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EXFO reports first quarter results for fiscal 2020

Jan 07, 2020
  • Sales increased 6.3% to US$73.6 million, above midpoint of guidance range
  • IFRS net loss amounted to US$0.1 million, US$0.00 per share
  • Adjusted EBITDA totaled US$7.5 million, 10.3% of sales

QUEBEC CITY, Jan. 7, 2020 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the first quarter ended November 30, 2019.

"EXFO delivered a strong first-quarter performance to begin fiscal 2020, highlighted by sales above the midpoint of guidance for a fifth consecutive reporting period and adjusted EBITDA margin in double-digits," said EXFO's CEO Philippe Morin. "These results demonstrate the heightened leverage in our business model through a combination of increased revenue and lower cost structure. Although we are operating within a highly dynamic and transforming industry, we are confident about achieving our profitable growth strategy for the full fiscal year."

First-Quarter Highlights

  • Sales. Sales increased 6.3% in the first quarter of fiscal 2020 mainly due to a more linear influx of Test and Measurement (T&M) orders compared to the same period in 2019, and stronger demand for the company's solutions in the Asia-Pacific region. T&M sales accounted for 76% of revenue in the first quarter of 2020, while Service Assurance, Systems and Services (SASS) sales totaled 24%. Revenue distribution among the three main selling regions amounted to 54% in the Americas, 29% in Europe, Middle East and Africa (EMEA) and 17% in Asia-Pacific. EXFO's top customer accounted for 11.9% of sales, while the top three represented 19.7%.
  • Profitability. IFRS net loss amounted to US$0.1 million, or US$0.00 per share, in the first quarter of fiscal 2020, while adjusted EBITDA totaled US$7.5 million, or 10.3% of sales. EXFO adopted IFRS 16, "Leases," on Sept. 1, 2019, using the modified retrospective method which had a positive impact on adjusted EBITDA of US$0.9 million, or 1.2% of sales, in the first quarter of 2020. Prior period amounts were not adjusted.
  • Innovation. EXFO introduced the Optical Wave Expert, the first test solution to integrate DWDM (dense wavelength division multiplexing) channel power validation and OTDR (optical time domain reflectometry) fault-locating capabilities on a single port. Designed to reduce mean-time-to-repair, this instrument enables field technicians to automatically troubleshoot optical fiber links.

Business Outlook
EXFO forecasts sales between US$66.0 million and US$71.0 million for the second quarter of fiscal 2020, while IFRS net loss is expected to range between -US$0.09 and -US$0.05 per share. IFRS net loss includes US$0.05 per share in after-tax amortization of intangible assets, stock-based compensation costs and anticipated foreign exchange loss.

This guidance, which is a forward-looking statement, 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 date of this news release.

 

Selected Financial Information

(In thousands of US dollars)

     
   

Three months ended
November 30,

   

2019

 

2018

         

Test and measurement sales

 

$

55,947

 

$

49,764

Service assurance, systems and services sales

 

17,749

 

19,416

Foreign exchange gains (losses) on forward exchange contracts

 

(145)

 

21

Total sales

 

$

73,551

 

$

69,201

         

Test and measurement bookings

 

$

55,009

 

$

63,996

Service assurance, systems and services bookings

 

15,049

 

17,221

Foreign exchange gains (losses) on forward exchange contracts

 

(145)

 

21

Total bookings

 

$

69,913

 

$

81,238

Book-to-bill ratio (bookings/sales)

 

0.95

 

1.17

Gross margin before depreciation and amortization*

 

$

43,310

 

$

40,304

   

58.9 %

 

58.2 %

         

Other selected information:

       

IFRS net loss

 

$

(63)

 

$

(7,467)

Amortization of intangible assets

 

$

1,632

 

$

2,940

Stock-based compensation costs

 

$

487

 

$

418

Restructuring charges

 

$

-

 

$

2,741

Acquisition-related deferred revenue fair value adjustment

 

$

-

 

$

864

Net income tax effect of the above items

 

$

(249)

 

$

(423)

Foreign exchange (gain) loss

 

$

126

 

$

(215)

Adjusted EBITDA*

 

$

7,544

 

$

2,728

 

Quarterly Overview
Sales reached US$73.6 million in the first quarter of fiscal 2020 compared to US$69.2 million in the first quarter of 2019.

