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06.29.2016

EXFO Reports Third Quarter Results for Fiscal 2016

  • Sales increase 5.4% year-over-year to US$60.9 million
  • Adjusted EBITDA improves 18.8% year-over-year to US$5.3 million
  • Cash flows from operations of US$2.3 million raises cash position to US$46.3 million

QUEBEC CITY, June 29, 2016 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF) reported today financial results for the third quarter ended May 31, 2016.

Sales reached US$60.9 million in the third quarter of fiscal 2016 compared to US$57.8 million in the third quarter of 2015 and US$53.6 million in the second quarter of 2016. After three quarters into 2016, sales increased 2.6% year-over-year to US$169.7 million.

Bookings attained US$59.7 million in the third quarter of fiscal 2016 for a book-to-bill ratio of 0.98 compared to US$59.2 million in the same period last year and US$59.7 million in the second quarter of 2016. Bookings improved 5.8% year-over-year to US$177.9 million after three quarters into 2016 for a book-to-bill ratio of 1.05 for this period.

Gross margin before depreciation and amortization* amounted to 60.8% of sales in the third quarter of fiscal 2016 compared to 61.4% in the third quarter of 2015 and 64.7% in the second quarter of 2016. After three quarters into 2016, gross margin reached 62.9% compared to 61.9% for the same period in 2015.

IFRS net earnings in the third quarter of fiscal 2016 totaled US$0.9 million, or US$0.02 per diluted share, compared US$0.6 million, or US$0.01 per diluted share, in the same period last year and US$4.0 million, or US$0.07 per diluted share, in the second quarter of 2016. IFRS net earnings in the third quarter of 2016 included US$0.3 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and a foreign exchange loss of US$1.0 million.

After three quarters into 2016, IFRS net earnings totaled US$6.6 million, or US$0.12 per diluted share, compared to US$3.0 million, or US$0.05 per diluted share, in the same period in 2015. IFRS net earnings on a year-to-date basis included US$0.8 million in after-tax amortization of intangible assets, US$1.1 million in stock-based compensation costs and a foreign exchange gain of US$0.5 million.

Adjusted EBITDA* totaled US$5.3 million, or 8.7% of sales, in the third quarter of fiscal 2016 compared to US$4.5 million, or 7.7% of sales, in the third quarter of 2015 and US$5.3 million, or 9.9% of sales, in the second quarter of 2016. On a year-to-date basis, adjusted EBITDA totaled US$15.9 million, or 9.3% of sales, compared to US$8.8 million, or 5.3% of sales, for the same period in 2015.

EXFO's cash and short-term investments amounted to US$46.3 million at the end of the third quarter of fiscal 2016 compared to US$29.9 million at the end of the third quarter of 2015 and US$44.4 million at the end of the second quarter of 2016.

"I am quite pleased with the progress of our financial results after the first three quarters of 2016, including the solid performances of both our Physical and Protocol-layer product groups," said Germain Lamonde, EXFO's Chairman, President and CEO. "During the third quarter, our instruments business delivered strong bookings and revenues, while we experienced delays in closing some systems-based deals which, in turn, limited our overall top and bottom-line results."

"After nine months into fiscal 2016, we have increased adjusted EBITDA by 80% year-over-year and generated more EBITDA than the entire reporting period in 2015," Mr. Lamonde added.

 

Selected Financial Information







(In thousands of US dollars)


















    Q3 2016


Q2 2016


    Q3 2015












Physical-layer sales


$

42,074


$

32,582


$

38,167

Protocol-layer sales



19,260



21,990



20,492

Foreign exchange losses on forward exchange contracts



(438)



(975)



(878)

Total sales


$

60,896


$

53,597


$

57,781












Physical-layer bookings


$

41,797


$

34,873


$

38,534

Protocol-layer bookings



18,389



25,805



21,593

Foreign exchange losses on forward exchange contracts



(438)



(975)



(878)

Total bookings


$

59,748


$

59,703


$

59,249

Book-to-bill ratio



0.98



1.11



1.03












Gross margin*


$

37,016


$

34,693


$

35,500





60.8%



64.7%



61.4%












Other selected information:











IFRS net earnings


$

919


$

3,963


$

563


Amortization of intangible assets


$

294


$

286


$

444


Stock-based compensation costs


$

386


$

314


$

374


Net income tax effect of the above items


$

(31)


$

(30)


$

(49)


Foreign exchange (gain) loss


$

957


$

(1,101)


$

175


Adjusted EBITDA*


$

5,301


$

5,280


$

4,462

 

Operating Expenses
Selling and administrative expenses totaled US$20.8 million, or 34.2% of sales in the third quarter of fiscal 2016 compared to US$20.5 million, or 35.5% of sales, in the same period last year and US$19.6 million, or 36.5% of sales, in the second quarter of 2016.

Net R&D expenses totaled US$11.3 million, or 18.6% of sales, in the third quarter of fiscal 2016 compared to US$10.9 million, or 18.9% of sales, in the third quarter of 2015 and US$10.2 million, or 19.0% of sales, in the second quarter of 2016.

