EXFO Inc.
Mar 29, 2017

EXFO Reports Second-Quarter Results for Fiscal 2017

QUEBEC CITY, March 29, 2017 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the global network test, data and analytics experts, reported today financial results for the second quarter ended February 28, 2017.

Sales reached US$60.0 million in the second quarter of fiscal 2017 compared to US$53.6 million in the second quarter of 2016 and US$61.8 million in the first quarter of 2017. At the halfway mark of fiscal 2017, sales increased 11.9% year-over-year to US$121.8 million.

Bookings attained US$55.9 million in the second quarter of fiscal 2017 compared to US$59.7 million in the same period last year and US$65.9 million in the first quarter of 2017. The company's book-to-bill ratio was 0.93 in the second quarter of 2017 and 1.00 at the half-way point of 2017, leading to year-over-year bookings growth of 3.0% after two quarters.

Gross margin before depreciation and amortization* amounted to 61.7% of sales in the second quarter of fiscal 2017 compared to 64.7% in the second quarter of 2016 and 63.1% in the first quarter of 2017. After six months into fiscal 2017, gross margin accounted for 62.4% of sales.

IFRS net earnings in the second quarter of fiscal 2017 totaled US$1.0 million, or US$0.02 per diluted share, compared US$4.0 million, or US$0.07 per diluted share, in the same period last year and US$3.3 million, or US$0.06 per diluted share, in the first quarter of 2017. IFRS net earnings in the second quarter of 2017 included US$0.6 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and a foreign exchange loss of US$0.3 million. IFRS net earnings totaled US$4.3 million in the first half of fiscal 2017 compared to US$5.7 million in the first half of 2016. IFRS net earnings in the first half of 2017 included a foreign exchange gain of US$0.2 million compared to a foreign exchange gain of US$1.4 million in the first half of 2016.

Adjusted EBITDA* totaled US$4.9 million, or 8.1% of sales, in the second quarter of fiscal 2017 compared to US$5.3 million, or 9.9% of sales, in the second quarter of 2016 and US$6.3 million, or 10.2% of sales, in the first quarter of 2017. At the halfway point of fiscal 2017, adjusted EBITDA totaled US$11.2 million, or 9.2% of sales, compared to US$10.6 million, or 9.7% of sales, in the first half of 2016.

EXFO generated US$14.4 million in cash flows from operating activities in the second quarter of fiscal 2017 and closed the quarter with a cash position of US$52.4 million and no debt.

Following the quarter-end, EXFO acquired Ontology Systems, a technology leader in real-time network topology discovery and service-chain mapping, for a consideration of US$7.6 million, net of cash, plus an earnout based on future sales.

"I am particularly pleased we delivered double-digit, year-over-year revenue growth for a third consecutive quarter, even though bookings were softer than anticipated due to delays in new calendar year budget approvals and deal pushouts," said Germain Lamonde, EXFO's Founder, Chairman and CEO. "We delivered strong sales growth in the optical and 100 Gbit/s transport markets, both in the field and lab, and continued strengthening our leadership position with major product launches in the 200 Gbit/s and 400 Gbit/s test segments at the recent Optical Fiber Conference. Earlier at Mobile World Congress, we announced the acquisition of Ontology Systems' automated network topology discovery technology and the introduction of accurate, one-way latency monitoring capabilities. Once combined with our 3D analytics platform, these technologies will significantly enhance our real-time monitoring of VoWiFi, OTT video and VoIP services over hybrid physical-virtual networks and strengthen our positioning in the strategic NFV/SDN, 5G and IoT markets."

 

Selected Financial Information






(In thousands of US dollars)













    Q2 2017


    Q1 2017


    Q2 2016







Physical-layer sales

$

38,038


$

42,016


$

32,582

Protocol-layer sales

22,097


20,009


21,990

Foreign exchange losses on forward exchange contracts

(105)


(240)


(975)

Total sales

$

60,030


$

61,785


$

53,597







Physical-layer bookings

$

34,031


$

44,090


$

34,874

Protocol-layer bookings

21,992


22,009


25,804

Foreign exchange losses on forward exchange contracts

(105)


(240)


(975)

Total bookings

$

55,918


$

65,859


$

59,703

Book-to-bill ratio (bookings/sales)

0.93


1.07


1.11

Gross margin before depreciation and amortization*

$

37,041


$

38,972


$

34,693


61.7%


63.1%


64.7%







Other selected information:







IFRS net earnings

$

1,008


$

3,303


$

3,963


Amortization of intangible assets

$

768


$

427


$

286


Stock-based compensation costs

$

353


$

258


$

314


Net income tax effect of the above items

$

(162)


$

(64)


$

(30)


Foreign exchange (gain) loss

$

272


$

(512)


$

(1,101)


Adjusted EBITDA*

$

4,875


$

6,321


$

5,280

 

Operating Expenses
Selling and administrative expenses totaled US$21.3 million, or 35.4% of sales in the second quarter of fiscal 2017 compared to US$19.6 million, or 36.5% of sales, in the same period last year and US$21.6 million, or 35.0% of sales, in the first quarter of 2017.

