EXFO reports second quarter results for fiscal 2019

• Sales increased 14.2% to US$73.9 million, high end of guidance range
• Bookings improved 16.0% to US$76.1 million, book-to-bill ratio of 1.03
• IFRS net earnings reached US$5.2 million, US$0.09 per share
• Adjusted EBITDA totaled US$8.8 million, 11.9% of sales
• Cash flows from operations surged to US$18.7 million

QUEBEC CITY, April 2, 2019 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the second quarter ended February 28, 2019.

IFRS sales increased 14.2% to US$73.9 million in the second quarter of fiscal 2019 from US$64.7 million in the second quarter of 2018. Second-quarter sales for 2019 included a US$7.5 million revenue contribution from Astellia, which was reduced by US$0.6 million to account for acquisition-related fair value adjustment of deferred revenue. In comparison, Astellia had generated US$1.8 million in revenue for one month in the second quarter 2018.

Bookings, which included a US$10.3 million contribution from Astellia, improved 16.0% year-over-year to US$76.1 million in the second quarter of fiscal 2019 from US$65.6 million in the same period of 2018. In comparison, Astellia had delivered US$2.5 million in bookings for one month in the second quarter 2018. EXFO's book-to-bill ratio was 1.03 in the second quarter of 2019.

Gross margin before depreciation and amortization^* amounted to 60.7% of sales in the second quarter of fiscal 2019 compared to 60.9% in the second quarter of 2018.

IFRS net earnings in the second quarter of fiscal 2019 totaled US$5.2 million, or US$0.09 per share, compared to a net loss attributable to the parent interest¹ of US$4.7 million, or US$0.08 per share, in the second quarter of 2018. IFRS net earnings in the second quarter of 2019 included net expenses totaling US$3.9 million: US$1.9 million in after-tax amortization of intangible assets, US$0.5 million in stock-based compensation costs, US$0.5 million in after-tax restructuring charges, US$0.6 million for acquisition-related fair value adjustment of deferred revenue, and a foreign exchange loss of US$0.4 million.

These net expenses were offset by the sale of a building under EXFO's restructuring plan that generated a gain of US$1.7 million in the second quarter of 2019. The company also benefited from a deferred income tax recovery of US$2.4 million in the second quarter of 2019.

Adjusted EBITDA^* totaled US$8.8 million, or 11.9% of sales, in the second quarter of fiscal 2019 compared to US$2.5 million, or 3.9% of sales, in the second quarter of 2018.

"EXFO delivered outstanding second quarter results with strong revenue and bookings growth, profitability and cash flow generation—all encouraging signs for our T&M and SASS product families and the leverage in our operating model," said EXFO's CEO Philippe Morin. "Our unique value propositions resonated very well with industry executives at Mobile World Congress and Optical Fiber Conference, as our solutions enable fiber buildouts deep into the network edge, 5G wireless deployments and network virtualization. Clearly, EXFO is on track with its profitable growth strategy amid a rapidly transforming industry."

Selected Financial Information
(In thousands of US dollars)
	Q2 2019			Q2 2018				H1 2019			H1 2018
Test and Measurement sales	$	50,407		$	49,884		$	100,171		$	100,070
Service Assurance, Systems and Services sales		23,701			14,457			43,117			27,425
Foreign exchange gains (losses) on forward exchange contracts		(181)			381			(160)			618
Total sales	$	73,927		$	64,722		$	143,128		$	128,113
Test and Measurement bookings	$	45,320		$	47,386		$	109,316		$	100,240
Service Assurance, Systems and Services bookings		30,953			17,819			48,174			30,607
Foreign exchange gains (losses) on forward exchange contracts		(181)			381			(160)			618
Total bookings	$	76,092		$	65,586		$	157,330		$	131,465
Book-to-bill ratio (bookings/sales)		1.03			1.01			1.10			1.03
Gross margin before depreciation and amortization^*	$	44,865		$	39,396		$	85,169		$	79,498
		60.7%			60.9%			59.5%			62.1%
Other selected information:
IFRS net earnings (loss) attributable to the parent interest	$	5,193		$	(4,660)		$	(2,274)		$	(1,981)
Amortization of intangible assets	$	2,130		$	3,056		$	5,070		$	4,175
Stock-based compensation costs	$	461		$	438		$	879		$	840
Restructuring charges	$	577		$	-		$	3,318		$	-
Change in fair value of cash contingent consideration	$	-		$	(561)		$	-		$	(716)
Acquisition-related deferred revenue fair value adjustment	$	571		$	309		$	1,435		$	309
Income tax expense for US tax reform	$	-		$	1,528		$	-		$	1,528
Gain on disposal of capital assets	$	(1,732)		$	-		$	(1,732)		$	-
Deferred income tax recovery	$	(2,383)		$	-		$	(2,383)		$	-
Net income tax effect of the above items	$	(348)		$	(394)		$	(771)		$	(566)
Foreign exchange (gain) loss	$	416		$	(8)		$	201		$	(1,226)
Adjusted EBITDA^*	$	8,784		$	2,492		$	11,512		$	8,551

