EDEN PRAIRIE, Minn., Dec. 15, 2020 /PRNewsCentre/ — MTS Systems Corporation (Nasdaq: MTSC), a leading global supplier of advanced test systems, motion simulators and precision sensors, today reported financial results for its fiscal year 2020 fourth quarter and full year ended October 3, 2020.
FULL YEAR FINANCIAL AND OPERATING HIGHLIGHTS
MERGER AGREEMENT
On December 8, 2020, we entered into a definitive agreement under which Amphenol Corporation (NYSE: APH) will acquire MTS for $58.50 per share in cash, or approximately $1.7 billion, including the assumption of outstanding debt and liabilities, net of cash. The acquisition is expected to close by the middle of 2021, subject to certain regulatory approvals, shareholder approval and other customary closing conditions.
FINANCIAL TABLE
Three Months Ended
Twelve Months Ended
Â
(in thousands, except per share data – unaudited)
October 3,
2020
September 28,
2019
October 3,
2020
September 28,
2019
Revenue
$
215,055
$
224,082
$
828,586
$
892,518
Revenue % increase (decrease)
(4.0)
%
13.2
%
(7.2)
%
14.7
%
Gross margin
34.9
%
34.9
%
34.8
%
36.9
%
Operating margin1
(131.7)
%
6.5
%
(29.9)
%
8.9
%
Earnings (loss) before taxes1
$
(292,443)
$
4,150
$
(283,706)
$
48,613
Net income (loss)1
(280,675)
4,821
(272,051)
43,067
Diluted earnings (loss) per share1
(14.56)
0.25
(14.16)
2.21
Adjusted diluted earnings per share2
0.95
0.37
2.03
2.44
Adjusted EBITDA2
31,258
29,601
121,212
132,614
Cash and cash equivalents, end of period
88,913
57,937
Backlog, end of period
457,586
420,115
Total debt, end of period
584,573
512,617
1Â
Includes $291.4 million of non-cash impairment of assets in the three and twelve months ended October 3, 2020. See below for further details.
2Â
Refer to the "Non-GAAP Financial Measures" section below for discussion of the calculation of these non-GAAP financial measures.
HIGHLIGHTS FOR THE FISCAL YEAR 2020 FOURTH QUARTER
Revenue
Revenue was $215.1 million, down 4.0% compared to the same prior year period, due to volume declines in Test & Simulation and Sensors. Both businesses were negatively impacted by COVID-19 due to the closure of customer sites, travel restrictions and delayed customer spending. Test & Simulation revenue decreased primarily due to a decline in volume from softness in our ground vehicles, simulation and materials sectors, coupled with lower service volume. The decline was partially offset by top-line contributions from the acquisition of the R&D entities in Denmark (R&D) of $18.8 million, which was completed early in the second quarter of fiscal year 2020. Sensors revenue declined due to softness in all sectors except our test sector, which included continued U.S. Department of Defense volume growth and a full quarter of revenue from Endevco, which closed during the fourth quarter of fiscal year 2019. There were no material cancellations of orders or backlog in the fourth quarter.
Orders
Test & Simulation orders during the quarter were $135.2 million, up 16.0% compared to the prior year primarily driven by the addition of wind energy orders from the acquisition of R&D and an increase in service orders as customers sites have resumed more normalized activities. The increase was partially offset by lower orders in our materials and structures sectors and our product rationalization efforts in China.
Sensors orders during the quarter were $80.7 million, down 10.5% compared to the same prior year period primarily driven by a large Department of Defense order in our test sector that did not repeat in fiscal year 2020, as well as lower orders in our industrial sector reflecting the global impact of COVID-19. The decrease was partially offset by growth in our positions sector.
Backlog
Backlog remained strong at $457.6 million, reflecting an increase of 8.9% compared to the prior year. Sequentially, from the third quarter of fiscal year 2020, backlog was up 1.4% driven by the two large Test & Simulation orders totaling $17.0 million, partially offset by overall revenue realized during the fourth quarter outpacing order bookings. Ending backlog for Test & Simulation and Sensors was $385.9 million and $71.7 million, respectively.
