EXFO Reports Second-Quarter Results for Fiscal 2014

  • Sales reach US$51.2 million
  • Bookings attain US$58.7 million (book-to-bill ratio of 1.15)
  • Cash flows from operating activities total US$3.6 million

QUEBEC CITY, March 25, 2014 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the second quarter ended February 28, 2014.

Sales reached US$51.2 million in the second quarter of fiscal 2014 compared to US$62.6 million in the second quarter of 2013 and US$56.0 million in the first quarter of 2014.

Bookings attained US$58.7 million in the second quarter of fiscal 2014 compared to US$53.4 million in the same period last year and US$57.9 million in the first quarter of 2014. The company's book-to-bill ratio was 1.15 in the second quarter of 2014.

Gross margin* amounted to 60.8% of sales in the second quarter of fiscal 2014 compared to 62.2% in both the second quarter of 2013 and the first quarter of 2014.

IFRS net loss in the second quarter of fiscal 2014 totaled US$1.3 million, or US$0.02 per share, compared to net earnings of US$39,000, or US$0.00 per diluted share, in the same period last year and a net loss of US$0.7 million, or US$0.01 per share, in the first quarter of 2014. IFRS net loss in the second quarter of 2014 included US$1.0 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and a foreign exchange gain of US$2.3 million.

Adjusted EBITDA** totaled -US$1.0 million, or -2.0% of sales, in the second quarter of fiscal 2014 compared to US$4.4 million, or 7.1% of sales, in the second quarter of 2013 and US$2.3 million, or 4.1% of sales, in the first quarter of 2014.

"Although we experienced some timing issues in the second quarter, I am pleased our bookings increased sequentially and 10.0% year-over-year to significantly strengthen our backlog," said Germain Lamonde, EXFO's Chairman, President and CEO. "As a result, we ended the first half of fiscal 2014 with relatively flat bookings year-over-year and a book-to-bill ratio of 1.09, but clearly with better order momentum. Given the strength of our recently launched technology platforms, including wireless and high-speed solutions, we are witnessing increases in our sales funnel, tier-1 customer engagements and larger projects. Consequently, I am confident EXFO has reached an important tipping point which bodes well for the second half of fiscal 2014."

Selected Financial Information
(In thousands of US dollars)

                   
      Q2 2014     Q1 2014     Q2 2013
                   
Sales   $ 51,179   $ 56,003   $ 62,576
                   
Gross margin*   $ 31,106   $ 34,818   $ 38,912
      60.8%     62.2%     62.2%
Other selected information:                  
  IFRS net earnings (loss)   $ (1,339)   $ (747)   $ 39
  Amortization of intangible assets   $ 1,074   $ 1,182   $ 1,922
  Stock-based compensation costs   $ 402   $ 463   $ 468
  Restructuring charges   $   $   $ 89
  Net income tax effect of the above items   $ (64)   $ (67)   $ (95)
  Foreign exchange gain   $ 2,292   $ 802   $ 1,700
  Adjusted EBITDA**   $ (1,002)   $ 2,292   $ 4,435


Operating Expenses
Selling and administrative expenses totaled US$21.5 million, or 42.1% of sales in the second quarter of fiscal 2014 compared to US$23.1 million, or 36.9% of sales, in the same period last year and US$21.7 million, or 38.8% of sales, in the first quarter of 2014.

Gross research and development expenses amounted to US$13.0 million, or 25.5% of sales, in the second quarter of fiscal 2014 compared to US$14.1 million, or 22.6% of sales, in the second quarter of 2013 and US$13.3 million, or 23.8% of sales, in the first quarter of 2014.

Net R&D expenses totaled US$11.0 million, or 21.4% of sales, in the second quarter of fiscal 2014 compared to US$12.0 million, or 19.1% of sales, in the same period last year and US$11.3 million, or 20.1% of sales, in the first quarter of 2014.

Second-Quarter Highlights

  • Sales. Sales originated 45% from the Americas, 32% from EMEA, and 23% from Asia-Pacific in the second quarter of 2014. EXFO's top customer accounted for 6.9% of sales in the second quarter, while the top three represented 13.1%. Second-quarter bookings increased 10.0% year-over-year and 1.4% sequentially to US$58.7 million. At the halfway mark of fiscal 2014, bookings totaled US$116.6 million compared to US$117.7 million during the same period in 2013.