Bookings attained US$69.9 million in the first quarter of fiscal 2020 compared to US$81.2 million for the same period in 2019. The company's book-to-bill ratio was 0.95 in the first quarter of 2020.

Gross margin before depreciation and amortization* improved to 58.9% of sales in the first quarter of fiscal 2020 from 58.2% in the first quarter of 2019.

Selling and administrative expenses totaled US$24.5 million, or 33.3% of sales in the first quarter of fiscal 2020 compared to US$26.4 million, or 38.1% of sales, in the first quarter of 2019.

Net R&D expenses amounted to US$11.7 million, or 16.0% of sales, in the first quarter of fiscal 2020 compared to US$15.2 million, or 22.0% of sales, in the same period last year. Net R&D expenses included US$2.1 million in restructuring charges in the first quarter of 2019.

IFRS net loss totaled US$0.1 million, or US$0.00 per share, in the first quarter of fiscal 2020 compared to  US$7.5 million, or US$0.14 per share, in the first quarter of 2019. IFRS net loss in the first quarter of 2020 included US$1.4 million in after-tax amortization of intangible assets, US$0.5 million in stock-based compensation costs and US$0.1 million in foreign exchange loss. In the first quarter of 2019, IFRS net loss was impacted by restructuring charges of US$2.7 million.

Adjusted EBITDA* amounted to US$7.5 million, or 10.3% of sales, in the first quarter of fiscal 2020 compared to US$2.7 million, or 3.9% of sales, in the first quarter of 2019.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review first-quarter results for fiscal 2020. To listen to the conference call and participate in the question period via telephone, dial 1-323-794-2093. Please take note the following participant passcode will be required: 7351891. Executive Chairman Germain Lamonde, CEO Philippe Morin and Pierre Plamondon, CPA, Chief Financial Officer and Vice-President of Finance, will participate in the call. An audio replay of the conference call will be available two hours after the event until 8 p.m. on January 14, 2020. The replay number is 1-719-457-0820 and the participant passcode is 7351891. 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 (NASDAQ: EXFO) (TSX: EXF) develops smarter test, monitoring and analytics solutions for fixed and mobile network operators, webscale companies and equipment manufacturers in the global communications industry. Our customers count on us to deliver superior network performance, service reliability and subscriber insights. They count on our unique blend of equipment, software and services to accelerate digital transformations related to fiber, 4G/LTE and 5G deployments. They count on our expertise with automation, real-time troubleshooting and big data analytics, which are critical to their business performance. We've spent over 30 years earning this trust, and today 1,900 EXFO employees in over 25 countries work side by side with our customers in the lab, field, data center and beyond.

Forward-Looking Statements
This news 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 statements that refer 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, including trade wars and recessions; our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the communications industry (including our ability to quickly adapt cost structures to 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 communications test, monitoring and analytics solutions markets and increased competition among vendors; capacity to adapt our future product offering to future technological changes; limited visibility with regard to the timing and nature of customer orders; delay in revenue recognition due to longer sales cycles for complex systems involving customers' acceptance; 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 to conduct business internationally; 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 you 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. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA represents net loss before interest and other expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, acquisition-related deferred revenue fair value adjustment, and foreign exchange gain or loss.

These non-IFRS measures eliminate the effect on IFRS results of non-cash statement of earnings elements, restructuring charges as well as elements subject to significant volatility such as foreign exchange gain or loss. EXFO uses these measures for evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These non-IFRS measures are also used by financial analysts who evaluate and compare EXFO's performance against that of competitors and industry players in the sector.

Finally, these measures help EXFO to plan and forecast future periods as well as make operational and strategic decisions. EXFO believes that providing this information to investors, in addition to IFRS measures, allows them to see the company's results through the eyes of management, and to better understand historical and future financial performance. More importantly, it enables the comparison of EXFO's performance on a relatively similar basis against that of other public and private companies in the industry worldwide.

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.

