EXFO Reports Record Sales and Bookings for Third Quarter of Fiscal 2008



    
    - Sales increase 23.9% year-over-year to US$48.6 million with bookings at
      US$50.7 million
    - Gross margin reaches 60.9%, highest level in seven years
    - Navtel Communications and Brix Networks acquisitions announced and
      completed

    QUEBEC CITY, June 26 /CNW Telbec/ - EXFO Electro-Optical Engineering Inc.
(NASDAQ:   EXFO; TSX: EXF) reported today record sales and bookings as well as
its highest gross margin in seven years for its third quarter ended May 31,
2008.
    Sales increased 23.9% to a record-high of US$48.6 million in the third
quarter of fiscal 2008 from US$39.2 million in the third quarter of 2007 and
12.2% from US$43.3 million in the second quarter of 2008. EXFO's
year-over-year revenue growth was more than 75% organic, since the
acquisitions of Navtel Communications and Brix Networks, which closed
approximately one month and two months respectively into the third quarter of
2008, contributed US$2.2 million in total revenue.
    Net bookings improved 16.0% year-over-year to a record-high of
US$50.7 million in the third quarter of fiscal 2008 for a book-to-bill ratio
of 1.04, excluding the backlogs of Brix Networks and Navtel Communications at
their acquisition dates. In comparison, net bookings in the third quarter of
fiscal 2007 amounted to US$43.7 million and US$44.5 million in the second
quarter of 2008.
    Gross margin reached 60.9% of sales in the third quarter of fiscal 2008.
In comparison, gross margin attained 57.1% in the third quarter of 2007 and
58.3% in the second quarter of 2008.
    GAAP net earnings in the third quarter of fiscal 2008 totaled
US$11.2 million, or US$0.16 per diluted share, compared to GAAP net earnings
of US$2.6 million, or US$0.04 per diluted share, in the same period last year
and US$4.0 million, or US$0.06 per diluted share, in the second quarter of
2008. GAAP net earnings in the third quarter of fiscal 2008 included
US$5.3million for the recognition of previously unrecognized future income tax
assets in the United States, an extraordinary gain of US$3.0 million related
to the recognition of Navtel Communications' future income tax assets in
excess of the acquisition price, as well as US$0.8 million in after-tax
amortization of intangible assets and US$0.3 million in stock-based
compensation costs.
    "Our strategic acquisitions of Navtel Communications and Brix Networks are
accelerating the transformation of EXFO into the leading supplier of
next-generation, IP-based test and monitoring solutions," said Germain
Lamonde, EXFO's Chairman, President and CEO. "They allow us to cover the full
technology lifecycle, extending from advanced test equipment for network
equipment manufacturers (NEMs) and carrier labs onto portable field-test gear
and service assurance solutions for network service providers (NSPs). These
acquisitions also enable us to support the higher-margin application and
service layers on a network infrastructure to enable triple-play services and
next-generation, converged IP networking. I'd like to take this opportunity to
welcome staff members of Navtel Communications and Brix Networks to the EXFO
family."
    "Looking at our financial results, I'm really pleased with our strong
performance in the third quarter with record sales and bookings allowing us to
grow substantially faster than our industry based again on market-share gains,
while our gross margin reached its highest level in seven years," Mr. Lamonde
added. "We also barely started to reap the benefits from investments in our
new R&D software center in India and manufacturing facility in China. These
investments, combined with our excellent competitive position and superior
quality of execution, should help accelerate our revenue growth, increase
gross margin and, ultimately, drive up earnings."

    Selected Financial Information
    (In thousands of US dollars)

    -------------------------------------------------------------------------
    Segmented results:                       Q3 2008     Q2 2008     Q3 2007
                                         ------------------------------------
                                          (unaudited) (unaudited) (unaudited)

    Sales:
    Telecom Division                      $   42,843  $   37,435  $   33,821
    Life Sciences and Industrial
     Division                                  5,738       5,846       5,384
                                         ------------------------------------
    Total                                 $   48,581  $   43,281  $   39,205
                                         ------------------------------------
                                         ------------------------------------

    Earnings from operations:
    Telecom Division                      $    3,819  $    2,817  $    2,143
    Life Sciences and Industrial
     Division                                    639         818         697
                                         ------------------------------------
    Total                                 $    4,458  $    3,635  $    2,840
                                         ------------------------------------
                                         ------------------------------------

