Attached files

file filename
8-K - 8-K - MTS SYSTEMS CORPmts8k232020.htm
MTS News Release
Page 1


Exhibit 99.1
mtslogoa56.jpg
MTS Systems Corporation
14000 Technology Drive
Eden Prairie, MN 55344-2290
Telephone 952-937-4000
Fax 952-937-4515
 
 
 
 

News Release

FOR IMMEDIATE RELEASE
February 3, 2020

MTS REPORTS FISCAL 2020 FIRST QUARTER FINANCIAL RESULTS

EDEN PRAIRIE, MN - February 3, 2020 - 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 first quarter ended December 28, 2019.

FIRST QUARTER FINANCIAL AND OPERATING HIGHLIGHTS

Ø Revenue of $205.8 million, an increase of 1.3%
Ø
Sensors revenue growth of 9.7%
Ø
GAAP diluted earnings per share of $0.27
Ø
Adjusted diluted earnings per share of $0.37, including $0.20 of amortization expense
Ø
Demand outlook strengthening with growth in orders anticipated for the remainder of the fiscal year
Ø
Executed agreement to acquire R&D entities
Ø
Declared 152nd consecutive quarterly dividend

FINANCIAL TABLE
 
Three Months Ended

(in thousands, except per share data - unaudited)
December 28,
2019
 
December 29,
2018
Revenue
$
205,843

 
$
203,181

Revenue % increase
1.3
%
 
4.6
%
Gross margin
37.2
%
 
38.5
%
Operating margin
7.4
%
 
8.8
%
Earnings before taxes
$
6,455

 
$
11,197

Net income
5,306

 
10,501

Diluted earnings per share
0.27

 
0.54

Adjusted diluted earnings per share1
0.37

 
0.59

Adjusted EBITDA1
29,627

 
30,102

Cash and cash equivalents, end of period
64,071

 
70,438

Backlog, end of period
395,992

 
514,705

Total debt, end of period
540,710

 
466,048

1 
Refer to the "Non-GAAP Financial Measures" section below for discussion of the calculation of these non-GAAP financial measures.




MTS News Release
Page 2


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

"We continue to execute on our long-term strategy of delivering consistent top-line growth and margin expansion, recognizing that individual quarters may be volatile. Central to this strategy is the contribution from our Sensors business, which is delivering near double-digit revenue growth at highly accretive margins to our consolidated operations. In the first quarter, this growth was driven by strength in our Sensors test sector, and by the continued ramp-up of volume associated with our U.S. Department of Defense contract. We expect this strong performance to continue to strengthen throughout the fiscal year, especially as our integration of the Endevco product line continues. With the strong fundamental demand trends in both the test and automation markets, we expect our Sensors business to continue to grow on average at double-digit annual rates, with incremental margin expansion.

As anticipated, we continue to experience weakness in the top line for our Test & Simulation business mainly due to delays in order timing from the second half of fiscal year 2019. Despite the volume impact, profitability in our Test & Simulation business was largely maintained at prior year levels due to improved quality of backlog and the increasing impact of our efficiency initiatives that have been our priority over the last two years. These efforts are continuing and anticipated to be increasingly felt with accelerating volume growth in the second half of the fiscal year.

Based upon our opportunity pipeline, we anticipate a strong rebound in order rates, and corresponding growth in backlog as we move into and through the second half of fiscal year 2020. We expect this to be driven primarily by increased strength in our non-automotive markets for both of our businesses. This growth in backlog will ultimately translate to accelerated revenue growth and increased profitability in subsequent quarters.

Subsequent to quarter-end, we were pleased to formally close the acquisition of certain entities of the Danish company R&D ("R&D") as previously announced in November 2019. R&D brings us a very talented engineering team, a proven capability to deliver state-of-the-art testing solutions for wind power, aero propulsion and other very demanding applications, an excellent customer base, and a strong backlog of business stretching into fiscal year 2021. With the increasing strength in our business, coupled with this complementary acquisition, we look forward to a positive fiscal year 2020."

