EDEN PRAIRIE, Minn.,
May 4, 2020 /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 2020 second quarter ended
March 28, 2020.
SECOND QUARTER FINANCIAL AND OPERATING HIGHLIGHTS
- Record orders of $277.4 million,
an increase of 31.1%, reflecting record orders in both our Test
& Simulation and Sensors Business Units
- Backlog strong at $500.1 million,
an increase of 1.4% over prior year
- Revenue of $211.5 million, a
decline of 9.3%
- Sensors revenue growth of 4.6%
- GAAP diluted loss per share of $(0.06), reflecting the impact of the
restructuring actions taken amidst economic uncertainty
- Adjusted diluted earnings per share of $0.27, including $0.26 of amortization expense
FINANCIAL
TABLE
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
(in thousands, except
per share data - unaudited)
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
Revenue
|
$
|
211,463
|
|
|
$
|
233,046
|
|
|
$
|
417,306
|
|
|
$
|
436,227
|
|
Revenue % increase
(decrease)
|
(9.3)
|
%
|
|
21.8
|
%
|
|
(4.3)
|
%
|
|
13.2
|
%
|
Gross
margin
|
33.7
|
%
|
|
37.5
|
%
|
|
35.4
|
%
|
|
38.0
|
%
|
Operating
margin
|
3.8
|
%
|
|
10.4
|
%
|
|
5.5
|
%
|
|
9.7
|
%
|
Earnings (loss)
before taxes
|
$
|
(1,069)
|
|
|
$
|
17,076
|
|
|
$
|
5,386
|
|
|
$
|
28,273
|
|
Net income
(loss)
|
(1,071)
|
|
|
14,160
|
|
|
4,235
|
|
|
24,661
|
|
Diluted earnings
(loss) per share
|
(0.06)
|
|
|
0.73
|
|
|
0.22
|
|
|
1.27
|
|
Adjusted diluted
earnings per share1
|
0.27
|
|
|
0.76
|
|
|
0.64
|
|
|
1.36
|
|
Adjusted
EBITDA1
|
31,527
|
|
|
37,554
|
|
|
61,154
|
|
|
67,656
|
|
Cash and cash
equivalents, end of period
|
66,582
|
|
|
74,122
|
|
|
|
|
|
Backlog, end of
period
|
500,135
|
|
|
493,468
|
|
|
|
|
|
Total debt, end of
period
|
600,592
|
|
|
464,420
|
|
|
|
|
|
|
|
1
|
Refer to the
"Non-GAAP Financial Measures" section below for discussion of the
calculation of these non-GAAP financial measures.
|
EXECUTIVE COMMENTARY - DR. JEFFREY
GRAVES, PRESIDENT AND CHIEF EXECUTIVE OFFICER
"As we confront the ongoing effects of the global COVID-19
pandemic, we are focused on protecting the well-being of our
employees and continuing to service our long-standing customer base
while managing our cash, maximizing liquidity, and reducing our
cost infrastructure. Despite the pandemic's impact, we achieved
record orders in the second quarter in both our Test &
Simulation and Sensors businesses and a near-record backlog.
Notably, our Test & Simulation segment was awarded the largest
order in MTS history for an advanced seismic simulation system in
China, valued at over $70 million. These results demonstrate the
mission-critical nature of our offering and our customers'
long-term commitment to new product development.
Towards the end of the quarter, we saw softer demand as the
pandemic forced many customers to temporarily shut down their
operations and delay orders. Additionally, temporary closures of
some of our facilities as well as government restrictions on
cross-border access created logistical delays and further limited
our employees' access to customers. Nevertheless, as an
essential critical infrastructure business, we are continuing to
serve clients in the U.S. and in other parts of the world as
permissible.
We continue to act decisively to mitigate COVID-19's impact on
our business. While the decision to restructure the business and
reduce costs was difficult, we completed these initiatives rapidly
to improve operating efficiencies and strengthen our financial
position. We took further short-term cost actions, including
implementing furloughs, extending paid time-off, and reducing work
schedules, to address the immediate effects of the virus' impact on
our customers, our suppliers and our internal operations. We
suspended our dividend to maximize liquidity, helping ensure that
we are able to meet our financial obligations while continuing to
make the most critical investments in our business.
