- Sales increase 20.9% year-over-year to US$67.6 M
- Gross margin improves to 64.2% of sales
- EBITDA* reaches US$7.1 M (10.5% of sales)
- Launches EXFO Connect, a suite of cost-saving and productivity solutions leveraging large base of smart and modular test platforms
QUEBEC CITY, Canada, June 28, 2011 (GLOBE NEWSWIRE) -- EXFO Inc. (Nasdaq:EXFO) (TSX:EXF) reported today financial results for the third quarter ended May 31, 2011.
Sales increased 20.9% to US$67.6 million in the third quarter of fiscal 2011 from US$55.9 million in the third quarter of 2010, but decreased 6.1% from US$72.0 million in the second quarter of 2011. After nine months into fiscal 2011, sales increased 42.4% year-over-year to US$205.3 million.
Net bookings improved 7.3% to US$61.3 million in the third quarter of fiscal 2011 from US$57.1 million in the same period last year and 6.4% from US$57.6 million in the second quarter of 2011. The company's book-to-bill ratio was 0.91 in the third quarter of 2011. Year-to-date, net bookings increased 34.2% to US$208.6 million for a book-to-bill ratio of 1.02.
Gross margin reached 64.2% of sales in the third quarter of fiscal 2011 compared to 63.5% in the third quarter of 2010 and 61.4% in the second quarter of 2011. After nine months into fiscal 2011, gross margin attained 62.6% of sales compared to 63.0% in the same period in 2010.
GAAP net earnings in the third quarter of fiscal 2011 totaled US$1.7 million, or US$0.03 per diluted share, compared to a net loss of US$0.6 million, or US$0.01 per share, in the same period last year and net earnings of US$1.7 million, or US$0.03 per diluted share, in the second quarter of 2011. GAAP net earnings in the third quarter of 2011 included US$2.1 million in amortization of intangible assets and US$0.4 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$0.1 million.
EBITDA* amounted to US$7.1 million, or 10.5% of sales, in the third quarter of fiscal 2011 compared to US$5.7 million, or 9.1% of sales, in the third quarter of 2010 and US$8.4 million, or 11.6% of sales, in the second quarter of 2011. After nine months into fiscal 2011, adjusted EBITDA* totaled US$23.7 million, or 11.4% of sales.
"EXFO is remarkably well-positioned to benefit from intermediate and long-term market trends as both wireless and wireline operators must continue to invest in converged, IP networking technologies in order to meet growing bandwidth demand," said Germain Lamonde, EXFO's Chairman, President and CEO. "Given our outlook for the fourth quarter, we should generate annual revenue growth greater than 30% for our telecom business, which demonstrates once again our ability to grow faster than our end-markets. Based on EXFO's strong innovation leadership and business development initiatives, I'm confident we will overcome the short-term, softer spending environment to keep delivering superior results as demand for bandwidth expansion and IP networking is not going away."
Selected Financial Information
(In thousands of US dollars)
| Q3 2011 | Q2 2011 | Q3 2010 | |
| Sales: | |||
| Continuing operations (formerly Telecom Div.) | $ 67,630 | $ 72,046 | $ 55,930 |
| Discontinued operations (formerly Life Sciences & Industrial Div.) | − | − | 7,280 |
| Total | $ 67,630 | $ 72,046 | $ 63,210 |
| Gross margin: | |||
| Continuing operations | $ 43,387 | $ 44,225 | $ 35,509 |
| 64.2% | 61.4% | 63.5% | |
| Discontinued operations | $ − | $ − | $ 3,869 |
| − | − | 53.1% | |
| Total | $ 43,387 | $ 44,225 | $ 39,378 |
| 64.2% | 61.4% | 62.2% | |
| Other selected information: | |||
| GAAP net earnings | $ 1,735 | $ 1,653 | $ 169 |
| Amortization of intangible assets | $ 2,128 | $ 2,367 | $ 2,354 |
| Stock-based compensation costs | $ 432 | $ 625 | $ 426 |
| Net income tax effect of the above items | $ (70) | $ (157) | $ (208) |
| Foreign exchange losses | $ (243) | $ (2,395) | $ (1,211) |
| EBITDA* | $ 7,119 | $ 8,351 | $ 5,749 |
Operating Expenses
Selling and administrative expenses totaled US$23.1 million, or 34.1% of sales, in the third quarter of fiscal 2011 compared to US$18.6 million, or 33.2% of sales, in the same period last year and US$22.2 million, or 30.9% of sales, in the second quarter of 2011.
