EXFO Inc. (EXFO) Q3 Earnings Call Transcript

EXFO, Inc. (EXFO)
Q3 2019 Earnings Call
Jul. 10, 2019, 4:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Please stand by. Good day and welcome to 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.

Vance Oliver -- Director of Investor Relations

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 our estimates concerning our intents, beliefs, or expectations regarding future events that may affect EXFO. Please not 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 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 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.

Philippe Morin -- Chief Executive Officer

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 has 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 buildouts, data center interconnects, initial 5G deployments, and network virtualization. We've also maintained a sound financial discipline during the fiscal year, and if you'll recall, we did announce 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're ideally positioned to take advantage of key growth drivers to help our customers transform their networks, so as a result, I am confident we will achieve our $24 million adjusted EBITDA target for our 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 this third quarter of 2019. First, with our test and 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 IN instruments from the Yenista acquisitions are continuing to deliver healthy growth, also combined with strong demand for our physical fiber test solutions.

Still on our subject of our T&M, our test and 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 parameter for basic field testing tasks and IN OTDR for full fiber characterization. This innovative test instrument measures the quality of fiber links in a matter of seconds for frontline technicians and contractors, delivering cost savings, and especially ensuring that 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, the automatic verification of suspected fiber spans, a qualitative 1-5 star rating of links to measure the quality, and a reduction in the total cost of ownership through lifetime calibration and field replaceable connectors on the unit. On the service assurance systems and services side, our SASS business, sales have decreased 12.2% year-over-year, mainly due to the delay in spending on part of our nation's service providers who are going through the complexity of transforming their physical infrastructure into virtualized and hybrid networks for various 4G, 4G+, and 5G use cases. It should be mentioned also that EXFO secured a $4 million contract SASS order early in the fourth quarter that should've happened in the quarter that would've raised our overall book to bill ratio above the 1.0 target had it been booked into our third quarter.

Despite market-related issues, EXFO is well-positioned for the 5G investment cycle, with a solution that addresses three major revenue opportunities. The first one, with our tested 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 low-latency application. Obviously, these small cells need to be connected with fiber, and this is where EXFO shines with our leadership position in optical testing.

Second phase which will go under way in 2020 as communication service providers massively deploy new radio equipment for the stand-alone 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, high 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 will require a flawless quality of experience. This is when EXFO's 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 deployment, 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 to $71 million for the reporting period extending from June 1st to August 31st, 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 totaling $0.04 per share and after-tax amortization of intangible assets and stock-based compensation costs.

So, at this point, I will turn the call over to Pierre to cover in more detail our financials.

Pierre Plamondon -- Chief Financial Officer and Vice President of Finance

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 appetite for test and measurement product line, especially high-speed transport solution and advanced equipment for R&D labs and network equipment manufacturers. This increase was partially upset by a reduced amount for service assurance system and services, or our SASS product family. The system-related solutions are subject to delays in spending of the product. The communication service providers who are evaluating how to ultimately transform their network architecture into virtualized 5G networks.

Bookings decreased 4.8% to $69.6 million in the third quarter of 2019 from $73.1 million in the same time last year for a book to bill ratio of 0.95. The drop in booking can be attributed to the previously mentioned market delay in deploying 5G virtualized network, timing orders, like the large one mentioned by Philippe earlier, as well as a negative currency impact. Gross margins 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 sales year-over-year, which prevented us from better absorbing our fixed costs. We were also affected by a less favorable same mix within our SASS product family in the third quarter of 2019. Some solutions carried higher margins than others. These negative effects on the gross margin were partially observed by a stronger margin from our test and measurement product line year-over-year. In terms of operating expenses, selling and administrative expenses totaled $23.8 million, up 32.2% of sales in the third quarter of 2019, compared to $26 million or 35.9% of sales in the same period last year.

The $2.2 million decrease is in SG&A expenses year-over-year, mainly reflects the positive impact of our recently completed restructuring plan with some help from the currency fluctuation on the expenses, and the average value of the Canadian dollar, euro, British pound, and in general, we decreased year-over-year compared to the U.S. dollar.

Net R&D expenses reached $12 million or 16.2% 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 planning with the added benefit of the currency fluctuation. In addition, a shift in the mix of R&D projects resulted in lower expense year-over-year.

