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26.06.2013 16:08:00
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EXFO Reports Third-Quarter Results for Fiscal 2013
- Sales reach US$58.9 million
- Bookings attain US$61.8 million (book-to-bill ratio of 1.05)
- Adjusted EBITDA totals US$3.1 million
QUEBEC CITY, June 26, 2013 /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the third quarter ended May 31, 2013.
Sales reached US$58.9 million in the third quarter of fiscal 2013 compared to US$59.5 million in the third quarter of 2012 and US$62.6 million in the second quarter of 2013.
Bookings attained US$61.8 million in the third quarter of fiscal 2013 for a book-to-bill ratio of 1.05 compared to US$57.5 million in the same period last year and US$53.4 million in the second quarter of 2013.
Gross margin* amounted to 61.7% of sales in the third quarter of fiscal 2013 compared to 60.4% in the third quarter of 2012 and 62.2% in the second quarter of 2013.
IFRS net loss in the third quarter of fiscal 2013 totaled US$0.9 million, or US$0.01 per share, compared to a net loss of US$3.7 million, or US$0.06 per share, in the same period last year and net earnings of US$39,000, or US$0.00 per diluted share, in the second quarter of 2013. IFRS net loss in the third quarter of 2013 included US$1.5 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and a foreign exchange gain of US$0.3 million.
Adjusted EBITDA** totaled US$3.1 million, or 5.3% of sales, in the third quarter of fiscal 2013 compared to -US$0.5 million, or -0.8% of sales, in the third quarter of 2012 and US$4.4 million, or 7.1% of sales, in the second quarter of 2013.
"Although we increased bookings 7% year-over-year and 16% sequentially in the third quarter, our financial performance clearly ended below our expectations," said Germain Lamonde, EXFO's Chairman, President and CEO. "Network operator spending remained muted in the telecom industry with bookings soft in EMEA and uneven in Asia-Pacific, while rather strong in the Americas based on 4G/LTE and 100G deployments. Given market uncertainty, we reduced our SG&A and net R&D expenses by $7.5 million after nine months into fiscal 2013 —despite normal salary increases and inflation — without sacrificing the growth engine of the company. I am confident that our enhanced competitive position, sharpened market focus and newly launched products will combine with strong industry fundamentals to deliver robust revenue growth and profitability in the near future."
Selected Financial Information
(In thousands of US dollars)
| Q3 2013 | Q2 2013 | Q3 2012 | |||||||
| Sales | $ | 58,865 | $ | 62,576 | $ | 59,505 | |||
| Gross margin* | $ | 36,291 | $ | 38,912 | $ | 35,956 | |||
| 61.7% | 62.2% | 60.4% | |||||||
| Other selected information: | |||||||||
| IFRS net earnings (loss) | $ | (862) | $ | 39 | $ | (3,720) | |||
| Amortization of intangible assets | $ | 1,586 | $ | 1,922 | $ | 1,993 | |||
| Stock-based compensation costs | $ | 415 | $ | 468 | $ | 370 | |||
| Restructuring charges | $ | ‒ | $ | 89 | $ | ‒ | |||
| Net income tax effect of the above items | $ | (68) | $ | (95) | $ | (60) | |||
| Foreign exchange gain | $ | (314) | $ | (1,700) | $ | (1,090) | |||
| Adjusted EBITDA** | $ | 3,131 | $ | 4,435 | $ | (472) | |||
Operating Expenses
Selling and administrative expenses totaled US$22.0 million, or 37.4% of sales in the third quarter of fiscal 2013 compared to US$23.6 million, or 39.7% of sales, in the same period last year and US$23.1 million, or 36.9% of sales, in the second quarter of 2013.
Gross research and development expenses amounted to US$13.8 million, or 23.4% of sales, in the third quarter of fiscal 2013 compared to US$15.6 million, or 26.2% of sales, in the third quarter of 2012 and US$14.1 million, or 22.6% of sales, in the second quarter of 2013.
