MTS Systems Management Discusses Q3 2012 Results - Earnings Call Transcript

Aug. 3.12 | About: MTS Systems (MTSC)


Q3 2012 Earnings Call

August 03, 2012 10:00 am ET


Susan E. Knight - Chief Financial Officer and Senior Vice President

Jeffrey A. Graves - Chief Executive Officer and Director


John Franzreb - Sidoti & Company, LLC

Liam D. Burke - Janney Montgomery Scott LLC, Research Division


Good day, and welcome to the MTS Third Quarter 2012 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Sue Knight. Please go ahead, ma'am.

Susan E. Knight

Thank you, Rochelle. Good morning, and welcome to MTS Systems Fiscal 2012 Third Quarter Investor Teleconference. Joining me on the call today is Jeff Graves, President 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 on 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. They should not be considered an isolation or a substitute for GAAP measures.

Jeff will now begin his update on our third quarter results.

Jeffrey A. Graves

Thank you, Sue, and good morning, everyone. Thank you for joining us today for our third quarter investor call. As you know, this is my first earnings call as the leader of MTS, and I'm delighted to be here with you this morning. Before Sue and I discuss the financial results, I'd like to briefly share with you the reasons why I took this role and after 3 months, the reasons why I'm more excited than ever about MTS. So why did I take this job? In addition to being an excellent fit with my background and prior experience, it was opportunity to lead a company which has a clear and successful business model based on technology leadership, a globally recognized brand and wonderfully innovative employees and a strong reputation for customer intimacy with companies that are leaders in the markets they served. Since joining MTS, I've had the pleasure of meeting many of our customers around the world across our markets in the U.S., Europe and Asia, and their feedback has reinforced my initial perceptions of the strength of this company. Our customers who are the leaders in their respective industries of MTS for many reasons, but 3 of these stand out above all others. The first is our unrivaled engineering excellence in the areas of testing and sensors. Second is the intimate knowledge of our customers' business needs obtained through years or, in many cases, decades of working closely together to solve very challenging problems. And third is the consistent long-term support we deliver to help our customers address their rapidly changing market requirements around the world. These 3 factors represent the core of MTS' sustainable competitive advantage that has led through our leaderships in the markets that we serve and upon which we will build the future of the company.

While I've been here only a short time, given this excellent foundation and strong market position, I'm very excited about the future of the company. I believe that with my passion for our business and an intense focus on delivering sustainable profitable growth, I can help MTS achieve its full potential. I'll comment further on this later in my discussion. So now let's move on to today's agenda and our Q3 results.

For today's call, I will first discuss the key takeaways from our fiscal third quarter, including a recently announced settlement with the U.S. Government and provide some color on our end markets and year-to-date orders. Sue will then walk you through the quarterly financials in more detail. I'll then close with a few comments on our outlook for the remainder of 2012, and the next steps and timing to finalize the key tenets of our multiyear strategy. We'll then open the call for your questions.

There are 4 key takeaways for you for the quarter. First, the company, driven by our Test business had an outstanding quarter, with record high revenue and earnings per share from operations, excellent cash flow and a continuing solid backlog of business. We obtained these results in spite of significant currency headwinds, which were a drag on the results across both of our businesses and in spite of the economic sluggishness in which our Sensors business continues to operate today.

Second, our robust investments in R&D, compliance and project management, processes and systems are continued in the quarter, enabling us to meet our customer commitments, which are at a significantly higher level than ever in supporting our future growth objectives.

Third, we reached a preliminary settlement agreement with the Department of Justice, ending the ongoing investigation. While subject to final approval in Washington, we accrued the agreed-upon settlement amount of $7.75 million in our third quarter, the details of which were announced earlier this week.

Finally, based upon our positive momentum and strong focus on execution, we're pleased to confirm our previous outlook for the full year revenue and earnings per share from operations. Sue and I will discuss these topics in more detail beginning with third quarter orders.

In our third quarter, total company orders of $148 million were down 1%. However, adjusting for currency, orders were up 3%. Again, this quarter, our positive order results were driven by our Test division, which was up 2%. In local currencies, orders were up 5%. Very encouraging to us were Test division's base orders, which were very strong, up 19% in the quarter. This growth was offset in part by fewer large orders in the quarter, $20 million compared to $35 million last year. This large order of lumpiness, if you will, is typical in our Test business. And while challenging from a forecasting standpoint, is not of concern to us as the pipeline of future projects remains robust. While large orders are certainly to be celebrated, expanding our base orders brings some added benefit of smoothing out our performance, improving our manufacturing efficiencies. So driving this performance is important to us.

