Inscape (TSX: INQ), a leading designer and manufacturer of
furnishings and movable wall systems for the workplace, today
announced its results of operations for the three and nine months
ended January 31, 2022.
“Third quarter fiscal 2022 sales levels
represented our second successive quarter over quarter sales
improvement since the beginning of the fiscal year. While
these reported sales levels to date are not yet satisfactory or
adequate to sustain the business over the long term, we see these
increasing sales levels as evidence of a recovery from the depths
of decline brought about by the pandemic and exacerbated by related
supply chain challenges. Sales pipeline levels continue to
show improving activity levels / conversion, and align with the
various indicators of a strengthening US economy. Management
continues to execute additional initiatives that will further lower
our breakeven sales level so that the anticipated acceleration in
sales volumes will result in an improved level of profitability and
a stronger financial profile.”said Eric Ehgoetz, CEO.
Net income after taxes for the third quarter of
fiscal 2022 of $4.8 million or 34 cents per share compared to net
loss of $1.0 million or negative 7 cents per share resulting from
extraordinary gains derived from the substantial completion of
management’s initiative to sell real properties. During the
quarter, the Company completed the sale and leaseback of its
Holland Landing property, realizing net gains of $13.0 million.
Non-GAAP Adjusted EBITDA for the third quarter was negative $2.9
million, compared to negative $1.2 million, for fiscal 2021.
Net loss after taxes for the nine months ended
January 31, 2022, was $1.2 million or negative 8 cents per diluted
share, compared to net loss of $1.4 million or negative 10 cents
per diluted share for fiscal 2021. The marginally improved
performance in the current fiscal period was largely driven by an
extraordinary gain of $13.0 million from disposal of the Holland
Landing property, partially offset by deferred tax expenses of $3.5
million, lower sales revenues of $2.4 million and a net decrease in
other non-operating income of $6.9 million. Non-GAAP Adjusted
EBITDA for the nine months ended January 31, 2022 was negative $8.4
million, compared to negative $5.0 million, for fiscal 2021.
Total sales revenue for the third quarter of
fiscal 2022 was $10.2 million, compared to $11.6 million for the
same period of fiscal 2021. The reduction in the current
quarter related primarily to the impact of supply chain
disruptions, which limited the availability of height adjustable
bases and medium density fibre board, and negatively impacted the
Company’s ability to fulfill orders. During the quarter, Walls
sales were relatively flat, while Furniture sales declined by 15.3%
over the same quarter of prior year.
Total sales revenue for the nine months ended
January 31, 2022 was $27.7 million, compared to $30.2 million for
the same period of fiscal 2021. Sales volumes for the period were
relatively flat compared to the same period of the prior year due
to a slower-than-expected North American economic recovery, supply
chain disruptions which were more pronounced in this fiscal year
than the prior period and the effects of a strengthened Canadian
dollar on the Company’s primarily US dollar denominated
sales.
Third Quarter Financial Highlights(All comparisons are relative
to the three-month period ended January 31, 2021 unless otherwise
stated.)
- Total cash on hand as of January 31, 2022 was $14.6 million
versus $0.9 million for last quarter (October 31, 2021), and $3.7
million for prior fiscal year-end close
- EBITDA of positive $9.6 million, compared to EBITDA of negative
$4.0 thousand
- Adjusted EBITDA of negative $2.9 million, compared to adjusted
EBITDA of negative $1.2 million
- Net income before taxes of $8.3 million compared to net loss
before taxes of $1.0 million
- Total sales of $10.2 million, a decrease of 12.2%
- Gross profit margin of 14.4%, with gross profit down by $1.2
million, versus gross profit margin of 22.9%
- Non-operating income of $12.0 million due to the gain of $13.0
million from the sale of the Holland Landing property, versus $1.2
million
- Inventory was $4.6 million, compared to $5.0 million last
quarter, a decrease of $0.4 million
Third Quarter Year-to-Date Financial Highlights(All comparisons
are relative to the nine-month period ended January 31, 2021 unless
otherwise stated.)
- The Company fully repaid and terminated the revolving credit
facility with its lender; as of January 31, 2022 the Company had no
outstanding loans or debt
- EBITDA of positive $5.8 million, compared to EBITDA of positive
$1.7 million
- Adjusted EBITDA of negative $8.4 million, compared to adjusted
EBITDA of negative $5.0 million
- Net income before taxes of $2.3 million compared to net loss
before taxes of $1.4 million
- Total sales of $27.7 million, a decrease of 8.0%
- Gross profit margin of 15.4%, with gross profit down by $2.0
million, versus gross profit margin of 21.0%
- Government assistance from subsidies of $2.0 million, compared
to $3.4 million.
