MTS Reports Fiscal 2019 Third Quarter Financial Results
EDEN PRAIRIE, Minn., Aug. 5, 2019 /PRNewswire/ -- MTS Systems Corporation (Nasdaq: MTSC), a leading global supplier of high-performance test systems, motion simulators and sensors, today reported financial results for its fiscal year 2019 third quarter ended June 29, 2019.
THIRD QUARTER FINANCIAL AND OPERATING HIGHLIGHTS
-- Revenue of $232.2 million, an increase of 19%
-- GAAP diluted earnings per share of $0.70, an increase of $0.23 or 49%
-- Net income margin of 5.9%, an increase of 124 basis points
-- Adjusted EBITDA margin of 15.2%, an increase of 96 basis points
-- Backlog of $443.3 million, an increase of 17%
-- Declared 150(th) consecutive quarterly dividend
FINANCIAL TABLE
Three Months Ended
Nine Months Ended
(in thousands,
except per
share data -
unaudited)
June 29,
June 30,
June 29,
June 30,
2019 2018 2019 2018
--- ---
Revenue $
232,209 $
194,668 $
668,436 $
580,153
Revenue %
increase
(decrease)(1) 19.3
% 0.5
% 15.2
% (1.1)
%
Gross margin 36.6
% 39.2
% 37.5
% 39.5
%
Operating
margin 9.9
% 8.4
% 9.7
% 8.5
%
Earnings before
taxes $
16,190 $
10,045 $
44,463 $
29,691
Net income 13,585 8,979 38,246 50,568
Diluted
earnings per
share 0.70 0.47 1.97 2.62
Adjusted
diluted
earnings per
share(2) 0.71 0.49 2.07 2.68
Adjusted
EBITDA(2) 35,357 27,782 103,013 82,186
Cash and cash
equivalents,
end of period 75,735 66,403
Backlog, end of
period 443,271 377,745
Total debt, end
of period 462,516 391,332
(1) Revenue growth rates in fiscal
year 2019 reflect the
acquisition of E2M Technologies
B.V. (E2M) that occurred on
November 21, 2018.
2 Refer to the "Non-GAAP Financial
Measures" section below for
discussion of the calculation of
these non-GAAP financial
measures.
EXECUTIVE COMMENTARY - DR. JEFF GRAVES, PRESIDENT AND CHIEF EXECUTIVE OFFICER
"We once again delivered a solid performance on all major financial metrics, delivering top-line growth of almost 20% reflecting another record revenue quarter for our Sensors business, its eighth-consecutive quarter of revenue growth versus the same prior year period, and near-record level Test & Simulation business. This growth profile demonstrates the continuing benefits of our diversification strategy within the Test & Measurement space, and our success in new product sales across virtually all our major end markets.
While we are pleased with our top-line momentum, we also continue to focus on our cost structure and in driving operational efficiencies in both businesses. These efforts contributed to bottom-line net income improvement of 51%, translating to a net income margin of 5.9% for the quarter, and a 27% increase in Adjusted EBITDA, equating to an Adjusted EBITDA margin of 15.2% for the quarter. This solid performance for both our Test & Simulation and Sensors businesses supports our continued investments in new product development, diversification and capital structure optimization, all while returning cash to our shareholders through our quarterly dividend."
HIGHLIGHTS FOR THE 2019 THIRD FISCAL QUARTER
Revenue
Revenue was $232.2 million, up 19.3% compared to the same prior year period, driven by near record revenue in Test & Simulation, which included equipment volume growth in all sectors, revenue from the acquisition of E2M, which closed in the first quarter of fiscal year 2019, and continued growth in Test services. Sensors experienced record revenue driven by the continued ramp-up in volume associated with our U.S. Department of Defense contract and growth from the energy market within our Sensors industrial sector, slightly offset by weakness in the European and Asian regions in our Sensors position sector.
