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EXFO reports second quarter results for fiscal 2020

Apr 07, 2020
  • Sales reached US$55.3 million
  • Bookings attained US$72.9 million
  • IFRS net loss amounted to US$9.0 million
  • Adjusted EBITDA totaled -US$4.9 million
  • Key supplier to essential telecommunications industry

QUEBEC CITY, April 7, 2020 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the second quarter ended February 29, 2020.

 

"Despite the temporary shutdown of our manufacturing operations in China, which negatively impacted our revenues, EXFO delivered solid bookings in the second quarter of 2020 with double-digit growth for our Test and Measurement business," said EXFO's CEO Philippe Morin. "Throughout the coronavirus pandemic, the safety of our employees, communities and customers remains at the center of all our actions. All EXFO sites are fully operational and committed to helping global network operators and webscale companies thrive during this challenging period. More than ever, the telecom industry is mission-critical in which network capacity, reliability, and scalability will play a growing role in creating real opportunities for EXFO's innovative solutions." 

 

Second Quarter Highlights

  • Sales. Sales totaled US$55.3 million in the second quarter of fiscal 2020 mainly due to the negative impact of the coronavirus outbreak that forced EXFO to temporarily shut down its manufacturing operations in China. Test and Measurement (T&M) sales accounted for 68% of revenue in the second quarter of 2020, while Service Assurance, Systems and Services (SASS) sales represented 32%. Revenue distribution among the three main selling regions amounted to 48% in the Americas, 31% in Europe, Middle East and Africa (EMEA) and 21% in Asia-Pacific. EXFO's top customer accounted for 8.2% of sales, while the top three totaled 19.5%.
  • Profitability: IFRS net loss amounted to US$9.0 million, or -US$0.16 per share, in the second quarter of fiscal 2020, while adjusted EBITDA totaled -US$4.9 million, or -8.9% of sales. The company generated US$7.1 million in cash flows from operations.
  • Key Supplier: As the coronavirus outbreak has evolved into a global pandemic, EXFO has become a key supplier to the essential telecommunications industry. Several well-funded network operators and webscale companies have increased capital spending to meet the global trend of telecommuting from home. EXFO, with its wealth of test and service assurance solutions, enables the deployment of such bandwidth-intensive applications and required virtualized, cloud-based networks. Key EXFO solutions to help customers maintain peak performance under disruptive conditions include geolocation analytics, virtual VPN remote monitoring, and active monitoring of network and subscriber anomalies.
  • Innovation. EXFO launched the first intelligent automation platform, Nova A/SA, enabling mobile network operators (MNOs) to deliver ultra-reliable and high-quality service experience in a 5G environment. At the heart of Nova A/SA is a real-time, AI-based automated assurance solution, Nova SensAI, acting as the central nervous system for the platform. These combined solutions leverage machine learning to provide MNOs with heightened visibility into subscriber experience and network performance.

Business Outlook
Due to the uncertainty surrounding the breadth and duration of the coronavirus pandemic, EXFO has suspended issuing quarterly and annual guidance.

 

Selected Financial Information

(In thousands of US dollars)

   

 Q2 2020

   

Q2 2019

   

H1 2020

   

H1 2019

                       

Test and Measurement sales

$

37,477

 

$

50,407

 

$

93,424

 

$

100,171

Service Assurance, Systems and Services sales

 

17,935

   

23,701

   

35,684

   

43,117

Foreign exchange losses on forward exchange contracts

 

(99)

   

(181)

   

(244)

   

(160)

Total sales

$

55,313

 

$

73,927

 

$

128,864

 

$

143,128

                       

Test and Measurement bookings

$

52,003

 

$

45,320

 

$

107,012

 

$

109,316

Service Assurance, Systems and Services bookings

 

20,963

   

30,953

   

36,012

   

48,174

Foreign exchange gains (losses) on forward exchange contracts

 

(99)

   

(181)

   

(244)

   

(160)

Total bookings

$

72,867

 

$

76,092

 

$

142,780

 

$

157,330

Book-to-bill ratio (bookings/sales)

 

1.32

   

1.03

   

1.11

   

1.10

Gross margin before depreciation and amortization*

$

31,517

 

$

44,865

 

$

74,827

 

$

85,169

   

57.0%

   

60.7%

   

58.1%

   

59.5%

                       

Other selected information:

                     

IFRS net earnings (loss)

$

(9,021)

 

$

5,193

 

$

(9,084)

 

$

(2,274)

Amortization of intangible assets

$

1,695

 

$

2,130

 

$

3,327

 

$

5,070

Stock-based compensation costs

$

436

 

$

461

 

$

923

 

