MTS Reports Strong 2011 Fourth Quarter and Full Year Financial Results

- Record quarterly revenue up 24 percent to $132 million; 74 percent EPS growth results in record high of $0.94

- Quarterly operating income rises to $21 million from $13 million

- Full fiscal year 2011 orders increases 28 percent to $540 million and backlog increases 34 percent to $287 million

- Stronger-than-expected volume in the quarter results in full year revenue growth of 25 percent

- Company exceeds Return on Invested Capital goal of 20 percent for the year

- Company expects fiscal 2012 revenue and EPS growth rates in the low double digit range

Nov 17, 2011, 16:29 ET from MTS Systems Corporation

EDEN PRAIRIE, Minn., Nov. 17, 2011 /PRNewswire/ -- MTS Systems Corporation (NASDAQ: MTSC) today reported fiscal 2011 fourth quarter and fiscal year financial results.

"We are very pleased with our results in the fourth quarter and our strong growth momentum throughout the fiscal year. During the quarter, we achieved record revenue and earnings per share reflecting base-order stability in both our Test and Sensors businesses with continued high backlog," said interim Chief Executive Officer William V. Murray. "Amid continued economic uncertainty, MTS is benefitting from our ongoing efforts to enhance our cost competitiveness, build our global position in geographic markets and pursue applications with substantial growth potential. More importantly, these results represent the capabilities and maturity of our organization to deliver exceptional operating performance while working through the recent government matters and management changes."

"We achieved several milestones this year, notably we exceeded 20 percent return on invested capital and increased our quarterly dividend. Additionally, we are pleased with the decision by the U.S. Department of the Air Force to lift its suspension of MTS," continued Murray.

Fourth Quarter Results

Orders were $132.5 million, a 3 percent increase compared to the fiscal 2010 fourth quarter. Orders growth reflects continued strong base-order expansion in both businesses. There were no large orders (defined as more than $5 million) in the quarter, while fiscal 2010 fourth quarter results include one large order of approximately $6 million. Backlog of $287 million was up from $214 million last year.

Revenue was $131.6 million, up 24 percent compared to the prior year, which included 25 percent growth in Test, and 23 percent growth in Sensors. The revenue increase was driven by higher beginning backlog and increased current-quarter orders. The gross margin rate rose to 43.0 percent, up 0.7 percentage points, as a result of leverage on improved volume and lower warranty expense.

Income from operations totaled $21.2 million, an improvement of $7.9 million, or 59 percent, compared to the prior year. The increase predominantly stemmed from higher gross margin, net of $3.9 million higher operating expenses. Operating expenses in the fourth quarter included legal and consulting expenses of $2.0 million related to the U.S. Government matters. Earnings per share were $0.94, an increase of $0.40, or 74 percent, compared to the prior year fourth quarter, primarily due to higher income from operations.

Cash and Other Items

Cash and cash equivalents at the end of the fourth quarter totaled $104.1 million, compared to $101.3 million at the end of the third quarter. During the fourth quarter, operating activities generated cash of $7.5 million and the Company invested $2.6 million in capital expenditures.

For fiscal 2011, MTS generated return on invested capital ("ROIC") of 23 percent. See "Non-GAAP Financial Measures" below for further description. MTS Systems' Board of Directors announced a 25 percent increase in the quarterly dividend on August 25, 2011.

Fourth Quarter Segment Results

Test Segment:

Orders were $107.5 million, up 1 percent compared to the prior year, primarily driven by strong global ground vehicle market demand. As noted above, prior year orders included one large custom order totaling approximately $6 million. Currency translation favorably impacted orders by 2 percent. Backlog of $271 million was up $73 million compared to the fiscal 2010 fourth quarter.

Revenue grew 25 percent to $105.3 million reflecting higher beginning backlog. Currency translation benefited revenue by 4 percent.

