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EXFO reports third quarter results for fiscal 2020

Jul 08, 2020
  • Sales reached US$66.1 million
  • IFRS net earnings totaled US$3.2 million
  • Adjusted EBITDA amounted to US$10.7 million, 16.1% of sales

QUEBEC CITY, July 8, 2020 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the third quarter ended May 31, 2020.

"Despite constraints and restrictive measures in many countries, EXFO navigated through the coronavirus pandemic with a solid financial performance in the third quarter of 2020," said EXFO's CEO Philippe Morin. "We delivered encouraging sales in a difficult environment and proactively implemented cost-controls, while benefiting from a Canadian government wage subsidy program. The end-result was strong earnings amid end-markets that will necessarily improve as long-term drivers like fiber and 5G deployments remain intact."

Third Quarter Highlights

  • Sales. Sales decreased 10.1% year-over-year to US$66.1 million in the third quarter of fiscal 2020 mainly due to the ongoing impact of the coronavirus pandemic. Test and Measurement (T&M) sales accounted for 75% of revenue in the third quarter of 2020, while Service Assurance, Systems and Services (SASS) sales represented 25%. Revenue distribution among the three main selling regions amounted to 45% in the Americas, 33% in Europe, Middle East and Africa (EMEA) and 22% in Asia-Pacific. EXFO's top customer accounted for 9.6% of sales, while the top three totaled 18.2%.
  • Profitability. IFRS net earnings amounted to US$3.2 million, or US$0.06 per share, in the third quarter of fiscal 2020, while adjusted EBITDA totaled US$10.7 million, or 16.1% of sales. Net earnings included a wage subsidy of US$3.3M (US$2.4M after-tax) under the Canada emergency wage subsidy program to help qualifying businesses alleviate the effects of the coronavirus pandemic.

Selected Financial Information

(In thousands of US dollars)

 

Three months
ended
May 31, 2020

 

Three months
ended
May 31, 2019

 

Nine months
ended
May 31, 2020

 

Nine months
ended
May 31, 2019

                       

Test and Measurement sales

$

50,309

 

$

54,359

 

$

143,733

 

$

154,530

Service Assurance, Systems and Services sales

 

16,352

   

19,469

   

52,036

   

62,586

Foreign exchange losses on forward exchange

                     

contracts

 

(514)

   

(241)

   

(758)

   

(401)

Total sales

$

66,147

 

$

73,587

 

$

195,011

 

$

216,715

                       

Test and Measurement bookings

$

46,634

 

$

50,157

 

$

153,646

 

$

159,473

Service Assurance, Systems and Services

                     

bookings

 

12,988

   

19,648

   

49,000

   

67,822

Foreign exchange losses on forward exchange

                     

contracts

 

(514)

   

(241)

   

(758)

   

(401)

Total bookings

$

59,108

 

$

69,564

 

$

201,888

 

$

226,894

Book-to-bill ratio (bookings/sales)

 

0.89

   

0.95

   

1.04

   

1.05

Gross margin before depreciation and amortization*

$

38,199

 

$

43,129

 

$

113,026

 

$

128,298

   

57.7%

   

58.6%

   

58.0%

   

59.2%

                       

Other selected information:

                     

     IFRS net earnings (loss)

$

3,177

 

$

21

 

$

(5,907)

 

$

(2,253)

     Amortization of intangible assets

$

1,698

 

$

2,072

 

$

5,025

 

$

7,142

     Stock-based compensation costs

$

523

 

$

475

 

$

1,446

 

$

1,354

     Restructuring charges (reversals)

$

 

$

(13)

 

$

 

$

3,305

     Acquisition-related deferred revenue fair value

                     

adjustment

$

 

$

 

$

 

$

1,435

     Net income tax effect of the above items

$

(257)

 

$

(344)

 

$

(760)

 

$

(1,115)

     Foreign exchange (gain) loss

$

141

 

$

(146)

 

$

649

 

$

55

     Adjusted EBITDA*

$

10,656

 

$

7,860

 

$

13,284

 

$

19,372

Quarterly Overview
Sales reached US$66.1 million in the third quarter of fiscal 2020 compared to US$73.6 million in the third quarter of 2019.

Bookings attained US$59.1 million in the third quarter of fiscal 2020 compared to US$69.6 million for the same period in 2019. The company's book-to-bill ratio was 0.89 in the third quarter of 2020.

