Inscape Announces First Quarter 2023 Financial Results
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 first quarter ended July 31, 2022.
“First quarter fiscal 2023 sales did not meet our expectations, despite the year over year improvement of 12.7%. Gross margins were unacceptable as a result. Certain investments in sales and marketing resources as well as expenses related to our continuing cost reduction initiatives are not yet evident in our financial results.“ said Eric Ehgoetz, CEO.
Total sales revenue for the first quarter of fiscal 2023 was $8.9 million, compared to $7.9 million for the same period of fiscal 2022. The improvement in the quarter, related largely to a major contract in the Walls business. Net loss for the first quarter of fiscal 2023 was $6.2 million or negative $0.43 per diluted share, compared to net loss of $3.4 million or negative $0.24 per diluted share for fiscal 2022. The decline was due to a lower gross margin, and an increase in selling and marketing expenses to drive sales growth. Non- GAAP adjusted EBITDA for the first quarter was negative $5.0 million, compared to negative $3.3 million, for fiscal 2022.
First Quarter Financial Highlights
(All comparisons are relative to the three-month period ended July 31, 2021 unless otherwise stated):
- Sales of $8.9 million, an improvement of 12.7%
- Gross profit margin of 4.0%, with gross profit of $0.4 million, versus gross profit margin of 7%, with gross profit of $0.6 million
- Selling, general and administrative (SG&A) expenses of $6.3 million, an increase of $1.7 million:
- Additional expenses of $1.2 million for participation in industry marketing events, and investment in sales and marketing talent to drive business growth
- One-time expenses of $0.5 million comprised a consultancy cost for an ERP upgrade, and exit costs related to a planned lease termination
- There was no government subsidy in the current quarter, compared to $1.4 million for prior year
- EBITDA of negative $4.7 million, compared to EBITDA of negative $2.3 million
- Adjusted EBITDA of negative $5.0 million, compared to adjusted EBITDA of negative $3.3 million
- Total cash, cash equivalents and restricted cash of $6.1 million versus $11.5 million as at April 30, 2022
Sales in the first quarter of fiscal 2023 were 12.7% higher than the same quarter of the previous year, representing an increase of 40.7% in the Walls segment and 3.1% in the Furniture segment. In addition, the positive impact of the price increase instituted early in April began to take effect and is expected to be fully realized in later quarters. The additional investments in sales and marketing are expected to drive an upward sales trend.
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.
Gross profit margin was 4.0% for the first quarter of fiscal year 2023 compared to 7.7% for the same period last year. This decline was mainly due to fuel surcharges, higher commodity prices, and new lease expenses related to the Holland Landing plant. The Company implemented price increases in April 2022 to offset the increased costs and improve future profit margin.
SG&A expenses for the quarter was 71.6% of sales, compared to 59.6% for the same quarter of last year. Increased sales and marketing costs of $1.2 million in the current quarter are consistent with the Company’s strategy to rebuild its sales and marketing teams, and promote initiatives to drive sales growth. These costs are, for the most part, salaries and benefits for new hires, travel, and participation in an industry trade show. One-time costs include increased professional fees of $0.2 million as part of the upgrade to the enterprise resource planning (ERP) software system and accelerated depreciation costs of $0.3 million related to exit of a lease. The SG&A expenses relative to sales is expected to decline as the Company’s goal of improved sales is realized and certain non-recurring expenses cease.
At the end of the quarter, the Company had cash, cash equivalents and restricted cash of $6.1 million, of which restricted cash accounted for $0.3 million. During the quarter the Company negotiated new arrangements for its foreign exchange forward contracts which resulted in the release of USD$2.25 million of collateral security. Management continues to review and implement measures for the continued recovery of the Company’s business lines.
The full text of Inscape’s 1Q23 earnings release, including tables, and financial statements are available at https://myinscape.com/investors/.
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 U.S. 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
