Yes ☐

No ☑

---

---

Page 1 of 15

---

Page 2 of 15

---

PRESS RELEASE

For immediate release

EXFO Reports Fourth Quarter and Fiscal 2018 Results

 

Page 3 of 15

---

In fiscal 2018, IFRS net loss attributable to the parent interest¹ totaled US$11.9 million, or US$0.22 per share, compared to net earnings of US$0.9 million, or US$0.02 per share, in 2017. Net loss in 2018 included net expenses totaling US$17.1 million: US$9.4 million in after-tax amortization of intangible assets, US$1.7 million in stock-based compensation costs, US$3.4 million in after-tax restructuring charges, US$2.1 million for the deferred revenue fair-value adjustment related to the Astellia acquisition, US$0.7 million for the positive change in the fair value of the cash contingent consideration related to the Ontology acquisition, US$2.5 million in after-tax acquisition-related costs, and a foreign exchange gain of US$1.3 million.

Adjusted EBITDA* amounted to US$6.1 million, or 8.8% of sales, in the fourth quarter of fiscal 2018 compared US$8.5 million, or 13.6% of sales, in the fourth quarter of 2017. In fiscal 2018, adjusted EBITDA totaled US$17.2 million, or 6.4% of sales, compared to US$22.0 million, or 9.1% of sales, in 2017.

On August 21, 2018, EXFO announced a reorganization plan to fast-track the integration of newly acquired monitoring and analytics solutions, while reducing the company's overall cost structure. Once completed in the second half of fiscal 2019, the reorganization is expected to deliver annualized cost savings of US$10.5 million.

EXFO closed two acquisitions in fiscal 2018: Astellia, a leading provider of mobile network and subscriber intelligence, and Yenista Optics, a supplier of advanced optical test equipment for the R&D and manufacturing markets. Astellia generated revenue of US$16.4 million during seven months under EXFO in 2018, while Yenista's revenue contribution was not material. Astellia's sales were reduced by US$2.1 million to account for acquisition-related fair value adjustment of deferred revenue.

"During fiscal 2018, we made significant progress to strategically transform EXFO into a supplier of software-intensive, end-to-end solutions and analytics for fiber, mobile and virtualized networks," said Philippe Morin, EXFO's Chief Executive Officer. "While communications service providers are undergoing fundamental changes to their business models and network architectures with upcoming 5G and IoT deployments, EXFO has positioned itself as a supplier of choice delivering superior network performance, service reliability and subscriber insights through the acquisitions of Astellia and Ontology."

"Although these transformations are mostly unfolding according to plan, I am disappointed with our financial results in 2018 due to deal delays and the current market environment," Mr. Morin added. "Nonetheless, we have planned significant improvements for 2019 with an increased focus on execution."

Page 4 of 15

---

Selected Financial Information

(In thousands of US dollars)

 

			Q4 2018				Q4 2017			FY 2018				FY 2017
Physical-layer sales		$	43,178			$	40,802			$	172,912			$	161,864
Protocol-layer sales			25,960				22,122				95,759				81,905
Foreign exchange gains (losses) on forward exchange contracts			78				57				875				(468	)
Total Sales		$	69,216			$	62,981			$	269,546			$	243,301
Physical-layer bookings		$	37,515			$	39,322			$	172,094			$	165,886
Protocol-layer bookings			25,545				26,943				94,724				86,348
Foreign exchange gains (losses) on forward exchange contracts			78				57				875				(468	)
Total Bookings		$	63,138			$	66,322			$	267,693			$	251,766
Book-to-bill ratio (Bookings/Sales)			0.91				1.05				0.99				1.03
Gross margin before depreciation and amortization*		$	41,790			$	39,009			$	164,542			$	148,972
			60.4	%			61.9	%			61.0	%			61.2	%
Other selected information:
IFRS net earnings (loss) attributable to the parent interest1		$	(3,951	)		$	844			$	(11,902	)		$	851
Amortization of intangible assets		$	1,942			$	1,048			$	10,327			$	3,289
Stock-based compensation costs		$	468			$	431			$	1,748			$	1,414
Restructuring charges		$	4,559			$	1,266			$	4,559			$	5,079
Change in fair value of cash contingent consideration		$	46			$	(383	)		$	(670	)		$	(383	)
Acquisition-related deferred revenue fair value adjustment		$	873			$	–			$	2,095			$	–
Share in net loss of an associate		$	–			$	–			$	2,080			$	–
Gain on deemed disposal of the investment in an associate		$	–			$	–			$	(2,080	)		$	–
Foreign exchange (gain) loss		$	77			$	2,943			$	(1,309	)		$	978
Income tax effect of the above items		$	(1,329	)		$	(275	)		$	(2,033	)		$	(858	)
Adjusted EBITDA*		$	6,098			$	8,545			$	17,198			$	22,041

