MTS Reports Second Quarter EPS of $0.76 up 36%

EDEN PRAIRIE, Minn., April 23 -- MTS Systems Corporation today reported second quarter fiscal 2008 earnings of $0.76 per diluted share on net income of $13.5 million, an increase of 36 percent compared to earnings of $0.56 per diluted share on net income of $10.3 million for second quarter fiscal 2007. Net income in fiscal 2008 included tax benefits of $3.7 million, or $0.21 per diluted share.

"For the second consecutive quarter, MTS has delivered double digit orders growth in both the Test and Sensors segments reflecting growth across all geographies," said Laura B. Hamilton, CEO. "Revenue and EPS results for the second quarter were in line with expectations and reflect significant tax benefits, strong operating results in the Sensors segment, and reduced share count, net of planned spending on strategic growth initiatives."

"Margin rates in the Test segment continued to be suppressed due in part to unfavorable product mix and higher custom project costs; however, the rate improved over first quarter fiscal 2008. Given our strong backlog position and continued favorable currency, we are raising our full year revenue guidance to $455-$465 million, compared to the previous outlook of $440-$450 million. The additional volume is expected to offset lower Test segment margins, resulting in full year EPS to be in the top half of the previously issued $2.43-$2.53 guidance range".

Orders totaled $131.4 million, an increase of 35 percent compared to orders of $97.0 million for second quarter fiscal 2007, driven by growth across all geographies in both segments, as well as an estimated $7 million from favorable currency. Backlog increased 7 percent in second quarter fiscal 2008, from $229 million in first quarter fiscal 2008, to a record $246 million.

Revenue was $114.5 million, an increase of 12 percent compared to $101.8 million for second quarter fiscal 2007. This increase was primarily attributable to higher standard product and service business in the Test segment, continued growth across the Sensors segment and an estimated $7 million from favorable currency.

Gross profit was $47.1 million, an increase of 3 percent compared to $45.9 million for second quarter fiscal 2007. The gross margin rate was 41.1 percent, a decrease of 3.9 percentage points compared to 45.0 percent for second quarter fiscal 2007. The decrease was driven by unfavorable product mix and higher custom project costs in the Test segment, partially offset by increased volume in the Sensors segment.

Income from operations totaled $14.0 million, a decrease of 16 percent compared to income from operations of $16.7 million for second quarter fiscal 2007, as planned increases in sales and marketing expenditures more than offset the increase in gross profit for the quarter.

Net income totaled $13.5 million, or $0.76 per diluted share, an increase of 31 percent compared to net income of $10.3 million, or $0.56 per diluted share, for second quarter fiscal 2007. This increase was driven by lower income tax expense of $4.1 million, and $1.5 million from favorable currency transaction gains, partially offset by lower income from operations. The repatriation of earnings from Japanese affiliates provided increased tax benefits of $3.7 million, or $0.21 per diluted share, in second quarter fiscal 2008. Additionally, reduced shares outstanding positively impacted earnings per share by $0.03 for second quarter fiscal 2008.

Cash and cash equivalents at the end of second quarter fiscal 2008 totaled $129.4 million, compared to $113.2 million at the end of first quarter fiscal 2008. Cash flows from operations provided cash totaling $20.0 million in the second quarter, primarily due to earnings and decreased working capital requirements. During the quarter, the Company invested $2.5 million in capital expenditures and purchased approximately 126,000 shares of common stock for $4.5 million.

Orders for the Test segment were $106.3 million, an increase of 38 percent compared to orders of $77.3 million for second quarter fiscal 2007, reflecting strong bookings in all geographies. Orders included three custom orders in excess of $5 million totaling approximately $30 million. Backlog increased 8 percent in second quarter fiscal 2008, from $217 million in first quarter of fiscal 2008, to a record $234 million. Revenue was $90.1 million, an increase of 9 percent compared to $82.9 million for second quarter fiscal 2007, reflecting higher standard product and service business.

Gross profit was $33.3 million, or 37.0 percent, compared to $35.5 million, or 42.8 percent for second quarter fiscal 2007. This decrease was primarily due to unfavorable product mix and higher custom project costs, partially offset by increased volume. Income from operations was $8.5 million, a decrease of 34 percent compared to income from operations of $12.8 million for second quarter fiscal 2007. The decrease was primarily attributable to lower gross profit, and planned increases in sales and marketing expenditures.

Sensors Segment:

Orders for the Sensors segment were $25.1 million, an increase of 27 percent compared to orders of $19.7 million for second quarter fiscal 2007, reflecting business growth across all geographies. Backlog was flat at $12 million. Revenue was $24.4 million, an increase of 29 percent compared to revenue of $18.9 million for second quarter fiscal 2007, driven by increased volume in all geographies.

Gross profit was $13.8 million, an increase of 33 percent compared to $10.4 million for second quarter fiscal 2007, primarily reflecting the benefit of increased volume on factory utilization. Income from operations was $5.5 million, an increase of 41 percent compared to income from operations of $3.9 million for second quarter fiscal 2007, 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 April 24, 2008, at 10:00 a.m. EDT (9:00 a.m. CDT). Call +1-785-830-7988; and state the Conference passcode "5701844". Telephone re-play will be available through May 1, 2008. Call +1-719-830-7988.

If you prefer to listen live over the Internet, please log on to the web at http://www.mts.com/news/financial_news.htm and click on the webcast event notice. The webcast will be archived through July 21, 2008.

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 1,618 employees and revenue of $421 million for the fiscal year ended September 29, 2007. 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.