EXFO Needham & Co. Growth Conference 2013-01-16

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EXFO Needham and Co. Growth Conference 2013

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EXFO Needham & Co. Growth Conference 2013-01-16

  1. 1. Needham & Co. Growth ConferencePierre PlamondonVice-President, Finance & CFOJanuary 16, 2013
  2. 2. Forward-Looking StatementsCertain statements in this presentation, or given in response to your questions, may constituteforward-looking statements within the meaning of the Securities Act of 1934. The PrivateSecurities Litigation Reform Act of 1995 provides “safe-harbors” for such forward-lookingstatements and we intend that any forward-looking statements made today be subject to thesafe harbors. We caution you that any forward-looking statements are just predictions. Theyare not guarantees of future performance and involve risks and uncertainties. Actual resultsmay differ materially from those projected in forward-looking statements and we invite you toreview the company’s most recent filings with the Securities and Exchange Commission orCanadian securities commissions for a discussion of the factors at risk. These forward-lookingstatements speak only as of the date of this presentation and, unless required by law orapplicable regulations, we will not be reviewing or updating the material that is containedherein.Annual financial data in this presentation is prepared in accordance with international financialreporting standards (IFRS) and Canadian generally accepted accounting principles (GAAP).Quarterly financial data is prepared in accordance with IFRS. For a reconciliation of adjustedEBITDA to net earnings (loss), refer to the Q1 2013 press release or the “Non-IFRS Measures”section on EXFO’s website. © 2013 EXFO Inc. All rights reserved.. 2
  3. 3. EXFO at a GlanceWho We Are What We’ve Done Where We’re Going› No.2 supplier in portable › Gained market share year-in › Increase wireless presence telecom testing and innovation and year-out for past 27 years › Enable network operators to leader in IP service assurance › Ten-year sales CAGR of 20% reduce operating expenses› Helping network operators and › Difficult market in FY 2012 › Expand share of wallet with equipment manufacturers › EXFO sales: -7% YoY while Tier-1 operators design, deploy and monitor IP double-digit market decrease fixed and mobile networks › Restructuring: Expected › Accelerate profitability through annual savings of $8.0 M and execution restructuring costs of $2.6 M © 2013 EXFO Inc. All rights reserved. 3
  4. 4. Global Organization 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› No.1 in portable optical testing› No.2 in portable telecom testing › FY 2012 Sales: $47.3 M › Growth YoY: +1.2% › Sales Split: 19% 2000 CUSTOMERS IN >100 COUNTRIES 1700 EMPLOYEES IN >25 COUNTRIES © 2013 EXFO Inc. All rights reserved.. 4
  5. 5. Bandwidth Demand Global IP traffic Up 4X from 2011-2016 Mobile IP traffic Up 18X (Cisco) DESPITE STRONG FUNDAMENTAL DRIVERS, CHALLENGING CONDITIONS FOR WIRELINE MARKET IN 2012 © 2013 EXFO Inc. All rights reserved. © 2013 EXFO Inc. All rights reserved. 5 5
  6. 6. US Carrier CAPEX Capital Intensity20.0% 15.6%18.0% 14.6% 15.1%16.0% 13.3% 12.7%14.0%12.0%10.0% Source: Morgan Stanley8.0%6.0%4.0%2.0%0.0% 2010 2011 2012E 2013E 2014E AT&T Verizon Sprint T-Mobile Average 4G/LTE AND COMPETITION TO DRIVE INVESTMENTS © 2013 EXFO Inc. All rights reserved.. 6
  7. 7. Growth StrategyIncrease Wireless Enable Operators Expand Share of Accelerate Presence to Reduce OPEX Wallet with Tier-1 Profitability via Operators Execution Wireless sales to Key productivity Doing business Combining revenue continue growing differentiators, with ~80% of top-100 growth with a tight (~24% of sales FTB Ecosystem and operators worldwide control on expenses in FY 2012) EXFO Connect EXPANDING MARKET SHARE FOR 27 CONSECUTIVE YEARS © 2013 EXFO Inc. All rights reserved.. 7
