Categories Earnings Call Transcripts, Technology

EXFO Inc  (NASDAQ: EXFO) Q3 2020 Earnings Call Transcript

EXFO Earnings Call - Final Transcript

EXFO Inc  (EXFO) Q3 2020 earnings call dated July 08, 2020

Corporate Participants:

Vance Oliver — Director, Investor Relations

Philippe Morin — Chief Executive Officer

Pierre Plamondon — Chief Financial Officer, Vice President, Finance

Analysts:

Daniel Chan — TD Securities — Analyst

Thanos Moschopoulos — BMO Capital Markets — Analyst

Robert Young — Canaccord Genuity — Analyst

Tim Savageaux — Northland Capital — Analyst

Richard Tse — National Bank Financial — Analyst

Presentation:

Operator

Good day, and welcome to EXFO’s Third Quarter Conference Call for Fiscal 2020. 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, sir.

Vance Oliver — Director, Investor Relations

Good afternoon, and welcome to EXFO’s third quarter 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 also be available to answer questions during the Q&A period.

A reminder that this conference call will include certain forward-looking statements and our estimates concerning our intents, beliefs or expectations regarding future events that may affect EXFO. Please note that such comments 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 Q3 2020 news release on our website. All dollar amounts in this conference call are expressed in US dollars, unless otherwise indicated.

So without further delay, I will turn the call over to Philippe.

Philippe Morin — Chief Executive Officer

Thanks, Vance, and good afternoon, everyone.

So despite constraints and restrictive measures in many countries, EXFO navigated through the coronavirus pandemic with a solid financial performance in the third quarter of 2020. We delivered sales of $66 million and an IFRS net earnings of $3.2 million in the third quarter. In terms of adjusted EBITDA, it amounted to $10.7 million or 16.1% of our sales. These encouraging results were achieved by proactively implementing cost controls and also benefiting from a wage subsidy of $3.3 million from the Canadian government to help maintain employment during the pandemic. Now, had EXFO not benefited from the government wage subsidy, our adjusted EBITDA margin would still have been in double-digit in this quarter. Now our bookings were down 15% year-over-year for a softer book-to-bill ratio below 1. However, we are pleased that our Test and Measurement bookings dropped nearly 7% year-over-year, while our SASS-related business was more severely affected by the pandemic. Now, on the other hand, we have potentially significant SASS deals closing in our fourth quarter, which I will address a bit later.

But now let’s take a closer look at how our two major product families performed in the third quarter of 2020. In terms of Test and Measurement, sales were down moderately 7.5% year-over-year and again, mainly due to the impact of the corona virus pandemic. More specifically, the government-imposed restriction in several countries within mainly Americas and Europe during our quarter, limited our ability to ship test instruments and deliver services. We also saw a pause in large-scale fiber installations with communication service providers, such as fiber-to-the-home and fiber-to-the-antenna, mainly — while our service providers were mainly focusing during that period on maintenance work. As economies are gradually reopening around the world, we are witnessing an increase in our funnel and our opportunities for optical and high-speed test solutions. In addition, our advanced optical test solutions for our manufacturing and lab market continues to deliver healthy growth, mainly in China, where we’ve seen an acceleration of 5G investments.

On the Service Assurance, Systems and Services side, sales decreased 16% year-over-year and again, largely due to the coronavirus pandemic. Market dynamics, however, are different for this business. It has longer selling and revenue recognition cycles than obviously our test business, and with the pandemic affecting our ability to close deals and install new systems. Despite the coronavirus impact, our customer engagements and our automated end-to-end troubleshooting solutions for cloud-native network continues to expand.

In fact, our proof-of-concept trials for our Nova SensAI monitoring and troubleshooting solutions have now increased from three to seven in the third quarter. Nova SensAI uses machine learning to detect, predict network anomalies in real time, and it can pinpoint which subscriber is impacted, where it has happened and for how long, as well as helping to diagnostic the route cause for rapid resolution. This solution is an integral part of EXFO’s recently-launched Nova Adaptive Service Assurance platform, the first intelligent automation solution, enabling mobile network operators to deliver ultra reliable and high-quality service experience in 4G and 5G environment.