Impairment of Assets
Non-cash impairment charges of $291.4 million related to goodwill, long-lived assets and our indefinite-lived intangible asset were recorded in Test & Simulation and Sensors during the fourth quarter of fiscal year 2020. The impairment charges were the result of a decline in market conditions due to COVID-19, including a sustained decrease in our stock price and the impact to the flight simulation and entertainment markets we serve.
Net Income (Loss) and Diluted Earnings (Loss) Per Share
Diluted earnings (loss) per share was $(14.56) compared to $0.25 during the prior year on net income (loss) of $(280.7) million and $4.8 million, respectively. The $14.81 per share decrease was primarily driven by a $15.13 per share decrease associated with a non-cash impairment of assets and a decline in gross profit as the result of lower revenue volume in both businesses reflecting the impact of COVID-19. Additionally, net income and diluted earnings per share were negatively impacted by the R&D contingent consideration fair value adjustment, Test & Simulation restructuring expense, higher interest expense from the accretion of contingent consideration and increased acquisition-related expenses due to the R&D acquisition. The decline was partially offset by lower compensation expense reflecting permanent and temporary cost savings from actions taken in fiscal year 2020 and further cost containment measures.
Fourth quarter of fiscal year 2020 and 2019 results include $15.52 and $0.12 per share, respectively, of non-recurring costs associated with an impairment of assets, Test & Simulation restructuring actions taken in fiscal year 2020, the R&D contingent consideration fair value adjustment, acquisition-related expenses, E2M and Endevco acquisition inventory fair value adjustments and the impact of the change in weighted average diluted common shares outstanding. R&D was acquired in the second quarter of fiscal year 2020, and E2M and Endevco were acquired in the first and fourth quarters of fiscal year 2019, respectively. Adjusting for these items, adjusted diluted earnings per share was $0.95 for the fourth quarter of fiscal year 2020 and $0.37 for the same period in the prior year. A reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, to diluted earnings per share, the most directly comparable GAAP financial measure, is provided in Exhibit B of this earnings release.
Adjusted EBITDA
Adjusted EBITDA increased to $31.3 million, in the fourth quarter of fiscal year 2020, up 5.6% compared to the prior year. The increase was primarily driven by positive contributions from the acquisition of R&D, lower compensation expense reflecting permanent and temporary cost savings measures taken in fiscal year 2020, and further cost containment measures, partially offset by a decline in gross profit from lower revenue in both businesses reflecting the impact of COVID-19. A reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable GAAP financial measure, is provided in Exhibit D of this earnings release.
Balance Sheet and Liquidity
During the quarter, our total debt decreased by $10.5 million to $584.6 million as we continue to pay-down our outstanding debt balance. We ended the quarter with $88.9 million of cash on the balance sheet, leading to a net debt balance of $495.7 million. The ratio of interest-bearing debt to Adjusted EBITDA and the ratio of net interest-bearing debt to Adjusted EBITDA remain in full compliance with the debt covenant levels specified in our debt agreements. We have no material debt maturities until July 2023. Subsequent to the end of our fiscal year, we paid an additional $7 million on our outstanding debt, further improving leverage and entered into an agreement to sell our Shanghai, China building with an anticipated gain on sale. We intend to use the proceeds from the sale of our Shanghai facility to further reduce debt and provide further cash flow for operational demands and general corporate purposes.
HIGHLIGHTS FOR THE FISCAL YEAR 2020 FULL YEAR
Revenue
Revenue was $828.6 million, down 7.2% compared to the prior year, due to a decline in Test & Simulation, partially offset by growth in Sensors. Both businesses were negatively impacted by COVID-19 due to reduced access to our customers, reduced production capacity, temporary closures of customer facilities and delayed spending by our customers. Test & Simulation revenue decreased primarily due to a decline in volume from softness in our ground vehicles and materials sectors, coupled with lower service volume. The decline was partially offset by top-line contributions from the acquisition of R&D of $47.6 million. Sensors revenue increased due to continued U.S. Department of Defense volume growth and a full year of top-line contributions from the Endevco acquisition in our test sector. The increase was partially offset by weakness in the other three sectors. There were no material cancellations of orders or backlog in the fiscal year.
