MTS Reports Fiscal 2015 Third Quarter Financial Results

Aug 03, 2015, 16:05 ET from MTS Systems Corporation

EDEN PRAIRIE, MN, Aug. 3, 2015 /PRNewswire/ -- MTS Systems Corporation (Nasdaq: MTSC), a leading global supplier of high-performance test systems and position sensors, today reported fiscal 2015 third quarter financial results.

  • Strong orders of $154 million, up 3 percent,  and up 10 percent on a constant currency basis; record backlog of $343 million
  • Operating cash flow strong at $36 million
  • Revenue of $134 million and EPS of $0.72
  • Company reaffirms fiscal 2015 annual guidance for revenue of $565 million to $580 million and earnings per share of $3.00 to $3.20, but expects to be at the low end of these ranges driven by continuing high custom project mix in Test business unit

"The third quarter produced mixed results as we posted strong order growth and excellent cash flow, yet we continued to face a high percentage of slower turning customized work flow in our Test business which muted our revenue growth in the quarter," said Dr. Jeffrey Graves, President and Chief Executive Officer of MTS Systems. "The strong order performance reflected continued demand for MTS technology world-wide, and included two large ground vehicle Test orders in Asia, which will be used to develop advanced chassis systems for safety, comfort and handling in new automobiles. Service orders in our Test business also showed good growth in the quarter, up 11 percent on a constant currency basis, as we are beginning to see the benefit from higher Service staffing levels earlier this year.

"Revenue was down compared to the same quarter last year and lower than we expected. Test revenue continued to be impacted by a high level of slower turning custom projects in our backlog. This put a strain on available engineering resources, in spite of accelerated hiring, which resulted in delays in revenue realization in our Test business. With continued high order activity, our primary focus in the Test business is to drive efficiency improvements to convert our strong backlog and orders outlook," Dr. Graves said.

"Our Sensors business was negatively impacted by currency, with orders being down 1 percent but up 13 percent on a constant currency basis. Geographically, orders were strong for Sensors this quarter in local currencies with the Americas, Europe and Asia all up double digits; the exception was China, which demonstrated some weakness in the quarter. We believe that the market fundamentals remain strong for our sensor products and are excited about the prospects for future growth through the introduction of new products and the strengthening of worldwide markets," Dr. Graves stated.

Third Quarter Results

Revenue was $133.9 million a decrease of 8 percent compared to the prior year, and down 2 percent on a constant currency basis. Test revenue declined 7 percent driven by the continued high mix of custom orders in backlog which requires more complex engineering solutions and resulted in slower conversion of backlog into revenue, as well as a decrease in short cycle product orders. Sensors revenue declined 10 percent, primarily driven by the negative effects of currency translation. Excluding currency, Test revenue decreased 3 percent while Sensors revenue was up 3 percent compared to the prior year.

Gross profit of $53.2 million was down 8 percent compared to the prior year while the gross margin rate was flat at 39.7 percent. The decrease was primarily driven by the negative effects of currency and a decline in revenue volume.

Operating expenses decreased $2.5 million and were 28 percent of revenue, which is within our expected range of 27 to 29 percent. The decrease in operating expenses primarily resulted from $2.4 million of favorable currency translation.

Income from operations totaled $15.4 million, down 11 percent compared to the prior year. Earnings were $0.72 per share compared to $0.92 per share in the prior year driven by lower gross profit, but partially offset by the decrease in operating expenses mentioned above. In addition, the third quarter of fiscal 2014 included $0.17 of incremental benefits from research and development tax credits that did not repeat in fiscal 2015. 

Orders were $154.0 million, up 3 percent and up 10 percent on a constant currency basis compared to the prior year. Test orders increased 4 percent, and were up 9 percent on a constant currency basis. The increase was driven by two large Test ground vehicle orders (>$5 million) in Asia in the third quarter totaling $21.2 million, compared to two large Test orders totaling $12.7 million in the same period last year. Sensors orders were down 1 percent but up 13 percent on a constant currency basis. Backlog at the end of the quarter was $343 million, up 11 percent compared to the prior year. This order momentum, and the resulting new record backlog, reflects continued market demand for MTS technology solutions in product development laboratories around the world. Consistent with this demand outlook, the opportunity pipeline continues to be strong at $873 million.

