EXFO Reports First-Quarter Results for Fiscal 2017

  • Sales increase 11.9% year-over-year to US$61.8 million
  • Bookings rise 12.6% year-over-year to US$65.9 million (book-to-bill ratio of 1.07)
  • Gross margin reaches 63.1% of sales
  • Adjusted EBITDA improves 19.6% year-over-year to US$6.3 million (10.2% of sales)

QUEBEC CITY, Jan. 10, 2017 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the first quarter ended November 30, 2016.

Sales reached US$61.8 million in the first quarter of fiscal 2017 compared to US$55.2 million in the first quarter of 2016 and US$62.9 million in the fourth quarter of 2016.

Bookings attained US$65.9 million in the first quarter of fiscal 2017 compared to US$58.5 million in the same period last year and US$62.4 million in the fourth quarter of 2016. The company's book-to-bill ratio was 1.07 in the first quarter of 2017.

Gross margin before depreciation and amortization* amounted to 63.1% of sales in the first quarter of fiscal 2017 compared to 63.5% in the first quarter of 2016 and 61.6% in the fourth quarter of 2016.

IFRS net earnings in the first quarter of fiscal 2017 totaled US$3.3 million, or US$0.06 per diluted share, compared US$1.8 million, or US$0.03 per diluted share, in the same period last year and US$2.3 million, or US$0.04 per diluted share, in the fourth quarter of 2016. IFRS net earnings in the first quarter of 2017 included US$0.4 million in after-tax amortization of intangible assets, US$0.3 million in stock-based compensation costs and a foreign exchange gain of US$0.5 million.

Adjusted EBITDA* totaled US$6.3 million, or 10.2% of sales, in the first quarter of fiscal 2017 compared to US$5.3 million, or 9.6% of sales, in the first quarter of 2016 and US$6.2 million, or 9.8% of sales, in the fourth quarter of 2016.

EXFO closed the acquisition of Absolute Analysis' assets in late October for US$5.0 million in cash and US$3.5 million in stock. At the end of the first quarter of fiscal 2017, EXFO had a cash position of US$39.3 million and no debt.

"Fiscal 2017 has gotten off to a strong start with double-digit increases in sales, bookings and adjusted EBITDA in the first quarter, highlighting growing market traction of both of our product groups," said Germain Lamonde, EXFO's Chairman, President and CEO. "I am particularly pleased with robust results from our optical and high-speed transport businesses, where we are gaining market share and taking advantage of the 100G investment cycle in long-haul networks, Metro links and data centers. We also benefited from calendar year-end purchases by some communications service providers and early returns from our industry-only, all-in-one optical RF analyzer for mobile network operators. We remain fully confident about achieving our adjusted EBITDA goal of US$26 million in 2017."

Selected Financial Information

(In thousands of US dollars)

Q1 2017

Q4 2016

Q1 2016

Physical-layer sales

$

42,016

$

39,777

$

37,477

Protocol-layer sales

20,009

23,445

18,629

Foreign exchange losses on forward exchange contracts

(240)

(364)

(874)

Total sales

$

61,785

$

62,858

$

55,232

Physical-layer bookings

$

44,090

$

39,826

$

38,878

Protocol-layer bookings

22,009

22,969

20,469

Foreign exchange losses on forward exchange contracts

(240)

(364)

(874)

Total bookings

$

65,859

$

62,431

$

58,473

Book-to-bill ratio (bookings/sales)

1.07

0.99

1.06

Gross margin before depreciation and amortization*

$

38,972

$

38,713

$

35,095

63.1%

61.6%

63.5%

Other selected information:

IFRS net earnings

$

3,303

$

2,252

$

1,766

Amortization of intangible assets

$

427

$

292

$

300

Stock-based compensation costs

$

258

$

302

$

376

Net income tax effect of the above items

$

(64)

$

(31)

$

(28)

Foreign exchange gain (loss)

$

512

$

(293)

$

310

Adjusted EBITDA*

$

6,321

$

6,172

$

5,286

Operating Expenses Selling and administrative expenses totaled US$21.6 million, or 35.0% of sales in the first quarter of fiscal 2017 compared to US$20.3 million, or 36.7% of sales, in the same period last year and US$21.6 million, or 34.3% of sales, in the fourth quarter of 2016.

Net R&D expenses totaled US$11.3 million, or 18.3% of sales, in the first quarter of fiscal 2017 compared to US$9.9 million, or 18.0% of sales, in the first quarter of 2016 and US$11.3 million, or 18.0% of sales, in the fourth quarter of 2016.

