EXFO Reports Fourth Quarter and Fiscal 2017 Results

Q4 2017

    --  Sales reach US$63.0 million, top of guidance range
    --  Bookings attain US$66.3 million, book-to-bill ratio of 1.05
    --  Adjusted EBITDA totals US$8.5 million, 13.6% of sales

Fiscal 2017

    --  Sales increase 4.6% to US$243.3 million
    --  Bookings improve 4.8% to US$251.8 million
    --  Adjusted EBITDA totals US$22.0 million, 9.1% of sales

QUEBEC CITY, Oct. 12, 2017 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the network test, monitoring and analytics experts, announced today financial results for the fourth quarter and fiscal year ended August 31, 2017.

Sales in the fourth quarter of fiscal 2017 reached US$63.0 million compared to US$58.5 million in the third quarter of 2017 and US$62.9 million in the fourth quarter of 2016. Annual sales increased 4.6% to US$243.3 million in fiscal 2017 from US$232.6 million in 2016.

Bookings totaled US$66.3 million for a book-to-bill ratio of 1.05 in the fourth quarter of fiscal 2017 compared to US$63.7 million in the third quarter of 2017 and US$62.4 million in the fourth quarter of 2016. Overall for fiscal 2017, bookings increased 4.8% to US$251.8 million for a book-to-bill ratio of 1.03 from US$240.3 million in 2016.

Gross margin before depreciation and amortization* attained 61.9% of sales in the fourth quarter of fiscal 2017 compared to 58.0% in the third quarter of 2017 and 61.6% in the fourth quarter of 2016. Gross margin included restructuring charges of 0.2% of sales in the fourth quarter of 2017, 2.7% of sales in the third quarter of 2017 and nil in the fourth quarter of 2016. In fiscal 2017, gross margin reached 61.2% of sales compared to 62.6% in 2016. Gross margin included restructuring charges of 0.7% of sales in 2017 and nil in 2016.

In the fourth quarter of fiscal 2017, IFRS net earnings amounted to US$0.8 million, or US$0.02 per diluted share, compared to a net loss of US$4.3 million, or US$0.08 per share, in the third quarter of 2017 and net earnings of US$2.3 million, or US$0.04 per diluted share, in the fourth quarter of 2016. Net earnings in the fourth quarter of 2017 included net expenses totaling US$5.3 million: US$0.9 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs, US$1.2 million in after-tax restructuring changes, US$0.4 million for the positive change in the fair value of the cash contingent consideration related to the Ontology Systems acquisition, US$0.3 million in after-tax acquisition-related costs, and a foreign exchange loss of US$2.9 million.

In fiscal 2017, IFRS net earnings totaled US$0.9 million, or US$0.02 per diluted share, compared to US$8.9 million, or US$0.16 per diluted share, in 2016. Net earnings in 2017 included net expenses totaling US$10.6 million: US$2.7 million in after-tax amortization of intangible assets, US$1.4 million in stock-based compensation costs, US$4.8 million in after-tax restructuring charges, US$0.4 million for the positive change in the fair value of the cash contingent consideration related to the Ontology Systems acquisition, US$1.1 million in after-tax acquisition-related costs, and a foreign exchange loss of US$1.0 million.

Adjusted EBITDA* totaled US$8.5 million, or 13.6% of sales, in the fourth quarter of fiscal 2017 compared to US$2.3 million, or 3.9% of sales, in the third quarter of 2017 and US$6.2 million, or 9.8% of sales, in the fourth quarter of 2016. In fiscal 2017, adjusted EBITDA totaled US$22.0 million compared to US$22.0 million in 2016.

On September 8, 2017, EXFO acquired a 33.1% stake in Astellia, a global leader in the performance analysis of mobile networks and subscriber experience. EXFO intends to purchase publicly traded Astellia's remaining equity through a public tender offer. On October 2, 2017, EXFO closed the acquisition of Yenista Optics, a supplier of high-end optical test equipment for the laboratory and manufacturing markets.

