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MTS Reports Fiscal 2018 Fourth Quarter And Full Year Financial Results

EDEN PRAIRIE, Minn., Nov. 26, 2018 /PRNewswire/ -- MTS Systems Corporation (Nasdaq: MTSC), a leading global supplier of high-performance test systems and sensors, today reported financial results for its fiscal year 2018 fourth quarter and full year ended September 29, 2018.

MTS Systems Corporation. (PRNewsFoto/MTS Systems Corporation)

FOURTH QUARTER FINANCIAL AND OPERATING HIGHLIGHTS

  • Revenues of $197.9 million, with gross margin rising 180 basis points to 38.7%
  • Second consecutive quarter of strong Test orders at $140.7 million
  • Record Sensors orders of $96.3 million, with a book-to-bill ratio of 1.24
  • Awarded Sensors multi-year contract associated with the U.S. Department of Defense valued at approximately $187 million inclusive of options, received initial purchase order funded up to $20 million in the quarter
  • Diluted earnings per share increased to $0.56
  • Declared 147th consecutive quarterly dividend

FULL YEAR FINANCIAL AND OPERATING HIGHLIGHTS

  • Revenues of $778.0 million, including Sensors revenue growth of 11%
  • Gross margin of 39.3%, an increase of 90 basis points
  • Diluted earnings per share of $3.18, an increase of $1.87 or 143%
  • Record backlog of $415.2 million, driven by record fourth quarter Sensors orders and Test momentum
  • Continued deleveraging of the balance sheet with $73.7 million of debt payments

FINANCIAL TABLE



Three Months Ended


Twelve Months Ended

(in thousands, except per share data - unaudited)


September 29,

 2018


September 30,

 2017


September 29,

 2018


September 30,

 2017

Revenue


$

197,879



$

201,488



$

778,032



$

787,955


Revenue % increase (decrease)1


(1.8)

%


(6.2)

%


(1.3)

%


21.2

%

Gross margin


38.7

%


36.9

%


39.3

%


38.4

%

Operating margin


8.0

%


6.2

%


8.4

%


7.0

%

Earnings before taxes


$

14,532



$

4,187



$

44,223



$

23,011


Net income


10,760



5,570



61,328



25,084


Diluted earnings per share


0.56



0.29



3.18



1.31


Adjusted diluted earnings per share2


0.61



0.44



3.28



2.22


Adjusted EBITDA2


32,683



28,261



114,869



119,795


Cash and cash equivalents, end of period






71,804



108,733


Backlog, end of period






415,155



360,016


Total debt, end of period






388,378



457,639




1

Revenue growth rates in fiscal year 2017 reflect the first year of our PCB acquisition from July 5, 2016.

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

"We are very pleased with how we ended the fiscal year, with increasing momentum across both of our business segments. While the Test ground vehicles sector remains sluggish by historical measure, all other Test equipment sectors, as well as our Test services, were robust, leading to a 50-year record order level for the second half of fiscal 2018 in our Test business. This performance puts us in a solid position for growth and margin improvement for Test in the year ahead."

"Our Sensors business had an outstanding year, with record revenues and strong operating performance, driven by broad strength across our Sensors industrial and test sectors. As good as we felt about our execution in 2018, our positive outlook for the future was further reinforced with the award, late in our fourth quarter, of a new Sensors multi-year contract associated with the U.S. Department of Defense, valued at approximately $187 million inclusive of options in which we received an initial purchase order funded up to $20 million. This was the largest contract ever received in our Sensors business and one that we are extremely proud to have been awarded. With the strength we now see in our core markets for sensors globally, and with a record backlog as we closed our fiscal 2018, we anticipate continued double-digit revenue growth and increased profitability moving forward as we realize the efficiencies of scale that we now have in our Sensors business."

"In short, while the first half order challenges driven by the Test ground vehicles sector provided a headwind for full-year performance, the record order rates of the second half of the year, for both our Test and Sensors businesses, left us feeling very positive as we closed out our fiscal 2018. The resulting 50-year record backlog at year end, which topped $415 million, positions us well for growth and further margin expansion in fiscal 2019."

