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)
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, 2020.
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, except as described below. Consequently, these condensed unaudited interim consolidated financial statements should be read in conjunction with the company’s most recent annual
consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB.
Critical estimates and assumptions
During the three months ended February 29, 2020, in order to contain the spread of infection of the coronavirus, Chinese public
health authorities imposed preventive measures within affected regions including an extended shutdown of businesses, restrictions on various forms of public transportation and lockdown periods for individuals—all of which
affected the company’s factory and supply chain. As at February 29, 2020, the company reviewed critical estimates and assumptions considering the impact of the coronavirus outbreak and believes that it had no significant
impact on the measurement of assets and liabilities as of that date.
Subsequent to the quarter end, the coronavirus epidemic became a pandemic and most countries have been imposing ongoing
constraints and preventive measures that are affecting the global economy. Significant declines in the stock market have occurred for various reasons linked to the coronavirus pandemic. The breath and duration of this pandemic
is unknown and raise uncertainties that may impact the measurement of assets and liabilities in future periods.
Recently Issued IFRS Pronouncements
Leases
IFRS 16, “Leases”, was issued in January 2016. IFRS
16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e., the customer (lessee) and the supplier (lessor). IFRS 16 supersedes IAS 17, “Leases”, and related interpretations. Under IFRS 16, lessees recognize a right-of-use (ROU) asset and a lease liability measured at the present value of lease payments for virtually all
their leases. Short-term leases with a term of 12 months or less are not required to be recognized. This new standard is effective for annual periods beginning on or after January 1, 2019.
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 adopted this new standard on September 1, 2019, using the modified retrospective method, which did not require
adjustments to comparative periods. The company applied IFRS 16 at the adoption date and recognized ROU assets and lease liabilities in the period of adoption. The new standard provides several optional practical expedients in
transition. Upon implementation of the new standard, the company elected the practical expedients to combine lease and non-lease components and to not recognize ROU assets and lease liabilities for short-term leases. Also,
contracts that were not identified as leases under previous standards were not reassessed for whether there is a lease therein. The company identified appropriate changes to its accounting policies, information technology
systems, business processes, and related internal controls to support recognition and disclosure requirements under IFRS 16.
The adoption of IFRS 16 on September 1, 2019 resulted in the recognition of ROU assets of $11,321,000, lease liabilities
of $10,843,000, and the elimination of prepaid rents of $478,000 in the consolidated balance sheet as of that date. In addition, lease payments, previously reported in cash flow from operating activities are now reported in
cash flow from financing activities in the consolidated statements of cash flows. However, the adoption of this standard had no significant impact on net loss.
Upon the adoption of IFRS 16, the lease expense, previously recorded under the cost of sales, selling and administrative expenses
and net research and development expenses line items, is recorded as depreciation expenses for the ROU asset and as interest expenses on the lease liability in the consolidated statements of earnings.
Finally, the adoption of IFRS 16 had no significant impact on liquidity and debt covenant compliance under existing
debt agreements.
Uncertainty over Income Tax Treatments
IFRIC 23, “Uncertainty over Income Tax Treatments”, was issued in June 2017. IFRIC 23
provides guidance on how to value uncertain income tax positions based on the probability of whether the relevant tax authorities will accept the company's tax treatments. A company is to assume that a taxation authority with
the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019.
The company adopted this interpretation on September 1, 2019 and its adoption had no significant impact on its consolidated financial statements.
New Accounting Policy upon Adoption of Recently Issued IFRS
Leases
The company determines if an arrangement is a lease or contains a lease at inception.
Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date, and are subsequently adjusted for interest and
lease payments. When the rate implicit in the lease is not readily determinable, the company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future
lease payments. The lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised. ROU assets are recognized at
commencement based on the amount of the initial measurement of the lease liability. ROU assets also include any lease payments made prior to lease commencement and exclude lease incentives. ROU assets are depreciated on a
straight-line basis over the lease term.
The company’s lease terms may include options to extend or terminate the lease where it is reasonably certain that the company
will exercise those options. The company considers several economic factors when making this determination including, but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty
in replacing the asset, underlying contractual obligations, or specific characteristics unique to a lease.
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
In August 2018, the company implemented a restructuring plan to accelerate the integration of its acquired monitoring
and analytics technologies from EXFO Solutions and simplify its cost structure and optimize resources as the company converges toward fewer sites and reduces its workforce.
