EXFO
$5.95
Exfo
$.20
3.48%
Earnings Details
2nd Quarter February 2017
Wednesday, March 29, 2017 4:08:00 PM
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Summary

EXFO Guides Below Estimates

Exfo (EXFO) reported 2nd Quarter February 2017 earnings of $0.04 per share on revenue of $60.0 million. The consensus earnings estimate was $0.04 per share on revenue of $60.3 million. Revenue grew 12.0% on a year-over-year basis.

The company said it expects third quarter results to range from breakeven to earnings of $0.04 per share, excluding items of $0.02 per share, on revenue of $58.0 million to $63.0 million. The current consensus earnings estimate is $0.06 per share on revenue of $63.3 million for the quarter ending May 31, 2017.

EXFO Inc and its subsidiaries designs, manufactures and market test, service assurance and quality of experience solutions for wireless and wireline network operators and equipment manufacturers in the telecommunications industry.

Results
Reported Earnings
$0.04
Earnings Whisper
-
Consensus Estimate
$0.04
Reported Revenue
$60.0 Mil
Revenue Estimate
$60.3 Mil
Growth
Earnings Growth
Revenue Growth
Guidance
Power Rating
Grade
Earnings Release

EXFO Reports Second-Quarter Results for Fiscal 2017

Sales increase 12.0% year-over-year to US$60.0 million

-- Adjusted EBITDA reaches US$4.9 million, or 8.1% of sales

-- Cash flows from operating activities total US$14.4 million

EXFO Inc. (EXFO) (TSX: EXF), the global network test, data and analytics experts, reported today financial results for the second quarter ended February 28, 2017.

Sales reached US$60.0 million in the second quarter of fiscal 2017 compared to US$53.6 million in the second quarter of 2016 and US$61.8 million in the first quarter of 2017. At the halfway mark of fiscal 2017, sales increased 11.9% year-over-year to US$121.8 million.

Bookings attained US$55.9 million in the second quarter of fiscal 2017 compared to US$59.7 million in the same period last year and US$65.9 million in the first quarter of 2017. The company’s book-to-bill ratio was 0.93 in the second quarter of 2017 and 1.00 at the half-way point of 2017, leading to year-over-year bookings growth of 3.0% after two quarters.

Gross margin before depreciation and amortization* amounted to 61.7% of sales in the second quarter of fiscal 2017 compared to 64.7% in the second quarter of 2016 and 63.1% in the first quarter of 2017. After six months into fiscal 2017, gross margin accounted for 62.4% of sales.

IFRS net earnings in the second quarter of fiscal 2017 totaled US$1.0 million, or US$0.02 per diluted share, compared US$4.0 million, or US$0.07 per diluted share, in the same period last year and US$3.3 million, or US$0.06 per diluted share, in the first quarter of 2017. IFRS net earnings in the second quarter of 2017 included US$0.6 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and a foreign exchange loss of US$0.3 million. IFRS net earnings totaled US$4.3 million in the first half of fiscal 2017 compared to US$5.7 million in the first half of 2016. IFRS net earnings in the first half of 2017 included a foreign exchange gain of US$0.2 million compared to a foreign exchange gain of US$1.4 million in the first half of 2016.

Adjusted EBITDA* totaled US$4.9 million, or 8.1% of sales, in the second quarter of fiscal 2017 compared to US$5.3 million, or 9.9% of sales, in the second quarter of 2016 and US$6.3 million, or 10.2% of sales, in the first quarter of 2017. At the halfway point of fiscal 2017, adjusted EBITDA totaled US$11.2 million, or 9.2% of sales, compared to US$10.6 million, or 9.7% of sales, in the first half of 2016.

EXFO generated US$14.4 million in cash flows from operating activities in the second quarter of fiscal 2017 and closed the quarter with a cash position of US$52.4 million and no debt.

Following the quarter-end, EXFO acquired Ontology Systems, a technology leader in real-time network topology discovery and service-chain mapping, for a consideration of US$7.6 million, net of cash, plus an earnout based on future sales.