Orders
Test & Simulation orders for the quarter were $103.8 million, down 25.9% compared to the same prior year period, driven primarily by weakness in all regions, partially offset by double-digit growth in Test service orders. Our orders performance does not reflect the full impact of a new project received from the U.S. Department of Defense in the third quarter of fiscal year 2019, which will be funded incrementally throughout its execution. We recorded $1.8 million of the full $30.4 million order, inclusive of options, for this new test system in the third quarter.
Sensors orders for the quarter were $76.8 million, a 2.7% decrease over the same prior year period. This decline was primarily driven by weakness in the European and Asian regions specific to our Sensors position sector and timing of order funding in our Sensors test sector, partially offset by solid demand in the Americas region of our Sensors position sector and orders growth in our Sensors industrial sector from a continued rebound in the energy market.
Backlog
Backlog of $443.3 million was up 17.3% from the same prior year period. Sequentially from the second quarter of fiscal year 2019, backlog was down 10.2% as we saw a high-level of conversion to revenue on outstanding projects within the quarter, along with a decline in order volume to replenish the backlog.
Earnings Before Taxes
Earnings before taxes of $16.2 million was up $6.1 million compared to the same prior year period. This earnings increase was driven by gross profit growth in both Test & Simulation and Sensors, partially offset by higher operating expenses in both businesses and a $0.2 million acquisition inventory fair value adjustment related to the acquisition of E2M.
Net Income and Diluted Earnings Per Share
GAAP diluted earnings per share was $0.70 compared to $0.47 in the same prior year period on net income of $13.6 million and $9.0 million, respectively. The $0.23 increase was primarily driven by growth in Test & Simulation gross profit, which includes the contributions from the acquisition of E2M. Third quarter of fiscal year 2019 results include a $0.01 impact for the acquisition inventory fair value adjustment related to the acquisition of E2M. Similarly, results for the third quarter of fiscal year 2018 include a $0.02 impact for restructuring expenses. Adjusting for these items, adjusted diluted earnings per share was $0.71 for the third quarter of fiscal 2019, and $0.49 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.
Adjusted EBITDA
Adjusted EBITDA grew to $35.4 million in the third quarter of fiscal year 2019, up 27.3% compared to the same prior year period. This growth was primarily due to higher gross profit in both businesses and contributions from the acquisition of E2M, partially offset by higher operating expenses in Sensors. A reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable GAAP financial measure, is provided in Exhibit D of this earnings release.
Balance Sheet
During the quarter, our total debt balance decreased by $2.4 million to $472.4 million. We ended the quarter with $75.7 million of cash on the balance sheet, leading to a net debt balance of $396.7 million.
Dividend
The Board of Directors declared a quarterly dividend of $0.30 per share. The dividend was payable on July 2, 2019 to shareholders of record as of the close of business on June 18, 2019. This was our 150(th) consecutive quarterly dividend.
Strategic Actions Completed Subsequent to Quarter End
Given the favorable market conditions, in early July we issued $350.0 million aggregate principal amount of new 5.750% senior unsecured notes due 2027. These new notes were issued to further optimize our capital structure and to take advantage of historically low long-term interest rates. The net proceeds from this offering were used to repay all outstanding debt under our revolving credit facility, to repay a portion of our outstanding debt under our term loan facility, to pay fees and expenses associated with the offering and for general corporate purposes.
In addition, on Monday, August 5, 2019, we executed an agreement with Meggitt PLC (MGGT.L), to purchase the assets of their Endevco sensors business. Founded in 1947, Endevco is a historic leader in high performance test & measurement sensors used primarily in the testing of new products. This strategic product line purchase brings together two iconic brands in the test & measurement sensors market, PCB and Endevco, and further enhances the MTS long-term strategy of growth and market leadership in our core businesses. The purchase price of the Endevco assets was approximately $70.0 million, and it is expected to contribute approximately $30.0 million in revenues on an annualized basis. Given the timing of the transaction, we do not anticipate that this will have a material impact on our financial performance for the end of fiscal year 2019; however, we do anticipate tremendous opportunities for accelerated growth in our Sensors business in fiscal year 2020 and beyond.
