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MTS Reports Fiscal 2019 Third Quarter Financial Results

EDEN PRAIRIE, Minn., Aug. 5, 2019 /PRNewswire/ -- MTS Systems Corporation (Nasdaq: MTSC), a leading global supplier of high-performance test systems, motion simulators and sensors, today reported financial results for its fiscal year 2019 third quarter ended June 29, 2019.

MTS Systems Corporation. (PRNewsFoto/MTS Systems Corporation)

THIRD QUARTER FINANCIAL AND OPERATING HIGHLIGHTS

  • Revenue of $232.2 million, an increase of 19%
  • GAAP diluted earnings per share of $0.70, an increase of $0.23 or 49%
  • Net income margin of 5.9%, an increase of 124 basis points
  • Adjusted EBITDA margin of 15.2%, an increase of 96 basis points
  • Backlog of $443.3 million, an increase of 17%
  • 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.



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 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.

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.

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.

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.

FORWARD-LOOKING STATEMENTS

This earnings release contains "forward-looking statements" made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from historical results and those presently anticipated or projected. Statements made under the heading "Outlook" are forward-looking statements, and words such as "may," "will," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions identify forward-looking statements in other parts of this earnings release. Such statements include, but are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions, statements about the opportunities and outlook for our Sensors and Test & Simulation sectors and other statements that are not historical facts. These statements are based on our current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. Risks, uncertainties and assumptions that could cause our actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those described in the "Risk Factors" section of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") and updated in any subsequent Quarterly Reports on Form 10-Q and other filings with the SEC. The reports referenced above are available on our website at www.mts.com or on the SEC's website at www.sec.gov. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances.

 

 MTS SYSTEMS CORPORATION

 Consolidated Statements of Income

 (unaudited - in thousands, except per share data)










Three Months Ended


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 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 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


 

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

%

 

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.

 

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.

 

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.

 

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.

 

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.

 

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%.

 

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SOURCE MTS Systems Corporation

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