Looking ahead, it remains difficult to forecast the pandemic impact on the global economy. But given that the long-term drivers like fiber and 5G deployments remain intact, we’re optimistic that EXFO’s revenue levels will improve in upcoming quarters and the operating leverage of our business model will be fully demonstrated. We continue to witness increased RFP activities and trials for our service assurance solutions for 5G core application. We expect positive decisions on a number of these RFPs to be made in this fourth quarter of our fiscal 2020.

So at this point, I’d like to turn the call over to Pierre so he can cover our financials.

Pierre Plamondon — Chief Financial Officer, Vice President, Finance

Thank you, Philippe.

Sales decreased 10.1% to $66.1 million in the third quarter of 2020 from $73.6 million in the third quarter 2019 mainly due to the ongoing impact of the coronavirus pandemic and negative currency fluctuation year-over-year. Bookings, as Philippe mentioned, decreased 15% to $59.1 million in the third quarter of 2020 from $69.6 million in the same period last year for a book-to-bill ratio of 0.89. Likewise, the drop in bookings can be attributed to the COVID-19 pandemic and negative currency impact.

Gross margin before depreciation and amortization amounted to 57.7% of sales in the third quarter of 2020 compared to 58.6% in the third quarter of 2019. Our gross margin was negatively affected by a lower sales level year-over-year as a result of the coronavirus pandemic, which prevented us from better absorbing our fixed costs. This was partially offset by the wage subsidy of the Canadian government in Q3 2020.

In terms of operating expenses, selling and administrative expenses totaled $18.9 million or 28.6% of sales in the third quarter of 2020 compared to $23.8 million or 32.3% of sales in the same period last year. This $4.9 million decrease in SG&A expenses year-over-year mainly reflects a $1.1 million wage subsidy by the Canadian government to mitigate the effect of the pandemic. The adoption of IFRS 16 had a positive impact of $0.4 million on our SG&A expense year-over-year. In addition, world-wide restriction of various forms of transportation due to the pandemic resulted in lower travel expenses year-over-year.

Net R&D expenses reached $9.2 million or 13.9% of sales in the third quarter of 2020 compared to $12 million or 16.3% of sales in the same period last year. Likewise, the $2.8 million decrease in the net R&D expenses can be attributed to the Canadian wage subsidy program and the positive impact of the adoption of IFRS 16 in the net R&D expenses year-over-year.

IFRS net earnings totaled $3.2 million or $0.06 per share in the third quarter of 2020. Net earnings in the third quarter of 2020 included $1.4 million in after-tax amortization of intangible assets, $0.5 million in stock-based compensation costs and $0.1 million in foreign exchange loss. Net earnings in the third quarter of 2020 also includes $2.4 million for after-tax wage subsidy by the Canadian government to help maintaining employment during the pandemic. In comparison, IFRS net earnings amounted to $21,000 or $0.00 per share in the third quarter of 2019.

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Geographically, the Americas accounted for 45% of total sales in Q3 ’20, Europe, Middle East and Africa represented 33%, while Asia-Pacific totaled 22%. In comparison, the sales split was 51%, 30% and 19% among the three geographic regions in the third quarter 2019. In terms of customer mix, our top customer accounted for 9.6% of total sales in Q3 ’20, while our top three represented 18.2%.

Turning to a few key points on the balance sheet. Our cash position decreased to $20.5 million at the end of Q3 ’20 from $20.9 million in the previous quarter. This $0.4 million decrease is mainly due to $16.9 million in cash flow used by operations, which is largely related to the increase of our receivables to a more normal level compared to previous quarters, $1.9 million [Phonetic] for the purchases of capital assets, and $1.1 million for the repayment of lease obligation and long-term debts. These cash outflow were mostly offset by an increase in bank loan by $19.9 million. At the end of Q3 ’20, EXFO had a net debt position of $17.5 million and available revolving credit facility up to $39.7 million. During the third quarter, we extended our revolving facility by CAD20 million until May 31, 2021.

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

Questions and Answers:

Operator

[Operator Instructions] We’ll take our first question from Daniel Chan with TD Securities. Please go ahead.

Daniel Chan — TD Securities — Analyst

Hi guys. Thanks for taking my question. These numbers were definitely better than I expected, so congratulations on that. Was there any kind of expansion capex from your customers in the quarter? And would you say that was a large driver for some better-than-expected results in the T&M space this quarter?