Gross profit was $41.4 million, an increase of $8.7 million, or 27 percent, and the gross margin rate was 39.4 percent, an increase of 0.7 percentage points. The higher gross margin rate resulted from leverage on higher volume and lower warranty expense, partially offset by increased variable compensation.

Income from operations totaled $14.7 million, an increase of $6.2 million, or 74 percent, compared to the prior year, reflecting higher revenue and gross profit. Operating expenses in the fourth quarter included $1.6 million of the previously mentioned legal and consulting costs related to the U.S. Government matters.

Sensors Segment:

Orders were $25.0 million, up 11 percent compared to the prior year fueled by strength in the European industrial market. Currency translation had a 4 percent favorable impact. Backlog of $16 million was flat compared to the prior year fourth quarter.

Revenue rose 23 percent to $26.3 million, driven by orders growth, a higher beginning backlog, and a 7 percent favorable impact of currency translation.

Gross profit was $15.1 million, up $3.0 million or 25 percent, and the gross margin rate was 57.5 percent, an increase of 0.9 percentage points, chiefly due to leverage from higher revenue. Income from operations was $6.5 million, an increase of 33 percent, primarily from higher gross profit, partially offset by higher operating expenses. Higher operating expenses resulted from increased headcount and $0.4 million of the previously mentioned legal and consulting costs related to the U.S. Government matters.

Action by U.S. Government

As previously disclosed, on September 19, 2011, the U.S. Department of the Air Force lifted the Company's suspension from U.S. Government contracting. The lifting of the suspension was conditioned on the Company's entry into an Administrative Agreement with the Air Force specifying certain ethics, compliance, reporting and monitoring obligations. As of the lifting of the suspension, the Company has been able to resume entering into new federal government contracts and receiving new benefit under federal assistance programs. This development also allows state and local government and commercial customers that follow federal suspension decisions to resume doing business with MTS. The investigation by the U.S. Department of Commerce and the U.S. Attorney's Office for the District of Minnesota into the Company's Online Representations and Certifications Applications, as well as the previously disclosed inquiry into the Company's broader compliance record and practices, continues.

The Company's known costs related to the suspension and investigation in fiscal 2011 totaled $6.0 million, and active market opportunities estimated at approximately $9 million had been lost as of October 1, 2011. While the Company continues to respond to the government's requests as appropriate, the Company is presently unable to determine the likely outcome or range of loss, if any, from the investigation, or predict with certainty the timeline for the resolution of the investigation.

Full Year Results

Total Company orders for fiscal 2011 set a new record at $540.0 million and exceeded the half a billion mark for the first time in its history. Year over year, orders increased 28 percent. This reflects strong base-order expansion in both segments, particularly the ground vehicle market in the Test segment. Fiscal 2011 orders included $64 million in large orders, up $31 million from the prior year. Backlog rose 34 percent in the fiscal year to $287 million.

Revenue was also up strongly. At $467.4 million, revenue increased 25 percent compared to the previous year, including 23 percent growth in Test, and 33 percent growth in Sensors, both driven by higher beginning backlog and strong fiscal year orders. The gross margin rate rose to 43.2 percent, up 2.6 percentage points compared to the prior year, on leverage from higher volume, favorable product mix, and reduced warranty expense.

Income from operations reached a record high of $73.2 million, an increase of $44.9 million or approximately 158 percent compared to the prior fiscal year, reflecting the higher revenue and gross profit rate. Operating expenses of $128.8 million increased $5.4 million in the fiscal year which included legal and consulting costs of $6.0 million related to U.S. Government matters. Operating expenses in the prior fiscal year included a legal settlement charge of $6.3 million. As a percent of revenue, operating expenses declined from 33.0 percent to 27.6 percent. Record net income for fiscal 2011 totaled $50.9 million, or $3.24 per share, an increase of $32.3 million, or $2.10 per share, compared to the prior year.

