0000068709-19-000050.txt : 20191125 0000068709-19-000050.hdr.sgml : 20191125 20191125160937 ACCESSION NUMBER: 0000068709-19-000050 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20191125 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20191125 DATE AS OF CHANGE: 20191125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MTS SYSTEMS CORP CENTRAL INDEX KEY: 0000068709 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 410908057 STATE OF INCORPORATION: MN FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02382 FILM NUMBER: 191246220 BUSINESS ADDRESS: STREET 1: 14000 TECHNOLOGY DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-2290 BUSINESS PHONE: 6129374000 MAIL ADDRESS: STREET 1: 14000 TECHNOLOGY DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 FORMER COMPANY: FORMER CONFORMED NAME: RESEARCH INC DATE OF NAME CHANGE: 19670216 8-K 1 mts8k11252019er.htm 8-K Document
false0000068709 0000068709 2019-11-25 2019-11-25



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
Form
8-K
 

CURRENT REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): November 25, 2019
 
 
 
 mtslogojpga01.jpg
MTS SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
Minnesota
000-02382
41-0908057
(STATE OR OTHER JURISDICTION OF INCORPORATION)
(COMMISSION FILE NUMBER)
(I.R.S. EMPLOYER IDENTIFICATION NO.)
14000 TECHNOLOGY DRIVE, EDEN PRAIRIE, MN 55344
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(952) 937-4000
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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))
Securities registered pursuant to Section 12(b) of the Act:
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
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


1




Item 2.02
Results of Operations and Financial Condition

On November 25, 2019, MTS Systems Corporation (the “Company”) issued a press release announcing the results of operations and financial condition for the fourth quarter and fiscal year ended September 28, 2019.

During a conference call scheduled to be held at 10:00 a.m. ET on November 26, 2019, the Company’s President and Chief Executive Officer, Dr. Jeffrey A. Graves, and Executive Vice President and Chief Financial Officer, Brian T. Ross, will discuss the Company’s results for the fiscal quarter and fiscal year ended September 28, 2019.

Attached to this Current Report on Form 8-K as Exhibit 99.1 is a copy of the Company’s press release in connection with the announcement. The information in this Item 2.02, including Exhibit 99.1, is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.


Item 9.01
Financial Statements and Exhibits
(d)
 
Exhibits

The following exhibit is being furnished herewith:


2




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
MTS SYSTEMS CORPORATION
 
 
 
(Registrant)
 
 
 
 
Date:
November 25, 2019
By:
/s/ BRIAN T. ROSS
 
 
 
Brian T. Ross
 
 
 
Executive Vice President and Chief Financial Officer


3

EX-99.1 2 pressreleasedatednovem.htm EXHIBIT 99.1 Exhibit
MTS News Release
Page 1


Exhibit 99.1
mtslogoa62.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
November 25, 2019

MTS REPORTS FISCAL YEAR 2019 FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS
EDEN PRAIRIE, MN - November 25, 2019 - 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 fourth quarter and full year ended September 28, 2019.
FULL YEAR FINANCIAL AND OPERATING HIGHLIGHTS
Ø Record revenue of $892.5 million, an increase of 14.7%
Ø
GAAP diluted earnings per share of $2.21, a decrease of $0.97 or 30.5%
Ø
Adjusted diluted earnings per share of $2.44, a decrease of $0.84 or 25.6%
Ø
GAAP net income of $43.1 million, or 4.8%, a decrease of 29.8%
Ø
Record Adjusted EBITDA of $132.6 million, an increase of 15.4%
Ø Declared 151st consecutive quarterly dividend

FINANCIAL TABLE
 
Three Months Ended
 
Twelve Months Ended

(in thousands, except per share data - unaudited)
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
Revenue
$
224,082

 
$
197,879

 
$
892,518

 
$
778,032

Revenue % increase (decrease)1
13.2
%
 
(1.8
)%
 
14.7
%
 
(1.3
)%
Gross margin
34.9
%
 
38.7
 %
 
36.9
%
 
39.3
 %
Operating margin
6.5
%
 
8.0
 %
 
8.9
%
 
8.4
 %
Earnings before taxes
$
4,150

 
$
14,532

 
$
48,613

 
$
44,223

Net income
4,821

 
10,760

 
43,067

 
61,328

Diluted earnings per share
0.25

 
0.56

 
2.21

 
3.18

Adjusted diluted earnings per share2
0.37

 
0.61

 
2.44

 
3.28

Adjusted EBITDA2
29,601

 
32,683

 
132,614

 
114,869

Cash and cash equivalents, end of period
 
 
 
