updated 1/12/2011 4:47:01 PM ET 2011-01-12T21:47:01

  • Telecom sales increase 62.9% year-over-year to US$65.7 million
  • Telecom bookings improve 92.0% year-over-year to US$89.8 million (book-to-bill of 1.37)
  • Adjusted EBITDA* amounts to US$8.2 million compared to US$4.4 million in Q1 2010

QUEBEC CITY, Jan. 12, 2011 (GLOBE NEWSWIRE) -- EXFO Inc. (Nasdaq:EXFO) (TSX:EXF) reported today record sales and bookings for its first quarter ended November 30, 2010, with total sales and GAAP net earnings above the company's guidance range.

Total sales, including a one-month revenue contribution from the divested Life Sciences and Industrial Division (referred to as "discontinued operations" in the financial statements), increased 48.5% to US$67.6 million in the first quarter of fiscal 2011 from US$45.6 million in the first quarter of 2010 and 3.7% from US$65.2 million in the fourth quarter of 2010. Management had forecasted total sales between US$61 and US$66 million for the first quarter of 2011.

Telecom sales (referred to as "continuing operations" in the financial statements) increased 62.9% to US$65.7 million in the first quarter of 2011 from US$40.3 million in the first quarter of 2010 and 12.1% from US$58.6 million in the fourth quarter of 2010. NetHawk Oyj, which was acquired in mid-March 2010, contributed US$6.4 million to EXFO's revenues in the first quarter of 2011. Consequently, organic telecom sales increased 47.0% year-over-year.

Telecom bookings improved 92.0% to US$89.8 million in the first quarter of fiscal 2011 from US$46.8 million in the same period last year and 60.9% from US$55.8 million in the fourth quarter of 2010. The company's telecom book-to-bill ratio was 1.37 in the first quarter of 2011.

Telecom gross margin reached 62.2% of sales in the first quarter of fiscal 2011 compared to 65.2% in the first quarter of 2010 and 64.8% in the fourth quarter of 2010.

GAAP net earnings in the first quarter of fiscal 2011 totaled US$14.1 million, or US$0.23 per diluted share, above EXFO's guidance between US$0.17 and US$0.21 per diluted share. In comparison, the company generated US$0.3 million, or US$0.01 per diluted share, in the same period last year and US$5.0 million, or US$0.08 per diluted share, in the fourth quarter of fiscal 2010. It should be noted that EXFO recorded an after-tax gain of US$13.1 million, or US$0.21 per diluted share, from the disposal of discontinued operations (Life Sciences and Industrial Division) in the first quarter of 2011. GAAP net earnings in the first quarter of 2011 also included US$2.6 million in amortization of intangible assets and US$0.7 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$0.2 million. As well, the company reported a foreign exchange loss of US$1.1 million in the first quarter of 2011.

"I am really pleased with our overall performance in the first quarter of 2011 as we posted our fifth consecutive quarter of sales growth and delivered unprecedented telecom bookings of nearly $90 million for a book-to-bill ratio of 1.37," said Germain Lamonde, EXFO's Chairman, President and CEO. "We generated strong sales and bookings growth year-over-year across all our telecom business segments and sales regions, while enjoying expanded traction in the fast-growing wireless market. These outstanding results demonstrate our superior market positioning, continued market-share gains across most businesses and some year-end money from network operators."

"As wireline and wireless operators are escalating investments in broadband deployments and IP convergence in order to increase network performance and lower operating expenses, EXFO is benefiting from ongoing VDSL2 and FTTH rollouts in access networks, upgrades from 10G to 40G and 100G in metro rings and long-haul routes and, on the wireless side, migration from 2G to 3G and 4G/LTE networks," Mr. Lamonde added.  "As a result, I expect EXFO will continue delivering superior revenue growth, while remaining true to its commitment of increasing EBITDA even faster over a three-year horizon from 2010-2012."

       
Selected Financial Information      
(In thousands of US dollars)      
   Q1 2011  Q4 2010  Q1 2010
Sales:      
Continuing operations (formerly the Telecom Division) $ 65,653 $ 58,583 $ 40,292
Discontinued operations (formerly the Life Sciences & Industrial Division)  1,991  6,653  5,268
Total $ 67,644 $ 65,236 $ 45,560
       
Gross margin:      
Continuing operations $ 40,868 $ 37,954 $ 26,259
   62.2%  64.8%  65.2%
Discontinued operations $ 989 $ 3,488 $ 2,863
   49.7%  52.4%  54.3%
Total $ 41,857 $ 41,442 $ 29,122
   61.9%  63.5%  63.9%
       
Other selected information:      
GAAP net earnings $ 14,071 $ 4,962 $ 334
Amortization of intangible assets $ 2,570 $ 2,493 $ 1,469
Stock-based compensation costs $ 738 $ 473 $ 418
Net income tax effect of the above items $ (192) $ (184) $ (471)
After-tax gain on the disposal of discontinued operations $ (13,071) $ − $ −

Operating Expenses

Telecom selling and administrative expenses totaled US$19.9 million, or 30.3% of sales, in the first quarter of fiscal 2011 compared to US$13.8 million, or 34.3% of sales, in the same period last year and US$18.9 million, or 32.3% of sales, in the fourth quarter of 2010.

