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 2021
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 □
|
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.
|
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 7, 2021, EXFO Inc., a Canadian corporation, reported its results of operations for the second fiscal quarter ended February 28, 2021. 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 2021 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 2021 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 7, 2021
PRESS RELEASE
For immediate release
|
◾
|
Sales reached US$69.3 million
|
|
◾
|
Bookings attained US$79.3 million, up 8.9% year-over-year
|
|
◾
|
IFRS net loss totaled US$2.4 million
|
|
◾
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Adjusted EBITDA amounted to US$3.4 million
|
QUEBEC CITY, CANADA, April 7, 2021 — 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, 2021.
“EXFO delivered another solid performance in the second quarter of 2021, marked by a robust book-to-bill ratio of 1.15 and healthy cash flows from
operations of US$14.7 million,” said EXFO’s CEO Philippe Morin. “I am particularly pleased with our strong bookings that reflect increased market demand, driven by catch-up spending and early deployments of 5G, cloud-based networks, as
communications service providers get a better handle on transforming their networks during the coronavirus pandemic. Recent success in securing multi-year contracts bodes well for the footprint expansion of our Nova Adaptive Service Assurance
platform with a growing number of RFPs (requests for proposals) for 5G standalone network monitoring systems expected in 2021 and 2022.”
Second Quarter Highlights
|
•
|
Sales. The coronavirus outbreak had forced a one-month shutdown of EXFO’s manufacturing facility in Shenzhen, China in February 2020, which negatively impacted second quarter revenues in 2020. With
this in mind, sales increased 25.2% year-over-year in the second quarter of 2021 with Test and Measurement (T&M) sales growing 36.8% and Service Assurance, Systems and Services (SASS) sales dropping 2.1%. Sales in the Americas and
Europe, Middle East and Africa (EMEA) improved 25.7% and 54.7% year-over-year, respectively, while sales in the Asia-Pacific region fell 18.3%. EXFO’s top customer accounted for 6.8% of sales, while the top three represented 14.3%.
|
|
•
|
Profitability. IFRS net loss totaled US$2.4 million, or -US$0.04 per share, in the second quarter of 2021, while adjusted EBITDA* amounted to US$3.4 million, or 4.9% of sales. The company generated
US$14.7 million in cash flows from operations in the second quarter of 2021 and had a net cash position* of US$10.2 million at the end of the quarter.
|
Selected Financial Information
(In thousands of US dollars)
|
Q2 2021
|
Q2 2020
|
H1 2021
|
H1 2020
|
|||||||||||||
|
Test and Measurement sales
|
$
|
51,277
|
$
|
37,477
|
$
|
101,750
|
$
|
93,424
|
||||||||
|
Service Assurance, Systems and Services sales
|
17,565
|
17,935
|
38,611
|
35,684
|
||||||||||||
|
Foreign exchange gains (losses) on forward exchange contracts
|
412
|
(99
|
)
|
405
|
(244
|
)
|
||||||||||
|
Total sales
|
$
|
69,254
|
$
|
55,313
|
$
|
140,766
|
$
|
128,864
|
||||||||
|
Test and Measurement bookings
|
$
|
53,665
|
$
|
52,003
|
$
|
104,913
|
$
|
107,012
|
||||||||
|
Service Assurance, Systems and Services bookings
|
25,272
|
20,963
|
43,074
|
36,012
|
||||||||||||
|
Foreign exchange gains (losses) on forward exchange contracts
|
412
|
(99
|
)
|
405
|
(244
|
)
|
||||||||||
|
Total bookings
|
$
|
79,349
|
$
|
72,867
|
$
|
148,392
|
$
|
142,780
|
||||||||
|
Book-to-bill ratio (bookings/sales)
|
1.15
|
1.32
|
1.05
|
1.11
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||||||||||||
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Gross margin before depreciation and amortization*
|
$
|
38,831
|
$
|
31,517
|
$
|
80,474
|
$
|
74,827
|
||||||||
|
56.1
|
%
|
57.0
|
%
|
57.2
|
%
|
58.1
|
%
|
|||||||||
|
Other selected information:
|
||||||||||||||||
|
IFRS net earnings (loss)
|
$
|
(2,439
|
)
|
$
|
(9,021
|
)
|
$
|
1,115
|
$
|
(9,084
|
)
|
|||||
|
Amortization of intangible assets
|
$
|
1,987
|
$
|
1,695
|
$
|
4,536
|
$
|
3,327
|
||||||||
|
Stock-based compensation costs
|
$
|
1,017
|
$
|
436
|
$
|
1,585
|
$
|
923
|
||||||||
|
Restructuring charges
|
$
|
–
|
$
|
–
|
$
|
543
|
$
|
–
|
||||||||
|
Net income tax effect of the above items
|
$
|
(298
|
)
|
$
|
(254
|
)
|
$
|
(828
|
)
|
$
|
(503
|
)
|
||||
|
Foreign exchange loss
|
$
|
127
|
$
|
382
|
$
|
373
|
$
|
508
|
||||||||
|
Adjusted EBITDA*
|
$
|
3,407
|
$
|
(4,916
|
)
|
$
|
13,356
|
$
|
2,628
|
Quarterly Overview
Sales increased 25.2% to US$69.3 million in the second quarter of fiscal 2021 from US$55.3 million in the coronavirus-impacted second quarter of 2020, which had been marked by a one-month shutdown of the company’s
manufacturing facility in Shenzhen, China.
Bookings improved 8.9% to US$79.3 million in the second quarter of fiscal 2021 from US$72.9 million in the same period in 2020. The company's book-to-bill ratio was 1.15 in the second quarter of 2021.
Gross margin before depreciation and amortization* amounted to 56.1% of sales in the second quarter of fiscal 2021 compared to 57.0% in the second quarter of 2020.
Selling and administrative expenses totaled US$22.9 million, or 33.1% of sales in the second quarter of fiscal 2021 compared to US$24.3 million, or 44.0% of sales, in the second quarter of 2020.
Net R&D expenses attained US$13.5 million, or 19.6% of sales, in the second quarter of fiscal 2021 compared to US$12.6 million, or 22.7% of sales, in the same period last year.
IFRS net loss totaled US$2.4 million, or -US$0.04 per share, in the second quarter of fiscal 2021 compared to US$9.0 million, or -US$0.16 per share, in the second quarter of 2020. IFRS net loss in the second
quarter of 2021 included US$2.0 million in amortization of intangible assets, US$1.0 million in stock-based compensation costs, US$0.1 million in foreign exchange loss, and an income tax effect of the above items of $0.3 million. Net loss also
included US$0.3 million for an after-tax wage subsidy granted by the Canadian government to help qualifying companies alleviate the effects of the pandemic, as well as US$0.7 million for the excess of the fair value of net identifiable assets
acquired over fair value of the total consideration for inOpticals Inc. (now EXFO Taiwan), net of cash acquired for the acquisition.
Adjusted EBITDA* amounted to US$3.4 million, or 4.9% of sales, in the second quarter of fiscal 2021 compared to -US$4.9 million, or -8.9% of sales, in the second quarter of 2020.
Conference Call and Webcast
EXFO will host a conference call today at 5 p.m. (Eastern time) to review second-quarter results for fiscal 2021. To listen to the conference call and participate in the question period via telephone, dial
1-323-289-6576. Please take note the following participant passcode will be required: 8977218. Executive Chairman Germain Lamonde, CEO Philippe Morin and Pierre Plamondon, CPA, Chief Financial Officer and
Vice-President of Finance, will participate in the call. An audio replay of the conference call will be available two hours after the event until 8 p.m. on April 14, 2021. The replay number is 1-719-457-0820 and the participant passcode is 8977218.
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.
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 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, namely the impact of the coronavirus pandemic on our employees, customers and global operations, including the ability of our suppliers to fulfil raw material requirements and services and our ability to manufacture and deliver our
products and services to our customers; the effects of emergency measures related to isolation periods for individuals in affected areas, lockdown restrictions imposed by national governments on businesses in countries where we operate and have
employees, and limitations on travel to attract new customers and serve existing ones; deteriorating financial and market conditions as well as a potential recession; trade wars, and our ability to successfully integrate businesses that we acquire;
capital spending and network deployment levels in the communications 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.
*Non-IFRS Measures
EXFO provides non-IFRS measures (net cash position, gross margin before depreciation and amortization and adjusted EBITDA) as supplemental information regarding its operational performance. Net cash position
represents cash and short-term investments, less bank loan and long-term debt. Gross margin before depreciation and amortization represents sales, less cost of sales, excluding depreciation and amortization. Adjusted EBITDA represent net earnings
(loss) before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, and foreign exchange loss.