Net R&D expenses totaled US$11.6 million, or 19.7% of sales, in the third quarter of fiscal 2013 compared to US$13.2 million, or 22.1% of sales, in the same period last year and US$12.0 million, or 19.1% of sales, in the second quarter of 2013.
Third-Quarter Highlights
- Growth. EXFO's bookings improved 7.4% year-over-year and 15.8% quarter-over-quarter to US$61.8 million in the third quarter. Bookings strengthened particularly in the United States in the last month of the quarter. EXFO's top customer accounted for 6.6% of sales in the third quarter, while the top three represented 15.7%. Bookings progressed particularly in EXFO's wireless and high-speed optical product lines.
- Profitability. EXFO delivered adjusted EBITDA of US$3.1 million in the third quarter of 2013 compared to -US$0.5 million in the same period last year. The company also generated US$1.3 million in cash flows from operating activities. EXFO continues to maintain a tight control on expenses, while core technologies related to the Brix Networks acquisition became fully amortized in April.
- Innovation. Altogether, EXFO has released 13 new products or major enhancements since the beginning of the fiscal year, including significant features in its Protocol product line in which innovation is largely driven by ongoing software releases. New product introductions garnered strong traction in the market, especially with tier-1 wireless operators.
Business Outlook
EXFO forecasts sales between US$58.0 million and US$63.0 million for the fourth quarter of fiscal 2013, while IFRS net earnings are expected to range between US$0.00 and US$0.04 per diluted share. Net earnings include US$0.03 per share in after-tax amortization of intangible assets and stock-based compensation costs.
This guidance was established by management based on existing backlog as of the date of this press release, seasonality, expected bookings for the remaining of the quarter, as well as exchange rates as at May 31, 2013.
Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review its financial results for the third quarter of fiscal 2013. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9004.Germain Lamonde, Chairman, President and CEO, and Pierre Plamondon, CPA, CA, Vice-President of Finance and Chief Financial Officer, will participate in the call. An audio replay of the conference call will be available one hour after the event until 7 p.m. on July 3, 2013. The replay number is 1-402-977-9141 and the reservation number is 21658380. 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
Listed on the NASDAQ and TSX stock exchanges, EXFO is among the leading providers of next-generation test and service assurance solutions for wireline and wireless network operators and equipment manufacturers in the global telecommunications industry. The company offers innovative solutions for the development, installation, management and maintenance of converged, IP fixed and mobile networks—from the core to the edge. Key technologies supported include 3G, 4G/LTE, IMS, Ethernet, OTN, FTTx, VDSL2, ADSL2+ and various optical technologies accounting for more than 35% of the portable fiber-optic test market. EXFO has a staff of approximately 1700 people in 25 countries, supporting more than 2000 telecom customers worldwide. For more information, visit www.EXFO.com.
Forward-Looking Statements
This press 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, will, expect, believe, anticipate, intend, could, estimate, continue, or the negative or comparable terminology 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 macro-economic uncertainty and/or recession (including our ability to quickly adapt cost structures with anticipated levels of business and our ability to manage inventory levels with market demand); capital spending and network deployment levels in the telecommunications industry; future economic, competitive, financial and market conditions; limited visibility with regards to customer orders and the timing of such orders; fluctuating exchange rates; consolidation in the global telecommunications test and service assurance industry and increased competition among vendors; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully integrate our acquired and to-be-acquired businesses; our ability to successfully expand international operations; 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* and adjusted EBITDA**) as supplemental information regarding its operational performance. The company uses these measures for the purposes of evaluating historical and prospective financial performance, as well as performance relative to competitors. These measures also help EXFO to plan and forecast future periods as well as to make operational and strategic decisions. EXFO believes that providing this information, in addition to IFRS measures, allows investors to see the company's results through the eyes of management, and to better understand historical and future financial performance.
