2014

EXFO Reports Third-Quarter Results for Fiscal 2012

  • 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 /PRNewswire/ - 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.
Unaudited Interim Consolidated Statements of Earnings

(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.
Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)

(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.
Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

(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.
Unaudited Interim Consolidated Statements of Cash Flows

(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

 

SOURCE EXFO INC.



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