 
57,937

 
71,804

Backlog, end of period
 
 
 
 
420,115

 
415,155

Total debt, end of period
 
 
 
 
512,617

 
388,378

1 
Revenue growth rates in fiscal year 2019 reflect the acquisitions of E2M Technologies B.V. (E2M) that occurred on November 21, 2018 and Endevco that occurred on August 5, 2019.
2 
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 executed very well this year on our growth and diversification strategy, delivering record revenue with double-digit top-line growth, along with adding two important simulation and sensing businesses to our company, E2M and Endevco. These acquisitions, in combination with our ongoing R&D investments, promise to bring exciting growth and profitability expansion to our company for years to come.
For fiscal year 2019, our Test & Simulation business drove top-line growth of over 20% compared to the prior year, with expansion to their operating margin. Our Sensors business delivered another record revenue performance with 7% growth and finished the year with a strong backlog that positions us for significant acceleration of growth in Sensors for fiscal year 2020. This top-line performance demonstrates the continued benefits of our diversification strategy, our success with new product introductions across all of our major end markets, and our ability to capitalize on rapidly expanding market opportunities in our Sensors business.
While we are excited about our top-line momentum, we continue to focus on our cost structure and in driving operational efficiencies in both businesses. These efforts contributed to a net income margin of 4.8% for the year and a 15.4% increase in Adjusted EBITDA, equating to an Adjusted EBITDA margin of 14.9% for the year. This solid performance supports our continued investments in new product development, diversification, and capital structure optimization, all while returning cash to our shareholders through our quarterly dividend.
As we enter our new fiscal year, we are excited about the resilience of our markets, our record year-end backlog, which topped $420 million, and the customer reception to our new product offerings. Looking ahead, we continue to target quality order replenishment to further expand our backlog and to drive operating efficiencies that underpin our growth and margin expansion during fiscal year 2020."

HIGHLIGHTS FOR THE 2019 FOURTH FISCAL QUARTER
Revenue
Revenue was $224.1 million, up 13.2% compared to the same prior year period, driven by continued revenue growth in Test & Simulation, which included revenue from the acquisition of E2M which closed in the first quarter of fiscal year 2019. The quarter also benefited from equipment volume growth in the materials and structures sectors and growth in Test services. Sensors experienced strong revenue growth driven in part by the continued ramp-up in volume associated with our U.S. Department of Defense contract and the addition of revenue from the acquisition of Endevco which closed during the fourth quarter of fiscal year 2019, slightly offset by weakness in the European region in our Sensors position sector.
Orders
Test orders during the quarter were $116.6 million, a 17.1% decrease compared to the same prior year period driven primarily by a large order in our Test structures sector in the prior year, delays in orders from the uncertainty surrounding potential tariffs and weakness in the Americas region. This decline was partially offset by the addition of orders from the acquisition of E2M and growth in our Test ground vehicles sector.
Sensors orders during the quarter were $90.2 million, representing a 6.4% decrease over the same prior year period. This decline was primarily driven by timing differences related to when orders from our U.S. Department of Defense contract were funded in fiscal year 2019 versus fiscal year 2018 and weakness in the European region specific to our Sensors position sector. This decrease was offset by a large order in our Sensors test sector and the addition of orders from the acquisition of Endevco.
Net Income and Diluted Earnings Per Share
Diluted earnings per share was $0.25 compared to $0.56 during the same prior year period on net income of $4.8 million and $10.8 million, respectively. The $0.31 decrease was primarily driven by the $4.6 million gain recognized on the sale of one of our China manufacturing facilities in the prior year. During fiscal year 2019, we also had higher interest expense from our increased debt position as a result of the issuance of our senior unsecured notes in the fourth quarter of fiscal year 2019, along with the acceleration of debt amortization cost from the pay down on the term loan B facility, a reduction in Test & Simulation gross profit and acquisition-related costs. The decrease was partially offset by leverage from higher Sensors revenue growth and a lower effective tax rate.
Fourth quarter results were impacted by $0.12 of non-recurring costs associated with acquisition-related expenses, restructuring / other expenses and the Endevco acquisition inventory fair value adjustment. Similarly, results for the



