EXFO Inc. (NASDAQ:EXFO) Q3 2019 Earnings Conference Call July 10, 2019 5:00 PM ET
Vance Oliver – Director of Investor Relations
Philippe Morin – Chief Executive Officer
Pierre Plamondon – Chief Financial Officer and Vice President of Finance
Germain Lamonde – Founder and Executive Chairman
Conference Call Participants
Thanos Moschopoulos – BMO Capital Markets
Robert Young – Canaccord Genuity
Timothy Savageaux – Northland Capital Markets
Daniel Chan – TD Securities, Inc.
Richard Tse – National Bank Financial
Good day, and welcome to the EXFO’s Third Quarter Conference Call for Fiscal 2019. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Vance Oliver, Director of Investor relations. Please go ahead.
Good afternoon, and welcome to EXFO’s third quarter conference call for fiscal 2019.
With me on the line today are Philippe Morin, EXFO’s Chief Executive Officer; and Pierre Plamondon, CFO and Vice President of Finance. Germain Lamonde, EXFO’s Founder and Executive Chairman, will also be available to answer questions during the Q&A period.
A reminder that this conference call will include certain forward-looking statements and/or estimates concerning our intents, beliefs or expectations regarding future events that may affect EXFO. Please note that such comments will be affected by risks and/or uncertainties 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 Form 20-F filed with the Securities and Exchange Commission. Our Annual Information Form is available with Canadian Securities Commission as well.
Please note that non-IFRS numbers may be used during this conference call. A reconciliation of these non-IFRS results with IFRS numbers is available in the Q3 2019 news 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 Philippe.
Thank you, Vance and good afternoon, everyone. EXFO delivered another solid quarter in Q3 2019 with revenues above the midpoint of our guidance range at $73.6 million, and an adjusted EBITDA at $7.9 million or 10.7% of our sales. This marked the second consecutive quarter with our adjusted EBITDA margins in double digits.
Now after nine months into fiscal 2019, our sales have now increased 8.2% year-on-year and bookings at 10.9%, while adjusted EBITDA have now surged 74.5% to $19.4 million. This heightened level of consistency reflects a strong execution against our growth strategy, leveraging key growth vectors like fiber build-outs, data center interconnects, initial 5G deployments and network virtualization.
We’ve also maintained a sound financial discipline during the fiscal year, and if you recall, we did announced a restructuring plan last August, which is positively impacting our bottom line. We’ve now completed our restructuring, delivering $8 million in cost savings in fiscal 2019 and delivering $10.5 million in subsequent years.
Our four recent acquisitions, including Astellia, are now fully integrated, and we are ideally positioned to take advantage of key growth drivers to help our customers transform the networks. So as a result, I am confident, we will achieve our $24 million adjusted EBITDA target for fiscal 2019.
And as previously mentioned, we have generated more than $19 million in adjusted EBITDA after nine months in our fiscal year, and our fourth quarter has historically been quite profitable due to seasonality related to the summer holidays period.
Now let’s take a closer look on how our two major product families have performed in this third quarter of 2019. First with our Test & Measurement business, sales were up 9% year-on-year, despite a negative currency impact, and therefore, outpacing the market and increasing our market share.
More specifically, high-speed transport solutions for service providers and our advanced equipment for labs and network equipment manufacturers were largely responsible for revenue increase year-over-year. Our 100 gig, 200 gig and 400 gig transport solutions and our high-end instruments from the Yenista acquisitions are continuing to deliver healthy growth, also combined with strong demand for our physical fiber test solutions.
On our subject of our T&M, our Test & Measurement product line, we’re also pleased with the launch this past June of what we believe as the industry first optical fiber multimeter, which we call the Optical Xplorer. In fact, we introduced a whole new testing category with the release of this patent pending Optical Xplorer, placing it between a power meter for basic field testing task and a high-end OTDR for full fiber characterization.
This innovative test instrument measured the quality of fiber links in a matter of seconds for front-line technicians and contractors, delivering cost savings and especially ensuring the new fiber deployment is done right the first time, which is a real customer pain point.
Three key technology innovations built into that device includes, first of all, automatic verification of suspected fiber spans, a quantitative one-to-five star rating of links, to measure the quality and a reduction in a total cost of ownership through a lifetime calibration and field replaceable connectors on the unit.
