I N V E S TO R P R E S E N TAT I O N N O V E M B E R Dr. Jeffrey A. Graves President and Chief Executive Officer

Transcription

1 I N V E S TO R P R E S E N TAT I O N N O V E M B E R Dr. Jeffrey A. Graves President and Chief Executive Officer

2 Forward-looking statements Statements in this presentation and in our comments that are not historical or current facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of They reflect management s current expectations or beliefs. We caution that future results could differ materially from those in this presentation depending on many risk factors, some beyond our control, including, but not limited to, those presented in the Company s most recent SEC Form 10-K and 10-Q reports. The Company disclaims any obligation to revise forward-looking statements made today based on future information. This presentation may also include reference to financial measures that are not calculated in accordance with Generally Accepted Accounting Principles (GAAP). These measures may be used to compare the operating performance of the Company over time. They should not be considered in isolation or as a substitute for GAAP measures. Page 2

3 Company snapshot» Leading global supplier of high-performance test and measurement systems and sensors» Two business segments: Test and Sensors» Test and Sensors businesses help researchers, engineers and manufacturers improve their product performance and reduce time to market» Celebrating over 50 years of serving our customers Mission Vision To be the leader in creating innovative test and measurement solutions to enable our customers success Through innovation and customer service, create value to drive growth 2017 Revenue by Business 64% 36% Sensors Test 2017 Adjusted EBITDA by Business 52% 48% $788M $120M 1 See reconciliation to nearest GAAP measure on page 41 Sensors Test Page 3

4 MTS Systems customer value creation and competitive advantages» Test & Measurement solutions that bring value to our customers products through: Enhanced precision Improved reliability Greater sustainability Superior safety Rapid delivery to market» Differentiated technology and application engineering expertise» Deep long-term customer relationships» Industry-leading geographic coverage spanning six continents Page 4

5 Strong global footprint to support geographically diverse customer base BASED ON TOTAL REVENUE* OF $788M 35% 25% 40% Asia Americas Europe China = 22% of global GEOGRAPHIC COVERAGE Manufacturing Facilities Sales & Service Affiliates Business Partners BP Coverage * Reported fiscal year 2017 revenue Page 5

6 MTS Segments and Market Sectors

7 MTS operates under two segments and serves eight distinct market sectors» Test Segment - provides highly engineered testing systems and services fueled by our customers spending on research and new product development Sectors:» Ground Vehicles ~48% of Test business» Materials ~22% of Test business» Structures ~12% of Test business» Service ~18% of Test business» Sensors Segment provides high performance sensors used for acceleration, position, vibration, motion, pressure and force measurement, partially fueled by customers spending on research and new product development and partially by industrial capacity utilization Sectors:» Position ~37% of Sensors business» Test ~35% of Sensors business» Industrial ~19% of business» Systems ~9% of Sensors business Page 7

8 Test overview» Testing solutions that accurately simulate real life (durability, performance)» Technical consulting to collaboratively solve testing problems» Service support for uptime, productivity and lifecycle extension $3.2B Market MTS 16% Share INDUSTRIES aerospace, automotive, biomedical, geo-materials, civil engineering, energy, materials sciences, motorsports, rail ADVANTAGES»Industry-leading applications knowledge»testing technology leadership»comprehensive solutions»worldwide service and consultation Orders and backlog ($M s) Revenue ($M s) Adjusted EBITDA ($M s) Orders Backlog $519 $510 $501 $463 $512 $ $66 $66 $62 $340 $331 $312 14% 13% 12% 1 See reconciliation to nearest GAAP measure on page Page 8

9 Sensors overview» Global leader in sensing technologies and solutions that enable automation, precision and safety» Enable better products at lower cost in safer environments» Controls consulting to optimize application performance Revenue ($M s) $284 $3.2B* Market INDUSTRIES automotive, aerospace & defense, industrial automation, fluid power, fuel transmission and storage, mobile hydraulic equipment ADVANTAGES MTS 9% Share»Total customer satisfaction» Leading technology offerings and unrivaled application expertise»worldwide support and consultation *Market size is based on an estimate of the current addressable market $101 $138 Adjusted EBITDA ($M s) $23 $30 $ % 22% 20% See reconciliation to nearest GAAP measure on page 40 Page 9