Gross margin before depreciation and amortization* amounted to 57.7% of sales in the third quarter of fiscal 2020 compared to 58.6% in the third quarter of 2019.

Selling and administrative expenses totaled US$18.9 million, or 28.6% of sales in the third quarter of fiscal 2020 compared to US$23.8 million, or 32.3% of sales, in the third quarter of 2019.

Net R&D expenses attained US$9.2 million, or 13.9% of sales, in the third quarter of fiscal 2020 compared to US$12.0 million, or 16.3% of sales, in the same period last year.

IFRS net earnings totaled US$3.2 million, or US$0.06 per share, in the third quarter of fiscal 2020 compared to net earnings of US$21,000, or US$0.00 per share, in the third quarter of 2019. IFRS net earnings in the third 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. Net earnings in the third quarter of 2020 also included US$2.4 million for an after-tax wage subsidy granted by the Canadian government to help qualifying businesses alleviate the effects of the coronavirus pandemic. 

Adjusted EBITDA* amounted to US$10.7 million, or 16.1% of sales, in the third quarter of fiscal 2020 compared to US$7.9 million, or 10.7% of sales, in the third quarter of 2019.

During the third quarter of fiscal 2020, EXFO extended its revolving credit facilities, which had provided advances up to US$50.8 million (C$70.0 million), to US$65.3 million (C$90.0 million) until May 31, 2021, and will return to US$50.8 million (C$70.0 million) on June 1, 2021.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review third 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: 8963518. 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 July 15, 2020. The replay number is 1-719-457-0820 and the participant passcode is 8963518. 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.

*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 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 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

 
 

Three months
ended
May 31, 2020

 

Three months
ended
May 31, 2019

 

Nine months
ended
May 31, 2020

 

Nine months
ended
May 31, 2019

                       

IFRS net earnings (loss) for the period (1)

$

3,177

 

$

21

 

$

(5,907)

 

$

(2,253)

                       

Add (deduct):

                     
                       

Depreciation and amortization

 

3,833

   

3,440

   

11,732

   

11,329

Interest and other (income) expense

 

291

   

698

   

975

   

(439)

Income taxes

 

2,691

   

3,385

   

4,389

   

4,586

Stock-based compensation costs

 

523

   

475

   

1,446

   

1,354

Restructuring charges (reversals)

 

   

(13)

   

   

3,305

Acquisition-related deferred revenue fair value

                     

adjustment

 

   

   

   

1,435

Foreign exchange (gain) loss

 

141

   

(146)

   

649

   

55

Adjusted EBITDA for the period

$

10,656

 

$

7,860

 

$

13,284

 

$

19,372

                       

Adjusted EBITDA as a percentage of sales

 

16.1%

   

10.7%

   

6.8%

   

8.9%

   

(1)

IFRS net earnings (loss) for the three months and the nine months ended May 31, 2020 takes into account the impact of the adoption of IFRS 16 on September 1, 2019. The adoption of IFRS 16 on September 1, 2019 had a positive impact on adjusted EBITDA of $844,000 or 1.3% of sales and $2,549,000 or 1.3% of sales respectively for the three months and the nine months ended May 31, 2020. Comparative figures were not adjusted.

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets

 

(in thousands of US dollars)

 
   

As at
May 31,
2020

 

As at
August 31,
2019

             

Assets

           
             

Current assets

           

Cash

 

$

17,070

 

$

16,518

Short-term investments

   

3,384

   

2,918

Accounts receivable

           

Trade

   

56,842

   

51,517

Other

   

4,543

   

3,396

Income taxes and tax credits recoverable

   

4,912

   

3,159

Inventories

   

42,745

   

38,017

Prepaid expenses

   

5,553

   

6,510

Other assets

   

3,800

   

3,083

     

138,849

   

125,118

             

Tax credits recoverable

   

45,203

   

46,704

Property, plant and equipment

   

37,814

   

39,364

Right-of-use assets

   

10,636

   

Intangible assets

   

17,523

   

21,654

Goodwill

   

37,842

   

38,648

Deferred income tax assets

   

4,407

   

4,821

Other assets

   

1,257

   

1,293

   

$

293,531

 

$

277,602

Liabilities

           
             

Current liabilities

           

Bank loan

 

$

33,821

 

$

5,000

Accounts payable and accrued liabilities

   

43,954

   

50,790

Provisions

   

706

   

1,065

Income taxes payable

   

249

   

704

Deferred revenue

   

21,634

   

