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Marketing with NB Financials, Germain Lamonde Chairman, President & CEO January 2013
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Marketing with NB Financial
Germain Lamonde Chairman, President & CEO January 10, 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 › OPEX via efficiency
Focus on Execution › Unmatched customer
experience
INNOVATION AND EXECUTION ENABLE MARKET-SHARE GAINS
9 © 2013 EXFO Inc. All rights reserved..
Revenue Mix/Gross Margin Evolution
FY 2006 | FY 2012
Protocol Other
89%
11%
Sales: $250.0 M Sales: $107.4 M
55% 45%
MOVING TOWARD HIGHER-MARGIN, PROTOCOL-LAYER SALES
Gross Margin
40%
50%
55%
60%
65%
70%
45%
In %
of s
ales
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
10 © 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
)
11 © 2013 EXFO Inc. All rights reserved.
Physical-Layer Business
COPPER ACCESS › Product portfolio optimized for high-
speed copper links › New MaxTester series secured
contract wins with three tier-1 North American operators › Supports pair bonding & vectoring
(100 Mb/s)
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
12 © 2013 EXFO Inc. All rights reserved.
Protocol-Layer Business
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
• Stratgic partnership with Artiza Networks to offer highest-capacity, end-to-end simulation solution
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)
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
13 © 2013 EXFO Inc. All rights reserved.
Key Differentiator
PUTTING INTELLIGENCE INTO OUR PLATFORMS!
14 © 2013 EXFO Inc. All rights reserved..
FTB Ecosystem + EXFO Connect + EXFO Apps Store
› Test Equipment Manager › Test Data Manager › GPS/Route Optimization › Work Ticket Management › License sharing or rental › Training Management › Etc. (from EXFO or 3rd parties)
Search and request custom configuration
Download applications and configurations onto platform
Load configuration and immediately start testing
Automatically upload test results
Pass results
› Notification › Billing › Signature › Next work
order › Etc.
Automatically close job ticket
FTB Ecosystem (20+ optical, transport, datacom and copper acces test modules)
Corporate OSS
EXFO Apps Store Contains: S/W releases & updates, new applications, training material,
productivity tools, etc
REDUCES OPEX for Operators & NEMs
› Established base of ~40,000 compliant platforms
15 © 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
› $250 M (-7% YoY) › Gained market share › FY’13: 6-10% growth
(estimate)
Gross Margin
› Improved to 63.3% › Up 9X out of 10 years › FY’13-15: Trending up
Adjusted EBITDA Margin
› 7.3% in FY’12 from 13.5% in FY’11 due to lower revenue level
› Mid-term goal: 15%
Financial Snapshot
36% 34% 21% 24% -5% 32% 33% -7%
2004 2005 2006 2007 2008 2009 2010 2011 2012
16 © 2013 EXFO Inc. All rights reserved.
CEO Germain Lamonde Letter to Shareholders
We plan on increasing our sales volume to better absorb the cost of being a
global player. By leveraging economies of scale, we’re targeting a mid-term adjusted EBITDA1 margin of 15%.
1Adjusted EBITDA represents net earnings before interest, income taxes, depreciation of property plant and equipment, amortization of intangible assets, stock-based compensation costs and foreign exchange gain or loss.
17 © 2013 EXFO Inc. All rights reserved..
Annual Financial Results1 (in US$ millions, except gross margin)
Sales
Gross Margin
Net R&D Expenses
Adjusted EBITDA3
1 All financial results from continuing operations, except net earnings/loss and adjusted EBITDA. 2 Fiscal 2011 and 2012 financial results according to IFRS; prior years according to Canadian GAAP. 3 Adjusted EBITDA represents net earnings (loss) before interest, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, stock-based compensation costs,
R&D tax credits recovery, restructuring charges, changes in the fair value of the cash contingent consideration, impairment of goodwill, foreign exchange gain or loss and extraordinary gain.
Net Earnings/Loss2
SG&A Expenses
18 © 2013 EXFO Inc. All rights reserved..
Q1 2013 Highlights
› Sales reached $59.8 M
› Bookings attained $64.3 M (B/B ratio of 1.07)
› Gross margin1 amounted to 60.5%
› Adjusted EBITDA2 totaled $2.7 M
› Announced contract wins at three tier-1 North American operators for MaxTester copper/DSL series
› Signed partnership with Artiza Networks to offer the industry’s highest-capacity, end-to-end 4G/LTE simulation solution
› FTB Ecosystem: Expanded EXFO Connect offering with floating test licenses option
1Gross margin is a non-IFRS financial measure and represents sales less cost of sales, excluding depreciation and amortization. 2Adjusted EBITDA represents net loss before interest, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, stock-based compensation costs and foreign exchange gain.
19 © 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.