These non-IFRS measures eliminate the effect on IFRS results of non-cash statement of earnings elements, restructuring charges 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 used by financial analysts to evaluate and compare EXFO’s
performance against that of 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
that of 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), in thousands of US dollars:
Adjusted EBITDA
|
Q2 2021
|
Q2 2020
|
H1 2021
|
H1 2020
|
|||||||||||||
|
IFRS net earnings (loss) for the period
|
$
|
(2,439
|
)
|
$
|
(9,021
|
)
|
$
|
1,115
|
$
|
(9,084
|
)
|
|||||
|
Add (deduct):
|
||||||||||||||||
|
Depreciation and amortization
|
4,236
|
3,973
|
8,959
|
7,899
|
||||||||||||
|
Interest and other (income) expense
|
(137
|
)
|
285
|
(2,003
|
)
|
684
|
||||||||||
|
Income taxes
|
603
|
(971
|
)
|
2,784
|
1,698
|
|||||||||||
|
Stock-based compensation costs
|
1,017
|
436
|
1,585
|
923
|
||||||||||||
|
Restructuring charges
|
–
|
–
|
543
|
–
|
||||||||||||
|
Foreign exchange loss
|
127
|
382
|
373
|
508
|
||||||||||||
|
Adjusted EBITDA for the period
|
$
|
3,407
|
$
|
(4,916
|
)
|
$
|
13,356
|
$
|
2,628
|
|||||||
|
Adjusted EBITDA as a percentage of sales
|
4.9
|
%
|
(8.9
|
%)
|
9.5
|
%
|
2.0
|
%
|
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,
2021
|
As at
August 31,
2020
|
|||||||
|
Assets
|
||||||||
|
Current assets
|
||||||||
|
Cash
|
$
|
23,868
|
$
|
32,818
|
||||
|
Short-term investments
|
458
|
919
|
||||||
|
Accounts receivable
|
||||||||
|
Trade
|
51,521
|
56,291
|
||||||
|
Other
|
5,168
|
4,055
|
||||||
|
Income taxes and tax credits recoverable
|
5,883
|
4,203
|
||||||
|
Inventories
|
41,835
|
38,865
|
||||||
|
Prepaid expenses
|
5,057
|
5,631
|
||||||
|
Other assets
|
3,595
|
5,493
|
||||||
|
137,385
|
148,275
|
|||||||
|
Tax credits recoverable
|
48,457
|
48,812
|
||||||
|
Property, plant and equipment
|
39,462
|
39,722
|
||||||
|
Right-of-use assets
|
9,082
|
10,758
|
||||||
|
Intangible assets
|
15,025
|
17,616
|
||||||
|
Goodwill
|
41,453
|
40,290
|
||||||
|
Deferred income tax assets
|
4,110
|
3,633
|
||||||
|
Other assets
|
1,656
|
1,548
|
||||||
|
$
|
296,630
|
$
|
310,654
|
|||||
|
Liabilities
|
||||||||
|
Current liabilities
|
||||||||
|
Bank loan
|
$
|
10,999
|
$
|
32,737
|
||||
|
Accounts payable and accrued liabilities
|
45,856
|
41,348
|
||||||
|
Provisions
|
1,280
|
3,792
|
||||||
|
Income taxes payable
|
384
|
43
|
||||||
|
Deferred revenue
|
26,341
|
25,785
|
||||||
|
Other liabilities
|
4,086
|
4,032
|
||||||
|
Current portion of lease liabilities (note 7)
|
3,167
|
3,249
|
||||||
|
Current portion of long-term debt (note 8)
|
1,548
|
2,076
|
||||||
|
93,661
|
113,062
|
|||||||
|
Provisions
|
2,898
|
2,782
|
||||||
|
Deferred revenue
|
9,155
|
8,858
|
||||||
|
Lease liabilities (note 7)
|
6,213
|
7,334
|
||||||
|
Long-term debt (note 8)
|
1,532
|
2,144
|
||||||
|
Deferred income tax liabilities
|
2,795
|
3,760
|
||||||
|
Other liabilities
|
149
|
151
|
||||||
|
116,403
|
138,091
|
|||||||
|
Shareholders’ equity
|
||||||||
|
Share capital (note 9)
|
95,164
|
94,024
|
||||||
|
Contributed surplus
|
20,102
|
19,680
|
||||||
|
Retained earnings
|
103,748
|
102,633
|
||||||
|
Accumulated other comprehensive loss
|
(38,787
|
)
|
(43,774
|
)
|
||||
|
180,227
|
172,563
|
|||||||
|
$
|
296,630
|
$
|
310,654
|
|||||
The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.
Condensed Unaudited Interim Consolidated Statements of Earnings
(in thousands of US dollars, except share and per share data)
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Sales
|
$
|
69,254
|
$
|
140,766
|
$
|
55,313
|
$
|
128,864
|
||||||||
|
Cost of sales (1)
|
30,423
|
60,292
|
23,796
|
54,037
|
||||||||||||
|
Selling and administrative
|
22,893
|
44,499
|
24,303
|
48,807
|
||||||||||||
|
Net research and development
|
13,548
|
24,747
|
12,566
|
24,315
|
||||||||||||
|
Depreciation of property, plant and equipment
|
1,472
|
2,813
|
1,424
|
2,867
|
||||||||||||
|
Depreciation of right-of-use assets
|
777
|
1,610
|
854
|
1,705
|
||||||||||||
|
Amortization of intangible assets
|
1,987
|
4,536
|
1,695
|
3,327
|
||||||||||||
|
Interest and other (income) expense (notes 3 and 10)
|
(137
|
)
|
(2,003
|
)
|
285
|
684
|
||||||||||
|
Foreign exchange loss
|
127
|
373
|
382
|
508
|
||||||||||||
|
Earnings (loss) before income taxes
|
(1,836
|
)
|
3,899
|
(9,992
|
)
|
(7,386
|
)
|
|||||||||
|
Income taxes (note 11)
|
603
|
2,784
|
(971
|
)
|
1,698
|
|||||||||||
|
Net earnings (loss) for the period
|
$
|
(2,439
|
)
|
$
|
1,115
|
$
|
(9,021
|
)
|
$
|
(9,084
|
)
|
|||||
|
Basic and diluted net earnings (loss) per share
|
$
|
(0.04
|
)
|
$
|
0.02
|
$
|
(0.16
|
)
|
$
|
(0.16
|
)
|
|||||
|
Basic weighted average number of shares outstanding (000’s)
|
55,940
|
55,844
|
55,603
|
55,521
|
||||||||||||
|
Diluted weighted average number of shares outstanding (000’s) (note 12)
|
55,940
|
57,233
|
55,603
|
55,521
|
||||||||||||
|
(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 financial statements.
Condensed Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)
(in thousands of US dollars)
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Net earnings (loss) for the period
|
$
|
(2,439
|
)
|
$
|
1,115
|
$
|
(9,021
|
)
|
$
|
(9,084
|
)
|
|||||
|
Other comprehensive income (loss), net of income taxes
|
||||||||||||||||
|
Items that may be reclassified subsequently to net earnings (loss)
|
||||||||||||||||
|
Foreign currency translation adjustment
|
3,921
|
4,643
|
(1,319
|
)
|
(758
|
)
|
||||||||||
|
Unrealized gains/losses on forward exchange contracts
|
691
|
947
|
(718
|
)
|
(753
|
)
|
||||||||||
|
Reclassification of realized gains/losses on forward exchange contracts
|
(313
|
)
|
(469
|
)
|
173
|
356
|
||||||||||
|
Deferred income tax effect of gains/losses on forward exchange contracts
|
(100
|
)
|
(134
|
)
|
146
|
116
|
||||||||||
|
Other comprehensive income (loss)
|
4,199
|
4,987
|
(1,718
|
)
|
(1,039
|
)
|
||||||||||
|
Comprehensive income (loss) for the period
|
$
|
1,760
|
$
|
6,102
|
$
|
(10,739
|
)
|
$
|
(10,123
|
)
|
||||||
The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.
Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders’ Equity
(in thousands of US dollars)
|
Six months ended February 29, 2020
|
||||||||||||||||||||
|
Share
capital
|
Contributed surplus
|
Retained earnings
|
Accumulated other comprehensive loss
|
Total
shareholders’ equity
|
||||||||||||||||
|
Balance as at September 1, 2019
|
$
|
92,706
|
$
|
19,196
|
$
|
112,173
|
$
|
(51,511
|
)
|
$
|
172,564
|
|||||||||
|
Reclassification of stock-based compensation costs (note 9)
|
1,333
|
(1,333
|
)
|
–
|
–
|
–
|
||||||||||||||
|
Redemption of share capital (note 9)
|
(212
|
)
|
(13
|
)
|
–
|
–
|
(225
|
)
|
||||||||||||
|
Stock-based compensation costs
|
–
|
930
|
–
|
–
|
930
|
|||||||||||||||
|
Net loss for the period
|
–
|
–
|
(9,084
|
)
|
–
|
(9,084
|
)
|
|||||||||||||
|
Other comprehensive loss
|
||||||||||||||||||||
|
Foreign currency translation adjustment
|
–
|
–
|
–
|
(758
|
)
|
(758
|
)
|
|||||||||||||
|
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $116
|
–
|
–
|
–
|
(281
|
)
|
(281
|
)
|
|||||||||||||
|
Total comprehensive loss for the period
|
(10,123
|
)
|
||||||||||||||||||
|
Balance as at February 29, 2020
|
$
|
93,827
|
$
|
18,780
|
$
|
103,089
|
$
|
(52,550
|
)
|
$
|
163,146
|
|||||||||
|
Six months ended February 28, 2021
|
||||||||||||||||||||
|
Share
capital
|
Contributed surplus
|
Retained earnings
|
Accumulated other comprehensive loss
|
Total
shareholders’ equity
|
||||||||||||||||
|
Balance as at September 1, 2020
|
$
|
94,024
|
$
|
19,680
|
$
|
102,633
|
$
|
(43,774
|
)
|
$
|
172,563
|
|||||||||
|
Reclassification of stock-based compensation costs (note 9)
|
1,305
|
(1,305
|
)
|
–
|
–
|
–
|
||||||||||||||
|
Issuance of share capital (notes 3 and 9)
|
414
|
–
|
–
|
–
|
414
|
|||||||||||||||
|
Share issue expenses
|
(14
|
)
|
–
|
–
|
–
|
(14
|
)
|
|||||||||||||
|
Redemption of share capital (note 9)
|
(565
|
)
|
157
|
–
|
–
|
(408
|
)
|
|||||||||||||
|
Stock-based compensation costs
|
–
|
1,570
|
–
|
–
|
1,570
|
|||||||||||||||
|
Net earnings for the period
|
–
|
–
|
1,115
|
–
|
1,115
|
|||||||||||||||
|
Other comprehensive income
|
||||||||||||||||||||
|
Foreign currency translation adjustment
|
–
|
–
|
–
|
4,643
|
4,643
|
|||||||||||||||
|
Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $134
|
–
|
–
|
–
|
344
|
344
|
|||||||||||||||
|
Total comprehensive income for the period
|
6,102
|
|||||||||||||||||||
|
Balance as at February 28, 2021
|
$
|
95,164
|
$
|
20,102
|
$
|
103,748
|
$
|
(38,787
|
)
|
$
|
180,227
|
|||||||||
The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.
