News Release

FOR IMMEDIATE RELEASE
February 4, 2010

For More Information Contact:
Susan Knight, Chief Financial Officer
952.937.4000

MTS REPORTS 2010 FIRST QUARTER FINANCIAL RESULTS

Ø 13 percent sequential increase in orders to $108 million; third consecutive quarter of orders growth

Ø Backlog sequentially rose 10 percent to $184 million

Ø EPS of $0.23 sequentially improves despite 5 percent lower revenue

Ø Company maintains strong cash balance of $114 million

Eden Prairie, Minn. – February 4, 2010 – MTS Systems Corporation (NASDAQ: MTSC) today reported fiscal 2010 first quarter results.

“We are pleased to again see sequential improvement in orders and backlog in both of our business segments during the first quarter. Our strong first quarter order results still supports our prevailing view that the market will produce a broad range of possible order outcomes” said Laura B. Hamilton, MTS chair and chief executive officer. “As we look forward, there are several aspects of our business and the market that support our cautious sense of optimism. First, overall market conditions remained relatively unchanged during the quarter and this sense of ongoing stability is reassuring. Second, the expense-reduction and efficiency initiatives implemented over the past several quarters successfully aligned our cost structure with this environment. Third, we are encouraged that our shorter-cycle Sensors segment, which was more immediately impacted by the economic downturn at its onset, is achieving margin results similar to pre-recession levels.”

Sequential Quarter Results

Orders were $107.7 million, an increase of 13 percent compared to fourth quarter 2009, including growth in both segments. This increase included two large Test segment orders in excess of $5 million totaling $20 million, compared to one large order of $7 million in the prior quarter. Backlog rose 10 percent to $184 million.

Revenue was $89.0 million, a decrease of 5 percent compared to the previous quarter. The overall decrease primarily reflects the impact of an extra week in the prior quarter and was comprised of an 8 percent decline in the Test business, partially offset by an 8 percent increase in the Sensors business.

Gross profit was $35.2 million, up 12 percent compared to fourth quarter 2009. Gross margin rate was 39.5 percent, up 6.2 percentage points. Severance charges reduced the fourth quarter 2009 margin rate by 5.4 percentage points.

Income from operations was $6.4 million, an increase of $10.3 million compared to the prior quarter, which included severance charges of $8.1 million. Lower operating expenses in the first quarter resulted from prior year workforce reductions and reduced discretionary spending.

Net earnings were $0.23 per share, an increase of $0.41 compared to the prior quarter which included severance charges of $0.33 per share.

Cash Position

Cash and cash equivalents at the end of the first quarter totaled $113.7 million, compared to $118.9 million at the end of fourth quarter fiscal 2009. Operating activities generated cash of $1.7 million. During the first quarter, the Company invested $1.8 million in capital expenditures, paid $2.5 million in dividends and purchased approximately 52,700 shares of its common stock for $1.4 million.

Sequential Quarter Segment Results


Test Segment:

Orders totaled $90.1 million, an increase of 14 percent compared to fourth quarter 2009, driven by higher volume in the Americas and Europe, partially offset by lower volume in Asia and the impact of an extra week in the prior quarter. Orders included two large custom orders totaling $20 million, compared to one large order of $7 million in the prior quarter. Backlog increased 10 percent to $172 million. The Test segment is a longer-lead cycle business, with changes in revenue lagging changes in orders. Revenue was $71.9 million, a decrease of 8 percent, partially reflecting the impact of an extra week in the prior quarter. Currency translation favorably impacted revenue by 1 percent.

Gross profit was $25.8 million, a gain of $3.3 million or 15 percent, compared to last quarter. First quarter gross margin rate was 35.9 percent, an increase of 7.0 percentage points compared to the prior quarter. It included a 6.4 percentage point favorable impact from severance charges and 3.0 percentage points due to lower warranty expense which was partially offset by 2.4 percentage points from lower volume.

Income from operations was $3.2 million, compared to a loss of $4.9 million in the prior quarter, which included $7.2 million of severance charges. Excluding these severance charges, operating expenses declined $2.7 million in the quarter from prior year workforce reductions and reduced discretionary spending.

Sensors Segment:

Orders totaled $17.6 million, a 6 percent increase compared to fourth quarter 2009, due to higher volume in Europe and Asia and a 2 percent favorable impact of currency translation, partially offset by lower volume in the Americas and the impact of an extra week in the prior quarter. Backlog rose 4 percent to $12 million. Revenue was $17.1 million, an increase of 8 percent, driven by higher order volume and a 2 percent favorable impact of currency translation, partially offset by the impact of an extra week in the prior quarter. Gross profit was $9.4 million, up $0.6 million or 7 percent. First quarter gross margin rate was 54.8 percent, essentially flat.

Income from operations was $3.2 million, an increase of $2.2 million compared to fourth quarter fiscal 2009, due to higher gross profit and $0.6 million lower operating expenses. Severance costs last quarter were $0.9 million.

Year-over-Year First Quarter Results

Orders for the first quarter rose 13 percent compared to first quarter 2009, driven by the previously mentioned two large custom orders and a 4 percent favorable impact of currency translation, partially offset by lower volume in the Sensors segment across all geographies. Revenue was $89.0 million, a decrease of 24 percent, primarily due to a 29 percent lower opening backlog, partially offset by a 3 percent favorable impact of currency translation. In the year-earlier quarter, MTS had not significantly experienced the effects of the global economic downturn.

Gross profit was $35.2 million, down 20 percent. The gross margin rate was 39.5 percent, an increase of 1.6 percentage points, primarily due to favorable product mix in the Test segment, partially offset by lower volume in both segments. Income from operations was $6.4 million, a decrease of 46 percent, primarily driven by $9.0 million lower gross profit, partially offset by a $3.5 million reduction in operating expenses. EPS for the quarter decreased 60 percent to $0.23 per share, driven by lower income from operations, unfavorable currency related losses, and a higher tax rate. The tax rate for the quarter rose to 32.7% from 24.1% due to the benefit received from the enactment of favorable U.S. tax legislation in the first quarter last year

Hamilton concluded, “We are confident that the steps we have taken to improve our operational and financial strength over the past several quarters provide a solid basis from which to pursue our platform of strategic growth initiatives including expansion in the industrial market, continued investment in mobile hydraulics, leveraging our geographic presence and leadership particularly in China, leveraging our base in lifecycle management and capitalizing on specific end-market opportunities such as wind and rail.”

First Quarter Conference Call

A conference call will be held on February 5, 2010, at 10 a.m. EDT (9 a.m. CST). Call +1-719-325-4757 (Toll Free: +1-877-681-3374); and reference the conference pass code “3204599.” Telephone re-play will be available until 12 p.m. CST, February 12, 2010. Call +1-719-457-0820 (Toll Free: +1-888-203-1112); and reference the conference replay pass code “3204599.”

A transcript of the call can also be accessed from the MTS website at: http://www.mts.com/en/InvestorRelations/index.asp. It will be available on February 10, 2010.

About MTS Systems Corporation

MTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company’s testing hardware and software 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 provide controls for a variety of industrial and vehicular applications. MTS had 2,015 employees and revenue of $409 million for the fiscal year ended October 3, 2009 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.