Inscape Corporation
TSX : INQ

Inscape Corporation

December 02, 2010 16:30 ET

Inscape Corporation Announces Strong Second Quarter Results

HOLLAND LANDING, ONTARIO--(Marketwire - Dec. 2, 2010) - Mr. Madan Bhayana, Chief Executive Officer of Inscape (TSX:INQ), a leading designer, manufacturer and marketer of office systems, storage and architectural wall solutions for commercial office environments, announces the following financial results for the second quarter ended October 31, 2010:

Inscape Corporation  
Summary of Consolidated Financial Results  
(Unaudited) (in thousands except EPS)  
   
Three Months Ended October 31,          
    2010     2009       Change  
   
Sales $ 25,066   $ 16,783   49.4 %
Gross margin   7,818     4,093   91.0 %
Selling, general & administrative expenses 5,605     4,812   16.5 %
Unrealized loss on foreign exchange   30     9          
Unrealized gain on derivatives   (146 )   -          
Interest income   (67 )   (153 )        
Income (Loss) before taxes   2,396     (575 )        
Income tax expenses (recovery)   845     (100 )        
Net Income (loss) $ 1,551   $ (475 )        
   
Basic and diluted earnings per share $ 0.11   $ (0.03 )        
   
Weighted average number of shares (in thousands)                  
for basic EPS calculation   14,654     15,097          
for diluted EPS calculation   14,741     15,097          
   
  Six Months Ended October 31,          
    2010     2009       Change  
   
Sales $ 42,760   $ 34,180   25.1 %
Gross margin   13,242     8,480   56.2 %
Selling, general & administrative expenses 10,449     9,758   7.1 %
Unrealized loss on foreign exchange   27     581          
Unrealized gain on derivatives   (298 )   -          
Interest income   (204 )   (245 )        
Income (Loss) before taxes   3,268     (1,614 )        
Income taxes (recovery)   1,111     (177 )        
Net income (loss) $ 2,157   $ (1,437 )        
   
Basic and diluted earnings per share $ 0.15   $ (0.10 )        
   
Weighted average number of shares (in thousands)                  
for basic EPS calculation   14,849     15,097          
for diluted EPS calculation   14,862     15,100          

Commentary and Outlook

"The second quarter of fiscal year 2011 was a success in terms of our financial results and the advancement of our strategic initiatives" announced Madan Bhayana, Chairman and CEO. "The significant increases in sales levels reflect the momentum Inscape is gaining in terms of customers recognizing the effectiveness of our flexible, creative product solutions. While the market overall rebounded to some extent, our outstanding results reflect a combination of substantial project volume from both existing accounts and a number of projects from new customers.

Financially, we are encouraged by the sales and profitability of the quarter. The sales gained 41.7% from the first quarter of fiscal 2011 and grew 49.4% from the same quarter of fiscal 2010. Despite the competitive pressure on realized selling prices, earnings per share were the highest since the final quarter of fiscal year 2008. This quarter's profitability reflected our improved operating efficiencies and the benefits of overhead absorption due to much higher sales levels.

While we are pleased with the interim financial results, I am mindful of the fact that the quarterly and year-to-date profits included a significant amount of gains from US currency hedge contracts, without which the second quarter would have a pre-tax income of about half a million while the year-to-date six month period would be breakeven. For the remainder of this fiscal year we maintain a strong cash flow hedge position; however, continued expectations for a strong Canadian dollar versus the US should be factored in when projecting our future sales and profitability results.

I am equally pleased with the substantial progress made towards implementing our strategic initiatives that were designed to ensure our solutions are considered more frequently by the Architect and Design influencers and end-user customers. We have added sales leadership and business development personnel in our key markets. Our organization structure has been modified to ensure we have the greatest possible alignment of resources towards demonstrating the value of our solutions and the capabilities of our organization.

Finally we are encouraged by the continued receptiveness and appreciation of our products. During the quarter, Inscape's Planna Private Office Solution was honoured with a Bronze 2010 IIDEX/NeoCon Canada Innovation Award as recognition of the product's design. Planna Private Office is a versatile, cost effective and highly adaptable product that can be applied to open plan desking and benching, reception, touch down and collaborative work areas.

Based on existing back-log of large projects on hand, I expect that the sales for the third quarter of fiscal year 2011 to be slightly below the second quarter of this year and materially higher than the third quarter of the prior year."

