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| 8-K - MTS SYSTEMS CORP 8-K 11-17-2011 - MTS SYSTEMS CORP | form8k.htm |
Exhibit 99.1
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MTS Systems Corporation
14000 Technology Drive
Eden Prairie, MN 55344-2290
Telephone 952-937-4000
Fax 952-937-4515
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News Release
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FOR IMMEDIATE RELEASE
November 17, 2011
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For More Information Contact:
Susan Knight, Chief Financial Officer
(952) 937-4000
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MTS REPORTS STRONG 2011 FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS
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Record quarterly revenue up 24 percent to $132 million; 74 percent EPS growth results in record high of $0.94
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Quarterly operating income rises to $21 million from $13 million
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Full fiscal year 2011 orders increases 28 percent to $540 million and backlog increases 34 percent to $287 million
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Stronger-than-expected volume in the quarter results in full year revenue growth of 25 percent
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Company exceeds Return on Invested Capital goal of 20 percent for the year
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Company expects fiscal 2012 revenue and EPS growth rates in the low double digit range
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Eden Prairie, Minn., November 17, 2011 – MTS Systems Corporation (NASDAQ: MTSC) today reported fiscal 2011 fourth quarter and fiscal year financial results.
“We are very pleased with our results in the fourth quarter and our strong growth momentum throughout the fiscal year. During the quarter, we achieved record revenue and earnings per share reflecting base-order stability in both our Test and Sensors businesses with continued high backlog,” said interim Chief Executive Officer William V. Murray. “Amid continued economic uncertainty, MTS is benefitting from our ongoing efforts to enhance our cost competitiveness, build our global position in geographic markets and pursue applications with substantial growth potential. More importantly, these results represent the capabilities and maturity of our organization to deliver exceptional operating performance while working through the recent government matters and management changes.”
“We achieved several milestones this year, notably we exceeded 20 percent return on invested capital and increased our quarterly dividend. Additionally, we are pleased with the decision by the U.S. Department of the Air Force to lift its suspension of MTS,” continued Murray.
Fourth Quarter Results
Orders were $132.5 million, a 3 percent increase compared to the fiscal 2010 fourth quarter. Orders growth reflects continued strong base-order expansion in both businesses. There were no large orders (defined as more than $5 million) in the quarter, while fiscal 2010 fourth quarter results include one large order of approximately $6 million. Backlog of $287 million was up from $214 million last year.
Revenue was $131.6 million, up 24 percent compared to the prior year, which included 25 percent growth in Test, and 23 percent growth in Sensors. The revenue increase was driven by higher beginning backlog and increased current-quarter orders. The gross margin rate rose to 43.0 percent, up 0.7 percentage points, as a result of leverage on improved volume and lower warranty expense.
MTS News Release
Page 2
Income from operations totaled $21.2 million, an improvement of $7.9 million, or 59 percent, compared to the prior year. The increase predominantly stemmed from higher gross margin, net of $3.9 million higher operating expenses. Operating expenses in the fourth quarter included legal and consulting expenses of $2.0 million related to the U.S. Government matters. Earnings per share were $0.94, an increase of $0.40, or 74 percent, compared to the prior year fourth quarter, primarily due to higher income from operations.
Cash and Other Items
Cash and cash equivalents at the end of the fourth quarter totaled $104.1 million, compared to $101.3 million at the end of the third quarter. During the fourth quarter, operating activities generated cash of $7.5 million and the Company invested $2.6 million in capital expenditures.
For fiscal 2011, MTS generated return on invested capital (“ROIC”) of 23 percent. See “Non-GAAP Financial Measures” below for further description. MTS Systems’ Board of Directors announced a 25 percent increase in the quarterly dividend on August 25, 2011.
Fourth Quarter Segment Results
Test Segment:
Orders were $107.5 million, up 1 percent compared to the prior year, primarily driven by strong global ground vehicle market demand. As noted above, prior year orders included one large custom order totaling approximately $6 million. Currency translation favorably impacted orders by 2 percent. Backlog of $271 million was up $73 million compared to the fiscal 2010 fourth quarter.
