EXFO Reports Third-Quarter Results for Fiscal 2009



    
    - Sales reach US$43.6 million despite a challenging economic environment
    - Gross margin improves to 62.3%, equaling highest level since 2001
    - Non-cash goodwill impairment charge of US$21.7 million and foreign
      exchange loss of US$4.7 million contribute to GAAP net loss of
      US$23.3 million
    - Implements cost-reduction plan providing US$6 million in annualized
      pre-tax savings
    

    QUEBEC CITY, June 30 /CNW Telbec/ - EXFO Electro-Optical Engineering Inc.
(NASDAQ:   EXFO; TSX: EXF) reported today financial results for the third
quarter ended May 31, 2009.
    Sales decreased 10.2% to US$43.6 million in the third quarter of fiscal
2009 from US$48.6 million in the third quarter of 2008 and 5.9% from US$46.4
million in the second quarter of 2009. Net bookings dropped 20.7% to US$40.2
million for a book-to-bill ratio of 0.92 in the third quarter of fiscal 2009
from US$50.7 million in the same period last year and 14.9% from US$47.3
million in the second quarter of 2009.
    Gross margin improved to 62.3% of sales in the third quarter of fiscal
2009 from 60.9% in the third quarter of 2008 and 60.4% in the second quarter
of 2009.
    GAAP net loss in the third quarter of fiscal 2009 amounted to US$23.3
million, or US$0.39 per diluted share, compared to net earnings of US$11.2
million, or US$0.16 per diluted share, in the same period last year and net
earnings of US$2.7 million, or US$0.04 per diluted share, in the second
quarter of fiscal 2009.
    It should be noted that EXFO recorded a non-cash charge of US$21.7
million for impairment of goodwill in the third quarter of fiscal 2009,
following a significant drop in the company's market capitalization since June
1, 2009. EXFO also incurred a pre-tax, foreign exchange loss of US$4.7 million
in the third quarter of 2009 mainly due to the impact of a 16.4% increase in
the period-end value of the Canadian/US exchange rate on the company's balance
sheet items. GAAP net loss in the third quarter of 2009 included US$1.2
million in after-tax amortization of intangible assets and US$0.4 million in
stock-based compensation costs.
    "EXFO delivered a solid sales quarter despite an increasingly challenging
economic environment and I remain confident that we're continuing to gain
market share," said Germain Lamonde, EXFO's Chairman, President and CEO. "The
fundamental trends towards bandwidth growth and IP convergence remain intact
and EXFO is among the best-positioned companies to take advantage of these key
growth drivers, considering our strong product offering, strengthened by
several key new product introductions, along with targeted sales, channel and
marketing initiatives.
    "In the meantime, we continue to maintain a strong balance sheet,
generate positive cash flow and have taken actions to protect our earnings
through a cost-reduction plan that will provide approximately US$6 million in
annualized pre-tax savings, while we carefully balance short-term
profitability with mid/long-term strategy."
    As part of this plan, EXFO tightened cost controls and reduced its
workforce by approximately 5% (65 employees). The company has also applied for
a Canadian federal program that will allow certain employees to work four days
per week for a maximum of 52 weeks. EXFO will incur severance and other
pre-tax related charges of about US$1.3 million that will be accounted for in
the fourth quarter of fiscal 2009.