"I am very pleased with EXFO's financial results in the fourth quarter of 2017, highlighted by revenue at the top of our guidance range, even stronger bookings and our best adjusted EBITDA margin in recent memory," said EXFO's CEO Philippe Morin. "Overall in fiscal 2017, we delivered 5% revenue growth and healthy profitability amid a competitive environment. Equally important, we established a solid foundation for future growth with investments--both internally and through acquisitions--in key technology areas like fiber, the Cloud, network virtualization and 5G. These growth initiatives, combined with heightened sales efficiency and recent restructuring measures, should enhance profitability in 2018."


    Selected Financial Information (unaudited)

    (In thousands of US dollars)


                                                                       Q4 2017           Q3 2017   Q4 2016     FY 2017                FY 2016
                                                                       -------           -------   -------     -------                -------


    Physical-layer sales                                                       $40,802               $41,007                $39,777            $161,864          $151,910

    Protocol-layer sales                                                       22,122                17,678                 23,445              81,905            83,324

    Foreign exchange gains (losses) on forward
     exchange contracts                                                            57                 (180)                 (364)              (468)          (2,651)
                                                                                  ---                  ----                   ----                ----            ------

    Total Sales                                                                $62,981               $58,505                $62,858            $243,301          $232,583


    Physical-layer bookings                                                    $39,322               $47,157                $39,826            $165,886          $155,320

    Protocol-layer bookings                                                    26,943                16,691                 22,969              86,348            87,631

    Foreign exchange gains (losses) on forward
     exchange contracts                                                            57                 (180)                 (364)              (468)          (2,651)
                                                                                  ---                  ----                   ----                ----            ------

    Total Bookings                                                             $66,322               $63,668                $62,431            $251,766          $240,300

    Book-to-bill ratio (Bookings/Sales)                                          1.05                  1.09                   0.99                1.03              1.03


    Gross margin before
     depreciation and
     amortization*                                                             $39,009               $33,950                $38,713            $148,972          $145,517

                                                                                61.9%                58.0%                 61.6%              61.2%            62.6%


    Other selected information:

                                   IFRS net earnings (loss)                         $844              $(4,304)                $2,252                $851            $8,900

                                   Amortization of intangible assets              $1,048                $1,046                   $292              $3,289            $1,172

                                   Stock-based compensation costs                   $431                  $372                   $302              $1,414            $1,378

                                   Restructuring charges                          $1,266                $3,813           $          -             $5,079    $            -

                                    Change in fair value of cash
                                    contingent consideration                      $(383)         $          -          $          -             $(383)    $           -

                                    Net income tax effect of the above
                                    items                                         $(275)               $(357)                 $(31)             $(858)           $(120)

                                   Foreign exchange (gain) loss                   $2,943              $(1,725)                  $293                $978            $(161)

                                   Adjusted EBITDA*                               $8,545                $2,300                 $6,172             $22,041           $22,039

Operating Expenses
Selling and administrative expenses totaled US$20.8 million, or 33.1% of sales, in the fourth quarter of fiscal 2017 compared to US$22.6 million, or 38.6% of sales, in the third quarter of 2017 and US$21.6 million, or 34.3% of sales, in the fourth quarter of 2016. In fiscal 2017, selling and administrative expenses amounted to US$86.3 million, or 35.5% of sales, compared to US$82.2 million, or 35.3% of sales, in 2016.

Net R&D expenses amounted to US$11.3 million, or 17.9% of sales, in the fourth quarter of fiscal 2017 compared to US$13.3 million, or 22.7% of sales, in the third quarter of 2017 and US$11.3 million, or 18.0% of sales, in the fourth quarter of 2016. In fiscal 2017, net R&D expenses totaled US$47.2 million, or 19.4% of sales, compared to US$42.7 million, or 18.4% of sales, in 2016.

