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MTS Systems (NASDAQ:MTSC)

Q1 2011 Earnings Call

February 04, 2011 10:00 am ET

Executives

Laura Hamilton - Chairman and Chief Executive Officer

Susan Knight - Chief Financial Officer and Vice President

Analysts

Elizabeth Murphy Lilly

Michael Hamilton - RBC Wealth Management, Inc.

John Franzreb - Sidoti & Company, LLC

Liam Burke - Janney Montgomery Scott LLC

Operator

Good day, ladies and gentlemen, and welcome to today's MTS First Quarter 2011 Earnings Release Conference Call. [Operator Instructions] And at this time, I would like to turn the conference over to Ms. Sue Knight. Please go ahead, ma'am.

Susan Knight

Thank you, Nicole. Good morning, and welcome to MTS Systems fiscal 2011 first quarter investor teleconference.

Joining me on the call today is Laura Hamilton, Chair and Chief Executive Officer.

I'd like to remind you that statements made today, which are not historical facts should be considered forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Future results may differ materially from these statements depending upon risks, some of which are beyond management's control. A list of such risks can be found in the company's latest SEC forms 10-Q and 10-K. The company disclaims any obligation to revise forward-looking statements made today based on future events.

This presentation may also include reference to financial measures which are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. These measures may be used by management to compare the operating performance of the company over time, but they should not be considered an isolation or as a substitute for GAAP measures.

Laura will now begin her update on our first quarter results.

Laura Hamilton

Thanks, Sue. Today, we're going to follow our standard outline. I'm going to start out with Q1 key messages. I'll take you through the order summary. Sue will take you through the financial details, and then I'll talk about the outlook for the year.

We have four key messages for the quarter. And the first is pretty obvious, we had a great quarter. Strong orders, revenue and earnings growth and while Sensors has been performing at this level for multiple quarters, the big change this quarter is in Test profitability.

Our second key message is that broadly, over the last few quarters, we are seeing improving global business fundamentals and economic confidence. And this is translating into investment in capital equipment.

Third key message is we did increase our dividend to $0.20 per quarter and per share, and this is a sign of our growing confidence.

And finally, we have moved our outlook range up, and we will talk about this more at the end of the call.

So let me shift to orders and backlog and give you a little bit of color on the quarter. I need to start by stressing that we're shifting back to year-over-year comparisons. We used sequential comparison during the first year of the recovery, but we think it's time to revert back to more traditional year-over-year comparisons. I'll talk about a little bit total company and then Sensors and Test.

For total company at $140 million, we were up 30% year-over-year for the quarter, and that was net of two points of negative currency effect. At $140 million, this is the second highest quarter in company history, 90% of this was due to base order increases, a little bit of it was about large order increase. Our backlog ended at $247 million, also a company record high.

Let's talk about the businesses for a minute. Sensors at $23.8 million in orders for the quarter. It was Sensors' largest quarter since Q3 of fiscal '08. On a year-over-year basis, we're up 38% of which that's net of three points of negative currency effect.

The largest gains that we saw this quarter were in Europe and in Asia, and Asia is predominantly China driven but we also saw moderate gains in the U.S. Generally speaking, last year, we talked about the market recovery in Sensors being primarily about plastic and rubber, steel and mobile hydraulics. And today, we're seeing evidence of a broader based recovery.

Our Industrial business is up 29% year-over-year, and we're seeing all major industrial markets up except steel, and they're up worldwide. This would include plastic and rubber, metal forming machines, fluid power and energy, particularly wind.

Mobile hydraulics is up 95% year-over-year, predominantly driven by Europe. But again, the U.S. is also up. The strongest gains in this segment were really driven by material handling and road building machine. Sensors' backlog at $16 million is essentially flat, and what we're seeing in the ordering patterns is that some large customers are placing blanket orders again. Again, another sign of customers building confidence in their forecast.

We continue to be working down the slightly higher backlog in the Sensor business. This will bring it down as a result both of resolving material supply issues, as well as we continue to adjust capacity to meet industry lead times.

