EXFO Inc.
Q4 2020 Earnings Call Transcript

Published: 8 Oct 2020

[Operator:]

Good day, everyone and welcome to today’s EXFO's Fourth Quarter and Year End Conference Call for the Fiscal Year 2020. A quick reminder before we begin that today’s program is being recorded and at this time, I would like to turn the floor over to Ms. Michelle O'Brodovich. Please go ahead, ma’am.

[Michelle O'Brodovich:]

Thank you. Good afternoon, and welcome to EXFO's fourth quarter and year end conference call for fiscal 2020. With me on the line today are Philippe Morin, EXFO's Chief Executive Officer; and Pierre Plamondon, CFO and Vice President of Finance. Germain Lamonde, EXFO's Founder and Executive Chairman will also be available to answer questions during the Q&A period. A reminder that this conference call will include certain forward-looking statements and/or estimates concerning our intents, beliefs or expectations regarding future events that may affect EXFO. Please note that such comments will be affected by risks and/or uncertainties, including the impact of the coronavirus pandemic on our employees, customers and global operations. This may cause the actual results of the Company to be materially different from those expressed or implied today. For more information about EXFO, I encourage you to view our Form 20-F filed with the Securities and Exchange Commission. Our annual information form is available with Canadian Securities Commission as well. Please note that non-IFRS numbers may be used during this conference call. A reconciliation of these non-IFRS results with IFRS numbers is available in the Q4, 2020 news release on our website. And with that - all dollar amounts in this conference call are expressed in U.S. dollars unless otherwise indicated. And with that, I will pass it over to Philippe Morin, CEO.

[Philippe Morin:]

Very good. Thanks, Michelle, and good afternoon everyone. In our fiscal year 2020, EXFO experienced the impact of the coronavirus pandemic on the global economy, which adversely affected our revenues and profitability. However, I am pleased to see EXFO call this fourth quarter on a positive note with strong revenues and strong cash flow from operations. We also made significant progress on our strategic plan in 2020. Our ongoing digital transformation allowed EXFO to quickly adapt to a virtualized selling environment and secure five new service assurance contract wins. Altogether, we generated revenue of $265 million, down 7% annually with the full second half of the fiscal year affected by the pandemic. Regarding the bottom-line, we delivered an IFRS net loss of $9.5 million in 2020, while our adjusted EBITDA amounted to $18.2 million. We reduced the impact of the pandemic through strict financial discipline including company-wide hiring freeze. In August, we realigned our resources towards high growth drivers like fiber, 5G and cloud-native deployments to accelerate our company’s transformation. Investments in lower growth areas were reduced. These restructuring initiatives we expected annual cost savings of $5 million will create a more resilient business model and position the company for profitable growth in 2021. Looking ahead, we are excited about the opportunities available for our test and measurement and SASS product families. With that in mind, let me tell you a bit more about how both groups performed in the past year and their prospects for 2021. In terms of test and measurement, revenues fell less than 4% in 2020. We consider this a solid achievement considering that preventive measures triggered by the pandemic affected EXFO’s ability to ship products and deliver services. Our revenues were also affected by a pause in large-scale fiber deployments in favor of maintenance work. On the lab and manufacturing test side, we delivered robust sales growth and an increased market share throughout 2020, mainly in the Asia-Pac region where demand for optical component manufacturing is strong. Demand for field testing equipment should recover in 2021 with major fiber deployment projects on the horizon provided that a second wave of the virus doesn’t bring extensive lockdown restrictions. We also expect to leverage the pending acquisition of InOpticals to expand our market share in the fast-growing 400-Gig and 800-Gig lab and manufacturing test markets. InOpticals supplies ultra-high-speed oscilloscopes, bit-error rate testers, and other critical test instruments to optical component and network equipment manufacturers. Given the strong need for fiber deployment which comes from fiber-to-the-home, fiber-to-the-antennas, 5G infrastructure and datacenter connectivity and as well as a strong need for optical component manufacturing, we expect to build on our leadership position in optical testing in 2021. Regarding our service assurance and services and our SASS product families, revenue decreased 16% in 2020. In this case, the pandemic restricted our ability to close deals and install systems at customer premises. We also didn’t benefit from a large contract for network topology software like we did in the previous year. Our SASS business did closed fiscal 2020 with a positive momentum. We secured orders with five new logos, five new mobile network operators in the fourth quarter highlighting the strength of our service assurance solution and increased activity in this market. These multi-year, multimillion dollar deals will increase our SASS backlog for 2021. We expect this momentum to benefit our recently launched Nova Adaptive Service Assurance platform. This highly disruptive platform is powered by machine-learning based algorithms and automation capabilities to monitor and troubleshoot networks by detecting anomalies and even predicting outages before they occur. These differentiated functionalities are resonating well with mobile operators that are transforming the networks. We also anticipate increased momentum in 2021 as mobile operators begin migrating to cloud-native 5G standalone architecture. This heightened activity in the network core should accelerate demand for our Nova Adaptive Service Assurance platform and our Nova SensAI troubleshooting solution. So as a result, we are approaching 2021 with a great deal of optimism for our SASS business. We have the firm intent to build on our number two position, currently at 10% of global market share in the fragmented probe based monitoring system market. Turning to our business outlook. EXFO has suspended quarterly and annual guidance indefinitely due to the ongoing uncertainty surrounding to the breadth and duration of the pandemic and its impact on the macroeconomic environment. So at this point, I’d like to turn the call over to Pierre, so he can discuss more details and insights on our financials. Pierre?