Fiscal 2017 Highlights

    --  Sales. Total sales increased 4.6% to US$243.3 million in fiscal 2017
        mainly due to EXFO's leadership in optical testing, ongoing 100G
        investment cycle among communications service providers and the
        company's growing business with web-scale operators. Sales of
        Physical-layer solutions (optical and copper access) increased 6.6%
        year-over-year, while sales of Protocol-layer solutions (transport,
        datacom, service assurance, analytics and wireless products) dipped
        1.7%. Annual sales in the Americas as well as Europe, Middle East and
        Africa (EMEA) increased by 5.6% and 8.6%, respectively, while sales in
        the Asia-Pacific region dropped 2.9%. EXFO's largest customer accounted
        for 10.1% of sales in fiscal 2017, while the company's top-three
        customers represented 18.4%. In comparison, EXFO's largest customer
        accounted for 7.1% of sales in 2016, while the company's top-three
        customers represented 15.6%.
    --  Profitability. EXFO generated adjusted EBITDA of US$22.0 million, or
        9.1% of sales, in fiscal 2017 compared to US$22.0 million, or 9.5% of
        sales, in 2016. The company also delivered US$12.9 million in cash flows
        from operating activities in 2017 compared to US$24.4 million in 2016.
    --  Innovation. EXFO launched 16 new products and/or major enhancements in
        fiscal 2017, addressing four key technology areas: fiber, Cloud, network
        virtualization and 5G. New product introductions included a 400 Gbit/s
        optical transport test solution for the lab and manufacturing markets;
        an automated inspection probe for testing multi-fiber connectors in data
        centers and radio access networks; a software-based solution, Universal
        Virtual Synch, enabling communications service providers to accurately
        and cost-effectively measure network latency; and optical RF over OBSAI
        (open base station architecture initiative) link test capabilities to
        complement optical RF over CPRI (common public radio interface) test
        technology for centralized radio access networks.

Business Outlook
EXFO forecasts sales between US$60 million and US$65 million for the first quarter of fiscal 2018, while IFRS net results are expected to range between a net loss of US$0.01 per share and net earnings of US$0.03 per share.

IFRS net results include US$0.02 per share in after-tax amortization of intangible assets and stock-based compensation costs.

This guidance was established by management based on existing backlog as of the date of this news release, seasonality, expected bookings for the remaining of the quarter, as well as exchange rates as of the day of this release.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review fourth quarter and year-end financial results for fiscal 2017. To listen to the conference call and participate in the question period via telephone, dial 1-323-794-2093. Please take note the following conference ID number will be required: 6482663. EXFO's Executive Chairman Germain Lamonde, CEO Philippe Morin, and Pierre Plamondon, CPA, Vice-President of Finance and Chief Financial Officer, will participate in the call. An audio replay of the conference call will be available two hours after the event until 8:00 p.m. on October 19, 2017. The replay number is 1-719-457-0820 and the conference ID number is 6482663. The audio Webcast and replay of the conference call will also be available on EXFO's Website at www.EXFO.com, under the Investors section.

About EXFO
EXFO develops smarter network test, monitoring and analytics solutions for the world's leading communications service providers, network equipment manufacturers and webscale companies. Since 1985, we've worked side by side with our customers in the lab, field, data center, boardroom and beyond to pioneer essential technology and methods for each phase of the network lifecycle. Our portfolio of test orchestration and real-time 3D analytics solutions turn complex into simple and deliver business-critical insights from the network, service and subscriber dimensions. Most importantly, we help our customers flourish in a rapidly transforming industry where "good enough" testing, monitoring and analytics just aren't good enough anymore--they never were for us, anyway. For more information, visit EXFO.com and follow us on the EXFO Blog.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, and we intend that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are statements other than historical information or statements of current condition. Words such as may, expect, believe, plan, anticipate, intend, could, estimate, continue, or similar expressions or the negative of such expressions are intended to identify forward-looking statements. In addition, any statement that refers to expectations, projections or other characterizations of future events and circumstances are considered forward-looking statements. They are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in forward-looking statements due to various factors including, but not limited to, macroeconomic uncertainty as well as capital spending and network deployment levels in the telecommunications industry (including our ability to quickly adapt cost structures with anticipated levels of business and our ability to manage inventory levels with market demand); future economic, competitive, financial and market conditions; consolidation in the global telecommunications test and service assurance industry and increased competition among vendors; our ability to successfully integrate businesses that we acquire; capacity to adapt our future product offering to future technological changes; limited visibility with regards to timing and nature of customer orders; longer sales cycles for complex systems involving customers' acceptances delaying revenue recognition; fluctuating exchange rates; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully expand international operations; and the retention of key technical and management personnel. Assumptions relating to the foregoing involve judgments and risks, all of which are difficult or impossible to predict and many of which are beyond our control. Other risk factors that may affect our future performance and operations are detailed in our Annual Report, on Form 20-F, and our other filings with the U.S. Securities and Exchange Commission and the Canadian securities commissions. We believe that the expectations reflected in the forward-looking statements are reasonable based on information currently available to us, but we cannot assure that the expectations will prove to have been correct. Accordingly, you should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this document. Unless required by law or applicable regulations, we undertake no obligation to revise or update any of them to reflect events or circumstances that occur after the date of this document.

