EXFO
$4.30
Exfo
Earnings Details
1st Quarter November 2017
Tuesday, January 9, 2018 4:05:00 PM
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Summary

EXFO Guides In-line

Exfo (EXFO) reported 1st Quarter November 2017 earnings of $0.06 per share on revenue of $63.4 million. The consensus earnings estimate was $0.05 per share on revenue of $62.8 million. Revenue grew 2.6% on a year-over-year basis.

The company said it expects second quarter earnings of $0.02 to $0.06 per share, excluding items totaling $0.10 per share, on revenue of $59.0 million to $64.0 million. The current consensus earnings estimate is $0.05 per share on revenue of $60.0 million for the quarter ending February 28, 2018.

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
$0.06
Earnings Whisper
-
Consensus Estimate
$0.05
Reported Revenue
$63.4 Mil
Revenue Estimate
$62.8 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

EXFO reports first-quarter results for fiscal 2018

--
Sales total US$63.4 million, above midpoint of guidance range
--
Bookings attain US$65.9 million, book-to-bill ratio of 1.04
--
Gross margin improves to 63.3% of sales
--
Adjusted EBITDA reaches US$6.1 million, 9.6% of sales

EXFO Inc. (EXFO) (TSX: EXF) reported today financial results for the first quarter ended November 30, 2017.

Sales reached US$63.4 million in the first quarter of fiscal 2018 compared to US$61.8 million in the first quarter of 2017 and US$63.0 million in the fourth quarter of 2017.

Bookings attained US$65.9 million in the first quarter of fiscal 2018 compared to US$65.9 million in the same period last year and US$66.3 million in the fourth quarter of 2017. The company's book-to-bill ratio was 1.04 in the first quarter of 2018.

Gross margin before depreciation and amortization(*) amounted to 63.3% of sales in the first quarter of fiscal 2018 compared to 63.1% in the first quarter of 2017 and 61.9% in the fourth quarter of 2017.

IFRS net earnings in the first quarter of fiscal 2018 totaled US$2.7 million, or US$0.05 per diluted share, compared US$3.3 million, or US$0.06 per diluted share, in the same period last year and US$0.8 million, or US$0.02 per diluted share, in the fourth quarter of 2017. IFRS net earnings in the first quarter of 2018 included US$0.9 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs, US$0.2 million for the positive change of the fair value of the cash contingent consideration related to the Ontology Systems acquisition, US$0.8 million in after-tax acquisition-related costs and a foreign exchange gain of US$1.2 million.

Adjusted EBITDA(*) totaled US$6.1 million, or 9.6% of sales, in the first quarter of fiscal 2018 compared to US$6.3 million, or 10.2% of sales, in the first quarter of 2017 and US$8.5 million, or 13.6% of sales, in the fourth quarter of 2017.

In the first quarter of fiscal 2018, EXFO acquired a 33.1% stake in France-based Astellia, a leading provider of network and subscriber intelligence for mobile network operators, for a cash consideration of US$10.3 million with the intent to purchase the remaining equity through a public tender offer that opened on December 15, 2017 and is scheduled to close on January 23, 2018. In late December, EXFO increased its investment in Astellia to 40.3% of the total shares outstanding by acquiring an additional 7.2% off-market for a cash consideration of US$2.2 million. The entirety of Astellia's equity is valued at approximately US$30.3 million.

EXFO also closed the acquisition of Yenista Optics, a supplier of complementary high-end optical test instruments for the lab and manufacturing markets, in the first quarter of 2018 for a total cash consideration of US$9.5 million, net of cash acquired. At the end of the first quarter of 2018, EXFO held a cash position of US$19.5 million.

Following the quarter-end, EXFO increased its credit facilities to C$70.0 million (US$54.3 million) and US$9.0 million. The new credit facilities will be used to finance the acquisition of Astellia's remaining equity as well as working capital and general corporate purposes.