First-Quarter Highlights

  • Sales and bookings. Sales and bookings increased 11.9% and 12.6% year-over-year, respectively, mainly due to strong market demand in EXFO's three major selling regions and for optical and high-speed solutions. The company also benefited from a large wireless deal in Asia-Pacific in the first quarter. From a segmented revenue standpoint, 56% of sales originated from the Americas, 23% from EMEA and 21% from Asia-Pacific, while Physical-layer sales represented 68% of total sales and Protocol-layer sales 32%. EXFO's top customer accounted for 13.8% of sales, while the top three represented 23.3%. This represents an unusually high concentration level for EXFO, but reflects greater success with Tier-1 operators.
  • Profitability. EXFO generated adjusted EBITDA of US$6.3 million, or 10.2% of sales, in the first quarter of 2017 compared to US$5.3 million, or 9.6% of sales, in the first quarter of 2016.
  • Innovation. EXFO acquired substantially all the assets of Absolute Analysis in the first quarter to combine radio frequency (RF) test software with its own optical and Ethernet technologies. EXFO also introduced three other new solutions including a power meter, variable attenuator and optical switch modules for its LTB-8 platform dedicated to the high-speed optical lab market, a segment of increased focus. Finally, EXFO supplied OpenReach, British Telecom's local network business, with an initial order of MaxTesters to support its G.fast pilot project.

Business Outlook EXFO forecasts sales between US$58.0 million and US$63.0 million for the second quarter of fiscal 2017, while IFRS net results are expected to range between a loss of US$0.01 per share and earnings of US$0.03 per share. IFRS net results include US$0.01 per share in after-tax amortization of intangible assets and stock-based compensation costs as well as an anticipated foreign exchange loss of US$800,000 based on today's exchange rates.

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 first-quarter results for fiscal 2017. To listen to the conference call and participate in the question period via telephone, dial 1-704-288-0432. Please take note the following conference ID number will be required: 30629172. Germain Lamonde, Chairman, President and CEO, 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 11:59 p.m. on January 17, 2017. The replay number is 1-855-859-2056 and the conference ID number is 30629172. 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 provides communications service providers (CSPs) with test automation and 3D analytics solutions to ensure the smooth deployment, maintenance and management of next-generation, physical, virtual, fixed and mobile networks. The company has also forged strong relationships with network equipment manufacturers (NEMs) to develop deep expertise that migrates from the lab to the field and beyond. EXFO's key differentiation comes from combining intelligent, automated and cloud-based test and monitoring solutions with real-time analytics to deliver unmatched end-to-end visibility and assurance—from a network, services and end-user level. EXFO is no. 1 in portable optical testing and boasts the largest active service assurance deployment worldwide. For more information, visit www.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; 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; our ability to successfully integrate businesses that we acquire; 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 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 before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain.

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

Adjusted EBITDA

Q1 2017

Q4 2016

Q1 2016

IFRS net earnings for the period

$

3,303

$

2,252

$

1,766

Add (deduct):

Depreciation of property, plant and equipment

903

957

975

Amortization of intangible assets

427

292

300

Interest (income) expense

(20)

(112)

63

Income taxes

1,962

2,188

2,116

Stock-based compensation costs

258

302

376

Foreign exchange gain

(512)

(293)

(310)

Adjusted EBITDA for the period

$

6,321

$

6,172

$

5,286

Adjusted EBITDA in percentage of sales

10.2%

9.8%

9.6%

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets

(in thousands of US dollars)

As at

November 30,

2016

As at

August 31,

2016

Assets

Current assets

Cash

$

35,061

$

43,208

Short-term investments

4,281

4,087

Accounts receivable

Trade

43,476

42,993

Other

3,321

2,474

Income taxes and tax credits recoverable

4,047

4,208

Inventories

33,880

33,004

Prepaid expenses

2,781

3,099

126,847

133,073

Tax credits recoverable

33,800

34,594

Property, plant and equipment

35,530

35,978

Intangible assets

10,855

3,391

Goodwill

21,418

21,928

Deferred income tax assets

7,901

8,240

Other assets

372

589

$

236,723

$

237,793

Liabilities

Current liabilities

Accounts payable and accrued liabilities

$

34,779

$

37,174

Provisions

308

299

Income taxes payable

567

971

Deferred revenue

8,910

9,486

44,564

47,930

Deferred revenue

5,681

5,530

Deferred income tax liabilities

2,546

2,857

Other liabilities

29

75

52,820

56,392

Shareholders' equity

Share capital

89,352

85,516

Contributed surplus

18,018

18,150

Retained earnings

129,612

126,309

Accumulated other comprehensive loss

(53,079)

