EXFO Reports Strong Financial Results for First Quarter of Fiscal 2010
- Sales amount to US$45.6 million, up 24.8% from previous quarter
- Bookings increase 28.2% from previous quarter, book-to-bill ratio
reaches 1.14
- Gross margin improves to 63.9%, highest level in almost nine years
- EBITDA margin attains 9.6% despite foreign exchange loss of
US$1.1 million
QUEBEC CITY, Jan. 12 /PRNewswire-FirstCall/ - EXFO Electro-Optical Engineering Inc. (NASDAQ: EXFO; TSX: EXF) reported today strong financial results for the first quarter ended November 30, 2009.
Sales reached US$45.6 million in the first quarter of fiscal 2010, down 1.7% from US$46.4 million in the first quarter of 2009 but up 24.8% from US$36.5 million in the fourth quarter of 2009. Net bookings were US$52.2 million for a book-to-bill ratio of 1.14 in the first quarter of fiscal 2010, compared to a record level of US$52.3 million in the same period last year, but increased 28.2% from US$40.7 million in the fourth quarter of 2009.
Gross margin improved to 63.9% of sales in the first quarter of fiscal 2010, its highest level since the second quarter of 2001, from 62.3% in the first quarter of 2009 and 60.0% in the fourth quarter of 2009.
GAAP net earnings in the first quarter of fiscal 2010 were US$0.3 million, or US$0.01 per diluted share, compared to GAAP net earnings of US$5.3 million, or US$0.08 per diluted share, in the same period last year and a GAAP net loss of US$1.2 million, or US$0.02 per share, in the fourth quarter of fiscal 2009. It should be noted that EXFO recorded a pre-tax, foreign exchange loss of US$1.1 million in the first quarter of fiscal 2010 compared to a gain of US$4.6 million in the first quarter of 2009 and a gain of US$1.2 million in the fourth quarter of 2009. GAAP net earnings in the first quarter of 2010 included US$1.5 million in amortization of intangible assets and US$0.4 million in stock-based compensation costs. The former item resulted in an income tax recovery of US$0.5 million.
"I'm extremely pleased with our strong sales, bookings and gross margin performance in the first quarter of fiscal 2010," said Germain Lamonde, EXFO's Chairman, President and CEO. "Given that almost all our product lines and geographic regions met or exceeded expectations, I believe that we've successfully navigated through the economic recession while continuing to strengthen our market position to greatly benefit from IP fixed-mobile network convergence and broadband deployments - key trends driving our business. I'm especially encouraged that a string of major contract wins bolstered our backlog entering our second quarter, which is typically the most challenging due to seasonality. The Canadian/US exchange rate turned into a headwind in the first quarter, but I'm confident our EBITDA will continue to improve in the long run as the twofold impact of increased sales volume and a strong gross margin trickles down to the bottom line."
Unaudited Selected Financial Information
(In thousands of US dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segmented results: Q1 2010 Q1 2009 Q4 2009
-----------------------------------------
Sales:
Telecom Division $ 40,292 $ 41,159 $ 31,509
Life Sciences and Industrial
Division 5,268 5,204 4,998
-----------------------------------------
Total $ 45,560 $ 46,363 $ 36,507
-----------------------------------------
-----------------------------------------
Earnings (loss) from
operations:
Telecom Division $ 2,041 $ 1,355 $ (3,238)
Life Sciences and Industrial
Division 687 738 2,020
-----------------------------------------
Total $ 2,728 $ 2,093 $ (1,218)
-----------------------------------------
-----------------------------------------
Other selected information:
GAAP net earnings (loss) $ 334 $ 5,287 $ (1,181)
Selected items included in
GAAP net earnings (loss):
Recognition of previously
unrecognized R&D tax
credits $ - $ - $ (1,902)
Amortization of intangible
assets $ 1,469 $ 1,319 $ 1,147
Restructuring charges $ - $ - $ 1,171
Stock-based compensation
costs $ 418 $ 322 $ 379
Net recovery of income tax $ - $ - $ (943)
Net income tax effect of
the above selected items $ (471) $ (221) $ 93
-------------------------------------------------------------------------
Operating Expenses
Selling and administrative expenses amounted to US$15.4 million, or 33.7% of sales, in the first quarter of fiscal 2010 compared to US$17.1 million, or 36.9% of sales, in the same period last year and US$14.2 million, or 38.9% of sales, in the fourth quarter of 2009.