IFRS net earnings in the third quarter 2019 totaled $21,000 or $0.00 cents per share. In comparison, IFRS net loss amounted to $6 million, or $0.11 per share in the third quarter of 2018. IFRS net earnings in the third quarter of 2019 included $1.7 million in after-tax amortization of intangible assets, $0.5 million in stock-based compensation cost, and a foreign exchange gain of $0.1 million.

Geographically, the Americas accounted for 51% of sales in Q3 '19. Europe, Middle East, and 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 '19, while our top three represented 16.9%.

Turning to a few key points on the balance sheet, our cash position decreased to $15.3 million at the end of Q3 '19 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 a bank loan, $1.6 million for the purchase of capital assets, $0.7 million for the repayment of the long-term debts, and $0.3 million for an unrealized foreign exchange loss on cash and short-hand investments [inaudible] Canadian dollar. At the end of Q3 '19, 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.

Questions and Answers:

Operator

Thank you. If you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press *1 to ask a question. And we'll pause for just a moment to allow everyone an opportunity to signal for questions.

And we'll go first to Thanos Moschopoulos with BMO Capital Markets.

Thanos Moschopoulos -- BMO Capital Markets -- Managing Director

Hi, good afternoon. Philippe, you mentioned that the test and 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?

Philippe Morin -- Chief Executive Officer

Thanks, Thanos. We believe, again, from our assessment that the market around our T&M and our addressable market is between 4-5% is what we believe the market is growing, and therefore, we do believe that we've been gaining market share.

Thanos Moschopoulos -- BMO Capital Markets -- Managing Director

And just given your commentary regarding how 5G should play our, just to make sure I heard you correctly, we should be seeing an acceleration in the coming quarters in that test and measurement business? I mean, notwithstanding quarterly volatility, obviously, but given the 5G buildouts heading into 2020, that should be picking up, right?

Philippe Morin -- Chief Executive Officer

I think on the whole fiber buildup, there'll be two main contributors to growth. One will be the 5G buildup that actually has already started, so we're seeing that in North America, Thanos, with a lot of our key service provider customers that are putting more and more fiber in cities where they are gonna deploy or are about to deploy 5G. The other buildout that's gonna happen that will also have a positive impact on our test and measurement as we head into 2020 will be around the FTTH, mainly in Europe where we're starting to see an increased air of deployment in a few countries that have been behind in terms of overall deployment on bringing FTTH or fibers results.

Thanos Moschopoulos -- BMO Capital Markets -- Managing Director

And then, on the SASS business, the issues you highlighted with customers pausing to look at virtualization, sounds like maybe another 2-3 quarters of that perhaps, waiting on growth before that segment starts to accelerate? Or what would you say in that regard?

Philippe Morin -- Chief Executive Officer

On the SASS side, as I mentioned, you've touched on the first kind of growth, which is that the fiber buildout provides you. And then, on the SASS side, there's two growth potentials for our business. The first one is the RAN deployment, so they're starting as we speak now and into 2020 putting newer radio, and we do believe we have an opportunity to provide our solutions around RAN optimization and geolocation. And the second one is as they virtualize 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 virtualized networks, and we've proven that our 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 would call, service providers that will try to disrupt the market by going aggressive, like Three UK, on new network architecture there, telco cloud based.

Thanos Moschopoulos -- BMO Capital Markets -- Managing Director

Thanks for clarifying. Aside for your commentary regarding fiber to the home in Europe, any other geographic trends that you would highlight as far as the nuances, what you're seeing across the regions?

Philippe Morin -- Chief Executive Officer

I think overall that across all regions, we do see momentum around our lab and network manufacturing [inaudible] 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 buildout in North America we believe will continue, especially as they get moved more and more to the edge, as you know, and that's really been impacting positively our 100 gig and 400 gig high-speed solutions there. So, North America we believe continues to be strong. [Inaudible] from a point of view from FTTH deployment and then labs and network equipment vendor from a point of view of our IN optics for the market, and that tends to be hitting more Asia Pac and Americas.

Thanos Moschopoulos -- BMO Capital Markets -- Managing Director

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's alluding to, correct?

Pierre Plamondon -- Chief Financial Officer and Vice President of Finance

Yes. And then, we're then going to give guidance for fiscal 2020 on the gross margin, but you're right with a little bit lower level of sales, we could expect that the margin could be a little bit softer, so we were expecting probably Q2 to be in that range, plus or minus some percentage point. And with higher content of the SASS business, we do expect that the margin over time will continue to improve and reach higher level at that time.

