EXFO reports second quarter results for fiscal 2020

• Sales reached US$55.3 million
• Bookings attained US$72.9 million
• IFRS net loss amounted to US$9.0 million
• Adjusted EBITDA totaled -US$4.9 million
• Key supplier to essential telecommunications industry

QUEBEC CITY, April 7, 2020 /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 29, 2020.

"Despite the temporary shutdown of our manufacturing operations in China, which negatively impacted our revenues, EXFO delivered solid bookings in the second quarter of 2020 with double-digit growth for our Test and Measurement business," said EXFO's CEO Philippe Morin. "Throughout the coronavirus pandemic, the safety of our employees, communities and customers remains at the center of all our actions. All EXFO sites are fully operational and committed to helping global network operators and webscale companies thrive during this challenging period. More than ever, the telecom industry is mission-critical in which network capacity, reliability, and scalability will play a growing role in creating real opportunities for EXFO's innovative solutions." 

Second Quarter Highlights

• Sales. Sales totaled US$55.3 million in the second quarter of fiscal 2020 mainly due to the negative impact of the coronavirus outbreak that forced EXFO to temporarily shut down its manufacturing operations in China. Test and Measurement (T&M) sales accounted for 68% of revenue in the second quarter of 2020, while Service Assurance, Systems and Services (SASS) sales represented 32%. Revenue distribution among the three main selling regions amounted to 48% in the Americas, 31% in Europe, Middle East and Africa (EMEA) and 21% in Asia-Pacific. EXFO's top customer accounted for 8.2% of sales, while the top three totaled 19.5%.
• Profitability: IFRS net loss amounted to US$9.0 million, or -US$0.16 per share, in the second quarter of fiscal 2020, while adjusted EBITDA totaled -US$4.9 million, or -8.9% of sales. The company generated US$7.1 million in cash flows from operations.
• Key Supplier: As the coronavirus outbreak has evolved into a global pandemic, EXFO has become a key supplier to the essential telecommunications industry. Several well-funded network operators and webscale companies have increased capital spending to meet the global trend of telecommuting from home. EXFO, with its wealth of test and service assurance solutions, enables the deployment of such bandwidth-intensive applications and required virtualized, cloud-based networks. Key EXFO solutions to help customers maintain peak performance under disruptive conditions include geolocation analytics, virtual VPN remote monitoring, and active monitoring of network and subscriber anomalies.
• Innovation. EXFO launched the first intelligent automation platform, Nova A/SA, enabling mobile network operators (MNOs) to deliver ultra-reliable and high-quality service experience in a 5G environment. At the heart of Nova A/SA is a real-time, AI-based automated assurance solution, Nova SensAI, acting as the central nervous system for the platform. These combined solutions leverage machine learning to provide MNOs with heightened visibility into subscriber experience and network performance.

Business Outlook
Due to the uncertainty surrounding the breadth and duration of the coronavirus pandemic, EXFO has suspended issuing quarterly and annual guidance.

Selected Financial Information
(In thousands of US dollars)
		Q2 2020			Q2 2019			H1 2020			H1 2019
Test and Measurement sales	$	37,477		$	50,407		$	93,424		$	100,171
Service Assurance, Systems and Services sales		17,935			23,701			35,684			43,117
Foreign exchange losses on forward exchange contracts		(99)			(181)			(244)			(160)
Total sales	$	55,313		$	73,927		$	128,864		$	143,128
Test and Measurement bookings	$	52,003		$	45,320		$	107,012		$	109,316
Service Assurance, Systems and Services bookings		20,963			30,953			36,012			48,174
Foreign exchange gains (losses) on forward exchange contracts		(99)			(181)			(244)			(160)
Total bookings	$	72,867		$	76,092		$	142,780		$	157,330
Book-to-bill ratio (bookings/sales)		1.32			1.03			1.11			1.10
Gross margin before depreciation and amortization^*	$	31,517		$	44,865		$	74,827		$	85,169
		57.0%			60.7%			58.1%			59.5%
Other selected information:
IFRS net earnings (loss)	$	(9,021)		$	5,193		$	(9,084)		$	(2,274)
Amortization of intangible assets	$	1,695		$	2,130		$	3,327		$	5,070
Stock-based compensation costs	$	436		$	461		$	923		$	879
Restructuring charges	$	-		$	577		$	-		$	3,318
Acquisition-related deferred revenue fair value adjustment	$	-		$	571		$	-		$	1,435
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	$	(254)		$	(348)		$	(503)		$	(771)
Foreign exchange loss	$	382		$	416		$	508		$	201
Adjusted EBITDA^*	$	(4,916)		$	8,784		$	2,628		$	11,512

Quarterly Overview
Sales reached US$55.3 million in the second quarter of fiscal 2020 compared to US$73.9 million in the second quarter of 2019.

Bookings attained US$72.9 million in the second quarter of fiscal 2020 compared to US$76.1 million for the same period in 2019 in which the company had received a multi-million-dollar SASS-related order. The company's book-to-bill ratio was 1.32 in the second quarter of 2020.

