EXFO Inc.
Q2 2017 Earnings Call Transcript

Published: 30 Mar 2017

[Operator:]

Good day! And welcome to EXFO's Second Quarter Conference Call for Fiscal 2017. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Vance Oliver, EXFO's Director of Investor Relations. Please go ahead, sir.

[Vance Oliver:]

Good afternoon and welcome to EXFO's second quarter conference call for Fiscal 2017. With me on the line today are Germain Lamonde, EXFO’s Founder, Chairman and CEO; Philippe Morin, Chief Operating Officer; and Pierre Plamondon, Vice President of Finance and CFO. 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 which 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 review our amended 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 our IFRS results are available in the Q2 2017 press release on our website. All dollar amounts in this conference call are expressed in U.S. dollars, unless otherwise indicated. So without further delay, I will turn the call over to Germain.

[Germain Lamonde:]

Alright, many thanks, Vance. Good afternoon, everyone and welcome to this quarterly announcement. In fact, this is my 67th, actually. So, this one is of course quite special to me as per the announcement I made earlier today. I have decided that now is the right time for me to point at it as the EXFO's new CEO, affective April 1st, 2017. So, this is after nearly a 33 years since I founded a company in my apartment and starting with the trades of emotion for sure, but I'm really proud about the organization and what is EXFO today in terms of what we've done and where we're at. So, clearly, now the number one supplier of optical test equipment's in the global market place with nearly 40% in market share and of course constant flow innovation and there is competition in the market place. Since and we're the world leader in high speed transport testing and we there is some add in the 200-gig and 200-gig spaces of later during the OFC Conference. We've seen another two in world for all portable test equipment's for the telecom industry with a lot of recent developments and in the recent expansion as well in the optical RF, with a position of Absolute Analysis and of course we're the technology leader in the sales assurance analytics that we've also strengthened with. There's an acquisition of Ontology Systems deal. So, with more than a 1600 place in 25 countries, and porting all the leading operators and this sort of transformation, exports bills over the years, and incredible reputation and brand equity for innovation and best-in-class services. So, without false modesty and very proud of EXFO's record foreign and also very thankful for the entire team for their full-year for their thorough support over the years. So, that's been said, and making the decision to me, that should be tested, because I'm really convinced that the timing is right, and I'm also convinced that Philippe is the right guy to take over as the next -- EXFO to the next level, given a strong vision, strong leadership, very solid experience. But of course, as I said before, we've known each other for years and we've worked together now more closely for the last 13 months, since he's been appointed a COO. And during that period, Philippe and I have clearly demonstrated he have the qualities and skill sets to this EXFO the range this exciting time of massiveness for transformation with the advent and has been as the only 5G and IoT. Now, both Philippe and I are into this partnership for the long-term. I've extended to him an option to purchase a significant number of my own shares at a reduced price in a private transaction. So, this transactions once completed, we'll provide Philippe with meaningful skin in the game, which will fully align his interest with me, with all those responding for shareholders and with EXFO's best long-term interest. So, congratulations Philippe that so that's these soon and April the 1st is now basically in the --. That's really, it's a real thing. So, it will be a real pleasure for me to keep working very closely with yourself, with the rest of the team of course and the entire staff, and office and customers to keep helping and supporting you in taking EXFO to the next level. So, on the personal notes as a -- and as majority shareholder, I'm not going anywhere basically and will remain quite active as EXFO's to be a Chairman of the Board to support Philippe and the entire organization and then for us to continue getting market share and increase our relevance with customers. So, as such I'll remain involved in finding the company strategy, customer outreach, be also retain responsibility for proper governance and acquisition strategy. The whole idea is here to combine our respective strengths and capabilities, both Philippe and I and it's going to be a really fun in doing it as well. So, we can maximize EXFO's impact in the market place and thus push basically the whole organization to new height. The end result will be a added value for shareholders which we are on on those. So, at this stage, Philippe, anything you like to add to this?

