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EXFO Inc. (EXFO) Q4 2020 Earnings Call Transcript

EXFO Earnings Call - Final Transcript

EXFO Inc. (NASDAQ: EXFO) Q4 2020 earnings call dated Oct. 07, 2020

Corporate Participants:

Michelle O’Brodovich — Corporate Communications Manager

Philippe Morin — Chief Executive Officer

Pierre Plamondon — Chief Financial Officer and Vice President of Finance

Germain Lamonde — Founder and Executive Chairman

Analysts:

Thanos Moschopoulos — BMO Capital Markets — Analyst

Robert Young — Canaccord Genuity — Analyst

Tim Savageaux — Northland Capital Markets — Analyst

Daniel Chan — TD Securities — Analyst

Presentation:

Operator

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

Michelle O’Brodovich — Corporate Communications Manager

Thank you. Good afternoon, and welcome to EXFO’s fourth quarter and year-end conference call for fiscal 2020.

With me on the line today are Philippe Morin, EXFO’s Chief Executive Officer, and Pierre Plamondon, CFO and Vice President of Finance. Germain Lamonde, EXFO’s Founder and Executive Chairman, will be 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 may be affected by risks and/or uncertainties, including the impact of the coronavirus pandemic on our employees, customers and global operations. This may cause the actual results of the Company to be materially different from those expressed or implied today. For more information about EXFO, I encourage you to review our Form 20-F filed with the Securities and Exchange Commission. Our annual information form is available with Canadian Securities Commissions as well.

Please note that non-IFRS numbers may be used during this conference call. A reconciliation of these non-IFRS results with IFRS numbers is available in the Q4 2020 news release on our website. And with that — all dollar amounts in this conference call are expressed in US dollars, unless otherwise indicated.

And with that, I’ll pass it over to Philippe Morin, CEO.

Philippe Morin — Chief Executive Officer

Very good. Thanks, Michelle, and good afternoon everyone. In our fiscal year 2020, EXFO experienced the impact of the coronavirus pandemic on the global economy, which adversely affected our revenues and profitability. However, I’m pleased to see EXFO calls its fourth quarter on a positive note, with strong revenues and strong cash flow from operations.

We also made significant progress on our strategic plan in 2020. Our ongoing digital transformation allowed EXFO to quickly adapt to a virtualized selling environment and secure five new service assurance contract wins. Altogether, we generated revenue of $265 million, down 7% annually, with the full second half of the fiscal year affected by the pandemic. Regarding the bottom line, we delivered an IFRS net loss of $9.5 million in 2020, while our adjusted EBITDA amounted to $18.2 million. We reduced the impact of the pandemic through strict financial discipline, including companywide hiring freeze.

In August, we realigned our resources towards high growth drivers like fiber, 5G and cloud-native deployments to accelerate our Company’s transformation. Investments in lower growth areas were reduced. These restructuring initiatives we expect an annual cost savings of $5 million, will create a more resilient business model and position the Company for profitable growth in 2021.

Looking ahead, we’re excited about the opportunities available for our Test and Measurement and SASS product families. With that in mind, let me tell you a bit more about how both groups performed in the past year and their prospects for 2021.

In terms of Test and Measurement, revenues fell less than 4% in 2020. We consider this a solid achievement considering that preventive measures triggered by the pandemic affected EXFO’s ability to ship products and deliver services. Our revenues were also affected by the pause in large scale fiber deployments in favor of maintenance work.

On the lab and manufacturing test side, we delivered robust sales growth and an increased market share throughout 2020, mainly in the Asia-Pac region, where demand for optical component manufacturing is strong. Demand for field testing equipment should recover in 2021 with major fiber deployment projects on the horizon, provided that the second wave of the virus doesn’t bring extensive lockdown restrictions. We also expect to leverage the pending acquisition of InOpticals to expand our market share in the fast growing 400-gig and 800-gig lab and manufacturing test markets.

InOpticals supplies ultra-high-speed oscilloscope, bit-error rate testers and other critical test instruments to optical component and network equipment manufacturers. Given the strong need for fiber deployments, which comes from fiber-to-the-home, fiber-to-the-antenna, 5G infrastructure, and data center connectivity, and as well as a strong need for optical component manufacturing, we expect to build on our leadership position in optical testing in 2021.