We remain confident we will emerge from this crisis stronger
owing to our highly diverse customer base, our broad geographic
footprint, and the critical nature of the MTS product portfolio
relative to the markets we serve. While the duration and scale of
COVID-19's economic impact remains unknown, we believe companies
globally will continue to prioritize R&D over the long-term and
that we are uniquely positioned to shorten their development cycles
and decrease their costs, supporting their product development and
ultimately their success."
HIGHLIGHTS FOR THE 2020 SECOND FISCAL QUARTER
Revenue
Revenue was $211.5 million, down
9.3% compared to the same prior year period, driven by a decline in
Test & Simulation, partially offset by growth in Sensors. Test
& Simulation revenue decreased primarily due to a decline in
volume from the continued weakness in our ground vehicles sector
and lower service volume, which was negatively impacted by COVID-19
due to the closure of customer sites. The decline was partially
offset by contributions from the acquisition of the R&D
entities in Denmark (R&D) of
$14.7 million, which was completed
early in the second quarter, and volume growth in our structures
sector. Sensors experienced continued revenue growth primarily
driven by strong global demand in our test sector, which included
continued U.S. Department of Defense volume growth and the addition
of Endevco, which closed during the fourth quarter of fiscal year
2019. Sensors growth was partially offset by weakness in the other
three Sensors sectors driven largely by COVID-19.
Orders
Test & Simulation orders for the quarter were a record at
$176.5 million, up 33.6% compared to
the same prior year period. This performance was primarily driven
by the award of the largest order in MTS history for an advanced
seismic simulation system in China, valued at over $70 million, and the addition of wind energy
orders from the acquisition of R&D. The increase was partly
offset by lower orders in our ground vehicles sector, materials
sector and services reflecting the global impact of COVID-19.
Sensors orders for the quarter were $100.9 million, a 27.1% increase compared to the
same prior year period primarily driven by additional funding
associated with the U.S. Department of Defense, the addition of
orders from the acquisition of Endevco and growth in our systems
sector. The increase was partially offset by continued weakness in
our position and industrial sectors, primarily in Europe.
Backlog
Backlog of $500.1 million, the
second highest in MTS history, was up 1.4% compared to the same
prior year period. Sequentially, from the first quarter of fiscal
year 2020, backlog was up 26.3% driven by the record orders
performance in both of our business units. Ending backlog for Test
& Simulation and Sensors was $412.1
million and $88.0 million,
respectively.
Net Income and Diluted Earnings Per Share
GAAP diluted earnings (loss) per share was $(0.06) compared to $0.73 in the same prior year period on net income
(loss) of $(1.1) million and
$14.2 million, respectively. The
$0.79 decrease was primarily driven
by a decline in Test & Simulation gross profit from depressed
revenue volume reflecting the impact of COVID-19, higher
restructuring costs from actions taken in the second quarter to
manage and reduce operating costs, lower Sensors gross profit from
unfavorable product mix, higher interest expense on increased debt
levels and slightly higher operating expenses in Sensors mainly
from the acquisition of Endevco. The decline was partially offset
by lower compensation expense in both businesses from cost
containment measures and a reduction in the effective tax rate.
Second quarter of fiscal year 2020 and 2019 results include
$0.33 and $0.03, respectively, of non-recurring costs
associated with restructuring actions taken in the second quarter
of fiscal year 2020, and acquisition-related expenses and
acquisition inventory fair value adjustment from the acquisitions
of R&D in the second quarter of fiscal year 2020 and E2M and
Endevco in the first and fourth quarters of fiscal year 2019,
respectively. Adjusting for these items, adjusted diluted earnings
per share was $0.27 for the second
quarter of fiscal 2020, and $0.76 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 Exhibits B and C of this earnings
release. Our diluted earnings per share and adjusted earnings per
share include the amortization of purchased intangible assets of
$0.26 and $0.18 for the three-months ended March 28,
2020 and March 30, 2019, respectively. We incurred pre-tax
amortization expense of $6.3 million
($5.0 million post-tax) and
$4.4 million ($3.5 million post-tax) for the three-months ended
March 28, 2020 and March 30, 2019, respectively, in
relation to companies that we have acquired.
