earnings conference call - lumenpulseappv1.lumenpulse.com/_files/iquarterly/22_84_fr_q1... ·...
TRANSCRIPT
First Quarter 2017 Results Earnings Conference Call
September 8, 2016
Forward-Looking Information
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This document contains “forward-looking information” within the meaning of applicable Canadian securities legislation. Such forward-looking information includes, but is not limited to, information with respect to our objectives and the strategies to achieve these objectives, as well as information with respect to our beliefs, plans, expectations, anticipations, estimates and intentions. This forward-looking information is identified by the use of terms and phrases such as “may”, “would”, “should”, “could”, “expect”, “intend”, “estimate”, “outlook”, “target”, “goal”, “guidance”, “anticipate”, “plan”, “foresee”, “believe”, or “continue”, the negative of these terms and similar terminology, including references to assumptions, although not all forward-looking information contains these terms and phrases. Statements with respect to potential benefits and synergies resulting from completed transactions and to future accretion to earnings per share constitute forward-looking information. Forward-looking information includes statements relating to annual targets, outlook, guidance and updates. See sections 1.4 and 1.5 “Assessment of the Company’s Performance against Long-Term Guidance” and “Fiscal 2017 Financial Outlook” in the Company's Management's Discussion & Analysis filed for the First Quarter Fiscal 2017. Forward-looking information is provided for the purposes of assisting the reader in understanding the Company’s financial performance, financial position, cash flows, its business, operations, prospects and risks at a point in time, and to present information about Management’s current expectations and plans relating to the future and therefore the reader is cautioned that such information may not be appropriate for other purposes. Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, the risk factors discussed under section 6 “Risk Factors” in the Company's Management's Discussion & Analysis filed for the First Quarter Fiscal 2017. Although the forward-looking information contained herein is based upon what we believe are reasonable assumptions, investors are cautioned against placing undue reliance on this information since actual results may vary from the forward-looking information. Certain assumptions made in preparing the forward-looking information and our objectives include: our ability to generate sufficient revenue while controlling our costs and expenses; our ability to manage our growth effectively; the absence of material adverse changes in our industry or the global economy; our ability to manage and integrate acquisitions; our ability to manage risks related to international expansion; our ability to raise sufficient debt or equity financing to support our business growth; our ability to maintain good business relationships with our agents and Value-Added Resellers (“VARs”); our ability to expand our sales and distribution infrastructure and our marketing; trends in our industry and markets; our ability to develop products and technologies that keep pace with the continuing changes in technology, evolving industry standards, new product introductions by competitors and changing client preferences and requirements; our ability to purchase components for our products at competitive prices; our ability to protect our intellectual property rights; the absence of intellectual property infringement or invalidity claims against us; our ability to retain key personnel; our ability to renew the leases for our existing facilities or find alternative facilities that meet our current and future needs; and assumptions used in preparing our Fiscal 2017 financial guidance (see section 1.5 “Fiscal 2017 Financial Outlook”) in the Company's Management's Discussion & Analysis filed for the First Quarter Fiscal 2017. Consequently, all of the forward-looking information contained herein is qualified by the foregoing cautionary statements, and there can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business, financial condition or results of operation. Unless otherwise noted or the context otherwise indicates, the forward-looking information contained herein is provided as of the date hereof, and we do not undertake to update or amend such forward-looking information whether as a result of new information, future events or otherwise, except as may be required by applicable law and the Company reserves the right to change, at any time at its sole discretion, its current practice of providing annual targets and guidance.
Presenters
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François-Xavier Souvay President and CEO
Peter Timotheatos Executive Vice President and CFO
Lumenpulse Inc.
