EXFO Reports Record Sales and Bookings for Second Quarter of Fiscal 2010
- Sales increase 16.7% year-over-year to US$54.1 million
- Bookings improve 22.2% year-over-year to US$57.8 million, book-to-bill
ratio of 1.07
- Earnings from operations reach US$3.9 million or 7.3% of sales
- NetHawk acquisition expands reach into high-growth 3G and 4G/LTE
wireless market
</pre>
<p/>
<p><span class="xn-location">QUEBEC</span> CITY, <span class="xn-chron">March 30</span> /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today record sales and bookings for its second quarter ended <span class="xn-chron">February 28, 2010</span>.</p>
<p>Sales increased 16.7% to US$54.1 million in the second quarter of fiscal 2010 from US$46.4 million in the second quarter of 2009 and 18.8% from US$45.6 million in the first quarter of 2010. Net bookings improved 22.2% to US$57.8 million the second quarter of fiscal 2010 from US$47.3 million in the same period last year and 10.8% from US$52.2 million in the first quarter of 2010. The company's book-to-bill ratio was 1.07 in the second quarter of 2010.</p>
<p>Gross margin decreased to 60.0% of sales in the second quarter of fiscal 2010 from 60.4% in the second quarter of 2009 and 63.9% in the first quarter of 2010.</p>
<p>GAAP net earnings in the second quarter of fiscal 2010 totaled US$1.2 million, or US$0.02 per diluted share, compared to US$2.7 million, or US$0.04 per diluted share, in the same period last year and US$0.3 million, or US$0.01 per diluted share, in the first quarter of fiscal 2010. It should be noted that EXFO recorded a pre-tax, foreign exchange loss of US$1.0 million in the second quarter of fiscal 2010 compared to a gain of US$1.1 million in the second quarter of 2009 and a loss of US$1.1 million in the first quarter of 2010. GAAP net earnings in the second quarter of fiscal 2010 included US$1.5 million in amortization of intangible assets and US$0.5 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$0.5 million.</p>
<p>Following the quarter-end, EXFO announced the acquisition of NetHawk Oyj, the second-largest provider of 2G, 3G and 4G/LTE protocol analyzers and network simulators in the wireless test industry, in an all-cash transaction estimated at (euro)37.3 million for all outstanding shares on a fully diluted basis, or (euro)27.6 million excluding NetHawk's net cash. EXFO initially acquired 91% of NetHawk's outstanding shares and is in the process of purchasing the remaining shares pursuant to a statutory procedure under the Finnish Companies Act.</p>
<p>"I'm certainly delighted with the NetHawk acquisition, since its leading 3G and 4G/LTE technologies transform EXFO into a major force in the high-growth, high-margin wireless space and a top-five player in the global telecom test and service assurance industry," said Germain Lamonde, EXFO's Chairman, President and CEO. "I'm equally pleased with our record level of sales and bookings in the second quarter. Given our enhanced strategic positioning and overall improvement in our end-markets, I'm confident this will enable us to accelerate revenues and earnings even faster in the near future."</p>
<p/>
<pre>
Unaudited Selected Financial Information
(In thousands of US dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segmented results: Q2 2010 Q2 2009 Q1 2010
------------------------------------------
Sales:
Telecom Division $ 47,951 $ 41,367 $ 40,292
Life Sciences and Industrial
Division 6,159 5,005 5,268
------------------------------------------
Total $ 54,110 $ 46,372 $ 45,560
------------------------------------------
------------------------------------------
Earnings from operations:
Telecom Division $ 2,748 $ 2,117 $ 2,041
Life Sciences and Industrial
Division 1,187 482 687
------------------------------------------
Total $ 3,935 $ 2,599 $ 2,728
------------------------------------------
------------------------------------------
Other selected information:
GAAP net earnings $ 1,154 $ 2,655 $ 334
Selected items included in
GAAP net earnings:
Amortization of intangible
assets $ 1,502 $ 1,246 $ 1,469
Stock-based compensation
costs $ 469 $ 325 $ 418
Income tax effect of the
