EXFO Reports Strong Financial Results for First Quarter of 2009



    - Record-high bookings of US$52.3 million, up 19.7% year-over-year
    - Sales increase 13.1% year-over-year to US$46.4 million
    - Gross margin reaches 62.3%, highest level since second quarter of 2001
    - GAAP net earnings amount to US$0.08 per diluted share

    QUEBEC CITY, Jan. 13 /CNW Telbec/ - EXFO Electro-Optical Engineering Inc.
(NASDAQ:   EXFO; TSX: EXF) reported today strong financial results for the first
quarter ended November 30, 2008.
    Sales increased 13.1% to US$46.4 million in the first quarter of fiscal
2009 from US$41.0 million in the first quarter of 2008, but decreased 9.0%
from US$50.9 million in the fourth quarter of 2008. Net bookings improved
19.7% year-over-year to a record-high of US$52.3 million for a book-to-bill
ratio of 1.13 in the first quarter of fiscal 2009 from US$43.7 million in the
same period last year and 14.5% from US$45.7 million in the fourth quarter of
2008.
    Gross margin reached 62.3% of sales in the first quarter of fiscal 2009,
its highest level since the second quarter of 2001, compared to 55.7% in the
first quarter of 2008 and 59.9% in the fourth quarter of 2008.
    GAAP net earnings in the first quarter of fiscal 2009 increased to US$5.3
million, or US$0.08 per diluted share, from a GAAP net loss of US$0.1 million,
or US$ 0.00 per diluted share, in the same period last year and GAAP net
earnings of US$3.3 million, or US$0.05 per diluted share in the fourth quarter
of fiscal 2008. GAAP net earnings in the first quarter of 2009 included US$1.1
million in after-tax amortization of intangible assets and US$0.3 million in
stock-based compensation costs. It should be noted that EXFO recorded a
pre-tax, foreign exchange gain of US$4.6 million in the first quarter of
fiscal 2009.
    "I am quite pleased with our record-high bookings of US$52.3 million and
best gross margin in almost eight years in the last quarter, led by very
strong growth from our next-generation, IP test equipment and recent service
assurance acquisition that we're starting to leverage," said Germain Lamonde,
EXFO's Chairman, President and CEO. "On the strength of a multi-million dollar
service assurance contract with a Tier-1 wireless operator, our Protocol
business collectively accounted for more than 30% of total bookings in the
quarter to significantly contribute to our book-to-bill ratio of 1.13. We also
benefited from a weaker Canadian/US exchange rate which positively affected
our operating expenses and our earnings."
    "A number of wireline and wireless network operators will likely reduce
their capital expenditures in 2009, given the challenging macro-economic
conditions," Mr. Lamonde added. "But we expect many will continue to
strategically invest in next-generation IP convergence and broadband
deployments in order to add higher-margin revenues, differentiated services
and to reduce their operating expenses. EXFO is well positioned to take
advantage of these growth segments. We're also counting on important new
products and increased focus to attain our long-term performance metrics. To
remain prudent, however, we have implemented a series of measures to control
expenses, deferred or cancelled hirings, and fine-tuned our strategies.
Finally, our balance sheet remains strong, even after our successful C$30
million share buyback, as we navigate through this tumultuous period."

    
    Unaudited Selected Financial Information
    (In thousands of US dollars)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segmented results:                       Q1 2009     Q1 2008     Q4 2008
                                        -------------------------------------
      Sales:
      Telecom Division                    $   41,159  $   35,365  $   45,338
      Life Sciences and Industrial
       Division                                5,204       5,620       5,605
                                        -------------------------------------
      Total                               $   46,363  $   40,985  $   50,943
                                        -------------------------------------
                                        -------------------------------------

      Earnings from operations:
      Telecom Division                    $    1,355  $       21  $    2,867
      Life Sciences and Industrial
       Division                                  738         281         721
                                        -------------------------------------
      Total                               $    2,093  $      302  $    3,588
                                        -------------------------------------
                                        -------------------------------------

