Q1 2021 EXFO Inc Earnings Call
[music].
Good day, everyone and welcome to todays access those first quarter conference call for the debt.
2021.
A quick reminder, that todays program is being recorded at this time I'd like to turn the floor over to the fans Oliver director of Investor Relations. Please go ahead Sir.
Good afternoon and welcome.
Axles for school conference call for fiscal 2021.
With me on the likes of day.
Hi, Thanks Force Chief Executive Officer, the cash.
Some of the fearful of Vice President Finance.
Well the whole, it's what's founder and executive Chairman.
The available.
The answer questions during the Q on apiary of.
A reminder of the it's part of the school will include certain forward looking statements and our estimates concerning our intents beliefs or expectations regarding future events from the.
The next fall.
Please note.
Well, the especially the virus so that's true.
The me inside of the current <unk> pandemic on the employees customers and global operations.
Isn't that cause the actual results of the topic of to be materially different from those expressed or implied today.
For more information about EXFO I encourage you to review our form 20-F.
With the Securities and exchange the mission.
Our annual information form is available for the came on securities commissions as well.
Please note that not all of your first the worst maybe used during this conference call reconciliation of these non ice class consult with <unk> for us.
Lovers is available in the Q1 2021 years or at least on the website.
Well the or most of its conference call for Christmas dollars, unless otherwise indicated so without further delay I will turn the call over to fill it.
Alright, thank you balance and good.
Good afternoon, everyone.
Really like to take this opportunity to wish everyone, a happy sales friends healthy new year.
Given the start of the the vaccinations for the current of Lars endemic in seven of several countries.
Certainly growing optimism that we can returns of semblance of normalcy sometime in the 2021.
So turning to our of financial result.
All of it just goes away of 21 with the strong first quarter performance.
Revenue of 71 Dot 5 million an eye of forest net earnings of 3.6, knowing the.
Hi, as far as net earnings included 1.4 million for an after tax wage subsidy by the kidney and government to lessen the impact of the pandemic.
And as well the $2.5 million for an insurance because the.
Related to the lots of assets.
On this financial performance represents the solid achievement considering the impact of just on dynamic on our global operations, which we did not have to cope with this a year of all you're not you're 120 twond.
We also delivered adjusted EBITDA of 9.9 million for 13.9% of sales in the first quarter of 2021.
I look on sales and earnings results come from market acceptance.
The differentiated solutions, where they get the fiber.
Lot of neither in for.
Of course the plan.
We continue to also develop new ways to engage and sort of our global customer base and this virtualized environment.
So now let's take a look on the how both products. Finally, it's true in the first quarter of 2021, and then on their position for the fiscal year.
In terms of test and measurement sales decreased by 9.8 per se in the first quarter of 2021 from a record level of 55 to 9 million in Q1 20 Twond.
The year over year of sales GAAP is largely just out of the reduction of.
The large scale network deployment caused by the pandemic in favor of maintenance project on the part of communication service providers.
Well this market dynamic whats the partially offset the lot of part of our quarter by stronger a year on calendar spending in the Americas.
And the strong the catch up spending in the Indiana.
Did you just not for deployment.
Most of the affected our portable test and measurement instruments. He was on the field as our Benchtop instruments for the lab and sort of the manufacturing violin cash.
<unk> to deliver healthy growth.
Oh, we were also pleased by the recently closed the acquisition of an optical technology.
Technology leader offering I am instruments like sampling oscilloscopes for testing for hundred and the 800 day transmission rates, which will further strengthen our presence and expanding our addressable market income same manufacturing cycle.
Following the quarter end, we've also launched a highly disruptive test and measurement solutions for service the letters that addresses the number one cause of network failures, mainly contaminated optical connectors the.
The actual S&P 500, plus five of the inspection school vastly impose multi fiber connector testing.
Multi fiber cable deployments are in high volume and data centers and telecom that well, it's what's required is fast repeatable and reliable results and.
And that is exactly what the S&P 500, the liver.
