exfo at bmo conference dec13
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BMO Technology & Digital Media Conf.
Pierre Plamondon, CPA, CA Vice-President, Finance and CFO December 10, 2013
2 © 2013 EXFO Inc. All rights reserved..
Certain statements in this presentation, or given in response to your questions, may constitute forward-looking statements within the meaning of the Securities Act of 1934. The Private Securities Litigation Reform Act of 1995 provides “safe-harbors” for such forward-looking statements and we intend that any forward-looking statements made today be subject to the safe harbors. We caution you that any forward-looking statements are just predictions. They are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in forward-looking statements and we invite you to review the company’s most recent filings with the Securities and Exchange Commission or Canadian securities commissions for a discussion of the factors at risk. These forward-looking statements speak only as of the date of this presentation and, unless required by law or applicable regulations, we will not be reviewing or updating the material that is contained herein.
Annual financial data in this presentation is prepared in accordance with international financial reporting standards (IFRS) and Canadian generally accepted accounting principles (GAAP). Quarterly financial data is prepared in accordance with IFRS. For a reconciliation of adjusted EBITDA to net earnings (loss), refer to the Q4 2013 press release or the “Non-IFRS Measures” section on EXFO’s website.
Forward-Looking Statements
3 © 2013 EXFO Inc. All rights reserved.
EXFO at a Glance
Who We Are › No.2 supplier in portable
telecom testing and innovation leader in IP service assurance
› Enabling network operators and equipment manufacturers to design, deploy and monitor IP fixed and mobile networks
What We’ve Done › Gained market share year-in
and year-out for past 28 years
› Ten-year sales CAGR of 17.4%
› Difficult markets in FY 2012-13 › Sales down 3% in FY’13 › Cost savings of $9 M in FY’13 › Adjusted EBITDA1 margin flat
year-over-year at 7.2%
Where We’re Going › Increase wireless presence
› Enable network operators to reduce operating expenses
› Expand share of wallet with Tier-1 operators
› Accelerate profitability through execution
1Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, restructuring charges, stock-based compensation costs and foreign exchange gain.
4 © 2013 EXFO Inc. All rights reserved.. 4 © 2013 EXFO Inc. All rights reserved..
Global Organization
› No.1 in portable optical testing
› No.2 in portable telecom testing
>2000 CUSTOMERS IN 100 COUNTRIES >1600 EMPLOYEES IN 25 COUNTRIES
Americas
› FY 2013 Sales: $128.1 M › Growth YoY: -2.3% › Sales Split: 53%
EMEA
› FY 2013 Sales: $67.0 M › Growth YoY: -6.0% › Sales Split: 28%
Asia-Pacific
› FY 2013 Sales: $47.0 M › Growth YoY: -1.0% › Sales Split: 19%
5 © 2013 EXFO Inc. All rights reserved. 5 © 2013 EXFO Inc. All rights reserved.
Global IP traffic Up 3X from 2012-2017
Mobile IP traffic
Up 13X from 2012-2017 (Cisco)
Bandwidth Demand
STRONG FUNDAMENTAL DRIVERS, MARKED BY INCREASED MOBILE TRAFFIC AND VIDEO
6 © 2013 EXFO Inc. All rights reserved..
Headwinds & Tailwinds
Tailwinds
›3G, 4G/LTE deployments ›Mobile backhaul upgrades ›Network density initiatives (Small cells, DAS, RRH)
›100G network rollouts ›Pair bonding and vectoring on copper links (100 Mbit/s)
Headwinds
›Uncertain economic conditions ›Challenging end-markets in EMEA
7 © 2013 EXFO Inc. All rights reserved..
Global Mobile Devices Forecast
4G/LTE: 10% OF CONNECTIONS BUT 45% OF TRAFFIC IN 2017
4G
2G
3G
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Mill
ions
2012 2013 2014 2015 2016 2017
Sour
ce: C
isco
VNI M
obile
For
ecas
t, 20
13
8 © 2013 EXFO Inc. All rights reserved..
Growth Strategy
Sales to wireless customers on the rise
(~28% of sales in FY’13)
Increase Wireless Presence
Expand Share of Wallet with Tier-1
Operators
Doing business with ~80 of top-100 operators worldwide
Accelerate Profitability
Combining revenue growth with a tight
control on expenses
Enable Operators to Reduce OPEX
Key productivity differentiator:
FTB Ecosystem
STAY THE COURSE AND EXECUTE FLAWLESSLY
9 © 2013 EXFO Inc. All rights reserved.
