EX-99.1 2 pressreleasedatedaugust520.htm EXHIBIT 99.1 Exhibit
MTS News Release
Page 1


Exhibit 99.1
mtslogoa56.jpg
MTS Systems Corporation
14000 Technology Drive
Eden Prairie, MN 55344-2290
Telephone 952-937-4000
Fax 952-937-4515
 
 
 
 

News Release

FOR IMMEDIATE RELEASE
August 5, 2019

MTS REPORTS FISCAL 2019 THIRD QUARTER FINANCIAL RESULTS

EDEN PRAIRIE, MN - August 5, 2019 - 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 third quarter ended June 29, 2019.

THIRD QUARTER FINANCIAL AND OPERATING HIGHLIGHTS

Ø Revenue of $232.2 million, an increase of 19%
Ø
GAAP diluted earnings per share of $0.70, an increase of $0.23 or 49%
Ø
Net income margin of 5.9%, an increase of 124 basis points
Ø
Adjusted EBITDA margin of 15.2%, an increase of 96 basis points
Ø
Backlog of $443.3 million, an increase of 17%
Ø
Declared 150th consecutive quarterly dividend

FINANCIAL TABLE
 
Three Months Ended
 
Nine Months Ended

(in thousands, except per share data - unaudited)
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Revenue
$
232,209

 
$
194,668

 
$
668,436

 
$
580,153

Revenue % increase (decrease)1
19.3
%
 
0.5
%
 
15.2
%
 
(1.1
)%
Gross margin
36.6
%
 
39.2
%
 
37.5
%
 
39.5
 %
Operating margin
9.9
%
 
8.4
%
 
9.7
%
 
8.5
 %
Earnings before taxes
$
16,190

 
$
10,045

 
$
44,463

 
$
29,691

Net income
13,585

 
8,979

 
38,246

 
50,568

Diluted earnings per share
0.70

 
0.47

 
1.97

 
2.62

Adjusted diluted earnings per share2
0.71

 
0.49

 
2.07

 
2.68

Adjusted EBITDA2
35,357

 
27,782

 
103,013

 
82,186

Cash and cash equivalents, end of period
75,735

 
66,403

 
 
 
 
Backlog, end of period
443,271

 
377,745

 
 
 
 
Total debt, end of period
462,516

 
391,332

 
 
 
 
1 
Revenue growth rates in fiscal year 2019 reflect the acquisition of E2M Technologies B.V. (E2M) 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.



MTS News Release
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EXECUTIVE COMMENTARY - DR. JEFF GRAVES, PRESIDENT AND CHIEF EXECUTIVE OFFICER

"We once again delivered a solid performance on all major financial metrics, delivering top-line growth of almost 20% reflecting another record revenue quarter for our Sensors business, its eighth-consecutive quarter of revenue growth versus the same prior year period, and near-record level Test & Simulation business. This growth profile demonstrates the continuing benefits of our diversification strategy within the Test & Measurement space, and our success in new product sales across virtually all our major end markets.

While we are pleased with our top-line momentum, we also continue to focus on our cost structure and in driving operational efficiencies in both businesses. These efforts contributed to bottom-line net income improvement of 51%, translating to a net income margin of 5.9% for the quarter, and a 27% increase in Adjusted EBITDA, equating to an Adjusted EBITDA margin of 15.2% for the quarter. This solid performance for both our Test & Simulation and Sensors businesses supports our continued investments in new product development, diversification and capital structure optimization, all while returning cash to our shareholders through our quarterly dividend."

HIGHLIGHTS FOR THE 2019 THIRD FISCAL QUARTER

Revenue
Revenue was $232.2 million, up 19.3% compared to the same prior year period, driven by near record revenue in Test & Simulation, which included equipment volume growth in all sectors, revenue from the acquisition of E2M, which closed in the first quarter of fiscal year 2019, and continued growth in Test services. Sensors experienced record revenue driven by the continued ramp-up in volume associated with our U.S. Department of Defense contract and growth from the energy market within our Sensors industrial sector, slightly offset by weakness in the European and Asian regions in our Sensors position sector.

Orders
Test & Simulation orders for the quarter were $103.8 million, down 25.9% compared to the same prior year period, driven primarily by weakness in all regions, partially offset by double-digit growth in Test service orders. Our orders performance does not reflect the full impact of a new project received from the U.S. Department of Defense in the third quarter of fiscal year 2019, which will be funded incrementally throughout its execution. We recorded $1.8 million of the full $30.4 million order, inclusive of options, for this new test system in the third quarter.