In summary, Sensors' growth was broad, both geographically and across markets, and we continue to pursue new applications. And together, it's a quarter of exciting results and a strong start to the year.

So let's shift to the Test business order. At $116 million, we had an excellent quarter. At $116 million, we're up 29% year-over-year, net of minus 2% negative currency effect. This is the largest quarter for cash in the last seven years. Q1 came in at the high end of what we expected for the range, and it was really predominantly base orders plus large orders.

At $87 million in base orders, one thing that's important to recognize is that the base orders were down actually from Q4 which had come in at $100 million. But we’re up from the rest of the previous three quarters of last year where base orders were around $65 million to $70 million.

We also booked $29 million in large orders this quarter. So why was the quarter so strong for Test especially considering that Q4 came in at $106 million?

We think there are three primary reasons for this. The first is business confidence is improving, and there is more spending of company cash on capital equipment. Second, in the last two quarters, we do believe that we're closing projects that would have closed over the last one to two years had there not been an economic recession. And finally, this is the nature of our business, and this is the normal quarterly variability from large orders, and this is a really good timing quarter.

Let's go to the market perspective. From a market perspective, ground vehicles was up 300% on a year-over-year basis. 40% of this increase is base order growth. We're seeing some replacement equipment, just the normal wear and replacement of installed base. We're seeing some expansion equipment, especially in places like China. And we are seeing investment in durability, tire and vehicle dynamics. 60% of the increase in ground vehicles is due to two large orders, totaling $29 million.

Last year, we had no large orders in ground vehicles. One of these orders was an $18 million for a German research institute who's enhancing their wind tunnel capability to increase their competitiveness in passenger car and motor sports test and measurement.

The second order is an $11 million order from a U.S. university and industry partnership in tire test and measurement.

So let me take a second to talk about tire. Tire is a great example of growth in the current year that's coming from investments that we made in '09 and '10 and investments we made in technology and test methods.

In the first quarter, we booked $18 million of Tire business, and that compares to our best total year of $15 million. This is all about test and measurement. It's about the role of tire in fuel economy, and it's about understanding trade-offs between fuel economy, durability and performance. So this is a great example of return on our investment.

Shifting to the Structures business. Structures is down year-over-year due to two $20 million of orders that we booked last year and no large orders this year. And the Material business was essentially flat year-over-year. From a geographic perspective, if we look at the 29% growth in total, half of this growth this quarter came from Asia. The other half, we're pleased to say, really did come from a blend of growth in Europe and the U.S. So we feel good about the overall geographic mix.

I'm going to add a few additional comments now to add color, and these are really more sequential comments about the pipeline and backlog. Our opportunity pipeline is down about 5% on a sequential basis which is pretty much as expected. It's mostly driven from the booking of the two large orders this quarter. And our current pipeline supports about a $70 million to $80 million per quarter base order rate, plus the normal large order variability. Our backlog at $230 million is up 16% sequentially. And at this point, we're just 2% off our highest ever backlog.

In summary, for Test, we saw incredibly strong orders this quarter, predominantly driven by ground vehicles in Asia. And we're seeing that our investments in globalization, energy and the environment are paying off. We are really pleased about the base order level and about the start to the year.

At this point, I'll turn it over to Sue for some of the financial detail.

Susan Knight

Thanks, Laura. Similar to Laura's comments, my discussion today will also be a year-over-year comparison not a sequential quarter comparison.

Beginning with revenue, we delivered a year-over-year increase of 19% to $106 million. The increase was driven by a combination of high short cycle demand in Sensors as reflected in their 35% order growth and a 27% or $42 million higher beginning backlog in Test.

It's also the second quarter in a row in which revenue exceeded $100 million which last occurred in the second half of fiscal 2009.

On a segment level, Test revenue was up 15% to $83 million for the reason I described, which was backlog. Currency translation negatively impacted the growth rate by one point, primarily from the strengthening of the euro.

