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Press release from CNW Group

EXFO Reports Third-Quarter Results for Fiscal 2012

Thursday, June 28, 2012

EXFO Reports Third-Quarter Results for Fiscal 201216:14 EDT Thursday, June 28, 2012Net loss of US$3.9 M on sales of US$59.5 MGross margin of 60.4% on lower sales volume and product mixCash flows from operations of US$2.8 M and US$23.0 M year-to-dateQUEBEC CITY, June 28, 2012 /CNW Telbec/ - 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 $ 7,119Operating ExpensesSelling 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 OutlookEXFO 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 WebcastEXFO 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, under the Investors section.About EXFOListed 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 StatementsThis 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 MEASURESEXFO 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  7,119Changes 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 ConsolidatedBalanceSheets(in thousands of US dollars)  As atMay 31,2012  As atAugust 31,2011Assets           Current assets     Cash$61,909 $22,771Short-term investments 7,831  47,091Accounts receivable      Trade 43,704  45,151 Other 3,236  6,329Income taxes and tax credits recoverable 8,413  5,414Inventories 40,497  52,754Prepaid expenses 3,491  3,237  169,081  182,747      Tax credits recoverable 32,382  34,120Forward exchange contracts -  149Property, plant and equipment 43,189  32,076Intangible assets 15,420  22,901Goodwill 28,105  30,942Deferred income taxes 16,529  17,314       $304,706 $320,249Liabilities           Current liabilities     Bank loan$- $784Accounts payable and accrued liabilities 33,488  30,320Provisions 1,050  1,817Forward exchange contracts 537  -Income taxes payable 895  876Contingent liability -  338Current portion of long-term debt 554  645Deferred revenue 12,044  10,590  48,568  45,370      Deferred revenue 5,228  5,704Long-term debt  554  968Other liabilities 694  723Deferred income taxes 5,499  4,803  60,543  57,568      Shareholders' equity     Share capital 111,890  110,341Contributed surplus 17,322  18,017Retained earnings 113,490  113,438Accumulated other comprehensive income 1,461  20,885        244,163  262,681       $304,706 $320,249EXFO Inc.Unaudited Interim Consolidated Statements of Earnings(in thousands of US dollars, except share and per share data)   Three monthsendedMay 31, 2012  Nine monthsendedMay 31, 2012  Three monthsendedMay 31, 2011  Nine monthsendedMay 31, 2011             Sales $59,505 $192,810 $67,630 $205,329             Cost of sales(1)  23,549  70,535  24,243  76,849Selling and administrative  23,625  71,919  23,082  65,216Net research and development  13,173  37,963  12,943  35,788Depreciation of property, plant and equipment  1,520  4,634  1,745  4,988Amortization of intangible assets  1,993  5,888  2,128  7,061Changes 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  661Foreign 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 $0.08Basic net earnings from discontinued operations per share $- $- $- $0.22Diluted net earnings from discontinued operations per share $- $- $- $0.21Basic 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 monthsendedMay 31, 2012  Nine monthsendedMay 31, 2012  Three monthsendedMay 31, 2011  Nine monthsendedMay 31, 2011             Net earnings (loss) for the period $(3,902) $52 $1,799 $17,648Other 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  22,276Comprehensive income (loss) for the period $(17,118) $(19,372) $3,206 $39,924EXFO Inc.Unaudited InterimConsolidated Statements of ChangesinShareholders' Equity(in thousands of US dollars)   Nine monthsendedMay31, 2011   Sharecapital  Contributed surplus  Retainedearnings  Accumulatedothercomprehensiveincome  Totalshareholders'quity                Balance as at September 1, 2010 $106,126 $18,563 $91,152 $1,016 $216,857Exercise of stock options  1,447  -  -  -  1,447Reclassification of stock-based compensation costs  2,654  (2,654)  -  -  -Stock-based compensation costs  -  1,714  -  -  1,714Net earnings for the period  -  -  17,648  -  17,648Other 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   ShareCapital  ContributedSurplus  Retainedearnings  Accumulatedothercomprehensiveincome  Totalshareholders'equity                Balance as at September 1, 2011 $110,341 $18,017 $113,438 $20,885 $262,681Exercise of stock options  118  -  -  -  118Redemption of share capital  (404)  (222)  -  -  (626)Reclassification of stock-based compensation costs  1,835  (1,835)  -  -  -Stock-based compensation costs  -  1,362  -  -  1,362Net earnings for the period  -  -  52  -  52Other 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 $244,163EXFO Inc.Unaudited Interim Consolidated Statements of Cash Flows(in thousands of US dollars)   Three monthsendedMay 31, 2012  Nine monthsendedMay 31, 2012  Three monthsendedMay 31, 2011  Nine monthsendedMay 31, 2011Cash flows from operating activities            Net earnings (loss) for the period $(3,902) $52 $1,799 $17,648Add (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  21,508Cash 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  381,332Additions to capital assets  (6,826)  (18,003)  (3,790)  (7,085)Proceeds from disposal of capital assets  ‒  ‒  568  568Net proceeds from disposal of discontinued operations  ‒  ‒  ‒  22,063Business combination  ‒  ‒  (517)  (760)   (9,861)  18,930  (9,026)  (25,533)Cash flows from financing activities            Bank loan  3  (782)  772  772Repayment of long-term debt  ‒  (296)  ‒  (296)Exercise of stock options  40  118  167  1,447Redemption 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  22,109Cash - End of the period $61,909 $61,909 $21,141 $21,141 For further information: Vance Oliver Manager, Investor Relations (418) 683-0913, Ext. 23733