    Other selected information:
    GAAP net earnings                     $   11,179  $    4,024  $    2,574
    After-tax amortization of
     intangible assets                    $      791  $      490  $      653
    Stock-based compensation costs        $      334  $      269  $      178
    Recognition of previously
     unrecognized future income
     tax assets                           $   (5,324) $        -  $        -
    Extraordinary gain                    $   (3,036) $        -  $        -
    Future income tax recovery            $        -  $   (2,715) $        -
    Reduced rate on future income
     tax assets                           $        -  $    1,524  $        -
    -------------------------------------------------------------------------


    Operating Expenses

    Selling and administrative expenses amounted to US$15.7 million, or 32.2%
of sales, in the third quarter of fiscal 2008 compared to US$12.8 million, or
32.7% of sales, in the same period last year and US$13.7 million, or 31.6% of
sales, in the second quarter of 2008.
    Gross research and development expenses totaled US$8.8 million, or 18.2%
of sales, in the third quarter of fiscal 2008 compared to US$6.6 million, or
16.9% of sales, in the third quarter of 2007 and US$7.6 million, or 17.5% of
sales, in the second quarter of 2008.
    Net R&D expenses totaled US$7.4 million, or 15.2% of sales, in the third
quarter of fiscal 2008 compared to US$5.3 million, or 13.6% of sales, in the
same period last year and US$6.2 million, or 14.3% of sales, in the second
quarter of 2008.

    Third-Quarter Business Highlights

    Market expansion - EXFO delivered year-over-year sales growth of 23.9% in
the third quarter of fiscal 2008 and 20.8% year-to-date mostly due to
market-share gains in optical and protocol testing as well as revenue
contribution from Brix Networks and Navtel Communications. EXFO's protocol
test business, which now includes Navtel Communications and Brix Networks,
accounted for more than 20% of Telecom Division revenues for a second
consecutive quarter. Telecom Division sales increased 26.7% year-over-year to
US$42.8 million in the third quarter of 2008. The corporate performance metric
for sales growth in fiscal 2008 has been established at 20% year-over-year.
    Profitability - EXFO reported GAAP net earnings of US$11.2 million, or
US$0.16 per diluted share, in the third quarter of fiscal 2008, including
US$5.3 million for the recognition of previously unrecognized future income
tax assets in the United States and US$3.0 million related to the recognition
of Navtel Communications' future income tax assets in excess of the
acquisition price.
    Increased sales of higher-margin protocol test solutions (including Brix
and Navtel products) and ramping sales volume were largely responsible for the
significant increase of the gross margin to 60.9% in the third quarter of
2008. GAAP earnings from operations reached 9.2% in the third quarter of 2008
and 6.3% after nine months versus the company's stated goal of 8% for the
fiscal year.
    Innovation - EXFO launched five new products in the third quarter and
20 after nine months into the fiscal year. Key product launches in the third
quarter included an IP test module for the installation and troubleshooting of
Ethernet-based triple-play services in access networks; 1X/2X/4X/10X Fibre
Channel test functionalities on the FTB-8130NGE and IQS-8130NGE Packet Blazer
multi-service test modules for field-test and manufacturing applications; and
Fiber Guardian, a remotely controllable test head and related software to
allow real-time monitoring of optical networks. Following the quarter-end,
EXFO introduced two new test solutions, including an optional Internet
Protocol/Multi-Protocol Label Switching (IP/MPLS) software functionality for
its established base of IQS and FTB-8510B/8510G 1GbE and 10GbE Packet Blazer
test modules. Sales from products that have been on the market two years or
less accounted for 32.2 % of total sales in the third quarter of fiscal 2008
and 36.7% after nine months, while the company's published goal is 30% for the
fiscal year.

    Business Outlook

    The company forecasted sales between US$49.0 million and US$53.0 million
and GAAP net earnings between US$0.00 and US$0.04 per diluted share for the
fourth quarter of fiscal 2008. This outlook includes a full contribution from
Brix Networks and Navtel Communications in the fourth quarter. GAAP net
earnings include US$0.02 per diluted share in stock-based compensation costs
and after-tax amortization of intangible assets.

