EDEN PRAIRIE, Minn.,
May 6, 2019 /PRNewswire/
-- MTS Systems Corporation (Nasdaq: MTSC), a leading global
supplier of high-performance test systems, motion simulators and
sensors, today reported financial results for its fiscal year 2019
second quarter ended March 30, 2019.
SECOND QUARTER FINANCIAL AND OPERATING
HIGHLIGHTS
- Revenue of $233.0 million,
reflecting the highest revenue-producing quarter in the history of
MTS, including record revenue in both Test & Simulation and
Sensors
- GAAP diluted earnings per share of $0.73, an increase of $0.29 or 66% year-over-year
- Net income margins of 6.1% for the quarter, a
year-over-year increase of 167 basis points
- Adjusted EBITDA margins of 16.1% for the quarter, a
year-over-year increase of 172 basis points
- Backlog of $493.5 million,
a year-over-year increase of 40%
- Declared 149th consecutive quarterly
dividend
FINANCIAL TABLE
|
Three Months
Ended
|
|
Six Months
Ended
|
(in thousands, except
per share data - unaudited)
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Revenue
|
$
|
233,046
|
|
|
$
|
191,323
|
|
|
$
|
436,227
|
|
|
$
|
385,485
|
|
Revenue % increase
(decrease)1
|
21.8
|
%
|
|
(1.1)
|
%
|
|
13.2
|
%
|
|
(1.8)
|
%
|
Gross
margin
|
37.5
|
%
|
|
39.1
|
%
|
|
38.0
|
%
|
|
39.6
|
%
|
Operating
margin
|
10.4
|
%
|
|
8.7
|
%
|
|
9.7
|
%
|
|
8.6
|
%
|
Earnings before
taxes
|
$
|
17,076
|
|
|
$
|
10,176
|
|
|
$
|
28,273
|
|
|
$
|
19,646
|
|
Net income
|
14,160
|
|
|
8,438
|
|
|
24,661
|
|
|
41,589
|
|
Diluted earnings per
share
|
0.73
|
|
|
0.44
|
|
|
1.27
|
|
|
2.16
|
|
Adjusted diluted
earnings per share2
|
0.76
|
|
|
0.45
|
|
|
1.36
|
|
|
2.18
|
|
Adjusted
EBITDA2
|
37,554
|
|
|
27,526
|
|
|
67,656
|
|
|
54,404
|
|
Cash and cash
equivalents, end of period
|
74,122
|
|
|
84,378
|
|
|
|
|
|
Backlog, end of
period
|
493,468
|
|
|
352,172
|
|
|
|
|
|
Total debt, end of
period
|
464,420
|
|
|
409,733
|
|
|
|
|
|
|
|
1
|
Revenue growth rates
in fiscal year 2019 reflect the acquisition of E2M Technologies
B.V. that occurred on November 21, 2018.
|
2
|
Refer to the
"Non-GAAP Financial Measures" section below for discussion of the
calculation of these non-GAAP financial measures.
|
EXECUTIVE COMMENTARY - DR. JEFF
GRAVES, PRESIDENT AND CHIEF EXECUTIVE OFFICER
"Our second quarter performance was strong on virtually
all key metrics, as we continue to successfully execute on our
growth, diversification and operational efficiency strategies. From
a top-line perspective, we delivered over 21% revenue growth,
supported by record revenues in both our Test & Simulation and
Sensors businesses.
From a profitability perspective, we continue to focus
intensely on our cost structure and operational efficiency
initiatives, which contributed to a 68% increase in net income,
with margins rising to 6.1% for the quarter, and a 36% increase in
Adjusted EBITDA, equating to a margin of 16.1% for the quarter.
This strong performance supported our continuing investments in the
business, further deleveraging of our balance sheet and a continued
return of cash to our shareholders through our dividend.
Given the volume and quality of the orders we experienced
in the first half of our fiscal year and our significant backlog
position, we remain confident in our ability to deliver on our
strategy of growth and expanded profitability in fiscal year 2019
and beyond."
HIGHLIGHTS FOR THE 2019 SECOND FISCAL
QUARTER
Revenue
Revenue was $233.0 million,
up 21.8% compared to the same prior year period, driven by record
revenue in Test & Simulation, which included equipment volume
growth in all sectors, a full quarter contribution from the
acquisition of E2M, which closed in the first quarter of fiscal
year 2019, and continued growth in our Test services activities.
Sensors experienced broad demand across all market sectors, as well
as the initial ramp-up in volume associated with the U.S.
Department of Defense contract, which combined to deliver a record
revenue quarter for this business as well.
