News Release

FOR IMMEDIATE RELEASE
July 25, 2007

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

MTS Reports Third Quarter EPS of $0.55, up 22% on 13% Revenue Growth


Eden Prairie, Minn. – July 25, 2007 – MTS Systems Corporation (NASDAQ: MTSC) today reported third quarter earnings of $0.55 per diluted share on net income of $10.0 million, an increase of 22 percent compared to earnings of $0.45 per diluted share on net income of $8.5 million for third quarter fiscal 2006.

“Both orders and revenue were up significantly in the quarter with double digit growth in both the Test and Sensors segments,” said Sidney W. Emery, Jr., Chairman and CEO. “While unplanned custom project costs depressed Test segment margins, excellent Sensors segment performance along with tax benefits contributed to strong earnings in the quarter. Based on third quarter results and our outlook for the fourth quarter, we expect our full year EPS to be in the top half of the previously issued $2.15-$2.25 guidance range and revenue to be at the upper end of the $405-$415 range.”

Third quarter orders totaled $111.9 million, an increase of 15 percent compared to orders of $97.7 million for third quarter fiscal 2006, primarily driven by two large Test segment orders in North America and Europe, and Sensors growth across all geographies, as well as an estimated $0.7 million favorable impact of currency translation. Backlog increased 1 percent sequentially in the quarter, from $204 million to $206 million. This compares to backlog of $198 million at the end of third quarter fiscal 2006.

Revenue for the third quarter totaled $108.6 million, a 13 percent increase compared to revenue of $95.9 million for third quarter fiscal 2006. This increase was driven by a higher proportion of standard product and service business in Test, continued growth in Sensors, and an estimated $1.4 million favorable impact of currency translation.

Gross profit for third quarter was $42.8 million, an increase of 4% compared to gross profit of $41.0 million for third quarter fiscal 2006, primarily due to increased volume, partially offset by unplanned custom project costs and increased warranty expense in the Test segment. Gross margin rate for the third quarter was 39.4 percent, a decrease of 3.4 percentage points compared to 42.8 percent for third quarter fiscal 2006. The decrease in margin rate was primarily due to higher project and warranty expenses in the Test segment. Third quarter income from operations totaled $11.7 million, flat compared to income from operations of $11.8 million for third quarter fiscal 2006, as planned increases in sales, marketing, and R&D spending to support strategic initiatives equaled the increase in gross profit.

Third quarter net income was $10.0 million, up 18 percent compared to net income of $8.5 million for third quarter fiscal 2006. This increase primarily resulted from decreased income tax expense of $1.6 million, primarily due to increased tax benefits resulting from research and development tax credits and export transactions. Reduced shares outstanding positively impacted earnings per diluted share by $0.02 for the quarter.

Cash, cash equivalents and short-term investments at the end of the third quarter totaled $104 million, compared to $117 million at the end of second quarter of fiscal year 2007. The Company used $10.0 million of cash in the quarter, primarily due to increased short term working capital requirements. Approximately 108,000 shares were purchased in the quarter.

Segment Results


Test Segment:

Third quarter orders for the Test segment were $90.8 million, an increase of 13 percent compared to orders of $80.7 million for third quarter fiscal 2006, reflecting an increase in North America and Europe, and an estimated $0.4 million favorable impact of currency translation. Orders included two large custom orders which aggregated to approximately $17 million. Backlog increased 1 percent sequentially in the quarter, from $195 million to $196 million. Third quarter revenue was $89.1 million, an increase of 12 percent compared to $79.3 million for third quarter fiscal 2006, reflecting an increase in the proportion of standard product and service business and an estimated $1.0 million favorable impact due to currency translation. Third quarter gross profit was $32.2 million, an increase of 1 percent compared to $31.9 million for third quarter fiscal 2006, primarily due to increased volume, which was offset by unplanned project costs and higher warranty expense. The impact of currency translation was an estimated $0.2 million favorable. Third quarter gross margin rate was 36.1 percent, a decrease of 4.1 percentage points compared to 40.2 percent for third quarter fiscal 2006. The decrease in margin rate was primarily due to higher custom project and warranty expense. Income from operations for the quarter was $8.2 million, a decrease of 8 percent compared to income from operations of $8.9 million for third quarter fiscal 2006, primarily due to planned increases in sales, marketing, and R&D spending to support strategic initiatives, partially offset by higher gross profit.

Sensors Segment:

Third quarter orders for the Sensors segment were $21.1 million, an increase of 24 percent compared to orders of $17.0 million for third quarter fiscal 2006, reflecting business growth in all geographies, and an estimated $0.3 million favorable impact of currency translation. One large order accounted for 8 percentage points of growth. Backlog increased 11 percent sequentially in the quarter, from $9 million to $10 million. Third quarter revenue was $19.5 million, an increase of 17 percent compared to revenue of $16.6 million for third quarter fiscal 2006, driven by increased worldwide volume and an estimated $0.4 million favorable impact of currency translation. Third quarter gross profit was $10.6 million, an increase of 16 percent compared to $9.1 million for third quarter fiscal 2006, reflecting increased volume, and an estimated $0.2 million favorable impact of currency translation. Third quarter gross margin rate was 54.6 percent, down slightly compared to 55.0 percent for third quarter fiscal 2006. Income from operations for the quarter was $3.5 million, an increase of 21 percent compared to income from operations of $2.9 million for third quarter fiscal 2006, primarily due to increased volume.

Third Quarter Conference Call

A conference call will be held on Thursday, July 26, 2007, at 10:00 a.m. EDT (9:00 a.m. CDT). Call +1-706-634-9986; and state the Conference ID “5633349”. Telephone re-play will be available through 11:59 p.m. EDT, August 1, 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, November 7, 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.