[Pierre Plamondon:]

Thank you, Philippe, and good afternoon everybody. Annual sales decreased 7.4% to $265.6 million in fiscal 2020. Bookings dropped 11.1% to $264.9 million for a book-to-bill ratio of 1. In the fourth quarter of 2020, sales reached $70.6 million, slightly higher than last year despite the pandemic. However, bookings decreased to $63 million compared to Q4 2019. As previously mentioned, annual decrease in sales and bookings can be mainly attributed to the negative impact of the coronavirus pandemic, which reduced the economic activity worldwide. Gross margins before depreciation and amortization amounted to 56.9% of sales in 2020 compared to 58.6% in 2019. In the fourth quarter of 2020, gross margin reached 53.8% of sales including restructuring charges of 1.1%. Excluding these charges, the gross margin would have been 54.9% in Q4 2020. On an annual basis, our gross margin was negatively affected by the pandemic as we were forced to shut down our manufacturing facility in China in February due to the outbreak of the virus. This shut down, as well as the effect of the pandemic on product demand resulted in lower sales and lower absorption of our fixed charges. EXFO’s gross margin was also affected by an unfavorable sales mix in 2020 consumption and as the dip in churn we did not benefit from a last contract for network topology software in 2020 as we did in 2019. Finally, our gross margin was negatively impacted by restructuring charge in the fourth quarter of 2020 of $0.9 million. These unfavorable factors were offset by a number of positive items including in the third quarter a wage subsidy from the Canadian government amounting to $0.7 million and the effect of the IFRS-6 of $1.4 million. We believe that our gross margins would range between 57% and 59% in fiscal 2021. Moving to operating expenses, selling and administrative expenses totaled $92.3 million in fiscal 2020 compared to $98.6 million in 2019. In the fourth quarter of 2020, SG&A expenses amounted to $24.6 million and included $1.9 million in restructuring charges. The $6.4 million decrease in SG&A expenses can be attributed to the wage subsidy provided by the Canadian government of $1.1 million, the positive effects of IFRS-16 on our selling and administrative expenses of $1.5 million, significantly lower travel expenses due to the pandemic, lower commissions paid up on lower sale levels and tight control on expenses and hiring freeze. These factors attributed to net sales by higher restructuring charges in fiscal year 2020, compared to 2019 and some increases year-over-year. SG&A expenses as a percentage of sales slightly increased to 34.8% in 2020 from 34.4% in 2019. We expect our SG&A expenses will range between 33% and 35% in 2021. Net R&D expenses totaled $45.5 million in 2020, compared to $50.6 million in 2019. In the fourth quarter of 2020 net R&D expenses amounted to $12 million. Likewise, the $5.1 million decrease in net R&D expenses in 2020 can be attributed to the wage subsidy provided by the Canadian government of $1.5 million, positive effect of IFRS-16 on our R&D cost of $0.8 million, as well as net restructuring charges year-over-year of $2.4 million and again tight control on expenses. As a percentage of sales, net R&D expenses reached 17.1% in 2020, compared to 17.3% in 2019. We think that net R&D expenses will range between 16% and 18% of sales in 2021. In 2020, IFRS net loss totaled US$9.5 million or US$0.17 per share. Net loss in 2020 includes expenses totaling US$10.3 million, namely US$5.5 million in after-tax amortization of intangible assets, US$2.0 million in stock-based compensation costs, US$2.4 million in after-tax restructuring charges, and a foreign exchange loss of US$0.4 million. Net loss also includes US$2.4 million for the after-tax wage subsidy granted by the Canadian government. In the fourth quarter of 2020, IFRS net loss amounted to $3.6 million or $0.07 per share which include an after-tax restructuring charges of $2.4 million or $0.04 per share. In terms of geography in fiscal 2020, sales in Asia-Pacific improved 11.9%, while sales in the Americas and EMEA sales 10% and 13.9% respectively being more impacted by the COVID. Looking at the sales, the America has accounted for 49% of sales, EMEA represented 30%, while Asia-Pacific totaled 21%. Turning to customer diversification, our SASS customer accounted for 8.3% of sales in 2020, while our top-three represented 18.1% of sales. Moving on to a few key points on the balance sheet, our cash and short-term investments increased by $14.3 million to $33.7 million at the end of 2020. We raised our bank loan by $26.5 million in 2020 while other liability increased by $2.4 million. These items were partially offset by $2.1 million in cash flow used by operations, $7.6 million for the purchase of capital assets, and $5.2 million for the repayment of long-term debt and liabilities. At this time, I will turn the call over to the operator for the start of the Q&A.

