MTSC
#Thank you, <UNK> and good morning, everyone.
Thank you for joining us for our third quarter investor call.
We appreciate having the opportunity to discuss our financial results for the quarter and update you on our outlook for fiscal 2016.
First, let me remind you about the focus of our Company and the nature of our two business units.
This may be particularly helpful for those newer to following our Company.
Our mission at MTS is simple.
We are a focused test and measurement company, dedicated to making our customers' new products more precise, safer and more reliable and enabling them to get to market more quickly and confidently each year.
We carry out this mission through two operating business units.
The larger of our two businesses is Test, which provides highly engineered testing systems and services largely to R&D and product development groups within automotive, aerospace, energy, and infrastructure OEMs, as well as leading research laboratories and universities worldwide.
Our Test business is fueled by our customers spending on research and new product development, markets that are less sensitive to the short-term economic swings that have generated such volatility for many companies in recent years.
Our second business unit is Sensors.
While MTS has been in the position sensor business for over 30 years, following the close of our third quarter, we were very pleased to announce the completion of our acquisition of PCB Group, a global leader in the design, manufacture and distribution of a broad range of sensor products.
This acquisition significantly expands our sensor technology offerings across a number of key market segments, including the test market where we will leverage our very deep customer relationships for testing equipment and service.
Historically, MTS has been a leader in linear position sensors, which are essential for automating heavy industrial equipment and increasing the precision and safety of heavy vehicle systems that utilize hydraulic controls.
These sensor markets are tied more directly to industrial capacity utilization and heavy equipment demand than our test business markets.
With PCB's leadership in piezoelectric sensing technology, we will now also provide sensors and components used for acceleration, vibration, motion, pressure and force measurement.
These sensor technologies both enhance the performance of our customers' products and through their application in the product development testing, enable our customers' new products to enter the market more rapidly and reliably.
Approximately 65% of the PCB sensor markets are fueled by our customers' spending on research and new product development, similar to our Test business.
The remaining sensor markets are tied more directly to industrial capacity utilization and heavy equipment demand, similar to our historic position sensors.
Going forward, we will integrate our historic sensor business with that of PCB to create a single sensor business unit, serving a wide range of both industrial and test markets worldwide.
With this backdrop, I'll start with the headlines for the quarter.
There are three key takeaways for the call today.
First, we were pleased with our results for the quarter.
Revenue for the third quarter grew an outstanding 18% to a record $158 million, driven by strong backlog conversion in our Test business.
We were able to realize a significant portion of the revenue shortfall we experienced in the second quarter from improved custom project execution and direct labor headcount additions during the quarter.
Earnings were solid with Test gross margins improving 510 basis points on a sequential quarter comparison.
Second, we're very excited to have completed the acquisition of PCB in the opening days of our fourth quarter.
The combination of our historic sensor business with PCB is an ideal outcome for MTS, transforming the Company into a larger, more competitive, technology-leading test and measurement solutions provider with a broad product portfolio serving diverse growing end markets, and with a large and deeply intimate global customer base.
PCB brings scale to our sensor business with more rapidly growing end markets, higher margins and strong free cash flow.
It also brings greatly enhanced synergies between our Test and Sensor business units, generated by the use of PCB's sensors by our current test customer base and support of the new product testing.
This combination will bring long-term value to our customers through scale, to our employees through growth, and to our shareholders through expanded profit margins and strong free cash flow.
We're truly excited to add PCB with the MTS family.
With the close of the deal in early Q4, integration of PCB has begun in full-force and we're on track with our planned integration efforts.
We've validated many of the synergies we modeled in our assumptions and have started the work to realize the value from the acquisition.
The third key message for today is regarding our outlook for the remainder of fiscal 2016.
With regard to revenue, we're refining our revenue guidance range to $630 million to $640 million, and refining our earnings guidance to $1.35 to $1.50 per share.
These guidance ranges are inclusive of the contribution from the PCB acquisition and all restructuring and acquisition-related charges.