HIGHLIGHTS FOR THE 2020 FIRST FISCAL QUARTER

Revenue
Revenue was $205.8 million, up 1.3% compared to the same prior year period, driven by continued strong revenue growth in Sensors. Sensors growth was supported by strong global demand in our test sector, and by the continued ramp-up of volume associated with our U.S. Department of Defense contract. In addition, Endevco, which closed during the fourth quarter of fiscal year 2019, has started to contribute more meaningfully to the top line as our integration efforts have progressed. This strength was offset by weakness in Europe in our Sensors position sector, driven in large part by mobile hydraulic applications in heavy duty machinery. Test & Simulation experienced a decline in volume from the continued weakness in the ground vehicles sector and a decline in services, partially offset by volume growth in our materials and structures sectors.

Orders
Test & Simulation orders for the quarter were $103.9 million, down 17.0% compared to the same prior year period driven by lower orders across all market sectors, delays in large custom orders and softness in the Americas region as customers continue to push out orders to later in the year. The decline was partially offset by order growth in services.

Sensors orders for the quarter were $81.2 million, a 17.3% decrease compared to the same prior year period. This decline was primarily driven by fiscal year 2019 funded orders from our U.S. Department of Defense contract that did not repeat in fiscal year 2020, as well as weakness in the European and Americas regions specific to our position sector. This decrease was offset by the addition of orders from the acquisition of Endevco.




MTS News Release
Page 3


Backlog
Backlog of $396.0 million was down 23.1% compared to the same prior year period. Sequentially, from the fourth quarter of fiscal year 2019, backlog was down 5.7% due to the decline in order volume used to replenish the strong conversion of our backlog on outstanding projects to revenue within the quarter in both Test & Simulation and Sensors. Ending backlog for Test & Simulation and Sensors was $322.6 million and $73.3 million, respectively.

Net Income and Diluted Earnings Per Share
GAAP diluted earnings per share was $0.27 compared to $0.54 in the same prior year period on net income of $5.3 million and $10.5 million, respectively. The $0.27 decrease was primarily driven by higher Sensors operating expenses mainly from the acquisition of Endevco, a decline in Test & Simulation gross profit from unfavorable product mix, higher interest expense on increased debt levels and an increase in the effective tax rate. First quarter of fiscal year 2020 and 2019 results includes $0.10 and $0.05, respectively, of non-recurring costs associated with restructuring, acquisition-related expenses and acquisition inventory fair value adjustment from the acquisitions of E2M and Endevco in the first and fourth quarters of fiscal year 2019, respectively. Adjusting for these items, adjusted diluted earnings per share was $0.37 for the first quarter of fiscal 2020, and $0.59 for the same period in the prior year. A reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, to diluted earnings per share, the most directly comparable GAAP financial measure, is provided in Exhibit B of this earnings release. Our diluted earnings per share and adjusted earnings per share includes the amortization of purchased intangible assets of $0.20 and $0.15 for the periods ended December 28, 2019 and December 29, 2018, respectively. We incurred pre-tax amortization expense of $4.8 million ($3.8 million post-tax) and $3.8 million ($3.0 million post-tax) for the periods ended December 28, 2019 and December 29, 2018, respectively, in relation to companies that we have acquired.

Adjusted EBITDA
Adjusted EBITDA declined slightly to $29.6 million in the first quarter of fiscal year 2020, down 1.6% compared to the same prior year period. This decline was primarily due to higher Sensors operating expenses mainly from the acquisition of Endevco and a decline in Test & Simulation gross profit from unfavorable product mix, partially offset by higher gross profit in Sensors from higher revenue volume. A reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable GAAP financial measure, is provided in Exhibit C of this earnings release.

Balance Sheet
During the quarter, our total debt balance increased by $28.1 million to $540.7 million as we drew on our credit facility to fund continued investments in the business. We ended the quarter with $64.1 million of cash on the balance sheet, leading to a net debt balance of $476.6 million. The ratio of interest-bearing debt to Adjusted EBITDA and the ratio of net interest-bearing debt to Adjusted EBITDA remain within our targeted range and the debt covenant levels specified in our debt agreements.

Dividend
The Board of Directors declared a quarterly dividend of $0.30 per share. The dividend was payable on December 30, 2019 to shareholders of record as of the close of business on December 16, 2019. This was our 152nd consecutive quarterly dividend.

