapp,
Chief Financial Officer
|
CONFIDENTIAL TREATMENT REQUESTED BY NATIONAL INSTRUMENTS CORPORATION
|