On the service assurance systems and services side, or SASS business, sales have decreased 12.2% year-over-year, mainly due to the delay in spending on part of our communication service providers who are going through the complexity of transforming their physical infrastructure into a virtualized and hybrid networks for various 4G, 4G plus and 5G use cases.
It should be mentioned also at EXFO security, $4 million contract SASS order early in the fourth quarter that should have happened in the quarter that would have raised our overall book-to-bill ratio above the 1.0 target has been booked into our third quarter.
Despite market-related issues, EXFO is well positioned for the 5G investment cycle with a solution that addresses what we believe three major revenue opportunities. The first one with our Test & Measurement product family is currently benefiting from the network densification phase in which service providers are deploying small cells closer to the network edge to support ultra-high bandwidth and lower latency application. Obviously, these small cells need to be connected with fiber and this is where EXFO signs with our leadership position in optical testing.
Second phase, which will go underway in 2020 as communication service providers massively deploy new radio equipment for the standalone 5G standard. Our SASS business through its acquisition of Astellia, provides RAN optimization and geolocation solutions for service providers who must cope with the high capacity, but limited coverage of millimeter wave spectrum with lower capacity, higher propagation characteristics of mid-band and low-band spectrum.
And third, our network monitoring phase slated for the mid to late 2020, when commercial deployments of 5G networks become more commonplace and there’s a critical mass of subscribers who will require a flawless, a quality experience. This is when a full troubleshooting and monitoring solution will come into play for full-fledged 5G networks.
Now, as I mentioned in previous calls, we have successfully deployed our virtualized service assurance solution in Three UK, a British wireless service provider. And this is a strong proof point of our capabilities for telco cloud network deployments, which is where the future of 5G networks, will be using that same architecture. So this 5G investment cycle, meanwhile, will have an extended runway for EXFO to leverage with our portfolio of solutions for many years to come.
So now let me provide you with our guidance for Q4 2019. We’re forecasting sales between $66 million and $71 million for the reporting period extending from June 1 to August 31, 2019. Looking at our bottom line, IFRS net results are expected to range between a loss of $0.02 per share and earnings of $0.02 per share for the fourth quarter of 2019. IFRS net results include expenses totally $0.04 per share and after tax amortization of intangible assets and stock-based compensation cost.
So at this point, I will turn the call over to Pierre to cover in more details our financials.
Thank you, Philippe. Sales increased 1.9% to $73.6 million in the third quarter of 2019 from $72.2 million in the third quarter of 2019, despite a negative currency impact. We increased our sales year-over-year, mainly due to higher upside for Test & Measurement product line, especially high-speed transport solution and advanced equipment for R&D labs and network equipment manufacturer. This increase was partially offset by reduced demand for our service assurance systems and services or our SASS product families.
The systems-related solutions are subject to delays in spending of the products, the communication service provider who are evaluating how to optimally transform their network architecture into virtualized 5G network.
Booking decreased 4.8% to $69.6 million in the third quarter of 2019 from $73.1 million in the same period last year for a book-to-bill ratio of 0.95. This drop in booking can be attributed to the previously mentioned market delay in deploying 5G virtualized network, timing of orders and the last one mentioned by Philippe earlier, as well as negative currency impact.
Gross margin before depreciation and amortization amounted to 58.6% of sales in the third quarter of 2019 compared to 59.9% in the third quarter of 2018. Our gross margin was negatively impacted by lower SASS sale year-over-year, which prevented us from better absorbing our fixed cost. We were also affected by a less favorable sales mix within our SASS project family in the third quarters of 2019 as some solutions carried higher margins than others. These negative effects on our gross margin were partially offset by a stronger margin from our Test & Measurement product line year-over-year.
In terms of operating expenses, selling and administrative expenses totaled $23.8 million or 32.2% of sales in the third quarter 2019 compared to $26 million or 35.9% of sales in the same period last year.
The $2.2 million decrease in SG&A expenses year-over-year mainly reflects the positive impact of our recently completed restructuring plan with some help from currency fluctuation on the expenses as the average value of the Canadian dollar, euro, British pound and Indian rupee decreased year-over-year compared to the U.S. dollar.
