MTS Reports Fiscal 2015 Fourth Quarter And Full Year Financial Results

Dec 02, 2015, 16:05 ET from MTS Systems Corporation

EDEN PRAIRIE, MN, Dec. 2, 2015 /PRNewswire/ -- MTS Systems Corporation (Nasdaq: MTSC), a leading global supplier of high-performance test systems and position sensors, today reported fiscal 2015 fourth quarter and full year financial results for its fiscal year ended October 3, 2015.

  • Fiscal year revenues of $564 million were relatively flat, but up 6% on a constant currency basis
  • Fiscal year EPS of $3.00, consistent with prior guidance
  • Record operating cash flow of $100 million
  • Test Services record full year revenue of $79 million up 2%, but up 11% on a constant currency basis
  • Record fourth quarter and full year orders of $170 million and $618 million, respectively

"MTS exited the fiscal year on a high note, delivering a record fourth quarter and full year orders performance, driven by our Test Services initiative which gained significant traction as we moved through the second half," said Dr. Jeffrey Graves, President and Chief Executive Officer of MTS Systems. "This orders growth demonstrates the continuing demand for MTS technologies world-wide, across virtually all of our markets, as our customers continue investing in new products to satisfy their diverse end-market requirements. We were particularly pleased with the rising demand for our Test Services, orders which were up 42 percent in the quarter, or 54 percent on a constant currency basis, as we increasingly benefit from our investment in Services personnel and infrastructure.

"Revenue for the quarter was relatively flat, but up seven percent on a constant currency basis. This growth was driven by strength in Europe and Asia, which rose 17 percent and 15 percent, respectively, on a constant currency basis. Test experienced a strong quarter with revenue up seven percent on a constant currency basis as we improved our backlog conversion rates on our complex custom projects. Sensors revenue increased ten percent on a constant currency basis driven by stronger demand in Europe," Dr. Graves continued.

"Reflecting on our performance for the full year, revenue growth, on a constant currency basis, was strong, up six percent overall and up six percent within each business for the fiscal year. Operating margins in our Test business lagged, driven by a higher percentage of custom projects, as well as investments required to support future growth. While product mix, combined with the investment we have made in expanding our engineering workforce and service organizations, have been a drag on margins, we believe this impact has now leveled out, and we expect to see margin improvement toward the end of fiscal 2016, as these resources become fully productive and our product mix improves," Dr. Graves added.    

Fourth Quarter Results

Revenue of $143.5 million was relatively flat compared to the same quarter in the prior year, but increased seven percent on a constant currency basis. Test revenue improved one percent; the conversion of the high opening backlog and solid base order growth, as well as the favorable impact from an extra week in the fiscal quarter, helped offset the negative effects of currency translation. Sensors revenue declined two percent primarily driven by the negative effects of currency translation, partially offset by higher volumes. Excluding currency, Test and Sensors revenue increased 6 percent and 10 percent, respectively, compared to the prior year.

Gross profit of $53.0 million was down five percent compared to the same quarter in the prior year. The gross margin rate declined 2.0 percentage points to 37.0 percent. The decrease was driven primarily by the investment in engineering resources in the Test business to better position the business for growth in future periods, as well as ongoing investment in our Test Services organization.

Operating expenses increased $1.0 million and were 28 percent of revenue, which is within our expected range of 27 to 29 percent. The increase in operating expenses resulted from the investment in resources to drive research and development efforts and higher compensation and benefits expense, and was partially offset by favorable currency translation.

A favorable geographic mix of earnings caused the Company's effective tax rate to decline by 4.8 percentage points to 25.1 percent. Diluted earnings per share were $0.61 compared to $0.71 in the same quarter in the prior year primarily because of lower gross profit and slightly higher operating expenses, which were partially offset by a lower effective tax rate.

Orders were $170.3 million, up four percent, and up ten percent on a constant currency basis compared to the same quarter in the prior year. Test orders increased six percent and were up 12 percent on a constant currency basis, driven by strong base orders in the ground vehicles and materials markets. Sensors orders were down nine percent, but up one percent on a constant currency basis. Backlog at the end of the quarter was a record $353.0 million, up eight percent compared to the prior year. Consistent with this demand outlook, the Test business opportunity pipeline continues to be strong at $884 million.

Cash and cash equivalents at the end of the fourth quarter totaled $51.8 million, compared to $53.3 million at the end of the third quarter of fiscal 2015. During the fourth quarter, operating activities generated cash of $28.5 million. The Company used $15.0 million to pay down borrowings against the line of credit, $8.9 million to pay dividends to shareholders and $5.8 million to invest in capital expenditures.

