EDEN PRAIRIE, Minn.,
April 16, 2020 /PRNewswire/
-- MTS Systems Corporation (Nasdaq: MTSC), a leading global
supplier of high-performance test systems, motion simulators and
sensors, today announced actions it is taking to help ensure the
health and safety of our employees, continue serving the critical
needs of our customers and reduce costs. The actions are expected
to enhance our financial and strategic flexibility in the
unprecedented economic environment created by the COVID-19
coronavirus pandemic (COVID-19).
- Withdrawing full-year guidance for fiscal year 2020 due to
future economic uncertainty
- Executing restructuring and cost reduction initiatives to
reduce operating expenses
- Initiating temporary reduction in cash compensation for Board
of Directors, Chief Executive Officer and other Senior
Executives
- Suspending dividend to further enhance liquidity
- Continued compliance with all debt covenants
- Strong second quarter orders resulting in near-record
backlog
MTS UPDATES ON BUSINESS AND COVID-19 IMPACT
"While the post-pandemic outlook for our company remains
positive, we are taking the appropriate and responsible short-term
actions to bolster our liquidity and reduce operating costs, while
maintaining the flexibility needed to execute on our long-term
strategic plan as we look toward emergence from the current period
of uncertainty and volatility. As we take these actions, I want to
reinforce the message to all our stakeholders, that the health and
wellbeing of our employees around the world is our number one
priority, as it has been from the earliest outbreak of the virus.
Through extreme diligence, we have stayed ahead of this evolving
crisis, maintaining a safe work environment and, as the necessity
has arisen in each of our global locations, enabled our employees
to work remotely to help ensure their safety during peak crisis
periods, while maintaining business continuity and meeting our
customer commitments," stated Dr. Jeffrey
Graves, President and Chief Executive Officer of MTS.
"The effects of COVID-19 on our Company have been similar to
those experienced by many other diversified global industrial
companies. Increasingly as the quarter progressed, we saw our
customers being required to temporarily shut down, our logistics
being delayed as many governments limit cross-border access, and of
course our own employees around the world having their lives
dramatically altered through either the direct effects of COVID-19
on their health or that of loved ones, or in other disruptions to
their day-to-day lives. These effects increased throughout the
quarter and remain with us today."
Dr. Graves continued, "Considering the scale of the pandemic and
the corresponding economic crisis it has created, we were very
encouraged by the resiliency of both our Test & Simulation and
Sensor markets. Throughout this difficult period, our customers
have demonstrated both their financial strength and their long-term
commitment to new product development by placing record orders in
both of our business units. This is a testament to our increasingly
diverse customer base, our geographic footprint and scale for both
of our business units. These factors, collectively, distinguish MTS
from many of our competitors and inspire confidence in our
customers that we can manage through these uncertain times and will
be there to support them in their critical development efforts long
into the future."
Dr. Graves concluded, "In light of the open-ended nature of the
current economic situation, we are taking decisive actions to
manage short-term business risks in order to ensure that we are
well positioned as this crisis abates in the months ahead. Our
actions are focused on enhancing our liquidity, reducing our
operating costs and maximizing cash performance. While painful in
the short term, we are confident that these steps are necessary and
will help ensure that we emerge from this crisis fully prepared to
resume our growth trajectory. It is comforting to note that MTS has
a rich history of providing leading edge, mission critical
solutions to our customers, and has been resilient through many
downturns in the economy over our 53-year history. We have
weathered difficult periods before, and we will do so once again,
emerging stronger and even more critical to our customers
world-wide."
Guidance Suspension
As an essential critical infrastructure business, we will
maintain our U.S. operations and plan to continue to operate in
other parts of the world as permissible. We expect that
restrictions on our employees' ability to access our customers and
the temporary closures of our facilities or the facilities of our
customers will negatively impact our sales and operating results
for fiscal year 2020. At this date, given the uncertainties in the
business environment, we cannot accurately predict the specific
extent, or duration, of the impact of COVID-19 on our financial
results. As a result, we are withdrawing financial guidance for the
fiscal year ending October 3,
2020.
Cost Reduction Initiatives
We are taking actions to manage and reduce operating costs and
further enhance our financial flexibility, including the
following:
- A temporary reduction by Dr. Graves of his salary by 20%;
- A temporary reduction by senior executives of their salaries by
10% to at least 15%;
- A temporary reduction by non-employee Directors of their cash
compensation by 20%;
- A reduction in workforce in connection with a global
restructuring effort in our Test & Simulation business unit
being executed in specifically targeted areas, including the
reorganization of our European operations;
- Other reductions in salaries or work schedules and temporary
furloughs for employees, targeted toward specific, short-term
impacted areas within each business unit; and
- Reduction in all discretionary spending, capital expenditures
and a strong focus on working capital management.
Although we believe our financial position is strong, given the
level of economic uncertainty, these cost reduction actions provide
an increased level of flexibility during these challenging times.
We expect to incur total restructuring charges of approximately
$7 million to $11 million during fiscal year 2020 and fiscal
year 2021 based on notice period requirements, of which
approximately $6 million was incurred
and recognized in the second quarter of fiscal year 2020.
Temporary, incremental cost reduction measures that are being taken
will provide for further short-term flexibility and will remain in
place until we begin to see marked improvement in the markets we
serve. These cost reduction activities are expected to yield annual
cost savings exceeding $10 million
once fully implemented by the end of fiscal year 2020. While we
expect that these actions will be sufficient to provide the needed
flexibility, we continue to evaluate the ongoing impact of COVID-19
and may need to take further cost reduction or other actions in the
future.