First Quarter Fiscal 2017 Results François-Xavier Souvay
President and CEO
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Revenue growth
Consolidated revenues of $45.3 million
42% growth Y/Y
Lower than expected for Q1, but consistent with growth
curve expected for Fiscal 2017
Improving profitability vs last year
Gross Margin at 47.6%, up ~1 point
Adjusted Gross Margin1 at 49.1%, up ~ 2 points
Operating Loss of $0.1 million, or 0.3%, up ~1 point
Adjusted EBITDA1 of $4.1 million, or 9.0%, up ~ 3 points
Net loss per diluted share of $0.01 and Adjusted diluted
EPS1 of $0.10
5 Highlights Q1 Fiscal 2017
1 Adjusted measures and EBITDA are non-IFRS financial measures used to provide management, investors and
analysts with additional measures to evaluate and analyze the Company’s results. These non-IFRS financial
measures do not have standard meanings prescribed by IFRS and are not directly comparable to similar
measures used by other companies. Please refer to our definitions and reconciliations of these non-IFRS
financial measures, to measures prescribed by IFRS at the end of this document.
Q1 Overview
Q1 2017 revenues in North America of $32.3 million
35% growth Y/Y
– Fluxwerx was a significant revenue contributor for North America
– Ability to deliver on orders on hand impacted by longer than
expected phase-in of upgraded View products
– Fluxwerx benefitted from of revenues generated through
Lumenpulse’s established agent network
United States
– The United States market generated $24.2 million, up 48%
– Growth driven by acquired product portfolio
– Current backlog and pipeline are supporting our ability for future
growth
Canada
– Canada generated $8.1 million, up 7% (performance impacted by a
customer that temporarily postponed an important shipment)
Marketing developments
– Training in Chicago with over 35 agents attending
– Developed Lumenline Webinar and catalog to support August launch
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Script: Just launched new
products in Q4, requiring 6-
12 month market adoption
North American Market
Fiscal 2016 and Q4 2016
FY 2016 International revenues of $36.3 million
growth of 14% (3% in cc basis)
Q4 International revenues of $11.1 million,
Y/Y growth of 25% (22% in cc basis)
Marketing investments
– Trained the UK team in Italy on Exenia portfolio
– Trained Exenia team and agents on Lumenpulse and
Lumenalpha portfolio
– Trained our clients in France on RDM and Lumentalk
– Invested in marketing materials
International Market 7
Q1 Overview
International revenues of $13.0 million
64% growth Y/Y
– Strong performance in international markets from Lumenpulse native
products and Exenia products portfolios
– Good performance in France, Spain and Netherlands
UK update
– Ramp-up phase of our new UK sales team
– Added two members to the team in early August
– Building pipeline
– Four new U.K. distributors were added in peripheral regions to
complement our direct sales force model
– Monitoring the possible effects of Brexit
Acquisition - Update
Delivered organic growth of 57%
Product introductions well received by agents
Upgrade of View products complete
Established manufacturing assembly lines in Vancouver
facility for new products launched in Q4 2016
Fluxwerx on track to achieve its objectives
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Q1 Accomplishments
Worked on the final stages to support the Q2 launch of
new optics for Lumenline and Lumenalpha 2.0, both
introduced at Lightfair
New features and product improvements:
- The Lumenarea brand color availability is now
standard across all Lumenbeam models
Lumentalk technology and the View luminaire from
Fluxwerx have won Architectural SSL Product Innovation
Awards
Inauguration of our new Global Technology Center and
U.S. Sales Office in Boston
Product and Technology 9
103 patents1
1 As of July 31 2016
Landmark Projects Boston Harbour Hotel, Boston
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Lumenpulse Inc.
First Quarter Fiscal 2017 Results Peter Timotheatos
Executive Vice President and CFO
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Key Financials Q1 Fiscal 2017
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(millions CAN$ - except per share data)
Q1 Fiscal 2017 was marked by Revenue growth of 42% driven by acquired product portfolios
Improvement in Gross Margin, Operating Income and EBITDA vs last year
1 Adjusted measures and EBITDA are non-IFRS financial measures used to provide management, investors and analysts with additional measures to evaluate and
analyze the Company’s results. These non-IFRS financial measures do not have standard meanings prescribed by IFRS and are not directly comparable to similar
measures used by other companies. Please refer to our definitions and reconciliations of these non-IFRS financial measures, to measures prescribed by IFRS at the
end of this document.