Adjusted EBITDA
Adjusted EBITDA declined to $31.5
million in the second quarter of fiscal year 2020, down
16.0% compared to the same prior year period. This decrease was
primarily due to a decline in Test & Simulation gross profit
from lower revenue volumes reflecting the impact of COVID-19,
unfavorable Sensors product mix and higher Sensors operating
expenses mainly from the acquisition of Endevco. The decline was
partially offset by lower compensation expense in both businesses
and cost containment measures. 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.
Coronavirus 2019 (COVID-19) Pandemic
The global spread of COVID-19 has created significant
volatility, uncertainty and economic disruption. As an essential
critical infrastructure business, we have continued to operate in
the U.S. and plan to continue to operate in other parts of the
world as permitted. Restrictions on our employees' ability to
access our customers and the temporary closures of our facilities
or the facilities of our customers negatively impacted our sales
and operating results for the second quarter of fiscal year 2020.
We anticipate these challenges to continue to negatively impact our
fiscal year 2020 revenue and operating results. The future impact
COVID-19 will have on our business, operations and financial
results is unknown at this time, and we are unable to
accurately quantify the impact due to the significant global
economic uncertainty. In response, we continue to right-size our
operations and manage short-term business risk to allow for
bottom-line improvement through the execution of cost savings
initiatives previously communicated.
Cost Reductions and Restructuring Actions
Although we believe our financial position is strong, given the
level of economic uncertainty, our cost reduction actions provide
an increased level of flexibility during these challenging times.
We expect to incur total restructuring charges of approximately
$8 million to $12 million, which includes approximately
$7.0 million to $10.6 million for the reorganization of our Test
& Simulation European operations previously announced, during
fiscal year 2020 and fiscal year 2021 based on notice period
requirements, of which $6.1 million
was incurred and recognized in the second quarter of fiscal year
2020. These cost reductions are permanent changes to our business
and were focused at reorganization efforts to more efficiently
service our customers. We expect these actions to yield annual cost
savings exceeding $10 million once
fully implemented by the end of fiscal year 2020.
Additionally, we have implemented temporary, incremental cost
reduction measures that will provide for further short-term
flexibility and will remain in place until we begin to see marked
improvement in the markets we serve. These temporary measures will
save at least $5 million through the
end of fiscal year 2020.
Our combined permanent restructuring actions and temporary cost
reduction measures will reduce our expense infrastructure exceeding
$10 million through the end of fiscal
year 2020. While we expect these actions will be sufficient to
provide the needed flexibility to weather the current economic
environment, we continue to evaluate the ongoing impact of COVID-19
and may need to take further cost reduction actions or other
actions in the future.
Balance Sheet and Liquidity Estimates
During the quarter, our total debt balance increased by
$59.9 million to $600.6 million, due to the closing of the
acquisition of the R&D entities in Denmark. We ended the quarter with
$66.6 million of cash on the balance
sheet, leading to a net debt balance of $534.0 million. The ratio of interest-bearing
debt to Adjusted EBITDA and the ratio of net interest-bearing debt
to Adjusted EBITDA remain in full compliance with the debt covenant
levels specified in our debt agreements and debt maturities not
occurring until July 2023 and
August 2027.
"Our liquidity position remains sound, with over $100M including cash and undrawn credit available
through our revolving facility. We continue to maintain a
constructive dialogue with lenders and are confident in our ability
to access additional capital if needed to preserve the near-term
strength of the business and make critical investments to position
us for future growth opportunities," stated Brian Ross, Executive Vice President and Chief
Financial Officer.
Dividend Suspension
During the second quarter of fiscal year 2020, the Board of
Directors declared a quarterly dividend of $0.30 per
share. The dividend was paid on March 30, 2020 to
shareholders of record as of the close of business on March 16, 2020. As previously announced on
April 16, 2020, we are suspending our
quarterly dividend of $0.30 per
share, equating to approximately $23.0
million in annualized cash payments. The suspension of our
dividend helps us maximize our liquidity for the foreseeable future
as we face uncertain economic times. Our Board of Directors remains
committed to maximizing value to shareholders in the most efficient
and effective way possible and will consider future dividends and
share repurchases as the economic landscape and visibility
improves.
Guidance Suspension
Consistent with our announcement on April
16, 2020, given the continued uncertainties in the business
environment, we remain unable to accurately predict the specific
extent, or duration, of the impact of COVID-19 on our financial
results. As a result, financial guidance has been withdrawn for
fiscal year 2020.