"I am particularly pleased we delivered double-digit, year-over-year revenue growth for a third consecutive quarter, even though bookings were softer than anticipated due to delays in new calendar year budget approvals and deal pushouts," said Germain Lamonde, EXFO’s Founder, Chairman and CEO. "We delivered strong sales growth in the optical and 100 Gbit/s transport markets, both in the field and lab, and continued strengthening our leadership position with major product launches in the 200 Gbit/s and 400 Gbit/s test segments at the recent Optical Fiber Conference. Earlier at Mobile World Congress, we announced the acquisition of Ontology Systems’ automated network topology discovery technology and the introduction of accurate, one-way latency monitoring capabilities. Once combined with our 3D analytics platform, these technologies will significantly enhance our real-time monitoring of VoWiFi, OTT video and VoIP services over hybrid physical-virtual networks and strengthen our positioning in the strategic NFV/SDN, 5G and IoT markets."

Selected Financial Information
(In thousands of US dollars)
Q2 2017
Q1 2017
Q2 2016
Physical-layer sales
$
38,038
$
42,016
$
32,582
Protocol-layer sales
22,097
20,009
21,990
Foreign exchange losses on forward exchange contracts
(105)
(240)
(975)
Total sales
$
60,030
$
61,785
$
53,597
Physical-layer bookings
$
34,031
$
44,090
$
34,874
Protocol-layer bookings
21,992
22,009
25,804
Foreign exchange losses on forward exchange contracts
(105)
(240)
(975)
Total bookings
$
55,918
$
65,859
$
59,703
Book-to-bill ratio (bookings/sales)
0.93
1.07
1.11
Gross margin before depreciation and amortization*
$
37,041
$
38,972
$
34,693
61.7%
63.1%
64.7%
Other selected information:
IFRS net earnings
$
1,008
$
3,303
$
3,963
Amortization of intangible assets
$
768
$
427
$
286
Stock-based compensation costs
$
353
$
258
$
314
Net income tax effect of the above items $
(162)
$
(64)
$
(30)
Foreign exchange (gain) loss
$
272
$
(512)
$
(1,101)
Adjusted EBITDA*
$
4,875
$
6,321
$
5,280

Operating Expenses Selling and administrative expenses totaled US$21.3 million, or 35.4% of sales in the second quarter of fiscal 2017 compared to US$19.6 million, or 36.5% of sales, in the same period last year and US$21.6 million, or 35.0% of sales, in the first quarter of 2017.

Net R&D expenses totaled US$11.3 million, or 18.8% of sales, in the second quarter of fiscal 2017 compared to US$10.2 million, or 19.0% of sales, in the second quarter of 2016 and US$11.3 million, or 18.3% of sales, in the first quarter of 2017.

Second-Quarter and First-Half Highlights

Sales and bookings. EXFO experienced strong demand for its optical and high-speed transport test solutions, mainly in the Americas, and continued traction of its LTB-8 rackmount platform for lab and manufacturing floor applications in the second quarter of 2017. Bookings decreased 6.3% year-over-year in the second quarter primarily because the company had secured two large monitoring and analytics orders in the second quarter of 2016, but witnessed delays in network operator budget releases and deal approvals in the most recent quarter. In the first half of 2017, bookings improved 3.0% year-over-year. In terms of segmented sales, Physical-layer sales surged 16.7% year-over-year in the second quarter of 2017, while Protocol-layer sales were flat. On a geographical basis, sales increased 14.5% year-over in the Americas, 12.4% in EMEA and 6.1% in Asia Pacific. Revenue distribution among these three regions in the second quarter amounted to 50% from the Americas, 29% from EMEA and 21% from Asia-Pacific. EXFO’s top customer accounted for 10.0% of sales in the second quarter and 12.0% of sales in the first half of 2017, while the top three customers represented 16.6% and 19.2% of sales, respectively.

Profitability. EXFO generated adjusted EBITDA of US$4.9 million, or 8.1% of sales, in the second quarter of 2017 and US$11.2 million, or 9.2% of sales, after six months into fiscal 2017. EXFO also delivered US$14.4 million in cash flows from operating activities in the second quarter of 2017 to raise its cash position to US$52.4 million at the quarter end.

Innovation. EXFO launched several new products during the second quarter and following the quarter-end while taking part in two key industry events: Mobile World Congress and Optical Fiber Conference. Major product introductions included a 400 Gbit/s optical transport test solution, 200 Gbit/s optical spectrum analyzer and FTB-4 test platform--all focused on optical high-speed networking applications in the lab and field; an automated inspection probe for testing multifiber connectors in data centers and radio access networks (RANs); optical RF over OBSAI (open base station architecture initiative) link test capabilities to complement recently acquired optical RF over CPRI (common public radio interface) test technology for C-RAN deployments; and the company integrated Ookla’s Speedtest technology into its MaxTester residential broadband test solution. Finally, EXFO received Frost & Sullivan’s Market Share Leadership Award for the sixth consecutive year by building on its No. 1 position in the portable fiber-optic test equipment market.