Operating Expenses
Selling and administrative expenses reached US$25.5 million, or 34.4% of sales in the second quarter of fiscal 2019 compared to US$24.9 million, or 38.5% of sales, in the same period last year.

Net R&D expenses attained US$12.2 million, or 16.5% of sales, in the second quarter of fiscal 2019 compared to US$13.1 million, or 20.2% of sales, in the second quarter of 2018.

Second-Quarter Highlights

• Growth. Sales increased 14.2% year-over-year mainly due to a full-quarter contribution from the Astellia acquisition, compared to one month for the same period in 2018, and revenue recognition of a US$4.9 million order for EXFO's real-time network topology software. Test and measurement sales accounted for 68% of total revenue in the second quarter of 2019, while SASS sales totaled 32%. Revenue breakdown among the three main selling regions amounted to 50% in the Americas, 34% in Europe, Middle East and Africa (EMEA) and 16% in Asia-Pacific. EXFO's top customer accounted for 14.9% of sales, while the top three represented 24.7%.

• Profitability. IFRS net earnings totaled US$5.2 million in the second quarter of 2019, while adjusted EBITDA amounted to US$8.8 million, or 11.9% of sales. The company also generated US$18.7 million in cash flows from operations in the second quarter.

• Innovation. EXFO showcased its new product introductions at Mobile World Congress (MWC) and Optical Fiber Conference (OFC), high-profile tradeshows held during and after the quarter-end. At MWC, EXFO provided an overview of its highly differentiated service assurance and analytics platform, including automated assurance, diagnostics and troubleshooting of 5G networks. At OFC, EXFO demonstrated the breadth and depth of its market-leading optical test offering, including its recently released Open Transceiver System for 400G testing, to allow for successful, high-speed network transformations. The company also presented its latest field test automation, cloud reporting and remote testing capabilities.
  
  On the recognition front, EXFO received Frost & Sullivan's 2018 Customer Value Leadership Award for Global Data Analytics Solutions. This fifth award for EXFO's Service Assurance, Systems and Services (SASS) portfolio during the past year recognizes the company's ability to optimize subscriber experience and maximize benefits for communications service providers at every level of these organizations, from engineering to customer care.

¹  Represents net loss excluding share of the net loss attributable to Astellia's minority shareholders.

Business Outlook
EXFO forecasts IFRS sales between US$70.0 million and US$75.0 million for the third quarter of fiscal 2019. IFRS net loss is expected to range between US$0.04 and US$0.00 per share in the third quarter of 2019. IFRS net loss includes US$0.05 per share in after-tax amortization of intangible assets and stock-based compensation costs.

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 day of this news release.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review second 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: 8906152. Germain Lamonde, founder and Executive Chairman, Philippe Morin, Chief Executive Officer, and Pierre Plamondon, 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 April 9, 2019. The replay number is 1-719-457-0820 and the required participant passcode is 8906152. 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. For more information, visit EXFO.com and follow us on the EXFO Blog.

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 (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 represent net earnings (loss) attributable to the parent interest before interest and other income/expense, 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 adjusted EBITDA to IFRS net earnings (loss) attributable to the parent interest, in thousands of US dollars:

Adjusted EBITDA
	Q2 2019			Q2 2018			H1 2019			H1 2018
IFRS net earnings (loss) attributable to the parent interest for the period	$	5,193		$	(4,660)		$	(2,274)		$	(1,981)
Add (deduct):
Depreciation of property, plant and equipment	1,390			1,263			2,819			2,417
Amortization of intangible assets	2,130			3,056			5,070			4,175
Interest and other (income) expense	(1,514)			334			(1,137)			672
Income taxes	(440)			2,321			1,201			4,061
Stock-based compensation costs	461			438			879			840
Restructuring charges	577			-			3,318			-
Change in fair value of cash contingent consideration	-			(561)			-			(716)
Acquisition-related deferred revenue fair value adjustment	571			309			1,435			309
Foreign exchange (gain) loss	416			(8)			201			(1,226)
Adjusted EBITDA for the period ^(1)	$	8,784		$	2,492		$	11,512		$	8,551
Adjusted EBITDA in percentage of sales	11.9%			3.9%			8.0%			6.7%