Telecom Market
TAM*
SAM*
Major competitors
Sales growth ― FY ’13/’12
Five-year sales CAGR
Annual growth rate
Sales ― FY 2013
Gross margin profile
$820 M
$685 M
JDSU, Anritsu
4.3%
2.7%
0-5%
$140.9 M
55-60%
$3.8 B
$1.8 B
JDSU, IXIA, Tektronix
-11.3%
24.5%
10-15%
$100.8 M
70-75%
PHYS
ICAL
(O
ptic
al &
Acc
ess)
PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH
PRO
TOCO
L (W
irele
ss, S
erv.
Ass
uran
ce,
Tran
spor
t & D
atac
om)
*Total available market (TAM) and serviceable available market (SAM) were raised in 2013 due to more accurate market intelligence, not necessarily because these markets increased in size.
10 © 2013 EXFO Inc. All rights reserved..
Innovation That Makes A Difference
TravelHawk Pro FTB-88100NGE EXFO Connect
Portable, multiservice test solution supports
transmission rates from 10M to 100G
4G/LTE troubleshooting tool selected by three of
top-5 LTE operators
Cloud-based software suite leverages FTB
platform connectivity to enhance productivity
ENABLING NETWORK OPERATORS TO REDUCE OPEX
11 © 2013 EXFO Inc. All rights reserved.. Revenue Adjusted EBITDA Margin
In US
$ Milli
ons
0%
20%
50%
10%
30%
40%
70%
60%
$50
$100
$150
$200
$250
$300
Gross Margin
Financial Snapshot
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
36% 34% 21% 24% -6% 32% 33% -7% -3%
Sales CAGR of 17.4% over last 10 Years
Revenue
› $242.2 M in FY’13 › Challenging end-markets
in FY’12-13 › FY’14: Targeting growth
Gross Margin
› 61.8% in FY’13 › Up 8X in last 10 years › FY’14-15: Expected to rise
Adjusted EBITDA Margin
› 7.2% in FY’13 (flat YoY) › Cost savings of $9 M YoY › Targeting 15% Pe
rcenta
ge of
Sale
s
12 © 2013 EXFO Inc. All rights reserved..
Annual Financial Results1 (in US$ millions, except gross margin)
1 All financial results from continuing operations, except net earnings/loss and adjusted EBITDA. 2 Fiscal 2011-2013 financial results according to IFRS; prior years according to Canadian GAAP. 3 Gross margin is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization. 4 Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation and amortization, restructuring charges, R&D tax credits recovery, changes in the fair value of the cash contingent consideration,
impairment of goodwill, stock-based compensation costs, gain from the disposal of discontinued operations and foreign exchange gain or loss.
Sales
Gross Margin3 Net R&D Expenses Adjusted EBITDA4
Net Earnings/Loss2 SG&A Expenses
13 © 2013 EXFO Inc. All rights reserved..
Q4 2013 Highlights
› Sales totaled $60.9 M, up 6.5% YoY and 3.4% sequentially
› Bookings attained $54.0 M (book-to-bill ratio of 0.89)
› Gross margin1 reached 62.9%, highest level in last 6 quarters
› IFRS net earnings amounted to $3.8 M, $0.06 per diluted share
› Adjusted EBITDA2 totaled $7.1 M, 11.6% of sales
1Gross margin is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization. 2Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain.
14 © 2013 EXFO Inc. All rights reserved.
Strong Value Proposition 5 Good Reasons to Invest in EXFO
1. Proven track record of sales growth Sales CAGR of 17.4% in last 10 years
2. Well positioned for key growth drivers 3G, 4G/LTE, wireless backhaul, small cells, DAS, RRH, FTTx, 100G
3. Balancing sales growth and profitability Targeting adjusted EBITDA1 margin of 15% on revenue of $350 to $400 M
4. Solid balance sheet Cash position of $50.3 M and no debt — as at August 31, 2013
5. Experienced and disciplined management team Deep knowledge of managing business in growth and downward markets
1Adjusted EBITDA represents net earnings before interest, income taxes, depreciation and amortization, stock-based compensation costs and foreign exchange gain or loss.
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