Condensed Unaudited Interim Consolidated Statements of Cash Flows
(in thousands of US dollars)
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Cash flows from operating activities
|
||||||||||||||||
|
Net earnings (loss) for the period
|
$
|
(2,439
|
)
|
$
|
1,115
|
$
|
(9,021
|
)
|
$
|
(9,084
|
)
|
|||||
|
Add (deduct) items not affecting cash
|
||||||||||||||||
|
Stock-based compensation costs
|
1,017
|
1,585
|
436
|
923
|
||||||||||||
|
Depreciation and amortization
|
4,236
|
8,959
|
3,973
|
7,899
|
||||||||||||
|
Gain on disposal of capital assets
|
(17
|
)
|
(17
|
)
|
–
|
–
|
||||||||||
|
Write-off of capital assets
|
–
|
10
|
–
|
216
|
||||||||||||
|
Other income (note 3)
|
(669
|
)
|
(669
|
)
|
–
|
–
|
||||||||||
|
Deferred revenue
|
1,519
|
(81
|
)
|
1,557
|
(2,815
|
)
|
||||||||||
|
Deferred income taxes
|
(301
|
)
|
(1,619
|
)
|
(212
|
)
|
(654
|
)
|
||||||||
|
Changes in foreign exchange gain/loss
|
(213
|
)
|
(1
|
)
|
902
|
881
|
||||||||||
|
3,133
|
9,282
|
(2,365
|
)
|
(2,634
|
)
|
|||||||||||
|
Changes in non-cash operating items
|
||||||||||||||||
|
Accounts receivable
|
7,214
|
6,383
|
18,539
|
18,611
|
||||||||||||
|
Income taxes and tax credits
|
(997
|
)
|
223
|
(3,178
|
)
|
(2,662
|
)
|
|||||||||
|
Inventories
|
1,924
|
(681
|
)
|
(458
|
)
|
(3,951
|
)
|
|||||||||
|
Prepaid expenses
|
549
|
1,128
|
610
|
988
|
||||||||||||
|
Other assets
|
272
|
1,663
|
(491
|
)
|
(456
|
)
|
||||||||||
|
Accounts payable, accrued liabilities and provisions
|
2,580
|
(1,253
|
)
|
(5,580
|
)
|
(9,273
|
)
|
|||||||||
|
Other liabilities
|
2
|
(6
|
)
|
58
|
42
|
|||||||||||
|
14,677
|
16,739
|
7,135
|
665
|
|||||||||||||
|
Cash flows from investing activities
|
||||||||||||||||
|
Additions to short-term investments
|
(275
|
)
|
(505
|
)
|
–
|
(147
|
)
|
|||||||||
|
Disposal of short-term investments
|
948
|
978
|
701
|
1,264
|
||||||||||||
|
Purchases of capital assets
|
(1,172
|
)
|
(2,283
|
)
|
(2,146
|
)
|
(4,186
|
)
|
||||||||
|
Cash acquired in a business combination (note 3)
|
799
|
799
|
–
|
–
|
||||||||||||
|
300
|
(1,011
|
)
|
(1,445
|
)
|
(3,069
|
)
|
||||||||||
|
Cash flows from financing activities
|
||||||||||||||||
|
Bank loan
|
(5,355
|
)
|
(21,693
|
)
|
16
|
8,370
|
||||||||||
|
Repayment of lease liabilities
|
(777
|
)
|
(1,610
|
)
|
(846
|
)
|
(1,690
|
)
|
||||||||
|
Repayment of long-term debt
|
(578
|
)
|
(1,159
|
)
|
(639
|
)
|
(1,315
|
)
|
||||||||
|
Redemption of share capital
|
(28
|
)
|
(408
|
)
|
–
|
(225
|
)
|
|||||||||
|
(6,738
|
)
|
(24,870
|
)
|
(1,469
|
)
|
5,140
|
||||||||||
|
Effect of foreign exchange rate changes on cash
|
237
|
192
|
(140
|
)
|
(128
|
)
|
||||||||||
|
Change in cash during the period
|
8,476
|
(8,950
|
)
|
4,081
|
2,608
|
|||||||||||
|
Cash – Beginning of the period
|
15,392
|
32,818
|
15,045
|
16,518
|
||||||||||||
|
Cash – End of the period
|
$
|
23,868
|
$
|
23,868
|
$
|
19,126
|
$
|
19,126
|
||||||||
|
Supplementary information
|
||||||||||||||||
|
Income taxes cash outflow
|
$
|
633
|
$
|
1,005
|
$
|
530
|
$
|
1,271
|
||||||||
As at February 29, 2020 and February 28, 2021, unpaid purchases of capital assets amounted to $654 and $599 respectively.
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)
|
1
|
Nature of Activities and Incorporation
|
EXFO Inc. and its subsidiaries (together “EXFO” or the “company”) develops smart test, monitoring and analytics solutions for fixed and mobile network operators, web-scale companies, and
equipment manufacturers in the global communications 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, Québec City, Quebec, Canada, G1M
2K2.
These condensed unaudited interim consolidated financial statements were authorized for issue by the Board of Directors on April 7, 2021.
|
2
|
Basis of Presentation
|
These condensed unaudited interim consolidated financial statements have been prepared in accordance with 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. 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.
|
3
|
Business Combination
|
On December 31, 2020, the company acquired all of the issued and outstanding shares of inOpticals Inc. (renamed EXFO Taiwan Inc.), a private Taiwan-based company that offers
ultra-high-speed test instruments for the laboratory and manufacturing markets.
In consideration for the shares acquired, the company issued 128,571 subordinate voting shares valued at $414,000, and a cash-contingent consideration earn-out to certain of EXFO Taiwan’s
former owners based on certain sales volumes of EXFO Taiwan’s products over a five-year period starting December 31, 2020. The fair value of the cash-contingent consideration was estimated to $88,110 as at the acquisition date. These
considerations were increased by $1,098,854 representing a net equity adjustment as per the term of the share purchase agreement. This adjustment will be paid in cash and formed part of the consideration for this business combination. The
acquisition-date fair value of the total consideration transferred amounted to $1,600,964, or $801,646, net of cash acquired of $799,318.
This acquisition was accounted for by applying the acquisition method as required by IFRS 3, Business Combinations, and the requirements of IFRS
10, Consolidated Financial Statements; consequently, the fair value of the total consideration was allocated to the assets acquired and liabilities assumed based on management’s estimate of their
fair value as at the acquisition date. The results of operations of the acquired business have been included in the consolidated financial statements of the company since January 1, 2021.
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)
The fair value of the total consideration was allocated based on the fair value of acquired net assets at the date of acquisition as follows:
|
Assets acquired
|
||||
|
Accounts receivable
|
$
|
546
|
||
|
Inventories
|
1,067
|
|||
|
Core technologies
|
527
|
|||
|
Other assets
|
174
|
|||
|
2,314
|
||||
|
Liabilities assumed
|
||||
|
Accounts payable and accrued liabilities
|
702
|
|||
|
Other liabilities
|
36
|
|||
|
Deferred income taxes
|
105
|
|||
|
Fair value of net identifiable assets acquired
|
$
|
1,471
|
||
|
Fair value of the total consideration transferred, net of cash acquired
|
$
|
802
|
||
|
Fair value of net identifiable assets acquired
|
1,471
|
|||
|
Excess of fair value of net identifiable assets acquired over fair value of total consideration, net of cash acquired
|
$
|
(669
|
)
|
|
Acquired core technologies are amortized on a straight-line basis over their estimated useful life of three years.
The excess of the fair value of net identifiable assets acquired over fair value of the total consideration, net of cash acquired, in the amount of $669,000, is recorded in interest and
other income line item in the condensed unaudited interim consolidated statements of earnings for the three and six months ended February 28, 2021.
As part of this business combination, the company issued 1,424,224 subordinate voting shares valued at $4,586,000 to certain EXFO Taiwan’s former owners, which will be released over a
five-year period, contingent to certain conditions from these former owners over that period. This grant of shares is being accounted for under IFRS 2, Share-Based Payment, and therefore are not
part to the consideration for the business combination (note 12).
The functional currency of EXFO Taiwan is the New Taiwan dollar (NTD) and as such it is considered a foreign operation. The financial operations of EXFO Taiwan are translated into
Canadian dollars as follows: assets and liabilities are translated at the exchange rate in effect on the date of the balance sheet; revenue and expenses are translated at the monthly average exchange rate. The foreign currency translation
adjustment arising from such translation is included in accumulated other comprehensive loss in shareholders’ equity.
|
4
|
Government Grants
|
The Government of Canada introduced the Canada Emergency Wage Subsidy (CEWS) to help qualifying Canadian businesses facing hardship as a result of the coronavirus pandemic. The CEWS has
been covering wages up to certain limits since March 15, 2020 and extends until June 2021, provided eligible businesses have suffered a drop in gross revenues above certain thresholds during these periods.
During the six months ended February 28, 2021, the CEWS covered up to 50% of eligible wages for the period starting August 30 and ending September 26, 2020, up to 40% for the period
starting September 27 and ending October 24, 2020, up to 40% for the period starting October 25 and ending November 21, 2020, up to 40% for the period starting November 22 and ending December 19, 2020, up to 40% for the period starting
December 20, 2020 and ending January 16, 2021, and up to 40% for the period starting January 17 and ending February 13, 2021.
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)
The company qualified for the CEWS for the periods from August 30 to February 13, 2021, and recorded grants of $441,000 and $2,326,000 in the condensed unaudited interim consolidated
statements of earnings for the three months and the six months ended February 28, 2021 respectively. The company accounted for the CEWS as a government grant under IAS 20, Accounting for Government
Grants and Disclosure of Government Assistance, and it was deducted from the same condensed unaudited interim condensed consolidated statement of earnings line items as the wages were recognized (note 10).
|
5
|
Restructuring Charges
|
The following table summarizes changes in restructuring charges payable during the three months and six months ended February 28, 2021:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
|||||||
|
Balance – Beginning of the period
|
$
|
2,427
|
$
|
3,626
|
||||
|
Additions (1)
|
–
|
543
|
||||||
|
Payments and reversal
|
(1,071
|
)
|
(2,813
|
)
|
||||
|
Balance – End of the period
|
$
|
1,356
|
$
|
1,356
|
||||
|
(1)
|
Additions are recorded in selling and administrative expenses in the condensed unaudited consolidated statement of earnings.
|
|
6
|
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
observable prices and forward exchange rates at the consolidated 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
cash-contingent consideration is classified within Level 3 of the fair value hierarchy because it is are valued using unobservable inputs such as expected future sales of EXFO Taiwan.
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)
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, 2021
|
As at August 31, 2020
|
|||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Level 1
|
Level 2
|
||||||||||||||||
|
Financial assets
|
||||||||||||||||||||
|
Short-term investments
|
$
|
458
|
$
|
–
|
$
|
–
|
$
|
919
|
$
|
–
|
||||||||||
|
Forward exchange contracts
|
$
|
–
|
$
|
2,275
|
$
|
–
|
$
|
–
|
$
|
1,587
|
||||||||||
|
Financial liabilities
|
||||||||||||||||||||
|
Forward exchange contracts
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
110
|
||||||||||
|
Cash-contingent consideration (note 3)
|
$
|
–
|
$
|
–
|
$
|
88
|
$
|
–
|
$
|
–
|
||||||||||
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,
Finland and Taiwan, 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). 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, 2021, the company held contracts to sell US dollars for Canadian dollars at various forward rates, which are summarized below:
|
Expiry dates
|
Contractual
amounts
|
Weighted average
contractual forward rates
|
|||||||
|
March 2021 to August 2021
|
$
|
17,200
|
1.3371
|
||||||
|
September 2021 to August 2022
|
18,800
|
1.3492
|
|||||||
|
September 2022 to February 2023
|
3,600
|
1.3324
|
|||||||
|
Total
|
$
|
39,600
|
1.3424
|
||||||
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 gains of $1,477,000 as at August 31, 2020, and $2,275,000 as at February 28, 2021.
As at February 28, 2021, forward exchange contracts in the amount of $1,974,000 are presented as current assets in other accounts receivable, and forward exchange contracts in the amount
of $301,000 are presented as long-term assets in other long-term assets in the consolidated balance sheet. Forward exchange contracts of $355,000 included in other accounts receivable, 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, 2021, the company estimates that the portion of the net unrealized gains 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 $1,619,000.