[Philippe Morin:]

Yes. Now, thank you, Germain. And deeply honored and grateful to you and the Board of Directors for their trust. As you said, it's an exciting time to be taking over today, operations of EXFO and giving the tremendous changes taking place in our industry. And I also want to thank personally you Germain for giving me this opportunity. During the past 17 months, as EXFO's COO, I had a chance to work with you much more closely and I've absolutely been impressed with your leadership, your vision, and accomplishment with the company. And I am absolutely looking for it to continue working with you as we take on our respective new roles to bring EXFO to new height. Now, over the past few months, I've also had a chance to get to know EXFO as a company much better. And it is a great company and it's with talented employees, with deep customer relationship and strong innovation engine, particularly around optical test automation and analytics. In which, in my mind are absolutely critical for EXFO's continued success in this dynamic industry. So, as I assume the role of CEO, we will continue to execute on our strategy with our solutions portfolio, continue to go through our market, go to market transformation that we started and while our industry is undergoing major transformation, I do believe it's providing great challenges but an amazing opportunity for companies like EXFO to increase our presence and increase our influence with our customers. And as a matter of fact, with every single customer announcement around investment, around data center build, metro network upgrades to 100-gig. Fiber deployment closer to end user or virtualization of network functions. Every time we hear about these announcements, it gives an amazing opportunity for EXFO to play a significant role in their customers or in our customer's network transformation. In conclusion, as Germain mentioned, I plan to personally invest in EXFO, which in mind is a strong reflection of my confidence in the company, in our portfolio and our employees. So, at this point, I'll like to give it back to you, Germain. And thank you, again.

[Germain Lamonde:]

Many thanks, Philippe. And frankly, it's me sneaking a transition to me a lot easier the fact that I know you very well, I trust you a lot and I am very confident with what we see in the working together in the last several months. That is really going to work easily. I'm kind of transferring to you, the old estimate be, basically of my kids. So, it's very important for me. So, turning to our second quarter results of 2017, I'm also pleased that we did a very double-digit growth year on year in terms of revenue for the third consecutive quarter. Sort of increased 12% year-on-year to $60 million in the second quarter June to mainly to strong make a demand for the optical and high speed test solution that we bring to the market place. Both in the fields and labs application. That's really, I'm quite pleased at the fact that our LTB-8 rackmount test platform that we launched about a year ago has been so well improved and so we'll receive with the market place and already been approved now by more than a 1000 network equipment manufactures and they'll be in a short amount of time. So, I think it's got a lot of potential for growth. Second quarter bookings meanwhile decreased 6.2% year-on-year. We were actually stopped there then I would have really expected. And that's been mainly caused by delays in the New Year Calendar, but it had move on and with some deals being pushed out. We're getting more and more into deal type business, that the timing of deal sometime is always a question. So, there have remark in our Fiscal 2017, sales so far are up by 11.9% year-on-year and bookings are now by 3%, leading to book-to-bill ratio of one. Gross margin meanwhile stands at 62.4 which is a little lower than anticipate due to the product mix that was not exactly as started as favorable as we would have expected. Talking of our product groups, our fiscal year product line is performing very well and better than our end markets basically, we're getting share. Fiscal year sales were are up so far in 40.3% year-on-year, we have remark at fiscal 2017 to account for