Business Outlook EXFO forecasts sales between US$58.0 million and US$63.0 million for the third quarter of fiscal 2017, while IFRS net results are expected to range between a loss of US$0.02 per share and earnings of US$0.02 per share. IFRS net results include US$0.02 per share in after-tax amortization of intangible assets and stock-based compensation costs as well as an anticipated foreign exchange gain of US$0.01 per share.

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 2017. To listen to the conference call and participate in the question period via telephone, dial 1-719-457-1036. Please take note the following participant passcode will be required: 6277231. Germain Lamonde, Executive Chairman, Philippe Morin, Chief Operating Officer, 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 8:00 p.m. on April 5, 2017. The replay number is 1-719-457-0820 and the required participant passcode is 6277231. 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 develops smarter network test, data and analytics solutions for the world’s leading communications service providers, network equipment manufacturers and web-scale companies. Since 1985, we’ve worked side by side with our clients in the lab, field, data center, boardroom and beyond to pioneer essential technology and methods for each phase of the network lifecycle. Our portfolio of test orchestration and real-time 3D analytics solutions turn complex into simple and deliver business-critical insights from the network, service and subscriber dimensions. Most importantly, we help our clients flourish in a rapidly transforming industry where "good enough" testing and data analytics just isn’t good enough anymore--it never was for us, anyway. For more information, visit 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 or loss.