MTS News Release
Page 3


fourth quarter of fiscal year 2018 include $0.05 of restructuring expenses. Adjusting for these items, adjusted diluted earnings per share was $0.37 for the fourth quarter of fiscal year 2019 and $0.61 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 was $29.6 million, down 9.4% compared to the same prior year period. The decline was primarily due to the $4.6 million gain recognized on the sale of one of our China manufacturing facilities in the prior year. During fiscal year 2019, we also had a decrease in Test & Simulation gross profit and higher Sensors operating expenses, partially offset by higher Sensors gross profit and contributions from the acquisitions of E2M and Endevco. 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 increased by $50.1 million to $512.6 million due to our increased debt position as a result of the issuance of our senior unsecured notes, partially offset by the pay down of our term loan B and settlement of the tangible equity units. We ended the quarter with $57.9 million of cash, resulting in a net debt balance of $454.7 million. For fiscal year 2019, our ratio of interest-bearing debt to Adjusted EBITDA was 4.0 and our ratio of net interest-bearing debt to Adjusted EBITDA was 3.5.
Dividend
The Board of Directors declared a quarterly dividend of $0.30 per share. The dividend was payable on September 30, 2019 to shareholders of record as of the close of business on September 16, 2019. This was our 151st consecutive quarterly dividend.

HIGHLIGHTS FOR THE 2019 FULL FISCAL YEAR
Revenue
Revenue was $892.5 million, up 14.7% compared to the prior year, driven by record revenue in Test & Simulation, which included equipment volume growth in all sectors and geographies, along with revenue contributions from the acquisition of E2M and continued growth in Test services. Sensors also experienced record revenue driven by the continued ramp-up in volume associated with our U.S. Department of Defense contract, growth in our Sensors position sector during the first half of fiscal year 2019, growth in the Sensors industrial sector from a continued rebound in the energy market and contributions from the acquisition of Endevco.
Orders
Test orders for the fiscal year were $477.6 million, a 3.5% decrease compared to the prior year, driven predominantly by weakness in the Asia region due to uncertainty surrounding potential tariffs. This decrease was partially offset by orders contribution from the acquisition of E2M. Our orders performance does not reflect the full impact of a new Test & Simulation 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 $4.3 million of the full $30.4 million order, inclusive of options, for this new test system in fiscal year 2019.
Sensors orders for the fiscal year were a record $344.5 million, a 2.5% increase compared to the prior year. This strength was driven by a larger order in our Sensors test sector, the addition of orders from the acquisition of Endevco, solid demand in the Americas region particularly in our Sensors position sector and orders growth in our Sensors industrial sector from a continued rebound in the energy market, partially offset by weakness in the European region.
Backlog
Backlog of $420.1 million was up 1.2% compared to the same prior year period primarily driven by the addition of backlog from the E2M and Endevco acquisitions, along with strong full year Sensors orders. The increase was partially offset by the high level of conversion to revenue on outstanding projects, along with a lower order volume in Test & Simulation. Ending backlog for Test & Simulation and Sensors was $342.7 million and $77.5 million, respectively.