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.
| * | Gross margin represents sales less cost of sales, excluding depreciation and amortization. |
| ** | Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, restructuring charges, stock-based compensation costs and foreign exchange gain. |
The following table summarizes the reconciliation of adjusted EBITDA to IFRS net earnings (loss), in thousands of US dollars:
Adjusted EBITDA
| Q3 2013 | Q2 2013 | Q3 2012 | |||||||
| IFRS net earnings (loss) for the period | $ | (862) | $ | 39 | $ | (3,720) | |||
| Add (deduct): | |||||||||
| Depreciation of property, plant and equipment | 1,473 | 1,504 | 1,520 | ||||||
| Amortization of intangible assets | 1,586 | 1,922 | 1,993 | ||||||
| Interest (income) expense | (68) | 25 | (85) | ||||||
| Income taxes | 901 | 2,088 | 540 | ||||||
| Restructuring charges | − | 89 | − | ||||||
| Stock-based compensation costs | 415 | 468 | 370 | ||||||
| Foreign exchange gain | (314) | (1,700) | (1,090) | ||||||
| Adjusted EBITDA for the period | $ | 3,131 | $ | 4,435 | $ | (472) | |||
| Adjusted EBITDA in percentage of sales | 5.3% | 7.1% | (0.8)% | ||||||
EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
| As at May 31, 2013 | As at August 31, 2012 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash | $ | 49,858 | $ | 58,868 | |||
| Short-term investments | 4,939 | 8,236 | |||||
| Accounts receivable | |||||||
| Trade | 46,794 | 37,643 | |||||
| Other | 2,802 | 4,283 | |||||
| Income taxes and tax credits recoverable | 5,915 | 9,024 | |||||
| Inventories | 38,399 | 41,212 | |||||
| Prepaid expenses | 4,465 | 3,800 | |||||
| 153,172 | 163,066 | ||||||
| Tax credits recoverable | 41,894 | 38,397 | |||||
| Property, plant and equipment | 45,775 | 49,848 | |||||
| Intangible assets | 8,664 | 14,132 | |||||
| Goodwill | 27,740 | 29,160 | |||||
| Deferred income taxes | 10,867 | 12,080 | |||||
| $ | 288,112 | $ | 306,683 | ||||
| Liabilities | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued liabilities | $ | 30,255 | $ | 32,392 | |||
| Provisions | 902 | 952 | |||||
| Income taxes payable | 1,502 | 917 | |||||
| Current portion of long-term debt | 580 | 565 | |||||
| Deferred revenue | 10,869 | 10,583 | |||||
| 44,108 | 45,409 | ||||||
| Deferred revenue | 4,245 | 4,997 | |||||
| Long-term debt | ‒ | 282 | |||||
| Other liabilities | 357 | 609 | |||||
| Deferred income taxes | 2,452 | 2,105 | |||||
| 51,162 | 53,402 | ||||||
| Shareholders' equity | |||||||
| Share capital | 110,510 | 110,965 | |||||
| Contributed surplus | 16,872 | 17,298 | |||||
| Retained earnings | 109,050 | 111,511 | |||||
| Accumulated other comprehensive income | 518 | 13,507 | |||||
| 236,950 | 253,281 | ||||||
| $ | 288,112 | $ | 306,683 | ||||
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
| Three months ended May 31, 2013 | Nine months ended May 31, 2013 | Three months ended May 31, 2012 | Nine months ended May 31, 2012 | |||||||||
| Sales | $ | 58,865 | $ | 181,262 | $ | 59,505 | $ | 192,810 | ||||
| Cost of sales(1) | 22,574 | 69,895 | 23,549 | 70,535 | ||||||||
| Selling and administrative | 22,002 | 67,366 | 23,625 | 71,919 | ||||||||
| Net research and development | 11,573 | 35,135 | 13,173 | 37,963 | ||||||||
| Depreciation of property, plant and equipment | 1,473 | 4,582 | 1,520 | 4,634 | ||||||||
| Amortization of intangible assets | 1,586 | 5,470 | 1,993 | 5,888 | ||||||||
| Changes in fair value of cash contingent consideration | ‒ | ‒ | ‒ | (311) | ||||||||
| Earnings (loss) from operations | (343) | (1,186) | (4,355) | 2,182 | ||||||||