[Operator:]

[Operator Instructions] Folks our first question today comes from Thanos Moschopoulos with BMO Capital Markets.

[Thanos Moschopoulos:]

Hi, good afternoon. Maybe starting off on the 5G wins you had and other products. Any additional color you can provide us for as the geographies of those wins and then also some color maybe in terms of the key factors that drove the operation future solution versus the competition? Thanks.

[Philippe Morin:]

Okay, thanks, Thanos. So, yes, these five customer wins were against Americas and Europe and they are predominantly what we like is the fact that we are able to place incumbents and then some of the players that you are familiar with Thanos, are the NETSCOUT and Empirix and exceed in its own. So, for us to be able to prove the value of our new platform the whole adaptive Nova Adaptive Platform was a key aspect of providing that - those wins. So, and again, these – as we mentioned in our press release, in August, they represented about $5 million of our bookings in Q4. But these deals are also multi-year and then therefore will be part of our strength in our backlog in 2021.

[Thanos Moschopoulos:]

Okay. And regarding the InOpticals acquisition you haven’t provided any color or financial metrics on that. Is that because it’s not material or will you be giving us some metrics when the deal closes?

[Philippe Morin:]

So, first of all, Thanos, the InOpticals acquisition is still pending until we get the regulatory approval which we expect to be later on in the month of October or beginning of November and until then, that’s where we will be able to provide at that point more color on the acquisition itself and what the impact is. But the strategy behind this one for us it’s continuing, if you look at our results for the last couple of years, we’ve really proven that, by expanding our solutions into the manufacturing and research market segments, we have shown some really nice momentum, nice growth and improvement in market share and by coupling InOpticals product which helps us with complementing our optical portfolio with some electrical assets, we really believe we will be able to address a wider market, mainly the PIC market and some of the photonic and integration manufacturing providers. So, again, pretty important deal for us in terms of helping us grow our market share – addressable market and then our market share into the manufacturing development and research market segment.

[Thanos Moschopoulos:]

Okay. And then on OpEx, just some moving parts here between the restructuring charges, I think no difficulties now leaving that in the quarter. I guess, all that being the case how should we think about OpEx heading into next quarter? I mean, if we strip out the restructuring impacts, and then factor maybe some seasonal impacts, do we assume that the runrate should be kind of down a little bit from what you had in Q4? How do we think about that?