Sensors orders for the quarter were $76.8 million, a 2.7% 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 sector and timing of order funding in our Sensors test sector, partially offset by solid demand in the Americas region of our Sensors position sector and orders growth in our Sensors industrial sector from a continued rebound in the energy market.

Backlog
Backlog of $443.3 million was up 17.3% from the same prior year period. Sequentially from the second quarter of fiscal year 2019, backlog was down 10.2% as we saw a high-level of conversion to revenue on outstanding projects within the quarter, along with a decline in order volume to replenish the backlog.

Earnings Before Taxes
Earnings before taxes of $16.2 million was up $6.1 million compared to the same prior year period. This earnings increase was driven by gross profit growth in both Test & Simulation and Sensors, partially offset by higher operating expenses in both businesses and a $0.2 million acquisition inventory fair value adjustment related to the acquisition of E2M.




MTS News Release
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Net Income and Diluted Earnings Per Share
GAAP diluted earnings per share was $0.70 compared to $0.47 in the same prior year period on net income of $13.6 million and $9.0 million, respectively. The $0.23 increase was primarily driven by growth in Test & Simulation gross profit, which includes the contributions from the acquisition of E2M. Third quarter of fiscal year 2019 results include a $0.01 impact for the acquisition inventory fair value adjustment related to the acquisition of E2M. Similarly, results for the third quarter of fiscal year 2018 include a $0.02 impact for restructuring expenses. Adjusting for these items, adjusted diluted earnings per share was $0.71 for the third quarter of fiscal 2019, and $0.49 for the same period in the prior year. A reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, to diluted earnings per share, the most directly comparable GAAP financial measure, is provided in Exhibit B of this earnings release.

Adjusted EBITDA
Adjusted EBITDA grew to $35.4 million in the third quarter of fiscal year 2019, up 27.3% compared to the same prior year period. This growth was primarily due to higher gross profit in both businesses and contributions from the acquisition of E2M, partially offset by higher operating expenses in 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.

Balance Sheet
During the quarter, our total debt balance decreased by $2.4 million to $472.4 million. We ended the quarter with $75.7 million of cash on the balance sheet, leading to a net debt balance of $396.7 million.

Dividend
The Board of Directors declared a quarterly dividend of $0.30 per share. The dividend was payable on July 2, 2019 to shareholders of record as of the close of business on June 18, 2019. This was our 150th consecutive quarterly dividend.

Strategic Actions Completed Subsequent to Quarter End
Given the favorable market conditions, in early July we issued $350.0 million aggregate principal amount of new 5.750% senior unsecured notes due 2027. These new notes were issued to further optimize our capital structure and to take advantage of historically low long-term interest rates. The net proceeds from this offering were used to repay all outstanding debt under our revolving credit facility, to repay a portion of our outstanding debt under our term loan facility, to pay fees and expenses associated with the offering and for general corporate purposes.

In addition, on Monday, August 5, 2019, we executed an agreement with Meggitt PLC (MGGT.L), to purchase the assets of their Endevco sensors business. Founded in 1947, Endevco is a historic leader in high performance test & measurement sensors used primarily in the testing of new products. This strategic product line purchase brings together two iconic brands in the test & measurement sensors market, PCB and Endevco, and further enhances the MTS long-term strategy of growth and market leadership in our core businesses. The purchase price of the Endevco assets was approximately $70.0 million, and it is expected to contribute approximately $30.0 million in revenues on an annualized basis. Given the timing of the transaction, we do not anticipate that this will have a material impact on our financial performance for the end of fiscal year 2019; however, we do anticipate tremendous opportunities for accelerated growth in our Sensors business in fiscal year 2020 and beyond.




MTS News Release
Page 4


OUTLOOK

Test & Simulation Business
Our performance for the first nine months of the fiscal year supports our positive outlook for our Test & Simulation business. From a revenue perspective, our solid backlog position throughout the first nine months of fiscal year 2019 has correlated with strong 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 that are more resistant to damage from earthquakes, sea and storm events. The acquisition of E2M has further expanded our growth opportunities by diversifying us further into flight simulation, entertainment and other advanced simulation markets.

