EXFO
$3.95
Exfo
Earnings Details
3rd Quarter May 2018
Tuesday, July 10, 2018 4:20:00 PM
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Summary

EXFO Sees Revenue Below Estimates

Exfo (EXFO) reported a 3rd Quarter May 2018 loss of $0.02 per share on revenue of $72.2 million. The consensus estimate was a loss of $0.07 per share on revenue of $70.4 million. Revenue grew 23.4% on a year-over-year basis.

The company said it expects fourth quarter earnings of $0.05 to $0.09 per share, excluding items of $0.10 per share, on revenue of $68.0 million to $73.0 million. The current consensus earnings estimate is $0.09 per share on revenue of $75.4 million for the quarter ending August 31, 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
($0.02)
Earnings Whisper
-
Consensus Estimate
($0.07)
Reported Revenue
$72.2 Mil
Revenue Estimate
$70.4 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

EXFO reports third quarter results for fiscal 2018

  • Sales increase 23.4% to US$72.2 million, including US$8.6 million from Astellia
  • Bookings improve 14.8% to US$73.1 million, including US$7.6 million from Astellia
  • Cash flows from operations total US$4.7 million

QUEBEC CITY, July 10, 2018 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the third quarter ended May 31, 2018.

IFRS sales, which included a US$8.6 million contribution from recently acquired Astellia, increased 23.4% to US$72.2 million in the third quarter of fiscal 2018 from US$58.5 million in the third quarter of 2017. Astellia's sales were reduced by US$0.9 million to account for acquisition-related fair value adjustment of deferred revenue.

Bookings, which included a US$7.6 million contribution from Astellia, improved 14.8% year-over-year to US$73.1 million in the third quarter of fiscal 2018 from US$63.7 million in the same period of 2017. The company's book-to-bill ratio was 1.01 in the third quarter of 2018.

Gross margin before depreciation and amortization* amounted to 59.9% of sales in the third quarter of fiscal 2018 compared to 58.0% in the third quarter of 2017.

IFRS net loss in the third quarter of fiscal 2018 totaled US$6.0 million, or US$0.11 per share, compared to US$4.3 million, or US$0.08 per share, in the third quarter of 2017. IFRS net loss in the third quarter of 2018 included US$4.1 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs, US$0.9 million for acquisition-related fair value adjustment of deferred revenue and a foreign exchange gain of US$0.2 million.

Adjusted EBITDA* totaled US$2.5 million, or 3.5% of sales, in the third quarter of fiscal 2018 compared to US$2.3 million, or 3.9% of sales, in the third quarter of 2017.

"I am pleased our organic business and newly acquired Astellia delivered healthy growth in the third quarter and after nine months into fiscal 2018," said Philippe Morin, EXFO's Chief Executive Officer. "This solid execution across the combined organization demonstrates that EXFO is on the right path to profitable growth. Looking ahead, we are strategically transforming our monitoring and analytics business to offer a highly differentiated solution as the communications industry migrates to NFV and 5G architectures."

 

Selected Financial Information

(In thousands of US dollars)










Three months

ended

May 31, 2018


Three months

ended

May 31, 2017


Nine months

ended

May 31, 2018


Nine months

ended

May 31, 2017













Physical-layer sales

$

43,760


$

41,007


$

129,734


$

121,061

Protocol-layer sales


28,278



17,678



69,799



59,784

Foreign exchange gains (losses) on forward exchange contracts


179



(180)



797



(525)

Total sales

$

72,217


$

58,505


$

200,330


$

180,320













Physical-layer bookings

$

44,796


$

47,157


$

134,579


$

125,278

Protocol-layer bookings


28,115



16,691



69,179



60,692

Foreign exchange gains (losses) on forward exchange contracts


179



(180)



797



(525)

Total bookings

$

73,090


$

63,668


$

204,555


$

185,445

Book-to-bill ratio (bookings/sales)


1.01



1.09



1.02



1.03

Gross margin before depreciation and amortization*

$

43,254


$

33,950


$

122,752


$

109,963



59.9%



58.0%



61.3%



61.0%













Other selected information:













IFRS net earnings (loss) attributable to the parent interest

$

(5,970)


$

(4,304)


$

(7,951)