Regarding our Service Assurance and Services and our SASS product families, revenues decreased 16% in 2020. In this case, the pandemic restricted our ability to call deals and install systems at customer premises. We also didn’t benefit from a large contract for network topology software like we did in the previous year. Our SASS business did close fiscal 2020 with a positive momentum. We secured orders with five new logos, five new mobile network operators in the fourth quarter, highlighting the strength of our service assurance solution and the increased activity in this market. These multiyear, multimillion dollar deals will increase our SASS backlog for 2021.

We expect this momentum to benefit our recently launched Nova Adaptive Service Assurance platform. This highly disruptive platform is powered by machine learning-based algorithms and automation capabilities, to monitor and troubleshoot networks by detecting anomalies and even predicting outages before they occur. These differentiated functionalities have resonated well with mobile operators that are transforming their networks. We also anticipate increased momentum in 2021 as mobile operators begin migrating to cloud native 5G stand-alone architecture. This heightened activity in the network core should accelerate demand for our Nova Adaptive Service Assurance platform in our Nova SensAI troubleshooting solution.

As a result, we’re approaching 2021 with a great deal of optimism for our SASS business. We have the firm intent to build on our number two position, currently at 10% of global market share in the fragmented probe-based monitoring system market. Turning to our business outlook, EXFO has suspended quarterly and annual guidance independently due to the ongoing uncertainty surrounding to the breadth and duration of the pandemic and its impact on the macroeconomic environment.

So at this point, I’d like to turn the call over to Pierre, so he can discuss more details and insights on our financials. Pierre?

Pierre Plamondon — Chief Financial Officer and Vice President of Finance

Thank you, Philippe, and good afternoon everybody. Annual sales decreased 7.4% to $265.6 million in fiscal 2020. Bookings meanwhile dropped 11.1% to $264.9 million for a book-to-bill ratio of 1.00. In the fourth quarter of 2020, sales reached $70.6 million, slightly higher than last year, despite the pandemic. However, bookings decreased to $63 million compared to Q4 ’19. As previously mentioned, annual decrease in sale and booking can be mainly attributed to the negative impact of the coronavirus pandemic, which reduced economic activity worldwide.

Gross margin before depreciation and amortization amounted to 56.9% of sales in 2020 compared to 58.6% in 2019. In the fourth quarter of 2020, gross margin reached 53.8% of sale including restructuring charges of 1.1%. Excluding these charges, the growth — our gross margin would have attained 54.9% in Q4 ’20. On an annual basis, our gross margin was negatively affected by the pandemic as we were forced to shutdown our manufacturing facility in China in February to limit the outbreak of the virus. This shutdown as well as the effect of the pandemic on project demand resulted in lower sale and lower absorption of our fixed costs.

EXFO gross margin was also affected by an unfavorable sales mix in 2020. For example and as Philippe mentioned, we did not benefit from a large contract for network topology software in 2020 as we did in 2019. Finally, our gross margin was negatively impacted by restructuring charge in fourth quarter 2020 of $0.9 million. These unfavorable factors were offset by a number of positive items including in the third quarter, a wage subsidy from the Canadian Government amounting to $0.7 million and the effect of the IFRS 16 of $1.1 million. We believe that our gross margin will range between 57% and 59% in fiscal ’21.

Moving to operating expenses, selling and administrative expenses totaled $92.3 million in fiscal ’20 compared to $98.6 million in 2019. In the fourth quarter 2020, SG&A expenses amounted to $24.6 million and included $1.9 million in restructuring charges. The $6.4 million decrease in SG&A expenses can be attributed to the wage subsidy provided by the Canadian government of $1.1 million, the positive impact of IFRS 16 on our selling and administrative expenses of $1.5 million, significantly lower travel expenses due to pandemic, lower commission paid out on lower sales level and tight control on expenses, and hiring freeze. These factors were partially offset by our restructuring charges in fiscal year ’20 compared to ’19 and salary increases year-over-year.

SG&A expenses as a percentage of sales, slightly increased to 34.8% in 2020 from 34.4% in 2019. We expect our SG&A expenses will range between 33% and 35% in 2021. Net R&D expenses totaled $45.5 million in 2020 compared to $50.6 million in 2019. In the fourth quarter of 2020, net R&D expenses amounted to $12 million. Likewise, the $5.1 million decrease in net R&D expenses in 2020 can be attributed to the wage subsidy provided by the Canadian government of $1.5 million, positive impact of IFRS 16 on our R&D cost of $0.8 million, as well as our less restructuring charges year-over-year of $2.4 million, and again, tight control on expenses.

