EXFO Reports First-Quarter Results for Fiscal 2012

  • Sales reach US$66.4 M and bookings US$71.4 M for book-to-bill ratio of 1.08
  • Gross margin* improves to 64.8% on increased sales year-over-year of Protocol solutions
  • Adjusted EBITDA** amounts to US$7.6 M, or 11.4% of sales

QUEBEC CITY, Jan. 11, 2012 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the first quarter ended November 30, 2011.

Sales reached US$66.4 million in the first quarter of fiscal 2012 compared to US$65.7 million in the first quarter of 2011 and US$64.4 million in the fourth quarter of 2011.

Bookings attained US$71.4 million in the first quarter of fiscal 2012 compared to US$89.8 million in the same period last year and US$62.5 million in the fourth quarter of 2011. The company's book-to-bill ratio was 1.08 in the first quarter of 2012.

Gross margin* improved to 64.8% of sales in the first quarter of fiscal 2012 from 62.2% in the first quarter of 2011 and 63.6% in the fourth quarter of 2011.

IFRS net earnings in the first quarter of fiscal 2012 totaled US$2.9 million, or US$0.05 per diluted share, compared to US$14.1 million, or US$0.23 per diluted share, in the same period last year and US$4.6 million, or US$0.08 per diluted share, in the fourth quarter of 2011. It should be noted that EXFO recorded an after-tax gain of US$13.1 million, or US$0.21 per diluted share, from the disposal of discontinued operations (Life Sciences and Industrial Division) in the first quarter of 2011. Net earnings in the first quarter of 2012 included US$1.9 million in after-tax amortization of intangible assets and US$0.6 million in stock-based compensation costs.

Adjusted EBITDA** amounted to US$7.6 million, or 11.4% of sales, in the first quarter of fiscal 2012 compared to US$8.2 million, or 12.1% of sales, in the first quarter of 2011 and US$6.9 million, or 10.8% of sales, in the fourth quarter of 2011. EXFO benefited from a foreign exchange gain of US$1.7 million in the first quarter of 2012.

"I am pleased with our second-highest bookings level in company history," said Germain Lamonde, EXFO's Chairman, President and CEO. "We also raised our gross margin close to our target of 65% on higher sales of software-intensive Protocol solutions and increased year-over-year sales across our main product groups with the exception of Copper Access which had benefited from a multi-million dollar, lower-margin order last year. These data points combined to generate healthy profitability in the first quarter of 2012 despite an uncertain global economic environment. I believe that our strategy to push ahead with game-changing solutions and a more aggressive access to key markets will pay off in the second half of the fiscal year, which is typically our strongest."

Selected Financial Information
(In thousands of US dollars)

 
      Q1 2012       Q4 2011     Q1 2011
Sales:                
Continuing operations (formerly Telecom Div.) $ 66,388   $ 64,414   $ 65,653
Discontinued operations (formerly Life Sciences & Industrial Div.)           1,991
Total $ 66,388   $ 64,414   $ 67,644
                 
Gross margin*:                
Continuing operations $ 43,018   $ 40,967   $ 40,868
    64.8%     63.6%     62.2%
Discontinued operations $   $   $ 989
    −%     −%     49.7%
Total $ 43,018   $ 40,967   $ 41,857
    64.8%     63.6%     61.9%
                 
Other selected information:                
  IFRS net earnings $ 2,914   $ 4,638   $ 14,133
  Amortization of intangible assets $ 1,921   $ 2,122   $ 2,570
  Stock-based compensation costs $ 555   $ 461   $ 738
  Changes in the fair value of the cash contingent consideration $   $ (2,685)   $
  Net income tax effect of the above items $ (30)   $ (60)   $ (192)
  After-tax gain on the disposal of discontinued operations $   $   $ (13,071)
  Foreign exchange gain (loss) $ 1,664   (57)   $ (1,113)
  Adjusted EBITDA** $ 7,581   6,925   $ 8,188

Operating Expenses
Selling and administrative expenses totaled US$24.6 million, or 37.1% of sales, in the first quarter of fiscal 2012 compared to US$19.9 million, or 30.3% of sales, in the same period last year and US$21.8 million, or 33.9% of sales, in the fourth quarter of 2011.

Gross research and development expenses amounted to US$14.8 million, or 22.3.% of sales, in the first quarter of fiscal 2012 compared to US$13.7 million, or 20.9% of sales, in the first quarter of 2011 and US$14.3 million, or 22.3% of sales, in the fourth quarter of 2011.

