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2015 INVESTOR PRESENTATION
Dr. Jeffrey A. Graves President and Chief Executive Officer
OCTOBER 2015
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 1995. 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
Company snapshot
» Leading global supplier of high-performance test systems and position measurement sensors
» Test and Sensors businesses help researchers, engineers and manufacturers improve their product performance and reduce testing cycle time
» 49 years strong
Page 3
Mission To be the leader in creating innovative test and measurement solutions to enable our customers’ success
Vision Through innovation, create value to drive growth
19%
81%
2014 REVENUE BY BUSINESS
Sensors Test
31%
69%
2014 EBIT BY BUSINESS*
Sensors Test
* Excludes $6M or 4% pt. impact of Test restructuring costs
$564M $65M
MTS competitive advantages
Page 4
» Technology and scale to become Intelligent Lab provider
» Unrivaled durability and performance testing expertise
» Industry partnerships to define test methods
» Solutions to reduce product development cycle time
» Connectivity
» Global aftermarket support capability
» $4.0B installed base
» Unique automation, precision, and safety value proposition
» Broad-based application knowledge
» Rapid innovation
» Differentiated technology and application engineering expertise
» Industry-leading geographic coverage
» Track record of capital deployment to increase shareholder value
MTS Company-Wide Test Products Test Services Sensor Products Ground Vehicle • Materials
Structures Industrial • Mobile Hydraulics
Liquid Level
Industry-leading geographic coverage to meet customer needs
Page 5
32% 31% 21%
China
16% Rest
of Asia
Europe
Americas Americas $157M (excluding Brazil and Mexico) Europe $166M (excluding Russia, Turkey, and Poland) Asia $78M (excluding China, India, Indonesia, Malaysia and Thailand) China $118M Emerging Regions $45M (Brazil, Mexico, Russia, Turkey, Poland, India, Indonesia, Malaysia, and Thailand)
Based on fiscal year 2014 revenue
Record backlog positions MTS for solid 2015 results despite significant currency headwinds
» Record-high orders and backlog in 2014; macro trends remain favorable
» Solid ROIC result in 2014 but lower from goodwill and reduced net income
» Currency headwinds reduce 2015 revenue and EPS guidance; results still solid
Revenue flat to up 3% EPS flat to up 6%
Page 6
$565 $567 $616
2012 2013 2014
$299 $290
$326
* Excludes $0.48 impact of government settlement ** Excludes $0.28 restructuring costs
ORDERS AND BACKLOG
Backlog Orders
* Excludes 3% impact of government settlement ** Excludes 1% impact of restructuring costs
25%* 23%
15%** ~ 19%
2012 2013 2014 2019
RETURN ON INVESTED CAPITAL (ROIC)
$542 $569 $564 $565-$580
2012 2013 2014 2015
$3.69* $3.64 $3.01**
$3.00- $3.20
2012 2013 2014 2015
Guidance Range
Guidance Range
EARNINGS PER SHARE
REVENUE
Five-year track record of increasing shareholder value
» Outperformed Russell 2000 return over the past five years; ~ $1B market cap » 39-year history of paying dividends; target 25% of net income payout over time » Dividend yield averaged 2% over five years
Page 7
5-YEAR STOCK PRICE RELATIVE TO RUSSELL 2000 5-YEAR ANNUAL DIVIDEND PER SHARE HISTORY
$ 0.00
$ 0.20
$ 0.40
$ 0.60
$ 0.80
$ 1.00
$ 1.20
$ 1.40
2011 2012 2013 2014 2015
2015 year-to-date (9 mos) financial results; solid order levels result in record backlog
» Flat revenue, up 5% on a constant currency basis» $2.39 EPS up 4% excluding prior year restructuring activity» Slight orders decline, up 5% on a constant currency basis» A record level $343 million backlog up 11%
Page 8
$452 $448
Q3 2014 Q3 2015
$421 $420
Q3 2014 Q3 2015 Q3 2014 Q3 2015
0%
ORDERS (Ms) REVENUE (Ms) EARNING PER SHARE (EPS)
4%
$2.29* $2.39
*Excludes $ 0.28 restructuring cost
BACKLOG 2014 - $310 2015 - $343
(1%)
Why we are excited about our future
Driving global leadership development, cost-effective processes and cutting-edge technology
Page 10
Investing in leaders Value: invest in talent and leaders
Building infrastructure Value: create cost-effective, local and scalable organization
Investing in technology Value: innovate to solve customers’ emerging issues
Test
Sensors
Order Configurator Tool
Manufacturing Systems Upgrade
Services Delivery System
Global Sales Expansion
Manufacturing Automation Global Sales Expansion
(complete) (complete) (in progress) (in progress)
(complete) (in progress)
Robust talent management systems
The World’s Most Advanced Wind Tunnel FKFS (Research institute of Automotive Engineering and Vehicle Engines), Stuttgart, Germany
Learning and Collaborating with Customers MTS hosts MTS Echo Intelligent Lab Workshop
Pushing the Boundaries of Electric Actuation MTS acquires Roehrig Engineering, Inc.
