EXFO Reports First-Quarter Results for Fiscal 2008



    
    - Sales increase 15.3% year-over-year to US$41.0 million, top of guidance
      range
    - Net bookings improve 18.2% year-over-year for a book-to-bill ratio of
      1.07
    - GAAP net results amount to US$0.00 per share, given high Canadian/US
      exchange rate
    - Several major products launched, including AXS-200 test platform,
      40G/43G SONET/SDH test module for FTB-400 platform and a combined
      single-end CD and PMD test module
    

    QUEBEC CITY, Jan. 8 /CNW Telbec/ - EXFO Electro-Optical Engineering Inc.
(TSX:EXF)(NASDAQ:  EXFO) reported today financial results for the first quarter
ended November 30, 2007.
    Sales increased 15.3. % to US$41.0 million in the first quarter of fiscal
2008 from US$35.5 million in the first quarter of 2007, but decreased 4.6%
from US$43.0 million in the fourth quarter of 2007. Net bookings improved by
18.2% year-over-year to US$43.7 million for a book-to-bill ratio of 1.07 in
the first quarter of fiscal 2007 from US$37.0 million in the same period last
year and 10.5% from US$39.5 million in the fourth quarter of 2007.
    Gross margin amounted to 55.7% of sales in the first quarter of fiscal
2008 compared to 57.2% in the first quarter of 2007 and 57.9% in the fourth
quarter of 2007. The drop in gross margin is mainly due to the significant and
rapid increase in the Canadian/US exchange rate, product and geographical mix,
as well as ramp-up costs related to a manufacturing plant in China.
    GAAP net loss in the first quarter of fiscal 2008 totaled US$0.1 million,
or US$0.00 per share, compared to GAAP net earnings of US$3.5 million, or
US$0.05 per diluted share, in the same period last year and GAAP net earnings
of US$33.5 million, or US$0.48 per diluted share in the fourth quarter of 2007
(including US$24.6 million in recognition of previously unrecognized future
income taxes, US$3.2 million for the recognition of previously unrecognized
R&D tax credits and US$1.1 million from a government grant recovery). GAAP net
loss in the first quarter of fiscal 2008 included US$0.3 million in
stock-based compensation costs and US$0.5 million in after-tax amortization of
intangible assets.
    "I'm satisfied sales reached the high end of our guidance range and that
bookings were solid in the first quarter, especially with 19.8% and 18.2%
year-over-year growth in sales and bookings for our Telecom Division," said
Germain Lamonde, EXFO's Chairman, President and CEO. "We are following an
aggressive profitable growth strategy that allowed us to increase our gross
margin and profitability in each of the last five fiscal years, despite an
average annual increase of 6.4% in the Canadian/US exchange rate. In addition,
we implemented corrective actions to absorb the 6.9% surge of the exchange
rate in the first quarter. We now expect that earnings in the second half of
fiscal 2008 will be comparable (excluding one-time items) to the second half
of 2007, assuming the Canadian dollar remains at par or below."
    "We remain committed to achieving our 20% sales growth target for the
fiscal year based on our key market-driven product launches, increased
intensity in our sales and marketing activities worldwide, and strong
execution that strengthen competitive advantages in our optical, protocol and
access businesses, where we anticipate making market-share gains," Mr. Lamonde
added.

    
    Selected Financial Information
    (In thousands of US dollars)

    -------------------------------------------------------------------------
    Segmented results:                   Q1 2008       Q4 2007       Q1 2007
    -------------------------------------------------------------------------
                                      (unaudited)   (unaudited)   (unaudited)

    Sales:
    Telecom Division                    $ 35,365      $ 37,199      $ 29,522
    Life Sciences and Industrial
     Division                              5,620         5,776         6,025
    -------------------------------------------------------------------------
    Total                               $ 40,985      $ 42,975      $ 35,547
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings from operations:
    Telecom Division                         $21        $8,108        $1,803
    Life Sciences and Industrial
     Division                                281           994           956
    -------------------------------------------------------------------------
    Total                                   $302        $9,102        $2,759
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other selected information:
    GAAP net earnings (loss)                $(93)      $33,484        $3,533
    After-tax amortization of intangible
     Assets                                 $499          $699          $882
    Stock-based compensation costs          $301          $277          $285
    Government grants                         $-       $(1,079)           $-
    Recognition of previously
     unrecognized future income taxes         $-      $(24,566)           $-
    Recognition of previously
     unrecognized R&D tax credits             $-       $(3,162)           $-
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Operating Expenses

