EXFO Reports First-Quarter Results for Fiscal 2013

• Sales reach US$59.8 million
• Bookings attain $64.3 million, book-to-bill ratio of 1.07
• Adjusted EBITDA totals US$2.7 million

QUEBEC CITY, Jan. 9, 2013 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the first quarter ended November 30, 2012.

Sales reached US$59.8 million in the first quarter of fiscal 2013 compared to US$66.4 million in the first quarter of 2012 and US$57.2 million in the fourth quarter of 2012.

Bookings attained US$64.3 million in the first quarter of fiscal 2013 compared to US$71.4 million in the same period last year and US$55.2 million in the fourth quarter of 2012. The company's book-to-bill ratio was 1.07 in the first quarter of 2013.

Gross margin^* amounted to 60.5% of sales in the first quarter of fiscal 2013 compared to 64.8% in the first quarter of 2012 and 62.8% in the fourth quarter of 2012.

IFRS net loss in the first quarter of fiscal 2013 totaled US$1.6 million, or US$0.03 per share, compared to net earnings of US$2.9 million, or US$0.05 per diluted share, in the same period last year and a net loss of US$3.7 million, or US$0.06 per share, in the fourth quarter of 2012. IFRS net loss in the first quarter of 2013 included US$1.9 million in after-tax amortization of intangible assets, a foreign exchange gain of US$0.8 million and US$0.4 million in stock-based compensation costs.

Adjusted EBITDA^** totaled US$2.7 million, or 4.5% of sales, in the first quarter of fiscal 2013 compared to US$6.5 million, or 9.7% of sales, in the first quarter of 2012 and US$4.5 million, or 8.0% of sales, in the fourth quarter of 2012.

"Despite a challenging environment during the last several quarters, I am increasingly optimistic about EXFO's opportunities for fiscal 2013 based on improving market conditions, recent investment plans announced by network operators and our highest bookings level in the past year," said Germain Lamonde, EXFO's Chairman, President and CEO. "While both Protocol and Physical-layer product groups delivered sequential bookings growth of about 15% in the first quarter, I am particularly excited about our Protocol  solutions, especially in the areas of 4G/LTE, mobile backhaul and service assurance where we're gaining traction with tier-1 wireless operators. Given these data points, our history of market-share gains and recent restructuring initiative, we plan to increase sales 6% to 10% in 2013 and significantly improve profitability."

Selected Financial Information
(In thousands of US dollars)

		Q1 2013			Q4 2012			Q1 2012
Sales		$	59,821		$	57,156		$	66,388
Gross margin^*		$	36,164		$	35,899		$	43,018
			60.5%			62.8%			64.8%
Other selected information:
	IFRS net earnings (loss)	$	(1,638)		$	(3,714)		$	2,887
	Amortization of intangible assets	$	1,962		$	1,931		$	1,921
	Stock-based compensation costs	$	448		$	429		$	555
	Restructuring costs	$	‒		$	2,329		$	‒
	Net income tax effect of the above items	$	(67)		$	(247)		$	(30)
	Foreign exchange gain (loss)	$	756		$	(1,940)		$	1,664
	Adjusted EBITDA^**	$	2,720		$	4,546		$	6,472

Operating Expenses
Selling and administrative expenses totaled US$22.3 million, or 37.3% of sales in the first quarter of fiscal 2013 compared to US$24.6 million, or 37.1% of sales, in the same period last year and US$22.2 million, or 38.9% of sales, in the fourth quarter of 2012.

Gross research and development expenses amounted to US$13.9 million, or 23.2% of sales, in the first quarter of fiscal 2013 compared to US$14.8 million, or 22.3% of sales, in the first quarter of 2012 and US$14.1 million, or 24.7% of sales, in the fourth quarter of 2012.

Net R&D expenses totaled US$11.6 million, or 19.4% of sales, in the first quarter of fiscal 2013 compared to US$12.5 million, or 18.8% of sales, in the same period last year and US$11.9 million, or 20.8% of sales, in the fourth quarter of 2012.

First-Quarter Highlights

• EXFO's sales and bookings improved 4.7% and 16.4% sequentially in the first quarter mainly due to increased traction of Physical-layer products and less seasonality. It should be noted the company was unable to recognize into revenue in the first quarter more than US$2.0 million in orders. EXFO's top customer accounted for 7.2% of sales in the first quarter, while the top three represented 15.6%. Global sales originated 56% from the Americas, 27% from Europe, Middle East and Africa (EMEA), and 17% from Asia-Pacific.

• Focusing on profitability, EXFO expects to benefit from US$8.0 million in annual cost-savings from its almost completed restructuring plan. The company has reported US$2.3 million in restructuring costs so far with US$0.3 million left to incur in the second quarter of 2013. Based on increased sales volume and a tight control on expenses, EXFO expects to deliver a significant improvement in adjusted EBITDA in 2013.

