EXFO Inc.
Q3 2015 Earnings Call Transcript

Published: 24 Jun 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the EXFO Third Quarter Conference Call for Fiscal Year 2015. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, June 23, 2015. I would now like to turn the conference over to Vance Oliver, Director of Investor Relations. Please go ahead.

[Vance Oliver:]

Good afternoon, and welcome to EXFO's third quarter conference call for fiscal 2015. With me on the line today are Germain Lamonde, EXFO's Chairman, President and CEO; and Pierre Plamondon, Vice President of Finance and CFO. A reminder, that this conference call will include certain forward-looking statements and our 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 our company to be materially different from those expressed or implied today. For more information about EXFO, I encourage you to review our Form 20-F, which is on file 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 detailed reconciliation of these non-IFRS results with our IFRS results is available in the Q3, 2015 press release on our website. All dollar amounts in this conference call are expressed in U.S. dollars unless otherwise indicated. Without further delay, I will turn over the call to Germain.

[Germain Lamonde:]

Thank you very much, Vance, and good afternoon everyone. Telecom end markets have remained challenging in the EMEA region so far during this fiscal year. Given the significant devaluation of local currencies like the ruble that is down by about 30% and the euro that is down by about 15%, but also given the macroeconomic conditions that prevails in Europe, in EMEA. As such, I do not believe we are losing market share, likely the opposite, but these two factors combined resulted in 13% sales decrease so far in the EMEA region that is three quarters in fiscal year 2015. The APAC region on its own meanwhile remains fairly healthy as a whole despite the fact that China has been affected by a slowdown in investments. I am satisfied that our third quarter and year-to-date performance in that region have remained relatively flat to modestly positive in Asia Pacific, and it is further short-term and mid-term market opportunities for EXFO in the region, partially driven the market share gains. I am pleased with our progress in the Americas region at the three quarters into the fiscal year 2015, including a 20% sequential sales increase in Q3 '15. Even though Q3 tends to be a stronger quarter in terms of seasonality, I believe that the double-digit sales increase points towards improving market conditions for our products, having customer attraction in Americas for the instruments and system that EXFO brings to the market. We witnessed particular strength in our optical as well as transport and Datacom test offering in the Americas in the third quarter, all together the Americas represented 58% of sales in the third quarter of 2015. It should be noted that our sales were negatively affected by the continued strength of the U.S. dollars in the third quarter 2015 versus other currencies. We estimate that U.S. dollar has had a negative impact on our sales of about $3 million year-on-year so far and about $1 million in the third quarter of 2015. As you know, we generate certain percentage of our sales in euros, and Canadian dollars, but we report and finish the results in U.S. dollars. As told, sales at nine months in fiscal year 2015 would have been almost flat year-on-year excluding the negative impact of currency. Also, regarding our Q3 '15 sales level, I would like to point out that we obtained two large wireless deals totaling nearly $3 million in sales in the third quarter 2014 that we did not benefit from single a large contract in this current quarter, so consequently our sales in the third quarter '15 are not that far from what we delivered a year ago excluding these one-time larger deals. Overall, given these factors, I expect Americas and APAC will deliver positive growth this year, but this will just not be enough to fully offset the negative impact of the EMEA region that many other global telecom players have also been reporting upon. Now turning to specific market areas, let me give you some color on some of our key areas of focus. On a global scale, I am encouraged by the progress we were making in terms of specific product lines. First of all, our physical layer business has also been doing fairly well this fiscal year, driven by continued expansion in both fixed and mobile networks. As noted earlier, we are seeing