EXFO Reports Third-Quarter Results for Fiscal 2014

• Sales reach US$63.9 million, up 24.8% sequentially and 8.5% year-over-year
• Bookings attain US$66.5 million, book-to-bill ratio of 1.04
• Gross margin* improves to 63.3%, adjusted EBITDA** amounts to US$7.3 million (11.5%)

QUEBEC CITY, June 25, 2014 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today financial results for the third quarter ended May 31, 2014.

Sales reached US$63.9 million in the third quarter of fiscal 2014 compared to US$58.9 million in the third quarter of 2013 and US$51.2 million in the second quarter of 2014.

Bookings attained US$66.5 million in the third quarter of fiscal 2014 compared to US$61.8 million in the same period last year and US$58.7 million in the second quarter of 2014. The company's book-to-bill ratio was 1.04 in the third quarter of 2014.

Gross margin before depreciation and amortization^* improved to 63.3% of sales in the third quarter of fiscal 2014 from 61.7% in the third quarter of 2013 and 60.8% in the second quarter of 2014.

IFRS net earnings in the third quarter of fiscal 2014 totaled US$1.7 million, or US$0.03 per diluted share, compared to a net loss of US$0.9 million, or US$0.01 per share, in the same period last year and a net loss of US$1.3 million, or US$0.02 per share, in the second quarter of 2014. IFRS net earnings in the third quarter of 2014 included US$1.0 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs and a foreign exchange loss of US$1.1 million.

Adjusted EBITDA^** amounted to US$7.3 million, or 11.5% of sales, in the third quarter of fiscal 2014 compared to US$3.1 million, or 5.3% of sales, in the third quarter of 2013 and -US$1.0 million, or -2.0% of sales, in the second quarter of 2014.

During the third quarter of fiscal 2014, EXFO acquired the assets of ByteSphere, a Boston-area software company specializing in global IT management and network monitoring solutions. This transaction extends EXFO's service assurance offering into infrastructure performance visibility through highly scalable device and network element polling.

Following the quarter-end, EXFO acquired the business of Aito Technologies, a Finnish provider of customer experience analytics for mobile network operators, through an asset purchase deal. EXFO intends to combine the analytics software capabilities of Aito Technologies with its own wireless product portfolio to provide mobile operators with heightened, end-to-end visibility of their 3G and 4G/LTE networks.

"I am really pleased with our strong sequential and year-over-year sales growth, the strengthening of our backlog for a third consecutive quarter and leverage in our operating model with an adjusted EBITDA margin of 11.5% in the third quarter," said Germain Lamonde, EXFO's Chairman, President and CEO. "I am also delighted with our improved market position in the wireless industry, both through the recent acquisitions of ByteSphere and Aito Technologies but also with several recently introduced solutions. All these initiatives have greatly elevated EXFO's strategic relevance in the wireless industry as reflected by three recent contract wins, two of which occurred with tier-1 network operators after the quarter-end."

Selected Financial Information
(In thousands of US dollars)

			Q3 2014			Q2 2014			Q3 2013
Sales		$	63,882		$	51,179		$	58,865
Gross margin before depreciation and amortization^*		$	40,413		$	31,106		$	36,291
			63.3%			60.8%			61.7%
Other selected information:
	IFRS net earnings (loss)	$	1,665		$	(1,339)		$	(862)
	Amortization of intangible assets	$	1,025		$	1,074		$	1,586
	Stock-based compensation costs	$	407		$	402		$	415
	Net income tax effect of the above items	$	(63)		$	(64)		$	(68)
	Foreign exchange gain (loss)	$	(1,126)		$	2,292		$	314
	Adjusted EBITDA^**	$	7,345		$	(1,002)		$	3,131

 

Operating Expenses
Selling and administrative expenses totaled US$21.7 million, or 34.0% of sales, in the third quarter of fiscal 2014 compared to US$22.0 million, or 37.4% of sales, in the same period last year and US$21.5 million, or 42.1% of sales, in the second quarter of 2014.

Gross research and development expenses amounted to US$13.6 million, or 21.3% of sales, in the third quarter of fiscal 2014 compared to US$13.8 million, or 23.4% of sales, in the third quarter of 2013 and US$13.0 million, or 25.5% of sales, in the second quarter of 2014.

