Form 6-K EXFO INC. For: Feb 28
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16
Under the Securities Exchange Act of 1934
For the month of April 2019
EXFO Inc.
(Translation of registrant’s name into English)
400 Godin Avenue, Quebec, Quebec, Canada G1M 2K2
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
|
Form 20-F ☑
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Form 40-F ☐
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Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
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Yes ☐
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No ☑
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If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-______.
On April 2, 2019, EXFO Inc., a Canadian corporation, reported its results of operations for the second fiscal quarter ended February 28,
2019. This report on Form 6-K sets forth the news release relating to EXFO’s announcement and certain information relating to EXFO’s financial condition and results of operations as well as certifications of interim filings for the second fiscal
quarter of the 2019 fiscal year. This press release and information relating to EXFO’s financial condition and results of operations and certifications of interim filings for the second fiscal quarter of the 2019 fiscal year are hereby incorporated
as a document by reference to Form F-3 (Registration Statement under the Securities Act of 1933) declared effective as of July 30, 2001 and to Form F‑3 (Registration Statement under the Securities Act of 1933) declared effective as of March 11, 2002
and to amend certain material information as set forth in these two Form F-3 documents.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
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EXFO INC.
|
|
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By: /s/ Philippe Morin
Name: Philippe Morin
Title: Chief Executive Officer
|
|
Date: April 2, 2019
PRESS RELEASE
For immediate release
| ◾ |
Sales increased 14.2% to US$73.9 million, high end of guidance range
|
|
◾
|
Bookings improved 16.0% to US$76.1 million, book-to-bill ratio of 1.03
|
|
◾
|
IFRS net earnings reached US$5.2 million, US$0.09 per share
|
|
◾
|
Adjusted EBITDA totaled US$8.8 million, 11.9% of sales
|
|
◾
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Cash flows from operations surged to US$18.7 million
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QUEBEC CITY, CANADA, April 2, 2019 — EXFO Inc. (NASDAQ: EXFO; TSX: EXF), the communications industry's test, monitoring and analytics experts, reported today financial results for the second quarter ended February 28, 2019.
IFRS sales increased 14.2% to US$73.9 million in the second quarter of fiscal 2019 from US$64.7
million in the second quarter of 2018. Second-quarter sales for 2019 included a US$7.5 million revenue contribution from Astellia, which was reduced by US$0.6 million to account for acquisition-related fair value adjustment of deferred revenue. In comparison, Astellia had generated US$1.8 million in revenue for one month in the second quarter 2018.
Bookings, which included a US$10.3 million contribution from Astellia, improved 16.0% year-over-year to US$76.1
million in the second quarter of fiscal 2019 from US$65.6 million in the same period of 2018. In comparison, Astellia had delivered US$2.5 million
in bookings for one month in the second quarter 2018. EXFO’s book-to-bill ratio was 1.03 in the second quarter of 2019.
Gross margin before depreciation and amortization* amounted to 60.7% of sales in the second quarter of fiscal 2019 compared
to 60.9% in the second quarter of 2018.
IFRS net earnings in the second quarter of fiscal 2019 totaled US$5.2 million, or US$0.09 per share, compared to a
net loss attributable to the parent interest1 of US$4.7 million, or US$0.08 per share, in the second quarter of 2018. IFRS net earnings in the second quarter of 2019 included net expenses totaling US$3.9 million: US$1.9 million in
after-tax amortization of intangible assets, US$0.5 million in stock-based compensation costs, US$0.5 million in after-tax restructuring charges, US$0.6 million for acquisition-related fair value adjustment of deferred revenue, and a foreign exchange loss of US$0.4 million.
These net expenses were offset by the sale of a building under EXFO’s restructuring plan that generated a gain of
US$1.7 million in the second quarter of 2019. The company also benefited from a deferred income tax recovery of US$2.4 million in the second quarter of 2019.
Adjusted EBITDA* totaled US$8.8 million, or 11.9% of sales, in the second quarter of fiscal 2019 compared to
US$2.5 million, or 3.9% of sales, in the second quarter of 2018.
“EXFO delivered
outstanding second quarter results with strong revenue and bookings growth, profitability and cash flow generation—all encouraging signs for our T&M and SASS product families and the leverage in our operating model,” said EXFO's CEO Philippe Morin. "Our
unique value propositions resonated very well with industry executives at Mobile World Congress and Optical Fiber Conference, as our solutions enable fiber buildouts deep into the network edge, 5G wireless deployments and network
virtualization. Clearly, EXFO is on track with its profitable growth strategy amid a rapidly transforming industry.”
Selected Financial Information
(In thousands of US dollars)
|
Q2 2019
|
Q2 2018
|
H1 2019
|
H1 2018
|
|||||||||||||
|
Test and Measurement sales
|
$
|
50,407
|
$
|
49,884
|
$
|
100,171
|
$
|
100,070
|
||||||||
|
Service Assurance, Systems and Services sales
|
23,701
|
14,457
|
43,117
|
27,425
|
||||||||||||
|
Foreign exchange gains (losses) on forward exchange contracts
|
(181
|
)
|
381
|
(160
|
)
|
618
|
||||||||||
|
Total sales
|
$
|
73,927
|
$
|
64,722
|
$
|
143,128
|
$
|
128,113
|
||||||||
|
Test and Measurement bookings
|
$
|
45,320
|
$
|
47,386
|
$
|
109,316
|
$
|
100,240
|
||||||||
|
Service Assurance, Systems and Services bookings
|
30,953
|
17,819
|
48,174
|
30,607
|
||||||||||||
|
Foreign exchange gains (losses) on forward exchange contracts
|
(181
|
)
|
381
|
(160
|
)
|
618
|
||||||||||
|
Total bookings
|
$
|
76,092
|
$
|
65,586
|
$
|
157,330
|
$
|
131,465
|
||||||||
|
Book-to-bill ratio (bookings/sales)
|
1.03
|
1.01
|
1.10
|
1.03
|
||||||||||||
|
Gross margin before depreciation and amortization*
|
$
|
44,865
|
$
|
39,396
|
$
|
85,169
|
$
|
79,498
|
||||||||
|
60.7
|
%
|
60.9
|
%
|
59.5
|
%
|
62.1
|
%
|
|||||||||
|
Other selected information:
|
||||||||||||||||
|
IFRS net earnings (loss) attributable to the parent interest
|
$
|
5,193
|
$
|
(4,660
|
)
|
$
|
(2,274
|
)
|
$
|
(1,981
|
)
|
|||||
|
Amortization of intangible assets
|
$
|
2,130
|
$
|
3,056
|
$
|
5,070
|
$
|
4,175
|
||||||||
|
Stock-based compensation costs
|
$
|
461
|
$
|
438
|
$
|
879
|
$
|
840
|
||||||||
|
Restructuring charges
|
$
|
577
|
$
|
‒ |
$
|
3,318
|
$
|
‒ | ||||||||
|
Change in fair value of cash contingent consideration
|
$
|
‒ |
$
|
(561
|
)
|
$
|
‒ |
$
|
(716
|
)
|
||||||
|
Acquisition-related deferred revenue fair value adjustment
|
$
|
571
|
$
|
309
|
$
|
1,435
|
$
|
309
|
||||||||
|
Income tax expense for US tax reform
|
$
|
‒ |
$
|
1,528
|
$
|
‒ |
$
|
1,528
|
||||||||
|
Gain on disposal of capital assets
|
$
|
(1,732
|
)
|
$
|
‒ |
$
|
(1,732
|
)
|
$
|
‒ | ||||||
|
Deferred income tax recovery
|
$
|
(2,383
|
)
|
$
|
‒ |
$
|
(2,383
|
)
|
$
|
‒ | ||||||
|
Net income tax effect of the above items
|
$
|
(348
|
)
|
$
|
(394
|
)
|
$
|
(771
|
)
|
$
|
(566
|
)
|
||||
|
Foreign exchange (gain) loss
|
$
|
416
|
$
|
(8
|
)
|
$
|
201
|
$
|
(1,226
|
)
|
||||||
|
Adjusted EBITDA*
|
$
|
8,784
|
$
|
2,492
|
$
|
11,512
|
$
|
8,551
|
Operating Expenses
Selling and administrative expenses reached US$25.5 million, or 34.4% of sales in the second quarter of fiscal 2019 compared to
US$24.9 million, or 38.5% of sales, in the same period last year.
Net R&D expenses attained US$12.2 million, or 16.5% of sales, in the second quarter of fiscal 2019 compared
to US$13.1 million, or 20.2% of sales, in the second quarter of 2018.
Second-Quarter Highlights
|
●
|
Growth. Sales increased 14.2%
year-over-year mainly due to a full-quarter contribution from the Astellia acquisition, compared to one month for the same period in 2018, and revenue recognition of a US$4.9 million order for EXFO’s real-time network topology
software. Test and measurement sales accounted for 68% of total revenue in the second quarter of 2019, while SASS sales totaled 32%. Revenue breakdown among the three main selling regions amounted to 50% in the Americas, 34% in Europe,
Middle East and Africa (EMEA) and 16% in Asia-Pacific. EXFO’s top customer accounted for 14.9% of sales,
while the top three represented 24.7%.
|
|
●
|
Profitability. IFRS net earnings totaled
US$5.2 million in the second quarter of 2019, while adjusted EBITDA amounted to US$8.8 million, or 11.9% of sales. The company also generated US$18.7 million in cash flows from operations in the second quarter.
|
|
●
|
Innovation. EXFO showcased its new product introductions at Mobile World Congress (MWC) and Optical Fiber Conference (OFC), high-profile tradeshows held during and after the quarter-end. At MWC, EXFO provided an overview of its highly differentiated
service assurance and analytics platform, including automated assurance, diagnostics and troubleshooting of 5G networks. At OFC, EXFO demonstrated the breadth and depth of its market-leading optical test offering,
including its recently released Open Transceiver System for 400G testing, to allow for successful, high-speed network transformations. The company also presented its latest field test automation, cloud reporting and remote testing capabilities.
|
On the recognition front, EXFO received Frost & Sullivan’s 2018 Customer Value Leadership Award for
Global Data Analytics Solutions. This fifth award for EXFO’s Service Assurance, Systems and Services (SASS) portfolio during the past
year recognizes the company's ability to optimize subscriber experience and maximize benefits for communications service providers at every level of these organizations, from engineering to customer care.
1 Represents net loss excluding share of the net loss attributable to Astellia’s minority shareholders.
Business Outlook
EXFO forecasts IFRS sales between US$70.0 million and US$75.0 million for the third quarter of fiscal 2019.
IFRS net loss is expected to range between US$0.04 and US$0.00 per share in the third quarter of 2019. IFRS net loss includes US$0.05 per share in after-tax amortization of intangible assets and stock-based compensation costs.
This guidance, which is a forward-looking statement, was established by management based on existing backlog
as of the date of this news release, seasonality, expected bookings for the remaining of the quarter, as well as exchange rates as of the day of this news release.
Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review second quarter results for fiscal 2019. To listen to the conference call and participate in the question period via telephone, dial 1-323-794-2093. Please take note the following participant passcode will be required: 8906152. Germain Lamonde, founder and
Executive Chairman, Philippe Morin, Chief Executive Officer, and Pierre Plamondon, Vice-President of Finance and Chief Financial Officer, will participate in the call. An audio replay of the conference call will be available two hours after the event until 8:00 p.m. on April 9, 2019. The replay number is 1-719-457-0820 and the required participant passcode is 8906152. The audio
Webcast and replay of the conference call will also be available on EXFO’s Website at www.EXFO.com, under the Investors section.
About EXFO
EXFO (NASDAQ: EXFO) (TSX: EXF) develops smarter test, monitoring and analytics solutions for fixed and mobile network
operators, webscale companies and equipment manufacturers in the global communications industry. Our customers count on us to deliver superior network performance, service reliability and subscriber insights. They count on our unique
blend of equipment, software and services to accelerate digital transformations related to fiber, 4G/LTE and 5G deployments. They count on our expertise with automation, real-time troubleshooting and big data analytics, which are critical
to their business performance. We’ve spent over 30 years earning this trust, and today 1,900 EXFO employees in over 25 countries work side by side with our customers in the lab, field, data center and beyond. For more information, visit EXFO.com and follow us on the EXFO Blog.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995, and we intend that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are statements other than historical information or statements of current
condition. Words such as may, expect, believe, plan, anticipate, intend, could, estimate, continue, or similar expressions or the negative of such expressions are intended to identify forward-looking statements. In addition,
any statements that refer to expectations, projections or other characterizations of future events and circumstances are considered forward-looking statements. They are not guarantee of future performance and involve risks
and uncertainties. Actual results may differ materially from those in forward-looking statements due to various factors including, but not limited to, macroeconomic uncertainty, including trade wars; our ability to successfully integrate
businesses that we acquire; capital spending and network deployment levels in the telecommunications industry (including our ability to quickly adapt cost structures to anticipated levels of business and our ability to manage inventory
levels with market demand); future economic, competitive, financial and market conditions; consolidation in the global telecommunications test, service assurance and analytics solutions markets and increased competition among vendors;
capacity to adapt our future product offering to future technological changes; limited visibility with regard to the timing and nature of customer orders; delay in revenue recognition due to longer sales cycles for complex systems
involving customers’ acceptance; fluctuating exchange rates; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully expand international operations and to
conduct business internationally; and the retention of key technical and management personnel. Assumptions relating to the foregoing involve judgments and risks, all of which are difficult or impossible to predict and many of which are
beyond our control. Other risk factors that may affect our future performance and operations are detailed in our Annual Report, on Form 20-F, and our other filings with the U.S. Securities and Exchange Commission and the Canadian
securities commissions. We believe that the expectations reflected in the forward-looking statements are reasonable based on information currently available to us, but we cannot assure you that the expectations will prove to have been
correct. Accordingly, you should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this document. Unless required by law or applicable regulations, we undertake no obligation to
revise or update any of them to reflect events or circumstances that occur after the date of this document.
*Non-IFRS Measures
EXFO provides non-IFRS measures (gross margin before depreciation and amortization and adjusted EBITDA) as supplemental
information regarding its operational performance. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA represent net earnings (loss)
attributable to the parent interest before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change in fair value of cash contingent consideration,
acquisition-related deferred revenue fair value adjustment, and foreign exchange gain or loss.
These non-IFRS measures eliminate the effect on IFRS results of non-cash and/or non-operating statement of earnings
elements, as well as elements subject to significant volatility such as foreign exchange gain or loss. EXFO uses these measures for evaluating historical and prospective financial performance, as well as its performance relative to
competitors. These non-IFRS measures are also the financial measures used by financial analysts to evaluate and compare EXFO’s performance against competitors and industry players in the company’s sector.
Finally, these measures help EXFO plan and forecast future periods as well as make operational and strategic decisions.
EXFO believes that providing this information, in addition to the IFRS measures, allows investors to see the company’s results through the eyes of management, and to better understand historical and future financial performance. More
importantly, it enables the comparison of EXFO’s performance on a relatively similar basis against other public and private companies in the industry worldwide.
The presentation of this additional information is not prepared in accordance with IFRS. Therefore, the information may
not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, the corresponding measures calculated in accordance with IFRS.
