EXFO reports first quarter results for fiscal 2020
-- Sales increased 6.3% to US$73.6 million, above midpoint of guidance
range
-- IFRS net loss amounted to US$0.1 million, US$0.00 per share
-- Adjusted EBITDA totaled US$7.5 million, 10.3% of sales
QUEBEC CITY, Jan. 7, 2020 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the first quarter ended November 30, 2019.
"EXFO delivered a strong first-quarter performance to begin fiscal 2020, highlighted by sales above the midpoint of guidance for a fifth consecutive reporting period and adjusted EBITDA margin in double-digits," said EXFO's CEO Philippe Morin. "These results demonstrate the heightened leverage in our business model through a combination of increased revenue and lower cost structure. Although we are operating within a highly dynamic and transforming industry, we are confident about achieving our profitable growth strategy for the full fiscal year."
First-Quarter Highlights
-- Sales. Sales increased 6.3% in the first quarter of fiscal 2020 mainly
due to a more linear influx of Test and Measurement (T&M) orders
compared to the same period in 2019, and stronger demand for the
company's solutions in the Asia-Pacific region. T&M sales accounted for
76% of revenue in the first quarter of 2020, while Service Assurance,
Systems and Services (SASS) sales totaled 24%. Revenue distribution
among the three main selling regions amounted to 54% in the Americas,
29% in Europe, Middle East and Africa (EMEA) and 17% in Asia-Pacific.
EXFO's top customer accounted for 11.9% of sales, while the top three
represented 19.7%.
-- Profitability. IFRS net loss amounted to US$0.1 million, or US$0.00 per
share, in the first quarter of fiscal 2020, while adjusted EBITDA
totaled US$7.5 million, or 10.3% of sales. EXFO adopted IFRS 16,
"Leases," on Sept. 1, 2019, using the modified retrospective method
which had a positive impact on adjusted EBITDA of US$0.9 million, or
1.2% of sales, in the first quarter of 2020. Prior period amounts were
not adjusted.
-- Innovation. EXFO introduced the Optical Wave Expert, the first test
solution to integrate DWDM (dense wavelength division multiplexing)
channel power validation and OTDR (optical time domain reflectometry)
fault-locating capabilities on a single port. Designed to reduce
mean-time-to-repair, this instrument enables field technicians to
automatically troubleshoot optical fiber links.
Business Outlook
EXFO forecasts sales between US$66.0 million and US$71.0 million for the second quarter of fiscal 2020, while IFRS net loss is expected to range between -US$0.09 and -US$0.05 per share. IFRS net loss includes US$0.05 per share in after-tax amortization of intangible assets, stock-based compensation costs and anticipated foreign exchange loss.
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 date of this news release.
Selected Financial Information
(In thousands of US dollars)
Three months ended
November 30,
2019 2018
Test and measurement sales $
55,947 $
49,764
Service assurance, systems and
services sales 17,749 19,416
Foreign exchange gains (losses) on
forward exchange contracts (145) 21
Total sales $
73,551 $
69,201
Test and measurement bookings $
55,009 $
63,996
Service assurance, systems and
services bookings 15,049 17,221
Foreign exchange gains (losses) on
forward exchange contracts (145) 21
Total bookings $
69,913 $
81,238
Book-to-bill ratio (bookings/
sales) 0.95 1.17
Gross margin before depreciation
and amortization* $
43,310 $
40,304
58.9 % 58.2 %
Other selected information:
IFRS net loss $
(63) $
(7,467)
Amortization of intangible assets $
1,632 $
2,940
Stock-based compensation costs $
487 $
418
Restructuring charges
$ $
2,741
Acquisition-related deferred
revenue fair value adjustment
$ $
864
Net income tax effect of the above
items $
(249) $
(423)
Foreign exchange (gain) loss $
126 $
(215)
Adjusted EBITDA* $
7,544 $
2,728
===
Quarterly Overview
Sales reached US$73.6 million in the first quarter of fiscal 2020 compared to US$69.2 million in the first quarter of 2019.
Bookings attained US$69.9 million in the first quarter of fiscal 2020 compared to US$81.2 million for the same period in 2019. The company's book-to-bill ratio was 0.95 in the first quarter of 2020.