- Gain on disposal of $13.0 million, compared to $0.2
million
Inscape CorporationSummary of Interim
Condensed Consolidated Financial Results(in thousands except
EPS)
| |
Three Months Ended January 31, |
|
| |
2022 |
|
|
2021 |
|
|
Sales |
$ |
10,208 |
|
|
$ |
11,625 |
|
| Gross profit |
|
1,470 |
|
|
|
2,658 |
|
| Selling, general & administrative expenses(i) |
|
5,114 |
|
|
|
4,849 |
|
| Unrealized gain (loss) on foreign exchange |
|
143 |
|
|
|
(184 |
) |
| Other expense (income) |
|
1 |
|
|
|
(610 |
) |
| Unrealized loss (gain) on derivatives |
|
265 |
|
|
|
(159 |
) |
| Gain on sale of PP&E and intangible assets |
|
(12,985 |
) |
|
|
(232 |
) |
| Interest expense |
|
585 |
|
|
|
- |
|
| Stock-based compensation(i) |
|
42 |
|
|
|
(3 |
) |
| Severance obligation(i) |
|
- |
|
|
|
13 |
|
|
Net income (loss) before taxes |
$ |
8,305 |
|
|
$ |
(1,016 |
) |
| Income tax
expense |
|
3,467 |
|
|
|
22 |
|
| Net income (loss) |
$ |
4,838 |
|
|
$ |
(1,038 |
) |
| |
|
|
|
|
| Basic and diluted income (loss) per share |
$ |
0.34 |
|
|
$ |
(0.07 |
) |
| Weighted average number of shares: |
|
|
|
|
|
for basic EPS calculation |
|
14,381 |
|
|
|
14,381 |
|
|
for diluted EPS calculation |
|
14,415 |
|
|
|
14,381 |
|
| |
Nine Months
Ended January 31, |
|
| |
2022 |
|
|
2021 |
|
|
Sales |
$ |
27,749 |
|
|
$ |
30,152 |
|
| Gross profit |
|
4,284 |
|
|
|
6,320 |
|
| Selling, general & administrative expenses(i) |
|
14,739 |
|
|
|
14,368 |
|
| Unrealized (gain) loss on foreign exchange |
|
(35 |
) |
|
|
111 |
|
| Other income – government grant |
|
(1,977 |
) |
|
|
(3,392 |
) |
| Unrealized loss (gain) on derivatives |
|
661 |
|
|
|
(3,416 |
) |
| Gain on sale of PP&E and intangible assets |
|
(12,985 |
) |
|
|
(232 |
) |
| Interest expense (income) |
|
1,394 |
|
|
|
(1 |
) |
| Stock-based compensation(i) |
|
164 |
|
|
|
199 |
|
| Severance obligation(i) |
|
24 |
|
|
|
44 |
|
|
Net income (loss) before taxes |
$ |
2,299 |
|
|
$ |
(1,361 |
) |
| Income tax
expense |
|
3,470 |
|
|
|
29 |
|
| Net loss |
$ |
(1,171 |
) |
|
$ |
(1,390 |
) |
| |
|
|
|
|
| Basic and diluted loss per share |
$ |
(0.08 |
) |
|
$ |
(0.10 |
) |
| Weighted average number of shares: |
|
|
|
|
|
for basic EPS calculation |
|
14,381 |
|
|
|
14,381 |
|
|
for diluted EPS calculation |
|
14,381 |
|
|
|
14,381 |
|
(i) Stock-based compensation and severance obligations are
displayed separately from selling, general and administrative
(SG&A) expenses for the purpose of these tables.
Adjusted net loss and adjusted EBITDA are
non-GAAP measures, which do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to
similar measures presented by other issuers.
The following is a reconciliation of net income
(loss) before taxes calculated in accordance with GAAP to adjusted
net loss before taxes, the non-GAAP measure:
|
|
Three Months EndedJanuary 31, |
|
Nine Months EndedJanuary 31, |
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Net income (loss) before taxes |
$ |
8,305 |
|
$ |
(1,016 |
) |
$ |
2,299 |
|
$ |
(1,361 |
) |
|
Adjust non-operating or unusual items: |
|
|
|
|
|
Unrealized loss (gain) on derivatives |
|
265 |
|
|
(159 |
) |
|
661 |
|
|
(3,416 |
) |
|
Unrealized loss (gain) on foreign exchange |
|
143 |
|
|
(184 |
) |
|
(35 |
) |
|
111 |
|
|
Gain on disposal of PP&E & intangibles |
|
(12,985 |
) |
|
(232 |
) |
|
(12,985 |
) |
|
(232 |
) |
|
Other expense (income) – government grant |
|
1 |
|
|
(610 |
) |
|
(1,977 |
) |
|
(3,392 |
) |
|
Stock-based compensation |
|
42 |
|
|
(3 |
) |
|
164 |
|
|
199 |
|
|
Severance obligation |
|
- |
|
|
13 |
|
|
24 |
|
|
44 |
|
|
Adjusted net loss before taxes |
$ |
(4,229 |
) |
$ |
(2,191 |
) |
$ |
(11,849 |
) |
$ |
(8,047 |
) |
The following is a reconciliation of net income
(loss) before taxes calculated in accordance with GAAP to EBITDA
and adjusted EBITDA, the non-GAAP measures:
|
|
Three Months EndedJanuary
31, |
|
Nine Months EndedJanuary 31, |
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
2021 |
|
|
Net income (loss) before taxes |
$ |
8,305 |
|
$ |
(1,016 |
) |
$ |
2,299 |
|
$ |
(1,361 |
) |
|
Interest |
|
585 |
|
|
- |
|
|
1,394 |
|
|
(1 |
) |
|
Depreciation |
|
371 |
|
|
492 |
|
|
1,143 |
|
|
1,476 |
|
|
Amortization |
|
343 |
|
|
520 |
|
|
933 |
|
|
1,578 |
|
|
EBITDA |
$ |
9,604 |
|
$ |
(4 |
) |
$ |
5,769 |
|
$ |
1,692 |
|
|
Adjust non-operating or unusual items: |
|
|
|
|
Unrealized loss (gain) on derivatives |
$ |
265 |
|
$ |
(159 |
) |
$ |
661 |
|
$ |
(3,416 |
) |
|
Unrealized loss (gain) on foreign exchange |
|
143 |
|
|
(184 |
) |
|
(35 |
) |
|
111 |
|
