EXFO reports third quarter results for fiscal 2019
-- Sales reached US$73.6 million, above midpoint of guidance range
-- IFRS net earnings attained break-even mark, US$0.00 per share
-- Adjusted EBITDA totaled US$7.9 million, 10.7% of sales
QUEBEC CITY, July 10, 2019 /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, 2019.
Sales increased 1.9% to US$73.6 million in the third quarter of fiscal 2019 from US$72.2 million in the third quarter of 2018. After nine months in fiscal 2019, sales improved 8.2% year-over-year to US$216.7 million. Astellia contributed nine months to EXFO's financial results in 2019 versus four months for the same period in 2018.
Bookings decreased 4.8% to US$69.6 million for a book-to-bill ratio of 0.95 in the third quarter of fiscal 2019 from US$73.1 million for the same period of 2018. After nine months in fiscal 2019, bookings increased 10.9% year-over-year to US$226.9 million for a book-to-bill ratio of 1.05.
Gross margin before depreciation and amortization(*) amounted to 58.6% of sales in the third quarter of fiscal 2019 compared to 59.9% in the third quarter of 2018.
IFRS net earnings in the third quarter of fiscal 2019 totaled US$21,000, or US$0.00 per share, compared to a net loss of US$6.0 million, or US$0.11 per share, in the third quarter of 2018. IFRS net earnings in the third quarter of 2019 included US$1.7 million in after-tax amortization of intangible assets, US$0.5 million in stock-based compensation costs and a foreign exchange gain of US$0.1 million. After nine months in fiscal 2019, IFRS net loss attributable to the parent interest(1) amounted to US$2.3 million compared to US$8.0 million for the same period in 2018.
Adjusted EBITDA(*) totaled US$7.9 million, or 10.7% of sales, in the third quarter of fiscal 2019 compared to US$2.5 million, or 3.5% of sales, in the third quarter of 2018. After nine months in fiscal 2019, adjusted EBITDA surged 74.5% year-over-year to US$19.4 million.
"I am pleased with our execution so far in fiscal 2019 with significant year-over-year increases in sales, bookings and adjusted EBITDA, including third quarter revenue above the midpoint of guidance and an adjusted EBITDA margin greater than 10% for a second consecutive quarter," said EXFO's CEO Philippe Morin. "This heightened level of consistency reflects a strong performance against our growth strategy, leveraging fiber buildouts, data center interconnects as well as 5G deployments and network virtualization, while maintaining a sound financial discipline. We are confident that we will at least achieve our adjusted EBITDA target of US$24 million for fiscal 2019."
(1) Represents net loss excluding
share of the net loss
attributable to Astellia's
minority shareholders.
Selected Financial Information
(In thousands of US dollars)
===
Three months Three months Nine months Nine months
ended ended ended ended
May 31, 2019 May 31, 2018 May 31, 2019 May 31, 2018
---
Test and Measurement
sales $
54,359 $
49,864 $
154,530 $
149,934
Service Assurance,
Systems and Services
sales 19,469 22,174 62,586 49,599
Foreign exchange gains
(losses) on forward
exchange contracts (241) 179 (401) 797
---
Total sales $
73,587 $
72,217 $
216,715 $
200,330
Test and Measurement
bookings $
50,157 $
52,111 $
159,473 $
152,351
Service Assurance,
Systems and Services
bookings 19,648 20,800 67,822 51,407
Foreign exchange gains
(losses) on forward
exchange contracts (241) 179 (401) 797
---
Total bookings $
69,564 $
73,090 $
226,894 $
204,555
Book-to-bill ratio
(bookings/sales) 0.95 1.01 1.05 1.02
Gross margin before
depreciation and
amortization* $
43,129 $
43,254 $
128,298 $
122,752
58.6% 59.9% 59.2% 61.3%
Other selected information:
IFRS net earnings (loss)
attributable to the
parent interest $
21 $
(5,970) $
(2,253) $
(7,951)
Amortization of
intangible assets $
2,072 $
4,210 $
7,142 $
8,385
Stock-based compensation
costs $
475 $
440 $
1,354 $
1,280
Restructuring charges
(reversals) $
(13)
$
? $
3,305
$
?
Change in fair value of
cash contingent
consideration
$
?
$
?