  • Profitability. EXFO reported adjusted EBITDA of US$1.3 million (1.2% of sales) after six months into fiscal 2014 compared to US$7.2 million (5.8% of sales) during the same period in 2013 due to lower revenues. Cash flows from operating activities totaled US$7.0 million at the halfway mark of fiscal 2014 compared to -US$2.7 million during the same period in 2013. EXFO's cash position amounted to US$51.7 million with no debt at the end of the second quarter of 2014.

  • Innovation. EXFO launched seven new products in the second quarter, including an end-to-end voice-over-LTE (VoLTE) service assurance suite that enables mobile operators to proactively monitor and assure quality of experience (QoE) of critical VoLTE deployments that are about to get underway. EXFO also introduced the industry's first polarization-multiplexed (Pol-Mux) optical spectrum analyzer to characterize 40G and 100G coherent networks; released a fully automated fiber inspection probe, the first in the industry to integrate auto-focus capabilities, thus eliminating costly false positive results and reducing fiber connector inspection time by more than 50%; and expanded its multi-service Power Blazer offering by adding bidirectional EtherSAM capabilities on all 10M to 100G Ethernet interfaces. Altogether, EXFO released 16 new products or major product upgrades at the halfway mark of fiscal 2014.


Business Outlook
EXFO forecasts sales between US$60.0 million and US$65.0 million for the third quarter of fiscal 2014, while IFRS net earnings are expected to range between US$0.00 and US$0.04 per diluted share. Net earnings 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 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 its financial results for the second quarter of fiscal 2014. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9095. Germain Lamonde, Chairman, President and CEO, and Pierre Plamondon, CPA, CA, Vice-President of Finance and Chief Financial Officer, will participate in the call. An audio replay of the conference call will be available one hour after the event until 7 p.m. on April 1, 2014. The replay number is 1-402-977-9141 and the reservation number is 21709023. 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
Listed on the NASDAQ and TSX stock exchanges, EXFO is among the leading providers of next-generation test and service assurance solutions for wireline and wireless network operators and equipment manufacturers in the global telecommunications industry. The company offers innovative solutions for the development, installation, management and maintenance of converged, IP fixed and mobile networks—from the core to the edge. Key technologies supported include 3G, 4G/LTE, IMS, Ethernet, OTN, FTTx, VDSL2, ADSL2+ and various optical technologies accounting for more than 35% of the portable fiber-optic test market. EXFO has a staff of approximately 1600 people in 25 countries, supporting more than 2000 customers worldwide. For more information, visit www.EXFO.com and follow us on the EXFO Blog, Twitter, LinkedIn, Facebook, Google+ and YouTube.

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, will, expect, believe, anticipate, intend, could, estimate, continue, or the negative or comparable terminology 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 macro-economic 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; limited visibility with regards to customer orders and the timing of such orders; fluctuating exchange rates; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully integrate our acquired and to-be-acquired businesses; 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 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. 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 (loss) before interest, income taxes, depreciation and amortization, restructuring charges, stock-based compensation costs and foreign exchange gain.

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

Adjusted EBITDA

      Q2 2014     Q1 2014     Q2 2013
                   
IFRS net earnings (loss) for the period   $ (1,339)   $ (747)   $ 39
                   
Add (deduct):                  
                   
Depreciation of property, plant and equipment     1,243     1,275     1,504
Amortization of intangible assets     1,074     1,182     1,922
Interest (income) expenses     (49)     (27)     25
Income taxes     (41)     948     2,088
Restructuring charges             89
Stock-based compensation costs     402     463     468
Foreign exchange gain     (2,292)     (802)     (1,700)
Adjusted EBITDA for the period   $ (1,002)   $ 2,292   $ 4,435
                   
Adjusted EBITDA in percentage of sales     (2.0)%     4.1%     7.1%



EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets

(in thousands of US dollars)


