Marketing day with Canaccord Genuity April 2014

Marketing Day with Canaccord Genuity

Pierre Plamondon, CPA, CA Vice-President, Finance and CFO April 3, 2014

2 © 2014 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 Q2 2014 press release or the “Non-IFRS 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

› 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 © 2014 EXFO Inc. All rights reserved. 4 © 2014 EXFO Inc. All rights reserved..

Global Organization

› No. 1 in portable optical testing

› ~1600 employees in 25 countries

Americas

› FY 2013 Sales: $128.1 M › Growth YoY: -2.3% › Sales Split: 53%

EMEA


Asia-Pacific


5 © 2014 EXFO Inc. All rights reserved. 5 © 2014 EXFO Inc. All rights reserved.

Global IP traffic Up 3X from 2012-2017

Mobile IP traffic

Up ~11X from 2013-2018 (Cisco)

Bandwidth Demand

STRONG FUNDAMENTAL DRIVERS, MARKED BY INCREASED MOBILE TRAFFIC AND VIDEO


Headwinds & Tailwinds

Tailwinds

›3G, 4G/LTE deployments ›Small cells and network density initiatives (DAS, RRH)

›Mobile backhaul upgrades ›100G network rollouts ›Pair bonding and vectoring on copper links (100 Mbit/s)

Headwinds

›Uncertain economic conditions ›Some carrier investments in 2013 were delayed (especially in the Americas)


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:

EXFO Connect

STAY THE COURSE AND EXECUTE FLAWLESSLY


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.


Physical-Layer Solutions

COPPER ACCESS › Most advanced product portfolio for

high-speed copper links › New MaxTester secured contract

wins with several tier-1 operators › Supports pair bonding & vectoring

(100 Mb/s)

PORTABLE OPTICAL › No. 1 player with >38% market share › Market dominance in OTDR testing › Key differentiator: iOLM software › Market leader in dispersion testing › Unmatched product breadth & depth


Protocol-Layer Solutions

WIRELESS › Protocol analyzers: 4G/LTE and

3G test solutions for deployment and troubleshooting applications

› Network simulators: Large-scale emulation of subscriber sessions to test routers, gateways and session border controllers

SERVICE ASSURANCE › Probe-based systems targeted at

medium to large network operators › Primary focus on active testing to

validate service-level agreements › Monitoring multi-play services with

a single platform is key differentiator

TRANSPORT AND DATACOM › Multi-service analyzers for

SONET/SDH, OTN and Ethernet rates from 10M to 100G

› Comprehensive portfolio for wireless backhaul

› Pioneered new standard for Ethernet testing (EtherSam)


Innovation That Makes A Difference

TravelHawk Pro FTB-88100NGE FTB-2 Pro Platform

Portable, multiservice test solution supports

transmission rates from 10M to 100G

4G/LTE troubleshooting tool selected by three of

top-5 LTE operators

Most compact platform for high-speed, multi-service field testing

ENABLING NETWORK OPERATORS TO REDUCE OPEX

12 © 2014 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: Second-half growth

Gross Margin

› 61.8% in FY’13 › Up 8X in last 10 years › FY’14: 62-64%

Adjusted EBITDA Margin

› 7.2% in FY’13 (flat YoY) › Cost savings of $9 M YoY › Medium-term: 15% Pe

rcenta

ge of

Sale

s


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 before depreciation and amortization 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


Q2 2014 Highlights

› Sales totaled $51.2 M

› Bookings attained $58.7 M, B/B ratio of 1.15

› Gross margin1 reached 60.8%

› IFRS net loss amounted to $1.3 M

› Cash flows from operating activities totaled $3.6 M

1 Gross margin before depreciation and amortization is a non-IFRS measure and represents sales less cost of sales, excluding depreciation and amortization.


Strong Value Proposition Why Invest?

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% for medium term

4. Solid balance sheet Cash position of $51.7 M and no debt — as at February 28, 2014

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.

Marketing day with Canaccord Genuity April 2014

Investor Relations

Transcript of Marketing day with Canaccord Genuity April 2014