 

Operating Expenses

Selling and administrative expenses totaled US$24.7 million, or 35.7% of sales, in the fourth quarter of fiscal 2018 compared to US$20.8 million, or 33.1% of sales, in the fourth quarter of 2017. In fiscal 2018, selling and administrative expenses amounted to US$98.8 million, or 36.7% of sales, compared to US$86.3 million, or 35.5% of sales, in 2017.

Page 5 of 15

---

Net R&D expenses amounted to US$16.7 million, or 24.1% of sales, in the fourth quarter of fiscal 2018 compared to US$11.3 million, or 17.8% of sales, in the fourth quarter of 2017. In fiscal 2018, net R&D expenses totaled US$57.2 million, or 21.2% of sales, compared to US$47.2 million, or 19.4% of sales, in 2017.

Fiscal 2018 Highlights

§

Sales. Total sales increased 10.8% to US$269.5 million in fiscal 2018 mainly due to revenue contributions from the Astellia and Yenista acquisitions, market-share gains in Physical-layer testing and the positive currency impact. Sales of Physical-layer solutions (optical and copper access) increased 6.8% year-over-year, while sales of Protocol-layer solutions (transport, datacom, service assurance, analytics and wireless products) improved 16.9%.

Annual sales in Europe, Middle East and Africa (EMEA) and Asia-Pacific regions increased 36.4% and 6.5%, respectively, while sales in the Americas remained relatively flat year-over-year.

EXFO's largest customer accounted for 9.1% of sales in fiscal 2018, while the company's top-three customers represented 15.9%. In comparison, EXFO's largest customer accounted for 10.1% of sales in 2017, while the company's top-three customers represented 18.4%.

§

Profitability. IFRS net loss attributable to the parent interest totaled US$11.9 million in fiscal 2018 compared to net earnings attributable to the parent interest of US$0.9 million in 2017. Adjusted EBITDA amounted to US$17.2 million in 2018 compared to US$22.0 million in 2017. EXFO also generated US$14.4 million in cash flows from operating activities in 2018 compared to US$12.9 million in 2017.

·

Innovation. EXFO launched seven major solutions in fiscal 2018. New product introductions included a compact 400G test solution for network equipment manufacturers, carrier labs and data centers. The company also introduced SkyRan, a remote access monitoring solution for fiber-based fronthaul networks. Developed in collaboration with tier-1 mobile network operators, SkyRAN provides real-time, on-demand testing and 24/7 monitoring of optical networks and radio frequency spectrum. Other key product introductions included EX1, a multipurpose test solution for validating bandwidth speeds up to full line rate Gigabit Ethernet and for monitoring quality of experience at customer premises; an optical spectrum analyzer delivering in-service optical signal-to-noise ratio (OSNR) measurements for high-speed networks; and an automated network troubleshooting solution that links performance measurements to network topology to deliver service degradation diagnosis.

Page 6 of 15

---

Business Outlook

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 more than 2,000 EXFO employees in over 25 countries work side by side with our customers in the lab, field, data center and beyond. For more information, visit EXFO.com and follow us on the EXFO Blog.

Page 7 of 15

---

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, including trade wars; our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the telecommunications 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 telecommunications test, service assurance 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.

Page 8 of 15

---

 

Page 9 of 15

---

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

 

			Q4 2018				Q4 2017			FY 2018				FY 2017
IFRS net earnings (loss) attributable to the parent interest		$	(3,951	)		$	844			$	(11,902	)		$	851
Add (deduct):
Depreciation of property, plant and equipment			1,472				1,008				5,444				3,902
Amortization of intangible assets			1,942				1,048				10,327				3,289
Interest and other expenses			508				275				1,378				303
Income taxes			254				1,113				5,678				6,608
Stock-based compensation costs			468				431				1,748				1,414
Restructuring charges			4,409				1,266				4,409				5,079
Change in fair value of cash contingent consideration			46				(383	)			(670	)			(383	)
Acquisition-related deferred revenue fair value adjustment			873				–				2,095				–
Share in net loss of an associate			–				–				2,080				–
Gain on deemed disposal of the investment in an associate			–				–				(2,080	)			–
Foreign exchange (gain) loss			77				2,943				(1,309	)			978
Adjusted EBITDA for the period		$	6,098			$	8,545			$	17,198			$	22,041
Adjusted EBITDA in percentage of sales			8.8	%			13.6	%			6.4	%			9.1	%