Thanos Moschopoulos -- BMO Capital Markets -- Managing Director

Thanks for the last line.

Pierre Plamondon -- Chief Financial Officer and Vice President of Finance

Thank you, Thanos.

Operator

Again, press *1 to ask a question. We'll go next to Robert Young with Canaccord Genuity.

Robert Young -- Canaccord Genuity -- Managing Director

Hi, good evening. Maybe I'll ask you a question about gross margins to continue Thanos' line there. I think you said that range you were looking for for the year was $59 million to $61 million, but you expect it at the bottom end? If gross margins are expected to maybe a little bit weaker than you thought, should we expect that range to be a little bit lower?

Pierre Plamondon -- Chief Financial Officer and Vice President of Finance

We said that we were expecting this year to be between, you're right, $59 million to $61 million, and probably would be on the lower part of that probably, around more closer to $59-something million.

Robert Young -- Canaccord Genuity -- Managing Director

That's fairly consistent with what you said last quarter though. I guess that's the point I was trying to make.

Philippe Morin -- Chief Executive Officer

Yeah, it's no different. It's no different, and as you said, Robert, the contribution of the SASS and Astellia because of some of the professional services aspect of that business is contributing to that gross margin level.

Robert Young -- Canaccord Genuity -- Managing Director

And then, on the service assurance side of the business, the slowdown that you're expecting, I'll actually get on the time frame there. 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 the architectural decision slowdown?

Philippe Morin -- Chief Executive Officer

I guess the color I'll provide is that with our install base of our SASS business, which impacts fiber monitoring service assurance and some of 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 opportunities a la Three UK, so as we start looking at these new opportunities where customers are gonna go, and virtualize, and bring a new architecture, that's the one that 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 the similar pattern. They will make decisions on the radio first, they've made decisions, a lot of them now, on their virtual PC 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'm still seeing the market taking a bit longer. We're not the only one. I see as well what our competition's 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 gonna see that activity pick up.

Robert Young -- Canaccord Genuity -- Managing Director

And then, I think you said that the NEMs business you expect to remain strong. I didn't see an update on the data center business or the copper DSL business. I don't know if you can talk about those two pieces?

Philippe Morin -- Chief Executive Officer

We're very pleased with I guess those two things 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 is really helping us with a much stronger portfolio to engage the NEMs with that, and we do believe that that's gonna continue in Q4 into 2020. And it's a 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.

Robert Young -- Canaccord Genuity -- Managing Director

And the copper DSL side? Do you expect that one to be a little bit weaker, offset by fiber strength at the [inaudible] ?

Philippe Morin -- Chief Executive Officer

Yeah. We continue to see that market trend, Robert, where the copper obviously is not in a huge growth. It's not in growth-actually-mode, and while fiber is. And we're gonna continue to obviously get some revenues associated with that, and they tend to be larger lumpy deals, but really, for us, it's that fiber business that we're seeing the growth and having a positive impact to our business.

Robert Young -- Canaccord Genuity -- Managing Director

And last question from 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 in the trade worries that we've been hearing in the news a lot? Is there anything there to call out that EXFO might be exposed to, positive or negative? And then, I'll pass the line.

Philippe Morin -- Chief Executive Officer

I guess in terms of overall, Asia Pac and our business in China, we've been able to obviously continue to do business there with all of the potential duties aspects as you mentioned, so that's been a continued good position for us in the market, especially around our T&M business.

Operator

And we'll go next to Tim Savageaux with Northland Capital Markets. Tim, your line is open.

Tim Savageaux -- Northland Capital Markets -- Senior Research Analyst

Sorry about that. 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 sort of noted double-digit EBITDA margins for the last couple of quarters, and obviously, I guess you don'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 and annual basis and whether you have any commentary about EBITDA targets for fiscal '20?

Philippe Morin -- Chief Executive Officer

So, Tim, again, we're very happy with our results with regards to the EBITDA, both for Q2-Q3 as you mentioned, double-digit, and then how it's shaping up in terms of now reaching the $19 million after three quarters. And as I mentioned, we're very confident that we will achieve the $24 million target that we've put in into EBITDA. And it's a combination of two things. I do think we're executing well on our test and measurement business, it's showing nice growth. The SASS business, we have to manage the lumpiness in that business and then making sure we continue to grow and close the bigger contracts. As you know, they tend to be bigger. As an example, I mentioned the one that just closed right after Q3, which was $4 million. So, that's the first thing, just continue to manage the business, the T&M business, and getting the growth on SASS.