Gross research and development expenses amounted to US$15.4 million, or 22.7% of sales, in the third quarter of fiscal 2011 compared to US$13.1 million, or 23.4% of sales, in the third quarter of 2010 and US$13.8 million, or 19.2% of sales, in the second quarter of 2011.
Net R&D expenses totaled US$12.9 million, or 19.2% of sales, in the third quarter of fiscal 2011 compared to US$11.1 million, or 19.9% of sales, in the same period last year and US$11.2 million, or 15.6% of sales, in the second quarter of 2011.
Third-Quarter Business Highlights — Broadband Deployments and IP Fixed-Mobile Network Convergence
- EXFO strengthened its positioning for the wireless market through a series of product and service launches as well as heightened engagement with a wider base of operators. NetHawk, acquired in mid-March 2010, contributed US$7.5 million to EXFO's sales.
- EXFO launched six new products in the third quarter including EXFO Connect, a suite of productivity solutions aimed at reducing operating expenses for network operators. EXFO Connect leverages the company's large established base of smart, Windows-based, modular test platforms.
- EXFO expanded its FTB-1 platform offering with the well-received intelligent Optical Link Mapper (iOLM) module, an innovative solution that tests fiber-to-the-home (FTTH) networks 85% faster than a traditional instrument while requiring far less-trained or experienced field technicians.
- Following the quarter-end, EXFO introduced the FTB-880 NetBlazer Multiservice Tester, the smallest and most powerful test solution for characterizing DSn/PDH, SONET/SDH and Ethernet packet-based services up to 10 Gbit/s. This solution, housed in the FTB-1 test platform, is designed for mobile backhaul and access/metro network deployments with minimum downtime.
Profitable Growth Path
EXFO generated EBITDA* of US$7.1 million (10.5% of sales) in the third quarter of fiscal 2011 on revenue of US$67.6 million. Foreign exchange losses or gains are included in EBITDA.* See the section below entitled "Non-GAAP Financial Measures" for a reconciliation of EBITDA* and adjusted EBITDA* to GAAP net earnings.
Business Outlook
EXFO forecasts sales between US$62.0 million and US$67.0 million for the fourth quarter of fiscal 2011, while GAAP net earnings are expected to range between US$0.01 and US$0.05 per diluted share. GAAP net earnings include US$0.04 per share in after-tax amortization of intangible assets and stock-based compensation costs. The company also anticipates a pre-tax, foreign exchange gain of US$0.01 per diluted share following the decrease in the value of the Canadian dollar compared to May 31, 2011.
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 2011. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9017.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, 2011. The replay number is 1-402-977-9141 and the reservation number is 21525391. 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 wireless and wireline 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, 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.
EXFO Brand Name
The corporate name of the company is EXFO Inc. The company requests that all media outlets and publications use the corporate name ("EXFO Inc.") or abbreviated name ("EXFO") in capital letters for branding purposes. EXFO would like to thank all parties in advance for their cooperation.
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 forward-looking statements due to various factors including our ability to successfully integrate our acquired and to-be-acquired businesses; fluctuating exchange rates; consolidation in the global telecommunications test, measurement and service assurance industry and increased competition among vendors; capital spending levels in the telecommunications industry; concentration of sales; the effects of the additional actions we have taken in response to economic uncertainty (including our ability to quickly adapt cost structures with anticipated levels of business, ability to manage inventory levels with market demand); market acceptance of our new products and other upcoming products; limited visibility with regards to customer orders and the timing of such orders; our ability to successfully expand international operations; the retention of key technical and management personnel; and future economic, competitive, financial and market condition. 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-GAAP Financial Measures
EXFO provides non-GAAP financial measures (EBITDA* and adjusted EBITDA*) as supplemental information regarding its operational performance. The company uses these measures for the purpose of evaluating its 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 to investors, in addition to GAAP measures, allows them 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 GAAP. Therefore, the information may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, the corresponding measures calculated in accordance with GAAP.
* EBITDA is defined as net earnings before interest, income taxes, amortization of property, plant and equipment, and amortization of intangible assets. Adjusted EBITDA represents EBITDA excluding the gain from the disposal of discontinued operations.