Net R&D expenses totaled US$12.5 million, or 18.8% of sales, in the first quarter of fiscal 2012 compared to US$11.6 million, or 17.7% of sales, in the same period last year and US$12.1 million, or 18.8% of sales, in the fourth quarter of 2011.

First-Quarter Business Highlights

  • EXFO achieved its second-highest bookings level (US$71.4 million) in company history based on strong results from the Protocol and Optical product lines especially in the Americas. The company obtained multiple contract wins for 4G/LTE simulators, analyzers and service assurance solutions, including the announced win with Finnish network operator DNA for the BrixHawk Service Assurance solution that combines Brix and NetHawk's technologies to deliver unique monitoring and reporting capabilities. Also, shortly after the quarter-end, EXFO received a follow-on order in excess of US$1.8 million from a Tier-1 North American network operator for the AXS-200/635 Triple-Play Tester.
  • EXFO's top customer accounted for 4.3% of sales in the first quarter, while the top three represented 10.2%. Global sales were diversified with 55% originating from the Americas, 27% from Europe, Middle East and Africa (EMEA), and 18% from Asia-Pacific.
  • EXFO launched five new products in the first quarter, including the BrixHawk Distributed Analyzer for live mobile network troubleshooting and service optimization; key enhancements to the FTB Ecosystem (FTB-1, FTB-200 and FTB-500) with expanded software capabilities like 3G and GPS as well as improved functionalities for EXFO Connect; and the release of the FTB-85100G Packet Blazer, a multi-rate, multi-service test solution for characterizing high-speed networks reaching 100G.

Profitable Growth
EXFO generated adjusted EBITDA** of US$7.6 million (11.4% of sales) in the first quarter of fiscal 2012 on revenue of US$66.4 million. Foreign exchange losses or gains are included in adjusted EBITDA**. See the section below entitled "Non-IFRS Financial Measures" for a reconciliation of adjusted EBITDA** to IFRS net earnings.

Business Outlook
EXFO forecasts sales between US$65.0 million and US$70.0 million for the second quarter of fiscal 2012, while net earnings are expected to range between US$0.00 and US$0.04 per diluted share. Net earnings include US$0.04 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 first quarter of fiscal 2012. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9072. Germain Lamonde, Chairman, President and CEO, and Pierre Plamondon, 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 January 18, 2012. The replay number is 1-402-977-9141 and the reservation number is 21562094. 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 wireless and wireline 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, and various optical technologies (accounting for an estimated 35% of the portable fiber-optic test market). EXFO has a staff of approximately 1800 people in 25 countries, supporting more than 2000 telecom customers worldwide. For more information, visit www.EXFO.com.

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 our forward-looking statements due to various factors including economic uncertainty (including our ability to quickly adapt cost structures with anticipated levels of business, ability to manage inventory levels with market demand); future economic, competitive, financial and market conditions; capital spending levels in the telecommunications industry; limited visibility with regards to customer orders and the timing of such orders; fluctuating exchange rates; our ability to successfully integrate our acquired and to-be-acquired businesses; consolidation in the global telecommunications test and service assurance industry and increased competition among vendors; concentration of sales; 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 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 press release. 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 Financial Measures
EXFO provides non-IFRS financial measures (gross margin*, EBITDA** and adjusted EBITDA**) as supplemental information regarding its operational performance. The company uses these measures for the purpose of evaluating its 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 to investors, in addition to IFRS measures, allows them 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 represents sales less cost of sales, excluding depreciation and amortization.
   
**  EBITDA is defined as net earnings before interest, income taxes, depreciation of property, plant and equipment, and amortization of intangible assets. Adjusted EBITDA represents EBITDA excluding changes in the fair value of the cash contingent consideration and the gain from the disposal of discontinued operations.

