Marketing with BMO Capital Markets-Oct2012

1 © 2012 EXFO Inc. All rights reserved.

Marketing with BMO Capital Markets

Germain Lamonde Chairman, President & CEO October 11, 2012

2 © 2010 EXFO Inc. All rights reserved.. 2 © 2012 EXFO Inc. All rights reserved.

Certain statements in this presentation, or given in response to your questions, may constitute forward-looking statements within the meaning of the Securities Act of 1934. The Private Securities Litigation Reform Act of 1995 provides “safe-harbors” for such forward-looking statements and we intend that any forward-looking statements made today be subject to the safe harbors. We caution you that any forward-looking statements are just predictions. They are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in forward-looking statements and we invite you to review the company’s most recent filings with the Securities and Exchange Commission or Canadian securities commissions for a discussion of the factors at risk. These forward-looking statements speak only as of the date of this presentation and, unless required by law or applicable regulations, we will not be reviewing or updating the material that is contained herein.

Annual financial data in this presentation is prepared in accordance with international financial reporting standards (IFRS) and Canadian generally accepted accounting principles (GAAP). Quarterly financial data is prepared in accordance with IFRS standards. For a reconciliation of EBITDA and adjusted EBITDA to net earnings (loss), refer to the Q4 2012 press release or “Non-GAAP Financial Measures” section on EXFO’s website.

Forward-Looking Statements

EXFO at a Glance

Who We Are › No.2 supplier in portable

telecom testing and innovation leader in IP service assurance

› Helping network operators and equipment manufacturers design, deploy and monitor IP fixed and mobile networks

What We’ve Done › Gained market share year-in

and year-out for past 27 years

› Ten-year sales CAGR of 20.5%

› Difficult market in FY 2012 › EXFO sales: -7% YoY › End-markets: Double-digit

decreases

Where We’re Going › Increase wireless presence

› Enable network operators to reduce operating expenses

› Expand share of wallet with Tier-1 operators

› Accelerate profitability through execution



World-Class Organization


› No. 1 in portable optical testing › No. 2 in portable telecom testing › 2000 customers in >100 countries › 1700 employees in >25 countries

5 © 2012 EXFO Inc. All rights reserved. 5 © 2012 EXFO Inc. All rights reserved.

Bandwidth Demand

Despite strong fundamental drivers, pause in carrier spending

Global IP traffic Up 4X from 2011-2016

Mobile IP traffic

Up 18X (Cisco)

Telephony

Internet

Mobile

Convergence to IP Networks

HD TV

Operator Focus: Increase network capacity and reduce OPEX 6 © 2012 EXFO Inc. All rights reserved.

› Wireless sales to continue growing (23-25% of sales in FY 2012)

Increase Wireless Presence

Expand Share of Wallet with Tier-1

Operators

› Doing business with ~80% of top-100 operators worldwide

Accelerate Profitability via

Execution

› Combining revenue growth with a tight control on expenses

Enable Operators to Reduce OPEX

› Key productivity differentiators, focus on FTB Ecosystem & EXFO Connect


Growth Strategy

Growing market share for 27 consecutive years

8 © 2012 EXFO Inc. All rights reserved. 8 © 2012 EXFO Inc. All rights reserved.

RIDING THE RIGHT WAVES

Innovation and execution enable market-share gains

Market-Driven Innovation › Wireless backhaul › 4G/LTE, 3G › FTTH, VDSL2 › 40G/100G upgrades

Focus on Execution › Unmatched customer

experience


Moving toward higher-margin, Protocol-layer sales

Revenue Mix/Gross Margin Evolution

89%

11%

FY 2006

Sales: $250.0 M Sales: $107.4 M

55% 45%

FY 2012

Protocol Other

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

In %

of sa

les

45.0%

55.0%

70.0%

50.0%

60.0%

65.0%

40.0%

Gross Margin

Telecom Market

TAM

SAM

Major competitors

Sales growth ― FY ’12/’11

Five-year sales CAGR

Annual growth rate

Sales ― FY 2012

Gross margin profile

$700 M $550 M

JDSU, Anritsu, Sunrise

-14.5%

3.9%

~5%

$135.1 M

Low-60s (%)

$3.2 B $1.8 B

JDSU, IXIA, Tektronix

4.4%

46.1%

~15%

$113.7 M

Mid-70s (%)


Telecom sales CAGR of 20.5% in last 10 years

PHYS

ICA

L

PRO

TOC

OL


› Test Equipment Manager › Test Data Manager › GPS/Route Optimization › Work Ticket Management › License sharing or rental › Training Management › Etc (from EXFO or 3rd parties)

Search and request custom configuration

Download applications and configurations onto platform

Load configuration and immediately start testing

Automatically upload test results

Pass results

› Notification › Billing › Signature › Next work

order › Etc.

Automatically close job ticket

FTB Ecosystem (20+ optical, transport, datacom and copper acces test modules)

FTB Ecosystem + EXFO Connect + EXFO Apps Store

Corporate OSS

EXFO Apps Store Contains: S/W releases & updates, new applications, training material,

productivity tools, etc

REDUCES Op/Ex for Operators & NEMs

› Established base of ~40,000 compliant platforms

Revenue • $250 M (-7% YoY) • Gained market share • FY’13: 6-10% growth

(estimate)

Gross Margin • Improved to 63.3% • Up 9X out of 10 years • FY’13-15: Trending up

2004 2005 2006 2007 2008 2009 2010 2011 2012

Financial Snapshot


Revenue Adjusted EBITDA Margin

In US

$ Milli

ons 0.0%

20.0%

50.0%

10.0%

30.0%

40.0%

70.0%

60.0%

-10.0%

$50

$100

$150

$200

$250

$300

Gross Margin

20.5% Sales CAGR over last 10 Years

36% 34% 21% 24% -5% 32% 33% -7%


Annual Financial Results1

Sales

Gross Margin

Net R&D Expenses

Adjusted EBITDA3

(in US$ millions, except gross margin)

1 All financial results from continuing operations, except net earnings/loss and adjusted EBITDA. 2 Fiscal 2011 and 2012 financial results according to IFRS; prior years according to Canadian GAAP. 3 EBITDA is defined as net earnings (loss) before interest, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, impairment of goodwill and extraordinary gain.

Adjusted EBITDA represents EBITDA excluding the change in the fair value of the cash contingent consideration and the gain from the disposal of discontinued operations.

Net Earnings/Loss2

SG&A Expenses


Financial Highlights

Q4 2012 › Sales: $57.2 M

› Bookings: $55.2 M (book-to-bill ratio of 0.97)

› Gross margin*: 62.8%

› IFRS net loss: $3.7 M

› Restructuring plan: Annual savings of $9 million

*Gross margin is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization.

FY 2012 › Sales: $250.0 M (-7% YoY)

› Bookings: $244.8 M (book-to-bill ratio of 0.98)

› Gross margin*: 63.3%

› IFRS net loss: $3.6 M

› Cash flows from operations: $25.3 M


Strong Value Proposition

1. Excellent track record of sales growth Sales CAGR of 20.5% in last 10 years

2. Well-positioned for key growth drivers Bandwidth expansion and IP network convergence 3. Balancing sales growth and profitability Targeting EBITDA* margin of 15% on revenue of $350 to $400 M

4. Solid balance sheet Cash position of $67.1 M and negligible debt ― as at August 31, 2012

5. Experienced and disciplined management team Deep knowledge of managing business in growth and downward markets

* EBITDA is defined as net earnings before interest, income taxes, depreciation of property, plant and equipment, and amortization of intangible assets.

Marketing with BMO Capital Markets-Oct2012

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