Net R&D expenses reached $12 million or 16.3% of sales in the third quarter of 2019 compared to $16.1 million or 22.3% of sales in the same period last year. Likewise, the $4.1 million decrease in net R&D expenses is directly related to our restructuring plan with the added benefit of the currency fluctuation. In addition, a shift in the mix of omni project resulted in lower expense year-over-year.
IFRS net earnings in the third quarter 2019 totaled $21,000 or $0.00 per share. In comparison, IFRS net loss amounted to $6 million or $0.11 per share in the third quarter 2018.
IFRS net earnings in the third quarter 2019 included $1.7 million in after-tax amortization of intangible assets, $0.5 million in stock-based compensation costs, and a foreign exchange gain of $0.1 million.
Geographically, the Americas accounted for 51% of sales in Q3 2019; Europe, Middle East, Africa represented 30%; while Asia Pacific totaled 19%. In comparison, the sales split was 49%, 35% and 16% among the three geographic regions in the third quarter of 2018.
In terms of customer mix, our top customer accounted for 6.9% of total sales in Q3 2019 while our top three represented 16.9%.
Turning to a few key points in the balance sheet. Our cash position decreased to $15.3 million at the end of Q3 2019 from $27 million in the previous quarter. This $11.7 million decrease is mainly due to $5.2 million in cash flow used by operation, $3.8 million for the reduction of the bank loan, $1.6 million for the purchase of capital asset, $0.7 million for the repayment of the long-term debt and $0.3 million for an unrelated foreign exchange loss on cash and short-term investments denominated in Canadian dollar. At the end of Q3 2019, EXFO had a net cash position of $3.9 million and available revolving credit facilities up to $55.2 million.
At this stage, I will turn the call over to the operator for the start of the Q&A. Thank you.
Thank you. [Operator Instructions] And we’ll go first to Thanos Moschopoulos with BMO Capital Markets.
Hi. Good afternoon. Philippe, you mentioned that the Test & Measurement business has been outpacing market growth. Do you have a sense for what the market’s been growing at over the last few months?
Yes. Thanks, Thanos. Yes, we believe again from our assessment that the market around our T&M and the addressable market is between 4% to 5% is what we believe the market is growing. And therefore, we do believe that we’ve been gaining market share.
And just given your commentary, regarding how 5G should play out, just make sure I understand correctly. We should be seeing an acceleration in the coming quarters in that Test & Measurement business. I mean, notwithstanding quarterly volatility obviously. But given the 5G build-out heading into 2020 that should be picking up, right?
I think on the whole fiber build-out, there will be two main contributor to growth. One will be the 5G build-out that actually has already started. So we’re seeing that in North America Thanos, with a lot of our key service provider customer that are putting more and more fiber in cities, where they are going to deploy, we’re about to deploy 5G.
The other build-out that’s going to happen, that will also have a positive impact on our Test & Measurement as we head into 2020, will be around the FTTH, mainly in Europe, where we’re starting to see an increase there of deployment in few countries that have been behind in terms of overall deployment on bringing the FTTH or fiber development.
And then on the SASS business, the issues you highlighted with customers pausing to look at virtualization. Sounds like maybe Q3 quarters of that perhaps weighing on growth before that segment starts to accelerate? Or what would you say in that regard?
Yes. On the SASS side as I mentioned, so you’ve touched on the first kind of growth, which is the fiber build-out provides you and then on the SASS side, there’s two growth potential for our business. The first one is the RAN deployment. So they’re starting as we speak now and then into 2020, putting new radio, and we do believe we have an opportunity to provide our solution around RAN optimization and geolocation.
And the second one is as they virtualized the rest of the network, the Virtual EPC and Virtual IMS, we’ll have an opportunity, and I think the proof point that we’ve now demonstrated with Three UK, which is now – what we believe one of the first telco cloud wireless network, virtualized network and we’ve proven that we are a solution now, has been deployed there.
We believe we’ll be able to do the same in some of these other opportunities. And that will be more into the latter part of 2020 and into 2021. But we’ll see a few, what I will call, service providers that will try to disrupt the market by going aggressive like Three UK on new network architecture that are telco cloud base.