  8. 8. Riding the Right Waves Market-Driven Innovation › Wireless backhaul › 4G/LTE, 3G › DAS, RRH › 100G upgrades › FTTH, VDSL2 Focus on Execution › Unmatched customer experienceINNOVATION AND EXECUTION ENABLE MARKET-SHARE GAINS © 2013 EXFO Inc. All rights reserved.. 8
  9. 9. Revenue Mix/Gross Margin Evolution FY 2006 | FY 2012 Gross Margin 70% 65%11% 60% In % of sales 45% 55% 55% 50% 89% 45%Sales: $107.4 M Sales: $250.0 M 40% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Protocol Other MOVING TOWARD HIGHER-MARGIN, PROTOCOL-LAYER SALES © 2013 EXFO Inc. All rights reserved.. 9
  10. 10. Telecom Market PROTOCOL (Wireless, Serv. Assurance, PHYSICAL Transport & Datacom) (Optical & Access)TAM $700 M $3.2 BSAM $550 M $1.8 BAnnual growth rate ~5% ~15%Sales ― FY 2012 $135.1 M $113.7 MSales growth ― FY ’12/’11 -14.5% 4.4%Five-year sales CAGR 3.9% 46.1%Gross margin profile Low-60s (%) Mid-70s (%)Major competitors JDSU, Anritsu, Sunrise JDSU, IXIA, Tektronix PROTOCOL TO DRIVE REVENUE & EARNINGS GROWTH © 2013 EXFO Inc. All rights reserved. 10
  11. 11. Physical-Layer Business PORTABLE OPTICAL COPPER ACCESS› No. 1 player with >35% market share › Product portfolio optimized for high-› Market dominance in OTDR testing speed copper links › New MaxTester series secured› Key differentiator: iOLM software contract wins with three tier-1› Market leader in dispersion testing North American operators› Unmatched product breadth & depth › Supports pair bonding & vectoring (100 Mb/s) © 2013 EXFO Inc. All rights reserved. 11
  12. 12. Protocol-Layer BusinessTRANSPORT AND DATACOM WIRELESS SERVICE ASSURANCE› Multi-service analyzers for • Protocol analyzers: 4G/LTE and 3G › Probe-based systems targeted at SONET/SDH, OTN and Ethernet test solutions for deployment and medium to large network operators troubleshooting applications rates from 10M to 100G › Primary focus on active testing to • Network simulators: Large-scale› Comprehensive portfolio for wireless emulation of subscriber sessions to validate service-level agreements backhaul test routers, gateways and session › Monitoring multi-play services with› Pioneered new standard for Ethernet border controllers a single platform is key differentiator testing (EtherSam) • Stratgic partnership with Artiza Networks to offer highest-capacity, end-to-end simulation solution © 2013 EXFO Inc. All rights reserved. 12
  13. 13. Financial Snapshot $300 Revenue 70.0% › $250 M (-7% YoY) $250 60.0% › Gained market share › FY’13: 6-10% growth (estimate) Sales CAGR of 20% 50.0% $200 over last 10 Years 40.0% Gross Margin › Improved to 63.3% $150 30.0% › Up 9X out of 10 years › FY’13-15: Trending up 20.0% $100 10.0% Adjusted EBITDA Margin $50 0.0% › 7.3% in FY’12 fromIn US$ Millions 13.5% in FY’11 due to 36% 34% 21% 24% -5% 32% 33% -7% lower revenue level -10.0% › Mid-term goal: 15% 2004 2005 2006 2007 2008 2009 2010 2011 2012 Revenue Gross Margin Adjusted EBITDA Margin © 2013 EXFO Inc. All rights reserved.. 13
  14. 14. 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. © 2013 EXFO Inc. All rights reserved.. 14
  15. 15. Strong Value Proposition 5 Good Reasons to Invest in EXFO1. Excellent track record of sales growth Sales CAGR of 20% in last 10 years2. Well-positioned for key growth drivers Bandwidth expansion and IP network convergence3. Balancing sales growth and profitability 1 Targeting adjusted EBITDA margin of 15% on revenue of $350 to $400 M4. Solid balance sheet Cash position of $59.0 M and negligible debt ― as at November 30, 20125. Experienced and disciplined management team Deep knowledge of managing business in growth and downward markets 1AdjustedEBITDA 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. © 2013 EXFO Inc. All rights reserved. 15

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