The following table summarizes changes in restructuring charges payable during the three months and six months ended February 29,
2020:
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 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 fair value of derivative and non-derivative financial assets and liabilities measured at fair value by level of fair value
hierarchy is as follows:
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
Derivative Financial Instruments
The functional currency of the company is the Canadian dollar. The company is exposed to currency risk as a result of its export
sales of products manufactured in Canada, China, France and Finland, the majority of which are denominated in US dollars and euros. This risk is partially hedged by forward exchange contracts and certain cost of sales and
operating expenses (US dollars and euros). In addition, the company is exposed to currency risk as a result of its research and development activities in India (Indian rupees). This risk is partially hedged by forward exchange
contracts. The company’s forward exchange contracts, which are designated as cash flow hedging instruments, qualify for hedge accounting.
As at February 29, 2020, the company held contracts to sell US dollars for Canadian dollars and Indian rupees at various forward
rates, which are summarized below:
US dollars – Canadian dollars
US dollars – Indian rupees
The carrying amount of forward exchange contracts is equal to their fair value, which is based on the amount at which they could
be settled based on estimated current market rates. The fair value of forward exchange contracts amounted to net losses of $978,000 as at August 31, 2019, and $1,375,000 as at February 29, 2020.
As at February 29, 2020, forward exchange contracts in the amount of $969,000 are presented as short-term liabilities in accounts
payable and accrued liabilities, and forward exchange contracts in the amount of $406,000 are presented as long-term liabilities in other long-term liabilities in the consolidated balance sheet. Forward exchange contracts of
$174,000 included in accounts payable and accrued liabilities, for which related hedged sales are recognized, are recorded in the consolidated statement of earnings; otherwise, other forward exchange contracts are not yet
recorded in the consolidated statement of earnings and are recorded in other comprehensive income.
Based on its portfolio of forward exchange contracts as at February 29, 2020, the company estimates that the portion of the net
unrealized losses on these contracts as of that date, which will be realized and reclassified from accumulated other comprehensive income to net earnings (sales) over the next 12 months, amounts to $795,000.
During the three and six months ended February 28, 2019 and February 29, 2020, the company recognized within its sales the
following foreign exchange losses on forward exchange contracts:
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 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 29, 2020:
The difference between operating lease commitments disclosed applying IAS 17 as at August 31, 2019, discounted using the
incremental borrowing rate of 2% at the date of the initial application of IFRS 16 as at September 1, 2019 and the lease liabilities recognized in the consolidated balance sheet as of that date is as follows:
Depreciation of lease ROU assets for the three months and six months ended February 29, 2020 amounted to $854,000 and $1,705,000,
respectively (note 8).
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:
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 following tables summarize changes in share capital for the six months ended February 28, 2019 and February 29, 2020.
On January 7, 2020, the company announced that its Board of Directors had approved a share repurchase program,
by way of a normal course issued bid on the open market of up to 3.1% 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 14, 2020 and will end on January 13, 2021 or earlier if the company repurchases the maximum number of shares permitted. All shares repurchased under the bid will be cancelled.
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
Sales are as follows:
Net research and development expenses comprise the following:
Inventory write-down is as follows:
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:
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:
Stock-based compensation costs by functional area are as follows:
Restructuring charges by functional area are as follows:
EXFO Inc.
Notes to Condensed Unaudited Interim Consolidated Financial Statements
(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)
For the three months and six months ended February 28, 2019 and February 29, 2020, 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 consolidated financial statements is as follows:
The income tax provision (recovery) consists of the following:
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 following table summarizes the reconciliation of the basic weighted average number of shares outstanding to the diluted
weighted average number of shares outstanding:
For the three months ended February 29, 2020 and the six months ended February 28, 2019 and February 29, 2020, the diluted amount
per share was the same amount as the basic amount per share, since the dilutive effect of restricted share units and deferred share units was not included in the calculation; otherwise, the effect would have been antidilutive.
Accordingly, the diluted amount per share for these periods was calculated using the basic weighted average number of shares outstanding.
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, 2020.
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, and equipment
manufacturers in the global communications industry. Our broad portfolio of intelligent hardware and software solutions enable transformations related to fiber, 4G/LTE, 5G, and network virtualization. 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 25.2% to $55.3 million in the second quarter of fiscal 2020 compared to $73.9 million for the same period last year, mainly due
to the global impact of the coronavirus outbreak, which prevented us from manufacturing and shipping our products manufactured in China in the last month of the quarter. Bookings (purchase orders received from customers)
decreased 4.2% to $72.9 million in the second quarter of fiscal 2020, for a book-to-bill ratio of 1.32, from $76.1 million for the same period last year.
Net loss amounted to $9.0 million, or $0.16 per share, in the second quarter of fiscal 2020, compared to net earnings of $5.2 million, or $0.09
per diluted share, for the same period last year. Net loss for the second quarter of fiscal 2020 included net expenses totaling $2.3 million, comprising $1.5 million in after-tax amortization of intangible assets,
$0.4 million in stock-based compensation costs, and a foreign exchange loss of $0.4 million. For the same period last year, net earnings included net expenses totaling $3.9 million, comprising $1.9 million in after-tax
amortization of intangible assets, $0.5 million in stock-based compensation costs, $0.5 million in after‑tax restructuring charges, $0.6 million for the acquisition-related deferred revenue fair value adjustment, and a
foreign exchange loss of $0.4 million. Net earnings also included $1.7 million for a gain on disposal of capital assets and $2.4 million for a deferred income tax recovery.