about 2/3rds of total revenues. Sales of a higher particularly our product line are up 3.7% year-on-year at the six months, which represents about a 3rd of our revenue. We are expecting improvement in the second half of Fiscal 2017 of that particular product area. And as such, we remain in investment mode as we move through the risen acquisition of Ontology Systems based in UK. So, that leads me now to talk a bit more about Ontology. That we announced this acquisition this great technology leader in automated network topology discovering, earlier this month while we were at the Mobile World Congress. So, Ontology is using graph-data and semantic research or search to build real-time view of network inventory and service obtained in that. Very critical aspect and the combination of these great Ontology technologies with EXFO's big data analytics tool really is enabling us unique capabilities in real times as assurance across hybrid physical and virtual networks which are so critical as have accomplished worldwide, our planning this NEV and SEN but also those fine IoT deployments. So, Ontology's offering is part of our business product group and we really believe it adding synergies and values to it. Shortly after worldwide Congress, we also released our own new products and solutions at the Optical Fiber Conference in Los Angeles, and that includes a 200-gig and a 400-gig per second transport solutions. A new ozone that's designed around the high speed of 200-gig as well as the new test form the STB-4 and all those product areas are very focused on how increasing our relevancy in the market place around Optical ISP networking applications both for the field and labs. So, these announcements are strengthening our first capabilities in optical and high speed networking labs and fields, addressing the goal in market needs for them to communication service providers, the web to data players as all of those are coping with major transformation business looking for structure. Talking of how we can best leverage all of these new product and this various trends the very strong for the portfolio, we really do have several key initiatives on the Philipps leadership that has been implemented over the past several months on the sales and go to market side, just a couple of examples here. We've really been strengthening our focus on our 20 accounts, with the key account manager now that's taken into for eight of these accounts. We have standardized our general part of program to the training, sales documentation, compensation and so on and so for around now our uniform across our geographies and entered with expense of EXFO's strong brand name from the test instrument is assurance in analytic space. So, clearly our goal is to improve sales efficiency. We started increasing the SG&A expense. I have confidence in these transformation as we are starting to see now early results from out of 20 accounts with our top customer reaching now at least 10% of total sales, also our revenues for each of the last two quarters. I expect we will continue to see improvements at fiscal year on hold. Now, let's talk about our guidance. Given our lower backlog entering the fourth quarter, we are forecasting sales between $58 million and $62 million in the fourth, in the third quarter of 2017, which is extending from March the 1st to way to 31st of 2017. Adjustable revenue, IFRS net results are expected to range between a loss of $0.02 per share to an earnings of $0.02 per share for the quarter. IFRS net earnings include $0.02 per share in after tax amortization of tangible assets and stock-based compensation cost as well as an anticipated foreign exchange gain of $0.01 per share. We expect a stronger Q4 in revenues on the base of a good start to bookings in third quarter and sort of forecast that we have in terms of funnel and deals for the remaining of the fiscal year. We are still the leaders of $26 million in adjusted EBITDA metric for 2017 is still at site, that's likely more tight now than we would have hoped for and we will continue to manage cost frankly to help achieve exponential metric to which we are very committed. At this point, I like to turn the call over to Pierre to discuss our financial.

