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Q3 2009 Inscape Corporation Earnings Conference Call - Final.

Article Excerpt
OPERATOR: Ladies and gentlemen, thank you for standing by. Welcome to the third quarter results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Friday, March 13, 2009.

I would now like to turn the conference over to Peter Brunelle, CEO of Inscape Corporation. Please go ahead, sir.

PETER BRUNELLE, CEO, INSCAPE CORPORATION: Thank you, operator, and good morning everyone. I'll open our call with a few introductory remarks and then turn things over to Kent for a detailed review of our financial results. Our third quarter sales represented our best performance of the current fiscal year and we are slightly above sales from the comparable quarter last year. For the first nine months, our sales trailed the prior year by 10% after the negative impact of foreign currency adjustments. When measured in local currency basis sales were roughly 7.5% less than the prior year, which is roughly in-line with the overall contraction and demand experienced by our industry over this same timeframe. Margins for the quarter and year-to-date reflect a negative impact of material cost inflation, primarily related to steel which represents our largest material input cost. Margins have also significant deleverage versus the prior year as a result of lower overhead absorption related to the lower sales volume.

Operating expenses for the quarter and year reflect necessary investments we have made to support the launch of the new award winning products debuted earlier in the fiscal year. Much of this expenditure, of course, is made in advance of actual product sales into the market and this timing difference, combined with the lower sales volume, has resulted in a deleveraging of total operating expenses relative to the prior year. Despite the overall increase in operating expenses, the underlying story is one of disciplined management of our general and admin expense categories, where spending is in fact running below the prior year in order to help offset as best as possible the incremental sales, marketing and product launch related costs. Undoubtedly the need for renewed vigor in terms of addressing our cost structure is warranted in light of the economic turmoil impacting much of the world economy and our industry.

The key drivers of industry demand, specifically corporate profitability, white collar employment and new commercial construction, are all severely contracting. And our industry trade association, BIFMA, in conjunction with the economic research firm Global Insight, has revised industry forecast downwards to reflect a contraction of roughly 20% in calendar year 2009. As a result, we undertook a number of cost rationalization efforts aimed at eliminating fixed costs to better align with the anticipated industry demand contraction, while at the same time remaining mindful of the need to preserve our ability to serve customers with the high standard of quality and reliability they have come to expect. These steps included the elimination of a number of salaried staff, a variety of salary reductions or salary freezes and the elimination of a number of discretionary fixed costs.

As we have stated in previous calls, our balance sheet remains strong with no debt and a strong cash balance, which gives us the latitude to navigate through the significant short-term challenges the economy and the industry will face. This position also provides us with the ability to quickly seize opportunities which may become available...

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