 

 

For more information

Vance Oliver

Director, Investor Relations

(418) 683-0913, Ext. 23733

vance.oliver@exfo.com

 

Page 10 of 15

---

Page 11 of 15

---

 

Condensed Unaudited Interim Consolidated Statements of Earnings

 

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

 

 

		Three months ended August 31, 2018				Twelve months ended August 31, 2018				Three months ended August 31, 2017				Twelve months ended August 31, 2017
Sales		$	69,216			$	269,546			$	62,981			$	243,301
Cost of sales (1,2)			27,426				105,004				23,972				94,329
Selling and administrative (2)			24,728				98,794				20,834				86,256
Net research and development (2)			16,714				57,154				11,327				47,168
Depreciation of property, plant and equipment			1,472				5,444				1,008				3,902
Amortization of intangible assets			1,942				10,327				1,048				3,289
Change in fair value of cash contingent consideration			46				(670	)			(383	)			(383	)
Interest and other expense			508				1,378				275				303
Foreign exchange (gain) loss			77				(1,309	)			2,943				978
Share in net loss of an associate		‒					2,080			‒				‒
Gain on deemed disposal of the investment in an associate		‒					(2,080	)		‒				‒
Earnings (loss) before income taxes			(3,697	)			(6,576	)			1,957				7,459
Income taxes			254				5,678				1,113				6,608
Net earnings (loss) for the period		$	(3,951	)		$	(12,254	)		$	844			$	851
Net loss for the period attributable to non-controlling interest		$	‒			$	(352	)		$	‒			$	‒
Net earnings (loss) for the period attributable to parent interest		$	(3,951	)		$	(11,902	)		$	844			$	851
Basic and diluted net earnings (loss) attributable to parent interest per share		$	(0.07	)		$	(0.22	)		$	0.02			$	0.02
Basic weighted average number of shares outstanding (000's)			55,112				54,998				54,708				54,423
Diluted weighted average number of shares outstanding (000's)			55,112				54,998				55,784				55,555

Cost of sales		$	517			$	517			$	115			$	1,697
Selling and administrative			673				673				231				1,150
Net research and development			3,219				3,219				920				2,232
Interest and other expense			150				150			‒				‒
Income taxes			(1,150	)			(1,150	)		‒				‒
		$	3,409			$	3,409			$	1,266			$	5,079

 

 

 

 

Condensed Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)

 

(in thousands of US dollars)

 

		Three months ended August 31, 2018				Twelve months ended August 31, 2018				Three months ended August 31, 2017				Twelve months ended August 31, 2017
Net earnings (loss) for the period		$	(3,951	)		$	(12,254	)		$	844			$	851
Other comprehensive income (loss), net of income taxes
Items that may be reclassified subsequently to net earnings
Foreign currency translation adjustment			(1,458	)			(6,491	)			13,028				8,262
Unrealized gains/losses on forward exchange contracts			(505	)			(1,476	)			1,765				1,403
Reclassification of realized gains/losses on forward exchange contracts in net earnings			(132	)			(972	)			64				423
Deferred income tax effect of gains/losses on forward exchange contracts			136				554				(510	)			(479	)
Other comprehensive income (loss)			(1,959	)			(8,385	)			14,347				9,609
Comprehensive income (loss) for the period			(5,910	)			(20,639	)			15,191				10,460
Comprehensive loss for the period attributable to non-controlling interest		‒					(352	)		‒				‒
Comprehensive earnings (loss) for the period attributable to parent interest		$	(5,910	)		$	(20,287	)		$	15,191			$	10,460

 

 

Page 13 of 15

---

 

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity

 

(in thousands of US dollars)

 

 

