INQ INSCAPE Corporation

Inscape (TSX: INQ), a leading designer and manufacturer of furnishings for the workplace, today announced its results of operations for the three and nine months ended January 31, 2021.

“Third Quarter Fiscal Year 2021 represented our highest quarterly revenue to date in this fiscal year while in the midst of the COVID-19 pandemic,” said Eric Ehgoetz, CEO. “Management worked tirelessly during the quarter to position the business with an appropriate foundation for growth and profitability once the economy moves to a post-pandemic environment. Despite reporting a nine month year to date net loss of $1.4 million, we would note that, this includes $1.4 million of inventory write-downs during the fiscal year reflecting management’s efforts to properly manage inventory levels and working capital. Since the beginning of the fiscal year, management has reduced inventory by $2.2 million and is actively monitoring optimal inventory levels and mix. During the quarter, the Company also successfully executed the preparation of our furniture plant for new capital equipment arriving in Q4 which will materially improve its efficiency and also executed on the move of our Walls factory to a new location with an appropriate footprint designed to lower overheads. Both of these actions will begin to be reflected in our results in our fourth quarter. Management also implemented a number of initiatives designed to improve the Company’s sales pipeline and reach. Furthermore, we continue to focus on rapid payback initiatives and adoption of new technologies to improve the operations of the business for the eventual return of a more normal economic environment.”

Total sales for the third quarter of fiscal 2021 were $11.6 million, compared to $17.4 million for the same period of fiscal 2020. Net loss for the third quarter of fiscal 2021 was $1.0 million or negative $0.07 per diluted share, compared to net income of $0.1 million or positive $0.01 per diluted share for fiscal 2020. Non-GAAP EBITDA for the third quarter was negative $4 thousand, compared to positive $1.0 million, for fiscal 2020.         Total sales for the nine months ended January 31, 2021 were $30.2 million, compared to $61.4 million for the same period of fiscal 2020. The nine month period ended with a net loss of $1.4 million or negative $0.10 per diluted share, compared to a net loss of $0.2 million or negative $0.01 per diluted share for fiscal 2020. Non-GAAP EBITDA for the nine months ended January 31, 2021 was $1.7 million, compared to $2.4 million for fiscal 2020.

Third Quarter Financial Highlights

(All comparisons are relative to the three month period ended January 31, 2020 unless otherwise stated):

• EBITDA of ($4) thousand, compared to EBITDA of $1.0 million
• Adjusted EBITDA of ($1.2) million, compared to adjusted EBITDA of ($0.7) million
• Net loss before taxes of $1.0 million compared to net income before taxes of $0.1 million. This quarter’s results were lower than the comparative period mainly due to lower sales volume as a result of the COVID-19 pandemic
• Gross profit margin of 22.9%, with gross profit down by $1.7 million, versus gross profit margin of 25.2%
• Inventory of $3.7 million, a decrease of $2.2 million, versus $6.0 million
• Inventory write-downs of $0.3 million for the three month period
• Gross profit margin of 25.6%, excluding inventory write-downs of $0.3 million
• EBITDA of $0.3 million, excluding inventory write-down of $0.3 million
• Adjusted EBITDA of ($0.9) million, excluding inventory write-down of $0.3 million
• Total sales of $11.6 million, a decrease of 33.1%
• SG&A expenses of $4.9 million, a decrease of $1.2 million versus $6.1 million due to lower selling expenses from reduced sales volume
• Cash of $1.2 million with additional borrowing capacity of $3.0 million, versus $5.9 million in cash with additional borrowing base of $4.5 million as at April 30, 2020
• Government assistance from subsidies of $0.6 million
• Subsequent to the quarter, the Company received additional funds of US $1.4 million under the SBA loan program and received notification that the first tranche of the SBA loan has been forgiven

Third Quarter Year-to-Date Financial Highlights

(All comparisons are relative to the nine month period ended January 31, 2020 unless otherwise stated):

