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01.10.2017

EXFO Reports First-Quarter Results for Fiscal 2017

  • Sales increase 11.9% year-over-year to US$61.8 million
  • Bookings rise 12.6% year-over-year to US$65.9 million (book-to-bill ratio of 1.07)
  • Gross margin reaches 63.1% of sales
  • Adjusted EBITDA improves 19.6% year-over-year to US$6.3 million (10.2% of sales)

QUEBEC CITY, Jan. 10, 2017 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the first quarter ended November 30, 2016.

Sales reached US$61.8 million in the first quarter of fiscal 2017 compared to US$55.2 million in the first quarter of 2016 and US$62.9 million in the fourth quarter of 2016.

Bookings attained US$65.9 million in the first quarter of fiscal 2017 compared to US$58.5 million in the same period last year and US$62.4 million in the fourth quarter of 2016. The company's book-to-bill ratio was 1.07 in the first quarter of 2017.

Gross margin before depreciation and amortization* amounted to 63.1% of sales in the first quarter of fiscal 2017 compared to 63.5% in the first quarter of 2016 and 61.6% in the fourth quarter of 2016.

IFRS net earnings in the first quarter of fiscal 2017 totaled US$3.3 million, or US$0.06 per diluted share, compared US$1.8 million, or US$0.03 per diluted share, in the same period last year and US$2.3 million, or US$0.04 per diluted share, in the fourth quarter of 2016. IFRS net earnings in the first quarter of 2017 included US$0.4 million in after-tax amortization of intangible assets, US$0.3 million in stock-based compensation costs and a foreign exchange gain of US$0.5 million.

Adjusted EBITDA* totaled US$6.3 million, or 10.2% of sales, in the first quarter of fiscal 2017 compared to US$5.3 million, or 9.6% of sales, in the first quarter of 2016 and US$6.2 million, or 9.8% of sales, in the fourth quarter of 2016.

EXFO closed the acquisition of Absolute Analysis' assets in late October for US$5.0 million in cash and US$3.5 million in stock. At the end of the first quarter of fiscal 2017, EXFO had a cash position of US$39.3 million and no debt.

"Fiscal 2017 has gotten off to a strong start with double-digit increases in sales, bookings and adjusted EBITDA in the first quarter, highlighting growing market traction of both of our product groups," said Germain Lamonde, EXFO's Chairman, President and CEO. "I am particularly pleased with robust results from our optical and high-speed transport businesses, where we are gaining market share and taking advantage of the 100G investment cycle in long-haul networks, Metro links and data centers. We also benefited from calendar year-end purchases by some communications service providers and early returns from our industry-only, all-in-one optical RF analyzer for mobile network operators. We remain fully confident about achieving our adjusted EBITDA goal of US$26 million in 2017."

 

Selected Financial Information

(In thousands of US dollars)











Q1 2017


Q4 2016


Q1 2016










Physical-layer sales

$

42,016


$

39,777


$

37,477

Protocol-layer sales


20,009



23,445



18,629

Foreign exchange losses on forward exchange contracts


(240)



(364)



(874)

Total sales

$

61,785


$

62,858


$

55,232










Physical-layer bookings

$

44,090


$

39,826


$

38,878

Protocol-layer bookings


22,009



22,969



20,469

Foreign exchange losses on forward exchange contracts


(240)



(364)



(874)

Total bookings

$

65,859


$

62,431


$

58,473

Book-to-bill ratio (bookings/sales)


1.07



0.99



1.06

Gross margin before depreciation and amortization*

$

38,972


$

38,713


$

35,095



63.1%



61.6%



63.5%










Other selected information:










IFRS net earnings

$

3,303


$

2,252


$

1,766


Amortization of intangible assets

$

427


$

292


$

300


Stock-based compensation costs

$

258


$

302


$

376


Net income tax effect of the above items

$

(64)


$

(31)


$

(28)


Foreign exchange gain (loss)

$

512


$

(293)


$

310


Adjusted EBITDA*

$

6,321


$

6,172


$

5,286


 

Operating Expenses
Selling and administrative expenses totaled US$21.6 million, or 35.0% of sales in the first quarter of fiscal 2017 compared to US$20.3 million, or 36.7% of sales, in the same period last year and US$21.6 million, or 34.3% of sales, in the fourth quarter of 2016.

Net R&D expenses totaled US$11.3 million, or 18.3% of sales, in the first quarter of fiscal 2017 compared to US$9.9 million, or 18.0% of sales, in the first quarter of 2016 and US$11.3 million, or 18.0% of sales, in the fourth quarter of 2016.