10 Industry Overview

11 Outlook for R&D spending remains positive given the critical importance of product innovation for MTS customers Total Global Innovation 1000 R&D Spending ($ bln) R&D Spending +66% 10-year CAGR = 5.2% $409 $447 $501 $538 $508 $560 $614 $638 $647 $680 $ » Strong global R&D spending growth of 5.2% annually since 2006» Although Y/Y spending was flat in 2016, recent trend includes five years of consistent growth from , increasing 6.0% annually.» R&D growth in Asia has outpaced growth in North America and Europe, becoming the number one region for corporate R&D spending Source: PwC Strategy&, 2015 Global Innovation 1000, 2015 & 2016 Page 11

12 Global sensors market is large and growing MTS is well positioned Addressable Global Sensors Market 2015 $27.8bn 7.9% CAGR 2020 $40.6bn 27% 28% 27% 27% 45% 46% Load / torque sensor Pressure sensor Position sensor Load / torque sensor Pressure sensor Position sensor Source: BBC Research, Global Markets and Technologies for Sensors, 2014 Page 12

13 Why we are excited about our future

14 Acquisition of PCB Group» Acquired PCB Group, Inc. Transaction creates a technology-leading Test and Measurement solutions provider The combined company will serve a global customer base ranging from leading OEMs in automotive, aerospace, infrastructure and industrial products to universities and research laboratories Strategic rationale Create a sustainable, technologyleading Test and Measurement solutions provider Achieve critical mass for sustainable value creation Cultivate attractive revenue growth and cost synergy opportunities Generate strong free cash flow Grow through service PCB Overview» PCB is a manufacturer of piezoelectric sensors and components used for motion, pressure, force and vibration measurement» PCB s products include accelerometers, microphones, calibration systems, pressure sensors, load and torque sensors, force sensors, single- and multi-channel telemetry, ground fault detection and smart sensing solutions Combine complementary businesses Leverage global footprint Page 14

15 Realize growth within rapidly expanding sensors market strong forecasted growth over the next 5 years» Broad sensor product offering with leading technical capabilities Motion, position, pressure, force, load & torque, acoustic» Sensors that facilitate Continuing trend for increased automation and precision to drive productivity improvements Enhance testing of products and decrease downtime Meet expanding safety regulations Increase reliability and data gathering to drive better decision making Microphone calibrator Gas turbine monitoring Acoustic Noise testing Mobile equipment position Page 15

16 Billions Revenue Revenue Test Revenue Test Revenue Opportunities to expand Test Service offerings from increased uptime and productivity to comprehensive testing expertise MTS Installed Base is Growing $4.5B $160 $160 $120 $120 $80 $80 $40 $40 $79 $86 $90 $72 $77 $ % 17.1% 18% 17% 17% 15.1% $135 $135 30% 30% 20% 20% 20% 20% 10% 10% $0 $ % Full service contracts build long-term customer engagement» Responsive proactive support» Differentiated technical solutions» Global best practices delivered locally Reduce customer time-to-market Proactive maintenance Consulting Intelligent Lab Productivity Advance Exchange provided to customer Customer MTS Repair Center Core return Health management Baseline Maintenance MTS Inventory Pool Core worked on and put in pool Page 16

17 Environmental and energy conservation are driving growth in ground vehicle and advanced materials testing CAFE standard for compact cars increases to 60 mpg by 2025, full-size car efficiency will also increases to 45 mpg. Compact Midsize Full-size Source: Car and Driver, November 21, 2014 Tire performance and durability as well as aero dynamic testing and advanced composite materials are critical to meeting new fuel efficiency standards. Page 17

18 Financial Information

19 Technology leadership positions MTS for long-term sustainable organic growth 5% 7% long-term organic growth target Test Services & Ground Vehicles Test Services 3% Sensors Business Other Test Markets» Expanding Services offerings and revenue in Test» Capitalizing on ground vehicles growth fueled by increasing CAFE standards Share Growth Market Growth 5% Share Growth Market Growth 7% Share Growth Market Growth 3%» Capture rapid expansion of sensors markets» Global macro trends present significant sustainable growth opportunities» Engineering expertise and technology-rich products and systems are key differentiators Page 19

