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EXFO Reports Q4

Sales and pro forma losses both drop, while the company restructures into two market segments

September 30, 2003

5 Min Read

QUEBEC CITY -- EXFO Electro-Optical Engineering Inc. (NASDAQ: EXFO, TSX: EXF) announced today fourth-quarter and year-end results for fiscal 2003. Sales decreased 5% to US$14.3 million in the fourth quarter ended August 31, 2003 from $15.1 million in the previous quarter and 17% from US$17.2 million in the fourth quarter of 2002. Overall for fiscal 2003, sales fell 9% to US$61.9 million from US$68.3 million in 2002. EXFO's pro forma net loss in the fourth quarter of fiscal 2003 amounted to US$2.7 million, or US$0.04 per share, compared to a pro forma net loss of US$4.1 million, or US$0.06 per share, in the third quarter of 2003 and a pro forma net loss of US$1.2 million, or US$0.02 per share, in the fourth quarter of 2002. Net loss in the fourth quarter of fiscal 2003 totaled US$10.1 million, or US$0.16 per share, compared to a net loss of US$38.4 million, or US$0.61 per share, in the previous quarter and a net loss of US$3.0 million, or US$0.05 per share, in the fourth quarter of 2002. Pro forma net loss for fiscal 2003 amounted to US$11.5 million, or US$0.18 per share, compared to a pro forma net loss of US$11.2 million, or US$0.19 per share, for 2002. Net loss for fiscal 2003 was US$55.0 million, or US$0.87 per share, compared to a net loss of US$308.5 million, or US$5.09 per share, for fiscal 2002. Gross margin increased to 45.8% of sales in the fourth quarter of fiscal 2003, excluding inventory write-offs of US$2.5 million and a non-recurring gain of US$473,000. Including inventory write-offs and the non-recurring gain, gross margin was 31.8% in the fourth quarter. In comparison, gross margin represented 41.7% of sales in the third quarter of 2003, excluding inventory write-offs, or 34.7% including inventory write-offs. In the fourth quarter of 2002, gross margin was 49.2%. Overall for fiscal 2003, gross margin declined to 47.4% of sales, excluding inventory write-offs of US$4.1 million and the non-recurring gain. Including inventory write-offs and the non-recurring gain, gross margin was 41.6% in 2003. In comparison, gross margin was 50.4% in 2002, excluding inventory write-offs, or 23.4% including inventory write-offs. In the fourth quarter of 2003, a new presentation was adopted with certain expenses reclassified from selling and administrative expenses to cost of sales. Consequently, comparative figures have been reclassified. "The past two years have been a period of transition for EXFO as we adapted to the new telecom environment," said Germain Lamonde, Chairman, President and CEO of EXFO. "We improved our long-term strategic position by refocusing our business towards network service providers and system manufacturers-the first two segments in the communications supply chain. The end result is that sales of our Portable and Monitoring product lines, which progressed from almost one-third of our revenues in fiscal 2001 to two-thirds in 2003, increased 3% year-over-year despite depressed spending levels. Protocol testing is a key element of our strategy for these sectors. I am pleased with our protocol results in the last three quarters and we will maintain our strong R&D program." At the beginning of the fourth quarter, EXFO announced a restructuring plan providing approximately US$10 million in annualized pre-tax savings. The company reduced its workforce by 30%, exited the optical component manufacturing automation business and streamlined manufacturing operations. Cost-reduction initiatives incurred charges of approximately US$4.1 million in fiscal 2003, including US$3.8 million in the fourth quarter. To begin fiscal 2004, EXFO has reorganized its business under two new market segments. The new Telecom Division consists of former Portable and Monitoring and telecom-related Industrial and Scientific product lines. The new Photonics & Life Sciences Division includes previous non-telecom Industrial and Scientific product lines. Business Highlights
EXFO introduced approximately 15 new products in fiscal 2003. Key product launches for the network service provider market included a next-generation Polarization Mode Dispersion (PMD) Analyzer that sweeps through amplifiers to characterize entire optical networks at once; a Fibre Channel test module for emerging storage area networks (SANs); and an Integrated Applications Suite that automates the operation of test modules within the FTB-400 platform. For the system vendor market, EXFO released a 2.5+ Gigabit Multi-Rate Transceiver that optimizes the design and manufacturing of next-generation SONET/SDH, IP-based networks. Operating Expenses
Selling and administrative expenses amounted to US$6.0 million (including a non-recurring gain of US$239,000), or 42.1% of sales, in the fourth quarter of fiscal 2003 compared to US$7.1 million, or 46.7% of sales, in the third quarter of 2003 and US$6.7 million, or 38.7% of sales, in the fourth quarter of 2002. In fiscal 2003, selling and administrative expenses totaled US$27.0 million, or 43.6% of sales, compared to US$33.9 million, or 49.6% of sales, in 2002. Gross research and development expenses amounted to US$3.9 million, or 27.0% of sales, in the fourth quarter of fiscal 2003 compared to US$4.6 million, or 30.7% of sales, in the previous quarter and US$3.2 million, or 18.8% of sales, in the fourth quarter of 2002. In fiscal 2003, gross research and development expenses reached US$17.1 million, or 27.7% of sales, compared to US$17.0 million, or 24.9% of sales, in 2002. Business Outlook
EXFO forecasted sales between US$13.0 million and US$16.0 million and a GAAP net loss between US$0.10 and US$0.07 per share for the first quarter of fiscal 2004. GAAP net loss includes a loss representing amortization of intangible assets and income tax recovery that is expected to amount to US$0.01 per share in the first quarter of 2004. EXFO Electro-Optical Engineering Inc.

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