Adjusted EBITDA (net earnings (loss) before interest and other income/expense, income taxes, depreciation and amortization, stock-based
compensation costs, restructuring charges, acquisition-related deferred revenue fair value adjustment, and foreign exchange loss) reached minus $4.9 million, or 8.9% of sales, in the second quarter of fiscal 2020, compared
to $8.8 million, or 11.9% of sales for the same period last year. Adjusted EBITDA is a non‑IFRS measure. See page 42 of this document for a complete reconciliation of adjusted EBITDA to IFRS net earnings (loss).
RISKS AND UNCERTAINTIES
In December 2019, a novel strain of the coronavirus surfaced in China. To contain the spread of infection, Chinese public health authorities imposed
preventive measures within affected regions including an extended shutdown of businesses, restrictions on various forms of public transportation and lockdown periods for individuals—all of which affected our factory and supply
chain and resulted in lower sales than anticipated in the second quarter of fiscal 2020. In addition, subsequent to the quarter-end, the coronavirus epidemic became a pandemic, and most countries have imposed ongoing
constraints and preventive measures that are affecting the global economy. Significant declines in the stock market have occurred for various reasons linked to the coronavirus pandemic. The breadth and duration of this
pandemic is unknown and raises uncertainty about our future sales, results of operations and financial position.
BUSINESS OUTLOOK
Sales and IFRS net loss outlook for the second quarter of fiscal 2020
For the second quarter of fiscal 2020, we expected our sales to range between $66 million and $71 million and our IFRS net loss to range between
$0.09 and $0.05 per share, as disclosed in our first quarter of 2020 press release.
On February 24, 2020, due to the coronavirus outbreak impact on our supply chain and manufacturing operations in China, as well as an information
technology issue, we updated our sales outlook with anticipated sales of approximately $55 million.
In the second quarter of fiscal 2020, our actual sales reached $55.3 million, in line with our updated sales outlook. Actual IFRS net loss for the
second quarter of fiscal 2020 amounted to $0.16 per share, compared to $0.09 per share at the low-end of our initial earnings guidance, due to lower sales.
Short-term and mid-term adjusted EBITDA target
We had forecasted adjusted EBITDA of $33 million for fiscal 2020 and set an adjusted EBITDA margin target of 15% of sales by the end of fiscal 2021.
Due to the prolonged lockdown period that affected our manufacturing facility in China, ongoing constraints on a worldwide basis, as well as the uncertainty surrounding the breadth and duration of this coronavirus pandemic, we
have suspended our short-term and mid-term adjusted EBITDA outlook.
RESULTS OF OPERATIONS
(in thousands of US dollars, except per share data, and as a percentage of sales for the periods indicated)
RESULTS OF OPERATIONS
(as a percentage of sales for the periods indicated)
RESULTS OF OPERATIONS
Sales and Bookings
The following tables summarize sales and bookings by product line in thousands of US dollars:
Sales
Bookings
Sales by geographic region
The following table summarizes sales by geographic region:
For the three months ended February 29, 2020, our sales decreased 25.2% to $55.3 million, compared to $73.9 million for the same period last year,
and our bookings decreased 4.2% to $72.9 million, compared to $76.1 million the same period last year, for a book-to-bill ratio of 1.32.
For the six months ended February 29, 2020, our sales decreased 10.0% to $128.9 million, from $143.1 million for the same period last year, and our
bookings decreased 9.2% to $142.8 million, from $157.3 million for the same period last year, for a book-to-bill ratio of 1.11.
Sales
Second quarter review
In the second quarter of fiscal 2020, the 25.2% decrease in total sales year-over-year comes from both product lines.
In the second quarter of fiscal 2020, sales of our T&M product line decreased by $12.9 million, or 25.7% year-over-year mainly due to the global
impact of the outbreak of the coronavirus, which prevented us from manufacturing and shipping to our customers our products manufactured in China in the last month of the quarter. Among our two product lines, our T&M
product line was the most significantly impacted by the outbreak of the coronavirus as it is mainly comprised of hardware products that are for the most part manufactured at our facility in China. In addition, in fiscal 2019, timing of orders received at the end of first quarter for large calendar year-end budget spending on the part of some communication service providers (CSPs) in the Americas,
resulted in a large portion of these orders being recognized into revenue in the second quarter of 2019. We did not have such a high level of calendar year-end budget spending in fiscal 2020. In the second quarter of 2020, we
reported a year-over-year decrease in sales of our T&M product line in all geographic area, with higher declines in EMEA and the Americas.
