EXFO Reports First-Quarter Results for Fiscal 2015

• Sales reach US$56.7 million, up year-over-year from US$56.0 million
• Gross margin amounts to 62.6% of sales, up year-over-year from 62.2%
• Adjusted EBITDA totals US$3.2 million, up year-over-year from US$2.3 million

QUEBEC CITY, Jan. 7, 2015 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the first quarter ended November 30, 2014.

Sales reached US$56.7 million in the first quarter of fiscal 2015 compared to US$56.0 million in the first quarter of 2014 and US$59.7 million in the fourth quarter of 2014.

Bookings attained US$54.2 million in the first quarter of fiscal 2015 compared to US$57.9 million in the same period last year and US$57.3 million in the fourth quarter of 2014. The company's book-to-bill ratio was 0.96 in the first quarter of 2015.

Gross margin before depreciation and amortization^* amounted to 62.6% of sales in the first quarter of fiscal 2015 compared to 62.2% in the first quarter of 2014 and 63.0% in the fourth quarter of 2014.

IFRS net earnings in the first quarter of fiscal 2015 totaled US$1.5 million, or US$0.02 per diluted share, compared to a net loss of US$0.7 million, or US$0.01 per share, in the same period last year and net earnings of US$1.2 million, or US$0.02 per diluted share, in the fourth quarter of 2014. IFRS net earnings in the first quarter of 2015 included US$1.0 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and a foreign exchange gain of US$2.0 million.

Adjusted EBITDA^** totaled US$3.2 million, or 5.6% of sales, in the first quarter of fiscal 2015 compared to US$2.3 million, or 4.1% of sales, in the first quarter of 2014 and US$5.8 million, or 9.6% of sales, in the fourth quarter of 2014.

"Although market demand remained muted, we recorded year-over-year increases in sales, gross margin and earnings in the first quarter of fiscal 2015," said Germain Lamonde, EXFO's Chairman, President and CEO. "The telecom industry continued morphing from hardware-centric to SDN and NFV architectures (virtualized networks) and from fixed to mobile networking, while industry consolidation is ongoing in the background. I expect these elements to gradually turn into positive drivers for EXFO as fiscal 2015 unfolds, given our strong solutions offering."

"At EXFO, we have progressed against our strategic agenda, evolving into a solutions supplier and strengthening our market position and pipeline, especially in the wireless sector and in end-to-end visibility and customer experience assurance solutions," Mr. Lamonde added. "Considering recent wins at tier-1 network operators, growing business opportunities for our productivity-enhancing, end-to-end solutions and tight internal cost controls, I am pleased with their impact on earnings growth in the first quarter and remain confident EXFO will significantly increase its profitability in fiscal 2015."

Selected Financial Information (In thousands of US dollars)
		Q1 2015		Q4 2014		Q1 2014
Sales		$  56,724		$ 59,742		$ 56,003
Gross margin^*		$ 35,487		$ 37,633		$ 34,818
		62.6%		63.0%		62.2%
Other selected information:
	IFRS net earnings (loss)	$ 1,481		$ 1,204		$ (747)
	Amortization of intangible assets	$ 1,098		$ 1,117		$ 1,182
	Stock-based compensation costs	$ 400		$ 424		$ 463
	Net income tax effect of the above items	$ (58)		$ (62)		$ (67)
	Foreign exchange gain (loss)	$ 1,975		$ (334)		$ 802
	Adjusted EBITDA^**	$ 3,197		$ 5,756		$ 2,292

Operating Expenses
Selling and administrative expenses totaled US$21.0 million, or 37.1% of sales in the first quarter of fiscal 2015 compared to US$21.7 million, or 38.8% of sales, in the same period last year and US$21.5 million, or 35.9% of sales, in the fourth quarter of 2014.

Gross research and development expenses amounted to US$13.3 million, or 23.5% of sales, in the first quarter of fiscal 2015 compared to US$13.3 million, or 23.8% of sales, in the first quarter of 2014 and US$12.5 million, or 20.8% of sales, in the fourth quarter of 2014.

Net R&D expenses totaled US$11.7 million, or 20.6% of sales, in the first quarter of fiscal 2015 compared to US$11.3 million, or 20.1% of sales, in the same period last year and US$10.8 million, or 18.2% of sales, in the fourth quarter of 2014.

