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MTS Reports Fiscal Year 2019 Fourth Quarter And Full Year Financial Results

EDEN PRAIRIE, Minn., Nov. 25, 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 fourth quarter and full year ended September 28, 2019.

MTS Systems Corporation. (PRNewsFoto/MTS Systems Corporation)

FULL YEAR FINANCIAL AND OPERATING HIGHLIGHTS

  • Record revenue of $892.5 million, an increase of 14.7%
  • GAAP diluted earnings per share of $2.21, a decrease of $0.97 or 30.5%
  • Adjusted diluted earnings per share of $2.44, a decrease of $0.84 or 25.6%
  • GAAP net income of $43.1 million, or 4.8%, a decrease of 29.8%
  • Record Adjusted EBITDA of $132.6 million, an increase of 15.4%
  • Declared 151st consecutive quarterly dividend

FINANCIAL TABLE


Three Months Ended


Twelve Months Ended

(in thousands, except per share data - unaudited)

September 28,

 2019


September 29,

 2018


September 28,

 2019


September 29,

 2018

Revenue

$

224,082



$

197,879



$

892,518



$

778,032


Revenue % increase (decrease)1

13.2

%


(1.8)

%


14.7

%


(1.3)

%

Gross margin

34.9

%


38.7

%


36.9

%


39.3

%

Operating margin

6.5

%


8.0

%


8.9

%


8.4

%

Earnings before taxes

$

4,150



$

14,532



$

48,613



$

44,223


Net income

4,821



10,760



43,067



61,328


Diluted earnings per share

0.25



0.56



2.21



3.18


Adjusted diluted earnings per share2

0.37



0.61



2.44



3.28


Adjusted EBITDA2

29,601



32,683



132,614



114,869


Cash and cash equivalents, end of period





57,937



71,804


Backlog, end of period





420,115



415,155


Total debt, end of period





512,617



388,378




1

Revenue growth rates in fiscal year 2019 reflect the acquisitions of E2M Technologies B.V. (E2M) that occurred on November 21, 2018 and Endevco that occurred on August 5, 2019.

2

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 executed very well this year on our growth and diversification strategy, delivering record revenue with double-digit top-line growth, along with adding two important simulation and sensing businesses to our company, E2M and Endevco. These acquisitions, in combination with our ongoing R&D investments, promise to bring exciting growth and profitability expansion to our company for years to come.

For fiscal year 2019, our Test & Simulation business drove top-line growth of over 20% compared to the prior year, with expansion to their operating margin. Our Sensors business delivered another record revenue performance with 7% growth and finished the year with a strong backlog that positions us for significant acceleration of growth in Sensors for fiscal year 2020. This top-line performance demonstrates the continued benefits of our diversification strategy, our success with new product introductions across all of our major end markets, and our ability to capitalize on rapidly expanding market opportunities in our Sensors business.

While we are excited about our top-line momentum, we continue to focus on our cost structure and in driving operational efficiencies in both businesses. These efforts contributed to a net income margin of 4.8% for the year and a 15.4% increase in Adjusted EBITDA, equating to an Adjusted EBITDA margin of 14.9% for the year. This solid performance supports our continued investments in new product development, diversification, and capital structure optimization, all while returning cash to our shareholders through our quarterly dividend.

As we enter our new fiscal year, we are excited about the resilience of our markets, our record year-end backlog, which topped $420 million, and the customer reception to our new product offerings. Looking ahead, we continue to target quality order replenishment to further expand our backlog and to drive operating efficiencies that underpin our growth and margin expansion during fiscal year 2020."

HIGHLIGHTS FOR THE 2019 FOURTH FISCAL QUARTER

Revenue

Revenue was $224.1 million, up 13.2% compared to the same prior year period, driven by continued revenue growth in Test & Simulation, which included revenue from the acquisition of E2M which closed in the first quarter of fiscal year 2019. The quarter also benefited from equipment volume growth in the materials and structures sectors and growth in Test services. Sensors experienced strong revenue growth driven in part by the continued ramp-up in volume associated with our U.S. Department of Defense contract and the addition of revenue from the acquisition of Endevco which closed during the fourth quarter of fiscal year 2019, slightly offset by weakness in the European region in our Sensors position sector.