[Pierre Plamondon:]

Thank you, Germain. An increase 12% and $60 million in the second quarter 2017 from 58 million -- $53.6 million in the second quarter 2016 was decreased 2.8% from $61.8 million in the first quarter of 2017. Looking between 6.2% to $55.9 million in the second quarter 2017, from $59.7 million in the same period last year and from $55.2% from $55.9 million in the first quarter 2017. As previously mentioned, our double-digit year-over-year spend increase and mainly due to strong back up demand for optical and 100-gig test solution, especially in the America, while our booking decreased and has returned to two last monitoring and it’s a week older that we receive it Q2 '17 -- Q2 '16 but not in the most recent quarter as when as some deals pushed out. Gross margin a month turned to 61.7% of saving in the second quarter 2017, compared to 64.7% in the second quarter 2016 and 63.1% in the first quarter of 2017. On the year-over-year and sequential basis, our gross margin was effected by on February both product mix with higher proportion of sale from lower margin physical solution. Again, we do not make it from higher margin months during and then it’s a deal in Q2 2017 as we did in comparable period. Our gross margin stands at 62.4% after six months into fiscal 2017. In terms of operating expenses, daily and amortization expenses totaled $21.2 million or 35.4% of sales in the second quarter 2017, compared to $19.6 million or 36.5% of sales in the same period last year and $21.6 million or 35% of sales in the first quarter 2017. Increase is at the new dollars on the year-over-year can be attributed to estimate headcounts to support the company in growth, that’s in from absolute and manages acquisition, inflation and a real center increase as well as one time cost related to two recent acquisitions mainly for America. On a sequential basis, edge and expenses were slightly down due to lower commission data on the lower sale level despite the full impact of absolute and Analysis acquisition. This reflects take on for measure and efficiency improvement. Next, R&D expenses reached $81.2 million or 18.8% of sales in the second quarter 2017 compared to $10.2 million or 19% of sales in the same period last year and $81.3 million or 18.3% of sale in the first quarter of 2017. Likewise, net R&D dollars increased year-over-year due to as in headcount to support company growth, personnel from Absolute Analysis, inflation and survey increases as well as a shift in the mids and pioneer of R&D development project. On a sequential basis later on the expenses remained flat despite the full impact of Absolute Analysis acquisition. IFRS net earnings in the first quarter 2017 totaled $1 million or $0.02 per diluted share, compared to $4 million or $0.07 per diluted share in the same period last year and $3.3 million or $0.06 per diluted share in the first quarter 2017. Yes, for us same quarter 2017, included 0.6 million in asset back compensation of intangible assets, 0.4 million in stock based compensation cost and a fine change last of 0.3 million. It should be noted that IFRS net earnings have benefitted from FX gains of 1.1 in the second part of 2016. Adjusted EBITDA amounted to $4.9 million, 8.1% in the sale in the second quarter of 2017, compared to $5.3 million or 9.9% of sales in the second quarters 2016 and $6.2 million or 10.2% of sales in the first quarter of 2017. As we half way mark in of 2017, adjusted EBITDA in a total 81.2 million or 9 points percent of sales. Logically, the Americas encountered for 50% of totals in Q2 '17, Europe and East Africa represented 29% while Asia-Pacific totaled 21%. In comparison the same space was 29%, 29%, and 22% among the three geographic regions in the second quarter of 2016. At this point, I will turn the call over to the operator for the start of the Q&A.

[Operator:]

[Operator Instructions] And we will now take our first question from Thanos Moschopoulos with BMO Capital Markets.

[Thanos Moschopoulos:]

Hi, good afternoon, and congratulations to both Germain and Philippe on your new roles.

[Germain Lamonde:]

Thank you.

[Thanos Moschopoulos:]

Maybe starting off on the bookings and the guidance, I guess you kind of alluded to it in your prepared remarks it was obviously softer than expected, can you clarify to me, would you just say that it is attributable to as you highlighted maybe the weaker start to the year, seasonality, tough year-over-year comp, or has there been any change that you are seeing as far as the longer term demand fundamentals?

[Germain Lamonde:]

Yes, clearly, first the second quarter is always a tricky one. The budget for the operators are typically very [based], and the speed at which they go back into investment mode is a little bit typically unpredictable. We have a strong funnel [Indiscernible] have been postponed. The larger deals were also getting postponed and it is just making ourself a bit – having a stronger forecast for the third quarter. With that being said, as I mentioned in the call the bookings so far are going in the right direction, but the timing of the bookings given the fact that we had a smaller, or less funnel in our backlog entering the quarter is somewhat impacting the guidance. We can provide for the next quarter in the same fashion. Does that answer your question?

[Thanos Moschopoulos:]

It does. And let me go to the gross margins, you highlighted that there was unfavorable mix, should we still be looking for the margins to kind of bounce back to your traditional range in the coming quarter or any dynamic that you highlight?

[Germain Lamonde:]

I believe as we highlighted the physical layer test was basically taking a much bigger chunk of our business in the last quarter. It normally would have been in the portable testing side and as you know the portable product area carry substantially higher margin that really impacted our margin. So moving forward we are expecting for the second half of the fiscal year to see a strong rebound within our portable product group. So I really expect the second half to be stronger.

[Thanos Moschopoulos:]

Okay. And then you highlighted the traction you're getting with the LTB-8 with the NEMs and so if we look out maybe over the next year or two, ultimately how large do you think your NEM business could become as part of the overall business?

[Philippe Morin:]

Yes. It is Philippe here. So the LTB-8 is actually getting really good traction. We believe we had over – now over 12 NEMs who have signed up, and kind of the first POs we have received or what I would call more of a standardization getting the products and what we are looking at as far as we get into the remainder of the year, some stronger growth as the products get standardized and therefore get better usage. And as you are maybe familiar with the LTB-8 it is a plug-in – kind of plug product, where you add plus and optical products and protocol products into it as the NEMs start including it. We do foresee some good growth coming out of that portfolio.