Looking to our Sensors division, orders were down 12% year-over-year, half of this was due to unfavorable currency. Within the quarter, we had reasonably good momentum as we began the third quarter, but have weakened consistently with the global economy throughout the quarter, reflecting lower capital spending in the face of uncertain end market demands this summer. While our execution was excellent in Sensors, reflected in effective cost management and corresponding strong gross margins, we were disappointed in the end market conditions that impacted our sales. In spite of uncertainty and the timing of a real recovery, we continue our long-term investments in R&D and customer support for Sensors and look forward to an eventual rebound in the global markets that we serve.

Finally, our backlog is holding steady, being down just 1% to $287 million, again, representing near record performance. These results include a $9 million order cancellation associated with the sale of the linear fiction welding product line that happened in the second quarter. The transaction was immaterial to financial results.

Now let me provide you with a little more color by business unit and I'll begin with Sensors. At $24.5 million, Sensors orders, as previously noted, were down 12%, the weakest quarter this year. While there were some specific positive news in the quarter, it was more than offset by general weakness around the world.

Here is a high-level summary of the $3.3 million year-over-year decline. Three large U.S. customers did not place large blanket orders this year as they had last year, which was worth $2.4 million of the $3.3 million. Foreign currency accounted for half of the decline at $1.7 million. China was down $1 million this quarter for same reasons as in the first half of the year and that is the steel and oil and gas markets remained weak. On a positive note, Europe wind energy orders were strong for Sensors, up $700,000 from 2 large OEM blanket orders. While everything else was up $1.1 million, it still indicates a modest general weakness across our served markets.

Again, in total, Sensors was down $3.3 million in the quarter, which was disappointing. On a positive note, looking to the future for Sensors, with our strong product position and expanded Asian sales force, in Q3, we received initial orders from more than 50 new customers in China, with important wins in plastic injection molding machinery and beverage filling machines. While these orders were small, they're evidence of our strengthening in China, which will pay off as machine volumes recover with the overall economy.

On a market basis for Sensors, industrial orders were down 13%, while mobile hydraulic orders declined 5%. Geographically, all 3 regions of the world declined, 21% in the Americas, 10% in Asia, 7% in Europe. Europe orders were flat in a local currency basis. And sequentially, orders were down 5%, but again, up 2% in local currencies.

Finally, backlog at the end of the quarter was $14.5 million, down 8% from last quarter for Sensors.

In summary, for our Sensors business unit, the negative economic and currency impacts on orders were meaningful again this quarter. With the global economy slowing over the summer, capital expenditures in our customer base declined and this was rapidly reflected in order patterns for sensors. However, we're demonstrating the value of our products as measured by continued design wins in mobile hydraulic platforms and strong new customer growth in China in the quarter. Both of these successes should lead to improving order patterns when the economies return to normal growth rates.

Now I'd like to switch to our Test business. At $124 million, Test orders were up $2 million or 2%. There are 3 primary drivers for this underlying growth. First, base orders were excellent, up $17 million, a 19% increase. The increase was led by ground vehicle growth in China, and the ground vehicles and materials markets in the Americas. Base orders in Europe were flat, but up 10% in local currencies. It's the fourth quarter in a row with more than $100 million of base orders for the Test business, a great milestone for this business unit. Second, we won 2 large orders, meaning, over $5 million this quarter, totaling $20 million. Both were seismic-related in the structures market with one in Europe and one in Asia. While $20 million of large orders in the quarter is very good, the prior year was exceptional with $35 million of large orders. So year-over-year, large orders were down 43%, but remain very healthy by historical standards.

Lastly, unfavorable currency negatively impacted orders by 4% for the Test business.

Viewing our Test business from a market perspective, our ground vehicle segment was up 28%, driven by product development needs for vehicle performance and new steering systems. In addition, a key customer in China completed their new lab development, ordering $2 million of new systems from us, in addition to the $7 million they ordered in Q2.