*Non-IFRS Measures
EXFO provides non-IFRS measures (gross margin before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. The company uses these measures for the purpose of evaluating historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the company to plan and forecast future periods as well as to make operational and strategic decisions. EXFO believes that providing this information, in addition to IFRS measures, allows investors to see the company's results through the eyes of management, and to better understand its historical and future financial performance.

The presentation of this additional information is not prepared in accordance with IFRS. Therefore, the information may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, the corresponding measures calculated in accordance with IFRS.

Gross margin before depreciation and amortization represents sales less cost of sales, excluding depreciation and amortization.

Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change in fair value of cash contingent consideration, and foreign exchange gain or loss.

The following table summarizes the reconciliation of adjusted EBITDA to IFRS net earnings (loss) in thousands of US dollars:


    Adjusted EBITDA


                                     Q4 2017           Q3 2017       Q4 2016   FY 2017              FY 2016
                                     -------           -------       -------   -------              -------


    IFRS net earnings
     (loss) for the
     period                                       $844                $(4,304)              $2,252                      $851         $8,900


    Add (deduct):


    Depreciation of property, plant
     and equipment                             1,008                   1,029                  957                     3,902          3,814

    Amortization of intangible
     assets                                    1,048                   1,046                  292                     3,289          1,172

    Interest and other (income)
     expenses                                    275                      57                (112)                      303          (828)

    Income taxes                               1,113                   2,012                2,188                     6,608          7,764

    Stock-based compensation costs               431                     372                  302                     1,414          1,378

    Restructuring charges                1,266                 3,813                     -                    5,079             -

    Change in fair value of cash
     contingent consideration            (383)                    -                    -                    (383)             -

    Foreign exchange (gain) loss               2,943                 (1,725)                 293                       978          (161)
                                               -----                  ------                  ---                       ---           ----

    Adjusted EBITDA for
     the period                                 $8,545                  $2,300               $6,172                   $22,041        $22,039
                                                ======                  ======               ======                   =======        =======


    Adjusted EBITDA in percentage of
     sales                                     13.6%                   3.9%                9.8%                     9.1%          9.5%
                                                ====                     ===                  ===                       ===            ===

EXFO-F


                                            EXFO Inc.

                     Condensed Unaudited Interim Consolidated Balance Sheets


                                  (in thousands of US dollars)


                                                               As at August 31,
                                                               ----------------

                                                                       2017          2016
                                                                       ----          ----

    Assets


    Current assets

    Cash                                                             $38,435       $43,208

    Short-term investments                                              775         4,087

    Accounts receivable

                            Trade                                       41,130        42,993

                            Other                                        3,907         2,474

    Income taxes and tax credits
     recoverable                                                      4,955         4,208

    Inventories                                                      33,832        33,004

    Prepaid expenses                                                  4,202         3,099
                                                                      -----         -----


                                                                    127,236       133,073


    Tax credits recoverable                                          38,111        34,594