2 The calculations for the Adjusted Earning per share for the first quarters of Fiscal 2017 and Fiscal 2016 include the effect of 1,153,581 and 1,408,293 stock
options respectively, which are deemed to be dilutive.
2
2
IFRS IFRS Adjusted1
Adjusted1
Q1 2017 Q1 2016 Change Q1 2017 Q1 2016 Change
Revenues - Consolidated 45.3 31.9 13.4 45.3 31.9 13.4
Growth 42% 42%
Gross Profit % 48% 47% 1 pts 49% 47% 2 pts
Operating Income (Loss) 0.1 (0.3) 0.4
EBITDA 3.1 0.9 2.2 4.1 2.0 2.1
Net Income (Loss) (0.3) 1.5 (1.8) 2.7 2.6 0.1
EPS - Diluted2 (0.01) 0.06 (0.07) 0.10 0.10 -
Q1 2017 - Revenue Performance 13
Consolidated Revenues:
42% Growth Y/Y
(millions CAN$)
Consolidated revenues reached $45.3M,
42% growth Y/Y
- Mainly driven by the acquired product
portfolios in Fiscal 2016 of $13.2M
- Organic growth of acquired product
portfolio was 54%
- On a Pro-forma basis, consolidated
revenues increased by $4.8 million or
11.9% growth Y/Y
- Canada impacted by customer-induced
delay, postponing an important shipment
beyond Q1
- Fluxwerx impacted by longer than expected
phase-in of new lenses for its View product
- The International segment performed in line
with expectations
- Net foreign exchange had a negligible
impact
1 “International” means all jurisdictions except Canada and the United States.
1
Profitability
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Operating Income % breakdown
Q1 2017 Adjusted EBITDA at 9% compared to
6% explained by:
- Higher gross margin, up 2 points
- Decreased OPEX % by 1 point
Adjusted EBITDA % breakdown
Q1 2017 operating income as percentage of
sales at 0.3%, up from an operating loss of
0.8% explained by:
- Improved gross margin partly offset by higher
operating expenses, which include the absorption of
$8.8 million in operating expenses in Q1 Fiscal 2017
tied to Fiscal 2016 acquisitions
OPEX Analysis Total Operating Expenses
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IFRS Adjusted Measures
$6.0M from FY 16
acquisitions
$2.3M from
FY 16
Acquisitions
8.2
11.9
2.7
6.8
1.7
5.1
Selling and marketing General and administrative R&D Q1 FY16 Q1 FY17 Q1 FY16 Q1 FY17 Q1 FY16 Q1 FY17
$3.2M from
FY 16
Acquisitions
$0.5M from
FY 16
Acquisitions
Total Operating Expenses – Breakdown IFRS Measures
(millions CAN$)
(millions CAN$)
Q1 OPEX at $21.4M, an
increase of $6.3M vs last
year primarily attributable
to the addition of Fiscal
2016 Acquisitions of
$6.0M
Continuing to control costs
to maximize operating
leverage
Stable Y/Y as a
percentage of sales vs last
year
15.0
Key Financials Balance sheet and cash flow overview
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(millions CAN$)
1 Excludes business acquisition contingent consideration and deferred payments of $25,868 as at July 31, 2016, and $5,684 as at April 30, 2016
Positive operating cash
flow of $2.5M
Strong balance sheet
As at
July 31 2016
As at
April 30 2016 Change
Cash 14.1 21.1 (7.0)
Net Trade Working Capital1 30.5 29.7 0.8
Revolving credit facilities 5.0 13.3 (8.3)
Deferred tax liabilities 14.8 15.2 (0.4)
Q1 2017 Q1 2016 Change
Cash flow from operating activities before net change in non-cash operating items
2.4 1.5 0.9
Net change in non-cash operating items 0.1 (2.5) 2.6
Operating cash flow 2.5 (1.0) 3.5
Capital expenditures (1.3) (1.2) (0.1)
Cash flow after capital expenditures 1.2 (2.2) 3.4
Capex spending of $1.3M for Q1 FY 2017.