For the materials test segment in total, orders increased 8% as demand in the Americas for our new Criterion product line, and for systems that evaluate rock mechanics, which is central to the oil and gas exploration efforts now underway was strong. Our market segment that is focused on large structures such as buildings, bridges and windmills was down 26% in orders year-over-year as $21 million of large seismic systems this year were less than the exceptional wind-related orders in Q3 of last year.

Geographically, for our Test business, growth in the Americas was 43%, followed by 13% in Asia. Europe was down 33% due to large orders and negative currency effects. Sequentially, Q3 orders were up 12% compared to Q2. Backlog for our Test business was $272 million in total, flat year-over-year and down 2% sequentially. Again, this backlog number included the effect of $9 million order cancellation associated with the small product line that was sold in Q2.

As one of our leading indicators, that is very encouraging to us. Our Test division's opportunity pipeline, defined as orders that could close in the next 12 months is also growing. At $732 million, it's up $85 million or 16% year-over-year. All geographies are up at least 10%, with growth in both the base business opportunities, as well as large custom projects.

From a new product standpoint, in the quarter, our Test division launched 2 new products that we're very excited about. The first is called FlexDAC 20 Data Acquisition System. It's a high-performance system for acquiring test data to evaluate the behavior of full scale and component structures underload with very superior accuracy. The second is a new product family called Acumen. Acumen are dynamic and static test systems which use energy-efficient electrodynamic actuation to deliver superior precision and unprecedented ease of use. Our Acumen products address customer needs in biomedical and the broader materials testing markets. These products are 2 great examples of future growth drivers from the company's increased R&D investment.

Now I'd like to close out the orders discussion with a few comments on year-to-date orders in the first 9 months of fiscal '12. At $418 million, total company orders are up 3% year-over-year. In local currencies, orders are up 4%. While Sensors orders are down modestly year-over-year, Test growth is very strong, driven by the continued need for new product development and new materials development across our customer base. Sensors orders are down 5% year-to-date, but down only 3% in local currency. The industrial markets down 8% globally due to global market weakness, fewer large purchase orders and weak China steel, oil and gas. The mobile hydraulics market is up 12%, driven by agriculture and construction demand. Test orders are up 5% year-to-date. In local currencies, they're up 6%. Base orders are up impressively at 20%. Large orders year-to-date are $25 million compared to $64 million in 2011, which are typically lumpy based on timing. While timing will always remain somewhat fluid, our large order pipeline remains strong. Customers for our Test business are continuing to make needed investments to improve operational efficiencies in their labs and increased performance-based testing driven by new energy efficiency requirements. Also there's a need for increased seismic-resistant infrastructure that has been tragically highlighted through events across Asia that have impacted the entire world over the last few years. In addition, China is expanding their testing capabilities, particularly with new ground vehicle labs and there's a global emphasis on energy-related research for oil and natural gas. We expect these fundamental drivers to continue throughout the emerging markets and throughout the world in the quarters and years ahead.

So in summary, Sensors orders are not what we expected this year, but we're focused on what we can control, finding new applications and meeting customer requirements, while executing well on controlling our cost.

We feel good about the Test division's momentum and strong pipeline of new opportunities, so we're monitoring our markets closely and staying close to our customers for any early signs of deterioration. We see none to date. So we anticipate continued excellent momentum in the Test business.

Now I'll turn the call over to Sue for the financial details.

Susan E. Knight

Thank you, Jeff. My remarks today will summarize our third quarter results based on a year-over-year comparison beginning with revenue. Revenue in the third quarter was a record high of $121.7 million, which exceeded the previous high in the first quarter of this year by $8 million. The year-over-year growth was 21%, including a 4 percentage point unfavorable currency impact. Again, this quarter, the growth was driven by Test.

On a segment basis, Sensors revenue of $25 million declined 8%, of which, 5 percentage points was due to unfavorable currency. 12% decline in orders, which Jeff discussed earlier also contributed to lower revenue.

Geographically, the Americas grew 3%, while Europe and Asia were down 12% and 11%, respectively. Unfavorable currency was a large part of the Europe decline and China continues to be weak compared to the prior year.

Test results were excellent, delivering 30% revenue growth, including a 3% negative currency impact to achieve $116 million. The $27 million increase was driven by higher backlog of 18%, which was valued at $42 million. We also benefited from the $5 million revenue opportunity from Q2 that we were not able to realize last quarter due to our internal execution. All regions were up impressively, 30% in the Americas, 27% in Europe and 33% in Asia.