Orders

Test orders during the quarter were $116.6 million, a 17.1% decrease compared to the same prior year period driven primarily by a large order in our Test structures sector in the prior year, delays in orders from the uncertainty surrounding potential tariffs and weakness in the Americas region. This decline was partially offset by the addition of orders from the acquisition of E2M and growth in our Test ground vehicles sector.

Sensors orders during the quarter were $90.2 million, representing a 6.4% decrease over the same prior year period. This decline was primarily driven by timing differences related to when orders from our U.S. Department of Defense contract were funded in fiscal year 2019 versus fiscal year 2018 and weakness in the European region specific to our Sensors position sector. This decrease was offset by a large order in our Sensors test sector and the addition of orders from the acquisition of Endevco.

Net Income and Diluted Earnings Per Share

Diluted earnings per share was $0.25 compared to $0.56 during the same prior year period on net income of $4.8 million and $10.8 million, respectively. The $0.31 decrease was primarily driven by the $4.6 million gain recognized on the sale of one of our China manufacturing facilities in the prior year. During fiscal year 2019, we also had higher interest expense from our increased debt position as a result of the issuance of our senior unsecured notes in the fourth quarter of fiscal year 2019, along with the acceleration of debt amortization cost from the pay down on the term loan B facility, a reduction in Test & Simulation gross profit and acquisition-related costs. The decrease was partially offset by leverage from higher Sensors revenue growth and a lower effective tax rate.

Fourth quarter results were impacted by $0.12 of non-recurring costs associated with acquisition-related expenses, restructuring / other expenses and the Endevco acquisition inventory fair value adjustment. Similarly, results for the fourth quarter of fiscal year 2018 include $0.05 of restructuring expenses. Adjusting for these items, adjusted diluted earnings per share was $0.37 for the fourth quarter of fiscal year 2019 and $0.61 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 was $29.6 million, down 9.4% compared to the same prior year period. The decline was primarily due to the $4.6 million gain recognized on the sale of one of our China manufacturing facilities in the prior year. During fiscal year 2019, we also had a decrease in Test & Simulation gross profit and higher Sensors operating expenses, partially offset by higher Sensors gross profit and contributions from the acquisitions of E2M and Endevco. 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 increased by $50.1 million to $512.6 million due to our increased debt position as a result of the issuance of our senior unsecured notes, partially offset by the pay down of our term loan B and settlement of the tangible equity units. We ended the quarter with $57.9 million of cash, resulting in a net debt balance of $454.7 million. For fiscal year 2019, our ratio of interest-bearing debt to Adjusted EBITDA was 4.0 and our ratio of net interest-bearing debt to Adjusted EBITDA was 3.5.

Dividend

The Board of Directors declared a quarterly dividend of $0.30 per share. The dividend was payable on September 30, 2019 to shareholders of record as of the close of business on September 16, 2019. This was our 151st consecutive quarterly dividend.

HIGHLIGHTS FOR THE 2019 FULL FISCAL YEAR

Revenue

Revenue was $892.5 million, up 14.7% compared to the prior year, driven by record revenue in Test & Simulation, which included equipment volume growth in all sectors and geographies, along with revenue contributions from the acquisition of E2M and continued growth in Test services. Sensors also experienced record revenue driven by the continued ramp-up in volume associated with our U.S. Department of Defense contract, growth in our Sensors position sector during the first half of fiscal year 2019, growth in the Sensors industrial sector from a continued rebound in the energy market and contributions from the acquisition of Endevco.

