- Net loss of US$3.9 M on sales of US$59.5 M
- Gross margin of 60.4% on lower sales volume and product mix
- Cash flows from operations of US$2.8 M and US$23.0 M year-to-date
QUEBEC CITY, June 28, 2012 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the third quarter ended May 31, 2012.
Sales reached US$59.5 million in the third quarter of fiscal 2012 compared to US$67.6 million in the third quarter of 2011 and US$66.9 million in the second quarter of 2012.
Bookings attained US$57.5 million in the third quarter of fiscal 2012 compared to US$61.3 million in the same period last year and US$60.6 million in the second quarter of 2012. The company's book-to-bill ratio was 0.97 in the third quarter of 2012.
Gross margin* amounted to 60.4% of sales in the third quarter of fiscal 2012, compared to 64.2% in the third quarter of 2011 and 64.7% in the second quarter of 2012, due to lower sales volume and unfavorable product mix.
IFRS net loss in the third quarter of fiscal 2012 totaled US$3.9 million, or US$0.06 per share, compared to net earnings of US$1.8 million, or US$0.03 per diluted share, in the same period last year and net earnings of US$1.0 million, or US$0.02 per diluted share, in the second quarter of 2012. Net loss in the third quarter of 2012 included US$1.9 million in after-tax amortization of intangible assets and US$0.4 million in stock-based compensation costs. EXFO also reported a foreign exchange gain of US$1.1 million in the third quarter of 2012.
Adjusted EBITDA** amounted to US$0.2 million, or 0.4% of sales, in the third quarter of fiscal 2012 compared to US$7.1 million, or 10.5% of sales, in the third quarter of 2011 and US$5.8 million, or 8.7% of sales, in the second quarter of 2012. Foreign exchange gains or losses are included in adjusted EBITDA**.
Cash flows from operations totaled US$2.8 million in the third quarter of fiscal 2012 and US$23.0 million after nine months into the fiscal year. Cash position amounted to US$69.7 million at the end of the third quarter of 2012.
To align its cost structure with the challenging market environment, EXFO has established a restructuring plan that is expected to provide annual savings of approximately US$9.0 million. The company will incur restructuring expenses of US$3.0 million mainly in the fourth quarter of fiscal 2012.
"The uncertain macro-economic environment, European debt crisis and network operators' delayed spending combined to reduce EXFO's third-quarter bookings and revenues," said Germain Lamonde, EXFO's Chairman, President and CEO. "We see projects being delayed rather than cancelled and our funnel remains stronger than ever. Despite these challenging market conditions, we are confident about the fundamentals of our end-markets and remain committed to our long-term strategy of enabling fixed and mobile operators increase network capacity, performance and quality of experience. Although we expect market conditions to improve in the second half of calendar 2012, we are implementing a $9-million cost-reduction plan that will sharpen our focus in strategic areas benefitting from investments and growth."
Selected Financial Information
(In thousands of US dollars)
| Q3 2012 | Q2 2012 | Q3 2011 | |||||||
| Sales | $ | 59,505 | $ | 66,917 | $ | 67,630 | |||
| Gross margin* | $ | 35,956 | $ | 43,301 | $ | 43,387 | |||
| 60.4% | 64.7% | 64.2% | |||||||
| Other selected information: | |||||||||
| IFRS net earnings (loss) | $ | (3,902) | $ | 1,040 | $ | 1,799 | |||
| Amortization of intangible assets | $ | 1,993 | $ | 1,974 | $ | 2,128 | |||
| Stock-based compensation costs | $ | 370 | $ | 508 | $ | 432 | |||
| Net income tax effect of the above items | $ | (60) | $ | (56) | $ | (70) | |||
| Foreign exchange gain (loss) | $ | 1,090 | $ | (1,471) | $ | (243) | |||
| Adjusted EBITDA** | $ | 248 | $ | 5,847 | $ | 7,119 | |||
Operating Expenses
Selling and administrative expenses totaled US$23.6 million, or 39.7% of sales, in the third quarter of fiscal 2012 compared to US$23.1 million, or 34.1% of sales, in the same period last year and US$23.7 million, or 35.4% of sales, in the second quarter of 2012.
Gross research and development expenses amounted to US$15.6 million, or 26.2% of sales, in the third quarter of fiscal 2012 compared to US$15.4 million, or 22.7% of sales, in the third quarter of 2011 and US$14.8 million, or 22.1% of sales, in the second quarter of 2012.
Net R&D expenses totaled US$13.2 million, or 22.1% of sales, in the third quarter of fiscal 2012 compared to US$12.9 million, or 19.2% of sales, in the same period last year and US$12.3 million, or 18.4% of sales, in the second quarter of 2012.