particular strengths in the Americas for this particular family of products while we are also starting to enjoy business acceleration for our transport and Datacom [indiscernible] assurance offering that are part of our higher margin portable product group. Secondly, I am also quite pleased with the progress we are making in the wireless end market overall, both with our instruments and with our solutions offering. We continue making wins with large operators and in the wireless industry at large. I look forward to reporting more detailed information in October along with our full year financial fiscal year '15 results as we have done in the last few years. Third, EXFO has continued its strategic transformation towards being increasingly more of an end-to-end solution provider, a transformation we started in fact to implement a few years ago. This area has generated an increased funnel and deal size - an increase in both funnel and deal size in the past year or so, but it is now increasingly contributing to the improvement of our financial situation. Telecom operators both, fixed and mobile are increasingly shifting spending for field-intensive troubleshooting to more like a centralized network visibility and predictive analytics to help quality of experience and customer experience assurance, but also to shift from hardware-centric to more virtualized environment where agility and speed and new service delivery also paramount. I am particularly pleased with the adoption and progress in sales and bookings of our end-to-end solutions offering year-on-year. The progress is reflected by the fact that in our customer list as our number one customer over the last two quarters has been with a network operator, where we admit that there are mainly been buying or purchasing our solutions and systems from EXFO. For example, this particular network operator represented 7% of our sales in third quarter fiscal 2015. Judging by the market analyst at Light Reading, and the third in the telecom industry, EXFO is well on its way of achieving this transformation towards being a supplier of solution by winning the Outstanding Test and Measurement Vendor award earlier this month, and according to Light Reading, this award was attributed to EXFO as the test vendor that stands out from its competitors that innovates and helps to set the industry trend and especially with our Xtract, so the key factors that were retained by Light Readings here why EXFO has been selected includes EXFO Xtract analytic solutions as well as our EXFO iOLM, EXFO test function virtualization, EXFO mobile agent and the recently introduced fiber inspection probes with added Wi-Fi connectivity for applications on mobile devices. We also received the Frost & Sullivan award specifically on our Xtract unique analytics capabilities and that bodes well, so in fact this solution has been received in the market both from the analysts community, but as well from our engagement with customers. So we will provide more granular information on our progress in the solution arena when we report our fiscal year 2015 results in this coming October. Now, let me talk about the financial outlook for the remainder of fiscal year 2015. I would like to update our financial outlook for this year. Revenues will likely decrease moderately in fiscal year 2015, due to the factors I mentioned earlier in my prepared comments, U.S. currency headwind and weak telecom spending environment in EMEA. We have been taking some actions to reduce our operating costs with the restructuring charge of $1.2 million spent for the fourth quarter 2015, which would generate annual cost savings of about $2 million and we will continue reviewing our cost structure moving forward. Overall, I expect we will deliver about flattish adjusted EBITDA for 2015 by delivering at the midpoint of our guiding range, surely not something that would make me satisfied. Talking about our Q4 2015 guidance, for the fourth quarter of 2015, we are forecasting sales to stand between $55 million to $60 million for the reporting period starting from June 1st through August 31, 2015. Looking at the bottom-line IFRS results are expected to range between a net loss of $0.02 a share to a net earnings of $0.02 per share for the fourth quarter of 2015 now that IFRS net results include $0.01 per share in after-tax amortization of intangible assets, and stock based compensation cost, as well as $0.02 per share in restructuring charges. At this point, I will turn the call over to Pierre to discuss our financials.

