updated 3/31/2011 4:18:30 PM ET 2011-03-31T20:18:30

  • Sales increase 50.2% year-over-year to US$72.0 million, 5th straight quarter of record sales
  • EBITDA* reaches US$8.4 million (11.6% of sales) despite FX loss of US$2.4 million
  • Cash position increases US$41.8 million year-to-date to US$73.6 million

QUEBEC CITY, Canada, March 31, 2011 (GLOBE NEWSWIRE) -- EXFO Inc. (Nasdaq:EXFO) (TSX:EXF) reported today sales growth for a sixth consecutive quarter, including five straight reporting periods of record sales.

Sales increased 50.2% to US$72.0 million in the second quarter of fiscal 2011 ended February 28, 2011, from US$48.0 million in the second quarter of 2010 and 9.7% from US$65.7 million in the first quarter of 2011. Organic sales growth, excluding the NetHawk acquisition and divested Life Sciences and Industrial Division, improved 40.0% year-over-year and 13.2% sequentially.

Net bookings increased 11.5% to US$57.6 million in the second quarter of fiscal 2011 from US$51.6 million in the same period last year and decreased 35.9% from US$89.8 million in the seasonally high first quarter of 2011. The company's book-to-bill ratio was 0.80 in the second quarter of 2011 and 1.07 at the mid-point of fiscal 2011.

Gross margin reached 61.4% of sales in the second quarter of fiscal 2011 compared to 60.8% in the second quarter of 2010 and 62.2% in the first quarter of 2011. At the mid-point of the fiscal 2011, gross margin amounted to 61.8% of sales compared to 62.8% in the same period in 2010.

GAAP net earnings in the second quarter of fiscal 2011 totaled US$1.7 million, or US$0.03 per diluted share, compared to US$1.2 million, or US$0.02 per diluted share, in the same period last year and US$14.1 million, or US$0.23 per diluted share, in the first quarter of 2011. It should be noted that in the first quarter of 2011 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). GAAP net earnings in the second quarter of 2011 included US$2.4 million in amortization of intangible assets and US$0.6 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$0.2 million. The company also reported a foreign exchange loss of US$2.4 million in the second quarter of 2011.

EXFO increased its cash and short-term investments to US$73.6 million at the end of the second quarter of 2011 from US$50.6 million in the previous quarter mainly due to US$20.7 million in cash flows from operations.

"Overall, I am satisfied with our financial performance in the first half of fiscal 2011 based on year-over-year sales growth of 56.0%, or 43.2% organically, bookings increase of 49.8% for a book-to-bill ratio of 1.07, EBITDA* of US$16.5 million despite US$3.5 million in foreign exchange losses, and an increase in our cash position of more than US$40 million to provide us with flexibility," said Germain Lamonde, EXFO's Chairman, President and CEO. "As expected, second-quarter bookings were down sequentially due to seasonality and significant year-end money received in the first quarter. Nonetheless, our backlog is now at a more manageable level in our typically strong third quarter. I remain confident that the trends toward explosive bandwidth demand and IP network convergence compel fixed and mobile operators to accelerate their strategic investments in wireless backhaul, 3G/4G, FTTH and VDSL deployments as well as 40G and 100G network upgrades."

Selected Financial Information      
(In thousands of US dollars)      
 
  Q2 2011 Q1 2011 Q2 2010
Sales:      
Continuing operations (formerly the Telecom Division) $72,046 $65,653 $47,951
Discontinued operations (formerly the Life Sciences & Industrial Division 1,991 6,159
Total $72,046 $67,644 $54,110
       
Gross margin:      
Continuing operations $44,225 $40,868 $29,133
  61.40% 62.20% 60.80%
Discontinued operations $ − $989 $3,344
  49.70% 54.30%
Total $44,225 $41,857 $32,477
  61.40% 61.90% 60.00%
       