The slate of taught of slots the flex on confident the market demand for the steel portable solutions are returning to normal levels in 2021, driven by fiber deployments related to fiber to the premises fiveg infrastructure build out.
The other kind of activities.
On the service assurance of systems and services and services business. Our sales of school by 18 got 6% year over year as we recognize large orders related to network the policy network optimization and.
Hi, the monitoring solutions.
Customer demand for our five the marching to listen to the rest of staying in joint on 120 21, what's the revenue recognition across all the major geographies.
The market success of the fiber my cancellations can be attributed by the leveraging of expose the industry, leading well TDR technology. These.
He is the optical test heads are strategically placed along the customers not worth the constantly verified and identifying the work breaks or the degradation within the point to point a point to Multipoint network architecture.
And to optical switching capabilities, our remote monitoring solutions can automate and accelerate excuse the execution of such true.
Thus, reducing the time to locate a network issues for the hours to within minutes.
This north of five the monitoring solution I. Just described is what will be deployed by open the leach.
In fact, following the quarter end, we announced a multimillion dollar five the lodging deal over the five years with the open which they all the all subsidiary of British Telecom.
And to build up it is the old infrastructure in the UK.
But at least the starting 20 million homes passed the outside of the.
For the mid to late 2012.
The total provider of remote monitoring solution to ensure end user quality of experience across the fiber network.
Ultimately open which is why it makes for an increase of first time right installation the Jews turned out failures and limits the limits of calls as well.
After the quarter ended we also I know I know all the active over the top over the top of video monitoring solution to.
The result of one of the biggest source of the customer churn for service providers, which is over the top video streaming issues.
These issues are the critical of video now accounts for 65% of on mobile data traffic today.
Well the rise to the above 77% I 2026, according to Clarksons latest the door for.
I suppose the real time monitoring solution automatically dying losses, the root cause of the key video streaming problems, whether it's from the network. The video platform the use of the wise or the video provider, especially when they're not freezing of fleet and lagging issues.
Now the editor and real time visibility between the work done by the platform and video provider that inside of the real time visibility is the differentiating element in our solution.
Early customer response for this initiative solution.
I've been very positive even beyond what we had expected.
So in closing I suppose looking on a wealth of off the chase for fiscal 2021 for.
First of the resumption of large scale five of the plumbing should benefit our industry, leading test and measurement products on the combined.
Combined with the market share gains provided by the acquisition of an optical on the manufacturing of pesticide.
Second our SaaS offering penetration into the into new accounts to the recently announced.
Other monitoring deal with all from reaching the five service assurance contracts in Chile for 2020, bodes well for communication service providers build out of their digital infrastructure for 2021.
And finally, we're pursuing of partnerships with leading systems vendors to jointly deliver strong getting stronger monitoring value proposition out of critical time, when the service providers or beginning of the migration. The psyche style all of the cloud the of the dark cloud native architecture.
A good example of these key partnership the we set of our recent announcement with service now for end to end network visibility application, but.
We do believe the strategic partnerships represent an ideal the opportunity to wrap up revenue and cost of your to expose the overall profit.
So at this point I will turn the call over the the piano.
The cover our financials GAAP.
Thank you for that.
So on the everybody sales.
Sales decreased 2.8% to seven in one place fighting the young into first quarter of 2021 from.
The 73 point of keeps me up in the first of all the 2020.
As previously mentioned makes it seems the queen you'll be you meant the due to the read the <unk> loves candidates for deployment.
Instead of a maintenance project total, but it could be like the <unk>, meaning the ever each other than the battery jump.
The bend the mix impact was partially the up sell but it's probably go you can get.
And on the spending on the part of the service providers and catch up spending in in the <unk>.
Bookings mean, the wide between 1.2% you'll be year to 69 million in the first quarter of 2021 for a book to Bill to reach your point lights of the.
Gross margin before depreciation and amortization on the reach 58.2% of sales in the first quarter of 2021 compared to 50 per cent in the first quarter of 2012.
Oh, the gross margin in the first of all of those 20, plus the well to the.
