QUEBEC -- EXFO Electro-Optical Engineering Inc. (NASDAQ: EXFO, TSX: EXF.SV) reported today 20.5% year-over-year sales growth for fiscal 2004.

Sales reached US$74.6 million in the fiscal year ended August 31, 2004, compared to US$61.9 million in 2003. In the fourth quarter of 2004, sales increased 4.3% to US$21.3 million from US$20.5 million in the previous quarter and 48.9% from US$14.3 million in the fourth quarter of 2003.

GAAP net loss in fiscal 2004 totaled US$8.4 million, or US$0.13 per share, compared to US$55.0 million, or US$0.87 per share, in 2003. In the fourth quarter of 2004, GAAP net loss amounted to US$2.3 million, or US$0.03 per share, compared to US$1.2 million, or US$0.02 per share, in the third quarter of 2004 and US$10.1 million, or US$0.16 per share, in the fourth quarter of 2003. GAAP net loss in the fourth quarter of 2004 includes restructuring and other charges as well as an impairment of a long-lived asset for a total of US$2.3 million.

Gross margin amounted to 53.7% in fiscal 2004 compared to 47.4% (excluding inventory write-offs and a non-recurring gain) in 2003. In the fourth quarter of 2004, gross margin increased to 55.1% from 52.9% in the previous quarter and 45.8% (excluding inventory write-offs and a non-recurring gain) in the fourth quarter of 2003.

"Through a superior customer value proposition, we delivered our second-best sales performance in history-ahead of our 2000 sales level-with 21% annual revenue growth, four consecutive quarters of revenue growth, profitability on a pro forma basis in the last two quarters, and a significant improvement in gross margin year-over-year, despite a still difficult market place," said Germain Lamonde, EXFO's Chairman, President and CEO. "We also displayed our ability to gain market share-a key metric-in good and bad times. We are among very few companies that steadily invested in R&D throughout the downturn, maintaining a long-term course to make EXFO the market leader in key, emerging growth areas like FTTP and next-generation, IP networking."

Fiscal 2004 Business Highlights

Operating Expenses

Selling and administrative expenses amounted to US$25.9 million, or 34.7% of sales, in fiscal 2004 compared to US$27.0 million, or 43.6% of sales, in 2003. In the fourth quarter of 2004, selling and administrative expenses totaled US$6.3 million, or 29.8% of sales, compared to US$6.9 million, or 33.9% of sales, in the third quarter of 2004 and 6.0 million, or 42.1% of sales, in the fourth quarter of 2003.

Gross research and development (R&D) expenses amounted to US$15.7 million, or 21.0% of sales, in fiscal 2004 compared to US$17.1 million, or 27.7% of sales, in 2003. In the fourth quarter of 2004, gross R&D expenses decreased to US$3.6 million, or 17.0% of sales, from US$4.2 million or, 20.4% of sales, in the previous quarter and US$3.9 million, or 27.0% of sales, in the fourth quarter of 2003.

Business Outlook

EXFO forecasted sales between US$20.0 million and US$23.0 million and a GAAP net loss between US$0.04 and US$0.01 per share for the first quarter of fiscal 2005. Excluding stock-based compensation costs, amortization of intangible assets, restructuring charges and other unusual items, the company expects to report pro forma net loss/earnings between a loss of $0.02 per share and earnings of US$0.01 per share.

EXFO Electro-Optical Engineering Inc.