above selected items $ (484) $ (212) $ (471)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</pre>
<p/>
<p>Operating Expenses</p>
<p/>
<p>Selling and administrative expenses totaled US$16.9 million, or 31.3% of sales, in the second quarter of fiscal 2010 compared to US$15.8 million, or 34.1% of sales, in the same period last year and US$15.4 million, or 33.7% of sales, in the first quarter of 2010.</p>
<p>Gross research and development expenses amounted to US$10.4 million, or 19.2% of sales, in the second quarter of fiscal 2010 compared to US$8.8 million, or 19.0% of sales, in the second quarter of 2009 and US$9.8 million, or 21.5% of sales, in the first quarter of 2010.</p>
<p>Net R&D expenses totaled US$8.8 million, or 16.3% of sales, in the second quarter of fiscal 2010 compared to US$7.3 million, or 15.8% of sales, in the same period last year and US$8.3 million, or 18.2% of sales, in the first quarter of 2010.</p>
<p/>
<p>Second-Quarter Highlights</p>
<p/>
<p>IP Fixed-Mobile Network Convergence and Broadband Deployments - EXFO announced several new product introductions in the second quarter related to its key growth drivers: IP fixed-mobile network convergence and broadband deployments. Major product launches included the release of a service assurance solution for 4G/LTE mobile broadband networks; the implementation of a new standards-based test (EtherSAM) across EXFO's Ethernet product offering; and a high-resolution optical spectrum analyzer (OSA) for in-depth characterization of 40 Gbit/s or 100 Gbit/s networks. Altogether, EXFO launched six new products in the second quarter of fiscal 2010, while 41.3% of sales were derived from products on the market two years or less. The company also reported that its AXS-200/635 Triple-Play Test Set had been approved by four tier-1 network operators to support their respective deployments of next-generation VDSL2 services and applications. Approximately US$2 million in orders were recognized in the second quarter of 2010.</p>
<p>Following the quarter-end EXFO announced the acquisition of NetHawk, a leading supplier of 2G, 3G and 4G/LTE wireless test and service assurance solutions. NetHawk enables EXFO not only to expand into the high-growth 3G and 4G/LTE wireless market, but also provide end-to-end solutions that assess the performance and reliability of converged, IP fixed and mobile networks.</p>
<p/>
<p>Profitable Growth Path - EXFO reported EBITDA of US$5.7 million, or 10.6% of sales, in the second quarter of fiscal 2010 on revenue of US$54.1 million compared to EBITDA of US$6.0 million, or 12.6% of sales, in the second quarter of 2009 on revenue of US$46.4 million. It should be noted EXFO recorded a pre-tax, foreign exchange loss of US$1.0 million in the second quarter of 2010 compared to a gain of US$1.1 million in the same period in 2009. Foreign exchange losses or gains are included in EBITDA. In contrast, the company generated US$3.9 million in earnings from operations, or 7.3% of sales, in the second quarter of 2010 compared to US$2.6 million, or 5.6% of sales, in the second quarter of 2009.</p>
<p/>
<p>Updated Corporate Performance Objectives</p>
<p/>
<p>Following the recent acquisition of NetHawk, EXFO updated its corporate performance objectives for the same three-year period extending from fiscal 2010 to 2012.</p>
<p/>
<pre>
-------------------------------------------------------------------------
Former Corporate Performance New Corporate Performance
Objectives Objectives
-------------------------------------------------------------------------
Increase sales by a CAGR of 20% Increase sales by a CAGR of at
least 25%
-------------------------------------------------------------------------
Raise gross margin to 64% Raise gross margin to 64%
-------------------------------------------------------------------------
Double EBITDA* in dollars Increase EBITDA* in dollars by a
(CAGR of 26%) CAGR of at least 30%
-------------------------------------------------------------------------
* EBITDA is defined as net earnings (loss) before interest, income
taxes, amortization of property, plant and equipment, amortization of
intangible assets, impairment of goodwill and extraordinary gain.