      Other selected information:
      GAAP net earnings (loss)            $    5,287  $      (93) $    3,314
      After-tax amortization of
       intangible assets                  $    1,098  $      499  $    1,177
      Stock-based compensation costs      $      322  $      301  $      368
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Operating Expenses

    Selling and administrative expenses amounted to US$17.1 million, or 36.9%
of sales, in the first quarter of fiscal 2009 compared to US$14.8 million, or
36.2% of sales, in the same period last year and US$17.0 million, or 33.4% of
sales, in the fourth quarter of 2008.
    Gross research and development expenses totaled US$8.6 million, or 18.6%
of sales, in the first quarter of fiscal 2009 compared to US$7.5 million, or
18.3% of sales, in the first quarter of 2008 and US$8.6 million, or 16.8% of
sales, in the fourth quarter of 2008.
    Net R&D expenses totaled US$7.2 million, or 15.6% of sales, in the first
quarter of fiscal 2009 compared to US$6.0 million, or 14.7% of sales, in the
same period last year and US$7.3 million, or 14.3% of sales, in the fourth
quarter of 2008.

    First-Quarter Business Highlights

    Market expansion - EXFO delivered sales growth of 13.1% year-over-year,
including a combined US$4.5 million revenue contribution from recently
acquired Brix Networks and Navtel Communications. Its Protocol business
generated record quarterly revenues, accounting for more than 30% of Telecom
Division sales for the first time. The company's bookings made significant
progress in the wireless market in the first quarter of 2009, while Telecom
Division sales increased 16.4% year-over-year and the Life Sciences and
Industrial Division experienced a 7.4% drop due to deteriorating end-consumer
markets. EXFO's top customer accounted for 3.8% of total sales, while its top
three accounts represented 10.4% of sales, demonstrating the company's
successful diversification efforts.

    Profitability and Gross Margin - EXFO reported GAAP net earnings of
US$5.3 million, or US$0.08 per diluted share. An improved gross margin at
62.3%, on account of a weaker Canadian dollar, increased sales of
higher-margin Protocol test solutions and the ramp-up of low-cost
manufacturing plant in China, also contributed to the company's profitability
in the first quarter.

    EXFO launched five new products in the first quarter including amongst
others a new software release for the Transport Blazer product line that
delivers unprecedented insight into 40 Gbit/s network behavior; new software
releases for the IMS InterWatch platform and Packet Blazer product line to
support the migration of voice and video applications to the IPv6 (Internet
Protocol, version 6) addressing scheme; and expanded Ethernet test
capabilities on the Power Blazer product line through multi-stream, quality of
service (QoS) support. Products on the market two years or less generated
33.1% of total sales.

    Business Outlook

    EXFO forecasted sales between US$45 million and US$50 million and GAAP
net earnings between US$0.01 per diluted share and US$0.05 per diluted share
for the second quarter of 2009. GAAP net earnings include US$0.02 per share in
after-tax amortization of intangible assets and stock-based compensation
costs.
    This guidance was established by management based on existing backlog as
of the date of this press release, seasonality, expected bookings for the
remaining of the quarter, as well as stability in exchange rates compared to
the previous quarter.

    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 2009. To listen to the
conference call and participate in the question period via telephone, dial
1-416-620-2416. 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 7 p.m. on January 20, 2009. The
replay number is 1-402-977-9141 and the reservation number is 21405504. 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 press 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, financial 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 service assurance 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
                                                     November 30,  August 31,
                                                            2008        2008
                                                    ------------ ------------
                                                      (unaudited)

    Assets

    Current assets
    Cash                                              $    5,441  $    5,914
    Short-term investments                                65,915      81,626
    Accounts receivable
      Trade                                               33,018      31,473
      Other                                                4,859       4,753
    Income taxes and tax credits recoverable               3,541       4,836
    Inventories                                           30,125      34,880
    Prepaid expenses                                       1,993       1,774
    Future income taxes                                    8,895       9,140
                                                    ------------ ------------