    
    Unaudited Selected Financial Information
    (In thousands of US dollars)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segmented results:                   Q3 2009       Q3 2008       Q2 2009
                                      ---------------------------------------
      Sales:
      Telecom Division                $   39,047    $   42,843    $   41,367
      Life Sciences and Industrial
      Division                             4,589         5,738         5,005
                                      ---------------------------------------
      Total                           $   43,636    $   48,581    $   46,372
                                      ---------------------------------------
                                      ---------------------------------------
      Earnings (loss) from operations:
      Telecom Division                $  (21,990)   $    3,819    $    2,117
      Life Sciences and Industrial
       Division                              438           639           482
                                      ---------------------------------------
      Total                           $  (21,552)   $    4,458    $    2,599
                                      ---------------------------------------
                                      ---------------------------------------
      Other selected information:
      GAAP net earnings (loss)        $  (23,346)   $   11,179    $    2,655
      Amortization of intangible
       assets                         $    1,355    $    1,015    $    1,246
      Tax effect on amortization
       of intangible assets           $     (203)   $     (224)   $     (212)
      Stock-based compensation costs  $      383    $      334    $      325
      Recognition of previously
       unrecognized
      future income tax assets        $        -    $   (5,324)   $        -
      Extraordinary gain              $        -    $   (3,036)   $        -
      Impairment of goodwill          $   21,713    $        -    $        -
      Tax effect on impairment of
       goodwill                       $   (2,070)   $        -    $        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Operating Expenses

    Selling and administrative expenses amounted to US$16.7 million, or 38.3%
of sales, in the third quarter of fiscal 2009 compared to US$15.7 million, or
32.2% of sales, in the same period last year and US$15.8 million, or 34.1% of
sales, in the second quarter of 2009.
    Gross research and development expenses totaled US$9.3 million, or 21.4%
of sales, in the third quarter of fiscal 2009 compared to US$8.8 million, or
18.2% of sales, in the third quarter of 2008 and US$8.8 million, or 19.0% of
sales, in the second quarter of 2009.
    Net R&D expenses totaled US$7.8 million, or 17.8% of sales, in the third
quarter of fiscal 2009 compared to US$7.4 million, or 15.2% of sales, in the
same period last year and US$7.3 million, or 15.8% of sales, in the second
quarter of 2009.

    Third-Quarter Business Highlights

    Market expansion - EXFO's sales decreased 10.2% year-over-year to US$43.6
million in the third quarter of 2009. Telecom Division sales were down 8.9%
year-over-year, while Life Sciences & Industrial Division sales were more
affected by the global recession with a year-over-year decrease of 20.0%.
EXFO's top customer accounted for 10.8% of sales in the third quarter and its
top three customers 22.2%. After nine months into fiscal 2009, the company's
top customer represented 11.6% of sales and its top three customers 18.9%.

    Profitability - GAAP net loss amounted to US$23.3 million, or US$0.39 per
diluted share, in the third quarter of 2009 largely due to a non-cash charge
of US$21.7 million for impairment of goodwill and an unfavorable Canada/US
exchange rate. On the other hand, the company generated US$1.8 million in cash
flows from operating activities in the third quarter of 2009 and US$15.5
million since the beginning of the fiscal year.

    Innovation - EXFO launched an unprecedented 11 new products in the third
quarter and 23 since the beginning of fiscal 2009. Key product launches in the
third quarter included a portable test solution for characterizing 100 Gbit/s
Ethernet and 40/43 Gbit/s SONET/OTN networks; 1 Gbit/s and 10 Gbit/s test
heads for carrier Ethernet and mobile backhaul testing applications in Service
Assurance; IPv6 testing capabilities across the company's Transport and
DataCom product portfolio; and the next-generation FTB-500 multi-layer
platform for high-end test applications in the field and central office. Sales
from products that have been on the market two years or less accounted for
40.6% of total sales in the third quarter of 2009 and 38.3% since the
beginning of fiscal 2009.

    Business Outlook

    Given the current challenging economic environment and typical
seasonality of the summer months, EXFO forecasted sales between US$33 million
and US$38 million and GAAP net loss between US$0.10 and US$0.06 per diluted
share for the fourth quarter of 2009. GAAP net loss includes US$0.04 per share
in after-tax amortization of intangible assets, after-tax restructuring
expenses and stock-based compensation costs.
    This guidance was established by management based on existing backlog as
of the date of this press release, expected bookings for the remaining of the
quarter, as well as stability in exchange rates compared to the end of 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 third quarter of fiscal 2009. 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 7 p.m. on July 7, 2009. The replay
number is 1-402-977-9141 and the reservation number is 21424856. 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 the effect of the actual worldwide recession on the telecom market
for our customers and suppliers; fluctuating exchange rates and our ability to
execute in these uncertain conditions; consolidation in the global
telecommunications test, measurement and service assurance industry; capital
spending levels in the telecommunications, life sciences and high-precision
assembly sectors; concentration of sales; 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 condition. 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
                                                        May 31,    August 31,
                                                          2009          2008
                                                    -----------   -----------
                                                    (unaudited)

