EXFO Reports Second-Quarter Results for Fiscal 2016

  • Sales increase 5.1% year-over-year to US$53.6 million
  • Bookings improve 9.2% year-over-year to US$59.7 million, book-to-bill ratio of 1.11
  • Gross margin reaches 64.7%, highest level in four years
  • Adjusted EBITDA totals US$5.3 million, 9.9% of sales

QUEBEC CITY, March 29, 2016 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the second quarter ended February 29, 2016.

Sales reached US$53.6 million in the second quarter of fiscal 2016 compared to US$51.0 million in the second quarter of 2015 and US$55.2 million in the first quarter of 2016. At the halfway mark of fiscal 2016, sales increased 1.0% year-over-year to US$108.8 million.

Bookings attained US$59.7 million in the second quarter of fiscal 2016 compared to US$54.7 million in the same period last year and US$58.5 million in the first quarter of 2016. The company's book-to-bill ratio was 1.11 in the second quarter of 2016 and 1.09 at the halfway mark of 2016, leading to year-over-year bookings growth of 8.5% after two quarters.

Gross margin before depreciation and amortization* amounted to 64.7% of sales in the second quarter of fiscal 2016 compared to 61.7% in the second quarter of 2015 and 63.5% in the first quarter of 2016. After six months into fiscal 2016, gross margin accounted for 64.1% of sales compared to 62.1% for the same period in 2015.

IFRS net earnings in the second quarter of fiscal 2016 totaled US$4.0 million, or US$0.07 per diluted share, compared US$0.9 million, or US$0.02 per diluted share, in the same period last year and US$1.8 million, or US$0.03 per diluted share, in the first quarter of 2016. IFRS net earnings in the second quarter of 2016 included US$0.3 million in after-tax amortization of intangible assets, US$0.3 million in stock-based compensation costs and a foreign exchange gain of US$1.1 million. IFRS net earnings totaled US$5.7 million in the first half of fiscal 2016 compared to US$2.4 million in the first half of 2015.

Adjusted EBITDA* totaled US$5.3 million, or 9.9% of sales, in the second quarter of fiscal 2016 compared to US$1.2 million, or 2.3% of sales, in the second quarter of 2015 and US$5.3 million, or 9.6% of sales, in the first quarter of 2016. At the halfway point of fiscal 2016, adjusted EBITDA totaled US$10.6 million, or 9.7% of sales, compared to US$4.4 million, or 4.0% of sales, in the same period in 2015.

EXFO's cash and short-term investments amounted to US$44.4 million at the end of the second quarter of fiscal 2016, compared to US$29.4 million in the previous quarter, mainly due to US$15.3 million in cash flows from operating activities.

"EXFO's first half of fiscal 2016 provides clear evidence that key transformations implemented last year are delivering robust results as reflected by strong bookings growth and book-to-bill ratio, along with significant improvements to our gross margin and adjusted EBITDA," said Germain Lamonde, EXFO's Chairman, President and CEO. "Our growth engine, with significant earnings leverage, is back in place for both our Physical and Protocol product groups which are demonstrating strong market traction. We should also continue to benefit from our leadership in fiber-optic and 100G network testing, driven by surging demand for high-speed optical networking in core, metro, Web 2.0 and data center networks. Considering our solid book-to bill ratio in the first half of 2016 and the fact our second half is typically stronger, we are well positioned to surpass our US$20 million adjusted EBITDA target for the full fiscal year."