OUTLOOK

Test & Simulation Business
Given our expectations on order rates, revenue and product mix, as well as the increasing impact of our efficiency initiatives, our performance for the second half of the fiscal year is expected to show a marked improvement over the first half of the fiscal year. This will lead to overall improvement year-over-year in the Test & Simulation business, and a strong backlog position as we exit the year and look to fiscal year 2021. Future orders growth from strength in our simulation platforms, material testing, service offerings and especially our structures sector, is expected to overcome the headwinds experienced in the global economy. While we are continuing to await a resurgence in the automotive markets, we continue to benefit from the rapidly expanding use of advanced materials, such as carbon-fiber composites, the adoption of additive manufacturing methods for net-shape component fabrications, and the rapidly increasing complexity of ground and air vehicles which requires new



MTS News Release
Page 4


simulation methods for determining product performance and life. Our energy and infrastructure markets remain robust, driven by continued growth in wind power and advanced building designs that are more resistant to damage from earthquakes, sea and storm events. The simulation market continues to benefit from increased demand for pilot training and rapid theme park expansions, which fits nicely with our expanded product offerings.
In addition to these growth opportunities, we continue to invest in operational efficiency initiatives to improve profitability, and to develop new products and technologies to drive margin expansion and to generate the highest demand for Test & Simulation products and services in the coming years.
Sensors Business
Our Sensors business demand is driven by accelerating new product introductions across all major markets and geographies, and expanded opportunities associated with the U.S. Department of Defense. The strategic acquisition of Endevco has brought together two iconic brands in the test and measurement sensors market, PCB and Endevco, providing for further growth opportunities. This combination of positive factors, including full production ramp-up associated with our U.S. Department of Defense contract and acquisition of Endevco, is anticipated to provide strong double-digit top-line growth, along with Adjusted EBITDA margin expansion, for the Sensors business in fiscal year 2020.
Consolidated
Based on these factors, we maintain our expected outlook for fiscal year 2020 including:
Metric
 
Current Outlook
Revenue
 
$955 million to $995 million
Adjusted EBITDA
 
$138 million to $158 million
Diluted earnings per share
 
$2.05 to $2.35
Adjusted diluted earnings per share
 
$2.20 to $2.55

The above outlook includes:
$12.0 million to $16.0 million for stock-based compensation, acquisition-related and restructuring expenses;
Our most recent acquisitions of Endevco in Sensors and R&D in Test & Simulation; and
An anticipated effective tax rate, excluding discrete tax items, of 15-19% for fiscal year 2020.
A reconciliation of Adjusted EBITDA and adjusted diluted earnings per share, non-GAAP financial measures, to net income and diluted earnings per share, the most directly comparable GAAP financial measures, respectively, for the above outlook is included in Exhibits E and F of this earnings release, respectively.

FIRST QUARTER CONFERENCE CALL

As announced on January 21, 2020, a conference call will be held on February 4, 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 +1-800-353-6461 (international toll +1-334-323-0501) and reference the conference pass code 9681358. The conference call replay will be available at 1:00 p.m. ET following the call until 1:00 p.m. ET, February 11, 2020. Call toll free +1-888-203-1112 and reference the conference pass code 9681358.

A transcript of the call can also be accessed from the MTS website at http://investor.mts.com beginning on February 5, 2020.




MTS News Release
Page 5


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, E and F of this earnings release.




MTS News Release
Page 6


FORWARD-LOOKING STATEMENTS

This earnings release contains "forward-looking statements" made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from historical results and those presently anticipated or projected. Statements made under the heading "Outlook" are forward-looking statements, and words such as "may," "will," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions identify forward-looking statements in other parts of this earnings release. Such statements include, but are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions, statements about the opportunities and outlook for our Sensors and Test & Simulation sectors and other statements that are not historical facts. These statements are based on our current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. Risks, uncertainties and assumptions that could cause our actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those described in the "Risk Factors" section of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") and updated in any subsequent Quarterly Reports on Form 10-Q and other filings with the SEC. The reports referenced above are available on our website at www.mts.com or on the SEC’s website at www.sec.gov. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances.