Orders
Test & Simulation orders for the fiscal year were $496.5 million, up 3.9% compared to the prior year, primarily driven by the award of the largest order in MTS history for an advanced seismic simulation system in China, valued at over $70 million, the addition of wind energy orders from the acquisition of R&D and two large orders totaling $17 million secured in the fourth quarter of fiscal year 2020. This increase was partly offset by lower orders in our ground vehicles and materials sector, along with lower services orders reflecting the global impact of COVID-19.
Sensors orders for the fiscal year were $333.1 million, down 3.3% compared to the prior year, primarily driven by lower orders in our position, industrial and systems sectors reflecting the global impact of COVID-19. The decrease was partially offset by growth in our test sector primarily driven by additional funding associated with the U.S. Department of Defense and the addition of orders from the acquisition of Endevco.
Net Income (Loss) and Diluted Earnings (Loss) Per Share
Diluted earnings (loss) per share was $(14.16) compared to $2.21 in the prior year on net income (loss) of $(272.1) million and $43.1 million, respectively. The $16.37 per share decrease was primarily driven by a $15.16 per share decrease associated with a non-cash impairment of assets and a gross profit decline in both businesses reflecting the impact of COVID-19. Additionally, net income and diluted earnings per share were negatively impacted by Test & Simulation restructuring expense for actions taken in fiscal year 2020 to reduce operating costs, higher interest expense on increased debt levels, the R&D contingent consideration fair value adjustment and higher acquisition-related expenses due to the R&D and Endevco acquisitions. The decline was partially offset by lower compensation expense reflecting permanent and temporary cost savings measures taken in fiscal year 2020, further cost containment measures and a reduction in the effective tax rate which includes $0.06 of discrete tax benefits in fiscal year 2020.
Fiscal year 2020 and 2019 results included $16.20 and $0.23 per share, respectively, of non-recurring costs associated with an impairment of assets, Test & Simulation restructuring actions taken in fiscal year 2020, the R&D contingent consideration fair value adjustment, acquisition-related expenses, E2M and Endevco acquisition inventory fair value adjustments and the impact of the change in weighted average diluted common shares outstanding. R&D was acquired in the second quarter of fiscal year 2020, and E2M and Endevco were acquired in the first and fourth quarters of fiscal year 2019, respectively. Adjusting for these items, adjusted diluted earnings per share was $2.03 for fiscal year 2020 and $2.44 for the prior year. A reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, to diluted earnings per share, the most directly comparable GAAP financial measure, is provided in Exhibit C of this earnings release.
Adjusted EBITDA
Adjusted EBITDA declined to $121.2 million in fiscal year 2020, down 8.6% compared to the prior year. The decrease was primarily driven by a decline in gross profit from lower revenue in Test & Simulation reflecting the impact of COVID-19 and product mix in Sensors, partially offset by lower compensation expense reflecting permanent and temporary cost savings measures taken in fiscal year 2020, along with further cost containment measures. A reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable GAAP financial measure, is provided in Exhibit D of this earnings release.
RANSOMWARE INCIDENT
In November 2020, we were the victim of a ransomware incident that temporarily impacted our operations. As a result of the incident, certain of our data was encrypted, some of our data was exfiltrated from our systems, and business activities at several of our facilities were temporarily disrupted. As of the date hereof, our investigation indicates that the incident has been contained. We recovered the impacted data from the unauthorized actor, and we are not currently aware of any evidence of the impacted data being publicly released. We continue to investigate what information the unauthorized actor may have accessed or exfiltrated and resolve open items related to the incident. We expect expenses, net of insurance, to be approximately $2.0 to $3.0 million, with the majority incurred in the first quarter of fiscal 2021. We do not expect the temporary operational disruption that occurred to have a material impact on our financial results. Any failure or perceived failure by us to comply with applicable privacy or security laws, regulations, policies or obligations in connection with this incident, could result in government enforcement actions, regulatory investigations, litigation, fines and penalties and/or adverse publicity, which could impact expenses associated with the incident.
FOURTH QUARTER CONFERENCE CALL
Due to the pending merger with Amphenol Corporation, we will not host a conference call to review our fiscal year fourth quarter 2020 financial results.
ABOUT MTS SYSTEMS CORPORATION
MTS Systems Corporation’s testing and simulation hardware, software and service 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 sensors provide measurements of vibration, pressure, position, force and sound in a variety of applications. MTS had 3,600 employees as of October 3, 2020 and revenue of $829 million for the fiscal year ended October 3, 2020. Additional information on MTS can be found at www.mts.com.