[Pierre Plamondon:]

Yes, Thanos, you are right. You actually assumed this. This is an impact of the vacation time in summer time. So where the expense tends to be lower in Q4 compared to the second quarter. At the same time, the currency, as you know play a big role in our expenses. The averages Canadian dollar get stronger in Q4 that’s why our OpEx tends increase in Q4 and it’s because of that and depending where the Canadian dollar will stand for Q1 that could be an impact as well, okay? On the other side, with the restructuring plan that we have announced, we will have to see the benefit, we have another $5 million cost reduction over the next 12 months with the restructuring plan that we have announced and that we should be starting to see some benefits in Q1 with that plan.

[Thanos Moschopoulos:]

Okay. And last one for me, Philippe, how would you characterize, I guess the current state of field deployments, I mean, with the COVID and everything I mean, are field deployments now kind of progressing closer to normal or is that the function of the various geography in question? What are you seeing in that front?

[Philippe Morin:]

Yes, we are starting to see back to normality, now again with the kind of second wave is going to come in that the kind of caveat I’ll put, but when you look at our overall T&M portfolio, the high-speed solutions like 400 and 800-Gig did really well. Our manufacturing portfolio as I mentioned earlier, the nice growth and market share increased where we had some challenges on the fiber deployment, actually it’s highlighted but we do feel that the high demand of broadband, high-speed broadband connectivity in the market is going to start really getting back to normality into the fiber build out and especially with – as we are seeing with 5G in certain countries where we are seeing 5G infrastructure also building up. So, we do expect to see – and we are starting to see that funnel increase and momentum in that fiber build out, again assuming that the second wave doesn’t get us until the type of lockdown that we saw in the spring.

[Thanos Moschopoulos:]

Alright. Thanks, Phil and Pierre.

[Operator:]

Alright. Moving on from Canaccord Genuity we have Robert Young.

[Robert Young:]

Hi. The T&M bookings in the quarter are a little bit weaker. Was that’s seasonality or was there some other factor there?

[Philippe Morin:]

Yes, Robert, I mean, again, it’s a bit of combination of seasonality and then, again as I mentioned a bit, some of the fiber characterization projects being impacted, I do think that the cycle to get back to normality we experienced that into Q4 a bit as operators are being careful for the health of their employees and their contractors and we saw that impacting the business.

[Robert Young:]

And I guess the stresses at work from home terms and what not are putting on the network, is that an underlying driver of activity in T&M equipment and handheld sales or is that’s something else so that’s being pushed out by logistics and COVID?

[Philippe Morin:]

Yes, Robert, I think that’s the fundamental demand for broadband connectivity and fiber is being a big part of that and someone could argue that 5G fixed wireless access will be as well, but that fundamental demand is strong. But I do think that the effects of the pandemic just as an impact of increasing the sales cycles and then the delivery and so on. So, it just takes more time even though the demand as you highlighted for broadband connectivity from a network point of view is also being – is being impacted. But this is the nature of doing business. It takes a bit more time now.

[Robert Young:]

Okay. And then the other area of strength in the T&M business, the lab or the MEM business, you suggest you are taking share and I guess a lot of that was probably driven by the acquisition of Yenista and then now this InOpticals closes as you plan, what’s that going to do for that business? Like are there any specific areas that you grow? I think you talked about some component pieces? Are there any new – net new areas that’s going to open up for you?

[Philippe Morin:]

Yes, so, the market demand that we just talked about for broadband connectivity and then the market demand for datacenter connectivity, fiber-to-the-home, fiber-to-the-antenna is driving the need for more and more optical components, optical transceivers and so on. And then, the manufacturing of these components are predominantly as you know, Robert, into Asia – into China and Asia and that’s driving, again the combination of Yenista acquisition, a combination of our existing portfolio, we were able to really capture increased market share and do further business with that platform. And then with InOpticals, we saw an opportunity to really complement our portfolio as more and more of these optical components are moving into PIC technology or Photonic Integrated Chip technology and we felt an opportunity to really complement it. I think Germain, or his activity involved in the acquisition or the pending acquisition, I leave it – or I’ll turn it over to Germain, so I am sure he can provide a bit more color on InOpticals. Germain?