OUTLOOK
Test & Simulation Business
Our performance for the first nine months of the fiscal year supports our positive outlook for our Test & Simulation business. From a revenue perspective, our solid backlog position throughout the first nine months of fiscal year 2019 has correlated with strong momentum driven by the rapidly expanding use of advanced materials, such as carbon-fiber composites, the adoption of additive manufacturing methods for net-shape component fabrications, and the rapidly increasing complexity of ground and air vehicles which requires new simulation methods for determining product performance and life. Our energy and infrastructure markets remain robust, driven by continued growth in wind power and advanced building designs that are more resistant to damage from earthquakes, sea and storm events. The acquisition of E2M has further expanded our growth opportunities by diversifying us further into flight simulation, entertainment and other advanced simulation markets.
In addition to our exciting growth opportunities, we continue to invest in operational efficiency initiatives to improve profitability and in new products and technologies to drive margin expansion and to generate continued strong demand for Test & Simulation products and services.
Sensors Business
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. This combination of positive factors, including full production ramp-up associated with our U.S. Department of Defense contract, is anticipated to provide double digit top-line growth, along with Adjusted EBITDA margin expansion, for the Sensors business in the fourth quarter of fiscal year 2019.
Consolidated
As part of the optimization of our capital structure, we issued $350.0 million aggregate principal amount of new 5.750% senior unsecured notes due 2027 in our fourth quarter of fiscal year 2019. The offering will result in higher interest expense in the fourth quarter than originally forecasted primarily due to the write-off of debt issuance costs associated with the partial repayment of the term loan facility and higher debt levels in the fourth quarter of fiscal year 2019.
Based on these factors, we are confident in our outlook for fiscal year 2019 and are revising our full year guidance as follows:
Metric
Previous Outlook
Current Outlook
---
Revenue
$830 million to $870 million
$875 million to $895 million
Adjusted EBITDA
$122 million to $142 million
$128 million to $138 million
Diluted earnings per share
$2.30 to $2.60
$2.15 to $2.35
Adjusted diluted earnings per share
$2.42 to $2.72
$2.30 to $2.50
The above outlook includes:
-- $12.5 million to $14.5 million for stock-based compensation,
restructuring expenses, acquisition-related expenses and acquisition
fair value inventory adjustment;
-- Our acquisition of E2M, in addition to the slightly positive effects of
the implementation of the new revenue recognition standard as compared
to the previous standard;
-- An anticipated effective tax rate, excluding discrete tax items, of
15-18% for fiscal year 2019; and
-- Updated diluted earnings per share amounts due to the write-off of debt
issuance costs associated with the partial repayment of the term loan
facility and issuance of new senior unsecured notes.
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 F and G of this earnings release, respectively.
THIRD QUARTER CONFERENCE CALL
As announced on July 22, 2019, a conference call will be held on August 6, 2019 (tomorrow), at 10:00 a.m. ET (9:00 a.m. CT). Dr. Jeffrey A. Graves, President and Chief Executive Officer, and Brian T. Ross, 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 7911369. Telephone replay will be available at 1:00 p.m. ET following the call until 1:00 p.m. ET, August 13, 2019. Call toll free +1-888-203-1112 and reference the conference pass code 7911369.
A transcript of the call can also be accessed from the MTS website at http://investor.mts.com beginning on August 7, 2019.
ABOUT MTS SYSTEMS CORPORATION
MTS Systems Corporation's testing and simulation hardware, software and service solutions help customers accelerate and improve their design, development and manufacturing processes and are used for determining the mechanical behavior of materials, products and structures. MTS' high-performance sensors provide measurements of vibration, pressure, position, force and sound in a variety of applications. MTS had 3,400 employees as of September 29, 2018 and revenue of $778 million for the fiscal year ended September 29, 2018. Additional information on MTS can be found at www.mts.com.