</pre>
<p/>
<p>Business Outlook</p>
<p/>
<p>EXFO forecasted sales between US$60 million and US$65 million and GAAP net results between a loss of US$0.03 per share and earnings of US$0.01 per share for the third quarter of 2010. GAAP net results assume an after-tax foreign exchange loss of US$0.02 per share and include US$0.04 per share in after-tax amortization of intangible assets and stock-based compensation costs.</p>
<p>This guidance was established by management based on existing backlog as of the date of this press release, seasonality, expected bookings for the remainder of the quarter, current exchange rates, as well as the preliminary allocation of the purchase price of the NetHawk acquisition.</p>
<p/>
<p>Conference Call and Webcast</p>
<p/>
<p>EXFO will host a conference call today at <span class="xn-chron">5 p.m. (Eastern time</span>) to review its financial results for the second quarter of fiscal 2010. To listen to the conference call and participate in the question period via telephone, dial 1-416-359-1270. Germain Lamonde, Chairman, President and CEO, and <span class="xn-person">Pierre Plamondon</span>, 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 <span class="xn-chron">7 p.m.</span> on <span class="xn-chron">April 6, 2010</span>. The replay number is 1-402-977-9141 and the reservation number is 21462627. The audio Webcast and replay of the conference call will also be available on EXFO's Website at <a href="http://www.EXFO.com">www.EXFO.com</a>, under the Investors section.</p>
<p/>
<p>About EXFO</p>
<p/>
<p>EXFO is a leading provider of next-generation test and service assurance solutions for wireless and wireline network operators and equipment manufacturers in the global telecommunications industry. The Telecom Division, which accounts for more than 90% of the company's revenues, offers core-to-edge solutions that assess the performance and reliability of converged, IP fixed and mobile networks. Key technologies supported include 3G, 4G/LTE, IMS, Ethernet, OTN, xDSL, and various optical technologies accounting for an estimated 33% of the portable fiber-optic test market. The Life Sciences and Industrial Division provides solutions in medical device and opto-electronics assembly, fluorescence microscopy and other life science sectors. EXFO has a staff of approximately 1,600 people in 25 countries, supporting more than 2,000 customers worldwide. For more information, visit <a href="http://www.EXFO.com">www.EXFO.com</a>.</p>
<p/>
<p>Forward-Looking Statements</p>
<p/>
<p>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 our ability to successfully integrate our acquired and to-be-acquired businesses; fluctuating exchange rates; consolidation in the global telecommunications test, measurement and service assurance industry and increased competition among vendors; capital spending levels in the telecommunications, life sciences and high-precision assembly sectors; concentration of sales; the effects of the additional actions we have taken in response to economic uncertainty (including our ability to quickly adapt cost structures with anticipated levels of business, ability to manage inventory levels with market demand); market acceptance of our new products and other upcoming products; limited visibility with regards to customer orders and the timing of such orders; our ability to successfully expand international operations; the retention of key technical and management personnel; and future economic, competitive, financial and market condition.</p>
<p>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 press release. 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.</p>
<p/>
<p>Non-GAAP Financial Measure</p>
<p/>
<p>EXFO provides a non-GAAP financial measure (EBITDA*) as supplemental information regarding its operational performance. EXFO uses EBITDA for the purposes of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. This measure also helps EXFO's management to plan and forecast future periods as well as to make operational and strategic decisions. EXFO believes that providing this information to investors, in addition to GAAP measures, allows them to see the company's results through the eyes of management, and to better understand historical and future financial performance.</p>
<p>The presentation of this additional information is not prepared in accordance with GAAP. 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 GAAP.</p>
<p/>
<p>The following table summarizes the reconciliation of EBITDA to GAAP net earnings (in thousands of US dollars):</p>
<p/>
<pre>
Q2 2010 Q2 2009 Q1 2010
------------- ----------------------------
GAAP net earnings for the
period $ 1,154 $ 2,655 $ 334
Add (deduct):
Amortization of property,
plant and equipment 1,312 1,049 1,291
Amortization of intangible
assets 1,502 1,246 1,469
Interest (income) expense 76 (175) 42
Income taxes 1,668 1,209 1,243
------------- ------------- --------------
EBITDA for the period $ 5,712 $ 5,984 $ 4,379
------------- ------------- --------------
------------- ------------- --------------
EDITDA in percentage of sales 10.6% 12.9% 9.6%
------------- ------------- --------------
------------- ------------- --------------
* EBITDA is defined as net earnings before interest, income taxes,
amortization of property, plant and equipment and amortization of
intangible assets.
EXFO Inc.