• EBITDA of $1.7 million, compared to EBITDA of $2.4 million
• Adjusted EBITDA of ($5.0) million, compared to adjusted EBITDA of ($0.3) million
• Net loss before taxes of ($1.4) million, compared to net loss before taxes of ($0.2) million
• Gross profit margin of 21.0%, with gross profit down by $10.6 million, versus gross profit margin of 27.6%
• Inventory write-downs of $1.4 million for the nine month period
• Gross profit margin of 25.4%, excluding inventory write-downs of $1.4 million
• EBITDA of $3.0 million, excluding inventory write-down of $1.4 million
• Adjusted EBITDA of ($3.6) million, excluding inventory write-down of $1.4 million
• Total sales of $30.2 million, a decrease of 50.9%
• SG&A expenses of $14.6 million, a decrease of $5.2 million versus $19.8 million due to less selling expenses resulting from lower sales volume
• Government assistance from subsidies (including the forgivable loan) of $3.4 million

Inscape CorporationSummary of Interim Condensed Consolidated Financial Results (in thousands except EPS)

	Three Months Ended January 31,
		2021				2020
Sales	$	11,625			$	17,376
Gross profit		2,658				4,371
Selling, general & administrative expenses(i)		4,849				5,962
Unrealized (gain) loss on foreign exchange		(184	)			9
Other income – government grant		(610	)			-
Unrealized gain on derivatives		(159	)			(6	)
Gain on disposal of PP&E and intangibles		(232	)			(1,821	)
Stock-based compensation(i)		(3	)			73
Severance obligation(i)		13				12
Net (loss) income before taxes	$	(1,016	)		$	142
Income taxes		22				-
Net (loss) income	$	(1,038	)		$	142
Basic and diluted (loss) income per share	$	(0.07	)		$	0.01
Weighted average number of shares (in thousands)
for basic EPS calculation		14,381				14,381
for diluted EPS calculation		14,381				14,381

	Nine Months Ended January 31,
		2021				2020
Sales	$	30,152			$	61,375
Gross profit		6,320				16,914
Selling, general & administrative expenses(i)		14,368				19,796
Unrealized loss on foreign exchange		111				65
Other income – government grant		(3,392	)			-
Unrealized gain on derivatives		(3,416	)			(1,038	)
Gain on disposal of PP&E and intangibles		(232	)			(1,769	)
Investment income		(1	)			(7	)
Stock-based compensation(i)		199				(277	)
Severance obligation(i)		44				298
Loss before taxes	$	(1,361	)		$	(154	)
Income taxes		29				56
Net loss	$	(1,390	)		$	(210	)
Basic and diluted loss per share	$	(0.10	)		$	(0.01	)
Weighted average number of shares (in thousands)
for basic EPS calculation		14,381				14,381
for diluted EPS calculation		14,381				14,381

(i) Stock-based compensation and severance obligations were displayed separately from selling, general and administrative (SG&A) expenses for the purpose of these tables.

Sales for the three and nine months ended January 31, 2021 were 33.1% and 50.9% lower than the same periods of the previous year due to the economic impact of the COVID-19 pandemic (“COVID-19”), which resulted in lower Furniture sales of 21.2% and 48.6% and lower Walls sales of 62.6% and 57.1%, respectively.

Adjusted net (loss) income 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 (loss) income calculated in accordance with GAAP to adjusted net (loss) income before taxes, the non-GAAP measure:

	Three Months Ended January 31,
(in thousands)	2021			2020
Net (loss) income before taxes	$	(1,016	)	$	142
Adjust non-operating or unusual items:
Unrealized gain on derivatives		(159	)		(6	)
Unrealized (gain) loss on foreign exchange		(184	)		9
Gain on disposal of PP&E and intangibles		(232	)		(1,821	)
Other income – government grant		(610	)		-
Stock-based compensation		(3	)		73
Severance obligation		13			12
Adjusted net loss before taxes	$	(2,191	)	$	(1,591	)