SECOND QUARTER CONFERENCE CALL
As announced on April 21, 2020, a
conference call will be held on May 5,
2020 (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 +1-800-367-2403 (international toll
+1-334-777-6978) and reference the conference pass code 3918217.
The conference call replay will be available at 1:00 p.m. ET following the call until
1:00 p.m. ET, May 12, 2020. Call toll free +1-888-203-1112 and
reference the conference pass code 3918217.
A transcript of the call can also be accessed from the MTS
website at
http://investor.mts.com/events-and-presentations/presentations beginning
on May 6, 2020.
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 3,500 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 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 and E 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, statements about the impact of COVID-19 and
related economic uncertainty, 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, the
currently-unknown impact of COVID-19 and related economic
uncertainty and 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
|
|
Six Months
Ended
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
Product
|
$
|
183,223
|
|
|
$
|
206,690
|
|
|
$
|
362,081
|
|
|
$
|
381,769
|
|
Service
|
28,240
|
|
|
26,356
|
|
|
55,225
|
|
|
54,458
|
|
Total
revenue
|
211,463
|
|
|
233,046
|
|
|
417,306
|
|
|
436,227
|
|
Cost of
sales
|
|
|
|
|
|
|
|
Product
|
121,206
|
|
|
129,579
|
|
|
232,845
|
|
|
237,746
|
|
Service
|
19,016
|
|
|
16,117
|
|
|
36,611
|
|
|
32,826
|
|
Total cost of
sales
|
140,222
|
|
|
145,696
|
|
|
269,456
|
|
|
270,572
|
|
Gross
profit
|
71,241
|
|
|
87,350
|
|
|
147,850
|
|
|
165,655
|
|
Gross
margin
|
33.7
|
%
|
|
37.5
|
%
|
|
35.4
|
%
|
|
38.0
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling and
marketing
|
30,131
|
|
|
33,395
|
|
|
62,850
|
|
|
65,484
|
|
General and
administrative
|
25,997
|
|
|
22,105
|
|
|
47,690
|
|
|
43,183
|
|
Research and
development
|
7,143
|
|
|
7,676
|
|
|
14,182
|
|
|
14,848
|
|
Total operating
expenses
|
63,271
|
|
|
63,176
|
|
|
124,722
|
|
|
123,515
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
7,970
|
|
|
24,174
|
|
|
23,128
|
|
|
42,140
|
|
Operating
margin
|
3.8
|
%
|
|
10.4
|
%
|
|
5.5
|
%
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
Interest income
(expense), net
|
(8,857)
|
|
|
(7,368)
|
|
|
(17,129)
|
|
|
(14,186)
|
|
Other income
(expense), net
|
(182)
|
|
|
270
|
|
|
(613)
|
|
|
319
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes
|
(1,069)
|
|
|
17,076
|
|
|
5,386
|
|
|
28,273
|
|
Income tax
provision
|
2
|
|
|
2,916
|
|
|
1,151
|
|
|
3,612
|
|
Net income
(loss)
|
$
|
(1,071)
|
|
|
$
|
14,160
|
|
|
$
|
4,235
|
|
|
$
|
24,661
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
Earnings (loss)
per share
|
$
|
(0.06)
|
|
|
$
|
0.74
|
|
|
$
|
0.22
|
|
|
$
|
1.28
|
|
Weighted
average common shares outstanding
|
19,193
|
|
|
19,251
|