    Assets

    Current assets
    Cash                                             $  11,083     $   5,914
    Short-term investments                              53,412        81,626
    Accounts receivable
      Trade                                             32,295        31,473
      Other                                              2,997         4,753
    Income taxes and tax credits recoverable             4,263         4,836
    Inventories                                         32,999        34,880
    Prepaid expenses                                     2,034         1,774
    Future income taxes                                  9,115         9,140
                                                    -----------   -----------
                                                       148,198       174,396

    Tax credits recoverable                             23,817        20,657

    Forward exchange contracts                             578             -

    Property, plant and equipment                       19,355        19,875

    Intangible assets                                   17,933        19,945

    Goodwill                                            22,521        42,653

    Future income taxes                                 14,522        15,540
                                                    -----------   -----------

                                                     $ 246,924     $ 293,066
                                                    -----------   -----------
                                                    -----------   -----------
    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities         $  23,843     $  24,713
    Deferred revenue                                     7,716         5,079
                                                    -----------   -----------

                                                        31,559        29,792

    Deferred revenue                                     4,577         3,759
                                                    -----------   -----------

                                                        36,136        33,551
                                                    -----------   -----------

    Shareholders' equity

    Share capital                                      105,952       142,786
    Contributed surplus                                 17,035         5,226
    Retained earnings                                   45,090        60,494
    Accumulated other comprehensive income              42,711        51,009
                                                    -----------   -----------

                                                       210,788       259,515
                                                    -----------   -----------

                                                     $ 246,924     $ 293,066
                                                    -----------   -----------
                                                    -----------   -----------



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

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

                      Three months   Nine months  Three months   Nine months
                             ended         ended         ended         ended
                      May 31, 2009  May 31, 2009  May 31, 2008   May 31 2008
                      ------------- ------------- ------------- -------------
    Sales                $  43,636     $ 136,371     $  48,581     $ 132,847

    Cost of
     sales(1),(2)           16,441        52,274        19,004        55,208
                      ------------- ------------- ------------- -------------

    Gross margin            27,195        84,097        29,577        77,639
                      ------------- ------------- ------------- -------------
    Operating expenses
    Selling and
     administrative(1)      16,732        49,623        15,660        44,160
    Net research and
     development(1)          7,781        22,327         7,373        19,570
    Amortization of
     property, plant
     and equipment           1,166         3,374         1,071         3,045
    Amortization of
     intangible assets       1,355         3,920         1,015         2,469
    Impairment of
     goodwill               21,713        21,713             -             -
                      ------------- ------------- ------------- -------------

    Total operating
     expenses               48,747       100,957        25,119        69,244
                      ------------- ------------- ------------- -------------

    Earnings (loss)
     from operations       (21,552)      (16,860)        4,458         8,395

    Interest income             42           683           964         4,063
    Foreign exchange
     gain (loss)            (4,687)          971           (59)         (907)
                      ------------- ------------- ------------- -------------

    Earnings (loss)
     before income
     taxes                 (26,197)      (15,206)        5,363        11,551

    Income taxes
    Current                    (88)          148           112        (7,080)
    Future                  (2,763)           50         2,432        11,881
    Recognition of
     previously
     unrecognized
     future income
     tax assets                  -             -        (5,324)       (5,324)
                      ------------- ------------- ------------- -------------

                            (2,851)          198        (2,780)         (523)
                      ------------- ------------- ------------- -------------
    Earnings
     (loss) before
     extraordinary gain    (23,346)      (15,404)        8,143        12,074