Third-Quarter Highlights

  • Sales. In the third quarter of 2016, sales were particularly robust within EXFO's optical and transport product lines which are benefiting from a 100G investment cycle. From a geographic standpoint, 59% of sales originated from the Americas, 22% from EMEA and 19% from Asia-Pacific. EXFO's top customer accounted for 5.0% of sales, while the top three represented 14.7%.
  • Profitability. Adjusted EBITDA improved 18.8% year-over-year to US$5.3 million in the third quarter of 2016. After nine months into fiscal 2016, EXFO generated adjusted EBITDA of US$15.9 million, or 9.3% of sales. The company also reported US$2.3 million in cash flows from operating activities in the third quarter and US$20.8 million after nine months into fiscal 2016.
  • Innovation. EXFO launched four key new solutions during the third quarter of 2016, including the LTB-8, a multi-module test platform dedicated to high-speed testing in lab and manufacturing environments; a 100G Power Blazer test module that can be swapped between the LTB-8 and FTB-2 Pro platforms to ease the transition between lab and field testing; and EXFO added two 100G portable testers to its NetBlazer product family in order to address growing turn-up and troubleshooting requirements for metro networks and data center interconnects (DCIs).

Business Outlook
EXFO forecasts sales between US$57.0 million and US$62.0 million for the fourth quarter of fiscal 2016, 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 loss/earnings include US$0.01 per share in after-tax amortization of intangible assets and stock-based compensation costs as well as US$0.01 per share for foreign exchange losses based on current exchange rates.

This guidance was established by management based on existing backlog as of the date of this press release, current market conditions, 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 third-quarter results for fiscal 2016. 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: 20909896. Germain Lamonde, Chairman, President and CEO, and Pierre Plamondon, CPA, CA, 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 July 5, 2016. The replay number is 1-855-859-2056 and the conference ID number is 20909896. 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 orchestration and performance intelligence 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 (constant currency data, 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.

Constant currency data represents data before foreign currency impact. Data for the current period is translated using foreign exchange rates of the corresponding period from the preceding year. 

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 or loss.

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

 

Adjusted EBITDA (unaudited)




















   Q3 2016



   Q2 2016



     Q3 2015










IFRS net earnings for the period

$

919


$

3,963


$

563










Add (deduct):


















Depreciation of property, plant and equipment


958



924



1,163

Amortization of intangible assets


294



286



444

Interest and other (income) expenses


(309)



(470)



36

Income taxes


2,096



1,364



1,707

Stock-based compensation costs


386



314



374

Foreign exchange (gain) loss


957



(1,101)



175

Adjusted EBITDA for the period

$

5,301


$

5,280


$

4,462










Adjusted EBITDA in percentage of sales


8.7%



9.9%



7.7%

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets


(in thousands of US dollars)






As at

May 31,

2016


As at

August 31,

2015

Assets















Current assets







Cash


$

42,273


$

25,864

Short-term investments



4,039



1,487

Accounts receivable








Trade



44,288



48,068


Other



2,510



2,384

Income taxes and tax credits recoverable



4,263



3,855

Inventories



34,939



27,951

Prepaid expenses



3,235



2,801





135,547



112,410









Tax credits recoverable



34,320



35,625

Property, plant and equipment



36,007



35,695

Intangible assets



3,541



4,096

Goodwill



21,938



21,860

Deferred income tax assets



7,973



8,900

Other assets



691



416












$

240,017


$

219,002

Liabilities















Current liabilities







Bank loan


$

455


$

-

Accounts payable and accrued liabilities



39,022



34,126

Provisions



336



427

Income taxes payable



421



779

Deferred revenue



10,729



7,647





50,963



42,979









Deferred revenue



4,929



2,957

Deferred income tax liabilities



2,734



1,524

Other liabilities



195



791





58,821



48,251









Shareholders' equity







Share capital



86,826



86,045

Contributed surplus



17,635



17,778

Retained earnings



125,581



118,933

Accumulated other comprehensive loss



(48,846)



(52,005)













181,196



170,751












$

240,017


$

219,002

 


EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Earnings


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








Three months

ended

May 31, 2016


Nine months

ended

May 31, 2016


Three months

ended

May 31, 2015


Nine months

ended

May 31, 2015














Sales


$

60,896


$

169,725


$

57,781


$

165,495














Cost of sales (1)



23,880



62,921



22,281



63,064

Selling and administrative



20,798



60,615



20,489



61,689

Net research and development



11,303



31,398



10,923



33,087

Depreciation of property, plant and equipment



958



2,857



1,163



3,664

Amortization of intangible assets



294



880



444



2,561

Interest and other (income) expense



(309)



(716)



36



(216)

Foreign exchange (gain) loss



957



(454)



175



(4,787)

Earnings before income taxes



3,015



12,224



2,270



6,433














Income taxes



2,096



5,576



1,707



3,458














Net earnings for the period


$

919


$

6,648


$

563


$

2,975














Basic and diluted net earnings per share


$

0.02


$

0.12


$

0.01


$

0.05














Basic weighted average number of shares outstanding (000s)