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
Our Sensors business demand is 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 associated with our U.S. Department of Defense contract, is anticipated to provide double digit top-line growth, along with Adjusted EBITDA margin expansion, for the Sensors business in the fourth quarter of fiscal year 2019.

Consolidated
As part of the optimization of our capital structure, we issued $350.0 million aggregate principal amount of new 5.750% senior unsecured notes due 2027 in our fourth quarter of fiscal year 2019. The offering will result in higher interest expense in the fourth quarter than originally forecasted primarily due to the write-off of debt issuance costs associated with the partial repayment of the term loan facility and higher debt levels in the fourth quarter of fiscal year 2019.

Based on these factors, we are confident in our outlook for fiscal year 2019 and are revising our full year guidance as follows:
Metric
 
Previous Outlook
 
Current Outlook
Revenue
 
$830 million to $870 million
 
$875 million to $895 million
Adjusted EBITDA
 
$122 million to $142 million
 
$128 million to $138 million
Diluted earnings per share
 
$2.30 to $2.60
 
$2.15 to $2.35
Adjusted diluted earnings per share
 
$2.42 to $2.72
 
$2.30 to $2.50

The above outlook includes:
$12.5 million to $14.5 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;
An anticipated effective tax rate, excluding discrete tax items, of 15-18% for fiscal year 2019; and
Updated diluted earnings per share amounts due to the write-off of debt issuance costs associated with the partial repayment of the term loan facility and issuance of new senior unsecured notes.

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 F and G of this earnings release, respectively.




MTS News Release
Page 5


THIRD QUARTER CONFERENCE CALL

As announced on July 22, 2019, a conference call will be held on August 6, 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, Executive Vice President and Chief Financial Officer, will host the call, which will include a question and answer session after prepared remarks.

Call toll free +1-800-353-6461 (international toll +1-334-323-0501) and reference the conference pass code 7911369. Telephone replay will be available at 1:00 p.m. ET following the call until 1:00 p.m. ET, August 13, 2019. Call toll free +1-888-203-1112 and reference the conference pass code 7911369.

A transcript of the call can also be accessed from the MTS website at http://investor.mts.com beginning on August 7, 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.




MTS News Release
Page 6


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.

INVESTOR RELATIONS CONTACT

Brian Ross
Executive Vice President and Chief Financial Officer
brian.ross@mts.com
(952) 937-4000



MTS News Release
Page 7


 MTS SYSTEMS CORPORATION
 Consolidated Statements of Income
 (unaudited - in thousands, except per share data)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Product
$
205,528

 
$
168,651

 
$
587,297

 
$
503,345

Service
26,681

 
26,017

 
81,139

 
76,808

Total revenue
232,209

 
194,668

 
668,436

 
580,153

Cost of sales
 
 
 
 
 
 
 
Product
130,514

 
103,182

 
368,260

 
304,809

Service
16,592

 
15,202

 
49,418

 
46,307

Total cost of sales
147,106

 
118,384

 
417,678

 
351,116

Gross profit
85,103

 
76,284

 
250,758

 
229,037

 Gross margin
36.6
%
 
39.2
%
 
37.5
%
 
39.5
%
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Selling and marketing
33,321

 
32,171

 
98,805

 
94,796

General and administrative
20,621

 
19,081

 
63,804

 
58,635

 Research and development
8,160

 
8,768

 
23,008

 
26,235

 Total operating expenses
62,102

 
60,020

 
185,617

 
179,666

 
 
 
 
 
 
 
 
Income from operations
23,001

 
16,264

 
65,141

 
49,371

 Operating margin
9.9
%
 
8.4
%
 
9.7
%
 
8.5
%
 
 
 
 
 
 
 
 
Interest expense, net
(6,687
)
 
(6,249
)
 
(20,873
)
 
(19,761
)
Other income (expense), net
(124
)
 
30

 
195

 
81

 
 
 
 
 
 
 
 
Income before income taxes
16,190

 
10,045

 
44,463

 
29,691

Income tax provision (benefit)
2,605

 
1,066

 
6,217

 
(20,877
)
Net income
$
13,585

 
$
8,979

 
$
38,246

 
$
50,568

 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 Basic
 
 
 
 
 
 
 