Revenue grew 25 percent to $105.3 million reflecting higher beginning backlog. Currency translation benefited revenue by 4 percent.
Gross profit was $41.4 million, an increase of $8.7 million, or 27 percent, and the gross margin rate was 39.4 percent, an increase of 0.7 percentage points. The higher gross margin rate resulted from leverage on higher volume and lower warranty expense, partially offset by increased variable compensation.
Income from operations totaled $14.7 million, an increase of $6.2 million, or 74 percent, compared to the prior year, reflecting higher revenue and gross profit. Operating expenses in the fourth quarter included $1.6 million of the previously mentioned legal and consulting costs related to the U.S. Government matters.
Sensors Segment:
Orders were $25.0 million, up 11 percent compared to the prior year fueled by strength in the European industrial market. Currency translation had a 4 percent favorable impact. Backlog of $16 million was flat compared to the prior year fourth quarter.
Revenue rose 23 percent to $26.3 million, driven by orders growth, a higher beginning backlog, and a 7 percent favorable impact of currency translation.
Gross profit was $15.1 million, up $3.0 million or 25 percent, and the gross margin rate was 57.5 percent, an increase of 0.9 percentage points, chiefly due to leverage from higher revenue. Income from operations was $6.5 million, an increase of 33 percent, primarily from higher gross profit, partially offset by higher operating expenses. Higher operating expenses resulted from increased headcount and $0.4 million of the previously mentioned legal and consulting costs related to the U.S. Government matters.
Action by U.S. Government
As previously disclosed, on September 19, 2011, the U.S. Department of the Air Force lifted the Company’s suspension from U.S. Government contracting. The lifting of the suspension was conditioned on the Company’s entry into an Administrative Agreement with the Air Force specifying certain ethics, compliance, reporting and monitoring obligations. As of the lifting of the suspension, the Company has been able to resume entering into new federal government contracts and receiving new benefit under federal assistance programs. This development also allows state and local government and commercial customers that follow federal suspension decisions to resume doing business with MTS. The investigation by the U.S. Department of Commerce and the U.S. Attorney’s Office for the District of Minnesota into the Company’s Online Representations and Certifications Applications, as well as the previously disclosed inquiry into the Company’s broader compliance record and practices, continues.
MTS News Release
Page 3
The Company’s known costs related to the suspension and investigation in fiscal 2011 totaled $6.0 million, and active market opportunities estimated at approximately $9 million had been lost as of October 1, 2011. While the Company continues to respond to the government’s requests as appropriate, the Company is presently unable to determine the likely outcome or range of loss, if any, from the investigation, or predict with certainty the timeline for the resolution of the investigation.
Full Year Results
Total Company orders for fiscal 2011 set a new record at $540.0 million and exceeded the half a billion mark for the first time in its history. Year over year, orders increased 28 percent. This reflects strong base-order expansion in both segments, particularly the ground vehicle market in the Test segment. Fiscal 2011 orders included $64 million in large orders, up $31 million from the prior year. Backlog rose 34 percent in the fiscal year to $287 million.
Revenue was also up strongly. At $467.4 million, revenue increased 25 percent compared to the previous year, including 23 percent growth in Test, and 33 percent growth in Sensors, both driven by higher beginning backlog and strong fiscal year orders. The gross margin rate rose to 43.2 percent, up 2.6 percentage points compared to the prior year, on leverage from higher volume, favorable product mix, and reduced warranty expense.
Income from operations reached a record high of $73.2 million, an increase of $44.9 million or approximately 158 percent compared to the prior fiscal year, reflecting the higher revenue and gross profit rate. Operating expenses of $128.8 million increased $5.4 million in the fiscal year which included legal and consulting costs of $6.0 million related to U.S. Government matters. Operating expenses in the prior fiscal year included a legal settlement charge of $6.3 million. As a percent of revenue, operating expenses declined from 33.0 percent to 27.6 percent. Record net income for fiscal 2011 totaled $50.9 million, or $3.24 per share, an increase of $32.3 million, or $2.10 per share, compared to the prior year.
Fiscal Year 2012 Outlook
Assuming steady economic conditions, MTS expects to generate fiscal 2012 revenue and EPS growth rates in the low double digit range.