Other selected information:      
GAAP net earnings $1,653 $14,071 $1,154
Amortization of intangible assets $2,367 $2,570 $1,502
Stock-based compensation costs $625 $738 $469
Net income tax effect of the above items  $ (157)  $ (192)  $ (484)
After-tax gain on the disposal of discontinued operations  $ −   $ (13,071)  $ − 
Foreign exchange losses  $ (2,395)  $ (1,113)  $ (1,026)
Adjusted EBITDA* $8,351 $8,188 $5,712

Operating Expenses

Selling and administrative expenses totaled US$22.2 million, or 30.9% of sales, in the second quarter of fiscal 2011 compared to US$15.3 million, or 31.9% of sales, in the same period last year and US$19.9 million, or 30.3% of sales, in the first quarter of 2011.

Gross research and development expenses amounted to US$13.8 million, or 19.2% of sales, in the second quarter of fiscal 2011 compared to US$9.8 million, or 20.4% of sales, in the second quarter of 2010 and US$13.7 million, or 20.9% of sales, in the first quarter of 2011.

Net R&D expenses totaled US$11.2 million, or 15.6% of sales, in the second quarter of fiscal 2011 compared to US$8.4 million, or 17.5% of sales, in the same period last year and US$11.6 million, or 17.7% of sales, in the first quarter of 2011.

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

  • EXFO generated record sales of US$72.0 million, reflecting strong traction in its Optical, Protocol and Copper Access businesses.
  • NetHawk, acquired in mid-March 2010, posted US$4.9 million in sales and US$8.7 million in bookings.
  • EXFO added deep packet inspection (DPI) technology to its wireless analyzers and service assurance systems during the quarter. This value-added solution will enable subscriber-based, application-level monitoring for assessing long-term evolution (LTE) and other packet-based networks.
  • EXFO's top customer accounted for 7.5% of sales and its top three customers 17.9% in the second quarter. At the mid-point of fiscal 2011, EXFO's top customer represented 7.2% of sales and top three customers 18.5%.
  • EXFO launched two new products in the second quarter and nine after the first half of fiscal 2011.

Profitable Growth Path

EXFO generated EBITDA* of US$8.4 million (11.6% of sales) in the second quarter of fiscal 2011 on revenue of US$72.0 million, despite a pre-tax, foreign exchange loss of US$2.4 million (3.3% of sales). Foreign exchange losses or gains are included in EBITDA.* See the section below entitled "Non-GAAP Financial Measures" for a reconciliation of EBITDA* with GAAP net earnings.

Business Outlook

EXFO forecasts sales between US$67.0 million and US$72.0 million for the third quarter of fiscal 2011, while GAAP net earnings are expected to range between US$0.01 and US$0.05 per diluted share. GAAP net earnings include US$0.04 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 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 second quarter of fiscal 2011. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9094.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 April 7, 2011. The replay number is 1-402-977-9141 and the reservation number is 21513253. 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 1700 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 Three months Three months
    ended ended ended
    February 28, November 30, February 28,
    2011 2010 2010
         
GAAP net earnings for the period   $1,653 $14,071 $1,154
         
Add (deduct):        
         
Amortization of property, plant and equipment        
Continuing operations   1,626 1,674 1,274
Discontinued operations   14 38
Amortization of intangible assets        
Continuing operations   2,367 2,566 1,492
Discontinued operations   4 10
Interest expense        
Continuing operations   8 64 76
Income taxes        
Continuing operations   2,697 2,806 1,299
Discontinued operations   201 369
         
EBITDA for the period    8,351 21,400 5,712
Gain on disposal of discontinued operations   (13,212)
Adjusted EBITDA for the period   $8,351 $8,188 $5,712
         
Adjusted EDITDA in percentage of total sales    11.6% 12.1% 10.6%
EXFO Inc.
Unaudited Interim Consolidated Balance Sheet
     
(in thousands of US dollars)
     
