SOUTHAMPTON, Pa., Jan. 06, 2023 (GLOBE NEWSWIRE) — Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended November 26, 2023 (the “2023 third quarter”) and the thirty-nine week period ended November 26, 2023 (the “2023 first three quarters”).
Robert L. Laurent, Jr., ETC’s Chief Executive Officer and President stated, “Although our financial results are not where we would like them to be, we are pleased with the year-over-year improvement that should continue with the addition of the three contracts awarded near the end of the 2023 third quarter increasing our sales backlog to over $21 million to close the quarter.”
Fiscal 2023 Third Quarter Results of Operations
Net Loss Attributable to ETC
Net loss attributable to ETC was $1.0 million, or $0.07 diluted loss per share, in the 2023 third quarter, compared to $1.8 million during the 2023 third quarter, equating to $0.12 diluted loss per share. The $0.8 million improvement is due to the combined effect of a $0.7 million increase in gross profit and a $0.2 million increase in other income, net, offset, in part, by a $0.1 million increase in operating expenses.
Net Sales
Net sales in the 2023 third quarter were $4.4 million, an increase of $1.1 million, or 33.9%, compared to 2023 third quarter net sales of $3.3 million. The increase reflects higher International sales within the Aerospace segment; however, net sales were negatively impacted in both the 2023 third quarter and the 2023 third quarter due to the combination of a lower backlog entering fiscal 2023 compounded with the ongoing effects of the COVID-19 global pandemic, which has impacted the Company’s ability to generate bookings, especially internationally.
Gross Profit
Gross profit for the 2023 third quarter was $0.7 million compared to $5 thousand in the 2023 third quarter, an increase of $0.7 million. The increase in gross profit was due primarily to higher sales, particularly International sales within the Aerospace segment. Gross profit margin as a percentage of net sales increased to 16.0% for the 2023 third quarter compared to 0.2% for the 2023 third quarter.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2023 third quarter were $1.7 million, an increase of $0.1 million, or 4.6%, compared to $1.6 million for the 2023 third quarter. The increase in operating expenses was due primarily to an increase in selling and marketing expenses correlating to higher sales.
Other (Income) Expense, Net
Other income, net for the 2023 third quarter was $142 thousand compared to other expense, net of $52 thousand for the 2023 third quarter, a variance of $0.2 million due primarily to COVID-19 subsidies received by ETC-PZL and realized exchange gains on foreign currency.
Fiscal 2023 First Three Quarters Results of Operations
Net Loss Attributable to ETC
Net loss attributable to ETC was $0.1 million, or $0.03 diluted loss per share, in the 2023 first three quarters, compared to $5.1 million during the 2023 first three quarters, equating to $0.35 diluted loss per share. The $5.0 million improvement is due to the combined effect of a $2.5 million increase in other income, net, a $1.8 million increase in gross profit, and a $0.7 million decrease in operating expenses.
Net Sales
Net sales in the 2023 first three quarters were $14.9 million, an increase of $2.3 million, or 18.5%, compared to 2023 first three quarters net sales of $12.6 million. The increase in net sales was due primarily to an increase in sales of Sterilizers, particularly to Domestic customers; however, net sales were negatively impacted in both the 2023 first three quarters and the 2023 first three quarters due to the combination of a lower backlog entering fiscal 2023 compounded with the ongoing effects of the COVID-19 global pandemic, which not only impacted the Company’s ability to generate bookings, especially internationally, but also forced the closure of the Company’s corporate headquarters and main production plant for about one-third of the 2023 first quarter in accordance with Pennsylvania state mandates.
Gross Profit
Gross profit for the 2023 first three quarters was $3.1 million compared to $1.3 million in the 2023 first three quarters, an increase of $1.8 million, or 138.7%. The increase in gross profit was due to the combined effect of an increase in net sales and an increase in gross profit margin. Gross profit margin as a percentage of net sales increased to 20.8% for the 2023 first three quarters compared to 10.3% for the 2023 first three quarters primarily due to higher International sales within the Aerospace segment, which traditionally produce our highest margins. The lower gross profit margin in the 2023 first three quarters was a result of the lower net sales noted above not being able to support fixed overhead expenses.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2023 first three quarters were $5.2 million, a decrease of $0.7 million, or 11.1%, compared to $5.9 million for the 2023 first three quarters. The decrease in operating expenses was due primarily to ETC-PZL, who generated both lower general and administrative expenses and lower research and development expenses, for which there was an increase in offsetting reimbursements for research work performed internationally under government grant programs, offset, in part, by an increase in selling and marketing expenses correlating to higher sales.