And I do think our discipline around managing our optics and operation from a point of view of our spend, both on sales, SG&A, and R&D. 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 through the bottom line now, as you can see.

Now, with regards to 2020, we're not in a position, obviously, to provide guidance on that, and we'll do that when we do our next earnings for after Q4, Tim.

Tim Savageaux -- Northland Capital Markets -- Senior Research Analyst

Great. And if I could follow-up with a few questions on your Q4 guide, and you can address this sequentially or year-over-year, however you'd like. But given what I hear, and certainly this sort of fits well with what we're seeing 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 in the year-on-year decline in the software and service side in Q4? Is there any seasonality in tests sequentially? Or as you look at that mid-range sequential decline Q3 to Q4, is software and service driving the bulk of that?

Philippe Morin -- Chief Executive Officer

So, as you know, our T&M Q4 tends 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 and measurement, as I mentioned earlier, I think we're pretty happy both on the revenue side and on the booking side where we've seen some good growth, and we expect that growth in Q4 to continue as we see more and more buildout. Now, Q4 historically, as you know, it finishes in August. We've got more of the holiday period, and that tends to impact a bit more the T&M business on the bookings, especially if you look historically how we've performed. And therefore, as you said, so SASS, well, now SASS will grow as we head into our Q4 and then 2020, and we do have some opportunities, as I said, that we've closed already into the beginning of the quarter, and that's where 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 are some nice businesses as well, our fiber monitoring, which is also part of our SASS business, that we are really focusing on, making sure that we can close some close important orders for Q4.

Tim Savageaux -- Northland Capital Markets -- Senior Research Analyst

And last question from me, back on the optical test front, we've seen some indications of relatively strong spending among some of your traditional U.S. Tier 1 customers, and I think you referenced that in some of your commentary, but you also referenced strength among 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, you know, the carriers versus the OEMs broadly speaking, and whether you're seeing any meaningfully different trends there.

Philippe Morin -- Chief Executive Officer

I think, as I mentioned to Thanos' question earlier, we do see some continuing momentum here, especially if I look at North America, the two main growth vectors are that densification of the edge of the network and whether it's driven by 5G or the 4G+, but clearly, we see that happening, and it's very North American-centric. The data center buildout continues to be more profound into North America, and then the FTTH tends to be much more, in terms of growth potential and so on, is European as we see that. I mean, I'm sure you've seen probably AT&T talking about their fiber buildout for fiber to the home as getting to a point where they've achieved pretty much the plan that they've done while Verizon is continuing to mention that they will continue to be doing buildout for metro and 5G cities.

With regards to the network equipment vendors and then the lab business, yeah, that one is beginning to show good momentum, and then as I mentioned, North America and Asia Pac is probably the two places that we've seen that, but we also expect there's gonna be more deployment in Europe. We'll see some increase there with the field teams of the NEMs as they go in and deploy their metro buildout and fiber to the home buildout.

Tim Savageaux -- Northland Capital Markets -- Senior Research Analyst

Thanks very much.

Philippe Morin -- Chief Executive Officer

Thank you, Tim.

Operator

And we'll go next to Daniel Chan with TD Securities.

Daniel Chan -- TD Securities -- Senior Manager

Hi, guys. So, the virtualization buildout took a little bit longer than expected. Now you guys are kinda calling out for maybe an end-of-2020 buildout, so what's your level of confidence the end of 2020's gonna be that time frame when that's gonna be completed? And any catalysts for us to watch for that you're watching for to confirm that timeline?

Philippe Morin -- Chief Executive Officer

So, Daniel, what we're watching is obviously the kind of announcements that are taking place with 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 and 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 and geolocation.

