MTS Reports Fiscal Year 2019 Fourth Quarter And Full Year Financial Results

MTS : 25 November, 2019 MTS Reports Fiscal Year 2019 Fourth Quarter and Full Year Financial Results

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EDEN PRAIRIE, Minn., Feb. 4, 2019 /PRNewswire/ -- MTS Systems Corporation (Nasdaq: MTSC ), a leading global supplier of high-performance test and simulation systems and sensors, today reported financial results for its fiscal year 2019 first quarter ended December 29, 2018. FIRST QUARTER FINANCIAL AND OPERATING HIGHLIGHTS
Revenues of $203.2 million, including year-over-year growth in both Test & Simulation and Sensors
GAAP diluted earnings per share of $0.54, a decline of $1.18 year-over-year due to the prior year impact of the Tax Act
Backlog of $514.7 million, a year-over-year increase of 45%, driven by strong orders growth across both business units
Closed $80 million acquisition of E2M Technologies B.V. (E2M), a leading simulation company based in Amsterdam, Netherlands
Declared 148th consecutive quarterly dividend
FINANCIAL TABLE
December 29,
0.59
70,438
466,048
1
Revenue growth rates in fiscal year 2019 reflect the acquisition of 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 continue to execute on our growth and diversification strategy, as we capitalize on our expanding opportunities in Sensors, Test Services and Test equipment targeted toward the materials and structures sectors, as well as new market opportunities from our acquisition of E2M late in our first quarter. The success of these efforts is reflected in our strong year-over-year orders performance and an outstanding backlog position of $515 million, which far exceeded not only our prior year position, but also our fiscal year 2018 year-end backlog of $415 million. Our Sensors business achieved another record orders level of $98 million in the quarter, representing a book-to-bill of 1.26, in part driven by the second purchase order associated with our U.S. Department of Defense contract. Our Test & Simulation business delivered nearly 15% orders growth year-over-year, driven by our strong technology position associated with advanced materials test systems, as well as structural test systems which simulate seismic events and other unique operating environments for civil infrastructure and wind energy systems. In addition, E2M, with their excellent technology position and approvals, brings us continued opportunity for exciting growth in the flight simulation and entertainment markets. Given the volume and quality of the orders we experienced in our first quarter of the fiscal year and our record backlog position, we are confident in our ability to deliver on our commitments to growth and expanded profitability in fiscal year 2019 and beyond." HIGHLIGHTS FOR THE 2019 FIRST FISCAL QUARTER
Revenue
Revenue was $203.2 million, up 4.6% compared to the same prior year period, driven broadly by growth in both business units, along with approximately one month contribution from the acquisition of E2M which closed in late November 2018. Orders
Test & Simulation orders for the quarter were $125.1 million, up 14.6% compared to the same prior year period, driven primarily by a large order in the structures sector of our Test & Simulation business with increased demand across all market sectors, and particularly strong growth in the Americas region. Sensors orders for the quarter were $98.2 million, representing a 27.8% increase over the same prior year period. This growth shows continued strength in our Sensors test and position sectors and was driven incrementally by the second purchase order associated with the U.S. Department of Defense, which was funded up to an additional $20 million in the quarter, as well as continued demand for our position sensors. Earnings Before Taxes
Earnings before taxes of $11.2 million was up $1.7 million compared to the same prior year period. This earnings increase was driven by lower Test & Simulation operating expenses and growth in Test & Simulation gross profit, partially offset by $0.8 million of acquisition-related expenses and a $0.4 million acquisition inventory fair value adjustment. Efforts to reduce our operating expenses resulted in a $1.1 million reduction compared to the same prior year period. Excluding acquisition-related costs, operating expenses declined $1.9 million. Net Income and Diluted Earnings Per Share
Diluted earnings per share was $0.54 compared to $1.72 in the same prior year period on net income of $10.5 million and $33.2 million, respectively. First quarter of fiscal year 2019 results were impacted by $0.04 of non-recurring costs associated with the acquisition inventory fair value adjustment and acquisition-related expenses. Conversely, results for the first quarter of fiscal year 2018 reflect a reduction in the effective tax rate and discrete benefits stemming from the Tax Cuts and Jobs Act of 2017 (the Tax Act). The Tax Act provided a $0.07 benefit in the first quarter of fiscal year 2019, as compared to a $1.32 benefit in the first quarter of fiscal 2018. Adjusted EBITDA
