EXFO Needham & Co. Growth Conference 2013-01-16

Needham & Co. Growth Conference

Pierre Plamondon Vice-President, Finance & CFO January 16, 2013

2 © 2013 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 (loss), refer to the Q1 2013 press release or the “Non-IFRS Measures” section on EXFO’s website.

Forward-Looking Statements

3 © 2013 EXFO Inc. All rights reserved.

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%

› Difficult market in FY 2012 › EXFO sales: -7% YoY while

double-digit market decrease › Restructuring: Expected

annual savings of $8.0 M and restructuring costs of $2.6 M

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

4 © 2013 EXFO Inc. All rights reserved.. 4 © 2013 EXFO Inc. All rights reserved..

Global Organization

› No.1 in portable optical testing

› No.2 in portable telecom testing

2000 CUSTOMERS IN >100 COUNTRIES 1700 EMPLOYEES IN >25 COUNTRIES

Americas

› FY 2012 Sales: $130.6 M › Growth YoY: -4.6% › Sales Split: 52%

EMEA

› FY 2012 Sales: $71.0 M › Growth YoY: -16.4% › Sales Split: 29%

Asia-Pacific

› FY 2012 Sales: $47.3 M › Growth YoY: +1.2% › Sales Split: 19%

5 © 2013 EXFO Inc. All rights reserved. 5 © 2013 EXFO Inc. All rights reserved.

Global IP traffic Up 4X from 2011-2016

Mobile IP traffic

Up 18X (Cisco)

Bandwidth Demand

DESPITE STRONG FUNDAMENTAL DRIVERS, CHALLENGING CONDITIONS FOR WIRELINE MARKET IN 2012


US Carrier CAPEX

4G/LTE AND COMPETITION TO DRIVE INVESTMENTS

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2010 2011 2012E 2013E 2014E

Capital Intensity

AT&T Verizon Sprint T-Mobile Average

12.7% 13.3% 14.6%

15.6% 15.1%

Sou

rce:

Mor

gan

Sta

nley


Growth Strategy

Wireless sales to continue growing (~24% 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,

FTB Ecosystem and EXFO Connect

EXPANDING MARKET SHARE FOR 27 CONSECUTIVE YEARS


Riding the Right Waves

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

Focus on Execution › Unmatched customer

experience

INNOVATION AND EXECUTION ENABLE MARKET-SHARE GAINS


Revenue Mix/Gross Margin Evolution

FY 2006 | FY 2012

Protocol Other

89%

11%

Sales: $250.0 M Sales: $107.4 M

55% 45%

MOVING TOWARD HIGHER-MARGIN, PROTOCOL-LAYER SALES

Gross Margin

40%

50%

55%

60%

65%

70%

45%

In %

of s

ales

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


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 (%)

PHYS

ICA

L (O

ptic

al &

Acc

ess)

PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH

PRO

TOC

OL

(Wire

less

, Ser

v. A

ssur

ance

, Tr

ansp

ort &

Dat

acom

)


Physical-Layer Business

COPPER ACCESS › Product portfolio optimized for high-

speed copper links › New MaxTester series secured

contract wins with three tier-1 North American operators › Supports pair bonding & vectoring

(100 Mb/s)

PORTABLE OPTICAL › No. 1 player with >35% market share › Market dominance in OTDR testing › Key differentiator: iOLM software › Market leader in dispersion testing › Unmatched product breadth & depth


Protocol-Layer Business

WIRELESS • Protocol analyzers: 4G/LTE and 3G

test solutions for deployment and troubleshooting applications

• Network simulators: Large-scale emulation of subscriber sessions to test routers, gateways and session border controllers

• Stratgic partnership with Artiza Networks to offer highest-capacity, end-to-end simulation solution

TRANSPORT AND DATACOM › Multi-service analyzers for

SONET/SDH, OTN and Ethernet rates from 10M to 100G

› Comprehensive portfolio for wireless backhaul

› Pioneered new standard for Ethernet testing (EtherSam)

SERVICE ASSURANCE › Probe-based systems targeted at

medium to large network operators › Primary focus on active testing to

validate service-level agreements › Monitoring multi-play services with

a single platform is key differentiator

13 © 2013 EXFO Inc. All rights reserved.. 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

Sales CAGR of 20% over last 10 Years

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

Adjusted EBITDA Margin

› 7.3% in FY’12 from 13.5% in FY’11 due to lower revenue level

› Mid-term goal: 15%

Financial Snapshot

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

2004 2005 2006 2007 2008 2009 2010 2011 2012


Q1 2013 Highlights

› Sales reached $59.8 M

› Bookings attained $64.3 M (B/B ratio of 1.07)

› Gross margin1 amounted to 60.5%

› Adjusted EBITDA2 totaled $2.7 M

› Announced contract wins at three tier-1 North American operators for MaxTester copper/DSL series

› Signed partnership with Artiza Networks to offer the industry’s highest-capacity, end-to-end 4G/LTE simulation solution

› FTB Ecosystem: Expanded EXFO Connect offering with floating test licenses option

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


Strong Value Proposition 5 Good Reasons to Invest in EXFO

1. Excellent track record of sales growth Sales CAGR of 20% in last 10 years

2. Well-positioned for key growth drivers Bandwidth expansion and IP network convergence

3. Balancing sales growth and profitability Targeting adjusted EBITDA1 margin of 15% on revenue of $350 to $400 M

4. Solid balance sheet Cash position of $59.0 M and negligible debt ― as at November 30, 2012

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

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

EXFO Needham & Co. Growth Conference 2013-01-16

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