EXFO Reports Third-Quarter Results for Fiscal 2015

 

  • Sales reach US$57.8 million
  • Bookings attain US$59.2 million, book-to-bill ratio of 1.03
  • Adjusted EBITDA totals US$4.5 million, 7.7% of sales

 

QUEBEC CITY, June 23, 2015 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the third quarter ended May 31, 2015.

Sales reached US$57.8 million in the third quarter of fiscal 2015 compared to US$63.9 million in the third quarter of 2014 and US$51.0 million in the second quarter of 2015.

Bookings attained US$59.2 million in the third quarter of fiscal 2015 compared to US$66.5 million in the same period last year and US$54.7 million in the second quarter of 2015. The company's book-to-bill ratio was 1.03 in the third quarter of 2015.

Gross margin before depreciation and amortization* amounted to 61.4% of sales in the third quarter of fiscal 2015 compared to 63.3% in the third quarter of 2014 and 61.7% in the second quarter of 2015.

IFRS net earnings in the third quarter of fiscal 2015 totaled US$0.6 million, or US$0.01 per diluted share, compared to US$1.7 million, or US$0.03 per diluted share, in the same period last year and US$0.9 million, or US$0.02 per diluted share, in the second quarter of 2015. IFRS net earnings in the third quarter of 2015 included US$0.4 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and a foreign exchange loss of US$0.2 million.

Adjusted EBITDA** totaled US$4.5 million, or 7.7% of sales, in the third quarter of fiscal 2015 compared to US$7.3 million, or 11.5% of sales, in the third quarter of 2014 and US$1.2 million, or 2.3% of sales, in the second quarter of 2015.

"Our sequential sales improvement was led by a 20%-plus increase in the Americas, while the EMEA region remained challenging due to macro-economic issues, devaluation of local currencies and difficult end-markets," said Germain Lamonde, EXFO's Chairman, President and CEO. "Year-over-year, I am pleased with the adoption and progress in sales and bookings for our end-to-end solutions offering, which is driven mainly by network operators shifting their focus and investments toward visibility solutions to help increase quality of customer experience."

"We have begun taking action this quarter to reduce operating costs and position the company to accelerate revenue, since improving profitability is the centerpiece of management's strategy," Mr. Lamonde added.

 

Selected Financial Information
(In thousands of US dollars)










Q3 2015


Q2 2015


Q3 2014










Sales

$

57,781


$

50,990


$

63,882










Gross margin*

$

35,500


$

31,444


$

40,413



61.4%



61.7%



63.3%










Other selected information:










IFRS net earnings

$

563


$

931


$

1,665


Amortization of intangible assets

$

444


$

1,019


$

1,025


Stock-based compensation costs

$

374


$

388


$

407


Net income tax effect of the above items

$

(49)


$

(53)


$

(63)


Foreign exchange gain (loss)

$

(175)


$

2,987


$

(1,126)


Adjusted EBITDA**

$

4,462


$

1,158


$

7,345

Operating Expenses
Selling and administrative expenses totaled US$20.5 million, or 35.5% of sales in the third quarter of fiscal 2015 compared to US$21.7 million, or 34.0% of sales, in the same period last year and US$20.2 million, or 39.6% of sales, in the second quarter of 2015.

Gross research and development expenses amounted to US$12.5 million, or 21.6% of sales, in the third quarter of fiscal 2015 compared to US$13.6 million, or 21.3% of sales, in the third quarter of 2014 and US$12.2 million, or 23.9% of sales, in the second quarter of 2015.

Net R&D expenses totaled US$10.9 million, or 18.9% of sales, in the third quarter of fiscal 2015 compared to US$11.7 million, or 18.4% of sales, in the same period last year and US$10.5 million, or 20.6% of sales, in the second quarter of 2015.

Third-Quarter Highlights

  • Sales. Geographical sales breakdown in the third quarter was 58% from the Americas, 23% from EMEA and 19% from the Asia-Pacific region. EXFO's top-three customers represented 15.7% of sales. The largest customer accounted for 7.0% of sales, mostly for EXFO's systems and solutions. Revenue after nine months would be almost flat year-over-year, excluding the negative impact of the US dollar.
  • Profitability. EXFO generated adjusted EBITDA of US$4.5 million (7.7% of sales) in the third quarter of 2015 for a total of US$8.8 million (5.3%) after the first three quarters into the fiscal year. In comparison, the company delivered US$8.6 million (5.0%) of adjusted EBITDA after three quarters into 2014. A restructuring charge of US$1.2 million is planned for the fourth quarter of 2015 which is expected to generate annual savings US$2 million. EXFO had a cash position of US$29.9 million and no debt at the end of the third quarter of 2015.
  • Innovation. EXFO introduced major enhancements to its analytics platform (EXFO Xtract), service assurance systems and network visibility solutions in the third quarter in order to help network operators take proactive actions that improve customer quality of experience. The company also released new capabilities for its iOLM fiber test technology and a fully automated wireless fiber inspection solution, both contributing to EXFO's thrust to automate and accelerate fiber deployments in wireless access networks. Following the quarter-end, EXFO accelerated its market-driven strategy by unveiling the most advanced, all-in-one test platform: FTB-1 Pro. This platform combines the unique, quad-port NetBlazer 10G Ethernet module and iSAM software test option. The company also launched a new OTDR series and above-mentioned iOLM and fiber inspection probe options for the FTB-1 Pro to greatly accelerate and simplify the turn-up of next-generation fixed and mobile access networks.