|
|
19,169
|
|
|
19,234
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
Earnings (loss)
per share
|
$
|
(0.06)
|
|
|
$
|
0.73
|
|
|
$
|
0.22
|
|
|
$
|
1.27
|
|
Weighted
average common shares outstanding
|
19,361
|
|
|
19,441
|
|
|
19,361
|
|
|
19,393
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
MTS SYSTEMS
CORPORATION
|
Condensed
Consolidated Balance Sheets
|
(unaudited - in
thousands)
|
|
|
|
|
|
March 28,
2020
|
|
September 28,
2019
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
|
66,582
|
|
|
$
|
57,937
|
|
Accounts
receivable, net
|
122,207
|
|
|
121,260
|
|
Unbilled accounts
receivable, net
|
82,274
|
|
|
80,331
|
|
Inventories,
net
|
180,191
|
|
|
167,199
|
|
Prepaid expenses and
other current assets
|
28,331
|
|
|
23,761
|
|
Total current
assets
|
479,585
|
|
|
450,488
|
|
|
|
|
|
Property and
equipment, net
|
101,856
|
|
|
101,083
|
|
Goodwill
|
465,411
|
|
|
429,039
|
|
Intangible
assets, net
|
344,351
|
|
|
306,585
|
|
Other long-term
assets
|
32,645
|
|
|
10,782
|
|
Total
assets
|
$
|
1,423,848
|
|
|
$
|
1,297,977
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
Short-term
borrowings
|
$
|
32,000
|
|
|
$
|
—
|
|
Current
maturities of long-term debt, net
|
2,818
|
|
|
27,969
|
|
Accounts
payable
|
59,107
|
|
|
46,849
|
|
Advance
payments from customers
|
67,323
|
|
|
70,520
|
|
Other accrued
liabilities
|
99,140
|
|
|
106,238
|
|
Total current
liabilities
|
260,388
|
|
|
251,576
|
|
|
|
|
|
Long-term debt,
less current maturities, net
|
565,774
|
|
|
484,648
|
|
Other long-term
liabilities
|
116,008
|
|
|
77,694
|
|
Total
liabilities
|
942,170
|
|
|
813,918
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
Common stock,
$0.25 par; 64,000 shares authorized:
|
|
|
|
19,188 and 19,124
shares issued and outstanding as
|
|
|
|
of March 28, 2020 and
September 28, 2019, respectively
|
4,797
|
|
|
4,781
|
|
Additional
paid-in capital
|
187,551
|
|
|
182,422
|
|
Retained
earnings
|
308,055
|
|
|
315,329
|
|
Accumulated
other comprehensive income (loss)
|
(18,725)
|
|
|
(18,473)
|
|
Total
shareholders' equity
|
481,678
|
|
|
484,059
|
|
Total
liabilities and shareholders' equity
|
$
|
1,423,848
|
|
|
$
|
1,297,977
|
|
MTS SYSTEMS
CORPORATION
|
Condensed
Consolidated Statements of Cash Flows
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
|
|
|
|
|
|
|
Cash Flows from
Operating Activities
|
|
|
|
|
|
|
|
Net income
|
$
|
(1,071)
|
|
|
$
|
14,160
|
|
|
$
|
4,235
|
|
|
$
|
24,661
|
|
Adjustments to
reconcile net income to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
Stock-based
compensation
|
2,928
|
|
|
2,895
|
|
|
5,095
|
|
|
4,689
|
|
Fair value adjustment
to acquired inventory
|
600
|
|
|
539
|
|
|
1,140
|
|
|
984
|
|
Depreciation
|
6,407
|
|
|
5,105
|
|
|
12,069
|
|
|
10,249
|
|
Amortization
|
6,270
|
|
|
4,403
|
|
|
11,055
|
|
|
8,219
|
|
Accretion of
contingent consideration
|
456
|
|
|
—
|
|
|
456
|
|
|
—
|
|
(Gain) loss on sale