Third-Quarter Business Highlights
- The uncertain macro-economic environment and network operators' delayed investments negatively affected the sales of EXFO's products and services in the third quarter of 2012. The company's protocol product families, however, continued to deliver year-over-year sales growth due to ongoing network upgrades from 10 Gbit/s to 40 Gbit/s and 100 Gbit/s as well as investments in wireless backhaul networks.
- EXFO's top customer accounted for 6.7% of sales in the third quarter, while the top three represented 14.5%. Global sales remained diversified with 51% originating from the Americas, 29% from Europe, Middle East and Africa (EMEA), and 20% from Asia-Pacific.
- EXFO launched seven new products in the third quarter, including the portable iPro, an intelligent high-performance capture and analysis probe for wireless networks up to 10 Gbit/s; an integrated, end-to-end, joint-monitoring solution with RAD Data Communications; Fibre Channel and MPLS (multiprotocol label switching) test capabilities for the NetBlazer product family; and the MaxTester 610 Copper Test Set and MaxTester 635 Copper/DSL/Multi-Play Test Set for cost-effective VDSL2 installation and repair work on copper links. Altogether, EXFO introduced 19 new solutions after nine months into fiscal 2012.
Business Outlook
EXFO forecasts sales between US$55.0 million and US$60.0 million for the fourth quarter of fiscal 2012, while IFRS net loss is expected to range between US$0.11 and US$0.07 per share. IFRS net loss includes US$0.04 per share in after-tax amortization of intangible assets and stock-based compensation costs as well as US$0.03 per share in after-tax restructuring charges.
This guidance was established by management based on existing backlog as of the date of this press release, seasonality, anticipated bookings for the remaining of the quarter, no changes to the discounted value of long-term tax credits, as well as exchange rates as of the day of this press release.
Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review its financial results for the third quarter of fiscal 2012. To listen to the conference call and participate in the question period via telephone, dial (416) 641-6684. Germain Lamonde, Chairman, President and CEO, and Pierre Plamondon, 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 7 p.m. on July 5, 2012. The replay number is (402) 977-9141 and the reservation number is 21592376. 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
Listed on the NASDAQ and TSX stock exchanges, EXFO is among the leading providers of next-generation test and service assurance solutions for wireline and wireless network operators and equipment manufacturers in the global telecommunications industry. The company offers innovative solutions for the development, installation, management and maintenance of converged, IP fixed and mobile networks—from the core to the edge. Key technologies supported include 3G, 4G/LTE, IMS, Ethernet, OTN, FTTx, VDSL2, ADSL2+ and various optical technologies accounting for an estimated 35% of the portable fiber-optic test market. EXFO has a staff of approximately 1800 people in 25 countries, supporting more than 2000 telecom customers worldwide. For more information, visit www.EXFO.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and we intend that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are statements other than historical information or statements of current condition. Words such as may, 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 our forward-looking statements due to various factors including macro-economic uncertainty and/or recession (including our ability to quickly adapt cost structures with anticipated levels of business, ability to manage inventory levels with market demand); capital spending levels in the telecommunications industry; future economic, competitive, financial and market conditions; limited visibility with regards to customer orders and the timing of such orders; fluctuating exchange rates; consolidation in the global telecommunications test and service assurance industry and increased competition among vendors; concentration of sales; market acceptance of our new products and other upcoming products; our ability to successfully integrate our acquired and to-be-acquired businesses; our ability to successfully expand international operations; 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 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.
NON-IFRS FINANCIAL MEASURES
EXFO provides non-IFRS financial measures (gross margin*, EBITDA** and adjusted EBITDA**) as supplemental information regarding its operational performance. The company uses these measures for the purposes of evaluating historical and prospective financial performance, as well as its performance relative to competitors. These measures also help EXFO to plan and forecast future periods as well as to make operational and strategic decisions. EXFO believes that providing this information, in addition to IFRS measures, allows investors to see the company's results through the eyes of management, and to better understand historical and future financial performance.