[Thanos Moschopoulos:]

And so overall I think my understanding is your NEMs business, not that large today in the overall scheme of things, but as we look out over the next year or two could that become sort of maybe north of 10% of the business?

[Germain Lamonde:]

We are not necessarily going to give the guidance by product line, but it is really an area that we believe that has got ways for us to have it a significant area. Now it is going to have a bigger impact than what it is today and I am very glad with the execution we have got so far. We have launched a whole series of additional projects in the [Conference] in California. I think our position right now in that space is a game of a few vendors. Basically it is us, it is the [Indiscernible], it maybe a few additional names within the space we play in. And frankly from an operating point of view, the strategy we have implemented is really second to none. So I think we have got the capacity to take a bigger share in a market. Today our presence in that market is substantially less than what [Indiscernible], but I do believe that we can actually gain share in that segment and the number that you suggested, could that be at some stage 10%. It would be technically 10% over time. It is not there yet. Clearly we can get there.

[Thanos Moschopoulos:]

Great. Thanks. I will pass the line.

[Germain Lamonde:]

All right. Thank you very much Thanos.

[Operator:]

And we will now take our next question from Robert Young with Canaccord Genuity.

[Robert Young:]

Hi, good evening and I will add my congratulations [Indiscernible] – congratulations to both of you and definitely a change that was well telegraphed. So great on that as well.

[Germain Lamonde:]

Much appreciated.

[Philippe Morin:]

Thank you Robert.

[Robert Young:]

First question, I'm not sure if I heard this correctly in the dialogue, I think you said you talked about the EBITDA target for 2017, you reiterate it in the press release, did you reiterate it earlier in the call?

[Germain Lamonde:]

Yes. What we said in the call is that we are still committed. In fact, we are still targeting the $26 million with the fact that the second quarter was slower than we expected. It is making that a bit more tight or challenging. We still believe we can achieve that. And we are really counting for this on the stronger second half. It is typical for us to have stronger revenues in the second half. So that is would be expected. We have in the same vein the recent acquisition of Ontology that comes into play. That is really adding some cost to our model. Basically as we said, there is – we said that we expect about $4 million a year in revenue with that business. Again, it is not necessarily always flat, so quarter by quarter. But it doesn't guarantee some million in the quarter. But basically that being said we think it is actually doable despite the fact of the acquisition. But we have to be a little bit on the stronger second half, which we are expecting, and we have to either bring on products with a higher mix in terms of gross margins, which we are also expecting.

[Robert Young:]

And since I am asking about targets, was there a target range for gross margin that you are looking at for 2017, could you afresh my memory on that guidance?

[Germain Lamonde:]

Again it is 63 to 65. So, we are still in line to be within that guidance.

[Robert Young:]

Okay, and on the bookings, Q2 I usually kind of expect to be strong on book-to-bill because of the maintenance contract renewals. So was there any change in the volume of contract renewals over there, or I guess it is just large protocol deals that are pushed out?

[Philippe Morin:]

Now Robert, there is no really any – the maintenance contract was still pretty much as per plan. Really as Germain highlighted, it is predominantly on the protocol business. When we got to a point where it got – from a point of view of the execution it came fairly laden back-ended into the quarter and some of these deals didn't come through in terms of bookings, and as Germain pointed out have come in beginning of our Q3. So it is really kind of coming down to the timing in a more challenging quarter as you know.

[Robert Young:]

Okay, and so then the March bookings is it fair to say that is stronger like a positive book-to-bill for the month?

