EXFO Inc.
Oct 12, 2017

EXFO Reports Fourth Quarter and Fiscal 2017 Results

Q4 2017

  • Sales reach US$63.0 million, top of guidance range
  • Bookings attain US$66.3 million, book-to-bill ratio of 1.05
  • Adjusted EBITDA totals US$8.5 million, 13.6% of sales

Fiscal 2017

  • Sales increase 4.6% to US$243.3 million
  • Bookings improve 4.8% to US$251.8 million
  • Adjusted EBITDA totals US$22.0 million, 9.1% of sales

QUEBEC CITY, Oct. 12, 2017 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the network test, monitoring and analytics experts, announced today financial results for the fourth quarter and fiscal year ended August 31, 2017.

Sales in the fourth quarter of fiscal 2017 reached US$63.0 million compared to US$58.5 million in the third quarter of 2017 and US$62.9 million in the fourth quarter of 2016. Annual sales increased 4.6% to US$243.3 million in fiscal 2017 from US$232.6 million in 2016.

Bookings totaled US$66.3 million for a book-to-bill ratio of 1.05 in the fourth quarter of fiscal 2017 compared to US$63.7 million in the third quarter of 2017 and US$62.4 million in the fourth quarter of 2016. Overall for fiscal 2017, bookings increased 4.8% to US$251.8 million for a book-to-bill ratio of 1.03 from US$240.3 million in 2016.

Gross margin before depreciation and amortization* attained 61.9% of sales in the fourth quarter of fiscal 2017 compared to 58.0% in the third quarter of 2017 and 61.6% in the fourth quarter of 2016. Gross margin included restructuring charges of 0.2% of sales in the fourth quarter of 2017, 2.7% of sales in the third quarter of 2017 and nil in the fourth quarter of 2016. In fiscal 2017, gross margin reached 61.2% of sales compared to 62.6% in 2016. Gross margin included restructuring charges of 0.7% of sales in 2017 and nil in 2016.  

In the fourth quarter of fiscal 2017, IFRS net earnings amounted to US$0.8 million, or US$0.02 per diluted share, compared to a net loss of US$4.3 million, or US$0.08 per share, in the third quarter of 2017 and net earnings of US$2.3 million, or US$0.04 per diluted share, in the fourth quarter of 2016. Net earnings in the fourth quarter of 2017 included net expenses totaling US$5.3 million: US$0.9 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs, US$1.2 million in after-tax restructuring changes, US$0.4 million for the positive change in the fair value of the cash contingent consideration related to the Ontology Systems acquisition, US$0.3 million in after-tax acquisition-related costs, and a foreign exchange loss of US$2.9 million.

In fiscal 2017, IFRS net earnings totaled US$0.9 million, or US$0.02 per diluted share, compared to US$8.9 million, or US$0.16 per diluted share, in 2016. Net earnings in 2017 included net expenses totaling US$10.6 million: US$2.7 million in after-tax amortization of intangible assets, US$1.4 million in stock-based compensation costs, US$4.8 million in after-tax restructuring charges, US$0.4 million for the positive change in the fair value of the cash contingent consideration related to the Ontology Systems acquisition, US$1.1 million in after-tax acquisition-related costs, and a foreign exchange loss of US$1.0 million.

Adjusted EBITDA* totaled US$8.5 million, or 13.6% of sales, in the fourth quarter of fiscal 2017 compared to US$2.3 million, or 3.9% of sales, in the third quarter of 2017 and US$6.2 million, or 9.8% of sales, in the fourth quarter of 2016. In fiscal 2017, adjusted EBITDA totaled US$22.0 million compared to US$22.0 million in 2016.

On September 8, 2017, EXFO acquired a 33.1% stake in Astellia, a global leader in the performance analysis of mobile networks and subscriber experience. EXFO intends to purchase publicly traded Astellia's remaining equity through a public tender offer. On October 2, 2017, EXFO closed the acquisition of Yenista Optics, a supplier of high-end optical test equipment for the laboratory and manufacturing markets.