In the second quarter of fiscal 2020, sales of our SASS product line decreased by $5.8 million, or 24.3% year-over-year. Sales of our SASS product
line for the second quarter of fiscal 2019 included a negative impact of $0.6 million for EXFO Solutions’ acquisition-related deferred revenue fair value adjustment. Excluding this adjustment, sales of our SASS product line
would have decreased 26.1% year-over-year in the second quarter of fiscal 2020. The year-over-year decrease in sales of our SASS product line in the second quarter of fiscal 2020 is mainly due to the $4.9 million order for our
real-time network topology solution recognized in the second quarter of fiscal 2019, as we did not have such order in the same period this quarter. In addition, sales of our SASS product line were partially impacted by the
outbreak of the coronavirus. 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.
First half review
In the first half of fiscal 2020, the 10.0% decrease in total sales year-over-year comes from both product lines.
In the first half of fiscal 2020, sales of our T&M product line decreased by $6.7 million, or 6.7% year-over-year, mainly due to the impact the
coronavirus outbreak.
In the first half of fiscal 2020, sales of our SASS product line decreased by $7.4 million, or 17.2% year-over-year. Sales of our SASS product line
for the second half of fiscal 2019 included a negative impact of $1.4 million for EXFO Solutions’ acquisition-related deferred revenue fair value adjustment. Excluding this adjustment, sales of our SASS product line would have
decreased 19.9% year-over-year in the first half of fiscal 2020. The year-over-year decrease in sales of our SASS product line in the first half of fiscal 2020 is mainly due to the $4.9 million order for our real-time network
topology solution. In addition, sales of our SASS product line were partially impacted by the coronavirus outbreak in the first half of fiscal 2020.
Bookings
Second quarter review
In the second quarter of fiscal 2020, total bookings decreased 4.2% year-over-year. During the second quarter of fiscal 2020, a 14.7% increase in
bookings of our T&M product line was more than offset by a 32.3% decrease in bookings of our SASS product line.
The year-over-year increase in T&M bookings is mainly due to the timing of orders received in the first and second quarters of fiscal 2020 as
overall, after the first half of the fiscal year, bookings of our T&M product line are down 2.1% year-over-year. In fiscal 2019, we had stronger bookings in the first quarter of the year compared to the second quarter,
mainly due to large calendar year-end budget spending on the part of some CSPs in the Americas. In fiscal 2020, we reported a more linear influx of orders as we did not benefit from such high level of calendar year-end budget
spending. In addition, in the second quarter of fiscal 2020, the outbreak of the coronavirus had to some extent a negative impact on the bookings of our T&M product line.
In the second quarter of fiscal 2020, bookings of our SASS product line decreased 32.3% year-over-year. In the second quarter of fiscal 2019, we
received large orders totaling approximately $11 million for our real-time network topology solution, including products and professional services. We did not have such orders in the second quarter of 2020; this mainly
explains the year-over-year decrease in bookings year-over-year. Bookings of the SASS product line are characterized by large intermittent orders from customers, with long revenue recognition cycles, and may vary from quarter
to quarter.
First half review
In the first half of fiscal 2020, the 9.2% decrease in total bookings year-over-year can be attributed to both product lines.
In the first half of fiscal 2020, bookings of our T&M product line decreased 2.1% year-over-year, mainly due to the negative impact of the
coronavirus outbreak.
In the first half of fiscal 2020, bookings of our SASS product line decreased 25.2% year-over-year, mainly due to the large orders received in
fiscal 2019 for our real-time network topology solution totaling approximately $11 million. We did not have such orders in the first half of fiscal 2020.
Customer concentration
In the second quarter of fiscal 2020, no customer accounted for more than 10% of our sales, and our top three customers accounted for 19.5% of our
sales. For the corresponding period last year, our top customer accounted for 14.9% of sales, and our top three customers accounted for 24.7% of sales. In the first half of fiscal 2020, our top customer accounted for 10.3% of
sales, and our top three customers accounted for 18.8% of sales. For the corresponding period last year, our top customer accounted for 10.8% of sales, and our top three customers accounted for 21.9% of sales.
GROSS MARGIN BEFORE DEPRECIATION AND AMORTIZATION
(non-IFRS measure — refer to page 42 of this document)
Gross margin before depreciation and amortization amounted 57.0% of sales for the three months ended February 29, 2020, compared to 60.7% for the
same period last year.
Gross margin before depreciation and amortization reached 58.1% of sales for the six months ended February 29, 2020, compared to 59.5% for the same
period last year.