20 Opportunities to expand margins and other financial measures Improved product mix Efficiency gains MTS Adjusted EBITDA* 15% Test Services Revenue Growth Sensors Revenue Growth Test Operational Efficiencies» Productivity improvement through Lean & other initiatives 3-4% pts Other financial goals» ~ 15% ROIC* in 4 years from revenue growth, improved profitability and reduced leverage» $60M+ annual free cash flow * * Denotes non-gaap financial measures Page 20

21 Broad Sensors portfolio aligned with emerging market trends will spur revenue and adjusted EBITDA growth REVENUE $564 $650 $788 $780 - $820 Guidance Range ADJUSTED EBITDA 1 $88 $96 $120 $120 - $140 Guidance Range» 2018 revenue guidance includes strong Sensors growth and flat Test revenue growth» 2018 earnings include: EARNINGS PER SHARE* $ 3.00 $ 1.70 $ 1.31 $ $ * FY16 includes $1.02 acquisition-related and restructuring costs. FY17 includes $.91 for China investigation, acquisition-related and restructuring expenses OPERATING CASH FLOW $100 $68 $72 Guidance Range $ Annually RETURN ON INVESTED CAPITAL (ROIC) 3 16% 9% CAPITAL EXPENDITURES $21 $18 $18 3.3% 3.2% 7% 2.3% % % of revenue Capital Expenditures - Increase from non-recurring 2017 expenses of ~ $25 million, $0.91 EPS, for acquisition inventory step-up, China investigation, acquisition integration, and restructuring expenses - Restructuring expense of $0.04-$0.11 EPS related actions taken to increase manufacturing efficiencies and reduce costs - Projected tax rates of 21% - 25%. 1 See reconciliation to nearest GAAP measure on page 41 2 See reconciliation to nearest GAAP measure on page 42 3 Denotes non-gaap financial measure Page 21

22 Fiscal year 2017 Financial Results» Revenue growth of 21%. Full year contribution from the PCB acquisition generated 20% growth, strong organic Sensors demand contributed 2% and Test declined 1%» Diluted EPS of $1.31 includes $0.91 negative impact from China investigation costs, restructuring and expenses related to PCB acquisition. Fiscal 2017 also includes full year of interest expense and amortization expense attributed to acquisition.» EPS benefit in fiscal 2017 from discrete tax benefits related to prior years and increase in mix of higher margin Sensors revenue. Share count increased million shares» Adjusted EBITDA increase includes 12 month contribution from PCB compared to 3 months $650 REVENUE (M s) $788 ADJUSTED EBITDA (M s) $96 $120 GAAP: DILUTED EPS $1.70 $ % 25% (23%) See reconciliation to nearest GAAP measure on page Page 22

23 Capital allocation priorities» Focus on debt repayment and reducing leverage rapidly, long-term leverage target 2.0x 2.5x» Invest in Sensors and Test for growth Focus capital on high returning organic growth opportunities Disciplined approach to executing on natural bolt-on acquisition opportunities to augment strong organic growth once leverage has reached acceptable levels» Revolving credit facility will be primarily used to provide liquidity and support organic growth strategy $120M available under the revolving credit facility» Maintain long-standing historical dividend payout Targeted payout currently yields ~2.5% 40 consecutive years of dividend payments» Share buyback program has been placed on hold until leverage is reduced Page 23

24 Summary» Reasons to invest in MTS OPPORTUNITIES FOR GROWTH - Capture expanding sensors market growth - Realizing Test service opportunity driven by expanding base of installed products - Capitalizing on ground vehicle market and advanced material testing growth - Global macro trends present significant sustainable growth opportunities WE HAVE WHAT IT TAKES TO BE SUCCESSFUL - Global scale with approximately 40% of revenue from Asia - Engineering expertise, technology-rich products and systems, and goal of total customer satisfaction are key differentiators - Deep, long-term customer relationships» We are confident about our future Page 24