Full Year Results

Revenue of $563.9 million was flat compared to the prior year and up six percent on a constant currency basis. Test revenue increased one percent driven by higher volumes from converted prior year backlog, as well as the favorable impact from an extra week in the fiscal year, partially offset by the negative effects of currency translation. Sensors revenue declined five percent due to the negative effects of currency translation, which were partially offset by strong order volume in Europe. Excluding currency, Test and Sensors revenues each increased six percent compared to the prior year.

Gross profit of $219.6 million was down two percent compared to the prior year. Gross margin declined approximately 0.7 percentage points to 38.9 percent. The decrease was primarily attributable to unfavorable mix of custom versus standard product in the Test business, which typically have lower margins, and the investment in resources to grow the businesses. These decreases were partially offset by non-recurring severance charges incurred in fiscal year 2014 that impacted the gross margin rate by 0.7 points in the prior year.

Operating expenses decreased $5.3 million and were 28 percent of revenue, which is within our expected range of 27 to 29 percent. The decrease in operating expenses resulted from $7.7 million of favorable currency translation and $2.8 million of non-recurring severance charges incurred in fiscal year 2014, partially offset by investments in selling resources to drive future growth.

The Company's effective tax rate declined from 28.1 percent to 23.2 percent primarily driven by the retroactive extension of the U.S. research and development tax credit, the favorable tax adjustments associated with the conclusion of an IRS audit, and a favorable geographic mix of earnings.

Diluted earnings per share were $3.00 compared to $2.73 in the prior year, which included a $0.28 restructuring charge. Excluding the prior year restructuring charge, earnings per share were relatively flat. A lower effective tax rate and reduced operating expenses were offset by unfavorable gross profit.

Orders were a record $618.3 million, up slightly compared to the prior year and up seven percent on a constant currency basis. Test orders increased two percent, and were up eight percent on a constant currency basis driven by strength in Asia and Europe. Sensors orders were down eight percent, but up two percent on a constant currency basis.

Cash and cash equivalents at the end of the fiscal year totaled $51.8 million, compared to $60.4 million at the end of fiscal year 2014. Fiscal year operating activities generated a record level of cash of $100.4 million. The Company used $38.8 million to pay down borrowings against the line of credit, $28.2 million to purchase approximately 400,000 shares of its common stock, $22.4 million to pay dividends to shareholders and $18.4 million to invest in capital expenditures.

For fiscal year 2015, MTS generated a return on invested capital (ROIC) of 15.5 percent. See "Non-GAAP Financial Measures" below for further information.

Outlook

"Overall, there were many positives from this past year, even though the significant strengthening of the U.S. dollar impacted our results. We continued to deliver strong order volume in Test and Sensors, particularly in Asia and Europe. Even with the slowing general economy in China, our specific markets continued to benefit from both domestic and global OEM investments in R&D and new product development, while other countries in Asia showed strengthening investment trends as well. This market environment was further enhanced by the demand for our Test services, which grew at double digit rates on a constant currency basis. With the generation of record operating cash flow, our balance sheet is very strong, enabling us to invest for the future, while returning cash to shareholders with confidence through dividends and share repurchases. These dynamics left MTS in a very strong position as we exited fiscal 2015 with a record backlog of orders, a robust pipeline of future opportunities and a tailwind of recent investments to drive future growth."

Dr. Graves concluded, "Despite entering fiscal year 2016 with record backlog levels, given the high custom content of the Test backlog, and the expected timing of the conversion of this backlog to revenue, we expect dampened revenue and earnings per share growth in fiscal year 2016 as many of these newly awarded projects extend beyond 12 months in duration and therefore bring their growth beyond fiscal 2016. In addition, with global economic and political instability continuing, we anticipate a risk of ongoing currency volatility, the magnitude of which is unpredictable. Given these factors, we estimate revenues in fiscal year 2016 to be between $570 million and $600 million, and earnings to be $3.03 to $3.28 per share. From a timing standpoint within the fiscal year, backlog conversion projections indicate a stronger second half than first half. More specifically, for the first quarter, we expect revenue and earnings per share to be down slightly from our fourth quarter of fiscal 2015, and increasing thereafter. In spite of a tepid macro-economic environment that now surrounds us, our MTS markets remain solid, our customer base remains financially strong and investing for their future, and our products and services are increasingly in demand around the globe."

