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EXFO reports first quarter results for fiscal 2021

·16 min read
  • Sales reached US$71.5 million

  • Bookings attained US$69.0 million

  • IFRS net earnings totaled US$3.6 million, US$0.06 per share

  • Adjusted EBITDA amounted to US$9.9 million, 13.9% of sales

QUEBEC CITY, Jan. 12, 2021 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the first quarter ended November 30, 2020.

"EXFO delivered a strong first-quarter performance in fiscal 2021 as compared to a coronavirus-free opening quarter in 2020," said EXFO's CEO Philippe Morin. "Robust sales and earnings results confirm market acceptance of our highly differentiated solutions related to fiber, cloud-native and 5G network deployments as we continue to develop new ways to engage and serve our global customer base in this virtualized environment. We're particularly pleased with our SASS offering's penetration into new accounts through the recently announced fiber monitoring deal with BT's subsidiary, Openreach, and five service assurance contracts secured in the fourth quarter of 2020."

First-Quarter Highlights

  • Sales. Sales decreased 2.8% year-over-year in the first quarter of 2021 mainly due to the impact of the coronavirus pandemic, which was partially offset by stronger year-end calendar spending on the part of communications service providers. Test and Measurement (T&M) sales dropped 9.8% from a record US$55.9 million in first quarter of 2020, while Service Assurance, Systems and Services (SASS) sales increased 18.6% year-over-year. Sales in Europe, Middle East and Africa (EMEA) and Asia-Pacific improved 23.3% and 9.2% year-over-year, respectively, while sales in the Americas fell 20.4%. EXFO's top customer accounted for 4.3% of sales, while the top three represented 12.6%.

  • Profitability. IFRS net earnings totaled US$3.6 million, or US$0.06 per share, in the first quarter of 2021, while adjusted EBITDA amounted to US$9.9 million, or 13.9% of sales. Net earnings included an after-tax wage subsidy of US$1.4 million under the Canada emergency wage subsidy program to help qualifying businesses alleviate the effects of the pandemic, as well as an after-tax insurance recovery of US$2.5 million related to the loss of assets.

Selected Financial Information



(In thousands of US dollars)




Three months ended
November 30,


2020


2019






Test and measurement sales

$

50,473


$

55,947

Service assurance, systems and services sales


21,046


17,749

Foreign exchange losses on forward exchange contracts


(7)


(145)

Total sales

$

71,512


$

73,551






Test and measurement bookings

$

51,248


$

55,009

Service assurance, systems and services bookings


17,802


15,049

Foreign exchange losses on forward exchange contracts


(7)


(145)

Total bookings

$

69,043


$

69,913

Book-to-bill ratio (bookings/sales)


0.97


0.95

Gross margin before depreciation and amortization*

$

41,643


$

43,310



58.2%


58.9%






Other selected information:





IFRS net earnings (loss)

$

3,554


$

(63)

Amortization of intangible assets

$

2,549


$

1,632

Stock-based compensation costs

$

568


$

487

Restructuring charges

$

543


$

Net income tax effect of the above items

$

(530)


$

(249)

Foreign exchange loss

$

246


$

126

Adjusted EBITDA*

$

9,949


$

7,544

Quarterly Overview
Sales decreased 2.8% to US$71.5 million in the first quarter of fiscal 2021 from US$73.6 million in the first quarter of 2020.

Bookings dropped 1.2% to US$69.0 million in the first quarter of fiscal 2021 from US$69.9 million for the same period in 2020. The company's book-to-bill ratio was 0.97 in the first quarter of 2021.

Gross margin before depreciation and amortization* amounted to 58.2% of sales in the first quarter of fiscal 2021 compared to 58.9% in the first quarter of 2020.

Selling and administrative expenses totaled US$21.6 million, or 30.2% of sales in the first quarter of fiscal 2021 compared to US$24.5 million, or 33.3% of sales, in the first quarter of 2020.

Net R&D expenses amounted to US$11.2 million, or 15.7% of sales, in the first quarter of fiscal 2021 compared to US$11.7 million, or 16.0% of sales, in the same period last year.