The following table summarizes the reconciliation of adjusted EBITDA to IFRS net earnings (loss) attributable to the
parent interest, in thousands of US dollars:
Adjusted EBITDA
|
Q2 2019
|
Q2 2018
|
H1 2019
|
H1 2018
|
|||||||||||||
|
IFRS net earnings (loss) attributable to the parent interest for
the period
|
$
|
5,193
|
$
|
(4,660
|
)
|
$
|
(2,274
|
)
|
$
|
(1,981
|
)
|
|||||
|
Add (deduct):
|
||||||||||||||||
|
Depreciation of property, plant and equipment
|
1,390
|
1,263
|
2,819
|
2,417
|
||||||||||||
|
Amortization of intangible assets
|
2,130
|
3,056
|
5,070
|
4,175
|
||||||||||||
|
Interest and other (income) expense
|
(1,514
|
)
|
334
|
(1,137
|
)
|
672
|
||||||||||
|
Income taxes
|
(440
|
)
|
2,321
|
1,201
|
4,061
|
|||||||||||
|
Stock-based compensation costs
|
461
|
438
|
879
|
840
|
||||||||||||
|
Restructuring charges
|
577
|
‒
|
3,318
|
‒
|
||||||||||||
|
Change in fair value of cash contingent consideration
|
‒
|
(561
|
)
|
‒
|
(716
|
)
|
||||||||||
|
Acquisition-related deferred revenue fair value adjustment
|
571
|
309
|
1,435
|
309
|
||||||||||||
|
Foreign exchange (gain) loss
|
416
|
(8
|
)
|
201
|
(1,226
|
)
|
||||||||||
|
Adjusted EBITDA for the period (1)
|
$
|
8,784
|
$
|
2,492
|
$
|
11,512
|
$
|
8,551
|
||||||||
|
Adjusted EBITDA in percentage of sales
|
11.9
|
%
|
3.9
|
%
|
8.0
|
%
|
6.7
|
%
|
||||||||
|
(1)
|
Includes acquisition-related costs of US$1.4 million and US$2.1 million for the three months and six
months ended February 28, 2018 (nil in fiscal 2019)
|
-30-
For more information
Vance Oliver
Director, Investor Relations
(418) 683-0913, Ext. 23733
Condensed Unaudited Interim Consolidated Balance Sheets
(in thousands of US dollars)
|
As at
February 28,
2019
|
As at
August 31,
2018
|
|||||||
|
Assets
|
||||||||
|
Current assets
|
||||||||
|
Cash
|
$
|
24,763
|
$
|
12,758
|
||||
|
Short-term investments
|
2,238
|
2,282
|
||||||
|
Accounts receivable
|
||||||||
|
Trade
|
41,227
|
47,273
|
||||||
|
Other
|
3,490
|
4,137
|
||||||
|
Income taxes and tax credits recoverable
|
5,124
|
4,790
|
||||||
|
Inventories
|
38,598
|
38,589
|
||||||
|
Prepaid expenses
|
5,049
|
5,291
|
||||||
|
Other assets
|
2,583
|
2,279
|
||||||
|
123,072
|
117,399
|
|||||||
|
Tax credits recoverable
|
46,727
|
47,677
|
||||||
|
Property, plant and equipment
|
42,036
|
44,310
|
||||||
|
Intangible assets
|
24,904
|
29,866
|
||||||
|
Goodwill
|
39,707
|
39,892
|
||||||
|
Deferred income tax assets
|
5,708
|
4,714
|
||||||
|
Other assets
|
828
|
686
|
||||||
|
$
|
282,982
|
$
|
284,544
|
|||||
|
Liabilities
|
||||||||
|
Current liabilities
|
||||||||
|
Bank loan
|
$
|
9,001
|
$
|
10,692
|
||||
|
Accounts payable and accrued liabilities
|
47,560
|
47,898
|
||||||
|
Provisions
|
1,314
|
2,954
|
||||||
|
Income taxes payable
|
687
|
873
|
||||||
|
Deferred revenue
|
23,914
|
16,556
|
||||||
|
Other liabilities
|
1,656
|
3,197
|
||||||
|
Current portion of long-term debt (note 5)
|
2,724
|
2,921
|
||||||
|
86,856
|
85,091
|
|||||||
|
Provisions
|
2,517
|
2,347
|
||||||
|
Deferred revenue
|
9,345
|
6,947
|
||||||
|
Long-term debt (note 5)
|
4,578
|
5,907
|
||||||
|
Deferred income tax liabilities
|
4,572
|
5,910
|
||||||
|
Other liabilities
|
327
|
421
|
||||||
|
108,195
|
106,623
|
|||||||
|
Shareholders’ equity
|
||||||||
|
Share capital (note 6)
|
92,878
|
91,937
|
||||||
|
Contributed surplus
|
18,277
|
18,428
|
||||||
|
Retained earnings
|
112,379
|
114,906
|
||||||
|
Accumulated other comprehensive loss
|
(48,747
|
)
|
(47,350
|
)
|
||||
|
174,787
|
177,921
|
|||||||
|
$
|
282,982
|
$
|
284,544
|
|||||
The accompanying notes are an integral part of these condensed unaudited interim consolidated financials statements.
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Sales
|
$
|
73,927
|
$
|
143,128
|
$
|
64,722
|
$
|
128,113
|
||||||||
|
Cost of sales (1)
|
29,062
|
57,959
|
25,326
|
48,615
|
||||||||||||
|
Selling and administrative
|
25,474
|
51,849
|
24,916
|
48,109
|
||||||||||||
|
Net research and development
|
12,216
|
27,440
|
13,087
|
24,339
|
||||||||||||
|
Depreciation of property, plant and equipment
|
1,390
|
2,819
|
1,263
|
2,417
|
||||||||||||
|
Amortization of intangible assets
|
2,130
|
5,070
|
3,056
|
4,175
|
||||||||||||
|
Change in fair value of cash contingent consideration
|
‒
|
‒
|
(561
|
)
|
(716
|
)
|
||||||||||
|
Interest and other (income) expense (note 3)
|
(1,514
|
)
|
(1,137
|
)
|
334
|
672
|
||||||||||
|
Foreign exchange (gain) loss
|
416
|
201
|
(8
|
)
|
(1,226
|
)
|
||||||||||
|
Share in net loss of an associate
|
‒
|
‒
|
2,080
|
2,080
|
||||||||||||
|
Gain on the deemed disposal of the investment in an associate
|
‒
|
‒
|
(2,080
|
)
|
(2,080
|
)
|
||||||||||
|
Earnings (loss) before income taxes
|
4,753
|
(1,073
|
)
|
(2,691
|
)
|
1,728
|
||||||||||
|
Income taxes (notes 3 and 8)
|
(440
|
)
|
1,201
|
2,321
|
4,061
|
|||||||||||
|
Net earnings (loss) for the period
|
5,193
|
(2,274
|
)
|
(5,012
|
)
|
(2,333
|
)
|
|||||||||
|
Net loss for the period attributable to
non-controlling interest
|
‒
|
‒
|
(352
|
)
|
(352
|
)
|
||||||||||
|
Net earnings (loss) for the period
attributable to parent interest
|
$
|
5,193
|
$
|
(2,274
|
)
|
$
|
(4,660
|
)
|
$
|
(1,981
|
)
|
|||||
|
Basic and diluted net earnings (loss)
attributable to parent interest per share
|
$
|
0.09
|
$
|
(0.04
|
)
|
$
|
(0.08
|
)
|
$
|
(0.04
|
)
|
|||||
|
Basic weighted average number of shares
outstanding (000’s)
|
55,343
|
55,263
|
54,975
|
54,890
|
||||||||||||
|
Diluted weighted average number of shares
outstanding (000’s) (note 9)
|
56,160
|
55,263
|
54,975
|
54,890
|
||||||||||||
|
(1)
|
The cost of sales is exclusive of depreciation and amortization, shown separately.
|
The accompanying notes are an integral part of these condensed unaudited interim consolidated financials statements.
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Net earnings (loss) for the period
|
$
|
5,193
|
$
|
(2,274
|
)
|
$
|
(5,012
|
)
|
$
|
(2,333
|
)
|
|||||
|
Other comprehensive income (loss), net of income taxes
|
||||||||||||||||
|
Items that may be reclassified subsequently to net earnings
|
||||||||||||||||
|
Foreign currency translation adjustment
|
1,807
|
(1,549
|
)
|
2,286
|
(1,844
|
)
|
||||||||||
|
Unrealized gains/losses on forward exchange contracts
|
496
|
(191
|
)
|
39
|
(485
|
)
|
||||||||||
|
Reclassification of realized gains/losses on forward exchange
contracts in net earnings
|
210
|
301
|
(225
|
)
|
(608
|
)
|
||||||||||
|
Deferred income taxes on gains/losses on forward exchange
contracts
|
(167
|
)
|
42
|
48
|
263
|
|||||||||||
|
Other comprehensive income (loss)
|
2,346
|
(1,397
|
)
|
2,148
|
(2,674
|
)
|
||||||||||
|
Comprehensive income (loss) for the period
|
7,539
|
(3,671
|
)
|
(2,864
|
)
|
(5,007
|
)
|
|||||||||
|
Comprehensive loss for the period
attributable to non-controlling interest
|
‒
|
‒
|
(352
|
)
|
(352
|
)
|
||||||||||
|
Comprehensive income (loss) for the period
attributable to parent interest
|
$
|
7,539
|
$
|
(3,671
|
)
|
$
|
(2,512
|
)
|
$
|
(4,655
|
)
|
|||||
The accompanying notes are an integral part of these condensed unaudited interim consolidated financials statements.
|
Six months ended February 28, 2018
|
||||||||||||||||||||||||
|
Share
capital
|
Contributed surplus
|
Retained earnings
|
Accumulated other comprehensive loss
|
Non-controlling interest
|
Total
shareholders’ equity
|
|||||||||||||||||||
|
Balance as at September
1, 2017
|
$
|
90,411
|
$
|
18,184
|
$
|
127,160
|
$
|
(38,965
|
)
|
$
|
‒ |
$
|
196,790
|
|||||||||||
|
Reclassification of stock-based compensation costs
(note 6)
|
1,273
|
(1,273
|
)
|
‒
|
‒
|
‒
|
‒
|
|||||||||||||||||
|
Stock-based compensation costs
|
‒
|
856
|
‒
|
‒
|
‒
|
856
|
||||||||||||||||||
|
Business combination
|
‒
|
‒
|
‒
|
‒
|
(3,662
|
)
|
(3,662
|
)
|
||||||||||||||||
|
Acquisition of non-controlling interest
|
‒
|
‒
|
(352
|
)
|
‒
|
4,014
|
3,662
|
|||||||||||||||||
|
Net loss for the period
|
‒
|
‒
|
(1,981
|
)
|
‒
|
(352
|
)
|
(2,333
|
)
|
|||||||||||||||
|
Other comprehensive loss
|
||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
‒
|
‒
|
‒
|
(1,844
|
)
|
‒
|
(1,844
|
)
|
||||||||||||||||
|
Changes in unrealized gains/losses on forward exchange
contracts, net of deferred income taxes of $263
|
‒
|
‒
|
‒
|
(830
|
)
|
‒
|
(830
|
)
|
||||||||||||||||
|
Comprehensive loss for the period
|
(5,007
|
)
|
||||||||||||||||||||||
|
Balance as at February
28, 2018
|
$
|
91,684
|
$
|
17,767
|
$
|
124,827
|
$
|
(41,639
|
)
|
$
|
‒ |
$
|
192,639
|
|||||||||||
|
Six months ended February 28, 2019
|
||||||||||||||||||||
|
Share
capital
|
Contributed surplus
|
Retained earnings
|
Accumulated other comprehensive loss
|
Total
shareholders’ equity
|
||||||||||||||||
|
Balance as at September
1, 2018
|
$
|
91,937
|
$
|
18,428
|
$
|
114,906
|
$
|
(47,350
|
)
|
$
|
177,921
|
|||||||||
|
Adoption of IFRS 9 (note 2)
|
‒
|
‒
|
(253
|
)
|
‒
|
(253
|
)
|
|||||||||||||
|
Adjusted balance as at September 1, 2018
|
91,937
|
18,428
|
114,653
|
(47,350
|
)
|
177,668
|
||||||||||||||
|
Reclassification of stock-based compensation costs
(note 6)
|
1,067
|
(1,067
|
)
|
‒
|
‒
|
‒
|
||||||||||||||
|
Redemption of share capital (note 6)
|
(126
|
)
|
21
|
‒
|
‒
|
(105
|
)
|
|||||||||||||
|
Stock-based compensation costs
|
‒
|
895
|
‒
|
‒
|
895
|
|||||||||||||||
|
Net loss for the period
|
‒
|
‒
|
(2,274
|
)
|
‒
|
(2,274
|
)
|
|||||||||||||
|
Other comprehensive income (loss)
|
||||||||||||||||||||
|
Foreign currency translation adjustment
|
‒
|
‒
|
‒
|
(1,549
|
)
|
(1,549
|
)
|
|||||||||||||
|
Changes in unrealized gains/losses on forward exchange
contracts, net of deferred income taxes of $42
|
‒
|
‒
|
‒
|
152
|
152
|
|||||||||||||||
|
Total comprehensive loss for the period
|
(3,671
|
)
|
||||||||||||||||||
|
Balance as at February
28, 2019
|
$
|
92,878
|
$
|
18,277
|
$
|
112,379
|
$
|
(48,747
|
)
|
$
|
174,787
|
|||||||||
The accompanying notes are an integral part of these condensed unaudited interim consolidated financials statements.
