EXFO Reports First-Quarter Results for Fiscal 2016

• Bookings reach US$58.5 million, up 7.8% year-over-year
• Sales attain US$55.2 million
• Gross margin improves to 63.5%
• Adjusted EBITDA totals US$5.3 million, 9.6% of sales

QUEBEC CITY, Jan. 6, 2016 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the first quarter ended November 30, 2015.

Sales reached US$55.2 million in the first quarter of fiscal 2016 compared to US$56.7 million in the first quarter of 2015 and US$56.6 million in the fourth quarter of 2015.

Bookings attained US$58.5 million in the first quarter of fiscal 2016 compared to US$54.2 million in the same period last year and US$54.9 million in the fourth quarter of 2015. The company's book-to-bill ratio was 1.06 in the first quarter of 2016.

Gross margin before depreciation and amortization^* amounted to 63.5% of sales in the first quarter of fiscal 2016 compared to 62.6% in the first quarter of 2015 and 61.2% in the fourth quarter of 2015.

IFRS net earnings in the first quarter of fiscal 2016 totaled US$1.8 million, or US$0.03 per diluted share, compared US$1.5 million, or US$0.02 per diluted share, in the same period last year and US$2.3 million, or US$0.04 per diluted share, in the fourth quarter of 2015. IFRS net earnings in the first quarter of 2016 included US$0.3 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$5.3 million, or 9.6% of sales, in the first quarter of fiscal 2016 compared to US$3.2 million, or 5.6% of sales, in the first quarter of 2015 and US$5.0 million, or 8.8% of sales, in the fourth quarter of 2015.

"The transformations implemented during fiscal 2015 are starting to pay off as demonstrated by the bookings growth of our two product groups, especially in North America and for our Protocol-layer offering, which helped to generate our best gross margin in 15 quarters," said Germain Lamonde, EXFO's Chairman, President and CEO. "Within our Protocol-layer group, I am particularly pleased with our unique, end-to-end EXFO Xtract analytics solution based on its strong funnel and recent important wins at two major network operators. Given the impact of our transformations, completed cost reductions and favorable currency trends, I believe we are off to a good start to deliver or surpass our adjusted EBITDA target of US$20 million for fiscal 2016."

Selected Financial Information
(In thousands of US dollars)
			Q1 2016			Q4 2015			Q1 2015
Physical-layer sales			$	37,477		$	34,967		$	37,848
Protocol-layer sales				18,629			22,419			19,168
Foreign exchange losses on forward exchange contracts				(874)			(792)			(292)
Total sales			$	55,232		$	56,594		$	56,724
Physical-layer bookings			$	38,878		$	35,521		$	37,394
Protocol-layer bookings				20,469			20,187			17,142
Foreign exchange losses on forward exchange contracts				(874)			(792)			(292)
Total bookings			$	58,473		$	54,916		$	54,244
Book-to-bill ratio				1.06			0.97			0.96
Gross margin^*			$	35,095		$	34,619		$	35,487
				63.5%			61.2%			62.6%
Other selected information:
	IFRS net earnings		$	1,766		$	2,323		$	1,481
	Amortization of intangible assets		$	300		$	322		$	1,098
	Stock-based compensation costs		$	376		$	133		$	400
	Restructuring charges		$	−		$	1,637		$	−
	Net income tax effect of the above items		$	(28)		$	(371)		$	(58)
	Foreign exchange gain		$	310		$	2,425		$	1,975
	Adjusted EBITDA^*		$	5,286		$	4,962		$	3,197

Operating Expenses
Selling and administrative expenses totaled US$20.3 million, or 36.7% of sales in the first quarter of fiscal 2016 compared to US$21.0 million, or 37.1% of sales, in the same period last year and US$20.5 million, or 36.3% of sales, in the fourth quarter of 2015.

Net R&D expenses totaled US$9.9 million, or 18.0% of sales, in the first quarter of fiscal 2016 compared to US$11.7 million, or 20.6% of sales, in the first quarter of 2015 and US$10.9 million, or 19.3% of sales, in the fourth quarter of 2015.

