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Letter to shareholders

Growing with change.

Letter to shareholders
Letter to shareholders

Dear fellow shareholders,

To open, we hope this letter finds everyone safe and well. The coronavirus pandemic has permanently transformed how people live, work and entertain themselves, while proving again how critical telecommunications is to modern society. Although more resilient than many other sectors, telecom was impacted by the pandemic—thereby not sparing EXFO’s fiscal 2020 results.

Throughout our 35th year of operation, we implemented creative ways to adapt to this new reality by transforming our product portfolio to meet new market needs; we embraced digital technology to better engage globally with our customers in sales, support and solution deployment; and we accelerated our innovation engine by altering how we work to become more efficient. While all this was accomplished, we kept our employees safe, energized and fully committed with about 85% of our staff in teleworking mode.

In Test and Measurement (T&M), we strengthened our field-portable offering to enable fixed, mobile and webscale operators to deliver best-in-class services as their network assets were placed under higher stress during the pandemic. While our MDR (Manufacturing, Development and Research) product line generated strong revenue growth—especially in the Asia-Pacific region—we reinforced our long-term growth prospects with the pending acquisition of Taiwan-based InOpticals. This latest transaction will complement our high-speed test offering and expand our addressable market.

On the SASS side, we increased investments related to fiber, 5G/IoT and cloud-native network deployments. We also enhanced our go-to-market effectiveness and expanded the development of our cloud-native, AI-based Nova A|SA Adaptive Service Assurance platform. Fully aligned with our corporate strategy, these investments were made at the expense of others in less core segments. The end-result is that we further consolidated our reputation as the trusted advisor for our global customer base.

Overall, we are in good position to benefit from a market recovery but didn’t stand pat waiting for the pandemic to subside. We implemented transformative initiatives to assure long-term success.

Fiscal 2020 Highlights

Although we mitigated the pandemic’s impact with financial discipline, strictly limiting hires and reducing expenses, our financial results finished below our plans for fiscal 2020.

  • Bookings at $264.9 million decreased 11.1%, including 6.1% and 22.2%, respectively, for our T&M and SASS product groups.
  • Revenue at $265.6 million dropped 7.4%, including 3.6% and 16.4%, respectively, for our T&M and SASS product groups.
  • Sales to Asia-Pacific improved 11.9%, while the Americas and EMEA regions fell 10.0% and 13.9% respectively.
  • Top customer accounted for 8.3% of sales and the top three represented 18.1%.
  • Gross margin before depreciation and amortization1 reached 56.9%.
  • IFRS net loss totaled $9.5 million.
  • Adjusted EBITDA2 attained $18.2 million.
  • Multi-million-dollar service assurance orders secured with five new customers in the fourth quarter.
  • Restructuring expected to deliver $5.0 million in annual cost savings with $3.0 million in restructuring charges.

Looking at 2021 and Beyond

With our resources better aligned toward high-growth market drivers, we intend to continue our transformation and render EXFO’s business more resilient and profitable. Assuming some stability in our end-markets, we anticipate returning to revenue and earnings growth in 2021, thus driving shareholder value. To this end, we’re excited about the wealth of opportunities available to our two major product groups.

Test and Measurement (T&M)

We believe market demand for our field-portable solutions will gradually return to normal levels in 2021, driven by large-scale fiber deployments related to bandwidth-intensive 5G/IoT, video and teleworking needs. On the MDR test side, the addition of InOpticals to EXFO’s advanced portfolio will strengthen our leadership in the fast-growing 400 and 800 Gb/s optical component and system markets, while expanding EXFO’s T&M addressable market to $1.1 billion. We will continue to build on our highly respected brand, pursue further digital initiatives and accelerate our tradition of disruptive innovation to gain market share.

Service Assurance, Systems and Services (SASS)

We’re entering fiscal 2021 with a healthy SASS backlog of $62 million, supported by strong momentum from five multi-year, multi-million-dollar deals in the fourth quarter of 2020. Our AI-based Nova A|SA platform is gaining traction with our global customer base given its unique machine-learning capabilities that detect network anomalies and help predict outages before they occur. We’re also pursuing partnerships with leading system vendors to jointly create stronger value propositions at a critical time when mobile network operators are beginning their migration to 5G standalone and cloud-native architectures. We believe this market dynamic represents a great opportunity to ramp up revenue and contribute to EXFO’s overall profitability.


Despite disappointing financial results last year, we’re approaching 2021 with a great deal of optimism for our T&M and SASS businesses. We’re laser-focused on returning to profitable growth—assuming market conditions remain stable. However, we have suspended the issuance of guidance indefinitely due to reduced visibility caused by the ongoing pandemic.

As we close the books on this eventful 2020, we’d like to extend thanks to our customers for their confidence in our products and services; to our shareholders for their trust in our profitable growth strategy; to our employees for their unwavering commitment during these challenging times; and to our Board of Directors for its continued support and counsel.


Germain Lamonde,
Founder and Executive Chairman

Philippe Morin,
Chief Executive Officer

November 25, 2020

1 Gross margin before depreciation and amortization is a non-IFRS measure, and represents sales, less cost of sales, excluding depreciation and amortization.

2 Adjusted EBITDA is a non-IFRS measure and represents net loss before interest and other expenses, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, and foreign exchange loss.

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