In the second quarter and the first half of fiscal 2020, the adoption of IFRS 16 had a positive effect of 0.5% and 0.4% of sales on our gross margin
before depreciation and amortization year-over-year.
In addition, in the second quarter and the first half of fiscal 2019, gross margin before depreciation and amortization included a negative impact
of 0.3% and 0.4% of sales respectively for the acquisition-related deferred revenue fair value adjustment from the acquisition of EXFO Solutions (nil in fiscal 2020).
Excluding these two elements, our gross margin before depreciation and amortization would have decreased 4.5% and 2.2% year-over-year for the second
quarter and the first half of fiscal 2020.
Second quarter review
In the second quarter of fiscal 2020, the outbreak of the coronavirus emanating from China led to the temporary shutdown of our manufacturing
facility in Shenzhen, China, for a portion of the quarter; this negatively impacted our sales and our gross margin before depreciation and amortization as a portion of our cost of sales is fixed in the short-term.
In addition, in the second quarter of fiscal 2019, our gross margin before depreciation and amortization was positively affected by the $4.9 million
order received for our real-time network topology software. This software-intensive solution delivered an above-average gross margin. We did not have such order during this quarter.
First half review
In the first half of fiscal 2020, the temporary shutdown of our manufacturing facility in Shenzhen, China, following the outbreak of the coronavirus
negatively impacted our sales and our gross margin before depreciation and amortization for the period as a portion of our cost of sales is fixed in the short-term.
In addition, in the first half of fiscal 2019, our gross margin before depreciation and amortization was positively impacted by the $4.9 million
order received for our real-time network topology software. This software-intensive solution delivered above-average gross margin.
Otherwise, in the first half of fiscal 2020, we recorded lower inventory writeoffs compared to the same period last year, which contributed to
increasing our gross margin before depreciation and amortization by 0.4% of sales year-over-year.
SELLING AND ADMINISTRATIVE EXPENSES
For the three months ended February 29, 2020, selling and administrative expenses were $24.3 million, or 44.0% of sales, compared to $25.5 million,
or 34.4% of sales for the same period last year.
For the six months ended February 29, 2020, selling and administrative expenses were $48.8 million, or 37.9% of sales, compared to $51.9 million, or
36.2% of sales for the same period last year.
Second quarter and first half review
In the second quarter and the first half of fiscal 2020, our selling and administrative expenses decreased $1.2 million and $3.0 million
respectively compared to the same periods last year.
In the second quarter and the first half of fiscal 2020, commissions on our sales were lower compared to the same periods last year due the
year-over-year decrease in sales.
In addition, in the second quarter and the first half of fiscal 2020, we had the full impact of our 2018 restructuring plan, which reduced our
selling and administrative expenses year-over-year.
Also, in the second quarter and the first half of fiscal 2020, the adoption of IFRS 16 had a positive effect of $0.4 million or 0.7% of sales and
$0.8 million or 0.6% of sales respectively on our selling and administrative expenses year-over-year.
Finally, in the second quarter and the first half of fiscal 2019, we incurred restructuring charges of $0.1 million or 0.1% of sales and $0.5
million or 0.3% of sales respectively (nil in 2020).
Otherwise, in the second quarter and the first half of fiscal 2020, inflation and salary increases contributed to raise our selling and
administrative expenses year-over-year.
In the second quarter of fiscal 2020, our selling and administrative expenses amounted to 44.0% of sales, 9.6% higher compared to 34.4% of sales in
the same period last year. In the first half of fiscal 2020, our selling and administrative expenses amounted to 37.9% of sales, 1.7% higher compared to 36.2% of sales in the same period last year. The year-over-year increase
in our selling and administrative expenses as percentage of sales for these periods is mainly due to the decrease in sales year-over-year as these expenses tend to be relatively fixed in the short term.
RESEARCH AND DEVELOPMENT EXPENSES
Gross Research and Development Expenses
For the three months ended February 29, 2020, gross research and development expenses totaled $14.4 million, or 26.0% of sales, compared to $14.2
million, or 19.1% of sales, for the same period last year.
For the six months ended February 29, 2020, gross research and development expenses totaled $28.2 million, or 21.9% of sales, compared to $31.4
million, or 21.9% of sales, for the same period last year.
Second quarter review
In the second quarter of fiscal 2020, our gross research and development expenses slightly increased $0.2 million compared to the same period last
year.
In the second quarter of fiscal 2020, 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.
However, in the second quarter of fiscal 2020, the adoption of IFRS 16 had a positive effect of $0.2 million, or 0.3% of sales on our gross research
and development expenses year-over-year.
In addition, in the second quarter of fiscal 2019, we incurred restructuring charges of $0.5 million, or 0.6% of sales (nil in 2020).