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Cash flows from operating activities
|
||||||||||||||||
|
Net earnings (loss) for the period
|
$
|
5,193
|
$
|
(2,274
|
)
|
$
|
(5,012
|
)
|
$
|
(2,333
|
)
|
|||||
|
Add (deduct) items not affecting cash
|
||||||||||||||||
|
Stock-based compensation costs
|
461
|
879
|
438
|
840
|
||||||||||||
|
Depreciation and amortization
|
3,520
|
7,889
|
4,319
|
6,592
|
||||||||||||
|
Gain on disposal of capital assets (note 3)
|
(1,732
|
)
|
(1,732
|
)
|
‒
|
‒
|
||||||||||
|
Write-off of capital assets
|
261
|
261
|
124
|
248
|
||||||||||||
|
Change in fair value of cash contingent consideration
|
‒
|
‒
|
(561
|
)
|
(716
|
)
|
||||||||||
|
Deferred revenue
|
6,021
|
9,943
|
3,016
|
2,234
|
||||||||||||
|
Deferred income taxes
|
(2,124
|
)
|
(2,153
|
)
|
2,384
|
2,144
|
||||||||||
|
Share in net loss of an associate
|
‒
|
‒
|
2,080
|
2,080
|
||||||||||||
|
Gain on deemed disposal of the investment in an associate
|
‒
|
‒
|
(2,080
|
)
|
(2,080
|
)
|
||||||||||
|
Changes in foreign exchange gain/loss
|
76
|
(453
|
)
|
611
|
364
|
|||||||||||
|
11,676
|
12,360
|
5,319
|
9,373
|
|||||||||||||
|
Changes in non-cash operating items
|
||||||||||||||||
|
Accounts receivable
|
9,871
|
5,819
|
4,255
|
5,340
|
||||||||||||
|
Income taxes and tax credits
|
1,031
|
33
|
(3,018
|
)
|
(2,959
|
)
|
||||||||||
|
Inventories
|
999
|
(362
|
)
|
779
|
(1,174
|
)
|
||||||||||
|
Prepaid expenses
|
22
|
205
|
(129
|
)
|
189
|
|||||||||||
|
Other assets
|
(327
|
)
|
(339
|
)
|
(528
|
)
|
(524
|
)
|
||||||||
|
Accounts payable, accrued liabilities and provisions
|
(3,114
|
)
|
18
|
(447
|
)
|
(1,816
|
)
|
|||||||||
|
Other liabilities
|
(1,470
|
)
|
(1,521
|
)
|
22
|
210
|
||||||||||
|
18,688
|
16,213
|
6,253
|
8,639
|
|||||||||||||
|
Cash flows from investing activities
|
||||||||||||||||
|
Additions to short-term investments
|
(292
|
)
|
(292
|
)
|
(248
|
)
|
(482
|
)
|
||||||||
|
Proceeds from disposal of short-term
investments
|
‒
|
342
|
234
|
234
|
||||||||||||
|
Purchases of capital assets
|
(1,797
|
)
|
(4,679
|
)
|
(2,258
|
)
|
(4,249
|
)
|
||||||||
|
Proceeds from disposal of capital assets (note 3)
|
3,318
|
3,318
|
‒
|
‒
|
||||||||||||
|
Investment in an associate
|
‒
|
‒
|
(2,219
|
)
|
(12,530
|
)
|
||||||||||
|
Business combinations, net of cash acquired
|
‒
|
‒
|
(9,580
|
)
|
(19,120
|
)
|
||||||||||
|
1,229
|
(1,311
|
)
|
(14,071
|
)
|
(36,147
|
)
|
||||||||||
|
Cash flows from financing activities
|
||||||||||||||||
|
Bank loan
|
(12,501
|
)
|
(1,244
|
)
|
2,064
|
2,066
|
||||||||||
|
Repayment of long-term debt
|
(735
|
)
|
(1,452
|
)
|
(200
|
)
|
(270
|
)
|
||||||||
|
Redemption of share capital (note 6)
|
(105
|
)
|
(105
|
)
|
‒
|
‒
|
||||||||||
|
(13,341
|
)
|
(2,801
|
)
|
1,864
|
1,796
|
|||||||||||
|
Effect of foreign exchange rate
changes on cash
|
100
|
(96
|
)
|
56
|
(170
|
)
|
||||||||||
|
Change in cash during the period
|
6,676
|
12,005
|
(5,898
|
)
|
(25,882
|
)
|
||||||||||
|
Cash – Beginning of the period
|
18,087
|
12,758
|
18,451
|
38,435
|
||||||||||||
|
Cash – End of the period
|
$
|
24,763
|
$
|
24,763
|
$
|
12,553
|
$
|
12,553
|
||||||||
|
Supplementary information
|
||||||||||||||||
|
Income taxes paid
|
$
|
615
|
$
|
1,486
|
$
|
587
|
$
|
1,269
|
||||||||
|
Additions to capital assets
|
$
|
1,523
|
$
|
3,371
|
$
|
2,699
|
$
|
5,588
|
||||||||
As at February 28, 2018 and 2019, unpaid purchases of capital assets amounted to $1,861 and $480
respectively.
The accompanying notes are an integral part of these condensed unaudited interim consolidated financials statements.
|
1
|
Nature of Activities and Incorporation
|
EXFO Inc. and its subsidiaries (together “EXFO” or the “company”) develops, manufactures and markets smart network test, monitoring and analytics solutions for fixed and mobile communications service
providers (CSPs), web-scale operators, as well as network equipment manufacturers in the global telecommunications industry.
EXFO is a company incorporated under the Canada Business Corporations Act and is
domiciled in Canada. The address of its headquarters is 400 Godin Avenue, Quebec City, Quebec, Canada, G1M 2K2.
These condensed unaudited interim consolidated financial statements were authorized
for issue by the Board of Directors on April 2, 2019.
|
2
|
Basis of Presentation
|
These condensed unaudited interim consolidated financial statements have been
prepared in accordance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) applicable to the preparation of interim financial statements, including IAS 34, “Interim Financial Reporting”, and using the same accounting policies and methods used in the preparation of the company’s most
recent annual consolidated financial statements, except as described below. Consequently, these condensed unaudited interim consolidated financial statements should be read in conjunction with the company’s most
recent annual consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB.
Recently Issued IFRS Pronouncements
Recently issued IFRS Pronouncements Adopted in Fiscal 2019
Financial instruments
The final version of IFRS 9, “Financial Instruments”, was issued in July 2014 replaces IAS 39, “Financial Instruments:
Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9
is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of its financial assets. Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS
39. Requirements relating to hedge accounting, representing a new hedge accounting model, have also been added to IFRS 9. The new standard is effective for annual periods beginning on or after January 1, 2018 and
must be applied retrospectively. The company adopted this new standard on September 1, 2018 using the modified retrospective method. The following table summarizes the impact of its adoption on the company’s
consolidated balance sheet as at September 1, 2018:
|
As reported
as at August 31, 2018
|
Adjustments
|
As adjusted
as at September 1, 2018
|
||||||||||
|
Accounts receivable – trade
|
$
|
47,273
|
$
|
(303
|
)
|
$
|
46,970
|
|||||
|
Income taxes recoverable
|
$
|
4,790
|
$
|
50
|
$
|
4,840
|
||||||
|
Total assets
|
$
|
284,544
|
$
|
(253
|
)
|
$
|
284,291
|
|||||
|
Retained earnings
|
$
|
114,906
|
$
|
(253
|
)
|
$
|
114,653
|
|||||
|
Shareholders’ equity
|
$
|
177,921
|
$
|
(253
|
)
|
$
|
177,668
|
|||||
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
In addition, the company’s financial instruments are accounted for as follows under
IFRS 9 as compared to the company’s previous accounting policy with IAS 39:
|
Financial assets
|
Classification – IAS 39
|
Classification – IFRS 9
|
|
Cash
|
Loans and receivables
|
Amortized cost
|
|
Short-term investments
|
Available for sale
|
Fair value through other comprehensive income
|
|
Accounts receivable
|
Loans and receivables
|
Amortized cost
|
|
Other assets
|
Loans and receivables
|
Amortized cost
|
|
Forward exchange contracts
|
Derivatives used for hedging
|
Derivatives used for hedging
|
Financial liabilities
|
Bank loan
|
Other financial liabilities
|
Amortized cost
|
|
Accounts payable and accrued liabilities
|
Other financial liabilities
|
Amortized cost
|
|
Other liabilities
|
Other financial liabilities
|
Amortized cost
|
|
Long-term debt
|
Other financial liabilities
|
Amortized cost
|
|
Forward exchange contracts
|
Derivatives used for hedging
|
Derivatives used for hedging
|
Hedge accounting
All existing hedge relationships that were designated as effective hedging
relationships under IAS 39, were re-designated, and continue to qualify for hedge accounting under IFRS 9. The adoption of IFRS 9 did not change the application of hedge accounting for the company’s effective hedges.
Revenue from contracts with customers
IFRS 15, “Revenue from Contracts with Customers”, was issued in May 2014. The objective of this new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to
improve comparability. This new standard contains principles that an entity must apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity
recognizes revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This new standard is effective for annual
periods beginning on or after January 1, 2018. The company adopted this new standard on September 1, 2018 using the modified retrospective method. The company applied this standard retrospectively only to contracts
that were not completed at the date of initial application.
The company concluded that the main areas of impact relate to the allocation of the
transaction price to the various performance obligations under the contracts, the timing of revenue recognition for sales arrangement that contain customer acceptance clauses, and the sale of licenses that provide
customers with the “right to use” the company’s intellectual property. The adoption of the new standard had no material impact on the company’s consolidated financial statements.
Foreign Currency Transactions and Advance Consideration
IFRIC 22, “Foreign Currency Transactions and Advance Consideration”, was issued in December 2016. IFRIC 22 addresses how to determine the date of the transaction for the purpose of determining the
exchange rate to use on initial recognition of the related asset, expense or income (or part of it) and on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of
advance consideration in a foreign currency. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018. The company adopted this interpretation retrospectively on September 1, 2018 and its
adoption did not have a material impact on its consolidated financial statements.
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
Recently issued IFRS Pronouncements Not Yet Adopted
Leases
IFRS
16, “Leases”, was issued in January 2016. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties
to a contract, i.e., the customer (lessee) and the supplier (lessor). IFRS 16 will supersede IAS 17, “Leases”, and related interpretations. This new standard is effective for annual periods beginning on or after January 1, 2019. The company will
adopt this new standard on September 1, 2019 and is currently assessing the impact that it will have on its consolidated financial statements.
Uncertainty over Income Tax Treatments
IFRIC 23, “Uncertainty over Income Tax Treatments”, was issued in June 2017. IFRIC 23 provides guidance on how to value uncertain income tax positions based on the probability of whether the
relevant tax authorities will accept the company's tax treatments. A company is to assume that a taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full
knowledge of all relevant information when doing so. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. The company will adopt this interpretation on September 1, 2019 and is currently
assessing the impact that it will have on its consolidated financial statements.
New Accounting Policy upon Adoption of Recently Issued IFRS
Revenue Recognition under IFRS 15
The company exercises judgment and use estimates in connection with
determining the amounts of product and services revenues to be recognized in each accounting period.
The company accounts for revenue once a legally enforceable
contract with a customer has been approved by the parties and the related promises to transfer products or services have been identified. A contract is defined by the company as an arrangement with commercial
substance identifying payment terms, each party’s rights and obligations regarding the products or services to be transferred and collection is probable. The company’s contracts usually take form of a customer
purchase order.
Customer
contracts may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for
separately or as one single performance obligation may require significant judgment. The company assesses whether each promised good or service is distinct for the purpose of identifying the various
performance obligations in each contract. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources
that are readily available to the customer; and (ii) the company's promise to transfer the good or service to the customer is separately identifiable or distinct from other promises in the contract. The company derives revenues from goods and services. Sales of goods, which represent the majority of the sales of the company, consist of standalone hardware products, hardware products with embedded software that are essential to providing customers the intended
functionality of the solutions, stand-alone software licenses, as well as hardware products bundled with a software license. Sales of services mainly consist of professional services, consulting, stand-ready
software-as-a-service (SAAS), maintenance contracts, extended warranties, installation, integration and training. The company’s performance obligations consist of a variety of products and services.
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
Revenue
is recognized when control of the products or services are transferred to the customers, in an amount that reflects the consideration the company expects to be entitled to in exchange for products and services. Revenue
is recognized at the point in time control is transferred to the customer. For hardware sales, transfer of control to the customer typically occurs at the point the product is shipped or delivered to the customer’s
designated location. For ‘’right of use’’ software license sales, transfer of control to the customer typically occurs upon shipment, electronic delivery, or when the software is available for download by the
customer. For instances where software is sold along with essential services, such as integration or installation, transfer of control occurs, and revenue is typically recognized upon customer acceptance. In certain
instances, acceptance is deemed to have occurred if all acceptance provisions lapse, or if the company has evidence that all acceptance provisions will be, or have been, satisfied. Revenue from software and hardware support is recognized ratably over the support period. Support services generally include rights to unspecified upgrades
(when and if available), telephone and internet-based support, updates, bug fixes and hardware repair and replacement. SAAS services are recognized ratably over the contract term.
If the contract contains a single performance obligation, the entire transaction
price is attributed to that performance obligation. Some of the company’s contracts include multiple distinct performance obligations with a combination of products and services, maintenance and support, professional
services and/or training. The company allocates the transaction price among the performance obligations in an amount that depicts the
relative standalone selling prices (SSP) of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. The company assesses SSP based on historical pricing for products and
services, whether sold alone or as part of a multiple element transaction. The company reviews sales of the product and services elements on a regular basis and updates, when appropriate, its SSP for such elements
to ensure that it reflects recent pricing experience.
Financial Instruments
Financial assets are measured at amortized cost if they are held within a business
model whose objective is to hold assets to collect contractual cash flows, and their contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding. Otherwise, they are designated at fair value through profit or loss.
Financial liabilities are measured at amortized cost unless they must be measured
at fair value through profit or loss or if the company elects to measure them at fair value through profit or loss.
|
3
|
Restructuring Charges
|
In August 2018, the company implemented a restructuring plan to accelerate the
integration of its newly acquired monitoring and analytics technologies from EXFO Solutions S.A.S., (formerly Astellia S.A.) and simplify its cost structure and optimize resources as the company converges toward
fewer sites and reduces its workforce.
The following table summarizes changes in restructuring charges payable during the
three months and six months ended February 28, 2019:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
|||||||
|
Balance – Beginning of the period
|
$
|
2,924
|
$
|
3,167
|
||||
|
Additions (note 7)
|
577
|
3,318
|
||||||
|
Payments
|
(1,706
|
)
|
(4,690
|
)
|
||||
|
Balance – End of the period
|
$
|
1,795
|
$
|
1,795
|
||||
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
On September 9, 2018, as part of its fiscal 2018 restructuring plan and the
shutdown of its facilities in Toronto, Canada, the company entered into a binding agreement to sell one of its buildings for net proceeds of $3,318,000. The transfer of ownership occurred in the second quarter of
fiscal 2019, as the company continued to use the facility to finalize projects until then. The transaction resulted in a pre-tax gain of $1,732,000 that was recorded in the condensed unaudited interim consolidated
statements of earnings for the three months and six months ended February 28, 2019.
In addition, during the three months ended February 28, 2019, as part of its fiscal
2018 restructuring plan and the shutdown of some of its facilities in the United States, the company transferred the ownership of certain intellectual properties held in the United States to Canada. This created a
deductible tax asset in Canada and resulted in the recognition of a deferred income tax recovery of $2,383,000 during the three months ended February 28, 2019 as the recovery of this asset is probable. This deferred
income tax recovery was recorded in the condensed unaudited interim consolidated statements of earnings for the three and six months ended February 28, 2019.
|
4
|
Financial Instruments
|
Fair Value of Financial Instruments
The company classifies its derivative and non-derivative financial assets and
liabilities measured at fair value using the fair value hierarchy as follows:
| Level 1: |
Quoted prices (unadjusted) in active markets for identical assets or liabilities
|
| Level 2: |
Inputs other than quoted prices included within Level 1 that are observable for the asset and liability, either directly or indirectly
|
| Level 3: |
Unobservable inputs for the asset or liability
|
The company’s short-term investments and forward exchange contracts are measured at
fair value at each balance sheet date. The company’s short-term investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. The
company’s forward exchange contracts are classified within Level 2 of the fair value hierarchy because they are valued using quoted prices and forward exchange rates at the balance sheet dates.
The fair value of forward exchange contracts represents the amount at which they
could be settled based on estimated current market rates.