Adjusted EBITDA of $30.1 million grew 12.0% from the same prior year period. This growth was primarily due to lower Test & Simulation operating expenses, higher Test & Simulation gross profit and approximately one month contribution from the acquisition of E2M. 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. Capital Structure
During the quarter, our total debt balance increased by $77.7 million, primarily due to the acquisition of E2M which closed in late November and was financed by drawing approximately $80 million on our Revolving Credit Facility. In addition, we made $3.7 million of mandatory debt payments during the first quarter of fiscal year 2019. With the expected Adjusted EBITDA growth from E2M and our strong backlog position at the end of the quarter, we anticipate a net reduction in our leverage ratio between now and the end of fiscal year 2019.
Dividend
The Board of Directors declared a quarterly dividend of $0.30 per share. The dividend was payable on December 31, 2018 to shareholders of record as of the close of business on December 17, 2018. This was our 148th consecutive quarterly dividend. OUTLOOK
Test & Simulation Business
Overall, the outlook in our Test & Simulation business remains positive, particularly in our core markets of materials and structures, test services and the broad based need for intelligent machines that can simulate complex operating environments. The addition of E2M brings to us exposure to flight simulation, entertainment and other advanced simulation markets that will further expand our growth opportunities for this business. The underlying growth drivers include the rapidly growing application of advanced carbon fiber composites in flight and ground vehicles, continued growth in the use of additive manufacturing, and expansion in wind energy and civil infrastructure that is more resistant to damage from powerful earthquake, sea and storm events. 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 generate the highest demand for Test & Simulation products and services in the coming year. Sensors Business
Strong demand in the Sensors business is anticipated to continue during fiscal year 2019 across all sectors, 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 is expected to yield annual, double-digit top line growth, along with Adjusted EBITDA expansion for the Sensors business in fiscal year 2019. Consolidated
$2.42 to $2.72
The above outlook includes:
$8.5 million to $11.0 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; and
An anticipated effective tax rate, excluding discrete tax items, of 15-19% for fiscal year 2019. A reconciliation of Adjusted EBITDA and Adjusted diluted earnings per share, non-GAAP financial measures, to net income, the most directly comparable GAAP financial measure, for the above outlook is included in Exhibit E and F of this earnings release, respectively. FIRST QUARTER CONFERENCE CALL
As announced on January 21, 2019, a conference call will be held on February 4, 2019 (today), at 11:00 a.m. ET (10:00 a.m. CT). Dr. Jeffrey A. Graves, President and Chief Executive Officer, and Brian T. Ross, Senior Vice President and Chief Financial Officer, will host the call, which will include a question and answer session after prepared remarks. Call toll free +1-888-220-8474 (international toll +1-720-452-9217) and reference the conference pass code 8744810. Telephone replay will be available at 1:00 p.m. ET following the call until 1:00 p.m. ET, February 11, 2019. Call toll free +1-888-203-1112 and reference the conference pass code 8744810. A transcript of the call can also be accessed from the MTS website at http://investor.mts.com beginning on February 5, 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) and EBITDA excluding the impact from stock-based compensation, restructuring expenses, acquisition-related expenses and the acquisition inventory fair value adjustment (Adjusted EBITDA) is useful to investors as a measure of leverage and operating performance. We use these measures to monitor and evaluate leverage and operating performance. EBITDA and Adjusted EBITDA 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. 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 the Company's 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 sale 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. FORWARD-LOOKING STATEMENTS
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. 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 the 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