or disposal of property and equipment
|
438
|
|
|
349
|
|
|
1,050
|
|
|
510
|
|
Amortization of debt
issuance costs
|
577
|
|
|
1,039
|
|
|
1,444
|
|
|
2,099
|
|
Deferred income
taxes
|
827
|
|
|
15
|
|
|
893
|
|
|
(1,243)
|
|
Other
|
(240)
|
|
|
659
|
|
|
(238)
|
|
|
1,087
|
|
Changes in operating
assets and liabilities
|
(14,028)
|
|
|
(9,126)
|
|
|
(39,778)
|
|
|
(20,586)
|
|
Net Cash Provided
by (Used in) Operating Activities
|
3,164
|
|
|
20,038
|
|
|
(2,579)
|
|
|
30,669
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Investing Activities
|
|
|
|
|
|
|
|
Purchases of property
and equipment
|
(5,709)
|
|
|
(5,576)
|
|
|
(16,281)
|
|
|
(9,349)
|
|
Proceeds from sale of
property and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Purchases of
business, net of acquired cash
|
(48,104)
|
|
|
(3,794)
|
|
|
(48,104)
|
|
|
(81,826)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
(285)
|
|
Net Cash Provided
by (Used in) Investing Activities
|
(53,813)
|
|
|
(9,370)
|
|
|
(64,385)
|
|
|
(91,450)
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Financing Activities
|
|
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
58,576
|
|
|
—
|
|
|
58,576
|
|
|
80,391
|
|
(Payments on)
proceeds from financing arrangements, net
|
718
|
|
|
(2,664)
|
|
|
28,783
|
|
|
(6,783)
|
|
Cash
dividends
|
(5,747)
|
|
|
(5,365)
|
|
|
(11,486)
|
|
|
(10,724)
|
|
Proceeds from
exercise of stock options and employee stock purchase
plan
|
590
|
|
|
663
|
|
|
631
|
|
|
701
|
|
Payments to purchase
and retire common stock
|
(38)
|
|
|
(42)
|
|
|
(873)
|
|
|
(398)
|
|
Net Cash Provided
by (Used in) Financing Activities
|
54,099
|
|
|
(7,408)
|
|
|
75,631
|
|
|
63,187
|
|
|
|
|
|
|
|
|
|
Effect of Exchange
Rate Changes on Cash and Cash Equivalents
|
(939)
|
|
|
424
|
|
|
(22)
|
|
|
(88)
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
in cash and cash equivalents during the period
|
2,511
|
|
|
3,684
|
|
|
8,645
|
|
|
2,318
|
|
Cash and cash
equivalents balance, beginning of period
|
64,071
|
|
|
70,438
|
|
|
57,937
|
|
|
71,804
|
|
Cash and cash
equivalents balance, end of period
|
$
|
66,582
|
|
|
$
|
74,122
|
|
|
$
|
66,582
|
|
|
$
|
74,122
|
|
Exhibit
A
|
MTS SYSTEMS
CORPORATION
|
Segment Financial
Information
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
Test &
Simulation Segment
|
|
|
|
|
|
|
|
Revenue
|
$
|
125,497
|
|
|
$
|
151,032
|
|
|
$
|
246,227
|
|
|
$
|
276,592
|
|
Cost of
sales
|
92,388
|
|
|
103,742
|
|
|
176,148
|
|
|
189,757
|
|
Gross
profit
|
33,109
|
|
|
47,290
|
|
|
70,079
|
|
|
86,835
|
|
Gross
margin
|
26.4
|
%
|
|
31.3
|
%
|
|
28.5
|
%
|
|
31.4
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
33,914
|
|
|
34,606
|
|
|
63,888
|
|
|
66,820
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
$
|
(805)
|
|
|
$
|
12,684
|
|
|
$
|
6,191
|
|
|
$
|
20,015
|
|
|
|
|
|
|
|
|
|
Sensors
Segment
|
|
|
|
|
|
|
|
Revenue
|
$
|
86,198
|
|
|
$
|
82,375
|
|
|
$
|
