EXFO reports second quarter results for fiscal 2019

QUEBEC CITY, CANADA, April 2, 2019 — EXFO Inc. (NASDAQ: EXFO; TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the second quarter ended February 28, 2019.

IFRS sales increased 14.2% to US$73.9 million in the second quarter of fiscal 2019 from US$64.7 million in the second quarter of 2018. Second-quarter sales for 2019 included a US$7.5 million revenue contribution from Astellia, which was reduced by US$0.6 million to account for acquisition-related fair value adjustment of deferred revenue. In comparison, Astellia had generated US$1.8 million in revenue for one month in the second quarter 2018.

Bookings, which included a US$10.3 million contribution from Astellia, improved 16.0% year-over-year to US$76.1 million in the second quarter of fiscal 2019 from US$65.6 million in the same period of 2018. In comparison, Astellia had delivered US$2.5 million in bookings for one month in the second quarter 2018. EXFO’s book-to-bill ratio was 1.03 in the second quarter of 2019.

Gross margin before depreciation and amortization^* amounted to 60.7% of sales in the second quarter of fiscal 2019 compared to 60.9% in the second quarter of 2018.

IFRS net earnings in the second quarter of fiscal 2019 totaled US$5.2 million, or US$0.09 per share, compared to a net loss attributable to the parent interest¹ of US$4.7 million, or US$0.08 per share, in the second quarter of 2018. IFRS net earnings in the second quarter of 2019 included net expenses totaling US$3.9 million: US$1.9 million in after-tax amortization of intangible assets, US$0.5 million in stock-based compensation costs, US$0.5 million in after-tax restructuring charges, US$0.6 million for acquisition-related fair value adjustment of deferred revenue, and a foreign exchange loss of US$0.4 million.

These net expenses were offset by the sale of a building under EXFO’s restructuring plan that generated a gain of US$1.7 million in the second quarter of 2019. The company also benefited from a deferred income tax recovery of US$2.4 million in the second quarter of 2019.

Adjusted EBITDA^* totaled US$8.8 million, or 11.9% of sales, in the second quarter of fiscal 2019 compared to US$2.5 million, or 3.9% of sales, in the second quarter of 2018.

“EXFO delivered outstanding second quarter results with strong revenue and bookings growth, profitability and cash flow generation—all encouraging signs for our T&M and SASS product families and the leverage in our operating model,” said EXFO's CEO Philippe Morin. "Our unique value propositions resonated very well with industry executives at Mobile World Congress and Optical Fiber Conference, as our solutions enable fiber buildouts deep into the network edge, 5G wireless deployments and network virtualization. Clearly, EXFO is on track with its profitable growth strategy amid a rapidly transforming industry.”

Selected Financial Information
(In thousands of US dollars)

Operating Expenses

Selling and administrative expenses reached US$25.5 million, or 34.4% of sales in the second quarter of fiscal 2019 compared to US$24.9 million, or 38.5% of sales, in the same period last year.

Net R&D expenses attained US$12.2 million, or 16.5% of sales, in the second quarter of fiscal 2019 compared to US$13.1 million, or 20.2% of sales, in the second quarter of 2018.

Second-Quarter Highlights

• Growth. Sales increased 14.2% year-over-year mainly due to a full-quarter contribution from the Astellia acquisition, compared to one month for the same period in 2018, and revenue recognition of a US$4.9 million order for EXFO’s real-time network topology software. Test and measurement sales accounted for 68% of total revenue in the second quarter of 2019, while SASS sales totaled 32%. Revenue breakdown among the three main selling regions amounted to 50% in the Americas, 34% in Europe, Middle East and Africa (EMEA) and 16% in Asia-Pacific. EXFO’s top customer accounted for 14.9% of sales, while the top three represented 24.7%.
• Profitability. IFRS net earnings totaled US$5.2 million in the second quarter of 2019, while adjusted EBITDA amounted to US$8.8 million, or 11.9% of sales. The company also generated US$18.7 million in cash flows from operations in the second quarter.
• Innovation. EXFO showcased its new product introductions at Mobile World Congress (MWC) and Optical Fiber Conference (OFC), high-profile tradeshows held during and after the quarter-end. At MWC, EXFO provided an overview of its highly differentiated service assurance and analytics platform, including automated assurance, diagnostics and troubleshooting of 5G networks. At OFC, EXFO demonstrated the breadth and depth of its market-leading optical test offering, including its recently released Open Transceiver System for 400G testing, to allow for successful, high-speed network transformations. The company also presented its latest field test automation, cloud reporting and remote testing capabilities.
  
  On the recognition front, EXFO received Frost & Sullivan’s 2018 Customer Value Leadership Award for Global Data Analytics Solutions. This fifth award for EXFO’s Service Assurance, Systems and Services (SASS) portfolio during the past year recognizes the company's ability to optimize subscriber experience and maximize benefits for communications service providers at every level of these organizations, from engineering to customer care.

^{1 Represents net loss excluding share of the net loss attributable to Astellia’s minority shareholders.}

Business Outlook

EXFO forecasts IFRS sales between US$70.0 million and US$75.0 million for the third quarter of fiscal 2019. IFRS net loss is expected to range between US$0.04 and US$0.00 per share in the third quarter of 2019. IFRS net loss includes US$0.05 per share in after-tax amortization of intangible assets and stock-based compensation costs.

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, as well as exchange rates as of the day of this news 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 2019. To listen to the conference call and participate in the question period via telephone, dial 1-323-794-2093. Please take note the following participant passcode will be required: 8906152. 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 April 9, 2019. The replay number is 1-719-457-0820 and the required participant passcode is 8906152. 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 1,900 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 guarantee 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; our ability to successfully integrate businesses that we acquire; 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; 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.

*Non-IFRS Measures

EXFO provides non-IFRS measures (gross margin before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. 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 and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change in fair value of cash contingent consideration, acquisition-related deferred revenue fair value adjustment, 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 adjusted EBITDA to IFRS net earnings (loss) attributable to the parent interest, in thousands of US dollars:

Adjusted EBITDA

^{1 Includes acquisition-related costs of US$1.4 million and US$2.1 million for the three months and six months ended February 28, 2018 (nil in fiscal 2019)}

For more information

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

Click here to download the Consolidated Financial Statements (PDF)