[Germain Lamonde:]

Yes. The answer is clearly yes. Although we are careful we are not really disclosing numbers like that. The numbers from revenue are not finalized yet for March. The month will actually be finishing soon, but the reality is as we have a good growth for the first month of the quarter versus the same month last year, things are a reflection of deals getting delayed that have actually been booked at the beginning of this quarter. So I believe it is mostly – we don't see anything major in the marketplace beyond the fact that these deals have been pushed out and delayed, and the budget being delayed. But in our books the operators are going to be investing money in substantial amounts in 2017 in radical transformations. We are very well positioned to play out in these transformations and reap basically our fair share of the investment plans. I think in a lot of these aspects the delays are just like delays. I don't think there is anything fundamental to it.

[Robert Young:]

Okay, great. Two more questions. For Philippe, April 1st is coming soon you have had a while to look at the business, is there anything that we should expect in the way of a change, or will there be more execution on some of the changes you have been making up until now?

[Philippe Morin:]

Robert, clearly a focus on continuing to do what we have started doing on the go to market transformation in particular. I mean, as Germain highlighted, we are putting the forecast making sure we have got the proper sales coverage between our top 20 accounts and the regional accounts, putting a focus on supporting our partners. So that is going to continue elevating our relevancy in our brand that is going to continue. And I am pretty excited with the two acquisitions we made in the last three months. With Absolute Analysis and Ontology which gives us even more relevancy into that protocol market. So I do think it is a continuality of our execution on both the portfolio and the go to market transformation.

[Germain Lamonde:]

Clearly there is a lot of good work that you and your team have done really on the front-end. I'm very excited about that as well frankly.

[Robert Young:]

Okay, great. And last question from me, most of the positive remarks on the costs so far have been around the protocol business from the second half, and I was wondering for the physical business, last quarter you were talking about seeing some leading-edge customers deploying better terrestrial networks back on their networks ahead of 5G and IoT infrastructure needs. And I was wondering if you could talk about that. Are you seeing a growing level of demand in the physical or the optical side of the business just to focus on that piece, and then I will pass the line?

[Germain Lamonde:]

Very good question, Robert as always. Well, frankly I think our results speaks volumes. The first two quarters in terms of growth in our physical layer product line is actually being quite strong. And frankly I think this is a pure reflection of the upgrade cycle that is taking place around like getting ready for 5G, IoT, operators, whether this is on – especially on the [wilder] side are investing in the C-RAN transformation. And all of this is really – I think our position in that segment is very unique. Same thing, we kept bringing a series of innovation, and it is just not about just the field only, but also into the labs. So all these factors basically are keeping us quite optimistic about the future for our physical-layer product group. And as we said the key point will be about executing in the second half of this fiscal year, so that we make sure to bring the portable product group as well to the right level. And clearly I think that the whole team will be there in driving that business forward strongly. And I am quite confident about that.

[Philippe Morin:]

Robert, I had another comment. And as I mentioned to you last time we saw each other, every time there is in announcement by a service provider around deeper fiber deployment that is good news for EXFO, and I hope you have seen in Canada in particular, I mean, Bell Canada announcing that they are going to now deploy more fiber, deploy it in Montréal. I was trying to hear about data centers being built around Ontario and Quebec, all of that is good news for us for the physical – our physical test solutions as well as our protocol. So I do think that as long as you see those kinds of investment announcement, I think that bodes well for us.

[Robert Young:]

Okay, great. Thanks for the color. I will pass the line.

[Operator:]

[Operator Instructions] We will now take our next question from Justin Keywood with GMP Securities.

[Justin Keywood:]

Hi, thanks for taking my questions and congratulations on both of the new roles.

[Germain Lamonde:]

Thank you, Justin.

[Philippe Morin:]

Thanks Justin.

[Justin Keywood:]

I'm just – just on the strong cash from ops generation in the quarter of $14 million, is this related to seasonality in catch-up payments or is there something else there or how should we look at that?

[Germain Lamonde:]

[Indiscernible] because in Q1, end of Q1 and Q2, we do renew most of the maintenance contract and we collect them most of the time before the end of the quarter. So if you look to last year same time, we had good cash generation. So this is mainly one of the aspect. The other aspect, we put a lot of emphasis to reduce our accounts payable and push to collect our customer as soon as possible, and I think that my team did a good job this quarter to achieve those goals.

