EDEN PRAIRIE,
Minn., Aug. 3, 2020 /PRNewswire/ -- MTS
Systems Corporation (Nasdaq: MTSC), a leading global supplier of
advanced test systems, motion simulators and precision sensors,
today reported financial results for its fiscal year 2020 third
quarter ended June 27, 2020.
THIRD QUARTER FINANCIAL AND OPERATING
HIGHLIGHTS
- Positive operating cash flow of $16.0 million
- Backlog of $451.4 million,
an increase of 1.8% over prior year
- Revenue of $196.2 million,
a decline of 15.5% over prior year, reflecting the global impact of
the COVID-19 pandemic
- GAAP diluted earnings per share of $0.23, including $0.08 of discrete tax benefits
- Adjusted diluted earnings per share of $0.44, including $0.26 of amortization expense
- Subsequent to quarter end, amended revolving credit
facility to enhance operating and financial flexibility
FINANCIAL TABLE
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in thousands, except
per share data - unaudited)
|
June 27,
2020
|
|
June 29,
2019
|
|
June 27,
2020
|
|
June 29,
2019
|
Revenue
|
$
|
196,225
|
|
|
$
|
232,209
|
|
|
$
|
613,531
|
|
|
$
|
668,436
|
|
Revenue % increase
(decrease)
|
(15.5)
|
%
|
|
19.3
|
%
|
|
(8.2)
|
%
|
|
15.2
|
%
|
Gross
margin
|
33.4
|
%
|
|
36.6
|
%
|
|
34.8
|
%
|
|
37.5
|
%
|
Operating
margin
|
6.4
|
%
|
|
9.9
|
%
|
|
5.8
|
%
|
|
9.7
|
%
|
Earnings before
taxes
|
$
|
3,351
|
|
|
$
|
16,190
|
|
|
$
|
8,737
|
|
|
$
|
44,463
|
|
Net income
|
4,389
|
|
|
13,585
|
|
|
8,624
|
|
|
38,246
|
|
Diluted earnings per
share
|
0.23
|
|
|
0.70
|
|
|
0.45
|
|
|
1.97
|
|
Adjusted diluted
earnings per share1
|
0.44
|
|
|
0.71
|
|
|
1.08
|
|
|
2.07
|
|
Adjusted
EBITDA1
|
28,800
|
|
|
35,357
|
|
|
89,954
|
|
|
103,013
|
|
Cash and cash
equivalents, end of period
|
65,073
|
|
|
75,735
|
|
|
|
|
|
Backlog, end of
period
|
451,435
|
|
|
443,271
|
|
|
|
|
|
Total debt, end of
period
|
595,096
|
|
|
462,516
|
|
|
|
|
|
|
|
1
|
Refer to the
"Non-GAAP Financial Measures" section below for discussion of the
calculation of these non-GAAP financial measures.
|
EXECUTIVE COMMENTARY - RANDY J.
MARTINEZ, INTERIM PRESIDENT AND CHIEF EXECUTIVE
OFFICER
"During my first two months as MTS' Interim President and
Chief Executive Officer, I have seen firsthand the critical role we
play in building global infrastructure, supporting decarbonization
efforts, and driving success for our customers. I am inspired by
how our employees have continued this vital work during the last
quarter despite the global pandemic.
Throughout the third quarter, we acted decisively to
mitigate COVID-19's impact on our business. We strengthened our
financial position through restructuring and cost reduction
initiatives, temporary curtailments in cash compensation for our
Board of Directors and senior executives, and the suspension of
dividend payments. More recently, we amended our revolving credit
facility to maximize our liquidity position under our current
capital structure. Importantly, we executed these initiatives while
maintaining a safe work environment for our employees and business
continuity for our customers.
We experienced softer demand as the pandemic forced many
customers to temporarily shut down their operations and delay
orders. This was partially offset by top-line contributions from
our recent acquisition of the R&D entities in Denmark, which have shown strong momentum
since the transaction was completed early in the second quarter of
fiscal year 2020.