"I am very pleased with EXFO's financial results in the fourth quarter of 2017, highlighted by revenue at the top of our guidance range, even stronger bookings and our best adjusted EBITDA margin in recent memory," said EXFO's CEO Philippe Morin. "Overall in fiscal 2017, we delivered 5% revenue growth and healthy profitability amid a competitive environment. Equally important, we established a solid foundation for future growth with investments—both internally and through acquisitions—in key technology areas like fiber, the Cloud, network virtualization and 5G.  These growth initiatives, combined with heightened sales efficiency and recent restructuring measures, should enhance profitability in 2018."  

 

Selected Financial Information (unaudited)

(In thousands of US dollars)



Q4 2017


Q3 2017


Q4 2016


FY 2017


FY 2016
















Physical-layer sales

$

40,802


$

41,007


$

39,777


$

161,864


$

151,910

Protocol-layer sales


22,122



17,678



23,445



81,905



83,324

Foreign exchange gains (losses) on forward exchange contracts


57



(180)



(364)



(468)



(2,651)

Total Sales

$

62,981


$

58,505


$

62,858


$

243,301


$

232,583
















Physical-layer bookings

$

39,322


$

47,157


$

39,826


$

165,886


$

155,320

Protocol-layer bookings


26,943



16,691



22,969



86,348



87,631

Foreign exchange gains (losses) on forward exchange contracts


57



(180)



(364)



(468)



(2,651)

Total Bookings

$

66,322


$

63,668


$

62,431


$

251,766


$

240,300

Book-to-bill ratio (Bookings/Sales)


1.05



1.09



0.99



1.03



1.03
















Gross margin before depreciation and amortization*

$

39,009


$

33,950


$

38,713


$

148,972


$

145,517



61.9%



58.0%



61.6%



61.2%



62.6%
















Other selected information:
















IFRS net earnings (loss)

$

844


$

(4,304)


$

2,252


$

851


$

8,900


Amortization of intangible assets

$

1,048


$

1,046


$

292


$

3,289


$

1,172


Stock-based compensation costs

$

431


$

372


$

302


$

1,414


$

1,378


Restructuring charges

$

1,266


$

3,813


$


$

5,079


$


Change in fair value of cash contingent consideration

$

(383)


$


$


$

(383)


$


Net income tax effect of the above items

$

(275)


$

(357)


$

(31)


$

(858)


$

(120)


Foreign exchange (gain) loss

$

2,943


$

(1,725)


$

293


$

978


$

(161)


Adjusted EBITDA*

$

8,545


$

2,300


$

6,172


$

22,041


$

22,039

 

Operating Expenses
Selling and administrative expenses totaled US$20.8 million, or 33.1% of sales, in the fourth quarter of fiscal 2017 compared to US$22.6 million, or 38.6% of sales, in the third quarter of 2017 and US$21.6 million, or 34.3% of sales, in the fourth quarter of 2016. In fiscal 2017, selling and administrative expenses amounted to US$86.3 million, or 35.5% of sales, compared to US$82.2 million, or 35.3% of sales, in 2016.

Net R&D expenses amounted to US$11.3 million, or 17.9% of sales, in the fourth quarter of fiscal 2017 compared to US$13.3 million, or 22.7% of sales, in the third quarter of 2017 and US$11.3 million, or 18.0% of sales, in the fourth quarter of 2016. In fiscal 2017, net R&D expenses totaled US$47.2 million, or 19.4% of sales, compared to US$42.7 million, or 18.4% of sales, in 2016.