(1) Includes acquisition-related costs of US$1.4 million and US$2.1 million for the three months and six months ended February 28, 2018 (nil in fiscal 2019)

EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
			As at February 28, 2019			As at August 31, 2018
Assets
Current assets
Cash		$	24,763		$	12,758
Short-term investments			2,238			2,282
Accounts receivable
Trade			41,227			47,273
Other			3,490			4,137
Income taxes and tax credits recoverable			5,124			4,790
Inventories			38,598			38,589
Prepaid expenses			5,049			5,291
Other assets			2,583			2,279
			123,072			117,399
Tax credits recoverable			46,727			47,677
Property, plant and equipment			42,036			44,310
Intangible assets			24,904			29,866
Goodwill			39,707			39,892
Deferred income tax assets			5,708			4,714
Other assets			828			686
		$	282,982		$	284,544
Liabilities
Current liabilities
Bank loan		$	9,001		$	10,692
Accounts payable and accrued liabilities			47,560			47,898
Provisions			1,314			2,954
Income taxes payable			687			873
Deferred revenue			23,914			16,556
Other liabilities			1,656			3,197
Current portion of long-term debt			2,724			2,921
			86,856			85,091
Provisions			2,517			2,347
Deferred revenue			9,345			6,947
Long-term debt			4,578			5,907
Deferred income tax liabilities			4,572			5,910
Other liabilities			327			421
			108,195			106,623
Shareholders' equity
Share capital			92,878			91,937
Contributed surplus			18,277			18,428
Retained earnings			112,379			114,906
Accumulated other comprehensive loss			(48,747)			(47,350)
			174,787			177,921
		$	282,982		$	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 February 28, 2019			Six months ended February 28, 2019			Three months ended February 28, 2018			Six months ended February 28, 2018
Sales		$	73,927		$	143,128		$	64,722		$	128,113
Cost of sales ^(1)			29,062			57,959			25,326			48,615
Selling and administrative			25,474			51,849			24,916			48,109
Net research and development			12,216			27,440			13,087			24,339
Depreciation of property, plant and equipment			1,390			2,819			1,263			2,417
Amortization of intangible assets			2,130			5,070			3,056			4,175
Change in fair value of cash contingent consideration			‒			‒			(561)			(716)
Interest and other (income) expense			(1,514)			(1,137)			334			672
Foreign exchange (gain) loss			416			201			(8)			(1,226)
Share in net loss of an associate			‒			‒			2,080			2,080
Gain on the deemed disposal of the investment in an associate			‒			‒			(2,080)			(2,080)
Earnings (loss) before income taxes			4,753			(1,073)			(2,691)			1,728
Income taxes			(440)			1,201			2,321			4,061
Net earnings (loss) for the period			5,193			(2,274)			(5,012)			(2,333)
Net loss for the period attributable to non-controlling interest			‒			‒			(352)			(352)
Net earnings (loss) for the period attributable to parent interest		$	5,193		$	(2,274)		$	(4,660)		$	(1,981)
Basic and diluted net earnings (loss) attributable to parent interest per share		$	0.09		$	(0.04)		$	(0.08)		$	(0.04)
Basic weighted average number of shares outstanding (000's)			55,343			55,263			54,975			54,890
Diluted weighted average number of shares outstanding (000's)			56,160			55,263			54,975			54,890

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

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)
(in thousands of US dollars)
			Three months ended February 28, 2019			Six months ended February 28, 2019			Three months ended February 28, 2018			Six months ended February 28, 2018
Net earnings (loss) for the period		$	5,193		$	(2,274)		$	(5,012)		$	(2,333)
Other comprehensive income (loss), net of income taxes
Items that may be reclassified subsequently to net earnings
Foreign currency translation adjustment			1,807			(1,549)			2,286			(1,844)
Unrealized gains/losses on forward exchange contracts			496			(191)			39			(485)
Reclassification of realized gains/losses on forward exchange contracts in net earnings			210			301			(225)			(608)
Deferred income taxes on gains/losses on forward exchange contracts			(167)			42			48			263
Other comprehensive income (loss)			2,346			(1,397)			2,148			(2,674)
Comprehensive income (loss) for the period			7,539			(3,671)			(2,864)			(5,007)
Comprehensive loss for the period attributable to non-controlling interest			‒			‒			(352)			(352)
Comprehensive income (loss) for the period attributable to parent interest		$	7,539		$	(3,671)		$	(2,512)		$	(4,655)