Okay. Thanks for clarifying. Aside for the – your commentary regarding fiber-to-the-home in Europe, and any other geographic trends that you would highlight as far as the nuances, what you’re seeing across the regions?
I think overall across all regions, we do see momentum around our network lab and network manufacturing, thanks to the acquisition of our Yenista and that tends to impact countries like China obviously, but also what we’re seeing in North America.
And then the data centers build-out in North America, we believe will continue, especially as they get move to more and more to the edge as you know, and that’s really being impacting positively our 100 gig and 400 gig high-speed solutions there. So a bit of a – North America, we believe continues to be strong, EMEA from a point of view of FTTH deployment, and then labs and network equipment vendor from a point of view of our ion optics for the market. And that tends to be hitting more Asia-Pac and Americas.
Okay. Maybe one last one on gross margins, I mean I’m assuming that gross margins, will dip next quarter given the lower anticipated revenues. And then as we look out into 2020 Pierre, I would imagine we should expect to see some gross margin improvements on the back of the revenue growth that Philippe is alluding to, correct?
Yes, and when I’m going to give guidance for fiscal 2020 on the gross margin. But you’re right, with a little bit lower level of sale we could expect that the margin could be a little bit softer, okay, so we are expecting probably Q2 to be that range plus or minus some percentage point. And with higher content of SASS business, we do expect that the margin over time will continue to improve and reach higher level at that time.
Thank you, Thanos.
[Operator Instructions] We’ll go next to Robert Young with Canaccord Genuity.
Hi. Good evening. Maybe I’ll ask a question about gross margins, continue Thanos line there. I think you said that range you’re looking for the year is 59% to 61%, but you expected at the bottom end. If gross margins are expected to be maybe a little bit weaker than you thought, should we expect that range to be a little bit lower?
Yes. We said that we are expecting this year to be between – you’re right, 59% to 61% and probably would be on the lower part of that probably around more closer to 59% something.
Okay. That’s fairly consistent with last – what you said last quarter though. I guess that’s the point I was trying to make, it’s no different. Okay.
Yes, it’s no different. And then as we said, Robert, the contribution of our SASS and Astellia that’s because some of the professional services aspect of that business is contributing to that gross margin level.
Okay. And then on the service assurance side of the business, the slowdown that you’re expecting I think last year you get on the time frame there like how long do you expect that to last? Is that just only impacting very large deals? Do you expect smaller deals like the one you said came in just after the quarter to continue? Is there any other color you can talk about on what might be impacted inside of these architectural decisions slowdown?
Yes, I guess, the color I’ll provide is that with our installed base of our SASS business, which impacts fiber monitoring, service assurance and so our ontology, what we see is the market continuing with – we’re renewing maintenance contracts, we’re expanding some of these either by more application of geography, what we’re looking for growth is the opportunity – or like Three UK, so the – as we start looking at these new opportunities where customers are going to go and virtualize and bring new architecture, that’s the one that we – from a growth point of view, we’re looking into in terms of bringing that capability and these are driven by customers making decisions on the virtualization, and we see a similar pattern.
They will make decisions on the radio first, they’ve made decisions a lot of them now on their Virtual EPC and Virtual Core and the next step will be making decisions around virtual service assurance into more of a telco cloud. And that’s the piece that I – I’m still seeing the market taking a bit longer, we’re not the only one. I see as well what our competition is going through. The RFQ activities, there are a few of them, but we like to see that increasing more. And we do think that in the latter part of 2020, we’re going to see that activity pickup.
Okay. I think you said that the NEM business, you expected to remain strong. I didn’t see an update on the data center business or the copper DSL business, I wonder if you can talk about those two pieces?
Yes. We are very pleased with I guess those two things that you just mentioned, the 100 gig, 200 gig, 400 gig high-speed, which is around data center interconnect, both inside and outside, we’re continuing to see real nice growth there Robert. And then on the NEMs, and the labs, that’s also another piece of where we’re seeing – and obviously, the Yenista acquisition and it’s really helping us with a much stronger portfolio to engage the NEMs with that and we do believe that that’s going to continue in Q4 and into 2020. And it’s reflection of where you see the growth. I mean year-to-date, we’ve gone from [$52 million] to almost $160 million on our T&M, and it’s probably those two segments, I would say that are really driving that growth.