NON-GAAP FINANCIAL MEASURES
We believe that disclosing adjusted diluted earnings per share, which is diluted earnings per share excluding the impact from impairment of assets, restructuring / other expenses, acquisition-related expenses, the acquisition inventory fair value adjustments, contingent consideration fair value adjustment and the impact of the change in weighted average diluted common shares outstanding is useful to investors as a measure of operating performance. We use this as one measure to monitor and evaluate operating performance. Adjusted diluted earnings per share is a financial measure that does not reflect United States Generally Accepted Accounting Principles (GAAP). We calculate this measure by adding back the after-tax effect of the impairment of assets, restructuring / other expenses, acquisition-related expenses, the acquisition inventory fair value adjustments, the contingent consideration fair value adjustment to net income and the impact of the change in weighted average diluted common shares outstanding and dividing the result by the diluted weighted average shares outstanding.
We believe that disclosing earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA excluding the impact from stock-based compensation, impairment of assets, restructuring / other expenses, acquisition-related expenses, the acquisition inventory fair value adjustments and the contingent consideration fair value adjustment (Adjusted EBITDA) and Adjusted EBITDA divided by revenue (Adjusted EBITDA margin) are useful to investors as a measure of leverage and operating performance. We use these measures to monitor and evaluate leverage and operating performance. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are financial measures that do not reflect GAAP. We calculate EBITDA by adding back interest, taxes, depreciation and amortization expense to net income. Adjusted EBITDA is calculated by adding back stock-based compensation, impairment of assets, restructuring / other expenses, acquisition-related expenses, the acquisition inventory fair value adjustments and the contingent consideration fair value adjustment to EBITDA. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue.
We believe that disclosing free cash flow is useful to investors as a measure of operating performance. We use this measure as an indicator of our strength and ability to generate cash. Free cash flow is a financial measure that does not reflect GAAP. We calculate free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment and businesses, net of cash acquired, plus cash proceeds from sales of property and equipment.
Investors should consider these non-GAAP financial measures in addition to, not as a substitute for or better than, financial measures prepared in accordance with GAAP. Reconciliations of the components of these measures to the most directly comparable GAAP financial measures are included in Exhibits B, C, D and E of this earnings release.
FORWARD-LOOKING STATEMENTS
This earnings 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 identify forward-looking statements in this earnings release. Such statements include, but are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions, statements about the opportunities and outlook for our Test & Simulation and Sensors sectors, statements about the impact of COVID-19 and related economic uncertainty, statements about the proposed merger, including the expected timeline to closing and the receipt of certain approvals, and other statements that are not historical facts. These statements are based on our current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. Risks, uncertainties and assumptions that could cause our actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to, the currently-unknown impact of COVID-19 and related economic uncertainty, the risk that the proposed merger may not be completed in a timely manner or at all, the failure to satisfy the conditions to the consummation of the proposed merger, the impact of the proposed merger on our operations, and those risks described in the "Risk Factors" section of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") and updated in any subsequent Quarterly Reports on Form 10-Q and other filings with the SEC. The reports referenced above are available on our website at www.mts.com or on the SEC’s website at www.sec.gov. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances.
ADDITIONAL INFORMATION REGARDING THE MERGER AND WHERE TO FIND IT
This communication does not constitute an offer to sell or the solicitation of an offer to buy the securities of MTS Systems Corporation (the "Company") or the solicitation of any vote or approval. This communication relates to the proposed merger involving the Company, Amphenol Corporation ("Parent") and Moon Merger Sub Corporation ("Sub"), whereby the Company will become a wholly owned subsidiary of Parent (the "proposed merger"). The proposed merger will be submitted to the shareholders of the Company for their consideration at a special meeting of the shareholders. In connection therewith, the Company intends to file relevant materials with the U.S. Securities and Exchange Commission (the "SEC"), including a definitive proxy statement on Schedule 14A (the "definitive proxy statement") which will be mailed or otherwise disseminated to the Company’s shareholders when it becomes available. The Company may also file other relevant documents with the SEC regarding the proposed merger. SHAREHOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Shareholders may obtain free copies of the definitive proxy statement, any amendments or supplements thereto and other documents containing important information about the Company, once such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov. Free copies of the definitive proxy statement and any other documents filed with the SEC can also be obtained on the Company’s website at https://www.mts.com/ or by contacting the Company’s Investor Relations Department at IRRequest@mts.com .