    Property, plant and equipment                                    40,132        35,978

    Intangible assets                                                11,183         3,391

    Goodwill                                                         35,077        21,928

    Deferred income tax assets                                        6,555         8,240

    Other assets                                                        947           589
                                                                        ---           ---


                                                                    $259,241      $237,793
                                                                    ========      ========

    Liabilities


    Current liabilities

    Accounts payable and
     accrued liabilities                                             $36,776       $37,174

    Provisions                                                        3,889           299

    Income taxes payable                                                663           971

    Deferred revenue                                                 11,554         9,486
                                                                     ------         -----


                                                                     52,882        47,930


    Deferred revenue                                                  6,257         5,530

    Deferred income tax
     liabilities                                                      3,116         2,857

    Other liabilities                                                   196            75
                                                                        ---           ---


                                                                     62,451        56,392
                                                                     ------        ------


    Shareholders' equity

    Share capital                                                    90,411        85,516

    Contributed surplus                                              18,184        18,150

    Retained earnings                                               127,160       126,309

    Accumulated other
     comprehensive loss                                            (38,965)     (48,574)
                                                                    -------       -------


                                                                    196,790       181,401
                                                                    -------       -------


                                                                    $259,241      $237,793
                                                                    ========      ========


                                                                                       EXFO Inc.

                                                            Condensed Unaudited Interim Consolidated Statements of Earnings


                                                             (in thousands of US dollars, except share and per share data)


                                                          Three months              Twelve months                Three months  Twelve months

                                                           ended                     ended                        ended          ended

                                                        August 31,                 August 31,                  August 31,     August 31,
                                                              2017                       2017                          2016            2016
                                                       -----------                 -----------                  -----------     -----------


    Sales                                                              $62,981                                     $243,301                   $62,858         $232,583
                                                                       -------                                     --------                   -------         --------


    Cost of sales (1,2)                                                23,972                                       94,329                    24,145           87,066

    Selling and administrative (2)                                     20,834                                       86,256                    21,554           82,169

    Net research and development (2)                                   11,327                                       47,168                    11,289           42,687

    Depreciation of property, plant and
     equipment                                                          1,008                                        3,902                       957            3,814

    Amortization of intangible assets                                   1,048                                        3,289                       292            1,172

    Change in fair value of cash contingent
     consideration                                                      (383)                                       (383)                        ?               ?

    Interest and other (income) expense                                   275                                          303                     (112)           (828)

    Foreign exchange (gain) loss                                        2,943                                          978                       293            (161)
                                                                        -----                                          ---                       ---             ----

    Earnings before income taxes                                        1,957                                        7,459                     4,440           16,664


    Income taxes                                                        1,113                                        6,608                     2,188            7,764
                                                                        -----                                        -----                     -----            -----


    Net earnings for the period                                           $844                                         $851                    $2,252           $8,900
                                                                          ====                                         ====                    ======           ======


    Basic net earnings per share                                         $0.02                                        $0.02                     $0.04            $0.17


    Diluted net earnings per share                                       $0.02                                        $0.02                     $0.04            $0.16


    Basic weighted average number of shares
     outstanding (000's)                                               54,708                                       54,423                    53,769           53,863


    Diluted weighted average number of shares
     outstanding (000's)                                               55,784                                       55,555                    54,709           54,669


    (1)              The cost of sales is exclusive of depreciation and amortization, shown
                     separately.

    (2)             Restructuring charges included in:


                    Cost of sales                                           $115                                       $1,697               $         ?     $         ?

                    Selling and administrative                               231                                        1,150                         ?               ?

                    Net research and development                             920                                        2,232                         ?               ?



                                                                        $1,266                                       $5,079               $         ?     $         ?
                                                                        ======                                       ======             ===       ===   ===       ===


                                                                                                          EXFO Inc.