Use of Cash

Cash and cash equivalents at the end of the third quarter totaled $53.3 million, compared to $61.3 million at the end of the second quarter of fiscal 2015. During the third quarter, operating activities generated cash of $36.3 million. The Company used $34.7 million to pay down borrowings against the line of credit, $4.5 million to pay dividends to shareholders, $3.5 million to invest in capital expenditures, and $2.4 million to purchase approximately 32,000 shares of its common stock.

Outlook

"While the global economy continues to expand at a slower pace than we had originally anticipated this year, and we see some weakness in capital spending in general, our specific end-markets remain strong. In Test, our high level of backlog and strong order pipeline confirms the macro trends driving investments by our customers in new product development capabilities. In Sensors, we continue to see strong order activity across market segments and in most geographic regions. As such, we are confirming our previously issued guidance range for revenue of $565 million to $580 million and earnings per share of $3.00 to $3.20. However, given the ongoing impact from the higher mix of custom Test orders, which come with lower margins, and the strain on our engineering resources resulting in slower conversion of our backlog, we expect to be at the low end of our guidance range for both revenue and earnings per share. We are continuing to enhance our product capabilities, improve our business processes and drive productivity improvements in Test, as well as new product development in Sensors, to drive the business forward for the remainder of this year and into fiscal 2016," Dr. Graves concluded.

Third Quarter Conference Call

A conference call will be held on August 4, 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, August 11, 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 August 5, 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 2,180 employees as of September 27, 2014 and revenue of $564 million for the fiscal year ended September 27, 2014. 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 are based on our current expectations and assumptions, which may not prove to be accurate. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to: government contracting; the Company's significant international business including but not limited to currency value fluctuations, difficulty enforcing agreements and collecting receivables, import and export matters, higher danger of terrorist activity, difficulty in staffing and compliance with laws; volatility in the global economy; competition; failure to achieve the Company's growth plans for the expansion of its business because the Company's long-term success depends on its ability to expand its business through new product development, mergers and acquisitions, geographic expansion and service offerings, all of which are subject to inherent risks including but not limited to market demand, market acceptance of products and the ability to advance technology; costs related to development and manufacture of first-of-its-kind products; difficulties obtaining the services of skilled employees; the implementation of business process changes and associated restructuring of the Test business; failure to protect its intellectual property effectively or infringement upon the intellectual property of others; product liability claims and commercial litigation; difficulty obtaining materials or components for its products; government regulation; the irregularity and development of sales, delivery and acceptance cycle for the Company's products; the Company's customers are in cyclical industries; interest rate fluctuations; the Company may be required to recognize impairment charges for long-lived assets; and cost, reputational and other risks associated with disclosing use of conflict minerals. For a more thorough discussion of the risks associated with our business, see the "Risk Factors" section in the Company's most recent SEC Form 10-K, 10-Q and 8-K filings. Except as required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

 MTS SYSTEMS CORPORATION 

 Consolidated Statements of Income 

 (unaudited - in thousands, except per share data) 

Three Fiscal Months Ended

Nine Fiscal Months Ended

June 27,

June 28,

June 27,

June 28,

2015

2014

2015

2014

 Revenue 

$    133,912

$    145,471

$    420,451

$    421,224

 Cost of sales 

80,703

87,776

253,869

253,456

 Gross profit 

53,209

57,695

166,582

167,768

 Gross margin 

39.7%

39.7%

39.6%

39.8%

 Operating expenses: 