 Earnings per share
$
0.70

 
$
0.47

 
$
1.99

 
$
2.64

 Weighted average common shares outstanding
19,297

 
19,174

 
19,255

 
19,149

 
 
 
 
 
 
 
 
 Diluted
 
 
 
 
 
 
 
 Earnings per share
$
0.70

 
$
0.47

 
$
1.97

 
$
2.62

 Weighted average common shares outstanding
19,520

 
19,305

 
19,436

 
19,269

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.30

 
$
0.30

 
$
0.90

 
$
0.90





MTS News Release
Page 8


 MTS SYSTEMS CORPORATION
 Condensed Consolidated Balance Sheets
 (unaudited - in thousands)
 
 
 
 
 
June 29,
2019
 
September 29,
2018
 ASSETS
 
 
 
 
 
 
 
 Current assets
 
 
 
 Cash and cash equivalents
$
75,735

 
$
71,804

 Accounts receivable, net
131,365

 
122,243

 Unbilled accounts receivable, net
68,804

 
70,474

 Inventories, net
164,853

 
139,109

 Other current assets
27,118

 
24,572

 Total current assets
467,875

 
428,202

 
 
 
 
 Property and equipment, net
92,893

 
90,269

 Goodwill
403,448

 
369,275

 Intangible assets, net
285,299

 
246,138

 Other long-term assets
7,804

 
5,512

 Total assets
$
1,257,319

 
$
1,139,396

 
 
 
 
 LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 Current liabilities
 
 
 
 Current maturities of long-term debt, net
$
28,316

 
$
32,738

 Accounts payable
39,495

 
47,886

 Advance payments from customers
87,935

 
80,131

 Other accrued liabilities
92,407

 
78,358

 Total current liabilities
248,153

 
239,113

 
 
 
 
 Long-term debt, less current maturities, net
434,200

 
355,640

 Other long-term liabilities
80,427

 
66,711

 Total liabilities
762,780

 
661,464

 
 
 
 
 Shareholders' equity
 
 
 
 Common stock, $0.25 par; 64,000 shares authorized:
 
 
 
18,736 and 17,856 shares issued and outstanding as
 
 
 
of June 29, 2019 and September 29, 2018, respectively
4,684

 
4,464

 Additional paid-in capital
179,015

 
171,407

 Retained earnings
316,249

 
300,585

 Accumulated other comprehensive income (loss)
(5,409
)
 
1,476

 Total shareholders' equity
494,539

 
477,932

 Total liabilities and shareholders' equity
$
1,257,319

 
$
1,139,396





MTS News Release
Page 9


 MTS SYSTEMS CORPORATION
Condensed Consolidated Statements of Cash Flows
 (unaudited - in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
 
 
 
 
 
 
 
 
Cash Flows from Operating Activities
 
 
 
 
 
 
 
Net income
$
13,585

 
$
8,979

 
$
38,246

 
$
50,568

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
 
 
 
 
Stock-based compensation
2,609

 
2,088

 
7,298

 
5,378

Fair value adjustment to acquired inventory
157

 

 
1,141

 

Depreciation and amortization
9,685

 
8,510

 
28,153

 
25,858

(Gain) loss on sale or disposal of property and equipment
42

 
12

 
552

 
171

Amortization of financing fees
708

 
1,198

 
2,807

 
3,824

Deferred income taxes
(187
)
 
465

 
(1,430
)
 
(30,189
)
Other
370

 
436

 
1,457

 
2,123

Changes in operating assets and liabilities
(7,668
)
 
(6,835
)
 
(28,254
)
 
(5,622
)
Net Cash Provided by (Used in) Operating Activities
19,301

 
14,853

 
49,970

 
52,111

 
 
 
 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
 
 
 
Purchases of property and equipment
(8,028
)
 
(4,409
)
 
(17,377
)
 
(9,777
)
Proceeds from sale of property and equipment

 

 
10

 
69

Purchases of business, net of cash acquired
(1,700
)
 

 
(83,526
)
 

Other

 

 
(285
)
 
823

Net Cash Provided by (Used in) Investing Activities
(9,728
)
 
(4,409
)
 
(101,178
)
 
(8,885
)
 
 
 
 
 
 
 
 
Cash Flows from Financing Activities
 
 
 
 
 
 
 
Proceeds from issuance of long-term debt

 

 
80,391

 

Payments on financing arrangements, net
(2,438
)
 