HIGHLIGHTS FOR THE 2018 FOURTH FISCAL QUARTER

Revenue

Revenue was $197.9 million, down 1.8% compared to the same quarter in the prior year, driven primarily by lower equipment volume in the ground vehicles and structures sectors of our Test business, partially offset by an increase in service volume and growth in our Sensors business. Our Sensors business had continued momentum and sustained broad demand across all Sensors sectors.

Orders

Test orders for the quarter were $140.7 million, marking the second consecutive quarter of orders exceeding $140 million even with an 8.2% decrease compared to the same prior year period. The overall decrease from the same prior year period reflects record orders activity in the prior year coupled with a shift in timing of order commitments by customers in the Test ground vehicles sector. The decrease was partially offset by expanded orders in the Test structures sector impacted by the timing of infrastructure investments and government funding.

Sensors orders for the quarter were a record $96.3 million, representing a 22.2% sequential increase over the third quarter of fiscal year 2018. This growth shows continued strength in our Sensors industrial and test sectors. It was driven incrementally by the initial purchase order associated with the U.S. Department of Defense, entered into in September 2018, which was funded up to $20 million in the quarter, as well as broad demand across all Sensors sectors.

Earnings Before Taxes

Earnings before taxes totaled $14.5 million, up $10.3 million compared to the same prior year period. The increase was primarily driven by the $4.6 million gain recognized on the sale of one of our China manufacturing facilities, an increase in Test gross profit and lower restructuring expense compared to the prior year. Additionally, the prior year includes non-recurring costs associated with our debt repricing.

Net Income and Diluted Earnings Per Share

Diluted earnings per share was $0.56 compared to $0.29 in the same prior-year period on net income of $10.8 million and $5.6 million, respectively. Results for the fourth quarter of fiscal year 2018 included the gain on sale of one of our China manufacturing facilities and an increase in Test gross profit.

Adjusted EBITDA

Adjusted EBITDA grew to $32.7 million in the fourth quarter of fiscal year 2018, up 17.6% sequentially from the third quarter of fiscal year 2018 and up 15.6% from the same prior year period. This growth was primarily due to the gain on sale of one of our China manufacturing facilities, an increase in Test gross profit and lower operating expenses, partially offset by a slight decline in Sensors gross profit. 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

We continued to strengthen our balance sheet by reducing our debt outstanding for the eighth consecutive quarter. This included debt payments of $3.6 million during the fourth quarter of fiscal year 2018. We made a total of $73.7 million of debt payments during fiscal year 2018, $59.3 million of which was in excess of our mandatory repayment requirements. We believe our ability to repatriate cash to the United States on favorable terms as a result of the Tax Cuts and Jobs Act will continue to enhance our deleveraging efforts in the future.

Dividend

The Board of Directors declared a quarterly dividend of $0.30 per share. The dividend was payable on October 1, 2018 to shareholders of record as of the close of business on September 17, 2018. This was our 147th consecutive quarterly dividend.

HIGHLIGHTS FOR THE 2018 FULL FISCAL YEAR

Revenue

Revenue was $778.0 million, down 1.3% compared to the prior year, driven primarily by lower equipment volume in the ground vehicles sector of our Test business, partially offset by 10.7% revenue growth in our Sensors business. Sensors continues to benefit from having a well-positioned product portfolio supported by strong customer service to meet the continued demand across all Sensors sectors.

Orders

Test orders for the fiscal year were $495.2 million, a 1.1% decrease compared to the prior year. The overall decrease from the prior year reflects the continued demand volatility in the Test ground vehicles sector as the automotive industry is further disrupted by electrification and autonomous vehicles. The decrease was partially offset by strong orders for materials Test systems, growth in new advanced materials and additive manufacturing, and expanded orders in structures. In addition, our Test service orders surpassed $100 million for the first time. The Test opportunity pipeline remains at $1.0 billion over the next 12 months; however, anticipated order timing continues to be volatile in our Test ground vehicles sector. Test ended the fiscal year with a backlog of $346.0 million, a 6.0% increase sequentially from the third quarter of fiscal year 2018 and an 11.1% increase from the prior year.

