EXFO reports first-quarter results for fiscal 2019

• Sales increased 9.2% to US$69.2 million, above midpoint of guidance range 
• Bookings improved 23.3% to US$81.2 million, book-to-bill ratio of 1.17 
• Announced multi-million-dollar deal with a tier-1 service provider after quarter-end

QUEBEC CITY, Jan. 8, 2019 /CNW Telbec/ - 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, 2018.

IFRS sales increased 9.2% to US$69.2 million in the first quarter of fiscal 2019 from US$63.4 million in the first quarter of 2018. First-quarter sales for 2019 included a $7.5 million contribution from Astellia, reduced by US$0.9 million to account for acquisition-related fair value adjustment of deferred revenue.

Bookings, which included a US$7.8 million contribution from Astellia, improved 23.3% year-over-year to US$81.2 million in the first quarter of fiscal 2019 from US$65.9 million in the same period of 2018. The company's book-to-bill ratio was 1.17 in the first quarter of 2019.

Gross margin before depreciation and amortization* amounted to 58.2% of sales in the first quarter of fiscal 2019 compared to 63.3% in the first quarter of 2018.

IFRS net loss in the first quarter of fiscal 2019 totaled US$7.5 million, or US$0.14 per share, compared to net earnings of US$2.7 million, or US$0.05 per share, in the first quarter of 2018. IFRS net loss in the first quarter of 2019 included net expenses totaling US$6.3 million: US$2.5 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs, US$2.7 million in after-tax restructuring charges, US$0.9 million for acquisition-related fair value adjustment of deferred revenue and a foreign exchange gain of US$0.2 million.

Adjusted EBITDA* totaled US$2.7 million, or 3.9% of sales, in the first quarter of fiscal 2019 compared to US$6.1 million, or 9.6% of sales, in the first quarter of 2018.

Beginning with the first quarter of fiscal 2019, EXFO is reporting revenues and bookings based on two newly created product families: Test and Measurement (T&M) as well as Service Assurance, Systems and Services (SASS).

• Optical, transport and copper test solutions make up the T&M product family, including portable equipment for the field and benchtop units for the lab and manufacturing environments. EXFO is No. 1 worldwide in optical testing and a top-2 provider of portable telecom T&M solutions.
• The SASS family mainly consists of service assurance, fiber monitoring, analytics and professional services as well as other systems-related solutions like network simulation and network topology discovery. EXFO is well positioned for virtualization and 5G network transformations and is now part of the top-5 global SASS suppliers based on its acquisitions of Ontology and Astellia.

This classification replaces the former Physical-Layer and Protocol-Layer product groups. EXFO believes this breakdown better reflects the company's long-term strategy, while enhancing comparisons against industry peers and investors' understanding EXFO's business.

"EXFO delivered solid results in the first quarter of 2019 with revenue above the midpoint of our guidance range, while benefitting from robust calendar year-end spending for our T&M solutions to achieve the second-highest bookings level in company history," said EXFO's CEO Philippe Morin. "Our announced strategic transformation, focused on heightened efficiency and profitability, is progressing according to plan and should be completed by the end of the second quarter. This new structure is starting to pay off internally, but also externally with a better value proposition and more relevant engagement with SASS customers as reflected by a US$4.9 million contract win for real-time active topology software with a tier-1 service provider after the quarter-end."

Selected Financial Information
(In thousands of US dollars)
	Three months ended November 30,
	2019			2018
Test and measurement sales	$	49,764		$	50,186
Service assurance, systems and services sales		19,416			12,968
Foreign exchange gains on forward exchange contracts		21			237
Total sales	$	69,201		$	63,391
Test and measurement bookings	$	63,996		$	52,854
Service assurance, systems and services bookings		17,221			12,788
Foreign exchange gains on forward exchange contracts		21			237
Total bookings	$	81,238		$	65,879
Book-to-bill ratio (bookings/sales)		1.17			1.04
Gross margin before depreciation and amortization^*	$	40,304		$	40,102
		58.2 %			63.3 %
Other selected information:
IFRS net earnings (loss)	$	(7,467)		$	2,679
Amortization of intangible assets	$	2,940		$	1,119
Stock-based compensation costs	$	418		$	402
Restructuring charges	$	2,741		$	‒
Changes in fair value of cash contingent consideration	$	‒		$	(155)
Acquisition-related deferred revenue fair value adjustment	$	864		$	‒
Net income tax effect of the above items	$	(423)		$	(172)
Foreign exchange gain	$	(215)		$	(1,218)
Adjusted EBITDA^*	$	2,728		$	6,059

Operating Expenses
Selling and administrative expenses totaled US$26.4 million, or 38.1% of sales in the first quarter of fiscal 2019 compared to US$23.2 million, or 36.6% of sales, in the first quarter of 2018.

Net R&D expenses totaled US$15.2 million, or 22.0% of sales, in the first quarter of fiscal 2019 compared to US$11.3 million, or 17.8% of sales, in the same period last year. Net R&D expenses included US$2.1 million in restructuring charges in the first quarter of 2019.