Non-GAAP Financial Measures

We believe that return on invested capital ("ROIC") is useful to investors as a measure of operating performance and of the effectiveness of the use of capital in our operations. We use ROIC as one measure to monitor and evaluate operating performance. ROIC is a financial measure that does not reflect generally accepted accounting principles ("GAAP"). We calculate ROIC by dividing net income, excluding after-tax interest expense, by average invested capital. Average invested capital is defined as the aggregate of average interest-bearing debt and average shareholders' investment and is calculated as the sum of current and prior year-ending amounts divided by two. Investors should consider this non-GAAP financial measure in addition to, not as a substitute for or better than, financial measures prepared in accordance with GAAP. A reconciliation of the components of ROIC to the most directly comparable GAAP financial measures is included in Exhibit C to this release.

Fourth Quarter Conference Call

A conference call will be held on December 3, 2015, at 10 a.m. ET (9 a.m. CT). Call +1-719-325-2177 (Toll Free: +1-888-359-3624) and reference the conference pass code "6057107". Telephone replay will be available at 1:00 p.m. ET following the call until 1 p.m. ET, December 10, 2015. Call +1-719-457-0820 (Toll Free: +1-888-203-1112) and reference the conference pass code "6057107".

A transcript of the call can also be accessed from the MTS website at http://www.mts.com/en/investor/index.htm. It will be available on December 4, 2015.

About MTS Systems Corporation

MTS Systems Corporation's testing hardware, software and services 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 position sensors provide controls for a variety of industrial and vehicular applications. MTS had 2,400 employees as of October 3, 2015 and revenue of $564 million for the fiscal year ended October 3, 2015. Additional information on MTS can be found at www.mts.com.

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.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in the "Risk Factors" section in the Company's most recent Form 10-K filed with the Securities and Exchange Commission ("SEC"). The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these forward looking statements with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which 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. Readers should carefully review the disclosures and the "Risk Factors" described in the Company's most recent Form 10-K filed with the SEC, including our Forms 10-Q and 8-K.

 

 MTS SYSTEMS CORPORATION 

 Consolidated Statements of Income 

 (unaudited - in thousands, except per share data) 

Three Months Ended

Fiscal Year Ended

October 3,

September 27,

October 3,

September 27,

2015

2014

2015

2014

 Revenue 

$    143,483

$    143,104

$    563,934

$    564,328

 Cost of sales 

90,452

87,229

344,321

340,685

 Gross profit 

53,031

55,875

219,613

223,643

 Gross margin 

37.0%

39.0%

38.9%

39.6%

 Operating expenses 

 Selling, general and administrative 

33,897

34,437

134,412

139,543

 Research and development 

6,631

5,081

23,705

23,844

 Total operating expenses 

40,528

39,518

158,117

163,387

 Income from operations 

12,503

16,357

61,496

60,256

 Operating margin 

8.7%

11.4%

10.9%

10.7%

 Interest income (expense), net 

(200)

(181)

(795)

(692)

 Other income (expense), net 

(37)

(559)

(1,529)

(1,121)

 Income before income taxes 

12,266

15,617

59,172

58,443

 Provision for income taxes 

3,079

4,676

13,710

16,434

 Net income  

$         9,187

$       10,941

$       45,462

$       42,009

Earnings per share

 Basic 

 Earnings per share 

$           0.62

$           0.72

$           3.03

$           2.76

 Weighted average common shares outstanding  

14,938

15,157

14,984

15,218

 Diluted 

 Earnings per share 

$           0.61

$           0.71

$           3.00

$           2.73

 Weighted average common shares outstanding 

15,075

15,322

15,142

15,397

 

 

 MTS SYSTEMS CORPORATION 

 Condensed Consolidated Balance Sheets 

 (unaudited - in thousands, except per share data) 

October 3,

September 27,

2015

2014

 ASSETS 

 Current assets 

 Cash and cash equivalents 

$           51,768

$           60,397

 Accounts receivable, net 

89,829

104,399

 Unbilled accounts receivable 

77,519

75,762

 Inventories 

86,303

83,557

 Other current assets 

22,294

26,867

 Total current assets 

327,713

350,982

 Property and equipment, net 

80,454

81,575

 Goodwill 

27,677

26,123

 Intangibles, net 

19,706

21,178

 Other assets 

5,281

7,550

 Total assets 

$         460,831

$         487,408

 LIABILITIES AND SHAREHOLDERS' EQUITY 

 Current liabilities 

 Short-term borrowings 

$           21,183

$           60,000

 Accounts payable 

32,994

27,189

 Advance payments from customers 

65,734

52,335

 Other accrued liabilities 

56,741

63,457

 Total current liabilities 

176,652

202,981

 Other long-term liabilities 

26,037

26,300

 Total liabilities 

202,689

229,281

 Shareholders' equity 

 Common stock, $0.25 par; 64,000 shares authorized: 14,932 and 15,180 shares issued and outstanding as of October 3, 2015 and September 27, 2014, respectively 