 Selling, general and administrative 

31,961

34,028

100,515

105,106

 Research and development 

5,821

6,269

17,074

18,763

 Total operating expenses 

37,782

40,297

117,589

123,869

 Income from operations 

15,427

17,398

48,993

43,899

 Operating margin 

11.5%

12.0%

11.7%

10.4%

 Interest expense, net 

(155)

(146)

(595)

(511)

 Other expense, net 

(126)

(59)

(1,492)

(562)

 Income before income taxes 

15,146

17,193

46,906

42,826

 Provision for income taxes 

4,363

3,049

10,631

11,758

 Net income  

$      10,783

$      14,144

$      36,275

$      31,068

Earnings per share:

 Basic- 

Earnings per share 

$           0.72

$           0.94

$           2.42

$           2.04

Weighted average number of common shares outstanding - basic  

14,905

15,117

15,000

15,238

 Diluted- 

Earnings per share 

$           0.72

$           0.92

$           2.39

$           2.01

Weighted average number of common shares outstanding - diluted 

15,070

15,294

15,165

15,422

 

 MTS SYSTEMS CORPORATION 

 Condensed Consolidated Balance Sheets 

 (unaudited - in thousands, except per share data) 

June 27,

September 27,

2015

2014

 ASSETS 

 Current Assets: 

 Cash and cash equivalents 

$           53,297

$           60,397

 Accounts receivable, net 

93,547

104,399

 Unbilled accounts receivable 

68,778

75,762

 Inventories 

91,972

83,557

 Other current assets 

23,752

26,867

 Total current assets 

331,346

350,982

 Property and equipment, net 

79,564

81,575

 Goodwill 

27,484

26,123

 Intangibles, net 

19,967

21,178

 Other assets 

6,225

7,550

 Total Assets 

$         464,586

$         487,408

 LIABILITIES AND SHAREHOLDERS' INVESTMENT 

 Current Liabilities: 

 Short-term borrowings 

$           36,202

$           60,000

 Accounts payable 

28,182

27,189

 Advance payments from customers 

59,638

52,335

 Other accrued liabilities 

61,971

63,457

 Total current liabilities 

185,993

202,981

 Other long-term liabilities 

24,644

26,300

 Total Liabilities 

210,637

229,281

 Shareholders' Investment: 

 Common stock, $0.25 par; 64,000 shares authorized: 

      14,916 and 15,180 shares issued and outstanding as  

      of June 27, 2015 and September 27, 2014, respectively 

3,725

3,795

 Additional paid-in capital 

1,661

6,112

 Retained earnings 

251,009

242,396

 Accumulated other comprehensive income 

(2,446)

5,824

 Total shareholders' investment 

253,949

258,127

 Total Liabilities and Shareholders' Investment 

$         464,586

$         487,408

 

Exhibit A

MTS SYSTEMS CORPORATION

Segment Financial Information

(unaudited - in thousands)

Three Fiscal Months Ended

June 27,

June 28,

Test Segment

2015

2014

% Variance

Orders

$               127,431

$               122,804

4%

Revenue

$               109,484

$               118,194

-7%

Cost of sales

69,688

75,425

-8%

Gross profit

39,796

42,769

-7%

Gross margin

36.3%

36.2%

Operating expenses

29,657

31,000

-4%

Income from operations

$                  10,139

$                  11,769

-14%

Sensors Segment

Orders

$                  26,519

$                  26,838

-1%

Revenue

$                  24,428

$                  27,277

-10%

Cost of sales

11,015

12,351

-11%

Gross profit

13,413

14,926

-10%

Gross margin

54.9%

54.7%

Operating expenses

8,125

9,297

-13%

Income from operations

$                    5,288

$                    5,629

-6%

Total Company

Orders

$               153,950

$               149,642

3%

Revenue

$               133,912

$               145,471

-8%

Cost of sales

80,703

87,776

-8%

Gross profit

53,209

57,695

-8%

Gross margin

39.7%

39.7%

Operating expenses

37,782

40,297

-6%

Income from operations

$                  15,427

$                  17,398

-11%

 

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SOURCE MTS Systems Corporation



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