Operating Performance

The second quarter of fiscal year 2011 ended on October 31, 2010 had a net income of $1.6 million or 11 cents per share, compared with a net loss of $0.5 million or 3 cents per share in the same quarter of last fiscal year. The improvement in the quarterly net income was attributable to the 49.4% jump in sales from last year's $16.8 million to the current quarter's $25.1 million, which generated a 91.0% increase in gross margin from $4.1 million to $7.8 million. The current quarter's sales included a US currency hedge gain of $1.7 million while the sales for the same quarter of last year included a hedge gain of $0.5 million. Net income for the current quarter would be about $0.4 million without the currency hedge gain.

On a year-to-date basis, the six-month period ended on October 31, 2010 had a net income of $2.2 million or 15 cents per share, compared with a net loss of $1.4 million or 10 cents per share. The year-over- year sales were up 25.2% from $34.2 million to $42.8 million, while gross margin grew 56.2% from $8.5 million to $13.2 million. The year-to-date sales included a US currency hedge gain of $3.3 million for fiscal 2011 and $0.4 million for fiscal 2010. The current year-to-date results would be about breakeven without the currency hedge gain.

At the end of the second quarter of fiscal year 2011, the Company had cash and cash equivalents of $4.6 million and liquid short-term investments of $14.7 million.

Sales in the second quarter of fiscal 2011 were $25.1 million, an increase of 49.4% from the $16.8 million recorded in the same quarter of last year. Sales in the year-to-date six-month period rose 25.1% from last year's $34.2 million to the current year's $42.8 million. Despite a 6.3% decline in the average US dollar exchange rate over the six-month period, the losses in currency translation were partially mitigated by the gains realized in currency hedge contracts. The sales in the second quarter of fiscal 2011 included hedge gains totalling $1.7 million, compared to the total hedge gains of $0.5 million in the same quarter of fiscal 2010. The sales results in the six-month period included total hedge gains of $3.3 million versus a net gain of $0.4 million in the prior year.

On a constant dollar basis that eliminates the impacts of the U.S. dollar exchange rate fluctuations; year-over-year sales advanced 49.2% on a quarterly basis and increased 23.6% on a year-to-date basis. The increase sales can be attributed to an increased number of projects; as well as, some larger sized project. The Company expects that the US currency hedge gains and selling price pressure will continue to affect our reported sales for the rest of this fiscal year.

Gross margin as a percentage of sales in the second quarter of fiscal year 2011 was 31.2%, compared to last year's 24.4%. For the six-month period, the gross margin rate also jumped from last year's 24.8% to the current year's 31.0%, a 6.2 percentage point improvement. The gains in the gross margin rates were attributable to the favourable overhead absorption due to much higher volumes and continued manufacturing improvements. The gains were partially eroded by lower realized selling prices.

Selling, general and administrative expenses ("SG&A") in the second quarter of fiscal year 2011 were 22.4% of sales, compared to 28.4% in the same quarter of last year. The six-month period SG&A rate dropped from last year's 28.5% to the current year's 24.4% 24.4% mainly as a result of higher sales. The increase of $0.7 million in SG&A in the six-month period was attributable to investments in various sales, marketing and promotional initiatives.

Normal course issuer bid

In September 2010 the Company received approval from TSX to launch a one-year share buy-back program - Normal Course Issuer Bid ("NCIB"). Under the NCIB, over a twelve month period ending in September 2011, the Company can repurchase for cancellation from the market up to a maximum of 465,481 Class B subordinated voting shares at prevailing market prices. The purpose of the NCIB is to reduce the public float of the shares to enhance shareholder value. As at December 2, 2010, 17,433 Class B subordinated voting shares have been repurchased at prevailing market prices.

Financial Statements

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

Conference Call

Inscape will host a conference call at 8:30 a.m. on Friday, December 3, 2010 to discuss the Company's quarterly results and to provide additional outlook on the next quarter. To participate, please call 1-800-952-4629. A replay of the conference call will also be available from Friday, December 3, 2010 after 10:30 a.m. until midnight on December 10, 2010. To access the rebroadcast, please dial 1-800-558-5253 (Reservation Number 21488885).

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, manufacturer and marketer of office systems, storage and architectural wall solutions for commercial office environments. Headquartered in Holland Landing, Ontario, the company has offices and production facilities in Canada and the United States totalling approximately 438,000 square feet and serves customers through a network of authorized dealers. For more information, please visit www.inscapesolutions.com.

Contact Information

  • Inscape Corporation
    Kent Smallwood CA
    Chief Financial Officer
    905-836-7676
    905-836-5037 (FAX)