Orders

Test orders for the fiscal year were $477.6 million, a 3.5% decrease compared to the prior year, driven predominantly by weakness in the Asia region due to uncertainty surrounding potential tariffs. This decrease was partially offset by orders contribution from the acquisition of E2M. Our orders performance does not reflect the full impact of a new Test & Simulation 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 $4.3 million of the full $30.4 million order, inclusive of options, for this new test system in fiscal year 2019.

Sensors orders for the fiscal year were a record $344.5 million, a 2.5% increase compared to the prior year. This strength was driven by a larger order in our Sensors test sector, the addition of orders from the acquisition of Endevco, solid demand in the Americas region particularly in our Sensors position sector and orders growth in our Sensors industrial sector from a continued rebound in the energy market, partially offset by weakness in the European region.

Backlog

Backlog of $420.1 million was up 1.2% compared to the same prior year period primarily driven by the addition of backlog from the E2M and Endevco acquisitions, along with strong full year Sensors orders. The increase was partially offset by the high level of conversion to revenue on outstanding projects, along with a lower order volume in Test & Simulation. Ending backlog for Test & Simulation and Sensors was $342.7 million and $77.5 million, respectively.

Net Income and Diluted Earnings Per Share

Diluted earnings per share was $2.21 compared to $3.18 in the prior year on net income of $43.1 million and $61.3 million, respectively. The $0.97 decrease was primarily due to certain discrete tax benefits of $25.0 million for the estimated impact of the Tax Cuts and Jobs Act and the gain on the sale of one of our China manufacturing facilities both recognized in the prior year. During fiscal year 2019, we also had increased operating expenses, higher interest expense, acquisition inventory fair value adjustments and acquisition-related and restructuring / other expenses. The decline was partially offset by growth in both segments and the additional contributions from the E2M and Endevco acquisitions.

Fiscal year 2019 results were impacted by $0.23 of non-recurring costs associated with acquisition-related expenses, restructuring / other expenses and the E2M and Endevco acquisition inventory fair value adjustments. Similarly, results for fiscal year 2018 include $0.10 of restructuring expenses. Adjusting for these items, adjusted diluted earnings per share was $2.44 for fiscal year 2019 and $3.28 for the prior year. The current year adjusted earnings per share amount includes $0.18 for certain discrete tax items compared to $1.30 included in the prior year primarily related to the impacts of the Tax Cuts and Jobs Act. 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 C of this earnings release.

Adjusted EBITDA

Adjusted EBITDA was $132.6 million compared to $114.9 million in the prior year, up $17.7 million. This increase was primarily due to the strong revenue growth in both segments and additional contributions from the E2M and Endevco acquisitions, partially offset by higher operating expenses and the prior year gain recognized on the 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 & Simulation Business

Our performance for fiscal year 2019 sets us up for future growth in our Test & Simulation business. Future orders growth from strength in our simulation platforms, material testing and service offerings is expected to temper the headwinds experienced in the global economy. Overall, we anticipate challenges across all sectors stemming from a general weakening of the global economy, uncertainties surrounding tariffs and technology disruptions in the transportation market. We continue to benefit from 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 simulation market continues to benefit from increased demand for pilot training and rapid theme park expansions, which fits nicely with our expanded product offerings.

In addition to these growth opportunities, we continue to invest in operational efficiency initiatives to improve profitability, and to develop new products and technologies to drive margin expansion and to generate the highest demand for Test & Simulation products and services in the coming years.

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. The strategic acquisition of Endevco brings together two iconic brands in the test and measurement sensors market, PCB and Endevco, providing for further growth opportunities. This combination of positive factors, including full production ramp-up associated with our U.S. Department of Defense contract and acquisition of Endevco, is anticipated to provide double digit top-line growth, along with Adjusted EBITDA margin expansion, for the Sensors business in fiscal year 2020. This growth outlook is particularly encouraging given the headwinds we continue to expect in the European and Asia regions, driven in part from uncertainties arising from potential trade tariffs, as well as overall sluggish regional economic performance.