INVESTOR RELATIONS CONTACT

Brian Ross
Executive Vice President and Chief Financial Officer
brian.ross@mts.com
(952) 937-4000



MTS News Release
Page 7


 MTS SYSTEMS CORPORATION
 Consolidated Statements of Income
 (unaudited - in thousands, except per share data)
 
 
 
 
 
Three Months Ended
 
December 28,
2019
 
December 29,
2018
 
 
 
 
Revenue
 
 
 
Product
$
178,858

 
$
175,078

Service
26,985

 
28,103

Total revenue
205,843

 
203,181

Cost of sales
 
 
 
Product
111,639

 
108,168

Service
17,595

 
16,708

Total cost of sales
129,234

 
124,876

Gross profit
76,609

 
78,305

 Gross margin
37.2
%
 
38.5
%
 
 
 
 
Operating expenses
 
 
 
Selling and marketing
32,719

 
32,089

General and administrative
21,693

 
21,078

 Research and development
7,039

 
7,172

 Total operating expenses
61,451

 
60,339

 
 
 
 
Income from operations
15,158

 
17,966

 Operating margin
7.4
%
 
8.8
%
 
 
 
 
Interest income (expense), net
(8,272
)
 
(6,818
)
Other income (expense), net
(431
)
 
49

 
 
 
 
Income before income taxes
6,455

 
11,197

Income tax provision (benefit)
1,149

 
696

Net income
$
5,306

 
$
10,501

 
 
 
 
Earnings per share
 
 
 
 Basic
 
 
 
 Earnings per share
$
0.28

 
$
0.55

 Weighted average common shares outstanding
19,146

 
19,216

 
 
 
 
 Diluted
 
 
 
 Earnings per share
$
0.27

 
$
0.54

 Weighted average common shares outstanding
19,369

 
19,556

 
 
 
 
Dividends declared per share
$
0.30

 
$
0.30





MTS News Release
Page 8


 MTS SYSTEMS CORPORATION
 Condensed Consolidated Balance Sheets
 (unaudited - in thousands)
 
 
 
 
 
December 28,
2019
 
September 28,
2019
 ASSETS
 
 
 
 
 
 
 
 Current assets
 
 
 
Cash and cash equivalents
$
64,071

 
$
57,937

 Accounts receivable, net
131,285

 
121,260

Unbilled accounts receivable, net
67,368

 
80,331

Inventories, net
177,017

 
167,199

Prepaid expenses and other current assets
21,075

 
23,761

 Total current assets
460,816

 
450,488

 
 
 
 
 Property and equipment, net
101,992

 
101,083

 Goodwill
429,838

 
429,039

 Intangible assets, net
306,134

 
306,585

 Other long-term assets
30,639

 
10,782

 Total assets
$
1,329,419

 
$
1,297,977

 
 
 
 
 LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 Current liabilities
 
 
 
 Short-term borrowings
$
30,000

 
$

 Current maturities of long-term debt, net
27,494

 
27,969

 Accounts payable
46,113

 
46,849

 Advance payments from customers
66,142

 
70,520

 Other accrued liabilities
100,694

 
106,238

 Total current liabilities
270,443

 
251,576

 
 
 
 
 Long-term debt, less current maturities, net
483,216

 
484,648

 Other long-term liabilities
87,012

 
77,694

 Total liabilities
840,671

 
813,918

 
 
 
 
 Shareholders' equity
 
 
 
 Common stock, $0.25 par; 64,000 shares authorized:
 
 
 
19,156 and 19,124 shares issued and outstanding as
 
 
 
of December 28, 2019 and September 28, 2019, respectively
4,789

 
4,781

 Additional paid-in capital
183,948

 
182,422

 Retained earnings
314,887

 
315,329

 Accumulated other comprehensive income (loss)
(14,876
)
 
(18,473
)
 Total shareholders' equity
488,748

 
484,059

 Total liabilities and shareholders' equity
$
1,329,419

 
$
1,297,977





MTS News Release
Page 9


 MTS SYSTEMS CORPORATION
Condensed Consolidated Statements of Cash Flows
 (unaudited - in thousands)
 
 
 
 
 
Three Months Ended
 
December 28,
2019
 
December 29,
2018
 
 
 
 
Cash Flows from Operating Activities
 
 
 