    As at
February 28,
2014
    As at
August 31,
2013
Assets          
           
Current assets          
Cash $ 47,064   $ 45,386
Short-term investments   4,641     4,868
Accounts receivable          
  Trade   43,511     50,117
  Other   2,525     2,778
Income taxes and tax credits recoverable   5,511     6,525
Inventories   37,280     35,705
Prepaid expenses   3,035     2,561
    143,567      147,940
           
Tax credits recoverable   40,994     41,719
Property, plant and equipment   42,852     45,523
Intangible assets   5,539     7,543
Goodwill   25,969     27,313
Deferred income taxes   11,136     10,807
Other assets   693     693
           
  $ 270,750   $ 281,538
Liabilities          
           
Current liabilities          
Accounts payable and accrued liabilities $ 31,267   $ 26,253
Provisions   638     756
Income taxes payable   337     679
Current portion of long-term debt       296
Deferred revenue   8,625     9,467
    40,867     37,451
           
Deferred revenue   3,501     3,932
Deferred income taxes   3,373     3,226
Other liabilities   922     477
    48,663     45,086
           
Shareholders' equity          
Share capital   111,337     109,837
Contributed surplus   15,787     17,186
Retained earnings   110,766      112,852
Accumulated other comprehensive loss   (15,803)     (3,423)
     222,087     236,452
           
  $ 270,750   $ 281,538

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings

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

      Three months
ended
February 28,
2014
    Six months
ended
February 28,
2014
    Three months
ended
February 28,
2013
    Six months
ended
February 28,
2013
                         
Sales   $ 51,179   $ 107,182   $ 62,576   $ 122,397
                         
Cost of sales (1)     20,073     41,258     23,664     47,321
Selling and administrative     21,537     43,245     23,074     45,364
Net research and development     10,973     22,254     11,960     23,562
Depreciation of property, plant and equipment     1,243     2,518     1,504     3,109
Amortization of intangible assets     1,074     2,256     1,922     3,884
Interest (income) expenses     (49)     (76)     25     (8)
Foreign exchange gain     (2,292)     (3,094)     (1,700)     (2,456)
Earnings (loss) before income taxes     (1,380)     (1,179)     2,127     1,621
                         
Income taxes     (41)     907     2,088     3,220
                         
Net earnings (loss) for the period   $ (1,339)   $ (2,086)   $ 39$   $ (1,599)
                         
Basic and diluted net earnings (loss) per share   $ (0.02)   $ (0.03)   $ 0.00   $ (0.03)
                         
Basic weighted average number of shares outstanding (000's)     60,414     60,316     60,392     60,391
                         
Diluted weighted average number of shares outstanding (000's)     60,414     60,316     61,175     60,391

(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
ended
February 28,
2014
    Six months
ended
February 28,
2014
    Three months
ended
February 28,
2013
    Six months
ended
February 28,
2013
                         
Net earnings (loss) for the period   $ (1,339)   $ (2,086)   $ 39   $ (1,599)
Other comprehensive income (loss), net of income taxes                        
Items that will not be reclassified subsequently to net earnings                        
  Foreign currency translation adjustment     (9,580)       (11,528)     (9,184)     (10,892)
Items that may be reclassified subsequently to net earnings                        
  Unrealized gains/losses on forward exchange contracts     (1,289)     (1,529)     (679)     (762)
  Reclassification of realized gains/losses on forward exchange contracts in net earnings (loss)     191     365     (130)     (329)
  Deferred income tax effect of gains/losses on forward exchange contracts     294     312     217     293
Other comprehensive loss     (10,384)     (12,380)     (9,776)     (11,690)
                         
Comprehensive loss for the period   $ (11,723)   $ (14,466)   $ (9,737)   $ (13,289)

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

(in thousands of US dollars)

      Six months ended February 28, 2013
      Share
capital
    Contributed surplus     Retained earnings     Accumulated
other
comprehensive income
    Total
shareholders' equity
                               