Gross margin before depreciation and amortization* improved to 58.9% of sales in the first quarter of fiscal 2020 from 58.2% in the first quarter of 2019.
Selling and administrative expenses totaled US$24.5 million, or 33.3% of sales in the first quarter of fiscal 2020 compared to US$26.4 million, or 38.1% of sales, in the first quarter of 2019.
Net R&D expenses amounted to US$11.7 million, or 16.0% of sales, in the first quarter of fiscal 2020 compared to US$15.2 million, or 22.0% of sales, in the same period last year. Net R&D expenses included US$2.1 million in restructuring charges in the first quarter of 2019.
IFRS net loss totaled US$0.1 million, or US$0.00 per share, in the first quarter of fiscal 2020 compared to US$7.5 million, or US$0.14 per share, in the first quarter of 2019. IFRS net loss in the first quarter of 2020 included US$1.4 million in after-tax amortization of intangible assets, US$0.5 million in stock-based compensation costs and US$0.1 million in foreign exchange loss. In the first quarter of 2019, IFRS net loss was impacted by restructuring charges of US$2.7 million.
Adjusted EBITDA* amounted to US$7.5 million, or 10.3% of sales, in the first quarter of fiscal 2020 compared to US$2.7 million, or 3.9% of sales, in the first quarter of 2019.
Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review first-quarter results for fiscal 2020. To listen to the conference call and participate in the question period via telephone, dial 1-323-794-2093. Please take note the following participant passcode will be required: 7351891. Executive Chairman Germain Lamonde, CEO Philippe Morin and Pierre Plamondon, CPA, Chief Financial Officer and Vice-President of Finance, will participate in the call. An audio replay of the conference call will be available two hours after the event until 8 p.m. on January 14, 2020. The replay number is 1-719-457-0820 and the participant passcode is 7351891. The audio Webcast and replay of the conference call will also be available on EXFO's Website at www.EXFO.com, under the Investors section.
About EXFO
EXFO (NASDAQ: EXFO) (TSX: EXF) develops smarter test, monitoring and analytics solutions for fixed and mobile network operators, webscale companies and equipment manufacturers in the global communications industry. Our customers count on us to deliver superior network performance, service reliability and subscriber insights. They count on our unique blend of equipment, software and services to accelerate digital transformations related to fiber, 4G/LTE and 5G deployments. They count on our expertise with automation, real-time troubleshooting and big data analytics, which are critical to their business performance. We've spent over 30 years earning this trust, and today 1,900 EXFO employees in over 25 countries work side by side with our customers in the lab, field, data center and beyond.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, and we intend that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are statements other than historical information or statements of current condition. Words such as may, expect, believe, plan, anticipate, intend, could, estimate, continue, or similar expressions or the negative of such expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events and circumstances are considered forward-looking statements. They are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in forward-looking statements due to various factors including, but not limited to, macroeconomic uncertainty, including trade wars and recessions; our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the communications industry (including our ability to quickly adapt cost structures to anticipated levels of business and our ability to manage inventory levels with market demand); future economic, competitive, financial and market conditions; consolidation in the global communications test, monitoring and analytics solutions markets and increased competition among vendors; capacity to adapt our future product offering to future technological changes; limited visibility with regard to the timing and nature of customer orders; delay in revenue recognition due to longer sales cycles for complex systems involving customers' acceptance; fluctuating exchange rates; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully expand international operations and to conduct business internationally; and the retention of key technical and management personnel. Assumptions relating to the foregoing involve judgments and risks, all of which are difficult or impossible to predict and many of which are beyond our control. Other risk factors that may affect our future performance and operations are detailed in our Annual Report, on Form 20-F, and our other filings with the U.S. Securities and Exchange Commission and the Canadian securities commissions. We believe that the expectations reflected in the forward-looking statements are reasonable based on information currently available to us, but we cannot assure you that the expectations will prove to have been correct. Accordingly, you should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this document. Unless required by law or applicable regulations, we undertake no obligation to revise or update any of them to reflect events or circumstances that occur after the date of this document.