Other (Income) Expense, Net
Other income, net for the 2023 first three quarters was $2.5 million compared to other expense, net of $40 thousand for the 2023 first three quarters, an increase of $2.5 million due almost entirely from accounting for the forgiveness of Paycheck Protection Program (the “PPP”) loan.
Cash Flows from Operating, Investing, and Financing Activities
During the 2023 first three quarters, due primarily from a decrease in contract assets, offset, in part, by an increase in prepaid expenses and other current assets, the Company was provided $2.1 million of cash from operating activities compared to using $0.5 million during the 2023 first three quarters. Under Accounting Standards Codification (“ASC”) 606, these accounts represent the timing differences of spending on production activities versus the billing of customer payments.
Cash used for investing activities primarily relates to funds used for capital expenditures of equipment and software development. The Company’s investing activities used $138 thousand during the 2023 first three quarters compared to $78 thousand during the 2023 first three quarters.
The Company’s financing activities used $2.6 million of cash during the 2023 first three quarters for repayments under the Company’s credit facilities compared to providing $20 thousand of cash during the 2023 first three quarters with proceeds from the PPP loan, offset by repayments under the Company’s credit facilities.
About ETC
ETC was incorporated in 1969 in Pennsylvania. For over five decades, we have provided our customers with products, services, and support. Innovation, continuous technological improvement and enhancement, and product quality are core values that are critical to our success. We are a significant supplier and innovator in the following areas: (i) software driven products and services used to create and monitor the physiological effects of flight, including high performance jet tactical flight simulation, fixed and rotary wing upset prevention and recovery and spatial disorientation, and both suborbital and orbital commercial human spaceflight, collectively, Aircrew Training Systems (“ATS”); (ii) altitude (hypobaric) chambers; (iii) hyperbaric chambers for multiple persons (multiplace chambers); (iv) Advanced Disaster Management Simulators (“ADMS”); (v) steam and gas (ethylene oxide) sterilizers; and (vi) environmental testing and simulation systems (“ETSS”).
We operate in two primary business segments, Aerospace Solutions (“Aerospace”) and Commercial/ Industrial Systems (“CIS”). Aerospace encompasses the design, manufacture, and sale of: (i) ATS products; (ii) altitude (hypobaric) chambers; (iii) hyperbaric chambers for multiple persons (multiplace chambers); and (iv) ADMS, as well as integrated logistics support (“ILS”) for customers who purchase these products or similar products manufactured by other parties. These products and services provide customers with an offering of comprehensive solutions for improved readiness and reduced operational costs. Sales of our Aerospace products are made principally to U.S. and foreign government agencies and to civil aviation organizations. CIS encompasses the design, manufacture, and sale of: (i) steam and gas (ethylene oxide) sterilizers; and (ii) ETSS; as well as parts and service support for customers who purchase these products or similar products manufactured by other parties. We sell our sterilizers to medical device manufacturers, pharmaceutical manufacturers, and universities. We sell ETSS primarily to commercial automotive and heating, ventilation, and air conditioning (“HVAC”) manufacturers.
ETC-PZL Aerospace Industries Sp. z o.o. (“ETC-PZL”), our 95%-owned subsidiary in Warsaw, Poland, is currently our only operating subsidiary. ETC-PZL manufactures certain simulators and provides software to support products manufactured domestically within our Aerospace segment.
The majority of our net sales are generated from long-term contracts with U.S. and foreign government agencies (including foreign military sales (“FMS”) contracted through the U.S. Government) for the research, design, development, manufacture, integration, and sustainment of ATS products, including altitude (hypobaric) and multiplace chambers (“Chambers”), and the simulators manufactured and sold through ETC-PZL, collectively, Aeromedical Training Solutions. The Company also enters into long-term contracts with domestic customers for the sale of sterilizers and ETSS. Net sales of ADMS are generally much shorter term in nature and vary between domestic and international customers. We generally provide our products and services under fixed-price contracts.
