EXFO Reports First-Quarter Results for Fiscal 2013

Wed Jan 9, 2013 4:05pm EST

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* Sales reach  US$59.8 million
* Bookings attain  $64.3 million, book-to-bill ratio of 1.07
* Adjusted EBITDA totals  US$2.7 million

QUEBEC CITY,  Jan. 9, 2013  /PRNewswire/ - EXFO Inc. (NASDAQ: EXFO; TSX:
 EXF) reported today financial results for the first quarter ended
  November 30, 2012.



Sales reached  US$59.8 million  in the first quarter of fiscal 2013
 compared to  US$66.4 million  in the first quarter of 2012 and  US$57.2
 million  in the fourth quarter of 2012.



Bookings attained  US$64.3 million  in the first quarter of fiscal 2013
 compared to  US$71.4 million  in the same period last year and  US$55.2
 million  in the fourth quarter of 2012. The company's book-to-bill ratio
 was 1.07 in the first quarter of 2013.



Gross margin*  amounted to 60.5% of sales in the first quarter of fiscal 2013
compared
 to 64.8% in the first quarter of 2012 and 62.8% in the fourth quarter
 of 2012.



IFRS net loss in the first quarter of fiscal 2013 totaled  US$1.6
 million, or  US$0.03  per share, compared to net earnings of
  US$2.9 million, or  US$0.05  per diluted share, in the same period last
 year and a net loss of  US$3.7 million, or  US$0.06  per share, in the
 fourth quarter of 2012. IFRS net loss in the first quarter of 2013
 included  US$1.9 million  in after-tax amortization of intangible assets,
 a foreign exchange gain of  US$0.8 million  and  US$0.4 million  in
 stock-based compensation costs.



Adjusted EBITDA**  totaled  US$2.7 million, or 4.5% of sales, in the first
quarter of
 fiscal 2013 compared to  US$6.5 million, or 9.7% of sales, in the first
 quarter of 2012 and  US$4.5 million, or 8.0% of sales, in the fourth
 quarter of 2012.



"Despite a challenging environment during the last several quarters, I
 am increasingly optimistic about EXFO's opportunities for fiscal 2013
 based on improving market conditions, recent investment plans announced
 by network operators and our highest bookings level in the past year,"
 said  Germain Lamonde, EXFO's Chairman, President and CEO. "While both
 Protocol and Physical-layer product groups delivered sequential
 bookings growth of about 15% in the first quarter, I am particularly
 excited about our Protocol  solutions, especially in the areas of
 4G/LTE, mobile backhaul and service assurance where we're gaining
 traction with tier-1 wireless operators. Given these data points, our
 history of market-share gains and recent restructuring initiative, we
 plan to increase sales 6% to 10% in 2013 and significantly improve
 profitability."


Selected Financial Information
(In thousands of US dollars)

                                                                                                                      
                                                            Q1 2013            Q4 2012            Q1 2012        
                                                                                                                      
 Sales                                                      $     59,821      $     57,156      $     66,388  
                                                                                                                         
 Gross margin*                                              $     36,164      $     35,899      $     43,018  
                                                                  60.5%             62.8%             64.8%   
                                                                                                                      
 Other selected information:                                                                                  
                 IFRS net earnings (loss)                  $      (1,638)    $      (3,714)    $       2,887 
                 Amortization of intangible assets         $        1,962    $        1,931    $       1,921 
                 Stock-based compensation costs            $          448    $          429    $         555 
                 Restructuring costs                       $            -    $        2,329    $           - 
                 Net income tax effect of the above items  $         (67)    $        (247)    $        (30) 
                 Foreign exchange gain (loss)              $          756    $      (1,940)    $       1,664 
                 Adjusted EBITDA**                         $        2,720    $        4,546    $       6,472 


Operating Expenses

Selling and administrative expenses totaled  US$22.3 million, or 37.3% of
 sales in the first quarter of fiscal 2013 compared to  US$24.6 million,
 or 37.1% of sales, in the same period last year and  US$22.2 million, or
 38.9% of sales, in the fourth quarter of 2012.