Gross margin before depreciation and amortization* amounted to 57.0% of sales in the second quarter of fiscal 2020 compared to 60.7% in the second quarter of 2019.

Selling and administrative expenses totaled US$24.3 million, or 44.0% of sales in the second quarter of fiscal 2020 compared to US$25.5 million, or 34.4% of sales, in the second quarter of 2019.

Net R&D expenses attained US$12.6 million, or 22.7% of sales, in the second quarter of fiscal 2020 compared to US$12.2 million, or 16.5% of sales, in the same period last year.

IFRS net loss totaled US$9.0 million, or -US$0.16 per share, in the second quarter of fiscal 2020 compared to net earnings of US$5.2 million, or US$0.09 per share, in the second quarter of 2019. IFRS net loss in the second quarter of 2020 included US$1.5 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and US$0.4 million in foreign exchange loss.

Adjusted EBITDA* amounted to -US$4.9 million, or -8.9% of sales, in the second quarter of fiscal 2020 compared to US$8.8 million, or 11.9% of sales, in the second quarter of 2019.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review second-quarter results for fiscal 2020. 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: 4132437. 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 April 14, 2020. The replay number is 1-719-457-0820 and the participant passcode is 4132437. 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 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, namely the impact of the coronavirus pandemic on our employees, customers and global operations, including the ability of our suppliers to fulfil raw material requirements and services and our ability to manufacture and deliver our products and services to our customers; the effects of emergency measures related to isolation periods for individuals in affected areas, lockdown restrictions imposed by national governments on businesses in countries where we operate and have employees, and limitations on travel to attract new customers and serve existing ones; deteriorating financial and market conditions as well as a potential recession; trade wars, and our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the communications 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 communications test, monitoring 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. This discussion and analysis should be read in conjunction with the consolidated financial statements.

*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) before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, acquisition-related deferred revenue fair value adjustment, and foreign exchange loss.

These non-IFRS measures eliminate the effect on IFRS results of non-cash statement of earnings elements, restructuring charges 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 used by financial analysts to evaluate and compare EXFO's performance against that of 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 that of 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), in thousands of US dollars:

Adjusted EBITDA
		Q2 2020			Q2 2019			H1 2020			H1 2019
IFRS net earnings (loss) for the period	$	(9,021)		$	5,193		$	(9,084)		$	(2,274)
Add (deduct):
Depreciation and amortization		3,973			3,520			7,899			7,889
Interest and other (income) expense		285			(1,514)			684			(1,137)
Income taxes		(971)			(440)			1,698			1,201
Stock-based compensation costs		436			461			923			879
Restructuring charges		–			577			–			3,318
Acquisition-related deferred revenue fair value adjustment		–			571			–			1,435
Foreign exchange loss		382			416			508			201
Adjusted EBITDA for the period	$	(4,916)		$	8,784		$	2,628		$	11,512
Adjusted EBITDA as a percentage of sales		(8.9)%			11.9%			2.0%			8.0%

EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
	As at February 29, 2020			As at August 31, 2019
Assets
Current assets
Cash	$	19,126		$	16,518
Short-term investments		1,755			2,918
Accounts receivable
Trade		33,221			51,517
Other		3,083			3,396
Income taxes and tax credits recoverable		5,833			3,159
Inventories		41,530			38,017
Prepaid expenses		4,994			6,510
Other assets		3,669			3,083
		113,211			125,118
Tax credits recoverable		45,574			46,704
Property, plant and equipment		39,156			39,364
Right-of-use assets		9,634			–
Intangible assets		18,830			21,654
Goodwill		38,728			38,648
Deferred income tax assets		5,126			4,821
Other assets		1,110			1,293
	$	271,369		$	277,602
Liabilities
Current liabilities
Bank loan	$	13,650		$	5,000
Accounts payable and accrued liabilities		41,410			50,790
Provisions		834			1,065
Income taxes payable		128			704
Deferred revenue		21,904			24,422
Other liabilities		1,600			1,606
Current portion of lease liabilities		2,925			–
Current portion of long-term debt		2,158			2,449
		84,609			86,036
Provisions		2,544			2,737
Deferred revenue		8,453			9,056
Lease liabilities		6,665			–
Long-term debt		2,252			3,293
Deferred income tax liabilities		3,130			3,598
Other liabilities		570			318
		108,223			105,038
Shareholders' equity
Share capital		93,827			92,706
Contributed surplus		18,780			19,196
Retained earnings		103,089			112,173
Accumulated other comprehensive loss		(52,550)			(51,511)
		163,146			172,564
	$	271,369		$	277,602