MTS News Release
Page 4


Net Income and Diluted Earnings Per Share
Diluted earnings per share was $2.21 compared to $3.18 in the prior year on net income of $43.1 million and $61.3 million, respectively. The $0.97 decrease was primarily due to certain discrete tax benefits of $25.0 million for the estimated impact of the Tax Cuts and Jobs Act and the gain on the sale of one of our China manufacturing facilities both recognized in the prior year. During fiscal year 2019, we also had increased operating expenses, higher interest expense, acquisition inventory fair value adjustments and acquisition-related and restructuring / other expenses. The decline was partially offset by growth in both segments and the additional contributions from the E2M and Endevco acquisitions.
Fiscal year 2019 results were impacted by $0.23 of non-recurring costs associated with acquisition-related expenses, restructuring / other expenses and the E2M and Endevco acquisition inventory fair value adjustments. Similarly, results for fiscal year 2018 include $0.10 of restructuring expenses. Adjusting for these items, adjusted diluted earnings per share was $2.44 for fiscal year 2019 and $3.28 for the prior year. The current year adjusted earnings per share amount includes $0.18 for certain discrete tax items compared to $1.30 included in the prior year primarily related to the impacts of the Tax Cuts and Jobs Act. 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 C of this earnings release.
Adjusted EBITDA
Adjusted EBITDA was $132.6 million compared to $114.9 million in the prior year, up $17.7 million. This increase was primarily due to the strong revenue growth in both segments and additional contributions from the E2M and Endevco acquisitions, partially offset by higher operating expenses and the prior year gain recognized on the sale of one of our China manufacturing facilities. 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.

OUTLOOK
Test & Simulation Business
Our performance for fiscal year 2019 sets us up for future growth in our Test & Simulation business. Future orders growth from strength in our simulation platforms, material testing and service offerings is expected to temper the headwinds experienced in the global economy. Overall, we anticipate challenges across all sectors stemming from a general weakening of the global economy, uncertainties surrounding tariffs and technology disruptions in the transportation market. 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 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 brings 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 double digit top-line growth, along with Adjusted EBITDA margin expansion, for the Sensors business in fiscal year 2020. This growth outlook is particularly encouraging given the headwinds we continue to expect in the European and Asia regions, driven in part from uncertainties arising from potential trade tariffs, as well as overall sluggish regional economic performance.



MTS News Release
Page 5


Consolidated
Based on these factors, we introduce 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 acquisition of Endevco sensors business;
Our signing of the definitive agreement to purchase the six operating entities of R&D with an anticipated deal closure by December 31, 2019, subject to normal and customary closing procedures. If the deal does not close within our expected timeline, this could cause us to update our fiscal year 2020 guidance; and
An anticipated effective tax rate, excluding discrete tax items, of 15-19% for fiscal year 2020.
A reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable GAAP financial measure, for the above outlook is included in Exhibit F of this earnings release.

FOURTH QUARTER CONFERENCE CALL
As announced on November 11, 2019, a conference call will be held on November 26, 2019 (tomorrow), at 10:00 a.m. ET (9:00 a.m. CT). Dr. Jeff Graves, President and Chief Executive Officer, and Brian 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 +1-800-367-2403 (international toll +1-334-777-6978) and reference the conference pass code 1642275. Telephone replay will be available at 1:00 p.m. ET following the call until 1:00 p.m. ET, December 2, 2019. Call toll free +1-888-203-1112 and reference the conference pass code 1642275.
A transcript of the call can also be accessed from the MTS website at http://investor.mts.com beginning on November 27, 2019.

ABOUT MTS SYSTEMS CORPORATION
MTS Systems Corporation’s testing 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 / other expenses, acquisition-related expenses, acquisition integration expenses and acquisition inventory fair value adjustments 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 / other expenses, acquisition-related expenses, acquisition integration expenses and acquisition inventory fair value adjustments to net income and dividing the result by the diluted weighted average shares outstanding.




MTS News Release
Page 6


We believe that disclosing earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA excluding the impact from stock-based compensation, restructuring / other expenses, acquisition-related expenses, acquisition integration expenses and acquisition inventory fair value adjustments (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 / other expenses, acquisition-related expenses, acquisition integration expenses and acquisition inventory fair value adjustments 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.