    Extraordinary gain           -             -         3,036         3,036
                      ------------- ------------- ------------- -------------

    Net earnings (loss)
     for the period      $ (23,346)    $ (15,404)    $  11,179     $  15,110
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Basic earnings
     (loss) before
     extraordinary
     gain per share      $   (0.39)    $   (0.25)    $    0.12     $    0.18
    Diluted earnings
     (loss) before
     extraordinary
     gain per share      $   (0.39)    $   (0.25)    $    0.12     $    0.17
    Basic and diluted
     net earnings
     (loss) per share    $   (0.39)    $   (0.25)    $    0.16     $    0.22
    Basic weighted
     average number
     of shares
     outstanding
     (000's)                59,613        62,609        68,907        68,964
    Diluted weighted
     average number
     of shares
     outstanding (000's)    59,613        62,609        69,467        69,543

    (1) Stock-based
     compensation costs
     included in:
      Cost of sales      $      37     $      97     $      37     $     112
      Selling and
       administrative          238           637           218           598
      Net research and
       development             108           296            79           194
                      ------------- ------------- ------------- -------------

                         $     383     $   1,030     $     334     $     904
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    (2) The cost of sales is exclusive of amortization, shown separately.



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

                         (in thousands of US dollars)

    Comprehensive
     income (loss)
                      Three months   Nine months  Three months   Nine months
                             ended         ended         ended         ended
                      May 31, 2009  May 31, 2009  May 31, 2008   May 31 2008
                      ------------- ------------- ------------- -------------
    Net earnings (loss)
     for the period      $ (23,346)    $ (15,404)    $  11,179     $  15,110
    Foreign currency
     translation
     adjustment             31,986        (9,593)       (3,511)       16,222
    Changes in
     unrealized losses
     on short-term
     investments                 -            22           (50)           40
    Unrealized gains
     (losses) on
     forward exchange
     contracts               7,425        (1,238)          295         2,844
    Reclassification
     of realized gains
     (losses) on
     forward exchange
     contracts in
     net earnings            1,849         3,083        (1,218)       (3,145)
    Future income
     taxes effect of
     the above items        (2,875)         (572)          286            87
                      ------------- ------------- ------------- -------------

    Comprehensive
     income (loss)       $  15,039     $ (23,702)    $   6,981     $  31,158
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Accumulated other comprehensive income

                                                   Nine months   Nine months
                                                         ended         ended
                                                  May 31, 2009  May 31, 2008
                                                  ------------- -------------
    Foreign currency translation adjustment
      Cumulative effect of prior periods             $  51,129     $  53,418
      Current period                                    (9,593)       16,222
                                                  ------------- -------------

                                                        41,536        69,640
                                                  ------------- -------------
    Unrealized gains (losses) on forward
     exchange contracts
      Cumulative effect of prior periods                   (96)        1,948
      Current period, net of realized gains
       (losses) and future income taxes                  1,273          (214)
                                                  ------------- -------------

                                                         1,177         1,734
                                                  ------------- -------------
    Unrealized losses on short-term investments
      Cumulative effect of prior periods                   (24)          (55)
      Current period, net of future income taxes            22            40
                                                  ------------- -------------

                                                            (2)          (15)
                                                  ------------- -------------

    Accumulated other comprehensive income           $  42,711     $  71,359
                                                  ------------- -------------
                                                  ------------- -------------

    Total retained earnings and accumulated other comprehensive income
amounted to $128,141 and $87,801 as at May 31, 2008, and 2009, respectively.



