EXFO reports second quarter results for fiscal 2020

|Apr 7|magazine47 min read
  • Sales reached US$55.3 million
  • Bookings attained US$72.9 million
  • IFRS net loss amounted to US$9.0 million
  • Adjusted EBITDA totaled -US$4.9 million
  • Key supplier to essential telecommunications industry

QUEBEC CITY, April 7, 2020 /PRNewswire/ - 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 29, 2020.

"Despite the temporary shutdown of our manufacturing operations in China, which negatively impacted our revenues, EXFO delivered solid bookings in the second quarter of 2020 with double-digit growth for our Test and Measurement business," said EXFO's CEO Philippe Morin. "Throughout the coronavirus pandemic, the safety of our employees, communities and customers remains at the center of all our actions. All EXFO sites are fully operational and committed to helping global network operators and webscale companies thrive during this challenging period. More than ever, the telecom industry is mission-critical in which network capacity, reliability, and scalability will play a growing role in creating real opportunities for EXFO's innovative solutions." 

Second Quarter Highlights

  • Sales. Sales totaled US$55.3 million in the second quarter of fiscal 2020 mainly due to the negative impact of the coronavirus outbreak that forced EXFO to temporarily shut down its manufacturing operations in China. Test and Measurement (T&M) sales accounted for 68% of revenue in the second quarter of 2020, while Service Assurance, Systems and Services (SASS) sales represented 32%. Revenue distribution among the three main selling regions amounted to 48% in the Americas, 31% in Europe, Middle East and Africa (EMEA) and 21% in Asia-Pacific. EXFO's top customer accounted for 8.2% of sales, while the top three totaled 19.5%.
  • Profitability: IFRS net loss amounted to US$9.0 million, or -US$0.16 per share, in the second quarter of fiscal 2020, while adjusted EBITDA totaled -US$4.9 million, or -8.9% of sales. The company generated US$7.1 million in cash flows from operations.
  • Key Supplier: As the coronavirus outbreak has evolved into a global pandemic, EXFO has become a key supplier to the essential telecommunications industry. Several well-funded network operators and webscale companies have increased capital spending to meet the global trend of telecommuting from home. EXFO, with its wealth of test and service assurance solutions, enables the deployment of such bandwidth-intensive applications and required virtualized, cloud-based networks. Key EXFO solutions to help customers maintain peak performance under disruptive conditions include geolocation analytics, virtual VPN remote monitoring, and active monitoring of network and subscriber anomalies.
  • Innovation. EXFO launched the first intelligent automation platform, Nova A/SA, enabling mobile network operators (MNOs) to deliver ultra-reliable and high-quality service experience in a 5G environment. At the heart of Nova A/SA is a real-time, AI-based automated assurance solution, Nova SensAI, acting as the central nervous system for the platform. These combined solutions leverage machine learning to provide MNOs with heightened visibility into subscriber experience and network performance.

Business Outlook
Due to the uncertainty surrounding the breadth and duration of the coronavirus pandemic, EXFO has suspended issuing quarterly and annual guidance.

 

Selected Financial Information

(In thousands of US dollars)



 Q2 2020



Q2 2019



H1 2020



H1 2019













Test and Measurement sales

$

37,477


$

50,407


$

93,424


$

100,171

Service Assurance, Systems and Services sales


17,935



23,701



35,684



43,117

Foreign exchange losses on forward exchange contracts


(99)



(181)



(244)



(160)

Total sales

$

55,313


$

73,927


$

128,864


$

143,128













Test and Measurement bookings

$

52,003


$

45,320


$

107,012


$

109,316

Service Assurance, Systems and Services bookings


20,963



30,953



36,012



48,174

Foreign exchange gains (losses) on forward exchange contracts


(99)



(181)



(244)



(160)

Total bookings

$

72,867


$

76,092


$

142,780


$

157,330

Book-to-bill ratio (bookings/sales)


1.32



1.03



1.11



1.10

Gross margin before depreciation and amortization*

$

31,517


$

44,865


$

74,827


$

85,169



57.0%



60.7%



58.1%



59.5%













Other selected information:












IFRS net earnings (loss)

$

(9,021)


$

5,193


$

(9,084)


$

(2,274)

Amortization of intangible assets

$

1,695


$

2,130


$

3,327


$

5,070

Stock-based compensation costs

$

436


$

461


$

923


$

879

Restructuring charges

$

-


$

577


$

-


$

3,318

Acquisition-related deferred revenue fair value adjustment

$

-


$

571


$

-


$

1,435

Gain on disposal of capital assets

$

-


$

(1,732)


$

-


$

(1,732)

Deferred income tax recovery

$

-


$

(2,383)


$

-


$

(2,383)

Net income tax effect of the above items

$

(254)


$

(348)


$

(503)


$

(771)

Foreign exchange loss

$

382


$

416


$

508


$

201

Adjusted EBITDA*

$

(4,916)


$

8,784


$

2,628


$

11,512

 

Quarterly Overview
Sales reached US$55.3 million in the second quarter of fiscal 2020 compared to US$73.9 million in the second quarter of 2019.

Bookings attained US$72.9 million in the second quarter of fiscal 2020 compared to US$76.1 million for the same period in 2019 in which the company had received a multi-million-dollar SASS-related order. The company's book-to-bill ratio was 1.32 in the second quarter of 2020.

Gross margin before depreciation and amortization* amounted to 57.0% of sales in the second quarter of fiscal 2020 compared to 60.7% in the second quarter of 2019.

Selling and administrative expenses totaled US$24.3 million, or 44.0% of sales in the second quarter of fiscal 2020 compared to US$25.5 million, or 34.4% of sales, in the second quarter of 2019.

Net R&D expenses attained US$12.6 million, or 22.7% of sales, in the second quarter of fiscal 2020 compared to US$12.2 million, or 16.5% of sales, in the same period last year.

IFRS net loss totaled US$9.0 million, or -US$0.16 per share, in the second quarter of fiscal 2020 compared to net earnings of US$5.2 million, or US$0.09 per share, in the second quarter of 2019. IFRS net loss in the second quarter of 2020 included US$1.5 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and US$0.4 million in foreign exchange loss.

Adjusted EBITDA* amounted to -US$4.9 million, or -8.9% of sales, in the second quarter of fiscal 2020 compared to US$8.8 million, or 11.9% of sales, in the second quarter of 2019.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review second-quarter results for fiscal 2020. 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: 4132437. 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 April 14, 2020. The replay number is 1-719-457-0820 and the participant passcode is 4132437. 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.

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, namely the impact of the coronavirus pandemic on our employees, customers and global operations, including the ability of our suppliers to fulfil raw material requirements and services and our ability to manufacture and deliver our products and services to our customers; the effects of emergency measures related to isolation periods for individuals in affected areas, lockdown restrictions imposed by national governments on businesses in countries where we operate and have employees, and limitations on travel to attract new customers and serve existing ones; deteriorating financial and market conditions as well as a potential recession; trade wars, and our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the communications 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 communications test, monitoring 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. This discussion and analysis should be read in conjunction with the consolidated financial statements.

*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) before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, acquisition-related deferred revenue fair value adjustment, and foreign exchange loss.

These non-IFRS measures eliminate the effect on IFRS results of non-cash statement of earnings elements, restructuring charges 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 used by financial analysts to evaluate and compare EXFO's performance against that of 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 that of 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), in thousands of US dollars:

 

Adjusted EBITDA



Q2 2020



Q2 2019



H1 2020



H1 2019













IFRS net earnings (loss) for the period

$

(9,021)


$

5,193


$

(9,084)


$

(2,274)













Add (deduct):
























Depreciation and amortization


3,973



3,520



7,899



7,889

Interest and other (income) expense


285



(1,514)



684



(1,137)

Income taxes


(971)



(440)



1,698



1,201

Stock-based compensation costs


436



461



923



879

Restructuring charges




577





3,318

Acquisition-related deferred revenue fair value adjustment




571





1,435

Foreign exchange loss


382



416



508



201

Adjusted EBITDA for the period

$

(4,916)


$

8,784


$

2,628


$

11,512













Adjusted EBITDA as a percentage of sales


(8.9)%



11.9%



2.0%



8.0%

 

EXFO Inc.