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As a percentage of sales, net R&D expenses reached 17.1% in 2020 compared to 17.6% in 2019. We expect that net R&D expenses will range between 16% and 18% of sales in 2021. In 2020, IFRS net loss totaled $9.5 million or $17 per share. Net loss in 2020 includes expenses totaling $10.3 million, namely $5.5 million in after-tax amortization of intangible assets, $2 million in stock-based compensation costs, $2.4 million in after-tax restructuring charges and foreign exchange loss of $0.4 million. Net loss also include $2.4 million for the after-tax wage subsidy granted by the Canadian government.

In the fourth quarter 2020, IFRS net loss amounted to $3.6 million or $0.07 per share, which include an after-tax restructuring charges of $2.4 million or $0.04 per share. In terms of geography, in fiscal 2020, sales in Asia-Pacific improved 11.9%, while sales in the Americas and APAC [Phonetic] fell 10% and 13.9% respectively, being more impacted by the COVID. Looking at the sales split, the Americas accounted for 49% of sales, EMEA represented 30% while Asia-Pacific totaled 21%.

Turning to customer diversification, our top customer accounted for 8.3% of sales in 2020, while our top three represented 18.1% of sales. Moving on to a few key points on the balance sheet, our cash and short-term investments increased by $14.3 million to $33.7 million at the end of 2020. We raised our bank loan by $26.5 million in 2020, while other EBIT increased by $2.4 million. These items were partially offset by $2.1 million in cash flow used by operation, $7.6 million for the purchases of capital asset and $5.2 million for the repayment of long-term debt and liabilities.

At this time, I will turn the call over to the operator for the start of the Q&A.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Our first question today will come from Thanos Moschopoulos with BMO Capital Markets.

Thanos Moschopoulos — BMO Capital Markets — Analyst

Hi, good afternoon. Maybe starting off on the 5G wins you had since the Nova product, any additional color you can provide as far as the geographies of those wins? And then also some color maybe in terms of the key factors that drove the operators in question to choose your solution versus the competition? Thanks.

Philippe Morin — Chief Executive Officer

Thanks, Thanos. So yeah, these five customer wins were against Americas and Europe and they’re predominantly what we like is the fact that we are able to place incumbents and — in some of the players that you’re familiar with, Thanos, with NetScout and Empirix and Exceed [Phonetic] and so on. So for us to be able to prove the value of our new platform, the whole adaptive — Nova Adaptive platform was a key aspect of providing that — those wins. So and again these, as we mentioned in our press release, in August, they represented about $5 million of our bookings in Q4, but these deals are also multi-year and then therefore will be part of our — strengthening our backlog in 2021.

Thanos Moschopoulos — BMO Capital Markets — Analyst

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

Philippe Morin — Chief Executive Officer

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

So again pretty important deal for us in terms of helping us grow our market share, our addressable market and then our market share into the manufacturing development and research market segment.

Thanos Moschopoulos — BMO Capital Markets — Analyst

Okay. And then on opex, just some moving parts here between the restructuring charges, I think, typical seasonality that you have in the quarter. I guess all that being the case, how should we think about opex heading into next quarter. I mean, if we strip out the restructuring impacts and then factor, maybe some seasonal impact, do we assume that the run rate should be kind of down a little bit from what you had in Q4 or how do we think about that?

Pierre Plamondon — Chief Financial Officer and Vice President of Finance

Yes, Thanos, you’re right. You have to assume this is an impact of the vacation time and summer time, so where the expense tend to be lower in Q4 compared to the following quarters. At the same time, the currency, as you know, play a big role in our expenses. The average Canadian dollar get stronger in Q4. That’s why our opex tend to increase in Q4 a little bit because of that, and depending where the Canadian dollar would stand for Q1 that could be — could be an impact as well. Okay.

On the other side, with the restructuring plan that we have announced that we will start to see the benefit. We have announced a $5 million cost reduction over the — for the next 12 months with the restructuring plan that we have announced, and we should starting to see some benefit in Q1 with that plan.