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
 
Twelve Months Ended
 
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Product
$
194,716

 
$
171,046

 
$
782,012

 
$
674,391

Service
29,366

 
26,833

 
110,506

 
103,641

Total revenue
224,082

 
197,879

 
892,518

 
778,032

Cost of sales
 
 
 
 
 
 
 
Product
126,464

 
104,716

 
494,725

 
409,525

Service
19,446

 
16,671

 
68,863

 
62,978

Total cost of sales
145,910

 
121,387

 
563,588

 
472,503

Gross profit
78,172

 
76,492

 
328,930

 
305,529

Gross margin
34.9
%
 
38.7
%
 
36.9
%
 
39.3
%
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Selling and marketing
32,834

 
31,537

 
131,639

 
126,333

General and administrative
22,854

 
20,605

 
86,658

 
79,240

Research and development
7,920

 
8,549

 
30,928

 
34,784

Total operating expenses
63,608

 
60,691

 
249,225

 
240,357

 
 
 
 
 
 
 
 
Income from operations
14,564

 
15,801

 
79,705

 
65,172

Operating margin
6.5
%
 
8.0
%
 
8.9
%
 
8.4
%
 
 
 
 
 
 
 
 
Interest expense, net
(10,685
)
 
(6,121
)
 
(31,558
)
 
(25,882
)
Other income (expense), net
271

 
4,852

 
466

 
4,933

 
 
 
 
 
 
 
 
Income before income taxes
4,150

 
14,532

 
48,613

 
44,223

Income tax provision (benefit)
(671
)
 
3,772

 
5,546

 
(17,105
)
Net income
$
4,821

 
$
10,760

 
$
43,067

 
$
61,328

 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 Basic
 
 
 
 
 
 
 
Earnings per share
$
0.25

 
$
0.56

 
$
2.24

 
$
3.20

Weighted average common shares outstanding
19,268

 
19,206

 
19,258

 
19,163

 
 
 
 
 
 
 
 
 Diluted
 
 
 
 
 
 
 
Earnings per share
$
0.25

 
$
0.56

 
$
2.21

 
$
3.18

Weighted average common shares outstanding
19,519

 
19,363

 
19,447

 
19,293

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.30

 
$
0.30

 
$
1.20

 
$
1.20





MTS News Release
Page 8


 MTS SYSTEMS CORPORATION
 Condensed Consolidated Balance Sheets
 (unaudited - in thousands)
 
 
 
 
 
September 28,
2019
 
September 29,
2018
 
 
 
 
 ASSETS
 
 
 
 
 
 
 
 Current assets
 
 
 
 Cash and cash equivalents
$
57,937

 
$
71,804

 Accounts receivable, net
121,260

 
122,243

 Unbilled accounts receivable, net
80,331

 
70,474

 Inventories, net
167,199

 
139,109

 Other current assets
23,761

 
24,572

 Total current assets
450,488

 
428,202

 
 
 
 
 Property and equipment, net
101,083

 
90,269

 
 
 
 
 Goodwill
429,039

 
369,275

 Intangible assets, net
306,585

 
246,138

 Other long-term assets
10,782

 
5,512

 Total assets
$
1,297,977

 
$
1,139,396

 
 
 
 
 LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 Current liabilities
 
 
 
 Current maturities of long-term debt, net
$
27,969

 
$
32,738

 Accounts payable
46,849

 
47,886

 Advance payments from customers
70,520

 
80,131

 Other accrued liabilities
106,238

 
78,358

 Total current liabilities
251,576

 
239,113

 
 
 
 
 Long-term debt, less current maturities
484,648

 
355,640

 Other long-term liabilities
77,694

 
66,711

 Total liabilities
813,918

 
661,464

 
 
 
 
 Shareholders' equity
 
 
 
 Common stock, $0.25 par; 64,000 shares authorized:
 
 
 
19,124 and 17,856 shares issued and outstanding as
 
 
 
of September 28, 2019 and September 29, 2018, respectively
4,781

 
4,464

 Additional paid-in capital
182,422

 
171,407

 Retained earnings
315,329

 
300,585

 Accumulated other comprehensive income (loss)
(18,473
)
 
1,476

 Total shareholders' equity
484,059

 
477,932

 Total liabilities and shareholders' equity
$
1,297,977

 
$
1,139,396





MTS News Release
Page 9


 MTS SYSTEMS CORPORATION
Condensed Consolidated Statements of Cash Flows
 (unaudited - in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
 
 
 
 
 
 
 
 
Cash Flows from Operating Activities
 
 
 
 
 
 
 
Net income
$
4,821

 
$
10,760

 
$
43,067

 
$
61,328

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
 
 
 
 
Stock-based compensation
2,099

 
1,905

 
9,397

 
7,283

Fair value adjustment to acquired inventory
460

 

