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8-K - FORM 8-K DATED MAY 4, 2015 - MTS SYSTEMS CORPmts151651_8k.htm

Exhibit 99.1

 

MTS Systems Corporation

14000 Technology Drive

Eden Prairie, MN 55344-2290

Telephone 952-937-4000

Fax 952-937-4515

   

 

News Release

 

FOR IMMEDIATE RELEASE
May 4, 2015

 

For more information contact:

Andy Cebulla, Director of Investor Relations and Treasurer
(952) 937-4000

 

MTS REPORTS FISCAL 2015 SECOND QUARTER FINANCIAL RESULTS

EDEN PRAIRIE, Minn., May 4, 2015 – MTS Systems Corporation (Nasdaq: MTSC), a leading global supplier of high-performance test systems and position sensors, today reported fiscal 2015 second quarter financial results.

ØRevenue up 5 percent to $144 million, and up 12 percent on a constant currency basis
ØEPS increased to $0.77, up 54 percent
ØStrong orders of $159 million, down 3 percent, but up 5 percent on a constant currency basis; near record backlog of $324 million
ØContinuing market strength reflected in record Test order pipeline of $924 million
ØFull-year guidance ranges adjusted downward as a result of rapid strengthening of the U.S. dollar and higher than estimated mix of custom and engineered-to-order Test products

 

“We are pleased with our overall second quarter results. Orders, revenue and earnings were strong and in line with our expectations,” said Dr. Jeffrey Graves, President and Chief Executive Officer of MTS Systems. “However, the dramatic strengthening of the U.S. dollar in the first half of our fiscal year has had a marked negative impact on our operating results. From a top-line perspective, our strong organic volume growth, driven by our newest technology offerings, would have generated 12 percent revenue growth on a constant currency basis, but was muted by the rapid devaluation of the euro and yen in the quarter. Similarly, our strong position in core automotive and structures markets was rewarded with orders that would have set a new company record on a constant currency basis, but instead was deflated to $159 million due to currency. While still a strong showing that reflects continuing strength in our core markets, this currency impact put a damper on our ability to celebrate these accomplishments.”

Commenting further on market dynamics, Dr. Graves added, “The strong orders performance in the quarter was in part attributable to several large orders in the civil seismic and ground vehicles markets. These large orders demonstrate the strength of our newest technology and service offerings which are the hallmark of our MTS brand. From a geographic standpoint, Asia was particularly strong across our core markets, with China leading the way at an excellent 15% growth rate.

“Even with the currency impact, the Test business posted a solid quarter in terms of orders and revenue growth. We are still seeing high levels of quoting and order activity as is evidenced by the expansion of our Test backlog to a record level $311 million, and a continuing increase in our Test order pipeline, which ended the quarter at a record $924 million. As previously discussed, we continue to experience a high level of slower turning custom projects in our backlog, but we are very pleased with the progress that we have made to improve operational efficiencies to convert our strong backlog more effectively into revenue and earnings flow through our factories,” Dr. Graves continued.

 
 

 

MTS News Release

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“Our Sensors business experienced a weaker than expected quarter primarily due to the negative impact from currency, and the timing of certain blanket orders that are expected in the third quarter. As a result, Sensor orders were down 18 percent versus a 7 percent decrease on a constant currency basis in the quarter. The market fundamentals remain strong for our sensor products, with shipping volumes in many cases reaching record levels in the quarter.” Dr. Graves stated.

Second Quarter Results

Revenue was $144.0 million, an increase of 5 percent compared to the prior year, and was up 12 percent on a constant currency basis. The increase was driven by 7 percent growth in Test as a result of strong custom and engineer-to-order revenue converted from the high opening backlog, as well as improved factory throughput driven by productivity improvements. This was partially offset by a 5 percent decline in Sensors, which was driven by the negative effects of currency translation. Excluding currency, Test revenue increased 13 percent while Sensors revenue was up 8 percent compared to the prior year.

Gross profit of $56.5 million was up 2 percent compared to the prior year, and the gross margin rate decreased by 1.1 percentage points to 39.3 percent. The decrease was primarily driven by an unfavorable mix of higher custom projects that typically have lower margins.