                                                                         Condensed Unaudited Interim Consolidated Statements of Comprehensive Income


                                                                                                (in thousands of US dollars)


                                                                                          Three months                    Twelve months                Three months      Twelve months
                                                                                              ended                           ended                       ended              ended
                                                                                         August 31, 2017                 August 31, 2017             August 31, 2016    August 31, 2016
                                                                                         ---------------                 ---------------             ---------------    ---------------


    Net earnings for the period                                                                                   $844                                           $851                   $2,252    $8,900

    Other comprehensive income (loss), net of
     income taxes

    Items that will not be reclassified
     subsequently to net earnings

                                                   Foreign currency translation
                                                   adjustment                                                     13,028                                          8,262                     (68)      707

    Items that may be reclassified subsequently to
     net earnings

                                                   Unrealized gains/losses on forward
                                                   exchange contracts                                              1,765                                          1,403                       37       862

                                                   Reclassification of realized gains/
                                                   losses on forward exchange contracts
                                                   in net earnings                                                    64                                            423                      414     2,797

                                                   Deferred income tax effect of gains/
                                                   losses on forward exchange contracts                            (510)                                         (479)                   (111)    (935)


    Other comprehensive income                                                                                 14,347                                          9,609                      272     3,431
                                                                                                               ------                                          -----                      ---     -----


    Comprehensive income for the
     period                                                                                                    $15,191                                        $10,460                   $2,524   $12,331
                                                                                                               =======                                        =======                   ======   =======


                                                                                                                     EXFO Inc.

                                                                               Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity


                                                                                                            (in thousands of US dollars)


                                                                                      Year ended August 31, 2016
                                                                                      --------------------------

                                                                        Share                 Contributed                        Retained                               Accumulated                            Total
                                                                       capital                  surplus                          earnings                                   other                          shareholders'
                                                                                                                                                                      comprehensive                           equity
                                                                                                                                                                           loss
                                                                                                                                                                                                                     ---


    Balance as at September 1,
     2015                                                                           $86,045                                               $17,778                                                 $117,409                              $(52,005)         $169,227

    Redemption of share capital                                (1,768)                                  217                                                           -                                                  -                        (1,551)

    Reclassification of stock-based
     compensation costs                                          1,239                               (1,239)                                                          -                                                  -                              -

    Stock-based compensation costs                                   -                                1,394                                                           -                                                  -                          1,394

    Net earnings for the year                                        -                                    -                                                      8,900                                                   -                          8,900

    Other comprehensive income

                                       Foreign currency translation
                                       adjustment                                           -                                                    -                                                       -                                   707               707

                                       Changes in unrealized gains/
                                       losses on forward exchange
                                       contracts, net of deferred
                                       income taxes of $935                                 -                                                    -                                                       -                                 2,724             2,724



    Total comprehensive income for the
     year                                                                                                                                                                                                                                         12,331
                                                                                                                                                                                                                                                  ------


    Balance as at August 31,
     2016                                                                           $85,516                                               $18,150                                                 $126,309                              $(48,574)         $181,401
                                                                                    =======                                               =======                                                 ========                               ========          ========



                                                                                    Year ended August 31, 2017
                                                                                    --------------------------

                                                                        Share                 Contributed                                          Retained                           Accumulated                             Total
                                                                       capital                  surplus                                            earnings                              other                            shareholders'
                                                                                                                                                                                    comprehensive                           equity
                                                                                                                                                                                         loss
                                                                                                                                                                                                                                    ---


    Balance as at September 1,
     2016                                                                           $85,516                                               $18,150                                                 $126,309                              $(48,574)         $181,401

    Issuance of share capital                                    3,490                                     -                                                          -                                                  -                          3,490

    Reclassification of stock-based
     compensation costs                                          1,405                               (1,405)                                                          -                                                  -                              -

    Stock-based compensation costs                                   -                                1,439                                                           -                                                  -                          1,439

    Net earnings for the year                                        -                                    -                                                        851                                                   -                            851

    Other comprehensive income

                                       Foreign currency translation
                                       adjustment                                           -                                                    -                                                       -                                 8,262             8,262

                                       Changes in unrealized gains/
                                       losses on forward exchange
                                       contracts, net of deferred
                                       income taxes of $479                                 -                                                    -                                                       -                                 1,347             1,347



    Total comprehensive income for the
     year                                                                                                                                                                                                                                         10,460
                                                                                                                                                                                                                                                  ------


    Balance as at August 31,
     2017                                                                           $90,411                                               $18,184                                                 $127,160                              $(38,965)         $196,790
                                                                                    =======                                               =======                                                 ========                               ========          ========


                                                                                               EXFO Inc.

