QUEBEC CITY -- EXFO Electro-Optical Engineering Inc. (NASDAQ: EXFO, TSE: EXF) reported today sales growth of 11.4% and a 5.2% improvement in gross margin for the first quarter ended November 30, 2003.

Sales reached US$16.0 million in the first quarter of fiscal 2004 compared to US$14.3 million in the fourth quarter of 2003 and US$17.7 million in the first quarter of 2003. The net book-to-bill ratio increased to 1.06 in the first quarter of fiscal 2004 from 0.98 in the previous quarter and 0.89 in the first quarter of 2003.

Gross margin amounted to 51.0% of sales in the first quarter of fiscal 2004 compared to 45.8% (excluding inventory write-offs and a non-recurring gain) in the fourth quarter of 2003 and 54.7% in the first quarter of 2003.

Net GAAP loss for the first quarter of fiscal 2004 totaled US$2.0 million, or US$0.03 per share, compared to a net loss of US$10.1 million, or US$0.16 per share, for the fourth quarter of 2003 and a net loss of US$2.2 million, or US$0.03 per share, for the first quarter of 2003. Net loss in the first quarter of fiscal 2004 included a non-recurring tax gain of US$1.4 million or US$0.02 per share.

“Sequential increases in sales, bookings and gross margin, combined with a tight control on operating costs and a non-recurring tax gain, have brought us closer to our goal of reaching break-even, despite the negative impact of the Canadian dollar,” said Germain Lamonde, Chairman, President and CEO of EXFO. “Thanks to our strong R&D program, we are introducing new and exciting products to respond to market opportunities, and strengthening our strategic position while placing a strong focus on improving our gross margin and efficiencies. These initiatives should help us to increase revenues through market-share gains and return EXFO to profitability.”

Business Highlights

EXFO successfully completed its business reorganization in the first quarter, consisting of two separate divisions to better serve its end-markets and maximize revenues.

The company also introduced seven new products in the first quarter, including the 10+ Gigabit Multi-Rate Transceiver designed for the next-generation SONET⁄SDH equipment manufacturer market. This new product introduction is aligned with EXFO’s strategy to expand both into the protocol layer and system manufacturer markets.

Finally, EXFO has been working with lead customers to help them efficiently deploy their planned fiber-to-the-premises (FTTP) networks.

Operating Expenses
Selling and administrative expenses amounted to US$5.9 million, or 36.7% of sales, in the first quarter of fiscal 2004 compared to US$6.0 million, or 42.1% of sales, in the previous quarter and US$7.3 million, or 40.9% of sales, in the first quarter of 2003.

Gross research and development expenses totaled US$3.6 million, or 22.4% of sales, in the first quarter of fiscal 2004 compared to US$3.9 million, or 27.0% of sales, in the previous quarter and US$4.2 million, or 23.7% of sales, in the first quarter of 2003.

Business Outlook
EXFO forecasted sales between US$14.0 million and US$17.0 million and a GAAP net loss between US$0.09 and US$0.06 per share for the second quarter of fiscal 2004.

EXFO Electro-Optical Engineering Inc.