Murray concluded, “MTS is uniquely positioned to address the challenges that our global customers face today – compressed product-development cycle times, new regulatory mandates and ever-increasing product performance demands. We are focused on leveraging our Sensors and Test applications knowledge to deliver innovative solutions that create value for our customers as they address these challenges. This is the foundation of our strong growth outlook as we begin fiscal 2012.”
Non-GAAP Financial Measures
We believe that return on invested capital (“ROIC”) is useful to investors as a measure of operating performance and of the effectiveness of the use of capital in our operations. We use ROIC as one measure to monitor and evaluate operating performance. ROIC is a financial measure that does not reflect generally accepted accounting principles (GAAP). We calculate ROIC by dividing net income, excluding after-tax interest expense, by average invested capital. Average invested capital is defined as the aggregate of average interest bearing debt and average shareholder’s investment and is calculated as the sum of current and prior year ending amounts divided by two. Investors should consider this non-GAAP financial measure in addition to, not as a substitute for or better than, financial measures prepared in accordance with GAAP. A reconciliation of the components of return on invested capital to the most directly comparable GAAP financial measures is included in Exhibit C to this release.
MTS News Release
Page 4
Fiscal Year 2011 Conference Call
A conference call will be held on November 18, 2011, at 10 a.m. EST (9 a.m. CST). Call +1-719-325-4769 (Toll Free: +1-877-874-1588); and reference the conference pass code “5706146”. Telephone re-play will be available until 12 p.m. CST, November 25, 2011. Call +1-719-457-0820 (Toll Free: +1-888-203-1112); and reference the conference pass code “5706146”.
A transcript of the call can also be accessed from the MTS website at http://www.mts.com/en/Investor/index.htm. It will be available on November 28, 2011.
About MTS Systems Corporation
MTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company’s testing hardware and software 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 position sensors provide controls for a variety of industrial and vehicular applications. MTS had 2,003 employees and revenue of $467 million for the fiscal year ended October 1, 2011. Additional information on MTS can be found on the worldwide web at http://www.mts.com.
This 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 are used to identify these forward-looking statements.
Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to: the Company’s significant international business; volatility in the global economy; competition; failure to achieve the Company’s growth plans for the expansion of its business; difficulties obtaining the services of skilled employees; failure to protect its intellectual property effectively or infringement upon the intellectual property of others; product liability and commercial litigation; difficulty obtaining materials or components for its products; government regulation; the irregularity and development of sales, delivery and acceptance cycle for the Company’s products; the Company’s customers are in cyclical industries; interest rate fluctuations; the Company may be required to recognize impairment charges for long-lived assets; an adverse outcome of the ongoing government investigation and proceedings that results in fines, penalties, or an extended suspension or debarment; and increased governmental and regulatory scrutiny or negative publicity resulting from the current investigation. For a more thorough discussion of the risks associated with our business, see the “Risk Factors” section in the Company’s most recent SEC Form 10-K, 10-Q and 8-K filings. Except as required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
MTS News Release
Page 5
MTS SYSTEMS CORPORATION
Consolidated Statements of Income
(unaudited - in thousands, except per share data)
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Three Months Ended
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Year Ended
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October 1,
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October 2,
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October 1,
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October 2,
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2011
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2010
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2011
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2010
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Revenue
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$ | 131,599 | $ | 105,879 | $ | 467,368 | $ | 374,053 | ||||||||
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Cost of sales
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75,018 | 61,044 | 265,378 | 222,259 | ||||||||||||
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Gross profit
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56,581 | 44,835 | 201,990 | 151,794 | ||||||||||||
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Gross margin
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43.0 | % | 42.3 | % | 43.2 | % | 40.6 | % | ||||||||
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Operating expenses:
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Selling, general and administrative
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31,107 | 27,758 | 114,011 | 108,504 | ||||||||||||
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Research and development
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4,247 | 3,739 | 14,785 | 14,945 | ||||||||||||
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Total operating expenses
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35,354 | 31,497 | 128,796 | 123,449 | ||||||||||||
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Income from operations
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21,227 | 13,338 | 73,194 | 28,345 | ||||||||||||
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Operating margin
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16.1 | % | 12.6 | % | 15.7 | % | 7.6 | % | ||||||||
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Interest expense, net
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(91 | ) | (262 | ) | (915 | ) | (1,052 | ) | ||||||||
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Other income (expense), net
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53 | 338 | 1,026 | (81 | ) | |||||||||||
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Income before income taxes
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21,189 | 13,414 | 73,305 | 27,212 | ||||||||||||
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Provision for income taxes
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6,297 | 4,854 | 22,363 | 8,636 | ||||||||||||
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Net income
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$ | 14,892 | $ | 8,560 | $ | 50,942 | $ | 18,576 | ||||||||
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Earnings per share:
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Basic-