*Non-IFRS Measures
EXFO provides non-IFRS measures (gross margin before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA represents net loss before interest and other expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, acquisition-related deferred revenue fair value adjustment, and foreign exchange gain or loss.
These non-IFRS measures eliminate the effect on IFRS results of non-cash statement of earnings elements, restructuring charges as well as elements subject to significant volatility such as foreign exchange gain or loss. EXFO uses these measures for evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These non-IFRS measures are also used by financial analysts who evaluate and compare EXFO's performance against that of competitors and industry players in the sector.
Finally, these measures help EXFO to plan and forecast future periods as well as make operational and strategic decisions. EXFO believes that providing this information to investors, in addition to IFRS measures, allows them to see the company's results through the eyes of management, and to better understand historical and future financial performance. More importantly, it enables the comparison of EXFO's performance on a relatively similar basis against that of other public and private companies in the industry worldwide.
The presentation of this additional information is not prepared in accordance with IFRS. Therefore, the information may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, the corresponding measures calculated in accordance with IFRS.
The following table summarizes the reconciliation of adjusted EBITDA to IFRS net loss in thousands of US dollars:
Adjusted EBITDA
Three months ended
November 30,
2019 2018
IFRS net loss
for the
period $
(63) $
(7,467)
Add (deduct):
Depreciation
and
amortization 3,926 4,369
Interest and
other
expense 399 377
Income taxes 2,669 1,641
Stock-based
compensation
costs 487 418
Restructuring
charges 2,741
Acquisition-
related
deferred
revenue fair
value
adjustment 864
Foreign
exchange
(gain) loss 126 (215)
Adjusted
EBITDA for
the period
(1) $
7,544 $
2,728
Adjusted
EBITDA in
percentage
of sales (1) 10.3 % 3.9 %
(1) IFRS net loss for the three
months ended November 30, 2019
takes into account the impact
of the adoption of IFRS 16 on
September 1, 2019. The adoption
of IFRS 16 had a positive
impact on adjusted EBITDA of
$851,000, or 1.2% of sales, for
the three months ended November
30, 2019. Comparative figures
were not adjusted.
EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
As at
November 30, As at
2019
August 31,
2019
---
Assets
Current assets
Cash $
15,045 $
16,518
Short-term investments 2,491 2,918
Accounts receivable
Trade 51,429 51,517
Other 3,404 3,396
Income taxes and tax credits
recoverable 3,692 3,159
Inventories 41,513 38,017
Prepaid expenses 5,663 6,510
Other assets 3,364 3,083
126,601 125,118
Tax credits recoverable 45,285 46,704
Property, plant and equipment 39,719 39,364
Lease right-of-use assets 10,498
-
Intangible assets 20,495 21,654
Goodwill 39,076 38,648
Deferred income tax assets 4,819 4,821
Other assets 979 1,293
$
287,472 $
277,602
===
Liabilities
Current liabilities
Bank loan $
13,322 $
5,000
Accounts payable and accrued
liabilities 47,482 50,790
Provisions 942 1,065
Income taxes payable 311 704
Deferred revenue 20,120 24,422
Other liabilities 1,602 1,606
Current portion of lease
liabilities 2,962
-
Current portion of long-term
debt 2,335 2,449
89,076 86,036
Provisions 2,615 2,737
Deferred revenue 9,021 9,056
Lease liabilities 7,158
-
Long-term debt 2,718 3,293
Deferred income tax liabilities 3,166 3,598
Other liabilities 269 318
114,023 105,038
Shareholders' equity
Share capital 93,355 92,706
Contributed surplus 18,816 19,196
Retained earnings 112,110 112,173
Accumulated other comprehensive
loss (50,832) (51,511)
173,449 172,564
$
287,472 $
277,602
===
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
Three months ended
November 30,
2019 2018
Sales $
73,551 $
69,201
---
Cost of sales (1) 30,241 28,897
Selling and administrative 24,504 26,375
Net research and development 11,749 15,224
Depreciation of property,
plant and equipment 1,443 1,429
Depreciation of lease right-
of-use assets 851
-
Amortization of intangible
assets 1,632 2,940
Interest and other expense 399 377
Foreign exchange (gain) loss 126 (215)
Earnings (loss) before income
taxes 2,606 (5,826)
Income taxes 2,669 1,641
Net loss for the
period $
(63) $
(7,467)
===
Basic and diluted
net loss per share $
(0.00) $
(0.14)
Basic weighted average number
of shares outstanding
(000's) 55,439 55,184
Diluted weighted average
number of shares outstanding
(000's) 55,439 55,184
(1) The cost of sales is exclusive
of depreciation and
amortization, shown separately.