                                                         153,787     174,396

    Tax credits recoverable                               19,264      20,657

    Property, plant and equipment                         17,475      19,875

    Intangible assets                                     16,121      19,945

    Goodwill                                              36,634      42,653

    Future income taxes                                   14,297      15,540
                                                    ------------ ------------

                                                      $  257,578  $  293,066
                                                    ------------ ------------
                                                    ------------ ------------
    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities          $   24,440  $   24,713
    Deferred revenue                                       4,560       5,079
                                                    ------------ ------------

                                                          29,000      29,792

    Deferred revenue                                       3,388       3,759

    Forward exchange contracts                             2,275           -
                                                    ------------ ------------

                                                          34,663      33,551
                                                    ------------ ------------

    Shareholders' equity

    Share capital                                        141,991     142,786
    Contributed surplus                                    5,921       5,226
    Retained earnings                                     65,781      60,494
    Accumulated other comprehensive income                 9,222      51,009
                                                    ------------ ------------

                                                         222,915     259,515
                                                    ------------ ------------

                                                      $  257,578  $  293,066
                                                    ------------ ------------
                                                    ------------ ------------



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

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


                                                        Three months ended
                                                            November 30,
                                                    -------------------------
                                                            2008        2007
                                                    ------------ ------------

    Sales                                             $   46,363  $   40,985

    Cost of sales (1), (2)                                17,480      18,144
                                                    ------------ ------------

    Gross margin                                          28,883      22,841
                                                    ------------ ------------

    Operating expenses
    Selling and administrative(1)                         17,091      14,817
    Net research and development(1)                        7,221       6,012
    Amortization of property, plant and equipment          1,159         976
    Amortization of intangible assets                      1,319         734
                                                    ------------ ------------

    Total operating expenses                              26,790      22,539
                                                    ------------ ------------

    Earnings from operations                               2,093         302

    Interest income                                          466       1,483
    Foreign exchange gain (loss)                           4,568        (616)
                                                    ------------ ------------

    Earnings before income taxes                           7,127       1,169

    Income taxes
    Current                                                  (61)      1,181
    Future                                                 1,901          81
                                                    ------------ ------------

                                                           1,840       1,262
                                                    ------------ ------------

    Net earnings (loss) for the period                $    5,287  $      (93)
                                                    ------------ ------------
                                                    ------------ ------------

    Basic and diluted net earnings (loss) per share   $     0.08  $    (0.00)

    Basic weighted average number of shares
     outstanding (000's)                                  67,340      69,000

    Diluted weighted average number of shares
     outstanding (000's)                                  67,717      69,672

    (1) Stock-based compensation costs included in:
        Cost of sales                                 $       29  $       37
        Selling and administrative                           201         197
        Net research and development                          92          67
                                                    ------------ ------------

                                                      $      322  $      301
                                                    ------------ ------------
                                                    ------------ ------------

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



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

                         (in thousands of US dollars)

    Comprehensive income (loss)
                                                        Three months ended
                                                            November 30,
                                                    -------------------------

                                                            2008        2007
                                                    ------------ ------------

    Net earnings (loss) for the period                $    5,287  $      (93)
    Foreign currency translation adjustment              (36,933)     13,906
    Changes in unrealized losses on short-term
     investments                                              22          39
    Unrealized gains (losses) on forward exchange
     contracts                                            (6,929)      1,948
    Reclassification of realized gains on forward
     exchange contracts in net earnings (loss)              (137)       (759)
    Future income tax effect of the above items            2,190        (380)
                                                    ------------ ------------

    Comprehensive income (loss)                       $  (36,500) $   14,661
                                                    ------------ ------------
                                                    ------------ ------------


    Accumulated other comprehensive income


                                                        Three months ended
                                                            November 30,
                                                    -------------------------

                                                            2008        2007
                                                    ------------ ------------