ETC’s unique ability to offer complete systems, designed and produced to high technical standards, sets it apart from its competition. ETC is headquartered in Southampton, PA. For more information about ETC, visit http://www.etcusa.com/.
Forward-looking Statements
This news release contains forward-looking statements, which are based on management’s expectations and are subject to uncertainties and changes in circumstances. Words and expressions reflecting something other than historical fact are intended to identify forward-looking statements, and these statements may include words such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “future”, “predict”, “potential”, “intend”, or “continue”, and similar expressions. We base our forward-looking statements on our current expectations and projections about future events or future financial performance. Our forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about ETC and its subsidiaries that may cause actual results to be materially different from any future results implied by these forward-looking statements. We caution you not to place undue reliance on these forward-looking statements.
| Contact: | Mark Prudenti, CFO |
| Phone: | (215) 355-9100 x1531 |
| E-mail: | [email protected] |
– Financial Tables Follow –
| Table A | ||||||||||||||
| ENVIRONMENTAL TECTONICS CORPORATION | ||||||||||||||
| SUMMARY TABLE OF RESULTS | ||||||||||||||
| (in thousands, except per share information) | ||||||||||||||
| Thirteen weeks ended | Variance | |||||||||||||
| 26-Nov-21 | 27-Nov-20 | $ | % | |||||||||||
| Net sales | $ | 4,427 | $ | 3,305 | $ | 1,122 | 33.9 | |||||||
| Cost of goods sold | 3,720 | 3,300 | 420 | 12.7 | ||||||||||
| Gross profit | 707 | 5 | 702 | 14040.0 | ||||||||||
| Gross profit margin % | 16.0% | 0.2% | 15.8% | 7900.0% | ||||||||||
| Operating expenses | 1,658 | 1,585 | 73 | 4.6 | ||||||||||
| Operating loss | (951) | (1,580) | 629 | -39.8 | ||||||||||
| Operating margin % | -21.5% | -47.8% | 26.3% | -55.0% | ||||||||||
| Interest expense, net | 127 | 170 | (43) | -25.3 | ||||||||||
| Other (income) expense, net | (142) | 52 | (194) | |||||||||||
| Loss before income taxes | (936) | (1,802) | 866 | -48.1 | ||||||||||
| Pre-tax margin % | -21.1% | -54.5% | 33.4% | -61.3% | ||||||||||
| Income tax provision | 20 | 20 | – | 0.0 | ||||||||||
| Net loss | (956) | (1,822) | 866 | -47.5 | ||||||||||
| (Income) loss attributable to non-controlling interest | (8) | 26 | (34) | |||||||||||
| Net loss attributable to ETC | (964) | (1,796) | 832 | -46.3 | ||||||||||
| Preferred Stock dividends | (121) | (121) | – | 0.0 | ||||||||||
| Loss attributable to common and participating shareholders |
$ | (1,085) | $ | (1,917) | $ | 832 | -43.4 | |||||||
| Per share information: | ||||||||||||||
| Basic earnings (loss) per common and participating share: | ||||||||||||||
| Distributed earnings per share: | ||||||||||||||
| Common | $ | – | $ | – | $ | – | ||||||||
| Preferred | $ | 0.02 | $ | 0.02 | $ | – | 0.0 | |||||||
| Undistributed loss per share: | ||||||||||||||
| Common | $ | (0.07) | $ | (0.12) | $ | 0.05 | -41.7 | |||||||
| Preferred | $ | (0.07) | $ | (0.12) | $ | 0.05 | -41.7 | |||||||
| Diluted loss per share | $ | (0.07) | $ | (0.12) | $ | 0.05 | -41.7 | |||||||
| Total basic weighted average common and participating shares |
15,569 | 15,569 | ||||||||||||
| Total diluted weighted average shares | 15,569 | 15,569 | ||||||||||||
| Table B | ||||||||||||||