<UNK> <UNK> will provide more detail regarding our guidance in a few minutes.
With that, I'll now review orders in more detail for the quarter.
Total Company orders decreased 18% or $28 million to $125 million in the third quarter, driven largely by the Test business.
Test orders, which were down 21% in the quarter were impacted primarily by the timing of two large custom projects totaling roughly $21 million.
Given the abnormally high custom order rate over the last two years, this volatility is not unexpected.
While Test product orders were softer in the quarter, we were very pleased with the momentum of our Test service business, which continue to deliver strong orders growth.
Orders for Test services in the quarter increased an impressive 34% to a record $27 million, bringing the year-to-date increase in Test service orders to 22%.
This increase was driven by our focus on upgrades of software platforms in our installed base and continued focus on strategic relationships with customers to extend the life of their existing equipments and full service contract wins, in this case with customers in Europe.
We continue to perform lab assessments for many of our customers.
This results in building deeper engagement, which often leads to orders for critical spare parts in lab upgrade services that will enhance the productivity and efficiency of our customers' laboratories.
Our large and continually growing installed base of equipment, which now exceeds $4.5 billion and the investments we've made over the last few years in expanding our field service organization and to modernize the tools they use to serve our customers continues to provide us with an opportunity for sustained and profitable growth in our service business.
We're continuing to have field service engineers to invest in our service infrastructure as appropriate to support the service business, which will help drive future growth for our Test business unit.
Moving to our Sensor business, orders were down [7%] reflecting largely the timing of blanket orders.
With the short lead times available for sensor products, customers have moved to a just-in-time ordering approach rather than placing annual blanket orders for products.
Omitting the blanket order effect, order rates were flat in the quarter for Sensors, as new design wins in the mobile hydraulics markets largely offset continued softness in the industrial machinery markets worldwide.
Our backlog continues to be very strong, driven by our Test business, ending the quarter at $352 million an increase of $9 million or 3% compared to the prior year.
And finally, I'd like to comment on the opportunity pipeline.
As we believe it's a good indicator of market strength and the potential for future growth.
Given the nature of the sales process, the 12-month opportunity pipeline is dominated by Test opportunities today.
However, this mix may change with the increasing scale of our Sensor business in the future.
At the end of the second quarter, our 12-month pipeline of opportunities stood at a new record of $978 million, up 12% compared to the third quarter last year and up 3% sequentially.
That was a third quarter number, $978 million.
These identified opportunities for future sales, reflective of the healthy continuing demand we see for expanded and enhanced testing capability in R&D and new product development by our customers worldwide.
This visibility into future demand builds confidence in our ability to deliver sustained organic growth going forward.
A key metric we used to monitor the health of our opportunity pipeline is the deferral rate within the pipeline.
This is measured as total dollars deferred as a percentage of beginning of quarter pipeline.
The metric improved slightly to 50% compared to 54% on a sequential quarterly basis and a slightly better than our historical average rate of the [mid 50 percentile] range.
As a reminder, as the deferral percentage in the pipeline increases, the volatility of orders' performance tends to increases.
This can make predictability and resource planning more challenging compared with the volatility we experience when the deferral rate is lower.
Relatively normal deferral rate provides us with confidence in our ability to secure future orders and deliver on these orders in the most productive manner.
We'll continue to update you on this view of our markets in the quarters ahead.
Now, I would like to turn the call over to our CFO, <UNK> <UNK> for some additional financial detail on the quarter.
<UNK>.
Thank you, <UNK>.
My remarks today will summarize our third quarter results based on a year-over-year comparison.
Overall, as <UNK> mentioned in his remarks, we feel good about our results for the third quarter.
As we expected, revenue growth was very strong in the quarter, fueled by strong conversion of backlog in Test.
Earnings were largely in line with our expectations, but were significantly impacted by non-recurring restructuring and acquisition-related charges.
Now moving on to more detail about the quarter.
Third quarter revenue of $158 million increased 18% reaching a new Company record.