CERTAIN INFORMATION REGARDING PARTICIPANTS IN THE SOLICITATION
The Company and certain of its directors, executive officers and employees may, under the rules of the SEC, be deemed to be participants in the solicitation of proxies in connection with the proposed merger. Information regarding the Company’s directors and executive officers is contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 3, 2020, filed with the SEC on December 15, 2020, its definitive proxy statement on Schedule 14A for the 2020 annual meeting of shareholders, filed with the SEC on December 30, 2019, as modified or supplemented by any Form 3 or Form 4 filed with the SEC since the date of such definitive proxy statement, and in subsequent documents filed with the SEC. Additional information regarding the participants in the proxy solicitation and a description of their direct or indirect interests, by security holdings or otherwise, will be included in the definitive proxy statement and other relevant documents filed with the SEC regarding the proposed merger, if and when they become available. Free copies of these materials may be obtained as described in the preceding paragraph.
 MTS SYSTEMS CORPORATION
Consolidated Statements of Income
 (unaudited – in thousands, except per share data)
Three Months Ended
Twelve Months Ended
October 3,
2020
September 28,
2019
October 3,
2020
September 28,
2019
Revenue
Product
$
188,724
$
194,716
$
726,028
$
782,012
Service
26,331
29,366
102,558
110,506
Total revenue
215,055
224,082
828,586
892,518
Cost of sales
Product
128,380
126,464
477,716
494,725
Service
11,632
19,446
62,482
68,863
Total cost of sales
140,012
145,910
540,198
563,588
Gross profit
75,043
78,172
288,388
328,930
Gross margin
34.9
%
34.9
%
34.8
%
36.9
%
Operating expenses
Selling and marketing
30,581
32,834
120,288
131,639
General and administrative
28,707
22,854
96,089
86,658
Research and development
7,624
7,920
28,109
30,928
Impairment of assets
291,389
—
291,389
—
Total operating expenses
358,301
63,608
535,875
249,225
Income (loss) from operations
(283,258)
14,564
(247,487)
79,705
Operating margin
(131.7)
%
6.5
%
(29.9)
%
8.9
%
Interest expense, net
(7,995)
(10,685)
(33,970)
(31,558)
Other income (expense), net
(1,190)
271
(2,249)
466
Income (loss) before income taxes
(292,443)
4,150
(283,706)
48,613
Income tax provision (benefit)
(11,768)
(671)
(11,655)
5,546
Net income (loss)
$
(280,675)
$
4,821
$
(272,051)
$
43,067
Earnings (loss) per share
 Basic
Earnings (loss) per share
$
(14.56)
$
0.25
$
(14.16)
$
2.24
Weighted average common shares
outstanding
19,275
19,268
19,212
19,258
 Diluted
Earnings (loss) per share
$
(14.56)
$
0.25
$
(14.16)
$
2.21
Weighted average common shares
outstanding
19,275
19,519
19,212
19,447
Dividends declared per share
$
—
$
0.30
$
0.60
$
1.20
 MTS SYSTEMS CORPORATION
 Condensed Consolidated Balance Sheets
 (unaudited – in thousands)
October 3,
2020
September 28,
2019
 ASSETS
 Current assets
 Cash and cash equivalents
$
88,913
$
57,937
 Accounts receivable, net
128,733
121,260
 Unbilled accounts receivable, net
84,685
80,331
 Inventories, net
174,241
167,199
 Other current assets
24,429
23,761
 Total current assets
501,001
450,488
 Property and equipment, net
95,110
101,083
 Goodwill
228,640
429,039
 Intangible assets, net
295,095
306,585
