EXFO reports second quarter results for fiscal 2020

  • 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. EXFO 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 EXFO 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

Cision View original content:http://www.prnewswire.com/news-releases/exfo-reports-second-quarter-results-for-fiscal-2020-301037050.html

SOURCE EXFO Inc.

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