EXFO Reports Increases

QUEBEC -- EXFO Electro-Optical Engineering Inc. (NASDAQ: EXFO; TSX: EXF) reported today year-over-year increases in sales and net earnings for the second quarter ended February 28, 2007.

Sales increased 17.1% to US$35.2 million in the second quarter of fiscal 2007 from US$30.1 million in the second quarter of 2006 and decreased 1.0% from US$35.5 million in the first quarter of 2007. At the half-way mark of fiscal 2007, sales rose 23.9% year-over-year to US$70.8 million. Net bookings increased 28.8% to US$36.5 million for a book-to-bill ratio of 1.04 in the second quarter of fiscal 2007 from US$28.3 million in the same period last year and decreased 1.4% from US$37.0 million in the first quarter of 2007.

Gross margin improved to 57.5% of sales in the second quarter of fiscal 2007 from 55.3% in the second quarter of 2006 and 57.2% in the first quarter of 2007.

GAAP net earnings in the second quarter of fiscal 2007 increased 96.5% to US$2.7 million, or US$0.04 per diluted share, from US$1.4 million, or US$ 0.02 per diluted share, in the same period last year, but decreased 24.0% from US$3.5 million, or US$0.05 per diluted share, in the first quarter of 2007. GAAP net earnings in the second quarter of fiscal 2007 included US$0.6 million in amortization of intangible assets and US$0.2 million in stock-based compensation costs.

I am satisfied about our financial results with bookings improving almost 30% year-over-year and GAAP net earnings nearly doubling during the same period, despite a challenging second quarter due to seasonality,” said Germain Lamonde, EXFO’s Chairman, President and CEO. “While net earnings are improving much faster than sales and bookings, I am particularly pleased that we are building a strong presence in strategic market areas like next-generation networking, broadband deployments for triple-play offerings, convergence to IP including all-important IPTV services, as well as growing FTTx rollouts.”“We have accelerated the development of our rich product families in key market segments while expanding our global reach to continue growing faster than our end-markets — like we have done in the past 21 years,” Mr. Lamonde added. “Our 12 product launches at the half-way mark of the fiscal year, plus several others introduced early in the third quarter, are strengthening our competitive position in strategic market segments and should help us accelerate market-share gains. As a result, I expect that sales will increase significantly in the second half of fiscal 2007.”

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