Balance as at September 1, 2012   $ 110,965   $ 17,298   $ 111,511   $ 13,507   $ 253,281
Exercise of stock options     87     -     -     -     87
Redemption of share capital     (913)     (227)     -     -     (1,140)
Reclassification of stock-based compensation costs       1,261     (1,261)     -      -     -
Stock-based compensation costs     -     878     -     -     878
Net loss for the period     -     -     (1,599)     -     (1,599)
Other comprehensive loss                              
  Foreign currency translation adjustment     -     -     -     (10,892)     (10,892)
  Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $293     -     -     -     (798)     (798)
Total comprehensive loss for the period     -     -     (1,599)     (11,690)     (13,289)  
Balance as at February 28, 2013   $ 111,400   $ 16,688   $ 109,912   $ 1,817   $ 239,817
                               
      Six months ended February 28, 2014
      Share
capital
    Contributed surplus     Retained earnings     Accumulated
other
comprehensive
loss
    Total
shareholders'
equity
                               
Balance as at September 1, 2013   $ 109,837    $ 17,186   $ 112,852   $ (3,423)   $ 236,452
Exercise of stock options     195     -     -     -     195
Redemption of share capital     (831)     (106)     -     -     (937)
Reclassification of stock-based compensation costs     2,136     (2,136)     -     -     -
Stock-based compensation costs     -     843     -     -     843
Net loss for the period     -     -     (2,086)     -     (2,086)
Other comprehensive loss                              
  Foreign currency translation adjustment     -     -     -     (11,528)     (11,528)
  Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $312     -     -     -     (852)     (852)
Total comprehensive loss for the period     -     -     (2,086)     (12,380)     (14,466)  
Balance as at February 28, 2014   $ 111,337   $ 15,787   $ 110,766   $ (15,803)   $ 222,087

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows

(in thousands of US dollars)

      Three months
ended
February 28,
2014
    Six months
ended
February 28,
2014
    Three months
ended
February 28,
2013
    Six months
ended
February 28,
2013
                           
Cash flows from operating activities                        
Net earnings (loss) for the period   $ (1,339)   (2,086)   $ 39   $ (1,599)
Add (deduct) items not affecting cash                        
  Changes in discount on short-term investments             (3)     (1)
  Stock-based compensation costs     402     865     468     916
  Depreciation and amortization     2,317     4,774     3,426     6,993
  Deferred revenue     1,024     (728)     111     (1,420)
  Deferred income taxes     (324)     301     988     1,721
  Changes in foreign exchange gain/loss     (793)     (901)     (775)     (798)
      1,287     2,225     4,254     5,812
Changes in non-cash operating items                        
  Accounts receivable     6,182     4,525     2,016     (6,088)
  Income taxes and tax credits     (1,686)     (943)     (1,313)     (3,186)
  Inventories     (1,221)     (3,533)     1,213     1,053
  Prepaid expenses     (787)     (616)     (414)     (55)
  Other assets     (40)     (34)        
  Accounts payable, accrued liabilities and provisions     (94)     5,391     (3,687)     (50)
  Other liabilities     (17)     (43)     (15)     (210)
      3,624     6,972     2,054     (2,724)
Cash flows from investing activities                        
Additions to short-term investments     (4,790)     (14,571)     (10,236)     (34,769)
Proceeds from disposal and maturity of short-term investments     4,790     14,562     13,283     37,810
Additions to capital assets     (1,695)     (2,396)     (2,504)     (4,493)
      (1,695)     (2,405)     543     (1,452)
Cash flows from financing activities                        
Repayment of long-term debt     (307)     (307)     (293)     (293)
Exercise of stock options     89     195     36     87
Redemption of share capital     (937)     (937)     (167)     (1,140)
      (1,155)     (1,049)     (424)     (1,346)
Effect of foreign exchange rate changes on cash     (1,475)     (1,840)     (1,566)     (1,921)
                         
Change in cash     (701)     1,678     607     (7,443)
Cash - Beginning of the period     47,765     45,386     50,818     58,868
                         
Cash - End of the period   $ 47,064   $ 47,064   $ 51,425   $ 51,425

 

 

SOURCE EXFO inc.

For further information:

Vance Oliver
Director, Investor Relations
(418) 683-0913, Ext. 23733
vance.oliver@exfo.com