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 Twelve months Three months Twelve months ended ended ended ended August 31, August 31, August 31, August 31, 2017 2017 2016 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 Twelve months Three months Twelve months ended ended ended ended August 31, 2017 August 31, 2017 August 31, 2016 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 Contributed Retained Accumulated Total capital surplus earnings other shareholders' comprehensive equity loss --- 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 Contributed Retained Accumulated Total capital surplus earnings other shareholders' comprehensive equity loss --- 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 Twelve months Three months Twelve months ended ended ended ended August 31, 2017 August 31, August 31, August 31, 2017 2016 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.