The fair value of derivative and non-derivative financial assets and liabilities
measured at fair value by level of fair value hierarchy, is as follows:
|
As at February 28, 2019
|
As at August 31, 2018
|
|||||||||||||||
|
Level 1
|
Level 2
|
Level 1
|
Level 2
|
|||||||||||||
|
Financial assets
|
||||||||||||||||
|
Short-term investments
|
$
|
2,238
|
$
|
‒ |
$
|
2,282
|
$
|
‒ | ||||||||
|
Forward exchange contracts
|
$
|
‒ |
$
|
274
|
$
|
‒ |
$
|
318
|
||||||||
|
Financial liabilities
|
||||||||||||||||
|
Forward exchange contracts
|
$
|
‒ |
$
|
788
|
$
|
‒ |
$
|
807
|
||||||||
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
Derivative Financial Instruments
The functional currency of the company is the Canadian dollar. The company is
exposed to currency risk as a result of its export sales of products manufactured in Canada, China, France and Finland, the majority of which are denominated in US dollars and euros. This risk is partially hedged by
forward exchange contracts and certain cost of sales and operating expenses (US dollars and euros). In addition, the company is exposed to currency risk as a result of its research and development activities in India
(Indian rupees). This risk is partially hedged by forward exchange contracts. The company’s forward exchange contracts, which are designated as cash flow hedging instruments, qualify for hedge accounting.
As at February 28, 2019, the company held contracts to sell US dollars for Canadian
dollars and Indian rupees at various forward rates, which are summarized below:
US dollars – Canadian dollars
|
Expiry dates
|
Contractual
amounts
|
Weighted average
contractual forward rates
|
|||||||
|
March 2019 to August 2019
|
$
|
17,400
|
1.2998
|
||||||
|
September 2019 to August 2020
|
22,800
|
1.2858
|
|||||||
|
September 2020 to August 2021
|
11,600
|
1.2981
|
|||||||
|
September 2021 to January 2022
|
3,000
|
1.3134
|
|||||||
|
Total
|
$
|
54,800
|
1.2944
|
||||||
US dollars – Indian rupees
|
Expiry dates
|
Contractual
amount
|
Weighted average
contractual forward rate
|
|||||||
|
March 2019 to August 2019
|
$
|
1,500
|
71.09
|
||||||
The carrying amount of forward exchange contracts is equal to their fair value,
which is based on the amount at which they could be settled based on estimated current market rates. The fair value of forward exchange contracts amounted to net losses of $489,000 as at August 31, 2018, and $514,000
as at February 28, 2019.
As at February 28, 2019, forward exchange contracts in the amount of $149,000 are
presented as current assets in other accounts receivable, forward exchange contracts in the amount of $125,000 are presented as long-term assets in other long-term assets, forward exchange contracts in the amount of
$619,000 are presented as current liabilities in accounts payable and accrued liabilities, and forward exchange contracts in the amount of $169,000 are presented as long-term liabilities in other long-term
liabilities in the consolidated balance sheet. Forward exchange contracts of $62,000 included in accounts payable and accrued liabilities, for which related hedged sales are recognized, are recorded in the
consolidated statement of earnings; otherwise, other forward exchange contracts are not yet recorded in the consolidated statement of earnings and are recorded in other comprehensive income.
Based on its portfolio of forward exchange contracts as at February 28, 2019, the
company estimates that the portion of the net unrealized losses on these contracts as of that date, which will be realized and reclassified from accumulated other comprehensive income to net earnings (sales) over the
next 12 months, amounts to $408,000.
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
For the three and six months ended February 28, 2018 and 2019, the company
recognized within its sales the following foreign exchange gains or losses on forward exchange contracts:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Gains (losses) on forward exchange contracts
|
$
|
(181
|
)
|
$
|
(160
|
)
|
$
|
381
|
$
|
618
|
||||||
|
5
|
Long-term Debt
|
|
As at
February 28,
2019
|
As at
August 31,
2018
|
|||||||
|
Unsecured, non-interest-bearing
loans, denominated in euros, repayable in quarterly instalments, maturing in March 2024 and March 2025
|
$
|
913
|
$
|
883
|
||||
|
Unsecured loans, denominated in
euros, repayable in monthly, quarterly
or bi-annual instalments, bearing interest at annual rates of nil to 5.0%, maturing at different dates between March 2020 and September 2023 |
3,968
|
4,853
|
||||||
|
Loans, secured by the universality
of the assets of a subsidiary, denominated in euros, repayable in monthly instalments, bearing interest at annual rates of 0.7% to 2.0%, maturing at different dates between June 2019 and August 2022
|
623
|
828
|
||||||
|
Loans, secured by the universality
of the assets of a subsidiary, denominated in euros, repayable in monthly or quarterly instalments, bearing interest at annual rates of 1.1% to 2.9%, maturing at different dates between March 2020 and July
2022
|
1,798
|
2,264
|
||||||
|
7,302
|
8,828
|
|||||||
|
Current portion of long-term debt
|
2,724
|
2,921
|
||||||
|
$
|
4,578
|
$
|
5,907
|
|||||
Principal repayments of long-term debt over the forthcoming years are as follows:
|
As at
February 28,
2019
|
As at
August 31,
2018
|
|||||||
|
No later than one year
|
$
|
2,724
|
$
|
2,921
|
||||
|
Later than one year and no later than five years
|
4,427
|
5,745
|
||||||
|
Later than five years
|
151
|
162
|
||||||
|
$
|
7,302
|
$
|
8,828
|
|||||
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
|
6
|
Share Capital
|
The following tables summarize changes in share capital for the six months ended
February 28, 2018 and 2019.
|
Six months ended February 28, 2018
|
||||||||||||||||||||
|
Multiple voting shares
|
Subordinate voting shares
|
|||||||||||||||||||
|
Number
|
Amount
|
Number
|
Amount
|
Total
amount
|
||||||||||||||||
|
Balance as at September 1, 2017
|
31,643,000
|
$
|
1
|
23,068,777
|
$
|
90,410
|
$
|
90,411
|
||||||||||||
|
Redemption of restricted share units
|
−
|
−
|
155,619
|
−
|
−
|
|||||||||||||||
|
Reclassification of stock-based compensation costs to share
capital upon exercise of stock awards
|
−
|
−
|
−
|
598
|
598
|
|||||||||||||||
|
Balance as at November 30, 2017
|
31,643,000
|
1
|
23,224,396
|
91,008
|
91,009
|
|||||||||||||||
|
Redemption of restricted share units
|
−
|
−
|
182,725
|
−
|
−
|
|||||||||||||||
|
Reclassification of stock-based compensation costs to share
capital upon exercise of stock awards
|
−
|
−
|
−
|
675
|
675
|
|||||||||||||||
|
Balance as at February 28, 2018
|
31,643,000
|
$
|
1
|
23,407,121
|
$
|
91,683
|
$
|
91,684
|
||||||||||||
|
Six months ended February 28, 2019
|
||||||||||||||||||||
|
Multiple voting shares
|
Subordinate voting shares
|
|||||||||||||||||||
|
Number
|
Amount
|
Number
|
Amount
|
Total
amount
|
||||||||||||||||
|
Balance as at September 1, 2018
|
31,643,000
|
$
|
1
|
23,472,995
|
$
|
91,936
|
$
|
91,937
|
||||||||||||
|
Redemption of restricted share units
|
−
|
−
|
176,729
|
−
|
−
|
|||||||||||||||
|
Reclassification of stock-based compensation costs to share
capital upon exercise of stock awards
|
−
|
−
|
−
|
643
|
643
|
|||||||||||||||
|
Balance as at November 30, 2018
|
31,643,000
|
1
|
23,649,724
|
92,579
|
92,580
|
|||||||||||||||
|
Redemption of restricted share units
|
−
|
−
|
129,571
|
−
|
−
|
|||||||||||||||
|
Redemption of share capital
|
−
|
−
|
(32,232
|
)
|
(126
|
)
|
(126
|
)
|
||||||||||||
|
Reclassification of stock-based compensation costs to share
capital upon exercise of stock awards
|
−
|
−
|
−
|
424
|
424
|
|||||||||||||||
|
Balance as at February 28, 2019
|
31,643,000
|
$
|
1
|
23,747,063
|
$
|
92,877
|
$
|
92,878
|
||||||||||||
On January 8, 2019, the company announced that its Board of Directors had approved
a share repurchase program, by way of a normal course issued bid on the open market of up to 6.3% of the issued and outstanding subordinate voting shares, representing 1,200,000 subordinate voting shares at the
prevailing market price. The normal course issuer bid started on January 14, 2019 and will end on January 13, 2020 or earlier if the company repurchases the maximum number of shares permitted. All shares repurchased
under the bid will be cancelled.
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
|
7
|
Statements of Earnings
|
Sales are as follows:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Test and measurement
|
$
|
50,407
|
$
|
100,171
|
$
|
49,884
|
$
|
100,070
|
||||||||
|
Service assurance, systems and services
|
23,701
|
43,117
|
14,457
|
27,425
|
||||||||||||
|
Foreign exchange gains (losses) on forward exchange
contracts
|
(181
|
)
|
(160
|
)
|
381
|
618
|
||||||||||
|
Total sales for the period
|
$
|
73,927
|
$
|
143,128
|
$
|
64,722
|
$
|
128,113
|
||||||||
Net research and development expenses comprise the following:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Gross research and development expenses
|
$
|
14,157
|
$
|
31,382
|
$
|
15,180
|
$
|
28,243
|
||||||||
|
Research and development tax credits
|
(1,941
|
)
|
(3,942
|
)
|
(2,093
|
)
|
(3,904
|
)
|
||||||||
|
Net research and development expenses
for the period
|
$
|
12,216
|
$
|
27,440
|
$
|
13,087
|
$
|
24,339
|
||||||||
Inventory write-down is as follows:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Inventory write-down for the period
|
$
|
903
|
$
|
1,948
|
$
|
566
|
$
|
1,269
|
||||||||
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
Depreciation and amortization expenses by functional area are as follows:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Cost of sales
|
||||||||||||||||
|
Depreciation of property, plant and equipment
|
$
|
436
|
$
|
960
|
$
|
466
|
$
|
938
|
||||||||
|
Amortization of intangible assets
|
1,522
|
4,045
|
2,816
|
3,727
|
||||||||||||
|
1,958
|
5,005
|
3,282
|
4,665
|
|||||||||||||
|
Selling and administrative expenses
|
||||||||||||||||
|
Depreciation of property, plant and equipment
|
442
|
706
|
203
|
367
|
||||||||||||
|
Amortization of intangible assets
|
401
|
633
|
135
|
247
|
||||||||||||
|
843
|
1,339
|
338
|
614
|
|||||||||||||
|
Net research and development expenses
|
||||||||||||||||
|
Depreciation of property, plant and equipment
|
512
|
1,153
|
594
|
1,112
|
||||||||||||
|
Amortization of intangible assets
|
207
|
392
|
105
|
201
|
||||||||||||
|
719
|
1,545
|
699
|
1,313
|
|||||||||||||
|
$
|
3,520
|
$
|
7,889
|
$
|
4,319
|
$
|
6,592
|
|||||||||
|
Depreciation of property, plant and equipment
|
$
|
1,390
|
$
|
2,819
|
$
|
1,263
|
$
|
2,417
|
||||||||
|
Amortization of intangible assets
|
2,130
|
5,070
|
3,056
|
4,175
|
||||||||||||
|
Total depreciation and amortization
expenses for the period
|
$
|
3,520
|
$
|
7,889
|
$
|
4,319
|
$
|
6,592
|
||||||||
Employee compensation comprises the following:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Salaries and benefits
|
$
|
35,106
|
$
|
70,847
|
$
|
33,527
|
$
|
63,149
|
||||||||
|
Restructuring charges
|
507
|
2,733
|
‒
|
‒
|
||||||||||||
|
Stock-based compensation costs
|
461
|
879
|
438
|
840
|
||||||||||||
|
Total employee compensation for the period
|
$
|
36,074
|
$
|
74,459
|
$
|
33,965
|
$
|
63,989
|
||||||||
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
Stock-based compensation costs by functional area are as follows:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Cost of sales
|
$
|
35
|
$
|
71
|
$
|
35
|
$
|
71
|
||||||||
|
Selling and administrative expenses
|
381
|
665
|
309
|
585
|
||||||||||||
|
Net research and development expenses
|
45
|
143
|
94
|
184
|
||||||||||||
|
Total stock-based compensation for the period
|
$
|
461
|
$
|
879
|
$
|
438
|
$
|
840
|
||||||||
Restructuring charges by functional area are as follows:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Cost of sales
|
$
|
17
|
$
|
304
|
$
|
‒ |
$
|
‒ | ||||||||
|
Selling and administrative expenses
|
98
|
495
|
‒
|
‒
|
||||||||||||
|
Net research and development expenses
|
462
|
2,519
|
‒
|
‒
|
||||||||||||
|
Income taxes
|
(45
|
)
|
(42
|
)
|
‒
|
‒
|
||||||||||
|
Total restructuring charges for the period
|
$
|
532
|
$
|
3,276
|
$
|
‒ |
$
|
‒ | ||||||||
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
|
8
|
Income Taxes
|
For the three months and six months ended February 28, 2018 and 2019, the
reconciliation of the income tax provision (recovery) calculated using the combined Canadian federal and provincial statutory income tax rate with the income tax provision (recovery) in the financial statements is as
follows:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Income tax provision (recovery) at combined Canadian
federal and provincial statutory tax rate (27%)
|
$
|
1,283
|
$
|
(290
|
)
|
$
|
(726
|
)
|
$
|
467
|
||||||
|
Increase (decrease) due to:
|
||||||||||||||||
|
Foreign income taxed at different rates
|
(246
|
)
|
(12
|
)
|
33
|
(70
|
)
|
|||||||||
|
Non-deductible loss (non-taxable income)
|
(67
|
)
|
33
|
(153
|
)
|
(207
|
)
|
|||||||||
|
Non-deductible expenses
|
25
|
251
|
569
|
950
|
||||||||||||
|
Change in tax rates
|
‒
|
‒
|
167
|
167
|
||||||||||||
|
Effect of the US tax reform
|
‒
|
‒
|
1,528
|
1,528
|
||||||||||||
|
Foreign exchange effect of translation of foreign
subsidiaries in the functional currency
|
(124
|
)
|
(284
|
)
|
(143
|
)
|
(235
|
)
|
||||||||
|
Recognition of previously unrecognized deferred income tax
assets (note 3)
|
(2,383
|
)
|
(2,383
|
)
|
‒
|
‒
|
||||||||||
|
Utilization of previously unrecognized deferred income tax
assets
|
(307
|
)
|
(391
|
)
|
(38
|
)
|
(282
|
)
|
||||||||
|
Unrecognized deferred income tax assets on temporary
deductible differences and unused tax losses
|
802
|
3,355
|
1,298
|
2,333
|
||||||||||||
|
Other
|
577
|
922
|
(214
|
)
|
(590
|
)
|
||||||||||
|
Income tax provision (recovery) for the period
|
$
|
(440
|
)
|
$
|
1,201
|
$
|
2,321
|
$
|
4,061
|
|||||||
The income tax provision (recovery) consists of the following:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Current
|
$
|
1,684
|
$
|
3,354
|
$
|
(63
|
)
|
$
|
1,917
|
|||||||
|
Deferred
|
(2,124
|
)
|
(2,153
|
)
|
2,384
|
2,144
|
||||||||||
|
$
|
(440
|
)
|
$
|
1,201
|
$
|
2,321
|
$
|
4,061
|
||||||||
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
|
9
|
Earnings per Share
|
The following table summarizes the reconciliation of the basic weighted average
number of shares outstanding to the diluted weighted average number of shares outstanding:
|
Three months
ended
February 28,
2019
|
Six months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Basic weighted average number of shares outstanding
(000’s)
|
55,343
|
55,263
|
54,975
|
54,890
|
||||||||||||
|
Plus dilutive effect of (000’s):
|
||||||||||||||||
|
Restricted share units
|
615
|
‒
|
‒
|
‒
|
||||||||||||
|
Deferred share units
|
202
|
‒
|
‒
|
‒
|
||||||||||||
|
Diluted weighted average number of shares outstanding
(000’s)
|
56,160
|
55,263
|
54,975
|
54,890
|
||||||||||||
|
Stock awards excluded from the calculation of diluted
weighted average number of shares because their exercise price was greater than the average market price of the common shares, or their inclusion would be antidilutive (000’s)
|
127
|
1,694
|
1,813
|
1,805
|
||||||||||||
For the three months ended February 28, 2018 and the six months ended February 28,
2018 and 2019, the diluted amount per share was the same amount as the basic amount per share since the dilutive effect of restricted share units and deferred share units was not included in the calculation;
otherwise, the effect would have been antidilutive. Accordingly, the diluted amount per share for these periods was calculated using the basic weighted average number of shares outstanding.