    Selling and administrative expenses amounted to US$14.8 million, or 36.2%
of sales, in the first quarter of fiscal 2008 compared to US$11.5 million, or
32.5% of sales, in the same period last year and US$13.0 million, or 30.3% of
sales, in the fourth quarter of 2007.
    Gross research and development expenses totaled US$7.5 million, or 18.3%
of sales, in the first quarter of fiscal 2008 compared to US$5.5 million, or
15.5% of sales, in the first quarter of 2007 and US$7.1 million, or 16.6% of
sales, in the fourth quarter of 2007.
    Net R&D expenses totaled US$6.0 million, or 14.7% of sales, in the first
quarter of fiscal 2008 compared to US$4.4 million, or 12.2% of sales, in the
same period last year and US$2.3 million (including US$3.2 million for the
recognition of previously unrecognized R&D tax credits), or 5.4% of sales, in
the fourth quarter of 2007.

    First-Quarter Business Highlights

    Market expansion - EXFO delivered sales growth of 15.3% and bookings
growth of 18.2% year-over-year mainly due to market-share gains in optical and
protocol testing and a positive spending environment. The Telecom Division
increased its sales 19.8% year-over-year, while the Life Sciences and
Industrial Division experienced a 6.7% drop during the same period due to less
sales of fluorescence microscopy and light-based spot curing products. The
corporate performance metric for sales growth in fiscal 2008 has been
established at 20% year-over-year. Sales and marketing teams were expanded in
recent quarters in order to exploit the launch of several new products.
    Profitability - EXFO reported a GAAP net loss of US$0.1 million, or
US$0.00 per share, mainly due to fluctuations in the Canadian/US exchange
rate, which impacted the company's operating expenses and foreign exchange
loss. Gross margin pressure - created by more sales to the Asia-Pacific region
and less shipments of protocol products - higher operating costs, one-time
cost-reduction measures and non-deductible tax items also negatively affected
earnings in the first quarter. In terms of GAAP earnings from operations, it
reached 0.7% in the first quarter versus the company's stated goal of 8% for
the fiscal year.
    Innovation -EXFO launched six new products in the first quarter including
a multi-service, multi-medium modular handheld platform for characterizing and
troubleshooting access networks (AXS-200 SharpTESTER) with cost-effective
modules for the rapid installation and maintenance of ADSL/ADSL2/ADSL2+
(AXS-200/620) and Ethernet/IP services (AXS-200/850), as well as a compact
multi-service transport test set that combines next-generation SONET/SDH and
Ethernet testing inside a single module for its FTB-200, FTB-400 and IQS-500
test platforms (8120NGE at 2.5 Gbit/s and 8130NGE at 10 Gbit/s). Following the
quarter-end, the company released two additional key products, namely a
40/43 Gbit/s SONET/SDH and OTN field-test module (hosted in the FTB-400 test
platform) for high-speed optical networks and an all-in-one, single-end CD and
PMD Analyzer (for the FTB-200 and FTB-400 test platforms) that requires only
one technician to characterize a link from a single end. Sales from products
that have been on the market two years or less represented 33.8% of total
sales in the first quarter of fiscal 2008, while the company's published goal
is 30% for the fiscal year.

    Business Outlook

    Although EXFO's second quarter, which includes the months of December,
January and February, is usually seasonally weak, the company forecasted sales
between US$40.0 million and US$43.0 million and GAAP net results between a
loss of US$0.02 per share and earnings of US$0.01 per share. GAAP net results
include US$0.01 per share in stock-based compensation costs and after-tax
amortization of intangible assets as well as US$0.02 per share to account for
the reduced tax rate on future income tax assets that was recently enacted in
Canada.