Dividend Suspension
We are suspending our quarterly dividend of $0.30 per share, equating to approximately
$23 million in annualized cash
payments, which will enable us to prioritize near-term financial
flexibility to manage the needs of the business and on-going debt
obligations, while supporting essential investments in the
business. Our Board of Directors remains committed to returning
value to shareholders in the most efficient and effective way
possible and will consider future dividends as the economic
landscape and visibility improves.
PRELIMINARY SECOND QUARTER FISCAL YEAR 2020 FINANCIAL
METRICS
Financial statement metrics are preliminary and subject to
change. We will release our results for the second quarter of
fiscal year 2020 on May 4, 2020 after
market close. A conference call will be held on May 5, 2020 to discuss these results in more
detail.
Second Quarter Orders, Backlog, Revenue and Earnings
Estimates
We delivered record orders for both Test & Simulation and
Sensors of $176 million and
$101 million, respectively, providing
total company orders of $277 million.
Backlog at the end of our second quarter of fiscal 2020 is
estimated to be $500 million, with
Test & Simulation backlog estimated to be $412 million and Sensors estimated to be
$88 million.
Revenue is expected to be in the range of $205 million to $215
million and Adjusted EBITDA in the range of $27 million to $32
million. Due to cost reduction actions that will impact the
second quarter of fiscal 2020, we expect to incur a loss in the
range of $(0.04) to $(0.09) earnings per share on a GAAP basis.
Excluding these costs and our customary adjustments to earnings, we
expect adjusted earnings per share to be positive in the range of
$0.23 to $0.28 per share.
Balance Sheet and Liquidity Estimates
During the second quarter, our total debt increased by
approximately $60 million to
approximately $601 million, due to
the closing of the acquisition of the R&D entities in
Denmark. We ended the quarter with
approximately $67 million of cash,
resulting in a net debt balance of approximately $534 million. The ratio of interest-bearing debt
to Adjusted EBITDA, and the ratio of net interest-bearing debt
to Adjusted EBITDA, remain in full compliance with the debt
covenant levels specified in our debt agreements. With our cash
position and remaining undrawn balance on our revolving line of
credit, along with the benefit of having a very strong and
supportive bank group, we believe we have adequate liquidity to
meet our cash requirements over the foreseeable future.
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 3,500 employees as of
September 28, 2019 and revenue of $893
million for the fiscal year ended September 28, 2019.
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.
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. Reconciliation of the
components of these measures to the most directly comparable GAAP
financial measures are included in Exhibits A and B of this press
release.
FORWARD-LOOKING STATEMENTS
This press 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. Words such as "may," "will,"
"should," "expects," "intends," "projects," "plans," "believes,"
"estimates," "targets," "anticipates," and similar expressions
identify forward-looking statements in 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, statements about the
impact of COVID-19 and related economic uncertainty, 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, the currently-unknown impact of COVID-19 and related
economic uncertainty and 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.
Exhibit
A
|
MTS SYSTEMS
CORPORATION
|
Reconciliation of
Estimated Adjusted Diluted Earnings Per Share
|
(unaudited - in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 28, 2020
|
|
Low
|
|
High
|
|
Pre-Tax
|
Tax
|
Net
|
|
Pre-Tax
|
Tax
|
Net
|
Net income
|
$
|
(1.6)
|
|
$
|
0.2
|
|
$
|
(1.8)
|
|
|
$
|
(0.7)
|
|
$
|
—
|
|
$
|
(0.7)
|
|
Non-recurring
expenses1
|
8.2
|
|
2.0
|
|
6.2
|
|
|
8.8
|
|
2.7
|
|
6.1
|
|
Adjusted net income
(loss)2
|
$
|
6.6
|
|
$
|
2.2
|
|
$
|
4.4
|
|
|
$
|
8.1
|
|
$
|
2.7
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted common shares outstanding
|
|
|
19.3
|
|
|
|
|
19.4
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
(0.08)
|
|
$
|
0.01
|
|
$
|
(0.09)
|
|
|
$
|
(0.04)
|
|
$
|
—
|
|
$
|
(0.04)
|
|
Impact of
non-recurring expenses1
|
0.42
|
|
0.10
|
|
0.32
|
|
|
0.46
|
|
0.14
|
|
0.32
|
|
Adjusted diluted
earnings per share2
|
$
|
0.34
|
|
$
|
0.11
|
|
$
|
0.23
|
|
|
$
|
0.42
|
|
$
|
0.14
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
1
|
Includes estimated expenses for
restructuring, acquisition-related expenses and acquisition
inventory fair value adjustment. In determining the estimated tax
impact of restructuring expenses, acquisition-related expenses and
acquisition inventory fair value adjustment, we applied the
estimated statutory rate in effect for each jurisdiction where the
expenses were incurred.
|
|
2
|
Denotes non-GAAP
financial measure.
|
Exhibit
B
|
MTS SYSTEMS
CORPORATION
|
Reconciliation of
Estimated EBITDA and Estimated Adjusted EBITDA
|
(unaudited - in
millions)
|
|
|
|
|
Three Months
Ended
|
|
March 28,
2020
|
|
Low
|
High
|
Net income
(loss)
|
$
|
(1.8)
|
|
$
|
(0.7)
|
|
Income tax provision
(benefit)
|
0.2
|
|
—
|
|
Depreciation,
amortization and interest expense, net
|
18.9
|
|
21.6
|
|
EBITDA1
|
17.3
|
|
20.9
|
|
|
|
|
Stock-based
compensation and non-recurring expenses2
|
9.7
|
|
11.1
|
|
Adjusted
EBITDA1
|
$
|
27.0
|
|
$
|
32.0
|
|
|
|
|
1
|
Denotes non-GAAP
financial measure.
|
|
2
|
Includes pre-tax
estimated expenses for stock-based compensation, restructuring,
acquisition-related expenses and acquisition inventory fair value
adjustment.
|
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SOURCE MTS Systems Corporation