IFRS net earnings totaled US$3.6 million, or US$0.06 per share, in the first quarter of fiscal 2021 compared to a net loss of US$0.1 million, or US$0.00 per share, in the first quarter of 2020. IFRS net earnings in the first quarter of 2021 included US$2.0 million in after-tax amortization of intangible assets, US$0.6 million in stock-based compensation costs, US$0.5 million in after-tax restructuring charges and a foreign exchange loss of US$0.2 million. IFRS net earnings also included an after-tax wage subsidy of US$1.4 million under the Canada emergency wage subsidy program to help qualifying businesses alleviate the effects of the coronavirus pandemic, as well as an after-tax insurance recovery of US$2.5 million related to the loss of assets.

For the first quarter of 2020, net loss included US$1.4 million in after-tax amortization of intangible assets, US$0.5 million in stock-based compensation costs and a foreign exchange loss of US$0.1 million.

Adjusted EBITDA* amounted to US$9.9 million, or 13.9% of sales, in the first quarter of fiscal 2021 compared to US$7.5 million, or 10.3% of sales, in the first quarter of 2020.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review first-quarter results for fiscal 2021. To listen to the conference call and participate in the question period via telephone, dial 1-323-289-6576. Please take note the following participant passcode will be required: 2900379. 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 19, 2021. The replay number is 1-719-457-0820 and the participant passcode is 2900379. 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.

*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 represents net earnings (loss) before interest and other income/expenses, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges 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 its historical and prospective financial performance, as well as its performance relative to competitors. These non-IFRS measures are also used by financial analysts who evaluate and compare EXFO's performance against that of competitors and industry players in the sector.

Finally, these measures help EXFO to plan and forecast future periods as well as make operational and strategic decisions. EXFO believes that providing this information to investors, in addition to IFRS measures, allows them 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) loss in thousands of US dollars:

Adjusted EBITDA


Three months ended

November 30,


2020


2019





IFRS net earnings (loss) for the period

$

3,554


$

(63)





Add (deduct):








Depreciation and amortization

4,723


3,926

Interest and other (income) expenses

(1,866)


399

Income taxes

2,181


2,669

Stock-based compensation costs

568


487

Restructuring charges

543


Foreign exchange loss

246


126

Adjusted EBITDA for the period

$

9,949


$

7,544





Adjusted EBITDA in percentage of sales

13.9%


10.3%

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets


(in thousands of US dollars)



As at

November 30,

2020


As at

August 31,

2020





Assets








Current assets




Cash

$

15,392


$

32,818

Short-term investments

1,106


919

Accounts receivable




Trade

55,541


56,291

Other

6,090


4,055

Income taxes and tax credits recoverable

2,337


4,203

Inventories

41,769


38,865

Prepaid expenses

5,422


5,631

Other assets

4,009


5,493


131,666


148,275





Tax credits recoverable

49,961


48,812

Property, plant and equipment

39,303


39,722

Lease right-of-use assets

9,228


10,758

Intangible assets

15,481


17,616

Goodwill

40,451


40,290

Deferred income tax assets

4,147


3,633

Other assets

1,521


1,548


$

291,758


$

310,654

Liabilities








Current liabilities




Bank loan

$

16,314


$

32,737

Accounts payable and accrued liabilities

39,405


41,348

Provisions

2,333


3,792

Income taxes payable

242


43

Deferred revenue

24,345


25,785

Other liabilities

4,040


4,032

Current portion of lease liabilities

2,870


3,249

Current portion of long-term debt

1,880


2,076


91,429


113,062





Provisions

2,784


2,782

Deferred revenue

8,887


8,858

Lease liabilities

6,715


7,334

Long-term debt

1,759


2,144

Deferred income tax liabilities

2,925


3,760

Other liabilities

144


151


114,643


138,091





Shareholders' equity




Share capital

94,190


94,024

Contributed surplus

19,724


19,680

Retained earnings

106,187


102,633

Accumulated other comprehensive loss

(42,986)