The presentation of this additional information is not prepared in accordance with IFRS. Therefore, the information may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, the corresponding measures calculated in accordance with IFRS.
| * | Gross margin represents sales less cost of sales, excluding depreciation and amortization. |
| ** | EBITDA is defined as net earnings (loss) before interest, income taxes, depreciation of property, plant and equipment and amortization of intangible assets. Adjusted EBITDA represents EBITDA excluding changes in the fair value of the cash contingent consideration. |
The following table summarizes the reconciliation of EBITDA and adjusted EBITDA to IFRS net earnings (loss), in thousands of US dollars:
EBITDA and adjusted EBITDA
| Q3 2012 | Q2 2012 | Q3 2011 | ||||||
| IFRS net earnings (loss) for the period | $ | (3,902) | $ | 1,040 | $ | 1,799 | ||
| Add (deduct): | ||||||||
| Depreciation of property, plant and equipment | 1,520 | 1,546 | 1,745 | |||||
| Amortization of intangible assets | 1,993 | 1,974 | 2,128 | |||||
| Interest (income) expenses | 163 | (171) | (619) | |||||
| Income taxes | 474 | 1,769 | 2,066 | |||||
| EBITDA for the period | 248 | 6,158 | 7,119 | |||||
| Changes in fair value of cash contingent consideration | - | (311) | - | |||||
| Adjusted EBITDA for the period | $ | 248 | $ | 5,847 | $ | 7,119 | ||
| EBITDA in percentage of sales | 0.4 % | 9.2 % | 10.5 % | |||||
| Adjusted EBITDA in percentage of sales | 0.4 % | 8.7 % | 10.5 % |
| EXFO Inc. Unaudited Interim Consolidated Balance Sheets (in thousands of US dollars) |
||||||
| As at May 31, 2012 |
As at August 31, 2011 |
|||||
| Assets | ||||||
| Current assets | ||||||
| Cash | $ | 61,909 | $ | 22,771 | ||
| Short-term investments | 7,831 | 47,091 | ||||
| Accounts receivable | ||||||
| Trade | 43,704 | 45,151 | ||||
| Other | 3,236 | 6,329 | ||||
| Income taxes and tax credits recoverable | 8,413 | 5,414 | ||||
| Inventories | 40,497 | 52,754 | ||||
| Prepaid expenses | 3,491 | 3,237 | ||||
| 169,081 | 182,747 | |||||
| Tax credits recoverable | 32,382 | 34,120 | ||||
| Forward exchange contracts | - | 149 | ||||
| Property, plant and equipment | 43,189 | 32,076 | ||||
| Intangible assets | 15,420 | 22,901 | ||||
| Goodwill | 28,105 | 30,942 | ||||
| Deferred income taxes | 16,529 | 17,314 | ||||
| $ | 304,706 | $ | 320,249 | |||
| Liabilities | ||||||
| Current liabilities | ||||||
| Bank loan | $ | - | $ | 784 | ||
| Accounts payable and accrued liabilities | 33,488 | 30,320 | ||||
| Provisions | 1,050 | 1,817 | ||||
| Forward exchange contracts | 537 | - | ||||
| Income taxes payable | 895 | 876 | ||||
| Contingent liability | - | 338 | ||||
| Current portion of long-term debt | 554 | 645 | ||||
| Deferred revenue | 12,044 | 10,590 | ||||
| 48,568 | 45,370 | |||||
| Deferred revenue | 5,228 | 5,704 | ||||
| Long-term debt | 554 | 968 | ||||
| Other liabilities | 694 | 723 | ||||
| Deferred income taxes | 5,499 | 4,803 | ||||
| 60,543 | 57,568 | |||||
| Shareholders' equity | ||||||
| Share capital | 111,890 | 110,341 | ||||
| Contributed surplus | 17,322 | 18,017 | ||||
| Retained earnings | 113,490 | 113,438 | ||||
| Accumulated other comprehensive income | 1,461 | 20,885 | ||||
| 244,163 | 262,681 | |||||
| $ | 304,706 | $ | 320,249 | |||
| EXFO Inc. (in thousands of US dollars, except share and per share data) |
||||||||||||
| Three months ended May 31, 2012 |
Nine months ended May 31, 2012 |
Three months ended May 31, 2011 |
Nine months ended May 31, 2011 |
|||||||||
| Sales | $ | 59,505 | $ | 192,810 | $ | 67,630 | $ | 205,329 | ||||
| Cost of sales (1) | 23,549 | 70,535 | 24,243 | 76,849 | ||||||||
| Selling and administrative | 23,625 | 71,919 | 23,082 | 65,216 | ||||||||
| Net research and development | 13,173 | 37,963 | 12,943 | 35,788 | ||||||||
| Depreciation of property, plant and equipment | 1,520 | 4,634 | 1,745 | 4,988 | ||||||||