Expecting capex to be in the 5% range of total
revenues for FY 2017
Cash Flow Cycle Elements 17
Inventory turn maintained at a ratio of 3.4x turn
DSO at 47 days in Q1 2017
Target DSO level within 50-55 days
Positive Q1 cash flow mainly due to improved
EBITDA
Cash flow from operating activities (millions CAN$) Capital Expenditures (cash flow)
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Focus on integrating our acquisitions
Deliver on our organic growth plan and product
development road map
Adapt Exenia products to the North American
market
Continue to increase production capacity
utilization and operating leverage to drive
profitability
Management reiterates its Fiscal 2017 Financial
Outlook:
− For Fiscal 2017, we expect revenues of
$230 to $240 million and anticipate an
Adjusted EBITDA margin of 12%-14%
Going Forward
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There’s more online Lumenpulse.com
Questions? Investor Relations
1-877-937-3003
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Thank you
Appendix
Appendix
First Quarters Ended July 31
2016
2015
(in thousands of Canadian
dollars)
Net (Loss) Income (294) 1,457
% of revenues (0.6)% 4.6%
Net financing costs (income) 390 (1,514)
Income tax expense (recovery) 50 (195)
Depreciation and amortization 2,943 1,132
EBITDA 3,089 880
% of revenues 6.8% 2.8%
Relocation expenses(1)
238 —
Employee termination costs — 877
Professional fees related to acquisitions(2)
17 —
Acquired profit on finished goods inventory(3)
219 —
Non-cash share-based compensation 492 254
Unrealized gains or losses on revalued cash share-
based compensation
16
(12)
Adjusted EBITDA 4,071 1,999
% of revenues 9.0% 6.2%
Depreciation and amortization (2,943) (1,132)
Net financing (costs) income (390) 1,514
Change in fair value of contingent consideration(4)
826 —
Amortization of acquired intangible assets 1,549 262
Depreciation on leasehold improvement(5)
181 —
Income tax (expense) recovery (50) 195
Unusual deferred income tax asset recognition(6)
— (277)
Tax effect of normalization adjustments(7)
(520) —
Adjusted Net Income 2,724 2,561
% of revenues 6.0% 8.0%
Gross Profit 21,556 14,811
Gross margin % 47.6% 46.5%
Non-cash share-based compensation 58 12
Acquired profit on finished goods inventory(3)
219 —
Unrealized gains or losses on revalued cash share-
based compensation
1
—
Depreciation and amortization 415 201
Adjusted Gross Profit 22,249 15,024
Adjusted Gross margin % 49.1% 47.1%
Reconciliation of Non-IFRS Measures
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(1) Relocation expenses related to the Montreal facility.
(2) Professional fees related to the acquisitions of Fluxwerx and
Exenia.
(3) Acquired profit on finished goods inventory related to Exenia.
(4) Change in fair value of contingent consideration due to
accretion expense.
(5) Additional depreciation expense on leasehold improvements
caused by the reassessment of their useful life as a result of the
upcoming relocation of the Montreal facility.
(6) Certain Fiscal 2016 comparative figures have been reclassified
to be aligned with the Fiscal 2017 definitions.
(7) Tax impact of the adjusting items in order to present them net of
taxes.
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Non-IFRS Measures This document makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized
meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are
provided as additional information to complement IFRS measures by providing further understanding of the Company’s results of operations from
Management’s perspective.
The non-IFRS measures permit the assessment of the results generated by the Company’s core business, prior to consideration of how the activities are
financed, how the results are taxed or the non-cash impact associated to the volatility of the Company’s share price. Unusual or other items of a non-recurring
nature, that could make the period-over-period comparison of the Company’s underlying business less meaningful or not representative of future
performance, are further excluded from Adjusted Non-IFRS measures. Although amortization of acquired intangible assets, professional fees related to
acquisitions, acquired profit on finished goods inventory, change in fair value of contingent consideration, non-cash share-based compensation, relocation
expenses, employee termination costs, expenses for unrealized gains or losses on revalued cash share-based compensation and unusual deferred income
tax asset recognition have been recognized in prior periods and could reoccur in future periods, Management excludes these charges during internal reviews
of performance, operational analysis, decision making, and other activities. These measures should not be considered in isolation or as a substitute for
analysis of our financial information reported under IFRS. Management’s definition of these measures may differ from similarly titled measures reported by
other companies.