The following table summarizes the reconciliation of EBITDA and adjusted EBITDA to GAAP net earnings in thousands of US dollars:
EBITDA and adjusted EBITDA (including discontinued operations)
|
Three months ended May 31, 2011 |
Three months ended February 28, 2011 |
Three months ended May 31, 2010 |
Nine months ended May 31, 2011 |
|
| GAAP net earnings for the period | $ 1,735 | $ 1,653 | $ 169 | $ 17,459 |
| Add (deduct): | ||||
| Amortization of property, plant and equipment | ||||
| Continuing operations | 1,775 | 1,626 | 1,602 | 5,075 |
| Discontinued operations | – | – | 41 | 14 |
| Amortization of intangible assets | ||||
| Continuing operations | 2,128 | 2,367 | 2,343 | 7,061 |
| Discontinued operations | – | – | 11 | 4 |
| Interest and other income (expense) | ||||
| Continuing operations | (562) | 8 | 59 | (490) |
| Income taxes | ||||
| Continuing operations | 2,043 | 2,697 | 1,170 | 7,546 |
| Discontinued operations | – | – | 354 | 201 |
| EBITDA for the period | 7,119 | 8,351 | 5,749 | 36,870 |
| Gain on disposal of discontinued operations | – | – | – | (13,212) |
| Adjusted EBITDA for the period | $ 7,119 | $ 8,351 | $ 5,749 | $ 23,658 |
| Adjusted EBITDA in percentage of total sales | 10.5 % | 11.6 % | 9.1 % | 11.4 % |
| EXFO Inc. | ||||
| Unaudited Interim Consolidated Balance Sheet | ||||
| (in thousands of US dollars) | ||||
|
As at May 31, 2011 |
As at August 31, 2010 |
|||
| Assets | ||||
| Current assets | ||||
| Cash | $21,141 | $21,440 | ||
| Short-term investments | 53,143 | 10,379 | ||
| Accounts receivable | ||||
| Trade | 50,796 | 50,190 | ||
| Other | 5,765 | 5,217 | ||
| Income taxes and tax credits recoverable | 5,308 | 2,604 | ||
| Inventories | 53,511 | 40,328 | ||
| Prepaid expenses | 3,867 | 2,816 | ||
| Future income taxes | 6,160 | 6,191 | ||
| Current assets held for sale | – | 3,991 | ||
| 199,691 | 143,156 | |||
| Tax credits recoverable | 35,525 | 29,397 | ||
| Forward exchange contracts | 166 | – | ||
| Property, plant and equipment | 26,277 | 23,455 | ||
| Intangible assets | 24,691 | 27,947 | ||
| Goodwill | 30,916 | 29,355 | ||
| Future income taxes | 10,295 | 12,884 | ||
| Long-term assets held for sale | – | 7,308 | ||
| $327,561 | $273,502 | |||
| Liabilities | ||||
| Current liabilities | ||||
| Bank loan | $772 | $ – | ||
| Accounts payable and accrued liabilities | 35,670 | 30,870 | ||
| Income taxes payable | 975 | 426 | ||
| Current portion of long-term debt | 644 | 568 | ||
| Deferred revenue | 13,382 | 10,354 | ||
| Current liabilities related to assets held for sale | – | 2,531 | ||
| 51,443 | 44,749 | |||
| Deferred revenue | 6,631 | 5,775 | ||
| Long-term debt | 1,288 | 1,419 | ||
| Other liabilities | 919 | 603 | ||
| Future income taxes | 3,520 | – | ||
| Long-term liabilities related to assets held for sale | – | 537 | ||
| 63,801 | 53,083 | |||
| Shareholders' equity | ||||
| Share capital | 110,227 | 106,126 | ||
| Contributed surplus | 17,623 | 18,563 | ||
| Retained earnings | 67,987 | 50,528 | ||
| Accumulated other comprehensive income | 67,923 | 45,202 | ||
| 263,760 | 220,419 | |||
| $327,561 | $273,502 | |||
| EXFO Inc. | ||||||||
| Unaudited Interim Consolidated Statements of Earnings | ||||||||
| (in thousands of US dollars, except share and per share data) | ||||||||
|
Three months ended May 31, 2011 |
Nine months ended May 31, 2011 |
Three months ended May 31, 2010 |
Nine months ended May 31, 2010 |
|||||
| Sales | $67,630 | $205,329 | $55,930 | $144,173 | ||||
| Cost of sales (1,2) | 24,243 | 76,849 | 20,421 | 53,272 | ||||
| Gross margin | 43,387 | 128,480 | 35,509 | 90,901 | ||||
| Operating expenses | ||||||||
| Selling and administrative (1) | 23,082 | 65,216 | 18,580 | 47,681 | ||||