    Conference Call and Webcast

    EXFO will host a conference call today at 5 p.m. (Eastern time) to review
its financial results for the third quarter of fiscal 2008. To listen to the
conference call and participate in the question period via telephone, dial
1-416-641-6652. 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 July 3, 2008. The replay
number is 1-402-977-9141 and the reservation number is 21383027. 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, measurement and
monitoring 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; our ability to successfully expand international
operations; the retention of key technical and management personnel; and
future economic, competitive and market conditions, including any slowdown or
recession in the global economy. 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 leading provider of test and monitoring solutions for network
service providers and equipment manufacturers in the global telecommunications
industry. The Telecom Division offers a wide range of innovative solutions
extending across the full technology lifecycle - from design to technology
deployment and onto service assurance - and covering all layers on a network
infrastructure to enable triple-play services and next-generation, converged
IP networking. The Life Sciences and Industrial Division offers solutions in
medical device and opto-electronics assembly, fluorescence microscopy and
other life science sectors. For more information, visit www.EXFO.com.


                    EXFO Electro-Optical Engineering Inc.
                     Interim Consolidated Balance Sheet

                         (in thousands of US dollars)

                                                           As at       As at
                                                          May 31,  August 31,
                                                            2008        2007
                                                      ----------- -----------
                                                      (unaudited)
    Assets

    Current assets
    Cash                                              $    8,582  $    5,541
    Short-term investments                                87,913     124,217
    Accounts receivable
      Trade, less allowance for doubtful accounts
       of $241 ($206 as at August 31, 2007)               30,100      26,699
      Other                                                5,454       2,479
    Income taxes and tax credits recoverable               4,698       6,310
    Inventories                                           38,098      31,513
    Prepaid expenses                                       2,282       1,391
    Future income taxes                                    9,882       7,609
                                                      ----------- -----------

                                                         187,009     205,759

    Forward exchange contracts                               628           -

    Tax credits recoverable                               21,464           -

    Property, plant and equipment                         21,118      18,117

    Intangible assets                                     22,264       9,628

    Goodwill                                              47,285      28,437

    Future income taxes                                   16,795      17,197
                                                      ----------- -----------

                                                      $  316,563  $  279,138
                                                      ----------- -----------
                                                      ----------- -----------

    Liabilities

    Current liabilities
    Bank loan                                         $    1,470  $        -
    Accounts payable and accrued liabilities              23,589      22,721
    Deferred revenue                                       6,831       2,598
                                                      ----------- -----------

                                                          31,890      25,319

    Deferred revenue                                       3,815       3,414

    Future income taxes                                        -         240
                                                      ----------- -----------

                                                          35,705      28,973
                                                      ----------- -----------

    Shareholders' Equity

    Share capital                                        147,732     150,019
    Contributed surplus                                    4,985       4,453
    Retained earnings                                     56,782      42,275
    Accumulated other comprehensive income                71,359      53,418
                                                      ----------- -----------

                                                         280,858     250,165
                                                      ----------- -----------

                                                      $  316,563  $  279,138
                                                      ----------- -----------
                                                      ----------- -----------



                    EXFO Electro-Optical Engineering Inc.
            Interim Unaudited Consolidated Statements of Earnings

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

                                   Three        Nine       Three        Nine
                                  months      months      months      months
                                   ended       ended       ended       ended
                                  May 31,     May 31,     May 31,     May 31,
                                    2008        2008        2007        2007
                              ----------- ----------- ----------- -----------

    Sales                     $   48,581  $  132,847  $   39,205  $  109,959

    Cost of sales (1,2)           19,004      55,208      16,828      47,027
                              ----------- ----------- ----------- -----------

    Gross margin                  29,577      77,639      22,377      62,932
                              ----------- ----------- ----------- -----------

    Operating expenses
    Selling and
     administrative (1)           15,660      44,160      12,819      36,545
    Net research and
     development (1)               7,373      19,570       5,328      14,360
    Amortization of property,
     plant and equipment           1,071       3,045         737       2,182
    Amortization of
     intangible assets             1,015       2,469         653       2,165
                              ----------- ----------- ----------- -----------

    Total operating expenses      25,119      69,244      19,537      55,252
                              ----------- ----------- ----------- -----------

    Earnings from operations       4,458       8,395       2,840       7,680

    Interest income                  964       4,063       1,236       3,513
    Foreign exchange gain
     (loss)                          (59)       (907)       (628)        107
                              ----------- ----------- ----------- -----------