Looking more specifically at revenue by business, Sensors revenue of $24 million was relatively flat.
While orders were down 7% in the quarter, we were able to convert backlog which kept the revenue comparable to the prior year.
Moving on to Test, revenue was a record $134 million in the quarter, increasing an outstanding 22%.
As <UNK> mentioned, we were able to improve our conversion of backlog into revenue during the quarter, from improved project execution, and the direct labor headcount additions that we made during the quarter.
This was a nice result for Test and something we expect to continue into the fourth quarter.
One item that I want to correct from the earnings release, in the headlines, we stated that Test service revenue for the quarter was a quarterly record.
Although it was a strong quarter for service revenue, it was not a record for the quarter.
Test backlog ended the quarter at $338 million.
Custom backlog as a percent of total backlog was approximately 67%, a decrease of 10 percentage points compared to the end of our second quarter.
This improved mix in our ending backlog is good news for the Test business going forward.
However, the shift is not expected to have a significant impact on our fourth quarter results.
We will continue to monitor our mix of orders, as we progress through the year and we'll provide more detail regarding how this mix shift may impact our results going forward, when we issue guidance for fiscal year 2017.
Moving on to the rest of the P&L.
Gross margin was $58 million, an increase of 9% from higher volume in the Test business.
As a rate to revenue, gross margin decreased 280 basis points from 39.7% to 36.9%, from a decline in margin rates in both businesses.
Sensors gross margin was down 8% to $12 million on lower volume.
The gross margin rate decreased 370 basis points from 54.9% to 51.2%, primarily resulting from lower volume and higher indirect labor cost.
We expect the Sensor business margin inclusive of PCB to remain in the low to mid 50% range going forward, with improvements expected as volume increases.
Test gross margin came in at $46 million, up 15% on higher revenue that I previously mentioned.
However, the gross margin rate decreased 210 basis points from 36.3% to 34.2%.
0.6 percentage points of the decrease resulted from pricing pressures on standard products sold in the material markets in China from increased competition, 0.5 percentage point resulted from higher proportion of customer revenue which typically carries a lower margin and the remaining margin rate decline resulted from higher compensation and benefits.
We expect the Test business margin to be in the 33% to 35% range in the fourth quarter.
My next topic is operating expenses.
Operating expenses increased $11 million or 28% to $48 million and were 31% of revenue.
The increase in operating expenses resulted from $5 million of acquisition related expenses, $1 million of restructuring costs and $5 million from higher commission expense, increased compensation and benefits and higher professional fees.
Excluding the acquisition-related and restructuring cost, operating expenses were 27% of revenue, the bottom end of our forecasted range.
Going forward, we expect operating expenses inclusive of the PCB business to be in the previously communicated 27% to 29% range, excluding acquisition-related and transaction related amortization expense.
Operating income decreased 37% to $10 million, primarily driven by the acquisition and restructuring-related charges.
Next, I want to briefly discuss net interest expense.
In recent history, net interest expense has generally not been material.
Year-to-date, net interest expense in fiscal 2016 was less than $1 million.
As you know, we took on more debt at the beginning of our fourth quarter to fund the PCB acquisition.
More specifically, in addition to the issuance of $460 million of term loan B debt, we issued tangible equity to partially fund the acquisition, which resulted in approximately $27 million of debt that is required to be paid down over the next three years.
As part of that arrangement, we are required to pay a coupon rate of 8.75%, a portion of which is interest expense and a portion is a reduction in principle.
The term loan B debt interest rate is pegged to LIBOR plus a credit risk spread of 4.25%.
There is also a LIBOR floor of 0.75%.
So the current all-in interest rate we are paying on the debt is 5%.
We're committed to paying down this debt as quickly as we can and given our projected free cash flow, we believe that we will be able to delever fairly quickly.
However, due to the higher level of debt, net interest expense will be material for the foreseeable future.
We are forecasting net interest expense for our fourth quarter to be approximately $7 million.