Selected Financial Information (In thousands of US dollars)

Q2 2016

Q1 2016

Q2 2015

Physical-layer sales

$

32,582

$

37,477

$

33,059

Protocol-layer sales

21,990

18,629

18,531

Foreign exchange losses on forward exchange contracts

(975)

(874)

(600)

Total sales

$

53,597

$

55,232

$

50,990

Physical-layer bookings

$

34,873

$

38,878

$

33,223

Protocol-layer bookings

25,805

20,469

22,027

Foreign exchange losses on forward exchange contracts

(975)

(874)

(600)

Total bookings

$

59,703

$

58,473

$

54,650

Book-to-bill ratio

1.11

1.06

1.07

Gross margin*

$

34,693

$

35,095

$

31,444

64.7%

63.5%

61.7%

Other selected information:

IFRS net earnings

$

3,963

$

1,766

$

931

Amortization of intangible assets

$

286

$

300

$

1,019

Stock-based compensation costs

$

314

$

376

$

388

Net income tax effect of the above items

$

(30)

$

(28)

$

(53)

Foreign exchange gain

$

1,101

$

310

$

2,987

Adjusted EBITDA*

$

5,280

$

5,286

$

1,158

 

Operating Expenses Selling and administrative expenses totaled US$19.6 million, or 36.5% of sales in the second quarter of fiscal 2016 compared to US$20.2 million, or 39.6% of sales, in the same period last year and US$20.3 million, or 36.7% of sales, in the first quarter of 2016.

Net R&D expenses totaled US$10.2 million, or 19.0% of sales, in the second quarter of fiscal 2016 compared to US$10.5 million, or 20.6% of sales, in the second quarter of 2015 and US$9.9 million, or 18.0% of sales, in the first quarter of 2016.

Second-Quarter Highlights

  • Bookings and Sales. Bookings increased 9.2% year-over-year (or approximately 12% on a constant currency basis*) to US$59.7 million in the second quarter of 2016, while sales increased 5.1% (or approximately 8% on a constant currency basis) to US$53.6 million. EXFO's book-to bill ratio reached 1.11 in the second quarter and 1.09 in the first half of fiscal 2016. Bookings were particularly robust within the company's Protocol product line, including 100G optical transport solutions and analytics software. From a geographic standpoint, 49% of sales originated from the Americas, 29% from EMEA and 22% from Asia-Pacific. EXFO's top customer accounted for 6.8% of sales, while the top three represented 13.3%.
  • Profitability. Adjusted EBITDA increased more than 350% year-over-year to US$5.3 million in the second quarter of 2016. At the halfway mark of fiscal 2016, EXFO delivered US$10.6 million in adjusted EBITDA, up 143% year-over-year, placing the company in a good position with regard to its US$20 million annual target. EXFO generated US$15.3 million in cash flows from operating activities in the second quarter of 2016 and US$18.6 million in the first half of the fiscal year.
  • Innovation. EXFO launched five new solutions during the second quarter of 2016 including TestFlow, a revolutionary, cloud-based field test automation solution that allows network operators to automate complex, labor-intensive activities like fiber-to-the antenna (FTTA), distributed antenna system (DAS) and small cell deployments. The company also introduced a whole new family of optical time domain reflectometers (OTDRs), a segment in which it owns 48% of global market share, establishing new industry standards for specifications and time savings in characterizing optical networks. Other new product introductions consist of solutions for data center and enterprise network testing; an industry-first, high-resolution, wavelength-tunable OTDR for single-ended network troubleshooting; and the telecom industry's first G.fast handheld test set for the roll out of ultra-broadband services on copper links. Following the quarter-end, EXFO unveiled its new test strategy and platform for the lab market at the Optical Fiber Conference (OFC) in Anaheim.

Business Outlook EXFO forecasts sales between US$59.0 million and US$64.0 million for the third quarter of fiscal 2016, while IFRS net earnings are expected to range between US$0.03 and US$0.07 per diluted share. IFRS net earnings include US$0.01 per diluted share in after-tax amortization of intangible assets and stock-based compensation costs as well as US$0.01 per diluted share for foreign exchange losses based on current 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 second-quarter results for fiscal 2016. 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: 58439462. 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 two hours after the event until 11:59 p.m. on April 5, 2016. The replay number is 1-855-859-2056 and the conference ID number is 58439462. 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 orchestration and performance intelligence 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 solution vendors (NSVs) 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 (constant currency data, 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.