Operating expenses decreased $4.4 million and were 27 percent of revenue, which is within our normal expected range of 27 to 29 percent. The decrease in operating expenses was primarily a result of $1.1 million lower R&D expense, $1.0 million reduction in professional services, and $2.3 million from favorable currency translation.

Income from operations totaled $17.8 million, up 45 percent compared to the prior year. Earnings were $0.77 per share compared to $0.50 per share in the prior year driven by higher gross profit and the decrease in operating expenses mentioned above.

Orders were $158.7 million, down 3 percent but up 5 percent on a constant currency basis compared to strong second quarter orders in the prior year. Test orders increased 1 percent, and were up 7 percent on a constant currency basis. The increase was driven by four large Test orders (>$5 million) in Asia in the second quarter totaling $46.5 million, compared to two large Test orders totaling $19.0 million in the same period last year. Sensors orders decreased 18 percent primarily resulting from an 11 percent negative impact from currency translation and the timing of the receipt of large blanket orders in Americas and Europe. Backlog at the end of the quarter was $324 million, up 7 percent compared to the prior year.

 

Use of Cash

Cash and cash equivalents at the end of the second quarter totaled $61.3 million, compared to $55.3 million at the end of the first quarter of fiscal 2015. During the second quarter, operating activities generated cash of $22.7 million and the Company used $13.5 million to purchase approximately 186,700 shares of its common stock, $4.7 million to invest in capital expenditures, and $4.5 million to pay dividends to shareholders. Borrowings against the line of credit increased $5.9 million during the quarter.

 

Outlook

“In Test, our large order flow and pipeline expansion continues to confirm the macro trends driving investments by our customers in new product development capabilities, with particular near-term strength continuing in Asia. In Sensors, we expect demand to improve as more OEMs develop smarter machines and vehicles using MTS sensor technology,” said Dr. Graves. “We believe our second quarter performance, the operational improvements we are making in the Test business, and the strategic initiatives we are pursuing in both businesses position us very well for the future.

 

 
 

 

MTS News Release

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“While our end-markets remain strong, given the significant headwinds from the stronger U.S. dollar, particularly against the euro and the yen, and the continued higher mix of custom orders which, while decreasing on a sequential quarter basis, remains higher than expected this year, we are adjusting our fiscal year 2015 guidance for revenue down to a range of $565 million to $580 million and earnings per share to a range of $3.00 to $3.20. The negative impact from the stronger dollar directly accounts for approximately 70 percent of the reduction in revenue and 40 percent of the reduction in earnings per share. The remaining decrease is driven by the continued higher mix of custom orders and pricing pressures from the stronger dollar, offset in part by our productivity and efficiency initiatives combined with a strong cost focus across the business. We believe this range will more accurately reflect our operational performance given the expected impact of today’s currency values and our business mix. In the interim, we will continue 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.

 

Second Quarter Conference Call

A conference call will be held on May 5, 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 until 1 p.m. ET, May 12, 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 May 7, 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 News Release

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MTS SYSTEMS CORPORATION

Consolidated Statements of Income

(unaudited - in thousands, except per share data)

 

    Three Fiscal Months Ended     Six Fiscal Months Ended  
    March 28,     March 29,     March 28,     March 29,  
    2015     2014     2015     2014  
                         
 Revenue   $ 143,955     $ 137,343     $ 286,539     $ 275,753  
 Cost of sales     87,413       81,809       173,166       165,680  
 Gross profit     56,542       55,534       113,373       110,073  
 Gross margin     39.3%       40.4%       39.6%       39.9%  
                                 
 Operating expenses:                                
 Selling, general and administrative     33,098       36,389       68,554       71,078  
 Research and development     5,689       6,791       11,253       12,494  
 Total operating expenses     38,787       43,180       79,807       83,572  
                                 
 Income from operations     17,755       12,354       33,566       26,501  
 Operating margin     12.3%       9.0%       11.7%       9.6%  
                                 
