Marketing day with Canaccord Genuity April 2014
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Marketing day with Canaccord Genuity April 2014 Pierre Plamondon, Vice-President Finance and CFO April 3, 2014
Transcript of 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 companys 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 EXFOs website. Forward-Looking Statements
- 3 2014 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 Weve 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 FY13 Cost savings of $9 M in FY13 Adjusted EBITDA1 margin flat year-over-year at 7.2% Where Were 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 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 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
- 6 2014 EXFO Inc. All rights reserved. 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)
- 7 2014 EXFO Inc. All rights reserved. Growth Strategy Sales to wireless customers on the rise (~28% of sales in FY13) 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
- 8 2014 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% $100.8 M 70-75% PHYSICAL (Optical&Access) PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH PROTOCOL (Wireless,Serv.Assurance, Transport&Datacom) *Total available market (TAM) and serviceable available market (SAM) were raised in 2013 due to more accurate market intelligence, not necessarily because these markets increased in size.
- 9 2014 EXFO Inc. All rights reserved. Physical-Layer Solutions COPPER ACCESS Most advanced product portfolio for high-speed copper links New MaxTester secured contract wins with several tier-1 operators Supports pair bonding & vectoring (100 Mb/s) PORTABLE OPTICAL No. 1 player with >38% market share Market dominance in OTDR testing Key differentiator: iOLM software Market leader in dispersion testing Unmatched product breadth & depth
- 10 2014 EXFO Inc. All rights reserved. Protocol-Layer Solutions WIRELESS Protocol analyzers: 4G/LTE and 3G test solutions for deployment and troubleshooting applications Network simulators: Large-scale emulation of subscriber sessions to test routers, gateways and session border controllers SERVICE ASSURANCE Probe-based systems targeted at medium to large network operators Primary focus on active testing to validate service-level agreements Monitoring multi-play services with a single platform is key differentiator TRANSPORT AND DATACOM Multi-service analyzers for SONET/SDH, OTN and Ethernet rates from 10M to 100G Comprehensive portfolio for wireless backhaul Pioneered new standard for Ethernet testing (EtherSam)
- 11 2014 EXFO Inc. All rights reserved. Innovation That Makes A Difference TravelHawk Pro FTB-88100NGE FTB-2 Pro Platform Portable, multiservice test solution supports transmission rates from 10M to 100G 4G/LTE troubleshooting tool selected by three of top-5 LTE operators Most compact platform for high-speed, multi- service field testing ENABLING NETWORK OPERATORS TO REDUCE OPEX
- 12 2014 EXFO Inc. All rights reserved. Revenue Adjusted EBITDA Margin InUS$Millions 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 FY13 Challenging end-markets in FY12-13 FY14: Second-half growth Gross Margin 61.8% in FY13 Up 8X in last 10 years FY14: 62-64% Adjusted EBITDA Margin 7.2% in FY13 (flat YoY) Cost savings of $9 M YoY Medium-term: 15%PercentageofSales
- 13 2014 EXFO Inc. All rights reserved. Annual Financial Results1 (in US$ 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 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
- 14 2014 EXFO Inc. All rights reserved. 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.
- 15 2014 EXFO Inc. All rights reserved. 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 EBITDA 1 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.