EXFO - Earnings call transcript Q1 2021

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Operator

Good day, everyone, and welcome to today’s EXFO’s First Quarter Conference Call for the Fiscal Year of 2021. A quick reminder that today’s program is being recorded. And at this time, I’d like to turn the floor over to Vance Oliver, Director of Investor Relations. Please go ahead, sir.

Vance Oliver

Good afternoon, and welcome to EXFO’s first quarter conference call for fiscal 2021. line Pierre Philippe President Plamondon, the Executive EXFO’s of on and Officer; CFO me today Morin, are Chief Finance. With and Vice be during EXFO’s to Lamonde, Founder Executive will Germain and answer Q&A the also questions period. Chairman, available will A certain and/or beliefs, expectations forward-looking intents, that events include regarding reminder our conference future concerning may statements this or that call estimates affect EXFO. of operations. employees, comments will or the impact risks customers be uncertainties, our on global by such the affected that pandemic note Please and coronavirus including This actual those to or the may materially implied be company cause the of results different expressed from today.

about encourage filed Commission. For EXFO, more Form and our to XX-F information the Exchange Securities I you review with

Annual non-IFRS the QX well. All this conference numbers during Our securities this dollar in available that results Canadian indicated. is A in are available be otherwise the commissions dollars Please expressed of reconciliation our with used Form call. as on website. unless amounts IFRS in call U.S. these Information non-IFRS is XXXX with note numbers release news conference may

delay, So turn over Philippe. to will without I the call further

Philippe Morin

good Thank a everyone. healthy right. Year. and happy, And wish to afternoon, opportunity Vance. you, like safe I would everyone New take this All really to

in of a we Given the the optimism sometime of several vaccinations countries, in growing coronavirus normality can start certainly pandemic semblance it’s to for that return XXXX.

to million considering global with This performance the this XXXX. year of pandemic the $X.X in represents net we have government for of strong So subsidy million turning IFRS to million. earnings a ago performance pandemic the the by a cope our to $X.X insurance quarter an first a revenue an lessen impact and to fiscal results. with $XX.X assets. for achievement EXFO QX with recovery our wage financial included which and earnings financial not IFRS XXXX after-tax on loss our impact a did of solid million Canadian operations, the of as related opened well $X.X net

We also the million quarter $X.X of delivered of sales or adjusted XX.X% EBITDA of in first XXXX.

confirm our global cloud native new virtualized and our market to develop robust to engage and customer Our in and acceptance results to also differentiated solutions this related base ways we serve environment. highly earnings of deployment continue XG as network sales fiber,

take let’s both the and first fared now a fiscal look So family the now has year. how of product position at quarter for in their XXXX

of year-over-year scale service providers. the XXXX. test and QX of terms sales pandemic XXXX network in the by large of X.X% quarter of is In level the caused reduction decreased projects sales of $XX.X deployment favor by to private due in The measurement, from a largely on the communication first growth million record maintenance in

in quarter Now the in in market to in affected EMEA. deployment environment spending deliver stronger manufacturing and dynamic year-end growth. our mostly of a the spending the part strong by and catch-up the offset the and network field healthy latter for Reduced lab continue portable the for our was used test partially instruments our benchtop instruments Americas calendar measurement as

high-end offering recently in market also our of transmission testing same and gig InOpticals, expand oscilloscopes XXX by segment. presence the further closed our will manufacturing XXX we’re addressable leader which technology like instruments Now acquisition the strengthen pleased sampling and a for rates,

related deployments network center addresses XXXX, are The to EXFO launched fast, launch solution also that and infrastructure FIP-XXX portable quarter delivers. high or for a connectors. the exactly one actual reflects multi-fiber returning optical namely requires data cable Following in solutions providers centers normal that data later in in service number related test that vastly XG scope multi-fiber which This the connector the failures end, is driven we’ve testing. fiber and by And confidence measurement field to to in FIP-XXX volume Level repeatable inspection of build-out fiber fiber are disruptive XXXX premises telecom market and levels connectivity. and reliable by our fiber the to for The deployments deployments product results. contaminated what demand improves highly networks, driven cause

