ETC Announces Fiscal 2022 Second Quarter Results

SOUTHAMPTON, Pa., Oct. 08, 2021 (GLOBE NEWSWIRE) -- Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended August 27, 2021 (the “2022 second quarter”) and the twenty-six week period ended August 27, 2021 (the “2022 first half”).

Robert L. Laurent, Jr., ETC’s Chief Executive Officer and President stated, “While our revenues have not quite rebounded to pre-pandemic levels, we are pleased that our operating cost management efforts have allowed us to minimize our losses the best we can during these challenging times.”

Fiscal 2022 Second Quarter Results of Operations

Net Loss Attributable to ETC
Net loss attributable to ETC was $1.4 million, or $0.10 diluted loss per share, in the 2022 second quarter, compared to $1.7 million during the 2021 second quarter, equating to $0.12 diluted loss per share. The $0.3 million variance is due to the combined effect of a $0.5 million decrease in operating expenses, offset, in part, by a $0.1 million decrease in gross profit and a $0.1 million increase in other expense, net.

Net Sales
Net sales for both the 2022 second quarter and the 2021 second quarter were $4.4 million. Although net sales remained flat, there was a shift in sales within Aeromedical Training Solutions from U.S. Government to International. There were also decreases in Simulation and ETSS sales to International customers that were offset by an increase in Domestic Sterilizers sales. Net sales were negatively impacted in both the 2022 second quarter and the 2021 second quarter due to the combination of a lower backlog entering fiscal 2021 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 2022 second quarter was $0.7 million compared to $0.8 million in the 2021 second quarter, a decrease of $0.1 million, or 6.7%. The decrease in gross profit was due primarily to the slight shift in net sales from Aerospace Solutions to CIS. Gross profit margin as a percentage of net sales decreased to 16.5% for the 2022 second quarter compared to 17.8% for the 2021 second quarter.

Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2022 second quarter were $1.8 million, a decrease of $0.5 million, or 19.7%, compared to $2.3 million for the 2021 second quarter. The decrease in operating expenses was due primarily to lower research and development expenses, for which there was an increase in offsetting reimbursements for research work performed internationally under government grant programs. There was also a decrease in general and administrative expenses due primarily to a reduction in legal fees now that the claim litigation pertaining to a firm fixed-price contract dated June 14, 2010 to build a suite of research altitude chambers at the Wright-Patterson Air Force Base (the "RAC Contract”) has been settled, which was offset, in part, by a slight increase in selling and marketing expenses due to increase commission and travel related expenses.

Other Expense, Net
Other expense, net for the 2022 second quarter was $79 thousand compared to $5 thousand for the 2021 second quarter, an increase of $0.1 million due primarily to higher letter of credit fees and realized exchange losses on foreign currency.

Fiscal 2022 First Half Results of Operations

Net Income (Loss) Attributable to ETC
Net income attributable to ETC was $0.8 million, or $0.04 diluted earnings per share, in the 2022 first half, compared to $3.3 million during the 2021 first half, equating to $0.23 diluted loss per share. The $4.1 million variance is due to the combined effect of a $2.3 million increase in other income, net, a $1.1 million increase in gross profit, and a $0.7 million decrease in operating expenses.

Net Sales
Net sales in the 2022 first half were $10.5 million, an increase of $1.2 million, or 12.9%, compared to 2021 first half net sales of $9.3 million. The increase in net sales was due primarily to an increase in sales of Sterilizers to Domestic customers, offset, in part, by a decrease in U.S. Government sales within Aeromedical Training Solutions in conjunction with the U.S. Air Force’s final acceptance of the RAC Contract during the 2021 first half, which represented about one-fourth of total net sales during that period. Net sales were negatively impacted in both the 2022 first half and the 2021 first half due to the combination of a lower backlog entering fiscal 2021 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 2021 first quarter in accordance with Pennsylvania state mandates.

Gross Profit
Gross profit for the 2022 first half was $2.4 million compared to $1.3 million in the 2021 first half, an increase of $1.1 million, or 85.0%. 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 22.9% for the 2022 first half compared to 14.0% for the 2021 first half primarily due to the recognition in net sales of approximately $3.0 million, or 28.3% of total 2022 first half net sales and 49.1% of the $6.0 million International Aeromedical Training Solutions order, which traditionally produce our highest margins, received during the 2022 first quarter. The lower gross profit margin in the 2021 first half 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 2022 first half were $3.6 million, a decrease of $0.7 million, or 16.9%, compared to $4.3 million for the 2021 first half. The decrease in operating expenses was due primarily to lower research and development expenses, for which there was an increase in offsetting reimbursements for research work performed internationally under government grant programs, and lower general and administrative expenses, which included a reduction in headcount and legal fees now that the claim litigation pertaining to the RAC Contract has been settled.

Other Income, Net
Other income, net for the 2022 first half was $2.3 million compared to other expense, net of $12 thousand for the 2021 first half, an increase of $2.3 million due almost entirely from accounting for the forgiveness of the Paycheck Protection Program (the “PPP”) loan.

Cash Flows from Operating, Investing, and Financing Activities

During the 2022 first half, due primarily from a decrease in contract assets, offset, in part, by an increase in accounts receivable and an increase in prepaid expenses and other current assets, the Company was provided $1.5 million of cash from operating activities compared to using $4.7 million during the 2021 first half. Under Accounting Standards Codification (“ASC”) 606, these accounts represent the timing differences of spending on production activities versus the billing and collecting 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 $79 thousand during the 2022 first half compared to $43 thousand during the 2021 first half.

The Company’s financing activities used $1.3 million of cash during the 2022 first half for repayments under the Company’s credit facilities compared to providing $4.0 million of cash during the 2021 first half with proceeds from the PPP loan and borrowings 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.

Table C

* 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.