My next topic is taxes.
The tax rate in the quarter was 28.4%, which was slightly below the prior year rate of 28.8%, and was slightly below our anticipated rate of 29%.
The decline in the tax rate primarily resulted from a decrease in operating income.
With the addition of forecasted income from PCB, we expect the tax rate to be approximately 29%, consistent with our previous guidance.
Earnings per share decreased from $0.72 in the prior year to $0.46, primarily driven by the acquisition, restructuring-related charges and a higher share count, which negatively impacted earnings per share by $0.32 in the quarter.
Excluding these charges, non-GAAP earnings per share would have been $0.78, up 8%.
A reconciliation of these earnings to GAAP earnings is included in our earnings release, which is available on our website and the SEC's website.
Moving on to a summary of cash.
The cash balance increased $109 million in the quarter to $173 million.
The increase was driven by the issuance of common stock and tangible equity units associated with the purchase of the PCB Group, which increased cash to $186 million net of issuance costs.
Partially offsetting this increase in the quarter was $44 million to fund an escrow account associated with the PCB acquisition, $21 million to reduce our debt balance, $8 million to purchase the cap call related to the tangible equity in that offering, and $4 million for dividends.
Now, I'd like to update you on our full-year revenue and EPS guidance ranges.
As <UNK> mentioned in the headlines, we are refining our full year revenue range to $630 million to $640 million, including the contribution from the PCB business.
We are confident in our ability to achieve this revenue range given the confirmed demand from our technologies across our Test markets, as evidenced by strong order performance in the first nine months of the year, the high level backlog we have entering the fourth quarter, and the expected contribution from the newly acquired PCB business.
Regarding our earnings per share for the full year, as <UNK> mentioned in the headlines, we are narrowing the expected range to $1.35 to $1.50 per share.
This guidance range includes contribution from the PCB business, all non-recurring severance, acquisition and integration-related charges, transaction related amortization of intangible assets, higher interest expense from the new debt we issued, and the negative impact of a higher share count.
We narrowed the previously issued guidance range, because we have lower than anticipated non-recurring acquisition-related charges from our acquisition of PCB that are partially offset by higher-than-anticipated amortization expense, and share count.
We previously anticipated acquisition-related charges to be in the range of $27 million to $29 million in fiscal 2016, but we now foresee these charges to be in the range of $18 million to $20 million for the full year.
In the fourth quarter, we're anticipating transaction related amortization expense to be approximately $3 million to $3.5 million and as I mentioned, net interest expense to be approximately $7 million.
Finally, I'll conclude my remarks with a brief update regarding the reported material weaknesses in internal controls over financial reporting.
We continue to make progress on the various measures that we have in place.
We have implemented new procedures in our sales and contracting processes to include identification of specific deliverables contained within multiple element revenue arrangements into deferral and appropriate amount of revenue.
These actions include the hiring of new personnel as well as providing additional training for existing personnel.
We believe that we are on track to remediate the material weaknesses by the end of our fiscal year.
This concludes my remarks for today.
I will turn the call back to <UNK> for his final comments.
Thank you.
Thanks, <UNK>.
In summary, overall we were happy with our quarterly performance and believe we're on the right track to deliver improving results in the quarters ahead.
Although orders growth was not as robust as recent quarters, given the strength of our opportunity pipeline, we believe it's largely timing related, and we expect our markets to remain robust.
We have a tremendous long-term global customer base and continue to see rising demand for our technologies across our Test markets.
Our Test services business continues to perform well, reflected in four consecutive quarters of double-digit growth.
Lastly, we completed the PCB acquisition and integration activities are well underway.
All this provides us with confidence to deliver the revised guidance for 2016, and revenue and earnings growth in 2017 and beyond.
That concludes our prepared remarks and I'll turn the call back to you, Sheryl, to host the Q&A session.
Yes, it was 67%.
67% in backlog.