[Germain Lamonde:]

Thanks, Philippe. Well, actually Robert, this is an area in which EXFO has been involved quite extensively. This is a strategic area for us – the, what we call the MDRs or manufacturing, development and research. We’ve made some important moves in the last few years both internally in terms of internal development, strong focus both in our optical test, in our high speed test, as well with the acquisition of Yenista. So what we do here with this combination is, by adding InOpticals, it’s giving us one of the most complete portfolio of products within this industry for the very high speed component testing, system testing and so forth. So we think that it’s an area in which EXFO has done well and we are expecting to continue to do well as we can now create solutions that are pretty unmatched within the industry with the advanced capabilities that we have. InOpticals is kind bringing a market that’s in the range of $150 million in which basically as a smaller organization that was difficult for them to really embrace the global markets and compete against larger players which would be the key sites. So I think the combination of InOpticals with EXFO’s capabilities, for me this is what we call often time it’s a SSS acquisition, so very synergistic. So the level of synergy could be easily generated. It’s a strategic segment for us and it’s also a small acquisition. So that's the SSS. So it's a small acquisition that we can really leverage to bring and create additional value for shareholders as we did with Yenista.

[Robert Young:]

Okay, great. And then you said a couple of times, last quarter, this quarter that you are seeing a lot of RFP activity in general and the funnel is growing, and so in the SASS business, you had I think, relatively good bookings, in the T&M business maybe not so good. And I was wondering if you could just talk about the trends there going forward?

[Philippe Morin:]

Yes. So, Robert on the RFQs, our activities around the service assurance business, we actually continue to see a good momentum there. A lot of customers are now going through – now that they made decisions around who are they going to be using for their 5G core and their 5G RAN, they are now moving into the next phase of the service assurance kind of activities. And we see a lot of RFQs there. And again the fact that we were able to close five of them in Q4. Now some of them were for 4G technology evolving to 5G, but we are starting to see an increased activity there across mainly in our case, Americas and Europe. And so, and that bodes well for us in 2021, because we do believe that customers will – operators are looking at some places accelerating their 5G deployment. I am really – I was really happy to see the CBRS spectrum auctions reaching up to $4.6 billion. So we are seeing more and more spectrum investment going into this business ultimately will be translated into network deployments and therefore more opportunity for us to leverage our solution in that market.

[Robert Young:]

Okay. And those trends the RFP and RFQ trends, is that around the SASS business or would you say that that's more a factor driving the overall business?

[Philippe Morin:]

It's predominantly a SASS business, because their RFQs tend to be longer, but we do see, we had some nice growth on our T&M around 5G infrastructure build out. So whether it's our fiber products, but the whole optical RF, all of our products we are putting which is providing a bit more visibility as you install new radio, as you install new fiber, we saw some really nice growth again in our platforms on the T&M side and we believe that's going to continue as the optics move all the way up to the top of the antenna as there is more and more deployment of greater density due to 5G, as you know, there is more towers being put in and it's all fiberized. So it does have a positive impact on our T&M business.

[Robert Young:]

Okay. And so, then if investors are looking for like a sign of a lead indicator for the RFQs to turn into bookings, is it standalone radio or is it something that would happen before that starts to takeoff? And I'll pass the line.

[Philippe Morin:]

Yes, the leading indicator for us now is, once the customers have made decisions on the 5G core for SASS to start off with for the SASS business, the leading indicator is the decision they have now made on 5G core and who have they selected as a provider and therefore, we know that right behind that there will be a need for service assurance activities. And then, on the T&M side, the leading indicator is absolutely which is as I've said is around deployment. Once you start seeing some deployment, now that's a leading indicator for us to – for our T&M business.

[Robert Young:]

Okay. Thanks for answering all the questions.

[Philippe Morin:]

Thank you.

[Operator:]

[Operator Instructions] We'll move on to Tim Savageaux who is with Northland Capital Markets.

