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StifelNicolaus Growth Conference Feb2012 By Pierre Plamondon, Vice President, Finance and CFO
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Stifel Nicolaus Technology Conference
Pierre Plamondon Vice-President, Finance & CFO February 7, 2013
2 © 2013 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 Q1 2013 press release or the “Non-IFRS Measures” section on EXFO’s website.
Forward-Looking Statements
3 © 2013 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
› 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%
› Difficult market in FY 2012 › EXFO sales: -7% YoY while
double-digit market decrease › Restructuring: Expected
annual savings of $8.0 M and restructuring costs of $2.6 M
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
4 © 2013 EXFO Inc. All rights reserved.. 4 © 2013 EXFO Inc. All rights reserved..
Global Organization
› No.1 in portable optical testing
› No.2 in portable telecom testing
2000 CUSTOMERS IN >100 COUNTRIES 1700 EMPLOYEES IN >25 COUNTRIES
Americas
› FY 2012 Sales: $130.6 M › Growth YoY: -4.6% › Sales Split: 52%
EMEA
› FY 2012 Sales: $71.0 M › Growth YoY: -16.4% › Sales Split: 29%
Asia-Pacific
› FY 2012 Sales: $47.3 M › Growth YoY: +1.2% › Sales Split: 19%
5 © 2013 EXFO Inc. All rights reserved. 5 © 2013 EXFO Inc. All rights reserved.
Global IP traffic Up 4X from 2011-2016
Mobile IP traffic
Up 18X (Cisco)
Bandwidth Demand
DESPITE STRONG FUNDAMENTAL DRIVERS, CHALLENGING CONDITIONS FOR WIRELINE MARKET IN 2012
6 © 2013 EXFO Inc. All rights reserved..
US Carrier CAPEX
4G/LTE AND COMPETITION TO DRIVE INVESTMENTS
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2010 2011 2012E 2013E 2014E
Capital Intensity
AT&T Verizon Sprint T-Mobile Average
12.7% 13.3% 14.6%
15.6% 15.1%
Sou
rce:
Mor
gan
Sta
nley
7 © 2013 EXFO Inc. All rights reserved..
Growth Strategy
Wireless sales to continue growing (~24% 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,
FTB Ecosystem and EXFO Connect
EXPANDING MARKET SHARE FOR 27 CONSECUTIVE YEARS
8 © 2013 EXFO Inc. All rights reserved..
Riding the Right Waves
Market-Driven Innovation › Wireless backhaul › 4G/LTE, 3G › DAS, RRH › 100G upgrades › FTTH, VDSL2
Focus on Execution › Unmatched customer
experience
INNOVATION AND EXECUTION ENABLE MARKET-SHARE GAINS
9 © 2013 EXFO Inc. All rights reserved.
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 (%)
PHYS
ICA
L (O
ptic
al &
Acc
ess)
PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH
PRO
TOC
OL
(Wire
less
, Ser
v. A
ssur
ance
, Tr
ansp
ort &
Dat
acom
)
10 © 2013 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
Sales CAGR of 20% over last 10 Years
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
Adjusted EBITDA Margin
› 7.3% in FY’12 from 13.5% in FY’11 due to lower revenue level
› Mid-term goal: 15%
Financial Snapshot
36% 34% 21% 24% -5% 32% 33% -7%
2004 2005 2006 2007 2008 2009 2010 2011 2012
11 © 2013 EXFO Inc. All rights reserved.
Strong Value Proposition 5 Good Reasons to Invest in EXFO
1. Excellent track record of sales growth Sales CAGR of 20% in last 10 years
2. Well-positioned for key growth drivers Bandwidth expansion and IP network convergence
3. Balancing sales growth and profitability Targeting adjusted EBITDA1 margin of 15% on revenue of $350 to $400 M
4. Solid balance sheet Cash position of $59.0 M and negligible debt ― as at November 30, 2012
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 of property plant and equipment, amortization of intangible assets, stock-based compensation costs and foreign exchange gain or loss.