And the copper DSL side, is that – do you expect that one to be a little bit weaker, offset by fiber strength at the…
Yes. We continue to see that market trend, Robert, where the copper obviously, is not in the huge growth, it’s not in growth actually more than – while fiber is, and that’s – we’re going to continue to obviously, get some revenues associated with that and they tend to be larger, lump deals – lumpy deals, sorry. But really for us, it’s that fiber business that we’re seeing the growth and having a positive impact to our business.
Okay. And last question for me is just you highlighted Asia a number of times. Is there any issues that you foresee in any of the customers that you sell into in Asia or any of the trade worries that we’ve been hearing in the news a lot? Is there anything there to call out that you think might be exposed to positive or negative? And then I’ll pass the line.
Yes, I guess in terms of overall Asia-Pac in our business in China, we’ve been able to – obviously, continue to do business there with all the potential duties aspect as you mentioned. So that’s been a continued good position for us in the market, especially around our T&M business.
And we’ll go next to Tim Savageaux with Northland Capital Markets. Tim, you’re line is open.
Yes. A couple of questions, I guess first starting at a high level, obviously you came in much better than expected on the EBITDA front in fiscal Q3 and in sort of noted double-digit EBITDA margins for the last couple of quarters and obviously I guess you didn’t expect that to continue given the guidance for Q4, but it does look like that $24 million target is within relatively easy reach. I wonder if you might comment on the potential to attain double-digit EBITDA margins kind of on an ongoing an annual basis and that really have any commentary about the EBITDA targets for fiscal 2020?
Yes. So, Tim, again, we’re happy with our results with regard to the EBITDA, both for Q2, Q3, as you mentioned, double digit. And then as it’s shaping up in terms of now reaching the $19 million after three quarters, and as I’ve mentioned, we’re very confident that we will achieve the $24 million target that we’ve put in to EBITDA. And it’s a combination of two things. I do think we are executing well on our Test & Measurement business. It’s showing nice growth.
The SASS business, we have to manage, the lumpiness in that business and making sure we continue to grow and close the bigger contracts as you know, they tend to be bigger as an example as I mentioned the one that just closed right after Q3, which was $4 million. And then – so that’s first thing is to continue to manage the business, the T&M business and getting the growth on SASS.
And I do think our discipline around managing our OpEx and operation from a point of view of our spend both on sales SG&A and R&D and a big impact of that has been our restructuring plan that we’ve announced late August – last August. We’ve executed well on that and it’s flowing to the bottom line now as you can see. And with regards to 2020, we’re not in a position, obviously to provide guidance on that, and we’ll do that as we – when we do our next earnings after Q4, Tim.
Okay, great. And if I can follow-up with a few questions on your Q4 guide and you can address if – this sequentially or year-over-year however you like. But given the – what I hear and certainly the sort of fits well with what we’re seeing kind of broadly in the market around positive optical test commentary, I imagine you expect continued growth there. I mean should we expect a pretty sharp acceleration on the year-over-year decline on the software and service side in Q4? Is there any seasonality in test sequentially as you look at that kind of midrange sequential decline Q3 to Q4 is software and service driving the bulk of that?
Yes. So as you know, our T&M Q4 test to be historically a bit more of a challenge and I think that for us, when you look at the overall performance year-to-date for the Test & Measurement, as I mentioned earlier, I think we are pretty happy with both on the revenue side and on the booking side where we’ve see some good growth, and we expect that growth in Q4 to continue as we see more and more build-out now.
Q4 historically, as you know it finishes in August. We’ve got more of the holiday period. So – and that sense to impact the bit more of the T&M business on the bookings, especially if you look historically how we’ve perform.
So – and therefore, as you said, so SASS – will SASS continue – will now SASS grow as we head into our Q4 and then in 2020, and we do have some opportunities, as I said, that we’ve have closed already into the beginning of the quarter and that’s what we’ll need to really focus on.
Now year-to-date, the SASS business is showing some nice growth but as you know, one quarter in a month – Astellia was not part of our reporting and that’s why you see a portion of that growth. But in there, there is some nice businesses as well our fiber monitoring, which is also part of our SASS business that we’re really focusing on making sure that we can close some – close important orders for Q4.