                                                                   Condensed Unaudited Interim Consolidated Statements of Cash Flows


                                                                                      (in thousands of US dollars)


                                                                                 Three months                   Twelve months        Three months               Twelve
                                                                                                                                                                  months

                                                                                     ended                          ended                ended                  ended

                                                                                August 31, 2017                   August 31,          August 31,              August 31,
                                                                                                                       2017                  2016                     2016
                                                                                ---------------                  -----------          -----------              -----------


    Cash flows from operating activities

    Net earnings for the period                                                                          $844                                 $851                            $2,252                  $8,900

    Add (deduct) items not affecting cash

                                             Stock-based compensation costs                                 494                                1,477                               302                   1,378

                                             Depreciation and amortization                                2,056                                7,191                             1,249                   4,986

                                              Change in fair value of cash
                                              contingent consideration                                    (383)                               (383)                                ?                      ?

                                             Deferred revenue                                           (1,303)                               1,723                             (638)                  4,238

                                             Deferred income taxes                                        (109)                               1,054                               293                   1,578

                                              Changes in foreign exchange gain/
                                              loss                                                        2,051                                1,096                                 1                   (332)


                                                                                                       3,650                               13,009                             3,459                  20,748

    Changes in non-cash operating items

                                             Accounts receivable                                          2,254                                3,955                             (712)                  2,682

                                             Income taxes and tax credits                               (1,154)                             (2,386)                              307                     939

                                             Inventories                                                    920                                  911                             1,914                 (4,713)

                                             Prepaid expenses                                             (157)                               (918)                              138                   (280)

                                             Other assets                                                     6                                (121)                             (33)                    170

                                              Accounts payable, accrued
                                              liabilities and provisions                                (3,501)                             (1,745)                          (1,524)                  4,882

                                             Other liabilities                                              165                                  165                               (6)                   (65)


                                                                                                       2,183                               12,870                             3,543                  24,363
                                                                                                       -----                               ------                             -----                  ------

    Cash flows from investing activities

    Additions to short-term investments                                                                 (23)                             (2,910)                            (416)                (3,546)

    Proceeds from disposal and maturity of
     short-term investments                                                                            2,778                                6,374                               372                     873

    Purchases of capital assets                                                                      (1,727)                             (7,175)                            (982)                (4,356)

    Business combinations, net of cash
     acquired                                                             (313)                                        (12,792)                            ?                                 ?

                                                                                                         715                             (16,503)                          (1,026)                (7,029)
                                                                                                         ---                              -------                            ------                  ------

    Cash flows from financing activities

    Bank loan                                                                 ?                                               ?                        (468)                                 ?

    Repayment of long-term debt                                               ?                                         (1,480)                            ?                                 ?

    Redemption of share capital                                               ?                                               ?                      (1,149)                           (1,551)
                                                                            ---                                             ---                       ------                             ------

                                                                              ?                                         (1,480)                      (1,617)                           (1,551)
                                                                            ---                                          ------                        ------                             ------

    Effect of foreign exchange rate changes on
     cash                                                                                              1,164                                  340                                35                   1,561
                                                                                                       -----                                  ---                               ---                   -----


    Change in cash                                                                                     4,062                              (4,773)                              935                  17,344

    Cash - Beginning of the period                                                                    34,373                               43,208                            42,273                  25,864
                                                                                                      ------                               ------                            ------                  ------


    Cash - End of the period                                                                          $38,435                              $38,435                           $43,208                 $43,208
                                                                                                      =======                              =======                           =======                 =======

SOURCE EXFO inc.