NON-GAAP FINANCIAL MEASURES
We believe that disclosing adjusted diluted earnings per share, which is diluted earnings per share excluding the impact from restructuring expenses, acquisition-related expenses and the acquisition inventory fair value adjustment is useful to investors as a measure of operating performance. We use this as one measure to monitor and evaluate operating performance. Adjusted diluted earnings per share is a financial measure that does not reflect United States Generally Accepted Accounting Principles (GAAP). We calculate this measure by adding back the after-tax effect of the restructuring expenses, acquisition-related expenses and the acquisition inventory fair value adjustment to net income and dividing the result by the diluted weighted average shares outstanding.
We believe that disclosing earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA excluding the impact from stock-based compensation, restructuring expenses, acquisition-related expenses and the acquisition inventory fair value adjustment (Adjusted EBITDA) and Adjusted EBITDA divided by revenue (Adjusted EBITDA margin) are useful to investors as a measure of leverage and operating performance. We use these measures to monitor and evaluate leverage and operating performance. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are financial measures that do not reflect GAAP. We calculate EBITDA by adding back interest, taxes, depreciation and amortization expense to net income. Adjusted EBITDA is calculated by adding back stock-based compensation, restructuring expenses, acquisition-related expenses and the acquisition inventory fair value adjustment to EBITDA. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue.
We believe that disclosing free cash flow is useful to investors as a measure of operating performance. We use this measure as an indicator of our strength and ability to generate cash. Free cash flow is a financial measure that does not reflect GAAP. We calculate free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment and businesses, net of cash acquired, plus cash proceeds from sales of property and equipment.
Investors should consider these non-GAAP financial measures in addition to, not as a substitute for or better than, financial measures prepared in accordance with GAAP. Reconciliations of the components of these measures to the most directly comparable GAAP financial measures are included in Exhibits B, C, D, E, F and G of this earnings release.
FORWARD-LOOKING STATEMENTS
This earnings release contains "forward-looking statements" made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from historical results and those presently anticipated or projected. Statements made under the heading "Outlook" are forward-looking statements, and words such as "may," "will," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions identify forward-looking statements in other parts of this earnings release. Such statements include, but are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions, statements about the opportunities and outlook for our Sensors and Test & Simulation sectors and other statements that are not historical facts. These statements are based on our current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. Risks, uncertainties and assumptions that could cause our actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those described in the "Risk Factors" section of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") and updated in any subsequent Quarterly Reports on Form 10-Q and other filings with the SEC. The reports referenced above are available on our website at www.mts.com or on the SEC's website at www.sec.gov. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances.
MTS SYSTEMS CORPORATION
Consolidated Statements of Income
(unaudited - in thousands, except per share data)