For me the on flow wage subsidy granted by the can't think of one of them to the Sunday, but of the pending Nick.
This represented a book of business, but <unk>, 0.6%, although gross margin.
Although why on gross margin was negatively affected by the less favorable sales mix overall culprits. The the thing for your lets you a lower absorption of fixed expense between the us.
Say were lower year over year.
In terms of operating expenses sitting and see the expenses decreased to 21.6 billion.
The 30.2% of say in the first of all the 2021 from the 24.5 million young altered the 3.2% of say in the first of all day on 2020.
The 2.9, the young decrease in engine the expenses reflects lower credit expenses due to the <unk> do you make the for the bank of worth 2020, we started doing that.
And the wage subsidy that.
It wasn't even back on the <unk> engine.
In June the expenses by 6.6 million or <unk> point, let Stan although.
Although the they then.
What bunch of the upset the restructuring charges of 25, the young in the first quarter of 2021.
Net R&D expenses decreased to 11.2 million of 15.7% of let's say in the first of all the up 22 of the one from 11.7 million of 16% of sales in the same pay on that yet.
The decrease in net R&D expenses is mainly related to the wage subsidy subsidy the <unk> who's the TV I think the on the other the expenses by 8.8 million the Q ones, what do you want.
I'm sorry, yes, the Oneq totaled 3.6 million young of six cents per share in the first quarter of 2021 compared to a net losses of 21 million the old general sense of share in the first of all the 2020.
I for it if there are any in the first part of the 2021 include the two with you on the after tax summers day setting up he does there, but that's it for me.
6 million stock based compensation does.
So I mean, the on the after tax restructuring charges and the flying change lots of.
<unk> two media.
I first net or any other included in the after tax wage subsidy of one well, it's probably oh the kids the image you wage subsidy program.
Well, the as and instead of the insurance recovery of the two points by the media really that's the other stuff that's it.
And just the did the total lifepoint letting me the of 13.9 percentage of sales in the first quarter of 2021 called.
Compared to 7.5 million or pinpoint your percentage of sales in the first quarter of 2020.
Even the way on the <unk> and shouldn't see you can't wait for T.D. from the kids think of amendment.
Oh, so our expectation Oh, that's all since the <unk>.
The before the end of the fiscal year and posted during the recent strength of major currency against the U.S dollar well meet the any operating mother guidelines for the fiscal year.
Leaving the gross margin will range between 57 and keep the night person.
It just need between 33 and 35 for said and then there was the between 16 and 18%.
The drastically the Americas accounted for 44% of total see what do you on the.
The <unk> that he said he can represent the 30 set up the same way.
Each of the speak totaled 19%.
All parties on the seats bid was 54%, 29% and 17% among the three geographic region in the first quarter of 2020.
In terms of customer mix of the customer accounts the.
For 4.2 per cent of took on seeing in Q1 21, what else. The three represents the 12.6%.
Turning to a few key points on dependent cheap or cash.
I guess, we shouldn't be trees, like 17.2 million to 16 price paid media.
End of the first quarter of 21.
Does the treats it means you do to 16.2 million units for the read the trend the or bank, though.
One point for me on for the repayment of lease liabilities and low the debt.
1.1, the yield for the appreciates the chipset said.
And points for somebody else will do it redemption of shake itself the.
They then were partially upset by 2.1 million in cash flow from operating it.
At the end of Q1 21, it's on AD the net debt well just from the 3.5 million and I believe the revolving credit facility up to 61 place for me.
Despite that we turned the current over to the alternative for the south of the Q in the <unk>.
Ladies and gentlemen.
<unk>.
By pressing star [laughter], just make sure you have your mute function.
Topic.
Okay.
Again, the star one for any questions.
[noise] first from.
So the topless.
Okay.
Hi, good afternoon.
I know you recently closed the acquisition of a in Opticals EPS, we think at the outset she's too can provide some color in terms of on the financial impact of should anticipate or is it isn't the not material.
Yes, the taught us a again the on the acquisitions just got called the on the impact of well be twofold. One is the obviously as the leading edge.