    Conference Call and Webcast

    EXFO will host a conference call today at 5 p.m. (Eastern time) to review
its financial results for the first quarter of fiscal 2008. To listen to the
conference call and participate in the question period via telephone, dial
1-416-620-5690. Germain Lamonde, Chairman, President and CEO, and Pierre
Plamondon, CA, Vice-President of Finance and Chief Financial Officer, will
participate in the call. An audio replay of the conference call will be
available one hour after the event until midnight on January 15, 2008. The
replay number is 1-402-977-9141 and the reservation number is 21361059. The
audio Webcast and replay of the conference call will also be available on
EXFO's Website at www.EXFO.com, under the Investors section.

    Forward-Looking Statements

    This news release contains forward-looking statements within the meaning
of the U.S. Private Securities Litigation Reform Act of 1995, and we intend
that such forward-looking statements be subject to the safe harbors created
thereby. Forward-looking statements are statements other than historical
information or statements of current condition. Words such as may, will,
expect, believe, anticipate, intend, could, estimate, continue, or the
negative or comparable terminology are intended to identify forward-looking
statements. In addition, any statements that refer to expectations,
projections or other characterizations of future events and circumstances are
considered forward-looking statements. They are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those in forward-looking statements due to various factors
including consolidation in the global telecommunications test and measurement
industry; capital spending levels in the telecommunications, life sciences and
high-precision assembly sectors; concentration of sales; fluctuating exchange
rates and our ability to execute in these uncertain conditions; the effects of
the additional actions we have taken in response to such economic uncertainty
(including our ability to quickly adapt cost structures with anticipated
levels of business, ability to manage inventory levels with market demand);
market acceptance of our new products and other upcoming products; limited
visibility with regards to customer orders and the timing of such orders; our
ability to successfully integrate our acquired and to-be-acquired businesses;
the retention of key technical and management personnel; and future economic,
competitive and market conditions. Assumptions relating to the foregoing
involve judgments and risks, all of which are difficult or impossible to
predict and many of which are beyond our control. Other risk factors that may
affect our future performance and operations are detailed in our Annual
Report, on Form 20-F, and our other filings with the U.S. Securities and
Exchange Commission and the Canadian securities commissions. We believe that
the expectations reflected in the forward-looking statements are reasonable
based on information currently available to us, but we cannot assure you that
the expectations will prove to have been correct.
    Accordingly, you should not place undue reliance on these forward-looking
statements. These statements speak only as of the date of this document.
Unless required by law or applicable regulations, we undertake no obligation
to revise or update any of them to reflect events or circumstances that occur
after the date of this document.

    About EXFO

    EXFO is a Tier-1 test and measurement expert in the global
telecommunications industry, especially in the portable test market segment.
The Telecom Division, which represents about 85% of the company's business,
offers a full suite of test solutions and monitoring systems to network
service providers, cable TV operators, telecom system vendors and component
manufacturers in approximately 70 countries. EXFO is the global market leader
for portable optical test solutions with an estimated 25.5% market share and a
leading supplier of protocol and access test solutions to enable triple-play
deployments and converged IP networking. Its Windows-based modular AXS-200,
FTB-200, FTB-400 and IQS-500 test platforms host a wide range of modular test
solutions across optical, physical, data and network layers, while maximizing
technology reuse across several market segments. The Life Sciences and
Industrial Division offers value-added light-based solutions in high-precision
medical device and opto-electronics assembly sectors, and advanced
fluorescence microscopy and electrophysiology solutions for the life sciences
sector. For more information about EXFO's Telecom Division, visit
www.EXFO.com, and for its Life Sciences and Industrial Division, visit
www.EXFO-lifesciences.com.


    
    Interim Consolidated Balance Sheet

    (in thousands of US dollars)
                                                         As at         As at
                                                   November 30,    August 31,
                                                          2007          2007
    -------------------------------------------------------------------------
                                                    (unaudited)
    Assets

    Current assets
    Cash                                                $5,521        $5,541
    Short-term investments                             127,185       124,217
    Accounts receivable
      Trade, less allowance for doubtful accounts
       of $211 ($206 as at August 31, 2007)             26,572        26,699
      Other                                              7,057         2,479
    Income taxes and tax credits recoverable             7,108         6,310
    Inventories                                         33,369        31,513
    Prepaid expenses                                     2,062         1,391
    Future income taxes                                  6,725         7,609
    -------------------------------------------------------------------------
                                                       215,599       205,759

    Property, plant and equipment                       20,099        18,117

    Intangible assets                                    9,527         9,628

    Goodwill                                            29,905        28,437

    Future income taxes                                 17,980        17,197
    -------------------------------------------------------------------------
                                                      $293,110      $279,138
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities

    Current liabilities
    Bank loan                                             $676            $-
    Accounts payable and accrued liabilities            18,578        22,721
    Deferred revenue                                     2,948         2,598
    -------------------------------------------------------------------------
                                                        22,202        25,319

    Deferred revenue                                     3,720         3,414

    Future income taxes                                    272           240
    -------------------------------------------------------------------------
                                                        26,194        28,973
    -------------------------------------------------------------------------
    Shareholders' Equity

    Share capital                                      149,886       150,019
    Contributed surplus                                  4,767         4,453
    Retained earnings                                   42,198        42,275
    Accumulated other comprehensive income              70,065        53,418
    -------------------------------------------------------------------------
                                                       266,916       250,165
    -------------------------------------------------------------------------
                                                      $293,110      $279,138
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Interim Unaudited Consolidated Statements of Earnings

    (in thousands of US dollars, except share and per share data)

                                                          Three months ended
                                                                 November 30,
    -------------------------------------------------------------------------
                                                          2007          2006
    -------------------------------------------------------------------------
    Sales                                              $40,985       $35,547

    Cost of sales (1, 2)                                18,144        15,229
    -------------------------------------------------------------------------
    Gross margin                                        22,841        20,318
    -------------------------------------------------------------------------
    Operating expenses
    Selling and administrative(1)                       14,817        11,542
    Net research and development(1)                      6,012         4,354
    Amortization of property, plant and equipment          976           781
    Amortization of intangible assets                      734           882
    -------------------------------------------------------------------------
    Total operating expenses                            22,539        17,559
    -------------------------------------------------------------------------
    Earnings from operations                               302         2,759

    Interest income                                      1,483         1,172
    Foreign exchange gain (loss)                          (616)          383
    -------------------------------------------------------------------------
    Earnings before income taxes                         1,169         4,314

    Income taxes
    Current                                              1,181           781
    Future                                                  81             -
    -------------------------------------------------------------------------
                                                         1,262           781
    -------------------------------------------------------------------------
    Net earnings (loss) for the period                    $(93)       $3,533
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted net earnings (loss) per share     $(0.00)        $0.05

    Basic weighted average number of shares
     outstanding (000's)                                69,000        68,775

    Diluted weighted average number of shares
     outstanding (000's)                                69,000        69,385

    (1) Stock-based compensation costs included in:
        Cost of sales                                      $37           $34
        Selling and administrative                         197           197
        Net research and development                        67            54
    -------------------------------------------------------------------------
                                                          $301          $285
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (2) The cost of sales is exclusive of amortization, shown separately.


    Interim Unaudited Statements of Comprehensive Income (Loss) and
    Accumulated Other Comprehensive Income

    (in thousands of US dollars)

    Comprehensive income (loss)
                                                          Three months ended
                                                                 November 30,
    -------------------------------------------------------------------------
                                                          2007          2006
    -------------------------------------------------------------------------
    Net earnings (loss) for the period                    $(93)       $3,533
    Foreign currency translation adjustment             13,906        (6,026)
    Changes in unrealized losses on short-term
     investments                                            39             -
    Unrealized gains on forward exchange
     contracts, net of future income taxes of $624       1,325             -
    Reclassification of realized gains on forward
     exchange contracts in net loss, net of
     future income taxes of $243                          (516)            -
    -------------------------------------------------------------------------
    Other comprehensive income (loss)                  $14,661       $(2,493)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Accumulated other comprehensive income
                                                          Three months ended
                                                                 November 30,
    -------------------------------------------------------------------------
                                                          2007          2006
    -------------------------------------------------------------------------
    Foreign currency translation adjustment
      Cumulative effect of prior periods               $53,418       $43,537
      Current period                                    13,906        (6,026)
    -------------------------------------------------------------------------
                                                        67,324        37,511
    Unrealized gains on forward exchange contracts
      Adjustment related to the implementation of
       new accounting standards                          1,948             -
      Current period, net of future income taxes
       of $381                                             809             -
    -------------------------------------------------------------------------
                                                         2,757             -
    Unrealized losses on short-term investments
      Adjustment related to the implementation of
       new accounting standards                            (55)            -
      Current period                                        39             -
    -------------------------------------------------------------------------
                                                           (16)            -
    -------------------------------------------------------------------------
    Accumulated other comprehensive income             $70,065       $37,511
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total retained earnings and accumulated other comprehensive income
    amounted to $41,044 and $112,263 as of November 30, 2006 and 2007,
    respectively.