Moving on to gross profit. We had very strong performance on higher volumes. At $64 million, gross profit was up 28% on 21% revenue growth. Sensors was down $1.3 million or 8%, which was sustained as the revenue rate declined in that business. Test was up $15.1 million or 45%, on a 30% increase in revenue. Volume, leverage and improved productivity were the key drivers of the Test gross margin increase.

The gross margin rate of 44.9% was also excellent, up 2.2 percentage points compared to last year. This was particularly good in light of lower volume in Sensors, which has higher gross margin rates than Test. In particular, Sensors gross margin rate was 57.2%, relatively flat year-over-year. This represents good cost management despite lower revenue. The Test gross margin rate increased 4.1 percentage points to 42.2%, which is really strong performance.

The next topic is operating expenses. Expenses in the quarter were $45.5 million, up $11.3 million compared to the previous year. Of the increase, $7.8 million was for the government settlement, $1.2 million for R&D investment and $2.1 million in selling and marketing for compensation, benefits and incentives on increased headcount, as well as other costs to support selling efforts. G&A expenses were up $100,000. The rate to revenue, expenses were 32.1%. Including the government settlement cost, the rate was 26.6% and within our expected range of 26% to 27% that we discussed last quarter.

Next topic is EBIT. On a GAAP basis, the EBIT rate was 12.9%, down 1.2 percentage points compared to last year, including a 5.5 percentage point impact from the government settlement cost. The Sensors rate was 17.9%, down 6.3 points and Test was 11.8%, up 0.8 points. But on a non-GAAP basis, excluding the government settlement cost, the EBIT rate was 18.4%, up 4.3 percentage points, the highest EBIT rate from operations in recent history. Also on a non-GAAP basis, the Sensors rate was 24.6%, relatively flat year-over-year and Test non-GAAP rate was 17%, up 6 percentage points year-over-year. As said already, Test had a great quarter.

Also on a GAAP basis, EBIT increased $1.8 million, up 11% from volume. On non-GAAP basis, EBIT was higher by $9.6 million or 58%, on 21% higher revenue. We are very pleased with the company's EBIT from operations this quarter. At 48.1%, the tax rate was very unusual this quarter, up almost 15 percentage points year-over-year. The cost of the government settlement is nondeductible for tax purposes, which had a 14.2 percentage point impact. On a non-GAAP basis, the tax rate was 33.9%, which is in our normal low 30% tax rate range.

Earnings per share on a GAAP basis was $0.59, down $0.10 compared to the previous year. On a non-GAAP basis, which excludes the government settlement, earnings per share was $1.07, up 55% year-over-year. Revenue volume and favorable mix contributed $0.57 of higher earnings per share. This was partially offset by $0.17 for higher operating expense and $0.02 because of a slightly higher share count.

My last financial topic today is cash. The cash balance increased $22.3 million, ending the quarter with $146 million. The $32.6 million operating cash flow in the quarter was almost 4x the result of Q3 of the previous year and 2x the cash flow in the second quarter. This was driven by strong earnings and reduced working capital requirements from lower accounts receivable. Capital expenditures were $5 million and dividend payments were $4 million. There were no share purchases in the quarter.

Now that we settled the government matter, we expect to resume our share purchase activity in the fourth quarter.

I have one last topic before I conclude, which is the timing of our future quarterly releases and conference calls. We are currently reconsidering the timing of our current practice to release earnings on a Thursday followed by a Friday call. We may change the date of the release to the following Monday, with the call on Tuesday. We'll give you plenty of notice so you can accommodate the changes on your calendars, but we didn't want to surprise you with the change in the fourth quarter if we decide to do so. That concludes my remarks on the third quarter. Overall, we are very pleased with the company's performance. Thank you.

I'll now turn the call back to Jeff for his concluding remarks.

Jeffrey A. Graves

Thank you, Sue. Before we take your questions, let me comment on the full year outlook and our future priorities. As I mentioned at the beginning of the call, we're happy to reaffirm our previous full year guidance of revenue growth in the mid- to high-teens and earnings per share growth from operations, which excludes the recent government settlement in the low- to mid-teens. We delivered strong growth in revenue and earnings per share from operations in Q3, and our Test division's strong backlog and solid pipeline of opportunities positions us well to achieve this outlook for the year.