Gross research and development expenses amounted to  US$13.9 million, or
 23.2% of sales, in the first quarter of fiscal 2013 compared to  US$14.8
 million, or 22.3% of sales, in the first quarter of 2012 and
  US$14.1 million, or 24.7% of sales, in the fourth quarter of 2012.



Net R&D expenses totaled  US$11.6 million, or 19.4% of sales, in the
 first quarter of fiscal 2013 compared to US$12.5 million, or 18.8% of
 sales, in the same period last year and  US$11.9 million, or 20.8% of
 sales, in the fourth quarter of 2012.


First-Quarter Highlights

* 
EXFO's sales and bookings improved 4.7% and 16.4% sequentially in the
 first quarter mainly due to increased traction of Physical-layer
 products and less seasonality. It should be noted the company was
 unable to recognize into revenue in the first quarter more than  US$2.0
 million  in orders. EXFO's top customer accounted for 7.2% of sales in
 the first quarter, while the top three represented 15.6%. Global sales
 originated 56% from the Americas, 27% from  Europe,  Middle East  and
  Africa  (EMEA), and 17% from  Asia-Pacific.

* 
Focusing on profitability, EXFO expects to benefit from  US$8.0 million
 in annual cost-savings from its almost completed restructuring plan.
 The company has reported  US$2.3 million  in restructuring costs so far
 with  US$0.3 million  left to incur in the second quarter of 2013. Based
 on increased sales volume and a tight control on expenses, EXFO expects
 to deliver a significant improvement in adjusted EBITDA in 2013.

* 
On the innovation front, EXFO launched five new products, including the
 next-generation BV-110 service assurance probe that enables network
 operators to validate service-level agreements and end-user quality of
 experience (QoE) at customer premises and cell sites. It fully
 complements the recently launched BV-3100 hardware probe, which allows
 operators to accelerate Ethernet deployments in wireless backhaul and
 metro networks. The company also strengthened its FTB Ecosystem and
 EXFO Connect initiative with the introduction of FTB Anywhere, a unique
 cloud-based solution allowing an operator to share software licenses
 among its fleet of FTB platforms to avoid costly delays in shipping
 units across large geographies.

Business Outlook

EXFO forecasts sales between  US$62.0 million and US$67.0 million  for the
 second quarter of fiscal 2013, while IFRS net loss is expected to range
 between  US$0.04 and US$0.00  per share. Net loss includes  US$0.04  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 first quarter of fiscal 2013. To
 listen to the conference call and participate in the question period
 via telephone, dial 1-416-981-9005.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  January 16, 2013.
 The replay number is 1-402-977-9141 and the reservation number
 is 21620458. 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
 more than 35% of the portable fiber-optic test market. EXFO has a staff
 of approximately 1700 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 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 and our ability to manage inventory
 levels with market demand); capital spending and network deployment
 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; timely release and 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 the
 Canadian securities commissions. We believe that the expectations
 reflected in the forward-looking statements are reasonable based on
 information currently available to us, but we cannot assure you that
 the expectations will prove to have been correct. Accordingly, you
 should not place undue reliance on these forward-looking statements.
 These statements speak only as of the date of this document. Unless
 required by law or applicable regulations, we undertake no obligation
 to revise or update any of them to reflect events or circumstances that
 occur after the date of this document.


Non-IFRS Measures

EXFO provides non-IFRS measures (gross margin* and adjusted EBITDA**) as
 supplemental information regarding its operational performance. The
 company uses these measures for the purposes 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 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.



** Adjusted EBITDA is defined as net earnings (loss) before interest,
 income taxes, depreciation of property, plant and equipment,
 amortization of intangible assets, restructuring charges, stock-based
 compensation costs and foreign exchange gain (loss).