Okay. And last question for me, back on the optical test front. We’ve seeing some [indiscernible] relatively strong spending among some of your traditional, U.S. Tier 1 customers and I think you referenced there and some of your commentary, but you also referenced during the month some on the equipment OEM lab and production side. I wonder if you could maybe talk about relative levels of strength between those two segments of your optical test customer base that the carriers versus the OEMs, broadly speaking, and whether you’re seeing any meaningfully different trends there?
Yes. I think as I mentioned to Thanos‘ question earlier, we do see some continuing momentum here around – especially if I look in North America, the two main growth factors are that densification of the edge of the network and whether it’s driven by 5G or the 4G plus. But clearly we see that that happening and its very North American centric.
The data center build-out continues to be more profound into North America. And then the FTTH tends to be much more – in terms of growth potential as long it’s European as we see that. I mean I’m sure you’ve seen public AT&T talking about for their fiber build-out for fiber-to-the-home as getting to a point where they’ve achieved pretty much the plan that they’ve done well. Verizon is continuing to mention that they will continue to be doing build outs for metro and 5G cities.
With regard to the network equipment vendors and then the lab business, yes, that one is continuing to see – show good momentum. And then as I mentioned, in North America and Asia PAC is probably two places that we’ve seen that, but we also expect that there is more – going to be more deployment in Europe. We’ll see some increase their with the field teams of the NEMs as they go in and deploy their metro build-out and fiber-to-the-home build-out.
Okay. Thanks very much.
Thank you, Tim.
And we’ll go next to Daniel Chan with TD Securities.
Hi, guys. So the virtualization build-out took a little bit longer than expected. Now you guys are kind of calling out for maybe an end of 2020 build-out. So what’s your level of confidence, the end of 2020 is going to be that timeframe when that’s going to be completed in? Any catalysts for us to watch for that you’re watching for to confirm that timeline?
Yes. So Daniel, where we’re watching is obviously the kind of announcements taking place with the kind of the leaders with regards to 5G deployments, not only on the radio side, but also back into the core end and RAN deployment. So obviously looking at what Ericsson, Nokia are announcing, Huawei and so on. They tend to be a precursor for us of when we will see a demand for a virtual cloud service assurance deployment.
And as well as I mentioned, as they deploy new radio, the opportunity for us to sell our RAN optimization in geolocation, so these are the kind of what I will call, data point we’re looking at in terms of those deployments. And then obviously looking at what the service providers are announcing in terms of the 5G deployment.
So obviously you see announcements by Verizon where they want to, they’re going to put 30 cities with 5G AT&T making the same amounts of Sprint, T-Mobile, and as well in other regions with a Three UK announcing they’ll deploy 5G.
These are all precursor for us of where we have at with. We have opportunities to deploy those two solutions I’ve talked about, the RAN optimization and then ultimately the service assurance piece. And so we do believe that as we did with Three UK, which was one of the first customers to go in wireless provider to go in with a telco cloud network where we’ve successfully deployed that.
We want to leverage that car down with the other service providers that are going to go into that next phase. That’s why we think – and it’s not going to be volume deployment into the late 2020, but where we feel that there’s going to be a next wave of opportunities for us to sell our solution.
Okay, that’s helpful. Are there any 5G standards that need to still be put in place or developed before there’s more mass adoption of this virtualization? We just heard most of those standards have already been established by the 3GPP?
So standards have evolved pretty much to the point of – you can see deployments gaining on. And I think the next – for me, the next standard is around the Release 16 in March 2020, which will have again more protocol and more work being done with network slicing and some of the key activities that we believe will help us as well, bring more value and help our customers with their transformation.
I think network, with network slicing, if the customers deploy, potentially offer certain spec for certain slice of the network. They’ll need a service assurance solution for each of those slices to monitor the SLAs, which we think will be obviously solutions from EXFO, will be important for that. These are part of where the standard needs to be completed, and then as I said, the next one, Release 16 being in March of 2020.
So is it fair to say that Release 16 could be a catalyst for some of these service assurance solutions you’re offering?