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

 

Adjusted EBITDA

   

Three months ended

November 30,

   

2019

 

2018

         

IFRS net loss for the period

 

$

(63)

 

$

(7,467)

         

Add (deduct):

       
         

Depreciation and amortization

 

3,926

 

4,369

Interest and other expense

 

399

 

377

Income taxes

 

2,669

 

1,641

Stock-based compensation costs

 

487

 

418

Restructuring charges

 

-

 

2,741

Acquisition-related deferred revenue fair value adjustment

 

-

 

864

Foreign exchange (gain) loss

 

126

   

(215)

Adjusted EBITDA for the period (1)

 

$

7,544

 

$

2,728

         

Adjusted EBITDA in percentage of sales (1)

 

10.3 %

 

3.9 %

   

(1)

IFRS net loss for the three months ended November 30, 2019 takes into account the impact of the adoption of IFRS 16 on September 1, 2019. The adoption of IFRS 16 had a positive impact on adjusted EBITDA of $851,000, or 1.2% of sales, for the three months ended November 30, 2019. Comparative figures were not adjusted.

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets   

 

(in thousands of US dollars)

       
 

As at

November 30,
2019

 

 

As at

August 31,

2019

           

Assets

         
           

Current assets

         

Cash

$

15,045

 

$

16,518

Short-term investments

 

2,491

   

2,918

Accounts receivable

         

Trade

 

51,429

   

51,517

Other

 

3,404

   

3,396

Income taxes and tax credits recoverable

 

3,692

   

3,159

Inventories

 

41,513

   

38,017

Prepaid expenses

 

5,663

   

6,510

Other assets

 

3,364

   

3,083

   

126,601

   

125,118

           

Tax credits recoverable

 

45,285

   

46,704

Property, plant and equipment

 

39,719

   

39,364

Lease right-of-use assets

 

10,498

   

Intangible assets

 

20,495

   

21,654

Goodwill

 

39,076

   

38,648

Deferred income tax assets

 

4,819

   

4,821

Other assets

 

979

   

1,293

 

$

287,472

 

$

277,602

Liabilities

         
           

Current liabilities

         

Bank loan

$

13,322

 

$

5,000

Accounts payable and accrued liabilities

 

47,482

   

50,790

Provisions

 

942

   

1,065

Income taxes payable

 

311

   

704

Deferred revenue

 

20,120

   

24,422

Other liabilities

 

1,602

   

1,606

Current portion of lease liabilities

 

2,962

   

Current portion of long-term debt

 

2,335

   

2,449

   

89,076

   

86,036

           

Provisions

 

2,615

   

2,737

Deferred revenue

 

9,021

   

9,056

Lease liabilities

 

7,158

   

Long-term debt

 

2,718

   

3,293

Deferred income tax liabilities

 

3,166

   

3,598

Other liabilities

 

269

   

318

   

114,023

   

105,038

           

Shareholders' equity

         

Share capital

 

93,355

   

92,706

Contributed surplus

 

18,816

   

19,196

Retained earnings

 

112,110

   

112,173

Accumulated other comprehensive loss

 

(50,832)

   

(51,511)

   

173,449

   

172,564

           
 

$

287,472

 

$

277,602

 

 

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,

   

2019

   

2018

           

Sales

$

73,551

 

$

69,201

           

Cost of sales (1)

 

30,241

   

28,897

Selling and administrative

 

24,504

   

26,375

Net research and development

 

11,749

   

15,224

Depreciation of property, plant and equipment

 

1,443

   

1,429

Depreciation of lease right-of-use assets

 

851

   

Amortization of intangible assets

 

1,632

   

2,940

Interest and other expense

 

399

   

377

Foreign exchange (gain) loss

 

126

   

(215)

           

Earnings (loss) before income taxes

 

2,606

   

(5,826)

           

Income taxes

 

2,669

   

1,641

           

Net loss for the period

$

(63)

 

$

(7,467)

           

Basic and diluted net loss per share

$

(0.00)

 

$

(0.14)

           

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

 

55,439

   

55,184

           

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

 

55,439

   

55,184

   

(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

November 30,

   

2019

   

2018

           

Net loss for the period

$

(63)

 

$

(7,467)

Other comprehensive income (loss), net of income taxes

         

Items that may be reclassified subsequently to net loss

         

Foreign currency translation adjustment

 

561

   

(3,356)

Unrealized gains/losses on forward exchange contracts

 

(35)

   

(687)

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

 

183

   

91

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

 

(30)

   

209

           

Other comprehensive income (loss)

 

679

   

(3,743)

           

Comprehensive income (loss) for the period

$

616

 