As we look to the fourth quarter, we expect to sustain our
performance sequentially while recognizing improvements in our
order profile. Despite continuing challenges posed by the pandemic,
we remain confident that our differentiated technology,
industry-leading engineering, deep customer relationships, global
footprint and strong talent pool will drive future
growth.
Our top priority remains protecting the well-being of our
employees while providing a high-quality service to our valued
customers. I am committed to executing on our strategic initiatives
and returning MTS to strong profitability."
HIGHLIGHTS FOR THE 2020 THIRD FISCAL
QUARTER
Revenue
Revenue was $196.2 million,
down 15.5% compared to the same prior year period, due to declines
in Test & Simulation and Sensors. Both businesses were
negatively impacted by COVID-19 due to the closure of customer
sites, travel restrictions and delayed customer spending. Test
& Simulation revenue decreased primarily due to a decline in
volume from softness in our ground vehicles and materials sectors,
coupled with lower service volume. The decline was partially offset
by top-line contributions from the acquisition of the R&D
entities in Denmark (R&D) of
$14.1 million, which was completed
early in the second quarter of fiscal year 2020. Sensors revenue
declined due to softness in all sectors except our test sector,
which included the addition of Endevco, which closed during the
fourth quarter of fiscal year 2019, and continued U.S. Department
of Defense volume growth. Importantly, we had no material
cancellations of orders or backlog in the third quarter.
Orders
Test & Simulation orders for the quarter were
$80.9 million, down 22.1% compared to
the same prior year period primarily driven by lower orders in our
ground vehicles sector and lower services orders reflecting the
global impact of COVID-19. The decrease was partly offset by the
addition of wind energy orders from the acquisition of
R&D.
Sensors orders for the quarter were $70.3 million, down 8.5% compared to the same
prior year period primarily driven by lower orders in our position,
industrial and systems sectors reflecting the global impact of
COVID-19. The decrease was partially offset by growth in our test
sector primarily driven by additional funding associated with the
U.S. Department of Defense and the addition of orders from the
acquisition of Endevco.
Backlog
Backlog remained strong at $451.4
million, which reflects an increase of 1.8% compared to the
same prior year period. Sequentially, from the second quarter of
fiscal year 2020, backlog was down 9.7% driven by revenue realized
during the third quarter outpacing order bookings. Ending backlog
for Test & Simulation and Sensors was $373.3 million and $78.1
million, respectively.
Net Income and Diluted Earnings Per
Share
GAAP diluted earnings per share was $0.23 compared to $0.70 in the same prior year period on net income
of $4.4 million and $13.6 million, respectively. The $0.47 decrease was primarily driven by a decline
in gross profit as the result of lower revenue volume in both
businesses reflecting the impact of COVID-19. Additionally, we had
higher Test & Simulation restructuring costs from actions taken
in the second and third quarters of fiscal year 2020 to manage and
reduce operating costs, higher interest expense on increased debt
levels, the R&D contingent consideration fair value adjustment
and higher acquisition-related costs due to the R&D and Endevco
acquisitions. The decline was partially offset by lower
compensation expense in both businesses, cost containment measures
and a reduction in the effective tax rate which includes
$0.08 of discrete tax benefits in the
third quarter of fiscal year 2020.
Third quarter of fiscal year 2020 and 2019 results include
$0.21 and $0.01, respectively, of non-recurring costs
associated with restructuring actions taken in fiscal year 2020,
the R&D contingent consideration fair value adjustment,
acquisition-related expenses, and E2M and Endevco acquisition
inventory fair value adjustments. R&D was acquired early in the
second quarter of fiscal year 2020, and E2M and Endevco were
acquired in the first and fourth quarters of fiscal year 2019,
respectively. Adjusting for these items, adjusted diluted earnings
per share was $0.44 for the third
quarter of fiscal 2020, and $0.71 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 diluted
earnings per share include the amortization of purchased intangible
assets of $0.26 and $0.18 for the third quarter of fiscal year 2020
and 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 third quarter of fiscal year 2020
and 2019, respectively, in relation to companies that we have
acquired.