$

7


Amortization of intangible assets

$

4,210


$

1,046


$

8,385


$

2,241


Stock-based compensation costs

$

440


$

372


$

1,280


$

983


Restructuring charges

$


$

3,813


$


$

3,813


Change in fair value of cash contingent consideration

$


$


$

(716)


$


Acquisition-related deferred revenue fair value adjustment

$

913


$


$

1,222


$


Income tax expense for US tax reform

$


$


$

1,528


$


Net income tax effect of the above items

$

(138)


$

(357)


$

(704)


$

(583)


Foreign exchange gain

$

(160)


$

(1,725)


$

(1,386)


$

(1,965)


Adjusted EBITDA*

$

2,549


$

2,300


$

11,100


$

13,496

 

Operating Expenses
Selling and administrative expenses totaled US$26.0 million, or 35.9% of sales in the third quarter of fiscal 2018 compared to US$22.6 million, or 38.6% of sales, in the third quarter of 2017.

Net R&D expenses totaled US$16.1 million, or 22.3% of sales, in the third quarter of fiscal 2018 compared to US$13.3 million, or 22.7% of sales, in the same period last year.

Third Quarter Highlights

  • Sales. IFRS sales increased 23.4% year-over-year to US$72.2 million due to a strong performance from the Protocol-layer product line, revenue contributions from the Astellia and Yenista Optics acquisitions, and the positive impact of the decrease in the average value of the US dollar versus other currencies. Physical-layer sales accounted for 61% of revenue in the third quarter of 2018, while Protocol-layer sales totaled 39%. Revenue breakdown among the three main selling regions amounted to 49% in the Americas, 35% in Europe, Middle East and Africa (EMEA) and 16% in Asia-Pacific.  EXFO's top customer accounted for 5.7% of sales, while the top three represented 15.2%.
  • Profitability. IFRS net loss totaled US$6.0 million in the third quarter of 2018, while adjusted EBITDA amounted to US$2.5 million. The company also generated US$4.7 million in cash flows from operations in the third quarter.
  • Innovation. EXFO held its inaugural Innovation Summit in early May with a focus on artificial intelligence and machine learning. More than 100 team members from four continents participated in the three-day event which featured a hackathon and presentations from distinguished speakers. EXFO launched two products during the third quarter, including an automated network troubleshooting solution that links performance measurements to network topology in order to deliver service degradation diagnosis in record time. The company also released the CTP10 Component Test Platform, with related modules, for measuring insertion loss and return loss on a wide range of passive optical components.

Business Outlook
EXFO forecasts IFRS sales between US$68.0 million and US$73.0 million for the fourth quarter of fiscal 2018; the company anticipates that IFRS sales will be reduced by US$0.9 million to account for the acquisition-related fair value adjustment of deferred revenue.

IFRS net loss is expected to range between US$0.05 and US$0.01 per share. IFRS net loss includes US$0.10 per share in after-tax amortization of intangible assets, stock-based compensation costs and acquisition-related fair value adjustment of deferred revenue.

This guidance, which is a forward-looking statement, 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, Astellia's preliminary purchase price allocation (PPA) as well as exchange rates as of the date of this news release.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review third quarter results for fiscal 2018. To listen to the conference call and participate in the question period via telephone, dial 1-323-994-2093. Please take note the following participant passcode will be required: 7503033. Germain Lamonde, founder and Executive Chairman, Philippe Morin, Chief Executive Officer, and Pierre Plamondon, 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 July 17, 2018. The replay number is 1-719-457-0820 and the required participant passcode is 7503033. 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 (NASDAQ: EXFO) (TSX: EXF) develops smarter test, monitoring and analytics solutions for fixed and mobile network operators, webscale companies and equipment manufacturers in the global communications industry. Our customers count on us to deliver superior network performance, service reliability and subscriber insights. They count on our unique blend of equipment, software and services to accelerate digital transformations related to fiber, 4G/LTE and 5G deployments. They count on our expertise with automation, real-time troubleshooting and big data analytics, which are critical to their business performance. We've spent over 30 years earning this trust, and today more than 2,000 EXFO employees in over 25 countries work side by side with our customers in the lab, field, data center and beyond. For more information, visit EXFO.com and follow us on the EXFO Blog.