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)
During the three and six months ended February 29, 2020 and February 28, 2021, the company recognized within its sales the following foreign exchange gains or losses on forward exchange
contracts:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Gains (losses) on forward exchange contracts
|
$
|
412
|
$
|
405
|
$
|
(99
|
)
|
$
|
(244
|
)
|
||||||
|
7
|
Leases
|
The company has operating leases for certain of its premises under various non-cancelable lease agreements. The company’s operating leases have remaining lease terms ranging from 1 year
to 8 years. The company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Minimal rentals payable under operating leases are as follows as at February 28, 2021:
|
No later than 1 year
|
$
|
3,167
|
||
|
Later than 1 year and no later than 5 years
|
5,462
|
|||
|
Later than 5 years
|
751
|
|||
|
Total lease liabilities as at February 28, 2021
|
$
|
9,380
|
Depreciation of lease right-of-use assets for the three months and six months ended February 28, 2021 amounted to $777,000 and $1,610,000, respectively (note 10).
|
8
|
Long-term Debt
|
|
As at
February 28,
2021
|
As at
August 31,
2020
|
|||||||
|
Unsecured, non-interest-bearing loans, denominated in euros, repayable in quarterly instalments, maturing in September 2024 and September 2025
|
$
|
838
|
$
|
896
|
||||
|
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 July 2021 and September 2023
|
1,868
|
2,443
|
||||||
|
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 1.5%, maturing at different dates between December 2021 and March 2023
|
181
|
295
|
||||||
|
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 in June 2021 and July 2022
|
193
|
586
|
||||||
|
3,080
|
4,220
|
|||||||
|
Less: Current portion of long-term debt
|
1,548
|
2,076
|
||||||
|
$
|
1,532
|
$
|
2,144
|
|||||
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)
Principal repayments of long-term debt over the forthcoming years are as follows:
|
As at
February 28,
2021
|
||||
|
No later than 1 year
|
$
|
1,548
|
||
|
Later than 1 year and no later than 5 years
|
1,532
|
|||
|
$
|
3,080
|
|||
|
9
|
Share Capital
|
The following tables summarize changes in share capital for the six months ended February 29, 2020 and February 28, 2021.
|
Six months ended February 29, 2020
|
||||||||||||||||||||
|
Multiple voting shares
|
Subordinate voting shares
|
|||||||||||||||||||
|
Number
|
Amount
|
Number
|
Amount
|
Total
amount
|
||||||||||||||||
|
Balance as at September 1, 2019
|
31,643,000
|
$
|
1
|
23,703,675
|
$
|
92,705
|
$
|
92,706
|
||||||||||||
|
Redemption of restricted share units
|
−
|
−
|
255,822
|
−
|
−
|
|||||||||||||||
|
Redemption of share capital
|
−
|
−
|
(54,528
|
)
|
(212
|
)
|
(212
|
)
|
||||||||||||
|
Reclassification of stock-based compensation costs to share capital upon exercise of stock awards
|
−
|
−
|
−
|
861
|
861
|
|||||||||||||||
|
Balance as at November 30, 2019
|
31,643,000
|
1
|
23,904,969
|
93,354
|
93,355
|
|||||||||||||||
|
Redemption of restricted share units
|
−
|
−
|
111,476
|
−
|
−
|
|||||||||||||||
|
Reclassification of stock-based compensation costs to share capital upon exercise of stock awards
|
−
|
−
|
−
|
472
|
472
|
|||||||||||||||
|
Balance as at February 29, 2020
|
31,643,000
|
$
|
1
|
24,016,445
|
$
|
93,826
|
$
|
93,827
|
||||||||||||
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)
|
Six months ended February 28, 2021
|
||||||||||||||||||||
|
Multiple voting shares
|
Subordinate voting shares
|
|||||||||||||||||||
|
Number
|
Amount
|
Number
|
Amount
|
Total
amount
|
||||||||||||||||
|
Balance as at September 1, 2020
|
31,643,000
|
$
|
1
|
24,060,766
|
$
|
94,023
|
$
|
94,024
|
||||||||||||
|
Redemption of restricted share units
|
−
|
−
|
204,506
|
−
|
−
|
|||||||||||||||
|
Redemption of performance share units
|
−
|
−
|
2,704
|
−
|
−
|
|||||||||||||||
|
Redemption of share capital
|
−
|
−
|
(138,255
|
)
|
(538
|
)
|
(538
|
)
|
||||||||||||
|
Reclassification of stock-based compensation costs to share capital upon exercise of stock awards
|
−
|
−
|
−
|
704
|
704
|
|||||||||||||||
|
Balance as at November 30, 2020
|
31,643,000
|
1
|
24,129,721
|
94,189
|
94,190
|
|||||||||||||||
|
Issuance of share capital (note 3)
|
−
|
−
|
128,571
|
414
|
414
|
|||||||||||||||
|
Share issue expenses
|
−
|
−
|
−
|
(14
|
)
|
(14
|
)
|
|||||||||||||
|
Redemption of restricted share units
|
−
|
−
|
127,774
|
−
|
−
|
|||||||||||||||
|
Redemption of share capital
|
−
|
−
|
(7,300
|
)
|
(27
|
)
|
(27
|
)
|
||||||||||||
|
Reclassification of stock-based compensation costs to share capital upon exercise of stock awards
|
−
|
−
|
−
|
601
|
601
|
|||||||||||||||
|
Balance as at February 28, 2021
|
31,643,000
|
$
|
1
|
24,378,766
|
$
|
95,163
|
$
|
95,164
|
||||||||||||
On January 12, 2021, the company announced that its Board of Directors had approved a share repurchase program, by way of a normal course issuer bid on the open market of up to 2.9% of
the issued and outstanding subordinate voting shares, representing 600,000 subordinate voting shares at the prevailing market price. The normal course issuer bid started on January 15, 2021 and will end on January 14, 2022 or earlier if
the company repurchases the maximum number of shares permitted. All shares repurchased under the bid will be cancelled.
|
10
|
Statements of Earnings
|
Sales are as follows:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Test and measurement
|
$
|
51,277
|
$
|
101,750
|
$
|
37,477
|
$
|
93,424
|
||||||||
|
Service assurance, systems and services
|
17,565
|
38,611
|
17,935
|
35,684
|
||||||||||||
|
Foreign exchange gains (losses) on forward exchange contracts
|
412
|
405
|
(99
|
)
|
(244
|
)
|
||||||||||
|
Total sales for the period
|
$
|
69,254
|
$
|
140,766
|
$
|
55,313
|
$
|
128,864
|
||||||||
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)
Net research and development expenses comprise the following:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Gross research and development expenses
|
$
|
15,847
|
$
|
30,000
|
$
|
14,382
|
$
|
28,214
|
||||||||
|
Research and development tax credits and grants
|
(2,299
|
)
|
(5,253
|
)
|
(1,816
|
)
|
(3,899
|
)
|
||||||||
|
Net research and development expenses for the period
|
$
|
13,548
|
$
|
24,747
|
$
|
12,566
|
$
|
24,315
|
||||||||
For the three and six months ended February 28, 2021, tax credits and grants include $195,000 and $1,030,000 respectively for the CEWS (nil in 2020).
Inventory write-down is as follows:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Inventory write-down for the period
|
$
|
283
|
$
|
778
|
$
|
711
|
$
|
1,245
|
||||||||
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,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Cost of sales
|
||||||||||||||||
|
Depreciation of property, plant and equipment
|
$
|
496
|
$
|
945
|
$
|
495
|
$
|
950
|
||||||||
|
Depreciation of ROU assets
|
276
|
557
|
280
|
568
|
||||||||||||
|
Amortization of intangible assets
|
1,569
|
3,731
|
1,358
|
2,676
|
||||||||||||
|
2,341
|
5,233
|
2,133
|
4,194
|
|||||||||||||
|
Selling and administrative expenses
|
||||||||||||||||
|
Depreciation of property, plant and equipment
|
323
|
600
|
262
|
557
|
||||||||||||
|
Depreciation of ROU assets
|
331
|
672
|
381
|
743
|
||||||||||||
|
Amortization of intangible assets
|
222
|
427
|
173
|
325
|
||||||||||||
|
876
|
1,699
|
816
|
1,625
|
|||||||||||||
|
Net research and development expenses
|
||||||||||||||||
|
Depreciation of property, plant and equipment
|
653
|
1,268
|
667
|
1,360
|
||||||||||||
|
Depreciation of ROU assets
|
170
|
381
|
193
|
394
|
||||||||||||
|
Amortization of intangible assets
|
196
|
378
|
164
|
326
|
||||||||||||
|
1,019
|
2,027
|
1,024
|
2,080
|
|||||||||||||
|
$
|
4,236
|
$
|
8,959
|
$
|
3,973
|
$
|
7,899
|
|||||||||
|
Depreciation of property, plant and equipment
|
$
|
1,472
|
$
|
2,813
|
$
|
1,424
|
$
|
2,867
|
||||||||
|
Depreciation of ROU assets
|
777
|
1,610
|
854
|
1,705
|
||||||||||||
|
Amortization of intangible assets
|
1,987
|
4,536
|
1,695
|
3,327
|
||||||||||||
|
Total depreciation and amortization expenses for the period
|
$
|
4,236
|
$
|
8,959
|
$
|
3,973
|
$
|
7,899
|
||||||||
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)
Employee compensation comprises the following:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Salaries and benefits
|
$
|
38,979
|
$
|
74,879
|
$
|
35,602
|
$
|
69,909
|
||||||||
|
Restructuring charges
|
–
|
543
|
–
|
–
|
||||||||||||
|
Stock-based compensation costs
|
1,017
|
1,585
|
436
|
923
|
||||||||||||
|
Grants (CEWS)
|
(441
|
)
|
(2,326
|
)
|
–
|
–
|
||||||||||
|
Total employee compensation for the period
|
$
|
39,555
|
$
|
74,681
|
$
|
36,038
|
$
|
70,832
|
||||||||
Stock-based compensation costs by functional area are as follows:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Cost of sales
|
$
|
18
|
$
|
48
|
$
|
21
|
$
|
61
|
||||||||
|
Selling and administrative expenses
|
790
|
1,237
|
335
|
715
|
||||||||||||
|
Net research and development expenses
|
209
|
300
|
80
|
147
|
||||||||||||
|
Total stock-based compensation for the period
|
$
|
1,017
|
$
|
1,585
|
$
|
436
|
$
|
923
|
||||||||
CEWS by functional area are as follows (note 4):
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Cost of sales
|
$
|
(100
|
)
|
$
|
(530
|
)
|
$
|
–
|
$
|
–
|
||||||
|
Selling and administrative expenses
|
(146
|
)
|
(766
|
)
|
–
|
–
|
||||||||||
|
Net research and development expenses
|
(195
|
)
|
(1,030
|
)
|
–
|
–
|
||||||||||
|
Total CEWS for the period
|
$
|
(441
|
)
|
$
|
(2,326
|
)
|
$
|
–
|
$
|
–
|
||||||
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)
|
11
|
Income Taxes
|
