1 © 2012 EXFO Inc. All rights reserved.
Marketing with BMO Capital Markets
Germain Lamonde Chairman, President & CEO October 11, 2012
2 © 2010 EXFO Inc. All rights reserved.. 2 © 2012 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 standards. For a reconciliation of EBITDA and adjusted EBITDA to net earnings (loss), refer to the Q4 2012 press release or “Non-GAAP Financial Measures” section on EXFO’s website.
Forward-Looking Statements
EXFO at a Glance
Who We Are › No.2 supplier in portable
telecom testing and innovation leader in IP service assurance
› Helping network operators and equipment manufacturers design, deploy and monitor IP fixed and mobile networks
What We’ve Done › Gained market share year-in
and year-out for past 27 years
› Ten-year sales CAGR of 20.5%
› Difficult market in FY 2012 › EXFO sales: -7% YoY › End-markets: Double-digit
decreases
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
3 © 2012 EXFO Inc. All rights reserved.
4 © 2012 EXFO Inc. All rights reserved.
World-Class Organization
4 © 2012 EXFO Inc. All rights reserved.
› No. 1 in portable optical testing › No. 2 in portable telecom testing › 2000 customers in >100 countries › 1700 employees in >25 countries
5 © 2012 EXFO Inc. All rights reserved. 5 © 2012 EXFO Inc. All rights reserved.
Bandwidth Demand
Despite strong fundamental drivers, pause in carrier spending
Global IP traffic Up 4X from 2011-2016
Mobile IP traffic
Up 18X (Cisco)
Telephony
Internet
Mobile
Convergence to IP Networks
HD TV
Operator Focus: Increase network capacity and reduce OPEX 6 © 2012 EXFO Inc. All rights reserved.
› Wireless sales to continue growing (23-25% of sales in FY 2012)
Increase Wireless Presence
Expand Share of Wallet with Tier-1
Operators
› Doing business with ~80% of top-100 operators worldwide
Accelerate Profitability via
Execution
› Combining revenue growth with a tight control on expenses
Enable Operators to Reduce OPEX
› Key productivity differentiators, focus on FTB Ecosystem & EXFO Connect
7 © 2012 EXFO Inc. All rights reserved.
Growth Strategy
Growing market share for 27 consecutive years
8 © 2012 EXFO Inc. All rights reserved. 8 © 2012 EXFO Inc. All rights reserved.
RIDING THE RIGHT WAVES
Innovation and execution enable market-share gains
Market-Driven Innovation › Wireless backhaul › 4G/LTE, 3G › FTTH, VDSL2 › 40G/100G upgrades
Focus on Execution › Unmatched customer
experience
9 © 2012 EXFO Inc. All rights reserved.
Moving toward higher-margin, Protocol-layer sales
Revenue Mix/Gross Margin Evolution
89%
11%
FY 2006
Sales: $250.0 M Sales: $107.4 M
55% 45%
FY 2012
Protocol Other
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
In %
of sa
les
45.0%
55.0%
70.0%
50.0%
60.0%
65.0%
40.0%
Gross Margin
Telecom Market
TAM
SAM
Major competitors
Sales growth ― FY ’12/’11
Five-year sales CAGR
Annual growth rate
Sales ― FY 2012
Gross margin profile
$700 M $550 M
JDSU, Anritsu, Sunrise
-14.5%
3.9%
~5%
$135.1 M
Low-60s (%)
$3.2 B $1.8 B
JDSU, IXIA, Tektronix
4.4%
46.1%
~15%
$113.7 M
Mid-70s (%)
10 © 2012 EXFO Inc. All rights reserved.
Telecom sales CAGR of 20.5% in last 10 years
PHYS
ICA
L
PRO
TOC
OL
11 © 2012 EXFO Inc. All rights reserved.
› Test Equipment Manager › Test Data Manager › GPS/Route Optimization › Work Ticket Management › License sharing or rental › Training Management › Etc (from EXFO or 3rd parties)
Search and request custom configuration
Download applications and configurations onto platform
Load configuration and immediately start testing
Automatically upload test results
Pass results
› Notification › Billing › Signature › Next work
order › Etc.
Automatically close job ticket
FTB Ecosystem (20+ optical, transport, datacom and copper acces test modules)
FTB Ecosystem + EXFO Connect + EXFO Apps Store
Corporate OSS
EXFO Apps Store Contains: S/W releases & updates, new applications, training material,
productivity tools, etc
REDUCES Op/Ex for Operators & NEMs
› Established base of ~40,000 compliant platforms
Revenue • $250 M (-7% YoY) • Gained market share • FY’13: 6-10% growth
(estimate)
Gross Margin • Improved to 63.3% • Up 9X out of 10 years • FY’13-15: Trending up
2004 2005 2006 2007 2008 2009 2010 2011 2012
Financial Snapshot
12 © 2012 EXFO Inc. All rights reserved.
Revenue Adjusted EBITDA Margin
In US
$ Milli
ons 0.0%
20.0%
50.0%
10.0%
30.0%
40.0%
70.0%
60.0%
-10.0%
$50
$100
$150
$200
$250
$300
Gross Margin
20.5% Sales CAGR over last 10 Years
36% 34% 21% 24% -5% 32% 33% -7%
13 © 2010 EXFO Inc. All rights reserved.. 13 © 2012 EXFO Inc. All rights reserved.
Annual Financial Results1
Sales
Gross Margin
Net R&D Expenses
Adjusted EBITDA3
(in US$ millions, except gross margin)
1 All financial results from continuing operations, except net earnings/loss and adjusted EBITDA. 2 Fiscal 2011 and 2012 financial results according to IFRS; prior years according to Canadian GAAP. 3 EBITDA is defined as net earnings (loss) before interest, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, impairment of goodwill and extraordinary gain.
Adjusted EBITDA represents EBITDA excluding the change in the fair value of the cash contingent consideration and the gain from the disposal of discontinued operations.
Net Earnings/Loss2
SG&A Expenses
14 © 2010 EXFO Inc. All rights reserved.. 14 © 2012 EXFO Inc. All rights reserved.
Financial Highlights
Q4 2012 › Sales: $57.2 M
› Bookings: $55.2 M (book-to-bill ratio of 0.97)
› Gross margin*: 62.8%
› IFRS net loss: $3.7 M
› Restructuring plan: Annual savings of $9 million
*Gross margin is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization.
FY 2012 › Sales: $250.0 M (-7% YoY)
› Bookings: $244.8 M (book-to-bill ratio of 0.98)
› Gross margin*: 63.3%
› IFRS net loss: $3.6 M
› Cash flows from operations: $25.3 M
15 © 2010 EXFO Inc. All rights reserved.. 15 © 2012 EXFO Inc. All rights reserved.
Strong Value Proposition
1. Excellent track record of sales growth Sales CAGR of 20.5% in last 10 years
2. Well-positioned for key growth drivers Bandwidth expansion and IP network convergence 3. Balancing sales growth and profitability Targeting EBITDA* margin of 15% on revenue of $350 to $400 M
4. Solid balance sheet Cash position of $67.1 M and negligible debt ― as at August 31, 2012
5. Experienced and disciplined management team Deep knowledge of managing business in growth and downward markets
* EBITDA is defined as net earnings before interest, income taxes, depreciation of property, plant and equipment, and amortization of intangible assets.
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