Temposonics®
MH-Series Sensors Now approved for Safety Integrity Level 2 (SIL2)
Investments in leadership development throughout the organization
Seeking and hiring top industry talent
Diversified market segments position MTS for sustainable double-digit and profitable revenue growth
Page 11
Sensors M&A
Test Services
3%
10%+
Long-Term Revenue Growth Forecast Test
Services & Materials
Share Growth 6-8%
Market Growth 4%
Share Growth 1-2%
Market Growth 3-4%
Share Growth 6-8%
Market Growth 3%
Other Test Markets
Opportunistic
Opportunities to expand margins and other financial measures
Page 12
Margin Goal
MTS EBIT 12%*
Other financial goals » 2 - 4% pt improvement in ROIC from 15%** in 2014 » $60M+ annual operating cash flow
» Productivity improvement
» Utilization of resources
Test Services & Materials Revenue Growth
Sensors Revenue Growth
Test Operational Efficiencies
2-3% pts
*Excludes $6.3M or 1% pt. restructuring costs **Excludes after-tax restructuring costs of $4.4M or 1.3% pts
Global macro-trends that create sustainable growth opportunities for MTS
Page 13
ENERGY SCARCITY: Energy demand driven by emerging economies • Searching the world for new sources of energy drives new research
ENVIRONMENT: Global CO2 emissions rise 400% by 2100 • Alternative methods of transportation demand new testing technology
Youthful Intermediate Mature Post-mature
25.0 or younger 25.1 to 35.0 35.1 to 45.0 Greater than 45.0
CATEGORY MEDIAN AGE
0 200 400 600 800
1000
1990 2000 2010 2020 2030 2040
Non-OECD
OECD
HISTORY PROJECTION
SOURCE: U.S. Energy Information Administration, http://www.eia.gov/forecasts/ieo/
GLOBALIZATION: More than half of the global middle class will be in Asia • MTS’ strong, well-established business in Asia positions us well to
support the market
Europe Asia-Pacific North America Central & South America Middle East & North Africa Sub-Saharan Africa
2009 WORLD: 1.845 BILLION
0
5
10
15
20
25
1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Rest of World India China E. Europe Japan Western Europe USA
SOURCE: http://www.uptownoil.co.uk/co2_calculator.html
Billio
n ton
s of c
arbo
n
SOURCE: New Security Beat, http://www.newsecuritybeat.org/2012/08/a-roundup-of-the-global-trends-2030-series-on-population-aging/#.Ux4CeaWHwrB
SOURCE: Cetera Advisor Networks, http://www.affluence.com/blog/global-economic-renaissance
2030 WORLD: 4.884 BILLION
DEMOGRAPHICS: The aging of economic regions by 2030 • Aging workforce in established economies results in a shortage of
experience. MTS Services and expertise address customer challenges
Quad
rillion
BTU
Research and development requirements drive growth for MTS
» Increasing demands on product development pipeline requires increased capacity and productivity
Page 14
Component Vibration | Electric Durability Test Rolling Road Systems | MTS PathwayTM Plan (HSRC)
Concept Development Confirma/on
OEM R&D Growth*
*30-Year Average
Vehicles Sales by Type
Research and related challenges drive testing demand
4%
8%
12%
NA
Europe
Asia
0%
20%
40%
60%
80%
100%
2010
20
15
2020
20
25
2030
20
35
Plug-ins incl. BEVs
Full Hybrid
Mild Hybrid
Conventional including stop-start
$66 $72 $77
$125
$0
$40
$80
$120
$160
2012 2013 2014 2019
Opportunities to expand Test Service offerings – from increased uptime and productivity to comprehensive testing expertise
Page 15
MTS Echo™ Software | MTS Hydraulixsm Monitoring Services Lab management | Expert consulting services
Billio
ns
