EXFO Reports Significant Increases in Sales, Bookings and Gross Margin – Sales increase 22.9% year-over-year to US$43.3 million (slightly above guidance) – Net bookings improve 22.0% to record
2008-04-01 13:13:00
EXFO Reports Significant Increases in Sales, Bookings and Gross Margin
– Sales increase 22.9% year-over-year to US$43.3 million (slightly above guidance)
– Net bookings improve 22.0% to record
QUEBEC CITY, CANADA–( EMWNews – April 1, 2008) – EXFO Electro-Optical Engineering Inc. (TSX:EXF)(NASDAQ:EXFO) reported today significant year-over-year growth in sales, bookings and gross margin for the second quarter ended February 29, 2008.
Sales increased 22.9% to US$43.3 million in the second quarter of fiscal 2008 from US$35.2 million in the second quarter of 2007 and 5.6% from US$41.0 million in the first quarter of 2008. Net bookings improved by 22.0% year-over-year to attain a record-high of US$44.5 million for a book-to-bill ratio of 1.03 in the second quarter of fiscal 2008 from US$36.5 million in the same period last year and 1.8% from US$43.7 million in the first quarter of 2008.
Gross margin reached 58.3% of sales in the second quarter of fiscal 2008, the highest level since the fourth quarter of fiscal 2001. In comparison, gross margin amounted to 57.5% in the second quarter of 2007 and 55.7% in the first quarter of 2008.
GAAP net earnings in the second quarter of fiscal 2008 totaled US$4.0 million, or US$0.06 per diluted share, compared to GAAP net earnings of US$2.7 million, or US$ 0.04 per diluted share, in the same period last year and a GAAP net loss of US$0.1 million, or US$0.00 per diluted share, in the first quarter of 2008. GAAP net earnings in the second quarter of fiscal 2008 included a one-time income tax recovery of US$2.7 million following a review of the company’s tax strategy, based on new Canadian federal tax rates enacted in the second quarter, to minimize income taxes payable on future years’ taxable income. This tax recovery was partially offset by a one-time income tax expense of US$1.5 million to account for these reduced tax rates on future income tax assets in Canada as well as US$0.3 million in stock-based compensation costs and US$0.5 million in after-tax amortization of intangible assets.
“I’m quite pleased with our progress on almost all fronts as both revenue and earnings finished above our guidance range for the second quarter,” said Germain Lamonde, EXFO’s Chairman, President and CEO. “We also delivered record bookings while sales and gross margin attained their highest levels in nearly seven years – and all this during a seasonally weak quarter. On a segmented basis, our Telecom Division grew 28% year-over-year in the second quarter with our protocol test business reaching a major milestone by surpassing 20% of the division’s sales for the first time. Given these data points, our strategic positioning and strong organic sales guidance for the next quarter, I’m looking forward to the second half of our fiscal year with a great deal of confidence.”
Following the quarter-end, EXFO announced the acquisition of Navtel Communications, a leading provider of Internet Protocol Multimedia Subsystem (IMS) and Voice-over-Internet Protocol (VoIP) test solutions for network equipment manufacturers and network service provider labs. Consideration paid consisted of C$11.0 million in cash. The deal is expected to be neutral to EXFO’s earnings for the remainder of fiscal 2008 and accretive in fiscal 2009, excluding after-tax amortization of intangible assets.
“This strategic acquisition will help us strengthen our product offering and business relationships with network equipment manufacturers and carrier labs, create several cross-selling opportunities, and expand our coverage in the protocol technology lifecycle,” Mr. Lamonde added. “I’d like to welcome Navtel’s team, whose product portfolio nicely complements our protocol offering by enabling us to move higher up the protocol layers. These new test solutions will also help increase our gross margin and accelerate sales in our fast-growing protocol test business which grew at a compound annual growth rate of 64% in the last two fiscal years.”
Selected Financial Information
(In thousands of US dollars)
-------------------------------------------------------------------------
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Segmented results: Q2 2008 Q1 2008 Q2 2007
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(unaudited) (unaudited) (unaudited)
Sales:
Telecom Division $37,435 $35,365 $29,297
Life Sciences and Industrial
Division 5,846 5,620 5,910
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Total $43,281 $40,985 $35,207
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Earnings from operations:
Telecom Division $2,817 $21 $1,078
Life Sciences and Industrial
Division 818 281 1003
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Total $3,635 $302 $2,081
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Other selected information:
GAAP net earnings (loss) $4,024 $(93) $2,684
After-tax amortization of
intangible assets $490 $499 $630
Stock-based compensation costs $269 $301 $241
Future income tax recovery $(2,715) $- $-
Effect of changes in Canadian
tax rates $1,524 $- $-
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Operating Expenses
Selling and administrative expenses amounted to US$13.7 million, or 31.6% of sales, in the second quarter of fiscal 2008 compared to US$12.2 million, or 34.6% of sales, in the same period last year and US$14.8 million, or 36.2% of sales, in the first quarter of 2008.
