News Release

FOR IMMEDIATE RELEASE
April 25, 2007

For More Information Contact:
Susan Knight, Chief Financial Officer
(952) 937-4000
Paul Runice, Treasurer
(952) 937-4003

MTS Reports Second Quarter EPS of $0.56, Raises Full Year Guidance

Eden Prairie, Minn., April 25, 2007 – MTS Systems Corporation (NASDAQ: MTSC) today reported second quarter earnings of $0.56 per diluted share on net income of $10.3 million, a decrease of 3 percent compared to earnings of $0.58 per diluted share on net income of $11.3 million for second quarter fiscal 2006.

“Revenue and earnings results for the second quarter were in line with our expectations,” said Sidney W. Emery, Jr., Chairman and CEO. “Orders growth of 19 percent was excellent, following 15 percent growth in the first quarter. The second quarter revenue and EPS reflect healthy operating performance in Test and robust worldwide growth in Sensors. Considering the solid first half results, together with our outlook for a strong second half of the year, we are raising our full year guidance. The revised outlook for fiscal 2007 revenue is $405-$415 million, compared to the previous outlook of $400-$410 million, and the revised outlook for EPS is $2.15-$2.25, versus our previously communicated guidance range of $2.10-$2.20.”

Second quarter orders totaled $97.0 million, an increase of 19 percent compared to orders of $81.5 million for second quarter fiscal 2006, primarily driven by Test segment orders in North America and Asia and worldwide growth in the Sensors segment, as well as an estimated $2.4 million favorable impact of currency translation. Backlog decreased 2 percent in the quarter, from $208 million to $204 million. This compares to backlog of $195 million at the end of second quarter fiscal 2006.

Revenue for the second quarter totaled $101.8 million, a 1 percent decrease compared to revenue of $102.9 million for second quarter fiscal 2006. This decrease was primarily due to decreased custom business in Test, partially offset by continued growth in Sensors and an estimated $3.4 million favorable impact of currency translation.

Gross profit for second quarter was $45.9 million, flat compared to gross profit of $45.8 million for second quarter fiscal 2006. Gross margin rate for the second quarter was strong, at 45.1 percent, compared to 44.5 percent for second quarter fiscal 2006. Margin associated with increased volume in Sensors offset the impact of unfavorable product mix in Test. Second quarter income from operations totaled $16.7 million, a decrease of 2 percent compared to income from operations of $17.1 million for second quarter fiscal 2006. This decrease in income from operations was primarily due to planned increases in sales, marketing and R&D spending.

Second quarter net income was $10.3 million, a decrease of 9 percent compared to net income of $11.3 million for second quarter fiscal 2006. This decrease was driven by lower income from operations and a $1.1 million unfavorable impact of foreign currency transaction losses. Reduced shares outstanding positively impacted earnings per diluted share by $0.03 for the quarter.

Cash, cash equivalents and short-term investments at the end of the second quarter totaled $117 million, compared to $115 million at the end of first quarter 2007. The Company generated positive operating cash flow of $31.3 million in the second quarter, of which $23.8 million was used to purchase approximately 600,000 shares of the Company’s common stock.

Segment Results

Test Segment:

Second quarter orders for the Test segment were $77.3 million, an increase of 19 percent compared to orders of $65.1 million for second quarter fiscal 2006, reflecting an increase in North America and Asia and an estimated $1.5 million favorable impact of currency translation, partially offset by decreased volume in Europe. Orders included one large custom order in excess of $5 million. Backlog decreased 3 percent in the quarter, from $200 million to $195 million. Second quarter revenue was $82.9 million, a decrease of 5 percent compared to $87.0 million for second quarter fiscal 2006, reflecting decreased project revenue, partially offset by an estimated $2.6 million favorable impact of currency translation. Second quarter gross profit was $35.5 million, a decrease of 5 percent compared to $37.4 million for second quarter fiscal 2006, primarily due to decreased volume and unfavorable product mix, partially offset by an estimated $0.6 million favorable impact of currency translation. Income from operations for second quarter fiscal 2007 was $12.8 million, a decrease of 12 percent compared to income from operations of $14.6 million for second quarter fiscal 2006.

Sensors Segment:

Second quarter orders for the Sensors segment were $19.7 million, an increase of 20 percent compared to orders of $16.4 million for second quarter fiscal 2006, reflecting business growth in all geographies and an estimated $0.9 million favorable impact of currency translation. Backlog increased 13 percent in the quarter, from $8 million to $9 million. Second quarter revenue was $18.9 million, an increase of 19 percent compared to revenue of $15.9 million for second quarter fiscal 2006, driven by increased worldwide volume and an estimated $0.8 million favorable impact of currency translation. Second quarter gross profit was $10.4 million, an increase of 24 percent compared to $8.4 million for second quarter fiscal 2006, reflecting increased volume, improved capacity utilization, and an estimated $0.4 million favorable impact of currency translation. Income from operations for second quarter fiscal 2007 was $3.9 million, an increase of 56 percent compared to income from operations of $2.5 million for second quarter fiscal 2006, primarily due to increased gross profit, partially offset by planned increases in operating expenses.

Second Quarter Conference Call

A conference call will be held on Thursday, April 26, 2007, at 10:00 a.m. EDT (9:00 a.m. CDT). Call +1-706-634-9986; and state the Conference ID “5631947”. Telephone re-play will be available through 11:59 p.m. EDT, May 3, 2007. Call +1-706-645-9291.

If you prefer to listen live over the Internet, please log on to the web at http://www.mts.com/en/InvestorRelations/events/index.asp and click on the webcast event notice. The webcast will be archived through 11:59 p.m. EDT, July 24, 2007.

About MTS Systems Corporation

MTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company’s testing hardware, software and service solutions help customers accelerate and improve their design, development and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. MTS’ high-performance position sensors enhance control to improve the productivity and safety of fixed and mobile industrial equipment. MTS had 1,510 employees and revenue of $397 million for the fiscal year ended September 30, 2006. Additional information on MTS can be found on the worldwide web at http://www.mts.com.


This release contains “forward-looking statements” made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from historical results and those presently anticipated or projected. The Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. In addition to the factors discussed above, other important risk factors are delineated in the Company’s most recent SEC Form 10-Q and 10-K filings.