MTS Reports Fiscal 2019 Third Quarter Financial Results

August 5, 2019 4:05 PM EDT

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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%.

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/mts-reports-fiscal-2019-third-quarter-financial-results-300896450.html

SOURCE MTS Systems Corporation



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