MTS SYSTEMS CORPORATION 
By EDEN PRAIRIE, Minn., Jan. 31, 2013 /PRNewswire/ -- MTS Systems Corporation (NASDAQ: MTSC) today reported fiscal 2013 first quarter financial results.
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"We are pleased that MTS again delivered a solid quarter with record revenue and healthy order and backlog levels," said Jeffrey Graves, president and chief executive officer of MTS. "Our productivity and infrastructure investments to bolster our backlog conversion are paying off, and this was evident in our Test segment; this improved execution helped us exceed both our revenue and EPS outlook for the quarter. While the results in our Sensors segment continued to reflect a sluggish global economy and manufacturing environment, we continue to invest in both segments to enhance our ability to scale up the business to meet the significant global opportunities we see before us."
First Quarter Results
Orders were $139.2 million, a 3 percent increase, compared to the fiscal 2012 first quarter, net of 1 percent negative currency translation. The increase was driven by two large Test orders (>$5 million) in the quarter totaling $21 million compared to no large orders in the same period last year. Test orders were up 5 percent while Sensors orders declined 7 percent. Backlog of $291 million was relatively flat compared to the prior year.
Revenue was $142.7 million, up 7 percent compared to the prior year, including 11 percent growth in Test, partially offset by a 14 percent decrease in Sensors. The gross margin rate was 39.7 percent, down 4.2 percentage points, reflecting planned productivity and infrastructure investments in both businesses and Test service capacity. Additionally, an unfavorable mix of lower-margin products negatively impacted margin by 2 percentage points. These items were partially offset by volume leverage.
Income from operations totaled $20.1 million, down 15 percent compared to the previous year. The decrease resulted from a lower gross margin rate and higher sales expenses from planned investments. These expenses were partially offset by lower administrative costs including legal expenses. Earnings per share were $0.87, compared to $0.98 per share in the prior year.
Uses of Cash Include Accelerated Dividend Payment
Cash and cash equivalents at the end of the first quarter totaled $47.9 million, compared to $79.9 million at the end of fiscal 2012. During the first quarter, $14.5 million of cash was used for additional working capital to support revenue growth. Additionally, $9.6 million in dividends were paid to shareholders which included an accelerated payment originally planned for payment in January. Capital expenditures were $8.0 million.
Segment Results
Test Segment:
Dr. Graves said, "The results in our Test segment for the quarter reflect a combination of strength in the ground vehicles and materials testing markets, and emerging economies. These factors, along with improved efficiency and execution in backlog conversion, contributed to the strong quarter in Test, which accounts for approximately 80 percent of our business."
Total orders for the Test segment were $116.7 million, up 5 percent compared to the prior year. As noted above, current year orders included a $12 million European ground vehicle order for a rolling road wind tunnel measurement system and a $9 million Americas' structures order for a vehicle motion simulator. Geographically, Europe increased 48 percent and the Americas grew 7 percent. Asia declined 19 percent primarily due to the receipt of several China seismic structures orders last year. Backlog of $276 million was flat compared to the fiscal 2012 first quarter.
Revenue grew 11 percent to $121.1 million, primarily resulting from strong execution on backlog and higher short-cycle product volume in Asia.
Gross profit was $44.6 million, relatively flat compared to the fiscal 2012 first quarter, and the gross margin rate was 36.9 percent, a decrease of 4.3 percentage points. The primary factors contributing to the decrease in gross margin were the previously mentioned investments and the negative impact of increased mix of lower-margin custom project revenue. These decreases were partially offset by a 1 point benefit from volume leverage. The gross margin rate is expected to be 1 - 3 percentage points higher for the remaining quarters of the fiscal year, primarily depending on mix and volume.
Income from operations totaled $16.4 million, down $1.4 million compared to the prior year, due to higher operating expenses on relatively flat gross profit. Operating expenses rose by $1.3 million, chiefly due to continued investment in sales support growth initiatives to capitalize on global marketplace opportunities.
Sensors Segment:
According to Dr. Graves, "Performance in Sensors largely reflects the tepid global economy and manufacturing sector. We are closely monitoring market conditions so we may respond quickly to changing customer needs. At the same time, we are continuing our investment strategy to expand our global sales coverage and increase productivity so we are well-positioned for growth as the global economy improves."
Orders were $22.5 million, down 7 percent compared to the prior year. Approximately half of the decline was due to currency. Growth in the Americas and China were offset by currency impacts and soft market conditions in Europe and Japan. The mobile hydraulic market was down 18 percent driven by customer inventory adjustments and holiday plant shutdowns. The industrial market was down modestly at 4 percent. Backlog of $15 million was down $1 million compared to the fiscal 2012 first quarter.
Revenue declined 14 percent to $21.6 million, stemming from a lower beginning backlog and reduced order volume. Gross profit was $12.0 million, down $2.0 million or 15 percent, and the gross margin rate was relatively flat at 55.5 percent. Income from operations was $3.7 million, down 37 percent, resulting from lower gross profit.
Outlook
Dr. Graves concluded, "We remain focused on our three priorities: accelerating innovation, capturing opportunities in emerging markets and realizing the potential in our Test service business. We expect to see the gradual impact of our investments as we move into the second half of fiscal 2013. We are reaffirming our outlook for fiscal 2013 revenue and EPS growth in the 5 to 10 percent range, and still expect our performance to be more back-half loaded due to order timing and the nature of Test backlog."