Philippe Morin — Chief Executive Officer

As I mentioned, I think we’ve seen some again, continuing positive trends on our successful market penetration around the manufacturing and lab environment. As you know, we made an acquisition almost two years ago. It’s starting to really — it is paying off, allowing us to gain market share. And we’re continuing as well to see more investments going into the latter part of that quarter of people going in with fiber to the home and fiber to the antenna.

Now, if you look at our customer base, we’ve seen customers announcing an increase in our capex, Verizon mainly being one where they’ve announced a $500 million capex increase for network build out. So another — we’ve seen another service provider do the same to really respond to the bandwidth growth that we’ve seen since the beginning of the pandemic. But overall, on our T&M, I do see it’s the same kind of business growth that we’ve seen in our high-speed solutions, our manufacturing solutions, and we’re getting the benefit of the decisions we made a few years back and leveraging that position in the market.

Daniel Chan — TD Securities — Analyst

Okay. That’s helpful. Now you mentioned that 5G investment in China seems to be ramping up aggressively. Any changes to time lines on 5G and SDN roll-outs in the other markets in Europe and North America?

Philippe Morin — Chief Executive Officer

Yeah, I think you’re going to see different responses based on per countries and per customers. I think we’ve seen customers that actually have decided to accelerate 5G because they think its so critical. And again, I’ll restate Verizon and AT&T. In certain countries in Europe, you’ve seen a bit of delays mainly as well as auctions being delayed and so on, so while in China, we all know we’ve seen as well some acceleration of that. But ultimately, I still go back with the two growth vectors we are focusing on from our service provider customers and our webscale customer providers around fiber infrastructure investment and 5G. To me, they remain strong, and that’s why we’re optimistic about getting our business and getting some growth in our revenue going forward.

Daniel Chan — TD Securities — Analyst

Yeah. That’s going to be actually my next question. You sound pretty confident in winning some 5G RFPs in Q4. Just wondering how those discussions are going and what’s driving some of that confidence.

Philippe Morin — Chief Executive Officer

Yeah. As I mentioned, we’re seeing a lot of activities in RFPs. They do take, especially with this pandemic crisis, they take a bit more time to close. But we feel pretty confident that we are getting some of our fair share of these wins. And the fact that we do expect that our backlog will be able to also — we’re going to be able to grow our backlog both for our SASS and T&M business that will really help in the predictability of our revenue profile. I would do — keep in mind that usually, our quarter four — the fourth quarter four, which is really summer months, are a bit slower on T&M as we know because of just some of the constructions activities in summer being a bit slower down. So that’s a bit of a seasonality that we have to deal with.

Daniel Chan — TD Securities — Analyst

Okay, thanks. I’ll pass it on.

Philippe Morin — Chief Executive Officer

Thank you.

Operator

Thank you. We’ll take our next question from Thanos Moschopoulos with BMO Capital Markets. Please go ahead.

Thanos Moschopoulos — BMO Capital Markets — Analyst

Hi, good afternoon. Philippe, can you comment on how the supply chain and logistics issues are looking now? I presume it’s going to get a bit better. But to what extent might that still be a constraint, do you think, in the current quarter?

Philippe Morin — Chief Executive Officer

Well, so first of all, let’s talk about our supply chain. Our factories are up and running. And like I mentioned in the previous quarters, we’re fully operational in all our factories, and that’s obviously benefiting us in terms of being able to respond quickly to our customers’ need. In terms of our overall — our own supply chain, and when you look from orders all the way to shipments, I do think that we’ve seen the recovery. And the last phase, I guess, what’s really the thing that we’ve got to continue to really navigate through is around the whole logistics side of things. So being able to deliver equipment to our customers, we have to schedule it, make sure they have people over there. There’s still some challenges in terms of flights and trucks and so on. But overall, manageable, and we’ve been able to really work around those in our Q3.

Thanos Moschopoulos — BMO Capital Markets — Analyst

Okay. Do you have any guesstimate as to what the impact might have been in Q3 if you didn’t have any of the stimulus, or is that hard to assess?

Philippe Morin — Chief Executive Officer

No, I think it’s been very marginal. The only comment I will make, Thanos, is obviously what the uncertainty associated with the first wave expanse of the pandemic or even a second wave hitting, that’s the part of the — a bit of the unknown from the point of view of predictability of our business. But in terms of Q3, it was a marginal impact.