| ENVIRONMENTAL TECTONICS CORPORATION | ||||||||||||||
| SUMMARY TABLE OF RESULTS | ||||||||||||||
| (in thousands, except per share information) | ||||||||||||||
| Thirty-nine weeks ended | Variance | |||||||||||||
| 26-Nov-21 | 27-Nov-20 | $ | % | |||||||||||
| Net sales | $ | 14,893 | $ | 12,573 | $ | 2,320 | 18.5 | |||||||
| Cost of goods sold | 11,790 | 11,273 | 517 | 4.6 | ||||||||||
| Gross profit | 3,103 | 1,300 | 1,803 | 138.7 | ||||||||||
| Gross profit margin % | 20.8% | 10.3% | 10.5% | 101.9% | ||||||||||
| Operating expenses | 5,243 | 5,899 | (656) | -11.1 | ||||||||||
| Operating loss | (2,140) | (4,599) | 2,459 | -53.5 | ||||||||||
| Operating margin % | -14.4% | -36.6% | 22.2% | -60.7 | ||||||||||
| Interest expense, net | 416 | 507 | (91) | -17.9 | ||||||||||
| Other (income) expense, net | (2,472) | 40 | (2,512) | |||||||||||
| Loss before income taxes | (84) | (5,146) | 5,062 | -98.4 | ||||||||||
| Pre-tax margin % | -0.6% | -40.9% | 40.3% | -98.5% | ||||||||||
| Income tax provision | 60 | 60 | – | 0.0 | ||||||||||
| Net loss | (144) | (5,206) | 5,062 | -97.2 | ||||||||||
| Loss attributable to non-controlling interest | 3 | 63 | (60) | -95.2 | ||||||||||
| Net loss attributable to ETC | (141) | (5,143) | 5,002 | -97.3 | ||||||||||
| Preferred Stock dividends | (363) | (363) | – | 0.0 | ||||||||||
| Loss attributable to common and participating shareholders |
$ | (504) | $ | (5,506) | $ | 5,002 | -90.8 | |||||||
| Per share information: | ||||||||||||||
| Basic earnings (loss) per common and participating share: | ||||||||||||||
| Distributed earnings per share: | ||||||||||||||
| Common | $ | – | $ | – | $ | – | ||||||||
| Preferred | $ | 0.06 | $ | 0.06 | $ | – | 0.0 | |||||||
| Undistributed loss per share: | ||||||||||||||
| Common | $ | (0.03) | $ | (0.35) | $ | 0.32 | -91.4 | |||||||
| Preferred | $ | (0.03) | $ | (0.35) | $ | 0.32 | -91.4 | |||||||
| Diluted loss per share | $ | (0.03) | $ | (0.35) | $ | 0.32 | -91.4 | |||||||
| Total basic weighted average common and participating shares |
15,569 | 15,569 | ||||||||||||
| Total diluted weighted average shares | 15,569 | 15,569 | ||||||||||||
| Table C | |||||||||||||||
| ENVIRONMENTAL TECTONICS CORPORATION | |||||||||||||||
| OTHER SELECTED FINANCIAL HIGHLIGHTS | |||||||||||||||
| (amounts in thousands) | |||||||||||||||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||||
| 26-Nov-21 | 27-Nov-20 | 26-Nov-21 | 27-Nov-20 | ||||||||||||
| EBITDA * | $ | (489 | ) | $ | (1,324 | ) | $ | 1,292 | $ | (3,726 | ) | ||||
| As of | |||||||||||||||
| 26-Nov-21 | 26-Feb-21 | ||||||||||||||
| Working capital | $ | (8,345 | ) | $ | 10,032 | ||||||||||
| Total shareholders’ deficit | $ | (274 | ) | $ | (76 | ) | |||||||||
* In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), we also disclose Earnings Before Income Taxes, Depreciation, and Amortization (“EBITDA”). The presentation of a non-U.S. GAAP financial measure such as EBITDA is intended to enhance the usefulness of financial information by providing a measure that management uses internally to evaluate our expenses and operating performance and factors into several of our financial covenant calculations.
A reader may find this item important in evaluating our performance. Management compensates for the limitations of using non-U.S. GAAP financial measures by using them only to supplement our U.S. GAAP results to provide a more complete understanding of the factors and trends affecting our business.