24,422

Other liabilities

   

1,616

   

1,606

Current portion of lease liabilities

   

3,188

   

Current portion of long-term debt

   

2,043

   

2,449

     

107,211

   

86,036

             

Provisions

   

2,490

   

2,737

Deferred revenue

   

7,669

   

9,056

Lease liabilities

   

7,453

   

Long-term debt

   

2,118

   

3,293

Deferred income tax liabilities

   

2,760

   

3,598

Other liabilities

   

878

   

318

     

130,579

   

105,038

             

Shareholders' equity

           

Share capital

   

93,999

   

92,706

Contributed surplus

   

19,149

   

19,196

Retained earnings

   

106,266

   

112,173

Accumulated other comprehensive loss

   

(56,462)

   

(51,511)

     

162,952

   

172,564

   

$

293,531

 

$

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

May 31, 2020

 

Nine months

ended

May 31, 2020

 

Three months

ended

May 31, 2019

 

Nine months

ended

May 31, 2019

                         

Sales

 

$

66,147

 

$

195,011

 

$

73,587

 

$

216,715

                         

Cost of sales (1)

   

27,948

   

81,985

   

30,458

   

88,417

Selling and administrative

   

18,898

   

67,705

   

23,761

   

75,610

Net research and development

   

9,168

   

33,483

   

11,970

   

39,410

Depreciation of property, plant and

                       

equipment

   

1,291

   

4,158

   

1,368

   

4,187

Depreciation of lease right-of-use assets

   

844

   

2,549

   

   

Amortization of intangible assets

   

1,698

   

5,025

   

2,072

   

7,142

Interest and other (income) expense

   

291

   

975

   

698

   

(439)

Foreign exchange (gain) loss

   

141

   

649

   

(146)

   

55

Earnings (loss) before income taxes

   

5,868

   

(1,518)

   

3,406

   

2,333

                         

Income taxes

   

2,691

   

4,389

   

3,385

   

4,586

                         

Net earnings (loss) for the period

 

$

3,177

 

$

(5,907)

 

$

21

 

$

(2,253)

                         

Basic and diluted net earnings (loss)

                       

per share

 

$

0.06

 

$

(0.11)

 

$

0.00

 

$

(0.04)

                         

Basic weighted average number of shares

                       

outstanding (000's)

   

55,678

   

55,573

   

55,392

   

55,306

                         

Diluted weighted average number of

                       

shares outstanding (000's)

   

56,724

   

55,573

   

56,437

   

55,306

   

(1)

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

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Comprehensive Loss

 

(in thousands of US dollars)

 
   

Three months
ended
May 31, 2020

 

Nine months
ended
May 31, 2020

 

Three months
ended
May 31, 2019

 

Nine months
ended
May 31, 2019

                         

Net earnings (loss) for the period

 

$

3,177

 

$

(5,907)

 

$

21

 

$

(2,253)

Other comprehensive income (loss), net of income taxes

                       

Items that may be reclassified

                       

subsequently to net earnings

                       

Foreign currency translation

                       

adjustment

   

(3,317)

   

(4,075)

   

(4,611)

   

(6,160)

Unrealized gains/losses on forward

                       

exchange contracts

   

(1,052)

   

(1,805)

   

(1,046)

   

(1,237)

Reclassification of realized gains/losses

                       

on forward exchange contracts

   

251

   

607

   

(91)

   

210

Deferred income tax effect on

                       

gains/losses on forward exchange

                       

contracts

   

206

   

322

   

314

   

356

                         

Other comprehensive loss

   

(3,912)

   

(4,951)

   

(5,434)

   

(6,831)

                         

Comprehensive loss for the period 

 

$

(735)

 

$

(10,858)

 

$

(5,413)

 

$

(9,084)

 

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

 

(in thousands of US dollars)

 
   

Nine months ended May 31, 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 at September 1, 2018

   

91,937

   

18,428

   

114,653

   

(47,350)

   

177,668

Reclassification of stock-based

                             

compensation costs

   

1,078

   

(1,078)

   

   

   

Redemption of share capital

   

(126)

   

21

   

   

   

(105)

Stock-based compensation costs

   

   

1,363

   

   

   

1,363

Net loss for the period

   

   

   

(2,253)

   

   

(2,253)

Other comprehensive loss

                             

Foreign currency translation adjustment

   

   

   

   

(6,160)

   

(6,160)