Thanos Moschopoulos — BMO Capital Markets — Analyst

Okay. From an opex perspective, I guess there’s some moving parts here. I guess one question is how long the stimulus might last. But I mean, putting that aside, if we look at the numbers underlying without the stimulus, normally, you’d have a downtick in Q4 due to vacation seasonality. Should we expect the same this quarter? And then looking past that, how should we think about maybe permanent cost reductions versus temporary cost reductions?

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Philippe Morin — Chief Executive Officer

So I’ll let Pierre answer the first question on vacation, and I’ll take — I’ll let you go first, and I’ll answer the other piece.

Pierre Plamondon — Chief Financial Officer, Vice President, Finance

Yeah. Yeah, you’re right, Thanos. Usually, in Q4, we see the benefit of the vacation where the expense tend to be lower. Q3 has been quite low with the wage subsidy that we got from the Canadian government. We won’t have those in Q4 as we no longer qualify for the program. So that’s the main point. The main saving that we got in Q3 also was the reduction in travel. We do expect that that reduction will continue at least for Q4, as most of the countries are still locked down right now. So we could assume some reduction if you compare it to the run rate of Q1/Q2, and not really Q3.

Philippe Morin — Chief Executive Officer

And the point I’ll add, Thanos, is we’re going to continue to be very disciplined with regards to our opex costs. So we’ve achieved, as Pierre has highlighted, obviously, travel reduction, but we had a hiring freeze. We’re very careful with our — the contractors we’re using. We’ve gone into a much more virtual engagement with our customers. That is actually an interestingly favorable in terms of being able to outreach and bring more experts in front of our customers. All of that new environment, we’re going to continue to adapt and see how we can continue to grow our business while really being, as I mentioned, diligent on our cost and our opex.

Pierre Plamondon — Chief Financial Officer, Vice President, Finance

Maybe one thing to add. [Speech Overlap]

Maybe, Thanos, one thing to add as well. So the Canadian dollar was weak in Q3, the average was CAD1.39, getting a little bit stronger in Q4. So that will have some negative impact on our opex cost by increasing our opex a little bit because of that as well.

Thanos Moschopoulos — BMO Capital Markets — Analyst

Okay. And then would you [Phonetic] — maybe had any impact as far as maybe market share shift? And I’m just curious as to — has there been any difference in terms of your ability to maybe response to customer orders and ship Test and Measurement equipment to them versus some of your competition? Or has everyone been in kind of an equal footing in that regard?

Philippe Morin — Chief Executive Officer

We’ll see the impact, Thanos, over the full year, but we do think that because our factory were up and running throughout this quarter, especially around the manufacturing and lab market that we were able to gain market share. Again, it will be more interesting to really compare those numbers and when we get the full year, but we do believe that on the T&M side, we have increased our market share. We do believe as well in high-speed — 400-gig high-speed solutions, we do believe that we’ve actually gained market share as well because we’re able to respond. As you know, we do our own manufacturing with our three factories, and I do believe it brought us a competitive advantage to respond faster to our customers and then, therefore, leading into market share improvement.

Thanos Moschopoulos — BMO Capital Markets — Analyst

Great. Thank you. I’ll pass the line.

Operator

Thank you. We’ll go ahead and take our next question from Robert Young with Canaccord Genuity. Please go ahead.

Robert Young — Canaccord Genuity — Analyst

I was hoping you could maybe give a bit of insight. Sorry if I missed something earlier in the call, but is there any cadence of bookings that you can help us with? Last quarter, you had a strong book-to-bill in a tough revenue quarter. Now you’ve got lower book-to-bill and a slightly stronger revenue quarter. Is there any cadence of bookings that you could help us understand there?

Philippe Morin — Chief Executive Officer

Yes. Robert, on the bookings side, I would tell you that we are pleased with — although it’s a decrease, but being 7% down year-on-year for T&M considering the COVID impact in Q3, and as you know, that quarter in particular was substantially impacted in a lot of countries. To be 7% down on T&M, we felt that that was a really good performance, especially in the month of May, in particular, with the bookings we were able to close. On SASS, I do think that the COVID really impacted us in terms of when you’re looking at doing new RFPs, new business, trying to displace an incumbent in a COVID environment, it did take a bit more time to close deals. So it’s really come down to timing of closing these deals. So it was not — they were not lost deals. It just takes more time to — in this environment to close.