"EXFO has gotten off to a running start in the first quarter of 2018 with sales above the midpoint of our guidance and strong earnings results," said EXFO's CEO Philippe Morin. "We leveraged the ongoing 100G optical investment cycle as fiber is being rolled out closer to the network edge and inside data centers, while benefiting from revenue contributions of recently acquired businesses. We are looking forward to close our public tender offer of Astellia's shares in the not-too-distant future in order to significantly increase our scale and market position in the global telecom service assurance and analytics industry."

Selected Financial Information
(In thousands of US dollars)
Q1 2018
Q4 2017 Q1 2017
Physical-layer sales
$42,513
$40,802
$42,016
Protocol-layer sales
20,641
22,122
20,009
Foreign exchange gains (losses) on forward
exchange contracts
237
57
(240)
Total sales
$63,391
$62,981
$61,785
Physical-layer bookings
$48,352
$39,322
$44,090
Protocol-layer bookings
17,290
26,943
22,009
Foreign exchange gains (losses) on forward
exchange contracts
237
57
(240)
Total bookings
$65,879
$66,322
$65,859
Book-to-bill ratio (bookings/sales)
1.04
1.05
1.07
Gross margin before
depreciation and
amortization*
$40,102
$39,009
$38,972
63.3%
61.9%
63.1%
Other selected information:
IFRS net earnings
$2,679
$844
$3,303
Amortization of intangible assets
$1,119
$1,048
$427
Stock-based compensation costs
$402
$431
$258
Restructuring charges
$
?
$1,266
$
?
Changes in fair value of cash
contingent consideration
$(155)
$(383)
$
?
Net income tax effect of the above
items
$(172)
$(275)
$(64)
Foreign exchange (gain) loss
$(1,218)
$2,943
$(512)
Adjusted EBITDA*
$6,059
$8,545
$6,321

Operating ExpensesSelling and administrative expenses totaled US$23.2 million, or 36.6% of sales in the first quarter of fiscal 2018 compared to US$21.6 million, or 35.0% of sales, in the same period last year and US$20.8 million, or 33.1% of sales, in the fourth quarter of 2017. Selling and administrative expenses in the first quarter of 2018 included US$0.8 million in acquisition-related costs as well as three months' impact of Ontology Systems expenses and two months of Yenista Optics.

Net R&D expenses totaled US$11.3 million, or 17.8% of sales, in the first quarter of fiscal 2018 compared to US$11.3 million, or 18.3% of sales, in the first quarter of 2017 and US$11.3 million, or 17.9% of sales, in the fourth quarter of 2017. Net R&D expenses in the first quarter of 2018 included three months' impact of Ontology Systems expenses and two months of Yenista Optics.

First-Quarter Highlights

--
Sales. Sales increased 2.6% year-over-year mainly due to the
ongoing 100G optical investment cycle as well as the positive
impact of the recent Yenista Optics and Ontology Systems
acquisitions. Physical-layer sales accounted for 67% of total
revenue in the first quarter of 2018, while Protocol-layer
sales totaled 33%. Revenue distribution among the three main
selling regions in the first quarter amounted to 53% in the
Americas, 23% in Europe, Middle East and Africa (EMEA) and 24%
in Asia-Pacific. EXFO’s top customer accounted for 13.8% of
sales, while the top three represented 21.6%.
--
Profitability. EXFO generated adjusted EBITDA of US$6.1
million, or 9.6% of sales, in the first quarter of 2018
compared to US$6.3 million, or 10.2% of sales, in the first
quarter of 2017. The company also delivered US$2.4 million in
cash flows from operating activities in the first quarter of
2018.
--
Innovation. EXFO launched four new products or major
enhancements in the first quarter of fiscal 2018 including EX1,
a multipurpose test solution for validating bandwidth speed up
to full line rate Gigabit Ethernet and for monitoring quality
of experience at customer premises; a compact 400G test
solution for network equipment manufacturers, carrier labs and
data centers; an optical spectrum analyzer delivering
in-service optical signal-to-noise ratio (OSNR) measurements
for networks up to 400G; and a power meter that automatically
detects and adapts test parameters for passive optical network
(PON) technology in use at customer premises.