Gross research and development expenses totaled US$7.6 million, or 17.5% of sales, in the second quarter of fiscal 2008 compared to US$5.9 million, or 16.9% of sales, in the second quarter of 2007 and US$7.5 million, or 18.3% of sales, in the first quarter of 2008.
Net R&D expenses totaled US$6.2 million, or 14.3% of sales, in the second quarter of fiscal 2008 compared to US$4.7 million, or 13.3% of sales, in the same period last year and US$6.0 million, or 14.7% of sales, in the first quarter of 2008.
Second-Quarter Business Highlights
Market expansion – EXFO delivered sales growth of 22.9% in the second quarter and 19.1% at the half-way mark of fiscal 2008 mainly due to market-share gains in its optical and protocol test segments. Growth was particularly strong in EXFO’s business outside of the Americas, increasing 38.0% year-over-year in the second quarter, and within the company’s protocol test business which surpassed 20% of Telecom Division sales for the first time. The Telecom Division increased its sales 27.8% year-over-year, while the Life Sciences and Industrial Division experienced a 1.1% drop during the same period. The corporate performance metric for sales growth in fiscal 2008 has been established at 20% year-over-year.
Profitability – EXFO reported GAAP net earnings of US$4.0 million, or US$0.06 per diluted share, in the second quarter of fiscal 2008 including a one-time net income tax recovery of US$1.2 million. Increased sales of higher-margin protocol test solutions, a better absorption of fixed manufacturing costs due to higher sales volume, and relative stability in the US/Canadian exchange rate were largely responsible for the increase in gross margin to 58.3% in the second quarter of 2008. In terms of GAAP earnings from operations, it reached 8.4% in the second quarter of 2008 and stood at 4.7% after six months versus the company’s stated goal of 8% for the fiscal year.
Innovation – EXFO had a highly productive second quarter with the launch of nine new products, including amongst others a next-generation modular test platform for R&D and manufacturing applications, 40G/43G SONET/SDH/OTN test modules for field and manufacturing platforms, integrated modules that combine Ethernet and SONET/SDH/OTN testing at rates up to 10 Gb/s for field and manufacturing applications, an optical loss test module and a 30 MHz copper test module for the new AXS-200 handheld platform, and a fiber inspection probe that serves as an accessory on several portable test solutions. Sales from products that have been on the market two years or less reached its highest level in nearly three years at 44.4% of total sales in the second quarter of fiscal 2008 and 39.2% after six months, while the company’s published goal is 30% for the fiscal year.
Business Outlook
EXFO forecasted sales between US$45.0 million and US$48.0 million for the third quarter of fiscal 2008. This anticipated sales increase should be largely organic with a small revenue contribution from Navtel Communications for about two months in the third quarter. GAAP net earnings should range between US$0.03 and US$0.06 per diluted share. GAAP net earnings include US$0.01 per diluted share in stock-based compensation costs and after-tax amortization of intangible assets.
Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review its financial results for the second quarter of fiscal 2008. To listen to the conference call and participate in the question period via telephone, dial 1-416-620-5690. 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 midnight on April 8, 2008. The replay number is 1-402-977-9141 and the reservation number is 21378170. 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.
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, 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 consolidation in the global telecommunications test, measurement and monitoring industry; capital spending levels in the telecommunications, life sciences and high-precision assembly sectors; concentration of sales; fluctuating exchange rates and our ability to execute in these uncertain conditions; 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 and market conditions, including any slowdown or recession in the global economy. 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.
About EXFO
EXFO is the second-largest provider of portable test and measurement solutions in the global telecommunications industry. The Telecom Division, which represents about 85% of the company’s business, offers a full suite of test solutions and monitoring systems to network service providers, cable TV operators, telecom system vendors and component manufacturers in approximately 70 countries. EXFO is the global market leader for portable optical test solutions with an estimated 25.5% market share and a leading supplier of protocol and access test solutions to enable triple-play deployments and converged IP networking. Its Windows-based modular AXS-200, FTB-200, FTB-400 and IQS-600 test platforms host a wide range of modular test solutions across optical, physical, data and network layers, while maximizing technology reuse across several market segments. The Life Sciences and Industrial Division offers value-added light-based solutions in high-precision medical device and opto-electronics assembly sectors, and advanced fluorescence microscopy and electrophysiology solutions for the life sciences sector. For more information about EXFO’s Telecom Division, visit www.EXFO.com, and for its Life Sciences and Industrial Division, visit www.EXFO-LSI.com.