$
? $
(716)
Acquisition-related
deferred revenue fair
value adjustment
$
? $
913 $
1,435 $
1,222
Net income tax effect of
the above items $
(344) $
(138) $
(1,115) $
(704)
Foreign exchange (gain)
loss $
(146) $
(160) $
55 $
(1,386)
Adjusted EBITDA* $
7,860 $
2,549 $
19,372 $
11,100
=== ===
Operating Expenses
Selling and administrative expenses reached US$23.8 million, or 32.3% of sales in the third quarter of fiscal 2019 compared to US$26.0 million, or 35.9% of sales, in the same period last year.
Net R&D expenses attained US$12.0 million, or 16.3% of sales, in the third quarter of fiscal 2019 compared to US$16.1 million, or 22.3% of sales, in the third quarter of 2018.
Third-Quarter Highlights
-- Growth. Sales increased 1.9% year-over-year despite a negative currency
impact. The increase in sales can be attributed to heightened demand for
EXFO's Test and Measurement product line, especially 100G/200G/400G
optical transport solutions for communications service providers and
advanced equipment for the R&D labs and factories of network equipment
manufacturers. Service Assurance, Systems and Services (SASS) sales were
down year-over-year mainly due to a market slowdown to evaluate how to
optimally transform network architectures into virtualized 5G
infrastructures. Test and Measurement sales accounted for 74% of total
revenue in the third quarter of 2019, while SASS sales totaled 26%.
Revenue breakdown among the three main selling regions amounted to 51%
in the Americas, 30% in Europe, Middle East and Africa (EMEA) and 19% in
Asia-Pacific (APAC). EXFO's top customer accounted for 6.9% of sales,
while the top three represented 16.9%.
-- Profitability. IFRS net earnings attained the break-even mark in the
third quarter of 2019, while adjusted EBITDA reached US$7.9 million, or
10.7% of sales. After nine months in fiscal 2019, IFRS net loss amounted
to US$2.3 million while adjusted EBITDA totaled US$19.4 million.
-- Innovation. EXFO introduced a new category of fiber testing solutions
with the launch of the industry's first optical fiber multimeter (OFM)
following the quarter-end. This revolutionary test instrument, branded
Optical Xplorer(TM), greatly simplifies and accelerates the task of
frontline technicians by automatically evaluating the quality of fiber
links in a matter of seconds.
Business Outlook
EXFO forecasts sales between US$66.0 million and US$71.0 million for the fourth quarter of fiscal 2019.
IFRS net results are expected to range between a loss of US$0.02 per share and earnings of US$0.02 per share in the fourth quarter of 2019. IFRS net results include US$0.04 per share in after-tax amortization of intangible assets and stock-based compensation costs.
This guidance, which is a forward-looking statement, 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 news release.
Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review third quarter results for fiscal 2019. 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: 8949289. Germain Lamonde, founder and Executive Chairman, Philippe Morin, Chief Executive Officer, and Pierre Plamondon, 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 July 17, 2019. The replay number is 1-719-457-0820 and the required participant passcode is 8949289. 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 guarantee 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, including trade wars; our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the telecommunications 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 telecommunications test, service assurance 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 represents net earnings (loss) attributable to the parent interest before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change in fair value of cash contingent consideration, 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 and/or non-operating statement of earnings elements, 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 the financial measures used by financial analysts to evaluate and compare EXFO's performance against 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 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) attributable to the parent interest, in thousands of US dollars:
Adjusted EBITDA
Three months Three months Nine months Nine months
ended ended ended ended
May 31, 2019 May 31, 2018 May 31, 2019 May 31, 2018
IFRS net earnings
(loss) attributable
to the parent
interest for the
period $
21 $
(5,970) $
(2,253) $
(7,951)
Add (deduct):
Depreciation of
property, plant and
equipment 1,368 1,555 4,187 3,972
Amortization of
intangible assets 2,072 4,210 7,142 8,385
Interest and other
(income) expense 698 198 (439) 870
Income taxes 3,385 1,363 4,586 5,424
Stock-based
compensation costs 475 440 1,354 1,280
Restructuring
charges (reversals) (13) ? 3,305 ?