Three Months Ended
Nine Months Ended
June 29, June 30, June 29, June 30,
2019 2018 2019 2018
---
Revenue
Product $
205,528 $
168,651 $
587,297 $
503,345
Service 26,681 26,017 81,139 76,808
Total revenue 232,209 194,668 668,436 580,153
Cost of sales
Product 130,514 103,182 368,260 304,809
Service 16,592 15,202 49,418 46,307
Total cost of sales 147,106 118,384 417,678 351,116
Gross profit 85,103 76,284 250,758 229,037
Gross margin 36.6
% 39.2
% 37.5
% 39.5
%
Operating expenses
Selling and marketing 33,321 32,171 98,805 94,796
General and
administrative 20,621 19,081 63,804 58,635
Research and
development 8,160 8,768 23,008 26,235
Total operating
expenses 62,102 60,020 185,617 179,666
Income from
operations 23,001 16,264 65,141 49,371
Operating margin 9.9
% 8.4
% 9.7
% 8.5
%
Interest expense, net (6,687) (6,249) (20,873) (19,761)
Other income
(expense), net (124) 30 195 81
Income before income
taxes 16,190 10,045 44,463 29,691
Income tax provision
(benefit) 2,605 1,066 6,217 (20,877)
Net income $
13,585 $
8,979 $
38,246 $
50,568
Earnings per share
Basic
Earnings per share $
0.70 $
0.47 $
1.99 $
2.64
Weighted average
common shares
outstanding 19,297 19,174 19,255 19,149
Diluted
Earnings per share $
0.70 $
0.47 $
1.97 $
2.62
Weighted average
common shares
outstanding 19,520 19,305 19,436 19,269
Dividends declared
per share $
0.30 $
0.30 $
0.90 $
0.90
MTS SYSTEMS CORPORATION
Condensed Consolidated Balance Sheets
(unaudited - in thousands)
June 29, September 29,
2019 2018
---
ASSETS
Current assets
Cash and cash equivalents $
75,735 $
71,804
Accounts receivable, net 131,365 122,243
Unbilled accounts receivable,
net 68,804 70,474
Inventories, net 164,853 139,109
Other current assets 27,118 24,572
Total current assets 467,875 428,202
Property and equipment, net 92,893 90,269
Goodwill 403,448 369,275
Intangible assets, net 285,299 246,138
Other long-term assets 7,804 5,512
Total assets $
1,257,319 $
1,139,396
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-
term debt, net $
28,316 $
32,738
Accounts payable 39,495 47,886
Advance payments from
customers 87,935 80,131
Other accrued liabilities 92,407 78,358
Total current liabilities 248,153 239,113
Long-term debt, less current
maturities, net 434,200 355,640
Other long-term liabilities 80,427 66,711
Total liabilities 762,780 661,464
Shareholders' equity
Common stock, $0.25 par; 64,000 shares
authorized:
18,736 and 17,856 shares issued and outstanding
as
of June 29, 2019 and September
29, 2018, respectively 4,684 4,464
Additional paid-in capital 179,015 171,407
Retained earnings 316,249 300,585
Accumulated other
comprehensive income (loss) (5,409) 1,476
Total shareholders' equity 494,539 477,932
Total liabilities and
shareholders' equity $
1,257,319 $
1,139,396
MTS SYSTEMS CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
Three Months Ended
Nine Months Ended
June 29, June 30, June 29, June 30,
2019 2018 2019 2018
---
Cash Flows from Operating Activities
Net income $
13,585 $
8,979 $
38,246 $
50,568
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities
Stock-based compensation 2,609 2,088 7,298 5,378
Fair value adjustment to
acquired inventory 157 1,141
Depreciation and
amortization 9,685 8,510 28,153 25,858
(Gain) loss on sale or
disposal of property and
equipment 42 12 552 171
Amortization of financing
fees 708 1,198 2,807 3,824
Deferred income taxes (187) 465 (1,430) (30,189)
Other 370 436 1,457 2,123
Changes in operating
assets and liabilities (7,668) (6,835) (28,254) (5,622)
Net Cash Provided by
(Used in) Operating
Activities 19,301 14,853 49,970 52,111
Cash Flows from Investing Activities
Purchases of property and
equipment (8,028) (4,409) (17,377) (9,777)
Proceeds from sale of
property and equipment - 10 69
Purchases of business,
net of cash acquired (1,700) (83,526)
Other - (285) 823
Net Cash Provided by
(Used in) Investing