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Earnings per share
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$ | 0.95 | $ | 0.54 | $ | 3.29 | $ | 1.14 | ||||||||
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Weighted average number of common shares outstanding - basic
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15,643 | 15,763 | 15,487 | 16,281 | ||||||||||||
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Diluted-
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Earnings per share
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$ | 0.94 | $ | 0.54 | $ | 3.24 | $ | 1.14 | ||||||||
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Weighted average number of common shares outstanding - diluted
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15,802 | 15,863 | 15,739 | 16,347 | ||||||||||||
MTS News Release
Page 6
MTS SYSTEMS CORPORATION
Consolidated Balance Sheets
(unaudited - in thousands, except per share data)
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October 1,
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October 2,
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2011
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2010
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$ | 104,095 | $ | 76,611 | ||||
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Accounts receivable, net
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82,510 | 66,369 | ||||||
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Unbilled accounts receivable
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54,554 | 26,389 | ||||||
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Inventories
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65,987 | 51,792 | ||||||
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Other current assets
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16,910 | 23,541 | ||||||
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Total current assets
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324,056 | 244,702 | ||||||
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Property and equipment, net
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56,252 | 56,444 | ||||||
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Goodwill
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16,027 | 15,429 | ||||||
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Intangibles, net
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25,843 | 24,753 | ||||||
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Other assets
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5,681 | 5,077 | ||||||
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Total Assets
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$ | 427,859 | $ | 346,405 | ||||
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
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Current Liabilities:
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Short-term borrowings
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$ | 40,285 | $ | 40,229 | ||||
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Accounts payable
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27,794 | 21,818 | ||||||
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Advance payments from customers
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63,307 | 44,000 | ||||||
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Other accrued liabilities
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64,228 | 55,793 | ||||||
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Total current liabilities
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195,614 | 161,840 | ||||||
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Other long-term liabilities
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21,397 | 18,459 | ||||||
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Total Liabilities
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217,011 | 180,299 | ||||||
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Shareholders' Investment:
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Common stock, $.25 par; 64,000 shares authorized:15,632 and 15,264 shares issued and outstanding
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3,908 | 3,816 | ||||||
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Retained earnings
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190,651 | 147,609 | ||||||
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Accumulated other comprehensive income
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16,289 | 14,681 | ||||||
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Total shareholders' investment
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210,848 | 166,106 | ||||||
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Total Liabilities and Shareholders' Investment
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$ | 427,859 | $ | 346,405 | ||||
MTS News Release
Page 7
Exhibit A
MTS SYSTEMS CORPORATION
Segment Financial Information
(unaudited - in thousands)
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Three Months Ended
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October 1,
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October 2,
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Test Segment
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2011
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2010
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% Variance
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Orders
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$ | 107,522 | $ | 106,103 | 1 | % | ||||||
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Revenue
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$ | 105,269 | $ | 84,424 | 25 | % | ||||||
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Cost of Sales
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63,829 | 51,733 | 23 | % | ||||||||
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Gross profit
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41,440 | 32,691 | 27 | % | ||||||||
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Gross margin
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39.4 | % | 38.7 | % | ||||||||
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Operating expenses
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26,765 | 24,265 | 10 | % | ||||||||
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Income from operations
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$ | 14,675 | $ | 8,426 | 74 | % | ||||||
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Sensors Segment
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Orders
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$ | 24,983 | $ | 22,594 | 11 | % | ||||||
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Revenue
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$ | 26,330 | $ | 21,455 | 23 | % | ||||||
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Cost of Sales
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11,189 | 9,311 | 20 | % | ||||||||
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Gross profit
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15,141 | 12,144 | 25 | % | ||||||||
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Gross margin