Services On degradation the execution And constantly through was or monitoring accelerate within verify large year-over-year network business, tests, a our improved monitoring our just related capabilities optical fiber Service recognized issues network and along to sales to Assurance, network XX.X% novel orders the Customer we identify demand optimization for point customer’s and by Systems fiber as multi-point and and by to solutions to to solutions. XXXX topology, solutions point by success automate revenue The our monitoring will of geographies. switching locate are from can sustained all across fiber And within placed in point heads with network breaks a I reducing attributed network of market solutions be such industry-leading to optical a hours a can time test architecture. network OTDR EXFO’s solution strategically remote the technology. the described the three major fiber QX leveraging recognition These be what deployed of minutes. this thus is Openreach. monitoring monitoring

from up the video video diagnoses the automatically we of of the issues. root is on the of to today our to device Active across or remote real-time deal Openreach first above starting the passed time homes reduced key late-XXXX. well. service source a monitoring end dollar user to buffering fiber installation, when visual providers, XX% issues. multi-million solution following the by video network. the a end, also churn network, freezing, biggest over they’re After failures quarter is five as turn-up the rely monitoring video mid accounts the to Openreach of XX right subsidiary fiber customer infrastructure Mobility rolls solution a end, the ensure cause British user video years quality export over-the-top platform, it’s by in critical truck will And latest being as Ericsson’s fiber the monitoring quarter this to provide increase, Ultimately, announced limit issues XXXX Openreach, experience EXFO data we monitoring now Telecom. for million for solution according and fact, announced of its wholly-owned and U.K., by build with especially provider, streaming whether mobile will problems, of resolve to video Nova XX% to EXFO’s all one which traffic are over-the-top rise Report. lagging These streaming In

is network, this beyond our expected. had positive, real and what this response element visibility in initiative even between provider been video in platform Now, end-to-end visibility solution. differentiating very real-time Early turn we for time customer has that solution the device,

for a wealth opportunities fiscal XXXX. So, in closing, EXFO was looking at of

deployment test of fiber industry-leading test InOptical large and gains resumption should with benefit the the scale manufacturing share combined by our product measurement on site. of the provided acquisition family, First, market

service overall represents SASS opportunity vendors is bodes in digital these cloud-native our We ideal migration new ServiceNow service communication visibility announced partnerships A and end-to-end at of with a well when ramp their critical penetration accounts as example assurance to finally, up QX Second, and contribute application. with infrastructure build good are profit. to architecture. XXXX. Openreach to partnerships network for revenue the pursuing service partnerships that recent an out through monitoring monitoring announcement offering our XG recently five standalone do jointly stronger their deliver XXXX fiber believe to strategic with time in and EXFO’s leading key contracts providers beginning into system providers deal the value we’re And proposition

cover So, at I’ll this Pierre? to call the to over point, turn Pierre our financials.

Pierre Plamondon

million from the Thank $XX.X quarter million everybody. $XX.X in Sales the of XXXX. Good in you, Philippe. of first afternoon, decreased XXXX quarter to first X.X%

meanwhile reduction the region. stronger and by Bookings due was up the mainly The previously deployments of reached service XX.X% pandemic APAC large in first in and compared ratio As offset projects spending $XX quarter industrial for Philippe, calendar and the Americas of the amortization of mentioned margin maintenance in impact year-over-year and sales Gross XXXX to year-over-year, the million XXXX. partially to providers fiber of by before quarter the in COVID-XX catch the depreciation to pandemic, first of decreased book-to-bill quarter XX.X% first decreased the X.X% in spending sales in part of covered a on the by XXXX X.XX. EMEA. year-end scale mainly in

year-over-year. of gross was affected pandemic. period a subsidy last the I’d to were by Otherwise, the margin costs, less mix included by wage of overall granted the government in absorption margin negatively quarter say, This lessen our represented for manufacturing our on sales the XXXX the lower gross positive of to a gross Our a of lower fixed $X.X favorable year margin. impact same compared and million Canadian X.X% first impact

of Adjusted the IFRS as to of subsidy XXXX million or of affected is million net of in first related impact the million emergency quarter of in In $X.X first charges earnings reflects of sales R&D million or $X.X share or XXXX. expenses selling a terms sales items XX.X% has decrease of $X.X restructuring and of mainly quarter in by amortization $X.X or XXXX. net the operating million pandemic that of well in sale quarter as million QX subsidy our The $XX.X in impact restructuring to $XX.X $X.X the full or same in first in to million our loss positively first decreased of a XXXX. million quarter exchange of after-tax compensation million. the quarter million the The loss of expenses quarter XXXX. in charges These in SG&A R&D $X.X per of that of in of $XX.X offset expenses due totaled share was on million $X.X after-tax were of wage the X.X% partially travel Canadian EBITDA of in first administrative of program or $X.XX an the in or of XX% million $X earnings the IFRS last stock-based compared totaled of decreased in first by net subsidy subsidy XXXX sales under $X.X expenses to foreign and wage million by or quarter XXXX XX.X% the of XX.X% in XXXX wage quarter XX.X% IFRS million insurance SG&A per net sale restructuring and XX.X% first $X.X million intangible year. quarter to included million assets, first the $X.XX from related the net expenses, expenses million of expenses expenses of the after-tax plan in also $X.X decrease compared included earnings XXXX of positive on overall. R&D to the first the costs, assets. XXXX. $X.X in to $X.X wage lower loss the Net $XX.X of a period from net million recovery sales XXXX $X.X

