Form 6-K EXFO INC. For: Nov 30

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As at November 30, 2019 and 2020, unpaid purchases of capital assets amounted to $1,140 and $358 respectively.

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

Balance – Beginning of the period		$	3,626
Additions (1)			543
Payments			(1,742	)
Balance – End of the period		$	2,427

		As at November 30, 2020								As at August 31, 2020
		Level 1				Level 2				Level 1				Level 2
Financial assets
Short-term investments		$	1,106			$	–			$	919			$	–
Forward exchange contracts		$	–			$	1,708			$	–			$	1,587
Financial liabilities
Forward exchange contracts		$	–			$	42			$	–			$	110

	Expiry dates		Contractual amounts				Weighted average contractual forward rates
	December 2020 to August 2021		$	26,800				1.3329
	September 2021 to August 2022			18,800				1.3492
	September 2022 to February 2023			3,600				1.3324
	Total		$	49,200				1.3391

	Expiry dates		Contractual amount				Weighted average contractual forward rate
	December 2020 to February 2021		$	750				77.88

No later than 1 year		$	2,870
Later than 1 year and no later than 5 years			5,810
Later than 5 years			905
Total lease liabilities as at November 30, 2020		$	9,585

		As at November 30, 2020				As at August 31, 2020
Unsecured, non-interest-bearing loans, denominated in euros, repayable in quarterly instalments, maturing in September 2024 and September 2025		$	877			$	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			2,123				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 2020 and March 2023			233				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 at different dates between December 2020 and July 2022			406				586
			3,639				4,220
Current portion of long-term debt			1,880				2,076
		$	1,759			$	2,144

		As at November 30, 2020
No later than 1 year		$	1,880
Later than 1 year and no later than 5 years			1,759
		$	3,639

		Three months ended November 30, 2019
		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

		Three months ended November 30, 2020
		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

		Three months ended November 30,
		2020				2019
Test and measurement		$	50,473			$	55,947
Service assurance, systems and services			21,046				17,749
Foreign exchange losses on forward exchange contracts			(7	)			(145	)
Total sales for the period		$	71,512			$	73,551

		Three months ended November 30,
		2020				2019
Gross research and development expenses		$	14,153			$	13,832
Research and development tax credits and grants			(2,954	)			(2,083	)
Net research and development expenses for the period		$	11,199			$	11,749

		Three months ended November 30,
		2020				2019
Inventory write-down for the period		$	495			$	534

		Three months ended November 30,
		2020				2019
Cost of sales
Depreciation of property, plant and equipment		$	449			$	455
Depreciation of lease ROU assets			281				288
Amortization of intangible assets			2,162				1,318
			2,892				2,061
Selling and administrative expenses
Depreciation of property, plant and equipment			277				295
Depreciation of lease ROU assets			341				362
Amortization of intangible assets			205				152
			823				809
Net research and development expenses
Depreciation of property, plant and equipment			615				693
Depreciation of lease ROU assets			211				201
Amortization of intangible assets			182				162
			1,008				1,056
		$	4,723			$	3,926
Depreciation of property, plant and equipment		$	1,341			$	1,443
Depreciation of lease ROU assets			833				851
Amortization of intangible assets			2,549				1,632
		$	4,723			$	3,926

		Three months ended November 30,
		2020				2019
Salaries and benefits		$	35,900			$	34,307
Restructuring charges			543				−
Stock-based compensation costs			568				487
Grants (CEWS)			(1,885	)			−
Total employee compensation for the period		$	35,126			$	34,794

		Three months ended November 30,
		2020				2019
Cost of sales		$	30			$	40
Selling and administrative expenses			447				380
Net research and development expenses			91				67
Total stock-based compensation for the period		$	568			$	487

		Three months ended November 30,
		2020				2019
Cost of sales		$	(430	)		$	−
Selling and administrative expenses			(620	)			−
Net research and development expenses			(835	)			−
Total CEWS for the period		$	(1,885	)		$	−

		Three months ended November 30,
		2020				2019
Income tax provision at combined Canadian federal and provincial statutory tax rate (27%)		$	1,548			$	704
Increase (decrease) due to:
Foreign income taxed at different rates			(96	)			178
Non-deductible loss (non-taxable income)			(107	)			14
Non-deductible expenses			168				178
Foreign exchange effect of translation of foreign subsidiaries			(11	)			(115	)
Utilization of previously unrecognized deferred income tax assets			(825	)			(16	)
Unrecognized deferred income tax assets on temporary deductible differences and unused tax losses			1,569				1,442
Other			(65	)			284
Income tax provision for the period		$	2,181			$	2,669

		Three months ended November 30,
		2020				2019
Current		$	3,499			$	3,111
Deferred			(1,318	)			(442	)
		$	2,181			$	2,669

		Three months ended November 30,
		2020				2019
Basic weighted average number of shares outstanding (000’s)			55,749				55,439
Plus dilutive effect of (000’s):
Restricted share units			942				−
Deferred share units			332				−
Diluted weighted average number of shares outstanding (000’s)			57,023				55,439
Stock awards excluded from the calculation of the diluted weighted average number of shares outstanding because their exercise price was greater than the average market price of the common shares, or their   inclusion would be antidilutive (000’s)			22				1,385

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 and length 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 in 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 January 12, 2021.

All financial data are expressed in US dollars, except as otherwise noted, and are 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 decreased 2.8% to $71.5 million in the first quarter of fiscal 2021 compared to $73.6 million for the same period last year. Bookings (purchase orders received from customers) slightly decreased 1.2% to $69.0 million in the first quarter of fiscal 2021, for a book-to-bill ratio of 0.97, from $69.9 million for the same period last year.

On December 31, 2020, we acquired all of the issued and outstanding shares of InOpticals Inc. (InOpticals), a Taiwan-based company that offers ultra-high-speed test instruments for the laboratory and manufacturing markets. The fair value of the total consideration for this acquisition is not expected to be material. This acquisition will be 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 will be included in our consolidated financial statements starting December 31, 2020, being the acquisition date.

RESULTS OF OPERATIONS

(in thousands of US dollars, except per share data, and as a percentage of sales for the periods indicated)

(1)	Cost of sales is exclusive of depreciation and amortization, shown separately.

(2)	Refer to page 33 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

Bookings