Obviously, <UNK>, we're looking for pricing opportunities every time we get the chance, the technology we offer, we believe is the best in the world and we're looking to ---+ we pay it fairly forward and the investments we made to sustain that, I would say, there is no push to overtly change the mix of product.
If you look at our opportunity pipeline, we don't go into that level of detail to break the pipeline down into categories, but all the categories remain very robust, the custom ---+ engineered to order, which we all lump in these calls to in the custom category and the standard products.
So, we've got great opportunities in every branch of this, it's more timing related.
So, year and a half ago, I struggled to explain the uptick in custom orders as strong as it was, those waves seem to tend to wash across our customer base, for example, in automotive.
We see upgrades of large facilities, which require custom equipment that started a year and a half to two years ago.
And it really came in very quickly, and now that some of that's taken root and those orders are placed.
We see more of a return toward normalcy over time.
So I wouldn't over-sell this mix improvement in backlog and to <UNK>'s point it's not going to really impact our earnings performance until fiscal 2017, but it is a nice trend and we're pleased with it, and we think all of our categories remain strong and very competitive.
Yes, <UNK>, we're continuing to hire, because we just got such an opportunity for growth out there.
The customers want more and more of field service engineers and we're hiring and training as quickly as we can.
What you're starting to see now is that pivot from, it being dominated by the investments we're making to landing more ---+ not only more volume, but an increasingly rich volume or an increasingly rich mix of services that we're selling.
So, I would expect that to continue over time; there will be some volatility; there will be quarters that are up and down in terms of margin performance, but ---+ because we continue to make consistent investments in the business.
But I think, if you average them out over the coming quarters, you'll see a nice trend upward in margin over time.
So again, I am not over-selling the improvements we made in the quarter, I think they were great.
And I'd love to see them continue every quarter there will still be some volatility, because we continue to invest a lot of money in our services business, because there's such demand out there.
Yes, <UNK>, I just want to add one thing on that.
So yes, it was a nice uptick, I mean gross margins were above 43%.
Year-to-date services in that 39% to 40%, and that's the range we expect going forward, is that 39% to 40% in service margins, because we will continue hiring FSEs, Field Service Engineers, as we see this as a big opportunity for MTS.
<UNK>, that's the safe thing to do from your modeling standpoint, it's layered in like that.
There will be some volatility around that number and obviously we're driving to make it as (inaudible) we can record.
Yes, that's where year-to-date and we expect that going forward.
I think it'll be mid 40%s and above that.
So that's what we really see.
When we get to make critical mass, if you will, of installed field service engineers, so the percentage we're adding every year drops, the drag on the business from the investment we're making will decrease.
And I think, and we're making some marvelous investments in terms of software upgrades and things that are going to bring a lot of value to the customer base.
So I think you'll see over time, we're returning to the kind of the mid 40% range, mid 40%s gross margins, but it will take some time just given the trade-off between investments in people and the richer mix of business that we're starting to win.
I like the mix change in our backlog.
It depends on how it flows through every quarter, we still have a lot of custom concepts and a highly customized kind of engineered to order products in that backlog.
So there will still be some volatility quarter-to-quarter.
I think the shocks that we saw earlier in the year in terms of projects that we have won, kind of 12 to 18 months ago, I do believe that has passed.
So I think we'll see much improved smoothness of performance, if you will, and a gradually improving margins going forward in the Test product business.
Yes, in terms of growth profile, <UNK>, it's clearly the two-thirds of the business that overlaps with our Test business, we're very confident seeing growth in that, because again, we have such excellent visibility into the opportunity pipeline looking forward in our Test business because those projects have plans so far in advance.
So, we know there's going to be investment in new R&D and product development that will fuel our Test business.
We also believe that will fuel two-thirds of the [PCB] sensor sales to conduct those tests in the lab and outside of the lab.
So we feel very good about the growth prospects there, part of their business and our historic business that's exposed to industrial machinery.
It remains frustratingly sluggish and I think they've delivered some nice growth in the last few years, they've been exposed to the same headwinds that we have in terms of just the overall GDP at the world and especially capacity utilization and machinery demand.