First-Quarter Highlights

• Bookings and Sales. Bookings increased 7.8% year-over-year (or more than 10% on a constant currency basis*) to US$58.5 million for a book-to-bill ratio of 1.06 in the first quarter of 2016. Bookings were particularly strong in the Americas and within the Protocol-layer product group, reflecting higher margins and increased solutions orders. Sales distribution at a regional level resulted in 56% from the Americas, 26% from EMEA and 18% from Asia-Pacific. From a product-line standpoint, Physical-layer sales represented 67% of total sales and Protocol-layer sales 33%. EXFO's top customer accounted for 8.2% of sales, while the top three represented 18.2%.
• Profitability. Adjusted EBITDA increased 65% year-over-year to US$5.3 million (9.6% of sales) in the first quarter of 2016, which is in line with EXFO's US$20 million annual target. The company also delivered US$3.2 million in cash flows from operating activities and had a cash position of US$29.4 million and no debt as at November 30, 2015.
• Innovation. EXFO launched two new products in the first quarter, namely the MaxTester-940 Fiber Certifier OLTS (optical loss test set) for data center and enterprise markets and iSAM, an intelligent service activation software application bringing speed and simplicity to testing Ethernet services. The company also received the 2015 Global Portable Fiber-Optic Test Equipment (FOTE) Market Share Leadership Award from Frost & Sullivan for consolidating its leadership position by increasing optical sales 6% during the previous calendar year and bolstering its market share.

Business Outlook
EXFO forecasts sales between US$52.0 million and US$57.0 million for the second quarter of fiscal 2016, while IFRS net earnings are expected to range between US$0.04 and US$0.08 per diluted share. IFRS net earnings include US$0.01 per diluted 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 of the day of this press release.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review first-quarter results for fiscal 2016. To listen to the conference call and participate in the question period via telephone, dial 1-704-288-0432. Please take note the following conference ID number will be required: 94927176. 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 two hours after the event until 11:59 p.m. on January 13, 2016. The replay number is 1-855-859-2056 and the conference ID number is 94927176. 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 enables extraordinary experiences over global networks. Our test, service assurance and network visibility solutions allow network operators and equipment manufacturers to deliver a wealth of services to consumers, while increasing network capacity and reducing operating costs. From a company executive holding a telepresence meeting with overseas staff to a runner transferring data from wearable technology, EXFO's inherent expertise and powerful analytics render these events commonplace. Simply put, we have evolved over our 30-year history to ensure unmatched quality of service and quality of experience on next-generation fixed and mobile networks. EXFO has a staff of approximately 1500 people in 25 countries, supporting more than 2000 customers worldwide. For more information, visit www.EXFO.com and follow us on the EXFO Blog, Twitter, LinkedIn, Facebook, Google+ and YouTube.

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, 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 statement that refers 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 as well as capital spending and network deployment levels in the telecommunications industry (including our ability to quickly adapt cost structures with 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 telecommunications test and service assurance industry and increased competition among vendors; capacity to adapt our future product offering to future technological changes; limited visibility with regards to timing and nature of customer orders; longer sales cycles for complex systems involving customers' acceptances delaying revenue recognition; 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; our ability to successfully integrate businesses that we acquire; 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 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 (constant currency data, gross margin before depreciation and amortization, and adjusted EBITDA) as supplemental information regarding its operational performance. The company uses these measures for the purpose of evaluating historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the company to plan and forecast for 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 its 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.

Constant currency data represents data before foreign currency impact. Data for the current period is translated using foreign exchange rates of the corresponding period from the preceding year. 

Gross margin before depreciation and amortization represents sales less cost of sales, excluding depreciation and amortization.

Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, restructuring charges, stock-based compensation costs and foreign exchange gain.

The following table summarizes the reconciliation of adjusted EBITDA to IFRS net earnings, in thousands of US dollars:

Adjusted EBITDA (unaudited)
		Q1 2016			Q4 2015			Q1 2015
IFRS net earnings for the period		$	1,766		$	2,323		$	1,481
Add (deduct):
Depreciation of property, plant and equipment			975			1,171			1,245
Amortization of intangible assets			300			322			1,098
Interest (income) expense			63			61			(217)
Income taxes			2,116			1,740			1,165
Restructuring charges			─			1,637			─
Stock-based compensation costs			376			133			400
Foreign exchange gain			(310)			(2,425)			(1,975)
Adjusted EBITDA for the period		$	5,286		$	4,962		$	3,197
Adjusted EBITDA in percentage of sales			9.6%			8.8%			5.6%

EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
				As at November 30, 2015			As at August 31, 2015
Assets
Current assets
Cash			$	27,874		$	25,864
Short-term investments				1,490			1,487
Accounts receivable
	Trade			48,959			48,068
	Other			2,797			2,384
Income taxes and tax credits recoverable				3,477			3,855
Inventories				30,741			27,951
Prepaid expenses				2,711			2,801
				118,049			112,410
Tax credits recoverable				35,443			35,625
Property, plant and equipment				35,374			35,695
Intangible assets				3,867			4,096
Goodwill				21,539			21,860
Deferred income tax assets				8,365			8,900
Other assets				218			416
			$	222,855		$	219,002
Liabilities
Current liabilities
Bank loan			$	312		$	─
Accounts payable and accrued liabilities				36,750			34,126
Provisions				335			427
Income taxes payable				519			779
Deferred revenue				7,376			7,647
				45,292			42,979
Deferred revenue				4,553			2,957
Deferred income tax liabilities				1,695			1,524
Other liabilities				507			791
				52,047			48,251
Shareholders' equity
Share capital				86,767			86,045
Contributed surplus				17,396			17,778
Retained earnings				120,699			118,933
Accumulated other comprehensive loss				(54,054)			(52,005)
				170,808			170,751
			$	222,855		$	219,002