Constant currency data represents data before foreign currency impact. Data for the current period is translated using foreign exchange rates of the corresponding period from the preceding year.

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 (unaudited)

Q2 2016

Q1 2016

Q2 2015

IFRS net earnings for the period

$

3,963

$

1,766

$

931

Add (deduct):

Depreciation of property, plant and equipment

924

975

1,256

Amortization of intangible assets

286

300

1,019

Interest and other (income) expenses

(470)

63

(35)

Income taxes

1,364

2,116

586

Stock-based compensation costs

314

376

388

Foreign exchange gain

(1,101)

(310)

(2,987)

Adjusted EBITDA for the period

$

5,280

$

5,286

$

1,158

Adjusted EBITDA in percentage of sales

9.9%

9.6%

2.3%

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets

(in thousands of US dollars)

As at

February 29,

2016

As at

August 31,

2015

Assets

Current assets

Cash

$

43,418

$

25,864

Short-term investments

958

1,487

Accounts receivable

Trade

37,289

48,068

Other

2,213

2,384

Income taxes and tax credits recoverable

3,215

3,855

Inventories

33,088

27,951

Prepaid expenses

2,693

2,801

122,874

112,410

Tax credits recoverable

34,103

35,625

Property, plant and equipment

34,937

35,695

Intangible assets

3,626

4,096

Goodwill

21,255

21,860

Deferred income tax assets

8,300

8,900

Other assets

433

416

$

225,528

$

219,002

Liabilities

Current liabilities

Bank loan

$

457

$

Accounts payable and accrued liabilities

34,314

34,126

Provisions

308

427

Income taxes payable

654

779

Deferred revenue

9,326

7,647

45,059

42,979

Deferred revenue

4,684

2,957

Deferred income tax liabilities

1,977

1,524

Other liabilities

440

791

52,160

48,251

Shareholders' equity

Share capital

87,031

86,045

Contributed surplus

17,286

17,778

Retained earnings

124,662

118,933

Accumulated other comprehensive loss

(55,611)

(52,005)

173,368

170,751

225,528

$

219,002

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Earnings

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

Three months

ended

February 29,

2016

Six months

ended

February 29,

2016

Three months

ended

February 28,

2015

Six months

ended

February 28,

2015

Sales

$

53,597

$

108,829

$

50,990

$

107,714

Cost of sales (1)

18,904

39,041

19,546

40,783

Selling and administrative

19,565

39,817

20,168

41,200

Net research and development

10,162

20,095

10,506

22,164

Depreciation of property, plant and equipment

924

1,899

1,256

2,501

Amortization of intangible assets

286

586

1,019

2,117

Interest and other income

(470)

(407)

(35)

(252)

Foreign exchange gain

(1,101)

(1,411)

(2,987)

(4,962)

Earnings before income taxes

5,327

9,209

1,517

4,163

Income taxes

1,364

3,480

586

1,751

Net earnings for the period

$

3,963

$

5,729

$

931

$

2,412

Basic net earnings per share

$

0.07

$

0.11

$

0.02

$

0.04

Diluted net earnings per share

$

0.07

$

0.10

$

0.02

$

0.04

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

53,927

53,870

59,216

59,775

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

54,615

54,575

59,813

60,396

(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

February 29,

2016

Six months

ended

February 29,

2016

Three months

ended

February 28,

2015

Six months

ended

February 28,

2015

Net earnings for the period

$

3,963

$

5,729

$

931

$

2,412

Other comprehensive income (loss), net of income taxes

Items that will not be reclassified subsequently to net earnings

Foreign currency translation adjustment

(2,204)

(4,713)

(18,566)

(30,301)

Items that may be reclassified subsequently to net earnings

Unrealized losses on forward exchange contracts

50

(220)

(2,697)

(4,202)

Reclassification of realized losses on forward exchange contracts in net earnings

839

1,717

338

500

Deferred income tax effect of losses on forward exchange contracts

(242)

(390)

622

995

Other comprehensive loss

(1,557)