For the three months and six months ended February 29, 2020 and February 28, 2021, 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 in the condensed unaudited interim consolidated financial statements is as follows:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Income tax provision (recovery) at combined Canadian federal and provincial statutory tax rate (27%)
|
$
|
(495
|
)
|
$
|
1,053
|
$
|
(2,698
|
)
|
$
|
(1,994
|
)
|
|||||
|
Increase (decrease) due to:
|
||||||||||||||||
|
Foreign income taxed at different rates
|
16
|
(80
|
)
|
(23
|
)
|
155
|
||||||||||
|
Non-deductible loss (non-taxable income)
|
(84
|
)
|
(191
|
)
|
305
|
319
|
||||||||||
|
Non-deductible expenses
|
204
|
372
|
166
|
344
|
||||||||||||
|
Foreign exchange effect of translation of foreign subsidiaries
|
188
|
177
|
10
|
(105
|
)
|
|||||||||||
|
Recognition of previously unrecognized deferred income tax assets
|
–
|
–
|
(471
|
)
|
(471
|
)
|
||||||||||
|
Utilization of previously unrecognized deferred income tax assets
|
(84
|
)
|
(909
|
)
|
2
|
(14
|
)
|
|||||||||
|
Unrecognized deferred income tax assets on temporary deductible differences and unused tax losses
|
1,239
|
2,808
|
1,435
|
2,877
|
||||||||||||
|
Other
|
(381
|
)
|
(446
|
)
|
303
|
587
|
||||||||||
|
Income tax provision (recovery) for the period
|
$
|
603
|
$
|
2,784
|
$
|
(971
|
)
|
$
|
1,698
|
|||||||
The income tax provision (recovery) consists of the following:
|
Three months
ended
February 28,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Current
|
$
|
904
|
$
|
4,403
|
$
|
(759
|
)
|
$
|
2,352
|
|||||||
|
Deferred
|
(301
|
)
|
(1,619
|
)
|
(212
|
)
|
(654
|
)
|
||||||||
|
$
|
603
|
$
|
2,784
|
$
|
(971
|
)
|
$
|
1,698
|
||||||||
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)
|
12
|
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,
2021
|
Six months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Basic weighted average number of shares outstanding (000’s)
|
55,940
|
55,844
|
55,603
|
55,521
|
||||||||||||
|
Plus dilutive effect of (000’s):
|
||||||||||||||||
|
Restricted share units
|
–
|
963
|
–
|
–
|
||||||||||||
|
Deferred share units
|
–
|
344
|
–
|
–
|
||||||||||||
|
Contingently issuable shares (note 3)
|
–
|
82
|
–
|
–
|
||||||||||||
|
Diluted weighted average number of shares outstanding (000’s)
|
55,940
|
57,233
|
55,603
|
55,521
|
||||||||||||
|
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)
|
3,040
|
1,523
|
1,990
|
2,009
|
||||||||||||
For the three months and the six months ended February 29, 2020 and the three months ended February 28, 2021, the diluted amount per share was the same amount as the basic amount per
share, since the dilutive effect of restricted share units, deferred share units and contingent issuable shares 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.
and Results of Operations
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, namely the impact of the coronavirus pandemic on our employees, customers and global operations, including the ability of our suppliers to fulfil raw material
requirements and services, and our ability to manufacture and deliver our products and services to our customers; the effects of emergency measures related to isolation periods for individuals in affected areas, lockdown restrictions
imposed by national governments on businesses in countries where we operate and have employees, and limitations on travel to attract new customers and serve existing ones; deteriorating financial and market conditions as well as potential
recession; trade wars; our ability to successfully integrate businesses that we acquire; capital spending and network deployment levels in the communications industry (including our ability to quickly adapt cost structures to anticipated
levels of business and our ability to manage inventory levels with market demand); 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 7, 2021.
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 network operators, web‑scale companies, as well as for optical component and network equipment manufacturers in the
global communications industry. Our broad portfolio of intelligent hardware and software solutions enables transformations related to fiber, 5G, and cloud-native network deployments. Ultimately, customers rely on our solutions to increase
network capacity and improve quality of experience for end-users while driving operational efficiencies.
Our sales increased 25.2% to $69.3 million in the second quarter of fiscal 2021 compared to $55.3 million for the same period last year. Bookings (purchase orders received from customers) increased 8.9% to
$79.3 million in the second quarter of fiscal 2021, for a book-to-bill ratio of 1.15, from $72.9 million for the same period last year. In the second quarter of fiscal 2020, the emerging coronavirus outbreak resulted in the temporary
lockdown of our manufacturing facility in China, impacting our ability to manufacture and ship products in the last month of that quarter, which significantly impacted our sales for that period. Since then, our Chinese manufacturing
facility has resumed. In addition, since the early stage of the coronavirus pandemic in calendar 2020, we have quickly adapted to a virtualized working and selling environment and consolidated our role as trusted advisor to support our
customers to ensure the deployment and the reliability of their communication network.
Net loss amounted to $2.4 million, or $0.04 per share, in the second quarter of fiscal 2021, compared to $9.0 million, or $0.16 per share, for the same period last year. Net loss for the second quarter of
fiscal 2021 included net expenses totaling $2.8 million, comprising $2.0 million in amortization of intangible assets, $1.0 million in stock-based compensation costs, a foreign exchange loss of $0.1 million, and an income tax effect
of the above items of $0.3 million. Net loss for the second quarter of fiscal 2021 also included an amount of $0.3 million in after-tax (pre-tax $0.4 million) wage subsidy granted by the Canadian government because of the coronavirus
pandemic, as well as an amount of $0.7 million for the excess of the fair value of net identifiable assets acquired over fair value of the total consideration, net of cash acquired (negative goodwill) for the acquisition of EXFO Taiwan.
For the same period last year, net loss included net expenses totaling $2.3 million, comprising $1.7 million in amortization of intangible assets, $0.4 million in stock-based compensation costs, a foreign exchange loss of $0.4 million and
an income tax effect of the above items of $0.2 million.
Adjusted EBITDA (net loss before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, and foreign exchange loss) reached
$3.4 million, or 4.9% of sales, in the second quarter of fiscal 2021, compared to minus $4.9 million, or 8.9% of sales for the same period last year. Adjusted EBITDA is a non‑IFRS measure. See page 41 of this document for a complete
reconciliation of adjusted EBITDA to IFRS net earnings (loss).
On December 31, 2020, we acquired all of the issued and outstanding shares of inOpticals Inc. (renamed EXFO Taiwan Inc.), a Taiwan-based private company that offers ultra-high-speed test instruments for the
laboratory and manufacturing markets. The fair value of the total consideration for this acquisition amounted to $0.8 million net of cash acquired. This acquisition was accounted for by applying the acquisition method as required by IFRS 3,
Business Combinations, and the requirements of IFRS 10, Consolidated Financial Statements. The results of operations of the acquired business were included in our consolidated financial statements starting January 1, 2021.
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,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 28,
2021
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Sales
|
$
|
69,254
|
$
|
55,313
|
$
|
140,766
|
$
|
128,864
|
||||||||
|
Cost of sales (1)
|
30,423
|
23,796
|
60,292
|
54,037
|
||||||||||||
|
Selling and administrative
|
22,893
|
24,303
|
44,499
|
48,807
|
||||||||||||
|
Net research and development
|
13,548
|
12,566
|
24,747
|
24,315
|
||||||||||||
|
Depreciation of property, plant and equipment
|
1,472
|
1,424
|
2,813
|
2,867
|
||||||||||||
|
Depreciation of lease right-of-use assets
|
777
|
854
|
1,610
|
1,705
|
||||||||||||
|
Amortization of intangible assets
|
1,987
|
1,695
|
4,536
|
3,327
|
||||||||||||
|
Interest and other (income) expense
|
(137
|
)
|
285
|
(2,003
|
)
|
684
|
||||||||||
|
Foreign exchange loss
|
127
|
382
|
373
|
508
|
||||||||||||
|
Earnings (loss) before income taxes
|
(1,836
|
)
|
(9,992
|
)
|
3,899
|
(7,386
|
)
|
|||||||||
|
Income taxes
|
603
|
(971
|
)
|
2,784
|
1,698
|
|||||||||||
|
Net earnings (loss) for the period
|
$
|
(2,439
|
)
|
$
|
(9,021
|
)
|
$
|
1,115
|
$
|
(9,084
|
)
|
|||||
|
Basic and diluted net earnings (loss) per share
|
$
|
(0.04
|
)
|
$
|
(0.16
|
)
|
$
|
0.02
|
$
|
(0.16
|
)
|
|||||
|
Other selected information:
|
||||||||||||||||
|
Gross margin before depreciation and amortization (2)
|
$
|
38,831
|
$
|
31,517
|
$
|
80,474
|
$
|
74,827
|
||||||||
|
Gross research and development
|
$
|
15,847
|
$
|
14,382
|
$
|
30,000
|
$
|
28,214
|
||||||||
|
Canadian emergency wage subsidy included in:
|
||||||||||||||||
|
Cost of sales
|
$
|
(100
|
)
|
$
|
–
|
$
|
(530
|
)
|
$
|
–
|
||||||
|
Selling and administrative expenses
|
$
|
(146
|
)
|
$
|
–
|
$
|
(766
|
)
|
$
|
–
|
||||||
|
Net research and development expenses
|
$
|
(195
|
)
|
$
|
–
|
$
|
(1,030
|
)
|
$
|
–
|
||||||
|
Adjusted EBITDA (2)
|
$
|
3,407
|
$
|
(4,916
|
)
|
$
|
13,356
|
$
|
2,628
|
|||||||
|
(1)
|
The cost of sales is exclusive of depreciation and amortization, shown separately.
|
|
(2)
|
Refer to page 41 for non-IFRS measures.