and are subsidies the against and that Middle was East recent XX%, and wage XX% and three anticipating total and staff between strength government, XX%, of and XX%; or hope XX%. regions traveling our margin XX%. major of the Americas between the year, currency before sales our XX% XX% totaled also QX XX%; the Geographically, sales in Africa XX% the for Given namely represented guidelines model considering between not will quarter the the XXXX. speed Asia-Pacific R&D Europe, net operating gross action SG&A our in the comparison, we fiscal expectation resume while among emergency that dollar, of end accounted Canadian XX% In geographic are for U.S. and we maintaining XX% the fiscal first 'XX, sales from year range will the

customer In mix, while represented for total X.X% accounted our three top terms ’XX XX.X%. in of top QX of sale customer our

balance a the Turning on to points sheet. key few

of and of at due end position position $X.X operating available Our million the At by start QX by the purchase the loan, from million activities. call for point, quarter had million million to the million capital. net revolving is long-term $X.X EXFO of I These over and partially our for for items for offset debt, capital bank the of cash decrease of million. mainly $X.X you. assets end flow the cash $XX.X in share Q&A. of $X.X liabilities first Thank the of EURXX.X of the $X.X a for At up repayment and million credit will ’XX. $XX.X to to million the decreased of facility the turn this This $XX.X reduction ’XX, the debt million to lease redemption were operator

Operator

Thanos from Markets. Moschopoulos And Instructions] our first [Operator we’ll Capital take BMO with

Thanos Moschopoulos

InOpticals. I recently know of you acquisition closed the

the not As we we anticipate terms can about some you color think QX, create in or financial of impact material? is should it

Philippe Morin

they obviously closed. got The the One leading-edge, us have to the twofold. just places be we on Yes. not impact that acquisition Thanos, will have go product again, is, allows solution to of then, be be them. for able solutions do been existing leverage well able to And of to do so. with them. We’d solutions our as able those cross-selling to type we’ll

expect So, as expect it the in half But the of an material as positive of for that into we’ll get you our we of from be sales year, other obstacle, QX. the not impact we pulling don’t products that second acquisition products. seeing with pure start will the but just do

Thanos Moschopoulos

weeks? us And quarter? can last quarter. number in I had the recent activity new How you progressed a solutions over the you talked know of update of has we that through RFP wins terms pipeline how about XG, mean, in past has I evolved SASS

Philippe Morin

XG talked to we’ve QX, five cloud-native SA of The continues than other RFPs around, call, In wins. - amount in QX, be I what especially the new We’ve deployment. announced and strong, Yes. would monitoring account move with the we’ve some terms the XG. existing what solutions they to I - expanded fiber XG of just our as to of that more about Openreach, of in

seeing applications we out And continuing in we’re leverage So XG able Europe moving predominantly and well U.S. to a out RFPs these the were see a - where around of position and XG incumbent our of more to from we’re and the win predominantly as network cloud-native I an SA the guess, some of of there modernization. as some architecture. to activities

that’s still pretty active. So

Thanos Moschopoulos

benefited we does there the in think QX little your helpful? quarter, at start that be it maybe color into add I your provide happening, commentary bit I a of QX just it have would perspective, as guidance a the from from not seasonal stage. commentary, you heading revenue which would terms what’s but was you’re there specifically that sound is anything guess, budget of know about providing can it you of this any given - seem would might whether anything

Philippe Morin

Yes.