Consolidated

Based on these factors, we introduce our expected outlook for fiscal year 2020 including:

Metric


Current Outlook

Revenue


$955 million to $995 million

Adjusted EBITDA


$138 million to $158 million

Diluted earnings per share


$2.05 to $2.35

Adjusted diluted earnings per share


$2.20 to $2.55

The above outlook includes:

  • $12.0 million to $16.0 million for stock-based compensation, acquisition-related and restructuring expenses;
  • Our most recent acquisition of Endevco sensors business;
  • Our signing of the definitive agreement to purchase the six operating entities of R&D with an anticipated deal closure by December 31, 2019, subject to normal and customary closing procedures. If the deal does not close within our expected timeline, this could cause us to update our fiscal year 2020 guidance; and
  • An anticipated effective tax rate, excluding discrete tax items, of 15-19% for fiscal year 2020.

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 11, 2019, a conference call will be held on November 26, 2019 (tomorrow), at 10:00 a.m. ET (9:00 a.m. CT). Dr. Jeff Graves, President and Chief Executive Officer, and Brian 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 +1-800-367-2403 (international toll +1-334-777-6978) and reference the conference pass code 1642275. Telephone replay will be available at 1:00 p.m. ET following the call until 1:00 p.m. ET, December 2, 2019. Call toll free +1-888-203-1112 and reference the conference pass code 1642275.

A transcript of the call can also be accessed from the MTS website at http://investor.mts.com beginning on November 27, 2019.

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 3,500 employees as of September 28, 2019 and revenue of $893 million for the fiscal year ended September 28, 2019. Additional information on MTS can be found at www.mts.com.

NON-GAAP FINANCIAL MEASURES

We believe that disclosing adjusted diluted earnings per share, which is diluted earnings per share excluding the impact from restructuring / other expenses, acquisition-related expenses, acquisition integration expenses and acquisition inventory fair value adjustments 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 / other expenses, acquisition-related expenses, acquisition integration expenses and acquisition inventory fair value adjustments 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 / other expenses, acquisition-related expenses, acquisition integration expenses and acquisition inventory fair value adjustments (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 / other expenses, acquisition-related expenses, acquisition integration expenses and acquisition inventory fair value adjustments 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


Twelve Months Ended


September 28,

 2019


September 29,

 2018


September 28,

 2019


September 29,

 2018









Revenue








Product

$

194,716



$

171,046



$

782,012



$

674,391


Service

29,366



26,833



110,506



103,641


Total revenue

224,082



197,879



892,518



778,032


Cost of sales








Product

126,464



104,716



494,725



409,525


Service

19,446



16,671



68,863



62,978


Total cost of sales

145,910



121,387



563,588



472,503


Gross profit

78,172



76,492



328,930



305,529


Gross margin

34.9

%


38.7

%


36.9

%


39.3

%









Operating expenses








Selling and marketing

32,834



31,537



131,639



126,333


General and administrative

22,854



20,605



86,658



79,240


Research and development

7,920



8,549



30,928



34,784


Total operating expenses

63,608



60,691



249,225



240,357










Income from operations

14,564



15,801



79,705



65,172


Operating margin

6.5

%


8.0

%


8.9

%


8.4

%









Interest expense, net

(10,685)



(6,121)



(31,558)



(25,882)


Other income (expense), net

271



4,852



466



4,933










Income before income taxes

4,150



14,532



48,613



44,223


Income tax provision (benefit)

(671)



3,772



5,546



(17,105)


Net income

$

4,821



$

10,760



$

43,067



$

61,328










Earnings per share








 Basic








Earnings per share

$

0.25



$

0.56



$

2.24



$

3.20


Weighted average common shares outstanding

19,268



19,206



19,258



19,163










 Diluted








Earnings per share

$

0.25



$

0.56



$

2.21



$

3.18


Weighted average common shares outstanding

19,519



19,363



19,447



19,293










Dividends declared per share

$

0.30



$

0.30



$

1.20



$

1.20


 

 MTS SYSTEMS CORPORATION

 Condensed Consolidated Balance Sheets

 (unaudited - in thousands)