[Pierre Plamondon:]

Thank you, Germain. Good afternoon everybody. Sale of $57.8 million in the third quarter of 2015 decreased 9.6% from $63.9 million in the third quarter of 2014, but increased 13.2% from $51 million in the second quarter of 2015. Bookings decreased 10.9% to $59.2 million in the third quarter of 2015 from $66.5 million in the same period last year, but increased 8.4% from $54.7 million in the second quarter of 2015. Our book-to-bill ratio amounted to 1.03 in the third quarter of 2015 and stood at 1.02 after nine months into fiscal '15. As Germain mentioned, our sales and booking results were negatively affected by U.S. currency headwinds and the tight telecom spending environment in the third quarter 2015. Gross margin reached 61.4% of sale in the third quarter of 2015 compared to 63.3% in the third quarter of 2014 and 61.7% in the second quarter of 2015. Gross margin decreased year-over-year as the lower sales volume caused lower absorption of [lower] [ph] fixed costs and because of less favorable product mix. On a sequential basis, we experienced a slight drop in the gross margin mainly due to product mix. In terms of operating expenses, selling and administrative expenses totaled $20.5 million or 35.5% of sales in the third quarter 2015 compared to $21.7 million or 34% of sale in the same period last year and $20.2 million or 39.6% of sales in the second quarter of 2015. SG&A dollar decreased year-over-year mainly due to a decrease in the average value of the Canadian dollar and euro compared to the U.S. dollar as well as a tight control on the expenses. On a sequential basis, we experienced a slight increase based on high commissions paid out on higher sale volumes. Net R&D expenses reached $10.9 million or 18.9% of sales in the third quarter of 2015 compared to $11.7 million or 18.4% of sales in the same period last year and $10.5 million or 20.6% of sales in the second quarter of 2015. Likewise, the year-over-year decrease in net R&D dollars can be attributed to the decrease in the average value of Canadian dollar and euro versus the U.S. dollars. This was partially offset by a $0.4 million decrease year-over-year in Canadian federal and provincial R&D tax credits and grants received, and on a sequential basis a number of items, including product mix explain the $0.4 million increase in net R&D expenses. IFRS net earnings in the third quarter 2015 totaled $0.6 million or $0.01 per diluted share compared to $1.7 million or $0.03 per diluted share in the same period last year and $0.9 million or $0.02 per diluted share in the second quarter 2015. IFRS net earnings in the third quarter 2015 included $0.4 million in after tax amortization of intangible assets, $0.4 million in stock-based compensation cost and a foreign exchange loss of $0.2 million. It should be noted that cost related to NetHawk acquisition became fully amortized in the third quarter. Adjusted EBITDA amounted to $4.5 million or 7.7% of sales in the third quarter 2015 compared to $7.3 million or 11.5% of sales in the third quarter of 2014 and $1.2 million or 2.3% of sales in the second quarter 2015. Geographically the Americas accounted for 58% of total sales in Q3 '15, Europe, Middle East, Africa represented 23% while Asia-Pacific totaled 19%. In comparison, the sales split was 54%, 28% and 18% among the three geographic regions in the third quarter of 2014. In terms of customer mix, our top customer accounted for 7% of sales in Q3 '15, while our top-three represented 15.7%. Turning to a few key points on the balance sheet, our cash position decreased to 29.9 million at the end of Q3 '15 from $32.9 million in the previous quarter. This $3 million decrease is mainly due to the $1.3 million in cash flow used by operating activities and the $1.8 million for the purchase of captive assets in the third quarter of 2015. Finally, DSOs increased to 79 days in the third quarter of 2015 from 74 days in Q2 '15, while inventory turns increased to 2.8 times from 2.4 times during the same period. Now, I would turn the call over to the operator for the start of the Q & A. Thank you.

[Operator:]

[Operator Instructions] Your first question comes from the line of Kevin Krishnaratne.

[Kevin Krishnaratne:]

Hi. Good evening. Can you hear me?

[Germain Lamonde:]

Absolutely, Kevin.

[Kevin Krishnaratne:]

Hi. Good evening. A question on Americas trends, I was wondering based on some of the commentary that we are hearing from U.S. carriers it does seem like CapEx is going to pick up in calendar 2H and it also looks like AT&T now has a target to virtualize at least a portion of its network by the end of this year and Verizon is also making some progress too on the SDN front, so I am wondering how engaged you are with these carriers and other emerging players. Are you seeing a notable increase in the conversation or engagement or even orders starting to come through? I just want to get a handle on how you think trends going into the fourth quarter and pushing into fiscal 2016 will be in America, because now it seems prior year issues with respect to SDN and CapEx being kind of on a halt maybe starting to unfreeze, if any commentary you could provide there?

[Germain Lamonde:]

Sure. Absolutely. I wanted to be a little careful of course in trying to comment on the specifics of the investment plan that any of the carriers do have. We are of course working very closely with each of the names that you have mentioned AT&T and Verizon. We are involved in both, the NFV kind of initiatives, Domain 2.0 and so on that AT&T and Verizon respectively do have we already have made some strategic wins in some of these accounts regarding their plans towards the evolution of network. So I think this is an area that is extremely important to which degree and at what speed will investments really pick up, you know that is something I want to be a little careful with, because we do not control that so by definition these are the times where I want to be careful, but I believe there is encouraging sign. The fact that it has more than just been a drawing board now this is just starting to reach a point where early deployments are just bound to take place in the NFV arena and I really believe that EXFO is very well positioned for that particular radical transformation is taking place.

[Kevin Krishnaratne:]

Right. Okay. It looks like in the quarter I would say that you definitely had a strong Asia performance, so I am just wondering with respect to the fourth quarter guidance what are your assumptions with respect to that America - it sounds like you are saying it looks like a bit more positive going forward. Is the number more based on the continued strength in Asia or are you actually seeing an acceleration, might we see positive growth in the Americas, I guess, for the fourth quarter, is where I am looking.

[Germain Lamonde:]

I think, basically to take this back I would say I am probably more optimistic about the Americas region as I reported. So far this year things are going fairly well in the Americas region for us. I think that is going to be continuing. I am quite positive as well regarding the APAC region. There has been some slowdown in the investment rate going into China for various reasons, but I fundamentally remain quite optimistic about the region. I believe that is our best growth region this year will be Americas. I expect it to be back to be in a positive region, a positive region for us from a growth point of view. I think that we have of course EMEA and I think basically it is probably we are just one more voice that is saying the same thing throughout the year.