So, while. Thanos, you’ve been a following EXFO for

it. more our quarter saw it to our year of the put of tends end QX of want of that be the news money seasonal of are point if good But to and our through analysis point will a know that the RFP continuing at be we business. you SASS to So, a way from activities view, of coming T&M The is, because I aspect end QX from view. impact an challenging pipeline

from March but T&M especially - as caveat view, happen going into seeing It’s are you will right? only on active, navigate. around, to have that with things the very then going very of good don’t other seen My bit the But So, traction the the to money April, year-end still as uncertainty that, really or to that’s we’re as pandemic, business. we we’ll strong. see, will how countries in the a drastic of expect be, month SASS we’ve a what of certain as some lockdown, we than and head point our creating activities be

Operator

on move to Tim Capital have Markets. to Northland We’ll Instructions] [Operator Savageaux with

Tim Savageaux

a mentioned, budget just you kind I in of some wanted a the mentioned of And of that year-end and I what thus was far? your Is of some factors that on clarify, dynamic catch-up flush? base? your was one notion wondering a Is what terming Philippe, rise couple into traditional saw there. fiscal EMEA notion year-end see dynamic customer you from just did of carrier you kind year-end spending think growth year-over-year second to extent U.S. you that what focused more to quarter continue you’re separate money? I’m

Philippe Morin

quarter. this for two Yes, interesting us dynamics

see, and you EMEA they regions. be as of matter on activities well - up of both EMEA, And when as And as but really this on really certain on is on those TNM our EMEA some lab a so XX%. that XX% growth strongly nice represented and I fact year-on-year in accounts and our picked mean, year Number had tend can a than both. up the manufacturing more of to revenue one you’ve picked total

there from So that performance it And remember. the do you EMEA. that think as I a recovery there of pretty view lockdown of from drastic a of good was lot the point is

to year-end the going - We the in amount particular was now North MSOs month point second into a a The as be highlighted get of of more did money leaking more is coming end November a bit our of of it again with nice the providers, is, seen more in our America. later focus. into - North quarter American But which QX,but again, service coming you than from we’ve bit year-end money the good the past. amount in in business some

Operator

like who come we Management. it’s one Instructions] Gaz, from Opus through. looks right. another Capital [Operator All It have And with did is Reuben

Reuben Gaz

Regarding for based what are things the monitoring? Nova - forecast examples you What which give interesting? year is portfolio, please as some the as video and your calendar could this far of is traction the install OTT

Philippe Morin

On XG monitoring is what you said, yeah?

Reuben Gaz

solutions and the product regarding general Like and Nova on? your Yes. regarding like many trials have in so you how SASS

Philippe Morin

Yes.

SASS would solutions. tend on two I say, product I side, have, the kind we the mean, of to So, major

The first we that about. one monitoring is capability just the talked fiber

the to from people being we connectivity solution So, having seeing are the fiber-to-the-home critical of of around monitoring respond. that high service able more really broadband with for has especially that a help really that especially and context the COVID, centralized demand become to fiber of much need providers by

fastest And a growing. provide multi-million a SensAI, very for for So monitoring to by the solution. start - deploying more a and unit solution - parts as our work cloud-native deal other correlation data faster success attraction and the point bringing the us. that now, bringing monitoring The business troubleshooting much It’s XG - be could that And with is learning fiber it’s that deal more service a monitoring we’ve probes that of the we’re putting that end-to-end this we wireless the and one And Nova speed customers all of seeing they assurance, wireless XG the is and our on the whether visibility being solutions that’s done virtual the in probes combination go businesses XG proof we’ve They the best the then, we’ve it example. Openreach environment. strong of growing and is we’re in the in much, Openreach or of information, London. help from by one with is, gotten then machine either XG as really up to solutions actually U.K. deploy do on troubleshoot and it’s probably active - is And passive. algorithms provided And a you of gather of U.K., solution. around our networks. where and more to SASS monitoring the of telco the to three automation. such actually much first able cloud. urban were In provide And data first visibility for type correlate

As seeing the activity the with in much that of we quarter. year cloud, - more telco, five we’re of standalone to of a QX able native-based much we’re traction XXXX, move around solutions. some network, forward wins in some seeing of we this market market XG And more were type close that previous

the so evolution. where we that’s And see

which are much So, cloud is our we’re we’re really more networks, faster troubleshoot solutions focusing in but monitor for is and and us, which up investing, XG, turn customers providing them and networks way. is help where to fiber, which

Reuben Gaz

the follow-up. - last quick anything last Do a RFPs any RFPs quarter. this Do win, during or carriers? have, is year than with in you to you have first in ongoing There further addition

Philippe Morin

both. question, to And tend be and America in around North So there Thanos’ XG, as SAs, Europe. out are in to there earlier they said more I RFPs

right activities we’re partners, strategic statement. not there’s we’re directly major Xs the So I either earlier sometimes opening Tier that participating Decisions But yet. some of of now been actively involved right with made now. a mentioned or have lot as in my with