First-Quarter Highlights

• Sales. Sales increased 9.2% year-over-year mainly due to the Astellia acquisition (US$7.5 revenue contribution in the quarter), partially offset by a negative currency impact. Test and Measurement sales accounted for 72% of revenue in the first quarter of 2019, while Service Assurance, Systems and Services sales totaled 28%. Revenue distribution among the three main selling regions in the first quarter amounted to 51% in the Americas, 33% in Europe, Middle East and Africa (EMEA) and 16% in Asia-Pacific. EXFO's top customer accounted for 9.0% of sales, while the top three represented 19.6%.
• Profitability. IFRS net loss totaled US$7.5 million in the first quarter of 2019, including US$5.1 million for newly acquired Astellia. Of that number, US$1.8 million is attributable to after-tax amortization of acquired intangible assets. Adjusted EBITDA amounted to US$2.7 million in the first quarter of 2019.
• Innovation. EXFO received two separate innovation-related awards from the Metro Ethernet Forum (MEF) in the first quarter of fiscal 2019. EXFO's software verifier agent, a software solution providing advanced layer-2 to layer-7 testing and end-to-end visibility, received the Technology Solutions Award for Service Assurance from the MEF. EXFO also accepted a Proof of Concept Award from the MEF for its contribution to a collaborative project, named Blade Runner, delivering augmented reality over a 5G wireless network. EXFO covered service assurance by providing virtual probes to enable closed-loop automation and seamless service continuity. EXFO had previously obtained the TM Forum Outstanding Catalyst Innovation Award for its involvement in the Blade Runner project.
  
  EXFO also expanded its 400G test portfolio with the release of a module featuring an Open Transceiver System. This modular design enables compatibility between current and future high-speed transceivers with EXFO's field and lab test platforms. The company also introduced an automated fiber inspection tool for testing polarity, continuity and connector cleanliness on multifiber cables.

Business Outlook
EXFO forecasts sales between US$70.0 million and US$75.0 million for the second quarter of fiscal 2019, while IFRS net earnings are expected to range between US$0.05 and US$0.09 per share. IFRS net earnings include net expenses of US$0.06 per share in after-tax amortization of intangible assets, stock-based compensation costs, acquisition-related fair value adjustment of deferred revenue, after tax restructuring charges, and an anticipated foreign exchange gain. IFRS net earnings also include US$0.03 per share for an after-tax gain on disposal of a capital asset and US$0.04 per share for a one-time deferred income tax recovery.

This guidance, which is a forward-looking statement, was established by management based on existing backlog as of the date of this news release, seasonality, expected bookings for the remaining of the quarter as well as exchange rates as of the date of this news 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 2019. 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: 9817746. 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 15, 2019. The replay number is 1-719-457-0820 and the participant passcode is 9817746. 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 guarantee 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, including trade wars; our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the telecommunications 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 telecommunications test, service assurance 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 (non-IFRS sales, gross margin before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. Non-IFRS sales represent total sales plus acquisition-related deferred revenue fair value adjustment. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA represent net earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change in fair value of cash contingent consideration, 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 and/or non-operating statement of earnings elements, 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 the financial measures used by financial analysts to evaluate and compare EXFO's performance against 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 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 non-IFRS sales to IFRS sales, in thousands of US dollars:

Non-IFRS Sales
	Three months ended November 30,
	2018			2017
IFRS sales	$	69,201		$	63,391
Acquisition-related deferred revenue fair value adjustment		864			‒
Non-IFRS sales	$	70,065		$	63,391

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

Adjusted EBITDA
	Three months ended November 30,
	2018			2017
IFRS net earnings (loss) for the period	$	(7,467)		$	2,679
Add (deduct):
Depreciation		1,429			1,154
Amortization		2,940			1,119
Interest and other expense		377			338
Income taxes		1,641			1,740
Stock-based compensation costs		418			402
Restructuring charges		2,741			‒
Change in fair value of cash contingent consideration		‒			(155)
Acquisition-related deferred revenue fair value adjustment		864			‒
Foreign exchange gain		(215)			(1,218)
Adjusted EBITDA for the period	$	2,728		$	6,059
Adjusted EBITDA in percentage of sales		3.9 %			9.6 %

EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
	As at November 30, 2018			As at August 31, 2018
Assets
Current assets
Cash	$	18,087		$	12,758
Short-term investments		1,976			2,282
Accounts receivable
Trade		50,364			47,273
Other		3,693			4,137
Income taxes and tax credits recoverable		4,694			4,790
Inventories		39,186			38,589
Prepaid expenses		5,019			5,291
Other assets		2,264			2,279
		125,283			117,399
Tax credits recoverable		47,527			47,677
Property, plant and equipment		43,687			44,310
Intangible assets		26,507			29,866
Goodwill		39,115			39,892
Deferred income tax assets		4,270			4,714
Other assets		661			686
	$	287,050		$	284,544
Liabilities
Current liabilities
Bank loan	$	21,399		$	10,692
Accounts payable and accrued liabilities		49,590			47,898
Provisions		2,338			2,954
Income taxes payable		557			873
Deferred revenue		18,564			16,556
Other liabilities		3,109			3,197
Current portion of long-term debt		2,808			2,921
		98,365			85,091
Provisions		2,605			2,347
Deferred revenue		8,320			6,947
Long-term debt		5,185			5,907
Deferred income tax liabilities		5,117			5,910
Other liabilities		540			421
		120,132			106,623
Shareholders' equity
Share capital		92,580			91,937
Contributed surplus		18,245			18,428
Retained earnings		107,186			114,906
Accumulated other comprehensive loss		(51,093)			(47,350)
		166,918			177,921
	$	287,050		$	284,544