Adjusted EBITDA
Adjusted EBITDA declined to $28.8
million in the third quarter of fiscal year 2020, down 18.5%
compared to the same prior year period. The decrease was primarily
driven by a decline in gross profit from lower revenue in both
businesses reflecting the impact of COVID-19, partially offset by
lower compensation expense 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
Update
The COVID-19 pandemic continues to create significant
volatility, uncertainty and economic disruption resulting in an
adverse impact on all facets of our business. We have taken swift
action to mitigate impact and solidify our financial position. We
are currently operating in all markets we serve as permitted, and
our production capacity continues to recover as jurisdictions ease
work restrictions throughout the world. However, restrictions on
our employees' ability to access our customers, temporary closures
of customer facilities and delays in customer spending have
negatively impacted our sales and operating results for the third
quarter of fiscal year 2020. Given the evolving nature of the
pandemic, at this time, we cannot forecast with reasonable accuracy
the pace of recovery across our end markets during the fourth
quarter.
Cost Reductions and Restructuring
Actions
As mentioned in our second quarter earnings release, we
have taken swift cost reduction actions to provide an increased
level of flexibility during these challenging times. We previously
stated that we expect to realize at a minimum $10.0 million in cost savings from these actions
in the second half of fiscal year 2020 and we have met or slightly
exceeded the savings target for the third quarter of fiscal year
2020. We expect to see at least the same amount for the fourth
quarter of fiscal year 2020 allowing us to achieve or slightly
exceed our overall target of $10.0
million in cost savings.
Balance Sheet and Liquidity
During the quarter, our total debt balance decreased
$5.5 million to $595.1 million as we continue to pay-down our
outstanding debt balance. We ended the quarter with $65.1 million of cash on the balance sheet,
leading to a net debt balance of $530.0
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. On July 30,
2020, subsequent to quarter end, we amended our revolving
credit facility to provide operational and financial flexibility as
we navigate COVID-19 and continued macroeconomic
uncertainty.
"Our recently amended credit facility has allowed us to
nearly double our total liquidity position to approximately
$180 million before considering any
letters of credit," said Brian Ross,
Executive Vice President and Chief Financial Officer. "Our
financial position is sound, further supported by free cash flow
generation during the third quarter. We remain focused on our
financial priorities, including maximizing liquidity and
effectively managing our cost infrastructure, and we will continue
to engage our lenders to support our financial flexibility to
navigate the near-term environment and position us to return to
growth as the market recovery takes hold."
THIRD QUARTER CONFERENCE CALL
As announced on July 20,
2020, a conference call will be held on August 4, 2020 (tomorrow), at 11:00 a.m. ET (10:00 a.m.
CT). Randy J. Martinez,
Interim 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 8588209.
The conference call replay will be available at 1:00 p.m. ET following the call until
1:00 p.m. ET, August 11, 2020. Call toll free +1-888-203-1112
and reference the conference pass code 8588209.