3,733

3,795

 Additional paid-in capital 

4,275

6,112

 Retained earnings 

255,711

242,396

 Accumulated other comprehensive income 

(5,577)

5,824

 Total shareholders' equity 

258,142

258,127

 Total liabilities and shareholders' equity 

$         460,831

$         487,408

 

 

Exhibit A

MTS SYSTEMS CORPORATION

Segment Financial Information

(unaudited - in thousands)

Three Months Ended

October 3,

September 27,

Test Segment

2015

2014

% Variance

Orders

$               145,916

$               137,062

6%

Revenue

$               116,574

$               115,551

1%

Cost of sales

78,108

74,818

4%

Gross profit

38,466

40,733

(6%)

Gross margin

33.0%

35.3%

Operating expenses

31,437

30,236

4%

Income from operations

$                    7,029

$                  10,497

(33%)

Sensors Segment

Orders

$                  24,424

$                  26,925

(9%)

Revenue

$                  26,909

$                  27,553

(2%)

Cost of sales

12,344

12,411

(1%)

Gross profit

14,565

15,142

(4%)

Gross margin

54.1%

55.0%

Operating expenses

9,091

9,282

(2%)

Income from operations

$                    5,474

$                    5,860

(7%)

Total Company

Orders

$               170,340

$               163,987

4%

Revenue

$               143,483

$               143,104

0%

Cost of sales

90,452

87,229

4%

Gross profit

53,031

55,875

(5%)

Gross margin

37.0%

39.0%

Operating expenses

40,528

39,518

3%

Income from operations

$                  12,503

$                  16,357

(24%)

 

 

Exhibit B

MTS SYSTEMS CORPORATION

Segment Financial Information

(unaudited - in thousands)

Fiscal Year Ended

October 3,

September 27,

Test Segment

2015

2014

% Variance

Orders

$               519,049

$               507,223

2%

Revenue

$               462,880

$               458,153

1%

Cost of sales

298,011

292,698

2%

Gross profit

164,869

165,455

(0%)

Gross margin

35.6%

36.1%

Operating expenses

122,584

125,607

(2%)

Income from operations(1)

$                  42,285

$                  39,848

6%

Sensors Segment

Orders

$                  99,247

$               108,363

(8%)

Revenue

$                101,054

$               106,175

(5%)

Cost of sales

46,310

47,987

(3%)

Gross profit

54,744

58,188

(6%)

Gross margin

54.2%

54.8%

Operating expenses

35,533

37,780

(6%)

Income from operations(1)

$                  19,211

$                  20,408

(6%)

Total Company

Orders

$                618,296

$                615,586

0%

Revenue

$                563,934

$                564,328

(0%)

Cost of sales

344,321

340,685

1%

Gross profit

219,613

223,643

(2%)

Gross margin

38.9%

39.6%

Operating expenses

158,117

163,387

(3%)

Income from operations(1)

$                  61,496

$                  60,256

2%

(1)Income from operations for fiscal year ended September 27, 2014 includes severance and related charges

    of $6,336, of which $3,507 and $2,829 are reported in Cost of Sales and Opearting Expenses, respectively.

 

 

Exhibit C

MTS SYSTEMS CORPORATION

Reconciliation of Return on Invested Capital to GAAP Measure

For the Fiscal Year Ended October 3, 2015

(unaudited - in thousands)

Net income

$              45,462

After-tax interest expense

767

Net income excluding after-tax interest expense and restructuring charges *

$              46,229

Total shareholders' equity as of September 27, 2014

258,127

Total shareholders' equity as of October 3, 2015

258,142

Interest bearing debt as of September 27, 2014

60,000

Interest bearing debt as of October 3, 2015

21,183

Sum of invested capital

$           597,452

Average invested capital *

$           298,726

Return on invested capital *

15.5%

* Denotes Non-GAAP financial measure

 

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SOURCE MTS Systems Corporation



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