Gross research and development expenses totaled US$9.8 million, or 21.5% of sales, in the first quarter of fiscal 2010 compared to US$8.6 million, or 18.6% of sales, in the first quarter of 2009 and US$9.0 million, or 24.7% of sales, in the fourth quarter of 2009.
Net R&D expenses totaled US$8.3 million, or 18.2% of sales, in the first quarter of fiscal 2010 compared to US$7.2 million, or 15.6% of sales, in the same period last year and US$5.4 million, or 14.7% of sales, in the fourth quarter of 2009.
First-Quarter Highlights
IP Fixed-Mobile Network Convergence and Broadband Deployments - EXFO announced several new product introductions and contract wins related to its key growth drivers: IP fixed-mobile network convergence and broadband deployments. Major product launches related to these market trends included a complete wireless backhaul testing and service assurance offering, a new end-to-end IP video service assurance solution, an optical modulation analyzer for characterizing signals up to 100G, and expanded optical transport network (OTN) test capabilities on the Transport Blazer for characterizing 40G and 10G networks. Following the quarter-end, EXFO announced that its AXS-200/635 Triple-Play Test Set had been approved by four tier-1 network operators to support their respective deployments of next-generation VDSL2 services and applications. The combined deals could reach US$15 million over the next several years. The company previously reported that its VoIP service assurance solution had been selected by a large broadband wireless operator in a million-dollar deal. Overall, EXFO launched eight new products in the first quarter of fiscal 2010 and 41.0% of sales were derived from products on the market two years or less.
Profitable Growth Path - EXFO reported a gross margin of 63.9% in the first quarter of 2010, its highest level since the second quarter of 2001, on sales volume of US$45.6 million. Quarterly bookings reached US$52.2 million for a book-to-bill ratio of 1.14. EBITDA amounted to US$4.4 million or 9.6% of sales. EBITDA included a foreign exchange loss of US$1.1 million (2.4% of sales).
Business Outlook
EXFO forecasted sales between US$50 million and US$55 million and GAAP net earnings between US$0.03 and US$0.07 per diluted share for the second quarter of 2010. GAAP net earnings include US$0.02 per diluted 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 remainder of the quarter, as well as current exchange rates.
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 2010. To listen to the conference call and participate in the question period via telephone, dial 1-416-981-9077. 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 January 19, 2010. The replay number is 1-402-977-9141 and the reservation number is 21448595. 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
EXFO is a leading provider of test and service assurance solutions for network operators and equipment manufacturers in the global telecommunications industry. The Telecom Division, which accounts for almost 90% of the company's revenues, offers a wide range of innovative solutions to assess optical networks, from the core to access, as well as next-generation IP infrastructures and related triple-play services. The Life Sciences and Industrial Division offers solutions in medical device and opto-electronics assembly, fluorescence microscopy and other life science sectors. 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 the effect of the worldwide recession and the length of the recovery on the telecom market for our customers and suppliers; fluctuating exchange rates and our ability to execute in these uncertain conditions; consolidation in the global telecommunications test, measurement and service assurance industry; capital spending levels in the telecommunications, life sciences and high-precision assembly sectors; concentration of sales; the effects of the additional actions we have taken in response to such 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 integrate our acquired and to-be-acquired businesses; 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 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-GAAP Financial Measure
EXFO provides a non-GAAP financial measure (EBITDA*) as supplemental information regarding its operational performance. EXFO uses EBITDA for the purposes of evaluating its historical and prospective financial performance, as well as its performance relative to its competitors. This measure also helps EXFO's management to plan and forecast future periods as well as to make operational and strategic decisions. EXFO believes that providing this information to investors, in addition to the 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.