MTS Reports Fiscal 2019 First Quarter Financial Results

Via News Release
“EDEN PRAIRIE, Minn., Nov. 26, 2018 /PRNewswire/ — MTS Systems Corporation (Nasdaq: MTSC), a leading global supplier of high-performance test systems and sensors, announced today that it closed on the acquisition of E2M Technologies B.V. (“E2M”) on November 21, 2018.”
Significantly expands MTS Test and Simulation technology and product offerings for human-rated simulation systems
Brings key regulatory approvals and customers in high-growth flight simulation and entertainment markets
Provides compelling financial profile to enhance MTS revenue growth, margins, earnings and free cash generation
E2M is a leader in high-quality, durable, electrically-driven motion systems, serving primarily the human-rated entertainment and training simulation markets. Key product applications include high-technology motion simulators for the amusement park industry and flight simulators for certified pilot training, both of which offer substantial growth opportunities for the future. E2M has utilized its unique design capabilities and outstanding force and motion technologies to systematically gain the required regulatory and customer quality approvals for demanding human-rated motion systems, including motion platforms for “Level D” flight simulators for pilot training, and for key customers in the burgeoning theme park and vehicle simulator industries. Due to the exceptional value, quality and reliability of its motion platforms, E2M has developed a premium customer base and is poised to substantially exceed market growth rates. The newly acquired business will be reported as part of the MTS Test segment, which will be renamed “Test and Simulation” to reflect the growth in simulation applications across all MTS market sectors. Once integrated into the MTS Test and Simulation segment, E2M, with its exceptional electric force simulation and motion technical expertise, will leverage MTS’ global sales and service network to support continued exciting growth within its core markets of entertainment, certified flight and general motion simulation. From a technology standpoint, E2M’s electric actuation expertise will accelerate the development of electric force simulation and motion solutions in the MTS Test and Simulation’s core markets of material, aerospace, civil infrastructure and automotive testing and simulation. In addition to gaining access to exciting adjacent simulation markets and advancing key electric motion technologies, MTS also gains an expanded local engineering and manufacturing base in its European market and a proven leadership team in E2M. E2M is expected to contribute nearly $30 million in incremental revenues in fiscal 2019 and double-digit growth thereafter. The acquisition is expected to be neutral to earnings in year one exclusive of transaction costs and is expected to provide immediate accretion to gross margins and Adjusted EBITDA margins for the Test and Simulation segment. MTS funded the approximate $80 million purchase price for this acquisition using primarily its revolving credit facility. Given the record backlog position of MTS at the end of fiscal 2018, and the expected incremental Adjusted EBITDA generation of E2M, MTS expects rapid strengthening of its balance sheet following this acquisition, with a forecasted year-over-year net reduction in leverage by the end of fiscal 2019. “We are very excited about adding E2M Technologies to our company, as we accelerate our growth in electric motion and simulation technologies and broaden our market exposure. E2M motion systems offer unprecedented replication of real-world environments in human-capable systems, providing a safe, effective, and highly efficient way to train pilots, as well as locomotive, ship and mass transit operators, and even vehicle drivers for new ground vehicle systems. These markets, along with the rapid expansion in number, scale and sophistication of amusement parks globally, provide outstanding growth opportunities for our company. We also place a strong emphasis on the talent and demonstrated capabilities of the acquired company’s management team. E2M’s strong technology position and track record for outstanding growth and profitability with extremely demanding customers world-wide is a testament to their leadership and the entrepreneurial spirit of the organization. With this cultural match to MTS, we are confident that the financial return of this investment will not only be met, but greatly surpassed in the future,” stated Dr. Jeffrey Graves, President and Chief Executive Officer of MTS. “MTS’ renowned engineering expertise, exceptional brand, and global footprint, when combined with E2M’s superb electric motion technology and strong adjacent market positions, offer exceptional growth opportunities for the combined entity. MTS’ broad array of products and technologies and global sales and service enables E2M to provide its customers better service and support, and we are excited to work together,” stated Jan van Bekkum, co-founder and Chief Executive Officer of E2M.

Robotics Sensing Specialists MTS Acquires E2M

Acquired

E2M is a producer in high-quality, durable, electrically-driven motion systems, serving primarily the human-rated entertainment and training simulation markets. Key product applications include high-technology motion simulators for the amusement park industry and flight simulators for certified pilot training, both of which offer substantial growth opportunities for the future.

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