25 Appendix

26 Financial history ($Ms except per share data) Financial Results Revenue $564 $650 $788 Adjusted EBITDA 1 $88 $96 $120 Net Income $45 $44 ** $43 *** EPS $3.00 $2.72 ** $2.22 *** Cash from Operations $100 $68 $72 Financial Position Cash & cash equivalents $52 $85 $109 Debt $21 $485 $474 Debt/Equity 8% 120% 111% ROIC* 15% 9% ** 7% *** Average Diluted Share Count Represents non-gaap measure. See reconciliation to nearest GAAP measure on page 41 * ** *** EBIT x (1-tax rate) + after-tax interest income divided by average debt + equity Excludes acquisition-related and restructuring activities of $16.5M, $1.02 earnings per share and 3 percentage point impact on return on invested capital Excludes China investigation, acquisition inventory fair value adjustment, restructuring costs and acquisition integration of $17.5M, $0.91 earnings per share and 2 percentage point impact on return on invested capital Page 26

27 Strategic rationale for PCB acquisition Creates a sustainable, technology-leading Test and Measurement solution provider Critical mass for sustainable value creation Expand into adjacent markets Strong free cash flow profile Minimal capex requirements and opportunity for facility integration Growth through service Complementary businesses Excellent margins / profitability with upside from strong focus on operational excellence Significant future organic growth potential with natural bolt-on acquisition opportunities Provide products to the Test business that are currently sourced elsewhere Strengthens Test Service position in calibration and builds a strong service footprint, especially in the US Global footprint, diverse markets/customers, broad product portfolio Significantly broadens the Company s sensors offering and adds piezoelectric as a major new core technology Strengthens the sales channels for Sensors Embrace the PCB culture of competitive differentiation through product innovation and exceptional customer service Add revenue and margin through PCB sales to MTS Test and Sensors customers Sensors would expand into pressure, acoustic, force, strain and vibration sensors MTS Testing products can be sold into PCB customer base Calibration is a large growth opportunity for existing PCB customers Strong cash generation with minimal capex requirements More predictable cash flow performance Capacity for MTS to leverage PCB s vertically integrated machine shop in order to lower cost of critical parts Nearby PCB and MTS manufacturing facilities consolidation opportunity MTS Sensors & PCB supply chain expect to realize significant cost reduction Service calibration is a large growth opportunity for the PCB customer base Shared focus on total customer satisfaction Common cultures across both business units (innovative, technology-leading, engineer-to-engineer sales process) Significant revenue and cost synergies when operated under one corporate structure Combining MTS with PCB creates a more valuable company for employees, customers and shareholders Page 27

28 The PCB Acquisition is expected to generate attractive revenue growth opportunities, cost synergies and value for MTS» MTS customer leverage:» Europe, Asia and emerging leverage:» Cross selling of products:» Modal shop calibration business:» Cost synergies:» PCB can leverage MTS customers MTS has significant customer base in Aero and Transportation» MTS has strong market position in Europe, Japan, China and Korea. PCB currently has limited presence in these markets.» MTS Sensors sold through PCB channels» PCB branded sensors sold through MTS channels (Sensors and Test)» Calibration market expansion with investments made» Illustrative SG&A efficiencies across both businesses» Gross margin and manufacturing synergies based on sourcing savings Revenue: expect to cultivate growth opportunities Cost: expect to generate $5 to $7 million of annual net cost synergies in the first 3 to 4 years after merger Page 28

29 Test Ground Vehicles (~48% of Test Business) Component, sub-system and full-vehicle testing solutions for everything from motorcycles and passenger cars to heavy-duty trucks and rail vehicles MTS Ground Vehicles Market $0.9B Market MTS 26% Share PRODUCT MARKET GROWTH: 4% APPLICATIONS Measurement and simulation solutions to assess durability, vehicle dynamics and aerodynamics of full vehicles, sub-systems and components COMPETITORS AB Dynamics, DIA, Horiba, Instron (ITW), MAHA AIP, Moog, Saginomia» Validate Component Durability» Test & Measure Vehicle Response» Vehicle Dynamics» Optimize Critical Design Parameters Page 29

30 Test Materials (~22% of Test Business) Testing solutions for materials science, aerospace, biomedical, and geomechanical industries MTS Materials Market $0.9B* Market MTS 12% Share PRODUCT MARKET GROWTH: 3% APPLICATIONS Characterization of material properties and behavior across a broad range of environments and loading conditions in support of materials research and development for product design COMPETITORS Instron (ITW), Zwick, Shimadzu, Tinius Olsen *Market size is based on an estimate of the Premium Materials Test Market» Properties for new additive manufactured materials» Material characterization in severe environments» Lightweight engineered material characterization» Biomedical material testing» Characterize basic material properties» Perform material manufacturing quality testing Page 30