Net R&D expenses totaled US$11.7 million, or 18.4% of sales, in the third quarter of fiscal 2014 compared to US$11.6 million, or 19.7% of sales, in the same period last year and US$11.0 million, or 21.4% of sales, in the second quarter of 2014.

Third-Quarter Highlights

• Sales. Sales improved 24.8% quarter-over-quarter and 8.5% year-over-year to US$63.9 million in the third quarter of 2014 mainly due to the typical seasonal release of network operators' capital spending budgets and increased traction of EXFO's optical and wireless solutions. Global sales originated 54% from the Americas, 28% from EMEA and 18% from Asia-Pacific.  EXFO's top customer accounted for 6.7% of sales in the third quarter, while the top three represented 15.3%. Following the quarter-end, two tier-1 mobile network operators (one from the Americas and the other from EMEA) selected EXFO as a strategic solutions partner.
  
  
• Profitability. EXFO reported adjusted EBITDA of US$7.3 million, or 11.5% of sales, in the third quarter of 2014 which marked the company's best performance in the last nine quarters. Cash flows from operating activities totaled US$2.9 million in the third quarter of 2014 compared to US$1.3 million for the same period in 2013. EXFO's cash position amounted to US$52.7 million with no debt at the end of the third quarter of 2014. 

• Innovation. EXFO completed the initial integration phase of ByteSphere's network element performance metrics solution into its latest BrixWorx service assurance release. EXFO also will combine the analytics software capabilities of Aito Technologies with its own wireless product portfolio in upcoming quarters to provide mobile operators with heightened, end-to-end visibility of their 3G and 4G/LTE networks. EXFO launched three new products in the third quarter of 2014, including among others the FTB-2 Pro Platform, the industry's smallest platform for high-speed, multi-technology testing in the field and a 10G multi-test solution for the turn-up, validation and troubleshooting of next-generation and legacy networks. Altogether, the company released 19 new products or major product upgrades since the beginning of the fiscal year.

Business Outlook
EXFO forecasts sales between US$60.0 million and US$65.0 million for the fourth quarter of fiscal 2014, while IFRS net earnings are expected to range between US$0.00 and US$0.04 per diluted share. Net earnings include US$0.02 per share in after-tax amortization of intangible assets and stock-based compensation costs.

This guidance was established by management based on existing backlog as of the date of this press release, seasonality, expected bookings for the remaining of the quarter, 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 2014. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9091. Germain Lamonde, Chairman, President and CEO, and Pierre Plamondon, CPA, 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 2, 2014. The replay number is 1-402-977-9141 and the reservation number is 21716514. 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 a leading provider of next-generation test, service assurance and end-to-end quality of experience solutions for mobile and fixed network operators and equipment manufacturers in the global telecommunications industry. EXFO's intelligent solutions with contextually relevant analytics improve end-user quality of experience, enhance network performance and drive operational efficiencies throughout the network and service delivery lifecycle. Key technologies supported include 3G, 4G/LTE, VoLTE, IMS, video, Ethernet/IP, SNMP, OTN, FTTx, xDSL and various optical technologies accounting for more than 38% of the global portable fiber-optic test market. EXFO has a staff of approximately 1600 people in 25 countries, supporting more than 2000 customers worldwide. For more information, visit www.EXFO.com and follow us on the EXFO Blog, Twitter, LinkedIn, Facebook, Google+ and YouTube.

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, 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 statement that refers 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 as well as capital spending and network deployment levels in the telecommunications industry (including our ability to quickly adapt cost structures with 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 and service assurance industry and increased competition among vendors; capacity to adapt our future product offering to future technological changes; limited visibility with regards to customer orders and the timing of such orders; 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; our ability to successfully  integrate  businesses that we acquire; 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 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. The company uses these measures for the purpose of evaluating historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the company to plan and forecast for 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 its 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 before depreciation and amortization represents sales less cost of sales, excluding depreciation and amortization.
**	Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain or loss.