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands of US dollars)
		Six months ended February 28, 2018
			Share capital			Contributed surplus			Retained earnings			Accumulated other comprehensive loss			Non-controlling interest			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			1,273			(1,273)			‒			‒			‒			‒
Stock-based compensation costs			‒			856			‒			‒			‒			856
Business combination			‒			‒			‒			‒			(3,662)			(3,662)
Acquisition of non-controlling interest			‒			‒			(352)			‒			4,014			3,662
Net loss for the period			‒			‒			(1,981)			‒			(352)			(2,333)
Other comprehensive loss
Foreign currency translation adjustment			‒			‒			‒			(1,844)			‒			(1,844)
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $263			‒			‒			‒			(830)			‒			(830)
Comprehensive loss for the period																		(5,007)
Balance as at February 28, 2018		$	91,684		$	17,767		$	124,827		$	(41,639)		$	‒		$	192,639

		Six months ended February 28, 2019
			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			1,067			(1,067)			‒			‒			‒
Redemption of share capital			(126)			21			‒			‒			(105)
Stock-based compensation costs			‒			895			‒			‒			895
Net loss for the period			‒			‒			(2,274)			‒			(2,274)
Other comprehensive income (loss)
Foreign currency translation adjustment			‒			‒			‒			(1,549)			(1,549)
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $42			‒			‒			‒			152			152
Total comprehensive loss for the period															(3,671)
Balance as at February 28, 2019		$	92,878		$	18,277		$	112,379		$	(48,747)		$	174,787

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
			Three months ended February 28, 2019			Six months ended February 28, 2019			Three months ended February 28, 2018			Six months ended February 28, 2018
Cash flows from operating activities
Net earnings (loss) for the period		$	5,193		$	(2,274)		$	(5,012)		$	(2,333)
Add (deduct) items not affecting cash
Stock-based compensation costs			461			879			438			840
Depreciation and amortization			3,520			7,889			4,319			6,592
Gain on disposal of capital assets			(1,732)			(1,732)			‒			‒
Write-off of capital assets			261			261			124			248
Change in fair value of cash contingent consideration			‒			‒			(561)			(716)
Deferred revenue			6,021			9,943			3,016			2,234
Deferred income taxes			(2,124)			(2,153)			2,384			2,144
Share in net loss of an associate			‒			‒			2,080			2,080
Gain on deemed disposal of the investment in an associate			‒			‒			(2,080)			(2,080)
Changes in foreign exchange gain/loss			76			(453)			611			364
			11,676			12,360			5,319			9,373
Changes in non-cash operating items
Accounts receivable			9,871			5,819			4,255			5,340
Income taxes and tax credits			1,031			33			(3,018)			(2,959)
Inventories			999			(362)			779			(1,174)
Prepaid expenses			22			205			(129)			189
Other assets			(327)			(339)			(528)			(524)
Accounts payable, accrued liabilities and provisions			(3,114)			18			(447)			(1,816)
Other liabilities			(1,470)			(1,521)			22			210
			18,688			16,213			6,253			8,639
Cash flows from investing activities
Additions to short-term investments			(292)			(292)			(248)			(482)
Proceeds from disposal of short-term investments			‒			342			234			234
Purchases of capital assets			(1,797)			(4,679)			(2,258)			(4,249)
Proceeds from disposal of capital assets			3,318			3,318			‒			‒
Investment in an associate			‒			‒			(2,219)			(12,530)
Business combinations, net of cash acquired			‒			‒			(9,580)			(19,120)
			1,229			(1,311)			(14,071)			(36,147)
Cash flows from financing activities
Bank loan			(12,501)			(1,244)			2,064			2,066
Repayment of long-term debt			(735)			(1,452)			(200)			(270)
Redemption of share capital			(105)			(105)			‒			‒
			(13,341)			(2,801)			1,864			1,796
Effect of foreign exchange rate changes on cash			100			(96)			56			(170)
Change in cash during the period			6,676			12,005			(5,898)			(25,882)
Cash – Beginning of the period			18,087			12,758			18,451			38,435
Cash – End of the period		$	24,763		$	24,763		$	12,553		$	12,553

EXFO-F

SOURCE EXFO Inc.

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

Related Links

www.exfo.com