September 28,

 2019


September 29,

 2018





 ASSETS








 Current assets




 Cash and cash equivalents

$

57,937



$

71,804


 Accounts receivable, net

121,260



122,243


 Unbilled accounts receivable, net

80,331



70,474


 Inventories, net

167,199



139,109


 Other current assets

23,761



24,572


 Total current assets

450,488



428,202






 Property and equipment, net

101,083



90,269






 Goodwill

429,039



369,275


 Intangible assets, net

306,585



246,138


 Other long-term assets

10,782



5,512


 Total assets

$

1,297,977



$

1,139,396






 LIABILITIES AND SHAREHOLDERS' EQUITY








 Current liabilities




 Current maturities of long-term debt, net

$

27,969



$

32,738


 Accounts payable

46,849



47,886


 Advance payments from customers

70,520



80,131


 Other accrued liabilities

106,238



78,358


 Total current liabilities

251,576



239,113






 Long-term debt, less current maturities

484,648



355,640


 Other long-term liabilities

77,694



66,711


 Total liabilities

813,918



661,464






Shareholders' equity




Common stock, $0.25 par; 64,000 shares authorized: 19,124 and 17,856 shares issued and outstanding as of September 28, 2019 and September 29, 2018, respectively

4,781



4,464


Additional paid-in capital

182,422



171,407


Retained earnings

315,329



300,585


Accumulated other comprehensive income (loss)

(18,473)



1,476


 Total shareholders' equity

484,059



477,932


 Total liabilities and shareholders' equity

$

1,297,977



$

1,139,396


 

 MTS SYSTEMS CORPORATION

Condensed Consolidated Statements of Cash Flows

 (unaudited - in thousands)










Three Months Ended


Twelve Months Ended


September 28,

 2019


September 29,

 2018


September 28,

 2019


September 29,

 2018









Cash Flows from Operating Activities








Net income

$

4,821



$

10,760



$

43,067



$

61,328


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








Stock-based compensation

2,099



1,905



9,397



7,283


Fair value adjustment to acquired inventory

460





1,601




Depreciation and amortization

9,822



8,634



37,975



34,492


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

890



(4,333)



1,442



(4,162)


Amortization of financing fees

3,958



820



6,765



4,644


Deferred income taxes

(9,630)



1,937



(11,060)



(28,252)


Other

770



1,215



2,227



3,338


Changes in operating assets and liabilities

10,303



(9,802)



(17,951)



(15,424)


Net Cash Provided by (Used in) Operating Activities

23,493



11,136



73,463



63,247










Cash Flows from Investing Activities








Purchases of property and equipment

(13,148)



(2,544)



(30,525)



(12,321)


Proceeds from sale of property and equipment



6,724



10



6,793


Purchases of business, net of acquired cash

(68,430)





(151,956)




Other





(285)



823


Net Cash Provided by (Used in) Investing Activities

(81,578)



4,180



(182,756)



(4,705)










Cash Flows from Financing Activities








Proceeds from issuance of long-term debt

350,000





430,391




Payments on financing arrangements, net

(303,956)



(3,757)



(313,177)



(73,795)


Cash dividends

(5,614)



(5,402)



(21,713)



(21,360)


Proceeds from exercise of stock options and employee stock purchase plan

1,738



291



3,435



1,992


Payments to purchase and retire common stock

(149)



(97)



(1,533)



(1,403)


Net Cash Provided by (Used in) Financing Activities

42,019



(8,965)



97,403



(94,566)










Effect of Exchange Rate Changes on Cash and Cash Equivalents

(1,732)



(950)



(1,977)



(905)


Cash and Cash Equivalents








Increase (decrease) during the period

(17,798)



5,401



(13,867)



(36,929)


Balance, beginning of period

75,735



66,403



71,804



108,733


Balance, End of Period

$

57,937



$

71,804



$

57,937



$

71,804


 