Activities (9,728) (4,409) (101,178) (8,885)
Cash Flows from Financing Activities
Proceeds from issuance of
long-term debt - 80,391
Payments on financing
arrangements, net (2,438) (19,591) (9,221) (70,038)
Cash dividends (5,375) (5,291) (16,099) (15,958)
Proceeds from exercise of
stock options and
employee stock purchase
plan 996 956 1,697 1,701
Payments to purchase and
retire common stock (986) (549) (1,384) (1,306)
Net Cash Provided by
(Used in) Financing
Activities (7,803) (24,475) 55,384 (85,601)
Effect of Exchange Rate
Changes on Cash and Cash
Equivalents (157) (3,944) (245) 45
Cash and Cash Equivalents
Increase (decrease)
during the period 1,613 (17,975) 3,931 (42,330)
Balance, beginning of
period 74,122 84,378 71,804 108,733
Balance, End of Period $
75,735 $
66,403 $
75,735 $
66,403
Exhibit A
MTS SYSTEMS CORPORATION
Segment Financial Information
(unaudited - in thousands)
Three Months Ended
June 29, June 30, % Variance
2019 2018
---
Test & Simulation Segment
---
Revenue $
148,328 $
116,055 28
%
Cost of sales 104,053 79,475 31
%
Gross profit 44,275 36,580 21
%
---
Gross margin 29.8
% 31.5
%
Operating expenses 32,851 32,707
%
---
Income from $
11,424 $
3,873 195
operations
%
---
Sensors Segment
---
Revenue $
84,231 $
79,000 7
%
Cost of sales 43,424 39,289 11
%
Gross profit 40,807 39,711 3
%
---
Gross margin 48.4
% 50.3
%
Operating expenses 29,251 27,313 7
%
---
Income from $
11,556 $
12,398 (7)
operations
%
---
Intersegment Eliminations
---
Revenue $
(350) $
(387)
Cost of sales (371) (380)
Gross profit 21 (7)
Income (loss) from
operations $
21 $
(7)
Total Company
---
Revenue $
232,209 $
194,668 19
%
Cost of sales 147,106 118,384 24
%
Gross profit 85,103 76,284 12
%
---
Gross margin 36.6
% 39.2
%
Operating expenses 62,102 60,020 3
%
---
Income from $
23,001 $
16,264 41
operations %
---
Exhibit B
MTS SYSTEMS CORPORATION
Reconciliation of Earnings Per Share Excluding Restructuring, Acquisition-Related
and Acquisition Inventory Fair Value Adjustment Expenses
(unaudited - in thousands, except per share data)
Three Months Ended
June 29, 2019
June 30, 2018
Pre-Tax Tax
Net Pre-Tax Tax Net
---
Net income $
16,190 $
2,605 $
13,585 $
10,045 $
1,066 $
8,979
Restructuring expenses
1 - 735 186 549
Acquisition-related
expenses (2) 98 21 77
Acquisition inventory
fair value adjustment
(1) 157 24 133
Adjusted net income 3 $
16,445 $
2,650 $
13,795 $
10,780 $
1,252 $
9,528
Weighted average diluted common
shares outstanding 19,520 19,305
Diluted earnings per
share $
0.84 $
0.14 $
0.70 $
0.52 $
0.05 $
0.47
Impact of
restructuring
expenses - 0.04 0.02 0.02
Impact of acquisition-
related expenses -
Impact of acquisition
inventory fair value
adjustment 0.01 0.01
Adjusted diluted
earnings per share(3) $
0.85 $
0.14 $
0.71 $
0.56 $
0.07 $
0.49
(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.
Exhibit C
MTS SYSTEMS CORPORATION
Reconciliation of Earnings Per Share Excluding Restructuring, Acquisition-Related
and Acquisition Inventory Fair Value Adjustment Expenses
(unaudited - in thousands, except per share data)
Nine Months Ended
June 29, 2019
June 30, 2018
Pre-Tax
Tax
Net Pre-Tax
Tax
Net
---
Net income $
44,463 $
6,217 $
38,246 $
29,691 $
(20,877) $
50,568
Restructuring expenses
1 130 33 97 1,343 340 1,003
Acquisition-related
expenses (2) 1,133 238 895
Acquisition inventory
fair value adjustment
(1) 1,141 172 969
Adjusted net income 3 $
46,867 $
6,660 $
40,207 $
31,034 $
(20,537) $
51,571
Weighted average diluted common shares
outstanding 19,436 19,269
Diluted earnings per
share $
2.29 $
0.32 $
1.97 $
1.54 $
(1.08) $
2.62
Impact of
restructuring
expenses - 0.07 0.01 0.06
Impact of acquisition-
related expenses 0.06 0.01 0.05
Impact of acquisition
inventory fair value
adjustment 0.06 0.01 0.05
Adjusted diluted
earnings per share(3) $
2.41 $
0.34 $
2.07 $
1.61 $
(1.07) $
2.68
(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.