First Quarter Conference Call
A conference call will be held on February 1, 2013, at 10 a.m. EST (9 a.m. CST). Call +1-719-325-2402 (Toll Free: +1-888-389-5988); and reference the conference pass code "9434319." Telephone replay will be available until 12 p.m. CST, February 8, 2013. Call +1-719-457-0820 (Toll Free: +1-888-203-1112); and reference the conference pass code "9434319."
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 February 6, 2013.
About MTS Systems Corporation
MTS Systems Corporation is a leading global supplier of high-performance test systems and 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 2,147 employees and revenue of $542 million for the fiscal year ended September 29, 2012. Additional information on MTS can be found on the worldwide web at http://www.mts.com.
This release contains "forward-looking statements" regarding financial projections 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: government contracting; the Company's significant international business including but not limited to currency value fluctuations, difficulty enforcing agreements and collecting receivables, import and exporting 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 our ability to advance our technology; 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 ;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
-------------------------
December 29, December 31,
2012 2011
---- ----
Revenue $142,668 $133,697
Cost of sales 86,066 74,984
------ ------
Gross profit 56,602 58,713
------ ------
Gross margin 39.7% 43.9%
Operating expenses:
Selling, general and
administrative 31,493 30,205
Research and
development 5,052 4,959
----- -----
Total operating
expenses 36,545 35,164
------ ------
Income from operations 20,057 23,549
------ ------
Operating margin 14.1% 17.6%
Interest income
(expense), net 6 (206)
Other income (expense),
net 452 (23)
--- ---
Income before income
taxes 20,515 23,320
Provision for income
taxes 6,732 7,781
----- -----
Net income $13,783 $15,539
======= =======
Earnings per share:
Basic-
Earnings per share $0.88 $0.99
Weighted average number
of common shares
outstanding -basic 15,669 15,681
====== ======
Diluted-
Earnings per share $0.87 $0.98
Weighted average number
of common shares
outstanding -diluted 15,845 15,832
====== ======
MTS SYSTEMS CORPORATION
Consolidated Balance Sheets
(unaudited - in thousands, except per share data)
December 29, September 29,
2012 2012
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $47,923 $79,852
Accounts receivable, net 94,788 84,119
Unbilled accounts receivable 56,855 51,306
Inventories 72,746 67,979
Other current assets 18,989 17,647
------ ------
Total current assets 291,301 300,903
------- -------
Property and equipment, net 66,157 61,653
Goodwill 16,385 16,239
Intangibles, net 22,260 23,077
Other assets 7,178 7,566
Total Assets $403,281 $409,438
======== ========
LIABILITIES AND SHAREHOLDERS'
INVESTMENT
Current Liabilities:
Short-term borrowings $71 $230
Accounts payable 32,039 33,744
Advance payments from customers 57,550 65,833
Other accrued liabilities 52,440 60,425
Total current liabilities 142,100 160,232
------- -------
Other long-term liabilities 22,418 22,487
------ ------
Total Liabilities 164,518 182,719
------- -------
Shareholders' Investment:
Common stock, $0.25 par; 64,000
shares authorized:
15,664 and 15,640 shares issued
and outstanding as
of December 29, 2012 and
September 29, 2012,
respectively 3,916 3,910
Additional paid-in capital 2,403 652
Retained earnings 220,329 211,256
Accumulated other comprehensive
income 12,115 10,901
Total shareholders' investment 238,763 226,719
------- -------
Total Liabilities and
Shareholders' Investment $403,281 $409,438
======== ========
Exhibit A
MTS SYSTEMS CORPORATION
Segment Financial Information
(unaudited - in thousands)
Three Fiscal Months Ended
-------------------------
December 29, December 31,
Test Segment 2012 2011 % Variance
---- ---- ----------
Orders $116,734 $110,727 5%
-------- -------- ---
Revenue $121,103 $108,628 11%
Cost of Sales 76,459 63,917 20%
------ ------ ---
Gross profit 44,644 44,711 0%
------ ------ ---
Gross margin 36.9% 41.2%
Operating
expenses 28,253 26,938 5%
------ ------ ---
Income from
operations $16,391 $17,773 -8%
Sensors Segment
Orders $22,479 $24,103 -7%
------- ------- ---
Revenue $21,565 $25,069 -14%
Cost of Sales 9,607 11,067 -13%
----- ------ ---
Gross profit 11,958 14,002 -15%
------ ------ ---
Gross margin 55.5% 55.9%
Operating
expenses 8,292 8,226 1%
----- ----- ---
Income from
operations $3,666 $5,776 -37%
Total Company
Orders $139,213 $134,830 3%
-------- -------- ---
Revenue $142,668 $133,697 7%
Cost of Sales 86,066 74,984 15%
------ ------ ---
Gross profit 56,602 58,713 -4%
------ ------ ---
Gross margin 39.7% 43.9%
Operating
expenses 36,545 35,164 4%
------ ------ ---
Income from
operations $20,057 $23,549 -15%
SOURCE MTS Systems Corporation