A transcript of the call can also be accessed from the MTS
website at
http://investor.mts.com/events-and-presentations/presentations beginning
on August 5, 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. Words such as
"may," "will," "should," "expects," "intends," "projects," "plans,"
"believes," "estimates," "targets," "anticipates," and similar
expressions identify forward-looking statements in 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
|
|
Nine Months
Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
|
June 27,
2020
|
|
June 29,
2019
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
Product
|
$
|
175,223
|
|
|
$
|
205,528
|
|
|
$
|
537,304
|
|
|
$
|
587,297
|
|
Service
|
21,002
|
|
|
26,681
|
|
|
76,227
|
|
|
81,139
|
|
Total
revenue
|
196,225
|
|
|
232,209
|
|
|
613,531
|
|
|
668,436
|
|
Cost of
sales
|
|
|
|
|
|
|
|
Product
|
116,491
|
|
|
130,514
|
|
|
349,336
|
|
|
368,260
|
|
Service
|
14,239
|
|
|
16,592
|
|
|
50,850
|
|
|
49,418
|
|
Total cost of
sales
|
130,730
|
|
|
147,106
|
|
|
400,186
|
|
|
417,678
|
|
Gross
profit
|
65,495
|
|
|
85,103
|
|
|
213,345
|
|
|
250,758
|
|
Gross
margin
|
33.4
|
%
|
|
36.6
|
%
|
|
34.8
|
%
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling and
marketing
|
26,857
|
|
|
33,321
|
|
|
89,707
|
|
|
98,805
|
|
General and
administrative
|
19,692
|
|
|
20,621
|
|
|
67,382
|
|
|
63,804
|
|
Research and
development
|
6,303
|
|
|
8,160
|
|
|
20,485
|
|
|
23,008
|
|
Total operating
expenses
|
52,852
|
|
|
62,102
|
|
|
177,574
|
|
|
185,617
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
12,643
|
|
|
23,001
|
|
|
35,771
|
|
|
65,141
|
|
Operating
margin
|
6.4
|
%
|
|
9.9
|
%
|
|
5.8
|
%
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
Interest income
(expense), net
|
(8,846)
|
|
|
(6,687)
|
|
|
(25,975)
|
|
|
(20,873)
|
|
Other income
(expense), net
|
(446)
|
|
|
(124)
|
|
|
(1,059)
|
|
|
195
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
3,351
|
|
|
16,190
|
|
|
8,737
|
|
|
44,463
|
|
Income tax provision
(benefit)
|
(1,038)
|
|
|
2,605
|
|
|
113
|
|
|
6,217
|
|
Net income
|
$
|
4,389
|
|
|
$
|
13,585
|
|
|
$
|
8,624
|
|
|
$
|
38,246
|
|
|
|
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
Earnings per
share
|
$
|
0.23
|
|
|
$
|
0.70
|
|
|
$
|
0.45
|
|
|
$
|
1.99
|
|
Weighted
average common shares outstanding
|
19,229
|
|
|
19,297
|
|
|
19,189
|
|
|
19,255
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
Earnings per
share
|
$
|
0.23
|
|
|
$
|
0.70
|
|
|
$
|
0.45
|
|
|
$
|
1.97
|
|
Weighted
average common shares outstanding
|
19,315
|
|
|
19,520
|
|
|
19,349
|
|
|
19,436
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
$
|
—
|
|
|
$
|
0.30
|
|
|
$
|
0.60
|
|
|
$
|
0.90
|
|
MTS SYSTEMS CORPORATION
|
Condensed
Consolidated Balance Sheets
|
(unaudited - in
thousands)
|
|
|
|
|
|
June 27,
2020
|
|
September 28,
2019
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
|
65,073
|
|
|
$
|
57,937
|
|
Accounts
receivable, net
|
118,686
|
|
|
121,260
|
|
Unbilled accounts
receivable, net
|
91,787
|
|
|
80,331