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


Adjusted EBITDA

                                                   Three months            Three months          Three months         
                                                   ended                   ended                 ended                
                                                   November 30,            August 31,            November 30,         
                                                   2012                    2012                  2011                 
                                                                                                                            
 IFRS net earnings (loss) for the period           $           (1,638)    $         (3,714)    $             2,887 
                                                                                                                               
 Add (deduct):                                                                                                                 
                                                                                                                               
 Depreciation of property, plant and equipment                   1,605                1,535                  1,568 
 Amortization of intangible assets                               1,962                1,931                  1,921 
 Interest (income) expenses                                       (33)                 (63)                     71 
 Income taxes                                                    1,132                  159                  1,134 
 Restructuring charges                                               -                2,329                      - 
 Stock-based compensation costs                                    448                  429                    555 
 Foreign exchange (gain) loss                                    (756)                1,940                (1,664) 
 Adjusted EBITDA for the period                    $             2,720    $           4,546    $             6,472 
                                                                                                                               
 Adjusted EBITDA in percentage of sales                           4.5%                 8.0%                   9.7% 


 EXFO Inc.                                                                               
 Condensed Unaudited Interim Consolidated Balance Sheets                                 
                                                                                         
 (in thousands of US dollars)                                                            
                                                                                         
                                                   As at               As at        
                                                   November 30,        August 31,   
                                                   2012                2012         
 Assets                                                                             
                                                                                    
 Current assets                                                                     
 Cash                                            $         50,818    $       58,868 
 Short-term investments                                     8,171             8,236 
 Accounts receivable                                                                
                        Trade                             45,701            37,643 
                        Other                              3,773             4,283 
 Income taxes and tax credits recoverable                   8,597             9,024 
 Inventories                                               41,065            41,212 
 Prepaid expenses                                           3,415             3,800 
                                                          161,540           163,066 
                                                                                    
 Tax credits recoverable                                   40,511            38,397 
 Property, plant and equipment                             49,045            49,848 
 Intangible assets                                         12,214            14,132 
 Goodwill                                                  28,958            29,160 
 Deferred income taxes                                     11,946            12,080 
                                                                                    
                                                 $        304,214    $      306,683 
 Liabilities                                                                        
                                                                                    
 Current liabilities                                                                
 Accounts payable and accrued liabilities        $         35,202    $       32,392 
 Provisions                                                   853               952 
 Income taxes payable                                       1,068               917 
 Current portion of long-term debt                            583               565 
 Deferred revenue                                           9,348            10,583 
                                                           47,054            45,409 
                                                                                    
 Deferred revenue                                           4,596             4,997 
 Long-term debt                                               291               282 
 Other liabilities                                            413               609 
 Deferred income taxes                                      2,609             2,105 
                                                           54,963            53,402 
                                                                                    
 Shareholders' equity                                                               
 Share capital                                            110,835           110,965 
 Contributed surplus                                       16,950            17,298 
 Retained earnings                                        109,873           111,511 
 Accumulated other comprehensive income                    11,593            13,507 
                                                                                    
                                                          249,251           253,281 
                                                                                    
                                                 $        304,214    $      306,683 


 EXFO Inc.                                                                                                
 Condensed Unaudited Interim Consolidated Statements of Earnings                                          
                                                                                                          
 (in thousands of US dollars, except share and per share data)                                            
                                                                                                          
                                                                     Three months ended                
                                                                     November 30,                      
                                                                                                    
                                                                         2012                  2011 
                                                                                                    
 Sales                                                            $    59,821             $  66,388 
                                                                                                    
 Cost of sales(1)                                                      23,657                23,370 
 Selling and administrative                                            22,290                24,618 
 Net research and development                                          11,602                12,483 
 Depreciation of property, plant and equipment                          1,605                 1,568 
 Amortization of intangible assets                                      1,962                 1,921 
 Earnings (loss) from operations                                      (1,295)                 2,428 
                                                                                                    