31 Test Structures (~12% of Test Business) Testing solutions for a wide range of large structures MTS Structures Market» Civil engineering» Wind power» Wave generators» Seismic simulation» Fixed-wing aircraft» Helicopters» Engines» Space structures» Blast Systems $0.3B Market MTS 21% Share PRODUCT MARKET GROWTH: 3%» Validate Design Strength» Test Large Structures» Conduct Complex Tests & Measurements» Validate Component Durability APPLICATIONS Static & fatigue testing of structures such as aircraft, oil & gas piping, wind turbines, buildings, bridges and associated components & subsystems COMPETITORS Instron (ITW), Moog, Renk, Servotest, Shore Western, Walter & Bai Page 31

32 Test Service (~18% of Test Business) Delivering productivity, reliability, connectivity and performance of test labs MTS Service» Aftermarket customer support, including software maintenance and calibration, delivered in proactive customer service level agreements, as well as maintenance and repairs $1.1B Market MTS 8% Share MARKET GROWTH: 3% APPLICATIONS Routine maintenance, calibration, condition monitoring, operator training, systems optimization, hydraulic fluid health management and technical support COMPETITORS Regional and local low-level technical maintenance and repair companies, engineering consulting firms, calibrations companies and do-it-yourself customers» Training» Repair» Calibration» Consulting Page 32

33 Sensors Position (~37% of Sensors Business)» Reliable and rugged sensors improve machine uptime, reduce maintenance costs, and enhance safety» Precise, accurate measurement improves manufactured product quality Precise Linear Feedback $1.2B* Market MTS 9% Share PRODUCT MARKET GROWTH: 4% APPLICATIONS Fluid power, metal working, plastics & rubber processing, renewable energy, food & beverage plants, printing, wood factory automation, drive technology, mobile equipment for construction, and agriculture and mining COMPETITORS Balluff, Santest, Kangyu, TR Electronic, Heidenhain, Turk, Hydac, ASM * Market size is based on an estimate of the current addressable market for all linear position sensors» Customer Industry: Lumber Mills» MTS Sensors: R-Series» MTS sensor integrated into a hydraulic actuator offers the precise linear feedback needed by the saw motion controller. Page 33

34 Sensors Test (~35% of Sensors Business)» Reliable sensors used by engineers and scientists Take precise/accurate measurements Facilitate technology advancements Reduce development times and bring new products to market Road Load Data Acquisition $900M* Market MTS 11% Share PRODUCT MARKET GROWTH: 8% APPLICATIONS Research & Development, Structural Monitoring, Component & System Performance, Modal Analysis, Ground and Flight Testing for Aircraft COMPETITORS B&K, Dytran, GRAS, Kistler, Meggitt/Endevco *Market size is based on an estimate of the current addressable market» Customer Industry: Automotive» MTS Sensors: 3711, 3713, & 3741 DC & MEMS series» The sensors have frequency range down to zero Hz enabling the sensor to meet the testing requirements of all automobile manufacturers seeking good phase response. Page 34

35 Sensors Industrial (~19% of Sensors Business)» Rugged industrial vibration monitoring instrumentation and intrinsically safe sensors and signal conditioners Survive in harsh environments, reduce downtime, increase production efficiencies, and protect critical industrial machinery Detect dynamic pressure pulsations and vibration and accurately identify potential failures Mover Conveyor System $450M* Market MTS 12% Share PRODUCT MARKET GROWTH: 4% APPLICATIONS Monitoring & Assessment for Gas and Wind Turbines, Oil & Gas Wells & Pipelines, Nuclear Power Instrumentation, Vibration Monitoring for Motors, Pumps, Paper Machines, Machine Tools, Steel Rollers COMPETITORS Meggitt/Wilcoxon, Meggitt/Vibro-Meter, Meggitt/Endevco, CTC, Hansford, Murphy» Customer Industry: Predictive Maintenance» MTS Sensors: 603 & 607 series» Monitor vibration levels on the motor bearings looking for increases in those vibration levels which can be indicative of a potential defect. If left unattended, could result in a catastrophic failure. *Market size is based on an estimate of the current addressable market Page 35

36 Sensors Systems (~9% of Sensors Business)» Dynamic test, measurement, metrology and sensing systems as well as rental and calibration services used by engineers worldwide» Used to test, model, and modify the dynamic behavior of structures and processes» Noise and vibration monitoring instrumentation Ground Vehicle Test (GVT) $500* Market MTS 5% Share PRODUCT MARKET GROWTH: 11% APPLICATIONS Vibration/Pressure/Force Sensor Calibration, Modal Analysis, Experimental Sound & Vibration Testing, End of Line Product Testing COMPETITORS B&K, Kistler, LDS, MB Dynamics, Meggitt/Endevco, Spektra, Tira, Unholtz Dickie,» Customer Industry: Aerospace» MTS Sensors: 2100E11 & 2060E Modal Shakers» Measure modal frequencies, damping and mode shapes to assess the structural dynamic characteristics of the aircraft to validate vibration and flight control models. *Market size is based on an estimate of the current addressable market Page 36

37 Products and Systems Test Ground Vehicles Test Materials Test Structures Sensors Page 37

38 Adjusted EBITDA reconciliation Total MTS Adjusted EBITDA Reconciliation Fiscal Year ($ s in millions) Income from operations $62 $42 $55 Depreciation and amortization Other income/(expense), net (2) - (1) Stock-based compensation Acquisition-related expenses Acquisition integration expenses Acquisition inventory step-up China investigation expenses Restructuring expenses Adjusted EBITDA 1 $88 $96 $120 1 Denotes non-gaap financial measure. 2 Acquisition-related expenses were adjusted to exclude stock-based compensation forfeitures that were included in the stock-based compensation line. 3 Acquisition integration expenses were adjusted to exclude interest expense that is included in the interest (income) expense, net line. 4 Restructuring expenses were adjusted to exclude stock-based compensation forfeitures that were included in the stock-based compensation line. Page 38

39 Adjusted EBITDA reconciliation Test segment Adjusted EBITDA reconciliation Fiscal Year ($ s in millions) Income from operations $43 $41 $29 Depreciation and amortization Other income/(expense), net (2) - (1) Stock-based compensation China Investigation Expenses Restructuring charges Adjusted EBITDA 1 $66 $66 $62 1 Denotes non-gaap financial measure. Page 39

40 Adjusted EBITDA reconciliation Sensors segment Adjusted EBITDA Reconciliation Fiscal Year ($ s in millions) Income from operations $19 $1 $26 Depreciation and amortization Other income/(expense), net Stock-based compensation 1-1 Acquisition-related expenses Acquisition integration expenses Acquisition inventory step-up Restructuring expenses Adjusted EBITDA 1 $23 $30 $58 1 Denotes non-gaap financial measure. 2 Acquisition-related expenses were adjusted to exclude stock-based compensation forfeitures that were included in the stock-based compensation line. 3 Acquisition integration expenses were adjusted to exclude interest expense that is included in the interest (income) expense, net line. 4 Restructuring expenses were adjusted to exclude stock-based compensation forfeitures that were included in the stock-based compensation line. Page 40

41 Adjusted EBITDA reconciliation Total MTS Adjusted EBITDA Reconciliation Fiscal Year ($ s in millions) Net income Provision for income taxes 14 6 (2) Interest (income) expense, net Depreciation and amortization EBITDA Stock-based compensation Acquisition-related expenses Acquisition integration expenses Acquisition inventory step-up China investigation expenses Restructuring expenses Adjusted EBITDA 1 $88 $96 $120 1 Denotes non-gaap financial measure. 2 Acquisition-related expenses were adjusted to exclude stock-based compensation forfeitures that were included in the stock-based compensation line. 3 Acquisition integration expenses were adjusted to exclude interest expense that is included in the interest (income) expense, net line. 4 Restructuring expenses were adjusted to exclude stock-based compensation forfeitures that were included in the stock-based compensation line. Page 41

42 FY18 Guidance: Total MTS Adjusted EBITDA reconciliation Adjusted EBITDA Reconciliation 12 Months Ended September 29, 2018 ($ s in millions) Low High Net income Provision for income taxes Interest (income) expense, net Depreciation and amortization EBITDA Stock-based compensation and non-recurring expenses Adjusted EBITDA 1 $120 $140 1 Denotes non-gaap financial measure. 2 Includes pre-tax forecast expenses for stock-based compensation and restructuring. Page 42