Thanos Moschopoulos — BMO Capital Markets — Analyst

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

Philippe Morin — Chief Executive Officer

Yeah, we’re starting to see a back to normality, now again with the kind of second wave starting to come in, that’s the kind of caveat I’ll put. But when you look at our overall T&M portfolio, the high-speed solutions like 400-gig and 800-gig did really well. Our manufacturing portfolio, as I mentioned earlier, the nice growth and market share increased where we had some challenges on the fiber deployment, I just highlighted.

But we do feel that the high demand of broadband, high-speed broadband connectivity by — in the market is going to start really getting that normality into that — the fiber build out and especially with — as we’re seeing with 5G in certain countries where we’re seeing 5G infrastructure also building up. So, so we do expect to see that and we’re starting to see that funnel increase and momentum in that fiber build out, again assuming that the second wave doesn’t get us into the type of lockdown that we saw in the spring.

Thanos Moschopoulos — BMO Capital Markets — Analyst

All right, thanks. I’ll pass the line.

Operator

All right. Moving on from Canaccord Genuity, we have Robert Young.

Robert Young — Canaccord Genuity — Analyst

Hi. The T&M bookings in the quarter were a little bit weaker, is most of that seasonality or was there some other factor there?

Philippe Morin — Chief Executive Officer

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

Robert Young — Canaccord Genuity — Analyst

Okay. I guess the stresses that work from home trends and whatnot are putting on the network, is that an underlying driver of activity in T&M equipment and handheld sales or is that something else, so that’s been pushed out by logistics and COVID?

Philippe Morin — Chief Executive Officer

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

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Robert Young — Canaccord Genuity — Analyst

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

Philippe Morin — Chief Executive Officer

Yes. So the market demand that we just talked about for broadband connectivity and then the market demand for data center connectivity, fiber-to-the-home, fiber-to-the-antenna is driving the need for more and more optical components, optical transceivers and so on, and then the manufacturing of these components are predominantly as you know, Robert, into Asia, into China and Asia and that’s driving again the combination of Yenista acquisition, the combination of our existing portfolio, we were able to really capture increased market share and do further business with that platform.

And then with InOpticals, we saw an opportunity to really complement our portfolio as more and more of these optical components are moving into pic technology and photonic integrated chip technology and we felt an opportunity to really complement. And I think Germain was actively involved in the acquisition or the pending acquisition. I’ll leave it over or turn it over to Germain. So I’m sure he can provide a bit more color on InOpticals. Germain?

Germain Lamonde — Founder and Executive Chairman

Thanks, Philippe. Yeah, well, actually Robert, this is an area in which EXFO has been involved in quite extensively. This is a strategic area for us, what we call the MDR, so manufacturing, development and research. We’ve made some important moves in the last few years, both internally in terms of internal development, strong focus both in our optical test and our high-speed test, as well with the acquisition of Yenista. So what we’re doing here with this combination is by adding InOpticals, it’s giving us one of the most complete portfolio of products within this industry for the very high speed component testing, system testing and so forth.

So we think that it’s an area in which EXFO has done well and we are expecting to continue to do well as we can now create solutions that are pretty unmatched within the industry with the advanced capabilities that we have. InOpticals is covering a market that’s in the range of $150 million which basically as a smaller organization that was difficult for them to really embrace the global market and compete against larger players, which we did with Keysights and [Indecipherable] and few others.

So I think the combination of InOpticals with EXFO’s capabilities, to me this is what we call often time the SSS acquisition. So very synergistic. So there’s a lot of synergies to be generated. It’s a strategic segment for us and it’s also a small acquisition. So that’s the SSS. So it’s a small acquisition that we can really leverage to bring and create additional value for shareholders as we did with Yenista.

Robert Young — Canaccord Genuity — Analyst

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

Philippe Morin — Chief Executive Officer

Yes. So Robert on the RFQs, our activities around the service assurance business, we actually continue to see a good momentum there, a lot of customers are now going through — now that they made decisions around who are they going to be using for their 5G core and their 5G RAN, they are now moving into the next phase of the service assurance kind of activities, and we see a lot of RFQs there. And again the fact that we were able to close five of them in Q4 and now some of them were 4G technology evolving to 5G, but we’re starting to see an increase activities there across mainly in our case, Americas and Europe.