[Kevin Krishnaratne:]

Okay. Maybe another smaller question here, I am wondering if you can provide - I believe that this might have been the first quarter that you had revenue contribution from Aito and ByteSphere. Any commentary on if you can't provide revenue or EBITDA profitability metrics, any commentary on the impact that those may have had in the quarter?

[Germain Lamonde:]

Yes. I am not going to give the specific numbers and everything, but one thing we will do is at the end of the calendar year the same way we have been giving some color on wireless market penetration, we will also be talking a bit more about our penetration in the solution arena, and of course this Aito and ByteSphere are both part of it. One thing I would like to state is that the two awards I have been mentioning in my scripted portion of the talk today are basically related directly or indirectly to this analytics solution we brought to the marketplace. Our engagements with customers is probably what I care more than - and that is large of course, but the engagement we are really getting involved into more and more larger, more transforming solutions that our customers really are in need of right now as they are facing important challenges in delivering qualitative experience and customer experience assurance. I think basically our solution is really, really touching very, very key area for investments. I am very, very positive about that trend and I believe that this will be an area for growth. I am trying to be careful not to overly state it, but it is an area where our engagements are very positive right now.

[Kevin Krishnaratne:]

Great, I agree. I believe that the analytics type solutions and those services that you are offering are definitely key area of growth. One final question that I have been wondering is, I know there has been a lot of news on network security, hacking, and cyber security impacting enterprises and carriers and some of your competitors are playing in this space, so is this an area that you are actively involved in or potentially could move into or like is it kind of like a plus-one from the network analytics and network assurance services that you provide in terms of security and that type of service?

[Germain Lamonde:]

I would say that network security would be in direct usage of our tool. It is an area in which we could move in. I think the fact we have very deep access to massive amount of data and we have extremely fast and real time capability to do correlation between various data points, we could move in that direction, but I do not think on the short-term this is an area that we will be focused into, but that is an option that is basically at the back of our mind of course.

[Kevin Krishnaratne:]

Got you. Okay. Great. Thanks a lot for taking the questions.

[Germain Lamonde:]

My pleasure, Kevin. Have a great good evening.

[Kevin Krishnaratne:]

You too.

[Operator:]

The next question comes from the line of Thanos Moschopoulos.

[Thanos Moschopoulos:]

Hi. Good afternoon. Germain, I was wondering if you could elaborate a little in terms of the timing of your restructuring and why you are doing that now. You mentioned that you are seeing improvements in the Americas and APAC, so is it basically an acknowledgement that EMEA is not likely to pick up any time soon? Is that really the core driver of your restructuring?

[Germain Lamonde:]

No. I would not drive our restructuring to [indiscernible] we are not optimistic about the state of the business. That is really because of the fact that we are also planning to always been looking the last two years. You have seen we have been able to reduce basically our OpEx and we are constantly looking for ways we can get more effective, more efficient and helping basically on the profitability side. One of the core direction that we’ve stated in the past and still remains extremely central to our strategies, we want to deliver revenues improvements, but we have to deliver a substantial like gains in profitability and so forth, so that is really driven by this focus of us to deliver better EBITDA on the longer-term.

[Thanos Moschopoulos:]

Okay. Well, it's good to hear you are focused on that issue. Then on the gross margins, you mentioned they were lighter this quarter due to product mix, so I would have thought that as solutions become a larger portion of the revenue that we would see a little bit of margin expansion. Is that the right way to think about it notwithstanding the issues in the quarter?

[Germain Lamonde:]

Maybe, I leave it to Pierre.

[Pierre Plamondon:]

Yes. I refer mainly to the product mix and as we said the Americas has been very good in the third quarter and especially on the optical and T&D product lines, way we did significant gain and that driver [indiscernible] the margin lower compared to [indiscernible] our system business will deliver higher margin, so mainly a product [mix][ph] because by product line, our margin remain relatively stable quarter-over-quarter.

[Thanos Moschopoulos:]

Okay, but it is safe to assume though as we look out over the next year that we might see a little bit of gross margin expansion just given that it seems that your solutions are becoming a larger portion of your pipeline?