Politics solution allows us to go on to places that they have not been able to do so we'll be able to leverage those type of solutions for them.
And then we'll be able to other as well do a cross selling of our existing solutions for them. So you don't expect that it will be a material for sales in our Q2, what do we do expect as we get into the second half of the year well start seeing the positive impact of that acquisition and not just from the pure product of an optical but with the pull the.
In those other products.
Okay on me.
Can you let the that's in terms of how.
Our I RFP activity has progressed the for Fiveg the assassinations of her over the past quarter. I mean, I know you had a number of wins that we talked about last quarter How's the pipeline of off in recent weeks.
Yeah. The of the amount of RFP is continues to be strong, especially around what I would call. The the fiveg essay and cloud data of deployment, we the you.
You know on Q4 of we've announced five five new wins in Q1, the other than the what I just talked about in terms of the fiber monitoring the openreach sleeve the extended some of our existing accounts.
Solution that the move to.
The more of the Fourg to Fiveg, So we were able to.
Leverage our position there I didn't come in and the when you Oh I guess the day network modernization and we're continuing to see some of them. Some RSP is phenomenally out of the U.S. and put on the out of Europe, where are we saying now.
Activities around the around Fiveg sales and a and as of on selling some of these applications moving from the 42 to more of a call native.
Architecture, So that's still pockets.
I know you're not providing revenue guidance for the stage per se I guess given your commentary is there anything that you would add specifically as we think of the outset heading into Q2.
Whether anything on the seasonal perspective, it does see on from your commentary that maybe there was a little bit of a bunch of what's happening.
It would see me somebody outside of it at the start of the quarter.
But just any color you can provide sometimes you see the help of [noise].
Yeah. So that's kind of see it you've been following EXL for a while the you know at Q2 tends to be more of a you know more of a challenging quarter. If I went on to put it that way because of the seasonal aspect of it but the good news is we're still we saw at the end of our Q1 on the knowledge from year end money coming through that debt that will impact on our TNM business.
On the SAS activities are continuing to be a from the pipeline point of view from the RFP point of view so the.
The things are very active still going based on my only caveat will be how what will happen with the pandemic right. Its its really around.
As you see certain countries going into lockdown.
We don't expect to be as drastic as we've seen in the month of much our April but that's that's creating the big of uncertainty that will have to navigate the other not we're seeing some some good good traction on the PNM point of view.
And especially with the the debt a year on money and then the activities on the SaaS business.
Oh, great definitely put out from that.
Thank you.
[noise] I'll start on if you do have any further questions.
On to.
The seven hands on with Northland capital markets.
Right.
Hi, Good afternoon can you hear me were kind of.
Yeah.
All right.
A little bit of Monaco here [laughter].
On what did you mention.
During the quarter one of the note the.
And like the clause.
I just wanted to kind of.
Kind of clarify you mentioned a couple of factors I think one on where.
From notion of catch up spending in the media and you start from price year over year growth. There is other separate dynamic for what your turman. Your red monies that were focused on your your traditional U.S. carrier customer base.
And for what extent, you or did you see that kind of year end dynamic.
Continue into your.
Your fiscal second quarter, thus far.
The so to the interesting dynamic for us this quarter of 10, so that you picked up on the <unk> number one of you have anything you want me on it really picked up strongly on T.N. the share both on.
On the old, but as well on some of our manufacturing and lot of activities and certain of the council in the in those regions and as you can see I mean, the EMEA had a really nice growth year on year on and I was a matter of fact represented 37%.
Of our of total revenue when they tend to be more in the 30% itself. So good performance there sort of point of view of the meeting I do think that's a lot of it is the recovery.
From the from the locked down debt was pretty low drastic there as well.
Remember the second point is the year on money, which is more as you as you highlighted more look more north American focused we did get a nice amount of your on money.
Coming into.
The end of our quarters, but the month of November with with sudden now going to be leaking into other our Q2, but it was again.
