EXFO Reports Record Sales, Bookings and Strong Earnings for Fiscal 2010

QUEBEC CITY, Quebec, Oct. 12, 2010 (GLOBE NEWSWIRE) --

• Annual sales* increase 32.0% to record US$228.1 million
• Gross margin* improves for eighth consecutive year to reach 62.4%
• EBITDA increases 88.8% year-over-year to US$27.3 million
• NetHawk acquisition expands presence in wireless testing and service assurance

* Includes results from Life Sciences and Industrial Division ("discontinued operations").

EXFO Inc. (Nasdaq:EXFO) (TSX:EXF) reported today record sales and bookings as well as strong earnings for its 25^th fiscal year ended August 31, 2010.

Annual sales, including revenue from the recently divested Life Sciences and Industrial Division (referred to as "discontinued operations" in financial statements), increased 32.0% to US$228.1 million in fiscal 2010 from US$172.9 million in 2009. Annual Telecom (referred to as "continuing operations" in financial statements) sales increased 32.4% to US$202.8 million in fiscal 2010 from US$153.1 million in 2009. NetHawk Oyj contributed US$14.5 million in sales during five and a half months with EXFO in fiscal 2010. Excluding NetHawk's revenue contribution, total sales^* increased 23.6% year-over-year.

In the fourth quarter of fiscal 2010, total sales^* amounted to US$65.2 million compared to US$63.2 million in the third quarter of 2010 and US$36.5 million in the fourth quarter of 2009. Telecom sales totaled US$58.6 million in the fourth quarter of fiscal 2010 compared to US$55.9 million in the previous quarter and US$31.5 million in the fourth quarter of 2009.

Overall for fiscal 2010, net bookings^* increased 30.7% to US$235.9 million from US$180.5 million in 2009 for an annual book-to-bill ratio of 1.03. In the fourth quarter of 2010, net bookings^* totaled US$62.3 million for a book-to-bill ratio of 0.96 compared to US$63.6 million in the third quarter of 2010 and US$40.7 million in the fourth quarter of 2009.

Gross margin^* improved for an eighth consecutive year to reach 62.4% of sales in fiscal 2010. Telecom gross margin attained 63.6% in fiscal 2010. In the fourth quarter of 2010, gross margin^* amounted to 63.5% of sales compared to 62.3% in the third quarter of 2010 and 60.0% in the fourth quarter of 2009. Telecom gross margin reached 64.8% in the fourth quarter of 2010 compared to 63.5% in the previous quarter and 61.3% in the fourth quarter of 2009.

In fiscal 2010, GAAP net earnings totaled US$6.6 million, or US$0.11 per diluted share, including US$7.8 million in amortization of intangible assets and US$1.8 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$1.3 million.

In fiscal 2009, GAAP net loss totaled US$16.6 million, or US$0.27 per share, including US$21.7 million for impairment of goodwill, US$5.1 million in amortization of intangible assets, US$1.4 million in stock-based compensation costs and US$1.2 million in restructuring charges. These items were partially offset by US$1.9 million for the recognition of previously unrecognized R&D tax credits and US$0.9 million for the net recovery of income taxes. These items resulted in an income tax recovery of US$2.6 million.

In the fourth quarter of 2010, GAAP net earnings amounted to US$5.0 million, or US$0.08 per diluted share, including US$2.5 million in amortization of intangible assets and US$0.5 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$0.2 million.

In the third quarter of fiscal 2010, GAAP net earnings totaled US$0.2 million, or US$0.00 per diluted share, including US$2.4 million in amortization of intangible assets and US$0.4 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$0.2 million.

In the fourth quarter of 2009, GAAP net loss amounted to US$1.2 million, or US$0.02 per share, including US$1.2 million in restructuring charges, US$1.1 million in amortization of intangible assets, and US$0.4 million in stock-based compensation costs. These items were offset by US$1.9 million for the recognition of previously unrecognized R&D tax credits and US$0.9 million for the net recovery of income taxes. These items resulted in an income tax expense of US$0.1 million.

"EXFO's 25^th year anniversary provides me with a great deal of satisfaction since we now stand among the top global players in our field, we delivered robust growth across all our businesses and geographies, we improved our gross margin for an eighth consecutive year, and we generated strong increases in earnings and EBITDA," said Germain Lamonde, EXFO's Chairman, President and CEO. "With the acquisition of NetHawk, EXFO has become a major force in the wireless industry, while the recent divestiture of the Life Sciences and Industrial Division allows us to focus exclusively on the telecom space. It's a sector in which we posted a five-year sales CAGR of 20.4% despite the recent economic recession —– compared to an industry average of about 5%. We're also definitely on track to achieve our three-year corporate performance objectives and even raised each one of them during the past year thanks to our strategic positioning."

"Looking back on 25 years, I cannot thank enough all team members, customers and partners for having made EXFO the highly progressive organization it has become today. I look forward to working with all of them to take EXFO to the next level."