EXFO Electro-Optical Engineering Inc.
Interim Consolidated Balance Sheet
(in thousands of US dollars)
As at As at
February 29, August 31,
2008 2007
------------------------------------------------------------------------
(unaudited)
Assets
Current assets
Cash $9,211 $5,541
Short-term investments 133,549 124,217
Accounts receivable
Trade, less allowance for doubtful
accounts of $224 ($206 as at August 31, 2007) 29,017 26,699
Other 5,129 2,479
Income taxes and tax credits recoverable 2,778 6,310
Inventories 33,276 31,513
Prepaid expenses 1,884 1,391
Future income taxes 11,256 7,609
------------------------------------------------------------------------
226,100 205,759
Other receivable 805 -
Tax credits recoverable 14,224 -
Property, plant and equipment 20,563 18,117
Intangible assets 9,341 9,628
Goodwill 30,546 28,437
Future income taxes 4,180 17,197
------------------------------------------------------------------------
$305,759 $279,138
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities
Current liabilities
Bank loan $703 $-
Accounts payable and accrued liabilities 21,010 22,721
Income taxes payable 368 -
Deferred revenue 3,126 2,598
------------------------------------------------------------------------
25,207 25,319
Deferred revenue 3,841 3,414
Future income taxes - 240
------------------------------------------------------------------------
29,048 28,973
------------------------------------------------------------------------
Contingency
Shareholders' Equity
Share capital 150,105 150,019
Contributed surplus 4,827 4,453
Retained earnings 46,222 42,275
Accumulated other comprehensive income 75,557 53,418
------------------------------------------------------------------------
276,711 250,165
------------------------------------------------------------------------
$305,759 $279,138
------------------------------------------------------------------------
------------------------------------------------------------------------
EXFO Electro-Optical Engineering Inc.
Interim Unaudited Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
Three months Six months Three months Six months
ended ended ended ended
February 29, February 29, February 28, February 28,
2008 2008 2007 2007
-------------------------------------------------------------------------
Sales $43,281 $84,266 $35,207 $70,754
Cost of sales(1,2) 18,060 36,204 14,970 30,199
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Gross margin 25,221 48,062 20,237 40,555
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Operating expenses
Selling and
administrative(1) 13,683 28,500 12,184 23,726
Net research and
development(1) 6,185 12,197 4,678 9,032
Amortization of
property, plant
and equipment 998 1,974 664 1,445
Amortization of
intangible
assets 720 1,454 630 1,512
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Total operating
expenses 21,586 44,125 18,156 35,715
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Earnings from
operations 3,635 3,937 2,081 4,840
Interest income 1,616 3,099 1,105 2,277
Foreign exchange
gain (loss) (232) (848) 352 735
-------------------------------------------------------------------------
Earnings before
income taxes 5,019 6,188 3,538 7,852
Income taxes
Current (8,373) (7,192) 854 1,635
Future 9,368 9,449 - -
-------------------------------------------------------------------------
995 2,257 854 1,635
-------------------------------------------------------------------------
Net earnings
for the period $4,024 $3,931 $2,684 $6,217
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Basic and diluted
net earnings
per share $0.06 $0.06 $0.04 $0.09
Basic weighted
average number
of shares
outstanding (000's) 68,984 68,992 68,839 68,807
Diluted weighted
average number
of shares
outstanding (000's) 69,490 69,582 69,546 69,465
(1) Stock-based
compensation
costs
included in:
Cost of sales $38 $75 $27 $61
Selling and
administrative 183 380 159 356
Net research
and development 48 115 55 109
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$269 $570 $241 $526
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(2) The cost of sales is exclusive of amortization, shown separately.
EXFO Electro-Optical Engineering Inc.