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

                         (in thousands of US dollars)

    Retained earnings
                                                   Nine months   Nine months
                                                         ended         ended
                                                  May 31, 2009  May 31, 2008
                                                  ------------- -------------
    Balance - Beginning of the period                $  60,494     $  42,330

    Add (deduct)
    Net earnings (loss)for the period                  (15,404)       15,110
    Premium on redemption of share capital                   -          (658)
                                                  ------------- -------------

    Balance - End of the period                      $  45,090     $  56,782
                                                  ------------- -------------
                                                  ------------- -------------

    Contributed surplus
                                                   Nine months   Nine months
                                                         ended         ended
                                                  May 31, 2009  May 31, 2008
                                                  ------------- -------------
    Balance - Beginning of the period                $   5,226     $   4,453

    Add (deduct)
    Stock-based compensation costs                       1,012           919
    Reclassification of stock-based
     compensation costs to share capital
     upon exercise of stock awards                        (460)         (387)
    Discount on redemption of share capital             11,257             -
                                                  ------------- -------------

    Balance - End of the period                      $  17,035     $   4,985
                                                  ------------- -------------
                                                  ------------- -------------



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

                         (in thousands of US dollars)

                      Three months   Nine months  Three months   Nine months
                             ended         ended         ended         ended
                      May 31, 2009  May 31, 2009  May 31, 2008  May 31, 2008
                      ------------- ------------- ------------- -------------
    Cash flows from
     operating
     activities
    Net earnings
     (loss) for the
     period              $ (23,346)    $ (15,404)    $  11,179     $  15,110
    Add (deduct) items
     not affecting
     cash
      Change in
       discount on
       short-term
       investments             (18)          573           533         1,521
      Stock-based
       compensation
       costs                   383         1,030           334           904
      Amortization           2,521         7,294         2,086         5,514
      Deferred revenue        (178)        3,245          (937)         (435)
      Write-down of
       capital assets          237           237             -             -
      Impairment of
       goodwill             21,713        21,713             -             -
      Future income
       taxes                (2,763)           50        (2,892)        6,557
      Extraordinary
       gain                      -             -        (3,036)       (3,036)
      Change in
       unrealized
       foreign exchange
       (gain) loss           2,516        (1,541)           86           526
                      ------------- ------------- ------------- -------------
                             1,065        17,197         7,353        26,661

    Change in non-cash
     operating items
      Accounts receivable    3,456           639          (326)        (145)
      Income taxes and
       tax credits          (1,845)       (2,189)       (1,789)     (11,437)
      Inventories              568           689        (3,585)      (2,878)
      Prepaid expenses        (104)         (338)         (110)        (506)
      Accounts payable
       and accrued
       liabilities          (1,301)         (539)         (116)      (3,075)
                      ------------- ------------- ------------- -------------

                             1,839        15,459         1,427        8,620
                      ------------- ------------- ------------- -------------
    Cash flows from
     investing
     activities
    Additions to
     short-term
     investments           (94,435)     (349,899)     (235,160)    (644,220)
    Proceeds from
     disposal and
     maturity of
     short-term
     investments            97,936       374,042       277,791      686,371
    Additions to
     capital assets(1)      (1,507)       (5,967)       (1,370)      (5,056)
    Business
     combinations,
     net of cash
     acquired               (2,414)       (2,414)      (40,938)     (40,938)
                      ------------- ------------- ------------- -------------

                              (420)       15,762           323       (3,843)
                      ------------- ------------- ------------- -------------
    Cash flows from
     financing
     activities
    Change in bank
     loan                        -             -           786        1,485
    Exercise of stock
     options                    10            41            51           61
    Redemption of
     share capital               -       (26,078)       (3,219)      (3,393)
                      ------------- ------------- ------------- -------------

                                10       (26,037)       (2,382)      (1,847)
                      ------------- ------------- ------------- -------------

    Effect of foreign
     exchange rate
     changes on cash           424           (15)            3          111
                      ------------- ------------- ------------- -------------

    Change in cash           1,853         5,169          (629)       3,041

    Cash - Beginning of
     period                  9,230         5,914         9,211        5,541
                      ------------- ------------- ------------- -------------

    Cash - End of
     period              $  11,083     $  11,083     $   8,582     $  8,582
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (1) As at May 31, 2008 and 2009, unpaid purchases of capital assets
        amounted to $35,000 and $324,000, respectively.
    




For further information:

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

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