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Marketing with BMO Capital Markets Oct 2013

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Marketing with BMO Capital Markets Oct 2013

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Marketing with BMO Capital Markets Oct 2013

  1. 1. Marketing with BMO Capital Markets Germain Lamonde Chairman, President & CEO October 10, 2013
  2. 2. 2© 2013 EXFO Inc. All rights reserved.. 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 Q4 2013 press release or the “Non-IFRS Measures” section on EXFO’s website. Forward-Looking Statements
  3. 3. 3© 2013 EXFO Inc. All rights reserved. EXFO at a Glance Who We Are › No.2 supplier in portable telecom testing and innovation leader in IP service assurance › Enabling network operators and equipment manufacturers to design, deploy and monitor IP fixed and mobile networks What We’ve Done › Gained market share year-in and year-out for past 28 years › Ten-year sales CAGR of 17.4% › Difficult markets in FY 2012-13 › Sales down 3% in FY’13 › Cost savings of $9 M in FY’13 › Adjusted EBITDA1 margin flat year-over-year at 7.2% Where We’re Going › Increase wireless presence › Enable network operators to reduce operating expenses › Expand share of wallet with Tier-1 operators › Accelerate profitability through execution 1Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, restructuring charges, stock-based compensation costs and foreign exchange gain.
  4. 4. 4© 2013 EXFO Inc. All rights reserved.. 4© 2013 EXFO Inc. All rights reserved.. Global Organization › No.1 in portable optical testing › No.2 in portable telecom testing >2000 CUSTOMERS IN 100 COUNTRIES >1600 EMPLOYEES IN 25 COUNTRIES Americas ›FY 2013 Sales: $128.1 M ›Growth YoY: -2.3% ›Sales Split: 53% EMEA ›FY 2013 Sales: $67.0 M ›Growth YoY: -6.0% ›Sales Split: 28% Asia-Pacific ›FY 2013 Sales: $47.0 M ›Growth YoY: -1.0% ›Sales Split: 19%
  5. 5. 5© 2013 EXFO Inc. All rights reserved. 5© 2013 EXFO Inc. All rights reserved. Global IP traffic Up 3X from 2012-2017 Mobile IP traffic Up 13X from 2012-2017 (Cisco) Bandwidth Demand STRONG FUNDAMENTAL DRIVERS, MARKED BY INCREASED MOBILE TRAFFIC AND VIDEO
  6. 6. 6© 2013 EXFO Inc. All rights reserved.. Headwinds & Tailwinds Tailwinds ›3G, 4G/LTE deployments ›Mobile backhaul upgrades ›Network density initiatives (Small cells, DAS, RRH) ›100G network rollouts ›Pair bonding and vectoring on copper links (100 Mbit/s) Headwinds ›Uncertain economic conditions ›Challenging markets in EMEA
  7. 7. 7© 2013 EXFO Inc. All rights reserved.. Global Mobile Devices Forecast 4G/LTE: 10% OF CONNECTIONS BUT 45% OF TRAFFIC IN 2017 4G 2G 3G 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Millions 2012 2013 2014 2015 2016 2017 Source:CiscoVNIMobileForecast,2013
  8. 8. 8© 2013 EXFO Inc. All rights reserved.. Growth Strategy Sales to wireless customers on the rise (~28% of sales in FY’13) Increase Wireless Presence Expand Share of Wallet with Tier-1 Operators Doing business with ~80 of top-100 operators worldwide Accelerate Profitability Combining revenue growth with a tight control on expenses Enable Operators to Reduce OPEX Key productivity differentiator: FTB Ecosystem STAY THE COURSE AND EXECUTE FLAWLESSLY
  9. 9. 9© 2013 EXFO Inc. All rights reserved. Focus on Execution Innovation Operational Excellence Profitable Growth •First-to-market with game-changing solutions •Leveraging higher-margin SW solutions •Cost savings of $9 M in FY 2013 •Focus on gross margin improvement •Balance between sales growth & profitability •Targeting 15% adjusted EBITDA1 margin 1Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain or loss.
  10. 10. 10© 2013 EXFO Inc. All rights reserved. Telecom Market TAM* SAM* Major competitors Sales growth ― FY ’13/’12 Five-year sales CAGR Annual growth rate Sales ― FY 2013 Gross margin profile $820 M $685 M JDSU, Anritsu 4.3% 2.7% 0-5% $140.9 M 55-60% $3.8 B $1.8 B JDSU, IXIA, Tektronix -11.3% 24.5% 10-15% $100.8 M 70-75% PHYSICAL (Optical&Access) PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH PROTOCOL (Wireless,Serv.Assurance, Transport&Datacom) *Total available market (TAM) and serviceable available market (SAM) were raised in 2013 due to more accurate market intelligence, not necessarily because these markets increased in size.