Telecom gross research and development expenses amounted to US$13.7 million, or 20.9% of sales, in the first quarter of fiscal 2011 compared to US$9.2 million, or 22.7% of sales, in the first quarter of 2010 and US$12.4 million, or 21.1% of sales, in the fourth quarter of 2010.

Telecom net R&D expenses totaled US$11.6 million, or 17.7% of sales, in the first quarter of fiscal 2011 compared to US$7.8 million, or 19.3% of sales, in the same period last year and US$10.5 million, or 17.9% of sales, in the fourth quarter of 2010.

First-Quarter Business Highlights — Broadband Deployments and IP Fixed-Mobile Network Convergence

  • EXFO generated record telecom orders of US$89.8 million, reflecting strong bookings in all three businesses (Optical, Protocol and Copper Access) and sales regions (Americas, EMEA and Asia-Pacific).
  • Two Tier-1 network operators placed follow-on orders totaling more than US$8 million for EXFO's AXS-200/635 Triple-Play Tester in the first quarter of 2011. EXFO's test solution will support their ongoing deployment of next-generation VDSL2 services over hybrid network access architectures.
  • A Tier-1 US wireless operator selected EXFO's service assurance solution for monitoring Ethernet backhaul networks. The initial contract in excess of US$1 million could reach several millions of dollars.
  • EXFO's wireless and 40G/100G wireline test solutions gained significant traction with customers.
  • EXFO significantly strengthened its "FTB Ecosystem" of modular test platforms, now based on a common Windows operating system, by releasing the second generation of its highly successful FTB-200 platform, launching the entry-level FTB-1 handheld platform with related OTDR and Ethernet test modules, adding ODU0 and ODUflex test capabilities to its industry-leading 10G and 40G test solutions, and introducing the ConnectorMax Pass/Fail Connector Endface Assessment software option.
  • Altogether, EXFO launched seven new products in the first quarter of 2011.

Profitable Growth Path

EXFO generated adjusted EBITDA* of US$8.2 million, or 12.1% of sales, in the first quarter of fiscal 2011 on total revenue of US$67.9 million. It should be noted the company recorded a pre-tax foreign exchange loss of US$1.1 million in the first quarter of 2011. Foreign exchange losses or gains are included in EBITDA. See the section below entitled "Non-GAAP Financial Measures" for a reconciliation of EBITDA and adjusted EBITDA with GAAP net earnings.

Divestiture

EXFO sold its Life Sciences and Industrial Division in the first quarter of 2011, realizing a gain of US$13.2 million, to become a pure-play supplier in the telecom industry.

Business Outlook

EXFO forecasts sales between US$70.0 million and US$75.0 million for the second quarter of fiscal 2011, while GAAP net earnings are expected to range between US$0.03 and US$0.07 per diluted share. GAAP net earnings include US$0.04 per share in after-tax amortization of intangible assets and stock-based compensation costs. The company also anticipates a pre-tax, foreign exchange loss of US$0.03 per share following the significant increase in the value of the Canadian dollar since November 30, 2010.

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 exchange rates as of the day of this press release.

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 2011. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9009. 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 19, 2011. The replay number is 1-402-977-9141 and the reservation number is 21494191. 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.

About EXFO

Listed on the NASDAQ and TSX stock exchanges, EXFO is among the leading providers of next-generation test and service assurance solutions for wireless and wireline network operators and equipment manufacturers in the global telecommunications industry. The company offers innovative solutions for the development, installation, management and maintenance of converged, IP fixed and mobile networks — from the core to the edge. Key technologies supported include 3G, 4G/LTE, IMS, Ethernet, OTN, FTTx, and various optical technologies (accounting for an estimated 35% of the portable fiber-optic test market). EXFO has a staff of approximately 1600 people in 25 countries, supporting more than 2000 telecom customers worldwide. For more information, visit www.EXFO.com .

EXFO Brand Name

The corporate name of the company is EXFO Inc. The company requests that all media outlets and publications use the corporate name ("EXFO Inc.") or abbreviated name ("EXFO") in capital letters for branding purposes. EXFO would like to thank all parties in advance for their cooperation.

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 our ability to successfully integrate our acquired and to-be-acquired businesses; fluctuating exchange rates; consolidation in the global telecommunications test, measurement and service assurance industry and increased competition among vendors; capital spending levels in the telecommunications industry; concentration of sales; the effects of the additional actions we have taken in response to 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 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 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 press release. 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.