Change in fair value
of cash contingent
consideration ? ? ? (716)
Acquisition-related
deferred revenue
fair value
adjustment ? 913 1,435 1,222
Foreign exchange
(gain) loss (146) (160) 55 (1,386)
Adjusted EBITDA for
the period (1) $
7,860 $
2,549 $
19,372 $
11,100
Adjusted EBITDA as a
percentage of sales 10.7% 3.5% 8.9% 5.5%
(1) Includes acquisition-
related costs of US$2.1
million for the nine months
ended May 31, 2018 (nil in
fiscal 2019).
EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
As at As at
May 31, August 31,
2019 2018
---
Assets
Current assets
Cash $
13,623 $
12,758
Short-term investments 1,691 2,282
Accounts receivable
Trade 52,876 47,273
Other 3,384 4,137
Income taxes and tax credits
recoverable 2,985 4,790
Inventories 37,859 38,589
Prepaid expenses 5,492 5,291
Other assets 2,945 2,279
120,855 117,399
Tax credits recoverable 46,271 47,677
Property, plant and equipment 40,509 44,310
Intangible assets 22,875 29,866
Goodwill 38,517 39,892
Deferred income tax assets 5,229 4,714
Other assets 911 686
$
275,167 $
284,544
===
Liabilities
Current liabilities
Bank loan $
5,000 $
10,692
Accounts payable and accrued
liabilities 48,903 47,898
Provisions 1,181 2,954
Income taxes payable 1,040 873
Deferred revenue 24,943 16,556
Other liabilities 1,624 3,197
Current portion of long-term
debt 2,579 2,921
85,270 85,091
Provisions 2,830 2,347
Deferred revenue 9,086 6,947
Long-term debt 3,876 5,907
Deferred income tax liabilities 3,638 5,910
Other liabilities 625 421
105,325 106,623
Shareholders' equity
Share capital 92,889 91,937
Contributed surplus 18,734 18,428
Retained earnings 112,400 114,906
Accumulated other comprehensive
loss (54,181) (47,350)
169,842 177,921
$
275,167 $
284,544
===
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
Three months Nine months Three months Nine months
ended ended ended ended
May 31, 2019 May 31, 2019 May 31, 2018 May 31, 2018
---
Sales $
73,587 $
216,715 $
72,217 $
200,330
---
Cost of sales (1) 30,458 88,417 28,963 77,578
Selling and administrative 23,761 75,610 25,957 74,066
Net research and development 11,970 39,410 16,101 40,440
Depreciation of property, plant
and equipment 1,368 4,187 1,555 3,972
Amortization of intangible
assets 2,072 7,142 4,210 8,385
Change in fair value of cash
contingent consideration
-
-
- (716)
Interest and other (income)
expense 698 (439) 198 870
Foreign exchange (gain) loss (146) 55 (160) (1,386)
Share in net loss of an
associate
-
-
- 2,080
Gain on the deemed disposal of
the investment in an associate
-
-
- (2,080)
Earnings (loss) before income
taxes 3,406 2,333 (4,607) (2,879)
Income taxes 3,385 4,586 1,363 5,424
Net earnings (loss) for the
period 21 (2,253) (5,970) (8,303)
Net loss for the period
attributable to non-
controlling interest
-
-
- (352)
Net earnings (loss)
for the period
attributable to
parent interest $
21 $
(2,253) $
(5,970) $
(7,951)
===
Basic and diluted
net earnings (loss)
attributable to
parent interest per
share $
0.00 $
(0.04) $
(0.11) $
(0.14)
Basic weighted average number of
shares outstanding (000's) 55,392 55,306 55,099 54,959
Diluted weighted average number
of shares outstanding (000's) 56,437 55,306 55,099 54,959
(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 Nine months Three months Nine months
ended ended ended ended
May 31, 2019 May 31, 2019 May 31, 2018 May 31, 2018
---
Net earnings (loss) for
the period $
21 $
(2,253) $
(5,970) $
(8,303)
Other comprehensive income (loss), net of
income taxes
Items that may be reclassified
subsequently to net earnings
Foreign currency
translation adjustment (4,611) (6,160) (3,189) (5,033)
Unrealized gains/losses
on forward exchange
contracts (1,046) (1,237) (486) (971)
Reclassification of
realized gains/losses on
forward exchange
contracts in net earnings (91) 210 (232) (840)
Deferred income taxes on
gains/losses on forward
exchange contracts 314 356 155 418