Fiscal 2017 Highlights

  • Sales. Total sales increased 4.6% to US$243.3 million in fiscal 2017 mainly due to EXFO's leadership in optical testing, ongoing 100G investment cycle among communications service providers and the company's growing business with web-scale operators. Sales of Physical-layer solutions (optical and copper access) increased 6.6% year-over-year, while sales of Protocol-layer solutions (transport, datacom, service assurance, analytics and wireless products) dipped 1.7%.
    Annual sales in the Americas as well as Europe, Middle East and Africa (EMEA) increased by 5.6% and 8.6%, respectively, while sales in the Asia-Pacific region dropped 2.9%.
    EXFO's largest customer accounted for 10.1% of sales in fiscal 2017, while the company's top-three customers represented 18.4%. In comparison, EXFO's largest customer accounted for 7.1% of sales in 2016, while the company's top-three customers represented 15.6%.
  • Profitability. EXFO generated adjusted EBITDA of US$22.0 million, or 9.1% of sales, in fiscal 2017 compared to US$22.0 million, or 9.5% of sales, in 2016. The company also delivered US$12.9 million in cash flows from operating activities in 2017 compared to US$24.4 million in 2016.
  • Innovation. EXFO launched 16 new products and/or major enhancements in fiscal 2017, addressing four key technology areas: fiber, Cloud, network virtualization and 5G. New product introductions included a 400 Gbit/s optical transport test solution for the lab and manufacturing markets; an automated inspection probe for testing multi-fiber connectors in data centers and radio access networks; a software-based solution, Universal Virtual Synch, enabling communications service providers to accurately and cost-effectively measure network latency; and optical RF over OBSAI (open base station architecture initiative) link test capabilities to complement optical RF over CPRI (common public radio interface) test technology for centralized radio access networks.

Business Outlook
EXFO forecasts sales between US$60 million and US$65 million for the first quarter of fiscal 2018, while IFRS net results are expected to range between a net loss of US$0.01 per share and net earnings of US$0.03 per share.

IFRS net results include US$0.02 per share in after-tax amortization of intangible assets and stock-based compensation costs.

This guidance 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 day of this release.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review fourth quarter and year-end financial results for fiscal 2017. To listen to the conference call and participate in the question period via telephone, dial 1-323-794-2093. Please take note the following conference ID number will be required: 6482663. EXFO's Executive Chairman Germain Lamonde, CEO Philippe Morin, and Pierre Plamondon, CPA, Vice-President of Finance and Chief Financial Officer, will participate in the call. An audio replay of the conference call will be available two hours after the event until 8:00 p.m. on October 19, 2017. The replay number is 1-719-457-0820 and the conference ID number is 6482663. 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 develops smarter network test, monitoring and analytics solutions for the world's leading communications service providers, network equipment manufacturers and webscale companies. Since 1985, we've worked side by side with our customers in the lab, field, data center, boardroom and beyond to pioneer essential technology and methods for each phase of the network lifecycle. Our portfolio of test orchestration and real-time 3D analytics solutions turn complex into simple and deliver business-critical insights from the network, service and subscriber dimensions. Most importantly, we help our customers flourish in a rapidly transforming industry where "good enough" testing, monitoring and analytics just aren't good enough anymore—they never were for us, anyway.  For more information, visit 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; our ability to successfully integrate businesses that we acquire; 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; and the retention of key technical and management personnel. Assumptions relating to the foregoing involve judgments and risks, all of which are difficult or impossible to predict and many of which are beyond our control. Other risk factors that may affect our future performance and operations are detailed in our Annual Report, on Form 20-F, and our other filings with the U.S. Securities and Exchange Commission and the Canadian securities commissions. We believe that the expectations reflected in the forward-looking statements are reasonable based on information currently available to us, but we cannot assure that the expectations will prove to have been correct. Accordingly, you should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this document. Unless required by law or applicable regulations, we undertake no obligation to revise or update any of them to reflect events or circumstances that occur after the date of this document.

*Non-IFRS Measures
EXFO provides non-IFRS measures (gross margin before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. The company uses these measures for the purpose of evaluating historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the company to plan and forecast future periods as well as to make operational and strategic decisions. EXFO believes that providing this information, in addition to IFRS measures, allows investors to see the company's results through the eyes of management, and to better understand its historical and future financial performance.

The presentation of this additional information is not prepared in accordance with IFRS. Therefore, the information may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, the corresponding measures calculated in accordance with IFRS.

Gross margin before depreciation and amortization represents sales less cost of sales, excluding depreciation and amortization.

Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change in fair value of cash contingent consideration, and foreign exchange gain or loss.