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

Adjusted EBITDA
Q2 2017
Q1 2017
Q2 2016
IFRS net earnings for the period
$
1,008
$
3,303
$
3,963
Add (deduct):
Depreciation of property, plant and equipment 962
903
924
Amortization of intangible assets
768
427
286
Interest (income) expense
(9)
(20)
(470)
Income taxes
1,521
1,962
1,364
Stock-based compensation costs
353
258
314
Foreign exchange (gain) loss
272
(512)
(1,101)
Adjusted EBITDA for the period
$
4,875
$
6,321
$
5,280
Adjusted EBITDA in percentage of sales
8.1%
10.2%
9.9%
EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
As at
As at
February 28,
August 31,
2017
2016
Assets
Current assets
Cash
$
48,343
$
43,208
Short-term investments
4,074
4,087
Accounts receivable
Trade
36,818
42,993
Other
5,435
2,474
Income taxes and tax credits recoverable
4,131
4,208
Inventories
33,039
33,004
Prepaid expenses
2,971
3,099
134,811
133,073
Tax credits recoverable
34,159
34,594
Property, plant and equipment
36,843
35,978
Intangible assets
7,034
3,391
Goodwill
26,094
21,928
Deferred income tax assets
7,078
8,240
Other assets
435
589
$
246,454
$
237,793
Liabilities
Current liabilities
Accounts payable and accrued liabilities
$
37,803
$
37,174
Provisions
258
299
Income taxes payable
545
971
Deferred revenue
11,335
9,486
49,941
47,930
Deferred revenue
6,433
5,530
Deferred income tax liabilities
2,441
2,857
Other liabilities
30
75
58,845
56,392
Shareholders’ equity
Share capital
89,841
85,516
Contributed surplus
17,843
18,150
Retained earnings
130,620
126,309
Accumulated other comprehensive loss
(50,695)
(48,574)
187,609
181,401
$
246,454
$
237,793
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
Three months
Six months
Three months
Six months
ended
ended
ended
ended
February 28,
February 28,
February 29,
February 29,
2017
2017
2016
2016
Sales
$
60,030
$
121,815
$
53,597
$
108,829
Cost of sales (1)
22,989
45,802
18,904
39,041
Selling and administrative
21,255
42,850
19,565
39,817
Net research and development
11,264
22,578
10,162
20,095
Depreciation of property, plant and equipment
962
1,865
924
1,899
Amortization of intangible assets
768
1,195
286
586
Interest and other income
(9)
(29)
(470)
(407)
Foreign exchange (gain) loss
272
(240)
(1,101)
(1,411)
Earnings before income taxes
2,529
7,794
5,327
9,209
Income taxes
1,521
3,483
1,364
3,480
Net earnings for the period
$
1,008
$
4,311
$
3,963
$
5,729
Basic net earnings per share
$
0.02
$
0.08
$
0.07
$
0.11
Diluted net earnings per share
$
0.02
$
0.08
$
0.07
$
0.10
Basic weighted average number of shares outstanding (000’s)
54,506
54,195
53,927
53,870
Diluted weighted average number of shares outstanding (000’s)
55,681
55,341
54,615
54,575
(1) The cost of sales is exclusive of depreciation and amortization, shown separately.
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Comprehensive Income
(in thousands of US dollars)
Three months
Six months
Three months
Six months
ended
ended
ended
ended
February 28,
February 28,
February 29,
February 29,
2017
2017
2016
2016
Net earnings for the period
$
1,008
$
4,311
$
3,963
$
5,729
Other comprehensive income (loss), net of income taxes
Items that will not be reclassified subsequently to net earnings
Foreign currency translation adjustment
2,019
(2,198)
(2,204)
(4,713)
Items that may be reclassified subsequently to net earnings
Unrealized gains/losses on forward exchange contracts
326
(235)
50
(220)
Reclassification of realized gains/losses on forward exchange contracts in net earnings
139
320
839
1,717
Deferred income tax effect of gains (losses) on forward exchange contracts
(100)
(8)
(242)
(390)
Other comprehensive income (loss)
2,384
(2,121)
(1,557)
(3,606)
Comprehensive income for the period
$
3,392
$
2,190
$
2,406
$
2,123
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders’ Equity
(in thousands of US dollars)
Six months ended February 29, 2016
Share
Contributed surplus
Retained earnings
Accumulated
Total
capital
other
shareholders’ equity
comprehensive
loss
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 income for the period
2,123
Balance as at February 29, 2016
$
87,031
$
17,286
$
124,662
$
(55,611)
$
173,368
Six months ended February 28, 2017
Share
Contributed surplus
Retained earnings
Accumulated
Total
capital
other
shareholders’ equity
comprehensive
loss
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
835
(835)
-
-
-
Stock-based compensation costs
-
528
-
-
528
Net earnings for the period
-
-
4,311
-
4,311
Other comprehensive income (loss)
Foreign currency translation adjustment
-
-
-
(2,198)
(2,198)
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $8
-
-
-
77
77
Total comprehensive income for the period
2,190
Balance as at February 28, 2017
$
89,841
$
17,843
$
130,620
$
(50,695)
$
187,609
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
Three months
Six months
Three months
Six months
ended
ended
ended
ended
February 28,
February 28,
February 29,
February 29,
2017
2017
2016
2016
Cash flows from operating activities
Net earnings for the period
$
1,008
$
4,311
$
3,963
$
5,729
Add (deduct) items not affecting cash
Stock-based compensation costs
353
611
314
690
Depreciation and amortization
1,730
3,060
1,210
2,485
Deferred revenue
3,022
2,947
2,162
3,673
Deferred income taxes
312
459
101
674
Changes in foreign exchange gain/loss
107
(431)
(615)
(959)
6,532
10,957
7,135
12,292
Changes in non-cash operating items
Accounts receivable
5,160
2,602
11,305
9,281
Income taxes and tax credits
(46)
(390)
1,211
933
Inventories
924
(324)
(2,642)
(5,868)
Prepaid expenses
(156)
102
(20)
34
Other assets
(37)
(24)
10
203
Accounts payable, accrued liabilities and provisions
2,011
586
(1,644)
1,731
Other liabilities
1
1
(26)
(54)
14,389
13,510
15,329
18,552
Cash flows from investing activities
Additions to short-term investments
(20)
(316)
-
(21)
Proceeds from disposal and maturity of short-term investments
298
298
501
501
Purchases capital assets
(1,656)
(2,893)
(927)
(2,236)
Business combination
-
(5,000)
-
-
(1,378)
(7,911)
(426)
(1,756)
Cash flows from financing activities
Bank loan
-
-
153
468
Redemption of share capital
-
-
(186)
(187)
-
-
(33)
281
Effect of foreign exchange rate changes on cash
271
(464)
674
477
Change in cash
13,282
5,135
15,544
17,554
Cash - Beginning of the period
35,061
43,208
27,874
25,864
Cash - End of the period
$
48,343
$
48,343
$
43,418
$
43,418
Supplementary information
Income taxes paid
$
603
$
1,561
$
508
$
1,116
Additions to capital assets
$
2,483
$
3,662
$
1,066
$
2,375

EXFO-F

SOURCE EXFO inc.

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