---
Other comprehensive loss (5,434) (6,831) (3,752) (6,426)
---
Comprehensive loss for the
period (5,413) (9,084) (9,722) (14,729)
Comprehensive loss for the
period attributable to
non-controlling interest
-
-
- (352)
---
Comprehensive loss for the
period attributable to
parent interest $
(5,413) $
(9,084) $
(9,722) $
(14,377)
===
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
Nine months ended May 31, 2018
Share Contributed Retained Accumulated Non- Total
surplus earnings other controlling
capital comprehensive interest shareholders'
loss equity
---
Balance as at September 1,
2017 $
90,411 $
18,184 $
127,160 $
(38,965)
$
- $
196,790
Reclassification of stock-
based compensation costs 1,499 (1,499)
-
-
-
-
Stock-based compensation
costs
- 1,322
-
-
- 1,322
Business combination
-
-
-
- (3,662) (3,662)
Acquisition of non-
controlling interest
-
- (352)
- 4,014 3,662
Net loss for the period
-
- (7,951)
- (352) (8,303)
Other comprehensive loss
Foreign currency
translation adjustment
-
-
- (5,033)
- (5,033)
Changes in unrealized
gains/losses on forward
exchange contracts, net of
deferred income taxes of
$418
-
-
- (1,393)
- (1,393)
---
Comprehensive loss for the period (14,729)
Balance as at May 31, 2018 $
91,910 $
18,007 $
118,857 $
(45,391)
$
- $
183,383
===
Nine months ended May 31, 2019
Share Contributed Retained Accumulated Total
surplus earnings other
capital comprehensive shareholders'
loss 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
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
Three months Nine months Three months Nine months
ended ended ended ended
May 31, 2019 May 31, 2019 May 31, 2018 May 31, 2018
---
Cash flows from operating activities
Net earnings (loss) for the
period $
21 $
(2,253) $
(5,970) $
(8,303)
Add (deduct) items not affecting cash
Stock-based compensation costs 475 1,354 440 1,280
Depreciation and amortization 3,440 11,329 5,765 12,357
Gain on disposal of capital
assets
- (1,732)
-
-
Write-off of capital assets
- 261 77 325
Change in fair value of cash
contingent consideration
-
-
- (716)
Deferred revenue 1,676 11,619 (552) 1,682
Deferred income taxes (142) (2,295) 389 2,533
Share in net loss of an
associate
-
-
- 2,080
Gain on deemed disposal of the
investment in an associate
-
-
- (2,080)
Changes in foreign exchange
gain/loss 143 (310) (603) (239)
---
5,613 17,973 (454) 8,919
Changes in non-cash operating items
Accounts receivable (12,857) (7,038) 2,353 7,693
Income taxes and tax credits 1,596 1,629 172 (2,787)
Inventories (306) (668) 1,162 (12)
Prepaid expenses (585) (380) 16 205
Other assets (664) (1,003) (245) (769)
Accounts payable, accrued
liabilities and provisions 1,995 2,013 1,821 5
Other liabilities (6) (1,527) (109) 101
---
(5,214) 10,999 4,716 13,355
---
Cash flows from investing activities
Additions to short-term
investments (286) (578)
- (482)
Proceeds from disposal of
short-term investments 826 1,168
- 234
Purchases of capital assets (1,639) (6,318) (3,431) (7,680)
Proceeds from disposal of
capital assets
- 3,318
-
-
Investment in an associate
-
-
- (12,530)
Business combinations, net of
cash acquired
-
-
- (19,120)
---
(1,099) (2,410) (3,431) (39,578)
---
Cash flows from financing activities
Bank loan (3,808) (5,052) 9,184 11,250
Repayment of long-term debt (713) (2,165) (757) (1,027)
Redemption of share capital
- (105)
-
-
Acquisition of non-controlling
interest
-
- (3,657) (3,657)
---
(4,521) (7,322) 4,770 6,566
---
Effect of foreign exchange rate
changes on cash (306) (402) (119) (289)
---
Change in cash during the
period (11,140) 865 5,936 (19,946)
Cash - Beginning of the period 24,763 12,758 12,553 38,435
---
Cash - End of the period $
13,623 $
13,623 $
18,489 $
18,489
===
EXFO-F
View original content:http://www.prnewswire.com/news-releases/exfo-reports-third-quarter-results-for-fiscal-2019-300882945.html
SOURCE EXFO Inc.