|
|
Inventories,
net
|
177,210
|
|
|
167,199
|
|
Prepaid expenses and
other current assets
|
30,363
|
|
|
23,761
|
|
Total current
assets
|
483,119
|
|
|
450,488
|
|
|
|
|
|
Property and
equipment, net
|
100,160
|
|
|
101,083
|
|
Goodwill
|
465,978
|
|
|
429,039
|
|
Intangible
assets, net
|
342,901
|
|
|
306,585
|
|
Other long-term
assets
|
30,962
|
|
|
10,782
|
|
Total
assets
|
$
|
1,423,120
|
|
|
$
|
1,297,977
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
Short-term
borrowings
|
$
|
27,000
|
|
|
$
|
—
|
|
Current
maturities of long-term debt, net
|
2,830
|
|
|
27,969
|
|
Accounts
payable
|
51,639
|
|
|
46,849
|
|
Advance
payments from customers
|
64,980
|
|
|
70,520
|
|
Other accrued
liabilities
|
95,935
|
|
|
106,238
|
|
Total current
liabilities
|
242,384
|
|
|
251,576
|
|
|
|
|
|
Long-term debt,
less current maturities, net
|
565,266
|
|
|
484,648
|
|
Other long-term
liabilities
|
126,614
|
|
|
77,694
|
|
Total
liabilities
|
934,264
|
|
|
813,918
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
Common stock,
$0.25 par; 64,000 shares authorized:
|
|
|
|
19,220 and 19,124
shares issued and outstanding as
|
|
|
|
of June 27, 2020 and
September 28, 2019, respectively
|
4,805
|
|
|
4,781
|
|
Additional
paid-in capital
|
187,128
|
|
|
182,422
|
|
Retained
earnings
|
312,444
|
|
|
315,329
|
|
Accumulated
other comprehensive income (loss)
|
(15,521)
|
|
|
(18,473)
|
|
Total
shareholders' equity
|
488,856
|
|
|
484,059
|
|
Total
liabilities and shareholders' equity
|
$
|
1,423,120
|
|
|
$
|
1,297,977
|
|
MTS SYSTEMS CORPORATION
|
Condensed
Consolidated Statements of Cash Flows
|
(unaudited - in
thousands)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
|
June 27,
2020
|
|
June 29,
2019
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
|
Net income
|
$
|
4,389
|
|
|
$
|
13,585
|
|
|
$
|
8,624
|
|
|
$
|
38,246
|
|
Adjustments to
reconcile net income to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
Stock-based
compensation
|
119
|
|
|
2,609
|
|
|
5,214
|
|
|
7,298
|
|
Fair value adjustment
to acquired inventory
|
—
|
|
|
157
|
|
|
1,140
|
|
|
1,141
|
|
Depreciation
|
5,218
|
|
|
5,236
|
|
|
17,287
|
|
|
15,485
|
|
Amortization
|
6,288
|
|
|
4,449
|
|
|
17,343
|
|
|
12,668
|
|
Accretion of
contingent consideration
|
439
|
|
|
—
|
|
|
895
|
|
|
—
|
|
Contingent
consideration fair value adjustment
|
1,301
|
|
|
—
|
|
|
1,301
|
|
|
—
|
|
(Gain) loss on sale
or disposal of property and equipment
|
1,277
|
|
|
42
|
|
|
2,327
|
|
|
552
|
|
Amortization of debt
issuance costs
|
776
|
|
|
708
|
|
|
2,220
|
|
|
2,807
|
|
Deferred income
taxes
|
825
|
|
|
(187)
|
|
|
1,718
|
|
|
(1,430)
|
|
Other
|
366
|
|
|
370
|
|
|
128
|
|
|
1,457
|
|
Changes in operating
assets and liabilities
|
(4,999)
|
|
|
(7,668)
|
|
|
(44,777)
|
|
|
(28,254)
|
|
Net Cash Provided by (Used in) Operating
Activities
|
15,999
|
|
|
19,301
|
|
|
13,420
|
|
|
49,970
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
|
Purchases of property
and equipment
|
(4,863)
|
|
|
(8,028)
|
|
|
(21,144)
|
|
|
(17,377)
|
|