Non-GAAP Financial Measures

EXFO provides non-GAAP financial measures (EBITDA* and adjusted EBITDA*) as supplemental information regarding its operational performance. The company uses these measures for the purposes of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the company to plan and forecast for future periods as well as to make operational and strategic decisions. EXFO believes that providing this information to investors, in addition to GAAP measures, allows them to see the company's results through the eyes of management, and to better understand its historical and future financial performance.

The presentation of this additional information is not prepared in accordance with GAAP. Therefore, the information may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, the corresponding measures calculated in accordance with GAAP.

* EBITDA is defined as net earnings before interest, income taxes, amortization of property, plant and equipment, amortization of intangible assets. Adjusted EBITDA represents EBITDA excluding the gain from the disposal of discontinued operations.

The following table summarizes the reconciliation of EBITDA and adjusted EBITDA to GAAP net earnings in thousands of US dollars:

EBITDA and adjusted EBITDA (including discontinued operations)
       
 

 
Three months

ended

November 30,

2010
Three months

ended

August 31,

2010
Three months

ended

November 30,

2009
       
GAAP net earnings for the period $ 14,071 $ 4,962 $ 334
       
Add (deduct):      
       
Amortization of property, plant and equipment      
Continuing operations  1,674  1,623  1,258
Discontinued operations  14  42  33
Amortization of intangible assets      
Continuing operations  2,566  2,478  1,460
Discontinued operations  4  15  9
 

Interest expense
     
Continuing operations  64  116  42
 

Income taxes
     
Continuing operations  2,806  1,939  1,122
Discontinued operations  201  291  121
       
EBITDA for the period  21,400  11,466  4,379
Gain on disposal of discontinued operations  (13,212)  –  –
       
Adjusted EBITDA for the period $ 8,188 $ 11,466 $ 4,379
       
Adjusted EBITDA in percentage of total sales  12.1%  17.6%  9.6%
 
EXFO Inc.
Unaudited Interim Consolidated Balance Sheet
 
(in thousands of US dollars)
     
  As at

November 30,

2010
As at

August 31,

2010
Assets    
     
Current assets    
Cash $  23,438 $  21,440
Short-term investments 27,186 10,379
Accounts receivable    
Trade 55,384 50,190
Other 7,190 5,217
Income taxes and tax credits recoverable 3,307 2,604
Inventories 43,311 40,328
Prepaid expenses 3,229 2,816
Future income taxes 5,687 6,191
Current assets held for sale 3,991
  168,732 143,156
     
Tax credits recoverable 31,549 29,397
Forward exchange contracts 415
Property, plant and equipment 23,707 23,455
Intangible assets 26,303 27,947
Goodwill 29,690 29,355
Future income taxes 12,669 12,884
Long-term assets held for sale 7,308
     
  $  293,065 $  273,502
Liabilities    
     
Current liabilities    
Accounts payable and accrued liabilities $ 31,195 $ 30,870
Income taxes payable  1,066  426
Current portion of long-term debt  584  568
Deferred revenue 8,431 10,354
Current liabilities related to assets held for sale 2,531
  41,276 44,749
     
Deferred revenue 5,779 5,775
Long-term debt 1,460 1,419
Other liabilities 760 603
Future income taxes 1,258
Long-term liabilities related to assets held for sale 537
     
  50,533 53,083
     
Shareholders' equity    
Share capital 107,048 106,126
Contributed surplus 18,427 18,563
Retained earnings 64,599 50,528
Accumulated other comprehensive income 52,458 45,202
     
  242,532 220,419
     
  $  293,065 $  273,502
 
 
EXFO Inc.
Unaudited Interim Consolidated Statements of Earnings
 
(in thousands of US dollars, except share and per share data)
     
  Three months ended

November 30,
     
  2010 2009
     
Sales $ 65,653 $ 40,292
     
Cost of sales (1,2)  24,785  14,033
Gross margin  40,868  26,259
     
Operating expenses    
Selling and administrative (1)  19,899  13,804
Net research and development (1)  11,601  7,781
Amortization of property, plant and equipment  1,674  1,258
Amortization of intangible assets  2,566  1,460
Total operating expenses  35,740  24,303
Earnings from operations  5,128  1,956
     
Interest expense  (64)  (42)
Foreign exchange loss  (1,113)  (1,022)
Earnings before income taxes  3,951  892
     
Income taxes    
Current  1,013  87
Future  1,793  1,035
   2,806  1,122
     
Net earnings (loss) from continuing operations  1,145  (230)
     