In the second quarter of fiscal 2020, our gross research and development expenses amounted to 26.0% of sales, 6.9% higher than 19.1% of sales in the
same period last year, mainly due to the decrease in sales year-over-year as these expenses tend to be fixed in the short term.
First half review
In the first half of fiscal 2020, our gross research and development expenses decreased $3.2 million compared to the same period last year.
In the first half of fiscal 2019, we incurred restructuring charges of $2.5 million (1.8% of sales) compared to nil in 2020.
In addition, in the first half of fiscal 2020, the adoption of IFRS 16 had a positive effect of $0.4 million, or 0.3% of sales on our gross research
and development expenses year-over-year.
Finally, in the first half of fiscal 2020, we had the full impact of our 2018 restructuring plan, which reduced our gross research and development
expenses year-over-year.
Otherwise, in the first half of fiscal 2020, inflation and salary increases contributed to raise our gross research and development expenses
year-over-year.
DEPRECIATION OF LEASE RIGHT-OF-USE ASSETS
On September 1, 2019, following the adoption of IFRS 16, we recorded $11.3 million for lease right-of-use (ROU) assets in the consolidated balance
sheet. These assets are depreciated over the lease terms and resulted in a depreciation expense of $0.9 million and $1.7 million during the three months and the six months ended February 29, 2020 respectively, compared to nil
for the same periods last year, as fiscal 2019 comparative figures were not adjusted. Upon the adoption of IFRS 16, the lease expense, previously recorded under the cost of sales, selling and administrative expenses and net
research and development expenses line items is now mainly recorded under depreciation expenses for the ROU asset in the consolidated statements of earnings.
This new standard was adopted using the modified retrospective method and, accordingly, comparative figures were not adjusted.
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 29, 2020, amortization of intangible assets amounted to $1.7 million compared to $2.1 million for the same
period last year.
For the six months ended February 29, 2020, amortization of intangible assets amounted to $3.3 million compared to $5.1 million for the same
period last year.
The year-over-year decrease in our amortization expense in the second quarter and the first half of fiscal 2020, compared to the same periods last
year, was mainly due to the fact that some acquired intangible assets became fully amortized in 2019.
FOREIGN EXCHANGE LOSS
Foreign exchange gains and losses are mainly the result of the translation of operating activities denominated in currencies other than our
functional currency, which is the Canadian dollar. A portion of our foreign exchange gains or losses results from the translation of cash balances and deferred income taxes denominated in US dollars. We manage our exposure to
currency risk in part with forward exchange contracts. In addition, some of our entities’ operating activities are denominated in US dollars, euros and British pounds, which further hedges this risk. However, we remain exposed
to a currency risk; namely, any increase in the value of the Canadian dollar compared to the US dollar would have a negative impact on our operating results.
For the three months ended February 29, 2020, we recorded a foreign exchange loss of $0.4 million, that is flat compared to the same period last
year.
For the six months ended February 29, 2020, foreign exchange loss amounted to $0.5 million compared to $0.2 million for the same period last year.
Second quarter review
During the second quarter of fiscal 2020, we witnessed some volatility in the value of the Canadian dollar as it fluctuated compared to the US
dollar, which overall resulted in a foreign exchange loss of $0.4 million. The period-end value of the Canadian dollar slightly decreased 1.0% versus the US dollar to CA$1.3428 = US$1.00 in the second quarter of fiscal 2020,
compared to CA$1.3289 = US$1.00 at the end of the previous quarter.
During the same period last year, we witnessed some volatility in the value of the Canadian dollar as it fluctuated compared to the US dollar,
which overall resulted in a foreign exchange loss of $0.4 million. The period-end value of the Canadian dollar slightly increased by 1.0% versus the US dollar to CA$1.3168 = US$1.00 in the second quarter of fiscal 2019,
compared to CA$1.3301 = US$1.00 at the end of the previous quarter.
First half review
During the first half of fiscal 2020, we witnessed some volatility in the value of the Canadian dollar as it fluctuated compared to the US dollar,
which overall resulted in a foreign exchange loss of $0.5 during the period. The period-end value of the Canadian dollar slightly decreased 1.0% versus the US dollar to CA$1.3428 = US$1.00, compared to CA$1.3294 = US$1.00 at
the end of the previous year.
During the same period, last year, we also witnessed some volatility in the value of the Canadian dollar as it fluctuated compared to the US
dollar, which overall resulted in a foreign exchange loss of $0.2 during the period. The period-end value of the Canadian dollar slightly decreased 0.9% versus the US dollar to CA$1.3168 = US$1.00, compared to CA$1.3055 =
US$1.00 at the end of the previous year.
INCOME TAXES
For the three months ended February 29, 2020, we reported income tax recovery of $1.0 million on a loss before income taxes of $10.0 million. For
the corresponding period, last year, we reported an income tax recovery of $0.4 million on earnings before income taxes of $4.8 million.