$

879

Restructuring charges

$

-

 

$

577

 

$

-

 

$

3,318

Acquisition-related deferred revenue fair value adjustment

$

-

 

$

571

 

$

-

 

$

1,435

Gain on disposal of capital assets

$

-

 

$

(1,732)

 

$

-

 

$

(1,732)

Deferred income tax recovery

$

-

 

$

(2,383)

 

$

-

 

$

(2,383)

Net income tax effect of the above items

$

(254)

 

$

(348)

 

$

(503)

 

$

(771)

Foreign exchange loss

$

382

 

$

416

 

$

508

 

$

201

Adjusted EBITDA*

$

(4,916)

 

$

8,784

 

$

2,628

 

$

11,512

 

Quarterly Overview
Sales reached US$55.3 million in the second quarter of fiscal 2020 compared to US$73.9 million in the second quarter of 2019.

Bookings attained US$72.9 million in the second quarter of fiscal 2020 compared to US$76.1 million for the same period in 2019 in which the company had received a multi-million-dollar SASS-related order. The company's book-to-bill ratio was 1.32 in the second quarter of 2020.

Gross margin before depreciation and amortization* amounted to 57.0% of sales in the second quarter of fiscal 2020 compared to 60.7% in the second quarter of 2019.

Selling and administrative expenses totaled US$24.3 million, or 44.0% of sales in the second quarter of fiscal 2020 compared to US$25.5 million, or 34.4% of sales, in the second quarter of 2019.

Net R&D expenses attained US$12.6 million, or 22.7% of sales, in the second quarter of fiscal 2020 compared to US$12.2 million, or 16.5% of sales, in the same period last year.

IFRS net loss totaled US$9.0 million, or -US$0.16 per share, in the second quarter of fiscal 2020 compared to net earnings of US$5.2 million, or US$0.09 per share, in the second quarter of 2019. IFRS net loss in the second quarter of 2020 included US$1.5 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and US$0.4 million in foreign exchange loss.

Adjusted EBITDA* amounted to -US$4.9 million, or -8.9% of sales, in the second quarter of fiscal 2020 compared to US$8.8 million, or 11.9% of sales, in the second quarter of 2019.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review second-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: 4132437. 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 April 14, 2020. The replay number is 1-719-457-0820 and the participant passcode is 4132437. 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, namely the impact of the coronavirus pandemic on our employees, customers and global operations, including the ability of our suppliers to fulfil raw material requirements and services and our ability to manufacture and deliver our products and services to our customers; the effects of emergency measures related to isolation periods for individuals in affected areas, lockdown restrictions imposed by national governments on businesses in countries where we operate and have employees, and limitations on travel to attract new customers and serve existing ones; deteriorating financial and market conditions as well as a potential recession; trade wars, and 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. This discussion and analysis should be read in conjunction with the consolidated financial statements.

*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 represent net earnings (loss) before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, acquisition-related deferred revenue fair value adjustment, and foreign exchange 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 historical and prospective financial performance, as well as its performance relative to competitors. These non-IFRS measures are also used by financial analysts to evaluate and compare EXFO's performance against that of competitors and industry players in the company's sector.

Finally, these measures help EXFO plan and forecast future periods as well as make operational and strategic decisions. EXFO believes that providing this information, in addition to the IFRS measures, allows investors 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 earnings (loss), in thousands of US dollars:

 

Adjusted EBITDA

   

Q2 2020

   

Q2 2019

   

H1 2020

   

H1 2019

                       

IFRS net earnings (loss) for the period

$

(9,021)

 

$

5,193

 

$

(9,084)

 

$

(2,274)

                       

Add (deduct):

                     
                       

Depreciation and amortization

 

3,973

   

3,520

   

7,899

   

7,889

Interest and other (income) expense

 

285

   

(1,514)

   

684

   

(1,137)

Income taxes

 

(971)

   

(440)

   

1,698

   

1,201

Stock-based compensation costs

 

436

   

461

   

923

   

879

Restructuring charges

 

   

577

   

   

3,318

Acquisition-related deferred revenue fair value adjustment

 

   

571

   

   

1,435

Foreign exchange loss

 

382

   

416

   

508

   

201

Adjusted EBITDA for the period

$

(4,916)

 

$

8,784

 

$

2,628

 

$

11,512

                       

Adjusted EBITDA as a percentage of sales

 

(8.9)%

   

11.9%

   

2.0%

   

8.0%

 

EXFO Inc.

