EXFO reports first-quarter results for fiscal 2019

• Sales increased 9.2% to US$69.2 million, above midpoint of guidance range 
• Bookings improved 23.3% to US$81.2 million, book-to-bill ratio of 1.17 
• Announced multi-million-dollar deal with a tier-1 service provider after quarter-end

QUEBEC CITY, Jan. 8, 2019 /CNW Telbec/ - EXFO Inc. (NASDAQ: EXFO) (TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the first quarter ended November 30, 2018.

IFRS sales increased 9.2% to US$69.2 million in the first quarter of fiscal 2019 from US$63.4 million in the first quarter of 2018. First-quarter sales for 2019 included a $7.5 million contribution from Astellia, reduced by US$0.9 million to account for acquisition-related fair value adjustment of deferred revenue.

Bookings, which included a US$7.8 million contribution from Astellia, improved 23.3% year-over-year to US$81.2 million in the first quarter of fiscal 2019 from US$65.9 million in the same period of 2018. The company's book-to-bill ratio was 1.17 in the first quarter of 2019.

Gross margin before depreciation and amortization* amounted to 58.2% of sales in the first quarter of fiscal 2019 compared to 63.3% in the first quarter of 2018.

IFRS net loss in the first quarter of fiscal 2019 totaled US$7.5 million, or US$0.14 per share, compared to net earnings of US$2.7 million, or US$0.05 per share, in the first quarter of 2018. IFRS net loss in the first quarter of 2019 included net expenses totaling US$6.3 million: US$2.5 million in after-tax amortization of intangible assets, US$0.4 million in stock-based compensation costs, US$2.7 million in after-tax restructuring charges, US$0.9 million for acquisition-related fair value adjustment of deferred revenue and a foreign exchange gain of US$0.2 million.

Adjusted EBITDA* totaled US$2.7 million, or 3.9% of sales, in the first quarter of fiscal 2019 compared to US$6.1 million, or 9.6% of sales, in the first quarter of 2018.

Beginning with the first quarter of fiscal 2019, EXFO is reporting revenues and bookings based on two newly created product families: Test and Measurement (T&M) as well as Service Assurance, Systems and Services (SASS).

• Optical, transport and copper test solutions make up the T&M product family, including portable equipment for the field and benchtop units for the lab and manufacturing environments. EXFO is No. 1 worldwide in optical testing and a top-2 provider of portable telecom T&M solutions.
• The SASS family mainly consists of service assurance, fiber monitoring, analytics and professional services as well as other systems-related solutions like network simulation and network topology discovery. EXFO is well positioned for virtualization and 5G network transformations and is now part of the top-5 global SASS suppliers based on its acquisitions of Ontology and Astellia.

This classification replaces the former Physical-Layer and Protocol-Layer product groups. EXFO believes this breakdown better reflects the company's long-term strategy, while enhancing comparisons against industry peers and investors' understanding EXFO's business.

"EXFO delivered solid results in the first quarter of 2019 with revenue above the midpoint of our guidance range, while benefitting from robust calendar year-end spending for our T&M solutions to achieve the second-highest bookings level in company history," said EXFO's CEO Philippe Morin. "Our announced strategic transformation, focused on heightened efficiency and profitability, is progressing according to plan and should be completed by the end of the second quarter. This new structure is starting to pay off internally, but also externally with a better value proposition and more relevant engagement with SASS customers as reflected by a US$4.9 million contract win for real-time active topology software with a tier-1 service provider after the quarter-end."

Operating Expenses
Selling and administrative expenses totaled US$26.4 million, or 38.1% of sales in the first quarter of fiscal 2019 compared to US$23.2 million, or 36.6% of sales, in the first quarter of 2018.

Net R&D expenses totaled US$15.2 million, or 22.0% of sales, in the first quarter of fiscal 2019 compared to US$11.3 million, or 17.8% of sales, in the same period last year. Net R&D expenses included US$2.1 million in restructuring charges in the first quarter of 2019.