 Other long-term assets
30,385
10,782
 Total assets
$
1,150,231
$
1,297,977
 LIABILITIES AND SHAREHOLDERS’ EQUITY
 Current liabilities
Short-term borrowings
$
17,000
$
—
 Current maturities of long-term debt, net
25,843
27,969
 Accounts payable
51,562
46,849
 Advance payments from customers
78,774
70,520
 Other accrued liabilities
123,672
106,238
 Total current liabilities
296,851
251,576
 Long-term debt, less current maturities
541,730
484,648
 Other long-term liabilities
90,467
77,694
 Total liabilities
929,048
813,918
 Shareholders’ equity
 Common stock, $0.25 par; 64,000 shares authorized:
19,264 and 19,124 shares issued and outstanding as of
October 3, 2020 and September 28, 2019, respectively
4,816
4,781
 Additional paid-in capital
189,580
182,422
 Retained earnings
31,768
315,329
 Accumulated other comprehensive income (loss)
(4,981)
(18,473)
 Total shareholders’ equity
221,183
484,059
 Total liabilities and shareholders’ equity
$
1,150,231
$
1,297,977
 MTS SYSTEMS CORPORATION
Condensed Consolidated Statements of Cash Flows
 (unaudited – in thousands)
Three Months Ended
Twelve Months Ended
October 3,
2020
September 28,
2019
October 3,
2020
September 28,
2019
Cash Flows from Operating Activities
Net income (loss)
$
(280,675)
$
4,821
$
(272,051)
$
43,067
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities
Stock-based compensation
1,936
2,099
7,150
9,397
Fair value adjustment to acquired inventory
—
460
1,140
1,601
Impairment of assets
291,389
—
291,389
—
Depreciation
6,556
5,129
23,843
20,614
Amortization
5,501
4,693
22,844
17,361
Accretion of contingent consideration
(396)
—
499
—
Contingent consideration fair value adjustment
6,791
—
8,092
—
(Gain) loss on sale or disposal of property and
equipment
1,984
890
4,311
1,442
Amortization of debt issuance costs
977
3,958
3,197
6,765
Deferred income taxes
(18,893)
(9,630)
(17,175)
(11,060)
Other
564
770
692
2,227
Changes in operating assets and liabilities
18,695
10,303
(26,082)
(17,951)
Net Cash Provided by (Used in) Operating
Activities
34,429
23,493
47,849
73,463
Cash Flows from Investing Activities
Purchases of property and equipment
(2,749)
(13,148)
(23,893)
(30,525)
Proceeds from sale of property and equipment
948
—
948
10
Purchases of businesses, net of acquired cash
(93)
(68,430)
(49,361)
(151,956)
Other
—
—
87
(285)
Net Cash Provided by (Used in) Investing
Activities
(1,894)
(81,578)
(72,219)
(182,756)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt
—
350,000
58,576
430,391
(Payments on) proceeds from financing
arrangements, net
(12,105)
(303,956)
10,063
(313,177)
Cash dividends
—
(5,614)
(17,205)
(21,713)
Proceeds from exercise of stock options and
employee stock purchase plan
557
1,738
1,187
3,435
Payments to purchase and retire common stock
(32)
(149)
(1,208)
(1,533)
Net Cash Provided by (Used in) Financing
Activities
(11,580)
42,019
51,413
97,403
Effect of Exchange Rate Changes on Cash and
Cash Equivalents
2,885
(1,732)
3,933
(1,977)
Cash and Cash Equivalents
Increase (decrease) during the period
23,840
(17,798)
30,976
(13,867)
Balance, beginning of period
65,073
75,735
57,937
71,804
Balance, End of Period
$
88,913
$
57,937
$
88,913
$
57,937
Exhibit A
MTS SYSTEMS CORPORATION
Segment Financial Information
(unaudited – in thousands)
Three Months Ended
Twelve Months Ended
