EXFO Reports $38M Q3 Loss

Sales fell 8% from last year, to $16.3M; net loss was $38.4M ($0.61 per share); Q4 forecast sees sales even lower, at $13.0M to $16.0M

June 26, 2003

4 Min Read

QUEBEC CITY -- EXFO Electro-Optical Engineering Inc. (NASDAQ: EXFO, TSX: EXF) reported today modest sales growth for the third quarter ended May 31, 2003 compared to the previous quarter.

Sales increased 2% to US$15.1 million in the third quarter of fiscal 2003 from US$14.8 million in the second quarter of 2003, but decreased 8% from US$16.3 million in the third quarter of 2002.

"We are pleased that our increased focus on the network service provider (NSP) market, especially with heightened traction in protocol-layer testing, generated sales increases for our Portable and Monitoring product lines of 14% for the third quarter of fiscal 2003 compared to the same period in 2002 and 10% for the first three quarters of 2003 versus the same time last year," said Germain Lamonde, Chairman, President and CEO of EXFO. "These sales increases amidst a shrinking market lead us to believe that we're continuing to gain market share.

"Overall, our net bookings for the first three quarters of fiscal 2003 have been stable compared to the same period in 2002. However, third-quarter results fell below our expectations given the lower-than-expected positive seasonal effect on capital expenditures in the global telecommunications industry, geo-political and economic uncertainty, the outbreak of SARS as well as significant currency fluctuations that negatively impacted our operating expenses."

Pro forma net loss(i) for the third quarter of fiscal 2003 amounted to US$4.1 million, or US$0.06 per share, compared to a pro forma net loss of US$3.4 million, or US$0.05 per share, for the previous quarter and a pro forma net loss of US$3.9 million, or US$0.06 per share, for the third quarter of 2002.

Net loss for the third quarter of fiscal 2003 totaled US$38.4 million, or US$0.61 per share, compared to a net loss of US$4.2 million, or US$0.07 per share, for the second quarter of 2003 and a net loss of US$263.8 million, or US$4.29 per share, for the third quarter of 2002.

The net loss in the third quarter of fiscal 2003 is largely due to US$35.6 million in impairment of assets, namely US$24.3 million in future income tax assets, US$4.5 million in goodwill, US$2.9 million in intangible assets, US$2.3 million in R&D tax credits and US$1.6 million in inventories.

Gross margin, excluding the inventory write-off, amounted to 45.6% of sales for the third quarter of fiscal 2003. Including the inventory write-off, gross margin dropped to 34.7%.

As prescribed by generally accepted accounting principles (GAAP), EXFO reviewed the carrying value of its assets in the third quarter and determined there was some impairment. It should be noted, however, that these are one-time, non-cash charges that do not affect the company's day-to-day operations. EXFO has a strong balance sheet with a cash position of US$61.8 million to ensure its long-term growth.

Following the end of the third quarter, EXFO announced a restructuring plan that will provide approximately US$10 million in annualized pre-tax savings, which will begin to produce an impact in early fiscal 2004. The company reduced its workforce by 30%, rationalized its business operations and consolidated some of its manufacturing operations. These cost-reduction initiatives will incur charges of approximately US$4.8 million, including US$348,000 in the quarter ended and substantially all the rest in the fourth quarter.

Selling and administrative expenses amounted to US$7.7 million, or 50.7% of sales, in the third quarter of fiscal 2003 compared to US$7.0 million, or 47.7% of sales, in the second quarter of 2003 and US$8.8 million, or 53.5% of sales, in the third quarter of 2002.

Gross research and development expenses totaled US$4.6 million, or 30.7% of sales, in the third quarter of fiscal 2003 compared to US$4.4 million, or 29.9% of sales, in the previous quarter and US$4.7 million, or 28.9% of sales, in the third quarter of 2002.

EXFO forecasted sales between US$13.0 million and US$16.0 million and a pro forma net loss(i) between US$0.04 and US$0.07 per share (GAAP net loss between US$0.14 and US$0.20 per share) for the fourth quarter of fiscal 2003.

EXFO Electro-Optical Engineering Inc.

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