Net R&D expenses totaled US$11.3 million, or 18.8% of sales, in the second quarter of fiscal 2017 compared to US$10.2 million, or 19.0% of sales, in the second quarter of 2016 and US$11.3 million, or 18.3% of sales, in the first quarter of 2017.

Second-Quarter and First-Half Highlights

Business Outlook
EXFO forecasts sales between US$58.0 million and US$63.0 million for the third quarter of fiscal 2017, while IFRS net results are expected to range between a loss of US$0.02 per share and earnings of US$0.02 per share. IFRS net results include US$0.02 per share in after-tax amortization of intangible assets and stock-based compensation costs as well as an anticipated foreign exchange gain of US$0.01 per share.

This guidance was established by management based on existing backlog as of the date of this press release, seasonality, expected bookings for the remaining of the quarter, as well as exchange rates as of the day of this press release.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review second-quarter results for fiscal 2017. To listen to the conference call and participate in the question period via telephone, dial 1-719-457-1036. Please take note the following participant passcode will be required: 6277231. Germain Lamonde, Executive Chairman, Philippe Morin, Chief Operating Officer, 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 April 5, 2017. The replay number is 1-719-457-0820 and the required participant passcode is 6277231. 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, data and analytics solutions for the world's leading communications service providers, network equipment manufacturers and web-scale companies. Since 1985, we've worked side by side with our clients 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 clients flourish in a rapidly transforming industry where "good enough" testing and data analytics just isn't good enough anymore—it never was 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; capacity to adapt our future product offering to future technological changes; limited visibility with regards to timing and nature of customer orders; longer sales cycles for complex systems involving customers' acceptances delaying revenue recognition; fluctuating exchange rates; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully expand international operations; our ability to successfully integrate businesses that we acquire; and the retention of key technical and management personnel. Assumptions relating to the foregoing involve judgments and risks, all of which are difficult or impossible to predict and many of which are beyond our control. Other risk factors that may affect our future performance and operations are detailed in our Annual Report, on Form 20-F, and our other filings with the U.S. Securities and Exchange Commission and the Canadian securities commissions. We believe that the expectations reflected in the forward-looking statements are reasonable based on information currently available to us, but we cannot assure that the expectations will prove to have been correct. Accordingly, you should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this document. Unless required by law or applicable regulations, we undertake no obligation to revise or update any of them to reflect events or circumstances that occur after the date of this document.

*NON-IFRS MEASURES

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

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

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

Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain or loss.

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

 

Adjusted EBITDA













   Q2 2017


   Q1 2017


     Q2 2016







IFRS net earnings for the period

$

1,008


$

3,303


$

3,963







Add (deduct):












Depreciation of property, plant and equipment

962


903


924

Amortization of intangible assets

768


427


286

Interest (income) expense

(9)


(20)


(470)

Income taxes

1,521


1,962


1,364

Stock-based compensation costs

353


258


314

Foreign exchange (gain) loss

272


(512)


(1,101)

Adjusted EBITDA for the period

$

4,875


$

6,321


$

5,280







Adjusted EBITDA in percentage of sales

8.1%


10.2%


9.9%

 

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets


(in thousands of US dollars)




As at

February 28,

2017


As at

August 31,

2016

Assets














Current assets







Cash


$

48,343


$

43,208

Short-term investments



4,074



4,087

Accounts receivable








Trade



36,818



42,993


Other



5,435



2,474

Income taxes and tax credits recoverable



4,131



4,208

Inventories



33,039



33,004

Prepaid expenses



2,971



3,099




134,811



133,073








Tax credits recoverable



34,159



34,594

Property, plant and equipment



36,843



35,978

Intangible assets



7,034



3,391

Goodwill



26,094



21,928

Deferred income tax assets



7,078



8,240

Other assets



435



589










$

246,454


$

237,793

Liabilities














Current liabilities







Accounts payable and accrued liabilities


$

37,803


$

37,174

Provisions



258



299

Income taxes payable



545



971

Deferred revenue



11,335



9,486




49,941



47,930








Deferred revenue



6,433



5,530

Deferred income tax liabilities



2,441



2,857

Other liabilities



30



75




58,845



56,392








Shareholders' equity







Share capital



89,841



85,516

Contributed surplus



17,843



18,150

Retained earnings



130,620



126,309

Accumulated other comprehensive loss



(50,695)



(48,574)











187,609



181,401










$

246,454


$

237,793

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Earnings














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
















Three months


Six months


Three months


Six months



ended


ended


ended


ended



February 28,


February 28,


February 29,


February 29,



2017


2017


2016


2016














Sales


$

60,030


$

121,815


$

53,597


$

108,829














Cost of sales (1)



22,989



45,802



18,904



39,041

Selling and administrative



21,255



42,850



19,565



39,817

Net research and development



11,264



22,578



10,162



20,095

Depreciation of property, plant and equipment



962



1,865



924



1,899

Amortization of intangible assets



768



1,195



286



586

Interest and other income



(9)