 
1,601

 

Depreciation and amortization
9,822

 
8,634

 
37,975

 
34,492

(Gain) loss on sale or disposal of property and equipment
890

 
(4,333
)
 
1,442

 
(4,162
)
Amortization of financing fees
3,958

 
820

 
6,765

 
4,644

Deferred income taxes
(9,630
)
 
1,937

 
(11,060
)
 
(28,252
)
Other
770

 
1,215

 
2,227

 
3,338

Changes in operating assets and liabilities
10,303

 
(9,802
)
 
(17,951
)
 
(15,424
)
Net Cash Provided by (Used in) Operating Activities
23,493

 
11,136

 
73,463

 
63,247

 
 
 
 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
 
 
 
Purchases of property and equipment
(13,148
)
 
(2,544
)
 
(30,525
)
 
(12,321
)
Proceeds from sale of property and equipment

 
6,724

 
10

 
6,793

Purchases of business, net of acquired cash
(68,430
)
 

 
(151,956
)
 

Other

 

 
(285
)
 
823

Net Cash Provided by (Used in) Investing Activities
(81,578
)
 
4,180

 
(182,756
)
 
(4,705
)
 
 
 
 
 
 
 
 
Cash Flows from Financing Activities
 
 
 
 
 
 
 
Proceeds from issuance of long-term debt
350,000

 

 
430,391

 

Payments on financing arrangements, net
(303,956
)
 
(3,757
)
 
(313,177
)
 
(73,795
)
Cash dividends
(5,614
)
 
(5,402
)
 
(21,713
)
 
(21,360
)
Proceeds from exercise of stock options and employee stock purchase plan
1,738

 
291

 
3,435

 
1,992

Payments to purchase and retire common stock
(149
)
 
(97
)
 
(1,533
)
 
(1,403
)
Net Cash Provided by (Used in) Financing Activities
42,019

 
(8,965
)
 
97,403

 
(94,566
)
 
 
 
 
 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(1,732
)
 
(950
)
 
(1,977
)
 
(905
)
Cash and Cash Equivalents
 
 
 
 
 
 
 
Increase (decrease) during the period
(17,798
)
 
5,401

 
(13,867
)
 
(36,929
)
Balance, beginning of period
75,735

 
66,403

 
71,804

 
108,733

Balance, End of Period
$
57,937

 
$
71,804

 
$
57,937

 
$
71,804




MTS News Release
Page 10


Exhibit A
MTS SYSTEMS CORPORATION
Segment Financial Information
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
September 28,
2019
 
September 29,
2018
 
September 28, 2019
 
September 29,
2018
Test & Simulation Segment
 
 
 
 
 
 
 
Revenue
$
133,988

 
$
120,428

 
$
558,908

 
$
464,924

Cost of sales
97,683

 
80,185

 
391,493

 
314,735

Gross profit
36,305

 
40,243

 
167,415

 
150,189

Gross margin
27.1
%
 
33.4
%
 
30.0
%
 
32.3
%
 
 
 
 
 
 
 
 
Operating expenses
33,664

 
33,795

 
133,335

 
130,964

 
 
 
 
 
 
 
 
Income from operations
$
2,641

 
$
6,448

 
$
34,080

 
$
19,225

 
 
 
 
 
 
 
 
Sensors Segment
 
 
 
 
 
 
 
Revenue
$
90,420

 
$
77,768

 
$
334,976

 
$
314,269

Cost of sales
48,550

 
41,515

 
173,466

 
158,896

Gross profit
41,870

 
36,253

 
161,510

 
155,373

Gross margin
46.3
%
 
46.6
%
 
48.2
%
 
49.4
%
 
 
 
 
 
 
 
 
Operating expenses
29,944

 
26,896

 
115,890

 
109,393

 
 
 
 
 
 
 
 
Income from operations
$
11,926

 
$
9,357

 
$
45,620

 
$
45,980

 
 
 
 
 
 
 
 
Intersegment Eliminations
 
 
 
 
 
 
 
Revenue
$
(326
)
 
$
(317
)
 
$
(1,366
)
 
$
(1,161
)
Cost of sales
(323
)
 
(313
)
 