Orders
Test & Simulation orders for the quarter were
$132.1 million, up 25.6% compared to
the same prior year period, driven primarily by a large order in
the ground vehicles sector of our Test & Simulation business,
increased demand across the structures and simulation sectors, and
strong growth in the Americas region.
Sensors orders for the quarter were $79.4 million, a 5.7% decrease over the same
prior year period. This decline was primarily driven by weakness in
the European and Asian regions specific to our Sensors position and
systems sectors, partially offset by solid demand in the Americas
region of our Sensors position sector and orders growth in our
Sensors industrial sector from a slight rebound in the energy
market.
Backlog
Backlog remained very strong at $493.5 million, up 40.1% from the same prior year
period. Sequentially from the first quarter of fiscal year 2019,
backlog was down 4.1% from our all-time high of $514.7 million as we saw a high-level of
conversion to revenue on outstanding projects within the
quarter.
Earnings Before Taxes
Earnings before taxes of $17.1
million was up $6.9 million
compared to the same prior year period. This earnings increase was
driven by growth in Test & Simulation gross profit, partially
offset by higher operating expenses in both businesses and
$0.5 million acquisition inventory
fair value adjustment related to the acquisition of E2M.
Net Income and Diluted Earnings Per
Share
Diluted earnings per share was $0.73 compared to $0.44 in the same prior year period on net income
of $14.2 million and $8.4 million, respectively. The $0.29 increase was primarily driven by growth in
Test & Simulation gross profit. Second quarter of fiscal year
2019 results were impacted by $0.03
of non-recurring costs associated with the acquisition inventory
fair value adjustment and acquisition-related expenses. Similarly,
results for the second quarter of fiscal year 2018 include a
$0.01 impact for non-recurring
restructuring expense. Adjusting for these items, adjusted diluted
earnings per share was $0.76 for the
second quarter of fiscal 2019, and $0.45 for the same period in the prior
year.
Adjusted EBITDA
Adjusted EBITDA grew to $37.6
million in the second quarter of fiscal year 2019, up 36.4%
compared to the same prior year period and 24.8% sequentially from
the first quarter of fiscal year 2019. This growth was primarily
due to significantly higher Test & Simulation gross profit and
a full quarter contribution from the acquisition of E2M, partially
offset by higher operating expenses in both Test & Simulation
and Sensors. A reconciliation of Adjusted EBITDA, a non-GAAP
financial measure, to net income, the most directly comparable GAAP
financial measure, is provided in Exhibit D of this earnings
release.
Capital Structure
During the quarter, our total debt balance decreased by
$2.6 million. With a strong backlog
and positive cash flow forecast, we expect to continue to pay down
our debt, thus continuing to reduce our leverage ratio, between now
and the end of fiscal year 2019.
Dividend
The Board of Directors declared a quarterly dividend
of $0.30 per share. The dividend was payable
on April 1, 2019 to shareholders of record as of the
close of business on March 18, 2019. This was our
149th consecutive quarterly dividend.
OUTLOOK
Test & Simulation Business
Looking forward, our strong performance during the first
half of fiscal year 2019 supports our positive outlook for our Test
& Simulation business. From a revenue perspective, our
near-record backlog at mid-year reflects strong sales momentum
driven by the rapidly expanding use of advanced materials, such as
carbon-fiber composites, the adoption of additive manufacturing
methods for net-shape component fabrications, and the rapidly
increasing complexity of ground and air vehicles which requires new
simulation methods for determining product performance and life.
Our energy and infrastructure markets remain robust, driven by
continued growth in wind power and advanced building designs which
are more resistant to damage from earthquakes, sea and storm
events. In addition, the acquisition of E2M diversifies us further
into flight simulation, entertainment and other advanced simulation
markets that further expand our growth opportunities.
In addition to our exciting growth opportunities, we
continue to invest in operational efficiency initiatives to improve
profitability, and in new products and technologies to drive margin
expansion and to generate continued strong demand for Test &
Simulation products and services.
Sensors Business
Strong demand in our Sensors business is anticipated to
continue during fiscal year 2019 across all sectors, driven by
accelerating new product introductions across all major markets and
geographies, and expanded opportunities associated with the U.S.
Department of Defense. This combination of positive factors,
including full production ramp-up of sensors for the U.S. military,
is expected to provide double digit top-line growth for the second
half of the fiscal year, along with Adjusted EBITDA margin
expansion for the Sensors business for the remainder of fiscal year
2019.