First-Quarter Highlights

  • Sales and bookings. Sales and bookings increased 11.9% and 12.6% year-over-year, respectively, mainly due to strong market demand in EXFO's three major selling regions and for optical and high-speed solutions. The company also benefited from a large wireless deal in Asia-Pacific in the first quarter. From a segmented revenue standpoint, 56% of sales originated from the Americas, 23% from EMEA and 21% from Asia-Pacific, while Physical-layer sales represented 68% of total sales and Protocol-layer sales 32%. EXFO's top customer accounted for 13.8% of sales, while the top three represented 23.3%. This represents an unusually high concentration level for EXFO, but reflects greater success with Tier-1 operators.
  • Profitability. EXFO generated adjusted EBITDA of US$6.3 million, or 10.2% of sales, in the first quarter of 2017 compared to US$5.3 million, or 9.6% of sales, in the first quarter of 2016.
  • Innovation. EXFO acquired substantially all the assets of Absolute Analysis in the first quarter to combine radio frequency (RF) test software with its own optical and Ethernet technologies. EXFO also introduced three other new solutions including a power meter, variable attenuator and optical switch modules for its LTB-8 platform dedicated to the high-speed optical lab market, a segment of increased focus. Finally, EXFO supplied OpenReach, British Telecom's local network business, with an initial order of MaxTesters to support its G.fast pilot project.

Business Outlook
EXFO forecasts sales between US$58.0 million and US$63.0 million for the second quarter of fiscal 2017, while IFRS net results are expected to range between a loss of US$0.01 per share and earnings of US$0.03 per share. IFRS net results include US$0.01 per share in after-tax amortization of intangible assets and stock-based compensation costs as well as an anticipated foreign exchange loss of US$800,000 based on today's exchange rates.

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

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review first-quarter results for fiscal 2017. To listen to the conference call and participate in the question period via telephone, dial 1-704-288-0432. Please take note the following conference ID number will be required: 30629172. Germain Lamonde, Chairman, President and CEO, 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 11:59 p.m. on January 17, 2017. The replay number is 1-855-859-2056 and the conference ID number is 30629172. 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 provides communications service providers (CSPs) with test automation and 3D analytics solutions to ensure the smooth deployment, maintenance and management of next-generation, physical, virtual, fixed and mobile networks. The company has also forged strong relationships with network equipment manufacturers (NEMs) to develop deep expertise that migrates from the lab to the field and beyond. EXFO's key differentiation comes from combining intelligent, automated and cloud-based test and monitoring solutions with real-time analytics to deliver unmatched end-to-end visibility and assurance—from a network, services and end-user level. EXFO is no. 1 in portable optical testing and boasts the largest active service assurance deployment worldwide. For more information, visit www.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; 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; our ability to successfully integrate businesses that we acquire; 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 for 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 before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain.

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

 

Adjusted EBITDA










Q1 2017


Q4 2016


Q1 2016










IFRS net earnings for the period

$

3,303


$

2,252


$

1,766










Add (deduct):


















Depreciation of property, plant and equipment


903



957



975

Amortization of intangible assets


427



292



300

Interest (income) expense


(20)



(112)



63

Income taxes


1,962



2,188



2,116

Stock-based compensation costs


258



302



376

Foreign exchange gain


(512)



(293)



(310)

Adjusted EBITDA for the period

$

6,321


$

6,172


$

5,286










Adjusted EBITDA in percentage of sales


10.2%



9.8%



9.6%

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets

 

(in thousands of US dollars)  



As at

November 30,

2016


As at

August 31,

2016

Assets












Current assets






Cash

$

35,061


$

43,208

Short-term investments


4,281



4,087

Accounts receivable







Trade


43,476



42,993


Other


3,321



2,474

Income taxes and tax credits recoverable


4,047



4,208

Inventories


33,880



33,004

Prepaid expenses


2,781



3,099



126,847



133,073







Tax credits recoverable


33,800



34,594

Property, plant and equipment


35,530



35,978

Intangible assets


10,855



3,391

Goodwill


21,418



21,928

Deferred income tax assets


7,901



8,240

Other assets


372



589








$

236,723


$

237,793

Liabilities












Current liabilities






Accounts payable and accrued liabilities

$

34,779


$

37,174

Provisions


308



299

Income taxes payable


567



971

Deferred revenue


8,910



9,486



44,564



47,930







Deferred revenue


5,681



5,530

Deferred income tax liabilities


2,546



2,857

Other liabilities


29



75



52,820



56,392







Shareholders' equity






Share capital


89,352



85,516

Contributed surplus


18,018



18,150

Retained earnings


129,612



126,309

Accumulated other comprehensive loss


(53,079)