And as I mentioned in my opening statement, our funnel is going up. There’s more RFPs being — happening and we do believe we’ll be able to close some of these deals, potential deals that we have in Q4 and coming up, mainly on the SASS side. But again, both T&M and SASS, we see the funnel and the opportunities increasing as we speak in our Q4.

Robert Young — Canaccord Genuity — Analyst

Okay. Okay. I noticed the accounts receivable jumped up quite a bit. Is there anything in there? Are you seeing any lengthening in payments?

Philippe Morin — Chief Executive Officer

Pierre?

Pierre Plamondon — Chief Financial Officer, Vice President, Finance

Not really, Robert. It’s mainly Q2 was very low, due to the fact that we have been hammered in February on shipment. This is why we have a very low February month. So we’re more in line with previous quarter in the $50 million, $55 million in the receivable. So we haven’t experienced any bad debt, major bad debt or more difficulty. We need to keep tight control on the credit. But for me, being over $50 million, $55 million, this is back to normal, what we have seen in the previous quarters.

Robert Young — Canaccord Genuity — Analyst

Okay. And then maybe just — is there any other color I can get from on the deals that might close in Q4, is there any context around size or confidence on closing, or…? I imagine the backlog, I think last quarter, you said there was around $60 million in SASS. Did it — are these deals that would have been in the backlog last quarter? Is there any other information you can give us there?

Philippe Morin — Chief Executive Officer

What I could bring a bit more color, Robert, is the backlog is, again, is pretty sound with regards to our SASS business, but these would be additional — I would actually tell you, new logos. So this is winning new customers and that we are not — don’t have an existing position. And as you know, they take longer, these SASS deals, to get revenue recognition because there’s always some professional services work that we have to do and get customer acceptance and so on, which is quite a revenue cycle than we see on T&M.

Robert Young — Canaccord Genuity — Analyst

All right. It’s great to hear. I’ll pass it on. Thank you.

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Philippe Morin — Chief Executive Officer

Thank you.

Operator

Thank you. We’ll go ahead and take our next question from Tim Savageaux with Northland Capital. Please go ahead.

Tim Savageaux — Northland Capital — Analyst

Hi, good afternoon, and congrats on the better-than-expected results. I have a question, and Philippe, I think you referred to this briefly. We’ve seen what appears to be a lot of strength globally in fiber access markets, 10-gig PON upgrades, what have you. Pretty broad-based. And obviously, somewhat of an uptick driven by work-from-home traffic amongst cable operators as well. So I guess my question is, as you look at the access portion of your T&M business, I wonder if you could talk about what you’re seeing in terms of either funnel activity orders connected to any increase in fiber-to-the-home deployment globally? And I’ll follow up from there.

Philippe Morin — Chief Executive Officer

Yeah. So Tim, when we look at our T&M business, the growth vectors that helped us get the bookings and the revenues were predominantly, as I mentioned, around our manufacturing and lab market, which continues to do really well, our high-speed solutions like 400-gig which does really, really well, and then as well, we are continuing to see solid performance on some of the optical RF solutions that we have and deployed over the past quarter. What you highlighted is — because of the pandemic, a lot of the what I would call fiber build out, whether it fiber-to-the-home, fiber-to-the-antenna, the densification of fiber-to-the-antenna that we’ve seen in Americas, North America, they’ve been obviously impacted by COVID, where the funnel is increasing is exactly what you just highlighted.

Fiber-to-the-home, especially with COVID, people are realizing that they will get better broadband connectivity with fiber deployment with fiber access, whether it’s PON technology, whether it’s fiber deep, and we are seeing the impact of the funnel of those — that particular market, as you highlighted. And it’s not just in North America that we’re seeing this, but we’re seeing this across Europe as well. And we’re seeing that in certain countries in Asia-Pac.

Tim Savageaux — Northland Capital — Analyst

Okay. And I imagine that will take a little while to develop. As you mentioned, it’s sort of activity in the funnel. But is that kind of part of what’s behind your stated optimism for increasing revenue levels? I don’t know exactly how you meant that. It looks like there’s maybe some seasonality at play as we look at fiscal Q4. But to the extent that you’re optimistic about growth heading into fiscal of ’21, would it be kind of a continuation of some of these current trends you’re seeing around lab and production and high-speed with maybe some of the access and — speaking of T&M here, coming up to be a more significant driver as you kind of look forward?