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

Adjusted EBITDA

		Q3 2014			Q2 2014			Q3 2013
IFRS net earnings (loss) for the period	$	1,665		$	(1,339)		$	(862)
Add (deduct):
Depreciation of property, plant and equipment		1,219			1,243			1,473
Amortization of intangible assets		1,025			1,074			1,586
Interest and other income		(220)			(49)			(68)
Income taxes		2,123			(41)			901
Stock-based compensation costs		407			402			415
Foreign exchange (gain) loss		1,126			(2,292)			(314)
Adjusted EBITDA for the period	$	7,345		$	(1,002)		$	3,131
Adjusted EBITDA in percentage of sales		11.5%			(2.0)%			5.3%

 

EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets

(in thousands of US dollars)

			As at May 31, 2014			As at August 31, 2013
Assets
Current assets
Cash			$	47,423		$	45,386
Short-term investments				5,321			4,868
Accounts receivable
	Trade			52,930			50,117
	Other			2,332			2,778
Income taxes and tax credits recoverable				6,326			6,525
Inventories				37,376			35,705
Prepaid expenses				2,612			2,561
				154,320			147,940
Tax credits recoverable				42,388			41,719
Property, plant and equipment				43,166			45,523
Intangible assets				6,745			7,543
Goodwill				26,527			27,313
Deferred income taxes				10,323			10,807
Other assets				786			693
			$	284,255		$	281,538
Liabilities
Current liabilities
Accounts payable and accrued liabilities			$	35,919		$	26,253
Provisions				572			756
Income taxes payable				777			679
Current portion of long-term debt				-			296
Deferred revenue				9,480			9,467
				46,748			37,451
Deferred revenue				3,131			3,932
Deferred income taxes				4,090			3,226
Other liabilities				452			477
				54,421			45,086
Shareholders' equity
Share capital				111,491			109,837
Contributed surplus				16,081			17,186
Retained earnings				112,431			112,852
Accumulated other comprehensive loss				(10,169)			(3,423)
				229,834			236,452
			$	284,255		$	281,538

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings

(in thousands of US dollars, except share and per share data)

		Three months ended May 31, 2014			Nine months ended May 31, 2014			Three months ended May 31, 2013			Nine months ended May 31, 2013
Sales		$	63,882		$	171,064		$	58,865		$	181,262
Cost of sales ^(1)			23,469			64,727			22,574			69,895
Selling and administrative			21,730			64,975			22,002			67,366
Net research and development			11,745			33,999			11,573			35,135
Depreciation of property, plant and equipment			1,219			3,737			1,473			4,582
Amortization of intangible assets			1,025			3,281			1,586			5,470
Interest and other income			(220)			(296)			(68)			(76)
Foreign exchange (gain) loss			1,126			(1,968)			(314)			(2,770)
Earnings before income taxes			3,788			2,609			39			1,660
Income taxes			2,123			3,030			901			4,121
Net earnings (loss) for the period		$	1,665		$	(421)		$	(862)		$	(2,461)
Basic and diluted net earnings (loss) per share		$	0.03		$	(0.01)		$	(0.01)		$	(0.04)
Basic weighted average number of shares outstanding (000's)			60,339			60,323			60,377			60,386
Diluted weighted average number of shares outstanding (000's)			60,986			60,323			60,377			60,386

(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 May 31, 2014			Nine months ended May 31, 2014			Three months ended May 31, 2013			Nine months ended May 31, 2013
Net earnings (loss) for the period			$	1,665		$	(421)		$	(862)		$	(2,461)
Other comprehensive income (loss), net of income taxes
Items that will not be reclassified subsequently to net earnings
	Foreign currency translation adjustment			4,736			(6,792)			(1,252)			(12,144)
Items that may be reclassified subsequently to net earnings
	Unrealized gains/losses on forward exchange contracts			835			(694)			(112)			(874)
	Reclassification of realized gains/losses on forward exchange contracts in net earnings (loss)			391			756			48			(281)
	Deferred income tax effect of gains/losses on forward exchange contracts			(328)			(16)			17			310
Other comprehensive income (loss)				5,634			(6,746)			(1,299)			(12,989)
Comprehensive income (loss) for the period			$	7,299		$	(7,167)		$	(2,161)		$	(15,450)