First-Quarter Highlights

• Sales. During the first quarter, EXFO booked a new system order with a tier-1 wireless operator for an initial deployment that should lead to significant revenue over time. EXFO's sales increased year-over-year in Europe, Middle East and Africa (EMEA) and to a lesser extent in Asia-Pacific in the first quarter of 2015 but decreased in the Americas. Geographical split was at 48% from the Americas, 32% from EMEA, and 20% from Asia-Pacific with top customer accounting for 4.1% of sales while the top three represented 11.1%.
• Profitability. EXFO generated adjusted EBITDA of US$3.2 million, or 5.6% of sales, in the first quarter of 2015. The company also delivered US$1.9 million in cash flows from operating activities. EXFO had a cash position of US$57.6 million and no debt as at November 30, 2014.
• Innovation.  EXFO launched three new products in the first quarter, including a new version of its TravelHawk Pro, a live 4G/LTE troubleshooting tool now capturing up to 30 Gbit/s of data for deep analysis; CPRI (common public radio interface) test capabilities for the FTB-700G and FTB-800 NetBlazer series that are  critical for fiber-to-the-antenna (FTTA) network deployments; and expanded testing functionalities for the Packet Blazer product family, allowing carrier labs and network equipment manufacturers to fully qualify and test 100G network elements.

Business Outlook
EXFO forecasts sales between US$52.0 million and US$57.0 million for the second quarter of fiscal 2015, while IFRS net results are expected to range between a net loss of US$0.03 per share and net earnings of US$0.01 per share. IFRS net loss/earnings include US$0.02 per share in after-tax amortization of intangible assets and stock-based compensation costs.

This guidance was established by management based on existing backlog as of the date of this press release, seasonality, expected bookings for the remaining of the quarter, as well as 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 2015. To listen to the conference call and participate in the question period via telephone, dial 1-416-641-6700. 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 11:59 p.m. on January 14, 2015. The replay number is 1-402-977-9141 and the reservation number is 21753961. 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 a leading provider of next-generation test, service assurance and end-to-end quality of experience solutions for mobile and fixed network operators and equipment manufacturers in the global telecommunications industry. EXFO's intelligent solutions with contextually relevant analytics improve end-user quality of experience, enhance network performance and drive operational efficiencies throughout the network and service delivery lifecycle. Key technologies supported include 3G, 4G/LTE, VoLTE, IMS, video, Ethernet/IP, SNMP, OTN, FTTx, xDSL and various optical technologies accounting for more than 38% of the global portable fiber-optic test market. EXFO has a staff of approximately 1600 people in 25 countries, supporting more than 2000 customers worldwide. For more information, visit www.EXFO.com and follow us on the EXFO Blog, Twitter, LinkedIn, Facebook, Google+ and YouTube.

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, expect, believe, plan, anticipate, intend, could, estimate, continue, or similar expressions or the negative of such expressions are intended to identify forward-looking statements. In addition, any statement that refers 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, but not limited to, macroeconomic uncertainty as well as capital spending and network deployment levels in the telecommunications industry (including our ability to quickly adapt cost structures with anticipated levels of business and our ability to manage inventory levels with market demand); future economic, competitive, financial and market conditions; consolidation in the global telecommunications test and service assurance industry and increased competition among vendors; capacity to adapt our future product offering to future technological changes; limited visibility with regards to timing and nature of customer orders; longer sales cycles for complex systems involving customers' acceptances delaying revenue recognition; fluctuating exchange rates; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully expand international operations; our ability to successfully integrate businesses that we acquire; 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 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 before depreciation and amortization* and adjusted EBITDA**) as supplemental information regarding its operational performance. The company uses these measures for the purpose of evaluating 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, in addition to IFRS measures, allows investors 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 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 before depreciation and amortization represents sales less cost of sales, excluding depreciation and amortization.
**	Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain or loss.

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

Adjusted EBITDA (unaudited)
	Q1 2015		Q4 2014		Q1 2014
IFRS net earnings (loss) for the period	$ 1,481		$ 1,204		$ (747)
Add (deduct):
Depreciation of property, plant and equipment	1,245		1,258		1,275
Amortization of intangible assets	1,098		1,117		1,182
Interest income	(217)		(30)		(27)
Income taxes	1,165		1,449		948
Stock-based compensation costs	400		424		463
Foreign exchange (gain) loss	(1,975)		334		(802)
Adjusted EBITDA for the period	$ 3,197		$ 5,756		$ 2,292
Adjusted EBITDA in percentage of sales	5.6%		9.6%		4.1%

EXFO Inc. Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
			As at November 30, 2014			As at August 31, 2014
Assets
Current assets
Cash			$	52,221		$	54,121
Short-term investments				5,389			5,726
Accounts receivable
	Trade			48,074			46,031
	Other			2,610			2,001
Income taxes and tax credits recoverable				4,363			3,796
Inventories				34,551			35,232
Prepaid expenses				2,502			2,281
				149,710			149,188
Tax credits recoverable				38,982			41,745
Property, plant and equipment				40,007			42,780
Intangible assets				6,078			7,293
Goodwill				25,140			26,488
Deferred income taxes				10,273			9,816
Other assets				548			721
			$	270,738		$	278,031
Liabilities
Current liabilities
Accounts payable and accrued liabilities			$	35,672		$	29,553
Provisions				508			532
Income taxes payable				727			840
Deferred revenue				7,728			8,990
				44,635			39,915
Deferred revenue				2,952			3,319
Deferred income taxes				2,733			3,087
Other liabilities				711			340
				51,031			46,661
Shareholders' equity
Share capital				111,015			111,491
Contributed surplus				16,540			16,503
Retained earnings				115,116			113,635
Accumulated other comprehensive loss				(22,964)			(10,259)
				219,707			231,370
			$	270,738		$	278,031