This discussion and analysis contains forward-looking statements
within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, and we intend that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are
statements other than historical information or statements of current condition. Words such as may, expect, believe, plan, anticipate, intend, could, estimate, continue, or similar expressions or the negative of
such expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events and circumstances are considered
forward-looking statements. They are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in forward-looking statements due to various factors
including, but not limited to, macroeconomic uncertainty, including trade wars; our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels
in the telecommunications industry (including our ability to quickly adapt cost structures to anticipated levels of business and our ability to manage inventory levels with market demand); future economic,
competitive, financial and market conditions; consolidation in the global communications test, monitoring and analytics solutions markets and increased competition among vendors; capacity to adapt our future
product offering to future technological changes; limited visibility with regard to the timing and nature of customer orders; delay in revenue recognition due to longer sales cycles for complex systems involving
customers’ acceptance; fluctuating exchange rates; concentration of sales; timely release and market acceptance of our new products and other upcoming products; our ability to successfully expand international
operations and to conduct business internationally; and the retention of key technical and management personnel. Assumptions relating to the foregoing involve judgments and risks, all of which are difficult or
impossible to predict and many of which are beyond our control. Other risk factors that may affect our future performance and operations are detailed in our Annual Report, on Form 20-F, and our other filings with
the U.S. Securities and Exchange Commission and the Canadian securities commissions. We believe that the expectations reflected in the forward-looking statements are reasonable based on information currently
available to us, but we cannot assure you that the expectations will prove to have been correct. Accordingly, you should not place undue reliance on these forward-looking statements. These statements speak only as
of the date of this document. Unless required by law or applicable regulations, we undertake no obligation to revise or update any of them to reflect events or circumstances that occur after the date of this
document. This discussion and analysis should be read in conjunction with the consolidated financial statements.
The following discussion and analysis of financial condition and results of operations is dated
April 2, 2019.
All financial data are expressed in US dollars, except as otherwise noted, and determined based on
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). This discussion
and analysis also contains financial data that do not comply with IFRS. Where such measures are presented, they are defined, and the reader is informed.
COMPANY OVERVIEW AND RECENT DEVELOPMENTS
We are a leading provider of test, monitoring and analytics solutions for fixed and mobile
communications service providers (CSPs), web-scale operators and network equipment manufacturers (NEMs) in the global communications industry. Our broad portfolio of intelligent hardware and software solutions
enable network transformations related to fiber, 5G and 4G/LTE, virtualization and big data analytics. Ultimately, customers rely on our solutions to increase network capacity and improve quality of experience for
end-users, while driving operational efficiencies.
We showcased our latest new product introductions at Mobile World Congress (MWC) and Optical Fiber Conference (OFC), high-profile tradeshows held during and after the quarter-end. At MWC, we provided an overview of our highly differentiated service assurance and analytics platform, including automated
assurance, diagnostics and troubleshooting of 5G networks.
At OFC, we demonstrated the breadth and depth of our market-leading optical test offering, including
our recently released Open Transceiver System for 400G testing, to allow for successful, high-speed network transformations. We also presented our latest field test automation, cloud reporting and remote testing capabilities.
On the recognition front, we received Frost & Sullivan’s 2018 Customer Value Leadership Award
for Global Data Analytics Solutions. This fifth award for our Service Assurance, Systems and Services
(SASS) portfolio during the past year recognizes our ability to optimize subscriber experience and maximize benefits for communications service providers at every level of these organizations, from engineering to
customer care.
Our sales, which include a full contribution from newly acquired EXFO Solutions S.A.S. (formerly
Astellia S.A.), compared to a one-month contribution for the same period last year, increased 14.2% to $73.9 million in the second quarter of fiscal 2019 compared to $64.7 million for the same period last year.
Bookings (purchase orders received from customers), which include a full contribution from EXFO Solutions, compared to one-month contribution in the same period last year, increased by 16.0% to $76.1 million in the
second quarter of fiscal 2019, for a book-to-bill ratio of 1.03, from $65.6 million for the same period last year. In the second quarter of fiscal 2019, EXFO Solutions’ sales and bookings amounted respectively to
$7.5 million (or $8.1 million before the $0.6 million adjustment for the acquisition-related deferred revenue fair value) and $10.3 million; this compares to sales of $1.8 million (or $2.1 million before the $0.3
million adjustment for the acquisition-related deferred revenue fair value) and bookings of $2.5 million for the same period last year.
Net earnings amounted to $5.2 million, or $0.09 per diluted share, in the second quarter of fiscal 2019,
compared to a net loss attributable to the parent interest of $4.7 million, or $0.08 per share, for the same period last year. Net earnings for the second quarter of fiscal 2019 included net expenses totaling
$3.9 million, comprising $1.9 million in after-tax amortization of intangible assets, $0.5 million in stock-based compensation costs, $0.5 million in after-tax restructuring charges, $0.6 million for the
acquisition-related deferred revenue fair value adjustment, and a foreign exchange loss of $0.4 million. Net earnings attributable to the parent interest also include $1.7 million for a gain on disposal of
capital assets and $2.4 million for a deferred income tax recovery. For the same period last year, net loss attributable to the parent
interest included net expenses totaling $5.7 million, comprising $2.7 million in after-tax amortization of intangible assets, $0.4 million in stock-based compensation costs, $0.6 million for the positive change
in the fair value of the cash contingent consideration, $1.4 million in after-tax acquisition-related costs, $0.3 million for the acquisition-related deferred revenue fair value adjustment and $1.5 million in
income tax expense to account for the effects of the 2018 US tax reform.
Adjusted EBITDA (net earnings (loss) attributable to the parent interest before interest and other
income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change in fair value of cash contingent consideration, acquisition-related deferred revenue fair
value adjustment, and foreign exchange gain or loss) reached $8.8 million, or 11.9% of sales, in the second quarter of fiscal 2019, compared to $2.5 million, or 3.9% of sales for the same period last year.
Adjusted EBITDA is a non-IFRS measure. See page 45 of this document for a complete reconciliation of adjusted EBITDA to IFRS net earnings (loss) attributable to the parent interest.
In September 2018, as part of our fiscal 2018 restructuring plan and the shutdown of our operations
in Toronto, Canada, we entered into a binding agreement to sell one of our buildings for net proceeds of $3.3 million. The transfer of ownership occurred in the second quarter of fiscal 2019 and resulted in a gain
of $1.7 million that was recorded in our consolidated statement of earnings for that quarter. The gain on disposal of the building was recorded in interest and other income-expense line item in the condensed
unaudited interim consolidated statements of earnings for the three months and six months ended February 28, 2019.
In addition, during the three months ended February 28, 2019, as part of our fiscal 2018
restructuring plan and the shutdown of some of our facilities in the United States, we transferred the ownership of certain intellectual property held in the United States to Canada. This created a deductible tax
asset in Canada and resulted in the recognition of a one-time deferred income tax recovery of $2.4 million during the three months ended February 28, 2019 as the recovery of this asset is probable. This deferred
income tax recovery was recorded in the condensed unaudited interim consolidated statements of earnings for the three and six months ended February 28, 2019.
Finally, during the three months ended February 28, 2019, we recognized into revenue a previously
announced $4.9 million order from a tier-1 US service provider for real-time network topology software.
RESULTS OF OPERATIONS
(in thousands of US dollars, except per share data, and as a percentage of
sales for the periods indicated)
|
Three months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2019
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Sales
|
$
|
73,927
|
$
|
64,722
|
$
|
143,128
|
$
|
128,113
|
||||||||
|
Cost of sales (1)
|
29,062
|
25,326
|
57,959
|
48,615
|
||||||||||||
|
Selling and administrative
|
25,474
|
24,916
|
51,849
|
48,109
|
||||||||||||
|
Net research and development
|
12,216
|
13,087
|
27,440
|
24,339
|
||||||||||||
|
Depreciation of property, plant and equipment
|
1,390
|
1,263
|
2,819
|
2,417
|
||||||||||||
|
Amortization of intangible assets
|
2,130
|
3,056
|
5,070
|
4,175
|
||||||||||||
|
Change in fair value of cash contingent consideration
|
–
|
(561
|
)
|
–
|
(716
|
)
|
||||||||||
|
Interest and other (income) expense
|
(1,514
|
)
|
334
|
(1,137
|
)
|
672
|
||||||||||
|
Foreign exchange (gain) loss
|
416
|
(8
|
)
|
201
|
(1,226
|
)
|
||||||||||
|
Share in net loss of an associate
|
–
|
2,080
|
–
|
2,080
|
||||||||||||
|
Gain on the deemed disposal of the investment in an
associate
|
–
|
(2,080
|
)
|
–
|
(2,080
|
)
|
||||||||||
|
Earnings (loss) before income taxes
|
4,753
|
(2,691
|
)
|
(1,073
|
)
|
1,728
|
||||||||||
|
Income taxes
|
(440
|
)
|
2,321
|
1,201
|
4,061
|
|||||||||||
|
Net earnings (loss) for the period
|
5,193
|
(5,012
|
)
|
(2,274
|
)
|
(2,333
|
)
|
|||||||||
|
Net loss for the period attributable to
non-controlling interest
|
–
|
(352
|
)
|
–
|
(352
|
)
|
||||||||||
|
Net earnings (loss) for the period attributable to
parent interest
|
$
|
5,193
|
$
|
(4,660
|
)
|
$
|
(2,274
|
)
|
$
|
(1,981
|
)
|
|||||
|
Basic and diluted net earnings (loss) attributable to
parent interest per share
|
$
|
0.09
|
$
|
(0.08
|
)
|
$
|
(0.04
|
)
|
$
|
(0.04
|
)
|
|||||
|
Other selected information:
|
||||||||||||||||
|
Gross margin before depreciation and amortization
(2)
|
$
|
44,865
|
$
|
39,396
|
$
|
85,169
|
$
|
79,498
|
||||||||
|
Research and development:
|
||||||||||||||||
|
Gross research and development
|
$
|
14,157
|
$
|
15,180
|
$
|
31,382
|
$
|
28,243
|
||||||||
|
Net research and development
|
$
|
12,216
|
$
|
13,087
|
$
|
27,440
|
$
|
24,339
|
||||||||
|
Adjusted EBITDA (2)(3)
|
$
|
8,784
|
$
|
2,492
|
$
|
11,512
|
$
|
8,551
|
||||||||
|
(1)
|
The cost of sales is exclusive of depreciation and amortization, shown separately.
|
|
(2)
|
Refer to page 45 for non-IFRS measures.
|
|
(3)
|
Includes acquisition-related costs of $1.4 million and $2.1 million for the three and six
months ended February 28, 2018 (nil in fiscal 2019).
|
RESULTS OF OPERATIONS
(as a percentage of sales for the periods indicated)
|
Three months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2019
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||||
|
Cost of sales (1)
|
39.3
|
39.1
|
40.5
|
37.9
|
||||||||||||
|
Selling and administrative
|
34.4
|
38.5
|
36.2
|
37.6
|
||||||||||||
|
Net research and development
|
16.5
|
20.2
|
19.2
|
19.0
|
||||||||||||
|
Depreciation of property, plant and equipment
|
1.9
|
2.0
|
2.0
|
1.9
|
||||||||||||
|
Amortization of intangible assets
|
2.9
|
4.7
|
3.5
|
3.2
|
||||||||||||
|
Change in fair value of cash contingent
consideration
|
–
|
(0.9
|
)
|
–
|
(0.6
|
)
|
||||||||||
|
Interest and other (income) expense
|
(2.0
|
)
|
0.5
|
(0.8
|
)
|
0.6
|
||||||||||
|
Foreign exchange (gain) loss
|
0.6
|
–
|
0.1
|
(0.9
|
)
|
|||||||||||
|
Share in net loss of an associate
|
–
|
3.2
|
–
|
1.6
|
||||||||||||
|
Gain on the deemed disposal of the investment in an
associate
|
–
|
(3.2
|
)
|
–
|
(1.6
|
)
|
||||||||||
|
Earnings (loss) before income taxes
|
6.4
|
(4.1
|
)
|
(0.7
|
)
|
1.3
|
||||||||||
|
Income taxes
|
(0.6
|
)
|
3.6
|
0.9
|
3.1
|
|||||||||||
|
Net earnings (loss) for the period
|
7.0
|
(7.7
|
)
|
(1.6
|
)
|
(1.8
|
)
|
|||||||||
|
Net loss for the period attributable to
non-controlling interest
|
–
|
(0.5
|
)
|
–
|
(0.3
|
)
|
||||||||||
|
Net earnings (loss) for the period attributable to
parent interest
|
7.0
|
%
|
(7.2
|
)%
|
(1.6
|
)%
|
(1.5
|
)%
|
||||||||
|
Other selected information:
|
||||||||||||||||
|
Gross margin before depreciation and amortization
(2)
|
60.7
|
%
|
60.9
|
%
|
59.5
|
%
|
62.1
|
%
|
||||||||
|
Research and development:
|
||||||||||||||||
|
Gross research and development
|
19.1
|
%
|
23.5
|
%
|
21.9
|
%
|
22.0
|
%
|
||||||||
|
Net research and development
|
16.5
|
%
|
20.2
|
%
|
19.2
|
%
|
19.0
|
%
|
||||||||
|
Adjusted EBITDA (2)(3)
|
11.9
|
%
|
3.9
|
%
|
8.0
|
%
|
6.7
|
%
|
||||||||
|
(1)
|
The cost of sales is exclusive of depreciation and amortization, shown separately.
|
|
(2)
|
Refer to page 45 for non-IFRS measures.
|
|
(3)
|
Includes acquisition-related costs of 2.1% and 1.6% of sales respectively for the three
and six months ended February 28, 2018 (nil in fiscal 2019).
|
RESULTS OF OPERATIONS
Sales and Bookings
The following tables summarize sales and bookings by product line in thousands of US dollars:
Sales
(1)
|
Three months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2019
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Test and measurement
|
$
|
50,407
|
$
|
49,884
|
$
|
100,171
|
$
|
100,070
|
||||||||
|
Service assurance, systems and services
|
23,701
|
14,457
|
43,117
|
27,425
|
||||||||||||
|
74,108
|
64,341
|
143,288
|
127,495
|
|||||||||||||
|
Foreign exchange gains (losses) on forward exchange
contracts
|
(181
|
)
|
381
|
(160
|
)
|
618
|
||||||||||
|
Total sales
|
$
|
73,927
|
$
|
64,722
|
$
|
143,128
|
$
|
128,113
|
||||||||
Bookings
|
Three months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2019
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Test and measurement
|
$
|
45,320
|
$
|
47,386
|
$
|
109,316
|
$
|
100,240
|
||||||||
|
Service assurance, systems and services
|
30,953
|
17,819
|
48,174
|
30,607
|
||||||||||||
|
76,273
|
65,205
|
157,490
|
130,847
|
|||||||||||||
|
Foreign exchange gains (losses) on forward exchange
contracts
|
(181
|
)
|
381
|
(160
|
)
|
618
|
||||||||||
|
Total bookings
|
$
|
76,092
|
$
|
65,586
|
$
|
157,330
|
$
|
131,465
|
||||||||
Sales by geographic region
The following table summarizes sales by geographic region:
|
Three months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2019
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
Americas
|
50
|
%
|
49
|
%
|
50
|
%
|
51
|
%
|
||||||||
|
Europe, Middle-East and Africa (EMEA)
|
34
|
33
|
34
|
28
|
||||||||||||
|
Asia-Pacific (APAC)
|
16
|
18
|
16
|
21
|
||||||||||||
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
|||||||||
|
(1)
|
Refer to page 47 for quarterly sales by product lines for fiscal 2018.
|
For the three months ended February 28, 2019, our sales increased 14.2% to $73.9 million, compared
to $64.7 million for the same period last year, while our bookings increased 16.0% to $76.1 million, compared to $65.6 million the same period last year, for a book-to-bill ratio of 1.03.