Condensed Unaudited Interim Consolidated Balance Sheets







(in thousands of US dollars)








As at

February 29,

2020


As at

August 31,

2019







Assets












Current assets






Cash

$

19,126


$

16,518

Short-term investments


1,755



2,918

Accounts receivable






Trade


33,221



51,517

Other


3,083



3,396

Income taxes and tax credits recoverable


5,833



3,159

Inventories


41,530



38,017

Prepaid expenses


4,994



6,510

Other assets


3,669



3,083



113,211



125,118







Tax credits recoverable


45,574



46,704

Property, plant and equipment


39,156



39,364

Right-of-use assets


9,634



Intangible assets


18,830



21,654

Goodwill


38,728



38,648

Deferred income tax assets


5,126



4,821

Other assets


1,110



1,293


$

271,369


$

277,602

Liabilities












Current liabilities






Bank loan

$

13,650


$

5,000

Accounts payable and accrued liabilities


41,410



50,790

Provisions


834



1,065

Income taxes payable


128



704

Deferred revenue


21,904



24,422

Other liabilities


1,600



1,606

Current portion of lease liabilities


2,925



Current portion of long-term debt


2,158



2,449



84,609



86,036







Provisions


2,544



2,737

Deferred revenue


8,453



9,056

Lease liabilities


6,665



Long-term debt


2,252



3,293

Deferred income tax liabilities


3,130



3,598

Other liabilities


570



318



108,223



105,038







Shareholders' equity






Share capital


93,827



92,706

Contributed surplus


18,780



19,196

Retained earnings


103,089



112,173

Accumulated other comprehensive loss


(52,550)



(51,511)



163,146



172,564








$

271,369


$

277,602

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Earnings













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














Three months

ended

February 29,

2020


Six months

ended

February 29,

2020


Three months

ended

February 28,

2019


Six months

ended

February 28,

2019













Sales

$

55,313


$

128,864


$

73,927


$

143,128













Cost of sales (1)


23,796



54,037



29,062



57,959

Selling and administrative


24,303



48,807



25,474



51,849

Net research and development


12,566



24,315



12,216



27,440

Depreciation of property, plant and equipment


1,424



2,867



1,390



2,819

Depreciation of right-of-use assets


854



1,705





Amortization of intangible assets


1,695



3,327



2,130



5,070

Interest and other (income) expense


285



684



(1,514)



(1,137)

Foreign exchange loss


382



508



416



201

Earnings (loss) before income taxes


(9,992)



(7,386)



4,753



(1,073)













Income taxes


(971)



1,698



(440)



1,201













Net earnings (loss) for the period

$

(9,021)


$

(9,084)


$

5,193


$

(2,274)













Basic and diluted net earnings (loss) per share

$

(0.16)


$

(0.16)


$

0.09


$

(0.04)













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


55,603



55,521



55,343



55,263













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


55,603



55,521



56,160



55,263



(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

February 29,

2020


Six months

ended

February 29,

2020


Three months

ended

February 28,

2019


Six months

ended

February 28,

2019













Net earnings (loss) for the period

$

(9,021)


$

(9,084)


$

5,193


$

(2,274)

Other comprehensive income (loss), net of income taxes












Items that may be reclassified subsequently to net earnings












Foreign currency translation adjustment


(1,319)



(758)



1,807



(1,549)

Unrealized gains/losses on forward exchange contracts


(718)



(753)



496



(191)

Reclassification of realized gains/losses on forward exchange contracts


173



356



210



301

Deferred income tax effect of gains/losses on forward exchange contracts


146



116



(167)



42













Other comprehensive income (loss)


(1,718)



(1,039)



2,346



(1,397)













Comprehensive income (loss) for the period

$

(10,739)


$

(10,123)


$

7,539


$

(3,671)

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity


(in thousands Cof US dollars)