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

EBITDA and adjusted EBITDA (including discontinued operations)

    Three months
ended
November 30,
2011
  Three months
ended
August 31,
2011
  Three months
ended
November 30,
2010
                 
IFRS net earnings for the period $  2,914   $ 4,638   $ 14,133
                 
Add (deduct):                
                 
Depreciation of property, plant and equipment                
  Continuing operations   1,568     1,667     1,646
  Discontinued operations   -     -     14
Amortization of intangible assets                
  Continuing operations   1,921      2,122     2,566
  Discontinued operations   -     -     4
Interest expenses (income)                
  Continuing operations   27      (77)     7
Income taxes                
  Continuing operations   1,151     1,260     2,829
  Discontinued operations   -     -     201
                 
EBITDA for the period   7,581     9,610     21,400
                 
Change in the fair value of the cash contingent
consideration (continuing operations)
  -     (2,685)     -
Gain on disposal of discontinued operations   -     -     (13,212)
                 
Adjusted EBITDA for the period $  7,581   $ 6,925   $ 8,188
                 
Adjusted EDITDA in percentage of total sales   11.4%     10.8 %     12.1 %

EXFO Inc.
Unaudited Interim Consolidated Balance Sheets

(in thousands of US dollars)

      As at
November 30,
2011
    As at
August 31,
2011
    As at
September 1,
2010
Assets                  
                   
Current assets                  
Cash   $ 56,170   $ 22,771   $ 21,440
Short-term investments     12,123     47,091     10,379
Accounts receivable                  
  Trade   46,444     45,151     50,190
  Other   5,080     6,329     5,217
Income taxes and tax credits recoverable     5,930     5,414     2,604
Inventories     50,001     52,754     40,328
Prepaid expenses     3,084     3,237     2,816
Current assets held for sale     -     -     3,769
      178,832     182,747     136,743
                   
Tax credits recoverable     31,835     34,120     26,887
Forward exchange contracts      -     149     -
Property, plant and equipment      33,523     32,076     24,730
Intangible assets     19,817     22,901     27,947
Goodwill     29,353     30,942     29,355
Deferred income taxes     16,977     17,314     19,408
Long-term assets held for sale      -      -     7,530
                   
    $ 310,337   $ 320,249   $ 272,600
Liabilities                  
                   
Current liabilities                  
Bank loan   $ -   $ 784   $ -
Accounts payable and accrued liabilities     32,960      30,320     29,943
Provisions     1,829     1,817     927
Income taxes payable     821     876     426
Contingent liability     316     338     -
Current portion of long-term debt     603     645     568
Deferred revenue     9,087     10,590     10,354
Current liabilities related to assets held for sale     -     -     2,531
      45,616      45,370     44,749
                   
Deferred revenue     5,409     5,704     5,775
Long-term debt     904     968     1,419
Contingent liability     -     -     2,660
Other liabilities     632     723     603
Deferred income taxes     4,856     4,803     -
Long-term liabilities related to assets held for sale     -     -     537
    57,417     57,568     55,743
                 
Shareholders' equity                  
Share capital     110,945     110,341     106,126
Contributed surplus     17,658     18,017     18,563
Retained earnings     116,233     113,438     91,152
Accumulated other comprehensive income     8,084     20,885     1,016
                 
    252,920     262,681     216,857
                 
  $ 310,337   $ 320,249   $ 272,600

EXFO Inc.
Unaudited Interim Consolidated Statements of Earnings

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

  Three months ended
November 30,
           
    2011     2010
           
Sales $ 66,388   $ 65,653
           
Cost of sales (1)   23,370     24,785
Selling and administrative   24,618     19,899
Net research and development   12,483     11,601
Depreciation of property, plant and equipment   1,568     1,646
Amortization of intangible assets   1,921     2,566
Earnings from operations   2,428     5,156
           
Interest expenses   (27)     (7)
Foreign exchange gain (loss)   1,664     (1,113)
Earnings before income taxes   4,065     4,036
           
Income taxes   1,151     2,829
           
Net earnings from continuing operations   2,914     1,207
           
Net earnings from discontinued operations    -     12,926
           
Net earnings for the period $ 2,914   $ 14,133
           
Basic and diluted net earnings from continuing operations per share $ 0.05   $ 0.02
Basic net earnings from discontinued operations per share $ -   $ 0.22
Diluted net earnings from discontinued operations per share $ -   $ 0.21
Basic net earnings per share $ 0.05   $ 0.24
Diluted net earnings per share $ 0.05   $ 0.23
           
Basic weighted average number of shares outstanding (000's)   60,341     59,665
           
Diluted weighted average number of shares outstanding (000's)   61,763     61,106
           

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

EXFO Inc.
Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)

(in thousands of US dollars)