So where we and I think PCB from the past are winning a lot of business, it's just the overall demand, it has been sluggish or even negative at times.
So it's kind of offsetting, so it leaves you with fairly an exciting growth rates on the industrial equipment side.
On the Test driven side, which again is two thirds of the PCB business related to our Test markets, I think we'll see the same kind of demand drivers that we do in our current business.
And as we said, our opportunity pipeline in Test is a record level approaching $1 billion.
So, we feel very good about the demand looking out the next couple of years.
Absolutely, <UNK>.
I am ---+ no doubt about it.
I can't put a number to that, but obviously the ---+ to shortened development cycles by our customers.
They're trying to get more and more data from each test they run, which requires more and more sensors, and more and more data handling from those sensors.
So, yes, that was a big rush <UNK> for us investing in this business.
I just think, our customers are under immense pressure to short development cycle times to get these new cars, new planes, sold it to customers more quickly.
And as they drive to take time out, the best cycle is pushing our Test equipment business into interfacing more and more with simulation environments.
So we're investing a lot in the interface with simulation technology to link our Test equipment into that.
And a key part of that is data collection from the Test itself.
And so, I love those fundamental drivers, I don't believe they're going to go away for years and years to come, and it was a big rationale, because of the depth of our customer knowledge in Test, a big rationale for the acquisition of PCB.
No, I think you'll see us smoothing going forward <UNK>, particularly as our backlog improves and mix, toward the more historic custom versus standard product mix, it makes it just much, much easier to claim your engineering resources and to run the factories.
So we feel good about that, the long-term move back toward normalcy in our backlog.
The lumpiness really, it's almost the inverse.
If you look back into Q2, it was a couple of very big complex projects, or clusters of similar projects that really ---+ that we had taken, probably a year and a half ago or a year ago that really found this up near the end of their time in manufacturing.
We had to go back and do some design modifications to meet our customer desires as they had evolved.
So that it really develops up and I'd say it was quite the aberration.
I think I feel very good about the improvements we made in the quarter.
Some of that was really from the second quarter.
I don't think there was any real pull-forward from Q4.
I just think we've just ran the business better and a strong focus on turning backlog and you saw natural improvements.
Yes, we have a little bit stronger competitive base in China and the China economy has been slow.
So, actually it surprised me that we didn't have more pressure than we've had in the last year and a half.
Clearly in the last couple of quarters, there's been some pricing pressure within China again on standard product, the things that we're less differentiated on.
So we still have dominant positions in custom and highly engineered to order products there.
But our standard products where we have a few more competitors, they have shown some more pricing competition and I think that's why we called it out.
One thing I would mention, <UNK>, as we've launched some ---+ a couple of very nice new product families over there in the last few quarters and as those grow in volume going forward, it's meant to directly address the differentiation question in the Chinese market.
So we're responding to that pricing pressure by launching some new products that we think are more highly differentiated in that standard category.
So that's our approach defending off the price competition there.
It's nicely distributed around the world.
The demand, if you looked at it versus history between and then we kind of divided between the Americas, which is dominated by North America obviously United States, Europe, which is dominated by Western Europe and Asia, and then now increasingly dividing Asia into individual countries, it's very well distributed.
If you look at the pipeline, not only for the next 12 months that we will report on, but if you look out a year or two, you see OEMs around the world and in virtually every geography making very similar investments in their laboratories.
So clearly there is a predominant to invest in Asia, because that's where their demand is coming from and they want their labs closer to the customers, but they're still spending ---+ a lot of our OEMs are still spending a lot of money in the US, and then Western Europe and especially on the very high end laboratories that are moving toward more simulation and integration of test equipment simulations for the engineering basis.
So I would tell you it's a great business and it's very well distributed around the world.
So from a risk standpoint, we feel good about that.
It's not dominated by any one customer or one geography, as opposed to the others.
No, <UNK>, it's been remarkably smooth.