	Nine Months Ended January 31,
(in thousands)	2021			2020
Net loss before taxes	$	(1,361	)	$	(154	)
Adjust non-operating or unusual items:
Unrealized gain on derivatives		(3,416	)		(1,038	)
Unrealized loss on foreign exchange		111			65
Gain on disposal of PP&E and intangibles		(232	)		(1,769	)
Other income – government grant		(3,392	)		-
Stock based compensation		199			(277	)
Severance obligation		44			298
Adjusted net loss before taxes	$	(8,047	)	$	(2,875	)

The following is a reconciliation of net (loss) income before taxes calculated in accordance with GAAP to EBITDA and adjusted EBITDA, the non-GAAP measures:

	Three Months Ended January 31,
(in thousands)	2021			2020
Net (loss) income before taxes	$	(1,016	)	$	142
Depreciation		492			504
Amortization		520			349
EBITDA	$	(4	)	$	995
Adjust non-operating or unusual items:
Unrealized gain on derivatives	$	(159	)	$	(6	)
Unrealized (gain) loss on foreign exchange		(184	)		9
Gain on disposal of PP&E and intangibles		(232	)		(1,821	)
Other income – government grant		(610	)		-
Stock-based compensation		(3	)		73
Severance obligation		13			12
Adjusted EBITDA	$	(1,179	)	$	(738	)

	Nine Months Ended January 31,
(in thousands)	2021			2020
Net loss before taxes	$	(1,361	)	$	(154	)
Interest		(1	)		(7	)
Depreciation		1,476			1,556
Amortization		1,578			984
EBITDA	$	1,692		$	2,379
Adjust non-operating or unusual items:
Unrealized gain on derivatives	$	(3,416	)	$	(1,038	)
Unrealized loss on foreign exchange		111			65
Gain on disposal of PP&E and intangibles		(232	)		(1,769	)
Other income – government grant		(3,392	)		-
Stock-based compensation		199			(277	)
Severance obligation		44			298
Adjusted EBITDA	$	(4,994	)	$	(342	)

Gross profit margin for the three and nine months ended January 31, 2021 decreased by 2.3 and 6.6 percentage points, respectively, over the same periods last year as a result of the lower sales volume due to COVID-19. In addition, for the three and nine months ended January 31, 2021, excess inventory totaling $0.3 million and $1.4 million, respectively, relating to discontinued product lines and obsolescence were written off during the periods. The Company continues to identify initiatives to achieve cost efficiencies and improved margins as sales levels return to normal. Gross profit margins without the effects of these excess inventory write-downs would have been 25.6% and 25.4% for the three and nine months ended January 31, 2021, respectively.

SG&A for the three and nine months ended January 31, 2021 were 41.8% and 48.5% of sales, compared to 34.8% and 32.3% for the same periods of last year. The $1.2 million and $5.2 million decrease in SG&A in the respective periods, resulted from workforce reductions, decrease in marketing initiatives and lower selling, travel and entertainment expenses. Cumulatively, these actions are largely the results of measures adopted by management to manage cost during COVID-19. In the current fiscal, the lower sales volumes impacted the overall higher SG&A to sales ratios.

At the end of the quarter, the Company had cash totaling $1.2 million, no debt and an unused credit facility with borrowing availability of $3.0 million based on the new credit terms.

Financial StatementsFinancial statements are available from our website as of this press release.

Third Quarter Call DetailsInscape will host a conference call at 8:30 AM EST on Friday, March 5, 2021 to discuss the Company’s quarterly results. To participate, please call 1-800-915-4731 about 10 - 15 minutes before the start time. A replay of the conference call will also be available from March 5, 2021 after 10:30 AM EST until 11:59 PM EDT on April 4, 2021. To access the rebroadcast, please dial 1-800-558-5253 (Reservation Number 21991597).

Fourth Quarter Fiscal 2021 Financial ResultsInscape Corporation intends to release its full fourth quarter financial results later than we have historically done as a precautionary measure to allow more time due to COVID-19. The Company is anticipating releasing its entire fourth quarter results after the close of business on Thursday, July 15, 2021.

Forward-looking StatementsCertain 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 InscapeSince 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