Proceeds from sale of
property and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Purchases of
business, net of acquired cash
|
(1,164)
|
|
|
(1,700)
|
|
|
(49,268)
|
|
|
(83,526)
|
|
Other
|
87
|
|
|
—
|
|
|
87
|
|
|
(285)
|
|
Net Cash Provided by (Used in) Investing
Activities
|
(5,940)
|
|
|
(9,728)
|
|
|
(70,325)
|
|
|
(101,178)
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Financing Activities
|
|
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
—
|
|
|
—
|
|
|
58,576
|
|
|
80,391
|
|
(Payments on)
proceeds from financing arrangements, net
|
(6,615)
|
|
|
(2,438)
|
|
|
22,168
|
|
|
(9,221)
|
|
Cash
dividends
|
(5,719)
|
|
|
(5,375)
|
|
|
(17,205)
|
|
|
(16,099)
|
|
Proceeds from
exercise of stock options and employee stock purchase
plan
|
(1)
|
|
|
996
|
|
|
630
|
|
|
1,697
|
|
Payments to purchase
and retire common stock
|
(303)
|
|
|
(986)
|
|
|
(1,176)
|
|
|
(1,384)
|
|
Net Cash Provided by (Used in) Financing
Activities
|
(12,638)
|
|
|
(7,803)
|
|
|
62,993
|
|
|
55,384
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
|
1,070
|
|
|
(157)
|
|
|
1,048
|
|
|
(245)
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
in cash and cash equivalents during the period
|
(1,509)
|
|
|
1,613
|
|
|
7,136
|
|
|
3,931
|
|
Cash and cash
equivalents balance, beginning of period
|
66,582
|
|
|
74,122
|
|
|
57,937
|
|
|
71,804
|
|
Cash and cash equivalents balance, end of
period
|
$
|
65,073
|
|
|
$
|
75,735
|
|
|
$
|
65,073
|
|
|
$
|
75,735
|
|
Exhibit A
|
MTS SYSTEMS CORPORATION
|
Segment Financial
Information
|
(unaudited - in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
|
June 27,
2020
|
|
June 29,
2019
|
Test & Simulation Segment
|
|
|
|
|
|
|
|
Revenue
|
$
|
116,404
|
|
|
$
|
148,328
|
|
|
$
|
362,631
|
|
|
$
|
424,920
|
|
Cost of
sales
|
87,629
|
|
|
104,053
|
|
|
263,777
|
|
|
293,810
|
|
Gross
profit
|
28,775
|
|
|
44,275
|
|
|
98,854
|
|
|
131,110
|
|
Gross
margin
|
24.7
|
%
|
|
29.8
|
%
|
|
27.3
|
%
|
|
30.9
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
29,067
|
|
|
32,851
|
|
|
92,955
|
|
|
99,671
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
$
|
(292)
|
|
|
$
|
11,424
|
|
|
$
|
5,899
|
|
|
$
|
31,439
|
|
|
|
|
|
|
|
|
|
Sensors Segment
|
|
|
|
|
|
|
|
Revenue
|
$
|
80,222
|
|
|
$
|
84,231
|
|
|
$
|
251,955
|
|
|
$
|
244,556
|
|
Cost of
sales
|
43,502
|
|
|
43,424
|
|
|
137,463
|
|
|
124,916
|
|
Gross
profit
|
36,720
|
|
|
40,807
|
|
|
114,492
|
|
|
119,640
|
|
Gross
margin
|
45.8
|
%
|
|
48.4
|
%
|
|
45.4
|
%
|
|
48.9
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
23,785
|
|
|
29,251
|
|
|
84,619
|
|
|
85,946
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
$
|
12,935
|
|
|
$
|
11,556
|
|
|
$
|
29,873
|
|
|
$
|
33,694
|
|
|
|
|
|
|
|
|
|
Intersegment Eliminations
|
|
|
|
|
|
|
|
Revenue
|
$
|
(401)
|
|
|
$
|
(350)
|
|
|
$
|
(1,055)
|
|
|
$
|
(1,040)
|
|
Cost of
sales
|
(401)
|
|
|
(371)
|
|
|
(1,054)
|
|
|
(1,048)
|
|
Gross
profit
|
—
|
|
|
21
|
|
|
(1)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
(1)