(48,574)

183,903

181,401

$

236,723

$

237,793

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,

2016

2015

Sales

$

61,785

$

55,232

Cost of sales (1)

22,813

20,137

Selling and administrative

21,595

20,252

Net research and development

11,314

9,933

Depreciation of property, plant and equipment

903

975

Amortization of intangible assets

427

300

Interest (income) expense

(20)

63

Foreign exchange gain

(512)

(310)

Earnings before income taxes

5,265

3,882

Income taxes

1,962

2,116

Net earnings for the period

$

3,303

$

1,766

Basic and diluted net earnings per share

$

0.06

$

0.03

Basic weighted average number of shares outstanding (000's)

53,884

53,814

Diluted weighted average number of shares outstanding (000's)

55,001

54,535

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

EXFO Inc. Condensed Unaudited nterim Consolidated Statements of Comprehensive Loss

(in thousands of US dollars)

Three months ended November 30,

2016

2015

Net earnings for the period

$

3,303

$

1,766

Other comprehensive income (loss), net of income taxes

Items that will not be reclassified subsequently to net earnings

Foreign currency translation adjustment

(4,217)

(2,509)

Items that may be reclassified subsequently to net earnings

Unrealized gains/losses on forward exchange contracts

(561)

(270)

Reclassification of realized gains/losses on forward exchange contracts in net earnings

181

878

Deferred income tax effect of gains/losses on forward exchange contracts

92

(148)

Other comprehensive loss

(4,505)

(2,049)

Comprehensive loss for the period

$

(1,202)

$

(283)

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

(in thousands of US dollars)

Three months ended November 30, 2015

Share capital

Contributed surplus

Retained earnings

Accumulated other comprehensive loss

Total shareholders' equity

Balance as at September 1, 2015

$

86,045

$

17,778

$

117,409

$

(52,005)

$

169,227

Redemption of share capital

(1)

(1)

Reclassification of stock-based compensation costs

723

(723)

Stock-based compensation costs

341

341

Net earnings for the period

1,766

1,766

Other comprehensive income (loss)

Foreign currency translation adjustment

(2,509)

(2,509)

Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $148

460

460

Total comprehensive loss for the period

(283)

Balance as at November 30, 2015

$

86,767

$

17,396

$

119,175

$

(54,054)

$

169,284

Three months ended November 30, 2016

Share capital

Contributed surplus

Retained earnings

Accumulated other comprehensive loss

Total shareholders' equity

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

346

(346)

-

Stock-based compensation costs

214

-

214

Net earnings for the period

3,303

-

3,303

Other comprehensive loss

Foreign currency translation adjustment

(4,217)

(4,217)

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $92

(288)

(288)

Total comprehensive loss for the period

(1,202)

Balance as at November 30, 2016

$

89,352

$

18,018

$

129,612

$

(53,079)

$

183,903

EXFO Inc. Condensed Unaudited Interim Consolidated Statements of Cash Flows

(in thousands of US dollars)

Three months ended November 30,

2016

2015

Cash flows from operating activities

Net earnings for the period

$

3,303

$

1,766

Add (deduct) items not affecting cash

Stock-based compensation costs

258

376

Depreciation and amortization

1,330

1,275

Deferred revenue

(75)

1,511

Deferred income taxes

147

573

Changes in foreign exchange gain/loss

(538)

(344)

4,425

5,157

Changes in non-cash operating items

Accounts receivable

(2,558)

(2,024)

Income taxes and tax credits

(344)

(278)

Inventories

(1,248)

(3,226)

Prepaid expenses

258

54

Other assets

13

193

Accounts payable, accrued liabilities and provisions

(1,425)

3,375

Other liabilities

(28)

(879)

3,223

Cash flows from investing activities

Additions to short-term investments

(296)

(21)

Additions to capital assets

(1,237)

(1,309)

Business combination

(5,000)

(6,533)

(1,330)

Cash flows from financing activities

Bank loan

315

Redemption of share capital

(1)

314

Effect of foreign exchange rate changes on cash

(735)

(197)

Change in cash

(8,147)

2,010

Cash – Beginning of the period

43,208

25,864

Cash – End of the period

$

35,061

$

27,874

Supplementary information

Income taxes paid

$

958

$

608

EXFO-F

SOURCE EXFO inc.

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

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