[Justin Keywood:]

Okay. And then looking at the annual cash generation, should we assume it may not be as strong as 2016 or how should we look at that?

[Germain Lamonde:]

We assume that we will be able to perform pretty well to deliver positive cash from operations. Okay. And this is why we were able to pay cash, both for the Absolute Analysis and Ontology cash. So I am not afraid that we will be able to be -- put this at the end of the year.

[Justin Keywood:]

And then on the OpEx it held pretty consistent to Q1 and you mentioned just having more efficiencies without expanding it. Should this be level that’s pretty reasonable going forward?

[Germain Lamonde:]

I would say yes, okay, except that we need to account for alternative. Alternative will bring about, around 1.5 million if OpEx recorded, so you need to capture that in your module for the next two quarter in the OpEx line and that has been reflected fully in this quarter. But incrementally for Q3, Q4 you should account for alternative bringing more OpEx for the next two quarters.

[Justin Keywood:]

Sorry, just to clarify that was 1.5 million per quarter or over the next two?

[Germain Lamonde:]

Per Quarter.

[Justin Keywood:]

Okay. And just question for Philip. You mentioned the positive changes in the sales structure, I’m just wondering how far long is this process, do you have a timeline where you see an optimal structure in place?

[Philippe Morin:]

Yes. This is not a six months transformation as you know, we’re going through, putting more focus on a top 20 and increasing relevancy up to two to three year activity. But we’re happy to see the results already, the positive results, I think there is some really good traction we’re getting and I do expect that we’re going through this transformation that we’re going to get more efficiency out of our SG&A envelope in the coming quarters.

[Justin Keywood:]

And do you have kind of a medium term growth goal that you’re looking to achieve?

[Germain Lamonde:]

I think we do. Internally, I’m not sure, I receive with double side, but we do have some important what I would call KPI that we’re monitoring in terms of our – all of the key activities we’re doing around our go-to-market transformation.

[Justin Keywood:]

Okay, alright, thank you very much.

[Operator:]

And there are no further questions in the queue at this time. Ladies and gentlemen that concludes today’s question and answer session. I’d now like to turn the call back over to Lamonde for any closing remarks.

[Germain Lamonde:]

Alright. Well, thanks very much for joining in fact on this call today and again in terms of key takeaways to conclude this call. First of all, I’m very confident in the term that Philip and I will be building, in fact building with the last several months. There is actually the team and the objective, me as Executive Chairman and Philip as CEO is to really drive export to the next level and create more value for the shareholders. I’m very happy with Philip what he has done so far and would be working very closely, in fact closely in the future and the morale for me like what you’re seeing with companies like CGIs and many others where the founding CEOs brings in basically eventually a succession with the intent so that we can actually maximize on that growth and value creation. So that going away and the intent is to push the envelope for growth. The second key thing I like to communicate is of course we’re quite pleased with the second quarter results in terms of renews, so this is our third quarter in a row that bring double digit revenue growth. I think this is quite good, quite happy with this, where we stand so far up to two quarters is pretty good. I’m quite happy with that and working with it and keeping on that trend. The third aspect I’d like to raise is the fact as well, I’m very confident with these, go-to-market transformation, we’ve been implementing, the very much and the very first innings, the true potential I believe in getting more efficiency within our organization so the idea as we said already before, the Analysts Day, there are being multiple instances where we’ve been discussing about this – actually increase revenues without much increasing expenses and that’s the whole idea of – to improve overtime what we want to achieve which we said is overtime to reach that 15% of EBITDA. And lastly, for me that really concludes this second quarter conference call. It’s my 67, I’ll still be attending the next one, Philip will actually drive them so that’s great. I’ll be attending, but really on behalf of the whole EXFO organization I really want to thank you all today and again I’m very, very proud of all the work, all the accomplishment, all the achievements we’ve done over the years. And we clearly have a steady team to help drive the execution. So on this, thanks very much for your time today.

[Operator:]

And ladies and gentlemen that concludes today’s conference call, we thank you for your participation.