    Interim Unaudited Consolidated Statements of Retained Earnings and
    contributed Surplus

    (in thousands of US dollars)

    Retained earnings
                                                          Three months ended
                                                                 November 30,
    -------------------------------------------------------------------------
                                                          2007          2006
    -------------------------------------------------------------------------
    Balance - Beginning of the period                  $42,275            $-

    Add (deduct)
    Adjustment related to the implementation of
     new accounting standards                               55             -
    Net earnings (loss) for the period                     (93)        3,533
    Premium on redemption of share capital                 (39)            -
    -------------------------------------------------------------------------
    Balance - End of the period                        $42,198        $3,533
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Contributed surplus
                                                          Three months ended
                                                                 November 30,
    -------------------------------------------------------------------------
                                                          2007          2006
    -------------------------------------------------------------------------
    Balance - Beginning of the period                   $4,453        $3,776

    Add (deduct)
    Stock-based compensation costs                         316           282
    Reclassification of stock-based compensation
     costs to share capital upon exercise
     of stock awards                                        (2)          (47)
    -------------------------------------------------------------------------
    Balance - End of the period                         $4,767        $4,011
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Interim Unaudited Consolidated Statements of Cash Flows

    (in thousands of US dollars)
                                                          Three months ended
                                                                 November 30,
    -------------------------------------------------------------------------
                                                          2007          2006
    -------------------------------------------------------------------------
    Cash flows from operating activities
    Net earnings (loss) for the period                    $(93)       $3,533
    Add (deduct) items not affecting cash
      Discount on short-term investments                   902           414
      Stock-based compensation costs                       301           285
      Amortization                                       1,710         1,663
      Deferred revenue                                     351           494
      Government grants                                      -           (22)
      Future income taxes                                   81             -
    -------------------------------------------------------------------------
                                                         3,252         6,367

    Change in non-cash operating items
      Accounts receivable                                1,166        (3,035)
      Income taxes and tax credits                        (458)         (418)
      Inventories                                          (87)          381
      Prepaid expenses                                    (612)            2
      Accounts payable and accrued liabilities          (5,694)           36
    -------------------------------------------------------------------------
                                                        (2,433)        3,333
    -------------------------------------------------------------------------
    Cash flows from investing activities
    Additions to short-term investments               (211,453)     (194,266)
    Proceeds from disposal and maturity of
     short-term investments                            214,571       191,503
    Additions to capital assets (1)                     (1,573)         (811)
    Net proceeds from disposal of capital assets             -         1,228
    -------------------------------------------------------------------------
                                                         1,545        (2,346)
    -------------------------------------------------------------------------
    Cash flows from financing activities
    Changes in bank loan                                   699             -
    Repayment of long-term debt                              -           (27)
    Redemption of share capital                           (174)            -
    Exercise of stock options                                -           121
    -------------------------------------------------------------------------
                                                           525            94

    Effect of foreign exchange rate changes on cash        343          (193)
    -------------------------------------------------------------------------
    Change in cash                                         (20)          888

    Cash - Beginning of the period                       5,541         6,853
    -------------------------------------------------------------------------
    Cash - End of the period                            $5,521        $7,741
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) As at November 30, 2006 and 2007, unpaid purchases of capital assets
    amounted to $184 and $852, respectively.
    




For further information:

For further information: Vance Oliver, Manager, Investor Relations, EXFO
Electro-Optical Engineering Inc., (418) 683-0913, Ext. 3733,
vance.oliver@exfo.com; www.EXFO.com

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