 Interest income (expenses)                                                33                  (71) 
 Foreign exchange gain                                                    756                 1,664 
 Earnings (loss) before income taxes                                    (506)                 4,021 
                                                                                                    
 Income taxes                                                           1,132                 1,134 
                                                                                                    
 Net earnings (loss) for the period                               $   (1,638)             $   2,887 
                                                                                                    
 Basic and diluted net earnings (loss) per share                  $    (0.03)             $    0.05 
                                                                                                    
 Basic weighted average number of shares outstanding (000's)           60,389                60,341 
                                                                                                    
 Diluted weighted average number of shares outstanding (000's)         60,389                61,763 


(1) The cost of sales is exclusive of depreciation and amortization,
 shown separately.

 EXFO Inc.                                                                                                                                                
 Condensed Unaudited Interim Consolidated Statements of Comprehensive                                                                                     
  Loss                                                                                                                                                    
                                                                                                                                                          
 (in thousands of US dollars)                                                                                                                             
                                                                                                                   Three months ended                  
                                                                                                                   November 30,                        
                                                                                                                                                    
                                                                                                                       2012                    2011 
                                                                                                                                                    
 Net earnings (loss) for the period                                                                             $   (1,638)        $          2,887 
 Other comprehensive income (loss), net of income taxes                                                                                             
 Items that will not be reclassified subsequently to net earnings                                                                                   
                                    Foreign currency translation adjustment                                        (1,708)                (11,827) 
 Items that may be reclassified subsequently to net earnings                                                                                        
                                    Unrealized gains on forward exchange contracts                                    (83)                   (819) 
                                    Reclassification of realized gains on forward exchange contracts in net          (199)                   (625) 
                                     earnings (loss)                                                                                               
                                    Deferred income tax effect of gains on forward exchange contracts                   76                     395 
                                                                                                                      (206)                 (1,049) 
 Other comprehensive loss                                                                                           (1,914)                (12,876) 
                                                                                                                                                    
 Comprehensive loss for the period                                                                              $   (3,552)        $        (9,989) 


 EXFO Inc.                                                                                                                                                                                                                                                
 Condensed Unaudited Interim Consolidated Statements of Changes in                                                                                                                                                                                        
  Shareholders' Equity                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                                          
 (in thousands of US dollars)                                                                                                                                                                                                                             
                                                                                                                                                                                                                                                          
                                                                                                    Three months ended November 30, 2011                                                                                                                
                                                                                                    Share               Contributed                    Retained                     Accumulated                      Total                  
                                                                                                    Capital             Surplus                        earnings                     other                            shareholders' equity   
                                                                                                                                                                                    comprehensive                                           
                                                                                                                                                                                    income                                                  
                                                                                                                                                                                                                                            
 Balance as at September 1, 2011                                                                  $   110,341      $                  18,017      $               115,104      $                    21,049      $                   264,511 
 Redemption of share capital                                                                            (244)                          (119)                            -                                -                            (363) 
 Reclassification of stock-based compensation costs                                                       848                          (848)                            -                                -                                - 
 Stock-based compensation costs                                                                             -                            489                            -                                -                              489 
 Net earnings for the period                                                                                -                              -                        2,887                                -                            2,887 
 Other comprehensive loss                                                                                                                                                                                                                   
                             Foreign currency translation adjustment                                       -                              -                            -                         (11,827)                         (11,827) 
                             Changes in unrealized gains on forward exchange contracts, net of             -                              -                            -                          (1,049)                          (1,049) 
                              deferred income taxes of $395                                                                                                                                                                                
                                                                                                                                                                                                                                            
 Total comprehensive income (loss) for the period                                                           -                              -                        2,887                         (12,876)                          (9,989) 
                                                                                                                                                                                                                                            
 Balance as at November 30, 2011                                                                  $   110,945      $                  17,539      $               117,991      $                     8,173      $                   254,648 
                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                          
                                                                                                   Three months ended November 30, 2012                                                                                                                
                                                                                                    Share               Contributed Surplus            Retained earnings            Accumulated                      Total                  
                                                                                                    Capital                                                                         other                            shareholders' equity   
                                                                                                                                                                                    comprehensive income                                    
                                                                                                                                                                                                                                            