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
|
|
|
|
|
|
Revenue
|
$
|
196,225
|
|
|
$
|
232,209
|
|
|
$
|
613,531
|
|
|
$
|
668,436
|
|
Cost of
sales
|
130,730
|
|
|
147,106
|
|
|
400,186
|
|
|
417,678
|
|
Gross
profit
|
65,495
|
|
|
85,103
|
|
|
213,345
|
|
|
250,758
|
|
Gross
margin
|
33.4
|
%
|
|
36.6
|
%
|
|
34.8
|
%
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
Operating
expenses
|
52,852
|
|
|
62,102
|
|
|
177,574
|
|
|
185,617
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
$
|
12,643
|
|
|
$
|
23,001
|
|
|
$
|
35,771
|
|
|
$
|
65,141
|
|
Exhibit B
|
MTS SYSTEMS CORPORATION
|
Reconciliation of
Adjusted Diluted Earnings Per Share
|
(unaudited - in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
|
Pre-Tax
|
Tax
|
Net
|
|
Pre-Tax
|
Tax
|
Net
|
Net income
|
$
|
3,351
|
|
$
|
(1,038)
|
|
$
|
4,389
|
|
|
$
|
16,190
|
|
$
|
2,605
|
|
$
|
13,585
|
|
Restructuring
expenses 1
|
2,745
|
|
615
|
|
2,130
|
|
|
—
|
|
—
|
|
—
|
|
Acquisition-related
expenses 1
|
1,243
|
|
268
|
|
975
|
|
|
98
|
|
21
|
|
77
|
|
Acquisition inventory
fair value adjustment 1
|
—
|
|
—
|
|
—
|
|
|
157
|
|
24
|
|
133
|
|
Contingent
consideration fair value adjustment 1
|
1,301
|
|
286
|
|
1,015
|
|
|
—
|
|
—
|
|
—
|
|
Adjusted net income
2
|
$
|
8,640
|
|
$
|
131
|
|
$
|
8,509
|
|
|
$
|
16,445
|
|
$
|
2,650
|
|
$
|
13,795
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted common shares outstanding
|
|
|
19,315
|
|
|
|
|
19,520
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
0.17
|
|
$
|
(0.06)
|
|
$
|
0.23
|
|
|
$
|
0.84
|
|
$
|
0.14
|
|
$
|
0.70
|
|
Impact of
restructuring expenses
|
0.14
|
|
0.03
|
|
0.11
|
|
|
—
|
|
—
|
|
—
|
|
Impact of
acquisition-related expenses
|
0.07
|
|
0.02
|
|
0.05
|
|
|
—
|
|
—
|
|
—
|
|
Impact of acquisition
inventory fair value adjustment
|
—
|
|
—
|
|
—
|
|
|
0.01
|
|
—
|
|
0.01
|
|
Impact of contingent
consideration fair value adjustment
|
0.07
|
|
0.02
|
|
0.05
|
|
|
—
|
|
—
|
|
—
|
|
Adjusted diluted
earnings per share2
|
$
|
0.45
|
|
$
|
0.01
|
|
$
|
0.44
|
|
|
$
|
0.85
|
|
$
|
0.14
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 In determining the tax
impact of restructuring expenses, acquisition-related expenses,
acquisition inventory fair value adjustment and contingent
consideration 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
Adjusted Diluted Earnings Per Share
|
(unaudited - in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
|
Pre-Tax
|
Tax
|
Net
|
|
Pre-Tax
|
Tax
|
Net
|
Net income
|
$
|
8,737
|
|
$
|
113
|
|
$
|
8,624
|
|
|
$
|
44,463
|
|
$
|
6,217
|
|
$
|
38,246
|
|
Restructuring
expenses 1
|
8,883
|
|
2,403
|
|
6,480
|
|
|
130
|
|
33
|
|
97
|
|
Acquisition-related
expenses 1
|
4,867
|
|
1,043
|
|
3,824
|
|
|
1,133
|
|
238
|
|
895
|
|
Acquisition inventory
fair value adjustment 1
|
1,140
|
|
239
|
|
901
|
|
|
1,141
|
|
172
|
|
969
|
|
Contingent
consideration fair value adjustment 1
|
1,301
|
|
286
|
|
1,015
|
|
|
—
|
|
—
|
|
—
|
|
Adjusted net income
2
|
$
|
24,928
|
|
$
|
4,084
|
|
$
|
20,844
|
|
|
$
|
46,867
|
|
$
|
6,660
|
|
$
|
40,207
