EXFO- Marketing with NB Financial - Jan 2013

Marketing with NB Financial

Germain Lamonde
Chairman, President & CEO
January 10, 2013

Forward-Looking Statements
Certain statements in this presentation, or given in response to your questions, may constitute
forward-looking statements within the meaning of the Securities Act of 1934. The Private
Securities Litigation Reform Act of 1995 provides “safe-harbors” for such forward-looking
statements and we intend that any forward-looking statements made today be subject to the
safe harbors. We caution you that any forward-looking statements are just predictions. They
are not guarantees of future performance and involve risks and uncertainties. Actual results
may differ materially from those projected in forward-looking statements and we invite you to
review the company’s most recent filings with the Securities and Exchange Commission or
Canadian securities commissions for a discussion of the factors at risk. These forward-looking
statements speak only as of the date of this presentation and, unless required by law or
applicable regulations, we will not be reviewing or updating the material that is contained
herein.

Annual financial data in this presentation is prepared in accordance with international financial
reporting standards (IFRS) and Canadian generally accepted accounting principles (GAAP).
Quarterly financial data is prepared in accordance with IFRS. For a reconciliation of adjusted
EBITDA to net earnings (loss), refer to the Q1 2013 press release or the “Non-IFRS Measures”
section on EXFO’s website.

© 2013 EXFO Inc. All rights reserved.. 2

EXFO at a Glance

Who We Are What We’ve Done Where We’re Going
› No.2 supplier in portable › Gained market share year-in › Increase wireless presence
telecom testing and innovation and year-out for past 27 years
› Enable network operators to
leader in IP service assurance › Ten-year sales CAGR of 20% reduce operating expenses
› Helping network operators and › Difficult market in FY 2012
› Expand share of wallet with
equipment manufacturers › EXFO sales: -7% YoY while Tier-1 operators
design, deploy and monitor IP double-digit market decrease
fixed and mobile networks › Restructuring: Expected › Accelerate profitability through
annual savings of $8.0 M and execution
restructuring costs of $2.6 M

© 2013 EXFO Inc. All rights reserved. 3

Global Organization
Americas

› FY 2012 Sales: $130.6 M
› Growth YoY: -4.6%
› Sales Split: 52%

EMEA

› FY 2012 Sales: $71.0 M
› Growth YoY: -16.4%

Asia-Pacific
› No.1 in portable optical testing
› No.2 in portable telecom testing › FY 2012 Sales: $47.3 M
› Growth YoY: +1.2%
2000 CUSTOMERS IN >100 COUNTRIES
1700 EMPLOYEES IN >25 COUNTRIES

Bandwidth Demand

Global IP traffic
Up 4X from 2011-2016

Mobile IP traffic
Up 18X (Cisco)

DESPITE STRONG FUNDAMENTAL DRIVERS,
CHALLENGING CONDITIONS FOR WIRELINE MARKET IN 2012

© 2013 EXFO Inc. All rights reserved.
5

US Carrier CAPEX

Capital Intensity
20.0%
15.6%
18.0% 14.6% 15.1%
16.0% 13.3%
12.7%
14.0%
12.0%
10.0%

Source: Morgan Stanley
8.0%
6.0%
4.0%
2.0%
0.0%
2010 2011 2012E 2013E 2014E

AT&T Verizon Sprint T-Mobile Average

4G/LTE AND COMPETITION TO DRIVE INVESTMENTS


Growth Strategy

Increase Wireless Enable Operators Expand Share of Accelerate
Presence to Reduce OPEX Wallet with Tier-1 Profitability via
Operators Execution

Wireless sales to Key productivity Doing business Combining revenue
continue growing differentiators, with ~80% of top-100 growth with a tight
(~24% of sales FTB Ecosystem and operators worldwide control on expenses
in FY 2012) EXFO Connect

EXPANDING MARKET SHARE FOR 27 CONSECUTIVE YEARS


Riding the Right Waves

Market-Driven Innovation
› Wireless backhaul
› 4G/LTE, 3G
› DAS, RRH
› 100G upgrades
› FTTH, VDSL2
› OPEX via efficiency

Focus on Execution
› Unmatched customer
experience

INNOVATION AND EXECUTION ENABLE MARKET-SHARE GAINS


Revenue Mix/Gross Margin Evolution

FY 2006 | FY 2012 Gross Margin
70%

65%
11%
60%

In % of sales
45%
55% 55%

50%
89%
45%

Sales: $107.4 M Sales: $250.0 M 40%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Protocol Other

MOVING TOWARD HIGHER-MARGIN, PROTOCOL-LAYER SALES


Telecom Market

PROTOCOL
(Wireless, Serv. Assurance,
PHYSICAL

Transport & Datacom)
(Optical & Access)
TAM $700 M $3.2 B
SAM $550 M $1.8 B
Annual growth rate ~5% ~15%
Sales ― FY 2012 $135.1 M $113.7 M
Sales growth ― FY ’12/’11 -14.5% 4.4%
Five-year sales CAGR 3.9% 46.1%
Gross margin profile Low-60s (%) Mid-70s (%)
Major competitors JDSU, Anritsu, Sunrise JDSU, IXIA, Tektronix

PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH


Physical-Layer Business

PORTABLE OPTICAL COPPER ACCESS
› No. 1 player with >35% market share › Product portfolio optimized for high-
› Market dominance in OTDR testing speed copper links
› New MaxTester series secured
› Key differentiator: iOLM software contract wins with three tier-1
› Market leader in dispersion testing North American operators
› Unmatched product breadth & depth › Supports pair bonding & vectoring
(100 Mb/s)


Protocol-Layer Business

TRANSPORT AND DATACOM WIRELESS SERVICE ASSURANCE
› Multi-service analyzers for • Protocol analyzers: 4G/LTE and 3G › Probe-based systems targeted at
SONET/SDH, OTN and Ethernet test solutions for deployment and medium to large network operators
troubleshooting applications
rates from 10M to 100G › Primary focus on active testing to
• Network simulators: Large-scale
› Comprehensive portfolio for wireless emulation of subscriber sessions to validate service-level agreements
backhaul test routers, gateways and session › Monitoring multi-play services with
› Pioneered new standard for Ethernet border controllers a single platform is key differentiator
testing (EtherSam) • Stratgic partnership with Artiza
Networks to offer highest-capacity,
end-to-end simulation solution


Key Differentiator

PUTTING INTELLIGENCE INTO OUR PLATFORMS!


FTB Ecosystem + EXFO Connect + EXFO Apps Store

EXFO Apps Store ›
›
Test Equipment Manager
Test Data Manager
Contains: S/W releases & updates, › GPS/Route Optimization
new applications, training material,
› Work Ticket Management
productivity tools, etc
› License sharing or rental
› Training Management
› Etc. (from EXFO or 3rd parties)

FTB Ecosystem Download applications and
(20+ optical, transport, datacom configurations onto platform Automatically
and copper acces test modules)
close job ticket › Notification
Corporate › Billing
OSS › Signature
Search and
Pass › Next work
request custom
results order
configuration
› Etc.

Automatically upload
test results REDUCES OPEX for
Load configuration and
immediately start testing Operators & NEMs
› Established base of ~40,000 compliant platforms


Financial Snapshot
$300 Revenue
70.0%

› $250 M (-7% YoY)
$250 60.0% › Gained market share
› FY’13: 6-10% growth
(estimate)
Sales CAGR of 20%
50.0%

$200
over last 10 Years 40.0%
Gross Margin

› Improved to 63.3%
$150 30.0%
› Up 9X out of 10 years
› FY’13-15: Trending up
20.0%

$100

10.0%
Adjusted EBITDA Margin

$50
0.0% › 7.3% in FY’12 from
In US$ Millions

13.5% in FY’11 due to
36% 34% 21% 24% -5% 32% 33% -7% lower revenue level
-10.0%
› Mid-term goal: 15%
2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenue Gross Margin Adjusted EBITDA Margin

We plan on increasing our sales volume
to better absorb the cost of being a
global player. By leveraging economies
of scale, we’re targeting a mid-term
1
adjusted EBITDA margin of 15%.

CEO Germain Lamonde
Letter to Shareholders

1Adjusted
EBITDA represents net earnings before interest, income taxes, depreciation of property plant and equipment, amortization of intangible assets, stock-based
compensation costs and foreign exchange gain or loss.


1
Annual Financial Results
(in US$ millions, except gross margin)

Sales Net R&D Expenses Net Earnings/Loss2

Gross Margin SG&A Expenses Adjusted EBITDA3

1 All financial results from continuing operations, except net earnings/loss and adjusted EBITDA.
2 Fiscal 2011 and 2012 financial results according to IFRS; prior years according to Canadian GAAP.
3 Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, stock-based compensation costs,
R&D tax credits recovery, restructuring charges, changes in the fair value of the cash contingent consideration, impairment of goodwill, foreign exchange gain or loss and extraordinary gain.

Q1 2013 Highlights

› Sales reached $59.8 M
› Bookings attained $64.3 M (B/B ratio of 1.07)
› Gross margin1 amounted to 60.5%
› Adjusted EBITDA2 totaled $2.7 M
› Announced contract wins at three tier-1 North American
operators for MaxTester copper/DSL series
› Signed partnership with Artiza Networks to offer the industry’s
highest-capacity, end-to-end 4G/LTE simulation solution
› FTB Ecosystem: Expanded EXFO Connect offering with
floating test licenses option

1Gross margin is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization.
2Adjusted EBITDA represents net loss before interest, income taxes, depreciation of property, plant and equipment, amortization
of intangible assets, stock-based compensation costs and foreign exchange gain.


Strong Value Proposition
5 Good Reasons to Invest in EXFO

1. Excellent track record of sales growth
Sales CAGR of 20% in last 10 years

2. Well-positioned for key growth drivers
Bandwidth expansion and IP network convergence

3. Balancing sales growth and profitability 1
Targeting adjusted EBITDA margin of 15% on revenue of $350 to $400 M

4. Solid balance sheet
Cash position of $59.0 M and negligible debt ― as at November 30, 2012

5. Experienced and disciplined management team
Deep knowledge of managing business in growth and downward markets

1AdjustedEBITDA represents net earnings before interest, income taxes, depreciation of property plant and equipment, amortization of intangible assets, stock-based compensation
costs and foreign exchange gain or loss.

EXFO- Marketing with NB Financial - Jan 2013

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