[Tim Savageaux:]

Hello, good afternoon everybody. All right, I'll try to struggle through this. My question is on what you're seeing from a spending perspective from your carrier customers as was previously mentioned, T&M bookings looks pretty weak in the quarter and at least it appears that revenues with your largest customer were down pretty sharply on a sequential basis and given some of what we've seen in various suppliers across the industry that might not be surprising, although it looks like your revenues in the Americas were actually pretty decent in the quarter. So, I guess my question is if you can characterize kind of the overall spending environments and or I guess demand environment, putting aside any pandemic related network, access issues and whether you are seeing that differing trends across some of your traditional large customers kind of the AT&Ts and Verizons of the world versus other segments of the fiber test market especially with regard to field whether that's cable, rural broadband, Europe you've called out strength there. Were any of those dynamics at work as you look at your bookings and revenue results in the fourth quarter?

[Philippe Morin:]

Yes. So, well Tim, overall when you look at the seasonality of our Q4, it's always from a T&M point of view, it's always a quarter where we tend to have an impact on bookings for the T&M side. So there is that seasonality aspect. What we are seeing though, in terms of overall demand and as we move into 2021, our fiscal year is that, depending on countries and depending on geographies, we are seeing some acceleration of deployment. I would tell you, we are seeing a lot of activities in North America. We are seeing a lot of activity in the Western Europe, but there are other parts that we see maybe more conservatism in terms of the spend. But again, if you look at places where fiber to the home, high-speed connectivity, rural programs being put together by governments, that is really the momentum and funnel increase that we are seeing comes from all of these other activities. Asia-Pac for us tends to be very - again when we talk about the MDR market, optical component manufacturing, transceiver manufacturing, that to us is really important high-speed solutions 400-Gig, 800-Gig and now the network equipment vendors are going to the lives with those type of solution. We are seeing some of that activities as well. Some – what we are monitoring now is the 5G acceleration. Where will 5G get accelerated or will it get slowed down. And as I mentioned on previous calls, we are seeing certain countries like the U.S., China, Japan, Korea, accelerating their 5G investments, but other countries, they are seeing a – as an example, a delay of spectrum auctions, a delay like in Spain, some of these countries in Africa and so on that we will believe will also have an impact in terms of their 5G deployment. So it's a bit of mix, Tim, that I do think that when we look at our 2021, we'll be seeing some nice momentum behind the whole fiber connectivity, nice momentum around our MDR market. And I do think that from our service assurance point of view, the activities around 5G core, 5G RAN and for service assurance, we expect that that's going to really continue to see that momentum as we continue to be in our fiscal year 2021.

[Tim Savageaux:]

Okay. And if I could follow up briefly, so you seem to indicate that seasonality might be more of a factor than in Test and Measurement bookings has been any kind of pull forward dynamic or a broad based slowdown in spend at the larger U.S. carriers. Just want to confirm that. And then, given the overall nature of your commentary heading into 2021, it sounds like you might expect, at least somewhat of a return to kind of a normalized mid-single-digit growth rate on the Test and Measurement side. You probably don't want to go that far in terms of expectations, but any comment on that would be great. Thanks.

[Philippe Morin:]

Yes. So, I think the activities in the US continues to be around the fiber deployment, around 5G infrastructure build out continues to be strong. As I mentioned earlier, Tim, the sales cycle takes more time to quote deals, to get all the POs released, to get every – all the activities and so on. That it’s just is a nature of having a lot of our customers working from home and there is creating of that and you compound that with the seasonality is effectively what we saw in our T&M bookings in Q4. So for me it's as we get into our fiscal year, the whole unknown and you won't be surprised, but the unknown is around that whole what will happen with the second wave of the pandemic and what will be the impact on the macro environment and so on. And that's the unknown and that's what's creating a bit of the challenge for us to figure out how our business will evolve and we are growing in 2021.

[Tim Savageaux:]

Okay, thank you.

[Philippe Morin:]

Thank you.

[Operator:]

Right. We'll move on to our next question and it comes from Daniel Chan with TD Securities.

[Daniel Chan:]

Well. Hi. Thanks for taking my questions. Just to get some color on the five new customer wins that you've gotten, the $5 million in bookings, what were those bookings for and how quickly - or for like what period of time and how quickly do you think those will be converted into revenue? And in addition to that, what is the extent of these initial deployments, in other words, what is the cross or the upsell opportunity following on these initial deployments?