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57.5 | % | 56.6 | % | ||||||||
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Operating expenses
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8,589 | 7,232 | 19 | % | ||||||||
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Income from operations
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$ | 6,552 | $ | 4,912 | 33 | % | ||||||
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Total Company
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Orders
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$ | 132,505 | $ | 128,697 | 3 | % | ||||||
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Revenue
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$ | 131,599 | $ | 105,879 | 24 | % | ||||||
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Cost of Sales
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75,018 | 61,044 | 23 | % | ||||||||
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Gross profit
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56,581 | 44,835 | 26 | % | ||||||||
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Gross margin
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43.0 | % | 42.3 | % | ||||||||
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Operating expenses
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35,354 | 31,497 | 12 | % | ||||||||
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Income from operations
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$ | 21,227 | $ | 13,338 | 59 | % | ||||||
MTS News Release
Page 8
Exhibit B
MTS SYSTEMS CORPORATION
Segment Financial Information
(unaudited - in thousands)
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Year Ended
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October 1,
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October 2,
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Test Segment
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2011
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2010
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% Variance
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Orders
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$ | 436,661 | $ | 340,691 | 28 | % | ||||||
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Revenue
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$ | 363,918 | $ | 296,230 | 23 | % | ||||||
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Cost of Sales
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221,322 | 187,746 | 18 | % | ||||||||
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Gross profit
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142,596 | 108,484 | 31 | % | ||||||||
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Gross margin
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39.2 | % | 36.6 | % | ||||||||
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Operating expenses
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96,385 | 97,280 | -1 | % | ||||||||
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Income from operations
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$ | 46,211 | $ | 11,204 | 312 | % | ||||||
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Sensors Segment
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Orders
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$ | 103,362 | $ | 82,834 | 25 | % | ||||||
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Revenue
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$ | 103,450 | $ | 77,823 | 33 | % | ||||||
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Cost of Sales
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44,056 | 34,513 | 28 | % | ||||||||
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Gross profit
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59,394 | 43,310 | 37 | % | ||||||||
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Gross margin
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57.4 | % | 55.7 | % | ||||||||
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Operating expenses
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32,411 | 26,169 | 24 | % | ||||||||
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Income from operations
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$ | 26,983 | $ | 17,141 | 57 | % | ||||||
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Total Company
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Orders
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$ | 540,023 | $ | 423,525 | 28 | % | ||||||
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Revenue
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$ | 467,368 | $ | 374,053 | 25 | % | ||||||
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Cost of Sales
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265,378 | 222,259 | 19 | % | ||||||||
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Gross profit
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201,990 | 151,794 | 33 | % | ||||||||
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Gross margin
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43.2 | % | 40.6 | % | ||||||||
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Operating expenses
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128,796 | 123,449 | 4 | % | ||||||||
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Income from operations
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$ | 73,194 | $ | 28,345 | 158 | % | ||||||
MTS News Release
Page 9
EXHIBIT C
MTS SYSTEMS CORPORATION
Reconciliation of Return on Invested Capital to GAAP Measures
For the Year Ended October 1, 2011
(unaudited - in thousands)
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Net income
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$ | 50,942 | ||
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After-tax interest expense
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892 | |||
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Net income excluding after-tax interest expense *
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$ | 51,834 | ||
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Total shareholders' investment as of October 2, 2010
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$ | 166,106 | ||
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Total shareholders' investment as of October 1, 2011
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210,848 | |||
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Interest bearing debt as of October 1, 2010
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40,000 | |||
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Interest bearing debt as of October 2, 2011
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40,000 | |||
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Sum of invested capital
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$ | 456,954 | ||
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Average invested capital *
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$ | 228,477 | ||
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Return on invested capital *
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22.7 | % |
* Denotes Non-GAAP financial measure