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Optical/IP

EXFO Meets Lowered Expectations

EXFO Electro-Optical Engineering Inc. (Nasdaq: EXFO; Toronto: EXF) on Tuesday night reported that the market for fiber optic test, measurement, and monitoring equipment is suffering the same agony as the rest of the industry. After the stock market closed, EXFO reported fourth-quarter earnings in line with recently lowered estimates but on disappointing revenues. The company also predicts first-quarter earnings and revenues will fall significantly below analysts’ expectations.

For the quarter ending Aug. 31, EXFO had pro forma earnings (which exclude amortization of intangible assets and goodwill) of $3.2 million, or 6 cents a share. Earnings were down 11 percent from $3.6 million, or 8 cents a share, a year ago.

Revenues were $35 million, up 53 percent from the year-ago figure of $23 million. But the consensus of analysts was expecting $37 million revenues, according to Thomson Financial Securities Data.

In trading on Nasdaq early this morning, EXFO shares were down 0.34 (3.72%) to 8.79.

Based on generally accepted accounting principles (GAAP), EXFO lost $14 million, or 29 cents a share for the quarter, versus a gain of $3.5 million, or 8 cents a share, a year ago. For the 2001 year, EXFO lost $15 million, or 29 cents a share, versus year-ago $9.9 million earnings, or 25 cents a share.

EXFO officials say the book-to-bill ratio (the number of orders booked compared to the number filled) is 0.72, which means orders are trickling in slowly. For the first quarter, ending Nov. 30, they predict revenues of $24 million to $28 million, well below the $34 million figure from Thomson. They expect earnings to fall between a loss of 2 cents and a gain of 2 cents a share, a range well below the analyst consensus 7 cents gain.

For the year, EXFO’s sales jumped 104 percent to $146 million from $72 million in 2000. Pro forma earnings for 2001 were $24 million, or 46 cents a share, up from $10 million, or 26 cents a share, in 2000.

Company officials say they expect the picture to improve during the second half of the current fiscal year -- in other words, starting March 2002. They expect the launch of new products and technologies in the second half will stimulate growth. But it remains to be seen whether growth will come soon enough to offset what should be a very weak first half.

Prior to the earnings announcement, analysts were already adjusting numbers downward. For instance, Tuesday morning Robertson Stephens analyst Sue Billat ratcheted down her fiscal 2002 estimate from 25 cents earnings to a 3 cents loss. She also dropped her 2002 revenue projection from $151 million to $107 million.

EXFO had $75 million cash on its balance sheet at the end of the quarter. Officials predict that figure to drop to about $65 million at the end of the current quarter.

EXFO recently announced plans to buy Avantas Networks, a protocol layer testing company, for $65 million. The deal is expected to close by the end of the current quarter.

- Tom Davey, special to Light Reading, http://www.lightreading.com

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