 

Condensed Unaudited Interim Consolidated Balance Sheets

           

(in thousands of US dollars)

           
 

As at

February 29,

2020

 

As at

August 31,

2019

           

Assets

         
           

Current assets

         

Cash

$

19,126

 

$

16,518

Short-term investments

 

1,755

   

2,918

Accounts receivable

         

Trade

 

33,221

   

51,517

Other

 

3,083

   

3,396

Income taxes and tax credits recoverable

 

5,833

   

3,159

Inventories

 

41,530

   

38,017

Prepaid expenses

 

4,994

   

6,510

Other assets

 

3,669

   

3,083

   

113,211

   

125,118

           

Tax credits recoverable

 

45,574

   

46,704

Property, plant and equipment

 

39,156

   

39,364

Right-of-use assets

 

9,634

   

Intangible assets

 

18,830

   

21,654

Goodwill

 

38,728

   

38,648

Deferred income tax assets

 

5,126

   

4,821

Other assets

 

1,110

   

1,293

 

$

271,369

 

$

277,602

Liabilities

         
           

Current liabilities

         

Bank loan

$

13,650

 

$

5,000

Accounts payable and accrued liabilities

 

41,410

   

50,790

Provisions

 

834

   

1,065

Income taxes payable

 

128

   

704

Deferred revenue

 

21,904

   

24,422

Other liabilities

 

1,600

   

1,606

Current portion of lease liabilities

 

2,925

   

Current portion of long-term debt

 

2,158

   

2,449

   

84,609

   

86,036

           

Provisions

 

2,544

   

2,737

Deferred revenue

 

8,453

   

9,056

Lease liabilities

 

6,665

   

Long-term debt

 

2,252

   

3,293

Deferred income tax liabilities

 

3,130

   

3,598

Other liabilities

 

570

   

318

   

108,223

   

105,038

           

Shareholders' equity

         

Share capital

 

93,827

   

92,706

Contributed surplus

 

18,780

   

19,196

Retained earnings

 

103,089

   

112,173

Accumulated other comprehensive loss

 

(52,550)

   

(51,511)

   

163,146

   

172,564

           
 

$

271,369

 

$

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

February 29,

2020

 

Six months

ended

February 29,

2020

 

Three months

ended

February 28,

2019

 

Six months

ended

February 28,

2019

                       

Sales

$

55,313

 

$

128,864

 

$

73,927

 

$

143,128

                       

Cost of sales (1)

 

23,796

   

54,037

   

29,062

   

57,959

Selling and administrative

 

24,303

   

48,807

   

25,474

   

51,849

Net research and development

 

12,566

   

24,315

   

12,216

   

27,440

Depreciation of property, plant and equipment

 

1,424

   

2,867

   

1,390

   

2,819

Depreciation of right-of-use assets

 

854

   

1,705

   

   

Amortization of intangible assets

 

1,695

   

3,327

   

2,130

   

5,070

Interest and other (income) expense

 

285

   

684

   

(1,514)

   

(1,137)

Foreign exchange loss

 

382

   

508

   

416

   

201

Earnings (loss) before income taxes

 

(9,992)

   

(7,386)

   

4,753

   

(1,073)

                       

Income taxes

 

(971)

   

1,698

   

(440)

   

1,201

                       

Net earnings (loss) for the period

$

(9,021)

 

$

(9,084)

 

$

5,193

 

$

(2,274)

                       

Basic and diluted net earnings (loss) per share

$

(0.16)

 

$

(0.16)

 

$

0.09

 

$

(0.04)

                       

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

 

55,603

   

55,521

   

55,343

   

55,263

                       

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

 

55,603

   

55,521

   

56,160

   

55,263

   

(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

February 29,

2020

 

Six months

ended

February 29,

2020

 

Three months

ended

February 28,

2019

 

Six months

ended

February 28,

2019

                       

Net earnings (loss) for the period

$

(9,021)

 

$

(9,084)

 

$

5,193

 

$

(2,274)

Other comprehensive income (loss), net of income taxes

                     

Items that may be reclassified subsequently to net earnings

                     

Foreign currency translation adjustment

 

(1,319)

   

(758)

   

1,807

   

(1,549)

Unrealized gains/losses on forward exchange contracts

 

(718)

   

(753)

   

496

   

(191)

Reclassification of realized gains/losses on forward exchange contracts

 

173

   

356

   

210

   

301

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

 

146

   

116

   

(167)

   

42

                       

Other comprehensive income (loss)

 

(1,718)

   

(1,039)

   

2,346

   

(1,397)

                       

Comprehensive income (loss) for the period

$

(10,739)

 

$

(10,123)

 

$

7,539

 

$

(3,671)

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

 

(in thousands Cof US dollars)

 
 

Six months ended February 28, 2019

 

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 of September 1, 2018

 

91,937

   

18,428

   