October 3,
2020
September 28,
2019
October 3, 2020
September 28,
2019
Test & Simulation Segment
Revenue
$
128,003
$
133,988
$
490,634
$
558,908
Cost of sales
93,519
97,683
357,296
391,493
Gross profit
34,484
36,305
133,338
167,415
Gross margin
26.9
%
27.1
%
27.2
%
30.0
%
Operating expenses
130,838
33,664
223,793
133,335
Income (loss) from operations
$
(96,354)
$
2,641
$
(90,455)
$
34,080
Sensors Segment
Revenue
$
87,268
$
90,420
$
339,223
$
334,976
Cost of sales
46,708
48,550
184,171
173,466
Gross profit
40,560
41,870
155,052
161,510
Gross margin
46.5
%
46.3
%
45.7
%
48.2
%
Operating expenses
227,463
29,944
312,082
115,890
Income (loss) from operations
$
(186,903)
$
11,926
$
(157,030)
$
45,620
Intersegment Eliminations
Revenue
$
(216)
$
(326)
$
(1,271)
$
(1,366)
Cost of sales
(215)
(323)
(1,269)
(1,371)
Gross profit
(1)
(3)
(2)
5
Income (loss) from operations
$
(1)
$
(3)
$
(2)
$
5
Total Company
Revenue
$
215,055
$
224,082
$
828,586
$
892,518
Cost of sales
140,012
145,910
540,198
563,588
Gross profit
75,043
78,172
288,388
328,930
Gross margin
34.9
%
34.9
%
34.8
%
36.9
%
Operating expenses
358,301
63,608
535,875
249,225
Income (loss) from operations
$
(283,258)
$
14,564
$
(247,487)
$
79,705
Exhibit B
MTS SYSTEMS CORPORATION
Reconciliation of Adjusted Diluted Earnings Per Share
(unaudited – in thousands, except per share data)
Three Months Ended
October 3, 2020
September 28, 2019
Pre-tax
Tax
Net
Pre-tax
Tax
Net
Net income (loss)
$
(292,443)
$
(11,768)
$
(280,675)
$
4,150
$
(671)
$
4,821
Impairment of assets 1
291,389
—
291,389
—
—
—
Restructuring / other expenses 2
2,965
577
2,388
700
162
538
Acquisition-related expenses 2
32
5
27
1,805
379
1,426
Acquisition inventory fair value adjustment 2
—
—
—
460
97
363
Contingent consideration fair value
adjustment 2
6,791
1,494
5,297
—
—
—
Adjusted net income 3
$
8,734
$
(9,692)
$
18,426
$
7,115
$
(33)
$
7,148
Weighted average diluted common shares
outstanding
19,275
19,519
Adjusted weighted average diluted common
shares outstanding 3,4
19,368
19,519
Diluted earnings (loss) per share
$
(15.17)
$
(0.61)
$
(14.56)
$
0.21
$
(0.04)
$
0.25
Impact of impairment of assets
15.13
—
15.13
—
—
—
Impact of restructuring / other expenses
0.15
0.03
0.12
0.04
0.01
0.03
Impact of acquisition-related expenses
—
—
—
0.09
0.02
0.07
Impact of acquisition inventory fair value
adjustment
—
—
—
0.02
—
0.02
Impact of contingent consideration fair
value adjustment
0.34
0.07
0.27
—
—
—
Impact of change in weighted average
diluted common shares outstanding
(0.01)
—
(0.01)
—
—
—
Adjusted diluted earnings per share 3
$
0.44
$
(0.51)
$
0.95
$
0.36
$
(0.01)
$
0.37
1
Impairment of assets is non-deductible for tax purposes; therefore, there is no tax impact associated with the adjustment.
2
In determining the tax impact of restructuring / other expenses, acquisition-related expenses, the acquisition inventory fair value adjustment and the contingent consideration fair value adjustment, we applied the statutory rate in effect for each jurisdiction where the expenses were incurred.
3
Denotes non-GAAP financial measure.
4
Adjusted weighted average diluted common shares outstanding reflects the weighted average diluted common shares associated with adjusted net income, which may include the dilutive effect of common stock equivalents.