| Net research and development (1) | 12,943 | 35,788 | 11,144 | 27,338 | ||||
| Amortization of property, plant and equipment | 1,775 | 5,075 | 1,602 | 4,134 | ||||
| Amortization of intangible assets | 2,128 | 7,061 | 2,343 | 5,295 | ||||
| Total operating expenses | 39,928 | 113,140 | 33,669 | 84,448 | ||||
| Earnings from operations | 3,459 | 15,340 | 1,840 | 6,453 | ||||
| Interest and other income (expenses) | 562 | 490 | (59) | (177) | ||||
| Foreign exchange loss | (243) | (3,751) | (1,213) | (3,261) | ||||
| Earnings before income taxes | 3,778 | 12,079 | 568 | 3,015 | ||||
| Income taxes | 2,043 | 7,546 | 1,170 | 3,591 | ||||
| Net earnings (loss) from continuing operations | 1,735 | 4,533 | (602) | (576) | ||||
| Net earnings from discontinued operations | – | 12,926 | 771 | 2,233 | ||||
| Net earnings for the period | $1,735 | $17,459 | $169 | $1,657 | ||||
| Basic net earnings (loss) from continuing operations per share | $0.03 | $0.08 | $ (0.01) | $ (0.01) | ||||
| Diluted net earnings (loss) from continuing operations per share | $0.03 | $0.07 | $ (0.01) | $ (0.01) | ||||
| Basic net earnings from discontinued operations per share | $ – | $0.22 | $0.01 | $0.04 | ||||
| Diluted net earnings from discontinued operations per share | $ – | $0.21 | $0.01 | $0.04 | ||||
| Basic net earnings per share | $0.03 | $0.29 | $0.00 | $0.03 | ||||
| Diluted net earnings per share | $0.03 | $0.28 | $0.00 | $0.03 | ||||
| Basic weighted average number of shares outstanding (000's) | 60,183 | 59,916 | 59,532 | 59,448 | ||||
| Diluted weighted average number of shares outstanding (000's) | 61,720 | 61,449 | 60,894 | 60,516 | ||||
| (1) Stock-based compensation costs included in: | ||||||||
| Cost of sales | $63 | $162 | $17 | $96 | ||||
| Selling and administrative | $251 | $1,006 | $246 | $769 | ||||
| Net research and development | $118 | $363 | $129 | $346 | ||||
| Net earnings from discontinued operations | $ – | $264 | $34 | $102 | ||||
| (2) The cost of sales is exclusive of amortization, shown separately. | ||||||||
| EXFO Inc. | |||||||||
| Unaudited Interim Consolidated Statements of Comprehensive Income | |||||||||
| and Accumulated Other Comprehensive Income (Loss) | |||||||||
| (in thousands of US dollars) | |||||||||
| Comprehensive income (loss) | |||||||||
|
Three months ended May 31, 2011 |
Nine months ended May 31, 2011 |
Three months ended May 31, 2010 |
Nine months ended May 31, 2010 |
||||||
| Net earnings for the period | $1,735 | $17,459 | $169 | $1,657 | |||||
| Foreign currency translation adjustment | 1,958 | 21,271 | (2,656) | 6,146 | |||||
| Unrealized gains on forward exchange contracts | 188 | 3,426 | 545 | 1,867 | |||||
| Reclassification of realized gains on forward exchange contracts in net earnings | (792) | (1,445) | (436) | (741) | |||||
| Future income taxes effect of the above items | 172 | (531) | (34) | (350) | |||||
| Comprehensive income (loss) | $3,261 | $40,180 | $ (2,412) | $8,579 | |||||
| Accumulated other comprehensive income | |||||||||
|
Nine months ended May 31 |
|||||||||
| 2011 | 2010 | ||||||||
| Foreign currency translation adjustment | |||||||||
| Cumulative effect of prior periods | $44,186 | $40,458 | |||||||
| Current period | 21,271 | 6,146 | |||||||
| 65,457 | 46,604 | ||||||||
| Unrealized gains on forward exchange contracts | |||||||||
| Cumulative effect of prior periods | 1,018 | 1,076 | |||||||
| Current period, net of realized gains and future income taxes | 1,450 | 776 | |||||||
| 2,468 | 1,852 | ||||||||
| Unrealized losses on short-term investments | |||||||||
| Cumulative effect of prior periods | (2) | (2) | |||||||