Exhibit A

MTS SYSTEMS CORPORATION

Segment Financial Information

(unaudited - in thousands)


















Three Months Ended


Twelve Months Ended


September 28,

 2019


September 29,

 2018


September 28,
2019


September 29,

 2018

Test & Simulation Segment








Revenue

$

133,988



$

120,428



$

558,908



$

464,924


Cost of sales

97,683



80,185



391,493



314,735


Gross profit

36,305



40,243



167,415



150,189


Gross margin

27.1

%


33.4

%


30.0

%


32.3

%









Operating expenses

33,664



33,795



133,335



130,964










Income from operations

$

2,641



$

6,448



$

34,080



$

19,225










Sensors Segment








Revenue

$

90,420



$

77,768



$

334,976



$

314,269


Cost of sales

48,550



41,515



173,466



158,896


Gross profit

41,870



36,253



161,510



155,373


Gross margin

46.3

%


46.6

%


48.2

%


49.4

%









Operating expenses

29,944



26,896



115,890



109,393










Income from operations

$

11,926



$

9,357



$

45,620



$

45,980










Intersegment Eliminations








Revenue

$

(326)



$

(317)



$

(1,366)



$

(1,161)


Cost of sales

(323)



(313)



(1,371)



(1,128)


Gross profit

(3)



(4)



5



(33)










Income (loss) from operations

$

(3)



$

(4)



$

5



$

(33)










Total Company








Revenue

$

224,082



$

197,879



$

892,518



$

778,032


Cost of sales

145,910



121,387



563,588



472,503


Gross profit

78,172



76,492



328,930



305,529


Gross margin

34.9

%


38.7

%


36.9

%


39.3

%









Operating expenses

63,608



60,691



249,225



240,357










Income from operations

$

14,564



$

15,801



$

79,705



$

65,172


 

Exhibit B

MTS SYSTEMS CORPORATION

Reconciliation of Earnings Per Share Excluding

Restructuring / Other, Acquisition-Related and Acquisition Inventory Fair Value Adjustments

(unaudited - in thousands, except per share data)


















Three Months Ended


September 28, 2019


September 29, 2018


Pre-tax

Tax

Net


Pre-tax

Tax

Net

Net income

$

4,150


$

(671)


$

4,821



$

14,532


$

3,772


$

10,760


Restructuring / other expenses 1

700


162


538



1,387


357


1,030


Acquisition-related expenses2

1,805


379


1,426






Acquisition inventory fair value adjustments1

460


97


363






Adjusted net income3

$

7,115


$

(33)


$

7,148



$

15,919


$

4,129


$

11,790










Weighted average diluted common shares outstanding



19,519





19,363










Diluted earnings per share

$

0.21


$

(0.04)


$

0.25



$

0.75


$

0.19


$

0.56


Impact of restructuring / other expenses

0.04


0.01


0.03



0.07


0.02


0.05


Impact of acquisition-related expenses

0.09


0.02


0.07






Impact of acquisition inventory fair value adjustments

0.02



0.02






Adjusted diluted earnings per share3

$

0.36


$

(0.01)


$

0.37



$

0.82


$

0.21


$

0.61











1

In determining the tax impact of restructuring / other 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 to these expenses.










3

Denotes non-GAAP financial measure.

 

Exhibit C

MTS SYSTEMS CORPORATION

Reconciliation of Earnings Per Share Excluding

Restructuring / Other, Acquisition-Related and Acquisition Inventory Fair Value Adjustments



















Twelve Months Ended


September 28, 2019


September 29, 2018


Pre-tax

Tax

Net


Pre-tax

Tax

Net

Net income

$

48,613


$

5,546


$

43,067



$

44,223


$

(17,105)


$

61,328


Restructuring / other expenses1

830


195


635



2,730


697


2,033


Acquisition-related expenses2

2,938


617


2,321






Acquisition inventory fair value adjustments1

1,601


269


1,332






Adjusted net income3

$

53,982


$

6,627


$

47,355



$

46,953


$

(16,408)


