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Press release from PR Newswire

MTS Reports Strong 2011 Fourth Quarter and Full Year Financial Results

Thursday, November 17, 2011

MTS Reports Strong 2011 Fourth Quarter and Full Year Financial Results16:29 EST Thursday, November 17, 2011- 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 rangeEDEN 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 ResultsOrders 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 ItemsCash 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 ResultsTest 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. GovernmentAs 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 ResultsTotal 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 OutlookAssuming 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 MeasuresWe 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 CallA 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 CorporationMTS 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 EndedYear EndedOctober 1,October 2,October 1,October 2,2011201020112010 Revenue $    131,599$    105,879$    467,368$    374,053 Cost of sales 75,01861,044265,378222,259 Gross profit 56,58144,835201,990151,794 Gross margin 43.0%42.3%43.2%40.6% Operating expenses: Selling, general and administrative 31,10727,758114,011108,504 Research and development 4,2473,73914,78514,945 Total operating expenses 35,35431,497128,796123,449 Income from operations 21,22713,33873,19428,345 Operating margin 16.1%12.6%15.7%7.6% Interest expense, net (91)(262)(915)(1,052) Other income (expense), net 533381,026(81) Income before income taxes 21,18913,41473,30527,212 Provision for income taxes 6,2974,85422,3638,636 Net income $      14,892$        8,560$      50,942$      18,576Earnings per share: Basic- Earnings per share $           0.95$           0.54$           3.29$           1.14 Weighted average number of common shares outstanding - basic  15,64315,76315,48716,281 Diluted- Earnings per share $           0.94$           0.54$           3.24$           1.14 Weighted average number of common shares outstanding - diluted 15,80215,86315,73916,347MTS SYSTEMS CORPORATION Consolidated Balance Sheets (unaudited - in thousands, except per share data) October 1,October 2,20112010 ASSETS Current Assets: Cash and cash equivalents $         104,095$           76,611 Accounts receivable, net 82,51066,369 Unbilled accounts receivable 54,55426,389 Inventories 65,98751,792 Other current assets 16,91023,541 Total current assets 324,056244,702 Property and equipment, net 56,25256,444 Goodwill 16,02715,429 Intangibles, net 25,84324,753 Other assets 5,6815,077 Total Assets $         427,859$         346,405 LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Short-term borrowings $           40,285$           40,229 Accounts payable 27,79421,818 Advance payments from customers 63,30744,000 Other accrued liabilities 64,22855,793 Total current liabilities 195,614161,840 Other long-term liabilities 21,39718,459 Total Liabilities 217,011180,299 Shareholders' Investment:     Common stock, $.25 par; 64,000 shares authorized:      15,632 and 15,264 shares issued and outstanding 3,9083,816 Retained earnings 190,651147,609 Accumulated other comprehensive income 16,28914,681 Total shareholders' investment 210,848166,106 Total Liabilities and Shareholders' Investment $         427,859$         346,405Exhibit A MTS SYSTEMS CORPORATION Segment Financial Information (unaudited - in thousands) Three Months EndedOctober 1,October 2, Test Segment 20112010% Variance Orders $               107,522$               106,1031% Revenue $               105,269$                  84,42425% Cost of Sales 63,82951,73323% Gross profit 41,44032,69127% Gross margin 39.4%38.7% Operating expenses 26,76524,26510% Income from operations $                  14,675$                    8,42674% Sensors Segment Orders $                  24,983$                  22,59411% Revenue $                  26,330$                  21,45523% Cost of Sales 11,1899,31120% Gross profit 15,14112,14425% Gross margin 57.5%56.6% Operating expenses 8,5897,23219% Income from operations $                    6,552$                    4,91233% Total Company Orders $               132,505$               128,6973% Revenue $               131,599$               105,87924% Cost of Sales 75,01861,04423% Gross profit 56,58144,83526% Gross margin 43.0%42.3% Operating expenses 35,35431,49712%Income from operations$                  21,227$                  13,33859%Exhibit B MTS SYSTEMS CORPORATION Segment Financial Information (unaudited - in thousands) Year EndedOctober 1,October 2, Test Segment 20112010% Variance Orders $               436,661$               340,69128% Revenue $               363,918$               296,23023% Cost of Sales 221,322187,74618% Gross profit 142,596108,48431% Gross margin 39.2%36.6% Operating expenses 96,38597,280-1% Income from operations $                  46,211$                  11,204312% Sensors Segment Orders $               103,362$                  82,83425% Revenue $               103,450$                  77,82333% Cost of Sales 44,05634,51328% Gross profit 59,39443,31037% Gross margin 57.4%55.7% Operating expenses 32,41126,16924% Income from operations $                  26,983$                  17,14157% Total Company Orders $               540,023$               423,52528% Revenue $               467,368$               374,05325% Cost of Sales 265,378222,25919% Gross profit 201,990151,79433% Gross margin 43.2%40.6% Operating expenses 128,796123,4494%Income from operations$                  73,194$                  28,345158%EXHIBIT CMTS SYSTEMS CORPORATIONReconciliation of Return on Invested Capital to GAAP MeasuresFor the Year Ended October 1, 2011(unaudited - in thousands)Net income$   50,942After-tax interest expense892Net income excluding after-tax interest expense *$   51,834Total shareholders' investment as of October 2, 2010$ 166,106Total shareholders' investment as of October 1, 2011210,848Interest bearing debt as of October 1, 201040,000Interest bearing debt as of October 2, 201140,000Sum of invested capital$ 456,954Average invested capital *$ 228,477Return on invested capital *22.7%* Denotes Non-GAAP financial measureSOURCE MTS Systems CorporationFor further information: Susan Knight, Chief Financial Officer of MTS Systems Corporation, +1-952-937-4000