| Interest income | 68 | 76 | 85 | 68 | ||||||||
| Foreign exchange gain | 314 | 2,770 | 1,090 | 1,283 | ||||||||
| Earnings (loss) before income taxes | 39 | 1,660 | (3,180) | 3,533 | ||||||||
| Income taxes | 901 | 4,121 | 540 | 3,412 | ||||||||
| Net earnings (loss) for the period | $ | (862) | $ | (2,461) | $ | (3,720) | $ | 121 | ||||
| Basic and diluted net earnings (loss) per share | $ | (0.01) | $ | (0.04) | $ | (0.06) | $ | 0.00 | ||||
| Basic weighted average number of shares outstanding (000's) | 60,377 | 60,386 | 60,537 | 60,440 | ||||||||
| Diluted weighted average number of shares outstanding (000's) | 60,377 | 60,386 | 60,537 | 61,694 | ||||||||
| (1) The cost of sales is exclusive of depreciation and amortization, shown separately. | ||||||||||||
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Comprehensive Loss
(in thousands of US dollars)
| Three months ended May 31, 2013 | Nine months ended May 31, 2013 | Three months ended May 31, 2012 | Nine months ended May 31, 2012 | ||||||||||
| Net earnings (loss) for the period | $ | (862) | $ | (2,461) | $ | (3,720) | $ | 121 | |||||
| Other comprehensive income (loss), net of income taxes | |||||||||||||
| Items that will not be reclassified subsequently to net earnings | |||||||||||||
| Foreign currency translation adjustment | (1,252) | (12,144) | (12,307) | (17,934) | |||||||||
| Items that may be reclassified subsequently to net earnings | |||||||||||||
| Unrealized gains/losses on forward exchange contracts | (112) | (874) | (1,066) | (922) | |||||||||
| Reclassification of realized gains/losses on forward exchange contracts in net earnings (loss) | 48 | (281) | (285) | (1,265) | |||||||||
| Deferred income tax effect of gains/losses on forward exchange contracts | 17 | 310 | 362 | 594 | |||||||||
| Other comprehensive loss | (1,299) | (12,989) | (13,296) | (19,527) | |||||||||
| Comprehensive loss for the period | $ | (2,161) | $ | (15,450) | $ | (17,016) | $ | (19,406) | |||||
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
| Nine months ended May 31, 2012 | ||||||||||||||||
| Share capital | Contributed surplus | Retained earnings | Accumulated other comprehensive income | Total shareholders' equity | ||||||||||||
| Balance as at September 1, 2011 | $ | 110,341 | $ | 18,017 | $ | 115,104 | $ | 21,049 | $ | 264,511 | ||||||
| Exercise of stock options | 118 | - | - | - | 118 | |||||||||||
| Redemption of share capital | (404) | (222) | - | - | (626) | |||||||||||
| Reclassification of stock-based compensation costs | 1,835 | (1,835) | - | - | - | |||||||||||
| Stock-based compensation costs | - | 1,362 | - | - | 1,362 | |||||||||||
| Net earnings for the period | - | - | 121 | - | 121 | |||||||||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | (17,934) | (17,934) | |||||||||||
| Changes in unrealized gains on forward exchange contracts, net of deferred income taxes of $594 | - | - | - | (1,593) | (1,593) | |||||||||||
| Total comprehensive income (loss) for the period | - | - | 121 | (19,527) | (19,406) | |||||||||||
| Balance as at May 31, 2012 | $ | 111,890 | $ | 17,322 | $ | 115,225 | $ | 1,522 | $ | 245,959 | ||||||
| Nine months ended May 31, 2013 | ||||||||||||||||
| Share capital | Contributed surplus | Retained earnings | Accumulated other comprehensive income | Total shareholders' equity | ||||||||||||
| Balance as at September 1, 2012 | $ | 110,965 | $ | 17,298 | $ | 111,511 | $ | 13,507 | $ | 253,281 | ||||||
| Exercise of stock options | 87 | - | - | - | 87 | |||||||||||