171,733
|
|
|
$
|
160,325
|
|
Cost of
sales
|
48,062
|
|
|
42,301
|
|
|
93,961
|
|
|
81,492
|
|
Gross
profit
|
38,136
|
|
|
40,074
|
|
|
77,772
|
|
|
78,833
|
|
Gross
margin
|
44.2
|
%
|
|
48.6
|
%
|
|
45.3
|
%
|
|
49.2
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
29,357
|
|
|
28,570
|
|
|
60,834
|
|
|
56,695
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
$
|
8,779
|
|
|
$
|
11,504
|
|
|
$
|
16,938
|
|
|
$
|
22,138
|
|
|
|
|
|
|
|
|
|
Intersegment
Eliminations
|
|
|
|
|
|
|
|
Revenue
|
$
|
(232)
|
|
|
$
|
(361)
|
|
|
$
|
(654)
|
|
|
$
|
(690)
|
|
Cost of
sales
|
(228)
|
|
|
(347)
|
|
|
(653)
|
|
|
(677)
|
|
Gross
profit
|
(4)
|
|
|
(14)
|
|
|
(1)
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
$
|
(4)
|
|
|
$
|
(14)
|
|
|
$
|
(1)
|
|
|
$
|
(13)
|
|
|
|
|
|
|
|
|
|
Total
Company
|
|
|
|
|
|
|
|
Revenue
|
$
|
211,463
|
|
|
$
|
233,046
|
|
|
$
|
417,306
|
|
|
$
|
436,227
|
|
Cost of
sales
|
140,222
|
|
|
145,696
|
|
|
269,456
|
|
|
270,572
|
|
Gross
profit
|
71,241
|
|
|
87,350
|
|
|
147,850
|
|
|
165,655
|
|
Gross
margin
|
33.7
|
%
|
|
37.5
|
%
|
|
35.4
|
%
|
|
38.0
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
63,271
|
|
|
63,176
|
|
|
124,722
|
|
|
123,515
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
$
|
7,970
|
|
|
$
|
24,174
|
|
|
$
|
23,128
|
|
|
$
|
42,140
|
|
Exhibit
B
|
MTS SYSTEMS
CORPORATION
|
Reconciliation of
Adjusted Diluted Earnings Per Share
|
(unaudited - in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Pre-Tax
|
Tax
|
Net
|
|
Pre-Tax
|
Tax
|
Net
|
Net income
(loss)
|
$
|
(1,069)
|
|
$
|
2
|
|
$
|
(1,071)
|
|
|
$
|
17,076
|
|
$
|
2,916
|
|
$
|
14,160
|
|
Restructuring
expenses 1
|
6,138
|
|
1,788
|
|
4,350
|
|
|
—
|
|
—
|
|
—
|
|
Acquisition-related
expenses 1
|
1,878
|
|
409
|
|
1,469
|
|
|
262
|
|
55
|
|
207
|
|
Acquisition inventory
fair value adjustment 1
|
600
|
|
126
|
|
474
|
|
|
539
|
|
81
|
|
458
|
|
Adjusted net income
2
|
$
|
7,547
|
|
$
|
2,325
|
|
$
|
5,222
|
|
|
$
|
17,877
|
|
$
|
3,052
|
|
$
|
14,825
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted common shares outstanding
|
|
|
19,361
|
|
|
|
|
19,441
|
|
|
|
|
|
|
|
|
|
Diluted earnings
(loss) per share
|
$
|
(0.06)
|
|
$
|
—
|
|
$
|
(0.06)
|
|
|
$
|
0.88
|
|
$
|
0.15
|
|
$
|
0.73
|
|
Impact of
restructuring expenses
|
0.32
|
|
0.10
|
|
0.22
|
|
|
—
|
|
—
|
|
—
|
|
Impact of
acquisition-related expenses
|
0.11
|
|
0.02
|
|
0.09
|
|
|
0.01
|
|
—
|
|
0.01
|
|
Impact of acquisition
inventory fair value adjustment
|
0.03
|
|
0.01
|
|
0.02
|
|
|
0.03
|
|
0.01
|
|
0.02
|
|
Adjusted diluted
earnings per share2
|
$
|
0.40
|
|
$
|
0.13
|
|
$
|
0.27
|
|
|
$
|
0.92
|
|
$
|
0.16
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
1 In determining the tax
impact of restructuring expenses, acquisition-related expenses and
acquisition inventory fair value adjustment, we applied the
statutory rate in effect for each jurisdiction where the expenses
were incurred.