Consolidated
Based on these factors, we are confident in our outlook
for fiscal year 2019 and are maintaining our full year guidance
as:
Metric
|
|
Current
Outlook
|
Revenue
|
|
$830 million to $870
million
|
Adjusted
EBITDA
|
|
$122 million to $142
million
|
Diluted earnings per
share
|
|
$2.30 to
$2.60
|
Adjusted diluted
earnings per share
|
|
$2.42 to
$2.72
|
The above outlook includes:
- $8.5 million to
$11.0 million for stock-based
compensation, restructuring expenses, acquisition-related expenses
and acquisition fair value inventory adjustment;
- Our acquisition of E2M, in addition to the slightly
positive effects of the implementation of the new revenue
recognition standard as compared to the previous standard;
and
- An anticipated effective tax rate, excluding discrete tax
items, of 15-18% for fiscal year 2019.
A reconciliation of Adjusted EBITDA and Adjusted diluted
earnings per share, non-GAAP financial measures, to net income and
diluted earnings per share, the most directly comparable GAAP
financial measures, respectively, for the above outlook is included
in Exhibits E and F of this earnings release,
respectively.
SECOND QUARTER CONFERENCE CALL
As announced on April 22,
2019, a conference call will be held on May 7, 2019
(tomorrow), at 10:00 a.m. ET
(9:00 a.m. CT). Dr. Jeffrey A. Graves, President and Chief Executive
Officer, and Brian T. Ross, Senior
Vice President and Chief Financial Officer, will host the call,
which will include a question and answer session after prepared
remarks.
Call toll free +1-800-667-5617 (international toll
+1-334-323-0509) and reference the conference pass code 1389363.
Telephone replay will be available at 1:00
p.m. ET following the call until 1:00
p.m. ET, May 14, 2019. Call
toll free +1-888-203-1112 and reference the conference pass code
1389363.
A transcript of the call can also be accessed from the MTS
website at http://investor.mts.com beginning on May 8, 2019.
ABOUT MTS SYSTEMS CORPORATION
MTS Systems Corporation's testing and simulation hardware,
software and service solutions help customers accelerate and
improve their design, development and manufacturing processes and
are used for determining the mechanical behavior of materials,
products and structures. MTS' high-performance sensors provide
measurements of vibration, pressure, position, force and sound in a
variety of applications. MTS had 3,400 employees as of
September 29, 2018 and revenue of $778
million for the fiscal year ended September 29, 2018.
Additional information on MTS can be found at
www.mts.com.
NON-GAAP FINANCIAL MEASURES
We believe that disclosing adjusted diluted earnings per
share, which is diluted earnings per share excluding the impact
from restructuring expenses, acquisition-related expenses and the
acquisition inventory fair value adjustment is useful to investors
as a measure of operating performance. We use this as one measure
to monitor and evaluate operating performance. Adjusted diluted
earnings per share is a financial measure that does not reflect
United States Generally Accepted Accounting Principles (GAAP). We
calculate this measure by adding back the after-tax effect of the
restructuring expenses, acquisition-related expenses and the
acquisition inventory fair value adjustment to net income and
dividing the result by the diluted weighted average shares
outstanding.
We believe that disclosing earnings before interest,
taxes, depreciation and amortization (EBITDA), EBITDA excluding the
impact from stock-based compensation, restructuring expenses,
acquisition-related expenses and the acquisition inventory fair
value adjustment (Adjusted EBITDA) and Adjusted EBITDA divided by
revenue (Adjusted EBITDA margin) are useful to investors as a
measure of leverage and operating performance. We use these
measures to monitor and evaluate leverage and operating
performance. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are
financial measures that do not reflect GAAP. We calculate EBITDA by
adding back interest, taxes, depreciation and amortization expense
to net income. Adjusted EBITDA is calculated by adding back
stock-based compensation, restructuring expenses,
acquisition-related expenses and the acquisition inventory fair
value adjustment to EBITDA. Adjusted EBITDA margin is calculated by
dividing Adjusted EBITDA by revenue.
We believe that disclosing free cash flow is useful to
investors as a measure of operating performance. We use this
measure as an indicator of our strength and ability to generate
cash. Free cash flow is a financial measure that does not reflect
GAAP. We calculate free cash flow as net cash provided by (used in)
operating activities less purchases of property and equipment and
businesses, net of cash acquired, plus cash proceeds from sales of
property and equipment.
Investors should consider these non-GAAP financial
measures in addition to, not as a substitute for or better than,
financial measures prepared in accordance with GAAP.
Reconciliations of the components of these measures to the most
directly comparable GAAP financial measures are included in
Exhibits B, C, D, E, F and G of this earnings release.