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,
	2018			2017
Sales	$	69,201		$	63,391
Cost of sales ^(1)		28,897			23,289
Selling and administrative		26,375			23,193
Net research and development		15,224			11,252
Depreciation of property, plant and equipment		1,429			1,154
Amortization of intangible assets		2,940			1,119
Change in fair value of cash contingent consideration		‒			(155)
Interest and other expense		377			338
Foreign exchange gain		(215)			(1,218)
Earnings (loss) before income taxes		(5,826)			4,419
Income taxes		1,641			1,740
Net earnings (loss) for the period	$	(7,467)		$	2,679
Basic and diluted net earnings (loss) per share	$	(0.14)		$	0.05
Basic weighted average number of shares outstanding (000's)		55,184			54,805
Diluted weighted average number of shares outstanding (000's)		55,184			55,793

(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,
	2018			2017
Net earnings (loss) for the period	$	(7,467)		$	2,679
Other comprehensive income (loss), net of income taxes
Items that may be reclassified subsequently to net earnings (loss)
Foreign currency translation adjustment		(3,356)			(4,130)
Unrealized gains/losses on forward exchange contracts		(687)			(524)
Reclassification of realized gains/losses on forward exchange contracts in net earnings (loss)		91			(383)
Deferred income tax effect of gains/losses on forward exchange contracts		209			215
Other comprehensive loss		(3,743)			(4,822)
Comprehensive loss for the period	$	(11,210)		$	(2,143)

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
		Three months ended November 30, 2017
		Share capital			Contributed surplus			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity
Balance as at September 1, 2017		$	90,411		$	18,184		$	127,160		$	(38,965)		$	196,790
Reclassification of stock-based compensation costs			598			(598)			‒			‒			‒
Stock-based compensation costs			‒			430			‒			‒			430
Net earnings for the period			‒			‒			2,679			‒			2,679
Other comprehensive loss
Foreign currency translation adjustment			‒			‒			‒			(4,130)			(4,130)
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $215			‒			‒			‒			(692)			(692)
Total comprehensive loss for the period															(2,143)
Balance as at November 30, 2017		$	91,009		$	18,016		$	129,839		$	(43,787)		$	195,077
		Three months ended November 30, 2018
		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 at September 1, 2018			91,937			18,428			114,653			(47,350)			177,668
Reclassification of stock-based compensation costs			643			(643)			‒			‒			‒
Stock-based compensation costs			‒			460			‒			‒			460
Net loss for the period			‒			‒			(7,467)			‒			(7,467)
Other comprehensive loss
Foreign currency translation adjustment			‒			‒			‒			(3,356)			(3,356)
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $209			‒			‒			‒			(387)			(387)
Total comprehensive loss for the period															(11,210)
Balance as at November 30, 2018		$	92,580		$	18,245		$	107,186		$	(51,093)		$	166,918

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
	Three months ended November 30,
	2018			2017
Cash flows from operating activities
Net earnings (loss) for the period	$	(7,467)		$	2,679
Add (deduct) items not affecting cash
Stock-based compensation costs		418			402
Depreciation and amortization		4,369			2,273
Write-off of capital assets		‒			124
Change in fair value of cash contingent consideration		‒			(155)
Deferred revenue		3,922			(782)
Deferred income taxes		(29)			(240)
Changes in foreign exchange gain/loss		(529)			(247)
		684			4,054
Changes in non-cash operating items
Accounts receivable		(4,052)			1,085
Income taxes and tax credits		(998)			59
Inventories		(1,361)			(1,953)
Prepaid expenses		183			318
Other assets		(12)			4
Accounts payable, accrued liabilities and provisions		3,132			(1,369)
Other liabilities		(51)			188
		(2,475)			2,386
Cash flows from investing activities
Additions to short-term investments		‒			(234)
Proceeds from disposal of short-term investments		342			‒
Purchases of capital assets		(2,882)			(1,991)
Investment in an associate		‒			(10,311)
Business combination, net of cash acquired		‒			(9,540)
		(2,540)			(22,076)
Cash flows from financing activities
Bank loan		11,257			2
Repayment of long-term debt		(717)			(70)
		10,540			(68)
Effect of foreign exchange rate changes on cash		(196)			(226)
Change in cash		5,329			(19,984)
Cash – Beginning of the period		12,758			38,435
Cash – End of the period	$	18,087		$	18,451

EXFO-F

SOURCE EXFO Inc.

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

Related Links

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