So, these are the kind of, what I would call, datapoint we're looking at in terms of those deployment, 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're gonna put 30 cities with 5G, AT&T making the same amount, Sprint, T-Mobile, and as well in other regions with Three UK announcing they'll deploy 5G. These are all precursor for us of where we have opportunities to deploy those two solutions I 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 customer to go in, wireless provider to go in with a telco cloud network where we've successfully deployed that, we wanna leverage that card now with the other service providers that are gonna go into that next phase. That's why we think -- and it's not gonna be volume deployment into this until late 2020, but where we feel that there's gonna be a next wave of opportunities for us to sell our solution.

Daniel Chan -- TD Securities -- Senior Manager

That's helpful. Now, are there any 5G standards that need to still be put in place or developed before there's more mass adoption of this virtualization, or would you say that most of those standards have already been established by this 3GPP?

Philippe Morin -- Chief Executive Officer

So, standards have evolved pretty much to the point of you can see deployments getting on, and I think for me the next standard is around the Release 16 in March 2020, which will have, again, more protocol, 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. As an example, with network slicing, if customers potentially offered a certain spec for a certain slice of the network, they'll need a service assurance solution for each of those slices to monitor the SLAs, which we think obviously solutions from EXFO will be important for that, and 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.

Daniel Chan -- TD Securities -- Senior Manager

So, is it fair to say that Release 16 could be a catalyst for some of these service assurance solutions you're offering?

Philippe Morin -- Chief Executive Officer

No, I think we can offer it today as a proof point with Three UK, but I do think that there would be potentially more opportunities for us with new features such as network slicing that could expand our opportunity there.

Daniel Chan -- TD Securities -- Senior Manager

Thank you. And just one final question from me. You mentioned that lab and network equipment vendors, you're seeing good growth there. Just to drill down on a previous question 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?

Philippe Morin -- Chief Executive Officer

No. So, again, for me, the NEMs and the lab, we do sell solutions across all of the major NEMs and some key research lab 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 in May.

Daniel Chan -- TD Securities -- Senior Manager

Have you seen a decrease in Huawei orders as a result of some of these thing?

Philippe Morin -- Chief Executive Officer

No. No.

Daniel Chan -- TD Securities -- Senior Manager

Thanks.

Operator

And we'll go next to Richard Tse with National Bank Financial.

Richard Tse -- National Bank Financial -- Managing Director

Thank you. I just wondered if you could share with us a little bit more color on Astellia. I think when you acquired it, the two main rationales, one was the operating leverage from R&D and sales and marketing, and then from a technical standpoint, I think they were bringing some subscriber analytics to your platform. And so, I'm kinda just curious to see some color in terms of what you've done specifically on both fronts there.

Philippe Morin -- Chief Executive Officer

Yeah, Richard. So, again, let me start with the second. So, the integration work, what they really brought for us from a portfolio point of view, from a solutions point of view are two main 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 in and engage with customers with 5G, as you know, depending on the spectrum, depending on the fact that you've 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 Astellia acquisition brings that asset, which allows us to leverage that into accounts that we haven't been able to play, especially in America, as a good example. And we've been able to -- in Latin America, 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 one of the first virtualized telco cloud wireless network deployment, which was successfully deployed, and when we add and integrate this to our existing portfolio with some of our analytics that you mentioned about, it does absolutely strengthen our position and strengthen our solution that we would not have without Astellia. And then as well, in terms now, that's now all integrated, completed, and it's allowing us now to have a richer solution in front of our customers, and especially the ones 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 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 relationships that they have had and accounts that we were not present, especially in some of these big Tier 1 accounts in Europe. And then, 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 Americas with those two solutions I just talked about.

Operator

At this time, I would like to hand the call back over to CEO Philippe Morin for any additional or closing comments.

Philippe Morin -- Chief Executive Officer

Well, thank you. So, as I wrap up this call, a few key takeaways. So, first, again, I'm very pleased with our execution so far in our fiscal 2019. We're continuing to show year-on-year increase in both sales and bookings, sales at 8.2%, bookings at 10.9%, and really the adjusted EBITDA at almost 75% growth that we've delivered for the first three quarters. Second, we're continuing 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.

...

Operator

That does conclude today's conference. We thank you for your participation.

Duration: 43 minutes

Call participants:

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

Thanos Moschopoulos -- BMO Capital Markets -- Managing Director

Robert Young -- Canaccord Genuity -- Managing Director

Tim Savageaux -- Northland Capital Markets -- Senior Research Analyst

Daniel Chan -- TD Securities -- Senior Manager

Richard Tse -- National Bank Financial -- Managing Director

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