Net income
$
5,306

 
$
10,501

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
Stock-based compensation
2,167

 
1,794

Fair value adjustment to acquired inventory
540

 
445

Depreciation
5,662

 
5,144

Amortization
4,785

 
3,816

(Gain) loss on sale or disposal of property and equipment
612

 
161

Amortization of debt issuance costs
867

 
1,060

Deferred income taxes
66

 
(1,258
)
Other
2

 
428

Changes in operating assets and liabilities
(25,750
)
 
(11,460
)
Net Cash Provided by (Used in) Operating Activities
(5,743
)
 
10,631

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Purchases of property and equipment
(10,572
)
 
(3,773
)
Proceeds from sale of property and equipment

 
10

Purchases of business, net of acquired cash

 
(78,032
)
Other

 
(285
)
Net Cash Provided by (Used in) Investing Activities
(10,572
)
 
(82,080
)
 
 
 
 
Cash Flows from Financing Activities
 
 
 
Proceeds from issuance of long-term debt

 
80,391

(Payments on) proceeds from financing arrangements, net
28,065

 
(4,119
)
Cash dividends
(5,739
)
 
(5,359
)
Proceeds from exercise of stock options and employee stock purchase plan
41

 
38

Payments to purchase and retire common stock
(835
)
 
(356
)
Net Cash Provided by (Used in) Financing Activities  
21,532

 
70,595

 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
917

 
(512
)
 
 
 
 
Increase (decrease) in cash and cash equivalents during the period
6,134

 
(1,366
)
Cash and cash equivalents balance, beginning of period
57,937

 
71,804

Cash and cash equivalents balance, end of period
$
64,071

 
$
70,438





MTS News Release
Page 10


Exhibit A
MTS SYSTEMS CORPORATION
Segment Financial Information
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
December 28,
2019
 
December 29,
2018
Test & Simulation Segment
 
 
 
Revenue
$
120,730

 
$
125,560

Cost of sales
83,760

 
86,015

Gross profit
36,970

 
39,545

Gross margin
30.6
%
 
31.5
%
 
 
 
 
Operating expenses
29,974

 
32,214

 
 
 
 
Income from operations
$
6,996

 
$
7,331

 
 
 
 
Sensors Segment
 
 
 
Revenue
$
85,535

 
$
77,950

Cost of sales
45,899

 
39,191

Gross profit
39,636

 
38,759

Gross margin
46.3
%
 
49.7
%
 
 
 
 
Operating expenses
31,477

 
28,125

 
 
 
 
Income from operations
$
8,159

 
$
10,634

 
 
 
 
Intersegment Eliminations
 
 
 
Revenue
$
(422
)
 
$
(329
)
Cost of sales
(425
)
 
(330
)
Gross profit
3

 
1

 
 
 
 
Income (loss) from operations
$
3

 
$
1

 
 
 
 
Total Company
 
 
 
Revenue
$
205,843

 
$
203,181

Cost of sales
129,234

 
124,876

Gross profit
76,609

 
78,305

Gross margin
37.2
%
 
38.5
%
 
 
 
 
Operating expenses
61,451

 
60,339

 
 
 
 
Income from operations
$
15,158

 
$
17,966




MTS News Release
Page 11


Exhibit B
MTS SYSTEMS CORPORATION
Reconciliation of Adjusted Diluted Earnings Per Share
(unaudited - in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
December 28, 2019
 
December 29, 2018
 
Pre-Tax
Tax
Net
 
Pre-Tax
Tax
Net
Net income
$
6,455

$
1,149

$
5,306

 
$
11,197

$
696

$
10,501

Restructuring expenses 1



 
130

33

97

Acquisition-related expenses 2
1,746

366

1,380

 
773

162

611

Acquisition inventory fair value adjustment 1
540

113

427

 
445

67

378

Adjusted net income 3
$
8,741

$
1,628

$
7,113

 
$
12,545

$
958

$
11,587

 
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
 
 
19,369

 
 
 
19,556

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.33

$
0.06

$
0.27

 
$
0.58

$
0.04

$
0.54

Impact of restructuring expenses



 
0.01


0.01

Impact of acquisition-related expenses
0.09

0.02

0.07

 
0.03

0.01

0.02

Impact of acquisition inventory fair value adjustment
0.03


0.03

 
0.02


0.02

Adjusted diluted earnings per share3
$
0.45

$
0.08

$
0.37

 
$
0.64

$
0.05

$
0.59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 In determining the tax impact of restructuring expenses and acquisition inventory fair value adjustment, we applied the statutory rate in effect for each jurisdiction where the expenses were incurred.
 