Sensors revenue increased 37% to $23 million, including a two-point negative effect of currency translation which is also euro driven.

For the full year, we expect revenue growth to be in the mid teens. With three quarters remaining in the year, this range is driven by short cycle order volume in both businesses, customer delivery schedule and Test backlog mix.

Moving on to gross profit. At $47 million, gross profit was very good, increasing by 33% or almost $12 million. Approximately 60% of the increase was from higher revenue, 30% from volume leverage and 10% from favorable Test mix and lower warranty cost.

On a segment basis, Test contributed approximately 70% of the growth profit increase. Test gross profit increased by 30% on 15% higher revenue. Volume leverage and lower warranty cost as I just noted, also contributed to the increase.

Similarly, Sensors' gross profit was up 40% on 37% higher revenue, also a great result in the quarter. The gross margin rate at the company level was up 4.6 points to 44.1%, a new high in the post-recession recovery period.

The increase is primarily volume and leverage related. Test gross margin rate was up significantly, 4.8 points to 40.7% which is at the higher end of our performance range expectations.

At 56.2%, Sensors also achieved an excellent gross profit rate, up 1.4 points and within our expected mid 50% performance range.

For the full year, the total company gross margin rate is expected to be in the low 40s. The range is primarily impacted by revenue volume, custom standard mix and the amount of development contracts in backlog.

Operating expenses were $28.2 million, a decline of 2%. Higher selling and marketing expense of $600,000 was partially attributable to the 30% growth in orders, and partially due to marketing expenses in Sensors.

The selling cost increase was more than offset by a $900,000 lower G&A cost from lower legal and professional fees and slightly lower R&D which was project timing related.

Overall, this quarter's expenses of $28 million are at the bottom end of our expected range of $28 million to $31 million per quarter, which we communicated in the last several quarters.

At 17.5%, the EBIT rate was very impressive, the highest rate in at least three years. It compares very favorably to last year's, exceeding the 6.9% rate by about 1.5x. It is proof of the benefit of both volume and leverage in both of our businesses.

The tax rate was 26.6% compared to 32.7% last year. This rate includes a 6 point nonrecurring benefit from the legislative action in the U.S. in late December that retroactively reinstated the R&D tax credit for fiscal 2010.

Due to our September 30 year-end, we realized three quarters of benefit for fiscal 2010 in addition to the Q1 benefit for fiscal 2011. The tax rate in future quarters is expected to be in the mid-30s range as we’ve previously communicated.

At $0.86 earnings per share, it was almost 4x last year's $0.23. Of the increase, approximately $0.42 was from volume, $0.07 from the R&D tax credit, $0.09 from reduced warranty and operating expenses and $0.06 from the lower share count.

My final topic today is cash and cash utilization. We ended the quarter with $80 million of cash, an increase of $4 million. Operating cash flow was $6 million from higher earnings and a lower working capital utilization, net of our normal first quarter accrued liability payments.

Capital expenditures were $2.3 million. Dividend payments were zero based on the timing of payments relative to the quarter end date. But in the quarter, we were pleased to announce in November a 33% increase in our quarterly dividend, the $0.20 per share, reflecting our confidence in our long-term market opportunities and our ability to generate strong operating cash flow.

That completes my comments on the first quarter. I'd like to turn the call back over to Laura.

Laura Hamilton

Okay. So let's move into our outlook for 2011. Last quarter, we provided guidance on how to think about fiscal year '11 relative to our long-term performance expectation. We said we expected to achieve our 6% to 9% revenue growth goal. We expected to achieve our bottom line growth being faster than our top line growth goal, and we said we'd move closer to historical EBIT rates.

In addition, we said we expected to make substantial progress towards our return on invested capital goal of greater than or equal to 20%. Our fiscal year '11 expectations were influenced by our fiscal year '10 third quarter financial low. And the fourth quarter improvement was influenced by our orders trend of $93 million, $93 million, $130 million, and it was influenced by the development risk in our backlogs.