-1
1
3
5
1994 2004 2014 2019
MTS Installed Base is Growing $4.0B
Reve
nue
Test
Reve
nue
30%
20%
10%
0 14.1% 15.1%
16.9%
20%
Explosive growth in composite materials drives new testing requirements and technologies in the Test Materials market
Page 16
High-temp material test | Engine blade test Composite wing test | Composite prosthetic foot durability test
Composites content in commercial aircraft has increased to 50%+ (Source: Hexcel)
Sensors Mobile Hydraulic opportunity – intelligent machines enable higher productivity, advanced safety and increased automation
Page 17
Farm equipment | Road equipment Construction equipment | Heavy equipment
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2013 2014 2015
Billi
ons
Key Market Growth
Construction Agriculture Material Handling Mining Cylinder Manufacturer Total
$30
$25
$20
$15
$10
$5
$0
» Year of first-of-a-kind: New FlatTrac® CT Plus in 2010 » 8 systems sold since introduction » $30M+ in FlatTrac CT Plus orders through FY14 » $120M+ in tire orders 2010-2014
First-of-a-kind projects create new markets in Test
Custom projects and customer collaboration drive repeatable revenue
Page 18
» Year of first-of-a-kind: 1998 » 20+ systems sold since introduction » More than $250M in orders through FY14
Rolling Road Systems Tire Testing Systems
Capital allocation priorities remain unchanged
» Invest in Sensors and Test for growth – High ROI capital projects – Working capital – Strategic M&A
» Continuing to develop target pipeline » Disciplined acquisition process
» Return excess cash to shareholders over time – Pay a competitive dividend
» ~ 2% yield » Almost 40 consecutive years of dividend payments
– Continue track record of opportunistic share buyback
Page 19
Summary
» Reasons to invest in MTS OPPORTUNITIES FOR GROWTH
- Global macro trends present significant sustainable growth opportunities - Research and development requirements are increasing - Expanding Services offerings and revenue in Test - Capitalizing on advanced materials market growth in Test
(aerospace, automotive, biomedical) - Capture mobile hydraulics growth opportunity in Sensors
WE HAVE WHAT IT TAKES TO BE SUCCESSFUL - Global scale with 40% of revenue from Asia - Engineering expertise and technology-rich products and
systems are key differentiators - Robust infrastructure coming on-line to support growth - Proven track record of delivering strong financial results
» We are confident about our future
Page 20
Appendix
» Test markets » Sensors markets » Financial history
Page 21
Test overview
» Testing solutions that accurately simulate real life
» Technical consulting to collaboratively solve testing problems
» Service support for uptime, productivity and lifecycle extension
Page 22
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
$364 $442 $474 $458
2011 2012 2013 2014
$437 $468 $470 $507
2011 2012 2013 2014
REVENUE (Ms)
OPERATING MARGINS
Backlog (M’s)
2011 2012* 2013 2014**
$47 $64 $61 $46
13% 15% 13% 10%
$271 $285 $275 $ 310
PRODUCT & SERVICE MARKET SIZE: $3.0B MTS SHARE: ~ 16%
* Excludes $6.0M or 1% pt. government settlement charge ** Excludes $6.3M or 1% pt. restructuring costs
ORDERS (Ms)
Test – Ground Vehicles
Component, sub-system and full-vehicle testing solutions for everything from motorcycles and passenger cars to heavy-duty trucks and rail vehicles
Page 23
PRODUCT MARKET SIZE: $870M PRODUCT MARKET GROWTH: 5% MTS SHARE: ~ 25% ~ 45% OF TEST BUSINESS ORDERS