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,
		2014			2013
Sales		$	56,724		$	56,003
Cost of sales ^(1)			21,237			21,185
Selling and administrative			21,032			21,708
Net research and development			11,658			11,281
Depreciation of property, plant and equipment			1,245			1,275
Amortization of intangible assets			1,098			1,182
Interest income			(217)			(27)
Foreign exchange gain			(1,975)			(802)
Earnings before income taxes			2,646			201
Income taxes			1,165			948
Net earnings (loss) for the period		$	1,481		$	(747)
Basic and diluted net earnings (loss) per share		$	0.02		$	(0.01)
Basic weighted average number of shares outstanding (000's)			60,335			60,217
Diluted weighted average number of shares outstanding (000's)			60,980			60,217

(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,
			2014			2013
Net earnings (loss) for the period			$	1,481		$	(747)
Other comprehensive income (loss), net of income taxes
Items that will not be reclassified subsequently to net earnings
	Foreign currency translation adjustment			(11,735)			(1,948)
Items that may be reclassified subsequently to net earnings
	Unrealized losses on forward exchange contracts			(1,505)			(240)
	Reclassification of realized losses on forward exchange contracts in net loss			162			174
	Deferred income tax effect of losses on forward exchange contracts			373			18
Other comprehensive loss				(12,705)			(1,996)
Comprehensive loss for the period			$	(11,224)		$	(2,743)

EXFO Inc. Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
			Three months ended November 30, 2013
				Share Capital			Contributed Surplus			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity
Balance as at September 1, 2013			$	109,837		$	17,186		$	112,852		$	(3,423)		$	236,452
Exercise of stock options				106			–			–			–			106
Reclassification of stock-based compensation costs				1,435			(1,435)			–			–			–
Stock-based compensation costs				–			417			–			–			417
Net loss for the period				–			–			(747)			–			(747)
Other comprehensive loss
	Foreign currency translation adjustment			–			–			–			(1,948)			(1,948)
	Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $18			–			–			–			(48)			(48)
Total comprehensive loss for the period				–			–			(747)			(1,996)			(2,743)
Balance as at November 30, 2013			$	111,378		$	16,168		$	112,105		$	(5,419)		$	234,232
			Three months ended November 30, 2014
				Share Capital			Contributed Surplus			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity
Balance as at September 1, 2014			$	111,491		$	16,503		$	113,635		$	(10,259)		$	231,370
Redemption of share capital				(919)			66			–			–			(853)
Reclassification of stock-based compensation costs				443			(443)			–			–			–
Stock-based compensation costs				–			414			–			–			414
Net earnings for the period				–			–			1,481			–			1,481
Other comprehensive loss
	Foreign currency translation adjustment			–			–			–			(11,735)			(11,735)
	Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $373			–			–			–			(970)			(970)
Total comprehensive loss for the period				–			–			1,481			(12,705)			(11,224)
Balance as at November 30, 2014			$	111,015		$	16,540		$	115,116		$	(22,964)		$	219,707

EXFO Inc. Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
			Three months ended November 30,
				2014			2013
Cash flows from operating activities
Net earnings (loss) for the period			$	1,481		$	(747)
Add (deduct) items not affecting cash
	Stock-based compensation costs			400			463
	Depreciation and amortization			2,343			2,457
	Deferred revenue			(1,027)			(1,752)
	Deferred income taxes			(332)			625
	Changes in foreign exchange gain/loss			(1,028)			(108)
				1,837			938
Changes in non-cash operating items
	Accounts receivable			(5,036)			(1,657)
	Income taxes and tax credits			(212)			743
	Inventories			(1,181)			(2,312)
	Prepaid expenses			(336)			171
	Other assets			1			6
	Accounts payable, accrued liabilities and provisions			6,836			5,485
	Other liabilities			(19)			(26)
				1,890			3,348
Cash flows from investing activities
Additions to short-term investments				(13,691)			(9,781)
Proceeds from disposal and maturity of short-term investments				13,766			9,772
Additions to capital assets				(754)			(701)
				(679)			(710)
Cash flows from financing activities
Exercise of stock options				–			106
Redemption of share capital				(853)			–
				(853)			106
Effect of foreign exchange rate changes on cash				(2,258)			(365)
Change in cash				(1,900)			2,379
Cash – Beginning of the period				54,121			45,386
Cash – End of the period			$	52,221		$	47,765
Supplementary information
Income taxes paid			$	367		$	642

SOURCE EXFO inc.

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