Operating Expenses

Telecom selling and administrative expenses amounted to US$66.6 million, or 32.9% of sales, in fiscal 2010 compared to US$58.1 million, or 37.9% of sales, in 2009. In the fourth quarter of 2010, Telecom selling and administrative expenses totaled US$18.9 million, or 32.3% of sales, compared to US$18.6 million, or 33.2% of sales, in the third quarter of 2010 and US$12.8 million, or 40.5% of sales, in the fourth quarter of 2009.

Telecom gross research and development (R&D) expenses reached US$44.6 million, or 22.0% of sales, in fiscal 2010 compared to US$33.6 million, or 21.9% of sales, in 2009. In the fourth quarter of 2010, Telecom gross R&D expenses attained US$12.4 million, or 21.1% of sales, compared to US$13.1 million, or 23.5% of sales, in the previous quarter and US$8.5 million, or 27.0% of sales, in the fourth quarter of 2009.

Telecom net R&D expenses totaled US$37.8 million, or 18.7% of sales, in fiscal 2010 compared to US$27.2 million, or 17.8% of sales, in 2009. In the fourth quarter of 2010, Telecom net R&D expenses amounted to US$10.5 million, or 17.9% of sales, compared to US$11.1 million, or 19.9% of sales, in the third quarter of 2010 and US$6.8 million, or 21.5% of sales, in the fourth quarter of 2009.

Fiscal 2010 Highlights

• IP Fixed and Mobile Network Convergence and Broadband Deployments — Telecom sales increased 32.4% to US$202.8 million in fiscal 2010 due to market-share gains, a US$14.5 million revenue contribution from recently acquired NetHawk, and improved market conditions. Optical, Protocol and Copper Access sales improved 14.2%, 43.3%, and 131.2%, respectively, in 2010. Geographically, Telecom sales increased 22.6% in the Americas, 41.2% in Europe, Middle East and Africa (EMEA), and 53.0% in Asia-Pacific in 2010. EXFO's largest telecom customer accounted for 4.9% of sales in 2010 while the company's top three customers represented 12.2% which reflects a strong account diversity.
   
• Profitable Growth Path — EXFO increased EBITDA in dollars 88.8% to US$27.3 million in fiscal 2010 on total sales^* of US$228.1 million. EBITDA margin improved to 12.0% of sales in 2010 from 8.4% in 2009. Gross margin^* increased for an eighth consecutive year to reach 62.4% in 2010.
   
• Acquisitions/Divestitures — In March 2010, EXFO acquired NetHawk Oyj, the second-largest provider of 2G, 3G and 4G/LTE protocol analyzers and network simulators, to expand its presence in the rapidly growing wireless test and service assurance market. This acquisition enables EXFO to provide end-to-end assessment of IP fixed and mobile networks. Following the fiscal year-end, EXFO sold its Life Sciences and Industrial Division for US$24.3 million in cash to become a pure-play in the telecom sector.

Business Outlook

Despite only a one-month revenue contribution from the recently divested Life Sciences and Industrial Division for the first quarter of fiscal 2011, EXFO has maintained its sales forecast between US$61 million and US$66 million, while GAAP net earnings should range between US$0.17 and US$0.21 per diluted share. GAAP net earnings include US$0.22 per share for the estimated gain on the disposal of the Life Sciences and Industrial Division and US$0.05 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 August 31, 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.

Corporate Performance Objectives for Fiscal 2010-2012

EXFO is on track to achieve its three-year corporate performance objectives after fiscal 2010. Despite the recent sale of the Life Sciences and Industrial Division, the company has opted to maintain its sales and EBITDA growth objectives for the remaining two years of the plan and increase its gross margin target. Given the lower gross margin profile of the divested Life Sciences and Industrial Division, EXFO has raised its gross margin goal from 64% to 65%. Fiscal 2010 results include discontinued operations.

* EBITDA is defined as net earnings (loss) before interest, income taxes, amortization of property, plant and equipment, amortization of intangible assets, impairment of goodwill and extraordinary gain. See farther in this document for a reconciliation of GAAP net earnings (loss) to EBITDA.

Conference Call and Webcast

EXFO will host a conference call today at 5 p.m. (Eastern time) to review its fourth-quarter and year-end financial results for fiscal 2010. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9030. 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 will be available one hour after the end of the conference call until 7 p.m. on October 19, 2010. The replay number is 1-402-977-9141 and the reservation number is 21482274. The live audio Webcast and replay of the conference call will also be available on EXFO's Website at www.EXFO.com/investors.

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.

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 Measure

EXFO provides a non-GAAP financial measure (EBITDA**) as supplemental information regarding its operational performance. The company uses this measure for the purposes of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. This measure also helps EXFO's management 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 GAAP measures, allows investors to see the company's results through the eyes of management, and to better understand the company's 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.

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

** EBITDA is defined as net earnings (loss) before interest, income taxes, amortization of property, plant and equipment, amortization of intangible assets, impairment of goodwill and extraordinary gain.