Net earnings from discontinued operations  12,926  564
     
Net earnings for the period $ 14,071 $ 334
     
Basic and diluted net earnings (loss) from continuing operations per share $ 0.02  $ (0.00)
Basic net earnings from discontinued operations per share $ 0.22  $ 0.01
Diluted net earnings from discontinued operations per share $ 0.21  $ 0.01
Basic net earnings per share $ 0.24  $ 0.01
Diluted net earnings per share $ 0.23  $ 0.01
     
Basic weighted average number of shares outstanding (000's)  59,665  59,386
     
Diluted weighted average number of shares outstanding (000's) 61,106 60,122
     
(1) Stock-based compensation costs included in:    
Cost of sales $ 48 $ 39
Selling and administrative  322  244
Net research and development  104  101
Net earnings from discontinued operations  264  34
  $ 738 $ 418
     
(2) The cost of sales is exclusive of amortization, shown separately
 
 
EXFO Inc.
Unaudited Interim Consolidated Statements of Comprehensive Income 
and Accumulated Other Comprehensive Income
 
(in thousands of US dollars)
     
Comprehensive income     
  Three months ended

November 30,
     
  2010 2009
     
Net earnings for the period $14,071 $334
Foreign currency translation adjustment 6,339 7,813
Unrealized gains on forward exchange contracts 1,444 1,164
Reclassification of realized (gains) losses on forward exchange contracts in net earnings   (189)  77
Future income taxes effect of the above items  (338)  (385)
     
Comprehensive income  $21,327 $9,003
     
     
Accumulated other comprehensive income    
  Three months ended

November 30,
     
  2010 2009
     
Foreign currency translation adjustment    
Cumulative effect of prior periods $44,186 $40,458
Current period 6,339 7,813
     
  50,525 48,271
     
Unrealized gains on forward exchange contracts    
Cumulative effect of prior periods  1,018 1,076
Current period, net of realized gains and future income taxes 917 856
     
  1,935 1,932
Unrealized losses on short-term investments    
Cumulative effect of prior periods  (2)  (2)
     
Accumulated other comprehensive income $52,458 $50,201
     
     
     
EXFO Inc.
Unaudited Interim Consolidated Statements of Retained Earnings 
and Contributed Surplus
 
(in thousands of US dollars)
     
Retained earnings   
  Three months ended

November 30,
     
  2010 2009
     
Balance – Beginning of the period $50,528 $43,909
     
Add     
Net earnings for the period 14,071 334
     
Balance – End of the period $64,599 $44,243
     
     
Contributed surplus    
  Three months ended

November 30,
     
  2010 2009
     
Balance – Beginning of the period $18,563 $17,758
     
Add (deduct)    
Stock-based compensation costs  725 413
Reclassification of stock-based compensation costs to share capital upon exercise of stock awards  (861)  (86)
Discount on redemption of share capital 3
     
Balance – End of the period $18,427 $18,088
 
 
EXFO Inc.
Unaudited Interim Consolidated Statements of Cash Flows
 
(in thousands of US dollars)
     
  Three months ended

November 30,
     
  2010 2009
     
Cash flows from operating activities    
Net earnings for the period $ 14,071 $ 334
Add (deduct) items not affecting cash    
Change in discount on short-term investments  (18)  2
Stock-based compensation costs  738  418
Amortization  4,258  2,760
Gain on disposal of discontinued operations  (13,212)  –
Deferred revenue  (2,571)  (542)
Future income taxes  1,967  1,156
Change in unrealized foreign exchange gain/loss  537  770
     
   5,770  4,898
     
Change in non-cash operating items    
Accounts receivable  (4,480)  (4,102)
Income taxes and tax credits  (1,002)  (1,505)
Inventories  (1,362)  (2,351)
Prepaid expenses  (385)  (605)
Accounts payable and accrued liabilities  (1,224)  1,030
Other liabilities  135  –
     
   (2,548)  (2,635)
Cash flows from investing activities    
Additions to short-term investments  (226,146)  (78,954)
Proceeds from disposal and maturity of short-term investments  209,605  81,336
Additions to capital assets  (1,979)  (1,345)
Net proceeds from disposal of discontinued operations  22,124  –
Business combination, net of cash acquired  (132)  –
     
   3,472  1,037
Cash flows from financing activities    
Exercise of stock options  61  –
Redemption of share capital  –  (14)
     
   61  (14)
     
Effect of foreign exchange rate changes on cash  344  103
     
Change in cash  1,329  (1,509)
Cash – Beginning of the period  22,109  10,611
Cash – End of the period $ 23,438 $ 9,102
     
Cash related to:    
Continuing operations $ 23,438 $ 8,347 
Discontinued operations  –  755
  $ 23,438 $ 9,102
CONTACT:  Vance Oliver
          Manager, Investor Relations
          (418) 683-0913, Ext. 3733
          vance.oliver@exfo.com

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