|
RESULTS OF OPERATIONS
(as a percentage of sales for the periods indicated)
|
Three months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 28,
2021
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||||
|
Cost of sales (1)
|
43.9
|
43.0
|
42.8
|
41.9
|
||||||||||||
|
Selling and administrative
|
33.1
|
44.0
|
31.6
|
37.9
|
||||||||||||
|
Net research and development
|
19.6
|
22.7
|
17.6
|
18.9
|
||||||||||||
|
Depreciation of property, plant and equipment
|
2.1
|
2.6
|
2.0
|
2.2
|
||||||||||||
|
Depreciation of lease right-of-use assets
|
1.1
|
1.5
|
1.1
|
1.3
|
||||||||||||
|
Amortization of intangible assets
|
2.9
|
3.1
|
3.2
|
2.6
|
||||||||||||
|
Interest and other (income) expense
|
(0.2
|
)
|
0.5
|
(1.4
|
)
|
0.5
|
||||||||||
|
Foreign exchange loss
|
0.2
|
0.7
|
0.3
|
0.4
|
||||||||||||
|
Earnings (loss) before income taxes
|
(2.7
|
)
|
(18.1
|
)
|
2.8
|
(5.7
|
)
|
|||||||||
|
Income taxes
|
0.8
|
(1.8
|
)
|
2.0
|
1.3
|
|||||||||||
|
Net earnings (loss) for the period
|
(3.5
|
)%
|
(16.3
|
)%
|
0.8
|
%
|
(7.0
|
)%
|
||||||||
|
Other selected information:
|
||||||||||||||||
|
Gross margin before depreciation and amortization (2)
|
56.1
|
%
|
57.0
|
%
|
57.2
|
%
|
58.1
|
%
|
||||||||
|
Gross research and development
|
22.9
|
%
|
26.0
|
%
|
21.3
|
%
|
21.9
|
%
|
||||||||
|
Canadian emergency wage subsidy included in:
|
||||||||||||||||
|
Cost of sales
|
(0.1
|
)%
|
–
|
%
|
(0.4
|
)%
|
–
|
%
|
||||||||
|
Selling and administrative expenses
|
(0.2
|
)%
|
–
|
%
|
(0.6
|
)%
|
–
|
%
|
||||||||
|
Net research and development expenses
|
(0.3
|
)%
|
–
|
%
|
(0.7
|
)%
|
–
|
%
|
||||||||
|
Adjusted EBITDA (2)
|
4.9
|
%
|
(8.9
|
)%
|
9.5
|
%
|
2.0
|
%
|
||||||||
|
(1)
|
The cost of sales is exclusive of depreciation and amortization, shown separately.
|
|
(2)
|
Refer to page 41 for non-IFRS measures.
|
RESULTS OF OPERATIONS
Sales and Bookings
The following tables summarize sales and bookings by product line in thousands of US dollars:
Sales
|
Three months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 28,
2021
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Test and measurement
|
$
|
51,277
|
$
|
37,477
|
$
|
101,750
|
$
|
93,424
|
||||||||
|
Service assurance, systems and services
|
17,565
|
17,935
|
38,611
|
35,684
|
||||||||||||
|
68,842
|
55,412
|
140,361
|
129,108
|
|||||||||||||
|
Foreign exchange gains (losses) on forward exchange contracts
|
412
|
(99
|
)
|
405
|
(244
|
)
|
||||||||||
|
Total sales
|
$
|
69,254
|
$
|
55,313
|
$
|
140,766
|
$
|
128,864
|
||||||||
Bookings
|
Three months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 28,
2021
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Test and measurement
|
$
|
53,665
|
$
|
52,003
|
$
|
104,913
|
$
|
107,012
|
||||||||
|
Service assurance, systems and services
|
25,272
|
20,963
|
43,074
|
36,012
|
||||||||||||
|
78,937
|
72,966
|
147,987
|
143,024
|
|||||||||||||
|
Foreign exchange gains (losses) on forward exchange contracts
|
412
|
(99
|
)
|
405
|
(244
|
)
|
||||||||||
|
Total bookings
|
$
|
79,349
|
$
|
72,867
|
$
|
148,392
|
$
|
142,780
|
||||||||
Sales by geographic region
The following table summarizes sales by geographic region:
|
Three months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 28,
2021
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
Americas
|
48
|
%
|
48
|
%
|
46
|
%
|
51
|
%
|
||||||||
|
Europe, Middle-East and Africa (EMEA)
|
38
|
31
|
37
|
30
|
||||||||||||
|
Asia-Pacific (APAC)
|
14
|
21
|
17
|
19
|
||||||||||||
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
|||||||||
For the three months ended February 28, 2021, our sales increased 25.2% to $69.3 million, compared to $55.3 million for the same period last year, and our bookings increased 8.9% to $79.3 million, compared
to $72.9 million the same period last year, for a book-to-bill ratio of 1.15.
For the six months ended February 28, 2021, our sales increased 9.2% to $140.8 million, from $128.9 million for the same period last year, and our bookings increased 3.9% to $148.4 million, from $142.8
million for the same period last year, for a book-to-bill ratio of 1.05.
Sales
Second quarter review
In the second quarter of fiscal 2021, the 25.2% increase in total sales year-over-year comes from our T&M product line, which delivered significant increase in sales of 36.8%, while sales of our SASS
product line slightly declined 2.1% compared to the same period last year.
In the second quarter of fiscal 2021, sales of our T&M product line increased by $13.8 million, or 36.8% year‑over‑year to $51.3 million, which sales level is more in line with pre-pandemic levels. In the
second quarter of fiscal 2020, the temporary lockdown of our manufacturing facility in China, because of the emerging outbreak of the coronavirus, prevented us from manufacturing and shipping to our customers our products manufactured
at this facility in the last month of the quarter, which significantly impacted our sales for that period. Since the third quarter of fiscal 2020, our manufacturing facilities have been operating normally. Among our two product lines, our
T&M product line was the most significantly impacted by the temporary lockdown of our Chinese manufacturing facility during the second quarter of fiscal 2020, as it is mainly comprised of hardware products that are for the most part
manufactured at that facility. Finally, sales of our T&M product line were to some extent positively impacted by currency fluctuations year-over-year.
In the second quarter of fiscal 2021, sales of our SASS product line slightly decreased by $0.4 million, or 2.1% year-over-year to $17.6 million. This slight year-over-year decrease in sales is mainly due to
the timing to converting orders into sales as bookings for our SASS product line significantly increased in the second quarter of fiscal 2021 compared to the same period last year. Sales and bookings of our SASS product line are
characterized by large intermittent orders from customers that may have prolonged sales and revenue recognition cycles; therefore, our quarterly sales and bookings are subject to quarterly fluctuations. Otherwise, sales of our SASS product
line were to some extent positively impacted by currency fluctuations year-over-year.
First half review
In the first half of fiscal 2021, the 9.2% increase in total sales year-over-year comes from both product lines.
In the first half of fiscal 2021, sales of our T&M product line increased by $8.3 million, or 8.9% year-over-year, to $101.8 million. In the first half of fiscal 2020, following record-high sales in the
first quarter of that year, sales of our T&M product line sales significantly dropped in the second quarter because of the temporary lockdown of our manufacturing facility in China due to the emerging coronavirus outbreak. Sales level
reached in the first two quarters of fiscal 2021 is more in line with pre-pandemic levels. In addition, in the first half of fiscal 2021, sales of our T&M product line were to some extent positively impacted by currency fluctuations
year-over-year.
In the first half of fiscal 2021, sales of our SASS product line increased by $2.9 million, or 8.2% year-over-year, to $38.6 million. In the first half of fiscal 2021, we received customer acceptance for
certain large orders in the EMEA for our network optimization, monitoring and real-time topology solutions, which increased our sales year-over-year. In addition, in the first half of fiscal 2021, sales of our SASS product line were to some
extent positively impacted by currency fluctuations year-over-year. Otherwise, in the first half of fiscal 2021, the ongoing coronavirus pandemic had to some extent a negative impact on sales of our SASS product line worldwide, as delivery
and commissioning of our solutions were more difficult to execute, despite increase in bookings year‑over-year.
Bookings
Second quarter review
In the second quarter of fiscal 2021, the 8.9% increase in total bookings year-over-year comes from both product lines.
In the second quarter of fiscal 2021, bookings of our T&M product line increased by $1.7 million, or 3.2% year-over-year, to $53.7 million, mainly due to increased fiber deployments to support broadband
acceleration needs, following a period of reduced investments since the beginning of the coronavirus pandemic in 2020. In addition, in the second quarter of fiscal 2021, we benefited from earlier budget releases for calendar year 2021 from
the part of some CSPs, compared to the same period last year, which positively impacted our bookings year over year; these two factors mainly favored our optical-testing solutions. This was offset in part by reduced bookings year over year
for our advanced solutions for NEMs and R&D labs for 5G deployment in China. In addition, in the second quarter of fiscal 2020, we received large orders for our copper-testing solutions in EMEA that did not repeat during the same period
this year. Worth to mention that in the second quarter of fiscal 2020, the emerging coronavirus pandemic had a limited impact on bookings of our T&M product line, which effects were felt in the third quarter of that year. Finally,
bookings of our T&M product line were to some extent positively affected by currency fluctuations year-over-year.
In the second quarter of fiscal 2021, bookings of our SASS product line increased by $4.3 million, or 20.6% year-over-year, to $25.3 million. In the second quarter of fiscal 2021, most of the year-over
increase in bookings comes from the EMEA region, as we received a higher level of orders for our monitoring solutions as well as some orders for our new Nova SensAI automated monitoring and troubleshooting solution. In addition, bookings of
our SASS product line were to some extent positively affected by currency fluctuations year-over-year. Otherwise, in the second quarter of fiscal 2021, the ongoing coronavirus pandemic had a negative impact on bookings of our SASS product
line, as we experienced longer delays to close certain deals.
First half review
In the first half of fiscal 2021, the 3.9% increase in total bookings year-over-year from our SASS product line, which delivered significant increase in sales of 19.6%, while sales of our T&M product line
slightly declined 2.0% compared to the same period last year.
In the first half of fiscal 2021, bookings of our T&M product line decreased $2.1 million, or 2.0% year-over-year, to $104.9 million. In the first half of fiscal 2021, the coronavirus pandemic had a
negative impact on bookings of our physical and transport and datacom solutions year-over-year, especially in the Americas and in the first quarter of the fiscal year. In addition, in the first half of fiscal 2020, we received large orders
for our copper-testing solutions in EMEA that did not repeat for the same period this year. Otherwise, in the first half of fiscal 2021, we benefited from catchup in spending to enable network deployments and support broadband acceleration
needs, following a slowdown in the second half of fiscal 2020 due to the coronavirus pandemic. We also benefited from larger calendar year-end budget spending on the part of some communication service providers (CSPs) in the Americas and
from earlier budget releases for calendar year 2021 from the part of some CSPs. All these factors mainly favored our optical-testing solutions. Finally, in the first quarter of fiscal 2021, bookings of our T&M product line were to some
extent positively affected by currency fluctuations year-over-year.
In the first half of fiscal 2021, bookings of our SASS product line increased $7.1 million, or 19.6% year-over-year, to $43.1 million. In the first half of fiscal 2021, most of the year-over increase in
bookings comes from the EMEA and the APAC regions, as we received a higher level of orders for our monitoring solutions, as well as some orders for our new Nova SensAI automated monitoring and troubleshooting solution. In addition, bookings
of our SASS product line were to some extent positively affected by currency fluctuations year-over-year. Otherwise, in the first half of fiscal 2021, the ongoing coronavirus pandemic had a negative impact on bookings of our SASS product
line, as we experienced longer delays to close certain deals.