(19,591
)
 
(9,221
)
 
(70,038
)
Cash dividends
(5,375
)
 
(5,291
)
 
(16,099
)
 
(15,958
)
Proceeds from exercise of stock options and employee stock purchase plan
996

 
956

 
1,697

 
1,701

Payments to purchase and retire common stock
(986
)
 
(549
)
 
(1,384
)
 
(1,306
)
Net Cash Provided by (Used in) Financing Activities
(7,803
)
 
(24,475
)
 
55,384

 
(85,601
)
 
 
 
 
 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(157
)
 
(3,944
)
 
(245
)
 
45

Cash and Cash Equivalents
 
 
 
 
 
 
 
Increase (decrease) during the period
1,613

 
(17,975
)
 
3,931

 
(42,330
)
Balance, beginning of period
74,122

 
84,378

 
71,804

 
108,733

Balance, End of Period
$
75,735

 
$
66,403

 
$
75,735

 
$
66,403





MTS News Release
Page 10


Exhibit A
MTS SYSTEMS CORPORATION
Segment Financial Information
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
June 29,
2019
 
June 30,
2018
 
% Variance
Test & Simulation Segment
 
 
 
 
 
Revenue
$
148,328

 
$
116,055

 
28
 %
Cost of sales
104,053

 
79,475

 
31
 %
Gross profit
44,275

 
36,580

 
21
 %
Gross margin
29.8
%
 
31.5
%
 
 
 
 
 
 
 
 
Operating expenses
32,851

 
32,707

 
 %
 
 
 
 
 
 
Income from operations
$
11,424

 
$
3,873

 
195
 %
 
 
 
 
 
 
Sensors Segment
 
 
 
 
 
Revenue
$
84,231

 
$
79,000

 
7
 %
Cost of sales
43,424

 
39,289

 
11
 %
Gross profit
40,807

 
39,711

 
3
 %
Gross margin
48.4
%
 
50.3
%
 
 
 
 
 
 
 
 
Operating expenses
29,251

 
27,313

 
7
 %
 
 
 
 
 
 
Income from operations
$
11,556

 
$
12,398

 
(7
)%
 
 
 
 
 
 
Intersegment Eliminations
 
 
 
 
 
Revenue
$
(350
)
 
$
(387
)
 

Cost of sales
(371
)
 
(380
)
 

Gross profit
21

 
(7
)
 

 
 
 
 
 
 
Income (loss) from operations
$
21

 
$
(7
)
 

 
 
 
 
 
 
Total Company
 
 
 
 
 
Revenue
$
232,209

 
$
194,668

 
19
 %
Cost of sales
147,106

 
118,384

 
24
 %
Gross profit
85,103

 
76,284

 
12
 %
Gross margin
36.6
%
 
39.2
%
 
 
 
 
 
 
 
 
Operating expenses
62,102

 
60,020

 
3
 %
 
 
 
 
 
 
Income from operations
$
23,001

 
$
16,264

 
41
 %



MTS News Release
Page 11


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
 
June 29, 2019
 
June 30, 2018
 
Pre-Tax
Tax
Net
 
Pre-Tax
Tax
Net
Net income
$
16,190

$
2,605

$
13,585

 
$
10,045

$
1,066

$
8,979

Restructuring expenses 1



 
735

186

549

Acquisition-related expenses 2
98

21

77

 



Acquisition inventory fair value adjustment 1
157

24

133

 



Adjusted net income 3
$
16,445

$
2,650

$
13,795

 
$
10,780

$
1,252

$
9,528

 
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
 
 
19,520

 
 
 
19,305

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.84

$
0.14

$
0.70

 
$
0.52

$
0.05

$
0.47

Impact of restructuring expenses



 
0.04

0.02

0.02

Impact of acquisition-related expenses



 



Impact of acquisition inventory fair value adjustment
0.01


0.01

 



Adjusted diluted earnings per share3
$
0.85

$
0.14

$
0.71

 
$
0.56

$
0.07

$
0.49

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
 
 
 
 
 
 
3  Denotes non-GAAP financial measure.




MTS News Release
Page 12


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)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
June 29, 2019
 
June 30, 2018
 
Pre-Tax
Tax
Net
 
Pre-Tax
Tax
Net
Net income
$
44,463

$
6,217

$
38,246

 
$
29,691

$
(20,877
)
$
50,568

Restructuring expenses 1
130

33

97

 
1,343

340

1,003

Acquisition-related expenses 2
1,133

238

895

 