Strong cash flow from operations is expected to continue, giving us continued flexibility to invest for our future growth and improvements in efficiency. Looking to the future, I can tell you that I love our fundamental businesses and customer base and how we're positioned for future growth. Our core competencies of engineering excellence and strong customer intimacy, with many of the world's most successful companies, combined with their significant need for new and more capable products is a powerful combination that I believe will drive the growth of MTS for many years to come. With the strong balance sheet that will enable us to support this growth and our global footprints deliver these critical solutions for our customers, the factors are aligned for sustainable profitable growth.

While none of us knows what future economic and political conditions might be, the fundamental drivers of energy efficiency, globalization of markets with the emergence of large new consumer populations and the rapid introduction of new materials technologies will continue to drive the need for new and intelligent products and the desire to upgrade and automate manufacturing equipment. Economic factors may influence the timing, but the fundamental drivers remain intact and I'm excited about the implications for growth in our company.

We're at an important and an exciting stage of developing our plans for the future, I look forward to sharing details of them with you in the coming months ahead. That's the end of my prepared remarks.

I'll turn the call back over to you, Rochelle, for the Q&A session.

Question-and-Answer Session


[Operator Instructions] And our first question, we'll hear from John Franzreb with Sidoti & Company.

John Franzreb - Sidoti & Company, LLC

Welcome aboard, Jeff. And if my opinion matters, I'm all for that switch-over to a Monday, Tuesday. Regarding the opportunity pipeline, you said it was at 16% year-over-year, Jeff, could you talk a little bit about the makeup of that opportunity pipeline, either in an end market basis, infrastructure, automotive-related, or if you're more comfortable or if you could also add, on a geographic basis. Any additional color would be helpful?

Jeffrey A. Graves

Yes, let me talk a little bit about that, John. It's fairly broad-based, which is very encouraging to us. Certainly, automotive, as it relates to product development is a very important business to us and it looks very robust doing forward. It's a little surprising when you think about the automotive industry with its ups and downs, but their need for new product designs is enormous. I just finished several visits around the world in both Europe, Asia and here in the States, and clearly, there's a huge demand for product variance, new products to drive efficiencies and also new consumer bases that they're trying to address in automotive. So those trends are huge for those guys. So whether month-to-month, their production rates are up or down, their need for new products are enormous. So I look at our pipeline and clearly, in the several ways we support the automotive industry, it's a very robust pipeline, whether it's a durability testing of full vehicles, or components or the materials that go into them. I would also tell you, the Materials Test segment is very exciting. Some of that testing goes into R&D and product development, some is more broad-based in factories. But again, very robust worldwide and we've been investing in and launching new products to capture more of that market in the world. So again, that's a very exciting element of that. We always have scattered in our pipeline some large projects. And the larger they are, the more difficult they are to predict based on timing. I would -- in the Energy segment, broadly, the wind market in the past has been very strong. I would suspect, again, just giving government trends, and subsidy, outlooks and things like that, wind may trail a little bit. But in terms of oil and gas, the support of gas drilling and the new technology is going in there and the support for long pipelines, things like that, those kind of large project opportunities for oil and gas, very, very exciting. And while the timing is extremely difficult to fully lock down, it's scattered through our pipeline and again, drives meaningful numbers. So in terms of geographies, clearly, there's a lot of consumption that's anticipated in Asia for products. Whether those products are delivered out of U.S., or Europe, with the currency deflation in Europe, more is coming out of Europe these days. Ore is being manufactured locally in China. Clearly, there's a -- Asia is influencing our business dramatically. Either through direct sales or through indirect sales, our platforms are being sold over there. So geographically, I would expect Asia to be on a more rapid acceleration. Americas and Europe, while I think they'll be strong, will probably lag in terms of actual growth rates. But it's strength across the board. And that's on the Test business. Sensors, more difficult to predict because it's more strongly impacted by the economy. I mentioned, I'm really pleased with the outlook from a long-term perspective. We're getting designed in mobile hydraulics and a lot more platforms. So when those platforms actually sell, we anticipate some more dramatic growth in that segment, which is a really good thing for us. Industrial equipment is probably more immediately impacted by the economy and the pipeline is lean in that area, really, until the economy begins to turn and then they should rapidly fill up. So I'm very happy we landed 50 new customers in China. And again, the industrial equipment over there should be a big consumer of our Sensors. But it's important to plant those seeds. Where they'll actually fall out in terms of dollars in the pipeline, we'll actually have to wait and see, but the Test pipeline is certainly very robust. Hopefully, that helps a bit, John.