 
 
 
 
 
 
 
2 In determining the tax impact of acquisition-related expenses, we applied a U.S. effective income tax rate before discrete items.
 
 
 
 
 
 
 
 
3  Denotes non-GAAP financial measure.




MTS News Release
Page 12


Exhibit C
MTS SYSTEMS CORPORATION
Reconciliation of EBITDA and Adjusted EBITDA
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
December 28, 2019
 
December 29, 2018
Net income
$
5,306

 
$
10,501

Net income margin
2.6
%
 
5.2
%
 
 
 
 
Income tax provision (benefit)
1,149

 
696

Interest expense, net
8,272

 
6,818

Depreciation
5,662

 
5,144

Amortization
4,785

 
3,816

EBITDA 1
25,174

 
26,975

 
 
 
 
Stock-based compensation
2,167

 
1,794

Restructuring expenses

 
130

Acquisition-related expenses 2
1,746

 
758

Acquisition inventory fair value adjustment
540

 
445

Adjusted EBITDA 1
$
29,627

 
$
30,102

Adjusted EBITDA margin 1,3
14.4
%
 
14.8
%
 
 
 
 
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.
 
 
 
 
3  Adjusted EBITDA was divided by revenue when calculating the Adjusted EBITDA margin.




MTS News Release
Page 13


Exhibit D
MTS SYSTEMS CORPORATION
Reconciliation of Free Cash Flow
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
December 28, 2019
 
December 29, 2018
Net Cash Provided by (Used in) Operating Activities
$
(5,743
)
 
$
10,631

Purchases of property and equipment
(10,572
)
 
(3,773
)
Proceeds from sale of property and equipment

 
10

Free cash flow1
$
(16,315
)
 
$
6,868

 
 
 
 
 
 
 
 
1  Denotes non-GAAP financial measure.
 
 
 




MTS News Release
Page 14


Exhibit E
MTS SYSTEMS CORPORATION
Reconciliation of EBITDA and Adjusted EBITDA - Outlook
(unaudited - in thousands)
 
 
 
 
 
 
 
Twelve Months Ending

 
October 3, 2020
 
Low
High
Net income
$
40,300

$
46,200

Income tax provision (benefit)
8,700

11,000

Interest expense, net
35,100

37,200

Depreciation and amortization
41,900

47,600

EBITDA1
126,000

142,000

 

 
Stock-based compensation and non-recurring expenses2
12,000

16,000

Adjusted EBITDA1
$
138,000

$
158,000

 
 
 
 
 
 
1  Denotes non-GAAP financial measure.
 
 
 
2  Includes pre-tax forecast expenses for stock-based compensation, acquisition-related expenses and acquisition inventory fair value adjustment.




MTS News Release
Page 15


Exhibit F
MTS SYSTEMS CORPORATION
Reconciliation of Adjusted Diluted Earnings per Share - Outlook
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
Twelve Months Ending
 
October 3, 2020
 
Low
 
High
Net income1
$
40,300

 
$
46,200

Non-recurring expenses 2
3,000

 
4,000

Adjusted net income 3
$
43,300

 
$
50,200

 
 
 
 
Weighted average diluted common shares outstanding
19,700

 
19,700

 
 
 
 
Diluted earnings per share
$
2.05

 
$
2.35

Impact of non-recurring expenses2
0.15

 
0.20

Adjusted diluted earnings per share
$
2.20

 
$
2.55

 
 
 
 
 
 
 
 
1 Refer to Exhibit E for tax impact on net income guidance.
 
 
 
 
2  Includes forecast expenses for acquisition-related expenses and acquisition inventory fair value adjustment.
 
 
 
 
3  Applied anticipated tax rate, excluding discrete tax items, of approximately 15-19%.