Customer concentration
In the second quarters of fiscal 2020 and 2021, no customer accounted for more than 10% of our sales, and our top three customers accounted for 19.5% and 14.3% of our sales respectively. In the first halves
of fiscal 2020 and 2021, no customer accounted for more than 10% of our sales, and our top three customers accounted for 18.8% and 11.7% of our sales respectively.
GROSS MARGIN BEFORE DEPRECIATION AND AMORTIZATION
(non-IFRS measure — refer to page 41 of this document)
Gross margin before depreciation and amortization amounted to 56.1% of sales for the three months ended February 28, 2021, compared to 57.0% for the same period last year.
Gross margin before depreciation and amortization reached 57.2% of sales for the six months ended February 28, 2021, compared to 58.1% for the same period last year.
Second quarter and first half review
In the second quarter and the first half of fiscal 2021, our gross margin before depreciation and amortization was negatively impacted by a less favorable sales mix overall compared to the same periods last
year.
Otherwise, in the second quarter and the first half of fiscal 2021, we recorded lower inventory write-offs compared to the same periods last year, which contributed to increase our gross margin before
depreciation and amortization by 0.9% and 0.4% respectively year-over-year.
In addition, in the second quarter and the first half of fiscal 2021, gross margin before depreciation and amortization included $0.1 million and $0.5 million respectively for the wage subsidy granted by the
Canadian government because of the coronavirus pandemic (nil in 2020); this represented a positive impact of 0.1% and 0.4% of sales respectively on our gross margin before depreciation and amortization year-over-year.
Furthermore, in the second quarter and the first half of fiscal 2020, due to the emerging pandemic of the coronavirus, our manufacturing facility in Shenzhen, China, was shut down for a portion of the second
quarter; this negatively impacted our sales and our gross margin before depreciation and amortization during these periods as a portion of our cost of sales is fixed in the short term.
Finally, in the second quarter and the first half of fiscal 2021, we recorded in our sales foreign exchange gains on our forward exchange contracts of $0.4 million for both periods, compared to foreign
exchange losses of $0.1 million and $0.2 million respectively for the same periods last year. These gaps increased our gross margin before depreciation and amortization by 0.4% and 0.2% of sales respectively year-over-year.
SELLING AND ADMINISTRATIVE EXPENSES
For the three months ended February 28, 2021, selling and administrative expenses were $22.9 million, or 33.1% of sales, compared to $24.3 million, or 44.0% of sales for the same period last year.
For the six months ended February 28, 2021, selling and administrative expenses were $44.5 million, or 31.6% of sales, compared to $48.8 million, or 37.9% of sales for the same period last year.
Second quarter and first half review
In the second quarter of fiscal 2021, our selling and administrative expenses decreased $1.4 million compared to the same period last year.
In the first half of fiscal 2021, our selling and administrative expenses decreased $4.3 million compared to the same period last year.
In the second quarter and the first half of fiscal 2021, ongoing worldwide constraints and preventive measures leading to restrictions on travel and lockdown periods due to the coronavirus pandemic resulted
in lower travel and advertising expenses year‑over-year.
In addition, in the second quarter and the first half of fiscal 2021, we had the full impact of our 2020 restructuring plan, which reduced our selling and administrative expenses year-over-year.
Furthermore, in the second quarter and the first half of fiscal 2021, our selling and administrative expenses included $0.1 million and $0.8 million respectively for the wage subsidy granted by the Canadian
government because of the coronavirus pandemic (nil in 2020); this represented a positive impact of 0.2% and 0.5% of sales respectively on our selling and administrative expenses year‑over‑year.
Otherwise, in the second quarter and the first half of fiscal 2021, commissions on our sales were higher compared to the same periods last year due the year-over-year increase in sales.
In addition, in the second quarter and the first half of fiscal 2021, the decrease in the average value of the US dollar compared to other currencies had a negative impact on our selling and administrative
expenses year‑over-year.
Furthermore, in the second quarter and the first half of fiscal 2021, stock-based compensation costs were $0.2 million higher year-over-year for both periods due to contingent shares issued as part of the
acquisition of EXFO Taiwan.
Finally, in the first half of fiscal 2021, we incurred restructuring charges of $0.5 million or 0.4% of sales (nil in 2020).
In the second quarter of fiscal 2021, our selling and administrative expenses amounted to 33.1% of sales, 10.9% lower compared to 44.0% of sales in the same period last year. In the first half of fiscal 2021,
our selling and administrative expenses amounted to 31.6% of sales, 6.3% lower compared to 37.9% of sales in the same period last year. Year-over-year decrease in our selling and administrative expenses as percentage of sales is mainly due
to the overall decrease in selling and administrative expenses as well as the increase in sales year over year.
RESEARCH AND DEVELOPMENT EXPENSES
Gross Research and Development Expenses
For the three months ended February 28, 2021, gross research and development expenses totaled $15.8 million, or 22.9% of sales, compared to $14.4 million, or 26.0% of sales, for the same period last year.
For the six months ended February 28, 2021, gross research and development expenses totaled $30.0 million, or 21.3% of sales, compared to $28.2 million, or 21.9% of sales, for the same period last year.
Second quarter and first half review
In the second quarter of fiscal 2021, our gross research and development expenses increased $1.5 million compared to the same period last year.
In the first half of fiscal 2021, our gross research and development expenses increased $1.8 million compared to the same period last year.
In the second quarter and the first half of fiscal 2021, inflation and salary increases, as well as the mix of research and development project resulted in higher gross research and development expenses
year-over-year.
In addition, in the second quarter and the first half of fiscal 2021, the decrease in the average value of the US dollar compared to other currencies had a negative impact on our gross research and
development expenses year-over-year.
In the second quarter of fiscal 2021, our gross research and development expenses amounted to 22.9% of sales, 3.1% lower than 26.0% of sales in the same period last year. In the first half of fiscal 2021, our
gross research and development expenses amounted to 21.3% of sales, 0.6% lower than 21.9% of sales in the same period last year. The year-over-year decrease in our gross research and development expenses as percentage of sales is mainly due
to the increase in sales year-over-year as these expenses tend to be relatively fixed in the short term.
Tax Credits and Grants
For the three months ended February 28, 2021, tax credits and grants for research and development activities were $2.3 million, or 14.5% of gross research and development expenses, compared to $1.8 million,
or 12.6% of gross research and development expenses, for the same period last year.
For the six months ended February 28, 2021, tax credits and grants for research and development activities were $5.3 million, or 17.5% of gross research and development expenses, compared to $3.9 million, or
13.8% of gross research and development expenses, for the same period last year.
In the second quarter and the first half of fiscal 2021, our tax credits and grants included $0.2 million, or 1.2% of gross research and development expenses and $1.0 million, or 3.4% of gross research and
development expenses respectively, for the wage subsidy granted by the Canadian government as a result of the coronavirus pandemic (nil in 2020).
For the three months and the six months ended February 28, 2021, the increase in our tax credits and grants in dollars and as a percentage of gross research and development, compared to the same periods last
year mainly comes from the wage subsidy recorded during these periods.
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, 2021, amortization of intangible assets amounted to $2.0 million compared to $1.7 million for the same period last year.
For the six months ended February 28, 2021, amortization of intangible assets amounted to $4.5 million compared to $3.3 million for the same period last year.
The year-over-year increase in our amortization expense in the second quarter and the first half of fiscal 2021, compared to the same periods last year, is due to increased amortization expense for acquired
backlog (customer relationship) as related sales were recognized during the quarter, as well for core technologies from newly acquired EXFO Taiwan.
INTEREST AND OTHER (INCOME) EXPENSES
For the three months ended February 28, 2021, interest and other income totaled $0.1 million, compared to interest and other expenses of $0.3 million for the same period last year.
For the six months ended February 28, 2021, interest and other income totaled $2.0 million, compared to interest and other expenses of $0.7 million for the same period last year.
During the second quarter and the first half of fiscal 2021, other income included an amount of $0.7 million for the excess of the fair value of net identifiable assets acquired over fair value of the total
consideration (net of cash acquired) in relation with the acquisition of EXFO Taiwan (nil in 2020); this was offset in part by increased interest expense on our bank loan year-over-year.
In addition, during the first half of fiscal 2021, other income included an insurance recovery of $2.5 million related to the loss of assets (nil in 2020).
INCOME TAXES
For the three months ended February 28, 2021, we reported income tax expenses of $0.6 million on a loss before income taxes of $1.8 million. For the corresponding period, last year, we reported an income
tax recovery of $1.0 million on a loss before income taxes of $10.0 million.
For the six months ended February 28, 2021, we reported income tax expenses of $2.8 million on earnings before income taxes of $3.9 million. For the corresponding period, last year, we reported income tax
expenses of $1.7 million on a loss before income taxes of $7.4 million.
These distorted tax rates for the three months and the six months ended February 29, 2020 and February 28, 2021 mainly resulted from the fact that we did not recognize deferred income tax assets for some of
our subsidiaries at loss. In addition, we had some other non-deductible losses and expenses, such as stock-based compensation costs. Otherwise, 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 11 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, 2021, cash and short-term investments totaled $24.3 million, while our working capital was at $43.7 million. Our cash and short-term investments increased by $7.8 million in the second quarter of fiscal 2021 compared
to the previous quarter-end.
The following table summarizes the increase in cash and short-term investments during the second quarter of fiscal 2021 in thousands of US dollars:
|
Cash flows provided by operating activities
|
$
|
14,677
|
||
|
Cash acquired from EXFO Taiwan
|
799
|
|||
|
Decrease in bank loan
|
(5,355
|
)
|
||
|
Purchases of capital assets
|
(1,172
|
)
|
||
|
Repayment of lease obligations and long-term debt
|
(1,355
|
)
|
||
|
Other
|
234
|
|||
|
$
|
7,828
|
We believe that our cash balances and short-term investments totaling $24.3 million, combined with our available revolving credit facilities of up to $68.3 million until May 2021 and $52.5 million thereafter, will be sufficient to meet
our liquidity and capital requirements for the foreseeable future. In addition to these assets and credit facilities, we have unused available lines of credit of $23.8 million for foreign currency exposure related to forward exchange
contracts. However, a slowdown or recession due to effect of the coronavirus pandemic, 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 $14.7 million for the three months ended February 28, 2021, compared to $7.1 million for the same period last year.
Cash flows provided by operating activities were $16.7 million for the six months ended February 28, 2021, compared to $0.7 million for the same period last year.