[Germain Lamonde:]

Yes. That is correct. That is really part of our plan. That is really part of our focus and it is clearly part of our strategies to keep expanding what we have done historically very well, but it is really to keep expanding really on the gross margin side.

[Thanos Moschopoulos:]

Okay. I will pass the line. Thank you.

[Germain Lamonde:]

Thank you very much, Thanos. Have a great evening.

[Operator:]

The next question comes from the line of Deepak Kaushal.

[Deepak Kaushal:]

Hi, guys. Thanks for taking my questions. Germain, just to kind of start off, you mentioned earlier in the call that you are seeing a shift from field testing to more of a centralized monitoring and testing, are you able to give us a sense of what percentage of your revenue today is field test-based and how that mix will shift over the next year to two or three years?

[Germain Lamonde:]

Yes. Well, the majority of our business is test equipments whether they are sold for field, they are sold for labs, but the majority is actually field instruments. I do not expect many of these segments to be in a massive decline or but it is more like what is the outlook of potential growth. Some of our segments in instruments have decent outlook for growth some others have got maybe less of a decent growth more of stable type of environment, so that is why I cannot expect that our growth would actually come from instruments. The focus on solution at least is an area where it is true that increasingly we will see the growth coming from that angle, but you can assume that generally speaking the our portable instruments being used by telecom operators will be a bit more in a stable to low growth and that is what we have been saying and you can assume that the instruments' business for us is a majority. Take this as in the range of 75% to 80% of our revenues.

[Deepak Kaushal:]

Sorry. Just to repeat that, 75% to 80% of your revenue is your field test equipment?

[Germain Lamonde:]

Is our instrument at large, yes.

[Deepak Kaushal:]

Okay. Just to be clear, that is your instrument to network equipment operators or even network equipment manufacturers is included in that?

[Germain Lamonde:]

That is both, basically so our instruments combined.

[Deepak Kaushal:]

Okay. Thanks. Then again another larger picture question. When you look at your cap OpEx from a budget perspective to achieve the level of pace of innovation and growth that you are looking to achieve is this a $150 million-a-year spend or a $100 million-a-year spend? You have kind of been in the, I guess, $130 million range for the past three years. What do you think is a level of spend on the OpEx side sufficient to drive sales and R&D?

[Pierre Plamondon:]

This quarter it is about $30 million a quarter the OpEx that we have right now, so multiplying by four this is 120, so this is where we stand right now. As Germain said, we are taking some actions to reduce our expenses by $2 million with the restructuring charges that we are going to take in Q4 and we do not expect significant increase expect for the inflation, let's say, to those levels.

[Deepak Kaushal:]

Okay. Then a last question if I may. I know that you guys have been achieving some early success with Aito and ByteSphere. Just in general, Germain, can you comment on what you are seeing in terms of the M&A environment, are you seeing more opportunities or fewer opportunities, are you seeing valuation expectations rise or reasonable in this environment?

[Germain Lamonde:]

It is a very good question and it is not always an easy one to answer. I would say that the environment first of all we were quite pleased with the last two acquisition we have done both, ByteSphere and Aito. Even though they were as we said fairly inexpensive acquisitions in a way from the strategic transformation, they have been extremely helpful and we are very, very pleased with these two acquisitions and I am bit nervous about our ability to make good returns to our shareholders. I am a firm believer in the smaller acquisitions that provide goods strategic transformation than spinning basically hundreds and millions of dollars in acquisition and had a hard time some time to prove the return on it, so I am happy with these, the environment for us as far as we are concerned we remain always acquisitive, we are looking for opportunities, the deals flow or the potential deals remains interesting like for any possible acquisition there is always prices to which we are interest and prices to which we will walk away. I would say generally speaking, environment remains - I think it is a goods acquirer market. Despite that the end markets are generally speaking a bit challenging makes it to be more a better acquirer market right now and am I think this is interesting for us.

[Deepak Kaushal:]

Okay. Thank you very much for taking my questions. I will pass the line and look forward to Q4. Thanks again.

[Germain Lamonde:]

Deepak, thank you very much. Have a great evening.

[Operator:]

Your next question comes from the line of Robert Young

[Robert Young:]

Hi. Good evening.

[Germain Lamonde:]

Good evening, Robert.

[Robert Young:]

I think you said that you did not benefit from large deals this quarter. If I remember back last quarter, you said there were a couple of large wireless deals that were in the funnel that you were hoping to close, so did I miss something there or is there something that has been delayed or cancelled maybe just an update there?