For the six months ended February 28, 2019, our sales increased 11.7% to $143.1 million, from $128.1
million for the same period last year, while our bookings increased 19.7% to $157.3 million, from $131.5 million for the same period last year, for a book-to-bill ratio of 1.10.
Beginning in the first quarter of fiscal 2019, we are reporting sales and bookings based on two
newly created product families: Test and measurement (T&M) as well as Service Assurance, systems and services (SASS). Optical, transport and copper test solutions make up the T&M product family, including
portable equipment for the field and benchtop units for the lab and manufacturing environments. The SASS family mainly consists of service assurance, fiber monitoring, analytics and professional services as well as
other systems-related solutions like network simulation and network topology discovery. This broad product family tends to be software-intensive with longer sales and revenue-recognition cycles than the T&M
group. We believe this breakdown better reflects our long-term strategy, while enhancing comparisons against industry peers and investors’ understanding of our business. This classification replaces our former
Physical-Layer and Protocol-Layer product groups. The main changes involve fiber monitoring solutions, which were previously in the Physical-Layer product group, moving into SASS, and transport testing moving from
the Protocol-Layer group into T&M.
Sales
Second quarter review
In the second quarter of fiscal 2019, the 14.2% increase in total sales year-over-year comes from
the positive effect of the recent acquisition of EXFO Solutions, which delivered sales of $7.5 million (full contribution), compared to $1.8 million (one-month contribution) for the same period last year, as well
as from a $4.9 million order recognized in the quarter from a U.S. Tier 1 service provider for our real-time network topology solution (no such order in fiscal 2018). Otherwise, our total sales were negatively
impacted by currency fluctuations year-over-year.
In the second quarter of fiscal 2019, sales of our T&M product line slightly increased 1.0%
year-over-year, despite the negative currency impact. In the second quarter of fiscal 2019, we delivered increased sales for our high-speed optical solutions, as well as higher sales from network equipment
manufacturers (NEMs) and R&D labs compared to the same period last year. However, our sales of copper-access solutions decreased year-over-year, as we received larger orders in the second quarter of 2018,
compared to this quarter.
In the second quarter of fiscal 2019, sales of our SASS product line increased 63.9% year-over-year,
mainly due to the positive effect of the acquisition of EXFO Solutions, which contributed $7.5 million in sales, compared to $1.8 million for the same period last year, as well as from the $4.9 million order for
our real-time network topology solution. Otherwise, our sales of our SASS product line were negatively impacted by currency fluctuations year-over-year.
First half review
In the first half of fiscal 2019, the 11.7% increase in total sales year-over-year comes from the
positive effect of the recent acquisition of EXFO Solutions, which delivered sales of $15.0 million (full contribution), compared to $1.8 million (one-month contribution) for the same period last year, as well as
from the $4.9 million order for our real-time network topology solution. Otherwise, our total sales were negatively impacted by currency fluctuations year-over-year.
In the first half of fiscal 2019, sales of our T&M product line were flat year-over-year,
despite the negative currency impacts. Otherwise, they would have slightly increased year-over-year. In the first half of fiscal 2019, we delivered increased sales for our high-speed optical solutions, as well as
higher sales from NEMs and R&D labs compared to the same period last year. However, our sales of copper-access solutions decreased year-over-year as we received larger orders in the first half of 2018, compared
to the same period this year.
In the first half of fiscal 2019, sales of our SASS product line increased 57.2% year-over-year,
mainly due to the positive effect of the acquisition of EXFO Solutions, which contributed $15.0 million in sales during the period, compared to $1.8 million for the same period last year, and the $4.9 million order
for our real-time network topology solution. Otherwise, in the first half of fiscal 2019, we reported lower sales from our fiber monitoring systems (a sub-group of our SASS product line) year-over-year, as we
recognized larger orders for this sub-group in the first half of 2018. Sales and bookings of fiber monitoring systems, as well as other SASS, are characterized by large intermittent orders from customers. In
addition, our sales were to some extent negatively impacted by currency fluctuations year-over-year.
Bookings
Second quarter review
In the second quarter of fiscal 2019, the 16.0% increase in total bookings year-over-year comes from the
positive effect of our recent acquisition of EXFO Solutions, which delivered bookings of $10.3 million (full contribution), compared to $2.5 million (one-month contribution) for the same period last year, as well
as from the $4.9 million order for our real-time network topology solution. Otherwise, total bookings were negatively impacted by the currency fluctuations year-over-year.
In the second quarter of fiscal 2019, bookings of our T&M product line decreased 4.4%
year-over-year, following strong booking levels attained in the previous quarter. The year-over-year decrease in bookings of our T&M product line is due to the negative currency impact as well as lower bookings
for our copper-access solutions. Otherwise, we reported higher bookings from NEMS and R&D Labs year-over-year, which offset in part the decrease in bookings.
In the second quarter of fiscal 2019, bookings of our SASS product line increased 73.7%
year-over-year, mainly due to the positive effect of the acquisition of EXFO Solutions, which contributed $10.3 million in bookings during the quarter, compared to $2.5 million for the same period last year, and
the $4.9 million order for our real-time network topology solution (no such order in fiscal 2018). Otherwise, our SASS product line bookings were to some extent negatively impacted by currency fluctuations
year-over-year.
First half review
In the first half of fiscal 2019, the 19.7% increase in total bookings year-over-year comes from the
positive effect of our recent acquisition of EXFO Solutions, which delivered bookings of $18.1 million (full contribution), compared to $2.5 million (one-month contribution) for the same period last year, from
larger calendar year-end budget spending on the part of some communication service providers (CSPs) in the Americas for our T&M products, as well as from the $4.9 million order for our real-time network
topology solution. Otherwise, in the first half of fiscal 2019, we reported lower bookings for our fiber monitoring systems and total bookings were negatively impacted the currency fluctuations year-over-year.
In the first half of fiscal 2019, bookings of our T&M product line increased 9.1%
year-over-year, mainly due to larger calendar year-end budget spending on the part of some CSPs in the Americas in the first quarter of the year, as well as from higher bookings from NEMS and R&D Labs.
Otherwise, in the first half of fiscal 2019, lower bookings from our copper-access product line and the negative currency impact year-over-year offset in part the increase in bookings compared to the same period
last year.
In the first half of fiscal 2019, bookings of our SASS product line increased 57.4% year-over-year,
mainly due to the positive effect of the acquisition of EXFO Solutions, which contributed $18.1 million in bookings during the period, compared to $2.5 million for the same period last year, and the $4.9 million
order for our real-time network topology solution. Otherwise, in the first half of fiscal 2019, we reported lower bookings for our fiber monitoring systems and total bookings were negatively impacted the currency
fluctuations year-over-year.
As we gradually evolve from a supplier of dedicated test instruments to a supplier of end-to-end
system-based solutions, our quarterly sales and bookings are becoming increasingly subject to quarterly fluctuations, as we are managing more complex, multimillion-dollar deals that have prolonged sales and revenue
recognition cycles related to our SASS. This has been amplified with the recent acquisition of EXFO Solutions.
Customer concentration
In the second quarter of fiscal 2019, our top customer accounted for 14.9% of sales, and our top
three customers accounted for 24.7% of sales. For the corresponding period last year, no customer accounted for more than 10% of our sales and our top three customers accounted for 16.9% of our sales. In the first
halves of fiscal 2018 and 2019, our top customer accounted for 11.7% and 10.8% of sales respectively, and our top three customers accounted for 17.9% and 21.9% of sales respectively.
GROSS MARGIN BEFORE DEPRECIATION AND AMORTIZATION
(non-IFRS measure — refer to page 45 of this document)
Gross margin before depreciation and amortization reached 60.7% of sales for the three months ended
February 28, 2019, compared to 60.9% for the same period last year.
Gross margin before depreciation and amortization reached 59.5% of sales for the six months ended
February 28, 2018, compared to 62.1% for the same period last year.
Second quarter review
In the second quarter of fiscal 2019, our gross margin before depreciation and amortization was
positively affected by the $4.9 million order received for our real-time network topology software. This software-intensive solution delivered above-average gross margin. This positive effect was offset in part by
a less favorable product mix overall compared to the same period last year.
Otherwise, in the second quarter of fiscal 2019, EXFO Solutions, a sub-group within our SASS product
line, which contributed to our sales and gross margin before depreciation and amortization for the full period compared to one month in the same period last year, delivered, as expected, lower margins than our
typical corporate margin as a large portion of its sales comprise professional services.
Also, in the second quarter of fiscal 2019, we recorded higher inventory writeoffs compared to the
same period last year, which contributed to decreasing our gross margin before depreciation and amortization by 0.5% of sales year-over-year.
Finally, in the second quarter of fiscal 2019, we recorded in our sales foreign exchange losses on
our forward exchange contracts of $0.2 million, compared to foreign exchange gains of $0.4 million in the same period last year, which contributed to a decrease of 0.4% in gross margin before depreciation and
amortization year-over-year.
First half review
In the first half of fiscal 2019, our gross margin before depreciation and amortization was
positively impacted by the $4.9 million order received for our real-time network topology software. This software-intensive solution delivered above-average gross margin. This positive effect was offset in part by a less favorable product mix overall compared to the same period last year.
Otherwise, in the first half of fiscal 2019, EXFO Solutions, which contributed to our sales and
gross margin before depreciation and amortization for the full period compared to one month in the same period last year, delivered, as expected, lower margins than our typical corporate margin as a large portion
of its sales comprise professional services.
Also, in the first half of fiscal 2019, we recorded higher inventory writeoffs compared to the same
period last year, which contributed to decreasing our gross margin before depreciation and amortization by 0.5% of sales year-over-year.
Furthermore, in the first half of fiscal 2019, we recorded in our sales foreign exchange losses on
our forward exchange contracts of $0.2 million, compared to foreign exchange gains of $0.6 million in the same period last year, which contributed to a decrease of 0.3% in gross margin before depreciation and
amortization year-over-year.
Finally, in the first half of fiscal 2019, gross margin before depreciation and amortization
included $0.3 million, or 0.2% of sales in restructuring charges (nil in 2018).
SELLING AND ADMINISTRATIVE EXPENSES
For the three months ended February 28, 2019, selling and administrative expenses were $25.5
million, or 34.4% of sales, compared to $24.9 million, or 38.5% of sales for the same period last year.
For the six months ended February 28, 2019, selling and administrative expenses were $51.9 million,
or 36.2% of sales, compared to $48.1 million, or 37.6% of sales for the same period last year.
In the second quarter and the first half of fiscal 2019, our selling and administrative expenses
increased $0.6 million and $3.7 million respectively compared to the same periods last year.
In the second quarter and the first half of fiscal 2019, we incurred additional expenses compared to
the same period last year, as we had the full contribution of newly acquired EXFO Solutions, compared to a one-month contribution during the same periods last year. In addition, inflation and salary increases, as
well as restructuring charges of $0.1 million (0.1% of sales) in the second quarter of 2019 and $0.5 million (0.4% of sales) in the first half of 2019 (compared to nil in 2018) contributed to increasing our selling
and administrative expenses year-over-year.
However, in the second quarter and the first half of fiscal 2019, the positive impact of our 2018
restructuring plan reduced our selling and administrative expenses compared to the same periods last year. In addition, in the second quarter and the first half of fiscal 2019, the increase in the average value of
the US dollar compared to other currencies had a positive impact on our selling and administrative expenses year-over-year.
Finally, in the second quarter and the first half of fiscal 2018, our selling and administrative
expenses included $1.4 million (2.1% of sales) and $2.1 million (1.6% of sales) respectively in acquisition-related costs following the recent business acquisitions, compared to nil during the same periods this
year.
In the second quarter of fiscal 2019, our selling and administrative expenses amounted to 34.4% of
sales, 4.1% lower compared to 38.5% of sales in the same period last year. In the first half of fiscal 2019, our selling and administrative expenses amounted to 36.2% of sales, 1.4% lower compared to 37.6% of sales
in the same period last year; The year-over-year decrease in our selling and administrative expenses as percentage of sales for these periods is mainly due to the positive impact of our 2018 restructuring plan and
the fact that we incurred acquisition-related costs in 2018.
RESEARCH AND DEVELOPMENT EXPENSES
Gross Research and Development Expenses
For the three months ended February 28, 2019, gross research and development expenses totaled $14.2
million, or 19.1% of sales, compared to $15.2 million, or 23.5% of sales for the same period last year.
For the six months ended February 28, 2019, gross research and development expenses totaled $31.4
million, or 21.9% of sales, compared to $28.2 million, or 22.0% of sales for the same period last year.
Second quarter review
In the second quarter of fiscal 2019, our gross research and development expenses decreased $1.0
million compared to the same period last year.
In the second quarter of fiscal 2019, the positive impact of our 2018 restructuring plan reduced our
gross research and development expenses compared to the same period last year. In addition, in the second quarter of fiscal 2019, the increase in the average value of the US dollar compared to other currencies had
a positive impact on our gross research and development expenses year-over-year. Finally, a shift in the mix of research and development projects year-over-year resulted in lower expenses.
