Inscape Corporation
TSX : INQ

Inscape Corporation

March 08, 2012 17:00 ET

Inscape Corporation Announces Third Quarter Results

HOLLAND LANDING, ONTARIO--(Marketwire - March 8, 2012) - Mr. Rod Turgeon, President and 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 third quarter ended January 31, 2012:

Inscape Corporation
Summary of Consolidated Financial Results
(Unaudited) (in thousands except EPS)
Three Months Ended January 31,
2012 2011 Change
Sales $ 20,203 $ 23,872 -15.4%
Gross margin 5,728 7,003 -18.2%
Selling, general & administrative expenses 5,155 5,984 -13.9%
Unrealized (gain) loss on foreign exchange (30 ) 12
Unrealized gain on derivatives (210 ) (375 )
Investment income (113 ) (150 )
Income before taxes 926 1,532
Income tax expense 260 446
Net income $ 666 $ 1,086
Basic and diluted earnings per share $ 0.05 $ 0.07
Weighted average number of shares (in thousands)
for basic EPS calculation 14,389 14,635
for diluted EPS calculation 14,486 14,779
Nine Months Ended January 31,
2012 2011 Change
Sales $ 61,395 $ 67,550 -9.1%
Gross margin 14,458 20,435 -29.2%
Selling, general & administrative expenses 16,791 16,387 2.5%
Unrealized (gain) loss on foreign exchange (429 ) 45
Unrealized loss (gain) on derivatives 401 (673 )
Investment income (386 ) (354 )
(Loss) Income before taxes (1,919 ) 5,030
Income tax (recovery) expense (651 ) 1,621
Net (loss) income $ (1,268 ) $ 3,409
Basic and diluted earnings per share $ (0.09 ) $ 0.23
Weighted average number of shares (in thousands)
for basic EPS calculation 14,486 14,778
for diluted EPS calculation 14,605 14,831

Commentary

"In the third quarter, revenues were down 9% in constant currency. Last year's sales benefited from a very large, highly successful project in our architectural division. Despite an increased number of projects in the quarter, we were unable to completely offset the impact of that project's completion.

We delivered operational profitability and generated cash in this quarter. Our employees continue to make improvements to our business, which is imperative as we operate in a less favourable foreign currency environment.

Our recently launched corporate branding has been well received by our partners and clients. Our innovative approach combined with even greater focus on client applications resonates with the A&D community which values our ability to integrate and tailor solutions that use best-in-class products. Inscape is well positioned to make the most of this growing market opportunity. We are on schedule with the execution of our strategy and are encouraged with progress made this quarter," said Rod Turgeon, President and CEO.

Operating Performance

The third quarter of fiscal 2012 ended with a net income of $0.7 million or 5 cents per share, compared with a net income of $1.1 million or 7 cents per share in the same quarter of last year. The drop of $0.4 million in the quarterly result was mainly attributable to the decrease in US currency hedge gain from $2.2 million in the third quarter of last year to $0.3 million in the current quarter. The adverse impact of the hedge gain was offset by $0.8 million decrease in the quarter's SG&A relating to reduced fair value of share-based compensation and lower accruals for short-term incentives.

On a year-to-date basis, the nine-month period ended on January 31, 2012 had a net loss of $1.3 million or 9 cents per share, compared to a net income of $3.4 million or 23 cents per share a-year-earlier. The decline in the financial results was mainly attributable to a significant decrease in US currency hedge gain and reduced gross margin of the year's sales mix. Last year's results included a pre-tax currency hedge gain of $5.4 million versus $1.2 million in the current year. In addition, last year benefited from a net unrealized derivative and exchange gain of $0.6 million.

Sales in the third quarter of fiscal 2012 were $20.2 million, a decline of 15.4% from the sales of $23.9 million in the same quarter of last year. Last year's third quarter reported sales included a currency hedge gain of $2.2 million, compared to the current quarter's hedge gain of $0.3 million. On a normalized currency basis, the current quarter's sales were about 9% lower than the same quarter of last year.

The year-to-date sales of $61.4 million were 9.1% below the $67.6 million reported in last year, which included a currency hedge gain of $5.4 million versus $1.2 million in the current year. On a constant dollar basis that removes the impact of hedge gains and the U.S. spot exchange rate differences, the current year-to-date sales were about 0.6% less than last year.

Gross margin as a percentage of sales in the third quarter of fiscal year 2012 fell 0.9 percentage points from last year's 29.3% to the current quarter's 28.4%, primarily due to much lower US currency hedge gains and overhead absorption, offset by better net realized prices. Last year's third quarter gross margin was reduced by 2.2 percentage points due to an accrual of $0.5 million for a workers' compensation assessment.

On a year-to-date basis, the gross margin as a percentage of sales dropped 6.8 percentage points from the prior year's 30.3% to the current year's 23.5%. Last year's gross margin included a US currency hedge gain of $5.4 million, compared to the current year's $1.2 million. About 6.2 percentage points of the drop in the gross margin resulted from the lower U.S. exchange rate and currency hedge gain. The margin was further eroded by a less favourable sales mix.

Selling, general and administrative expenses ("SG&A") in the third quarter of fiscal year 2012 were $5.2 million or 25.5% of sales, compared to $6.0 million or 25.1% of sales in the same quarter of last year. The dollar amount of SG&A was $0.8 million lower than last year. The decrease mainly consists of lower variable selling expense, reduced fair value of share-based compensation and lower accruals for short-term incentives.

Year-to-date SG&A of $16.8 million were $27.3% of sales, compared to $16.4 million or 24.3% of sales. The total expense was up by $0.4 million. The increase mainly consists of higher investments in our selling capacity and marketing resources. The increases were offset by lower expenses in the fair value of share-based compensation and accruals for short-term incentives.

At the end of the third quarter of fiscal year 2012, the Company was debt-free with cash and cash equivalents at $9.0 million and liquid short-term investments at $11.9 million.

Financial Statements

To view the financial statements, please visit the following link: http://media3.marketwire.com/docs/INQfsQ3.pdf

Conference Call

Inscape will host a conference call at 8:30 a.m. on Thursday, March 9, 2012 to discuss the Company's quarterly results. To participate, please call 1-800-694-6219. A replay of the conference call will also be available from March 9, 2012 after 10:30 a.m. until midnight on March 16, 2012. To access the rebroadcast, please dial 1-800-558-5253 (Reservation Number 21577461).

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 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

Inscape makes smart workspaces - thoughtfully designed spaces that perform beyond expectations. For over a century, we have collaborated with our clients to provide customized solutions based on their individual needs. Our meticulously engineered system, storage and wall products provide unparalleled flexibility to create unique applications at a lower cost of ownership. Easy reconfiguration and seamless integration with other products means our smart applications will work today and tomorrow. And they look fabulous.

For more information, please visit www.inscapesolutions.com.

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