• On the innovation front, EXFO launched five new products, including the next-generation BV-110 service assurance probe that enables network operators to validate service-level agreements and end-user quality of experience (QoE) at customer premises and cell sites. It fully complements the recently launched BV-3100 hardware probe, which allows operators to accelerate Ethernet deployments in wireless backhaul and metro networks. The company also strengthened its FTB Ecosystem and EXFO Connect initiative with the introduction of FTB Anywhere, a unique cloud-based solution allowing an operator to share software licenses among its fleet of FTB platforms to avoid costly delays in shipping units across large geographies.

Business Outlook
EXFO forecasts sales between US$62.0 million and US$67.0 million for the second quarter of fiscal 2013, while IFRS net loss is expected to range between US$0.04 and US$0.00 per share. Net loss includes 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 first quarter of fiscal 2013. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9005. Germain Lamonde, Chairman, President and CEO, and Pierre Plamondon, CPA, 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 16, 2013. The replay number is 1-402-977-9141 and the reservation number is 21620458. 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 wireline and wireless 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, VDSL2, ADSL2+ and various optical technologies accounting for more than 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.

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 macro-economic uncertainty and/or recession (including our ability to quickly adapt cost structures with anticipated levels of business and our ability to manage inventory levels with market demand); capital spending and network deployment levels in the telecommunications industry; future economic, competitive, financial and market conditions; limited visibility with regards to customer orders and the timing of such orders; fluctuating exchange rates; consolidation in the global telecommunications test and service assurance industry and increased competition among vendors; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully integrate our acquired and to-be-acquired businesses; our ability to successfully expand international operations; and the retention of key technical and management personnel. 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.

Non-IFRS Measures
EXFO provides non-IFRS measures (gross margin* 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 future periods as well as to make operational and strategic decisions. EXFO believes that providing this information, in addition to IFRS measures, allows investors to see the company's results through the eyes of management, and to better understand historical and future financial performance.

The presentation of this additional information is not prepared in accordance with IFRS. 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 IFRS.

* Gross margin represents sales less cost of sales, excluding depreciation and amortization.

** Adjusted EBITDA is defined as net earnings (loss) before interest, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, restructuring charges, stock-based compensation costs and foreign exchange gain (loss).

The following tables summarize the reconciliation of adjusted EBITDA to IFRS net earnings (loss), in thousands of US dollars:

Adjusted EBITDA

		Three months ended November 30, 2012			Three months ended August 31, 2012			Three months ended November 30, 2011
IFRS net earnings (loss) for the period		$	(1,638)		$	(3,714)		$	2,887
Add (deduct):
Depreciation of property, plant and equipment			1,605			1,535			1,568
Amortization of intangible assets			1,962			1,931			1,921
Interest (income) expenses			(33)			(63)			71
Income taxes			1,132			159			1,134
Restructuring charges			‒			2,329			‒
Stock-based compensation costs			448			429			555
Foreign exchange (gain) loss			(756)			1,940			(1,664)
Adjusted EBITDA for the period		$	2,720		$	4,546		$	6,472
Adjusted EBITDA in percentage of sales			4.5%			8.0%			9.7%

EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
			As at November 30, 2012			As at August 31, 2012
Assets
Current assets
Cash		$	50,818		$	58,868
Short-term investments			8,171			8,236
Accounts receivable
	Trade		45,701			37,643
	Other		3,773			4,283
Income taxes and tax credits recoverable			8,597			9,024
Inventories			41,065			41,212
Prepaid expenses			3,415			3,800
			161,540			163,066
Tax credits recoverable			40,511			38,397
Property, plant and equipment			49,045			49,848
Intangible assets			12,214			14,132
Goodwill			28,958			29,160
Deferred income taxes			11,946			12,080
		$	304,214		$	306,683
Liabilities
Current liabilities
Accounts payable and accrued liabilities		$	35,202		$	32,392
Provisions			853			952
Income taxes payable			1,068			917
Current portion of long-term debt			583			565
Deferred revenue			9,348			10,583
			47,054			45,409
Deferred revenue			4,596			4,997
Long-term debt			291			282
Other liabilities			413			609
Deferred income taxes			2,609			2,105
			54,963			53,402
Shareholders' equity
Share capital			110,835			110,965
Contributed surplus			16,950			17,298
Retained earnings			109,873			111,511
Accumulated other comprehensive income			11,593			13,507
			249,251			253,281
		$	304,214		$	306,683

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
			Three months ended November 30,
			2012			2011
Sales		$	59,821		$	66,388
Cost of sales ^(1)			23,657			23,370
Selling and administrative			22,290			24,618
Net research and development			11,602			12,483
Depreciation of property, plant and equipment			1,605			1,568
Amortization of intangible assets			1,962			1,921
Earnings (loss) from operations			(1,295)			2,428
Interest income (expenses)			33			(71)
Foreign exchange gain			756			1,664
Earnings (loss) before income taxes			(506)			4,021
Income taxes			1,132			1,134
Net earnings (loss) for the period		$	(1,638)		$	2,887
Basic and diluted net earnings (loss) per share		$	(0.03)		$	0.05
Basic weighted average number of shares outstanding (000's)			60,389			60,341
Diluted weighted average number of shares outstanding (000's)			60,389			61,763

(1) The cost of sales is exclusive of depreciation and amortization, shown separately.