FORWARD-LOOKING STATEMENTS
This earnings release contains "forward-looking
statements" made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 that are subject
to certain risks and uncertainties, as well as assumptions, that
could cause actual results to differ materially from historical
results and those presently anticipated or projected. Statements
made under the heading "Outlook" are forward-looking statements,
and words such as "may," "will," "should," "expects," "intends,"
"projects," "plans," "believes," "estimates," "targets,"
"anticipates," and similar expressions identify forward-looking
statements in other parts of this earnings release. Such statements
include, but are not limited to, statements about future financial
and operating results, plans, objectives, expectations and
intentions, statements about the opportunities and outlook for our
Sensors and Test & Simulation sectors and other statements that
are not historical facts. These statements are based on our current
expectations and beliefs and are subject to a number of risks,
uncertainties and assumptions that could cause actual results to
differ materially from those described in the forward-looking
statements. Risks, uncertainties and assumptions that could cause
our actual results to differ materially from those discussed in the
forward-looking statements include, but are not limited to, those
described in the "Risk Factors" section of our most recent Annual
Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC") and updated in any subsequent Quarterly Reports
on Form 10-Q and other filings with the SEC. The reports referenced
above are available on our website at www.mts.com or
on the SEC's website at www.sec.gov. Forward-looking statements
speak only as of the date on which such statements are made, and we
undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such
statement is made to reflect the occurrence of unanticipated events
or circumstances.
MTS SYSTEMS CORPORATION
|
Consolidated
Statements of Income
|
(unaudited - in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
Product
|
$
|
206,690
|
|
|
$
|
165,453
|
|
|
$
|
381,769
|
|
|
$
|
334,694
|
|
Service
|
26,356
|
|
|
25,870
|
|
|
54,458
|
|
|
50,791
|
|
Total
revenue
|
233,046
|
|
|
191,323
|
|
|
436,227
|
|
|
385,485
|
|
Cost of
sales
|
|
|
|
|
|
|
|
Product
|
129,579
|
|
|
101,133
|
|
|
237,746
|
|
|
201,627
|
|
Service
|
16,117
|
|
|
15,365
|
|
|
32,826
|
|
|
31,105
|
|
Total cost of
sales
|
145,696
|
|
|
116,498
|
|
|
270,572
|
|
|
232,732
|
|
Gross
profit
|
87,350
|
|
|
74,825
|
|
|
165,655
|
|
|
152,753
|
|
Gross
margin
|
37.5
|
%
|
|
39.1
|
%
|
|
38.0
|
%
|
|
39.6
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling and
marketing
|
33,395
|
|
|
30,597
|
|
|
65,484
|
|
|
62,625
|
|
General and
administrative
|
22,105
|
|
|
18,992
|
|
|
43,183
|
|
|
39,554
|
|
Research and
development
|
7,676
|
|
|
8,626
|
|
|
14,848
|
|
|
17,467
|
|
Total operating
expenses
|
63,176
|
|
|
58,215
|
|
|
123,515
|
|
|
119,646
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
24,174
|
|
|
16,610
|
|
|
42,140
|
|
|
33,107
|
|
Operating
margin
|
10.4
|
%
|
|
8.7
|
%
|
|
9.7
|
%
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
(7,368)
|
|
|
(6,708)
|
|
|
(14,186)
|
|
|
(13,512)
|
|
Other income
(expense), net
|
270
|
|
|
274
|
|
|
319
|
|
|
51
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
17,076
|
|
|
10,176
|
|
|
28,273
|
|
|
19,646
|
|
Income tax provision
(benefit)
|
2,916
|
|
|
1,738
|
|
|
3,612
|
|
|
(21,943)
|
|
Net income
|
$
|
14,160
|
|
|
$
|
8,438
|
|
|
$
|
24,661
|
|
|
$
|
41,589
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
Earnings per
share
|
$
|
0.74
|
|
|
$
|
0.44
|
|
|
$
|
1.28
|
|
|
$
|
2.17
|
|
Weighted
average common shares outstanding
|
19,251
|
|
|
19,150
|
|
|
19,234
|
|
|
19,137
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
Earnings per
share
|
$
