stifel technology conference - february 2015

Stifel Technology, Internet & Media Conf.

Germain Lamonde Chairman, President & CEO February 10, 2015

2 © 2015 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. For a reconciliation of adjusted EBITDA to net earnings, refer to the Q1 2015 press release or the “Non-IFRS Measures” section on EXFO’s website.

All amounts in millions of US dollars, except otherwise noted.

Forward-Looking Statements

Trusted partner to global operators and NEMs for improving operational efficiency, service delivery and consumer experience

EXFO in a Few Words ...

#EXFO Top-two supplier in portable telecom testing.

#EXFO Network service assurance on a massive scale.

#EXFO Analytics, visibility, and proactive CEA.

#EXFO Smart test platform strategy with EXFO Connect.

#EXFO Focused on process efficiency and compliance.


EXFO By Numbers

IN PORTABLE OPTICAL TESTING

(>38% MARKET SHARE)

LEADER

FY 2014 SALES OF $230.8 M (GLOBAL NO.2 PLAYER)

SCALE

CASH FLOWS FROM OPERATIONS IN FY 2014

SOLID FINANCIALS

GEOGRAPHICAL SALES FOR FY 2014

DIVERSIFIED

1600 EMPLOYEES

IN 25 COUNTRIES

GLOBAL

OF FY 2014 BOOKINGS (UP 18% YoY)

WIRELESS


Lengthy Troubleshooting to Network Visualization and Predictive Analytics

Fixed to Mobile Networks

Hardware to Virtualized Architectures


Major Shifts in Network Operator Spending


Growth Strategy Top-line driven: Bolster sales and gross margin

INCREASE Wireless presence. Bookings to wireless customers reached 30-32% of total bookings in FY 2014.

EVOLVE Into a solutions supplier. End-to-end solutions deliver higher margins.

ACCELERATE Profitability. Combining revenue growth with a tight control on costs.

EXPAND Share of wallet with tier-1 network operators. Top-15 operators account for ~60% of total spending.


Transformation into Solutions Supplier Enabling Network Operators to Cope with Real-World Challenges

• Five-plus years with Brix Networks (SA solution)

• EXFO Connect represents unique advantage

• Important wins in FY 2014

• Continuing journey with ByteSphere and Aito Technologies acquisitions

DEPLOY NEW REVENUE–GENERATING SERVICES

INCREASE NETWORK CAPACITY

REDUCE OPERATING COSTS

IMPROVE QUALITY OF EXPERIENCE


Intelligent Platforms

Contextual Analytics EXFO Connect

Service & Network Assurance

Leveraging Key Assets

9 © 2015 EXFO Inc. All rights reserved. PR

OTO

COL

(Wire

less

, Ser

v. A

ssur

ance

, Tr

ansp

ort &

Dat

acom

)

PHYS

ICAL

(O

ptic

al &

Acc

ess)

Telecom Market

TAM

SAM

Major competitors

Bookings ― FY 2014

Five-year sales CAGR

Market growth rate

Sales ― FY 2014

Gross margin profile

$850 M $525 M

JDSU, Anritsu

$137.2 M (+3.5%)

5.4%

0-5%

$132.1 M (-6.3%)

55-60%

$4.1 B $2.1 B

JDSU, IXIA, Danaher (Tek)

$104.1 M (+3.5%)

12.6%

10-15%

$99.6 M (-1.2%)

70-75%

PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH

*Excludes losses on FX contracts.

$4.9 B $2.6 B

$241.3 M (+3.5%)

8.6%

Single-digit

$231.7 M* (-4.7%)

63%-65%

TOTAL


Physical-Layer Solutions

COPPER ACCESS › Most advanced product portfolio for

high-speed copper links › MaxTester secured contract wins

with several tier-1 operators › Supports pair bonding & vectoring

(100 Mb/s)

PORTABLE OPTICAL › No. 1 player with >38% market share › Market dominance in OTDR testing › Key differentiator: iOLM software › Market leader in dispersion testing › Unmatched product breadth & depth


Protocol-Layer and Software Solutions

SERVICE ASSURANCE Probe-based systems (physical &

virtual) targeted at medium to large network operators

Comprehensive E2E solutions enabling active testing, passive monitoring and infrastructure polling to validate and assure service-level agreements

Monitoring multi-play services with a single platform is key differentiator

NETWORK VISIBILITY & ANALYTICS

Leveraging data from a multitude of sources (field instruments, test probes and network elements) with analytics software to deliver end-to-end network & service visibility

Open analytics platform enables network operators to accelerate deployment of new services, while assuring end-user experience

FIXED AND WIRELESS TEST Multi-service 10M to 100G analyzers

for Ethernet, OTN and SONET/SDH LTE and 3G protocol analyzers for

deployment and troubleshooting applications

Network simulators: High-capacity emulation of IMS, WebRTC subscriber sessions to test routers, gateways and session border controllers

NFV-App


Key Contract Wins

• Tier-1 MNO (US) • Optimize efficiency • EXFO Connect

NETWORK VISIBILITY

• Tier-1 MNO (Europe) • Mobile backhaul • Ethernet One solution

PRODUCTIVITY SOLUTION


Management Priority

* Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain or loss.

MEDIUM-TERM PROFITABILITY TARGET


Q1 2015 Highlights

› Sales totaled $56.7 M (up YoY)

› Bookings reached $54.2 M (book-to-bill ratio of 0.96)

› Gross margin1 attained 62.6% (up YoY)

› IFRS net earnings totaled $1.5 M (up YoY)

› Adjusted EBITDA2 amounted to $3.2 M (Up YoY)

1Gross margin before depreciation and amortization is a non-IFRS measure and represents sales less cost of sales, excluding depreciation and amortization. 2Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain.


Substantial Issuer Bid (SIB)

› Modified Dutch Auction of C$30 M › Shares can be tendered between C$4.20 and C$4.60

› Or at lowest purchase price set by SIB

› EXFO will select lowest price that allows company to purchase maximum number of shares

› Current share price does not reflect full value of business

› EXFO believes SIB is a good use of cash and creates value for shareholders

› Offer expires on Feb. 13, 2015


Committed to Building Value

Growth Strategy

• Top-line driven • Targeting market

share gains • Not relying on

end-markets to vastly improve

Cost Savings Share Buybacks

• $6.2 M in 2014 • $9.0 M in 2013 • Tight cost

controls in effect

• SIB (C$30 M) • NCIB ($0.9 M) in

Q1 2015 • Good use of

cash and creates value


Annual Financial Results1 (in US$ millions, except gross margin)

1 All financial results from continuing operations, except net earnings/loss and adjusted EBITDA. 2 Fiscal 2011-2014 financial results according to IFRS; prior years according to Canadian GAAP. 3 Gross margin before depreciation and amortization is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization. 4 Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, changes in the fair value of the cash contingent consideration, gain from the disposal of discontinued operations and foreign exchange gain or loss.

Sales

Gross Margin3 Net R&D Expenses Adjusted EBITDA4

Net Earnings/Loss2 SG&A Expenses


Strong Value Proposition Why Invest?

1. History of market-share gains Captured market share in growth and downward markets

2. Well positioned for key growth drivers 3G, 4G/LTE, wireless backhaul, small cells, DAS, RRH, FTTx, 100G

3. Balancing sales growth and profitability Targeting adjusted EBITDA1 margin of 15% for medium term

4. Solid balance sheet Cash position of $57.6 M and no debt — as at November 30, 2014

5. Experienced and disciplined management team Averaging >15 years of experience in sales, marketing, R&D, manufacturing, finance, HR

1Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain or loss.

stifel technology conference - february 2015

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