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

(in thousands of US dollars)

			Nine months ended May 31, 2013
			Share capital			Contributed surplus			Retained earnings			Accumulated other comprehensive income			Total shareholders' equity
Balance as at September 1, 2012			$	110,965		$	17,298		$	111,511		$	13,507		$	253,281
Exercise of stock options				87			-			-			-			87
Redemption of share capital				(1,892)			(409)			-			-			(2,301)
Reclassification of stock-based compensation costs				1,350			(1,350)			-			-			-
Stock-based compensation costs				-			1,333			-			-			1,333
Net loss for the period				-			-			(2,461)			-			(2,461)
Other comprehensive loss
	Foreign currency translation adjustment			-			-			-			(12,144)			(12,144)
	Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $310			-			-			-			(845)			(845)
Total comprehensive loss for the period				-			-			(2,461)			(12,989)			(15,450)
Balance as at May 31, 2013			$	110,510		$	16,872		$	109,050		$	518		$	236,950
			Nine months ended May 31, 2014
			Share capital			Contributed surplus			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity
Balance as at September 1, 2013			$	109,837		$	17,186		$	112,852		$	(3,423)		$	236,452
Exercise of stock options				225			-			-			-			225
Redemption of share capital				(831)			(106)			-			-			(937)
Reclassification of stock-based compensation costs				2,260			(2,260)			-			-			-
Stock-based compensation costs				-			1,261			-			-			1,261
Net loss for the period				-			-			(421)			-			(421)
Other comprehensive income (loss)
	Foreign currency translation adjustment			-			-			-			(6,792)			(6,792)
	Changes in unrealized losses on forward exchange contracts, net of deferred income taxes of $16			-			-			-			46			46
Total comprehensive loss for the period				-			-			(421)			(6,746)			(7,167)
Balance as at May 31, 2014			$	111,491		$	16,081		$	112,431		$	(10,169)		$	229,834

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows

(in thousands of US dollars)

			Three months ended May 31, 2014			Nine months ended May 31, 2014			Three months ended May 31, 2013			Nine months ended May 31, 2013
Cash flows from operating activities
Net earnings (loss) for the period			$	1,665		$	(421)		$	(862)		$	(2,461)
Add (deduct) items not affecting cash
	Changes in discount on short-term investments			-			-			1			-
	Stock-based compensation costs			407			1,272			415			1,331
	Depreciation and amortization			2,244			7,018			3,059			10,052
	Deferred revenue			209			(519)			1,661			241
	Deferred income taxes			1,147			1,448			263			1,984
	Changes in foreign exchange gain/loss			378			(523)			(78)			(876)
				6,050			8,275			4,459			10,271
Changes in non-cash operating items
	Accounts receivable			(8,208)			(3,683)			(4,569)			(10,657)
	Income taxes and tax credits			(759)			(1,702)			985			(2,201)
	Inventories			727			(2,806)			(262)			791
	Prepaid expenses			492			(124)			(804)			(859)
	Other assets			53			19			-			-
	Accounts payable, accrued liabilities and provisions			4,565			9,956			1,553			1,503
	Other liabilities			(35)			(78)			(25)			(235)
				2,885			9,857			1,337			(1,387)
Cash flows from investing activities
Additions to short-term investments				(9,821)			(24,392)			(9,934)			(44,703)
Proceeds from disposal and maturity of short-term investments				9,244			23,806			9,921			47,731
Additions to capital assets				(2,750)			(5,146)			(1,459)			(5,952)
				(3,327)			(5,732)			(1,472)			(2,924)
Cash flows from financing activities
Repayment of long-term debt				-			(307)			-			(293)
Exercise of stock options				30			225			-			87
Redemption of share capital				-			(937)			(1,161)			(2,301)
				30			(1,019)			(1,161)			(2,507)
Effect of foreign exchange rate changes on cash				771			(1,069)			(271)			(2,192)
Change in cash				359			2,037			(1,567)			(9,010)
Cash - Beginning of the period				47,064			45,386			51,425			58,868
Cash - End of the period			$	47,423		$	47,423		$	49,858		$	49,858

 

 

 

SOURCE: EXFO inc.

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