The following table summarizes the reconciliation of EBITDA to GAAP net earnings, in thousands of US dollars:
Three months ended
November 30,
---------------------------
2009 2008
---------------------------
GAAP net earnings for the period $ 334 $ 5,287
Add (deduct):
Amortization of property, plant and
equipment 1,291 1,159
Amortization of intangible assets 1,469 1,319
Interest (income) expense 42 (466)
Income taxes 1,243 1,840
-------------- ------------
EBITDA** for the period $ 4,379 $ 9,139
-------------- ------------
-------------- ------------
EDITDA** in percentage of sales 9.6% 19.7%
-------------- ------------
-------------- ------------
* EBITDA is defined as net earnings before interest, income taxes,
amortization of property, plant and equipment and amortization of
intangible assets.
** EBITDA in the first quarter of fiscal 2009 included a foreign
exchange gain of US$4.6 million, or 9.9% of sales, compared to a
foreign exchange loss of US$1.1 million, or 2.4% of sales, in the
first quarter of fiscal 2010.
EXFO Electro-Optical Engineering Inc.
Interim Consolidated Balance Sheet
(in thousands of US dollars)
As at As at
November 30, August 31,
2009 2009
------------- -------------
(unaudited)
Assets
Current assets
Cash $ 9,102 $ 10,611
Short-term investments 58,914 59,105
Accounts receivable
Trade 28,107 22,946
Other 3,080 2,752
Income taxes and tax credits recoverable 2,961 2,353
Inventories 34,370 30,863
Prepaid expenses 2,734 2,043
Future income taxes 6,257 5,538
------------- -------------
145,525 136,211
Tax credits recoverable 28,753 26,762
Forward exchange contracts 592 428
Property, plant and equipment 19,274 19,100
Intangible assets 16,336 16,859
Goodwill 23,313 22,478
Future income taxes 16,728 18,533
------------- -------------
$ 250,521 $ 240,371
------------- -------------
------------- -------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 22,545 $ 21,650
Deferred revenue 6,391 6,481
------------- -------------
28,936 28,131
Deferred revenue 4,138 4,195
------------- -------------
33,074 32,326
------------- -------------
Shareholders' equity
Share capital 104,915 104,846
Contributed surplus 18,088 17,758
Retained earnings 44,243 43,909
Accumulated other comprehensive income 50,201 41,532
------------- -------------
217,447 208,045
------------- -------------
$ 250,521 $ 240,371
------------- -------------
------------- -------------
EXFO Electro-Optical Engineering Inc.
Interim Unaudited Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
Three months ended
November 30,
---------------------------
2009 2008
------------- -------------
Sales $ 45,560 $ 46,363
Cost of sales(1) 16,438 17,480
------------- -------------
Gross margin 29,122 28,883
------------- -------------
Operating expenses
Selling and administrative(1) 15,361 17,091
Net research and development(1) 8,273 7,221
Amortization of property, plant and
equipment 1,291 1,159
Amortization of intangible assets 1,469 1,319
------------- -------------
Total operating expenses 26,394 26,790
------------- -------------
Earnings from operations 2,728 2,093
Interest income (expense) (42) 466
Foreign exchange gain (loss) (1,109) 4,568
------------- -------------
Earnings before income taxes 1,577 7,127
Income taxes
Current 87 (61)
Future 1,156 1,901
------------- -------------
1,243 1,840
------------- -------------
Net earnings for the period $ 334 $ 5,287
------------- -------------
------------- -------------
Basic and diluted net earnings per share $ 0.01 $ 0.08
Basic weighted average number of shares
outstanding (000's) 59,386 67,340
Diluted weighted average number of shares
outstanding (000's) 60,122 67,717
(1) Stock-based compensation costs
included in:
Cost of sales $ 41 $ 29
Selling and administrative 268 201
Net research and development 109 92
------------- -------------
$ 418 $ 322
------------- -------------
------------- -------------
EXFO Electro-Optical Engineering Inc.