Sensors orders for the fiscal year were a record $336.2 million. This strength was driven by broad demand across all Sensors sectors and the initial purchase order funded up to $20 million associated with the U.S. Department of Defense. Moving forward, we expect continued strength in Sensors orders and expanded opportunities associated with the U.S. Department of Defense. Sensors backlog at the end of the fiscal year was $69.1 million, a 34.5% increase sequentially from the third quarter of fiscal year 2018 and a 42.7% increase from the prior year.

Earnings Before Taxes

Earnings before taxes totaled $44.2 million, up $21.2 million compared to the prior year. The increase was mainly driven by leverage on strong Sensors revenue growth and the non-recurrence of several costs from the prior year, including expenses related to our investigation of code of conduct violations within our China Test operations, acquisition inventory fair value adjustments, one-time costs associated with our debt repricing and acquisition integration expenses, along with the gain on the sale of one of our China manufacturing facilities. Partially offsetting the growth was a decline in Test gross profit driven by lower revenue and product mix.

Net Income and Diluted Earnings Per Share

Diluted earnings per share was $3.18 compared to $1.31 in the same prior-year period on net income of $61.3 million and $25.1 million, respectively. Fiscal year 2018 results included a reduction in the effective tax rate as a result of the Tax Cuts and Jobs Act, the non-recurrence of several costs from the prior year as previously discussed and the gain on sale of one of our China manufacturing facilities, partially offset by a decline in Test gross profit.

Adjusted EBITDA

Adjusted EBITDA of $114.9 million in fiscal year 2018, declined $4.9 million from $119.8 million in the prior year, primarily due to a decline in Test gross profit, partially offset by strong Sensors revenue growth and the gain on sale of one of our China manufacturing facilities. 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.

OUTLOOK

Test Business

Overall, the outlook in Test remains positive as composite technologies, additive manufacturing, services, emerging markets, material light-weighting and ground transportation create new demand for the unique and sophisticated testing solutions that we have to offer. We believe this demand will be driven heavily by the increased use of additive manufacturing and the proliferation of carbon-fiber composites in the materials sector, the requirement for durability testing in the automotive industry as new car types continue to be developed with the rapidly changing landscape in autonomy and electrification of vehicles, and by continued strong growth in our Test services activities. However, we believe volatility in the Test ground vehicles sector will continue to present risk to our near-term results for the foreseeable future. In addition, we continue to invest specifically in operational efficiency initiatives to improve profitability and in new products and technologies to generate the highest demand for Test products and services in the coming years.

Sensors Business

Strong demand in the Sensors business is anticipated to continue during fiscal year 2019 across all sectors, driven by new products across all major markets and geographies and expanded opportunities associated with the U.S. Department of Defense. This combination of positive factors is expected to yield double-digit top line growth, along with Adjusted EBITDA expansion for the Sensors business in fiscal year 2019.

Consolidated

Based on these factors, we introduce our expected outlook for fiscal year 2019 including:

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

The above outlook includes:

  • $8.5 million to $11.0 million for stock-based compensation, acquisition-related and restructuring expenses;
  • Our most recent acquisition of E2M Technologies B.V., in addition to the slightly positive effects of the implementation of the new revenue recognition standard; and
  • An anticipated effective tax rate, excluding discrete tax items, of 15-19% for fiscal year 2019.

A reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable GAAP financial measure, for the above outlook is included in Exhibit F of this earnings release.

FOURTH QUARTER CONFERENCE CALL

As announced on November 12, 2018, a conference call will be held on November 27, 2018 (tomorrow), at 10:00 a.m. ET (9:00 a.m. CT). Dr. Jeff Graves, President and Chief Executive Officer, and Brian 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 +1-855-719-5012 (international toll +1-334-323-0522) and reference the conference pass code 1982047. Telephone replay will be available at 1:00 p.m. ET following the call until 1:00 p.m. ET, December 4, 2018. Call toll free +1-888-203-1112 and reference the conference pass code 1982047.

A transcript of the call can also be accessed from the MTS website at http://investor.mts.com beginning on November 28, 2018.