Reuben Gaz

And main in RFPs? or competitor who your you would these competitors say

Philippe Morin

Yes.

differentiating depending Service kind competition. as you such typical we deal, some we we’re element is to of evolving tend competitors of that is is, The for solution also facing. standalone, service be to look ready these that - one amount a has also Assurance and like one more regions, XG of But we’re some On SA real and starting facing. the RADCOM when whoever tend to of at that competitors face our the lesser competitor we��re to this regionalized when on them, new being me XG, obviously NetScout. see with their side, of cloud-native a assurance as the standard

Operator

next our Chen with question. And Securities. Daniel we’ll move on from TD to It’s

Daniel Chen

here at SASS quarter? strong contracts what continue this those of would for the and the of won next contracts falling this you stay from SASS revenue is on year? linearity over off trail that you the like, And level that just of five that So, attribute quarter, to quarters last that they or peak recognition performance mostly kind the the kind of three the remainder elevated do to the

Philippe Morin

pattern, of maintenance you start wrap licenses Yes. and you year. more are we tend then We across as network. what XX-month and you fairly before, as solutions it, nine- get, up, And to delivery revenue. call, tend and software you as Dan, The tend the as much similar to as a I start - contracts. with to deploying the - progress contract. our system They software the the get And revenues, these of get annual you every putting explained revenue around we be that recognizing well maintenance renewed we to get but with start recognition

more talked and testing be the business. widen multi-million, into the example, - we’ve to geography been they they five cycle of business, start the deploy a FAS add deployment then geography. - our which to then be across so as contracts, is getting more recognition the one multi-year, one about on is capability has in longer upsell, features, scope and there’s So revenue I because they’re more you ultimately these the more tend And capture opportunity critical Openreach, to which wins scale it’s multi need multi-year more an challenges mentioned, upsell products by the to to these and because that’s to all adding predictability our FAS this to then opportunity really with business as and why an tend

Daniel Chen

was you contract provide details hoping well. the I as more about if can Openreach

your you size should could revenue the to around start You length mentioned dollar, expect kind fiscal we and those and provide QX recognition multi-year any contract? of details multi-million of in

Philippe Morin

Yes.

So nine we other you first same recognized won’t be in size we the the over we the able As the like We’ve multi-year What XX to four will particular TOs this do XX again the phase with pattern. contract details, I be stated many working as months, of already provide to more Dan, about Openreach terms that or - years. that five sheer what deployment, to as you said, than million of in received - deploy for the multi-million. contract? get will the highlighted, will homes next

bringing that is been bringing then this relationship a to again, and many us key obviously So, scale another many, but customer for more years of predictability we’ve much milestone Openreach. with our again working our business, our relevancy business, with, with to

Daniel Chen

but then, And missed don’t subsidy insurance can what earlier, recovery? wage EBITDA you the the I and me know was without I the tell it if

Philippe Morin

take one? you that Pierre, want

Pierre Plamondon

And wage subsidy is million. the is EBITDA The $X.X $X.X Yes. million, okay?

include So, $X.X wage the pre-tax. $X.X that that and just of million subsidy million

Daniel Chen

Okay.

below the recovery the $X at million insurance was EBITDA looking and you’re line? So

Pierre Plamondon

Yes, income correct, on other in interest.

Operator

floor the sir. right. Morin, gentlemen, ahead, for additional the or Please remarks. no with go questions closing with further turn back and CEO, All Philippe to to ladies any like queue, - And in I’d

Philippe Morin

very much. you Thank

million on respectively. just EBITDA call million million $XX.X with a a takeaways So and today. we delivered base earnings good, $X.X strong with year IFRS first totaled this One, EXFO key a the few quarter starting net $X.X reaching sales adjusted before conclude to and good

lots by fiber SASS T&M monitoring of fiscal also accounts opportunities the of seeing deal to benefit penetration family. announced into newly product we’re fiber again we’re as Openreach. for large operating scale new a well with resumption reiterate with But the and that pleased Second, should XXXX deployment our

Annual X:XX headquarters City. XXth tomorrow be at Quebec will Meeting holding AM January our our on at EXFO Finally, in

the take Given government measures encourage imposed ensure part www.exfo.com/investors. to public event safety, at restrictive to in we online shareholders

call. really the So QX I thank at you behalf our joining concludes this this On for EXFO XXXX of point, us team, today. conference entire

Operator

joining Once and conclude that our again today. gentlemen, for call appreciate us. you We ladies does

disconnect. You may now

EXFO (EXFO) 13 Jan 212021 Q1 Earnings call transcript