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
	Three months ended February 29, 2020			Six months ended February 29, 2020			Three months ended February 28, 2019			Six months ended February 28, 2019
Sales	$	55,313		$	128,864		$	73,927		$	143,128
Cost of sales ^(1)		23,796			54,037			29,062			57,959
Selling and administrative		24,303			48,807			25,474			51,849
Net research and development		12,566			24,315			12,216			27,440
Depreciation of property, plant and equipment		1,424			2,867			1,390			2,819
Depreciation of right-of-use assets		854			1,705			–			–
Amortization of intangible assets		1,695			3,327			2,130			5,070
Interest and other (income) expense		285			684			(1,514)			(1,137)
Foreign exchange loss		382			508			416			201
Earnings (loss) before income taxes		(9,992)			(7,386)			4,753			(1,073)
Income taxes		(971)			1,698			(440)			1,201
Net earnings (loss) for the period	$	(9,021)		$	(9,084)		$	5,193		$	(2,274)
Basic and diluted net earnings (loss) per share	$	(0.16)		$	(0.16)		$	0.09		$	(0.04)
Basic weighted average number of shares outstanding (000's)		55,603			55,521			55,343			55,263
Diluted weighted average number of shares outstanding (000's)		55,603			55,521			56,160			55,263

(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 29, 2020			Six months ended February 29, 2020			Three months ended February 28, 2019			Six months ended February 28, 2019
Net earnings (loss) for the period	$	(9,021)		$	(9,084)		$	5,193		$	(2,274)
Other comprehensive income (loss), net of income taxes
Items that may be reclassified subsequently to net earnings
Foreign currency translation adjustment		(1,319)			(758)			1,807			(1,549)
Unrealized gains/losses on forward exchange contracts		(718)			(753)			496			(191)
Reclassification of realized gains/losses on forward exchange contracts		173			356			210			301
Deferred income tax effect of gains/losses on forward exchange contracts		146			116			(167)			42
Other comprehensive income (loss)		(1,718)			(1,039)			2,346			(1,397)
Comprehensive income (loss) for the period	$	(10,739)		$	(10,123)		$	7,539		$	(3,671)

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity
(in thousands Cof US dollars)
	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 of 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
	Six months ended February 29, 2020
	Share capital			Contributed surplus			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity
Balance as at September 1, 2019	$	92,706		$	19,196		$	112,173		$	(51,511)		$	172,564
Reclassification of stock-based compensation costs		1,333			(1,333)			–			–			–
Redemption of share capital		(212)			(13)			–			–			(225)
Stock-based compensation costs		–			930			–			–			930
Net loss for the period		–			–			(9,084)			–			(9,084)
Other comprehensive loss
Foreign currency translation adjustment		–			–			–			(758)			(758)
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $116		–			–			–			(281)			(281)
Total comprehensive loss for the period														(10,123)
Balance as at February 29, 2020	$	93,827		$	18,780		$	103,089		$	(52,550)		$	163,146

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
	Three months ended February 29, 2020			Six months ended February 29, 2020			Three months ended February 28, 2019			Six months ended February 28, 2019
Cash flows from operating activities
Net earnings (loss) for the period	$	(9,021)		$	(9,084)		$	5,193		$	(2,274)
Add (deduct) items not affecting cash
Stock-based compensation costs		436			923			461			879
Depreciation and amortization		3,973			7,899			3,520			7,889
Gain on disposal of capital assets		–			–			(1,732)			(1,732)
Write-off of capital assets		–			216			261			261
Deferred revenue		1,557			(2,815)			6,021			9,943
Deferred income taxes		(212)			(654)			(2,124)			(2,153)
Changes in foreign exchange gain/loss		902			881			76			(453)
		(2,365)			(2,634)			11,676			12,360
Changes in non-cash operating items
Accounts receivable		18,539			18,611			9,871			5,819
Income taxes and tax credits		(3,178)			(2,662)			1,031			33
Inventories		(458)			(3,951)			999			(362)
Prepaid expenses		610			988			22			205
Other assets		(491)			(456)			(327)			(339)
Accounts payable, accrued liabilities and provisions		(5,580)			(9,273)			(3,114)			18
Other liabilities		58			42			(1,470)			(1,521)
		7,135			665			18,688			16,213
Cash flows from investing activities
Additions to short-term investments		–			(147)			(292)			(292)
Disposal of short-term investments		701			1,264			–			342
Purchases of capital assets		(2,146)			(4,186)			(1,797)			(4,679)
Proceeds from disposal of capital assets		–			–			3,318			3,318
		(1,445)			(3,069)			1,229			(1,311)
Cash flows from financing activities
Bank loan		16			8,370			(12,501)			(1,244)
Repayment of lease liabilities		(846)			(1,690)			–			–
Repayment of long-term debt		(639)			(1,315)			(735)			(1,452)
Redemption of share capital		–			(225)			(105)			(105)
		(1,469)			5,140			(13,341)			(2,801)
Effect of foreign exchange rate changes on cash		(140)			(128)			100			(96)
Change in cash during the period		4,081			2,608			6,676			12,005
Cash – Beginning of the period		15,045			16,518			18,087			12,758
Cash – End of the period	$	19,126		$	19,126		$	24,763		$	24,763

EXFO-F

SOURCE EXFO Inc.

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

Related Links

www.exfo.com