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)
(in thousands of US dollars)
Three months ended
November 30,
2019 2018
Net loss for the period $
(63) $
(7,467)
Other comprehensive income (loss), net of
income taxes
Items that may be reclassified
subsequently to net loss
Foreign currency translation adjustment 561 (3,356)
Unrealized gains/losses on forward
exchange contracts (35) (687)
Reclassification of realized gains/losses
on forward exchange contracts in net loss 183 91
Deferred income tax effect of gains/
losses on forward exchange contracts (30) 209
Other comprehensive income (loss) 679 (3,743)
Comprehensive income (loss) for
the period $
616 $
(11,210)
===
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
Three months ended November 30, 2018
Share Contributed Retained
Accumulated
Total
surplus earnings other shareholders'
capital comprehensive equity
loss
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 643 (643)
-
-
-
Stock-based compensation costs
- 460
-
- 460
Net loss for the period
-
- (7,467)
- (7,467)
Other comprehensive loss
Foreign currency translation
adjustment
-
-
- (3,356) (3,356)
Changes in unrealized gains/losses
on forward exchange contracts, net
of deferred income taxes of $209
-
-
- (387) (387)
Total comprehensive loss for the
period (11,210)
Balance as at November 30,
2018 $
92,580 $
18,245 $
107,186 $
(51,093) $
166,918
===
Three months ended November 30, 2019
---
Share Contributed Retained
Accumulated
Total
surplus earnings other shareholders'
capital comprehensive equity
loss
Balance as at September 1,
2019 $
92,706 $
19,196 $
112,173 $
(51,511) $
172,564
Reclassification of stock-based
compensation costs 861 (861)
-
-
-
Redemption of share capital (212) (13)
-
- (225)
Stock-based compensation costs
- 494
-
- 494
Net loss for the period
-
- (63)
- (63)
Other comprehensive income
Foreign currency translation
adjustment
-
-
- 561 561
Changes in unrealized gains/losses
on forward exchange contracts, net
of deferred income taxes of $30
-
-
- 118 118
Total comprehensive income for the
period 616
Balance as at November 30,
2019 $
93,355 $
18,816 $
112,110 $
(50,832) $
173,449
===
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
Three months ended
November 30,
2019 2018
Cash flows from operating activities
Net loss for the period $
(63) $
(7,467)
Add (deduct) items not affecting cash
Stock-based compensation costs 487 418
Depreciation and amortization 3,926 4,369
Write-off of capital assets 216
-
Deferred revenue (4,372) 3,922
Deferred income taxes (442) (29)
Changes in foreign exchange gain/loss (21) (529)
(269) 684
Changes in non-cash operating items
Accounts receivable 72 (4,052)
Income taxes and tax credits 516 (998)
Inventories (3,493) (1,361)
Prepaid expenses 378 183
Other assets 35 (12)
Accounts payable, accrued liabilities
and provisions (3,693) 3,132
Other liabilities (16) (51)
(6,470) (2,475)
Cash flows from investing activities
Additions to short-term investments (147)
-
Disposal of short-term investments 563 342
Purchases of capital assets (2,040) (2,882)
(1,624) (2,540)
Cash flows from financing activities
Bank loan 8,354 11,257
Repayment of lease liabilities (844)
-
Repayment of long-term debt (676) (717)
Redemption of share capital (225)
-
6,609 10,540
Effect of foreign exchange rate changes
on cash 12 (196)
Change in cash (1,473) 5,329
Cash - Beginning of the period 16,518 12,758
Cash - End of the period $
15,045 $
18,087
===
EXFO-F
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SOURCE EXFO Inc.
