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MTS Reports 2010 Second Quarter Financial Results
May 06, 2010 (04:05 PM EDT)


-- Revenue increased 6 percent sequentially, reflecting higher beginning backlog and order levels

-- EPS rose 61 percent sequentially on higher volumes and continued cost management

-- Base orders rose 7 percent sequentially. Overall orders declined 13 percent due to $20 million of large orders that favorably impacted Q1

-- Cash generated from operating activities grew to $26 million from $2 million in Q1

-- Company expects full year 2010 to reflect current market momentum in Sensors and continued variability in Test

EDEN PRAIRIE, Minn., May 6 /PRNewswire-FirstCall/ -- MTS Systems Corporation (Nasdaq: MTSC) today reported fiscal 2010 second quarter financial results.

(Logo:  http://www.newscom.com/cgi-bin/prnh/20020430/MTSCLOGO)

"We are pleased to be participating in the improving global economy in both our shorter-cycle Sensors business and longer-cycle Test business" said Laura B. Hamilton, MTS chief executive officer and chair. "The quarterly variability in large orders (defined as in excess of $5 million), which is the nature of the Test business, continues in this environment. From an economic perspective, we maintain our healthy skepticism about significant long-term improvement in the underlying fundamentals around the world. We remain well positioned in the world's emerging geographies and industries – to both capitalize on near-term momentum and longer-term market opportunity as it evolves."

Sequential Quarter Results

Orders were $93.4 million, 13 percent lower than first quarter 2010. Test orders declined 20 percent, while Sensors orders rose 19 percent. There were no large orders in the current quarter, compared to two large Test orders totaling $20 million in the first quarter of 2010. Excluding large orders, which contribute to quarter-to-quarter variability, base orders increased 7 percent. Backlog decreased 2 percent to $181 million.

Revenue was $94.3 million, an increase of 6 percent compared to the previous quarter. The improvement was comprised of 5 percent growth in Test, resulting from higher beginning backlog, and 11 percent growth in Sensors due to increased order volume.

Gross profit was $38.5 million, up 10 percent compared to first quarter 2010. The gross margin rate was 40.9 percent, up 1.4 percentage points, driven primarily by lower warranty expense resulting from the favorable impact of the settlement of a specific claim.

Income from operations was $10.1 million, an increase of $3.7 million compared to the prior quarter, due to higher revenue. Operating expenses fell 1 percent in the second quarter.

Net earnings were $0.37 per share, an increase of $0.14, or 61 percent, compared to the prior quarter, driven by revenue growth and reduced warranty expenses.

Cash Position

Cash and cash equivalents at the end of the second quarter totaled $122.1 million, compared to $113.7 million at the end of first quarter fiscal 2010. Operating activities generated cash of $26.2 million in the second quarter. During the second quarter, the Company invested $3.2 million in capital expenditures, paid $4.9 million in dividends and purchased approximately 158,800 shares of its common stock for $4.5 million.

Sequential Quarter Segment Results

Test Segment:

Orders totaled $72.4 million, a decrease of 20 percent compared to first quarter 2010. Orders in the prior quarter included two large custom orders totaling $20 million. There were no such orders in the current quarter. Excluding these two large orders, base orders increased 3 percent. Backlog decreased 3 percent to $167 million. Revenue was $75.3 million, up 5 percent, driven by higher beginning backlog compared to the prior quarter. Currency translation unfavorably impacted revenue by 2 percent.

Gross profit was $28.4 million, an improvement of $2.6 million or 10 percent, compared to last quarter. The second quarter gross margin rate was 37.8 percent, an increase of 1.9 percentage points compared to the prior quarter. The increase includes a 2.1 percentage point favorable impact due to lower warranty expense from the previously mentioned settlement of a specific claim.

Income from operations was $6.3 million, an increase of 94 percent compared to the prior quarter, driven by revenue growth as well as a 2 percent decrease in operating expenses.

Sensors Segment:

Orders totaled $21.0 million, a 19 percent increase compared to first quarter 2010, due to higher volume across all geographies, partially offset by a 5 percent unfavorable impact of currency translation. Backlog improved 14 percent to $13 million. Revenue was $19.0 million, an increase of 11 percent, driven by higher order volume, partially offset by a 4 percent unfavorable impact of currency translation. Gross profit was $10.1 million, up $0.7 million or 7 percent. Second quarter gross margin rate was 53.2 percent, a decrease of 1.6 percentage points compared to the prior quarter, due to a $0.2 million inventory write-off and increased variable compensation.