However, in the second quarter of fiscal 2019, we incurred additional expenses compared to the same
period last year, as we had the full contribution of EXFO Solutions, compared to a one-month contribution during the same period last year, inflation and salary increases as well as restructuring charges of $0.5
million (0.6% of sales) compared to nil in 2018.
In the second quarter of fiscal 2019, our gross research and development expenses amounted to 19.1%
of sales, 4.4% lower compared to 23.5% of sales in the same period last year, mainly due to the positive impact of our 2018 restructuring plan.
First half review
In the first half of fiscal 2019, our gross research and development expenses increased $3.1 million
compared to the same period last year.
In the first half of fiscal 2019, we incurred restructuring charges of $2.5 million (1.8% of sales)
compared to nil in 2018, as well as additional expenses compared to the same period last year, as we had the full contribution of EXFO Solutions, compared to a one-month contribution during the same period last
year, and due to inflation and salary increases.
However, in the first half of fiscal 2019, the positive impact of our 2018 restructuring plan
reduced our gross research and development expenses compared to the same period last year. In addition, in the first half of fiscal 2019, the increase in the average value of the US dollar compared to other
currencies had a positive impact on our gross research and development expenses year-over-year. Finally, a shift in the mix of research and development projects year-over-year resulted in lower expenses.
AMORTIZATION OF INTANGIBLE ASSETS
In conjunction with the business combinations we completed, we recorded intangible assets primarily
consisting of core technology and customer relationships. In addition, intangible assets include software.
For the three months ended February 28, 2019, amortization of intangible assets amounted to $2.1
million compared to $3.1 million for the same period last year.
For the six months ended February 28, 2019, amortization of intangible assets amounted to $5.1
million compared to $4.2 million for the same period last year.
Second quarter review
In the second quarter of fiscal 2019, amortization of intangible assets decreased $1.0 million
year-over-year; this mainly resulted from an additional expense following the finalization of the purchase price allocation for the acquisition of EXFO Optics S.A.S. (formerly Yenista S.A.S.) in the second quarter
of fiscal 2018.
First half review
In the first half of fiscal 2019, the year-over-year increase in amortization of intangible assets
was mainly due to the recent acquisition of EXFO Solutions.
FOREIGN EXCHANGE GAIN (LOSS)
Foreign exchange gains and losses are mainly the result of the translation of operating activities
denominated in currencies other than our functional currency, which is the Canadian dollar. A portion of our foreign exchange gains or losses results from the translation of cash balances and deferred income taxes
denominated in US dollars. We manage our exposure to currency risk in part with forward exchange contracts. In addition, some of our entities’ operating activities are denominated in US dollars, euros and British
pounds, which further hedges this risk. However, we remain exposed to a currency risk; namely, any increase in the value of the Canadian dollar compared to the US dollar would have a negative impact on our
operating results.
For the three months ended February 28, 2019, we recorded a foreign exchange loss of $0.4 million compared
to foreign exchange gain of $8,000 for the same period last year.
For the six months ended February 28, 2019, foreign exchange loss amounted to $0.2 million
compared to a foreign exchange gain of $1.2 million for the same period last year.
Second quarter review
During the second quarter of fiscal 2019, the period-end value of the Canadian dollar increased
versus the US dollar compared to the previous quarter, and we reported a foreign exchange loss of $0.4 million during that period. In fact, the period-end value of the Canadian dollar slightly increased by 1.0%
versus the US dollar to CA$1.3168 = US$1.00 in the second quarter of fiscal 2019, compared to CA$1.3301 = US$1.00 at the end of the previous quarter.
During the same period last year, we witnessed some volatility in the value of the Canadian dollar
as it fluctuated compared to the US dollar, which overall resulted in a foreign exchange gain of $8,000. The period-end value of the Canadian dollar slightly increased 0.6% versus the US dollar to CA$1.2809 =
US$1.00 in the second quarter of fiscal 2018, compared to CA$1.2888 = US$1.00 at the end of the previous quarter.
First half review
During the first half of fiscal 2019, we witnessed some volatility in the value of the Canadian
dollar as it fluctuated compared to the US dollar, which overall resulted in a foreign exchange loss of $0.2 during the period. The period-end value of the Canadian dollar slightly decreased 0.9% versus the US
dollar to CA$1.3168 = US$1.00, compared to CA$1.3055 = US$1.00 at the end of the previous year.
During the same period, last year, the period-end value of the Canadian dollar decreased versus
the US dollar, compared to the previous year-end, which resulted in a foreign exchange gain of $1.2 million during the period. The period-end value of the Canadian dollar decreased 2.1% versus the US dollar to
CA$1.2809 = US$1.00 in the first half of fiscal 2018, compared to CA$1.2536 = US$1.00 at the end of the previous year.
Foreign exchange rate fluctuations also flow through the P&L line items as a portion of our
sales are denominated in Canadian dollars and euros and a significant portion of our cost of sales and operating items are denominated in Canadian dollars, euros, and Indian rupees and we report our results in US
dollars. In the second quarter and the first half of fiscal 2019, the increase in the average value of the US dollar compared to the Canadian dollar, the euro, the British pound, and the Indian rupee
year-over-year resulted in a positive impact on our operating expenses for these periods. In the second quarter of fiscal 2019, the average value of the US dollar increased 5.4%, 6.0%, 6.3% and 9.6%
year-over-year respectively, compared to the Canadian dollar, the euro, the British pound and the Indian rupee. In the first half of fiscal 2019, the average value of the US dollar increased 4.7%, 4.2%, 4.1% and
10.3% year-over-year respectively, compared to the Canadian dollar, the euro, the British pound and the Indian rupee.
INCOME TAXES
For the three months ended February 28, 2019, we reported income tax recovery of $0.4 million on
earnings before income taxes of $4.8 million. For the corresponding period, last year, we reported income tax expenses of $2.3 million on a loss before income taxes of $2.7 million.
For the six months ended February 28, 2019, we reported income tax expenses of $1.2 million on a
loss before income taxes of $1.1 million. For the corresponding period, last year, we reported income tax expenses of $4.1 million on earnings before income taxes of $1.7 million.
Discrete items affecting our effective income tax rate
Fiscal 2019
During the three months ended February 28, 2019, as part of our fiscal 2018 restructuring plan and
the shutdown of some of our facilities in the United States, we transferred the ownership of certain intellectual properties held in the United States to Canada. This created a deductible tax asset in Canada and
resulted in the recognition of a deferred income tax recovery of $2.4 million during the three and six months ended February 28, 2019 as the recovery of this asset is probable.
Fiscal 2018
During the three months ended February 28, 2018, the US tax reform ("Tax Cuts and Jobs Act")
became substantively enacted and reduced the maximum corporate income tax rate from 35% to 21%, effective January 1, 2018. Based on our estimate of deferred tax assets expected to be used in fiscal 2018 and
beyond against taxable income in the United States, we recorded a deferred income tax expense of $1.5 million in the consolidated statements of earnings three and six months ended February 28, 2018 to account for
the effect of this new substantively enacted tax rate.
Otherwise, our distorted tax rates mainly resulted from the fact that we did not recognize
deferred income tax assets for some of our subsidiaries at loss and acquisition-related costs for business combinations are non-deductible for tax purposes. In addition, we had some other non-deductible losses
and expenses, such as stock-based compensation costs. However, a significant portion of our foreign exchange gain or loss was a result of the translation of the financial statements of our foreign subsidiaries
from their local currency to the functional currency and was therefore non-taxable or non-deductible. Notwithstanding these elements, our effective tax rate would have been closer to the combined Canadian and
provincial statutory tax rate of 27% for these periods.
Please refer to note 8 to our condensed unaudited interim consolidated financial statements for a
full reconciliation of our income tax provision.
LIQUIDITY AND CAPITAL RESOURCES
Cash Requirements and Capital Resources
As at February 28, 2019, cash and short-term investments totaled $27.0 million, while our working
capital was at $36.2 million. Our cash and short-term investments increased by $6.9 million in the second quarter of fiscal 2019 compared to the previous quarter-end.
The following table summarizes the increase in cash and short-term investments during the second
quarter of fiscal 2019 in thousands of US dollars:
|
Cash flows provided by operating activities
|
$
|
18,688
|
||
|
Proceeds from disposal of capital assets
|
3,318
|
|||
|
Decrease in bank loan
|
(12,501
|
)
|
||
|
Purchases of capital assets
|
(1,797
|
)
|
||
|
Repayment of long-term debt
|
(735
|
)
|
||
|
Redemption of share capital
|
(105
|
)
|
||
|
Unrealized foreign exchange gain on cash and short-term investments
|
70
|
|||
|
$
|
6,938
|
Our short-term investments of $2.2 million consist of debt instruments issued by high-credit-quality
corporations; therefore, we consider the risk of non-performance of these financial instruments to be limited. These debt instruments are not expected to be affected by a significant liquidity risk. For managing
our cash position, we have established a cash management policy, which we follow and monitor on a regular basis.
We believe that our cash balances and short-term investments totaling $27.0 million, combined with
our available revolving credit facilities of up to $53.0 million, will be sufficient to meet our liquidity and capital requirements for the foreseeable future, including any possible working capital requirements
from our new acquisitions. In addition to these assets and credit facilities, we have unused available lines of credit of $23.4 million for foreign currency exposure related to forward exchange contracts. However,
possible operating losses, additional restructuring costs and/or possible investments in or acquisitions of complementary businesses, products or technologies may require additional financing. There can be no
assurance that additional debt or equity financing will be available when required or, if available, that it can be secured on satisfactory terms.
Sources and Uses of Cash
We finance our operations and meet our capital expenditure requirements through a combination of
cash flows from operating activities, the use of our cash and short-term investments, borrowing under our existing credit facilities as well as the issuance of subordinate voting shares.
Operating activities
Cash flows provided by operating activities were $18.7 million for the three months ended February
28, 2019, compared to $6.3 million for the same period last year.
Cash flows provided by operating activities were $16.2 million for the six months ended February 28,
2019, compared to $8.6 million for the same period last year.
Second quarter review
Cash flows provided by operating activities in the second quarter of fiscal 2019 were attributable
to net earnings after items not affecting cash of $11.7 million, and the net change in non-cash operating items of $7.0 million; this was mainly due to the positive effect on cash of the $9.9 million decrease in
our accounts receivable due to the timing of sales and receipts during the quarter, the $1.0 million decrease in our income taxes and tax credits due to tax credit recovered during the quarter, and the $1.0 million
decrease in inventories due to higher inventory turn. These positive effects on cash were offset in part by the negative effect on cash of the $3.1 million decrease in our accounts payable, accrued liabilities and
provisions due to the timing of purchases and payments during the quarter, and the $1.5 million decrease in other liabilities due to payment during the quarter.
Cash flows provided by operating activities in the second quarter of fiscal 2018 were attributable
to net earnings after items not affecting cash of $5.3 million, and the positive net change in non-cash operating items
of $1.0 million; this was mainly due to the positive effect on cash of the decrease of $4.3 million in our accounts receivable due to the timing of receipts and sales during the quarter and the $0.8 million
decrease in our inventories due to increased inventory turnovers. These positive effects on cash were offset in part by the negative effect on cash of the $3.0 million increase in our income taxes and tax credits
recoverable due to tax credits earned during the period not yet recovered, the $0.5 million increase in our other assets due to timing of payments during the quarter, as well as the $0.4 million decrease in our
accounts payable, accrued liabilities and provisions due to the timing of purchases and payments during the quarter.
First half review
Cash flows provided by operating activities in the first half of fiscal 2019 were attributable to
net earnings after items not affecting cash of $12.4 million, and the positive net change in non-cash operating items of $3.9 million; this was mainly due to the positive effect on cash of the decrease of $5.8
million in our accounts receivable due to the timing of receipts and sales during the period. This positive effect on cash was offset in part by the negative effect on cash of the $1.5 million decrease in other
liabilities due to payments during the period.
Cash flows provided by operating activities in the first half of fiscal 2018 were attributable to
net earnings after items not affecting cash of $9.4 million, and the positive net change in non-cash operating items of $0.7 million; this was mainly due to the positive effect on cash of the decrease of $5.3
million in our accounts receivable due to the timing of receipts and sales during the period and the decrease of $0.2 million in our prepaid expenses due to timing of payments during the period. These positive
effects on cash were offset in part by the negative effect on cash of the $3.0 million increase in our income taxes and tax credits recoverable due to tax credits earned during the period not yet recovered, the
$1.2 million increase in our inventories to meet future demand, the $0.5 million increase in our other assets due to timing of payments during the period, as well as the $1.8 million decrease in our accounts
payable, accrued liabilities and provisions due to the timing of purchases and payments during the period.
Investing activities
Cash flows provided by investing activities were $1.2 million for the three months ended February
28, 2019, compared to cash flows used of $14.1 million for the same period last year.
Cash flows used by investing activities were $1.3 million for the six months ended February 28,
2019, compared to $36.1 million for the same period last year.
Second quarter review
In the second quarter of fiscal 2019, we received net proceeds of $3.3 million from the sale of
capital assets. However, during that quarter, we made cash payments of $1.8 million for the purchase of capital assets and we acquired $0.3 million worth of short-term investments.
For the corresponding period last year, we made cash payments of $2.3 million and $11.8 million,
respectively, for the purchase of capital assets and the acquisition of EXFO Solutions.
First half review
In the first half of fiscal 2019, we made cash payments of $4.7 million for the purchase of
capital assets. However, during the period, we received net proceeds of $3.3 million from the sale of capital assets.
For the corresponding period last year, we made cash payments of $4.2 million and $31.7 million,
respectively, for the purchase of capital assets and the acquisitions of EXFO Optics and EXFO Solutions. In addition, we acquired $0.2 million worth of short-term investments during the period.
Financing activities
Cash flows used by financing activities were $13.3 million for the three months ended February 28,
2019, compared to cash flows provided of $1.9 million for the same period last year.
Cash flows used by financing activities were $2.8 million for the six months ended February 28,
2019, compared to cash flows provided of $1.8 million for the same period last year.
In the second quarter of fiscal 2019, our bank loan decreased by $12.5 million, we repaid $0.7
million of our long-term debt and other liabilities and we redeemed share capital for $0.1 million.
In the first half of fiscal 2019, our bank loan decreased by $1.2 million, we repaid $1.5 million
of our long-term debt and other liabilities and we redeemed share capital for $0.1 million.
During the second quarter and the first half of fiscal 2018, our bank loan increased $2.1 million.
Contractual Obligations
We are committed under the terms of contractual obligations which have various expiration dates,
primarily for the rental of premises and equipment, licensing of intellectual property and long-term debt. The following table summarizes our undiscounted contractual obligations as at February 28, 2019 in
thousands of US dollars:
|
Long-term
debt
|
Operating
leases
|
Licensing
agreements
|
Total
|
|||||||||||||
|
No later than one year
|
$
|
2,724
|
$
|
3,337
|
$
|
1,732
|
$
|
7,793
|
||||||||
|
Later than one year and no later than five years
|
4,427
|
8,118
|
2,393
|
14,938
|
||||||||||||
|
Later than five years
|
151
|
205
|
‒
|
356
|
||||||||||||
|
$
|
7,302
|
$
|
11,660
|
$
|
4,125
|
$
|
23,087
|
|||||||||
In addition, as at February 28, 2019, we had letters of guarantee amounting to $1.3 million for our
own selling and purchasing requirements, which were reserved from our lines of credit; these letters of guarantee expire at various dates through fiscal 2022.