|
0.73
|
|
|
$
|
0.44
|
|
|
$
|
1.27
|
|
|
$
|
2.16
|
|
Weighted
average common shares outstanding
|
19,441
|
|
|
19,273
|
|
|
19,393
|
|
|
19,258
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
MTS SYSTEMS CORPORATION
|
Condensed
Consolidated Balance Sheets
|
(unaudited - in
thousands)
|
|
|
|
|
|
March 30,
2019
|
|
September 29,
2018
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
|
74,122
|
|
|
$
|
71,804
|
|
Accounts
receivable, net
|
117,349
|
|
|
122,243
|
|
Unbilled
accounts receivable, net
|
71,175
|
|
|
70,474
|
|
Inventories,
net
|
179,071
|
|
|
139,109
|
|
Other current
assets
|
32,307
|
|
|
24,572
|
|
Total current
assets
|
474,024
|
|
|
428,202
|
|
|
|
|
|
Property and
equipment, net
|
88,126
|
|
|
90,269
|
|
|
|
|
|
Goodwill
|
403,425
|
|
|
369,275
|
|
Intangible
assets, net
|
287,101
|
|
|
246,138
|
|
Other long-term
assets
|
7,958
|
|
|
5,512
|
|
Total
assets
|
$
|
1,260,634
|
|
|
$
|
1,139,396
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
Current
maturities of long-term debt, net
|
$
|
28,076
|
|
|
$
|
32,738
|
|
Accounts
payable
|
39,941
|
|
|
47,886
|
|
Advance
payments from customers
|
102,033
|
|
|
80,131
|
|
Other accrued
liabilities
|
89,453
|
|
|
78,358
|
|
Total current
liabilities
|
259,503
|
|
|
239,113
|
|
|
|
|
|
Long-term debt,
less current maturities, net
|
436,344
|
|
|
355,640
|
|
Other long-term
liabilities
|
79,733
|
|
|
66,711
|
|
Total
liabilities
|
775,580
|
|
|
661,464
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
Common stock,
$0.25 par; 64,000 shares authorized:
|
|
|
|
17,900 and 17,856
shares issued and outstanding as
|
|
|
|
of March 30, 2019 and
September 29, 2018, respectively
|
4,475
|
|
|
4,464
|
|
Additional
paid-in capital
|
176,918
|
|
|
171,407
|
|
Retained
earnings
|
308,279
|
|
|
300,585
|
|
Accumulated
other comprehensive income (loss)
|
(4,618)
|
|
|
1,476
|
|
Total
shareholders' equity
|
485,054
|
|
|
477,932
|
|
Total
liabilities and shareholders' equity
|
$
|
1,260,634
|
|
|
$
|
1,139,396
|
|
MTS SYSTEMS CORPORATION
|
Condensed
Consolidated Statements of Cash Flows
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
|
Net income
|
$
|
14,160
|
|
|
$
|
8,438
|
|
|
$
|
24,661
|
|
|
$
|
41,589
|
|
Adjustments to
reconcile net income to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
Stock-based
compensation
|
2,895
|
|
|
1,668
|
|
|
4,689
|
|
|
3,290
|
|
Fair value adjustment
to acquired inventory
|
539
|
|
|
—
|
|
|
984
|
|
|
—
|
|
Depreciation and
amortization
|
9,508
|
|
|
8,612
|
|
|
18,468
|
|
|
17,348
|
|
(Gain) loss on sale
or disposal of property and equipment
|
349
|
|
|
92
|
|
|
510
|
|
|
159
|
|
Amortization of
financing fees
|
1,039
|
|
|
1,316
|
|
|
2,099
|
|
|
2,626
|
|
Deferred income
taxes
|
15
|
|
|
(302)
|
|
|
(1,243)
|
|
|
(30,654)
|
|
Other
|
659
|
|
|
963
|
|
|
1,087
|
|
|
1,687
|
|
Changes in operating
assets and liabilities
|
(9,126)
|
|
|
7,248
|
|
|
(20,586)
|
|
|
1,213
|
|
Net Cash Provided by (Used in) Operating
Activities
|
20,038
|
|
|
28,035
|
|
|
30,669
|
|
|
37,258
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
|
Purchases of property
and equipment
|
(5,576)
|
|
|
(2,567)
|
|
|
(9,349)
|
|
|
(5,368)
|
|
Proceeds from sale of
property and equipment
|
—
|
|
|
—
|
|
|
10
|
|
|
69
|
|
Purchases of
business, net of cash acquired
|
(3,794)
|
|
|
—
|
|
|
(81,826)
|
|
|
—
|
|
Other
|
—
|
|
|
823
|
|
|
(285)
|
|
|
823
|
|
Net Cash Provided by (Used in) Investing
Activities
|
(9,370)
|
|
|
(1,744)
|
|
|
(91,450)
|
|
|
(4,476)
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Financing Activities
|
|
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
—
|
|
|
—
|
|
|
80,391
|
|
|
—
|
|
Payments on financing
arrangements, net
|
(2,664)
|
|
|
(33,550)
|
|
|
(6,783)
|
|
|
(50,447)
|
|
Cash
dividends
|
(5,365)
|
|
|
(5,337)
|
|
|
(10,724)
|
|
|
(10,667)
|
|
Proceeds from
exercise of stock options and employee stock purchase