		Year ended August 31, 2017
		Share capital				Contributed surplus				Retained earnings				Accumulated other comprehensive loss				Total shareholders' equity
Balance as at September 1, 2016		$	85,516			$	18,150			$	126,309			$	(48,574	)		$	181,401
Issuance of share capital			3,490				–				–				–				3,490
Reclassification of stock-based compensation costs			1,405				(1,405	)			–				–				–
Stock-based compensation costs			–				1,439				–				–				1,439
Net earnings for the year			–				–				851				–				851
Other comprehensive income
Foreign currency translation adjustment			–				–				–				8,262				8,262
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $479			–				–				–				1,347				1,347
Total comprehensive income for the year																			10,460
Balance as at August 31, 2017		$	90,411			$	18,184			$	127,160			$	(38,965	)		$	196,790

		Year ended August 31, 2018
		Share capital				Contributed surplus				Retained earnings				Accumulated other comprehensive loss				Non-controlling interest				Total shareholders' equity
Balance as at September 1, 2017		$	90,411			$	18,184			$	127,160			$	(38,965	)		$	–			$	196,790
Reclassification of stock-based compensation costs			1,526				(1,526	)			–				–				–				–
Stock-based compensation costs			–				1,770				–				–				–				1,770
Business combination			–				–				–				–				(3,662	)			(3,662	)
Acquisition of non-controlling interest			–				–				(352	)			–				4,014				3,662
Net loss for the year			–				–				(11,902	)			–				(352	)			(12,254	)
Other comprehensive loss
Foreign currency translation adjustment			–				–				–				(6,491	)			–				(6,491	)
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $554			–				–				–				(1,894	)			–				(1,894	)
Total comprehensive loss for the year																							(20,639	)
Balance as at August 31, 2018		$	91,937			$	18,428			$	114,906			$	(47,350	)		$	–			$	177,921

 

 

 

 

Condensed Unaudited Interim Consolidated Statements of Cash Flows

 

(in thousands of US dollars)

 

 

		Three months ended August 31, 2018				Twelve months ended August 31, 2018				Three months ended August 31, 2017				Twelve months ended August 31, 2017
Cash flows from operating activities
Net earnings (loss) for the period		$	(3,951	)		$	(12,254	)		$	844			$	851
Add (deduct) items not affecting cash
Stock-based compensation costs			468				1,748				494				1,477
Depreciation and amortization			3,414				15,771				2,056				7,191
Write-off of capital assets			267				592			‒				‒
Change in fair value of cash contingent consideration			46				(670	)			(383	)			(383	)
Deferred revenue			316				1,998				(1,303	)			1,723
Deferred income taxes			(1,165	)			1,368				(109	)			1,054
Share in net loss of an associate			–				2,080			‒				‒
Gain on deemed disposal of the investment in an associate			–				(2,080	)		‒				‒
Changes in foreign exchange gain/loss			58				(181	)			2,051				1,096
			(547	)			8,372				3,650				13,009
Changes in non-cash operating items
Accounts receivable			(418	)			7,275				2,254				3,955
Income taxes and tax credits			2,873				86				(1,154	)			(2,386	)
Inventories			(1,008	)			(1,020	)			920				911
Prepaid expenses			(148	)			57				(157	)			(918	)
Other assets			(542	)			(1,311	)			6				(121	)
Accounts payable, accrued liabilities and provisions			1,028				1,033				(3,501	)			(1,745	)
Other liabilities			(223	)			(122	)			165				165
			1,015				14,370				2,183				12,870
Cash flows from investing activities
Additions to short-term investments			(1,068	)			(1,550	)			(23	)			(2,910	)
Proceeds from disposal and maturity of short-term investments			–				234				2,778				6,374
Purchases of capital assets			(2,772	)			(10,452	)			(1,727	)			(7,175	)
Investment in an associate			–				(12,530	)		‒				‒
Business combinations, net of cash acquired			(480	)			(19,600	)			(313	)			(12,792	)
			(4,320	)			(43,898	)			715				(16,503	)
Cash flows from financing activities
Bank loan			(189	)			11,061			‒				‒
Repayment of long-term debt			(661	)			(1,688	)		‒					(1,480	)
Other liabilities			(1,449	)			(1,449	)		‒				‒
Acquisition of non-controlling interest			–				(3,657	)		‒				‒
			(2,299	)			4,267			‒					(1,480	)
Effect of foreign exchange rate changes on cash			(127	)			(416	)			1,164				340
Change in cash			(5,731	)			(25,677	)			4,062				(4,773	)
Cash – Beginning of the period			18,489				38,435				34,373				43,208
Cash – End of the period		$	12,758			$	12,758			$	38,435			$	38,435