I've been very pleased with the PCB management team that we've asked to leave the combined business going forward.
I think their leader David Hore and the quality of the team that he built over the last decade really shines through.
And they have embraced our historic business and are getting to know that and a lot of the synergies we have modeled, they validated and have put their own spin on them, and we feel very good about it.
So again on both the cost and the revenue side, our plants have been validated, we worked hard at those plants during diligence.
We had time, and we invested resources to do it and is paying dividends now, I think those are ---+ those have been confirmed.
Now we got a lot of heavy lifting to do over the next two to three years to realize them.
But on both the cost and revenue side, I would expect we'll hit our targets.
Yes, in the other markets.
Yes, it's a great discussion <UNK>, the aerospace business has been very solid for us.
Again it tends to be a little lumpier, depending on when the customers are launching new aircraft, but and we see some move between the large body aircraft company and the regional jet kind of companies.
But it's been fairly robust.
We feel very good about it.
And again bringing PCB into the family now they participate in that aerospace testing, as much as we do.
So in terms of ground based testing and even air testing of airplanes, so we love that addition.
It's been a good market.
Civil seismic testing has been nice and consistent, now the problem with that business is testing large projects.
So it's lumpier by nature, but the overall demand for civil seismic test equipment has been high and particularly there in China.
China and the other areas in Asia that are really active geologically for earthquakes, which really is the driver for those laboratories.
So I think you see a lot of Chinese spending in universities and that's driving investments in seismic testing, not only for earthquake resistance, but in terms of building and bridge designed for performance, things like that.
They really are spending nicely and consistently over time.
And again, mainly driven out of Asia, which would include Japan and Indonesia and other countries in Asia as well that are exposed to earthquakes or Tsunamis.
I'm trying to think, materials testing to support ---+ materials are going through an evolution right now into carbon fiber-reinforced composites.
And you see those, and clearly taking root in the new aircraft, the new Airbus airplanes, Boeing aircraft, you see a lot of composite usage and it's expanding down into the smaller aircraft sizes now.
So a lot of composite usage, which is very good for our materials testing business.
We've got some of the leading equipment for testing composite material, we feel very good about our position there and those materials by their nature require a lot more testing than to metal alloys.
So it's very good long term for our business, so again that market, while it was a little bit softer in the last quarter just driven by some specific engine aircraft programs, all in all, looking out the next couple of years, we feel very good about materials testing business.
And that's generally standard product for us, within our standard category, good margin rich product that should again be very nice to have in our backlog.
So I think that covers the major markets.
<UNK> have I missed anything.
You covered it.
Got it, okay.
Any other question on the markets or geographies, <UNK>.
Yes, absolutely, <UNK>.
Its legs are growing, I'd still say, they are kind of short, they're growing.
The frustration there is, they bring a lot of value to a customer's products.
They make earth moving equipment, mining equipment, cranes, they make them a lot smarter.
The problem really has been in in-demand for those products.
So while we're getting designed in the platforms, it's been offset somewhat by volume in the room, I think we'd use probably a 10% number, <UNK>, in terms of growth.
10% year-to-date in orders in mobile hydraulics, yes.
So mobile hydraulics for us is up 10%, <UNK>, in a very tepid in-demand market.
So when that volume does pick up for people that are in the earthmoving mining, heavy lifting crane business system, you're going to see a lot of growth in that business.
So we feel really good about the design wins.
So the legs maybe short, but they are running fast and we're really waiting on the global GDP improvement to drive more demand.
I will say there is no, there is not much product in the pipeline I mean, in the inventory in the pipeline.
So when you do see an uptick in in-demand or its major construction equipment companies, things like that, it should really flow through nicely quickly to our business.
But today, I'll take the 10% growth, I feel good about it.
But it's got a lot more potential demand.
Okay, Sheryl, thank you very much.
And thank you all for participating in our call today.
We look forward to updating you on the progress again next quarter.
Thank you and have a great end to your summer.