plan
|
663
|
|
|
533
|
|
|
701
|
|
|
745
|
|
Payments to purchase
and retire common stock
|
(42)
|
|
|
(13)
|
|
|
(398)
|
|
|
(757)
|
|
Net Cash Provided by (Used in) Financing
Activities
|
(7,408)
|
|
|
(38,367)
|
|
|
63,187
|
|
|
(61,126)
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
|
424
|
|
|
2,383
|
|
|
(88)
|
|
|
3,989
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
Increase (decrease)
during the period
|
3,684
|
|
|
(9,693)
|
|
|
2,318
|
|
|
(24,355)
|
|
Balance, beginning of
period
|
70,438
|
|
|
94,071
|
|
|
71,804
|
|
|
108,733
|
|
Balance, End of
Period
|
$
|
74,122
|
|
|
$
|
84,378
|
|
|
$
|
74,122
|
|
|
$
|
84,378
|
|
Exhibit A
|
MTS SYSTEMS CORPORATION
|
Segment Financial
Information
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
% Variance
|
Test & Simulation Segment
|
|
|
|
|
|
Revenue
|
$
|
151,032
|
|
|
$
|
110,238
|
|
|
37
|
%
|
Cost of
sales
|
103,742
|
|
|
76,011
|
|
|
36
|
%
|
Gross
profit
|
47,290
|
|
|
34,227
|
|
|
38
|
%
|
Gross
margin
|
31.3
|
%
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
34,606
|
|
|
30,932
|
|
|
12
|
%
|
|
|
|
|
|
|
Income from
operations
|
$
|
12,684
|
|
|
$
|
3,295
|
|
|
285
|
%
|
|
|
|
|
|
|
Sensors Segment
|
|
|
|
|
|
Revenue
|
$
|
82,375
|
|
|
$
|
81,542
|
|
|
1
|
%
|
Cost of
sales
|
42,301
|
|
|
40,922
|
|
|
3
|
%
|
Gross
profit
|
40,074
|
|
|
40,620
|
|
|
(1)
|
%
|
Gross
margin
|
48.6
|
%
|
|
49.8
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
28,570
|
|
|
27,283
|
|
|
5
|
%
|
|
|
|
|
|
|
Income from
operations
|
$
|
11,504
|
|
|
$
|
13,337
|
|
|
(14)
|
%
|
|
|
|
|
|
|
Intersegment Eliminations
|
|
|
|
|
|
Revenue
|
$
|
(361)
|
|
|
$
|
(457)
|
|
|
|
Cost of
sales
|
(347)
|
|
|
(435)
|
|
|
|
Gross
profit
|
(14)
|
|
|
(22)
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
$
|
(14)
|
|
|
$
|
(22)
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
|
|
|
|
Revenue
|
$
|
233,046
|
|
|
$
|
191,323
|
|
|
22
|
%
|
Cost of
sales
|
145,696
|
|
|
116,498
|
|
|
25
|
%
|
Gross
profit
|
87,350
|
|
|
74,825
|
|
|
17
|
%
|
Gross
margin
|
37.5
|
%
|
|
39.1
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
63,176
|
|
|
58,215
|
|
|
9
|
%
|
|
|
|
|
|
|
Income from
operations
|
$
|
24,174
|
|
|
$
|
16,610
|
|
|
46
|
%
|
Exhibit B
|
MTS SYSTEMS CORPORATION
|
Reconciliation of
Earnings Per Share Excluding Restructuring,
Acquisition-Related
|
and Acquisition
Inventory Fair Value Adjustment Expenses
|
(unaudited - in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
March 30,
2019
|
|
March 31,
2018
|
|
Pre-Tax
|
Tax
|
Net
|
|
Pre-Tax
|
Tax
|
Net
|
Net income
|
$
|
17,076
|
|
$
|
2,916
|
|
$
|
14,160
|
|
|
$
|
10,176
|
|
$
|
1,738
|
|
$
|
8,438
|
|
Restructuring
expenses 1
|
—
|
|
—
|
|
—
|
|
|
362
|
|
92
|
|
270
|
|
Acquisition-related
expenses 2
|
262
|
|
55
|
|
207
|
|
|
—
|
|
—
|
|
—
|
|
Acquisition inventory
fair value adjustment 1
|
539
|
|
81
|
|
458
|
|
|
—
|
|
—
|
|
—
|
|
Adjusted net income
3
|
$
|
17,877
|
|
$
|
3,052
|
|
$
|
14,825
|
|
|
$
|
10,538
|
|
$
|
1,830
|
|
$
|
8,708
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted common shares outstanding
|
|
|
19,441
|
|
|
|
|
19,273
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
0.88
|
|
$
|
0.15
|
|
$
|
0.73
|
|
|
$
|
0.53
|
|
$
|
0.09
|
|
$
|
0.44
|
|
Impact of
restructuring expenses
|
—
|
|
—
|
|
—
|
|
|
0.02
|
|
0.01
|
|
0.01
|
|
Impact of
acquisition-related expenses
|
0.01
|
|
—
|
|
0.01
|
|
|
—
|
|
—
|
|
—
|
|
Impact of acquisition
inventory fair value adjustment
|
0.03
|
|
0.01
|
|
0.02
|
|
|
—
|
|
—
|
|
—
|
|
Adjusted diluted
earnings per share3
|
$
|
0.92
|
|
$
|
0.16
|
|
$
|
0.76
|
|
|
$
|
0.55
|
|
$
|
0.10
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 In determining the tax impact of
restructuring expenses and acquisition inventory fair value
adjustment, we applied the statutory rate in effect for each
jurisdiction where the expenses were incurred.