First-Quarter Highlights

• Sales. Sales increased 9.2% year-over-year mainly due to the Astellia acquisition (US$7.5 revenue contribution in the quarter), partially offset by a negative currency impact. Test and Measurement sales accounted for 72% of revenue in the first quarter of 2019, while Service Assurance, Systems and Services sales totaled 28%. Revenue distribution among the three main selling regions in the first quarter amounted to 51% in the Americas, 33% in Europe, Middle East and Africa (EMEA) and 16% in Asia-Pacific. EXFO's top customer accounted for 9.0% of sales, while the top three represented 19.6%.
• Profitability. IFRS net loss totaled US$7.5 million in the first quarter of 2019, including US$5.1 million for newly acquired Astellia. Of that number, US$1.8 million is attributable to after-tax amortization of acquired intangible assets. Adjusted EBITDA amounted to US$2.7 million in the first quarter of 2019.
• Innovation. EXFO received two separate innovation-related awards from the Metro Ethernet Forum (MEF) in the first quarter of fiscal 2019. EXFO's software verifier agent, a software solution providing advanced layer-2 to layer-7 testing and end-to-end visibility, received the Technology Solutions Award for Service Assurance from the MEF. EXFO also accepted a Proof of Concept Award from the MEF for its contribution to a collaborative project, named Blade Runner, delivering augmented reality over a 5G wireless network. EXFO covered service assurance by providing virtual probes to enable closed-loop automation and seamless service continuity. EXFO had previously obtained the TM Forum Outstanding Catalyst Innovation Award for its involvement in the Blade Runner project.
  
  EXFO also expanded its 400G test portfolio with the release of a module featuring an Open Transceiver System. This modular design enables compatibility between current and future high-speed transceivers with EXFO's field and lab test platforms. The company also introduced an automated fiber inspection tool for testing polarity, continuity and connector cleanliness on multifiber cables.

Business Outlook
EXFO forecasts sales between US$70.0 million and US$75.0 million for the second quarter of fiscal 2019, while IFRS net earnings are expected to range between US$0.05 and US$0.09 per share. IFRS net earnings include net expenses of US$0.06 per share in after-tax amortization of intangible assets, stock-based compensation costs, acquisition-related fair value adjustment of deferred revenue, after tax restructuring charges, and an anticipated foreign exchange gain. IFRS net earnings also include US$0.03 per share for an after-tax gain on disposal of a capital asset and US$0.04 per share for a one-time deferred income tax recovery.

This guidance, which is a forward-looking statement, was established by management based on existing backlog as of the date of this news release, seasonality, expected bookings for the remaining of the quarter as well as exchange rates as of the date of this news release.

Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review first-quarter results for fiscal 2019. To listen to the conference call and participate in the question period via telephone, dial 1-323-794-2093. Please take note the following participant passcode will be required: 9817746. Executive Chairman Germain Lamonde, CEO Philippe Morin and Pierre Plamondon, CPA, Chief Financial Officer and Vice-President of Finance, will participate in the call. An audio replay of the conference call will be available two hours after the event until 8 p.m. on January 15, 2019. The replay number is 1-719-457-0820 and the participant passcode is 9817746. 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 (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 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 guarantee 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.

*Non-IFRS Measures
EXFO provides non-IFRS measures (non-IFRS sales, gross margin before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. Non-IFRS sales represent total sales plus acquisition-related deferred revenue fair value adjustment. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA represent net earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change in fair value of cash contingent consideration, acquisition-related deferred revenue fair value adjustment, and foreign exchange gain or loss.

These non-IFRS measures eliminate the effect on IFRS results of non-cash and/or non-operating statement of earnings elements, 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 the financial measures used by financial analysts to evaluate and compare EXFO's performance against 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 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 non-IFRS sales to IFRS sales, in thousands of US dollars:

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

EXFO-F

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