Form 8-K |
MINNESOTA | 000-02382 | 41-0908057 |
(STATE OR OTHER JURISDICTION OF INCORPORATION) | (COMMISSION FILE NUMBER) | (I.R.S. EMPLOYER IDENTIFICATION NO.) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, $0.25 par value | MTSC | The Nasdaq Stock Market LLC |
Emerging growth company ☐ |
Item 2.02 | Results of Operations and Financial Condition |
Item 9.01 | Financial Statements and Exhibits |
(d) | Exhibits |
MTS SYSTEMS CORPORATION | |||
(Registrant) | |||
Date: | August 5, 2019 | By: | /s/ BRIAN T. ROSS |
Brian T. Ross | |||
Executive Vice President and Chief Financial Officer |
FOR IMMEDIATE RELEASE August 5, 2019 |
Ø | GAAP diluted earnings per share of $0.70, an increase of $0.23 or 49% |
Ø | Net income margin of 5.9%, an increase of 124 basis points |
Ø | Adjusted EBITDA margin of 15.2%, an increase of 96 basis points |
Ø | Backlog of $443.3 million, an increase of 17% |
Ø | Declared 150th consecutive quarterly dividend |
Three Months Ended | Nine Months Ended | ||||||||||||||
(in thousands, except per share data - unaudited) | June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 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 share2 | 0.71 | 0.49 | 2.07 | 2.68 | |||||||||||
Adjusted EBITDA2 | 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. |
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 |
• | $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. |
MTS SYSTEMS CORPORATION | |||||||||||||||
Consolidated Statements of Income | |||||||||||||||
(unaudited - in thousands, except per share data) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 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, 2019 | September 29, 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, 2019 | June 30, 2018 | June 29, 2019 | June 30, 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, 2019 | June 30, 2018 | % Variance | ||||||||
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 operations | $ | 11,424 | $ | 3,873 | 195 | % | ||||
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 operations | $ | 11,556 | $ | 12,398 | (7 | )% | ||||
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 operations | $ | 23,001 | $ | 16,264 | 41 | % |
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 share3 | $ | 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 share3 | $ | 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 margin 1,4 | 15.2 | % | 14.3 | % | 15.4 | % | 14.2 | % | |||||||
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, 2019 | June 30, 2018 | June 29, 2019 | June 30, 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 flow1 | $ | 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 | ||||
EBITDA1 | 115,500 | 123,500 | ||||
Stock-based compensation and non-recurring expenses2 | 12,500 | 14,500 | ||||
Adjusted EBITDA1 | $ | 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 income1 | $ | 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 expenses2 | 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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