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,
			2015		2014
Sales		$	55,232		$	56,724
Cost of sales ^(1)			20,137			21,237
Selling and administrative			20,252			21,032
Net research and development			9,933			11,658
Depreciation of property, plant and equipment			975			1,245
Amortization of intangible assets			300			1,098
Interest (income) expense			63			(217)
Foreign exchange gain			(310)			(1,975)
Earnings before income taxes			3,882			2,646
Income taxes			2,116			1,165
Net earnings for the period		$	1,766		$	1,481
Basic and diluted net earnings per share		$	0.03		$	0.02
Basic weighted average number of shares outstanding (000's)			53,814			60,335
Diluted weighted average number of shares outstanding (000's)			54,535			60,980
(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 November 30,
			2015			2014
Net earnings for the period			$	1,766		$	1,481
Other comprehensive income (loss), net of income taxes
Items that will not be reclassified subsequently to net earnings
	Foreign currency translation adjustment			(2,509)			(11,735)
Items that may be reclassified subsequently to net earnings
	Unrealized losses on forward exchange contracts			(270)			(1,505)
	Reclassification of realized losses on forward exchange contracts in net earnings			878			162
	Deferred income tax effect of losses on forward exchange contracts			(148)			373
Other comprehensive loss				(2,049)			(12,705)
Comprehensive loss for the period			$	(283)		$	(11,224)

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
			Three months ended November 30, 2014
			Share Capital			Contributed Surplus			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity
Balance as at September 1, 2014			$	111,491		$	16,503		$	113,635		$	(10,259)		$	231,370
Redemption of share capital				(919)			66			–			–			(853)
Reclassification of stock-based compensation costs				443			(443)			–			–			–
Stock-based compensation costs				–			414			–			–			414
Net earnings for the period				–			–			1,481			–			1,481
Other comprehensive loss
	Foreign currency translation adjustment			–			–			–			(11,735)			(11,735)
	Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $373			–			–			–			(970)			(970)
Total comprehensive loss for the period																(11,224)
Balance as at November 30, 2014			$	111,015		$	16,540		$	115,116		$	(22,964)		$	219,707
			Three months ended November 30, 2015
			Share Capital			Contributed Surplus			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity
Balance as at September 1, 2015			$	86,045		$	17,778		$	118,933		$	(52,005)		$	170,751
Redemption of share capital				(1)			–			–			–			(1)
Reclassification of stock-based compensation costs				723			(723)			–			–			–
Stock-based compensation costs				–			341			–			–			341
Net earnings for the period				–			–			1,766			–			1,766
Other comprehensive income (loss)
	Foreign currency translation adjustment			–			–			–			(2,509)			(2,509)
	Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $148			–			–			–			460			460
Total comprehensive loss for the period																(283)
Balance as at November 30, 2015			$	86,767		$	17,396		$	120,699		$	(54,054)		$	170,808

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
			Three months ended November 30,
			2015			2014
Cash flows from operating activities
Net earnings for the period			$	1,766		$	1,481
Add (deduct) items not affecting cash
	Stock-based compensation costs			376			400
	Depreciation and amortization			1,275			2,343
	Deferred revenue			1,511			(1,027)
	Deferred income taxes			573			(332)
	Changes in foreign exchange gain/loss			(344)			(1,028)
				5,157			1,837
Changes in non-cash operating items
	Accounts receivable			(2,024)			(5,036)
	Income taxes and tax credits			(278)			(212)
	Inventories			(3,226)			(1,181)
	Prepaid expenses			54			(336)
	Other assets			193			1
	Accounts payable, accrued liabilities and provisions			3,375			6,836
	Other liabilities			(28)			(19)
				3,223			1,890
Cash flows from investing activities
Additions to short-term investments				(21)			(13,691)
Proceeds from disposal and maturity of short-term investments				–			13,766
Additions to capital assets				(1,309)			(754)
				(1,330)			(679)
Cash flows from financing activities
Bank loan				315			–
Redemption of share capital				(1)			(853)
				314			(853)
Effect of foreign exchange rate changes on cash				(197)			(2,258)
Change in cash				2,010			(1,900)
Cash – Beginning of the period				25,864			54,121
Cash – End of the period			$	27,874		$	52,221
Supplementary information
Income taxes paid			$	608		$	367

EXFO-F

SOURCE EXFO inc.

Vance Oliver, Director, Investor Relations, [phone], Ext. 23733, [email protected]