Philippe Morin — Chief Executive Officer

Yeah. So Tim, my comment was really more than just what I would call next-quarter optimism. It’s exactly what you said. When we look at our fiscal year 2020, the fundamentals behind where we’re investing, where we’ve made acquisitions, we are feeling optimistic about the opportunity to respond to the customers’ needs around fiber deployment, high-speed solutions, lab, manufacturing. And on the SASS side, we’re starting to see, as I mentioned, a lot more activities around 5G deployment, 5G core deployment. The caveat is obviously the global economy and what will happen and — with potential recession or slowdown and an impact on GDP. And this is the challenge that we have. Spent a lot of time talking to our customers, we’re trying to get a better feel of their capex spend and where they’re going to go ahead with their investments in terms of build out and so on. Our business around — with the webscale, by the way, is also increasing, whether it’s between the data centers or within the data centers, and we see that continuing. And as you know, there’s a whole discussion around edge data center build out that we do believe will be based on interconnected inside and outside with optical technology. And again, giving us the optimism that focusing on fiber and focusing on 5G is the right strategy for us.

Tim Savageaux — Northland Capital — Analyst

Okay. Thanks very much.

Philippe Morin — Chief Executive Officer

Thank you, Tim.

Operator

[Operator Instructions] We’ll take our next question from Richard Tse with National Bank Financial. Please go ahead.

Richard Tse — National Bank Financial — Analyst

Yes, thank you. So you referred to strength here in China. I’m kind of curious, on a relative basis, prior to this pandemic, would you say that kind of scale or momentum is back to where it was.

Philippe Morin — Chief Executive Officer

I do think that — it’s a bit difficult to answer, but I do think there is a two answers to your question. The first one is, we are seeing the China — the Chinese government making a priority in infrastructure build out for 5G and that we do see the impact of that. We do a lot of — again the manufacturing business, we do — we help transceivers, manufacturers. We help people building optical components. And I do feel that that is not just necessarily into the Chinese market, but overall the global need for those type of products. But — so I would say it is a bit of combination of both. So, a real infrastructure investment build out in China and then ultimately as well high demand for optical components.

Richard Tse — National Bank Financial — Analyst

Okay. And it sort of kind of dovetails into this other question. Like on a global basis, how would you sort of rank the relative strength of the regions having sort of come back here?

Philippe Morin — Chief Executive Officer

It’s — Richard, I was really — again, it’s interesting to see within the quarter how the regions were gradually reopening up. Obviously, China being the first one being hit. But the first one to be reopening. We saw the — some of the activities going there. EMEA was more impacted for our business. I mean, we saw, obviously, countries being closed down, economy has been closed down for a big part of that particular quarter. And we saw that as a bigger impact. Americas was interesting. The US performed better, especially in the month of May for us. Canada as well, but Latin America, obviously, as I’m sure you’ve seen the news, was a softer quarter.

Richard Tse — National Bank Financial — Analyst

Okay. Great. Thank you.

Operator

[Operator Instructions] Seeing as we have no further questions at this time, I’d like to turn the call back over to CEO, Philippe Morin for any additional or closing remarks.

Philippe Morin — Chief Executive Officer

Thank you. So just a few key takeaways before we conclude the call today. So, again, first, we are very pleased with our solid financial performance in the third quarter of 2020. We delivered a double-digit adjusted EBITDA margin during a pretty important pandemic crisis here. Second, our proof of concepts for our Nova SensAI monitoring solutions continues to gain traction with customers as we have increased files from three to seven in the third quarter.

And then finally, despite the pandemic, the fiber and 5G growth drivers remain intact, with some countries, as I mentioned, even accelerating their investments. So, given our market-driven focus on the two long-term drivers, EXFO’s revenue levels should improve in the upcoming quarters, and the operating leverage of our business model will also be fully demonstrated there.

At this point, this concludes our Q3 2020 conference call. And on behalf of the entire EXFO team, thank you very much for joining us today.

Operator

[Operator Closing Remarks]

Disclaimer

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