John Franzreb - Sidoti & Company, LLC

No, that's perfect actually. Based on you said rapid acceleration in China on a relative basis versus U.S. and Europe, can you envision a scenario where China would be greater than 50% of the order book a year to down the line or is that just too aggressive?

Jeffrey A. Graves

Well, I'd have to look at the actual percentages, John. I'm just overwhelmed with the opportunities there. I was there probably a month ago now and spent time with both the Sensor group and the Test group and visited customers. And even though things have slowed there in the quarter, obviously, it's made the headlines, it's still -- the macro trend is enormous. And with consumer-related spending and new companies going in to manufacture higher and higher-end equipment, I think, it's already a big business for us and I expect its growth rate will be high. So at what point that it hits half our revenue, I don't know, but it certainly has a very bright future for MTS.

John Franzreb - Sidoti & Company, LLC

Okay. And one other follow-up. You touched on the timing of the mobile hydraulics rollouts and when that will impact the Sensors side. What is the timing of that right now? How does that look?

Jeffrey A. Graves

Well, it's -- we're -- there's, again, a macro trend to make large earthmoving equipment and large agricultural equipment much smarter, okay? So for obvious reasons, to drill holes more accurately and to plow fields more accurately, things like that. Clearly, our sensors are being designed in for those applications, they're wonderful for us. But it gets back to how many big tractors are folks like Caterpillar or John Deere are going to sell. When you look at their projections and their growth rates when they launch a new platform, that kind of a leading indicator is very good for our business. All we can do really is try to get designed in and then the sale of those is really end market-driven from those OEMs.

John Franzreb - Sidoti & Company, LLC

Okay. So no big platform rollouts that are coming in the next year or 2 or is there?

Jeffrey A. Graves

I really don't know the timing, John. I can't tell you when those components -- it's not like it takes a complete new unit from my understanding. It's more of when the subsystems are introduced. Some of those are even retrofitted on existing units. So it just depends on what the timing is specifically, I can't really help you there.


[Operator Instructions] Next, we'll move to Liam Burke with Janney Capital Markets.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Sue, on your prepared comments, you talked about the contributors to gross margin on the Test side. Jeff talked about the opportunity pipeline and the order activity. Is the pricing environment on the Test business getting any better? Is it improving? Are you able to get more of a premium now or there's still 1 or 2 players out there that are competing on price?

Susan E. Knight

Liam, I would characterize the pricing environment as unchanged. There's a lot of opportunity but we haven't seen any change in the pressure from a competitive point of view. It remains important that we work on our class position relative to market opportunities so we can continue to keep the win rate consistent with what it has been in the last several quarters.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Okay. And in general, I mean, 42% plus gross margins on the Test side are pretty much the high end of where you could get. Was there a smaller mix of project revenue in there or was it just general execution across-the-board?

Susan E. Knight

I would characterize the quarter as benefiting from volume leverage. I mean, these are record volumes for Test, so we obviously get some lift on fixed cost aspect of that. And then, I would say it's productivity execution as compared to mix in the quarter.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Okay. And then lastly, with record levels of revenue in the system side, is that going to require any incremental investment on your part?

Susan E. Knight

So we are investing for, I would say, more capability on the process and systems side. We don't anticipate dramatic changes in physical capacity, but it's more about process and systems, which we talked about, I think, every call this year. So it's a continuation of what we started probably 1.5 years ago. It's also reflected in our expenses today and in our capital spend.


And there are no further questions at this time. I would like to turn the call back over to Jeff Graves for any additional or closing remarks.

Jeffrey A. Graves

Thanks, Rochelle. Well, thank you all for participating on our call today. It is an exciting time for MTS. I consider myself blessed to be leading our efforts and on behalf of an outstanding group of employees. I look forward to sharing our progress in our plans for growth in the quarters come. I also look forward to meeting you in person over the coming months. Thank you. Have a great day. Goodbye.


And that will conclude today's call. We thank you for your participation.

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