APPLICATIONS – Measurement and simulation solutions to assess durability, vehicle dynamics and aerodynamics of full vehicles, sub-systems and components
COMPETITORS – Inova, Instron (ITW), KNR, MAHA, Moog, Saginomia, Servotest
» Enables ongoing collaboration with China’s largest domestic automotive OEM
» Provides platform for showcasing MTS capabilities and expanding influence in Chinese market
Chery Automotive & MTS collaborate and build joint Ground Vehicle System Engineering Lab
Test – Materials
Testing solutions for materials science, aerospace, biomedical, and geomechanical industries
Page 24
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), Shimadzu, Zwick, Tinius Olsen
PRODUCT MARKET SIZE: $890M PRODUCT MARKET GROWTH: 4% MTS SHARE: ~ 15% ~ 25% OF TEST BUSINESS ORDERS
» Enables research into extending the life of aging composite structures and components
» Helps establish knowledge base for broadening the use of composites to develop more fuel-efficient aircraft designs
National Institute for Aviation Research employs MTS test equipment for advanced composite materials research
Test – Structures
Testing solutions for a wide range of large structures
Page 25
» Civil engineering » Wind power » Oil and gas » Seismic simulation
» Fixed-wing aircraft » Helicopters » Engines » Space structures
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, Inova
» MTS products are designed to simulate real life pressure and corrosion conditions to test pipe and pipe casing durability
PRODUCT MARKET SIZE: $299M PRODUCT MARKET GROWTH: 3% MTS SHARE: ~ 25% ~ 15% OF TEST BUSINESS ORDERS
Energy scarcity and environmental concerns drive the need for testing new techniques to access reserves and protect our world
Test – Service
Delivering productivity, reliability, connectivity and performance of test labs » Aftermarket customer support, including software
maintenance and calibration, delivered in proactive customer service level agreements, as well as maintenance and repairs
Page 26
Full service contracts build long-term customer engagement
» Responsive proactive support » Differentiated technical
solutions » Global best practices
delivered locally
MARKET SIZE: $1B MARKET GROWTH: 3% MTS SHARE: ~ 8% ~ 15% OF TEST BUSINESS ORDERS
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
Consulting
Intelligent Lab Productivity
Baseline Maintenance
Customer
MTS Repair Center
MTS Inventory Pool
Advance Exchange provided to customer
Core return
Core worked on and put in pool
Full Service Contracts
Reduce customer time-to-market
Proactive maintenance
Health management
Sensors overview
» Global leader in sensing technologies and solutions that enable automation and safety
» Enable better products at lower cost in safer environments
» Controls consulting to optimize application performance
Page 27
$103 $97 $97 $108
2011 2012 2013 2014
$103 $100 $95 $106
2011 2012 2013 2014
2011 2012* 2013 2014
$27 $24 $19 $20
26% 24% 20% 19%
OPERATING MARGIN
REVENUE (Ms) ORDERS (Ms)
$17 $13 $15 $16
Backlog (Ms)
* Excludes $1.7M or 2% pt. government settlement cost
INDUSTRIES – industrial automation, fluid power, medical devices, fuel storage, mobile hydraulic equipment ADVANTAGES » Magnetostrictive technology leader » Unrivaled application expertise » Worldwide support and consultation * Market size based on linear position sensors
MARKET SIZE: $1.8B* MTS SHARE: ~ 6%
Sensors – Industrial machinery