ABOUT MTS SYSTEMS CORPORATION

MTS Systems Corporation's testing 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 integration expenses, acquisition inventory fair value adjustment, China investigation expenses and acquisition-related expenses 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 integration expenses, acquisition inventory fair value adjustment, China investigation expenses and acquisition-related expenses 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) and EBITDA excluding the impact from stock-based compensation, restructuring expenses, acquisition integration expenses, acquisition inventory fair value adjustment and China investigation expenses (Adjusted EBITDA) is useful to investors as a measure of leverage and operating performance. We use these measures to monitor and evaluate leverage and operating performance. EBITDA and Adjusted EBITDA 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 integration expenses, acquisition inventory fair value adjustment and China investigation expenses to EBITDA.

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 the Company's 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 plus cash proceeds from sale 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 and F of this earnings release.

FORWARD-LOOKING STATEMENTS

This 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 the 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 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 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


Twelve Months Ended



September 29,

 2018


September 30,

 2017


September 29,

 2018


September 30,

 2017










Revenue









Product


$

171,046



$

176,484



$

674,391



$

691,471


Service


26,833



25,004



103,641



96,484


Total revenue


197,879



201,488



778,032



787,955


Cost of sales









Product


104,716



111,393



409,525



427,405


Service


16,671



15,693



62,978



58,272


Total cost of sales


121,387



127,086



472,503



485,677


Gross profit


76,492



74,402



305,529



302,278


Gross margin


38.7

%


36.9

%


39.3

%


38.4

%










Operating expenses









Selling and marketing


31,537



31,958



126,333



124,912


General and administrative


20,605



21,234



79,240



87,539


Research and development


8,549



8,701



34,784



34,999


Total operating expenses


60,691



61,893



240,357



247,450











Income from operations


15,801



12,509



65,172



54,828


Operating margin


8.0

%


6.2

%


8.4

%


7.0

%










Interest expense, net


(6,121)



(8,412)



(25,882)



(30,821)


Other income (expense), net


4,852



90



4,933



(996)











Income before income taxes


14,532



4,187



44,223



23,011


Income tax provision (benefit)


3,772



(1,383)



(17,105)



(2,073)


Net income


$

10,760



$

5,570



$

61,328



$

25,084











Earnings per share









 Basic









Earnings per share


$

0.56



$

0.29



$

3.20



$

1.32


Weighted average common shares outstanding


19,206



19,122



19,163



19,040











 Diluted









Earnings per share


$

0.56



$

0.29



$

3.18



$

1.31


Weighted average common shares outstanding


19,363



19,222



19,293



19,137











Dividends declared per share


$

0.30



$

0.30



$

1.20



$

1.20


 

 MTS SYSTEMS CORPORATION


 Condensed Consolidated Balance Sheets


 (unaudited - in thousands)









September 29,

 2018


September 30,

 2017






 ASSETS










 Current assets





 Cash and cash equivalents


$

71,804



$

108,733


 Accounts receivable, net


122,243



123,994


 Unbilled accounts receivable, net


70,474



76,914


 Inventories, net


139,109



127,728


 Other current assets


24,572



19,880


 Total current assets


428,202



457,249







 Property and equipment, net


90,269



99,930







 Goodwill


369,275



369,762


 Intangible assets, net


246,138



255,079


 Other long-term assets


5,512



7,672


 Total assets


$

1,139,396



$

1,189,692







 LIABILITIES AND SHAREHOLDERS' EQUITY










 Current liabilities





 Current maturities of long-term debt, net


$

32,738



$

39,095


 Accounts payable


47,886



47,515


 Advance payments from customers


80,131



76,712


 Other accrued liabilities


78,358



84,067


 Total current liabilities


239,113



247,389







 Long-term debt, less current maturities


355,640



418,544


 Other long-term liabilities


66,711



94,982


 Total liabilities


661,464



760,915







 Shareholders' equity





 Common stock, $0.25 par; 64,000 shares authorized:





17,856 and 17,760 shares issued and outstanding as





of September 29, 2018 and September 30, 2017, respectively


4,464



4,440


 Additional paid-in capital


171,407



163,632


 Retained earnings


300,585



261,258


 Accumulated other comprehensive income (loss)


1,476



(553)


 Total shareholders' equity


477,932



428,777


 Total liabilities and shareholders' equity


$

1,139,396



$

1,189,692


 

 MTS SYSTEMS CORPORATION


Condensed Consolidated Statements of Cash Flows


 (unaudited - in thousands)













