EXFO Inc (NASDAQ:EXFO) Q3 2019 Earnings Conference Call Transcript

Jul 10, 2019 • 05:00 pm ET

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EXFO Inc (NASDAQ:EXFO) Q3 2019 Earnings Conference Call Transcript

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Executive
Philippe Morin

performed in this third quarter of 2019. First, with our Test and Measurement business, sales were up 9% year-on-year, despite a negative currency impact and therefore outpacing the market and increasing our market share. More specifically, high speed transport solutions for service providers and our advanced equipment for labs and network equipment manufacturers were largely responsible for revenue increase year-over-year.

Our 100 gig, 200 gig and 400 gig transport solutions and our high-end instruments from the Yenista acquisitions are continuing to deliver healthy growth, also combined with strong demand for our physical fiber test solutions. On the -- still on our subject of our T&M or Test and Measurement product line, we're also pleased with the launch this past June of what we believe as the industry first optical fiber multimeter, which we call the Optical Explorer. In fact, we introduced a whole new testing category with the release of this patent pending optical explorer, placing it between a power meter for basic field testing task and high-end OTDR for full fiber characterization.

This innovative test instrument measures the quality of fiber links in a matter of seconds for frontline technicians and contractors delivering cost savings and especially ensuring the new fiber deployment is done right the first time, which is a real customer pain point. Three key technology innovations built into that device includes first of all an automatic verification of suspected fiber spans, a qualitative 1 to 5 star rating of links to measure the quality, and a reduction in a total cost of ownership through a lifetime calibration and field replaceable connectors on the unit.

On the service assurance systems and services side or SASS business, sales have decreased 12.2% year-over-year, mainly due to a delay in spending on part of our communication service providers, who are going through the complexity of transforming their physical infrastructure into a virtualized and hybrid networks for various 4G, 4G plus and 5G use cases. It should be mentioned also that EXFO secured a $4 million contract SASS order early in the fourth quarter. That should have happened in the quarter that would have raised our overall book to bill ratio above the 1.0 target, has it been booked into our third quarter.

Despite market-related issues, EXFO is well positioned for the 5G investment cycle with a solution that addresses what we believe three major revenue opportunities. That the first one with our Test and Measurement product family is currently benefiting from the network densification phase in which service providers are deploying small cells, closer to the network edge to support ultra high bandwidth and low latency application. Obviously, these small cells need to be connected with fiber and this is where EXFO shines with our leadership position in optical testing.

Second phase which will go under way in 2020 as communications service providers massively deploy new radio equipment for the standalone 5G standard. Our SASS business through its acquisition of Astellia provides RAN optimization and geolocation solutions for service providers