Second quarter review
Cash flows provided by operating activities in the second quarter of fiscal 2021 were attributable to earnings after items not affecting cash of $3.1 million, and the positive net change in non-cash operating
items of $11.6 million; this was mainly due to the positive effect on cash of the $7.2 million decrease in our accounts receivable due to the timing of sales and receipts during the quarter, the positive effect on cash of the $2.0 million
decrease in inventories due to mix of sales during the quarter, the positive effect on cash of the $0.5 million decrease in our prepaid expenses due to timing of payments during the quarter, and the positive effect on cash of the $2.6
million increase in our accounts payable, accrued liabilities and provision due to timing of purchases and payments during the quarter. These positive effects on cash were offset in part by the negative effect on cash of the $1.0 million
increase in our income taxes and tax credits recoverable due to tax credits earned during the quarter but not yet recovered.
Cash flows provided by operating activities in the second quarter of fiscal 2020 were attributable to net loss after items not affecting cash of $2.4 million, more than offset by the positive net change in non-cash operating items
of $9.5 million; this was mainly due to the positive effect on cash of the $18.5 million decrease in our accounts receivable due to the lower level of sales especially in the last month of the quarter and timing of receipts during the
quarter. This positive effect on cash was offset in part by the negative effect on cash of the $3.2 million increase in our income taxes and tax credits recoverable due to tax credits earned during the quarter as well as current income
taxes receivable on net loss not yet recovered, the $0.5 million increase in our inventories due to the shutdown of our facility in China during the quarter, as well as the $5.6 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 2021 were attributable to net earnings after items not affecting cash of $9.3 million, and the positive net change in non-cash operating
items of $7.4 million; this was mainly due to the positive effect on cash of the decrease of $6.4 million in our accounts receivable due to the timing of sales and receipts during the period, the positive effect on cash of the $1.1 million
decrease in our prepaid expenses due to timing of payments during the period, and the positive effect on cash of the $1.7 million decrease in other assets due the recognition of related sales during the period. These positive effects on
cash were offset in part by the negative effect on cash of the $0.7 million increase in our inventories to meet future demand, and the $1.3 million decrease in our accounts payable, accrued liabilities and provisions due to the timing
of purchases and payments during the period.
Cash flows provided by operating activities in the first half of fiscal 2020 were attributable to net loss after items not affecting cash of $2.6 million, more than offset by the positive net change in
non-cash operating items of $3.3 million; this was mainly due to the positive effect on cash of the decrease of $18.6 million in our accounts receivable due to the timing of receipts and the lower level of sales especially in the last month
of the period. This positive effect on cash was offset in part by the negative effect on cash of the $2.7 million increase in our income taxes and tax credits recoverable due to tax credits earned during the period as well as current income
taxes receivable on net loss not yet recovered, the $4.0 million increase in our inventories to meet future demand, as well as the $9.3 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 $0.3 million for the three months ended February 28, 2021, compared to cash flows used of $1.4 million for the same period last year.
Cash flows used by investing activities were $1.0 million for the six months ended February 28, 2021, compared to $3.1 million for the same period last year.
Second quarter review
In the second quarter of fiscal 2021, we acquired $0.8 million of cash from EXFO Taiwan and we disposed of $0.7 million worth of short-term investments. However, we made cash payments of $1.2 million for
the purchase of capital assets.
For the corresponding period last year, we made cash payments of $2.1 million for the purchase of capital assets but we disposed of $0.7 million worth of short-term investments.
First half review
In the first half of fiscal 2021, we made cash payments of $2.3 million for the purchase of capital assets. However, during the period, we acquired $0.8 million of cash from EXFO Taiwan and we disposed of
$0.5 million worth of short-term investments.
For the corresponding period last year, we made cash payments of $4.2 million for the purchase of capital assets. However, during the period, we disposed of $1.1 million worth of short-term investments.
Financing activities
Cash flows used by financing activities were $6.7 million for the three months ended February 28, 2021, compared to $1.5 million for the same period last year.
Cash flows used by financing activities were $24.9 million for the six months ended February 28, 2021, compared to cash flows provided of $5.1 million for the same period last year.
In the second quarter of fiscal 2021, our bank loan decreased $5.4 million and we repaid $1.3 million of our lease liabilities and our long-term debt.
For the corresponding period last year, we repaid $1.5 million of our lease liabilities and our long-term debt.
In the first half of fiscal 2021, our bank loan decreased by $21.7 million, we repaid $2.8 million of our lease liabilities and our long-term debt and we redeemed share capital for $0.4 million.
For the corresponding period last year, our bank loan increased by $8.4 million, but we repaid $3.0 million of our lease liabilities and our long-term debt and other liabilities, and we redeemed share
capital for $0.3 million.
Contractual Obligations
We are committed under the terms of contractual obligations, which have various expiration dates, primarily for our lease liabilities, our long-term debt and licensing of intellectual property. The following
table summarizes our contractual obligations as at February 28, 2021 in thousands of US dollars:
|
Lease liabilities
|
Long-term
debt
|
Licensing
agreements
|
Total
|
|||||||||||||
|
No later than 1 year
|
$
|
3,167
|
$
|
1,548
|
$
|
1,074
|
$
|
5,789
|
||||||||
|
Later than 1 year and no later than 5 years
|
5,462
|
1,532
|
2,613
|
9,607
|
||||||||||||
|
Later than 5 years
|
751
|
–
|
–
|
751
|
||||||||||||
|
$
|
9,380
|
$
|
3,080
|
$
|
3,687
|
$
|
16,147
|
|||||||||
In addition, as at February 28, 2021, we had letters of guarantee amounting to $1.1 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, France and Taiwan, the majority of which are denominated in US dollars and euros. This
risk is 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, 2021, we held forward exchange contracts to sell US dollars for Canadian dollars at various forward rates, which are summarized as follows:
|
Expiry dates
|
Contractual
amounts
|
Weighted average
contractual
forward rates
|
||||||
|
March 2021 to August 2021
|
$
|
17,200,000
|
1.3371
|
|||||
|
September 2021 to August 2022
|
18,800,000
|
1.3492
|
||||||
|
September 2022 to February 2023
|
3,600,000
|
1.3324
|
||||||
|
Total
|
$
|
39,600,000
|
1.3424
|
|||||
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 gains of $1.5 million as at August 31, 2020 and $2.3 million as at February 28, 2021. The quarter-end exchange rate was CA$1.2686 = US$1.00 as at February 28, 2021.
SHARE CAPITAL
As at April 7, 2021, EXFO had 31,643,000 multiple voting shares outstanding, entitling to 10 votes each and 25,803,366 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, 2021, we did not have interests in any structured entities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Coronavirus pandemic
The coronavirus pandemic worldwide impacts the global economy, as preventive measures and extended restrictions on transportation and lockdowns for individuals are still being imposed in many countries. The
breadth and duration of this pandemic are unknown and raise uncertainties that may impact the measurement of assets and liabilities in future periods.
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, 2020, filed with the U.S. Securities and Exchange Commission and the Canadian securities commissions.
RISKS AND UNCERTAINTIES
For the first half of fiscal 2021, 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, 2020.
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) before interest and other income/expenses, income taxes, depreciation and amortization, stock-based
compensation costs, restructuring charges and foreign exchange loss.
These non-IFRS measures eliminate the effect on our IFRS results of non-cash statement of earnings elements, restructuring charges 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), in thousands of US dollars:
Adjusted EBITDA
|
Three months
ended
February 28,
2021
|
Three months
ended
February 29,
2020
|
Six months
ended
February 28,
2021
|
Six months
ended
February 29,
2020
|
|||||||||||||
|
IFRS net earnings (loss) for the period
|
$
|
(2,439
|
)
|
$
|
(9,021
|
)
|
$
|
1,115
|
$
|
(9,084
|
)
|
|||||
|
Add (deduct):
|
||||||||||||||||
|
Depreciation and amortization
|
4,236
|
3,973
|
8,959
|
7,899
|
||||||||||||
|
Interest and other (income) expense
|
(137
|
)
|
285
|
(2,003
|
)
|
684
|
||||||||||
|
Income taxes
|
603
|
(971
|
)
|
2,784
|
1,698
|
|||||||||||
|
Stock-based compensation costs
|
1,017
|
436
|
1,585
|
923
|
||||||||||||
|
Restructuring charges
|
–
|
–
|
543
|
–
|
||||||||||||
|
Foreign exchange loss
|
127
|
382
|
373
|
508
|
||||||||||||
|
Adjusted EBITDA for the period
|
$
|
3,407
|
$
|
(4,916
|
)
|
$
|
13,356
|
$
|
2,628
|
|||||||
|
Adjusted EBITDA as a percentage of sales
|
4.9
|
%
|
(8.9
|
)%
|
9.5
|
%
|
2.0
|
%
|
||||||||
QUARTERLY SUMMARY FINANCIAL INFORMATION (1)
(tabular amounts in thousands of US dollars, except per share data)
|
Quarters ended
|
||||||||||||||||
|
February 28,
2021
|
November 30,
2020
|
August 31,
2020
|
May 31,
2020
|
|||||||||||||
|
Sales
|
$
|
69,254
|
$
|
71,512
|
$
|
70,572
|
$
|
66,147
|
||||||||
|
Cost of sales (2)
|
$
|
30,423
|
$
|
29,869
|
$
|
32,573
|
$
|
27,948
|
||||||||
|
Net earnings (loss)
|
$
|
(2,439
|
)
|
$
|
3,554
|
$
|
(3,633
|
)
|
$
|
3,177
|
||||||
|
Basic and diluted net earnings (loss) per share
|
$
|
(0.04
|
)
|
$
|
0.06
|
$
|
(0.07
|
)
|
$
|
0.06
|
||||||
|
Quarters ended
|
||||||||||||||||
|
February 29,
2020
|
November 30,
2019
|
August 31,
2019
|
May 31,
2019
|
|||||||||||||
|
Sales
|
$
|
55,313
|
$
|
73,551
|
$
|
70,175
|
$
|
73,587
|
||||||||
|
Cost of sales (2)
|
$
|
23,796
|
$
|
30,241
|
$
|
30,260
|
$
|
30,458
|
||||||||
|
Net earnings (loss)
|
$
|
(9,021
|
)
|
$
|
(63
|
)
|
$
|
(227
|
)
|
$
|
21
|
|||||
|
Basic and diluted net earnings (loss) per share
|
$
|
(0.16
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
0.00
|
|||||
|
(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.
|
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, 2021.
|
| 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, 2020 and
ended on February 28, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
|
Date: April 7, 2021
/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, 2021.
|
| 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, 2020 and
ended on February 28, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
|
Date: April 7, 2021
/s/ Pierre Plamondon
Pierre Plamondon, CPA
Chief Financial Officer and Vice-President, Finance
Page 46 of 46
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