  As at

February 28,

2011
As at

August 31,

2010
Assets    
     
Current assets    
Cash  $25,879 $21,440
Short-term investments 47,724 10,379
Accounts receivable    
Trade 51,418 50,190
Other  6,860 5,217
Income taxes and tax credits recoverable 4,304 2,604
Inventories 47,889 40,328
Prepaid expenses 3,738 2,816
Future income taxes 6,787 6,191
Current assets held for sale 3,991
  194,599 143,156
     
Tax credits recoverable 34,551 29,397
Forward exchange contracts 421
Property, plant and equipment 24,466 23,455
Intangible assets 25,817 27,947
Goodwill 30,415 29,355
Future income taxes 10,312 12,884
Long-term assets held for sale 7,308
     
  $320,581 $273,502
Liabilities    
     
Current liabilities    
Accounts payable and accrued liabilities $36,159 $30,870
Income taxes payable 894 426
Current portion of long-term debt 619 568
Deferred revenue 11,611 10,354
Current liabilities related to assets held for sale 2,531
  49,283 44,749
     
Deferred revenue 6,752 5,775
Long-term debt 1,239 1,419
Other liabilities 821 603
Future income taxes 2,658
Long-term liabilities related to assets held for sale 537
     
  60,753 53,083
Shareholders' equity    
Share capital 109,558 106,126
Contributed surplus 17,621 18,563
Retained earnings 66,252 50,528
Accumulated other comprehensive income 66,397 45,202
     
  259,828 220,419
     
  $320,581 $273,502
 
EXFO Inc.
Unaudited Interim Consolidated Statements of Earnings
         
(in thousands of US dollars, except share and per share data)
         
  Three months

ended

February 28,

2011
Six months

ended

February 28,

2011
Three months

ended

February 28,

2010
Six months

ended

February 28,

2010
         
Sales $72,046 $137,699 $47,951 $88,243
         
Cost of sales (1,2) 27,821 52,606 18,818 32,851
Gross margin 44,225 85,093 29,133 55,392
         
Operating expenses        
Selling and administrative (1) 22,235 42,134 15,297 29,101
Net research and development (1) 11,244 22,845 8,413 16,194
Amortization of property, plant and equipment 1,626 3,300 1,274 2,532
Amortization of intangible assets 2,367 4,933 1,492 2,952
Total operating expenses 37,472 73,212 26,476 50,779
Earnings from operations 6,753 11,881 2,657 4,613
         
Interest expense (8) (72) (76) (118)
Foreign exchange loss (2,395) (3,508) (1,026) (2,048)
Earnings before income taxes 4,350 8,301 1,555 2,447
         
Income taxes 2,697 5,503 1,299 2,421
         
Net earnings from continuing operations 1,653 2,798 256 26
         
Net earnings from discontinued operations 12,926 898 1,462
         
Net earnings for the period $1,653 $15,724 $1,154 $1,488
         
Basic and diluted net earnings from continuing operations per share $0.03 $0.05 $0.00 $0.00
Basis net earnings from discontinued operations per share $ – $0.22 $0.02 $0.02
Diluted net earnings from discontinued operations per share $ – $0.21 $0.01 $0.02
Basis net earnings per share $0.03 $0.26 $0.02 $0.03
Diluted net earnings per share $0.03 $0.26 $0.02 $0.02
         
Basic weighted average number of shares outstanding (000's) 59,900 59,782 59,427 59,406
         
Diluted weighted average number of shares outstanding (000's) 61,524 61,314 60,529 60,325
         
(1)  Stock-based compensation costs included in:        
Cost of sales $51 $99 $40 $79
Selling and administrative $433 $755 $279 $523
Net research and development $141 $245 $116 $217
Net earnings from discontinued operations $ – $264 $34 $68
         
(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

February 28,

2011
Six months

ended

February 28,

2011
Three months

ended

February 28,

2010
Six months

ended

February 28,

2010
         
Net earnings for the period $1,653 $15,724 $1,154 $1,488
Foreign currency translation adjustment 12,974 19,313 989 8,802
Unrealized gains on forward exchange contracts 1,794 3,238 158 1,322
Reclassification of realized gains on forward exchange contracts in net earnings (464) (653) (382) (305)
Future income taxes effect of the above items (365) (703) 69 (316)
         