And so, and that bodes well for us in 2021 because we do believe that our customers will — operators are looking at some places accelerating their 5G deployment. I’m really — I was really happy to see the CBRS spectrum auctions reaching up to $4.6 billion. So we’re seeing more and more spectrum investment going into this business, ultimately will be translated into network deployments and therefore more opportunities for us to leverage our solution in that market.

Robert Young — Canaccord Genuity — Analyst

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

Philippe Morin — Chief Executive Officer

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

Robert Young — Canaccord Genuity — Analyst

Great. And so then if investors are looking for like a sign of a lead indicator for the RFQs to turn into bookings, is it stand-alone radio or is it something that would happen before that starts to take off? And I’ll pass the line.

Philippe Morin — Chief Executive Officer

Yeah, the leading indicator for us now is once the customers have made decisions on the 5G core for SASS to start off with, for the SASS business, the leading indicator is the decision they have now made on 5G core and who have they selected as a provider and therefore, we know that right behind that there’ll be a need for service assurance activities. And then on the T&M side, the leading indicator is absolutely what you just said is the RAN deployment. Once you start seeing some deployment, now that’s a leading indicator for us to — for our T&M business.

Robert Young — Canaccord Genuity — Analyst

Okay. Thanks for answering all the questions.

Philippe Morin — Chief Executive Officer

Thank you.

Operator

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

Tim Savageaux — Northland Capital Markets — Analyst

Hello, good afternoon. Sorry about it. All right, I’ll try to struggle through this. My question is on what you’re seeing from a spending perspective from your carrier customers as was previously mentioned, T&M bookings look pretty weak in the quarter and at least, it appears that revenues with your largest customer were down pretty sharply on a sequential basis and given some of what we’ve seen, in various suppliers across the industry that might not be surprising, although it looks like your revenues in the Americas were actually pretty decent in the quarter.

So I guess my question is if you can characterize kind of the overall spending environments and I guess demand environment, putting aside any pandemic related network, access issues and whether you’re seeing that differing trends across some of your traditional large customers kind of the AT&Ts and Verizons of the world versus other segments of the fiber test market especially with regard to field whether that’s cable, rural broadband, Europe you’ve called out strength there. Were any of those dynamics at work as you look at your bookings and revenue results in the fourth quarter?

Philippe Morin — Chief Executive Officer

Yeah so, Tim, so overall, when you look at the seasonality of our Q4, it’s always from a T&M point of view, it’s always a quarter where we tend to have an impact on bookings for the T&M side. So there is that seasonality aspect. What we’re seeing though in terms of overall demand and as we move into 2021, our fiscal year is that depending on countries and depending on geographies, we’re seeing some acceleration of deployment. And I would tell you, we’re seeing a lot of activities in North America, we’re seeing a lot of activity in the Western Europe, but there are other parts that we are, we see maybe more conservatism in terms of the spend.

But again, if you look at places where fiber to the home, high-speed connectivity, rural programs being put together by governments, that is really the momentum and funnel increase that we’re seeing comes from all of these other activities. Asia-Pac for us tends to be very — again when we talk about the MDR market, optical component manufacturing, transceiver manufacturing, that to us is really important high speed solutions 400-gig, 800-gig and now the network equipment vendors are going to their labs with those type of solution. We’re seeing some of that activities as well.

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Some — what we’re monitoring now is the 5G acceleration, where will 5G get accelerated or will it get slowed down. And as I mentioned on previous calls, we’re seeing certain countries like the US, China, Japan, Korea, accelerating their 5G investments. But other countries, they are seeing a — as an example, a delay of spectrum auctions, a delay like in Spain or some of these countries in Africa and so on that we will believe will also have an impact in terms of their 5G deployment. So it’s a bit of mix, Tim that I do think that when we look at our 2021, we’ll be seeing some nice momentum behind the whole fiber connectivity, nice momentum around our MDR market and I do think that from our service assurance point of view, the activities around 5G core, 5G RAN for service assurance, we expect that that’s going to really continue to see that momentum as we continue to be in our fiscal year 2021.

Tim Savageaux — Northland Capital Markets — Analyst

Okay. And if I could follow up briefly, so you seem to indicate that seasonality might be more of a factor than in Test and Measurement bookings has been any kind of pull forward dynamic or a broad based slowdown in spend at the larger US carriers. Just want to confirm that. And then given the overall nature of your commentary heading into ’21, it sounds like you might expect at least somewhat of a return to kind of a normalized mid single-digit growth rate on the Test and Measurement side. You probably don’t want to go that far in terms of expectations, but any comment on that would be great. Thanks.