Business OutlookEXFO forecasts sales between US$59.0 million and US$64.0 million for the second quarter of fiscal 2018, while IFRS net loss is expected to range between US$0.08 and US$0.04 per share. IFRS net loss includes US$0.02 per share in after-tax amortization of intangible assets and stock-based compensation costs, US$0.03 per share for acquisition expenses related to the Astellia transaction, US$0.03 per share to account for the effects of the new US tax reform on EXFO's deferred US tax assets, and an anticipated foreign exchange loss of US$0.02 per share.

This guidance, which excludes financial results of the pending Astellia acquisition to be accounted by EXFO, was established by management based on existing backlog as of the date of this news release, seasonality, expected bookings for the remaining of the quarter, as well as exchange rates as of the day of this news release.

Conference Call and WebcastEXFO will host a conference call today at 5 p.m. (Eastern time) to review first-quarter results for fiscal 2018. To listen to the conference call and participate in the question period via telephone, dial 1-323-794-2551. Please take note the following participant passcode will be required: 1612195. Executive Chairman Germain Lamonde, CEO Philippe Morin and Pierre Plamondon, CPA, Chief Financial Officer and Vice-President of Finance, will participate in the call. An audio replay of the conference call will be available two hours after the event until 8 p.m. on January 16, 2018. The replay number is 1-719-457-0820 and the participant passcode is 1612195. 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 EXFOEXFO develops smarter network test, monitoring and analytics solutions for the world's leading communications service providers, network equipment manufacturers and webscale companies. Since 1985, we've worked side by side with our customers 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 customers flourish in a rapidly transforming industry where "good enough" testing, monitoring and analytics just aren't good enough anymore--they never were for us, anyway. For more information, visit EXFO.com and follow us on the EXFO Blog.