Business Outlook
EXFO forecasts sales between US$55.0 million and US$60.0 million for the fourth quarter of fiscal 2015, while IFRS net results are expected to range between a net loss of US$0.02 per share and net earnings of US$0.02 per share. IFRS net loss/earnings include US$0.01 per share in after-tax amortization of intangible assets and stock-based compensation costs as well as US$0.02 per share in restructuring charges.

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 third quarter of fiscal 2015. 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: 52901975. 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 June 30, 2015. The replay number is 1-855-859-2056 and the conference ID number is 52901975. 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 enables extraordinary experiences on global networks. Our test, service assurance and network visibility solutions allow equipment manufacturers and network operators to deliver a wealth of services to consumers, while increasing network capacity and reducing operating costs. From a company executive holding a telepresence meeting with overseas staff to a runner transferring data from wearable technology, EXFO's inherent expertise and powerful analytics render these events commonplace. Simply put, we have evolved over our 30-year history to ensure unmatched quality of service and quality of experience on next-generation fixed and mobile networks. 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, 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 or loss.

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

 

Adjusted EBITDA (unaudited)











   Q3 2015



   Q2 2015



     Q3 2014










IFRS net earnings for the period

$

563


$

931


$

1,665










Add (deduct):


















Depreciation of property, plant and equipment


1,163



1,256



1,219

Amortization of intangible assets


444



1,019



1,025

Interest and other (income) expense


36



(35)



(220)

Income taxes


1,707



586



2,123

Stock-based compensation costs


374



388



407

Foreign exchange (gain) loss


175



(2,987)



1,126

Adjusted EBITDA for the period

$

4,462


$

1,158


$

7,345










Adjusted EBITDA in percentage of sales


7.7%



2.3%



11.5%

 



EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets


(in thousands of US dollars)




As at

 May 31,

 2015


As at

 August 31,

 2014

Assets














Current assets







Cash


$

28,895


$

54,121

Short-term investments



982



5,726

Accounts receivable








Trade



47,678



46,031


Other



2,058



2,001

Income taxes and tax credits recoverable



5,324



3,796

Inventories



31,555



35,232

Prepaid expenses



2,816



2,281




119,308



149,188








Tax credits recoverable



36,423



41,745

Property, plant and equipment



37,864



42,780

Intangible assets



4,490



7,293

Goodwill



23,125



26,488

Deferred income tax assets



9,765



9,816

Other assets



475



721










$

231,450


$

278,031

Liabilities














Current liabilities







Accounts payable and accrued liabilities


$

36,009


$

29,553

Provisions



437



532

Income taxes payable



834



840

Deferred revenue



9,348



8,990




46,628



39,915








Deferred revenue



2,845



3,319

Deferred income tax liabilities



2,262



3,087

Other liabilities



869



340




52,604



46,661








Shareholders' equity







Share capital



86,471



111,491

Contributed surplus



17,524



16,503

Retained earnings



116,610



113,635

Accumulated other comprehensive loss



(41,759)



(10,259)




178,846



231,370










$

231,450


$

278,031

 


EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Earnings


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




Three months

 ended

 May 31, 2015


Nine months

 ended

 May 31, 2015


Three months

 ended

 May 31, 2014


Nine months

 ended

 May 31, 2014














Sales


$

57,781


$

165,495


$

63,882


$

171,064














Cost of sales (1)



22,281



63,064



23,469



64,727

Selling and administrative



20,489



61,689



21,730



64,975

Net research and development



10,923



33,087



11,745



33,999

Depreciation of property, plant and equipment



1,163



3,664



1,219



3,737

Amortization of intangible assets



444



2,561



1,025



3,281

Interest and other (income) expense



36



(216)



(220)



(296)

Foreign exchange (gain) loss



175



(4,787)



1,126



(1,968)