    Foreign currency translation adjustment
    Cumulative effect of prior periods                $   51,129  $   53,418
    Current period                                       (36,933)     13,906
                                                    ------------ ------------

                                                          14,196      67,324
                                                    ------------ ------------

    Unrealized gains (losses) on forward
     exchange contracts
      Cumulative effect of prior periods                     (96)      1,948
      Current period, net of realized gains and
       future income taxes                                (4,876)        809
                                                    ------------ ------------

                                                          (4,972)      2,757
                                                    ------------ ------------
    Unrealized losses on short-term investments
    Cumulative effect of prior periods                       (24)        (55)
    Current period, net of future income taxes                22          39
                                                    ------------ ------------

                                                              (2)        (16)
                                                    ------------ ------------

    Accumulated other comprehensive income            $    9,222  $   70,065
                                                    ------------ ------------
                                                    ------------ ------------



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

                         (in thousands of US dollars)

    Retained earnings
                                                        Three months ended
                                                            November 30,
                                                    -------------------------

                                                            2008        2007
                                                    ------------ ------------


    Balance - Beginning of the period                 $   60,494  $   42,330

    Add (deduct)
    Net earnings (loss) for the period                     5,287         (93)
    Premium on redemption of share capital                     -         (39)
                                                    ------------ ------------

    Balance - End of the period                       $   65,781  $   42,198
                                                    ------------ ------------
                                                    ------------ ------------

    Contributed surplus

                                                        Three months ended
                                                            November 30,
                                                    -------------------------

                                                            2008        2007
                                                    ------------ ------------

    Balance - Beginning of the period                 $    5,226  $    4,453

    Add (deduct)
    Stock-based compensation costs                           321         316
    Reclassification of stock-based compensation
     costs to share capital upon exercise of
     stock awards                                              -          (2)
    Discount on redemption of share capital                  374           -
                                                    ------------ ------------

    Balance - End of the period                       $    5,921  $    4,767
                                                    ------------ ------------
                                                    ------------ ------------



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

                         (in thousands of US dollars)


                                                        Three months ended
                                                            November 30,
                                                    -------------------------

                                                            2008        2007
                                                    ------------ ------------

    Cash flows from operating activities
    Net earnings (loss) for the period                $    5,287  $      (93)
    Add items not affecting cash
      Change in discount on short-term investments           456         902
      Stock-based compensation costs                         322         301
      Amortization                                         2,478       1,710
      Deferred revenue                                       353         351
      Future income taxes                                  1,901          81
      Change in unrealized foreign exchange gain          (3,456)          -
                                                    ------------ ------------

                                                           7,341       3,252
    Change in non-cash operating items
      Accounts receivable                                 (7,325)      1,166
      Income taxes and tax credits                          (696)       (458)
      Inventories                                           (367)        (87)
      Prepaid expenses                                      (542)       (612)
      Accounts payable and accrued liabilities            (1,087)     (5,694)
                                                    ------------ ------------

                                                          (2,676)     (2,433)
                                                    ------------ ------------
    Cash flows from investing activities
    Additions to short-term investments                 (122,100)   (211,453)
    Proceeds from disposal and maturity of
     short-term investments                              126,605     214,571
    Additions to capital assets                           (1,514)     (1,573)
                                                    ------------ ------------

                                                           2,991       1,545
                                                    ------------ ------------
    Cash flows from financing activities
    Change in bank loan                                        -         699
    Exercise of stock options                                 26           -
    Redemption of share capital                             (447)       (174)
                                                    ------------ ------------

                                                            (421)        525
                                                    ------------ ------------

    Effect of foreign exchange rate changes on cash         (367)        343
                                                    ------------ ------------

    Change in cash                                          (473)        (20)

    Cash - Beginning of the period                         5,914       5,541
                                                    ------------ ------------

    Cash - End of the period                          $    5,441  $    5,521
                                                    ------------ ------------
                                                    ------------ ------------
    




For further information:

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

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