 Balance as at September 1, 2012                                                                  $   110,965      $                  17,298      $               111,511      $                    13,507      $                   253,281 
 Exercise of stock options                                                                                 51                              -                            -                                -                               51 
 Redemption of share capital                                                                            (793)                          (180)                            -                                -                            (973) 
 Reclassification of stock-based compensation costs                                                       612                          (612)                            -                                -                                - 
 Stock-based compensation costs                                                                             -                            444                            -                                -                              444 
 Net loss for the period                                                                                    -                              -                      (1,638)                                -                          (1,638) 
 Other comprehensive loss                                                                                                                                                                                                                   
                             Foreign currency translation adjustment                                       -                              -                            -                          (1,708)                          (1,708) 
                             Changes in unrealized gains on forward exchange contracts, net of             -                              -                            -                            (206)                            (206) 
                              deferred income taxes of $76                                                                                                                                                                                 
                                                                                                                                                                                                                                            
 Total comprehensive loss for the period                                                                    -                              -                      (1,638)                          (1,914)                          (3,552) 
                                                                                                                                                                                                                                            
 Balance as at November 30, 2012                                                                  $   110,835      $                  16,950      $               109,873      $                    11,593      $                   249,251 


 EXFO Inc.                                                                                                                         
 Condensed Unaudited Interim Consolidated Statements of Cash Flows                                                                 
                                                                                                                                   
 (in thousands of US dollars)                                                                                                      
                                                                                                                                   
                                                                                            Three months ended                   
                                                                                            November 30,                         
                                                                                                                              
                                                                                                 2012                    2011 
                                                                                                                              
 Cash flows from operating activities                                                                                         
 Net earnings (loss) for the period                                                       $   (1,638)        $          2,887 
 Add (deduct) items not affecting cash                                                                                        
                                  Change in discount on short-term investments                     2                      31 
                                  Stock-based compensation costs                                 448                     555 
                                  Depreciation and amortization                                3,567                   3,489 
                                  Deferred revenue                                           (1,531)                 (1,141) 
                                  Deferred income taxes                                          733                     718 
                                  Change in foreign exchange gain/loss                          (23)                 (1,214) 
                                                                                                1,558                   5,325 
                                                                                                                              
 Change in non-cash operating items                                                                                           
                                  Accounts receivable                                        (8,104)                 (2,897) 
                                  Income taxes and tax credits                               (1,873)                     172 
                                  Inventories                                                  (160)                     593 
                                  Prepaid expenses                                               359                      15 
                                  Accounts payable, accrued liabilities and provisions         3,637                   3,397 
                                  Other liabilities                                            (195)                    (61) 
                                                                                              (4,778)                   6,544 
 Cash flows from investing activities                                                                                         
 Additions to short-term investments                                                         (24,533)                (57,922) 
 Proceeds from disposal and maturity of short-term investments                                 24,527                  90,779 
 Additions to capital assets                                                                  (1,989)                 (4,486) 
                                                                                              (1,995)                  28,371 
 Cash flows from financing activities                                                                                         
 Bank loan                                                                                          -                   (785) 
 Exercise of stock options                                                                         51                       - 
 Redemption of share capital                                                                    (973)                   (363) 
                                                                                                (922)                 (1,148) 
                                                                                                                              
 Effect of foreign exchange rate changes on cash                                                (355)                   (368) 
                                                                                                                              
 Change in cash                                                                               (8,050)                  33,399 
 Cash - Beginning of the period                                                                58,868                  22,771 
 Cash - End of the period                                                                 $    50,818        $         56,170 
                                                                                                                                   


SOURCE  EXFO INC.

Vance Oliver

Manager, Investor Relations

(418) 683-0913, Ext. 23733

vance.oliver@exfo.com
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