$

63,361










Weighted average diluted common shares outstanding



19,447





19,293










Diluted earnings per share

$

2.50


$

0.29


$

2.21



$

2.29


$

(0.89)


$

3.18


Impact of restructuring / other expenses

0.04


0.01


0.03



0.14


0.04


0.10


Impact of acquisition-related expenses

0.15


0.02


0.13






Impact of acquisition inventory fair value adjustments

0.08


0.01


0.07






Adjusted diluted earnings per share3

$

2.77


$

0.33


$

2.44



$

2.43


$

(0.85)


$

3.28











1

In determining the tax impact of restructuring / other 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 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 28,
2019


September 29,
2018


September 28,
2019


September 29,
2018

Net income

$

4,821



$

10,760



$

43,067



$

61,328


Net income margin

2.2

%


5.4

%


4.8

%


7.9

%









Income tax provision (benefit)

(671)



3,772



5,546



(17,105)


Interest expense, net

10,685



6,121



31,558



25,882


Depreciation and amortization

9,822



8,634



37,975



34,492


EBITDA 1

24,657



29,287



118,146



104,597










Stock-based compensation

2,099



1,905



9,397



7,283


Restructuring / other expenses 2

700



1,491



830



2,989


Acquisition-related expenses 3

1,685





2,640




Acquisition inventory fair value adjustments

460





1,601




Adjusted EBITDA 1

$

29,601



$

32,683



$

132,614



$

114,869


Adjusted EBITDA margin 1,4

13.2

%


16.5

%


14.9

%


14.8

%










1

Denotes non-GAAP financial measures.










2

Restructuring / other 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.










3

Acquisition-related expenses include acquisition and integration expenses associated with the E2M and Endevco acquisitions. They were adjusted to exclude stock-based compensation that is otherwise included in the stock-based compensation line.










4

Adjusted EBITDA was divided by revenue to calculate Adjusted EBITDA margin.

 

Exhibit E

MTS SYSTEMS CORPORATION

Free Cash Flow

(unaudited - in thousands)


















Three Months Ended


Twelve Months Ended


September 28,
2019


September 29,
2018


September 28,
2019


September 29,
2018

Net Cash Provided by (Used in) Operating Activities

$

23,493



$

11,136



$

73,463



$

63,247


Purchases of property and equipment

(13,148)



(2,544)



(30,525)



(12,321)


Proceeds from sale of property and equipment



6,724



10



6,793


Free cash flow1

$

10,345



$

15,316



$

42,948



$

57,719




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


October 3, 2020


Low


High

Net income

$

40,300



$

46,200


Income tax provision (benefit)1

8,700



11,000


Interest expense, net

35,100



37,200


Depreciation and amortization

41,900



47,600


EBITDA2

126,000



142,000






Stock-based compensation and non-recurring expenses3

12,000



16,000


Adjusted EBITDA2

$

138,000



$

158,000







1

Applied anticipated tax rate, excluding discrete tax items, of approximately 15-19%.






2

Denotes non-GAAP financial measures.






3

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

 

Exhibit G

MTS SYSTEMS CORPORATION

Reconciliation of Diluted Earnings per Share and Adjusted Diluted Earnings per Share - Outlook

(unaudited - in thousands)










Twelve Months Ending


October 3, 2020


Low


High

Net income1

$

40,300



$

46,200


Non-recurring expenses, net of tax 2, 3

3,000



4,000


Adjusted net income4

$

43,300



$

50,200






Weighted average diluted common shares outstanding

19,700



19,700






Diluted earnings per share

$

2.05



$

2.35


Impact of non-recurring expenses2

0.15



0.20


Adjusted diluted earnings per share4

$

2.20



$

2.55







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, net of tax.






3

Applied anticipated tax rate, excluding discrete tax items, of approximately 15-19%.






4

Denotes non-GAAP financial measures.

 

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SOURCE MTS Systems Corporation

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