The more later than we've seen in the past, but again good good good amount of business coming on from a from a on some of the service providers the MSR sales and in particular in the on.
And in North America.
Great. Thank you very much and the congrats on the good quarter.
Thank you and get them.
[noise] once again folks star one if you do have any further questions.
We did have another one come through it looks like it's from Reuben Gaz with.
This kind of.
And it was often on a.
I think kind of thing youre the.
The no.
The portfolio.
The the.
Could you please.
Yes, just from a.
The you know some EMS examples of.
Installed base of big switch out of it.
That's think.
What's the the traction on the what does the.
You know for kind of.
The floor or to the <unk>, if the tenant the here as far as for.
Well actually keep media of money today.
On Fiveg monitoring is what you said of the yen.
Yeah like or the God the good the good although the dollar or a product.
And the inside of that are they go out of the or the.
So.
The solutions.
Like the on the on.
Oh, My God, how about your child's the kind of insulin.
Yeah. So it's on on the SaaS side, I mean, we tend to have.
Let's say the.
To me.
Major kind of product solutions. The first one is the fiber monitoring capability that we just talked about so on really around being able to help from the especially in the context of coal that by having much more of a centralized monitoring solution for fiber its become the really critical especially with the high the man of.
Fiber to the home and broadband connectivity that we're seeing that people that the the service providers need to respond.
So and that's we're seeing the success that business is growing it's one of the fastest growing business unit for us and the ultimately reach a deal the multimillion over the each deal. It is a a very strong proof point of that traction for that fiber monitoring solution [noise].
And then on the other parts of our SAS solutions around the world.
Well, we call more on the wireless service assurance, whether it's for the five D. A fourg and Fiveg networks and this is the combination of solutions that you go from the bought it by putting the virtual monitoring for all of is that it could be either active or passive ER and then we gather all.
The the information the correlation of the data and provide monitoring.
On the end to end the visibility that help our customers troubleshoot much much faster by bringing more automation and now with more of a sense. The I will actually bring machine learning algorithms to really speed up the troubleshooting as they start the playing in a much more cloud native.
Fiveg environment on the work that we've done the three UK well on its probably the the best example of that they were one of the first in the in London, and the UK to actually deploy a first telco cloud and the we've provided solutions such as ours.
Wireless probes and correct kind of being able to correlate the data and provide monitoring and because the body type of solution.
As we move for this year in the 2021 were seeing a market a much more market activity around fiveg standalone type of not well that's more telco cloud native based solutions and were seeing on some of that traction with the some of the five wins that we.
We were able to close the and Q4 of the previous quarter and so.
That's where we see the evolution so really for us on we're focusing where the customers are investing.
Which is fiber, which is fiveg, which is cloud.
And we're providing solutions to help them and turn up networks, the monitor and troubleshoot networks in the <unk> much more faster way.
Okay. Thank because as a quick follow up at the do you have in addition to this wins the.
The the last for the good of last year per quarter, the have any pick on going on there.
Out of fees or from or the amount of the piece of the <unk>.
The careers.
So there are RFP is out there around the fiveg essays of both and as I said earlier to the kind of questions.
The tends to be more in and North America and in and the Europe of so there's a lot of activities right now with some of the major tier ones that were participating right now the sales have not been made yet, but we're we're actively involved on either directly or are sometimes with strategic partners as I mentioned earlier in my opening.
Statements.
And who we would say it might come from the competitor of competitors in the sort of piece.
Yeah on the on the service assurance side. It's a you know when you look at these five G. I say service assurance deal, we tended to obviously a face fit the tip.
Typically what competitors such as Netscout.
But we're also starting to see you know the of some of our Oh, depending on the regions for some other kind of on more regionalized competition from the real the real differentiating element for me AIDS, whereas the other has a solution that is cloud native ready.
Good day and evolving too.
Two of two new standard like Fiveg and stand alone in the <unk> and this is when we tend to be with a lesser of a amount of competitors that we're facing.
Radcom being one of them.
As a as one comment on what when compared with the here.
Also on <unk>.
Thank you.
Good luck.