Earnings before income taxes



2,270



6,433



3,788



2,609














Income taxes



1,707



3,458



2,123



3,030














Net earnings (loss) for the period


$

563


$

2,975


$

1,665


$

(421)














Basic and diluted net earnings (loss) per share


$

0.01


$

0.05


$

0.03


$

(0.01)














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



53,861



57,804



60,339



60,323














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



54,549



58,453



60,986



60,323

 

(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

 May 31, 2015


Nine months

 ended

 May 31, 2015


Three months

 ended

 May 31, 2014


Nine months

 ended

 May 31, 2014














Net earnings (loss) for the period


$

563


$

2,975


$

1,665


$

(421)

Other comprehensive income (loss), net of income taxes













Items that will not be reclassified subsequently to net earnings














Foreign currency translation adjustment



802



(29,499)



4,736



(6,792)

Items that may be reclassified subsequently to net earnings














Unrealized losses on forward exchange contracts



38



(4,164)



835



(694)


Reclassification of realized losses on forward exchange contracts in net earnings (loss)



938



1,438



391



756


Deferred income tax effect of losses on forward exchange contracts



(270)



725



(328)



(16)

Other comprehensive income (loss)



1,508



(31,500)



5,634



(6,746)














Comprehensive income (loss) for the period


$

2,071


$

(28,525)


$

7,299


$

(7,167)

 


EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity


(in thousands of US dollars)




Nine months ended May 31, 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



225









225

Redemption of share capital



(831)



(106)







(937)

Reclassification of stock-based compensation costs



2,260



(2,260)







Stock-based compensation costs





1,261







1,261

Net loss for the period







(421)





(421)

Other comprehensive income (loss)

















Foreign currency translation adjustment









(6,792)



(6,792)


Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $16









46



46

















Total comprehensive loss for the period















(7,167)

















Balance as at May 31, 2014


$

111,491


$

16,081


$

112,431


$

(10,169)


$

229,834






Nine months ended May 31, 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



(26,396)



1,222







(25,174)

Reclassification of stock-based compensation costs



1,376



(1,376)







Stock-based compensation costs





1,175







1,175

Net earnings for the period







2,975





2,975

Other comprehensive loss

















Foreign currency translation adjustment









(29,499)



(29,499)


Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $725









(2,001)



(2,001)

















Total comprehensive loss for the period















(28,525)

















Balance as at May 31, 2015


$

86,471


$

17,524


$

116,610


$

(41,759)


$

178,846

 


 


EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows


(in thousands of US dollars)




Three months

 ended

 May 31, 2015


Nine months

 ended

 May 31, 2015


Three months

 ended

 May 31, 2014


Nine months

ended

May 31, 2014














Cash flows from operating activities













Net earnings (loss) for the period


$

563


$

2,975


$

1,665


$

(421)

Add (deduct) items not affecting cash














Stock-based compensation costs



374



1,162



407



1,272


Depreciation and amortization



1,607



6,225



2,244



7,018


Deferred revenue



854



1,358



209



(519)


Deferred income taxes



542



199



1,147



1,448


Changes in foreign exchange gain/loss



(77)



(2,875)



378



(523)




3,863



9,044



6,050



8,275

Changes in non-cash operating items














Accounts receivable



(6,494)



(7,811)



(8,208)



(3,683)


Income taxes and tax credits



(541)



(1,964)



(759)



(1,702)


Inventories



950



(983)



727



(2,806)


Prepaid expenses



(374)



(875)



492



(124)


Other assets



30



29



53



19


Accounts payable, accrued liabilities and provisions



1,334



8,994



4,565



9,956


Other liabilities



(30)



(62)



(35)



(78)




(1,262)



6,372



2,885



9,857

Cash flows from investing activities













Additions to short-term investments





(19,509)



(9,821)



(24,392)

Proceeds from disposal and maturity of short-term investments



1,619



23,685



9,244



23,806

Additions to capital assets



(1,826)



(4,625)



(2,750)



(5,146)




(207)



(449)



(3,327)



(5,732)

Cash flows from financing activities













Repayment of long-term debt









(307)

Exercise of stock options







30



225

Redemption of share capital



(71)



(25,174)





(937)




(71)



(25,174)



30



(1,019)

Effect of foreign exchange rate changes on cash



78



(5,975)



771



(1,069)














Change in cash



(1,462)



(25,226)



359



2,037

Cash – Beginning of the period



30,357



54,121



47,064



45,386














Cash – End of the period


$

28,895


$

28,895


$

47,423


$

47,423














Supplementary information













Income taxes paid


$

350


$

1,174


$

271


$

1,142

Additions to capital assets


$

1,700


$

4,638


$

2,734


$

5,414

 

SOURCE EXFO inc.

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

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