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

 

Adjusted EBITDA







Q4 2017


Q3 2017


Q4 2016


FY 2017


FY 2016
















IFRS net earnings (loss) for the period

$

844


$

(4,304)


$

2,252


$

851


$

8,900
















Add (deduct):






























Depreciation of property, plant and equipment


1,008



1,029



957



3,902



3,814

Amortization of intangible assets


1,048



1,046



292



3,289



1,172

Interest and other (income) expenses


275



57



(112)



303



(828)

Income taxes


1,113



2,012



2,188



6,608



7,764

Stock-based compensation costs


431



372



302



1,414



1,378

Restructuring charges


1,266



3,813



-



5,079



-

Change in fair value of cash contingent consideration


(383)



-



-



(383)



-

Foreign exchange (gain) loss


2,943



(1,725)



293



978



(161)

Adjusted EBITDA for the period

$

8,545


$

2,300


$

6,172


$

22,041


$

22,039




Adjusted EBITDA in percentage of sales


13.6%



3.9%



9.8%



9.1%



9.5%

 

EXFO-F

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets


(in thousands of US dollars)



As at August 31,



2017



2016

Assets












Current assets






Cash

$

38,435


$

43,208

Short-term investments


775



4,087

Accounts receivable







Trade


41,130



42,993


Other


3,907



2,474

Income taxes and tax credits recoverable


4,955



4,208

Inventories


33,832



33,004

Prepaid expenses


4,202



3,099









127,236



133,073







Tax credits recoverable


38,111



34,594

Property, plant and equipment


40,132



35,978

Intangible assets


11,183



3,391

Goodwill


35,077



21,928

Deferred income tax assets


6,555



8,240

Other assets


947



589








$

259,241


$

237,793

Liabilities












Current liabilities






Accounts payable and accrued liabilities

$

36,776


$

37,174

Provisions


3,889



299

Income taxes payable


663



971

Deferred revenue


11,554



9,486









52,882



47,930







Deferred revenue


6,257



5,530

Deferred income tax liabilities


3,116



2,857

Other liabilities


196



75









62,451



56,392







Shareholders' equity






Share capital


90,411



85,516

Contributed surplus


18,184



18,150

Retained earnings


127,160



126,309

Accumulated other comprehensive loss


(38,965)



(48,574)









196,790



181,401








$

259,241


$

237,793

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Earnings


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



Three months

ended

August 31, 2017


Twelve months

ended

August 31, 2017


Three months

ended

August 31, 2016


Twelve months

ended

August 31, 2016


Sales

$

62,981


$

243,301


$

62,858


$

232,583


Cost of sales (1,2)


23,972



94,329



24,145



87,066

Selling and administrative (2)


20,834



86,256



21,554



82,169

Net research and development (2)


11,327



47,168



11,289



42,687

Depreciation of property, plant and equipment


1,008



3,902



957



3,814

Amortization of intangible assets


1,048



3,289



292



1,172

Change in fair value of cash contingent consideration


(383)



(383)





Interest and other (income) expense


275



303



(112)



(828)

Foreign exchange (gain) loss


2,943



978



293



(161)

Earnings before income taxes


1,957



7,459



4,440



16,664


Income taxes


1,113



6,608



2,188



7,764


Net earnings for the period

$

844


$

851


$

2,252


$

8,900


Basic net earnings per share

$

0.02


$

0.02


$

0.04


$

0.17


Diluted net earnings per share

$

0.02


$

0.02


$

0.04


$

0.16


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


54,708



54,423



53,769



53,863


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


55,784



55,555



54,709



54,669


(1)

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

(2)

Restructuring charges included in:















Cost of sales

$

115


$

1,697


$


$


Selling and administrative


231



1,150






Net research and development


920



2,232





 ‒



$

1,266


$

5,079


$


$

 ‒

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Comprehensive Income


(in thousands of US dollars)



Three months
ended
August 31, 2017


Twelve months
ended
August 31, 2017


Three months
ended
August 31, 2016


Twelve months
ended
August 31, 2016













Net earnings for the period

$

844


$

851


$

2,252


$

8,900

Other comprehensive income (loss), net of income taxes












Items that will not be reclassified subsequently to net earnings













Foreign currency translation adjustment


13,028



8,262



(68)