Interim Unaudited Statements of Comprehensive Income (Loss) and Accumulated
Other Comprehensive Income
(in thousands of US dollars)
Comprehensive income (loss)
Three months Six months Three months Six months
ended ended ended ended
February 29, February 29, February 28, February 28,
2008 2008 2007 2007
--------------------------------------------------------------------------
Net earnings
for the period $4,024 $3,931 $2,684 $6,217
Foreign
currency
translation
adjustment 5,827 19,733 (4,734) (10,760)
Changes in
unrealized
losses on
short-term
investments 51 90 - -
Unrealized
gains on
forward
exchange
contracts 600 2,549 - -
Reclassification
of realized
gains on
forward
exchange
contracts in
net earnings (1,168) (1,927) - -
Future income
taxes effect of
the above items 182 (199) - -
--------------------------------------------------------------------------
Comprehensive
income (loss) $9,516 $24,177 $(2,050) $(4,543)
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Accumulated other comprehensive income
Six months Six months
ended ended
February 29, February 28,
2008 2007
--------------------------------------------------------------------------
Foreign currency translation adjustment
Cumulative effect of prior periods $53,418 $43,537
Current period 19,733 (10,760)
--------------------------------------------------------------------------
73,151 32,777
--------------------------------------------------------------------------
Unrealized gains on forward exchange contracts
Adjustment related to the implementation of
new accounting standards 1,948 -
Current period, net of realized gains and
future income taxes 423 -
--------------------------------------------------------------------------
2,371 -
--------------------------------------------------------------------------
Unrealized losses on short-term investments
Adjustment related to the implementation of
new accounting standards (55) -
Current period, net of future income taxes 90 -
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35 -
--------------------------------------------------------------------------
Accumulated other comprehensive income $75,557 $32,777
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--------------------------------------------------------------------------
Total retained earnings and accumulated other comprehensive income amounted
to $38,994 and $121,779 as of February 28, 2007, and February 29, 2008,
respectively.
EXFO Electro-Optical Engineering Inc.
Interim Unaudited Consolidated Statements of Retained Earnings and
Contributed Surplus
(in thousands of US dollars)
Retained earnings
Six months Six months
ended ended
February 29, February 28,
2008 2007
--------------------------------------------------------------------------
Balance - Beginning of the period $42,275 $-
Add (deduct)
Adjustment related to the implementation of
new accounting standards 55 -
Net earnings for the period 3,931 6,217
Premium on redemption of share capital (39) -
--------------------------------------------------------------------------
Balance - End of the period $46,222 $6,217
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--------------------------------------------------------------------------
Contributed surplus
Six months Six months
ended ended
February 29, February 28,
2008 2007
--------------------------------------------------------------------------
Balance - Beginning of the period $4,453 $3,776
Add (deduct)
Stock-based compensation costs 585 499
Reclassification of stock-based compensation
costs to share capital upon exercise
of stock awards (211) (174)
--------------------------------------------------------------------------
Balance - End of the period $4,827 $4,101
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EXFO Electro-Optical Engineering Inc.
Interim Unaudited Consolidated Statements of Cash Flows
(in thousands of US dollars)
Three months Six months Three months Six months
ended ended ended ended
February 29, February 29, February 28, February 28,
2008 2008 2007 2007
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Cash flows from
operating
activities
Net earnings
for the period $4,024 $3,931 $2,684 $6,217
Add (deduct)
items not
affecting cash
Discount on
short-term
investments 86 988 364 778
Stock-based
compensation
costs 269 570 241 526
Amortization 1,718 3,428 1,294 2,957
Deferred
revenue 151 502 745 1,239
Government
grants - - - (22)
Future income
taxes 9,368 9,449 - -
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15,616 18,868 5,328 11,695
Change in non-cash
operating items
Accounts
receivable (985) 181 (210) (3,245)
Income taxes
and tax credits (9,190) (9,648) (513) (931)
Inventories 794 707 (510) (129)
Prepaid
expenses 216 (396) 133 135
Accounts
payable and
accrued
liabilities 2,735 (2,959) 2,736 2,772
--------------------------------------------------------------------------
9,186 6,753 6,964 10,297
--------------------------------------------------------------------------
Cash flows from
investing
activities
Additions to
short-term
investments (197,607) (409,060) (296,237) (490,503)
Proceeds from
disposal and
maturity of
short-term
investments 194,009 408,580 291,413 482,916
Additions to
capital assets(1) (2,113) (3,686) (835) (1,646)
Net proceeds
from disposal
of capital
assets - - - 1,228
--------------------------------------------------------------------------
(5,711) (4,166) (5,659) (8,005)
--------------------------------------------------------------------------
Cash flows
from financing
activities
Changes in
bank loan - 699 - -
Repayment of
long-term debt - - (24) (51)
Redemption of
share capital - (174) - -
Exercise of
stock options 10 10 362 483
--------------------------------------------------------------------------
10 535 338 432
--------------------------------------------------------------------------
Effect of
foreign
exchange rate
changes on cash 205 548 (276) (469)
--------------------------------------------------------------------------
Change in cash 3,690 3,670 1,367 2,255
Cash - Beginning
of period 5,521 5,541 7,741 6,853
--------------------------------------------------------------------------
Cash - End of
period $9,211 $9,211 $9,108 $9,108
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(1) As at February 28, 2007, and February 29, 2008, unpaid purchases of
capital assets amounted to $344 and $94, respectively.
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For more information, please contact EXFO Electro-Optical Engineering Inc. |
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