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Comprehensive Loss
(in thousands of US dollars)
				Three months ended November 30,
				2012			2011
Net earnings (loss) for the period			$	(1,638)		$	2,887
Other comprehensive income (loss), net of income taxes
Items that will not be reclassified subsequently to net earnings
	Foreign currency translation adjustment			(1,708)			(11,827)
Items that may be reclassified subsequently to net earnings
	Unrealized gains on forward exchange contracts			(83)			(819)
	Reclassification of realized gains on forward exchange contracts in net earnings (loss)			(199)			(625)
	Deferred income tax effect of gains on forward exchange contracts			76			395
				(206)			(1,049)
Other comprehensive loss				(1,914)			(12,876)
Comprehensive loss for the period			$	(3,552)		$	(9,989)

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
			Three months ended November 30, 2011
			Share Capital			Contributed Surplus			Retained earnings			Accumulated other comprehensive income			Total shareholders' equity
Balance as at September 1, 2011		$	110,341		$	18,017		$	115,104		$	21,049		$	264,511
Redemption of share capital			(244)			(119)			-			-			(363)
Reclassification of stock-based compensation costs			848			(848)			-			-			-
Stock-based compensation costs			-			489			-			-			489
Net earnings for the period			-			-			2,887			-			2,887
Other comprehensive loss
	Foreign currency translation adjustment		-			-			-			(11,827)			(11,827)
	Changes in unrealized gains on forward exchange contracts, net of deferred income taxes of $395		-			-			-			(1,049)			(1,049)
Total comprehensive income (loss) for the period			-			-			2,887			(12,876)			(9,989)
Balance as at November 30, 2011		$	110,945		$	17,539		$	117,991		$	8,173		$	254,648
			Three months ended November 30, 2012
			Share Capital			Contributed Surplus			Retained earnings			Accumulated other comprehensive income			Total shareholders' equity
Balance as at September 1, 2012		$	110,965		$	17,298		$	111,511		$	13,507		$	253,281
Exercise of stock options			51			-			-			-			51
Redemption of share capital			(793)			(180)			-			-			(973)
Reclassification of stock-based compensation costs			612			(612)			-			-			-
Stock-based compensation costs			-			444			-			-			444
Net loss for the period			-			-			(1,638)			-			(1,638)
Other comprehensive loss
	Foreign currency translation adjustment		-			-			-			(1,708)			(1,708)
	Changes in unrealized gains on forward exchange contracts, net of deferred income taxes of $76		-			-			-			(206)			(206)
Total comprehensive loss for the period			-			-			(1,638)			(1,914)			(3,552)
Balance as at November 30, 2012		$	110,835		$	16,950		$	109,873		$	11,593		$	249,251

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
			Three months ended November 30,
			2012			2011
Cash flows from operating activities
Net earnings (loss) for the period		$	(1,638)		$	2,887
Add (deduct) items not affecting cash
	Change in discount on short-term investments		2			31
	Stock-based compensation costs		448			555
	Depreciation and amortization		3,567			3,489
	Deferred revenue		(1,531)			(1,141)
	Deferred income taxes		733			718
	Change in foreign exchange gain/loss		(23)			(1,214)
			1,558			5,325
Change in non-cash operating items
	Accounts receivable		(8,104)			(2,897)
	Income taxes and tax credits		(1,873)			172
	Inventories		(160)			593
	Prepaid expenses		359			15
	Accounts payable, accrued liabilities and provisions		3,637			3,397
	Other liabilities		(195)			(61)
			(4,778)			6,544
Cash flows from investing activities
Additions to short-term investments			(24,533)			(57,922)
Proceeds from disposal and maturity of short-term investments			24,527			90,779
Additions to capital assets			(1,989)			(4,486)
			(1,995)			28,371
Cash flows from financing activities
Bank loan			-			(785)
Exercise of stock options			51			-
Redemption of share capital			(973)			(363)
			(922)			(1,148)
Effect of foreign exchange rate changes on cash			(355)			(368)
Change in cash			(8,050)			33,399
Cash - Beginning of the period			58,868			22,771
Cash - End of the period		$	50,818		$	56,170

 

SOURCE: EXFO INC.

Vance Oliver
Manager, Investor Relations
[phone], Ext. 23733
[email protected]