» Reliable and rugged sensors improve machine uptime, reduce maintenance costs, and enhance safety
» Precise, accurate measurement improves manufactured product quality
Page 28
PRODUCT MARKET SIZE: $1.5B* PRODUCT MARKET GROWTH: 3% MTS SHARE: ~ 5% ~ 75% OF SENSORS BUSINESS ORDERS APPLICATIONS – Fluid power, metal working, plastics & rubber processing, renewable energy, food & beverage plants, packaging, printing, paper, textile and wood factory automation, drive technology COMPETITORS – Balluff, Santest, Kangyu, TR Electronic, Heidenhain, Turk * Market size is based on all linear position sensors; MTS is market leader in magnetostrictive technology share at 53%
» Largest molding machine ever built for European market » Production of huge industrial vessels » 8 sensors detect position of different axis in movement
SACMI – Molding Machine
Sensors – Mobile Hydraulics
» Enabling technology for intelligent machinery
» High level of protection against electromagnetic interference, shock and vibration
» Capturing share in early stage of technology adoption; current adoption rate <10%
Page 29
» Sensors help stabilize equipment » Large demand for machines in China and emerging
countries where infrastructure is poor or non-existent
PRODUCT MARKET SIZE: $180M* PRODUCT MARKET GROWTH: 5% MTS SHARE: ~ 10% ~ 20% OF SENSORS BUSINESS ORDERS APPLICATIONS – Mobile equipment for construction, agriculture, mining and handling COMPETITORS – Balluff, Hydac, ASM, Santest, Rota, Penny & Giles, Honeywell, Parker * Market size is based on linear position sensors; MTS is market leader in magnetostrictive technology with 95%
Large forestry machines cut a tree and de-limb it in less than a minute
Sensors – Liquid Level
» Precise monitoring of product level, interface level, and temperature in one sensor package
» Safety rated for hazardous environments, such as oil and gas
Page 30
» Simplifies inventory management through remote monitoring
» Improves safety by measuring fill-level and detecting leaks
PRODUCT MARKET SIZE: $77M* PRODUCT MARKET GROWTH: 3% MTS SHARE: ~ 6% ~ 5% OF SENSORS BUSINESS ORDERS APPLICATIONS – Liquid Level monitoring for oil and gas, chemical process, food and beverage, pharmaceutical COMPETITORS – K-Tech, Veeder Root, OPW, Rosemount, Enraf, Endress & Hauser * Market size is based on liquid level sensors including competing technologies
Petro China uses MTS Level Plus® Sensors for Fuel Inventory Tracking
Financial history
Page 31
2010 2011 2012 2013 2014
Financial Results
Orders $424 $540 $565 $567 $616
Backlog (ending) $215 $288 $298 $290 $326
Revenue $374 $467 $542 $569 $564
Net Income $19 $51 $59 $58 $46
EPS $1.14 $3.24 $3.69 $3.64 $3.01
Cash from Operations $33 $43 $65 ($2) $65
Financial Position
Cash & Short-term Investments $77 $104 $80 $48 $60
Debt/Equity 24% 19% 0% 14% 23%
ROIC* 9% 23% 25% 23% 15%
Average Diluted Share Count 16.3 15.7 16.1 15.9 15.4
($Ms except per share data)
EBIT x (1-tax rate) + after-tax interest income divided by average debt + equity Excludes restructuring costs of $4.4M, $0.28 earnings per share and 1.3 percentage points impact on return on invested capital Includes $3.9M in net income and $0.24 earnings per share from legal settlement Excludes government settlement charge of $7.8M, $0.48 earnings per share, and 3.3 percentage points impact on return on invested capital
v
v
w
w
* ** w v
v
**
**
**
Products and Systems
Page 32
Test Ground Vehicles Test Materials
Test Structures Sensors