For the six months ended February 29, 2020, we reported income tax expenses of $1.7 million on a loss before income taxes of $7.4 million. For the
corresponding period, last year, we reported income tax expenses of $1.2 million on a loss before income taxes of $1.1 million.
Discrete items affecting our effective income tax rate
Fiscal 2019
During the three months ended February 28, 2019, as part of our fiscal 2018 restructuring plan and the shutdown of some of our facilities in the
United States, we transferred the ownership of certain intellectual properties held in the United States to Canada. This created a deductible tax asset in Canada and resulted in the recognition of a deferred income tax
recovery of $2.4 million during the three and six months ended February 28, 2019 as the recovery of this asset is probable.
Otherwise, our distorted tax rates for the three months and the six months ended February 28, 2019 and February 29, 2020 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 9 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 29, 2020, cash and short-term investments totaled $20.9 million, while our working capital was at $28.6 million. Our cash and
short-term investments increased by $3.3 million in the second quarter of fiscal 2020 compared to the previous quarter-end.
The following table summarizes the increase in cash and short-term investments during the second quarter of fiscal 2020 in thousands of US dollars:
Our short-term investments of $1.8 million consist of deposits issued by high-credit-quality corporations; therefore, we consider the risk of
non-performance of these financial instruments to be limited. Due to their short-term maturity, our term deposits are not expected to be affected by a significant liquidity risk. For managing our cash position, we have
established a cash management policy, which we follow and monitor on a regular basis.
We believe that our cash balances and short-term investments totaling $20.9 million, combined with our available revolving credit facilities of up
to $46.8 million, 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 $22.3 million for
foreign currency exposure related to forward exchange contracts. However, a potential 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 $7.1 million for the three months ended February 29, 2020, compared to $18.7 million for the same
period last year.
Cash flows provided by operating activities were $0.7 million for the six months ended February 29, 2020, compared to $16.2 million for the same
period last year.
Second quarter review
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.
Cash flows provided by operating activities in the second quarter of fiscal 2019 were attributable to net earnings after items not affecting cash of
$11.7 million, and the net change in non-cash operating items of $7.0 million; this was mainly due to the positive effect on cash of the $9.9 million decrease in our accounts receivable due to the timing of sales and receipts
during the quarter, the $1.0 million decrease in our income taxes and tax credits due to tax credits recovered during the quarter, and the $1.0 million decrease in inventories due to higher inventory turn. These positive
effects on cash were offset in part by the negative effect on cash of the $3.1 million decrease in our accounts payable, accrued liabilities and provisions due to the timing of purchases and payments during the quarter, and
the $1.5 million decrease in other liabilities due to payment during the quarter.
First half review
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 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.
Cash flows provided by operating activities in the first half of fiscal 2019 were attributable to the net earnings after items not affecting cash of
$12.4 million, and the positive net change in non-cash operating items of $3.9 million; this was mainly due to the positive effect on cash of the decrease of $5.8 million in our accounts receivable due to the timing of
receipts and sales during the period. This positive effect on cash was offset in part by the negative effect on cash of the $1.5 million decrease in other liabilities due to payments during the period.
Investing activities
Cash flows used by investing activities were $1.4 million for the three months ended February 29, 2020, compared to cash flows provided of $1.2
million for the same period last year.
Cash flows used by investing activities were $3.1 million for the six months ended February 29, 2020, compared to $1.3 million for the same period
last year.
Second quarter review
In the second quarter of fiscal 2020, 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.
For the corresponding period last year, we received net proceeds of $3.3 million from the sale of capital assets. However, during that quarter, we
made cash payments of $1.8 million for the purchase of capital assets and we acquired $0.3 million worth of short-term investments.
First half review
In the first half of fiscal 2020, 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.
For the corresponding period last year, we made cash payments of $4.7 million for the purchase of capital assets. However, during the period, we
received net proceeds of $3.3 million from the sale of capital assets.
Financing activities
Cash flows used by financing activities were $1.5 million for the three months ended February 29, 2020, compared to $13.3 million for the same
period last year.
Cash flows provided by financing activities were $5.1 million for the six months ended February 29, 2020, compared to cash flows used of $2.8
million for the same period last year.
In the second quarter of fiscal 2020, we repaid $1.5 million of our lease liabilities and our long-term debt.
For the corresponding period last year, our bank loan decreased by $12.5 million, we repaid $0.7 million of our long-term debt and other
liabilities, and we redeemed share capital for $0.1 million.
In the first half of fiscal 2020, 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.
For the corresponding period last year, our bank loan decreased by $1.2 million, we repaid $1.5 million of our long-term debt and other
liabilities, and we redeemed share capital for $0.1 million.