Changes in unrealized gains/losses on

                             

forward exchange contracts, net of

                             

deferred income taxes of $356

   

   

   

   

(671)

   

(671)

                               

Total comprehensive loss for the period

                           

(9,084)

                               

Balance as at May 31, 2019

 

$

92,889

 

$

18,734

 

$

112,400

 

$

(54,181)

 

$

169,842

     
     
   

Nine months ended May 31, 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

   

1,505

   

(1,505)

   

   

   

Redemption of share capital

   

(212)

   

(13)

   

   

   

(225)

Stock-based compensation costs

   

   

1,471

   

   

   

1,471

Net loss for the period

   

   

   

(5,907)

   

   

(5,907)

Other comprehensive loss

                             

Foreign currency translation

                             

adjustment

   

   

   

   

(4,075)

   

(4,075)

Changes in unrealized gains/losses

                             

on forward exchange contracts,

                             

net of deferred income taxes

                             

of $322

   

   

   

   

(876)

   

(876)

                               

Total comprehensive loss for the period

                           

(10,858)

                               

Balance as at May 31, 2020

 

$

93,999

 

$

19,149

 

$

106,266

 

$

(56,462)

 

$

162,952

 

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows

 

(in thousands of US dollars)

 
   

 

Three months

ended

May 31, 2020

 

 

Nine months

ended

May 31, 2020

 

 

Three months

ended

May 31, 2019

 

 

Nine months

ended

May 31, 2019

                         

Cash flows from operating activities

                       

Net earnings (loss) for the period

 

$

3,177

 

$

(5,907)

 

$

21

 

$

(2,253)

Add (deduct) items not affecting cash

                       

Stock-based compensation costs

   

523

   

1,446

   

475

   

1,354

Depreciation and amortization

   

3,833

   

11,732

   

3,440

   

11,329

Gain on disposal of capital assets

   

   

   

   

(1,732)

Write-off of capital assets

   

   

216

   

   

261

Deferred revenue

   

(329)

   

(3,144)

   

1,676

   

11,619

Deferred income taxes

   

493

   

(161)

   

(142)

   

(2,295)

Changes in foreign exchange gain/loss

   

869

   

1,750

   

143

   

(310)

     

8,566

   

5,932

   

5,613

   

17,973

Changes in non-cash operating items

                       

Accounts receivable

   

(25,485)

   

(6,874)

   

(12,857)

   

(7,038)

Income taxes and tax credits

   

44

   

(2,618)

   

1,596

   

1,629

Inventories

   

(2,282)

   

(6,233)

   

(306)

   

(668)

Prepaid expenses

   

(773)

   

215

   

(585)

   

(380)

Other assets

   

(256)

   

(712)

   

(664)

   

(1,003)

Accounts payable, accrued liabilities

                       

and provisions

   

3,253

   

(6,020)

   

1,995

   

2,013

Other liabilities

   

53

   

95

   

(6)

   

(1,527)

     

(16,880)

   

(16,215)

   

(5,214)

   

10,999

Cash flows from investing activities

                       

Additions to short-term investments

   

(1,927)

   

(2,074)

   

(286)

   

(578)

Disposal of short-term investments

   

   

1,264

   

826

   

1,168

Purchases of capital assets

   

(1,880)

   

(6,066)

   

(1,639)

   

(6,318)

Proceeds from disposal of capital assets

   

   

   

   

3,318

     

(3,807)

   

(6,876)

   

(1,099)

   

(2,410)

Cash flows from financing activities

                       

Bank loan

   

19,934

   

28,304

   

(3,808)

   

(5,052)

Repayment of lease liabilities

   

(844)

   

(2,534)

   

   

Repayment of long-term debt

   

(292)

   

(1,607)

   

(713)

   

(2,165)

Redemption of share capital

   

   

(225)

   

   

(105)

     

18,798

   

23,938

   

(4,521)

   

(7,322)

Effect of foreign exchange rate changes

                       

on cash

   

(167)

   

(295)

   

(306)

   

(402)

                         

Change in cash during the period

   

(2,056)

   

552

   

(11,140)

   

865

Cash – Beginning of the period

   

19,126

   

16,518

   

24,763

   

12,758

Cash – End of the period

 

$

17,070

 

$

17,070

 

$

13,623

 

$

13,623

 

 

Cision View original content:http://www.prnewswire.com/news-releases/exfo-reports-third-quarter-results-for-fiscal-2020-301090420.html

SOURCE EXFO Inc.

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