  Three months ended
November 30,
           
    2011     2010
           
Net earnings for the period $ 2,914   $ 14,133
Other comprehensive income (loss), net of income taxes            
  Foreign currency translation adjustment   (11,752)     6,227
  Unrealized gains on forward exchange contracts   (819)     1,444
  Reclassification of realized gains on forward exchange contracts in net earnings   (625)     (189)
  Deferred income tax effect of the components of other comprehensive
Income (loss)
  395     (338)
Other comprehensive income (loss)   (12,801)     7,144
Comprehensive income (loss) for the period $ (9,887)   $ 21,277

EXFO Inc.
Unaudited Interim Consolidated Statement of Changes in Equity

(in thousands of US dollars)

 
  Three months ended November 30, 2010
  Share
capital
  Contributed surplus   Retained earnings   Accumulated
other
comprehensive
income
  Total
shareholders' equity
                             
Balance as at September 1, 2010 $ 106,126   $ 18,563   $ 91,152   $ 1,016   $ 216,857
Exercise of stock options   61     -     -     -     61
Reclassification of stock-based compensation costs   861     (861)      -     -     -
Stock-based compensation costs   -     725     -      -     725
Net earnings for the period    -      -     14,133     -     14,133
Other comprehensive income                                  
  Foreign currency translation adjustment   -     -     -     6,227     6,227
  Changes in unrealized gains on forward exchange contracts, net of deferred income taxes of $338   -     -     -      917     917
                             
Total comprehensive income for the period   -     -     -     7,144     7,144
                             
Balance as at November 30, 2010 $ 107,048   $ 18,427   $ 105,285   $ 8,160   $ 238,920
                             
                             
    Three months ended November 30, 201
    Share
Capital
  Contributed Surplus   Retained earnings     Accumulated
other comprehensive income
  Total
shareholders' equity
                               
Balance as at September 1, 2011   $ 110,341   $ 18,017   $ 113,438   $ 20,885   $ 262,681
Reclassification of stock-based compensation costs      848     (848)     -     -     -
Redemption of share capital     (244)     -     (119)     -      (363)
Stock-based compensation costs     -     489     -     -     489
Net earnings for the period     -      -     2,914      -     2,914
Other comprehensive loss                              
  Foreign currency translation adjustment   -     -     -     (11,752)     (11,752)
  Changes in unrealized gains on forward exchange contracts, net of deferred income taxes of $395   -     -     -     (1,049)     (1,049)
                               
Total comprehensive loss for the period     -     -     -     (12,801)     (12,801)
                               
Balance as at November 30, 2011   $  110,945   $ 17,658   $ 116,233   $ 8,084   $ 252,920

EXFO Inc.
Unaudited Interim Consolidated Statements of Cash Flows

(in thousands of US dollars)

   
      Three months ended November 30,
             
      2011     2010
             
Cash flows from operating activities            
Net earnings for the period   2,914   14,133
Add (deduct) items not affecting cash            
  Change in discount on short-term investments     31     (18)
  Stock-based compensation costs     555     738
  Depreciation and amortization     3,489     4,230
  Gain on disposal of discontinued operations     -     (13,212)
  Deferred revenue     (1,141)     (2,571)
  Deferred income taxes     735     1,990
  Foreign exchange gain/loss     (1,214)     537
      5,369     5,827
             
Change in non-cash operating items            
  Accounts receivable     (2,897)     (4,480)
  Income taxes and tax credits     128     (1,059)
  Inventories     593     (1,362)
  Prepaid expenses     15     (385)
  Accounts payable, accrued liabilities and provisions     3,397     (1,224)
  Other liabilities     (61)     135
      6,544     (2,548)
Cash flows from investing activities            
Additions to short-term investments     (57,922)     (226,146)
Proceeds from disposal and maturity of short-term investments     90,779     209,605
Additions to capital assets     (4,486)     (1,979)
Net proceeds from disposal of discontinued operations     -     22,124
Business combination     -     (132)
      28,371     3,472
Cash flows from financing activities            
Bank loan     (785)     -
Exercise of stock options     -     61
Redemption of share capital     (363)     -
      (1,148)     61
             
Effect of foreign exchange rate changes on cash     (368)     344
             
Change in cash     33,399     1,329
Cash - Beginning of the period     22,771     22,109
Cash - End of the period   56,170   $  23,438




 

 

 

 

 

SOURCE EXFO INC.

For further information:

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

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