$

(11,210)

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

 

(in thousands of US dollars)

 
   

Three months ended November 30, 2018

   

Share

capital

   

Contributed
surplus

   

Retained
earnings

   

Accumulated
other
comprehensive
loss

   

Total
shareholders'
equity

                             

Balance as at September 1, 2018

$

91,937

 

$

18,428

 

$

114,906

 

$

(47,350)

 

$

177,921

Adoption of IFRS 9

 

   

   

(253)

   

   

(253)

Adjusted balance as at September 1, 2018

 

91,937

   

18,428

   

114,653

   

(47,350)

   

177,668

Reclassification of stock-based compensation costs

 

643

   

(643)

   

   

   

Stock-based compensation costs

 

   

460

   

   

   

460

Net loss for the period

 

   

   

(7,467)

   

   

(7,467)

Other comprehensive loss

                           

Foreign currency translation adjustment

 

   

   

   

(3,356)

   

(3,356)

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $209

 

   

   

   

(387)

   

(387)

                             

Total comprehensive loss for the period

                         

(11,210)

                             

Balance as at November 30, 2018

$

92,580

 

$

18,245

 

$

107,186

 

$

(51,093)

 

$

166,918

                             
                             
   

Three months ended November 30, 2019

   

Share

capital

   

Contributed
surplus

   

Retained
earnings

   

Accumulated
other
comprehensive
loss

   

Total
shareholders'
equity

                             

Balance as at September 1, 2019

$

92,706

 

$

19,196

 

$

112,173

 

$

(51,511)

 

$

172,564

Reclassification of stock-based compensation costs

 

861

   

(861)

   

   

   

Redemption of share capital

 

(212)

   

(13)

   

   

   

(225)

Stock-based compensation costs

 

   

494

   

   

   

494

Net loss for the period

 

   

   

(63)

   

   

(63)

Other comprehensive income

                           

Foreign currency translation adjustment

 

   

   

   

561

   

561

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $30

 

   

   

   

118

   

118

                             

Total comprehensive income for the period

                         

616

                             

Balance as at November 30, 2019

$

93,355

 

$

18,816

 

$

112,110

 

$

(50,832)

 

$

173,449

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows

 

(in thousands of US dollars)

 
 

Three months ended

November 30,

   

2019

   

2018

           

Cash flows from operating activities

         

Net loss for the period

$

(63)

 

$

(7,467)

Add (deduct) items not affecting cash

         

Stock-based compensation costs

 

487

   

418

Depreciation and amortization

 

3,926

   

4,369

Write-off of capital assets

 

216

   

Deferred revenue

 

(4,372)

   

3,922

Deferred income taxes

 

(442)

   

(29)

Changes in foreign exchange gain/loss

 

(21)

   

(529)

   

(269)

   

684

           

Changes in non-cash operating items

         

Accounts receivable

 

72

   

(4,052)

Income taxes and tax credits

 

516

   

(998)

Inventories

 

(3,493)

   

(1,361)

Prepaid expenses

 

378

   

183

Other assets

 

35

   

(12)

Accounts payable, accrued liabilities and provisions

 

(3,693)

   

3,132

Other liabilities

 

(16)

   

(51)

   

(6,470)

   

(2,475)

Cash flows from investing activities

         

Additions to short-term investments

 

(147)

   

Disposal of short-term investments

 

563

   

342

Purchases of capital assets

 

(2,040)

   

(2,882)

   

(1,624)

   

(2,540)

Cash flows from financing activities

         

Bank loan

 

8,354

   

11,257

Repayment of lease liabilities

 

(844)

   

Repayment of long-term debt

 

(676)

   

(717)

Redemption of share capital

 

(225)

   

   

6,609

   

10,540

           

Effect of foreign exchange rate changes on cash

 

12

   

(196)

           

Change in cash

 

(1,473)

   

5,329

Cash – Beginning of the period

 

16,518

   

12,758

Cash – End of the period

$

15,045

 

$

18,087

 

EXFO-F

 

Cision View original content:http://www.prnewswire.com/news-releases/exfo-reports-first-quarter-results-for-fiscal-2020-300983046.html

SOURCE EXFO Inc.

Vance Oliver, Director, Investor Relations, (418) 683-0913, Ext. 23733, vance.oliver@exfo.com