|
|
2 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Pre-Tax
|
Tax
|
Net
|
|
Pre-Tax
|
Tax
|
Net
|
Net income
|
$
|
5,386
|
|
$
|
1,151
|
|
$
|
4,235
|
|
|
$
|
28,273
|
|
$
|
3,612
|
|
$
|
24,661
|
|
Restructuring
expenses 1
|
6,138
|
|
1,788
|
|
4,350
|
|
|
130
|
|
33
|
|
97
|
|
Acquisition-related
expenses 1
|
3,624
|
|
775
|
|
2,849
|
|
|
1,035
|
|
217
|
|
818
|
|
Acquisition inventory
fair value adjustment 1
|
1,140
|
|
239
|
|
901
|
|
|
984
|
|
148
|
|
836
|
|
Adjusted net income
2
|
$
|
16,288
|
|
$
|
3,953
|
|
$
|
12,335
|
|
|
$
|
30,422
|
|
$
|
4,010
|
|
$
|
26,412
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted common shares outstanding
|
|
|
19,361
|
|
|
|
|
19,393
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
0.28
|
|
$
|
0.06
|
|
$
|
0.22
|
|
|
$
|
1.46
|
|
$
|
0.19
|
|
$
|
1.27
|
|
Impact of
restructuring expenses
|
0.32
|
|
0.10
|
|
0.22
|
|
|
0.01
|
|
—
|
|
0.01
|
|
Impact of
acquisition-related expenses
|
0.19
|
|
0.04
|
|
0.15
|
|
|
0.05
|
|
0.01
|
|
0.04
|
|
Impact of acquisition
inventory fair value adjustment
|
0.06
|
|
0.01
|
|
0.05
|
|
|
0.05
|
|
0.01
|
|
0.04
|
|
Adjusted diluted
earnings per share2
|
$
|
0.85
|
|
$
|
0.21
|
|
$
|
0.64
|
|
|
$
|
1.57
|
|
$
|
0.21
|
|
$
|
1.36
|
|
|
|
|
|
|
|
|
|
|
1 In determining the tax
impact of restructuring expenses, acquisition-related expenses and
acquisition inventory fair value adjustment, we applied the
statutory rate in effect for each jurisdiction where the expenses
were incurred.
|
|
2 Denotes non-GAAP financial
measure.
|
Exhibit
D
|
MTS SYSTEMS
CORPORATION
|
Reconciliation of
EBITDA and Adjusted EBITDA
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
Net income
(loss)
|
$
|
(1,071)
|
|
|
$
|
14,160
|
|
|
$
|
4,235
|
|
|
$
|
24,661
|
|
Net income
margin
|
(0.5)
|
%
|
|
6.1
|
%
|
|
1.0
|
%
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
Income tax
provision
|
2
|
|
|
2,916
|
|
|
1,151
|
|
|
3,612
|
|
Interest expense,
net
|
8,857
|
|
|
7,368
|
|
|
17,129
|
|
|
14,186
|
|
Depreciation
|
6,407
|
|
|
5,105
|
|
|
12,069
|
|
|
10,249
|
|
Amortization
|
6,270
|
|
|
4,403
|
|
|
11,055
|
|
|
8,219
|
|
EBITDA
1
|
20,465
|
|
|
33,952
|
|
|
45,639
|
|
|
60,927
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
2,928
|
|
|
2,895
|
|
|
5,095
|
|
|
4,689
|
|
Restructuring
expenses
|
6,138
|
|
|
—
|
|
|
6,138
|
|
|
130
|
|
Acquisition-related
expenses 2
|
1,396
|
|
|
168
|
|
|
3,142
|
|
|
926
|
|
Acquisition inventory
fair value adjustment
|
600
|
|
|
539
|
|
|
1,140
|
|
|
984
|
|
Adjusted EBITDA
1
|
$
|
31,527
|
|
|
$
|
37,554
|
|
|
$
|
61,154
|
|
|
$
|
67,656
|
|
Adjusted EBITDA
margin 1,3
|
14.9
|
%
|
|
16.1
|
%
|
|
14.7
|
%
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
1 Denotes non-GAAP financial
measure.
|
|
2
Acquisition-related expenses were adjusted to exclude
stock-based compensation that is otherwise included in the
stock-based compensation line and interest expense that is
otherwise included in the interest expense, net line.
|
|
3
Adjusted EBITDA was divided by revenue when calculating
the Adjusted EBITDA margin.
|
Exhibit
E
|
MTS SYSTEMS
CORPORATION
|
Reconciliation of
Free Cash Flow
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
Net Cash Provided by
(Used in) Operating Activities
|
$
|
3,164
|
|
|
$
|
20,038
|
|
|
$
|
(2,579)
|
|
|
$
|
30,669
|
|
Purchases of property
and equipment
|
(5,709)
|
|
|
(5,576)
|
|
|
(16,281)
|
|
|
(9,349)
|
|
Proceeds from sale of
property and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Free cash
flow1
|
$
|
(2,545)
|
|
|
$
|
14,462
|
|
|
$
|
(18,860)
|
|
|
$
|
21,330
|
|
|
|
|
|
|
|
|
|
|
1 Denotes non-GAAP financial
measure.
|
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SOURCE MTS Systems Corporation