Inscape, a designer and manufacturer of furnishings for the workplace, Thursday announced its third quarter financial results ended January 31, 2017.
Sales in the third quarter of fiscal year 2017 of $23.4 million were 2% higher than the previous year, while net income improved to $1.8 million or 13 cents per share compared to a net loss of $2.2 million or 15 cents per share in the same quarter of the previous year. Year-to-date sales improved by 26.7%, and net income improved significantly to $1.9 million or 13 cents per share compared to a net loss of $6.6 million or 46 cents per share a year ago.
"We are pleased with our third quarter results as we continue to grow sales and earnings in a competitive environment," said Brian Mirsky, CEO. "We are making meaningful progress on the execution of our strategic plan which includes strengthening our dealer network and expanding our customer base."
Net income and loss of the reporting periods included certain unrealized, non-cash expenses and one-time items that have significant impacts on the net income and loss per GAAP. With the exclusion of these items, the third quarter of fiscal 2017 had an adjusted net income of $1.1 million, compared with adjusted net income of $0.3 million in the same quarter of last year, an improvement of $0.8 million. Year-to-date third quarter had an adjusted net income of $4.3 million, an improvement of $8.0 million from last year adjusted net loss of $3.7 million. Adjusted net income or loss 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.
The chart below is a reconciliation of net income (loss) before taxes calculated in accordance with GAAP to the non-GAAP measure of adjusted net income (loss):
Sales in the third quarter of fiscal year 2017 were $0.5 million or 2% higher than the same quarter of the previous year. The current year's quarter benefited from higher U.S. currency hedge rates than the same quarter of last year, offset by lower realized selling prices. Normalized sales, excluding the impacts of U.S. exchange and realized selling prices, were at about the same level of the previous year.
Year-to-date sales improved from last year's $59.4 million to the current year's $75.2 million, an increase of $15.9 million or 26.7%. Sales were up in all segments. The sales increase included about $6.8 million U.S. exchange gain. Sales on a normalized basis with the exclusion of the U.S. currency gain were $9.1 million or 15.3% higher than last year.
Gross profit as a percentage of sales for the third quarter of fiscal year 2017 was 30.0%, an improvement of 2.4 percentage points from the 27.6% of the same quarter of the previous year. Gains from the higher U.S. currency hedge rates and lower manufacturing overheads were partially offset by competitive pressure on selling prices.
Year-to-date gross profit percentage was at 30.6%, an increase of 6 percentage points compared to last year's gross profit percentage of 24.6%. Contributions from higher U.S. exchange rate and sales volume were reduced by pressure on realized selling prices.
Selling, general and administrative expenses ("SG&A") in the third quarter of fiscal year 2017 were 29.1% of sales, compared to 29.5% in the same quarter of last year. The dollar amount incurred was at about the same level as in the previous year. Share-based compensation included in SG&A was higher than the same quarter of last year by $1.1 million, mainly a result of 47.6% increase in the Company's share price during the quarter. The increase was offset by $0.4 million defined benefit pension plan settlement loss recorded in the same quarter of last year versus nil in the current quarter and $0.6 million one-time gains from the settlements of several customer accounts to the Company's favour.
Year-to-date SG&A was 27.0% of sales, compared to 32.5% for the same period of last year. The dollar amount incurred was $1.0 million or 5.4% higher than last year, consisting of $0.6 million variable selling expenses associated with higher sales and $0.4 million fixed overheads. The increase of $0.4 million or 2.9% in fixed SG&A consists mainly of fair value of share-based compensation, increased investments in fixed selling expenses, accrued bonuses, and severance obligation incurred in the first quarter of the year, partially offset by one-time gains from the settlements of several customer accounts to the Company's favour.
At the previous fiscal year ended April 30, 2016, the Company recorded a valuation allowance of $7.0 million to derecognize the future income tax benefit of loss carry forwards as deferred tax assets. For the nine-month period ended January 31, 2017, $1.5 million of the $7.0 million valuation allowance was utilized to reduce the Company's income tax expense.
At the end of the third quarter of fiscal 2017, the company was debt-free and had cash, cash equivalent and short-term investments totaling $10.4 million.