MTS Reports Fiscal 2019 Second Quarter Financial Results

EDEN PRAIRIE, Minn., May 6, 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 second quarter ended March 30, 2019.

SECOND QUARTER FINANCIAL AND OPERATING HIGHLIGHTS

• Revenue of $233.0 million, reflecting the highest revenue-producing quarter in the history of MTS, including record revenue in both Test & Simulation and Sensors
• GAAP diluted earnings per share of $0.73, an increase of $0.29 or 66% year-over-year
• Net income margins of 6.1% for the quarter, a year-over-year increase of 167 basis points
• Adjusted EBITDA margins of 16.1% for the quarter, a year-over-year increase of 172 basis points
• Backlog of $493.5 million, a year-over-year increase of 40%
• Declared 149th consecutive quarterly dividend

FINANCIAL TABLE

EXECUTIVE COMMENTARY - DR. JEFF GRAVES, PRESIDENT AND CHIEF EXECUTIVE OFFICER

"Our second quarter performance was strong on virtually all key metrics, as we continue to successfully execute on our growth, diversification and operational efficiency strategies. From a top-line perspective, we delivered over 21% revenue growth, supported by record revenues in both our Test & Simulation and Sensors businesses.

From a profitability perspective, we continue to focus intensely on our cost structure and operational efficiency initiatives, which contributed to a 68% increase in net income, with margins rising to 6.1% for the quarter, and a 36% increase in Adjusted EBITDA, equating to a margin of 16.1% for the quarter. This strong performance supported our continuing investments in the business, further deleveraging of our balance sheet and a continued return of cash to our shareholders through our dividend.

Given the volume and quality of the orders we experienced in the first half of our fiscal year and our significant backlog position, we remain confident in our ability to deliver on our strategy of growth and expanded profitability in fiscal year 2019 and beyond."

HIGHLIGHTS FOR THE 2019 SECOND FISCAL QUARTER

Revenue

Revenue was $233.0 million, up 21.8% compared to the same prior year period, driven by record revenue in Test & Simulation, which included equipment volume growth in all sectors, a full quarter contribution from the acquisition of E2M, which closed in the first quarter of fiscal year 2019, and continued growth in our Test services activities. Sensors experienced broad demand across all market sectors, as well as the initial ramp-up in volume associated with the U.S. Department of Defense contract, which combined to deliver a record revenue quarter for this business as well.

Orders

Test & Simulation orders for the quarter were $132.1 million, up 25.6% compared to the same prior year period, driven primarily by a large order in the ground vehicles sector of our Test & Simulation business, increased demand across the structures and simulation sectors, and strong growth in the Americas region.

Sensors orders for the quarter were $79.4 million, a 5.7% 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 and systems sectors, partially offset by solid demand in the Americas region of our Sensors position sector and orders growth in our Sensors industrial sector from a slight rebound in the energy market.

Backlog

Backlog remained very strong at $493.5 million, up 40.1% from the same prior year period. Sequentially from the first quarter of fiscal year 2019, backlog was down 4.1% from our all-time high of $514.7 million as we saw a high-level of conversion to revenue on outstanding projects within the quarter.

Earnings Before Taxes

Earnings before taxes of $17.1 million was up $6.9 million compared to the same prior year period. This earnings increase was driven by growth in Test & Simulation gross profit, partially offset by higher operating expenses in both businesses and $0.5 million acquisition inventory fair value adjustment related to the acquisition of E2M.

Net Income and Diluted Earnings Per Share

Diluted earnings per share was $0.73 compared to $0.44 in the same prior year period on net income of $14.2 million and $8.4 million, respectively. The $0.29 increase was primarily driven by growth in Test & Simulation gross profit. Second quarter of fiscal year 2019 results were impacted by $0.03 of non-recurring costs associated with the acquisition inventory fair value adjustment and acquisition-related expenses. Similarly, results for the second quarter of fiscal year 2018 include a $0.01 impact for non-recurring restructuring expense. Adjusting for these items, adjusted diluted earnings per share was $0.76 for the second quarter of fiscal 2019, and $0.45 for the same period in the prior year.

Adjusted EBITDA

Adjusted EBITDA grew to $37.6 million in the second quarter of fiscal year 2019, up 36.4% compared to the same prior year period and 24.8% sequentially from the first quarter of fiscal year 2019. This growth was primarily due to significantly higher Test & Simulation gross profit and a full quarter contribution from the acquisition of E2M, partially offset by higher operating expenses in both Test & Simulation and 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.

Capital Structure

During the quarter, our total debt balance decreased by $2.6 million. With a strong backlog and positive cash flow forecast, we expect to continue to pay down our debt, thus continuing to reduce our leverage ratio, between now and the end of fiscal year 2019.

Dividend

The Board of Directors declared a quarterly dividend of $0.30 per share. The dividend was payable on April 1, 2019 to shareholders of record as of the close of business on March 18, 2019. This was our 149th consecutive quarterly dividend.

OUTLOOK

Test & Simulation Business

Looking forward, our strong performance during the first half of fiscal year 2019 supports our positive outlook for our Test & Simulation business. From a revenue perspective, our near-record backlog at mid-year reflects strong sales 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 which are more resistant to damage from earthquakes, sea and storm events. In addition, the acquisition of E2M diversifies us further into flight simulation, entertainment and other advanced simulation markets that further expand our growth opportunities.

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

Strong demand in our Sensors business is anticipated to continue during fiscal year 2019 across all sectors, 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 of sensors for the U.S. military, is expected to provide double digit top-line growth for the second half of the fiscal year, along with Adjusted EBITDA margin expansion for the Sensors business for the remainder of fiscal year 2019.

Consolidated

Based on these factors, we are confident in our outlook for fiscal year 2019 and are maintaining our full year guidance as:

The above outlook includes:

• $8.5 million to $11.0 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; and
• An anticipated effective tax rate, excluding discrete tax items, of 15-18% for fiscal year 2019.

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 E and F of this earnings release, respectively.

SECOND QUARTER CONFERENCE CALL

As announced on April 22, 2019, a conference call will be held on May 7, 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, Senior Vice President and Chief Financial Officer, will host the call, which will include a question and answer session after prepared remarks.

Call toll free +1-800-667-5617 (international toll +1-334-323-0509) and reference the conference pass code 1389363. Telephone replay will be available at 1:00 p.m. ET following the call until 1:00 p.m. ET, May 14, 2019. Call toll free +1-888-203-1112 and reference the conference pass code 1389363.

A transcript of the call can also be accessed from the MTS website at http://investor.mts.com beginning on May 8, 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.

 

 

 

 

 

 

 

 

 

 

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SOURCE MTS Systems Corporation