Exhibit C
MTS SYSTEMS CORPORATION
Reconciliation of Adjusted Diluted Earnings Per Share
(unaudited – in thousands, except per share data)
Twelve Months Ended
October 3, 2020
September 28, 2019
Pre-tax
Tax
Net
Pre-tax
Tax
Net
Net income (loss)
$
(283,706)
$
(11,655)
$
(272,051)
$
48,613
$
5,546
$
43,067
Impairment of assets 1
291,389
—
291,389
—
—
—
Restructuring / other expenses 2
11,848
2,980
8,868
830
195
635
Acquisition-related expenses 2
4,899
1,048
3,851
2,938
617
2,321
Acquisition inventory fair value adjustment 2
1,140
239
901
1,601
269
1,332
Contingent consideration fair value adjustment 2
8,092
1,780
6,312
—
—
—
Adjusted net income 3
$
33,662
$
(5,608)
$
39,270
$
53,982
$
6,627
$
47,355
Weighted average diluted common shares
outstanding
19,212
19,447
Adjusted weighted average diluted common
shares outstanding 3,4
19,332
19,447
Diluted earnings (loss) per share
$
(14.77)
$
(0.61)
$
(14.16)
$
2.50
$
0.29
$
2.21
Impact of impairment of assets
15.16
—
15.16
—
—
—
Impact of restructuring / other expenses
0.62
0.16
0.46
0.04
0.01
0.03
Impact of acquisition-related expenses
0.25
0.05
0.20
0.15
0.02
0.13
Impact of acquisition inventory fair value
adjustment
0.06
0.01
0.05
0.08
0.01
0.07
Impact of contingent consideration fair value
adjustment
0.43
0.10
0.33
—
—
—
Impact of change in weighted average
diluted common shares outstanding
(0.01)
—
(0.01)
—
—
—
Adjusted diluted earnings per share 3
$
1.74
$
(0.29)
$
2.03
$
2.77
$
0.33
$
2.44
1
Impairment of assets is non-deductible for tax purposes; therefore, there is no tax impact associated with the adjustment.
2
In determining the tax impact of restructuring / other expenses, acquisition-related expenses, the acquisition inventory fair value adjustment and the contingent consideration fair value adjustment, we applied the statutory rate in effect for each jurisdiction where the expenses were incurred.
3
Denotes non-GAAP financial measure.
4
Adjusted weighted average diluted common shares outstanding reflects the weighted average diluted common shares associated with adjusted net income, which may include the dilutive effect of common stock equivalents.
Exhibit D
MTS SYSTEMS CORPORATION
Reconciliation of EBITDA and Adjusted EBITDA to Net Income
(unaudited – in thousands)
Three Months Ended
Twelve Months Ended
October 3,
2020
September 28,
2019
October 3,
2020
September 28,
2019
Net income (loss)
$
(280,675)
$
4,821
$
(272,051)
$
43,067
Net income (loss) margin
(130.5)
%
2.2
%
(32.8)
%
4.8
%
Income tax provision (benefit)
(11,768)
(671)
(11,655)
5,546
Interest expense, net
7,995
10,685
33,970
31,558
Depreciation
6,556
5,129
23,843
20,614
Amortization
5,501
4,693
22,844
17,361
EBITDA 1
(272,391)
24,657
(203,049)
118,146
Stock-based compensation
1,936
2,099
7,150
9,397
Impairment of assets 2
291,389
—
291,389
—
Restructuring / other expenses 2
3,168
700
12,238
830
Acquisition-related expenses 2
365
1,685
4,252
2,640
Acquisition inventory fair value adjustments
—
460
1,140
1,601
Contingent consideration fair value adjustment
6,791
—
8,092
—
Adjusted EBITDA 1
$
31,258
$
29,601
$
121,212
$
132,614
Adjusted EBITDA margin 1,3
14.5
%
13.2
%
14.6
%
14.9
%
1
Denotes non-GAAP financial measures.
2
Restructuring / other and acquisition-related expenses were adjusted to exclude stock-based compensation that is otherwise included in the stock-based compensation line and interest expense that is otherwise included in the interest expense, net line.
3
Adjusted EBITDA was divided by revenue when calculating Adjusted EBITDA margin.
Exhibit E
MTS SYSTEMS CORPORATION
Free Cash Flow
(unaudited – in thousands)
Three Months Ended
Twelve Months Ended
October 3,
2020
September 28,
2019
October 3,
2020
September 28,
2019
Net Cash Provided by (Used in) Operating
Activities
$
34,429
$
23,493
$
47,849
$
73,463
Purchases of property and equipment
(2,749)
(13,148)
(23,893)
(30,525)
Proceeds from sale of property and equipment
948
—
948
10
Free cash flow 1
$
32,628
$
10,345
$
24,904
$
42,948
1Â Denotes non-GAAP financial measures.
SOURCE: MTS Systems Corporation
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