Today, we conclude we were too conservative in our fiscal year '11 outlook. Assuming economic conditions remain relatively unchanged, our order volume and productivity is stronger than we thought. Development project milestones, especially for wind, are moving further into fiscal year '11 and '12.

So today, we estimate that our base orders range is going to be between about $90 million and $110 million per quarter, which compares to about $80 million to $90 million last year.

Large orders will continue to vary significantly on top of the base. We estimate that revenue growth will be in the mid teens, that EBIT should return to historical rates and that return on invested capital should move closer to our goal of 20% or greater this year.

We continue to expect some quarterly variability due to economic fluctuations and the possible impact it has on our short cycle revenue, due to Test mix, capacity and resource availability and Test development timing.

To close, this is a great place to be at the end of the first quarter, and we look forward to updating you again next quarter.

Nicole, I'll pass this back to you for the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Liam Burke from Janney Capital Markets.

Liam Burke - Janney Montgomery Scott LLC

On the automotive front, I mean, I know that you're tied more to R&D than the actual production. But are the production numbers increasing? Are you seeing any follow-through on the Test side there?

Laura Hamilton

The production number?

Liam Burke - Janney Montgomery Scott LLC

What I'm asking is, is automotive coming back as production -- I know you're tied more to R&D and not on production, but are you seeing improvement there?

Laura Hamilton

Yes. So I think the connection is that as production improves, profitability improves, and investment in their future increases. And so I think where we said saw some replacement equipment, that's a sign that they are more confident right now, that they can replace an older piece of equipment, that maybe was doing good enough over the last several years, but now is worth the incremental investment to get the additional capability. So we're seeing more of that. One of the two large orders was, I think, somewhat tied to the increase in confidence about the future of the automotive industry and saying we need more investment in tire. China is clearly bullish about the future of the automotive industry. So yes, I think we are seeing that their profitability is improving, and they’re making more of those investments than they did over the last several years.

Liam Burke - Janney Montgomery Scott LLC

And Sue, on the capital, do you see any capital projects that are required as the revenues step up, or are you satisfied that you can do everything with the current budget?

Susan Knight

I think we can deliver our outlook with our normal level of capital expenditure.

Operator

And we'll take our next question from John Franzreb of Sidoti & Company.

John Franzreb - Sidoti & Company, LLC

I guess the first thing I want to understand is the gross margins in Test. I know you kind of referred to things on a year-over-year basis. But on a sequential basis, the actual revenue in Test actually get down but your gross margin profitability was up substantially. So can you kind of walk me through what happened there?

Laura Hamilton

Sure. There's a couple pieces that drive the difference, one is the mix of business in backlog. We had strong standard volume in Q1. And standard is our most profitable kind of work so that contributed to the increase. We also had lower warranty expense in Q1 than Q4 which contributed to that. And some of our utilization rates were better because we’ve got such a strong backlog. And we're working on both, you see it in our -- not only our revenue volume but as we're making progress on our project and inventory, we are fully utilizing our resources.

John Franzreb - Sidoti & Company, LLC

So how much of standard product was the mix in Q1 versus Q4?

Laura Hamilton

I don't know that number off the top of my head, John.

Laura Hamilton

I think the main message, John, for us is we know that for the future, the coming three quarters it's -- we're putting more custom into the backlog. So during the recession and the recovery, custom dropped far more than standard. And so the mix shifted towards short cycle. And now, we're booking those big orders. And so, we've got a much higher percentage of custom coming in. I think our order mix was about 60% custom in Q1. And so we're seeing that shift back. And so that business, it’s going to be longer to turn. And on average, it's going to take down margin a couple points.

John Franzreb - Sidoti & Company, LLC

Now this warranty benefit. Is this a one-time type of item, or is this something we should think is a recurring change in how you’re expensing warranties? Maybe just talk about that in general, not only for quarter but how we should think about it going forward?