[Philippe Morin:]

So, on the service assurance business, Dan, the type of projects as you get a purchase order to cover and install the systems and the revenue profile tends to be over milestones that takes usually over the next 12 months. And so, the revenues will be recognized into the next 12 month depending on the projects. But that just give you kind of at a high level. And so, that's kind of the – and then once you are into the network, then you get expansion either you put more of our virtual probes into the network, you scale the network and then ultimately that with that you continue to get more purchase orders, more maintenance contract that ends up being the supporting software upgrades into the network. And that's why these important – these contracts are important because they are multi-year contract, they are not just one year and that's why we wanted to stress that the momentum we are seeing with these five wins and we tend to be - you start by a specific region, specific deployment, the number of subscriber and then ultimately you grow it from there and that's really important to have that footprint. So you can grow the business. What is the – what was your second question, Dan?

[Daniel Chan:]

Well, I mean, you partially answered it, but to what extent do you think this initial deployment, like what percentage of the networks do you think you are addressing here, you are seeing a certain number of subscribers, certain number of regions. Is that, would you say it's 10% of the existing network or like just trying to size the opportunity beyond this initial deployment?

[Philippe Morin:]

Yes. So I'll give it. One of these five accounts we've actually provided, it was AIRCOM in Ireland and it starts off with our first win and then Italy will double in terms of the size to triple depending on the geography. So we started with the smaller geography and then you double the footprint and ultimately it can be as high as three times. What you've put in as you increase the number of subscribers and so on. And the way translates for us is, again, one of the important factors that we monitor, Dan, is the backlog that we have on our service assurance business and the backlog is still very healthy as we head into our 2021, we are up to have a $62 million of backlog of our business and that includes projects that you got to do the milestone. But it included in their maintenance contracts that you get on everything basis for to maintain the software and so on. And so it's, that's why it's not just about the initial footprint, but then you start adding more and more geography, more and more subscribers and then maintenance and renewals and that's why sometimes it doubles the value of the contract to sometimes triple.

[Daniel Chan:]

Okay, that's helpful. Thanks. And then you also mentioned that some of the leading indicators for the SASS business included 5G core and RAN vendors selections. Is there a particular vendor that you tend to get better attach rates to or are you pretty much vendor agnostic?

[Philippe Morin:]

Well, the value that we bring to the operator, our customers is the fact that we are that independent voice that monitors and provides information from an end-to-end point of view, including the RAN, including the core and often the operator will pick a RAN vendor will pick another in the core, and we have that capability to provide that end-to-end visibility, the monitoring and troubleshooting. And so we tend to be vendor neutral in that context. But we also obviously are always looking at ways of how we can complement some of these core or RAN vendors and how we actually bring value-add solutions by working sometimes more closely with – for some of these core or RAN vendors. But again, we tend to want to be as vendor agnostic as possible because we do provide that additional value.

[Daniel Chan:]

Great. Thank you.

[Operator:]

[Operator Instructions] All right. And with nothing remaining in the queue then, it looks like that will conclude our Q&A session. So I'll turn the floor over back over to Philippe for any additional or closing remarks.

[Philippe Morin:]

All right. So just a few key takeaways before we conclude this call today. So first, EXFO made significant progress on our strategic plan in 2020 despite the pandemic. And we've quickly adapted to a virtualized selling environment and we've consolidated our role as the trusted advisor that generated healthy revenue. Second, we positioned the company for profitable growth by strengthening our focus on growth drivers like fiber, 5G and cloud-native deployment and restructuring efforts while reducing investments in other areas. And finally, we're excited about the wealth of opportunities in 2021. On the T&M side, we expect major fiber products to accelerate the fiber-to-the-home, fiber-to-the-antenna, 5G infrastructure and datacenter interconnect deployments. And on the SASS side, we anticipate order momentum should ramp up as mobile operators begin migrating as I said earlier to cloud-native and 5G stand-alone architectures. So at this point, this concludes our Q4 2020 conference call. On behalf of the entire EXFO team, thank you very much for joining us today.

[Operator:]

Again ladies and gentlemen, that concludes our call for today. We do appreciate you joining us and you may now disconnect your phone lines. Take care.