We use non-IFRS measures, including EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Gross Profit, Adjusted Operating Expenses,
Adjusted Selling and Marketing Expenses, Adjusted Research and Development Expenses, Adjusted General and Administrative Expenses, Adjusted
Earnings (Loss) per share-basic and diluted and Constant Currency revenues, to provide investors with supplemental measures of our operating performance
and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures.
EBITDA is defined as earnings before net financing (income) costs, income taxes (recovery), and depreciation and amortization. Adjusted EBITDA is defined
as EBITDA before employee termination costs, professional fees related to acquisitions, acquired profit on finished goods inventory, non-cash share-based
compensation, relocation expenses and unrealized gains or losses on revalued cash share-based compensation. Unrealized gains or losses on revalued
cash share-based compensation is defined as gains or losses on revalued cash share-based compensation which have been expensed and are unexercised
at the end of the reporting period. These unrealized gains or losses are driven by the fluctuation of the Company’s common share price during the reference
period.
Adjusted Net Income (Loss) is defined as net income (loss) before employee termination costs, professional fees related to acquisitions, acquired profit on
finished goods inventory, non-cash share-based compensation, relocation expenses, unrealized gains or losses on revalued cash share-based
compensation, amortization of acquired intangible assets, unusual deferred income tax asset recognition, change in fair value of contingent consideration and
additional depreciation expense on leasehold improvements caused by the reassessment of their useful life as a result of the upcoming relocation of the
Montreal facility, net of taxes. Unusual deferred tax asset recognition is defined as the deferred income tax asset recognized by assessing the measurement
and recoverability of operating tax losses. Change in fair value of contingent consideration is related to the achievement of certain financial performance
targets in specific periods following the acquisitions of Exenia S.r.l. (“Exenia”) and Fluxwerx Illuminations Inc. (“Fluxwerx”).
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Non-IFRS Measures Adjusted Gross Profit is defined as gross profit less non-cash share-based compensation, acquired profit on finished goods inventory, unrealized gains or
losses on revalued cash share-based compensation and depreciation and amortization.
Adjusted Operating Expenses is defined as operating expenses less non-cash share-based compensation, professional fees related to acquisitions,
unrealized gains or losses on revalued cash share-based compensation, depreciation and amortization, employee termination costs and relocation expenses.
Adjusted Selling and Marketing Expenses is defined as selling and marketing expenses less non-cash share-based compensation, unrealized gains or losses
on revalued cash share-based compensation, and depreciation and amortization.
Adjusted Research and Development Expenses is defined as research and development expenses less non-cash share-based compensation, unrealized
gains or losses on revalued cash share-based compensation, and depreciation and amortization.
Adjusted General and Administrative Expenses is defined as general and administrative expenses less non-cash share-based compensation, professional
fees related to acquisitions, unrealized gains or losses on revalued cash share-based compensation, depreciation and amortization, employee termination
costs and relocation expenses.
Adjusted Earnings (Loss) per share – basic is defined as the Adjusted Net Income (Loss) on the weighted average number of ordinary shares outstanding
during the period.
Adjusted Earnings per share – diluted is defined as the Adjusted Net Income on the weighted average number of ordinary shares outstanding during the
period and all potentially dilutive stock options.
Adjusted Loss per share – diluted is defined as the Adjusted Net Loss on the weighted average number of ordinary shares outstanding during the period. In
the periods where the Company incurred net losses, all potentially dilutive stock options have been excluded from the calculation of diluted loss per share. All
outstanding share options could potentially dilute earnings per share in the future.
For additional information on Non-IFRS measures please see the Management's Discussion & Analysis for the First Quarter Fiscal 2017 filed with the
Canadian securities regulatory authorities, which is available on the SEDAR website at www.sedar.com.