Three Months Ended


Twelve Months Ended



September 29,

 2018


September 30,

 2017


September 29,

 2018


September 30,

 2017










Cash Flows from Operating Activities









Net income


$

10,760



$

5,570



$

61,328



$

25,084


Adjustments to reconcile net income to net cash provided by (used in) operating activities









Stock-based compensation


1,905



1,675



7,283



5,600


Fair value adjustment to acquired inventory








7,975


Depreciation and amortization


8,634



10,093



34,492



35,523


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


(4,333)



458



(4,162)



733


Amortization of financing fees


820



1,668



4,644



4,366


Deferred income taxes


1,937



(4,728)



(28,252)



(9,127)


Other


1,215



1,055



3,338



3,698


Changes in operating assets and liabilities


(9,802)



3,458



(15,424)



(1,992)


Net Cash Provided by (Used in) Operating Activities


11,136



19,249



63,247



71,860











Cash Flows from Investing Activities









Purchases of property and equipment


(2,544)



(4,559)



(12,321)



(17,798)


Proceeds from sale of property and equipment


6,724





6,793



45


Other




147



823



(853)


Net Cash Provided by (Used in) Investing Activities


4,180



(4,412)



(4,705)



(18,606)











Cash Flows from Financing Activities









Payments on financing arrangements, net


(3,757)



(4,307)



(73,795)



(14,404)


Cash dividends


(5,402)



(5,103)



(21,360)



(20,079)


Proceeds from exercise of stock options and employee stock purchase plan


291



(1)



1,992



5,579


Payments to purchase and retire common stock


(97)



(133)



(1,403)



(1,785)


Net Cash Provided by (Used in) Financing Activities


(8,965)



(9,544)



(94,566)



(30,689)











Effect of Exchange Rate Changes on Cash and Cash Equivalents


(950)



1,820



(905)



1,388


Cash and Cash Equivalents









Increase (decrease) during the period


5,401



7,113



(36,929)



23,953


Balance, beginning of period


66,403



101,620



108,733



84,780


Balance, End of Period


$

71,804



$

108,733



$

71,804



$

108,733


 

Exhibit A

MTS SYSTEMS CORPORATION

Segment Financial Information

(unaudited - in thousands)














Three Months Ended




September 29,

 2018


September 30,

 2017


% Variance

Test Segment






Revenue

$

120,428



$

124,762



(3)%


Cost of sales

80,185



88,217



(9)%


Gross profit

40,243



36,545



10%


Gross margin

33.4%



29.3%










Operating expenses

33,795



34,715



(3)%








Income from operations

$

6,448



$

1,830



252%








Sensors Segment






Revenue

$

77,768



$

76,726



1%


Cost of sales

41,515



38,869



7%


Gross profit

36,253



37,857



(4)%


Gross margin

46.6%



49.3%










Operating expenses

26,896



27,178



(1)%








Income from operations

$

9,357



$

10,679



12%








Intersegment Eliminations






Revenue

$

(317)



$




Cost of sales

(313)






Gross profit

(4)












Income (loss) from operations

$

(4)



$










Total Company






Revenue

$

197,879



$

201,488



(2)%


Cost of sales

121,387



127,086



(4)%


Gross profit

76,492



74,402



3%


Gross margin

38.7%



36.9%










Operating expenses

60,691



61,893



(2)%








Income from operations

$

15,801



$

12,509



26%


 

Exhibit B

MTS SYSTEMS CORPORATION

Reconciliation of Earnings Per Share Excluding

Restructuring, Acquisition Integration and China Investigation Expenses

(unaudited - in thousands, except per share data)


















Three Months Ended


September 29, 2018


September 30, 2017


Pre-tax

Tax

Net


Pre-tax

Tax

Net

Net income

$

14,532


$

3,772


$

10,760



$

4,187


$

(1,383)


$

5,570


Restructuring expenses 1

1,387


357


1,030



3,043


737


2,306


Acquisition integration expenses2





622


127


495


China investigation expenses2





229


57


172


Adjusted net income3

$

15,919


$

4,129


$

11,790



$

8,081


$

(462)


$

8,543










Weighted average diluted common shares outstanding



19,363





19,222










Diluted earnings per share

$

0.75


$

0.19


$

0.56



$

0.22


$

(0.07)


$

0.29


Impact of restructuring expenses

0.07


0.02


0.05



0.16


0.04


0.12


Impact of acquisition integration expenses





0.03


0.01


0.02


Impact of China investigation expenses





0.01



0.01


Adjusted diluted earnings per share3

$

0.82


$

0.21


$

0.61



$

0.42


$

(0.02)


$

0.44












1 

In determining the tax impact of restructuring expenses, we applied the statutory rate in effect for each jurisdiction where restructuring expenses were incurred.  