| Amortization of intangible assets | 1,993 | 5,888 | 2,128 | 7,061 | ||||||||
| Changes in fair value of cash contingent consideration | - | (311) | - | - | ||||||||
| Earnings (loss) from operations | (4,355) | 2,182 | 3,489 | 15,427 | ||||||||
| Interest and other income (expenses) | (163) | (19) | 619 | 661 | ||||||||
| Foreign exchange gain (loss) | 1,090 | 1,283 | (243) | (3,751) | ||||||||
| Earnings (loss) before income taxes | (3,428) | 3,446 | 3,865 | 12,337 | ||||||||
| Income taxes | 474 | 3,394 | 2,066 | 7,615 | ||||||||
| Net earnings (loss) from continuing operations | (3,902) | 52 | 1,799 | 4,722 | ||||||||
| Net earnings from discontinued operations | - | - | - | 12,926 | ||||||||
| Net earnings (loss) for the period | $ | (3,902) | $ | 52 | $ | 1,799 | $ | 17,648 | ||||
| Basic and diluted net earnings (loss) from continuing operations per share | $ | (0.06) | $ | 0.00 | $ | 0.03 | $ | 0.08 | ||||
| Basic net earnings from discontinued operations per share | $ | - | $ | - | $ | - | $ | 0.22 | ||||
| Diluted net earnings from discontinued operations per share | $ | - | $ | - | $ | - | $ | 0.21 | ||||
| Basic and diluted net earnings (loss) per share | $ | (0.06) | $ | 0.00 | $ | 0.03 | $ | 0.29 | ||||
| Basic weighted average number of shares outstanding (000's) | 60,537 | 60,440 | 60,183 | 59,916 | ||||||||
| Diluted weighted average number of shares outstanding (000's) | 60,537 | 61,694 | 61,720 | 61,449 | ||||||||
| (1) The cost of sales is exclusive of depreciation and amortization, shown separately. | ||||||||||||
| EXFO Inc. (in thousands of US dollars) |
|||||||||||||
| Three months ended May 31, 2012 |
Nine months ended May 31, 2012 |
Three months ended May 31, 2011 |
Nine months ended May 31, 2011 |
||||||||||
| Net earnings (loss) for the period | $ | (3,902) | $ | 52 | $ | 1,799 | $ | 17,648 | |||||
| Other comprehensive income (loss), net of income taxes | |||||||||||||
| Foreign currency translation adjustment | (12,227) | (17,831) | 1,839 | 20,826 | |||||||||
| Unrealized gains (losses) on forward exchange contracts | (1,066) | (922) | 188 | 3,426 | |||||||||
| Reclassification of realized gains on forward exchange contracts in net earnings (loss) | (285) | (1,265) | (792) | (1,445) | |||||||||
| Deferred income tax effect of the components of other comprehensive income (loss) | 362 | 594 | 172 | (531) | |||||||||
| Other comprehensive income (loss) | (13,216) | (19,424) | 1,407 | 22,276 | |||||||||
| Comprehensive income (loss) for the period | $ | (17,118) | $ | (19,372) | $ | 3,206 | $ | 39,924 | |||||
| EXFO Inc. (in thousands of US dollars) |
||||||||||||||||
| Nine months ended May 31, 2011 | ||||||||||||||||
| Share capital |
Contributed surplus | Retained earnings |
Accumulated other comprehensive income |
Total shareholders' quity |
||||||||||||
| Balance as at September 1, 2010 | $ | 106,126 | $ | 18,563 | $ | 91,152 | $ | 1,016 | $ | 216,857 | ||||||
| Exercise of stock options | 1,447 | - | - | - | 1,447 | |||||||||||
| Reclassification of stock-based compensation costs | 2,654 | (2,654) | - | - | - | |||||||||||
| Stock-based compensation costs | - | 1,714 | - | - | 1,714 | |||||||||||
| Net earnings for the period | - | - | 17,648 | - | 17,648 | |||||||||||
| Other comprehensive income | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | 20,826 | 20,826 | |||||||||||
| Changes in unrealized gains on forward exchange contracts, net of deferred income taxes of $531 | - | - | - | 1,450 | 1,450 | |||||||||||
| Total comprehensive income for the period | - | - | 17,648 | 22,276 | 39,924 | |||||||||||
| Balance as at May 31, 2011 | $ | 110,227 | $ | 17,623 | $ | 108,800 | $ | 23,292 | $ | 259,942 | ||||||
| Nine months ended May 31, 2012 | ||||||||||||||||
| Share Capital |
Contributed Surplus |
Retained earnings |
Accumulated other comprehensive income |
Total shareholders' equity |
||||||||||||
