EXFO Reports Sales Growth for a Sixth Consecutive Quarter
· Sales increase 50.2% year-over-year to US$72.0 million, 5th straight quarter of record sales
- EBITDA* reaches US$8.4 million (11.6% of sales) despite FX loss of US$2.4 million
- Cash position increases US$41.8 million year-to-date to US$73.6 million
- QUEBEC CITY, CANADA, March 31, 2011 – EXFO Inc. (NASDAQ: EXFO; TSX: EXF) reported today sales growth for a sixth consecutive quarter, including five straight reporting periods of record sales.
Sales increased 50.2% to US$72.0 million in the second quarter of fiscal 2011 ended February 28, 2011, from US$48.0 million in the second quarter of 2010 and 9.7% from US$65.7 million in the first quarter of 2011. Organic sales growth, excluding the NetHawk acquisition and divested Life Sciences and Industrial Division, improved 40.0% year-over-year and 13.2% sequentially.
Net bookings increased 11.5% to US$57.6 million in the second quarter of fiscal 2011 from US$51.6 million in the same period last year and decreased 35.9% from US$89.8 million in the seasonally high first quarter of 2011. The company’s book-to-bill ratio was 0.80 in the second quarter of 2011 and 1.07 at the mid-point of fiscal 2011.
Gross margin reached 61.4% of sales in the second quarter of fiscal 2011 compared to 60.8% in the second quarter of 2010 and 62.2% in the first quarter of 2011. At the mid-point of the fiscal 2011, gross margin amounted to 61.8% of sales compared to 62.8% in the same period in 2010.
GAAP net earnings in the second quarter of fiscal 2011 totaled US$1.7 million, or US$0.03 per diluted share, compared to US$1.2 million, or US$0.02 per diluted share, in the same period last year and US$14.1 million, or US$0.23 per diluted share, in the first quarter of 2011. It should be noted that in the first quarter of 2011 EXFO recorded an after-tax gain of US$13.1 million, or US$0.21 per diluted share, from the disposal of discontinued operations (Life Sciences and Industrial Division). GAAP net earnings in the second quarter of 2011 included US$2.4 million in amortization of intangible assets and US$0.6 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$0.2 million. The company also reported a foreign exchange loss of US$2.4 million in the second quarter of 2011.
EXFO increased its cash and short-term investments to US$73.6 million at the end of the second quarter of 2011 from US$50.6 million in the previous quarter mainly due to US$20.7 million in cash flows from operations.
“Overall, I am satisfied with our financial performance in the first half of fiscal 2011 based on year-over-year sales growth of 56.0%, or 43.2% organically, bookings increase of 49.8% for a book-to-bill ratio of 1.07, EBITDA* of US$16.5 million despite US$3.5 million in foreign exchange losses, and an increase in our cash position of more than US$40 million to provide us with flexibility,” said Germain Lamonde, EXFO’s Chairman, President and CEO. “As expected, second-quarter bookings were down sequentially due to seasonality and significant year-end money received in the first quarter. Nonetheless, our backlog is now at a more manageable level in our typically strong third quarter. I remain confident that the trends toward explosive bandwidth demand and IP network convergence compel fixed and mobile operators to accelerate their strategic investments in wireless backhaul, 3G/4G, FTTH and VDSL deployments as well as 40G and 100G network upgrades.”
Selected Financial Information
(In thousands of US dollars)
Operating Expenses
Selling and administrative expenses totaled US$22.2 million, or 30.9% of sales, in the second quarter of fiscal 2011 compared to US$15.3 million, or 31.9% of sales, in the same period last year and US$19.9 million, or 30.3% of sales, in the first quarter of 2011.
Gross research and development expenses amounted to US$13.8 million, or 19.2% of sales, in the second quarter of fiscal 2011 compared to US$9.8 million, or 20.4% of sales, in the second quarter of 2010 and US$13.7 million, or 20.9% of sales, in the first quarter of 2011.
Net R&D expenses totaled US$11.2 million, or 15.6% of sales, in the second quarter of fiscal 2011 compared to US$8.4 million, or 17.5% of sales, in the same period last year and US$11.6 million, or 17.7% of sales, in the first quarter of 2011.
Second-Quarter Business Highlights – Broadband Deployments and IP Fixed-Mobile Network Convergence
- EXFO generated record sales of US$72.0 million, reflecting strong traction in its Optical, Protocol and Copper Access businesses.
- NetHawk, acquired in mid-March 2010, posted US$4.9 million in sales and US$8.7 million in bookings.
- EXFO added deep packet inspection (DPI) technology to its wireless analyzers and service assurance systems during the quarter. This value-added solution will enable subscriber-based, application-level monitoring for assessing long-term evolution (LTE) and other packet-based networks.
- EXFO’s top customer accounted for 7.5% of sales and its top three customers 17.9% in the second quarter. At the mid-point of fiscal 2011, EXFO’s top customer represented 7.2% of sales and top three customers 18.5%.
- EXFO launched two new products in the second quarter and nine after the first half of fiscal 2011.
Profitable Growth Path
EXFO generated EBITDA* of US$8.4 million (11.6% of sales) in the second quarter of fiscal 2011 on revenue of US$72.0 million, despite a pre-tax, foreign exchange loss of US$2.4 million (3.3% of sales). Foreign exchange losses or gains are included in EBITDA.* See the section below entitled “Non-GAAP Financial Measures” for a reconciliation of EBITDA* with GAAP net earnings.
Business Outlook
EXFO forecasts sales between US$67.0 million and US$72.0 million for the third 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.
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 second quarter of fiscal 2011. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9094. 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 April 7, 2011. The replay number is 1-402-977-9141 and the reservation number is 21513253. 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 1700 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 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 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, 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:
