EXFO reports third quarter results for fiscal 2021

<br /> EXFO reports third quarter results for fiscal 2021<br />

PR Newswire

Sales reached

US$72.6 million
Bookings attained

US$87.0 million

, book-to-bill ratio of 1.20
IFRS net loss totaled

US$3.7 million
Adjusted EBITDA amounted to

US$4.3 million
Proxy circular forthcoming on board-approved, going-private transaction

QUEBEC CITY,

July 14, 2021

/PRNewswire/ – EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry’s test, monitoring and analytics experts, reported today financial results for the third quarter ended

May 31, 2021

.

“In the third quarter of 2021, EXFO delivered sales and adjusted EBITDA consistent with expectations while strong bookings were mainly driven by a recovery from the coronavirus pandemic and a good performance in EMEA,” said EXFO’s CEO

Philippe Morin

.

Third Quarter Highlights

Sales

. Sales improved 9.8% year-over-year in the third quarter of 2021 mainly due to increased spending on fiber deployments in the Americas and

Europe

,

Middle East

and

Africa

(EMEA) following a period of reduced investments caused by the coronavirus pandemic in 2020. Test and Measurement (T&M) sales grew 13.9% year-over-year in the third quarter of 2021, while Service Assurance, Systems and Services (SASS) sales dropped 9.6%. Sales in the Americas and EMEA increased 18.4% and 20.6% year-over-year, respectively, while sales in the

Asia-Pacific

region fell 23.8%. EXFO’s top customer accounted for 5.6% of sales, while the top three represented 14.1%.
Profitability

. IFRS net loss totaled

US$3.7 million

, or –

US$0.07

per share, in the third quarter of 2021, while adjusted EBITDA
^*
amounted to

US$4.3 million

, or 5.9% of sales.

Selected Financial Information

(In thousands of US dollars)


	Three months ended May 31, 2021		Three months ended May 31, 2020		Nine months ended May 31, 2021		Nine months ended May 31, 2020

Test and Measurement sales	$	57,295	$	50,309	$	159,045	$	143,733
Service Assurance, Systems and Services sales	14,780		16,352		53,391		52,036
Foreign exchange losses on forward exchange
contracts	(569)		(514)		(974)		(758)
Total sales	$	72,644	$	66,147	$	213,410	$	195,011

Test and Measurement bookings	$	59,671	$	46,634	$	164,584	$	153,646
Service Assurance, Systems and Services bookings	26,766		12,988		69,840		49,000
Foreign exchange losses on forward exchange
contracts	(569)		(514)		(974)		(758)
Total bookings	$	87,006	$	59,108	$	235,398	$	201,888
Book-to-bill ratio (bookings/sales)	1.20		0.89		1.10		1.04
Gross margin before depreciation and amortization ^*	$	42,346	$	38,199	$	122,820	$	113,026
	58.3%		57.7%		57.6%		58.0%

Other selected information:
IFRS net earnings (loss)	$	(3,682)	$	3,177	$	(2,567)	$	(5,907)
Amortization of intangible assets	$	1,774	$	1,698	$	6,310	$	5,025
Stock-based compensation costs	$	1,193	$	523	$	2,778	$	1,446
Restructuring charges	$	108	$	–	$	651	$	–
Net income tax effect of the above items	$	(307)	$	(257)	$	(1,135)	$	(760)
Foreign exchange loss	$	826	$	141	$	1,199	$	649
Adjusted EBITDA ^*	$	4,288	$	10,656	$	17,644	$	13,284

Quarterly Overview

Sales increased 9.8% to

US$72.6

million in the third quarter of fiscal 2021 from

US$66.1 million

in third quarter of 2020 which had been affected by the coronavirus pandemic.

Bookings improved 47.2% to

US$87.0 million

in the third quarter of fiscal 2021 from

US$59.1 million

in the same period in 2020, driven by fiber deployment projects that had been delayed due to the pandemic and a good performance in EMEA. The company’s book-to-bill ratio was 1.20 in the third quarter of 2021. A previously announced service assurance lab evaluation with a tier-1 US network operator is ongoing, but it is taking longer than expected due to the level of transformation and functionality required.

Gross margin before depreciation and amortization* amounted to 58.3% of sales in the third quarter of fiscal 2021 compared to 57.7% in the third quarter of 2020.

Selling and administrative expenses totaled

US$25.0 million

, or 34.4% of sales in the third quarter of fiscal 2021 compared to

US$18.9 million

, or 28.6% of sales, in the third quarter of 2020.

Net R&D expenses attained

US$14.4 million

, or 19.8% of sales, in the third quarter of fiscal 2021 compared to

US$9.2 million

, or 13.9% of sales, in the same period last year.

IFRS net loss totaled

US$3.7 million

, or –

US$0.07

per share, in the third quarter of fiscal 2021 compared to net earnings of

US$3.2 million

, or

US$0.06

per share, in the third quarter of 2020. IFRS net loss in the third quarter of 2021 included

US$1.8 million

in amortization of intangible assets,

US$1.2 million

in stock-based compensation costs,

US$0.1 million

in restructuring charges,

US$0.8 million

in foreign exchange loss, and an income tax effect of the above items of

US$0.3 million

. Net loss for the third quarter of 2021 also included

US$0.4 million

for an after-tax wage subsidy by the Canadian government to help companies mitigate the impact of the coronavirus pandemic.

Adjusted EBITDA* amounted to

US$4.3 million

, or 5.9% of sales, in the third quarter of fiscal 2021 compared to

US$10.7 million

, or 16.1% of sales, in the third quarter of 2020.

Going-Private Transaction

On

June 7

, EXFO announced a going-private transaction, where Holders of Subordinate Voting Shares (other than the Excluded Shares) will receive

US$6.00

per Subordinate Voting Share in cash, representing a 62% premium to the closing price per Subordinate Voting Share on the Nasdaq Global Select Market on

June 4, 2021

, and a 63% premium to the 20-day volume-weighted average trading price for the Subordinate Voting Shares on the Nasdaq Global Select Market for the period ending on

June 4, 2021

, the last trading day prior to the date of the announcement.

“A Special Committee comprised of independent Directors, and the Board of Directors unanimously recommended that shareholders support the transaction. A proxy circular which includes full details regarding the offer will be issued and distributed to shareholders shortly,” said Claude Séguin, Chair of EXFO’s Special Committee of the Board.

Conference Call and Webcast

Given a going-private transaction has been initiated, no conference call/webcast will be held.

About EXFO

EXFO (NASDAQ: EXFO) (TSX: EXF) develops smarter test, monitoring and analytics solutions for fixed and mobile network operators, webscale companies and equipment manufacturers in the global communications industry. Our customers count on us to deliver superior network performance, service reliability and subscriber insights. They count on our unique blend of equipment, software and services to accelerate digital transformations related to fiber, 4G/LTE and 5G deployments. They count on our expertise with automation, real-time troubleshooting and big data analytics, which are critical to their business performance. We’ve spent over 30 years earning this trust, and today 1,900 EXFO employees in over 25 countries work side by side with our customers in the lab, field, data center and beyond.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, and we intend that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are statements other than historical information or statements of current condition. Words such as may, expect, believe, plan, anticipate, intend, could, estimate, continue, or similar expressions or the negative of such expressions are intended to identify forward-looking statements. In addition, any 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, but not limited to, macroeconomic uncertainty, namely the impact of the coronavirus pandemic on our employees, customers and global operations, including the ability of our suppliers to fulfil raw material requirements and services and our ability to manufacture and deliver our products and services to our customers; the effects of emergency measures related to isolation periods for individuals in affected areas, lockdown restrictions imposed by national governments on businesses in countries where we operate and have employees, and limitations on travel to attract new customers and serve existing ones; deteriorating financial and market conditions as well as a potential recession; trade wars, and our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the communications industry (including our ability to quickly adapt cost structures to anticipated levels of business and our ability to manage inventory levels with market demand); future economic, competitive, financial and market conditions; consolidation in the global communications test, monitoring and analytics solutions markets and increased competition among vendors; capacity to adapt our future product offering to future technological changes; limited visibility with regard to the timing and nature of customer orders; delay in revenue recognition due to longer sales cycles for complex systems involving customers’ acceptance; fluctuating exchange rates; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully expand international operations and to conduct business internationally; 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 before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA represent net earnings (loss) before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, and foreign exchange loss.

These non-IFRS measures eliminate the effect on IFRS results of non-cash statement of earnings elements, restructuring charges as well as elements subject to significant volatility such as foreign exchange gain or loss. EXFO uses these measures for evaluating historical and prospective financial performance, as well as its performance relative to competitors. These non-IFRS measures are also used by financial analysts to evaluate and compare EXFO’s performance against that of competitors and industry players in the company’s sector.

Finally, these measures help EXFO plan and forecast future periods as well as make operational and strategic decisions. EXFO believes that providing this information, in addition to the IFRS measures, allows investors to see the company’s results through the eyes of management, and to better understand historical and future financial performance. More importantly, it enables the comparison of EXFO’s performance on a relatively similar basis against that of other public and private companies in the industry worldwide.

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.

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

Adjusted EBITDA

	Three months ended May 31, 2021		Three months ended May 31, 2020		Nine months ended May 31, 2021		Nine months ended May 31, 2020

IFRS net earnings (loss) for the period	$	(3,682)	$	3,177	$	(2,567)	$	(5,907)

Add (deduct):

Depreciation and amortization	3,898		3,833		12,857		11,732
Interest and other (income) expense	396		291		(1,607)		975
Income taxes	1,549		2,691		4,333		4,389
Stock-based compensation costs	1,193		523		2,778		1,446
Restructuring charges	108		–		651		–
Foreign exchange loss	826		141		1,199		649
Adjusted EBITDA for the period	$	4,288	$	10,656	$	17,644	$	13,284

Adjusted EBITDA as a percentage of sales	5.9%		16.1%		8.3%		6.8%

EXFO Inc.
Condensed Unaudited Interim Consolidated Balance Sheets

(in thousands of US dollars)

	As at May 31, 2021		As at August 31, 2020

Assets

Current assets
Cash	$	10,913	$	32,818
Short-term investments	1,621		919
Accounts receivable
Trade	55,753		56,291
Other	7,026		4,055
Income taxes and tax credits recoverable	6,858		4,203
Inventories	48,384		38,865
Prepaid expenses	5,934		5,631
Other assets	4,240		5,493
	140,729		148,275

Tax credits recoverable	51,438		48,812
Property, plant and equipment	41,302		39,722
Right-of-use assets	8,730		10,758
Intangible assets	14,177		17,616
Goodwill	43,051		40,290
Deferred income tax assets	4,122		3,633
Other assets	1,674		1,548
	$	305,223	$	310,654
Liabilities

Current liabilities
Bank loan	$	8,001	$	32,737
Accounts payable and accrued liabilities	50,902		41,348
Provisions	1,438		3,792
Income taxes payable	457		43
Deferred revenue	27,478		25,785
Other liabilities	4,126		4,032
Current portion of lease liabilities	3,130		3,249
Current portion of long-term debt	1,477		2,076
	97,009		113,062

Provisions	2,900		2,782
Deferred revenue	9,071		8,858
Lease liabilities	5,573		7,334
Long-term debt	1,419		2,144
Deferred income tax liabilities	2,995		3,760
Other liabilities	161		151
	119,128		138,091

Shareholders’ equity
Share capital	95,254		94,024
Contributed surplus	21,216		19,680
Retained earnings	100,066		102,633
Accumulated other comprehensive loss	(30,441)		(43,774)
	186,095		172,563

	$	305,223	$	310,654

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Earnings

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

	Three months ended May 31, 2021		Nine months ended May 31, 2021		Three months ended May 31, 2020		Nine months ended May 31, 2020

Sales	$	72,644	$	213,410	$	66,147	$	195,011

Cost of sales ⁽¹⁾	30,298		90,590		27,948		81,985
Selling and administrative	24,986		69,485		18,898		67,705
Net research and development	14,373		39,120		9,168		33,483
Depreciation of property, plant and
equipment	1,346		4,159		1,291		4,158
Depreciation of lease right-of-use assets	778		2,388		844		2,549
Amortization of intangible assets	1,774		6,310		1,698		5,025
Interest and other (income) expense	396		(1,607)		291		975
Foreign exchange loss	826		1,199		141		649
Earnings (loss) before income taxes	(2,133)		1,766		5,868		(1,518)

Income taxes	1,549		4,333		2,691		4,389

Net earnings (loss) for the period	$	(3,682)	$	(2,567)	$	3,177	$	(5,907)

Basic and diluted net earnings (loss)
per share	$	(0.07)	$	(0.05)	$	0.06	$	(0.11)

Basic weighted average number of shares
outstanding (000’s)	56,031		55,906		55,678		55,573

Diluted weighted average number of
shares outstanding (000’s)	56,031		55,906		56,724		55,573

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

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)

(in thousands of US dollars)

	Three months ended May 31, 2021		Nine months ended May 31, 2021		Three months ended May 31, 2020		Nine months ended May 31, 2020

Net earnings (loss) for the period	$	(3,682)	$	(2,567)	$	3,177	$	(5,907)
Other comprehensive income (loss), net of
income taxes
Items that may be reclassified
subsequently to net earnings (loss)
Foreign currency translation
adjustment	7,680		12,323		(3,317)		(4,075)
Unrealized gains/losses on forward
exchange contracts	1,373		2,320		(1,052)		(1,805)
Reclassification of realized gains/losses
on forward exchange contracts	(490)		(959)		251		607
Deferred income tax effect on
gains/losses on forward exchange
contracts	(217)		(351)		206		322

Other comprehensive income (loss)	8,346		13,333		(3,912)		(4,951)

Comprehensive income (loss) for
the period	$	4,664	$	10,766	$	(735)	$	(10,858)

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

(in thousands of US dollars)

	Nine months ended May 31, 2020
	Share capital		Contributed surplus		Retained earnings		Accumulated other comprehensive loss		Total shareholders’ equity

Balance as at September 1, 2019	$	92,706	$	19,196	$	112,173	$	(51,511)	$	172,564
Reclassification of stock-based
compensation costs	1,505		(1,505)		–		–		–
Redemption of share capital	(212)		(13)		–		–		(225)
Stock-based compensation costs	–		1,471		–		–		1,471
Net loss for the period	–		–		(5,907)		–		(5,907)
Other comprehensive loss
Foreign currency translation
adjustment	–		–		–		(4,075)		(4,075)
Changes in unrealized gains/losses
on forward exchange contracts,
net of deferred income taxes
of $322	–		–		–		(876)		(876)

Total comprehensive income for the period									(10,858)

Balance as at May 31, 2020	$	93,999	$	19,149	$	106,266	$	(56,462)	$	162,952



	Nine months ended May 31, 2021
	Share capital		Contributed surplus		Retained earnings		Accumulated other comprehensive loss		Total shareholders’ equity

Balance as at September 1, 2020	$	94,024	$	19,680	$	102,633	$	(43,774)	$	172,563
Reclassification of stock-based
compensation costs	1,395		(1,395)		–		–		–
Issuance of share capital	414		–		–		–		414
Share issue expenses	(14)		–		–		–		(14)
Redemption of share capital	(565)		157		–		–		(408)
Stock-based compensation costs	–		2,774		–		–		2,774
Net loss for the period	–		–		(2,567)		–		(2,567)
Other comprehensive income
Foreign currency translation
adjustment	–		–		–		12,323		12,323
Changes in unrealized gains/losses
on forward exchange contracts,
net of deferred income taxes
of $351	–		–		–		1,010		1,010

Total comprehensive income for the period									10,766

Balance as at May 31, 2021	$	95,254	$	21,216	$	100,066	$	(30,441)	$	186,095

EXFO Inc.
Condensed Unaudited Interim Consolidated Statements of Cash Flows

(in thousands of US dollars)

	Three months ended May 31, 2021		Nine months ended May 31, 2021		Three months ended May 31, 2020		Nine months ended May 31, 2020

Cash flows from operating activities
Net earnings (loss) for the period	$	(3,682)	$	(2,567)	$	3,177	$	(5,907)
Add (deduct) items not affecting cash
Stock-based compensation costs	1,193		2,778		523		1,446
Depreciation and amortization	3,898		12,857		3,833		11,732
Gain on disposal of capital assets	–		(17)		–		–
Write-off of capital assets	43		53		–		216
Other income	–		(669)		–		–
Deferred revenue	(768)		(849)		(329)		(3,144)
Deferred income taxes	11		(1,608)		493		(161)
Changes in foreign exchange gain/loss	(910)		(911)		869		1,750
	(215)		9,067		8,566		5,932
Changes in non-cash operating items
Accounts receivable	(2,366)		4,017		(25,485)		(6,874)
Income taxes and tax credits	(1,106)		(883)		44		(2,618)
Inventories	(4,236)		(4,917)		(2,282)		(6,233)
Prepaid expenses	(585)		543		(773)		215
Other assets	(252)		1,411		(256)		(712)
Accounts payable, accrued liabilities
and provisions	3,854		2,601		3,253		(6,020)
Other liabilities	5		(1)		53		95
	(4,901)		11,838		(16,880)		(16,215)
Cash flows from investing activities
Additions to short-term investments	(1,122)		(1,627)		(1,927)		(2,074)
Disposal of short-term investments	–		978		–		1,264
Purchases of capital assets	(2,084)		(4,367)		(1,880)		(6,066)
Business combination, net of cash acquired	(1,099)		(300)		–		–
	(4,305)		(5,316)		(3,807)		(6,876)
Cash flows from financing activities
Bank loan	(3,202)		(24,895)		19,934		28,304
Repayment of lease liabilities	(778)		(2,388)		(844)		(2,534)
Additions to long-term debt	274		274		–		–
Repayment of long-term debt	(487)		(1,646)		(292)		(1,607)
Redemption of share capital	–		(408)		–		(225)
	(4,193)		(29,063)		18,798		23,938
Effect of foreign exchange rate changes
on cash	444		636		(167)		(295)

Change in cash during the period	(12,955)		(21,905)		(2,056)		552
Cash – Beginning of the period	23,868		32,818		19,126		16,518
Cash – End of the period	$	10,913	$	10,913	$	17,070	$	17,070

EXFO-F

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