Susan Knight

So John, we haven't changed any of our practices relative to warranty. And we calculate our warranty liability and expense requirements based on two factors: one is our experience; and then the second is, if we had any specific, large warranty claims, we accrue for those independently. And in the last three quarters, we've seen an improvement in our experience rate trending down, and we believe it's sustainable. And then the episodic aspect of a large claim can happen. It's unplanned, and it's a bit unpredictable. But at the moment, both are very good.

Laura Hamilton

So I think, John, the answer is both. It's like orders. Both -- it is both like a base run rate that we have worked very hard to improve. And the nature of our business is that warranty will fluctuate fairly significantly at times because we have low volumes and if one issue happens -- so our experience is more episodic anyway.

John Franzreb - Sidoti & Company, LLC

Now Laura, you’ve mentioned in the past and we had this discussion, I guess, the last conference call about the ability to get back to what I called was historically high gross margins. You took a good stab at it in the first quarter. Two questions, I guess. Do you want to go back on your ability to get back to those kind of gross margins? I know you just referenced the order shift. Two, you have mentioned that the competitive landscape was tough. I'm wondering if the orders you're currently writing have a better gross margin profile than say, orders you were writing six months ago.

Laura Hamilton

I think I can track here. So I think your first question was really about where will gross margins go, and we had a great gross margin rate quarter. And so I think what we're saying is, it's two things. One, we are working hard to improve our gross margin, the productivity piece we talked about, those sorts of things. And mix will always move the rate by two or so points, two to three points. The nature of the business is that we’re okay with the two to three points that changed for mix, and we keep working hard based on whatever the mix is that we keep moving back towards those higher rates on average.

So your question about the market is, yes, it is very competitive. And so how much of that do we think we have to give back in price, and how much of that are we already seeing. Over the last year or so, we think that on average, we've maintained the profitability rates in our orders based on the respective mix. So we haven't taken custom down by five points. We haven't taken standard down by five points. And so the shift of any profitability right now in our backlog is really driven more by mix. As we continue to compete in this environment, I think nobody would argue that today's environment is more competitive than prerecession in any industry. And so as we continue to compete, what we're trying to do is keep our cost programs outpacing the market pressure. And that's our goal, and a lot of this we still need to see how it plays out. So our goal is to be able to stay at these higher general rates.

John Franzreb - Sidoti & Company, LLC

I don’t want to leave Sensors out of the discussion here. Could you talk a little bit about their order profile and specifically, I'm curious about if there’s any change in the geography of the order profile just coming from different areas, or could you just talk a little bit about that?

Laura Hamilton

Sure. So good, agreed. Like we said, the change in the quarter is Test. But the other really good news is that Sensors isn't changing, and Sensors is high-performing. We've delivered really impressive financial results. From a market perspective, as we look at the recovery, everything you're hearing in the news about how Germany is leading the European recovery is definitely -- we see that in our business. So in terms of overall mix shifting, not big enough numbers that we are getting a markedly different percentage of our business out of Europe. But clearly, on a year-over-year improvement basis, Europe was further down. Europe is further up. The U.S. didn't go down as much, had a different mix and is not coming back as fast but is coming back. And then China is kind of on top of that because China's more new and growing than it is about the recession.

Operator

[Operator Instructions] And we'll take a question from Mike Hamilton from RBC.

Michael Hamilton - RBC Wealth Management, Inc.

Could you take a little bit of time, Laura, on giving a little more color on some of the new market initiatives for areas like wind and what you're seeing, and anything new on benchmarks there?

Laura Hamilton

Sure. When ground vehicles dropped so significantly is really when we said we needed to double our efforts in a couple of areas, wind is the most significant. Wind, from a market perspective, is pretty volatile. One of the ways we describe it is the Wild West meets China. So you've got this incredible drive towards hurry, invest all this money going into wind. And China has shown up with low prices, and the market is trying to figure out what's the competitive situation. So in wind, it continues to move forward. Investments are definitely being made. But the craziness kind of a couple years ago has slowed down, and it's more a little less wild and a little more still exciting growth rates but not crazy, crazy growth rate.

For our business, the key drivers are still about the business model. So putting up wind turbines and guaranteeing performance with OEMs and supplier is not really having the information they need about the durability of these products, so the durability of the blades, the drivetrain, the bearings, et cetera. So the good news is that the industry still needs this information. And they're working on building the capacity to get this information. And this capacity is going in various pockets across the world, some U.S., some European, maybe some in China, unsure. So right now, a piece of this, we said that some of our development is being delayed. We've got some exciting orders. We're working on delivering them. But one of the two big developments we had this year was a much larger system. And that is delayed really because of the economics of one of our customers. So as that continues to play out, as they work on cash flow and the rate of their investment, it will pace some of our growth. But definitely, it's still an exciting area for us. And we're really pleased with our early market position.

Michael Hamilton - RBC Wealth Management, Inc.

How about rail?

Laura Hamilton

Rail is definitely smaller opportunity than wind. And predominantly, rail is in China today. So we see rail opportunity. But it's even more nichey, I would say, than really looking at the world wind market. But we do see opportunity in rail to play. I think what's exciting about both of these opportunities is that what MTS really brings to bear is, we can draw from the breath of our expertise. So we can draw from some of our know-how in, let's say, passenger car and aerospace and large structures, and we can bring this to bear on other markets like wind and rail.

Michael Hamilton - RBC Wealth Management, Inc.

And then one for Sue. Sue, I appreciate you tried to make it understandable even for me on your outlook, but I'll try one more time. When we look at the coming quarters, it sounds from your outlook that once we normalize out tax rate, we put in the volatility that's expected in Test gross margins and we factor in the legal expense issue. The next few quarters basically look very similar to what we've seen in the first quarter.

Susan Knight

Within that range because it's hard to say, it's equal to Q1, it's within a range because of the variability of the Test business. It's just hard to say precisely what it looks like but...

Michael Hamilton - RBC Wealth Management, Inc.

No, no, understood. I'm putting in that volatility. But the base guidance looks to be more the same.

Susan Knight

That's correct.

Operator

And we'll take our next question from Beth Lilly from Gabelli.

Elizabeth Murphy Lilly

I wanted to just step back and can you put this recovery in perspective in the sense of comparing it to prior recoveries, just in terms of the client base and what your customers are telling you, and how you would compare this? Do you feel as though this is sustainable? Or do you feel as though customers are putting in orders but are still very cautious on the outlook for the economy? How would you characterize this recovery in your business?

Laura Hamilton

To be honest, I don't feel like I can compare it. I have a very different job from when we were recovering 10 years ago. So we don't really think about it that way, but I can characterize instead of a compare and contrast. Here's how we think about the recovery. We generally agree with the pundits out there who believe that it is long, who believe that there will be variability within an overall slow upward improvement trend. So there are really good days, and then there are days where the signs didn't all go our way. And we tend to think of it less on a daily and a weekly and a monthly basis, and more on an annual and multi-annual basis.

One of the things I think this morning in the news was about, this metric went up but this one didn't, and how do you make sense out of that. What they were saying was, there's no one item, no one new bubble that is just going to completely pull us out of this, and now we're talking us the United States rapidly. And we believe that. And so what we see in our customer base, if you start with Sensors, our customer base is -- they're machine builders, so industrial machine builders or suppliers to industrial machines builders. And generally, what we believe is that companies have cash. They're investing in productivity gains. You know, you hear it all the time, companies are investing more today in capital than people because of the concern of having to back off again. So there's a lot of investment in capacity as long as the payback is in a reasonable short time frame.

And then what we're seeing is that in industrial machine building, there is a lot of new capacity still going in, in China. So you've got German exporting. You've got U.S. exporting, broader European exporting. So this recession -- this recovery clearly has an element of it that is very China dependent. It's not all China but it is in part that. So from an industrial machine building, some people are putting in capacity that was old. Some are going for greener capacity, more environmentally-friendly, more energy-efficient, and some are going for productivity gains.