Philippe Morin — Chief Executive Officer

Yeah. So I think the activities in the US continues to be around the fiber deployment, around 5G infrastructure build-out continues to be strong. As I mentioned earlier, Tim, the sales cycle takes more time to call it deals, to get all the POs released, to get every — all the activities and so on. That just is a nature of having a lot of our customers working from home and there is creating of that and you compound that with the seasonality is effectively what we saw in our T&M bookings in Q4.

So for me it’s — as we get into our fiscal year, the whole unknown and you won’t be surprised but the unknown is around that whole what will happen with the second wave of the pandemic and what it will — what will be the impact on the macro environment and so on and that’s the unknown and that’s what’s creating a bit of the challenge for us to figure out how our business will evolve and we’re growing in 2021.

Tim Savageaux — Northland Capital Markets — Analyst

Okay, thank you.

Philippe Morin — Chief Executive Officer

Thank you.

Operator

We’ll move on to our next question, from Daniel Chan with TD Securities.

Daniel Chan — TD Securities — Analyst

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

Philippe Morin — Chief Executive Officer

So on the service assurance business, Dan, the type of projects as you — you get a purchase order to cover and install the systems and the revenue profile tends to be over milestones that takes usually over the next 12 months. And so, the revenues will be recognized into the next 12 month depending on the projects, but I’ll just give you kind of at a high level. And so that’s kind of the — and then once you’re into the network, then you get expansion, either you put more of our virtual probes into the network, you scale the network and then ultimately that that — with that you continue to get more purchase orders, more maintenance contract that ends up being the supporting software upgrades into the network.

And that’s why these important — these contracts are important because they are multi-year contract, and not just one year and that’s why we wanted to stress the – the momentum we’re seeing with these five wins and we tend to be, you start by a specific region, specific deployment, number of subscriber and then ultimately you grow from there and that’s really important to have that footprint, so you can grow the business. What was your second, Dan, I’m sorry?

Daniel Chan — TD Securities — Analyst

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

Philippe Morin — Chief Executive Officer

Yeah. So I’ll give a — one of these five accounts we’ve actually provided and it was AIRCOM in Ireland, and it starts off with our first win and usually will double in terms of the size to triple depending on the geography. So we started with a smaller geography and then you double the footprint and ultimately it can be as high as 3 times. What you’ve put in as you increased the number of subscribers and so on. And the way it translates for us, again one of the important factor that we monitor, Dan, is the backlog that we have on our service assurance business and the backlog is still very healthy as we head into our 2021, we’re up to about $62 million of backlog of our business.

And that includes project that you got to do the milestone but it included in their maintenance contracts that you get on the [indecipherable] basis for — to maintain the software and so on and so it’s, that’s why it’s not just about the initial footprint but then you start adding more and more geography, more and more subscribers and the maintenance and renewals and that’s why sometimes it doubles the value of the contract to sometimes triple.

Daniel Chan — TD Securities — Analyst

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

Philippe Morin — Chief Executive Officer

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

Daniel Chan — TD Securities — Analyst

Great, thank you.

Operator

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

Philippe Morin — Chief Executive Officer

All right. So just a few key takeaways before we conclude this call today. So first EXFO made significant progress on our strategic plan in 2020 despite the pandemic. And we’ve quickly adapted to a virtual — virtualized selling environment and we’ve consolidated our role as a trusted advisors that generated healthy revenue. Second, we positioned the Company for profitable growth by strengthening our focus on growth drivers like fiber, 5G and cloud native deployment and restructuring efforts, all reducing investments in other areas. And finally, we’re excited about the wealth of opportunities in 2021.

On the T&M side, we expect major fiber products to accelerate the fiber-to-the-home, fiber-to-the-antenna, 5G infrastructure and data center interconnect deployments. And on the SASS side, we anticipate order of momentum should ramp up as mobile operators begin migrating, as I said earlier to cloud native and 5G stand-alone architectures. So at this point, this concludes our Q4 2020 conference call. On behalf of the entire EXFO team, thank you very much for joining us today.

Operator

[Operator Closing Remarks]

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