707

Items that may be reclassified subsequently to net earnings













Unrealized gains/losses on forward exchange contracts


1,765



1,403



37



862


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


64



423



414



2,797


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


(510)



(479)



(111)



(935)

Other comprehensive income


14,347



9,609



272



3,431













Comprehensive income for the period

$

15,191


$

10,460


$

2,524


$

12,331

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity


(in thousands of US dollars)



Year ended August 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


$

117,409


$

(52,005)


$

169,227

Redemption of share capital


(1,768)



217



-



-



(1,551)

Reclassification of stock-based compensation costs


1,239



(1,239)



-



-



-

Stock-based compensation costs


-



1,394



-



-



1,394

Net earnings for the year


-



-



8,900



-



8,900

Other comprehensive income
















Foreign currency translation adjustment


-



-



-



707



707


Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $935


-



-



-



2,724



2,724
















Total comprehensive income for the year














12,331
















Balance as at August 31, 2016

$

85,516


$

18,150


$

126,309


$

(48,574)


$

181,401




Year ended August 31, 2017


Share
capital


Contributed
surplus



Retained
earnings


Accumulated
other
comprehensive
loss


Total
shareholders'
equity
















Balance as at September 1, 2016

$

85,516


$

18,150


$

126,309


$

(48,574)


$

181,401

Issuance of share capital


3,490



-



-



-



3,490

Reclassification of stock-based compensation costs


1,405



(1,405)



-



-



-

Stock-based compensation costs


-



1,439



-



-



1,439

Net earnings for the year


-



-



851



-



851

Other comprehensive income
















Foreign currency translation adjustment


-



-



-



8,262



8,262


Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $479


-



-



-



1,347



1,347
















Total comprehensive income for the year














10,460
















Balance as at August 31, 2017

$

90,411


$

18,184


$

127,160


$

(38,965)


$

196,790

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows


(in thousands of US dollars)



Three months

ended

August 31, 2017


Twelve months

ended

August 31, 2017


Three months

ended

August 31, 2016


Twelve months

ended

August 31, 2016













Cash flows from operating activities












Net earnings for the period

$

844


$

851


$

2,252


$

8,900

Add (deduct) items not affecting cash













Stock-based compensation costs


494



1,477



302



1,378


Depreciation and amortization


2,056



7,191



1,249



4,986


Change in fair value of cash contingent consideration


(383)



(383)






Deferred revenue


(1,303)



1,723



(638)



4,238


Deferred income taxes


(109)



1,054



293



1,578


Changes in foreign exchange gain/loss


2,051



1,096



1



(332)



3,650



13,009



3,459



20,748

Changes in non-cash operating items













Accounts receivable


2,254



3,955



(712)



2,682


Income taxes and tax credits


(1,154)



(2,386)



307



939


Inventories


920



911



1,914



(4,713)


Prepaid expenses


(157)



(918)



138



(280)


Other assets


6



(121)



(33)



170


Accounts payable, accrued liabilities and provisions


(3,501)



(1,745)



(1,524)



4,882


Other liabilities


165



165



(6)



(65)



2,183



12,870



3,543



24,363

Cash flows from investing activities












Additions to short-term investments


(23)



(2,910)



(416)



(3,546)

Proceeds from disposal and maturity of short-term investments


2,778



6,374



372



873

Purchases of capital assets


(1,727)



(7,175)



(982)



(4,356)

Business combinations, net of cash acquired


(313)



(12,792)







715



(16,503)



(1,026)



(7,029)

Cash flows from financing activities












Bank loan


 ‒





(468)



Repayment of long-term debt




(1,480)



 ‒



 ‒

Redemption of share capital


 ‒



 ‒



(1,149)



(1,551)





(1,480)



(1,617)



(1,551)

Effect of foreign exchange rate changes on cash


1,164



340



35



1,561













Change in cash


4,062



(4,773)



935



17,344

Cash - Beginning of the period


34,373



43,208



42,273



25,864













Cash - End of the period

$

38,435


$

38,435


$

43,208


$

43,208

 

SOURCE EXFO inc.

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