Six months ended February 28, 2019


Share

capital


Contributed
surplus


Retained
earnings


Accumulated
other
comprehensive
loss


Total

shareholders'
equity
















Balance as at September 1, 2018

$

91,937


$

18,428


$

114,906


$

(47,350)


$

177,921

Adoption of IFRS 9






(253)





(253)

Adjusted balance as of September 1, 2018


91,937



18,428



114,653



(47,350)



177,668

Reclassification of stock-based compensation costs


1,067



(1,067)







Redemption of share capital


(126)



21







(105)

Stock-based compensation costs




895







895

Net loss for the period






(2,274)





(2,274)

Other comprehensive income (loss)















Foreign currency translation adjustment








(1,549)



(1,549)

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $42








152



152
















Total comprehensive loss for the period














(3,671)
















Balance as at February 28, 2019

$

92,878


$

18,277


$

112,379


$

(48,747)


$

174,787
































Six months ended February 29, 2020


Share

capital


Contributed
surplus


Retained
earnings


Accumulated
other
comprehensive
loss


Total

shareholders'
equity
















Balance as at September 1, 2019

$

92,706


$

19,196


$

112,173


$

(51,511)


$

172,564

Reclassification of stock-based compensation costs


1,333



(1,333)







Redemption of share capital


(212)



(13)







(225)

Stock-based compensation costs




930







930

Net loss for the period






(9,084)





(9,084)

Other comprehensive loss















Foreign currency translation adjustment








(758)



(758)

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $116








(281)



(281)
















Total comprehensive loss for the period














(10,123)
















Balance as at February 29, 2020

$

93,827


$

18,780


$

103,089


$

(52,550)


$

163,146

 

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows


(in thousands of US dollars)



Three months

ended

February 29,

2020


Six months
ended
February 29,
2020


Three months

ended

February 28,

2019


Six months

ended

February 28,

2019













Cash flows from operating activities












Net earnings (loss) for the period

$

(9,021)


$

(9,084)


$

5,193


$

(2,274)

Add (deduct) items not affecting cash












Stock-based compensation costs


436



923



461



879

Depreciation and amortization


3,973



7,899



3,520



7,889

Gain on disposal of capital assets






(1,732)



(1,732)

Write-off of capital assets




216



261



261

Deferred revenue


1,557



(2,815)



6,021



9,943

Deferred income taxes


(212)



(654)



(2,124)



(2,153)

Changes in foreign exchange gain/loss


902



881



76



(453)



(2,365)



(2,634)



11,676



12,360













Changes in non-cash operating items












Accounts receivable


18,539



18,611



9,871



5,819

Income taxes and tax credits


(3,178)



(2,662)



1,031



33

Inventories


(458)



(3,951)



999



(362)

Prepaid expenses


610



988



22



205

Other assets


(491)



(456)



(327)



(339)

Accounts payable, accrued liabilities and provisions


(5,580)



(9,273)



(3,114)



18

Other liabilities


58



42



(1,470)



(1,521)



7,135



665



18,688



16,213













Cash flows from investing activities












Additions to short-term investments




(147)



(292)



(292)

Disposal of short-term investments


701



1,264





342

Purchases of capital assets


(2,146)



(4,186)



(1,797)



(4,679)

Proceeds from disposal of capital assets






3,318



3,318



(1,445)



(3,069)



1,229



(1,311)













Cash flows from financing activities












Bank loan


16



8,370



(12,501)



(1,244)

Repayment of lease liabilities


(846)



(1,690)





Repayment of long-term debt


(639)



(1,315)



(735)



(1,452)

Redemption of share capital




(225)



(105)



(105)



(1,469)



5,140



(13,341)



(2,801)

Effect of foreign exchange rate changes on cash


(140)



(128)



100



(96)













Change in cash during the period


4,081



2,608



6,676



12,005

Cash – Beginning of the period


15,045



16,518



18,087



12,758

Cash – End of the period

$

19,126


$

19,126


$

24,763


$

24,763

 

EXFO-F

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SOURCE EXFO Inc.