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted common shares outstanding
|
|
|
19,349
|
|
|
|
|
19,436
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
0.45
|
|
$
|
—
|
|
$
|
0.45
|
|
|
$
|
2.29
|
|
$
|
0.32
|
|
$
|
1.97
|
|
Impact of
restructuring expenses
|
0.46
|
|
0.13
|
|
0.33
|
|
|
—
|
|
—
|
|
—
|
|
Impact of
acquisition-related expenses
|
0.25
|
|
0.05
|
|
0.20
|
|
|
0.06
|
|
0.01
|
|
0.05
|
|
Impact of acquisition
inventory fair value adjustment
|
0.06
|
|
0.01
|
|
0.05
|
|
|
0.06
|
|
0.01
|
|
0.05
|
|
Impact of contingent
consideration fair value adjustment
|
0.07
|
|
0.02
|
|
0.05
|
|
|
—
|
|
—
|
|
—
|
|
Adjusted diluted
earnings per share2
|
$
|
1.29
|
|
$
|
0.21
|
|
$
|
1.08
|
|
|
$
|
2.41
|
|
$
|
0.34
|
|
$
|
2.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 In determining the tax impact
of restructuring expenses, acquisition-related expenses,
acquisition inventory fair value adjustment and contingent
consideration 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
|
|
Nine Months
Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
|
June 27,
2020
|
|
June 29,
2019
|
Net income
|
$
|
4,389
|
|
|
$
|
13,585
|
|
|
$
|
8,624
|
|
|
$
|
38,246
|
|
Net income margin
|
2.2
|
%
|
|
5.9
|
%
|
|
1.4
|
%
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
Income tax
provision
|
(1,038)
|
|
|
2,605
|
|
|
113
|
|
|
6,217
|
|
Interest expense,
net
|
8,846
|
|
|
6,687
|
|
|
25,975
|
|
|
20,873
|
|
Depreciation
|
5,218
|
|
|
5,236
|
|
|
17,287
|
|
|
15,485
|
|
Amortization
|
6,288
|
|
|
4,449
|
|
|
17,343
|
|
|
12,668
|
|
EBITDA
1
|
23,703
|
|
|
32,562
|
|
|
69,342
|
|
|
93,489
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
119
|
|
|
2,609
|
|
|
5,214
|
|
|
7,298
|
|
Restructuring
expenses 2
|
2,932
|
|
|
—
|
|
|
9,070
|
|
|
130
|
|
Acquisition-related
expenses 2
|
745
|
|
|
29
|
|
|
3,887
|
|
|
955
|
|
Acquisition inventory
fair value adjustment
|
—
|
|
|
157
|
|
|
1,140
|
|
|
1,141
|
|
Contingent
consideration fair value adjustment
|
1,301
|
|
|
—
|
|
|
1,301
|
|
|
—
|
|
Adjusted EBITDA
1
|
$
|
28,800
|
|
|
$
|
35,357
|
|
|
$
|
89,954
|
|
|
$
|
103,013
|
|
Adjusted EBITDA margin
1,3
|
14.7
|
%
|
|
15.2
|
%
|
|
14.7
|
%
|
|
15.4
|
%
|
|
|
|
|
|
|
|
|
1 Denotes non-GAAP financial
measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
2 Restructuring and
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
|
|
Nine Months
Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
|
June 27,
2020
|
|
June 29,
2019
|
Net Cash Provided by
(Used in) Operating Activities
|
$
|
15,999
|
|
|
$
|
19,301
|
|
|
$
|
13,420
|
|
|
$
|
49,970
|
|
Purchases of property
and equipment
|
(4,863)
|
|
|
(8,028)
|
|
|
(21,144)
|
|
|
(17,377)
|
|
Proceeds from sale of
property and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Free cash
flow1
|
$
|
11,136
|
|
|
$
|
11,273
|
|
|
$
|
(7,724)
|
|
|
$
|
32,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Denotes non-GAAP
financial measure.
|
|
|
|
|
|
|
|
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SOURCE MTS Systems Corporation