(29)



(470)



(407)

Foreign exchange (gain) loss



272



(240)



(1,101)



(1,411)

Earnings before income taxes



2,529



7,794



5,327



9,209














Income taxes



1,521



3,483



1,364



3,480














Net earnings for the period


$

1,008


$

4,311


$

3,963


$

5,729














Basic net earnings per share


$

0.02


$

0.08


$

0.07


$

0.11














Diluted net earnings per share


$

0.02


$

0.08


$

0.07


$

0.10














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



54,506



54,195



53,927



53,870














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



55,681



55,341



54,615



54,575














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


 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Comprehensive Income














(in thousands of US dollars)
















Three months


Six months


Three months


Six months



ended


ended


ended


ended



February 28,


February 28,


February 29,


February 29,



2017


2017


2016


2016














Net earnings for the period


$

1,008


$

4,311


$

3,963


$

5,729

Other comprehensive income (loss), net of income taxes













Items that will not be reclassified subsequently to net earnings














Foreign currency translation adjustment



2,019



(2,198)



(2,204)



(4,713)

Items that may be reclassified subsequently to net earnings














Unrealized gains/losses on forward exchange contracts



326



(235)



50



(220)


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



139



320



839



1,717


Deferred income tax effect of gains (losses) on forward exchange contracts



(100)



(8)



(242)



(390)

Other comprehensive income (loss)



2,384



(2,121)



(1,557)



(3,606)














Comprehensive income for the period


$

3,392


$

2,190


$

2,406


$

2,123


 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

















(in thousands of US dollars)



















Six months ended February 29, 2016



Share

capital


Contributed surplus


Retained earnings


Accumulated
other
comprehensive
loss


Total

shareholders' equity

















Balance as at September 1, 2015


$

86,045


$

17,778


$

118,933


$

(52,005)


$

170,751

Redemption of share capital



(244)



57



-



-



(187)

Reclassification of stock-based compensation costs



1,230



(1,230)



-



-



-

Stock-based compensation costs



-



681



-



-



681

Net earnings for the period



-



-



5,729



-



5,729

Other comprehensive income (loss)

















Foreign currency translation adjustment



-



-



-



(4,713)



(4,713)


Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $390



-



-



-



1,107



1,107

















Total comprehensive income for the period















2,123

















Balance as at February 29, 2016


$

87,031


$

17,286


$

124,662


$

(55,611)


$

173,368



































Six months ended February 28, 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



835



(835)



-



-



-

Stock-based compensation costs



-



528



-



-



528

Net earnings for the period



-



-



4,311



-



4,311

Other comprehensive income (loss)

















Foreign currency translation adjustment



-



-



-



(2,198)



(2,198)


Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $8



-



-



-



77



77

















Total comprehensive income for the period















2,190

















Balance as at February 28, 2017


$

89,841


$

17,843


$

130,620


$

(50,695)


$

187,609

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows














(in thousands of US dollars)
















Three months

ended

February 28,

2017


Six months

ended

February 28,

2017


Three months

ended

February 29,

2016


Six months

ended

February 29,

2016














Cash flows from operating activities













Net earnings for the period


$

1,008


$

4,311


$

3,963


$

5,729

Add (deduct) items not affecting cash














Stock-based compensation costs



353



611



314



690


Depreciation and amortization



1,730



3,060



1,210



2,485


Deferred revenue



3,022



2,947



2,162



3,673


Deferred income taxes



312



459



101



674


Changes in foreign exchange gain/loss



107



(431)



(615)



(959)




6,532



10,957



7,135



12,292

Changes in non-cash operating items














Accounts receivable



5,160



2,602



11,305



9,281


Income taxes and tax credits



(46)



(390)



1,211



933


Inventories



924



(324)



(2,642)



(5,868)


Prepaid expenses



(156)



102



(20)



34


Other assets



(37)



(24)



10



203


Accounts payable, accrued liabilities and provisions



2,011



586



(1,644)



1,731


Other liabilities



1



1



(26)



(54)




14,389



13,510



15,329



18,552

Cash flows from investing activities













Additions to short-term investments



(20)



(316)





(21)

Proceeds from disposal and maturity of short-term investments



298



298



501



501

Purchases capital assets



(1,656)



(2,893)



(927)



(2,236)

Business combination



-



(5,000)








(1,378)



(7,911)



(426)



(1,756)

Cash flows from financing activities













Bank loan



-



-



153



468

Redemption of share capital



-



-



(186)



(187)




-



-



(33)



281














Effect of foreign exchange rate changes on cash



271



(464)



674



477














Change in cash



13,282



5,135



15,544



17,554

Cash - Beginning of the period



35,061



43,208



27,874



25,864

Cash - End of the period


$

48,343


$

48,343


$

43,418


$

43,418














Supplementary information













Income taxes paid


$

603


$

1,561


$

508


$

1,116

Additions to capital assets


$

2,483


$

3,662


$

1,066


$

2,375

 

EXFO-F

 

SOURCE EXFO inc.

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