  11. 11. 11© 2013 EXFO Inc. All rights reserved. Physical-Layer Business COPPER ACCESS › Most advanced product portfolio for high-speed copper links › New MaxTester secured contract wins with several tier-1 operators › Supports pair bonding & vectoring (100 Mb/s) PORTABLE OPTICAL › No. 1 player with >35% market share › Market dominance in OTDR testing › Key differentiator: iOLM software › Market leader in dispersion testing › Unmatched product breadth & depth
  12. 12. 12© 2013 EXFO Inc. All rights reserved. Protocol-Layer Business WIRELESS › Protocol analyzers: 4G/LTE and 3G test solutions for deployment and troubleshooting applications › Network simulators: Large-scale emulation of subscriber sessions to test routers, gateways and session border controllers SERVICE ASSURANCE › Probe-based systems targeted at medium to large network operators › Primary focus on active testing to validate service-level agreements › Monitoring multi-play services with a single platform is key differentiator TRANSPORT AND DATACOM › Multi-service analyzers for SONET/SDH, OTN and Ethernet rates from 10M to 100G › Comprehensive portfolio for wireless backhaul › Pioneered new standard for Ethernet testing (EtherSam)
  13. 13. 13© 2013 EXFO Inc. All rights reserved.. Innovation That Makes A Difference TravelHawk Pro FTB-88100NGE EXFO Connect Portable, multiservice test solution supports transmission rates from 100M to 100G 4G/LTE troubleshooting tool selected by three of top-5 LTE operators Cloud-based software suite leverages FTB platform connectivity to enhance productivity ENABLING OPERATORS TO INCREASE EFFICIENCY & REDUCE OPEX
  14. 14. 14© 2013 EXFO Inc. All rights reserved.. Revenue Adjusted EBITDA Margin InUS$Millions 0% 20% 50% 10% 30% 40% 70% 60% -10% $50 $100 $150 $200 $250 $300 Gross Margin Financial Snapshot 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 36% 34% 21% 24% -6% 32% 33% -7% -3% Sales CAGR of 17.4% over last 10 Years Revenue › $242.2 M in FY’13 › Operators delayed spending in FY’12-13 › FY’14: Targeting growth Gross Margin › 61.8% in FY’13 › Up 9X in last 11 years › FY’14-15: Expected to rise Adjusted EBITDA Margin › 7.2% in FY’13 (flat YoY) › Cost savings of $9 M YoY › Targeting 15%PercentageofSales
  15. 15. 15© 2013 EXFO Inc. All rights reserved.. Annual Financial Results1 (in US$ millions, except gross margin) 1 All financial results from continuing operations, except net earnings/loss and adjusted EBITDA. 2 Fiscal 2011-2013 financial results according to IFRS; prior years according to Canadian GAAP. 3 Gross margin is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization. 4 Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation and amortization, restructuring charges, R&D tax credits recovery, changes in the fair value of the cash contingent consideration, impairment of goodwill, stock-based compensation costs, gain from the disposal of discontinued operations and foreign exchange gain or loss. Sales Gross Margin3 Net R&D Expenses Adjusted EBITDA4 Net Earnings/Loss2 SG&A Expenses
  16. 16. 16© 2013 EXFO Inc. All rights reserved.. Q4 2013 Highlights › Sales totaled $60.9 M, up 6.5% YoY and 3.4% sequentially › Bookings attained $54.0 M (book-to-bill ratio of 0.89) › Gross margin1 reached 62.9%, highest level in last 6 quarters › IFRS net earnings amounted to $3.8 M, $0.06 per diluted share › Adjusted EBITDA2 totaled $7.1 M, 11.6% of sales 1Gross margin is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization. 2Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain.
  17. 17. 17© 2013 EXFO Inc. All rights reserved. Strong Value Proposition 5 Good Reasons to Invest in EXFO 1.Proven track record of sales growth Sales CAGR of 17.4% in last 10 years 2.Well positioned for key growth drivers 3G, 4G/LTE, wireless backhaul, small cells, DAS, RRH, FTTx, 100G 3.Balancing sales growth and profitability Targeting adjusted EBITDA 1 margin of 15% on revenue of $350 to $400 M 4.Solid balance sheet Cash position of $50.3 M and no debt — as at August 31, 2013 5.Experienced and disciplined management team Deep knowledge of managing business in growth and downward markets 1Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain or loss.

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