114,653

   

(47,350)

   

177,668

Reclassification of stock-based compensation costs

 

1,067

   

(1,067)

   

   

   

Redemption of share capital

 

(126)

   

21

   

   

   

(105)

Stock-based compensation costs

 

   

895

   

   

   

895

Net loss for the period

 

   

   

(2,274)

   

   

(2,274)

Other comprehensive income (loss)

                           

Foreign currency translation adjustment

 

   

   

   

(1,549)

   

(1,549)

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $42

 

   

   

   

152

   

152

                             

Total comprehensive loss for the period

                         

(3,671)

                             

Balance as at February 28, 2019

$

92,878

 

$

18,277

 

$

112,379

 

$

(48,747)

 

$

174,787

                             
                             
 

Six months ended February 29, 2020

 

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

 

1,333

   

(1,333)

   

   

   

Redemption of share capital

 

(212)

   

(13)

   

   

   

(225)

Stock-based compensation costs

 

   

930

   

   

   

930

Net loss for the period

 

   

   

(9,084)

   

   

(9,084)

Other comprehensive loss

                           

Foreign currency translation adjustment

 

   

   

   

(758)

   

(758)

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $116

 

   

   

   

(281)

   

(281)

                             

Total comprehensive loss for the period

                         

(10,123)

                             

Balance as at February 29, 2020

$

93,827

 

$

18,780

 

$

103,089

 

$

(52,550)

 

$

163,146

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows

 

(in thousands of US dollars)

 
 

Three months

ended

February 29,

2020

 

Six months
ended
February 29,
2020

 

Three months

ended

February 28,

2019

 

Six months

ended

February 28,

2019

                       

Cash flows from operating activities

                     

Net earnings (loss) for the period

$

(9,021)

 

$

(9,084)

 

$

5,193

 

$

(2,274)

Add (deduct) items not affecting cash

                     

Stock-based compensation costs

 

436

   

923

   

461

   

879

Depreciation and amortization

 

3,973

   

7,899

   

3,520

   

7,889

Gain on disposal of capital assets

 

   

   

(1,732)

   

(1,732)

Write-off of capital assets

 

   

216

   

261

   

261

Deferred revenue

 

1,557

   

(2,815)

   

6,021

   

9,943

Deferred income taxes

 

(212)

   

(654)

   

(2,124)

   

(2,153)

Changes in foreign exchange gain/loss

 

902

   

881

   

76

   

(453)

   

(2,365)

   

(2,634)

   

11,676

   

12,360

                       

Changes in non-cash operating items

                     

Accounts receivable

 

18,539

   

18,611

   

9,871

   

5,819

Income taxes and tax credits

 

(3,178)

   

(2,662)

   

1,031

   

33

Inventories

 

(458)

   

(3,951)

   

999

   

(362)

Prepaid expenses

 

610

   

988

   

22

   

205

Other assets

 

(491)

   

(456)

   

(327)

   

(339)

Accounts payable, accrued liabilities and provisions

 

(5,580)

   

(9,273)

   

(3,114)

   

18

Other liabilities

 

58

   

42

   

(1,470)

   

(1,521)

   

7,135

   

665

   

18,688

   

16,213

                       

Cash flows from investing activities

                     

Additions to short-term investments

 

   

(147)

   

(292)

   

(292)

Disposal of short-term investments

 

701

   

1,264

   

   

342

Purchases of capital assets

 

(2,146)

   

(4,186)

   

(1,797)

   

(4,679)

Proceeds from disposal of capital assets

 

   

   

3,318

   

3,318

   

(1,445)

   

(3,069)

   

1,229

   

(1,311)

                       

Cash flows from financing activities

                     

Bank loan

 

16

   

8,370

   

(12,501)

   

(1,244)

Repayment of lease liabilities

 

(846)

   

(1,690)

   

   

Repayment of long-term debt

 

(639)

   

(1,315)

   

(735)

   

(1,452)

Redemption of share capital

 

   

(225)

   

(105)

   

(105)

   

(1,469)

   

5,140

   

(13,341)

   

(2,801)

Effect of foreign exchange rate changes on cash

 

(140)

   

(128)

   

100

   

(96)

                       

Change in cash during the period

 

4,081

   

2,608

   

6,676

   

12,005

Cash – Beginning of the period

 

15,045

   

16,518

   

18,087

   

12,758

Cash – End of the period

$

19,126

 

$

19,126

 

$

24,763

 

$

24,763

 

EXFO-F

Cision View original content:http://www.prnewswire.com/news-releases/exfo-reports-second-quarter-results-for-fiscal-2020-301037050.html

SOURCE EXFO Inc.

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