From the Test side, what you see is that companies now are more confident in investing in product development. What most companies try to retain their product development as much as possible through a recession. But when you go into recession, you save your people and stop your capital, and that's what affected our business. Now as they're coming out, there's more capital investment, and that includes in R&D and Test and Measurement. What's exciting for us is, our customers are competing so it's harder out there to compete, so their products need to be more differentiated. And by pushing the capability of your product, you need more information about how it will perform, when it will break, et cetera. So it does drive the need for test and measurement capability. So we are seeing, again, investments in more capability, like in tire measurement. We're seeing more capacity in China. And we're seeing a lot of replacement in Europe and the United States. For example, you upgrade the computers and software in your lab and you enhance the capability and productivity of your existing equipment. So how fast will this keep growing? It's very hard to say, but we believe we’re on a relatively shallow slope but it's increasing, and we feel like we're positioned for whatever range around that exists.

Elizabeth Murphy Lilly

Just to delve down a little bit more into the Test business. So what I hear you saying that's different than six months ago is that companies are more confident in investing in the product development.

Laura Hamilton

Yes, especially in capital. When everyone went into cash constraint, capital equipment stopped. And so yes, increased confidence -- I mean look at the profitability of almost any automotive OEM worldwide, improving. And then cash, they're becoming more flushed with cash or more confident in their cash or credit position, and yes, going back to some of those capital investments to support their R&D platform. At the same time, they expect more out of the assets that they're buying and that they have.

Operator

And we have a follow-up question from John Franzreb.

John Franzreb - Sidoti & Company, LLC

Just regarding the guidance, looking at your historically EBIT margins, I can find outliers out there as high as 20%. In your guidance, what kind of return to historical EBIT margin should I really be thinking about?

Susan Knight

John, we're talking the last five years. Prerecession, kind of a run rate prerecession. We’d love to go back to one of those outlier years, but it's not the goal right now. One of the things we also want to do is ensure that we're investing enough in our future. And so we think the couple of years prior to the recession are about the right range.

John Franzreb - Sidoti & Company, LLC

That would take me to?

Susan Knight

Six, seven, eight.

John Franzreb - Sidoti & Company, LLC

That's about 13%, 14%, is that what we're thinking about?

Susan Knight

In that zone.

John Franzreb - Sidoti & Company, LLC

I guess the other question is, the large orders, when do you expect to book those orders?

Laura Hamilton

So it's hard to predict exact timing. One of the things we talked about, so postrecession, there is a lot more approval process in capital investment. And so the larger the order, the more uncertain the timing in some respects because it goes all the way up off into the board of directors. So we continue to expect that in a single quarter, we could have anywhere between zero and two, I know, it's unusual for us to have three orders over $5 million, but it could be. But I mean zero to three is a reasonable range in any single quarter. That's the challenge. And if it’s zero, it's not necessarily a problem. It really is the nature of the large orders.

John Franzreb - Sidoti & Company, LLC

So the current orders that you just got last quarter, they're not expatiated in any sense?

Laura Hamilton

No, did we or did the customer?

John Franzreb - Sidoti & Company, LLC

The customer, do they want them done yesterday?

Laura Hamilton

No, it's an interesting point right now. So one other postrecession attribute is, it’s feast or famine in our Sensors business, everybody wants their Sensors yesterday. In the Test business, it's either, I need it immediately. Wind, they want these systems which haven’t been built before, delivered really quickly because they want the answers. On the other hand, some of this stuff is two years or more out. So we really do have varying timing needs in terms of the customer, and anything from urgent to a lot of time, all the time in the world.

Operator

[Operator Instructions] And it appears we have no further questions.

Susan Knight

Thank you, Nicole. So just in closing, this is a great place to be at the end of the first quarter. We do have three more quarters to go this year. But we really are pleased with the start and kind of the overall environment at this point, and we look forward to updating you again next quarter. Thank you.

Operator

Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.

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