Inscape Thursday announced its second quarter financial results ended October 31, 2018. Sales in the second quarter of fiscal year 2019 were $21.9 million, an increase of 6% compared to the same quarter of the prior year on a comparable basis when excluding prior year sales from an exited unprofitable business. Including sales from the exited business unit, sales were down 6% compared to the same quarter of the prior year.

Second Quarter Highlights:

Sales of the base business (excluding sales from an unprofitable business) increased by 6% for the second quarter of fiscal 2019 compared to the prior year
Second half of fiscal 2019 bookings have increased by 12% compared to the prior year
Gross margin for the second quarter improved to 30%, 4 points higher compared to the first quarter of fiscal 2019 driven by favourable product mix and increase in capacity utilization
SG&A as a % of sales increased to 39.5% driven by one time investments in marketing initiatives and the impact of exiting unprofitable business totalling $1.3 million which are not expected to recur. Excluding these investments, second quarter SG&A would have been 33.6% of sales
Cost saving initiatives of $1.5 million on an annualized basis have been completed thereby lowering manufacturing fixed costs. These are not yet fully reflected in the current quarter results.

“We are encouraged with the second quarter organic sales growth and margin expansion compared to the previous year. Our financial performance reflects our focussed approach to creating value via growth in our differentiated products and reducing our manufacturing costs,” said Brian Mirsky, CEO.

The second quarter of fiscal year 2019 ended with a loss of $2.4 million or 17 cents per share, compared with a net loss of $2.6 million or 18 cents per share in the same quarter of last year. Net income (loss) of both quarters included certain unrealized, non-cash expenses and one-time items that have significant impact on the net income per GAAP. With the exclusion of these items, the second quarter of fiscal 2019 had an adjusted net loss of $2.1 million, compared with adjusted net loss of $0.7 million in the same quarter of last year due to unfavourable product mix and increased investments in sales and marketing initiatives

The six month period of fiscal year 2019 ended with a net loss of $5.6 million or 39 cents per share, compared with a net income of $0.5 million or 3 cents per share for the same period of last year. Net income (loss) of both periods included certain unrealized, non-cash expenses and one-time items that have significant impact on the net income (loss) per GAAP. With the exclusion of these items, the six month period of fiscal year 2019 had an adjusted net loss of $4.6 million, compared with adjusted net loss of $1.1 million in the same period of the previous year. Unfavourable product mix, costs incurred to improve manufacturing efficiencies and incremental investments in sales and marketing initiatives contributed to the year to date loss.

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 following is a reconciliation of net income (loss) calculated in accordance with GAAP to the non-GAAP measure:

Gross profit as a percentage of sales for the second quarter of fiscal year 2019 at 30.0% was 3.9 points higher than the same quarter of the last year’s gross profit of 26.1%. Favourable product mix and exit of an unprofitable business unit improved margins.

For the six month period of fiscal year 2019 gross profit as a percentage of sales of 27.9% or 0.6 points lower than the same period of the previous year. Unfavourable product mix and costs to improve supply chain efficiencies incurred during the first quarter of fiscal 2019 contributed to the decline.

Selling, general and administrative expenses (“SG&A”) in the second quarter of fiscal year 2019 were 39.6% of sales, compared to 30.9% in the same quarter of last year. The dollar amount increased by $1.5 million compared to the same quarter of last year due to incremental investments in marketing, sales coverage and supply chain initiatives.

SG&A for the six month period of fiscal year 2019 were 38.7% of sales, compared to 32.2% in the same period of the previous year. The current six month period SG&A of $16.7 million was $1.7 million higher than the six month period of last year, mainly due to incremental investments in marketing, sales coverage and supply chain initiatives.