| Balance as at September 1, 2011 | $ | 110,341 | $ | 18,017 | $ | 113,438 | $ | 20,885 | $ | 262,681 | ||||||
| Exercise of stock options | 118 | - | - | - | 118 | |||||||||||
| Redemption of share capital | (404) | (222) | - | - | (626) | |||||||||||
| Reclassification of stock-based compensation costs | 1,835 | (1,835) | - | - | - | |||||||||||
| Stock-based compensation costs | - | 1,362 | - | - | 1,362 | |||||||||||
| Net earnings for the period | - | - | 52 | - | 52 | |||||||||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | (17,831) | (17,831) | |||||||||||
| Changes in unrealized gains (losses) on forward exchange contracts, net of deferred income taxes of $594 | - | - | - | (1,593) | (1,593) | |||||||||||
| Total comprehensive income (loss) for the period | - | - | 52 | (19,424) | (19,372) | |||||||||||
| Balance as at May 31, 2012 | $ | 111,890 | $ | 17,322 | $ | 113,490 | $ | 1,461 | $ | 244,163 | ||||||
| EXFO Inc. (in thousands of US dollars) |
|||||||||||||
| Three months ended May 31, 2012 |
Nine months ended May 31, 2012 |
Three months ended May 31, 2011 |
Nine months ended May 31, 2011 |
||||||||||
| Cash flows from operating activities | |||||||||||||
| Net earnings (loss) for the period | $ | (3,902) | $ | 52 | $ | 1,799 | $ | 17,648 | |||||
| Add (deduct) items not affecting cash | |||||||||||||
| Change in discount on short-term investments | ‒ | 43 | (19) | (46) | |||||||||
| Stock-based compensation costs | 370 | 1,433 | 432 | 1,795 | |||||||||
| Depreciation and amortization | 3,513 | 10,522 | 3,873 | 12,067 | |||||||||
| Gain on disposal of discontinued operations | ‒ | ‒ | ‒ | (13,212) | |||||||||
| Gain on disposal of capital assets | ‒ | ‒ | (568) | (568) | |||||||||
| Changes in fair value of cash contingent consideration | ‒ | (311) | ‒ | ‒ | |||||||||
| Deferred revenue | 2,629 | 1,976 | 1,602 | 2,281 | |||||||||
| Deferred income taxes | 379 | 2,002 | 1,718 | 6,327 | |||||||||
| Foreign exchange gain/loss | (1,091) | (2,130) | 426 | 2,017 | |||||||||
| 1,898 | 13,587 | 9,263 | 28,309 | ||||||||||
| Change in non-cash operating items | |||||||||||||
| Accounts receivable | (2,339) | 268 | 1,570 | 6,175 | |||||||||
| Income taxes and tax credits | (2,060) | (3,479) | (1,852) | (5,171) | |||||||||
| Inventories | 1,930 | 9,573 | (5,491) | (8,951) | |||||||||
| Prepaid expenses | (238) | (451) | (123) | (832) | |||||||||
| Accounts payable, accrued liabilities and provisions | 3,478 | 3,443 | (119) | 1,731 | |||||||||
| Other liabilities | 163 | 11 | 95 | 247 | |||||||||
| 2,832 | 22,952 | 3,343 | 21,508 | ||||||||||
| Cash flows from investing activities | |||||||||||||
| Additions to short-term investments | (24,170) | (91,968) | (106,701) | (421,651) | |||||||||
| Proceeds from disposal and maturity of short-term investments | 21,135 | 128,901 | 101,414 | 381,332 | |||||||||
| Additions to capital assets | (6,826) | (18,003) | (3,790) | (7,085) | |||||||||
| Proceeds from disposal of capital assets | ‒ | ‒ | 568 | 568 | |||||||||
| Net proceeds from disposal of discontinued operations | ‒ | ‒ | ‒ | 22,063 | |||||||||
| Business combination | ‒ | ‒ | (517) | (760) | |||||||||
| (9,861) | 18,930 | (9,026) | (25,533) | ||||||||||
| Cash flows from financing activities | |||||||||||||
| Bank loan | 3 | (782) | 772 | 772 | |||||||||
| Repayment of long-term debt | ‒ | (296) | ‒ | (296) | |||||||||
| Exercise of stock options | 40 | 118 | 167 | 1,447 | |||||||||
| Redemption of share capital | ‒ | (626) | ‒ | ‒ | |||||||||
| 43 | (1,586) | 939 | 1,923 | ||||||||||
| Effect of foreign exchange rate changes on cash | (2,354) | (1,158) | 6 | 1,134 | |||||||||
| Change in cash | (9,340) | 39,138 | (4,738) | (968) | |||||||||
| Cash - Beginning of the period | 71,249 | 22,771 | 25,879 | 22,109 | |||||||||
| Cash - End of the period | $ | 61,909 | $ | 61,909 | $ | 21,141 | $ | 21,141 | |||||
Vance Oliver
Manager, Investor Relations
(418) 683-0913, Ext. 23733
[email protected]
Share this article