No. I think we can offer today as a proof point is the Three UK. But I do think that there would be potential more opportunities for us with new features such as network slicing that that could expand our opportunities there.
Okay. Thank you. Just one final question for me. You mentioned that lab and network equipment vendors, you’re seeing good growth there. Just to drill down on the previous questions from before, I don’t know what your mix is within this segment, but do you see a positive or negative impact from some of the trade issues against Huawei in that segment for you guys?
Yes. Again for me the NEMs and the lab, we do sell solutions across all of the major NEMs and all of some key research labs facilities. In terms of trade with Huawei, Huawei is one of our customers, less than 5% of our business. And they do buy some of our T&M solutions, including some of our lab. And again we have not been impacted by the trade restrictions that were announced earlier.
Have you seen a decrease in Huawei orders as a result of some of these? Thanks.
And we’ll go next to Richard Tse with National Bank Financial.
Yes. Thank you. I just wondering if you could share with us a little bit more color on Astellia. I think when you acquired it, the two sort of main rationales, one was the operating leverage from R&A and the sales and marketing. And then from a technical standpoint, I think there were bringing in some subscriber analytics to your platform. And so I’m kind of just curious to see some color in terms of what you’ve done specifically on both fronts there?
Yes. Richard, so again let me start with the second. So the integration work of – what they’ve really brought for us from a portfolio point of view from – I look from a solutions point of view are two main of the assets. The first one is, as I mentioned, the RAN optimization and geolocation, which we had no capability in the past.
This allows us to go and engage with customers with 5G as you know, depending on the spectrum, depending on the fact that you got multiple small cells, the capability to optimize the RAN, the capability to troubleshoot as you go through these new spectrum, the capability to offer better understanding of what’s happening in terms of per handset and what we call geolocation marketing. The Yenista acquisition brings that asset, which allows us to leverage that into accounts that we haven’t been able to play especially in Americas as a good example.
And we’ve been able to – in Latin America have been able to expand that solution with some of our customers, some of our Tier 1 customers in Latin America as a proof point of that acquisition and the impact of that.
In addition Astellia did secure the win of Three UK, which was again I’ll go back to the – one of the first virtualized telco cloud, wireless network deployment, which was successfully deployed. And that’s been able to – when we add integrate this to our existing portfolio with some of our analytics that you mentioned about. There’s absolutely strengthen our position and strengthen our solution that we would not have with without Astellia.
And then as well in terms of now – so that that’s now all integrated, completed and it’s telling us to now to have a richer solution in front of our customers and especially the one that we’ve been talking through this call that we’ll be looking at migrating to a more virtualized telco cloud solution.
Now with regards to getting the synergies on the sales team, with the sales team and so on. And yes, in Europe, we’ve been able to – as we integrated the Astellia team together with our EXFO team. We’ve been able to get more business on T&M and leverage some of the relationship that they had in the accounts that we were not present, especially in some of these big Tier 1 accounts in Europe.
And then we’re taking now that solution did – as you know Astellia did not have a strong presence in the Americas from a go-to-market point of view, but we do. And we’re now leveraging that integrated solution into and as I said into America both in – with those two solutions I just talked about.
At this time, I would like to hand the call back over to CEO, Philippe Morin for any additional or closing comments.
Okay. Well, thank you. So just as I wrap up this call, and a few key takeaways. So first, again, I’m very pleased with our execution so far in our fiscal 2019. We’ll continue to show a year-on-year increase in both sales and bookings, sales at 8.2%, booking at 10.9% and really the adjusted EBITDA at almost 75% growth that we’ve delivered for the first three quarters.
Second, we continue to be very disciplined with our spend, restructuring plan, and integration of recent acquisitions are now behind us and completed. We are now ideally positioned to take advantage of the key growth factors like fiber densification, data center interconnect and as well as the next wave of 5G deployment and network virtualization.
And then finally, I’m very confident. We will achieve our $24 million adjusted EBITDA target for fiscal 2019. As I said earlier, after nine months, we’re at $19.4 million of our adjusted EBITDA and our fourth quarter has historically been quite profitable.
So at this point, I’d like to conclude our Q3 2019 conference call. And on behalf of the entire EXFO team, thank you for joining us today.
That does conclude today’s conference. We thank you for your participation.