Exhibit D
MTS SYSTEMS CORPORATION
Reconciliation of EBITDA and Adjusted EBITDA to Net Income
(unaudited - in thousands)
Three Months Ended
Nine Months Ended
June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
---
Net income $
13,585 $
8,979 $
38,246 $
50,568
Net income margin 5.9 4.6 5.7 8.7
%
%
%
%
Income tax provision
(benefit) 2,605 1,066 6,217 (20,877)
Interest expense,
net 6,687 6,249 20,873 19,761
Depreciation and
amortization 9,685 8,510 28,153 25,858
EBITDA (1) 32,562 24,804 93,489 75,310
Stock-based
compensation 2,609 2,088 7,298 5,378
Restructuring
expenses (2) - 890 130 1,498
Acquisition-related
expenses (3) 29 955
Acquisition
inventory fair
value adjustment 157 1,141
Adjusted EBITDA (1) $
35,357 $
27,782 $
103,013 $
82,186
Adjusted EBITDA 15.2 14.3 15.4 14.2
margin 1,4
%
%
%
%
(1) Denotes non-
GAAP
financial
measure.
(2) Restructuring expenses were
adjusted to exclude stock-based
compensation forfeitures that are
otherwise included in the stock-
based compensation line.
(3) Acquisition-related expenses were
adjusted to exclude stock-based
compensation that is otherwise
included in the stock-based
compensation line.
4 Adjusted EBITDA was divided by
revenue when calculating the
Adjusted EBITDA margin.
Exhibit E
MTS SYSTEMS CORPORATION
Free Cash Flow
(unaudited - in thousands)
Three Months Ended
Nine Months Ended
June 29, June 30, June 29, June 30,
2019 2018 2019 2018
---
Net Cash
Provided by
(Used in)
Operating
Activities $
19,301 $
14,853 $
49,970 $
52,111
Purchases of
property
and
equipment (8,028) (4,409) (17,377) (9,777)
Proceeds
from sale
of property
and
equipment - 10 69
Free cash
flow(1) $
11,273 $
10,444 $
32,603 $
42,403
(1) Denotes non-GAAP
financial measure.
Exhibit F
MTS SYSTEMS CORPORATION
Reconciliation of EBITDA and Adjusted EBITDA to Net Income - Outlook
(unaudited - in thousands)
Twelve Months Ending
September 28, 2019
Low
High
---
Net income $
42,000 $
46,000
Income tax provision (benefit) 4,500 5,500
Interest expense, net 32,000 33,000
Depreciation and amortization 37,000 39,000
EBITDA(1) 115,500 123,500
Stock-based compensation and non-recurring expenses(2) 12,500 14,500
Adjusted EBITDA(1) $
128,000 $
138,000
(1) Denotes non-GAAP financial measure.
(2) Includes pre-tax forecast expenses
for stock-based compensation,
restructuring expenses,
acquisition-related expenses and
acquisition inventory fair value
adjustment.
Exhibit G
MTS SYSTEMS CORPORATION
Reconciliation of Diluted Earnings per Share and Adjusted Diluted Earnings per Share - Outlook
(unaudited - in thousands)
Twelve Months Ending
September 28, 2019
Low
High
---
Net income(1) $
42,000 $
46,000
Non-recurring expenses 2 2,800 3,000
Adjusted net income 3 $
44,800 $
49,000
Weighted average diluted common shares outstanding 19,500 19,600
Diluted earnings per share $
2.15 $
2.35
Impact of non-recurring expenses(2) 0.15 0.15
Adjusted diluted earnings per share $
2.30 $
2.50
1 Refer to Exhibit F for tax impact
on net income guidance.
2 Includes forecast expenses for
restructuring expenses,
acquisition-related expenses and
acquisition inventory fair value
adjustment.
3 Applied anticipated tax rate,
excluding discrete tax items, of
approximately 15-18%.
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SOURCE MTS Systems Corporation