(3,606)

(20,303)

(33,008)

Comprehensive income (loss) for the period

$

2,406

$

2,123

$

(19,372)

$

(30,596)

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

(in thousands of US dollars)

Six months ended February 28, 2015

Share

capital

Contributed surplus

Retained earnings

Accumulated other comprehensive loss

Total

shareholders' equity

Balance as at September 1, 2014

$

111,491

$

16,503

$

113,635

$

(10,259)

$

231,370

Redemption of share capital

(26,314)

1,211

(25,103)

Reclassification of stock-based compensation costs

1,350

(1,350)

Stock-based compensation costs

789

789

Net earnings for the period

2,412

2,412

Other comprehensive loss

Foreign currency translation adjustment

(30,301)

(30,301)

Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $995

(2,707)

(2,707)

Total comprehensive loss for the period

(30,596)

Balance as at February 28, 2015

$

86,527

$

17,153

$

116,047

$

(43,267)

$

176,460

 

Six months ended February 29, 2016

Share

capital

Contributed surplus

Retained earnings

Accumulated other comprehensive loss

Total

shareholders' equity

Balance as at September 1, 2015

$

86,045

$

17,778

$

118,933

$

(52,005)

$

170,751

Redemption of share capital

(244)

57

(187)

Reclassification of stock-based compensation costs

1,230

(1,230)

Stock-based compensation costs

681

681

Net earnings for the period

5,729

5,729

Other comprehensive income (loss)

Foreign currency translation adjustment

(4,713)

(4,713)

Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $390

1,107

1,107

Total comprehensive loss for the period

2,123

Balance as at February 29, 2016

$

87,031

$

17,286

$

124,662

$

(55,611)

$

173,368

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows

(in thousands of US dollars)

Three months

ended

February 29,

2016

Six months

ended

February 29,

2016

Three months

ended

February 28,

2015

Six months

ended

February 28,

2015

Cash flows from operating activities

Net earnings for the period

$

3,963

$

5,729

$

931

$

2,412

Add (deduct) items not affecting cash

Stock-based compensation costs

314

690

388

788

Depreciation and amortization

1,210

2,485

2,275

4,618

Deferred revenue

2,162

3,673

1,531

504

Deferred income taxes

101

674

(11)

(343)

Changes in foreign exchange gain/loss

(615)

(959)

(1,770)

(2,798)

7,135

12,292

3,344

5,181

Changes in non-cash operating items

Accounts receivable

11,305

9,281

3,719

(1,317)

Income taxes and tax credits

1,211

933

(1,211)

(1,423)

Inventories

(2,642)

(5,868)

(752)

(1,933)

Prepaid expenses

(20)

34

(165)

(501)

Other assets

10

203

(2)

(1)

Accounts payable, accrued liabilities and provisions

(1,644)

1,731

824

7,660

Other liabilities

(26)

(54)

(13)

(32)

15,329

18,552

5,744

7,634

Cash flows from investing activities

Additions to short-term investments

                       ‒

(21)

(5,818)

(19,509)

Proceeds from disposal and maturity of short-term investments

501

501

8,300

22,066

Purchases to capital assets

(927)

(2,236)

(2,045)

(2,799)

(426)

(1,756)

437

(242)

Cash flows from financing activities

Bank loan

153

468

                       ‒

                       ‒

Redemption of share capital

(186)

(187)

(24,250)

(25,103)

(33)

281

(24,250)

(25,103)

Effect of foreign exchange rate changes on cash

674

477

(3,795)

(6,053)

Change in cash

15,544

17,554

(21,864)

(23,764)

Cash – Beginning of the period

27,874

25,864

52,221

54,121

Cash – End of the period

$

43,418

$

43,418

$

30,357

$

30,357

Supplementary information

Income taxes paid

$

508

$

1,116

$

457

$

824

Additions to capital assets

$

1,066

$

2,375

$

2,048

$

2,938

 

SOURCE EXFO inc.

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

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