Thank you.
And we'll move on to our next question from Daniel Chan with TD Securities.
Hi, Thank you so the the.
The strong soft performance the the sport or would you attribute that to mostly the the five past contract you on last quarter and just following on that like what is the linearity of the revenue recognition from those contracts the that kind of teaching the kind of trail off over the next three quarters of the continued to stay elevated at this level of for the remainder of the year.
[noise] yeah, the the pattern in the down or a fairly similar how are these contracts tend to be you know I'm much more around a nine to 12 month of revenue recognition as you start the playing the assistant as you step start putting a in all of the delivery of of our solutions of problems across the network.
And then as you wrap up your start recognizing the revenue and you know with it as I explained before we tend to get software revenue software licenses, but as well we get what we call maintenance annual maintenance contract. They tend to get renewed and you get that every year. So all of these contract.
The the five weeks talking about the as an example of the Openreach they tend to the multiyear multimillion they tend to be longer.
Recognition cycle, because you may need to the point across the geography, and then there's the opportunity to up sell upsell of by adding more on the testing capability to widen the geography scope.
And then ultimately add more of more features more products and that's that's why it's so critical on the fastest the capture these wins because they're multi as I mentioned the multiyear multi of deployment and then the opportunity to really start getting more scaling the business and more predictability into our business.
Which is one of which has been one of our challenges with the SAS business.
Okay that makes sense. Thanks, I was hoping for more details about the openreach contract as well you mentioned it was a multiyear multimillion dollars should we expect revenue recognition to start in the your fiscal Q2, and any kind of deals can provide around size and length of the contract.
[noise] yeah. So so we won't be able to provide more details on that in terms of of the contract. The other then you know as what you stated multiyear multimillion we've already received the.
T O is for the the first phase that it will again as I highlighted it will get recognized on the next the nine to 12 months. The the same same pattern of.
On what do we like the boat this uptick for contract is as the size of the share a size of the the deployment of <unk> 20 million homes that we will be on working with we go from each of the play over the many other for five years, so again, bringing us sales of our business, bringing predictability.
The business.
And then obviously much for relevancy to add to the customer that we've been working for many many many years with but this is again another key milestone with or without relationship with the openreach.
Okay. Thanks, and I don't know if I missed the earlier, but can you tell me what the EBITDA was without the wage subsidy and the insurance recovery.
Joe you want to take that one day.
Yeah, Yeah, the EBITDA, the like the 9 million, Okay and.
On the wage subsidies is the 1.9 million.
So.
[noise]. So some debt just suddenly the 9.9 then the doesn't include the wage subsidy of 1.9 million pretax.
Okay. So you're looking at 8 million on the insurance recovery was below the EBITDA line.
Yeah, correct in the other income low interest.
Okay. Thank you.
Thank you on that.
Ladies and gentlemen, with no for.
Other questions on the queue I'd like to turn the floor back to the CEO.
With for any closing remarks.
Thank you very much so just a few key takeaways before we conclude this call today one.
Excellent delivered a strong first quarter of.
Starting the year on the good good the base.
Net sales, reaching 71 about 5 million.
If I if I asked net earnings and the adjusted EBITDA total to 2.6, non and 9.1 9.9 million respectively.
A second we're seeing lots of opportunities for fiscal 2021.
With the resumption of the large scale fiber deployment, the should benefit I cant on product family. We're.
We're also pleased by or the SAS operating penetration into the new accounts and as well to reiterate again of the newly announced fiber line of trying to deal with the with open which [noise].
Finally on X on will be on holding tomorrow, our annual meeting.
On January 13th and nine of them in other headquartered in Quebec City on given the government imposed respect the managers to ensure a public safety we encouraged shareholders.
The take part of the event online at the time.
The other you exit the dot com class investors [noise].
This client. This concludes our Q1 was 20.1 conference call on behalf of the entire its whole team I really thank you for joining us today.
Yeah.
Once again, ladies and gentlemen that does conclude or.
Today, we appreciate you joining US you may now disconnect.
[music].