| Accumulated other comprehensive income | $67,923 | $48,454 | |||||||
| EXFO Inc. | ||||||
| Unaudited Interim Consolidated Statements of Retained Earnings | ||||||
| and Contributed Surplus | ||||||
| (in thousands of US dollars) | ||||||
| Retained earnings | ||||||
|
Nine months ended May 31, |
||||||
| 2011 | 2010 | |||||
| Balance – Beginning of the period | $50,528 | $43,909 | ||||
| Add | ||||||
| Net earnings for the period | 17,459 | 1,657 | ||||
| Balance – End of the period | $67,987 | $45,566 | ||||
| Contributed surplus | ||||||
|
Nine months ended May 31, |
||||||
| 2011 | 2010 | |||||
| Balance – Beginning of the period | $18,563 | $17,758 | ||||
| Add (deduct) | ||||||
| Stock-based compensation costs | 1,714 | 1,293 | ||||
| Reclassification of stock-based compensation costs to share capital upon exercise of stock awards | (2,654) | (895) | ||||
| Discount on redemption of share capital | – | 3 | ||||
| Balance – End of the period | $17,623 | $18,159 | ||||
| EXFO Inc. | ||||||||
| Unaudited Interim Consolidated Statements of Cash Flows | ||||||||
| (in thousands of US dollars) | ||||||||
|
Three months ended May 31, 2011 |
Nine months ended May 31, 2011 |
Three months ended May 31, 2010 |
Nine months ended May 31, 2010 |
|||||
| Cash flows from operating activities | ||||||||
| Net earnings for the period | $1,735 | $17,459 | $169 | $1,657 | ||||
| Add (deduct) items not affecting cash | ||||||||
| Change in discount on short-term investments | (19) | (46) | 16 | 25 | ||||
| Stock-based compensation costs | 432 | 1,795 | 426 | 1,313 | ||||
| Amortization | 3,903 | 12,154 | 3,997 | 9,571 | ||||
| Gain on disposal of discontinued operations | – | (13,212) | – | – | ||||
| Gain on disposal of capital assets | (568) | (568) | – | – | ||||
| Deferred revenue | 1,602 | 2,281 | (515) | 2,408 | ||||
| Future income taxes | 1,695 | 6,258 | 1,198 | 4,258 | ||||
| Change in unrealized foreign exchange gain/loss | 426 | 2,017 | (1,090) | (47) | ||||
| 9,206 | 28,138 | 4,201 | 19,185 | |||||
| Change in non-cash operating items | ||||||||
| Accounts receivable | 1,570 | 6,175 | (9,028) | (18,257) | ||||
| Income taxes and tax credits | (1,795) | (5,000) | (1,644) | (5,015) | ||||
| Inventories | (5,491) | (8,951) | (3,984) | (7,097) | ||||
| Prepaid expenses | (123) | (832) | 458 | (157) | ||||
| Accounts payable and accrued liabilities | (119) | 1,731 | (1,723) | 1,952 | ||||
| Other liabilities | 95 | 247 | – | – | ||||
| 3,343 | 21,508 | (11,720) | (9,389) | |||||
| Cash flows from investing activities | ||||||||
| Additions to short-term investments | (106,701) | (421,651) | (32,285) | (212,882) | ||||
| Proceeds from disposal and maturity of short-term investments | 101,414 | 381,332 | 82,887 | 269,149 | ||||
| Additions to capital assets | (3,790) | (7,085) | (3,411) | (6,220) | ||||
| Proceeds from disposal of capital assets | 568 | 568 | – | – | ||||
| Net proceeds from disposal of discontinued operations | – | 22,063 | – | – | ||||
| Business combination | (517) | (760) | (32,696) | (32,696) | ||||
| (9,026) | (25,533) | 14,495 | 17,351 | |||||
| Cash flows from financing activities | ||||||||
| Bank loan | 772 | 772 | – | – | ||||
| Repayment of long-term debt | – | (296) | – | – | ||||
| Exercise of stock options | 167 | 1,447 | 167 | 294 | ||||
| Redemption of share capital | – | – | – | (14) | ||||
| 939 | 1,923 | 167 | 280 | |||||
| Effect of foreign exchange rate changes on cash | 6 | 1,134 | (365) | (397) | ||||
| Change in cash | (4,738) | (968) | 2,577 | 7,845 | ||||
| Cash – Beginning of the period | 25,879 | 22,109 | 15,879 | 10,611 | ||||
| Cash – End of the period | $21,141 | $21,141 | $18,456 | $18,456 | ||||