(1,371
)
 
(1,128
)
Gross profit
(3
)
 
(4
)
 
5

 
(33
)
 
 
 
 
 
 
 
 
Income (loss) from operations
$
(3
)
 
$
(4
)
 
$
5

 
$
(33
)
 
 
 
 
 
 
 
 
Total Company
 
 
 
 
 
 
 
Revenue
$
224,082

 
$
197,879

 
$
892,518

 
$
778,032

Cost of sales
145,910

 
121,387

 
563,588

 
472,503

Gross profit
78,172

 
76,492

 
328,930

 
305,529

Gross margin
34.9
%
 
38.7
%
 
36.9
%
 
39.3
%
 
 
 
 
 
 
 
 
Operating expenses
63,608

 
60,691

 
249,225

 
240,357

 
 
 
 
 
 
 
 
Income from operations
$
14,564

 
$
15,801

 
$
79,705

 
$
65,172




MTS News Release
Page 11


Exhibit B
MTS SYSTEMS CORPORATION
Reconciliation of Earnings Per Share Excluding
Restructuring / Other, Acquisition-Related and Acquisition Inventory Fair Value Adjustments
(unaudited - in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
September 28, 2019
 
September 29, 2018
 
Pre-tax
Tax
Net
 
Pre-tax
Tax
Net
Net income
$
4,150

$
(671
)
$
4,821

 
$
14,532

$
3,772

$
10,760

Restructuring / other expenses 1
700

162

538

 
1,387

357

1,030

Acquisition-related expenses2
1,805

379

1,426

 



Acquisition inventory fair value adjustments1
460

97

363

 



Adjusted net income3
$
7,115

$
(33
)
$
7,148

 
$
15,919

$
4,129

$
11,790

 
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
 
 
19,519

 
 
 
19,363

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.21

$
(0.04
)
$
0.25

 
$
0.75

$
0.19

$
0.56

Impact of restructuring / other expenses
0.04

0.01

0.03

 
0.07

0.02

0.05

Impact of acquisition-related expenses
0.09

0.02

0.07

 



Impact of acquisition inventory fair value adjustments
0.02


0.02

 



Adjusted diluted earnings per share3
$
0.36

$
(0.01
)
$
0.37

 
$
0.82

$
0.21

$
0.61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1  In determining the tax impact of restructuring / other 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 to these expenses.
 
 
 
 
 
 
 
 
3  Denotes non-GAAP financial measure.




MTS News Release
Page 12


Exhibit C
MTS SYSTEMS CORPORATION
Reconciliation of Earnings Per Share Excluding
Restructuring / Other, Acquisition-Related and Acquisition Inventory Fair Value Adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended
 
September 28, 2019
 
September 29, 2018
 
Pre-tax
Tax
Net
 
Pre-tax
Tax
Net
Net income
$
48,613

$
5,546

$
43,067

 
$
44,223

$
(17,105
)
$
61,328

Restructuring / other expenses1
830

195

635

 
2,730

697

2,033

Acquisition-related expenses2
2,938

617

2,321

 



Acquisition inventory fair value adjustments1
1,601

269

1,332

 



Adjusted net income3
$
53,982

$
6,627

$
47,355

 
$
46,953

$
(16,408
)
$
63,361

 
 
 
 
 
 
 
 
Weighted average diluted common shares outstanding
 
 
19,447

 
 
 
19,293

 
 
 
 
 
 
 
 
Diluted earnings per share
$
2.50

$
0.29

$
2.21

 
$
2.29

$
(0.89
)
$
3.18

Impact of restructuring / other expenses
0.04

0.01

0.03

 
0.14

0.04

0.10

Impact of acquisition-related expenses
0.15

0.02

0.13

 



Impact of acquisition inventory fair value adjustments
0.08

0.01

0.07

 



Adjusted diluted earnings per share3
$
2.77

$
0.33

$
2.44

 
$
2.43

$
(0.85
)
$
3.28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1  In determining the tax impact of restructuring / other 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 to these expenses.
 
