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MTS Reports Fiscal 2015 3rd Quarter Financial Results

Eden Prairie, Minn. – August 3, 2015 – MTS Systems Corporation (NASDAQ: MTSC), a leading global supplier of high-performance test systems and position sensors, today reported fiscal 2015 third quarter financial results.

    Strong orders of $154 million, up 3 percent, and up 10 percent on a constant currency basis; record backlog of $343 million

    Operating cash flow strong at $36 million

    Revenue of $134 million and EPS of $0.72

    Company reaffirms fiscal 2015 annual guidance for revenue of $565 million to $580 million and earnings per share of $3.00 to $3.20, but expects to be at the low end of these ranges driven by continuing high custom project mix in Test business unit

"The third quarter produced mixed results as we posted strong order growth and excellent cash flow, yet we continued to face a high percentage of slower turning customized work flow in our Test business which muted our revenue growth in the quarter," said Dr. Jeffrey Graves, President and Chief Executive Officer of MTS Systems. "The strong order performance reflected continued demand for MTS technology world-wide, and included two large ground vehicle Test orders in Asia, which will be used to develop advanced chassis systems for safety, comfort and handling in new automobiles. Service orders in our Test business also showed good growth in the quarter, up 11 percent on a constant currency basis, as we are beginning to see the benefit from higher Service staffing levels earlier this year.

"Revenue was down compared to the same quarter last year and lower than we expected. Test revenue continued to be impacted by a high level of slower turning custom projects in our backlog. This put a strain on available engineering resources, in spite of accelerated hiring, which resulted in delays in revenue realization in our Test business. With continued high order activity, our primary focus in the Test business is to drive efficiency improvements to convert our strong backlog and orders outlook," Dr. Graves said.

"Our Sensors business was negatively impacted by currency, with orders being down 1 percent but up 13 percent on a constant currency basis. Geographically, orders were strong for Sensors this quarter in local currencies with the Americas, Europe and Asia all up double digits; the exception was China, which demonstrated some weakness in the quarter. We believe that the market fundamentals remain strong for our sensor products and are excited about the prospects for future growth through the introduction of new products and the strengthening of worldwide markets," Dr. Graves stated.

Third Quarter Results

Revenue was $133.9 million a decrease of 8 percent compared to the prior year, and down 2 percent on a constant currency basis. Test revenue declined 7 percent driven by the continued high mix of custom orders in backlog which requires more complex engineering solutions and resulted in slower conversion of backlog into revenue, as well as a decrease in short cycle product orders. Sensors revenue declined 10 percent, primarily driven by the negative effects of currency translation. Excluding currency, Test revenue decreased 3 percent while Sensors revenue was up 3 percent compared to the prior year.

Gross profit of $53.2 million was down 8 percent compared to the prior year while the gross margin rate was flat at 39.7 percent. The decrease was primarily driven by the negative effects of currency and a decline in revenue volume.

Operating expenses decreased $2.5 million and were 28 percent of revenue, which is within our expected range of 27 to 29 percent. The decrease in operating expenses primarily resulted from $2.4 million of favorable currency translation.

Income from operations totaled $15.4 million, down 11 percent compared to the prior year. Earnings were $0.72 per share compared to $0.92 per share in the prior year driven by lower gross profit, but partially offset by the decrease in operating expenses mentioned above. In addition, the third quarter of fiscal 2014 included $0.17 of incremental benefits from research and development tax credits that did not repeat in fiscal 2015.

Orders were $154.0 million, up 3 percent and up 10 percent on a constant currency basis compared to the prior year. Test orders increased 4 percent, and were up 9 percent on a constant currency basis. The increase was driven by two large Test ground vehicle orders (>$5 million) in Asia in the third quarter totaling $21.2 million, compared to two large Test orders totaling $12.7 million in the same period last year. Sensors orders were down 1 percent but up 13 percent on a constant currency basis. Backlog at the end of the quarter was $343 million, up 11 percent compared to the prior year. This order momentum, and the resulting new record backlog, reflects continued market demand for MTS technology solutions in product development laboratories around the world. Consistent with this demand outlook, the opportunity pipeline continues to be strong at $873 million.

Use of Cash

Cash and cash equivalents at the end of the third quarter totaled $53.3 million, compared to $61.3 million at the end of the second quarter of fiscal 2015. During the third quarter, operating activities generated cash of $36.3 million. The Company used $34.7 million to pay down borrowings against the line of credit, $4.5 million to pay dividends to shareholders, $3.5 million to invest in capital expenditures, and $2.4 million to purchase approximately 32,000 shares of its common stock.

Outlook

"While the global economy continues to expand at a slower pace than we had originally anticipated this year, and we see some weakness in capital spending in general, our specific end-markets remain strong. In Test, our high level of backlog and strong order pipeline confirms the macro trends driving investments by our customers in new product development capabilities. In Sensors, we continue to see strong order activity across market segments and in most geographic regions. As such, we are confirming our previously issued guidance range for revenue of $565 million to $580 million and earnings per share of $3.00 to $3.20. However, given the ongoing impact from the higher mix of custom Test orders, which come with lower margins, and the strain on our engineering resources resulting in slower conversion of our backlog, we expect to be at the low end of our guidance range for both revenue and earnings per share. We are continuing to enhance our product capabilities, improve our business processes and drive productivity improvements in Test, as well as new product development in Sensors, to drive the business forward for the remainder of this year and into fiscal 2016," Dr. Graves concluded.

Third Quarter Conference Call

A conference call will be held on August 4, 2015, at 10 a.m. ET (9 a.m. CT). Call +1-719-325-2177 (Toll Free: +1-888-359-3624) and reference the conference pass code "6057107". Telephone replay will be available at 1:00 p.m. ET following the call until 1 p.m. ET, August 11, 2015. Call +1-719-457-0820 (Toll Free: +1-888-203-1112) and reference the conference pass code "6057107".

A transcript of the call can also be accessed from the MTS website at http://www.mts.com/en/Investor/index.htm. It will be available on August 5, 2015.

About MTS Systems Corporation

MTS Systems Corporation's testing hardware, software and services 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 position sensors provide controls for a variety of industrial and vehicular applications. MTS had 2,180 employees at September 27, 2014 and revenue of $564 million for the fiscal year ended September 27, 2014. Additional information on MTS can found at http://www.mts.com.

This release contains "forward-looking statements" regarding financial projections 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 are used to identify these forward-looking statements.

Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to: government contracting; the Company's significant international business including but not limited to currency value fluctuations, difficulty enforcing agreements and collecting receivables, import and exporting matters, higher danger of terrorist activity, difficulty in staffing and compliance with laws; volatility in the global economy; competition; failure to achieve the Company's growth plans for the expansion of its business because the Company's long-term success depends on its ability to expand its business through new product development, mergers and acquisitions, geographic expansion and service offerings, all of which are subject to inherent risks including but not limited to market demand, market acceptance of products and our ability to advance our technology; difficulties obtaining the services of skilled employees; failure to protect its intellectual property effectively or infringement upon the intellectual property of others; product liability and commercial litigation; difficulty obtaining materials or components for its products; government regulation; the irregularity and development of sales, delivery and acceptance cycle for the Company's products; the Company's customers are in cyclical industries; interest rate fluctuations; the Company may be required to recognize impairment charges for long-lived assets; and cost, reputational and other risks associated with disclosing use of conflict minerals. For a more thorough discussion of the risks associated with our business, see the "Risk Factors" section in the Company's most recent SEC Form 10-K, 10-Q and 8-K filings. Except as required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.