Inscape Corporation
TSX : INQ

Inscape Corporation

June 23, 2011 16:51 ET

Inscape Corporation Announces Sales and Profit Increases for Fiscal Year 2011

HOLLAND LANDING, ONTARIO--(Marketwire - June 23, 2011) - Mr. Madan Bhayana, Chief Executive Officer of Inscape (TSX:INQ), a leading designer and manufacturer of innovative solutions for today's constantly evolving workplace, offering a range of award winning products, including office furniture systems, filing and storage, desking, casegoods and architectural, announces the following financial results for the fourth quarter and fiscal year ended April 30, 2011:

Inscape Corporation
Summary of Consolidated Financial Results
(Unaudited) (in thousands except EPS)
Three Months Ended April 30,
20112010Change
Sales$19,855$17,71912.1%
Gross margin5,1335,253-2.3%
Selling, general & administrative expenses5,6875,4005.3%
Unrealized loss on foreign exchange216107
Unrealized gain on derivatives(408)(200)
Interest income(171)(174)
(Loss) income before taxes(191)120
Income tax expense (recovery)15(121)
Net (loss) income$(206)$241
Basic and diluted earnings per share$(0.01)$0.02
Weighted average number of shares (in thousands)
for basic EPS calculation14,60915,097
for diluted EPS calculation14,75315,097
Years Ended April 30,
20112010Change
Sales$87,405$71,12922.9%
Gross margin25,26618,94833.3%
Selling, general & administrative expenses22,10320,2998.9%
Unrealized loss on foreign exchange365730
Unrealized gain on derivatives(1,081)(200)
Interest income(525)(586)
Income (Loss) before taxes4,404(1,295)
Income tax expense (recovery)1,549(206)
Net income (loss)$2,855$(1,089)
Basic and diluted earnings per share$0.19$(0.07)
Weighted average number of shares (in thousands)
for basic EPS calculation14,72115,097
for diluted EPS calculation14,79115,132

Commentary and Outlook

"We are pleased with the financial results of the fiscal year 2011, which ended with earnings of 19 cents per share, compared with a loss of 7 cents per share a-year-ago," announced Madan Bhayana, Chairman and CEO. "Despite the challenge of heightening pressure on pricing, the Company's project business recorded substantial gains in the current year. Our annual sales grew 22.9%, the gross margin rose 33.3% and the operations generated a cash inflow of $7.9 million before net changes in working capital.

"While the financial results of fiscal year 2011 were very encouraging, we are conscious of the serious challenges ahead of us due to the uncertainty in the U.S. economic recovery and the strong Canadian dollar. The Company has been effective in improving productivity and costs in the past few years. The success of the Company rests on our ability to further penetrate our target markets and expand our top line in order to be profitable in a strong Canadian dollar environment. We are optimistic that the introduction of the highly differentiated Inscape System and the promotion of our truly integrated product solutions will have a positive impact on sales. We have also increased investments in selling capacity, marketing resources and product development. We expect that fiscal year 2012 will be a transition year when we will continue to increase our long-term investments in these areas.

"Based on the existing back-log on hand, we expect that the sales for the first quarter of fiscal year 2012 to be similar to the fourth quarter of fiscal year 2011 and higher than the first quarter of fiscal year 2011."

Operating Performance

The fourth quarter of fiscal year 2011 had a net loss of $0.2 million, compared to a net income of $0.2 million in the same quarter of last year. The reduced gross margin percentage coupled with higher investment in fixed selling expenses contributed to the net loss for the quarter.

Fiscal year 2011 ended with a net income of $2.9 million, compared to the net loss of $1.1 million in fiscal year 2010. The year's financial results included a U.S. currency hedge gain of $7.3 million before taxes. The growth in sales volume, increase in contribution margin and the currency hedge gain were the main contributors to increased net income. Without the benefit of the currency hedge gain, it is estimated that the year would have had a net loss of about $1.0 million.

Sales in the fourth quarter of fiscal 2011 were $19.9 million, an increase of 12.1% from sales of $17.7 million in the same quarter of last year. On a normalized currency basis, the current quarter's sales were 18.3% higher than the same quarter of last year.