Income from operations was $3.8 million, an increase of $0.6 million compared to first quarter fiscal 2010, resulting from higher gross profit.

Year-over-Year Second Quarter Results

Orders for the second quarter rose 35 percent compared to second quarter 2009, due to higher volume across all geographies in both segments, and a 3 percent favorable impact of currency translation. Revenue was $94.3 million, a decrease of 12 percent, primarily due to a 16 percent lower opening backlog, which was partially offset by a 2 percent favorable impact of currency translation. In the second quarter of 2009, MTS' revenue had not been significantly impacted by the effects of the global economic downturn due to the backlog cycle of the Test business.

Gross profit was $38.5 million, down 7 percent. The gross margin rate was 40.9 percent, an increase of 2.3 percentage points, primarily due to lower warranty expense in the Test segment from the previously mentioned settlement of a specific claim and severance charges in the second quarter 2009, partially offset by increased variable compensation in the second quarter 2010. Income from operations was $10.1 million, a decline of 14 percent, chiefly driven by lower gross profit, partially offset by a $1.3 million reduction in operating expenses. Income from operations in fiscal 2009 included $2.8 million of severance charges. Earnings per share for the quarter decreased 16 percent to $0.37 per share, as a result of lower income from operations and a higher tax rate, partially offset by reductions in currency-related losses. The tax rate for the quarter rose to 36.1% from 27.9% primarily due to the enactment of legislation in the prior year that retroactively extended the U.S. R&D tax credits. This legislation expired as of the end of the first quarter of the current year.

Hamilton concluded, "Our results during the second quarter reflect the benefits of our efforts to resize our business while retaining the resources necessary to successfully participate in current market opportunities. We continue to make important investments in our businesses as we pursue attractive opportunities in growing geographies, including China and India, in our traditional markets including ground vehicles and industrial machines, as well as in emerging applications such as wind energy and mobile hydraulics."

Outlook

Looking ahead, MTS expects to continue to benefit from higher order volume and strong cost-management. However, Test backlog is not expected to turn as quickly as it did in the first half due to an increasing proportion of custom projects, customer site-readiness factors and capacity alignment. The company sees the second half revenue results roughly in line with the first half, with the fourth quarter stronger than the third.  Earnings per share for the second half are expected to be flat to up 15% based on revenue volume.

Second Quarter Conference Call

A conference call will be held on May 7, 2010, at 10 a.m. EDT (9 a.m. CDT).  Call +1-719-325-4773 (Toll Free: +1-877-856-1955); and reference the conference pass code "5765043." Telephone re-play will be available until 12 p.m. CDT, May 14, 2010. Call +1-719-457-0820 (Toll Free: +1-888-203-1112); and reference the conference replay pass code "5765043."

A transcript of the call can also be accessed from the MTS website at http://www.mts.com/en/InvestorRelations/index.asp. It will be available on May 19, 2010.

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 2,015 employees and revenue of $409 million for the fiscal year ended October 3, 2009. 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. 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. Important risk factors are delineated in the Company's most recent SEC Form 10-Q and 10-K filings.

MTS SYSTEMS CORPORATION

Consolidated Statements of Income

(unaudited - in thousands, except per share data)










Three Months Ended


Six Months Ended


April 3,


March 28,


April 3,


March 28,


2010


2009


2010


2009









Revenue

$    94,270


$ 107,652


$   183,230


$ 224,261

Cost of sales

55,742


66,139


109,520


138,527

   Gross profit

38,528


41,513


73,710


85,734

       Gross margin

40.9%


38.6%


40.2%


38.2%









Operating expenses:








    Selling, general and administrative

24,753


25,892


50,137


54,915

    Research and development

3,682


3,874


7,052


7,133

        Total operating expenses

28,435


29,766


57,189


62,048









Income from operations

10,093


11,747


16,521


23,686

        Operating margin

10.7%


10.9%


9.0%


10.6%









Interest expense, net

(429)


(252)


(837)


(243)

Other expense, net

(4)


(1,136)


(323)


(242)









Income before income taxes

9,660


10,359


15,361


23,201

Provision for income taxes

3,486


2,886


5,350


5,977

Net income  

$      6,174


$      7,473


$      10,011


$   17,224









Earnings per share:








    Basic-








        Earnings per share

$         0.37


$        0.44


$          0.61


$        1.02

        Weighted average number of common shares outstanding - basic  

16,467


16,841


16,523


16,888









Diluted-








        Earnings per share

$         0.37


$        0.44


$          0.60


$        1.02

        Weighted average number of common shares outstanding - diluted

16,531


16,881


16,574


16,935











MTS SYSTEMS CORPORATION

Consolidated Balance Sheets

(unaudited - in thousands, except per share data)






April 3,


October 3,


2010


2009

ASSETS








Current Assets:




    Cash and cash equivalents

$122,082


$118,885

    Accounts receivable, net

69,491


72,553

    Unbilled accounts receivable

20,149


27,246

    Inventories

45,972


47,969

    Other current assets

20,622


18,905

        Total current assets

278,316


285,558





Property and equipment, net

54,943


56,118





Goodwill

15,097


15,206

Intangibles, net

23,901


23,826

Other assets

5,222


6,206

Total Assets

$377,479


$386,914





LIABILITIES AND SHAREHOLDERS' INVESTMENT








Current Liabilities:




    Short-term borrowings

$  40,254


$  40,182

    Accounts payable

19,279


18,630

    Advance payments from customers

50,294


46,739

    Other accrued liabilities

56,616


62,441

        Total current liabilities

166,443


167,992





Other long-term liabilities

14,560


14,957

Total Liabilities

181,003


182,949





Shareholders' Investment:




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




     16,368 and 16,564 shares issued and outstanding

4,092


4,141

    Retained earnings

174,970


174,301

    Accumulated other comprehensive income

17,414


25,523

        Total shareholders' investment

196,476


203,965

Total Liabilities and Shareholders' Investment

$377,479


$386,914







Exhibit A

MTS SYSTEMS CORPORATION

Sequential Segment Financial Information

(unaudited - in thousands)








Three Months Ended




April 3,


January 2,



Test Segment

2010


2010


% Variance







Orders

$ 72,431


$   90,100


-20%







Revenue

$ 75,331


$   71,873


5%

Cost of sales

46,871


46,060


2%

Gross profit

28,460


25,813


10%

        Gross margin

37.8%


35.9%


1.9%







Operating expenses

22,177


22,576


-2%







Income from operations

$   6,283


$      3,237


94%







Sensors Segment












Orders

$ 20,968


$   17,588


19%







Revenue

$ 18,939


$   17,087


11%

Cost of sales

8,871


7,718


15%

Gross profit

10,068


9,369


7%

        Gross margin

53.2%


54.8%


-1.7%







Operating expenses

6,258


6,178


1%







Income from operations

$   3,810


$      3,191


19%







Total Company












Orders

$ 93,399


$ 107,688


-13%







Revenue

$ 94,270


$   88,960


6%

Cost of sales

55,742


53,778


4%

Gross profit

38,528


35,182


10%

        Gross margin

40.9%


39.5%


1.3%







Operating expenses

28,435


28,754


-1%







Income from operations

$ 10,093


$      6,428


57%



Exhibit B

MTS SYSTEMS CORPORATION

Segment Financial Information

(unaudited - in thousands)








Three Months Ended




April 3,


March 28,



Test Segment

2010


2009


% Variance







Orders

$ 72,431


$   53,479


35%







Revenue

$ 75,331


$   90,929


-17%

Cost of Sales

46,871


58,445


-20%

Gross profit

28,460


32,484


-12%

    Gross margin

37.8%


35.7%


2.1%







Operating expenses

22,177


23,213


-4%







Income from operations

$   6,283


$      9,271


-32%







Sensors Segment












Orders

$ 20,968


$   15,735


33%







Revenue

$ 18,939


$   16,723


13%

Cost of Sales

8,871


7,694


15%

Gross profit

10,068


9,029


12%

    Gross margin

53.2%


54.0%


-0.8%







Operating expenses

6,258


6,553


-5%







Income from operations

$   3,810


$      2,476


54%







Total Company












Orders

$ 93,399


$   69,214


35%







Revenue

$ 94,270


$ 107,652


-12%

Cost of Sales

55,742


66,139


-16%

Gross profit

38,528


41,513


-7%

    Gross margin

40.9%


38.6%


2.3%







Operating expenses

28,435


29,766


-4%







Income from operations(1)

$ 10,093


$   11,747


-14%







 (1) Income from operations for the three months ended March 28, 2009 includes

      severance charges of $2,816 thousand, of which $1,183 thousand and $1,633

      thousand are reported in Cost of Sales and Operating Expenses, respectively.




SOURCE MTS Systems Corporation