Acquisition inventory fair value adjustment 1
1,141

172

969

 



Adjusted net income 3
$
46,867

$
6,660

$
40,207

 
$
31,034

$
(20,537
)
$
51,571

 
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
 
 
19,436

 
 
 
19,269

 
 
 
 
 
 
 
 
Diluted earnings per share
$
2.29

$
0.32

$
1.97

 
$
1.54

$
(1.08
)
$
2.62

Impact of restructuring expenses



 
0.07

0.01

0.06

Impact of acquisition-related expenses
0.06

0.01

0.05

 



Impact of acquisition inventory fair value adjustment
0.06

0.01

0.05

 



Adjusted diluted earnings per share3
$
2.41

$
0.34

$
2.07

 
$
1.61

$
(1.07
)
$
2.68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
 
 
 
 
 
 
3  Denotes non-GAAP financial measure.




MTS News Release
Page 13


Exhibit D
MTS SYSTEMS CORPORATION
Reconciliation of EBITDA and Adjusted EBITDA to Net Income
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net income
$
13,585

 
$
8,979

 
$
38,246

 
$
50,568

Net income margin
5.9
%
 
4.6
%
 
5.7
%
 
8.7
%
 
 
 
 
 
 
 
 
Income tax provision (benefit)
2,605

 
1,066

 
6,217

 
(20,877
)
Interest expense, net
6,687

 
6,249

 
20,873

 
19,761

Depreciation and amortization
9,685

 
8,510

 
28,153

 
25,858

EBITDA 1
32,562

 
24,804

 
93,489

 
75,310

 
 
 
 
 
 
 
 
Stock-based compensation
2,609

 
2,088

 
7,298

 
5,378

Restructuring expenses 2

 
890

 
130

 
1,498

Acquisition-related expenses 3
29

 

 
955

 

Acquisition inventory fair value adjustment
157

 

 
1,141

 

Adjusted EBITDA 1
$
35,357

 
$
27,782

 
$
103,013

 
$
82,186

Adjusted EBITDA margin 1,4
15.2
%
 
14.3
%
 
15.4
%
 
14.2
%
 
 
 
 
 
 
 
 
1  Denotes non-GAAP financial measure.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2  Restructuring expenses were adjusted to exclude stock-based compensation forfeitures that are otherwise included in the stock-based compensation line.
 
 
 
 
 
 
 
 
3  Acquisition-related expenses were adjusted to exclude stock-based compensation that is otherwise included in the stock-based compensation line.
 
 
 
 
 
 
 
 
4  Adjusted EBITDA was divided by revenue when calculating the Adjusted EBITDA margin.




MTS News Release
Page 14


Exhibit E
MTS SYSTEMS CORPORATION
Free Cash Flow
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net Cash Provided by (Used in) Operating Activities
$
19,301

 
$
14,853

 
$
49,970

 
$
52,111

Purchases of property and equipment
(8,028
)
 
(4,409
)
 
(17,377
)
 
(9,777
)
Proceeds from sale of property and equipment

 

 
10

 
69

Free cash flow1
$
11,273

 
$
10,444

 
$
32,603

 
$
42,403

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1  Denotes non-GAAP financial measure.
 
 
 
 
 
 
 




MTS News Release
Page 15


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
$
42,000

$
46,000

Income tax provision (benefit)
4,500

5,500

Interest expense, net
32,000

33,000

Depreciation and amortization
37,000

39,000

EBITDA1
115,500

123,500

 

 
Stock-based compensation and non-recurring expenses2
12,500

14,500

Adjusted EBITDA1
$
128,000

$
138,000

 
 
 
 
 
 
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.




MTS News Release
Page 16


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
$
42,000

 
$
46,000

Non-recurring expenses 2
2,800

 
3,000

Adjusted net income 3
$
44,800

 
$
49,000

 
 
 
 
Weighted average diluted common shares outstanding
19,500

 
19,600

 
 
 
 
Diluted earnings per share
$
2.15

 
$
2.35

Impact of non-recurring expenses2
0.15

 
0.15

Adjusted diluted earnings per share
$
2.30

 
$
2.50

 
 
 
 
 
 
 
 
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%.