 
 
 
 
 
 
 
3  Denotes non-GAAP financial measure.




MTS News Release
Page 13


Exhibit D
MTS SYSTEMS CORPORATION
Reconciliation of EBITDA and Adjusted EBITDA to Net Income
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net income
$
4,821

 
$
10,760

 
$
43,067

 
$
61,328

Net income margin
2.2
%
 
5.4
%
 
4.8
%
 
7.9
%
 
 
 
 
 
 
 
 
Income tax provision (benefit)
(671
)
 
3,772

 
5,546

 
(17,105
)
Interest expense, net
10,685

 
6,121

 
31,558

 
25,882

Depreciation and amortization
9,822

 
8,634

 
37,975

 
34,492

EBITDA 1
24,657

 
29,287

 
118,146

 
104,597

 
 
 
 
 
 
 
 
Stock-based compensation
2,099

 
1,905

 
9,397

 
7,283

Restructuring / other expenses 2
700

 
1,491

 
830

 
2,989

Acquisition-related expenses 3
1,685

 

 
2,640

 

Acquisition inventory fair value adjustments
460

 

 
1,601

 

Adjusted EBITDA 1
$
29,601

 
$
32,683

 
$
132,614

 
$
114,869

Adjusted EBITDA margin 1,4
13.2
%
 
16.5
%
 
14.9
%
 
14.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1  Denotes non-GAAP financial measures.
 
 
 
 
 
 
 
 
2  Restructuring / other expenses were adjusted to exclude stock-based compensation forfeitures and depreciation expense that are otherwise included in the stock-based compensation line and depreciation and amortization line.
 
 
 
 
 
 
 
 
3  Acquisition-related expenses include acquisition and integration expenses associated with the E2M and Endevco acquisitions. They were adjusted to exclude stock-based compensation that is otherwise included in the stock-based compensation line.
 
 
 
 
 
 
 
 
4  Adjusted EBITDA was divided by revenue to calculate Adjusted EBITDA margin.




MTS News Release
Page 14


Exhibit E
MTS SYSTEMS CORPORATION
Free Cash Flow
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net Cash Provided by (Used in) Operating Activities
$
23,493

 
$
11,136

 
$
73,463

 
$
63,247

Purchases of property and equipment
(13,148
)
 
(2,544
)
 
(30,525
)
 
(12,321
)
Proceeds from sale of property and equipment

 
6,724

 
10

 
6,793

Free cash flow1
$
10,345

 
$
15,316

 
$
42,948

 
$
57,719

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1  Denotes non-GAAP financial measures.
 
 
 
 
 
 
 




MTS News Release
Page 15


Exhibit F
MTS SYSTEMS CORPORATION
Reconciliation of EBITDA and Adjusted EBITDA to Net Income - Outlook
(unaudited - in thousands)
 
 
 
 
 
 
 
 
 
Twelve Months Ending
 
 
October 3, 2020
 
Low
 
High
Net income
$
40,300

 
$
46,200

Income tax provision (benefit)1
8,700

 
11,000

Interest expense, net
35,100

 
37,200

Depreciation and amortization
41,900

 
47,600

EBITDA2
126,000

 
142,000

 
 
 
 
Stock-based compensation and non-recurring expenses3
12,000

 
16,000

Adjusted EBITDA2
$
138,000

 
$
158,000

 
 
 
 
 
 
 
 
1  Applied anticipated tax rate, excluding discrete tax items, of approximately 15-19%.

 
 
 
 
2  Denotes non-GAAP financial measures.
 
 
 
 
3  Includes pre-tax forecast expenses for stock-based compensation, acquisition-related and restructuring expenses.




MTS News Release
Page 16


Exhibit G
MTS SYSTEMS CORPORATION
Reconciliation of Diluted Earnings per Share and 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, net of tax 2, 3
3,000

 
4,000

Adjusted net income4
$
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 share4
$
2.20

 
$
2.55

 
 
 
 
 
 
 
 
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, net of tax.
 
 
 
 
3  Applied anticipated tax rate, excluding discrete tax items, of approximately 15-19%.
 
 
 
 
4  Denotes non-GAAP financial measures.




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Title of 12(b) Security Common stock, $0.25 par value
Trading Symbol MTSC
Security Exchange Name NASDAQ
Entity Emerging Growth Company false
Entity Central Index Key 0000068709
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