|
|
|
|
|
|
|
|
|
2 In determining the tax
impact of acquisition-related expenses, we applied a U.S. effective
income tax rate before discrete items to these expenses.
|
|
|
|
|
|
|
|
|
3 Denotes non-GAAP financial
measure.
|
Exhibit C
|
MTS SYSTEMS CORPORATION
|
Reconciliation of
Earnings Per Share Excluding Restructuring,
Acquisition-Related
|
and Acquisition
Inventory Fair Value Adjustment Expenses
|
(unaudited - in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
March 30,
2019
|
|
March 31,
2018
|
|
Pre-Tax
|
Tax
|
Net
|
|
Pre-Tax
|
Tax
|
Net
|
Net income
|
$
|
28,273
|
|
$
|
3,612
|
|
$
|
24,661
|
|
|
$
|
19,646
|
|
$
|
(21,943)
|
|
$
|
41,589
|
|
Restructuring
expenses 1
|
130
|
|
33
|
|
97
|
|
|
608
|
|
154
|
|
454
|
|
Acquisition-related
expenses 2
|
1,035
|
|
217
|
|
818
|
|
|
—
|
|
—
|
|
—
|
|
Acquisition inventory
fair value adjustment 1
|
984
|
|
148
|
|
836
|
|
|
—
|
|
—
|
|
—
|
|
Adjusted net income
3
|
$
|
30,422
|
|
$
|
4,010
|
|
$
|
26,412
|
|
|
$
|
20,254
|
|
$
|
(21,789)
|
|
$
|
42,043
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted common shares outstanding
|
|
|
19,393
|
|
|
|
|
19,258
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
1.46
|
|
$
|
0.19
|
|
$
|
1.27
|
|
|
$
|
1.02
|
|
$
|
(1.14)
|
|
$
|
2.16
|
|
Impact of
restructuring expenses
|
0.01
|
|
—
|
|
0.01
|
|
|
0.03
|
|
0.01
|
|
0.02
|
|
Impact of
acquisition-related expenses
|
0.05
|
|
0.01
|
|
0.04
|
|
|
—
|
|
—
|
|
—
|
|
Impact of acquisition
inventory fair value adjustment
|
0.05
|
|
0.01
|
|
0.04
|
|
|
—
|
|
—
|
|
—
|
|
Adjusted diluted
earnings per share3
|
$
|
1.57
|
|
$
|
0.21
|
|
$
|
1.36
|
|
|
$
|
1.05
|
|
$
|
(1.13)
|
|
$
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 In determining the tax impact of
restructuring expenses and acquisition inventory fair value
adjustment, we applied the statutory rate in effect for each
jurisdiction where the expenses were incurred.
|
|
|
|
|
|
|
|
|
2 In determining the tax
impact of acquisition-related expenses, we applied a U.S. effective
income tax rate before discrete items to these expenses.
|
|
|
|
|
|
|
|
|
3 Denotes non-GAAP financial
measure.