In determining the tax impact of acquisition integration and China investigation 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 Integration,

Acquisition Inventory Fair Value Adjustment, China Investigation and Acquisition-Related Expenses

(unaudited - in thousands, except per share data)


















Twelve Months Ended


September 29, 2018


September 30, 2017


Pre-tax

Tax

Net


Pre-tax

Tax

Net

Net income

$

44,223


$

(17,105)


$

61,328



$

23,011


$

(2,073)


$

25,084


Restructuring expenses1

2,730


697


2,033



4,079


1,099


2,980


Acquisition integration expenses2





3,577


918


2,659


Acquisition inventory fair value adjustment2





7,975


2,066


5,909


China investigation expenses2





9,209


2,460


6,749


Acquisition-related expenses2






814


(814)


Adjusted net income3

$

46,953


$

(16,408)


$

63,361



$

47,851


$

5,284


$

42,567










Weighted average diluted common shares outstanding



19,293





19,137










Diluted earnings per share

$

2.29


$

(0.89)


$

3.18



$

1.20


$

(0.11)


$

1.31


Impact of restructuring expenses

0.14


0.04


0.10



0.21


0.06


0.15


Impact of acquisition integration expenses





0.19


0.05


0.14


Impact of acquisition inventory fair value adjustment





0.42


0.11


0.31


Impact of China investigation expenses





0.48


0.13


0.35


Impact of acquisition-related expenses






0.04


(0.04)


Adjusted diluted earnings per share3

$

2.43


$

(0.85)


$

3.28



$

2.50


$

0.28


$

2.22












1

In determining the tax impact of restructuring expenses, we applied the statutory rate in effect for each jurisdiction where restructuring expenses were incurred.  



2

In determining the tax impact of acquisition integration expenses, acquisition inventory fair value adjustment, China investigation expenses and 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


Twelve Months Ended


September 29,
2018


September 30,
2017


September 29,
2018


September 30,
2017

Net income

$

10,760



$

5,570



$

61,328



$

25,084


Income tax provision (benefit)

3,772



(1,383)



(17,105)



(2,073)


Interest expense, net

6,121



8,412



25,882



30,821


Depreciation and amortization

8,634



10,093



34,492



35,523


EBITDA1

29,287



22,692



104,597



89,355










Stock-based compensation

1,905



1,675



7,283



5,600


Restructuring expenses2

1,491



3,043



2,989



4,079


Acquisition integration expenses



622





3,577


Acquisition inventory fair value adjustment







7,975


China investigation expenses



229





9,209


Adjusted EBITDA1

$

32,683



$

28,261



$

114,869



$

119,795












1 

Denotes non-GAAP financial measures.  



2

Restructuring expenses were adjusted to exclude stock-based compensation forfeitures and depreciation expense that are otherwise included in the stock-based compensation line and depreciation and amortization line.  

 

Exhibit E

MTS SYSTEMS CORPORATION

Free Cash Flow

(unaudited - in thousands)


















Three Months Ended


Twelve Months Ended


September 29,
2018


September 30,
2017


September 29,
2018


September 30,
2017

Net Cash Provided by (Used in) Operating Activities

$

11,136



$

19,249



$

63,247



$

71,860


Purchases of property and equipment

(2,544)



(4,559)



(12,321)



(17,798)


Proceeds from sale of property and equipment

6,724





6,793



45


Free cash flow1

$

15,316



$

14,690



$

57,719



$

54,107




















1 

Denotes non-GAAP financial measures.  

 

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 measures.  



2 

Includes pre-tax forecast expenses for stock-based compensation, acquisition-related and restructuring expenses.  

 

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SOURCE MTS Systems Corporation

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