Inscape Announces Second Quarter Results

Inscape (INQ.TO) today announced its second quarter financial results ended October 31, 2015.

The second quarter sales of $21.1 million demonstrated an upward trend in quarterly sales from $12.6 million in Q4 of fiscal 2015 and $15.3 million in Q1 of fiscal 2016. This represents a 66% increase from Q4 fiscal 2015.

Sales in the second quarter of fiscal year 2016 were 1.2% higher than the same quarter of the previous year that included new products under the brand name of West Elm with Inscape, which started to sell in the current quarter. Year-to-date sales of $36.4 million were 8.8% lower than the same period of last year's $39.9 million due to weakness in the first quarter compared to fiscal 2015.

"We are encouraged by the significant quarter over quarter sales performance improvement that reflects our execution of the strategic initiatives we outlined and committed to 18 months ago," said Jim Stelter, CEO. "The combination of new product launches focused on emerging work patterns and committed distribution has established the foundation for continued order and revenue growth over coming quarters. Increases in year-over-year quoting activity occurred in all segments of Inscape's systems, storage and architectural products groups, indicating continued progress in reinvigorating our organic business."

This quarter marks the initial shipment of the West Elm Workspace with Inscape products. Project wins with both large growth media/tech firms as well as smaller innovative companies confirm the market desires the products launched in partnership with West Elm. During this quarter, four new resellers joined the West Elm Workspace with Inscape distribution network, bringing the total to 15 resellers in major cities in North America. These resellers will use the company's new FIRE (Fully Integrated Resource Enterprise) technology which distinguishes Inscape from the traditional contract network with application visualization and immediate confirmation of pricing. "This quarter confirmed our strategy and intensified our commitment to challenging traditional methods in our industry," said Stelter.

Despite these positive trends, the company is experiencing some market challenges that include spending associated with strategic initiatives, pricing pressures resulting from competitive projects, and staggered onboarding of resellers. The company remains committed to initiatives underway to drive revenue growth and margin improvement over the longer term.

The second quarter of fiscal year 2016 ended with a net income of $0.6 million or 4 cents per share, compared with a net loss of $1.1 million or 7 cents per share in the same quarter of last year. The current quarter's results included an unrealized derivative gain of $1.8 million due to a decrease in derivative liabilities relating to the fair value of outstanding U.S. currency hedge contracts, whereas the same quarter of last year had an unrealized derivative loss of $1.5 million.

On a year-to-date basis, the six-month period had a net loss of $4.5 million or 31 cents per share, compared to a net loss of $0.3 million, or 2 cents per share a year ago. The current year-to-date period included a decrease of $0.3 million due to the revaluation of FX hedges and exchange. With the exclusion of the currency adjustments, the six-month period would have a net loss of $4.2 million, compared to last year's adjusted net loss of $0.1 million.

Net income or loss with the exclusion of these unrealized items is a non-GAAP measure, which does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers.

Gross profit as a percentage of sales for the second quarter of fiscal year 2016 was 24.0%, a slight decrease of 0.1 percentage points from 24.1% of the same quarter of the previous year. Benefits from higher US exchange rate and improved overheads were offset by unfavourable product mix and realized selling prices. Year-to-date gross margin percentage was 22.7%, compared to 25.4% for the same period of last year. The decrease in gross profit percentage was due to unfavourable overhead absorption with lower volume, unfavourable product mix and realized selling prices.

Selling, general and administrative expenses ("SG&A") in the second quarter of fiscal year 2016 were 29.6% of sales, compared to 24.8% in the same quarter of last year or an increase of $1.1 million ($0.2 million related to variable selling expenses for higher sales, and $0.9 million was an increase in fixed overheads for increased investment in sales initiatives and new products). Year-to-date SG&A was 34.4% of sales, compared to 25.6% for the same period of last year or an increase of $2.3 million. The higher SG&A amount spent was mainly attributable to increased investments in sales initiatives, West Elm with Inscape start-up costs, new products and higher non-recurring health care expenses.

At the end of the second quarter of fiscal year 2016, the company was debt-free with cash and cash equivalents totaling $7.6 million.