Needham Annual Growth Conference - Germain Lamonde

1. Needham Annual Growth Conference
Germain Lamonde
Chairman, President & CEO
January 14, 2014

2. Forward-Looking Statements
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 Q1 2014 press release or the “Non-IFRS Measures”
section on EXFO’s website.
© 2014 EXFO Inc. All rights reserved.
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3. EXFO at a Glance
Who We Are
What We’ve Done
Where We’re Going
› No.2 supplier in portable
telecom testing and innovation
leader in IP service assurance
› Gained market share year-in
and year-out for past 28 years
› Increase wireless presence
› Enabling network operators
and equipment manufacturers
to design, deploy and monitor
IP fixed and mobile networks
› 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%
EBITDA represents net earnings before interest, income taxes, depreciation and amortization, restructuring charges, stock-based compensation
costs and foreign exchange gain.
› Enable network operators to
reduce operating expenses
› Expand share of wallet with
Tier-1 operators
› Accelerate profitability through
execution
1Adjusted
© 2014 EXFO Inc. All rights reserved.
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4. 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%
© 2014 EXFO Inc. All rights reserved.
reserved..
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5. Bandwidth Demand
Global IP traffic
Up 3X from 2012-2017
Mobile IP traffic
Up 13X from 2012-2017
(Cisco)
STRONG FUNDAMENTAL DRIVERS,
MARKED BY INCREASED MOBILE TRAFFIC AND VIDEO
© 2014 EXFO Inc. All rights reserved.
© 2014 EXFO Inc. All rights reserved.
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6. Headwinds & Tailwinds
Headwinds
›Uncertain economic conditions
›Challenging end-markets
›Some carrier investments in 2013
were delayed (especially in the
Americas)
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)
© 2014 EXFO Inc. All rights reserved.
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7. Global Mobile Devices Forecast
7,000
3G
6,000
4,000
2G
3,000
2,000
4G
1,000
0
2012
2013
2014
2015
2016
Source: Cisco VNI Mobile Forecast, 2013
Millions
5,000
2017
4G/LTE: 10% OF CONNECTIONS BUT 45% OF TRAFFIC IN 2017
© 2014 EXFO Inc. All rights reserved.
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8. Growth Strategy
Increase Wireless
Presence
Enable Operators
to Reduce OPEX
Expand Share of
Wallet with Tier-1
Operators
Accelerate
Profitability
Sales to wireless
customers on the rise
(~28% of sales in FY’13)
Key productivity
differentiator:
EXFO Connect
Doing business
with ~80 of top-100
operators worldwide
Combining revenue
growth with a tight
control on expenses
STAY THE COURSE AND EXECUTE FLAWLESSLY
© 2014 EXFO Inc. All rights reserved.
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9. (Optical & Access)
PHYSICAL
PROTOCOL
(Wireless, Serv. Assurance,
Transport & Datacom)
Telecom Market
TAM*
$820 M
$3.8 B
SAM*
$685 M
$1.8 B
0-5%
10-15%
$140.9 M
$100.8 M
Sales growth ― FY ’13/’12
4.3%
-11.3%
Five-year sales CAGR
2.7%
24.5%
Gross margin profile
55-60%
70-75%
JDSU, Anritsu
JDSU, IXIA, Tektronix
Annual growth rate
Sales ― FY 2013
Major competitors
*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.
PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH
© 2014 EXFO Inc. All rights reserved.
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10. Physical-Layer Solutions
PORTABLE OPTICAL
›
›
›
›
›
No. 1 player with >35% market share
Market dominance in OTDR testing
Key differentiator: iOLM software
Market leader in dispersion testing
Unmatched product breadth & depth
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)
© 2014 EXFO Inc. All rights reserved.
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11. Protocol-Layer Solutions
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)
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
© 2014 EXFO Inc. All rights reserved.
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12. Innovation That Makes A Difference
TravelHawk Pro
4G/LTE troubleshooting
tool selected by three of
top-5 LTE operators
FTB-88100NGE
Portable, multiservice
test solution supports
transmission rates
from 10M to 100G
Brix Mobile Agent
Software application
transforms Android
phone into mobile probe
to monitor QoE issues
ENABLING NETWORK OPERATORS TO REDUCE OPEX
© 2014 EXFO Inc. All rights reserved.
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13. EXFO Connect
EXFO Apps Store
›
›
›
›
›
›
›
Contains: S/W releases & updates,
new applications, training material,
productivity tools, etc
FTB Ecosystem
(20+ optical, transport, datacom
and copper acces test modules)
Download applications and
configurations onto platform
Search and
request custom
configuration
Load configuration and
immediately start testing
Automatically upload
test results
Test Equipment Manager
Test Data Manager
GPS/route optimization
Work ticket management
License sharing or rental
Training management
Etc. (from EXFO or 3rd parties)
Automatically
close job ticket
Pass
results
Corporate
OSS
Notification
Billing
Signature
Next work
order
› Etc.
›
›
›
›
REDUCES OPEX for
Operators & NEMs
› Established base of ~40,000 compliant platforms
© 2014 EXFO Inc. All rights reserved.
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14. Financial Snapshot
Revenue
› $242.2 M in FY’13
› Challenging end-markets
in FY’12-13
› FY’14: Targeting growth
$300
70%
60%
$250
Gross Margin
50%
Sales CAGR of 17.4%
over last 10 Years
$200
› 61.8% in FY’13
› Up 8X in last 10 years
› FY’14-15: Expected to rise
40%
30%
$150
Adjusted EBITDA Margin
In US$ Millions
$100
10%
36%
$50
2004
34%
21%
24%
-6%
32%
33%
-7%
-3%
2005
2006
2007
2008
2009
2010
2011
2012
Percentage of Sales
20%
› 7.2% in FY’13 (flat YoY)
› Cost savings of $9 M YoY
› Targeting 15%
2013
Revenue
Gross Margin
Adjusted EBITDA Margin
0%
© 2014 EXFO Inc. All rights reserved.
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15. Annual Financial Results
1
(in US$ millions, except gross margin)
Sales
Gross Margin3
SG&A Expenses
Net Earnings/Loss2
Net R&D Expenses
Adjusted EBITDA4
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.
© 2014 EXFO Inc. All rights reserved.
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16. Q1 2014 Highlights
› Sales totaled $56.0 M (book-to-bill ratio of 1.03)
› Sales increased YoY in EMEA and A-PAC, but decreased in
the Americas
› Gross margin1 reached 62.2% (up YoY)
› Adjusted EBITDA2 amounted to $2.3 M (down YoY)
› Cash flows from operating activities totaled $3.3 M (up YoY)
1Gross
margin is a non-IFRS measure and represents sales less cost of sales, excluding depreciation and amortization.
EBITDA represents net loss before interest, income taxes, depreciation and amortization, stock-based compensation costs
and foreign exchange gain.
2Adjusted
© 2014 EXFO Inc. All rights reserved.
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17. 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
4.
Solid balance sheet
5.
Experienced and disciplined management team
1
Targeting adjusted EBITDA margin of 15% for medium term
Cash position of $52.6 M and no debt — as at November 30, 2013
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.
© 2014 EXFO Inc. All rights reserved.
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