Form 6-K EXFO INC. For: Feb 28

April 7, 2021 4:33 PM EDT

News and research before you hear about it on CNBC and others. Claim your 1-week free trial to StreetInsider Premium here.





UNITED 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 ☑
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 □
No ☑


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.


Page 1 of 46



SIGNATURES

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.



 
EXFO INC.
 
 
 
By:        /s/ Philippe Morin
Name:   Philippe Morin
Title:     Chief Executive Officer
   


Date: April 7, 2021


Page 2 of 46





PRESS RELEASE
For immediate release

EXFO reports second quarter results for fiscal 2021

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
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.




Page 3 of 46





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
 
  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.




Page 4 of 46





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.




Page 5 of 46





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.




Page 6 of 46





*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.




Page 7 of 46





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
vance.oliver@exfo.com




Page 8 of 46



EXFO Inc.
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.


Page 9 of 46



EXFO Inc.
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.


Page 10 of 46



EXFO Inc.
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.


Page 11 of 46



EXFO Inc.
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.


Page 12 of 46



EXFO Inc.
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.


The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.


Page 13 of 46



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)


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.

Page 14 of 46



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.


Page 15 of 46



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.


Page 16 of 46



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.


Page 17 of 46



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
 


Page 18 of 46



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
 


Page 19 of 46



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
 


Page 20 of 46



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
 


Page 21 of 46



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
 


Page 22 of 46



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
)
 
$
   
$
 


Page 23 of 46



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
 


Page 24 of 46



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.


Page 25 of 46



Management's Discussion and Analysis of Financial Condition
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.


Page 26 of 46