Fiscal Year 2012 Outlook

Assuming steady economic conditions, MTS expects to generate fiscal 2012 revenue and EPS growth rates in the low double digit range.

Murray concluded, "MTS is uniquely positioned to address the challenges that our global customers face today – compressed product-development cycle times, new regulatory mandates and ever-increasing product performance demands. We are focused on leveraging our Sensors and Test applications knowledge to deliver innovative solutions that create value for our customers as they address these challenges. This is the foundation of our strong growth outlook as we begin fiscal 2012."

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 shareholder's 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 return on invested capital to the most directly comparable GAAP financial measures is included in Exhibit C to this release.

Fiscal Year 2011 Conference Call

A conference call will be held on November 18, 2011, at 10 a.m. EST (9 a.m. CST). Call +1-719-325-4769 (Toll Free: +1-877-874-1588); and reference the conference pass code "5706146". Telephone re-play will be available until 12 p.m. CST, November 25, 2011. Call +1-719-457-0820 (Toll Free: +1-888-203-1112); and reference the conference pass code "5706146".

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 November 28, 2011.

About MTS Systems Corporation

MTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company's testing hardware and software 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 2,003 employees and revenue of $467 million for the fiscal year ended October 1, 2011. Additional information on MTS can be found on the worldwide web at http://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. Words such as "may," "will," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions are used to identify these forward-looking statements.

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: the Company's significant international business; volatility in the global economy; competition; failure to achieve the Company's growth plans for the expansion of its business; difficulties obtaining the services of skilled employees; failure to protect its intellectual property effectively or infringement upon the intellectual property of others; product liability 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; an adverse outcome of the ongoing government investigation and proceedings that results in fines, penalties, or an extended suspension or debarment; and increased governmental and regulatory scrutiny or negative publicity resulting from the current investigation. 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 Months Ended

Year Ended

October 1,

October 2,

October 1,

October 2,

2011

2010

2011

2010

Revenue

$    131,599

$    105,879

$    467,368

$    374,053

Cost of sales

75,018

61,044

265,378

222,259

Gross profit

56,581

44,835

201,990

151,794

Gross margin

43.0%

42.3%

43.2%

40.6%

Operating expenses:

Selling, general and administrative

31,107

27,758

114,011

108,504

Research and development

4,247

3,739

14,785

14,945

Total operating expenses

35,354

31,497

128,796

123,449

Income from operations

21,227

13,338

73,194

28,345

Operating margin

16.1%

12.6%

15.7%

7.6%

Interest expense, net

(91)

(262)

(915)

(1,052)

Other income (expense), net

53

338

1,026

(81)

Income before income taxes

21,189

13,414

73,305

27,212

Provision for income taxes

6,297

4,854

22,363

8,636

Net income

$      14,892

$        8,560

$      50,942

$      18,576

Earnings per share:

Basic-

Earnings per share

$           0.95

$           0.54

$           3.29

$           1.14

Weighted average number of common shares outstanding - basic  

15,643

15,763

15,487

16,281

Diluted-

Earnings per share

$           0.94

$           0.54

$           3.24

$           1.14

Weighted average number of common shares outstanding - diluted

15,802

15,863

15,739

16,347

MTS SYSTEMS CORPORATION

Consolidated Balance Sheets

(unaudited - in thousands, except per share data)

October 1,

October 2,

2011

2010

ASSETS

Current Assets:

Cash and cash equivalents

$         104,095

$           76,611

Accounts receivable, net

82,510

66,369

Unbilled accounts receivable

54,554

26,389

Inventories

65,987

51,792

Other current assets

16,910

23,541

Total current assets

324,056

244,702

Property and equipment, net

56,252

56,444

Goodwill

16,027

15,429

Intangibles, net

25,843

24,753

Other assets

5,681

5,077

Total Assets

$         427,859

$         346,405

LIABILITIES AND SHAREHOLDERS' INVESTMENT

Current Liabilities:

Short-term borrowings

$           40,285

$           40,229

Accounts payable

27,794

21,818

Advance payments from customers

63,307

44,000

Other accrued liabilities

64,228

55,793

Total current liabilities

195,614

161,840

Other long-term liabilities

21,397

18,459

Total Liabilities

217,011

180,299

Shareholders' Investment:

    Common stock, $.25 par; 64,000 shares authorized:

     15,632 and 15,264 shares issued and outstanding

3,908

3,816

Retained earnings

190,651

147,609

Accumulated other comprehensive income

16,289

14,681

Total shareholders' investment

210,848

166,106

Total Liabilities and Shareholders' Investment

$         427,859

$         346,405

Exhibit A

MTS SYSTEMS CORPORATION

Segment Financial Information

(unaudited - in thousands)

Three Months Ended

October 1,

October 2,

Test Segment

2011

2010

% Variance

Orders

$               107,522

$               106,103

1%

Revenue

$               105,269

$                  84,424

25%

Cost of Sales

63,829

51,733

23%

Gross profit

41,440

32,691

27%

Gross margin

39.4%

38.7%

Operating expenses

26,765

24,265

10%

Income from operations

$                  14,675

$                    8,426

74%

Sensors Segment

Orders

$                  24,983

$                  22,594

11%

Revenue

$                  26,330

$                  21,455

23%

Cost of Sales

11,189

9,311

20%

Gross profit

15,141

12,144

25%

Gross margin

57.5%

56.6%

Operating expenses

8,589

7,232

19%

Income from operations

$                    6,552

$                    4,912

33%

Total Company

Orders

$               132,505

$               128,697

3%

Revenue

$               131,599

$               105,879

24%

Cost of Sales

75,018

61,044

23%

Gross profit

56,581

44,835

26%

Gross margin

43.0%

42.3%

Operating expenses

35,354

31,497

12%

Income from operations

$                  21,227

$                  13,338

59%

Exhibit B

MTS SYSTEMS CORPORATION

Segment Financial Information

(unaudited - in thousands)

Year Ended

October 1,

October 2,

Test Segment

2011

2010

% Variance

Orders

$               436,661

$               340,691

28%

Revenue

$               363,918

$               296,230

23%

Cost of Sales

221,322

187,746

18%

Gross profit

142,596

108,484

31%

Gross margin

39.2%

36.6%

Operating expenses

96,385

97,280

-1%

Income from operations

$                  46,211

$                  11,204

312%

Sensors Segment

Orders

$               103,362

$                  82,834

25%

Revenue

$               103,450

$                  77,823

33%

Cost of Sales

44,056

34,513

28%

Gross profit

59,394

43,310

37%

Gross margin

57.4%

55.7%

Operating expenses

32,411

26,169

24%

Income from operations

$                  26,983

$                  17,141

57%

Total Company

Orders

$               540,023

$               423,525

28%

Revenue

$               467,368

$               374,053

25%

Cost of Sales

265,378

222,259

19%

Gross profit

201,990

151,794

33%

Gross margin

43.2%

40.6%

Operating expenses

128,796

123,449

4%

Income from operations

$                  73,194

$                  28,345

158%

EXHIBIT C

MTS SYSTEMS CORPORATION

Reconciliation of Return on Invested Capital to GAAP Measures

For the Year Ended October 1, 2011

(unaudited - in thousands)

Net income

$   50,942

After-tax interest expense

892

Net income excluding after-tax interest expense *

$   51,834

Total shareholders' investment as of October 2, 2010

$ 166,106

Total shareholders' investment as of October 1, 2011

210,848

Interest bearing debt as of October 1, 2010

40,000

Interest bearing debt as of October 2, 2011

40,000

Sum of invested capital

$ 456,954

Average invested capital *

$ 228,477

Return on invested capital *

22.7%

* Denotes Non-GAAP financial measure

SOURCE MTS Systems Corporation



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