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EXFO Reports Fourth Quarter and Fiscal 2020 Results

·20 mins read

Q4 2020

  • Sales reached US$70.6 million

  • IFRS net loss totaled US$3.6 million

  • Adjusted EBITDA amounted to US$4.9 million

  • Cash flows provided by operations attained US$14.1 million

Fiscal 2020

  • Sales reached US$265.6 million

  • IFRS net loss totaled US$9.5 million

  • Adjusted EBITDA amounted to US$18.2 million

  • Cash flows used by operations attained US$2.1 million

QUEBEC CITY, Oct. 7, 2020 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, announced today financial results for the fourth quarter and fiscal year ended August 31, 2020.

"In fiscal 2020, EXFO experienced the unprecedented impact of the coronavirus pandemic on the global economy which, in turn, adversely affected our revenues and profitability. However, I'm pleased to see EXFO close its fourth quarter on a positive note with strong revenues and cash flows from operations," said Philippe Morin, EXFO's Chief Executive Officer. "Our ongoing digital transformation allowed EXFO to quickly adapt to the virtualized selling environment and secure five new service assurance contract wins. In FY21, we will continue to strengthen our focus on high-growth drivers like fiber, 5G and cloud-native deployments, while reducing investments in lower-growth areas. These initiatives should continue to benefit EXFO's competitive position and enable profitable growth."

"Looking ahead, we are excited about the wealth of opportunities for our T&M and SASS product groups. Demand for field testing equipment should recover with major fiber deployment projects, barring the return of extensive lockdown restrictions with the second wave. We also expect continued growth from our lab and manufacturing test solutions, especially in the ultra-high-speed area with our pending acquisition of InOpticals. In addition, we expect our Nova Adaptive Service Assurance platform to benefit from the momentum of our recent contract wins, the ramp-up of cloud-native 5G architectures and heightened activity in the network core."

Fiscal 2020 Highlights

  • Sales. Given the global pandemic, total revenue decreased 7.4% to US$265.6 million in fiscal 2020. Test and Measurement (T&M) sales dropped 3.6% year-over-year, despite a strong increase from lab and manufacturing test solutions. Service Assurance, Systems and Services (SASS) revenue fell 16.4% year-over-year, although the company secured service assurance orders totaling US$5.0 million with five new customers in the fourth quarter. Annual sales in Asia-Pacific improved 11.9%, while sales in the Americas and Europe, Middle East and Africa (EMEA) decreased 10.0% and 13.9%, respectively. EXFO's largest customer accounted for 8.3% of sales in 2020, while the company's top-three customers represented 18.1%.

  • Profitability. IFRS net loss totaled US$9.5 million in fiscal 2020 compared to US$2.5 million in fiscal 2019. Adjusted EBITDA amounted to US$18.2 million in 2020 compared to US$25.6 million in 2019. Cash flows used by operations totaled US$2.1 million in 2020, including cash flows provided by operations of US$14.1 million in the fourth quarter. In comparison, cash flows provided by operations amounted to US$17.2 million in 2019.

Business Outlook
Due to the uncertainty surrounding the breadth and duration of the coronavirus pandemic, and its undetermined impact on the macro-economic environment, EXFO has suspended quarterly and annual guidance indefinitely.

Selected Financial Information

(In thousands of US dollars)


Q4 2020


Q4 2019


FY 2020


FY 2019









T&M sales

$

53,684


$

50,162


$

197,419


$

204,693

SASS sales


17,158


20,202


69,192


82,788

Foreign exchange losses on forward









exchange contracts


(270)


(189)


(1,028)


(591)

Total sales

$

70,572


$

70,175


$

265,583


$

286,890









T&M bookings

$

43,495


$

50,378


$

197,141


$

210,055

SASS bookings


19,750


20,723


68,750


88,341

Foreign exchange losses on forward









exchange contracts


(270)


(189)


(1,028)


(591)

Total bookings

$

62,975


$

70,911


$

264,863


$

297,805

Book-to-bill ratio (bookings/sales)


0.89


1.01


1.00


1.04









Gross margin before depreciation and












amortization*

$

37,999


$

39,915


$

151,025


$

168,213



53.8%


56.9%


56.9%


58.6%









Other selected information:








IFRS net loss

$

(3,633)


$

(227)


$

(9,540)


$

(2,480)

Amortization of intangible assets

$

1,442


$

1,870


$

6,467


$

9,012

Stock-based compensation costs

$

575


$

477


$

2,021


$

1,831

Restructuring charges

$

2,886


$


$

2,886


$

3,305

Acquisition-related deferred revenue fair












value adjustment

$


$


$


$

1,435

Foreign exchange (gain) loss

$

(221)


$

894


$

428


$

949

Income tax effect of the above items

$

(760)


$

(281)


$

(656)


$

(1,396)

Adjusted EBITDA*

$

4,868


$

6,213


$

18,152


$

25,585

Quarterly and Annual Overview
Sales in the fourth quarter of fiscal 2020 reached US$70.6 million compared to US$70.2 million in the fourth quarter of 2019. Annual sales decreased 7.4% to US$265.6 million in fiscal 2020 mainly due to the negative impact of the coronavirus pandemic.