Unaudited Interim Consolidated Balance Sheet
(in thousands of US dollars)
As at As at
February 28, August 31,
2010 2009
------------- --------------
Assets
Current assets
Cash $ 15,879 $ 10,611
Short-term investments 55,876 59,105
Accounts receivable
Trade 31,961 22,946
Other 4,442 2,752
Income taxes and tax credits recoverable 3,752 2,353
Inventories 35,286 30,863
Prepaid expenses 2,755 2,043
Future income taxes 5,559 5,538
------------- --------------
155,510 136,211
Tax credits recoverable 29,970 26,762
Forward exchange contracts 398 428
Property, plant and equipment 18,981 19,100
Intangible assets 15,311 16,859
Goodwill 23,420 22,478
Future income taxes 15,644 18,533
------------- --------------
$ 259,234 $ 240,371
------------- --------------
------------- --------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 25,189 $ 21,650
Deferred revenue 9,193 6,481
------------- --------------
34,382 28,131
Deferred revenue 4,845 4,195
------------- --------------
39,227 32,326
------------- --------------
Shareholders' equity
Share capital 105,583 104,846
Contributed surplus 17,992 17,758
Retained earnings 45,397 43,909
Accumulated other comprehensive income 51,035 41,532
------------- --------------
220,007 208,045
------------- --------------
$ 259,234 $ 240,371
------------- --------------
------------- --------------
EXFO Inc.
Unaudited Interim Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
Three months Six months Three months Six months
ended ended ended ended
February 28, February 28, February 28, February 28,
2010 2010 2009 2009
------------- ------------- ------------- --------------
Sales $ 54,110 $ 99,670 $ 46,372 $ 92,735
Cost of sales
(1,2) 21,633 38,071 18,353 35,833
------------- ------------- ------------- --------------
Gross margin 32,477 61,599 28,019 56,902
------------- ------------- ------------- --------------
Operating
expenses
Selling and
administrative(1) 16,919 32,280 15,800 32,891
Net research and
development(1) 8,809 17,082 7,325 14,546
Amortization of
property, plant
and equipment 1,312 2,603 1,049 2,208
Amortization of
intangible
assets 1,502 2,971 1,246 2,565
------------- ------------- ------------- --------------
Total operating
expenses 28,542 54,936 25,420 52,210
------------- ------------- ------------- --------------
Earnings from
operations 3,935 6,663 2,599 4,692
Interest income
(expense) (76) (118) 175 641
Foreign exchange
gain (loss) (1,037) (2,146) 1,090 5,658
------------- ------------- ------------- --------------
Earnings before
income taxes 2,822 4,399 3,864 10,991
Income taxes
Current (236) (149) 297 236
Future 1,904 3,060 912 2,813
------------- ------------- ------------- --------------
1,668 2,911 1,209 3,049
------------- ------------- ------------- --------------
Net earnings for
the period $ 1,154 $ 1,488 $ 2,655 $ 7,942
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Basic net
earnings per
share $ 0.02 $ 0.03 $ 0.04 $ 0.12
Diluted net
earnings per
share $ 0.02 $ 0.02 $ 0.04 $ 0.12
Basic weighted
average number
of shares
outstanding
(000's) 59,427 59,406 60,875 64,108
Diluted weighted
average number
of shares
outstanding
(000's) 60,529 60,325 61,375 64,546
(1) Stock-based
compensation
costs
included
in:
Cost of
sales $ 43 $ 84 $ 31 $ 60
Selling and
adminis-
trative 302 570 198 399
Net
research and
development 124 233 96 188
------------- ------------- ------------- --------------
$ 469 $ 887 $ 325 $ 647
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
(2) The cost of sales is exclusive of amortization, shown separately.
EXFO Inc.
Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)
and Accumulated Other Comprehensive Income
(in thousands of US dollars)
Comprehensive income (loss)
Three months Six months Three months Six months
ended ended ended ended
February 28, February 28, February 28, February 28,
2010 2010 2009 2009
------------- ------------- ------------- --------------
Net earnings for
the period $ 1,154 $ 1,488 $ 2,655 $ 7,942
Foreign currency
translation
adjustment 989 8,802 (4,646) (41,579)
Changes in
unrealized losses
on short-term
investments - - - 22
Unrealized gains
(losses) on
forward exchange
contracts 158 1,322 (1,734) (8,663)
Reclassification
of realized
gains (losses)
on forward
exchange
contracts in
net earnings (382) (305) 1,371 1,234
Future income
taxes effect of
the above items 69 (316) 113 2,303
------------- ------------- ------------- --------------
Comprehensive
income (loss) $ 1,988 $ 10,991 $ (2,241) $ (38,741)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Accumulated other comprehensive income
Six months ended
February 28,
----------------------------
2010 2009
------------- --------------
Foreign currency translation adjustment
Cumulative effect of prior periods $ 40,458 $ 51,129
Current period 8,802 (41,579)
------------- --------------
49,260 9,550
------------- --------------
Unrealized gains (losses) on forward
exchange contracts
Cumulative effect of prior periods 1,076 (96)
Current period, net of realized gains
(losses) and future income taxes 701 (5,126)
------------- --------------
1,777 (5,222)
------------- --------------
Unrealized losses on short-term investments
Cumulative effect of prior periods (2) (24)
Current period, net of future income taxes - 22
------------- --------------
(2) (2)
------------- --------------
Accumulated other comprehensive income $ 51,035 $ 4,326
------------- --------------
------------- --------------
Total retained earnings and accumulated other comprehensive income
amounted to $72,762 and $96,432 as at February 28, 2009 and 2010,
respectively.