(43,774)


177,115


172,563






$

291,758


$

310,654

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,


2020


2019





Sales

$

71,512


$

73,551





Cost of sales (1)

29,869


30,241

Selling and administrative

21,606


24,504

Net research and development

11,199


11,749

Depreciation of property, plant and equipment

1,341


1,443

Depreciation of lease right-of-use assets

833


851

Amortization of intangible assets

2,549


1,632

Interest and other (income) expense

(1,866)


399

Foreign exchange loss

246


126





Earnings before income taxes

5,735


2,606





Income taxes

2,181


2,669





Net earnings (loss) for the period

$

3,554


$

(63)





Basic and diluted net earnings (loss) per share

$

0.06


$

(0.00)





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

55,749


55,439





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

57,023


55,439


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

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Comprehensive Income


(in thousands of US dollars)



Three months ended

November 30,


2020


2019





Net earnings (loss) for the period

$

3,554


$

(63)

Other comprehensive income (loss), net of income taxes




Items that may be reclassified subsequently to net earnings (loss)




Foreign currency translation adjustment

722


561

Unrealized gains/losses on forward exchange contracts

256


(35)

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

(156)


183

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

(34)


(30)





Other comprehensive income

788


679





Comprehensive income for the period

$

4,342


$

616

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity


(in thousands of US dollars)



Three months ended November 30, 2019


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

861


(861)




Redemption of share capital

(212)


(13)




(225)

Stock-based compensation costs


494




494

Net loss for the period



(63)



(63)

Other comprehensive income










Foreign currency translation adjustment




561


561

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $30




118


118











Total comprehensive income for the period









616











Balance as at November 30, 2019

$

93,355


$

18,816


$

112,110


$

(50,832)


$

173,449






Three months ended November 30, 2020


Share
capital


Contributed
surplus


Retained
earnings


Accumulated
other
comprehensive
loss


Total
shareholders'
equity











Balance as at September 1, 2020

$

94,024


$

19,680


$

102,633


$

(43,774)


$

172,563

Reclassification of stock-based compensation costs

704


(704)




Redemption of share capital

(538)


158




(380)

Stock-based compensation costs


590




590

Net earnings for the period



3,554



3,554

Other comprehensive income










Foreign currency translation adjustment




722


722

Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $34




66


66











Total comprehensive income for the period









4,342











Balance as at November 30, 2020

$

94,190


$

19,724


$

106,187


$

(42,986)


$

177,115

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows


(in thousands of US dollars)



Three months ended

November 30,


2020


2019





Cash flows from operating activities




Net earnings (loss) for the period

$

3,554


$

(63)

Add (deduct) items not affecting cash




Stock-based compensation costs

568


487

Depreciation and amortization

4,723


3,926

Write-off of capital assets

10


216

Deferred revenue

(1,600)


(4,372)

Deferred income taxes

(1,318)


(442)

Changes in foreign exchange gain/loss

212


(21)


6,149


(269)





Changes in non-cash operating items




Accounts receivable

(831)


72

Income taxes and tax credits

1,220


516

Inventories

(2,605)


(3,493)

Prepaid expenses

579


378

Other assets

1,391


35

Accounts payable, accrued liabilities and provisions

(3,833)


(3,693)

Other liabilities

(8)


(16)


2,062


(6,470)

Cash flows from investing activities




Additions to short-term investments

(230)


(147)

Disposal of short-term investments

30


563

Purchases of capital assets

(1,111)


(2,040)


(1,311)


(1,624)

Cash flows from financing activities




Bank loan

(16,338)


8,354

Repayment of lease liabilities

(833)


(844)

Repayment of long-term debt

(581)


(676)

Redemption of share capital

(380)


(225)


(18,132)


6,609





Effect of foreign exchange rate changes on cash

(45)


12





Change in cash

(17,426)


(1,473)

Cash – Beginning of the period

32,818


16,518

Cash – End of the period

$

15,392


$

15,045

EXFO-F

Cision
Cision

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SOURCE EXFO Inc.