Comprehensive income $15,592 $36,919 $1,988 $10,991
         
Accumulated other comprehensive income        
      Six months ended

February 28,
         
      2011 2010
         
Foreign currency translation adjustment        
Cumulative effect of prior periods     $44,186 $40,458
Current period     19,313 8,802
         
      63,499 49,260
         
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   1,882 701
         
      2,900 1,777
         
Unrealized losses on short-term investments        
Cumulative effect of prior periods     (2) (2)
         
Accumulated other comprehensive income     $66,397 $51,035
 
EXFO Inc.
Unaudited Interim Consolidated Statements of Retained Earnings 
and Contributed Surplus
     
(in thousands of US dollars)
     
Retained earnings    
  Six months ended

February 28,
     
  2011 2010
     
Balance – Beginning of the period $50,528 $43,909
     
Add    
Net earnings for the period 15,724 1,488
     
Balance – End of the period $66,252 $45,397
     
Contributed surplus    
  Six months ended

February 28,
     
  2011 2010
     
Balance – Beginning of the period $18,563 $17,758
     
Add (deduct)    
Stock-based compensation costs 1,210 858
Reclassification of stock-based compensation costs to share capital upon exercise of stock awards (2,152) (627)
Discount on redemption of share capital 3
     
Balance – End of the period $17,621 $17,992
EXFO Inc.
Unaudited Interim Consolidated Statements of Cash Flows
         
(in thousands of US dollars)
         
  Three months

ended

February 28,

2011
Six months

ended

February 28,

2011
Three months

ended

February 28,

2010
Six months

ended

February 28,

2010
Cash flows from operating activities        
Net earnings for the period $1,653 $15,724 $1,154 $1,488
Add (deduct) items not affecting cash         
Change in discount on short-term investments (9) (27) 7 9
Stock-based compensation costs  625 1,363 469 887
Amortization 3,993 8,251 2,814 5,574
Gain on disposal of discontinued operations (13,212)
Deferred revenue 3,250 679 3,465 2,923
Future income taxes 2,596 4,563 1,904 3,060
Change in unrealized foreign exchange gain/loss 1,054 1,591 273 1,043
         
  13,162 18,932 10,086 14,984
         
Change in non-cash operating items        
Accounts receivable 9,085 4,605 (5,127) (9,229)
Income taxes and tax credits (2,203) (3,205) (1,866) (3,371)
Inventories (2,098) (3,460) (762) (3,113)
Prepaid expenses (324) (709) (10) (615)
Accounts payable and accrued liabilities 3,074 1,850 2,645 3,675
Other liabilities 17 152
         
  20,713 18,165 4,966 2,331
Cash flows from investing activities        
Additions to short-term investments (88,804) (314,950) (101,643) (180,597)
Proceeds from disposal and maturity of short-term investments 70,313 279,918 104,926 186,262
Additions to capital assets (1,316) (3,295) (1,464) (2,809)
Net proceeds from disposal of discontinued operations (61) 22,063
Business combination (111) (243)
         
  (19,979) (16,507) 1,819 2,856
Cash flows from financing activities        
Repayment of long-term debt  (296) (296)
Exercise of stock options  1,219 1,280 127 127
Redemption of share capital  (14)
         
  923 984 127 113
         
Effect of foreign exchange rate changes on cash  784 1,128 (135) (32)
         
Change in cash  2,441 3,770 6,777 5,268
Cash – Beginning of the period 23,438 22,109 9,102 10,611
Cash – End of the period $25,879 $25,879 $15,879 $15,879
CONTACT: Vance Oliver
         Manager, Investor Relations
         (418) 683-0913, Ext. 3733
         vance.oliver@exfo.com

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