[Germain Lamonde:]

I was just referring to the fact that last year we reported somewhere like $3 million and then we recognized in the last quarter in Q3 2014, and all we said is that we did not recognize such a large deal in this particular quarter, but generally speaking that explains a little bit the difference. We also had a large deal last year. Generally speaking, I will say that our funnel for large deal remains very strong. We see an increasing number of deals in our funnel large deals, but also increasing size of these deals, so I think this is encouraging. The fact that we are becoming increasingly a bit more like larger deal-centric rather than just like instruments makes it that we are going to have some these fluctuations and that is what we wanted to point out in the prepared remarks for this call.

[Robert Young:]

Okay. Were there some large wireless deals in the funnel last quarter that did not close and that also did not close this quarter, I guess, that is the other part of the question.

[Germain Lamonde:]

Yes. In fact the answer is yes and some of these deals sometime it is hard to predict the dates, but I am not going to give too much details on deals that have been potentially delayed, but it does not mean that they are gone.

[Robert Young:]

Okay. I guess, is not any like structural factor like virtualization or large architectural decisions or something like that that is delaying some of these deals or is it just weakness in Europe?

[Germain Lamonde:]

No. it is just about timing. Sometimes you can plan large deals, but the end customers at the end will decide, right, but no there is nothing particular, there is nothing fundamental or structural that we need to refer to. No.

[Robert Young:]

Okay. Then gross margins were a little bit below that target of 63% to 65% for the full year, so I guess that is no longer a target for the year. I mean, what sort of gross margin profile do you think we should be modeling for the current year and maybe for the next year?

[Pierre Plamondon:]

Well, for this year probably would be around 62% for the whole year and with more software based products and solutions probably the range for next year will be 62% to 64%, so probably to the high end of that looking forward.

[Robert Young:]

Okay. That slightly lower range, is that driven by just mix or is it pricing pressure or is there any kind of driver behind that?

[Pierre Plamondon:]

Yes. This is mainly mix.

[Robert Young:]

Okay.

[Pierre Plamondon:]

Because we do expect currently to grow our instrument business as well, okay, and the solution business will pick up as well.

[Robert Young:]

Okay. Then last question for me is just around, I know the bookings in the quarter of $59 million, but the guidance $55 million to $60 million, is that just because there is a couple of large deals in there are not closing next quarter or is there something that closed that was in the bookings closed in the current quarter, like why is the bookings at the high end of that guidance?

[Pierre Plamondon:]

Well, it is a combination of factors, including the rev rec, the backlog we have at hand and so on and so forth. The book-to-bill ratio so far this year stands at $1.03, which is not a bad number to be at -- last quarter 1.02 so far this year, there is a bit of maintenance agreements and there is a number of factors, but so it is hard to correlate directly like last quarter booking to the next quarter's guidance, but I think that the near $16 million was in booking in the last quarter supports well generally speaking the guiding range that we have provided.

[Robert Young:]

Okay. I guess, I am just wondering if there is a bit of conservatism here, because given that level of bookings it seems like it might be an easy bar, so just help me understand that.

[Germain Lamonde:]

First of all, we are trying to be a maintaining a fair amount of prudence in our guidance. I think this is something that is important and we have had reflections on that, so that is one point. There is always within system solutions that we saw there is always some of the recurring revenue sometime that is not necessarily immediate, so it is a function of factors of that nature.

[Robert Young:]

Okay. Thanks, guys. I will pass the line.

[Germain Lamonde:]

Thank you very much, Robert. Great evening.

[Operator:]

At this time, there are no audio questions. I would like to turn the call back over to CEO for any final remark.

[Germain Lamonde:]

Well, thank you very much operator. Just a few key takeaways before we conclude this call today. First of all, I am quite pleased with our 20% sequential sales growth in the Americas region for the third quarter, which points to improving market conditions and attraction here in this region. Secondly, sales should almost flat year-on-year up to nine months to 2015, excluding the negative impact of the U.S. currency. Thirdly, sales will likely potentially moderately decrease in 2015, while EBITDA would be about flattish if we reach basically the midpoint of our guidance, which is of course the result that will not make me really satisfy, but nonetheless this concludes for our Q3, 2015 our conference call and on behalf of the whole and the entire EXFO team, thank you very much for joining us today.

[Operator:]

Thank you for your participation. That does conclude today's conference call. You may now disconnect.