Forward-Looking StatementsThis 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; our ability to successfully integrate businesses that we acquire; 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; 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 MeasuresEXFO 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, restructuring charges, change in the fair value of cash contingent consideration 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
Q1 2018
Q4 2017 Q1 2017
IFRS net earnings for
the period
$2,679
$884
$3,303
Add (deduct):
Depreciation
1,154
1,008
903
Amortization
1,119
1,048
427
Interest and other
(income) expense
338
275
(20)
Income taxes
1,740
1,113
1,962
Stock-based
compensation costs
402
431
258
Restructuring charges
?
1,266
?
Change in fair value of
cash contingent
consideration
(155)
(383)
?
Foreign exchange (gain)
loss
(1,218)
2,943
(512)
Adjusted EBITDA for the
period
$6,059
$8,545
$6,321
Adjusted EBITDA in
percentage of sales
9.6%
13.6%
10.2%
EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
As at
As at
November 30,
August 31,
2017
2017
Assets
Current assets
Cash
$18,451
$38,435
Short-term
investments
1,004
775
Accounts
receivable
Trade
39,784
41,130
Other
4,082
3,907
Income taxes and
tax credits
recoverable
4,664
4,955
Inventories
37,164
33,832
Prepaid expenses
3,946
4,202
109,095
127,236
Tax credits
recoverable
38,245
38,111
Property, plant
and equipment
41,253
40,132
Investment in an
associate
9,706
?
Intangible assets
14,403
11,183
Goodwill
39,204
35,077
Deferred income
tax assets
6,599
6,555
Other assets
573
947
$259,078
$259,241
Liabilities
Current
liabilities
Accounts
payable
and
accrued
liabilities
$38,444
$36,776
Provisions
1,445
3,889
Income taxes
payable
748
663
Deferred revenue
10,590
11,554
Current portion
of long-term
debt
510
?
51,737
52,882
Deferred revenue
5,978
6,257
Long-term debt
1,595
?
Deferred income
tax liabilities
4,317
3,116
Other liabilities
374
196
64,001
62,451
Shareholders'
equity
Share capital
91,009
90,411
Contributed
surplus
18,016
18,184
Retained earnings
129,839
127,160
Accumulated other
comprehensive
loss
(43,787)
(38,965)
195,077
196,790
$259,078
$259,241
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,
2017
2016
Sales
$63,391
$61,785
Cost of sales (1)
23,289
22,813
Selling and administrative
23,193
21,595
Net research and development
11,252
11,314
Depreciation of property, plant
and equipment
1,154
903
Amortization of intangible
assets
1,119
427
Change in fair value of cash
contingent consideration
(155)
?
Interest and other (income)
expense
338
(20)
Foreign exchange gain
(1,218)
(512)
Earnings before income taxes
4,419
5,265
Income taxes
1,740
1,962
Net earnings for the
period
$2,679
$3,303
Basic and diluted net
earnings per share
$0.05
$0.06
Basic weighted average number of
shares outstanding (000's)
54,805
53,884
Diluted weighted average number
of shares outstanding (000's)
55,793
55,001
(1)
The cost of sales is exclusive
of depreciation and
amortization, shown separately.
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Comprehensive Loss
(in thousands of US dollars)
Three months ended
November 30,
2017
2016
Net earnings for the period
$2,679
$3,303
Other comprehensive income (loss), net of
income taxes
Items that will not be reclassified
subsequently to net earnings
Foreign currency translation
adjustment
(4,130)
(4,217)
Items that may be reclassified
subsequently to net earnings
Unrealized gains/losses on forward
exchange contracts
(524)
(561)
Reclassification of realized gains/
losses on forward exchange contracts
in net earnings
(383)
181
Deferred income tax effect of gains/
losses on forward exchange contracts
215
92
Other comprehensive loss
(4,822)
(4,505)
Comprehensive loss for the
period
$(2,143)
$(1,202)
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
Three months ended November 30, 2016
Share
Contributed
Retained
surplus
earnings
Accumulated
Total
other
capital
comprehensive
shareholders'
equity
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
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
Three months ended November 30, 2017
Share
Contributed
Retained
surplus
earnings
Accumulated
Total
other
capital
comprehensive
shareholders'
equity
loss
Balance as at September 1,
2017
$90,411
$18,184
$127,160
$(38,965)
$196,790
Reclassification of stock-based
compensation costs
598
(598)
?
?
?
Stock-based compensation costs
?
430
?
?
430
Net earnings for the period
?
?
2,679
?
2,679
Other comprehensive loss
Foreign currency translation
adjustment
?
?
?
(4,130)
(4,130)
Changes in unrealized gains/
losses on forward exchange
contracts, net of deferred
income taxes of $215
?
?
?
(692)
(692)
Total comprehensive loss for the
period
(2,143)
Balance as at November 30,
2017
$91,009
$18,016
$129,839
$(43,787)
$195,077
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
Three months ended
November 30,
2017
2016
Cash flows from operating activities
Net earnings for the period
$2,679
$3,303
Add (deduct) items not affecting cash
Stock-based compensation costs
402
258
Depreciation and amortization
2,273
1,330
Write-off of capital assets
124
?
Change in fair value of cash
contingent consideration
(155)
?
Deferred revenue
(782)
(75)
Deferred income taxes
(240)
147
Changes in foreign exchange gain/
loss
(247)
(538)
4,054
4,425
Changes in non-cash operating items
Accounts receivable
1,085
(2,558)
Income taxes and tax credits
59
(344)
Inventories
(1,953)
(1,248)
Prepaid expenses
318
258
Other assets
4
13
Accounts payable, accrued
liabilities and provisions
(1,369)
(1,425)
Other liabilities
188
?
2,386
(879)
Cash flows from investing activities
Additions to short-term investments
(234)
(296)
Purchases of capital assets
(1,991)
(1,237)
Investment in an associate
(10,311)
?
Business combination, net of cash
acquired
(9,540)
(5,000)
(22,076)
(6,533)
Cash flows from financing activities
Bank loan
2
?
Repayment of long-term debt
(70)
?
(68)
?
Effect of foreign exchange rate changes
on cash
(226)
(735)
Change in cash
(19,984)
(8,147)
Cash - Beginning of the period
38,435
43,208
Cash - End of the period
$18,451
$35,061
Supplementary information
Income taxes paid
$682
$958

EXFO-F

SOURCE EXFO inc.

View original content: http://www.newswire.ca/en/releases/archive/January2018/09/c3710.html

SOURCE: EXFO inc.

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