|
Gain on disposal of PP&E & intangibles |
|
(12,985 |
) |
|
(232 |
) |
|
(12,985 |
) |
|
(232 |
) |
|
Other expense (income) – government grant |
|
1 |
|
|
(610 |
) |
|
(1,977 |
) |
|
(3,392 |
) |
|
Stock-based compensation |
|
42 |
|
|
(3 |
) |
|
164 |
|
|
199 |
|
|
Severance obligation |
|
- |
|
|
13 |
|
|
24 |
|
|
44 |
|
|
Adjusted EBITDA |
$ |
(2,930 |
) |
$ |
(1,179 |
) |
$ |
(8,379 |
) |
$ |
(4,994 |
) |
Gross profit margin as a percentage of sales was
14.4% for the third quarter of fiscal year 2022, a significant
decrease of 850 basis points over the 22.9% for the same period
last year. This declined margin was a result of lower
sales, as noted previously, and inventory write-downs during the
period. The Company continues to identify initiatives to achieve
cost efficiencies and improve margins as sales levels improve.
For the nine months ended January 31, 2022,
gross profit margin, as a percentage of sales was 15.4%, a decline
of 560 basis points from the 21.0% for the same period last year.
This was primarily attributed to the impact of unfavourable
exchange rates on the Company’s US denominated sales and lower
sales generally, for the reasons mentioned above.
SG&A expenses for the three and nine months
ended January 31, 2022, were 50.5% and 53.8% of sales, compared to
41.8% and 48.5% for the same periods of last year. The total
SG&A expenses for the three and nine months ended January 31,
2022, were relatively flat with the comparative period, due to the
high fixed cost component of the SG&A expenses. However, lower
sales values in the current fiscal accounted for the deteriorating
percentages.
Net non-operating income for the three-month period was nearly
ten times higher and for the nine-month period 86.8% higher than
the comparative periods in prior year. This is primarily attributed
to the gain realized from sale of the Holland Landing property in
the current quarter.
At the end of the quarter, the Company had cash
totaling $14.6 million, restricted cash of $3.2 million set as
collateral security for certain derivative financial instruments,
$2.7 million in long-term deposits held under lease agreements
(other assets) and no outstanding loan or debt balances.
Holland Landing Sale and Leaseback
Transaction
On January 25, 2022, the Company completed a
sale and leaseback of the land and buildings (“the property”) at 67
Toll Road in Holland Landing, Ontario to a third party. The
property, which was included in assets held for sale immediately
prior to sale, had a carrying value of $5.2 million. The
leaseback resulted in the recognition of right-of-use assets of
$2.7 million and lease liabilities of $16.7 million. The
right-of-use assets value reflects the proportion of the property,
plant and equipment retained for a period of ten years, with two
five-year extension periods. The lease liability reflects the net
present value of future lease payments. The sale generated cash
proceeds of $32.8 million and resulted in a net gain of $13.0
million.
The Company used part of the proceeds received
to settle and fully repay all of its debt obligations under its
authorized credit facility which was then terminated, with the
remainder available to support the Company’s continued operations.
The Board of Directors (the Board) will continue to assess
alternative uses of excess cash, including but not limited to,
potential share buybacks, cash dividends, merger and acquisition
opportunities and capital expenditures. Management and the Board
remain committed to putting the Company back on solid sustainable
footing and creating future stakeholder value.
Financial Statements
Financial statements are available from our
website as of this press release.
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
Since 1888, Inscape has been designing products
and services that are focused on the future, so businesses can
adapt and evolve without investing in their workspaces all
over again. Our versatile portfolio includes systems furniture,
storage, and walls – all of which are adaptable and built to
last. Inscape’s wide dealer network, showrooms in the United
States and Canada, along with full service and support for all of
our clients, enables us to stand out from the crowd. We make it
simple. We make it smart. We make our clients wonder why they
didn’t choose us sooner.
For more information, visit www.myinscape.com
Contact
Jon Szczur, CPA, CMAChief Financial Officer
Inscape Corporation
T 905 952 4102
jszczur@myinscape.com
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