53,940



53,894



53,861



57,804














Diluted weighted average number of shares outstanding (000s)



54,813



54,655



54,549



58,453














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

 


EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)


(in thousands of US dollars)





Three months
ended
May 31, 2016


Nine months
ended
May 31, 2016


Three months
ended
May 31, 2015


Nine months

ended

May 31, 2015














Net earnings for the period


$

919


$

6,648


$

563


$

2,975

Other comprehensive income (loss), net of income taxes













Items that will not be reclassified subsequently to net earnings














Foreign currency translation adjustment



5,488



775



802



(29,499)

Items that may be reclassified subsequently to net earnings














Unrealized gains/losses on forward exchange contracts



1,045



825



38



(4,164)


Reclassification of realized losses on forward exchange contracts in net earnings



666



2,383



938



1,438


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



(434)



(824)



(270)



725

Other comprehensive income (loss)



6,765



3,159



1,508



(31,500)















Comprehensive income (loss) for the period


$

7,684


$

9,807


$

2,071


$

(28,525)

 


EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity


(in thousands of US dollars)



Nine months ended May 31, 2015



Share
capital


Contributed
surplus


Retained
earnings


Accumulated
other
comprehensive
loss


Total
shareholders'
equity

















Balance as at September 1, 2014


$

111,491


$

16,503


$

113,635


$

(10,259)


$

231,370

Redemption of share capital



(26,396)



1,222



-



-



(25,174)

Reclassification of stock-based compensation costs



1,376



(1,376)



-



-



-

Stock-based compensation costs



-



1,175



-



-



1,175

Net earnings for the period



-



-



2,975



-



2,975

Other comprehensive loss

















Foreign currency translation adjustment



-



-



-



(29,499)



(29,499)


Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $725



-



-



-



(2,001)



(2,001)


















Total comprehensive loss for the period















(28,525)


















Balance as at May 31, 2015


$

86,471


$

17,524


$

116,610


$

(41,759)


$

178,846




Nine months ended May 31, 2016



Share

capital


Contributed
surplus


Retained
earnings


Accumulated
other
comprehensive
loss


Total

shareholders'
equity

















Balance as at September 1, 2015


$

86,045


$

17,778


$

118,933


$

(52,005)


$

170,751

Redemption of share capital



(457)



55



-



-



(402)

Reclassification of stock-based compensation costs



1,238



(1,238)



-



-



-

Stock-based compensation costs



-



1,040



-



-



1,040

Net earnings for the period



-



-



6,648



-



6,648

Other comprehensive income

















Foreign currency translation adjustment



-



-



-



775



775


Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $824



-



-



-



2,384



2,384


















Total comprehensive income for the period















9,807


















Balance as at May 31, 2016


$

86,826


$

17,635


$

125,581


$

(48,846)


$

181,196

 




EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows










(in thousands of US dollars)












Three months

ended

May 31, 2016


Nine months

ended

May 31, 2016


Three months

ended

May 31, 2015


Nine months

ended

May 31, 2015















Cash flows from operating activities













Net earnings for the period


$

919


$

6,648


$

563


$

2,975

Add (deduct) items not affecting cash














Stock-based compensation costs



386



1,076



374



1,162


Depreciation and amortization



1,252



3,737



1,607



6,225


Deferred revenue



1,203



4,876



854



1,358


Deferred income taxes



611



1,285



542



199


Changes in foreign exchange gain/loss



626



(333)



(77)



(2,875)





4,997



17,289



3,863



9,044

Changes in non-cash operating items














Accounts receivable



(5,887)



3,394



(6,494)



(7,811)


Income taxes and tax credits



(301)



632



(541)



(1,964)


Inventories



(759)



(6,627)



950



(983)


Prepaid expenses



(452)



(418)



(374)



(875)


Other assets





203



30



29


Accounts payable, accrued liabilities and provisions



4,675



6,406



1,334



8,994


Other liabilities



(5)



(59)



(30)



(62)





2,268



20,820



(1,262)



6,372

Cash flows from investing activities













Additions to short-term investments



(3,109)



(3,130)





(19,509)

Proceeds from disposal and maturity of short-term investments





501



1,619



23,685

Purchases capital assets



(1,138)



(3,374)



(1,826)



(4,625)





(4,247)



(6,003)



(207)



(449)

Cash flows from financing activities













Bank loan





468





Redemption of share capital



(215)



(402)



(71)



(25,174)





(215)



66



(71)



(25,174)

Effect of foreign exchange rate changes on cash



1,049



1,526



78



(5,975)















Change in cash



(1,145)



16,409



(1,462)



(25,226)

Cash - Beginning of the period



43,418



25,864



30,357



54,121

Cash - End of the period


$

42,273


$

42,273


$

28,895


$

28,895















Supplementary information













Income taxes paid


$

505


$

1,621


$

350


$

1,174

Additions to capital assets


$

1,011


$

3,386


$

1,700


$

4,638

 

EXFO-F

 

SOURCE EXFO inc.

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