| Redemption of share capital | (1,892) | (409) | - | - | (2,301) | |||||||||||
| Reclassification of stock-based compensation costs | 1,350 | (1,350) | - | - | - | |||||||||||
| Stock-based compensation costs | - | 1,333 | - | - | 1,333 | |||||||||||
| Net loss for the period | - | - | (2,461) | - | (2,461) | |||||||||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | (12,144) | (12,144) | |||||||||||
| Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $310 | - | - | - | (845) | (845) | |||||||||||
| Total comprehensive loss for the period | - | - | (2,461) | (12,989) | (15,450) | |||||||||||
| Balance as at May 31, 2013 | $ | 110,510 | $ | 16,872 | $ | 109,050 | $ | 518 | $ | 236,950 | ||||||
EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
| Three months ended May 31, 2013 | Nine months ended May 31, 2013 | Three months ended May 31, 2012 | Nine months ended May 31, 2012 | ||||||||||
| Cash flows from operating activities | |||||||||||||
| Net earnings (loss) for the period | $ | (862) | $ | (2,461) | $ | (3,720) | $ | 121 | |||||
| Add (deduct) items not affecting cash | |||||||||||||
| Change in discount on short-term investments | 1 | - | - | 43 | |||||||||
| Stock-based compensation costs | 415 | 1,331 | 370 | 1,433 | |||||||||
| Depreciation and amortization | 3,059 | 10,052 | 3,513 | 10,522 | |||||||||
| Changes in fair value of cash contingent consideration | - | - | - | (311) | |||||||||
| Deferred revenue | 1,661 | 241 | 2,629 | 1,976 | |||||||||
| Deferred income taxes | 263 | 1,984 | 445 | 2,020 | |||||||||
| Change in foreign exchange gain/loss | (78) | (876) | (1,091) | (2,130) | |||||||||
| 4,459 | 10,271 | 2,146 | 13,674 | ||||||||||
| Change in non-cash operating items | |||||||||||||
| Accounts receivable | (4,569) | (10,657) | (2,339) | 268 | |||||||||
| Income taxes and tax credits | 985 | (2,201) | (2,308) | (3,566) | |||||||||
| Inventories | (262) | 791 | 1,930 | 9,573 | |||||||||
| Prepaid expenses | (804) | (859) | (238) | (451) | |||||||||
| Accounts payable, accrued liabilities and provisions | 1,553 | 1,503 | 3,478 | 3,443 | |||||||||
| Other liabilities | (25) | (235) | 163 | 11 | |||||||||
| 1,337 | (1,387) | 2,832 | 22,952 | ||||||||||
| Cash flows from investing activities | |||||||||||||
| Additions to short-term investments | (9,934) | (44,703) | (24,170) | (91,968) | |||||||||
| Proceeds from disposal and maturity of short-term investments | 9,921 | 47,731 | 21,135 | 128,901 | |||||||||
| Additions to capital assets | (1,459) | (5,952) | (6,826) | (18,003) | |||||||||
| (1,472) | (2,924) | (9,861) | 18,930 | ||||||||||
| Cash flows from financing activities | |||||||||||||
| Bank loan | - | - | 3 | (782) | |||||||||
| Repayment of long-term debt | - | (293) | - | (296) | |||||||||
| Exercise of stock options | - | 87 | 40 | 118 | |||||||||
| Redemption of share capital | (1,161) | (2,301) | - | (626) | |||||||||
| (1,161) | (2,507) | 43 | (1,586) | ||||||||||
| Effect of foreign exchange rate changes on cash | (271) | (2,192) | (2,354) | (1,158) | |||||||||
| Change in cash | (1,567) | (9,010) | (9,340) | 39,138 | |||||||||
| Cash - Beginning of the period | 51,425 | 58,868 | 71,249 | 22,771 | |||||||||
| Cash - End of the period | $ | 49,858 | $ | 49,858 | $ | 61,909 | $ | 61,909 | |||||
| Supplementary information | |||||||||||||
| Interest paid | $ | 2 | $ | 28 | $ | 3 | $ | 61 | |||||
| Income taxes paid | $ | 118 | $ | 1,055 | $ | 367 | $ | 1,357 | |||||
SOURCE EXFO inc.
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