Interim Unaudited Consolidated Statements of Comprehensive Income (Loss)
and Accumulated Other Comprehensive Income
(in thousands of US dollars)
Comprehensive income (loss)
Three months ended
November 30,
---------------------------
2009 2008
------------- -------------
Net earnings for the period $ 334 $ 5,287
Foreign currency translation adjustment 7,813 (36,933)
Changes in unrealized losses on short-term
investments - 22
Unrealized gains (losses) on forward
exchange contracts 1,164 (6,929)
Reclassification of realized gains (losses)
on forward exchange contracts in net
earnings 77 (137)
Future income tax effect of the above items (385) 2,190
------------- -------------
Comprehensive income (loss) $ 9,003 $ (36,500)
------------- -------------
------------- -------------
Accumulated other comprehensive income
Three months ended
November 30,
---------------------------
2009 2008
------------- -------------
Foreign currency translation adjustment
Cumulative effect of prior periods $ 40,458 $ 51,129
Current period 7,813 (36,933)
------------- -------------
48,271 14,196
------------- -------------
Unrealized gains (losses) on forward
exchange contracts
Cumulative effect of prior periods 1,076 (96)
Current period, net of realized gains
(losses) and future income taxes 856 (4,876)
------------- -------------
1,932 (4,972)
------------- -------------
Unrealized losses on short-term investments
Cumulative effect of prior periods (2) (24)
Current period, net of future income
taxes - 22
------------- -------------
(2) (2)
------------- -------------
Accumulated other comprehensive income $ 50,201 $ 9,222
------------- -------------
------------- -------------
EXFO Electro-Optical Engineering Inc.
Interim Unaudited Consolidated Statements of Retained Earnings
and Contributed Surplus
(in thousands of US dollars)
Retained earnings
Three months ended
November 30,
---------------------------
2009 2008
------------- -------------
Balance - Beginning of the period $ 43,909 $ 60,494
Add
Net earnings for the period 334 5,287
------------- -------------
Balance - End of the period $ 44,243 $ 65,781
------------- -------------
------------- -------------
Contributed surplus
Three months ended
November 30,
---------------------------
2009 2008
------------- -------------
Balance - Beginning of the period $ 17,758 $ 5,226
Add (deduct)
Stock-based compensation costs 413 321
Reclassification of stock-based
compensation costs to share capital upon
exercise of stock awards (86) -
Discount on redemption of share capital 3 374
------------- -------------
Balance - End of the period $ 18,088 $ 5,921
------------- -------------
------------- -------------
EXFO Electro-Optical Engineering Inc.
Interim Unaudited Consolidated Statements of Cash Flows
(in thousands of US dollars)
Three months ended
November 30,
---------------------------
2009 2008
------------- -------------
Cash flows from operating activities
Net earnings for the period $ 334 $ 5,287
Add (deduct) items not affecting cash
Change in discount on short-term
investments 2 456
Stock-based compensation costs 418 322
Amortization 2,760 2,478
Deferred revenue (542) 353
Future income taxes 1,156 1,901
Change in unrealized foreign exchange
loss (gain) 770 (3,456)
------------- -------------
4,898 7,341
Change in non-cash operating items
Accounts receivable (4,102) (7,325)
Income taxes and tax credits (1,505) (696)
Inventories (2,351) (367)
Prepaid expenses (605) (542)
Accounts payable and accrued liabilities 1,030 (1,087)
------------- -------------
(2,635) (2,676)
------------- -------------
Cash flows from investing activities
Additions to short-term investments (78,954) (122,100)
Proceeds from disposal and maturity of
short-term investments 81,336 126,605
Additions to capital assets (1,345) (1,514)
------------- -------------
1,037 2,991
------------- -------------
Cash flows from financing activities
Redemption of share capital (14) (447)
Exercise of stock options - 26
------------- -------------
(14) (421)
------------- -------------
Effect of foreign exchange rate changes on
cash 103 (367)
------------- -------------
Change in cash (1,509) (473)
Cash - Beginning of the period 10,611 5,914
------------- -------------
Cash - End of the period $ 9,102 $ 5,441
------------- -------------
------------- -------------
SOURCE EXFO ELECTRO-OPTICAL ENGINEERING INC.
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