    Earnings before income
     taxes and extraordinary
     gain                          5,363      11,551       3,448      11,300

    Income taxes
    Current                          112      (7,080)        874       2,509
    Future                         2,432      11,881           -           -
    Recognition of
     previously unrecognized
     future income tax assets     (5,324)     (5,324)          -           -
                              ----------- ----------- ----------- -----------

                                  (2,780)       (523)        874       2,509
                              ----------- ----------- ----------- -----------
    Earnings before
     extraordinary gain            8,143      12,074       2,574       8,791

    Extraordinary gain             3,036       3,036           -           -
                              ----------- ----------- ----------- -----------
    Net earnings for the
     period                   $   11,179  $   15,110  $    2,574  $    8,791
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Basic earnings before
     extraordinary gain
     per share                $     0.12  $     0.18  $     0.04  $     0.13
    Diluted earnings before
     extraordinary gain
     per share                $     0.12  $     0.17  $     0.04  $     0.13
    Basic and diluted net
     earnings per share       $     0.16  $     0.22  $     0.04  $     0.13

    Basic weighted average
     number of shares
     outstanding (000's)          68,907      68,964      68,917      68,844

    Diluted weighted average
     number of shares
     outstanding (000's)          69,467      69,543      69,590      69,507

    (1) Stock-based
        compensation costs
        included in:
        Cost of sales         $       37  $      112  $       32  $       93
        Selling and
         administrative              218         598          86         442
        Net research and
         development                  79         194          60         169
                              ----------- ----------- ----------- -----------

                              $      334  $      904  $      178  $      704
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

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



                    EXFO Electro-Optical Engineering Inc.
           Interim Unaudited Statements of Comprehensive Income and
                   Accumulated Other Comprehensive Income

                         (in thousands of US dollars)

    Comprehensive income

                                   Three        Nine       Three        Nine
                                  months      months      months      months
                                   ended       ended       ended       ended
                                  May 31,     May 31,     May 31,     May 31,
                                    2008        2008        2007        2007
                              ----------- ----------- ----------- -----------
    Net earnings for the
     period                   $   11,179  $   15,110  $    2,574  $    8,791
    Foreign currency
     translation adjustment       (3,511)     16,222      18,067       7,307
    Changes in unrealized
     gains (losses) on
     short-term investments          (50)         40           -           -
    Unrealized gains on
     forward exchange
     contracts                       295       2,844           -           -
    Reclassification of
     realized gains on
     forward exchange
     contracts in net
     earnings                     (1,218)     (3,145)          -           -
    Future income taxes
     effect of the above
     items                           286          87           -           -
                              ----------- ----------- ----------- -----------

    Comprehensive income      $    6,981  $   31,158  $   20,641  $   16,098
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------


    Accumulated other comprehensive income
                                                            Nine        Nine
                                                          months      months
                                                           ended       ended
                                                          May 31,     May 31,
                                                            2008        2007
                                                      ----------- -----------
    Foreign currency translation adjustment
      Cumulative effect of prior periods              $   53,418  $   43,537
      Current period                                      16,222       7,307
                                                      ----------- -----------

                                                          69,640      50,844
                                                      ----------- -----------
    Unrealized gains on forward exchange contracts
      Adjustment related to the implementation
       of new accounting standards                         1,948           -
      Current period, net of realized gains and
       future income taxes                                  (214)          -
                                                      ----------- -----------

                                                           1,734           -
                                                      ----------- -----------

    Unrealized gains (losses) on short-term
     investments
      Adjustment related to the implementation
       of new accounting standards                           (55)          -
      Current period, net of future income taxes              40           -
                                                      ----------- -----------

                                                             (15)          -
                                                      ----------- -----------

    Accumulated other comprehensive income            $   71,359  $   50,844
                                                      ----------- -----------
                                                      ----------- -----------

    Total retained earnings and accumulated other comprehensive income
    amounted to $59,635 and $128,141 as of May 31, 2007, and May 31, 2008,
    respectively.