|
Exhibit D
|
MTS SYSTEMS CORPORATION
|
Reconciliation of
EBITDA and Adjusted EBITDA to Net Income
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Net income
|
$
|
14,160
|
|
|
$
|
8,438
|
|
|
$
|
24,661
|
|
|
$
|
41,589
|
|
Net income margin
|
6.1
|
%
|
|
4.4
|
%
|
|
5.7
|
%
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
Income tax provision
(benefit)
|
2,916
|
|
|
1,738
|
|
|
3,612
|
|
|
(21,943)
|
|
Interest expense,
net
|
7,368
|
|
|
6,708
|
|
|
14,186
|
|
|
13,512
|
|
Depreciation and
amortization
|
9,508
|
|
|
8,612
|
|
|
18,468
|
|
|
17,348
|
|
EBITDA
1
|
33,952
|
|
|
25,496
|
|
|
60,927
|
|
|
50,506
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
2,895
|
|
|
1,668
|
|
|
4,689
|
|
|
3,290
|
|
Restructuring
expenses
|
—
|
|
|
362
|
|
|
130
|
|
|
608
|
|
Acquisition-related
expenses 2
|
168
|
|
|
—
|
|
|
926
|
|
|
—
|
|
Acquisition inventory
fair value adjustment
|
539
|
|
|
—
|
|
|
984
|
|
|
—
|
|
Adjusted EBITDA
1
|
$
|
37,554
|
|
|
$
|
27,526
|
|
|
$
|
67,656
|
|
|
$
|
54,404
|
|
Adjusted EBITDA margin
1,3
|
16.1
|
%
|
|
14.4
|
%
|
|
15.5
|
%
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
1 Denotes non-GAAP financial
measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 Acquisition-related expenses
were adjusted to exclude stock-based compensation that is otherwise
included in the stock-based compensation line.
|
|
|
|
|
|
|
|
|
3 Adjusted EBITDA was divided by
revenue when calculating the Adjusted EBITDA margin.
|
Exhibit E
|
MTS SYSTEMS CORPORATION
|
Free Cash
Flow
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Net Cash Provided by
(Used in) Operating Activities
|
$
|
20,038
|
|
|
$
|
28,035
|
|
|
$
|
30,669
|
|
|
$
|
37,258
|
|
Purchases of property
and equipment
|
(5,576)
|
|
|
(2,567)
|
|
|
(9,349)
|
|
|
(5,368)
|
|
Proceeds from sale of
property and equipment
|
—
|
|
|
—
|
|
|
10
|
|
|
69
|
|
Free cash
flow1
|
$
|
14,462
|
|
|
$
|
25,468
|
|
|
$
|
21,330
|
|
|
$
|
31,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Denotes non-GAAP financial
measure.
|
|
|
|
|
|
|
Exhibit F
|
MTS SYSTEMS CORPORATION
|
Reconciliation of
EBITDA and Adjusted EBITDA to Net Income - Outlook
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
Twelve Months
Ending
|
|
|
September 28,
2019
|
|
Low
|
High
|
Net income
|
$
|
44,500
|
|
$
|
50,000
|
|
Income tax provision
(benefit)
|
7,000
|
|
11,000
|
|
Interest expense,
net
|
26,000
|
|
28,000
|
|
Depreciation and
amortization
|
36,000
|
|
42,000
|
|
EBITDA1
|
113,500
|
|
131,000
|
|
|
|
|
Stock-based
compensation and non-recurring expenses2
|
8,500
|
|
11,000
|
|
Adjusted
EBITDA1
|
$
|
122,000
|
|
$
|
142,000
|
|
|
|
|
|
|
|
1 Denotes non-GAAP financial
measure.
|
|
|
|
2 Includes pre-tax forecast
expenses for stock-based compensation, restructuring expenses,
acquisition-related expenses and acquisition inventory fair value
adjustment.
|
Exhibit G
|
MTS SYSTEMS CORPORATION
|
Reconciliation of
Diluted Earnings per Share and Adjusted Diluted Earnings per Share
- Outlook
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
Twelve Months
Ending
|
|
September 28,
2019
|
|
Low
|
|
High
|
Net
income1
|
$
|
44,500
|
|
|
$
|
50,000
|
|
Non-recurring
expenses 2
|
2,250
|
|
|
2,300
|
|
Adjusted net income
3
|
$
|
46,750
|
|
|
$
|
52,300
|
|
|
|
|
|
Weighted average
diluted common shares outstanding
|
19,350
|
|
|
19,250
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
2.30
|
|
|
$
|
2.60
|
|
Impact of
non-recurring expenses2
|
0.12
|
|
|
0.12
|
|
Adjusted diluted
earnings per share
|
$
|
2.42
|
|
|
$
|
2.72
|
|
|
|
|
|
|
|
|
|
1 Refer to Exhibit F for tax
impact on net income guidance.
|
|
|
|
|
2 Includes forecast expenses for
restructuring expenses, acquisition-related expenses and
acquisition inventory fair value adjustment.
|
|
|
|
|
3 Applied anticipated tax rate,
excluding discrete tax items, of approximately 15-18%.
|
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SOURCE MTS Systems Corporation