Bookings totaled US$63.0 million for a book-to-bill ratio of 0.89 in the fourth quarter of fiscal 2020 compared to US$70.9 million in the fourth quarter of 2019. For fiscal 2020, bookings decreased 11.1% to US$264.9 million for a book-to-bill ratio of 1.00 mainly due to the negative impact of the coronavirus pandemic.

Gross margin before depreciation and amortization* attained 53.8% of sales in the fourth quarter of fiscal 2020 compared 56.9% in the fourth quarter of 2019. In fiscal 2020, gross margin before depreciation and amortization reached 56.9% of sales compared to 58.6% in 2019.

Selling and administrative expenses totaled US$24.6 million, or 34.8% of sales, in the fourth quarter of fiscal 2020 compared to US$23.0 million, or 32.8% of sales, in the fourth quarter of 2019. In fiscal 2020, selling and administrative expenses amounted to US$92.3 million, or 34.8% of sales, compared to US$98.6 million, or 34.4% of sales, in 2019.

Net R&D expenses amounted to US$12.0 million, or 17.0% of sales, in the fourth quarter of fiscal 2020 compared to US$11.1 million, or 15.9% of sales, in the fourth quarter of 2019. In fiscal 2020, net R&D expenses totaled US$45.5 million, or 17.1% of sales, compared to US$50.6 million, or 17.6% of sales, in 2019.

In the fourth quarter of fiscal 2020, IFRS net loss amounted to US$3.6 million, or US$0.07 per share, compared to US$0.2 million, or US$0.00 per share, in the fourth quarter of 2019. Net loss in the fourth quarter of 2020 included net expenses totaling US$4.0 million: US$1.2 million in after-tax amortization of intangible assets, US$0.6 million in stock-based compensation costs, US$2.4 million in after-tax restructuring charges, and a foreign exchange gain of US$0.2 million.

In fiscal 2020, IFRS net loss totaled US$9.5 million, or US$0.17 per share, compared to US$2.5 million, or US$0.04 per share, in 2019. Net loss in 2020 included expenses totaling US$10.3 million: US$5.5 million in after-tax amortization of intangible assets, US$2.0 million in stock-based compensation costs, US$2.4 million in after-tax restructuring charges, and a foreign exchange loss of US$0.4 million. Net loss in fiscal 2020 also included US$2.4 million for an after-tax wage subsidy granted by the Canadian government to mitigate the impact of the coronavirus pandemic.

Adjusted EBITDA* amounted to US$4.9 million, or 6.9% of sales, in the fourth quarter of fiscal 2020 compared US$6.2 million, or 8.9% of sales, in the fourth quarter of 2019. In fiscal 2020, adjusted EBITDA totaled US$18.2 million, or 6.8% of sales, compared to US$25.6 million, or 8.9% of sales, in 2019.

After-tax restructuring charges totaled US$2.4 million in the fourth quarter of 2020 and in fiscal 2020 compared to zero charges in the fourth quarter of 2019 and US$3.2 million in 2019.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review fourth quarter and year-end financial results for fiscal 2020. To listen to the conference call and participate in the question period via telephone, dial 1-929-477-0577. Please take note the following conference ID number will be required: 2685037. EXFO's Executive Chairman Germain Lamonde, CEO Philippe Morin, and Pierre Plamondon, CPA, 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 October 14, 2020. The replay number is 1-719-457-0820 and the conference ID number is 2685037. 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 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 gain or 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 performance relative to competitors. These non-IFRS measures are also used by financial analysts that evaluate and compare the company's performance against that of competitors and industry players in the 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 to investors, in addition to the 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 loss in thousands of US dollars:

Adjusted EBITDA


Q4 2020


Q4 2019


FY 2020


FY 2019









IFRS net loss for the period (1)

$

(3,633)


$

(227)


$

(9,540)


$

(2,480)









Add (deduct):
















Depreciation and amortization


3,647


3,152


15,379


14,481

Interest and other (income) expenses


(19)