                    EXFO Electro-Optical Engineering Inc.
       Interim Unaudited Consolidated Statements of Retained Earnings
                           and Contributed Surplus

                         (in thousands of US dollars)

    Retained earnings
                                                            Nine        Nine
                                                          months      months
                                                           ended       ended
                                                          May 31,     May 31,
                                                            2008        2007
                                                      ----------- -----------

    Balance - Beginning of the period                 $   42,275  $        -

    Add (deduct)
    Adjustment related to the implementation of
     new accounting standards                                 55           -
    Net earnings for the period                           15,110       8,791
    Premium on redemption of share capital                  (658)          -
                                                      ----------- -----------

    Balance - End of the period                       $   56,782  $    8,791
                                                      ----------- -----------
                                                      ----------- -----------


    Contributed surplus
                                                            Nine        Nine
                                                          months      months
                                                           ended       ended
                                                          May 31,     May 31,
                                                            2008        2007
                                                      ----------- -----------

    Balance - Beginning of the period                 $    4,453  $    3,776

    Add (deduct)
    Stock-based compensation costs                           919         687
    Reclassification of stock-based compensation
     costs to share capital upon exercise of
     stock awards                                           (387)       (221)
                                                      ----------- -----------

    Balance - End of the period                       $    4,985  $    4,242
                                                      ----------- -----------
                                                      ----------- -----------



                    EXFO Electro-Optical Engineering Inc.
           Interim Unaudited Consolidated Statements of Cash Flows

                         (in thousands of US dollars)

                                  Three         Nine       Three        Nine
                                 months       months      months      months
                                  ended        ended       ended       ended
                                 May 31,      May 31,     May 31,     May 31,
                                   2008         2008        2007        2007
                              ----------- ----------- ----------- -----------
    Cash flows from operating
     activities
    Net earnings for the
     period                   $   11,179  $   15,110  $    2,574  $    8,791
    Add (deduct) items not
     affecting cash
      Discount on short-term
       investments                   533       1,521        (190)        588
      Stock-based compensation
       costs                         334         904         178         704
      Amortization                 2,086       5,514       1,390       4,347
      Unrealized losses on
       short-term investments          -           -          70          70
      Gain on disposal of
       capital assets                  -           -        (100)       (100)
      Deferred revenue              (937)       (435)        (75)      1,164
      Government grants                -           -           -         (22)
      Future income taxes         (2,892)      6,557           -           -
      Extraordinary gain          (3,036)     (3,036)          -           -
                              ----------- ----------- ----------- -----------
                                   7,267      26,135       3,847      15,542

    Change in non-cash
     operating items
      Accounts receivable           (326)       (145)     (3,015)     (6,260)
      Income taxes and tax
       credits                    (1,789)    (11,437)       (466)     (1,397)
      Inventories                 (3,585)     (2,878)     (2,503)     (2,632)
      Prepaid expenses              (110)       (506)       (224)        (89)
      Accounts payable and
       accrued liabilities          (116)      (3,075)      (231)      2,541
                              ----------- ----------- ----------- -----------

                                   1,341        8,094     (2,592)      7,705
                              ----------- ----------- ----------- -----------
    Cash flows from investing
     activities
    Additions to short-term
     investments                (235,160)   (644,220)   (236,286)   (726,789)
    Proceeds from disposal
     and maturity of
     short-term investments      277,791     686,371     235,446     718,362
    Additions to capital
     assets                       (1,370)     (5,056)     (1,890)     (3,536)
    Net proceeds from disposal
     of capital assets                 -           -       1,563       2,791
    Business combinations,
     net of cash acquired        (40,938)    (40,938)          -           -
                              ----------- ----------- ----------- -----------

                                     323      (3,843)     (1,167)     (9,172)
                              ----------- ----------- ----------- -----------
    Cash flows from financing
     activities
    Change in bank loan              786       1,485           -           -
    Repayment of long-term
     debt                              -           -         (27)        (78)
    Redemption of share
     capital                      (3,219)     (3,393)          -           -
    Exercise of stock options         51          61          90         573
                              ----------- ----------- ----------- -----------

                                  (2,382)     (1,847)         63         495
                              ----------- ----------- ----------- -----------

    Effect of foreign exchange
     rate changes on cash             89         637         596         127
                              ----------- ----------- ----------- -----------

    Change in cash                  (629)      3,041      (3,100)       (845)

    Cash - Beginning of
     period                        9,211       5,541       9,108       6,853
                              ----------- ----------- ----------- -----------

    Cash - End of period      $    8,582  $    8,582  $    6,008  $    6,008
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    




For further information:

For further information: Vance Oliver, Manager, Investor Relations,
(418) 683-0913, Ext. 3733, vance.oliver@exfo.com

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