Forward-Looking Statements
This news 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 statements that refer 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, including trade wars, as well as capital spending and network deployment levels in the telecommunications industry (including our ability to quickly adapt cost structures to 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, service assurance and analytics solutions markets 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 regard to the timing and nature of customer orders; delay in revenue recognition due to longer sales cycles for complex systems involving customers' acceptance; 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 to conduct business internationally; 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 you 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. This discussion and analysis should be read in conjunction with the consolidated financial statements.

*Non-IFRS Measures
EXFO provides non-IFRS measures (non-IFRS sales, gross margin before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. Non-IFRS sales represent total sales plus acquisition-related deferred revenue fair value adjustment. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA represent net earnings (loss) attributable to the parent interest before interest, income taxes, depreciation and amortization, stock-based compensation costs, change in fair value of cash contingent consideration, acquisition-related deferred revenue fair value adjustment, share in net loss of an associate, gain on the deemed disposal of the investment in an associate, and foreign exchange gain or loss.

These non-IFRS measures eliminate the effect on IFRS results of non-cash and/or non-operating statement of earnings elements, as well as elements subject to significant volatility such as foreign exchange gain or loss. EXFO uses these measures for evaluating historical and prospective financial performance, as well as its performance relative to competitors. These non-IFRS measures are also the financial measures used by financial analysts to evaluate and compare EXFO's performance against competitors and industry players in the company's sector. Finally, these measures help EXFO plan and forecast future periods as well as make operational and strategic decisions. EXFO believes that providing this information, in addition to the IFRS measures, allows investors to see the company's results through the eyes of management, and to better understand historical and future financial performance. More importantly, it enables the comparison of EXFO's performance on a relatively similar basis against other public and private companies in the industry worldwide.

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.

The following table summarizes the reconciliation of non-IFRS sales to IFRS sales, in thousands of US dollars:

 

Non-IFRS Sales














Three months

ended

May 31, 2018


Three months

ended

May 31, 2017


Nine months

ended

May 31, 2018


Nine months

ended

May 31, 2017













IFRS sales

$

72,217


$

58,505


$

200,330


$

180,320

Acquisition-related deferred revenue fair value adjustment


913





1,222



Non-IFRS sales

$

73,130


$

58,505


$

201,552


$

180,320

 

The following table summarizes the reconciliation of adjusted EBITDA to IFRS net earnings (loss) attributable to the parent interest, in thousands of US dollars:

 

Adjusted EBITDA



Three months

ended

May 31, 2018


Three months

ended

May 31, 2017


Nine months

ended

May 31, 2018


Nine months

ended

May 31, 2017













IFRS net earnings (loss) attributable to the parent interest for the period

$

(5,970)


$

(4,304)


$

(7,951)


$

7













Add (deduct):
























Depreciation of property, plant and equipment


1,555



1,029



3,972



2,894

Amortization of intangible assets


4,210



1,046



8,385



2,241

Interest and other expense


198



57



870



28

Income taxes


1,363



2,012



5,424



5,495

Stock-based compensation costs


440



372



1,280



983

Restructuring charges




3,813





3,813

Change in fair value of cash contingent consideration






(716)



Acquisition-related deferred revenue fair value adjustment


913





1,222



Share in net loss of an associate






2,080



Gain on deemed disposal of the investment in an associate






(2,080)



Foreign exchange gain


(160)



(1,725)



(1,386)



(1,965)

Adjusted EBITDA for the period (1)(2)

$

2,549


$

2,300


$

11,100


$

13,496













Adjusted EBITDA as a percentage of sales


3.5%



3.9%



5.5%



7.5%



(1)

Astellia negatively impacted adjusted EBITDA by $2.2 million and $3.4 million respectively for the three and nine months ended May 31, 2018 (nil in 2017).

(2)

Includes acquisition-related costs of $2.1 million for the nine months ended May 31, 2018 and $0.1 million and $0.8 million respectively for the three and nine months ended May 31, 2017.

 

EXFO Inc.

Unaudited Condensed Interim Consolidated Balance Sheets


(in thousands of US dollars)








As at

May 31,

2018


As at

August 31,

2017

Assets












Current assets






Cash

$

18,489


$

38,435

Short-term investments


990



775

Accounts receivable







Trade


46,756



41,130


Other


4,997



3,907

Income taxes and tax credits recoverable


8,401



4,955

Inventories


37,883



33,832

Prepaid expenses


5,185



4,202

Other assets


1,776



?



