PR Newswire | Jul 14, 2021 04:11PM EDT

07/14 15:10 CDT

EXFO reports third quarter results for fiscal 2021 QUEBEC CITY, July 14, 2021

* 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 Three months Nine months Nine months ended ended ended ended May 31, 2021 May 31, 2020 May 31, 2021 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 $ 42,346 $ 38,199 $ 122,820 $ 113,026amortization^*

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 OverviewSales 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 TransactionOn 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 Sguin, Chair of EXFO's Special Committee of the Board.

Conference Call and WebcastGiven a going-private transaction has been initiated, no conference call/webcast will be held.

About EXFOEXFO (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 StatementsThis 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 MeasuresEXFO 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 Nine Nine Three months months months months ended ended ended ended May 31, 2021 May 31, May 31, May 31, 2020 2021 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 As at

May 31, August 31,

2021 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 Nine months Three months Nine months

ended ended ended ended

May 31, 2021 May 31, 2021 May 31, 2020 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, shownseparately.

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Comprehensive Income(Loss)

(in thousands of US dollars)

Three months Nine months Three months Nine months

ended ended ended ended

May 31, 2021 May 31, 2021 May 31, 2020 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

Accumulated Total Share Contributed Retained other shareholders' capital surplus earnings comprehensive equity loss

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 Accumulated Total Contributed Retained other capital surplus earnings comprehensive shareholders' loss 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 Nine months Three months Nine months

ended ended ended ended

May 31, 2021 May 31, 2021 May 31, 2020 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 (1,099) (300) - -acquired

(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 ratechanges

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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SOURCE EXFO Inc.