For the twelve-month period ended April 30, 2011, sales increased 22.9% from last year's $71.1 million to the current year's $87.4 million. On a normalized currency basis, sales of fiscal 2011 were up by 24.3%. The current year's reported sales included a U.S. currency hedge gain of $7.3 million, which absorbed most of the currency loss resulting from a 5.6% drop in the average U.S. dollar exchange rate from last year. Sales and cost of sales in the fourth quarter and the twelve-month period of last year were adjusted and increased by $0.5 million and $1.8 million respectively as a result of a reclassification of revenues relating to installation, which had been net against installation expenses and included in the cost of sales in prior periods. As the favorable rate U.S. dollar forward contracts had all been settled in the current year, the U.S. dollar sales in fiscal year 2012 will be predominately exposed to the U.S. spot exchange rate.

Gross margin as a percentage of sales in the fourth quarter was 25.9%, compared to last year's 29.6%. Despite an increase in the quarter's sales volume compared with the same quarter in the prior year, the current quarter's gross margin was hurt by a steeper decline in the U.S. exchange rate, project pricing and above average expense.

On an annual basis, gross margin increased 230 basis points from last year's 26.6% to the current year's 28.9%. As disclosed in the note of the Consolidated Financial Statements on contingent liability, the current year's cost of goods sold included an accrual of $0.5 million for a claim from the New York State Workers' Compensation Board. The accrual reduced the year's gross margin by 0.6 percentage points. The significant growth in fiscal 2011 sales and improvements in variable production costs were the main reasons for the improved gross margin percentage, which was partially reduced by pressure on pricing and the contingent liability.

Selling, general and administrative expenses ("SG&A") in the fourth quarter were 28.6% of sales, compared to 30.5% in the same quarter of last year. In terms of dollar amount, SG&A expense during the current quarter was $0.3 million higher than the same quarter of last year mainly because of increased investments in fixed selling expenses.

The annual SG&A expense was 25.3% of sales in fiscal 2011 versus 28.5% in fiscal 2010. The dollar amount spent was $1.8 million over last year mainly as a result of investments in fixed selling and marketing expenses for the future growth of the Company.

Financial Statements

To view the financial statements, please visit the following link: http://media3.marketwire.com/docs/inq0623q4statements.pdf.

Conference Call

Inscape will host a conference call at 8:30 a.m. on Friday, June 24, 2011 to discuss the Company's quarterly and annual results and to provide additional outlook on the next quarter. To participate, please call 1-800-681-8606. A replay of the conference call will also be available from Friday, June 24, 2011 after 10:30 a.m. until midnight on July 1, 2011. To access the rebroadcast, please dial 1-800-558-5253 (Reservation Number 21527122).

Forward-Looking Statements

Certain of the above statements are forward-looking statements that involve risks and uncertainties. Actual results could differ materially as a result of many factors including, but not limited to, further changes in market conditions and changes or delays in anticipated product demand. In addition, future results may also differ materially as a result of many factors, including: fluctuations in the Company's operating results due to product demand arising from competitive and general economic and business conditions in North America; length of sales cycles; significant fluctuations in international exchange rates, particularly the U.S. dollar exchange rate; restrictions in access to the U.S. market; changes in the Company's markets, including technology changes and competitive new product introductions; pricing pressures; dependence on key personnel; and other factors set forth in the Company's Ontario Securities Commission reports and filings.

About Inscape

Inscape Corporation is a leading designer and manufacturer of innovative solutions for today's constantly evolving workplace, offering a range of award winning products, including office furniture systems, filing and storage, desking, casegoods and architectural products. Inscape's products are designed to integrate together and create unique product solutions to meet the needs of today's multi-generational workforce. Production occurs at two facilities in Canada and the United States in approximately 438,000 square feet of space. Headquartered in Holland Landing, Ontario, Canada, Inscape serves its customers through a network of authorized dealers. For more information, please visit www.inscapesolutions.com.

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