1,157


956


718

Income taxes


1,633


760


6,022


5,346

Stock-based compensation costs


575


477


2,021


1,831

Restructuring charges


2,886



2,886


3,305

Acquisition-related deferred revenue fair









value adjustment





1,435

Foreign exchange (gain) loss


(221)


894


428


949

Adjusted EBITDA for the period

$

4,868


$

6,213


$

18,152


$

25,585










Adjusted EBITDA in percentage of sales


6.9%


8.9%


6.8%


8.9%



(1)

IFRS net loss for the three months and the year ended August 31, 2020 takes into account the impact of the adoption of IFRS 16 on September 1, 2019. The adoption of IFRS 16 on September 1, 2019 had a positive impact on adjusted EBITDA of US$0.8 million or 1.1% of sales and US$3.3 million or 1.3% of sales, respectively, for the three months and year ended August 31, 2020. Comparative figures were not adjusted.

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets



(in thousands of US dollars)






As at August 31,



2020



2019

Assets












Current assets






Cash

$

32,818


$

16,518

Short-term investments


919



2,918

Accounts receivable






Trade


56,291



51,517

Other


4,055



3,396

Income taxes and tax credits recoverable


4,203



3,159

Inventories


38,865



38,017

Prepaid expenses


5,631



6,510

Other assets


5,493



3,083



148,275



125,118







Tax credits recoverable


48,812



46,704

Property, plant and equipment


39,722



39,364

Lease right-of-use assets


10,758



Intangible assets


17,616



21,654

Goodwill


40,290



38,648

Deferred income tax assets


3,633



4,821

Other assets


1,548



1,293


$

310,654


$

277,602

Liabilities












Current liabilities






Bank loan

$

32,737


$

5,000

Accounts payable and accrued liabilities


41,348



50,790

Provisions


3,792



1,065

Income taxes payable


43



704

Deferred revenue


25,785



24,422

Other liabilities


4,032



1,606

Current portion of lease liabilities


3,249



Current portion of long-term debt


2,076



2,449



113,062



86,036







Provisions


2,782



2,737

Deferred revenue


8,858



9,056

Lease liabilities


7,334



Long-term debt


2,144



3,293

Deferred income tax liabilities


3,760



3,598

Other liabilities


151



318



138,091



105,038







Shareholders' equity






Share capital


94,024



92,706

Contributed surplus


19,680



19,196

Retained earnings


102,633



112,173

Accumulated other comprehensive loss


(43,774)



(51,511)



172,563



172,564








$

310,654


$

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

August 31, 2020


Twelve months

ended

August 31, 2020


Three months

ended

August 31, 2019


Twelve months

ended

August 31, 2019













Sales

$

70,572


$

265,583


$

70,175


$

286,890













Cost of sales (1,2)


32,573



114,558



30,260



118,677

Selling and administrative (2)


24,588



92,293



23,036



98,646

Net research and development (2)


12,004



45,487



11,143



50,553

Depreciation of property, plant and












equipment


1,405



5,563



1,282



5,469

Depreciation of lease right-of-use assets


800



3,349





Amortization of intangible assets


1,442



6,467



1,870



9,012

Interest and other (income) expense


(19)



956



1,157



718

Foreign exchange (gain) loss


(221)



428



894



949

Earnings (loss) before income taxes


(2,000)



(3,518)



533



2,866













Income taxes


1,633



6,022



760



5,346













Net loss for the period

$

(3,633)


$

(9,540)


$

(227)


$

(2,480)













Basic and diluted net loss per share

$

(0.07)


$

(0.17)


$

(0.00)


$

(0.04)













Basic and diluted weighted average number












of shares outstanding (000's)


55,698



55,604



55,379



55,325


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

(2) Restructuring charges included in:


Cost of sales

$

898


$

898


$


$

304

Selling and administrative


1,882



1,882





495

Net research and development


106



106





2,506

Income taxes


(533)



(533)





(63)


$

2,353


$

2,353


$


$

3,242

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)













(in thousands of US dollars)














Three months

ended

August 31, 2020


Twelve months

ended

August 31, 2020


Three months

ended

August 31, 2019


Twelve months

ended

August 31, 2019













Net loss for the period

$

(3,633)


$

(9,540)


$

(227)


$

(2,480)

Other comprehensive income (loss), net of












income taxes












Items that may be reclassified subsequently












to net earnings












Foreign currency translation adjustment


10,069



5,994



1,983



(4,177)

Unrealized gains/losses on forward












exchange contracts


3,026



1,221



442



(795)

Reclassification of realized gains/losses












on forward exchange contracts












in net earnings


493



1,100



534



744

Deferred income tax effect of












gains/losses on forward exchange












contracts


(900)