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 29, 2020 in thousands of US dollars:
In addition, as at February 29, 2020, 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 and France, the majority of
which are denominated in US dollars and euros. In addition, we are exposed to currency risk as a result of our research and development activities in India (Indian rupees). These risks are partially hedged by forward
exchange contracts. Forward exchange contracts, which are designated as cash flow hedging instruments, qualify for hedge accounting.
As at February 29, 2020, we held forward exchange contracts to sell US dollars for Canadian dollars and Indian rupees at various forward rates,
which are summarized as follows:
US dollars – Canadian dollars
US dollars – Indian rupees
The carrying amount of forward exchange contracts is equal to their fair value, which is based on the amount at which they could be settled based on
estimated current market rates. The fair value of forward exchange contracts amounted to net losses of $1.0 million as at August 31, 2019 and $1.4 million as at February 29, 2020, mainly for our US/Canadian dollar forward
exchange contracts. The quarter-end exchange rate was CA$1.3428 = US$1.00 as at February 29,
2020.
SHARE CAPITAL
As at April 7, 2020, EXFO had 31,643,000 multiple voting shares outstanding, entitling to 10 votes each and 24,016,445 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 29, 2020, we did not have interests in any structured entities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
During the three months ended February 29, 2020, to contain the spread of infection of the coronavirus, Chinese public health authorities imposed
preventive measures within affected regions including an extended shutdown of businesses, restrictions on various forms of public transportation and lockdown periods for individuals—all of which affected our factory and supply
chain. As at February 29, 2020, we reviewed critical estimates and assumptions considering the impact of the coronavirus outbreak and we believe that it had no significant impact on the measurement of assets and liabilities as
of that date.
Subsequent to the quarter-end, the coronavirus epidemic became a pandemic and most countries have been imposing ongoing constraints and preventive
measures that are affecting the global economy. The breath and duration of this pandemic is unknown and raise uncertainties that may impact the measurement of our 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, 2019, filed with the U.S. Securities and Exchange Commission and the Canadian securities commissions.
NEW IFRS PRONOUNCEMENTS
Recently Issued IFRS Pronouncements Adopted in Fiscal 2020
Leases
IFRS 16, “Leases”, was issued in January 2016. IFRS 16 sets out the
principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e., the customer (lessee) and the supplier (lessor). IFRS 16 supersedes IAS 17, “Leases”, and related interpretations. Under IFRS 16, lessees recognize a right-of-use (ROU) asset and a lease liability measured at the present value of lease payments for virtually all their leases.
Short-term leases with a term of 12 months or less are not required to be recognized. This new standard is effective for annual periods beginning on or after January 1, 2019.
We adopted this new standard on September 1, 2019, using the modified retrospective method, which did not require adjustments to comparative
periods. We applied IFRS 16 at the adoption date and recognized ROU assets and lease liabilities in the period of adoption. The new standard provides several optional practical expedients in transition. Upon implementation of
the new standard, we elected the practical expedients to combine lease and non-lease components, and to not recognize ROU assets and lease liabilities for short-term leases. We identified appropriate changes to our accounting
policies, information technology systems, business processes, and related internal controls to support recognition and disclosure requirements under IFRS 16.
The adoption of IFRS 16 on September 1, 2019 resulted in the recognition of ROU assets of $11.3 million, lease liabilities of $10.8 million, and the
elimination of prepaid rents of $0.5 million in the consolidated balance sheet as of that date. In addition, lease payments for ROU assets, previously reported in cash flow from operating activities are reported in cash flow
from financing activities in the consolidated statements of cash flows. However, the adoption of this standard had no significant impact on net loss.
Upon the adoption of IFRS 16, the lease expense, previously recorded under the cost of sales, selling and administrative expenses and net research
and development expenses line items is recorded as depreciation expenses for the ROU asset and as interest expenses on the lease liability in the consolidated statements of earnings.
Finally, the adoption of IFRS 16 had no significant impact on liquidity and debt covenant compliance under existing debt agreements.
Uncertainty over Income Tax Treatments
IFRIC 23, “Uncertainty over Income Tax Treatments”, was issued in June 2017. IFRIC 23 provides guidance
on how to value uncertain income tax positions based on the probability of whether the relevant tax authorities will accept the company's tax treatments. A company is to assume that a taxation authority with the right
to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019.
We adopted this interpretation on September 1, 2019, and its adoption had no significant impact on our consolidated financial statements.
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/expense, income taxes, depreciation and amortization, stock-based compensation costs, restructuring charges, acquisition-related deferred revenue fair value adjustment, 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
QUARTERLY SUMMARY FINANCIAL INFORMATION (1)
(tabular amounts in thousands of US dollars, except per share data)