 Interest expense, net     (273 )     (205 )     (440 )     (365 )
 Other expense, net     (607 )     (211 )     (1,366 )     (503 )
                                 
 Income before income taxes     16,875       11,938       31,760       25,633  
 Provision for income taxes     5,169       4,159       6,268       8,709  
 Net income   $ 11,706     $ 7,779     $ 25,492     $ 16,924  
                                 
Earnings per share:                                
 Basic-                                
 Earnings per share   $ 0.78     $ 0.51     $ 1.69     $ 1.11  
 Weighted average number of common shares outstanding - basic     14,986       15,245       15,047       15,299  
                                 
 Diluted-                                
 Earnings per share   $ 0.77     $ 0.50     $ 1.68     $ 1.09  
 Weighted average number of common shares outstanding - diluted     15,155       15,434       15,212       15,487  

 

 

 

 
 

 

MTS News Release

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MTS SYSTEMS CORPORATION

Condensed Consolidated Balance Sheets

(unaudited - in thousands, except per share data)

 

    March 28,     September 27,  
    2015     2014  
 ASSETS                
                 
 Current Assets:                
 Cash and cash equivalents   $ 61,259     $ 60,397  
 Accounts receivable, net     111,474       104,399  
 Unbilled accounts receivable     68,423       75,762  
 Inventories     88,798       83,557  
 Other current assets     29,741       26,867  
 Total current assets     359,695       350,982  
                 
 Property and equipment, net     79,924       81,575  
                 
 Goodwill     27,458       26,123  
 Intangibles, net     20,229       21,178  
 Other assets     6,033       7,550  
 Total Assets   $ 493,339     $ 487,408  
                 
 LIABILITIES AND SHAREHOLDERS' INVESTMENT                
                 
 Current Liabilities:                
 Short-term borrowings   $ 70,871     $ 60,000  
 Accounts payable     36,448       27,189  
 Advance payments from customers     54,159       52,335  
 Other accrued liabilities     60,190       63,457  
 Total current liabilities     221,668       202,981  
                 
 Other long-term liabilities     24,204       26,300  
 Total Liabilities     245,872       229,281  
                 
 Shareholders’ Investment:                
 Common stock, $0.25 par; 64,000 shares authorized:                
      14,916 and 15,180 shares issued and outstanding as                
      of March 28, 2015 and September 27, 2014, respectively     3,729       3,795  
 Additional paid-in capital           6,112  
 Retained earnings     246,420       242,396  
 Accumulated other comprehensive income     (2,682 )     5,824  
 Total shareholders' investment     247,467       258,127  
 Total Liabilities and Shareholders' Investment   $ 493,339     $ 487,408  

 

 
 

 

MTS News Release

Page 6

 

Segment Financial Information

(unaudited - in thousands)

 

    Three Fiscal Months Ended        
    March 28,     March 29,        
Test Segment   2015     2014     % Variance  
                   
Orders   $ 135,037     $ 134,338       1%  
                         
Revenue   $ 118,737     $ 110,885       7%  
Cost of sales     75,873       69,597       9%  
Gross profit     42,864       41,288       4%  
Gross margin     36.1%       37.2%          
                         
Operating expenses     29,723       33,547       -11%  
                         
Income from operations   $ 13,141     $ 7,741       70%  
                         
Sensors Segment                        
                         
Orders   $ 23,636     $ 28,818       -18%  
                         
Revenue   $ 25,218     $ 26,458       -5%  
Cost of sales     11,540       12,212       -6%  
Gross profit     13,678       14,246       -4%  
Gross margin     54.2%       53.8%          
                         
Operating expenses     9,064       9,633       -6%  
                         
Income from operations   $ 4,614     $ 4,613       0%  
                         
Total Company                        
                         
Orders   $ 158,673     $ 163,156       -3%  
                         
Revenue   $ 143,955     $ 137,343       5%  
Cost of sales     87,413       81,809       7%  
Gross profit     56,542       55,534       2%  
Gross margin     39.3%       40.4%          
                         
Operating expenses     38,787       43,180       -10%  
                         
Income from operations   $ 17,755     $ 12,354       44%