FORWARD EXCHANGE CONTRACTS
We are exposed to a currency risk as a result of our export sales of products manufactured in
Canada, China, Finland and France, the majority of which are denominated in US dollars and euros. In addition, we are exposed to currency risk as a result of our research and development activities in India
(Indian rupees). These risks are partially hedged by forward exchange contracts. Forward exchange contracts, which are designated as cash flow hedging instruments, qualify for hedge accounting.
As at February 28, 2019, we held forward exchange contracts to sell US dollars for Canadian
dollars and Indian rupees at various forward rates, which are summarized as follows:
US dollars – Canadian dollars
|
Expiry dates
|
Contractual
amounts
|
Weighted average
contractual
forward rates
|
||||||
|
March 2019 to August 2019
|
$
|
17,400,000
|
1.2998
|
|||||
|
September 2019 to August 2020
|
22,800,000
|
1.2858
|
||||||
|
September 2020 to August 2021
|
11,600,000
|
1.2981
|
||||||
|
September 2021 to January 2022
|
3,000,000
|
1.3134
|
||||||
|
Total
|
$
|
54,800,000
|
1.2944
|
|||||
US dollars – Indian rupees
|
Expiry dates
|
Contractual
amounts
|
Weighted average
contractual
forward rate
|
||||||
|
March 2019 to August 2019
|
$
|
1,500,000
|
71.09
|
|||||
The carrying amount of forward exchange contracts is equal to their fair value, which is based on
the amount at which they could be settled based on estimated current market rates. The fair value of forward exchange contracts amounted to net losses of $0.5 million as at August 31, 2018 and February 28, 2019,
mainly for our US/Canadian dollar forward exchange contracts. The quarter-end exchange rate was CA$1.3168 = US$1.00
as at February 28, 2019.
SHARE CAPITAL
As at April 2, 2019, EXFO had 31,643,000 multiple voting shares outstanding, entitling to 10 votes
each and 23,749,919 subordinate voting shares outstanding. The multiple voting shares and the subordinate voting shares are unlimited as to number and without par value.
STRUCTURED ENTITIES
As at February 28, 2019, we did not have interests in any structured entities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a description of the critical accounting policies, judgments in applying accounting policies as
well as estimates and assumptions used in the preparation of our consolidated financial statements, refer to our Annual Report on Form 20-F for the year ended August 31, 2018, and our condensed interim consolidated
financial statements for the three months ended November 30, 2018, filed with the U.S. Securities and Exchange Commission and the Canadian securities commissions.
NEW IFRS PRONOUNCEMENTS
Recently issued IFRS Pronouncements Adopted in Fiscal 2019
Financial instruments
The final version of IFRS 9, “Financial Instruments”, was issued in July 2014 and replaces IAS 39, “Financial Instruments:
Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS
9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of its financial assets. Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in
IAS 39. Requirements relating to hedge accounting, representing a new hedge accounting model, have also been added to IFRS 9. The new standard is effective for annual periods beginning on or after January 1, 2018
and must be applied retrospectively. We adopted this new standard on September 1, 2018 using the modified retrospective method. The following table summarizes the impact of its adoption on our consolidated balance
sheet as at September 1, 2018, in thousands of US dollars:
|
As reported
as at
August 31, 2018
|
Adjustments
|
As adjusted
as at
September 1, 2018
|
||||||||||
|
Accounts receivable – Trade
|
$
|
47,273
|
$
|
(303
|
)
|
$
|
46,970
|
|||||
|
Income taxes recoverable
|
$
|
4,790
|
$
|
50
|
$
|
4,840
|
||||||
|
Total assets
|
$
|
284,544
|
$
|
(253
|
)
|
$
|
284,291
|
|||||
|
Retained earnings
|
$
|
114,906
|
$
|
(253
|
)
|
$
|
114,653
|
|||||
|
Shareholders’ equity
|
$
|
177,921
|
$
|
(253
|
)
|
$
|
177,668
|
|||||
In addition, our financial instruments are accounted for as follows under IFRS 9 as compared to our
previous accounting policy with IAS 39:
|
Financial assets
|
Classification – IAS 39
|
Classification – IFRS 9
|
|
Cash
|
Loans and receivables
|
Amortized cost
|
|
Short-term investments
|
Available for sale
|
Fair value through other comprehensive income
|
|
Accounts receivable
|
Loans and receivables
|
Amortized cost
|
|
Other assets
|
Loans and receivables
|
Amortized cost
|
|
Forward exchange contracts
|
Derivatives used for hedging
|
Derivatives used for hedging
|
Financial liabilities
|
Bank loan
|
Other financial liabilities
|
Amortized cost
|
|
Accounts payable and accrued liabilities
|
Other financial liabilities
|
Amortized cost
|
|
Other liabilities
|
Other financial liabilities
|
Amortized cost
|
|
Long-term debt
|
Other financial liabilities
|
Amortized cost
|
|
Forward exchange contracts
|
Derivatives used for hedging
|
Derivatives used for hedging
|
Hedge accounting
All existing hedge relationships that were designated as effective hedging relationships under IAS
39, were re-designated, and continue to qualify for hedge accounting under IFRS 9. The adoption of IFRS 9 did not change the application of hedge accounting for our effective hedges.
Revenue from contracts with customers
IFRS 15, “Revenue
from Contracts with Customers”, was issued in May 2014. The objective of this new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve
comparability. This new standard contains principles that an entity must apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity recognizes
revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This new standard is effective for annual periods
beginning on or after January 1, 2018. We adopted this new standard on September 1, 2018 using the modified retrospective method. We applied this standard retrospectively only to contracts that are not completed at
the date of initial application.
We concluded that the main areas of impact relate to the allocation of the transaction price to the
various performance obligations under the contracts, the timing of revenue recognition for sales arrangements that contain customer acceptance clauses, and the sale of licenses that provide customers with the
“right to use” our intellectual property. The adoption of the new standard had no material impact on our consolidated financial statements.
Refer to note 2 to our condensed unaudited interim consolidated financial statements for the three
and six months ended February 28, 2019 and to our consolidated financial statements for the year ended August 31, 2018, for the effect of other recent accounting pronouncements on our consolidated financial
statements.
RISKS AND UNCERTAINTIES
For the first half of fiscal 2019, there have been no material changes from the risk factors
disclosed in our Annual Report on Form 20-F for the year ended August 31, 2018.
NON-IFRS MEASURES
We provide non-IFRS measures (gross margin before depreciation and amortization and adjusted EBITDA)
as supplemental information regarding our operational performance. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA
represent net earnings (loss) attributable to the parent interest before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, change
in fair value of cash contingent consideration, acquisition-related deferred revenue fair value adjustment, and foreign exchange gain or loss.
These non-IFRS measures eliminate the effect on our IFRS results of non-cash and/or non-operating
statement of earnings elements, as well as elements subject to significant volatility such as foreign exchange gain or loss. We use these measures for evaluating our historical and prospective financial
performance, as well as our performance relative to our competitors. These non-IFRS measures are also used by financial analysts that evaluate and compare our performance against that of our competitors and
industry players in our sector.
Finally, these measures help us plan and forecast future periods as well as make operational and
strategic decisions. We believe that providing this information to our investors, in addition to the IFRS measures, allows them to see the company’s results through the eyes of management, and to better understand
our historical and future financial performance. More importantly, it enables the comparison of our performance on a relatively similar basis against that of other public and private companies in our industry
worldwide.
The presentation of this additional information is not prepared in accordance with IFRS. Therefore,
the information may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, the corresponding measures calculated in accordance with IFRS.
The following table summarizes the reconciliation of adjusted EBITDA to IFRS net earnings (loss)
attributable to the parent interest, in thousands of US dollars:
Adjusted EBITDA
|
Three months
ended
February 28,
2019
|
Three months
ended
February 28,
2018
|
Six months
ended
February 28,
2019
|
Six months
ended
February 28,
2018
|
|||||||||||||
|
IFRS net earnings (loss) attributable to the
parent interest for the period
|
$
|
5,193
|
$
|
(4,660
|
)
|
$
|
(2,274
|
)
|
$
|
(1,981
|
)
|
|||||
|
Add (deduct):
|
||||||||||||||||
|
Depreciation of property, plant and equipment
|
1,390
|
1,263
|
2,819
|
2,417
|
||||||||||||
|
Amortization of intangible assets
|
2,130
|
3,056
|
5,070
|
4,175
|
||||||||||||
|
Interest and other (income) expense
|
(1,514
|
)
|
334
|
(1,137
|
)
|
672
|
||||||||||
|
Income taxes
|
(440
|
)
|
2,321
|
1,201
|
4,061
|
|||||||||||
|
Stock-based compensation costs
|
461
|
438
|
879
|
840
|
||||||||||||
|
Restructuring charges
|
577
|
‒
|
3,318
|
‒
|
||||||||||||
|
Change in fair value of cash contingent
consideration
|
‒
|
(561
|
)
|
‒
|
(716
|
)
|
||||||||||
|
Acquisition-related deferred revenue fair value
adjustment
|
571
|
309
|
1,435
|
309
|
||||||||||||
|
Foreign exchange (gain) loss
|
416
|
(8
|
)
|
201
|
(1,226
|
)
|
||||||||||
|
Adjusted EBITDA for the period (1)
|
$
|
8,784
|
$
|
2,492
|
$
|
11,512
|
$
|
8,551
|
||||||||
|
Adjusted EBITDA as a percentage of sales
|
11.9
|
%
|
3.9
|
%
|
8.0
|
%
|
6.7
|
%
|
||||||||
|
(1)
|
Include acquisition-related costs of $1.4 million and $2.1 million for the three and six
months ended February 28, 2018 (nil in fiscal 2019).
|
QUARTERLY SUMMARY
FINANCIAL INFORMATION (1)
(tabular amounts in thousands of US dollars, except per share data)
|
Quarters ended
|
||||||||||||||||
|
February 28,
2019
|
November 30,
2018
|
August 31,
2018
|
May 31,
2018
|
|||||||||||||
|
Sales
|
$
|
73,927
|
$
|
69,201
|
$
|
69,216
|
$
|
72,217
|
||||||||
|
Cost of sales (2)
|
$
|
29,062
|
$
|
28,897
|
$
|
27,426
|
$
|
28,963
|
||||||||
|
Net earnings (loss)
|
$
|
5,193
|
$
|
(7,467
|
)
|
$
|
(3,951
|
)
|
$
|
(5,970
|
)
|
|||||
|
Basic and diluted net earnings (loss) per share
|
$
|
0.09
|
$
|
(0.14
|
)
|
$
|
(0.07
|
)
|
$
|
(0.11
|
)
|
|||||
|
Quarters ended
|
||||||||||||||||
|
February 28,
2018
|
November 30,
2017
|
August 31,
2017
|
May 31,
2017
|
|||||||||||||
|
Sales
|
$
|
64,722
|
$
|
63,391
|
$
|
62,981
|
$
|
58,505
|
||||||||
|
Cost of sales (2)
|
$
|
25,326
|
$
|
23,289
|
$
|
23,972
|
$
|
24,555
|
||||||||
|
Net earnings (loss) attributable to the parent interest
|
$
|
(4,660
|
)
|
$
|
2,679
|
$
|
844
|
$
|
(4,304
|
)
|
||||||
|
Basic and diluted net earnings (loss) attributable to
the parent interest per share
|
$
|
(0.08
|
)
|
$
|
0.05
|
$
|
0.02
|
$
|
(0.08
|
)
|
||||||
|
(1)
|
Quarterly financial information has been derived from our condensed unaudited interim
consolidated financial statements, which are prepared in accordance with IFRS, as issued by the IASB, applicable to the preparation of interim financial statements, including IAS 34, “Interim Financial Reporting”. The presentation currency is the US dollar, which differs from the functional currency
of the company (Canadian dollar).
|
|
(2)
|
The cost of sales is exclusive of depreciation and amortization.
|
Sales by product lines for fiscal 2018:
|
Quarters ended
|
||||||||||||||||||||
|
August 31,
2018
|
May 31,
2018
|
February 28,
2018
|
November 30,
2017
|
Total
|
||||||||||||||||
|
Test and measurement
|
$
|
47,489
|
$
|
49,864
|
$
|
49,884
|
$
|
50,186
|
$
|
197,423
|
||||||||||
|
Service assurance, systems and services
|
21,649
|
22,174
|
14,457
|
12,968
|
71,248
|
|||||||||||||||
|
Foreign exchange gains on forward exchange contracts
|
78
|
179
|
381
|
237
|
875
|
|||||||||||||||
|
Total sales
|
$
|
69,216
|
$
|
72,217
|
$
|
64,722
|
$
|
63,391
|
$
|
269,546
|
||||||||||
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, PHILIPPE MORIN, Chief Executive Officer of
EXFO INC., certify the following:
| 1. |
Review: I have
reviewed the interim financial report and interim MD&A (together, the “interim filings”) of EXFO Inc. (the
“issuer”) for the interim period ended February 28, 2019.
|
| 2. |
No misrepresentation:
Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is
necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
|
| 3. |
Fair presentation:
Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material
respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
|
| 4. |
Responsibility:
The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those
terms are defined in Regulation 52-109 respecting Certification of Disclosure in Issuer’s Annual and Interim Filings (c. V-1.1, r. 27), for the issuer.
|
| 5. |
Design: Subject
to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer and I have, as at the end of the period covered by the interim filings
|
| (a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
|
| (i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the
interim filings are being prepared; and
|
| (ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or
submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
|
| (b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
|
| 5.1 |
Control framework:
The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
|
| 5.2 |
N/A
|
| 5.3 |
N/A
|
| 6. |
Reporting changes in
ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on December 1, 2018 and ended on February 28, 2019 that has
materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
|
Date: April 2, 2019
/s/ Philippe Morin
Philippe Morin
Chief Executive Officer
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, PIERRE PLAMONDON, Chief Financial Officer and
Vice-President, Finance of EXFO INC., certify the following:
| 1. |
Review: I have
reviewed the interim financial report and interim MD&A (together, the “interim filings”) of EXFO Inc. (the
“issuer”) for the interim period ended February 28, 2019.
|
| 2. |
No misrepresentation:
Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is
necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
|
| 3. |
Fair presentation:
Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material
respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
|
| 4. |
Responsibility:
The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those
terms are defined in Regulation 52-109 respecting Certification of Disclosure in Issuer’s Annual and Interim Filings (c. V-1.1, r. 27), for the issuer.
|
| 5. |
Design: Subject
to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer and I have, as at the end of the period covered by the interim filings
|
| (a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
|
| (i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim
filings are being prepared; and
|
| (ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted
by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
|
| (b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
|
| 5.1 |
Control framework:
The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the Internal Control
– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
|
| 5.2 |
N/A
|
| 5.3 |
N/A
|
| 6. |
Reporting changes in
ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on December 1, 2018 and ended on February 28, 2019 that has
materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
|
Date: April 2, 2019
/s/ Pierre Plamondon
Pierre Plamondon, CPA, CA
Chief Financial Officer and Vice-President, Finance
Page 51 of 51
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