(48,574)









183,903



181,401








$

236,723


$

237,793

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Earnings

 

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



Three months ended
November 30,



2016



2015







Sales

$

61,785


$

55,232







Cost of sales (1)


22,813



20,137

Selling and administrative


21,595



20,252

Net research and development


11,314



9,933

Depreciation of property, plant and equipment


903



975

Amortization of intangible assets


427



300

Interest (income) expense


(20)



63

Foreign exchange gain


(512)



(310)







Earnings before income taxes


5,265



3,882







Income taxes


1,962



2,116







Net earnings for the period

$

3,303


$

1,766







Basic and diluted net earnings per share

$

0.06


$

0.03







Basic weighted average number of shares outstanding (000's)


53,884



53,814







Diluted weighted average number of shares outstanding (000's)


55,001



54,535







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

 

EXFO Inc.
Condensed Unaudited nterim Consolidated Statements of Comprehensive Loss

 

(in thousands of US dollars)



Three months ended
November 30,



2016



2015







Net earnings for the period

$

3,303


$

1,766

Other comprehensive income (loss), net of income taxes






Items that will not be reclassified subsequently to net earnings







Foreign currency translation adjustment


(4,217)



(2,509)

Items that may be reclassified subsequently to net earnings







Unrealized gains/losses on forward exchange contracts


(561)



(270)


Reclassification of realized gains/losses on forward exchange contracts in net earnings


181



878


Deferred income tax effect of gains/losses on forward exchange contracts


92



(148)







Other comprehensive loss


(4,505)



(2,049)







Comprehensive loss for the period

$

(1,202)


$

(283)

 

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

 

(in thousands of US dollars)  



Three months ended November 30, 2015


Share
capital


Contributed
surplus


Retained
earnings


Accumulated
other
comprehensive
loss


Total
shareholders'
equity
















Balance as at September 1, 2015

$

86,045


$

17,778


$

117,409


$

(52,005)


$

169,227

Redemption of share capital


(1)



-



-



-



(1)

Reclassification of stock-based compensation costs


723



(723)



-



-



-

Stock-based compensation costs


-



341



-



-



341

Net earnings for the period


-



-



1,766



-



1,766

Other comprehensive income (loss)
















Foreign currency translation adjustment


-



-



-



(2,509)



(2,509)


Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $148


-



-



-



460



460
















Total comprehensive loss for the period














(283)
















Balance as at November 30, 2015

$

86,767


$

17,396


$

119,175


$

(54,054)


$

169,284








 

Three months ended November 30, 2016


Share
capital


Contributed
surplus


Retained
earnings


Accumulated
other
comprehensive
loss 


Total
shareholders'
equity
















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


346



(346)



-



-



-

 

Stock-based compensation costs


-



214



-



-



214

Net earnings for the period


-



-



3,303



-



3,303

Other comprehensive loss
















Foreign currency translation adjustment


-



-



-



(4,217)



(4,217)


Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $92


-



-



-



(288)



(288)
















Total comprehensive loss for the period














(1,202)
















Balance as at November 30, 2016

$

89,352


$

18,018


$

129,612


$

(53,079)


$

183,903

 

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows

 

(in thousands of US dollars)





Three months ended
November 30,




2016



2015








Cash flows from operating activities






Net earnings for the period

$

3,303


$

1,766

Add (deduct) items not affecting cash







Stock-based compensation costs


258



376


Depreciation and amortization


1,330



1,275


Deferred revenue


(75)



1,511


Deferred income taxes


147



573


Changes in foreign exchange gain/loss


(538)



(344)




4,425



5,157








Changes in non-cash operating items







Accounts receivable


(2,558)



(2,024)


Income taxes and tax credits


(344)



(278)


Inventories


(1,248)



(3,226)


Prepaid expenses


258



54


Other assets


13



193


Accounts payable, accrued liabilities and provisions


(1,425)



3,375


Other liabilities


-



(28)




(879)



3,223

Cash flows from investing activities






Additions to short-term investments


(296)



(21)

Additions to capital assets


(1,237)



(1,309)

Business combination


(5,000)



-




(6,533)



(1,330)

Cash flows from financing activities






Bank loan


-



315

Redemption of share capital


-



(1)




-



314








Effect of foreign exchange rate changes on cash


(735)



(197)








Change in cash


(8,147)



2,010

Cash - Beginning of the period


43,208



25,864

Cash - End of the period

$

35,061


$

27,874















Supplementary information






Income taxes paid

$

958


$

608

 

EXFO-F

 

SOURCE EXFO inc.

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