EXFO Inc.
Unaudited Interim Consolidated Statements of Retained Earnings
and Contributed Surplus
(in thousands of US dollars)
Retained earnings
Six months ended
February 28,
----------------------------
2010 2009
------------- --------------
Balance - Beginning of the period $ 43,909 $ 60,494
Add
Net earnings for the period 1,488 7,942
------------- --------------
Balance - End of the period $ 45,397 $ 68,436
------------- --------------
------------- --------------
Contributed surplus
Six months ended
February 28,
----------------------------
2010 2009
------------- --------------
Balance - Beginning of the period $ 17,758 $ 5,226
Add (deduct)
Stock-based compensation costs 858 639
Reclassification of stock-based compensation
costs to share capital upon exercise of
stock awards (627) (452)
Discount on redemption of share capital 3 11,257
------------- --------------
Balance - End of the period $ 17,992 $ 16,670
------------- --------------
------------- --------------
EXFO Inc.
Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
Three months Six months Three months Six months
ended ended ended ended
February 28, February 28, February 28, February 28,
2010 2010 2009 2009
------------- ------------- ------------- --------------
Cash flows from
operating
activities
Net earnings for
the period $ 1,154 $ 1,488 $ 2,655 $ 7,942
Add (deduct)
items not
affecting cash
Change in
discount on
short-term
investments 7 9 135 591
Stock-based
compensation
costs 469 887 325 647
Amortization 2,814 5,574 2,295 4,773
Deferred revenue 3,465 2,923 3,070 3,423
Future income
taxes 1,904 3,060 912 2,813
Change in
unrealized
foreign
exchange
(gain) loss 273 1,043 (601) (4,057)
------------- ------------- ------------- --------------
10,086 14,984 8,791 16,132
Change in non-cash
operating items
Accounts
receivable (5,127) (9,229) 4,508 (2,817)
Income taxes
and tax credits (1,866) (3,371) 352 (344)
Inventories (762) (3,113) 488 121
Prepaid expenses (10) (615) 308 (234)
Accounts payable
and accrued
liabilities 2,645 3,675 1,849 762
------------- ------------- ------------- --------------
4,966 2,331 16,296 13,620
------------- ------------- ------------- --------------
Cash flows from
investing
activities
Additions to
short-term
investments (101,643) (180,597) (133,364) (255,464)
Proceeds from
disposal and
maturity of
short-term
investments 104,926 186,262 149,501 276,106
Additions
to capital
assets(1) (1,464) (2,809) (2,946) (4,460)
------------- ------------- ------------- --------------
1,819 2,856 13,191 16,182
------------- ------------- ------------- --------------
Cash flows from
financing
activities
Exercise of stock
options 127 127 5 31
Redemption of
share capital - (14) (25,631) (26,078)
------------- ------------- ------------- --------------
127 113 (25,626) (26,047)
------------- ------------- ------------- --------------
Effect of foreign
exchange rate
changes on cash (135) (32) (72) (439)
------------- ------------- ------------- --------------
Change in cash 6,777 5,268 3,789 3,316
Cash - Beginning
of period 9,102 10,611 5,441 5,914
------------- ------------- ------------- --------------
Cash - End of
period $ 15,879 $ 15,879 $ 9,230 $ 9,230
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
(1) As at February 28, 2009 and 2010, unpaid purchases of capital assets
amounted to $614 and $67, respectively.
For further information: Vance Oliver, Manager, Investor Relations, (418) 683-0913, Ext. 3733, [email protected]
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