(578)



(289)



67

Other comprehensive income (loss)


12,688



7,737



2,670



(4,161)













Comprehensive income (loss) for the period

$

9,055


$

(1,803)


$

2,443


$

(6,641)

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity








(in thousands of US dollars)










Year ended August 31, 2019


Share
capital


Contributed
surplus


Retained
earnings


Accumulated
other
comprehensive
loss


Total
shareholders'
equity
















Balance as at August 31, 2018

$

91,937


$

18,428


$

114,906


$

(47,350)


$

177,921

Adoption of IFRS 9






(253)





(253)

Adjusted balance as at September 1, 2018


91,937



18,428



114,653



(47,350)



177,668

Reclassification of stock-based compensation costs


1,106



(1,106)







Redemption of share capital


(337)



25







(312)

Stock-based compensation costs




1,849







1,849

Net loss for the year






(2,480)





(2,480)

Other comprehensive income (loss)















Foreign currency translation adjustment








(4,177)



(4,177)

Changes in unrealized gains/losses on forward















exchange contracts, net of deferred income taxes















of $67








16



16

Total comprehensive loss for the year














(6,641)

Balance as at August 31, 2019

$

92,706


$

19,196


$

112,173


$

(51,511)


$

172,564










Year ended August 31, 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


1,530



(1,530)







Redemption of share capital


(212)



(13)







(225)

Stock-based compensation costs




2,027







2,027

Net loss for the year






(9,540)





(9,540)

Other comprehensive income















Foreign currency translation adjustment








5,994



5,994

Changes in unrealized gains/losses on forward















exchange contracts, net of deferred income taxes















of $578








1,743



1,743

Total comprehensive loss for the year














(1,803)

Balance as at August 31, 2020

$

94,024


$

19,680


$

102,633


$

(43,774)


$

172,563


EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows


(in thousands of US dollars)



Three months
ended
August 31, 2020


Twelve months
ended
August 31, 2020


Three months
ended
August 31, 2019


Twelve months
ended
August 31, 2019













Cash flows from operating activities












Net loss for the period

$

(3,633)


$

(9,540)


$

(227)


$

(2,480)

Add (deduct) items not affecting cash












Stock-based compensation costs


575



2,021



477



1,831

Depreciation and amortization


3,647



15,379



3,152



14,481

Gain on disposal of capital assets


(340)



(340)





(1,732)

Write-off of capital assets


7



223



1,125



1,386

Deferred revenue


3,545



401



(1,142)



10,477

Deferred income taxes


818



657



192



(2,103)

Changes in foreign exchange gain/loss


(314)



1,436



264



(46)



4,305



10,237



3,841



21,814

Changes in non-cash operating items












Accounts receivable


5,251



(1,623)



2,252



(4,786)

Income taxes and tax credits


(253)



(2,871)



(93)



1,536

Inventories


6,188



(45)



534



(134)

Prepaid expenses


247



462



(927)



(1,307)

Other assets


(1,251)



(1,963)



(456)



(1,459)

Accounts payable, accrued liabilities












and provisions


(362)



(6,382)



1,171



3,184

Other liabilities


(47)



48



(79)



(1,606)



14,078



(2,137)



6,243



17,242

Cash flows from investing activities












Additions to short-term investments


(500)



(2,574)



(1,301)



(1,879)

Proceeds from disposal and maturity of short-












term investments


3,052



4,316





1,168

Purchases of capital assets


(1,580)



(7,646)



(1,180)



(7,498)

Proceeds from disposal of capital assets


230



230





3,318



1,202



(5,674)



(2,481)



(4,891)

Cash flows from financing activities












Bank loan


(1,772)



26,532



(143)



(5,195)

Other liabilities


2,355



2,355





Repayment of lease liabilities


(800)



(3,334)





Repayment of long-term debt


(240)



(1,847)



(652)



(2,817)

Redemption of share capital




(225)



(207)



(312)



(457)



23,481



(1,002)



(8,324)

Effect of foreign exchange rate changes on cash


925



630



135



(267)













Change in cash


15,748



16,300



2,895



3,760

Cash – Beginning of the period


17,070



16,518



13,623



12,758













Cash – End of the period

$

32,818


$

32,818


$

16,518


$

16,518

EXFO-F

Cision
Cision

View original content:http://www.prnewswire.com/news-releases/exfo-reports-fourth-quarter-and-fiscal-2020-results-301148041.html

SOURCE EXFO Inc.

Cision
Cision

View original content: http://www.newswire.ca/en/releases/archive/October2020/07/c1021.html