124,477



127,236







Tax credits recoverable


47,988



38,111

Property, plant and equipment


44,661



40,132

Intangible assets


27,775



11,183

Goodwill


41,021



35,077

Deferred income tax assets


4,615



6,555

Other assets


666



947








$

291,203


$

259,241

Liabilities












Current liabilities






Bank loan

$

10,982


$

?

Accounts payable and accrued liabilities


50,702



36,776

Provisions


471



3,889

Income taxes payable


968



663

Deferred revenue


17,142



11,554

Other liabilities


4,651



?

Current portion of long-term debt


2,938



?



87,854



52,882







Provisions


1,510



?

Deferred revenue


6,235



6,257

Long-term debt


6,579



?

Deferred income tax liabilities


5,074



3,116

Other liabilities


568



196



107,820



62,451







Shareholders' equity






Share capital


91,910



90,411

Contributed surplus


18,007



18,184

Retained earnings


118,857



127,160

Accumulated other comprehensive loss


(45,391)



(38,965)



183,383



196,790








$

291,203


$

259,241

 

EXFO Inc.

Unaudited Condensed Interim Consolidated Statements of Earnings


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














Three months

ended

May 31, 2018


Nine months

ended
May 31, 2018


Three months

ended

May 31, 2017


Nine months

ended

May 31, 2017













Sales

$

72,217


$

200,330


$

58,505


$

180,320













Cost of sales (1)


28,963



77,578



24,555



70,357

Selling and administrative


25,957



74,066



22,572



65,422

Net research and development


16,101



40,440



13,263



35,841

Depreciation of property, plant and equipment


1,555



3,972



1,029



2,894

Amortization of intangible assets


4,210



8,385



1,046



2,241

Change in fair value of cash contingent consideration


                       ?



(716)



                       ?



                       ?

Interest and other expense


198



870



57



28

Foreign exchange gain


(160)



(1,386)



(1,725)



(1,965)

Share in net loss of an associate


                       ?



2,080



                       ?



                       ?

Gain on deemed disposal of the investment in an associate


 ?



(2,080)



?



?

Earnings (loss) before income taxes


(4,607)



(2,879)



(2,292)



5,502













Income taxes


1,363



5,424



2,012



5,495













Net earnings (loss) for the period


(5,970)



(8,303)



(4,304)



7

Net loss for the period attributable to non-controlling interest


 ?



(352)



?



?













Net earnings (loss) for the period attributable to parent interest

$

(5,970)


$

(7,951)


$

(4,304)


$

7













Basic and diluted net earnings (loss) attributable to parent interest per share

$

(0.11)


$

(0.14)


$

(0.08)


$

0.00













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


55,099



54,959



54,593



54,328













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


55,099



54,959



54,593



55,479


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

 

EXFO Inc.

Unaudited Condensed Interim Consolidated Statements of Comprehensive Loss


(in thousands of US dollars)














Three months
ended
May 31, 2018


Nine months
ended
May 31, 2018


Three months
ended
May 31, 2017


Nine months
ended
May 31, 2017













Net earnings (loss) for the period

$

(5,970)


$

(8,303)


$

(4,304)


$

7

Other comprehensive income (loss), net of income taxes












Items that may be reclassified subsequently to net earnings













Foreign currency translation adjustment


(3,189)



(5,033)



(2,568)



(4,766)


Unrealized gains/losses on forward exchange contracts


(486)



(971)



(127)



(362)


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


(232)



(840)



39



359


Deferred income taxes on gains/losses on forward exchange contracts


155



418



39



31

Other comprehensive loss


(3,752)



(6,426)



(2,617)



(4,738)













Comprehensive loss for the period


(9,722)



(14,729)



(6,921)



(4,731)













Comprehensive loss for the period attributable to non-controlling interest


?



(352)



?



?













Comprehensive loss for the period attributable to parent interest

$

(9,722)


$

(14,377)


$

(6,921)


$

(4,731)

 

EXFO Inc.

Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders' Equity


(in thousands of US dollars)

















Nine months ended May 31, 2017


 

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


1,370



(1,370)







Stock-based compensation costs




941







941

Net earnings for the period






7





7

Other comprehensive income (loss)
















Foreign currency translation adjustment








(4,766)



(4,766)


Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $31








28



28
















Total comprehensive loss for the period














(4,731)
















Balance as at May 31, 2017

$

90,376


$

17,721


$

126,316


$

(53,312)


$

181,101

 


Nine months ended May 31, 2018


 

Share
capital


Contributed surplus


Retained earnings


Accumulated
other comprehensive loss


Non-controlling interest


Total
shareholders' equity



















Balance as at September 1, 2017

$

90,411


$

18,184


$

127,160


$

(38,965)


$

?


$

196,790

Reclassification of stock-based compensation costs


1,499



(1,499)



?



?



?



?

Stock-based compensation costs


?



1,322



?



?



?



1,322

Business combination


?



?



?



?



(3,662)



(3,662)

Acquisition of non-controlling interest


?



?



(352)



?



4,014



3,662

Net loss for the period


?



?



(7,951)



?



(352)



(8,303)

Other comprehensive loss



















Foreign currency translation adjustment


?



?



?



(5,033)



?



(5,033)


Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $418


?



?



?



(1,393)



?



(1,393)



















Comprehensive loss for the period

















(14,729)



















Balance as at May 31, 2018

$

91,910


$

18,007


$

118,857


$

(45,391)


$

?


$

183,383

 

EXFO Inc.

Unaudited Condensed Interim Consolidated Statements of Cash Flows


(in thousands of US dollars)














Three months
ended
May 31, 2018


Nine months
ended
May 31, 2018


Three months
ended
May 31, 2017


Nine months
ended
May 31, 2017













Cash flows from operating activities












Net earnings (loss) for the period

$

(5,970)


$

(8,303)


$

(4,304)


$

7

Add (deduct) items not affecting cash













Stock-based compensation costs


440



1,280



372



983


Depreciation and amortization


5,765



12,357



2,075



5,135


Write-off of capital assets


77



325



?



?


Change in fair value of cash contingent consideration


?



(716)



?



?


Deferred revenue


(552)



1,682



79



3,026


Deferred income taxes


389



2,533



704



1,163


Share in net loss of an associate


?



2,080



?



?


Gain on deemed disposal of the investment in an associate


?



(2,080)



?



?


Changes in foreign exchange gain/loss


(603)



(239)



(524)



(955)



(454)



8,919



(1,598)



9,359

Changes in non-cash operating items













Accounts receivable


2,353



7,693



(901)



1,701


Income taxes and tax credits


172



(2,787)



(842)



(1,232)


Inventories


1,162



(12)



315



(9)


Prepaid expenses


16



205



(863)



(761)


Other assets


(245)



(769)



(103)



(127)


Accounts payable, accrued liabilities and provisions


1,821



5



1,169



1,756


Other liabilities


(109)



101



?



?



4,716



13,355



(2,823)



10,687

Cash flows from investing activities












Additions to short-term investments


?



(482)



(2,571)



(2,887)

Proceeds from disposal and maturity of short-term investments


?



234



3,298



3,596

Purchases of capital assets


(3,431)



(7,680)



(2,555)



(5,448)

Investment in an associate


?



(12,530)





Business combinations, net of cash acquired


?



(19,120)



(7,479)



(12,479)



(3,431)



(39,578)



(9,307)



(17,218)

Cash flows from financing activities












Bank loan


9,184



11,250





Repayment of long-term debt


(757)



(1,027)



(1,480)



(1,480)

Acquisition of non-controlling interest


(3,657)



(3,657)







4,770



6,566



(1,480)



(1,480)













Effect of foreign exchange rate changes on cash


(119)



(289)



(360)



(824)













Change in cash during the period


5,936



(19,946)



(13,970)



(8,835)

Cash – Beginning of the period


12,553



38,435



48,343



43,208

Cash – End of the period

$

18,489


$

18,489


$

34,373


$

34,373













Supplementary information












Income taxes paid

$

426


$

1,695


$

627


$

2,188

Additions to capital assets

$

3,371


$

8,959


$

1,779


$

5,441

 

EXFO-F

 

Cision View original content:http://www.prnewswire.com/news-releases/exfo-reports-third-quarter-results-for-fiscal-2018-300678935.html

SOURCE EXFO Inc.