SOUTHAMPTON, Pa., June 09, 2022 (GLOBE NEWSWIRE) — Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the fifty-two week period ended February 25, 2022 (“fiscal 2022”) and the thirteen week period ended February 25, 2022 (the “2022 fourth quarter”).
Robert L. Laurent, Jr., ETC’s Chief Executive Officer and President stated, “ETC’s fiscal 2022 results, though below historical levels, improved over the prior year, but those results were once again affected by worldwide travel restrictions that made sales activities challenging. Fiscal 2022 results reflect a net sales increase of 17.7%, gross profit increase of 241.6%, a 14 % reduction in operating expense and other income of $5.2 million, leading to a return to net income $1.8 million. We enter fiscal 2023 with significant prospects.”
Fiscal 2022 Results of Operations
Bookings / Sales Backlog
Bookings in fiscal 2022 were $19.6 million, leaving our sales backlog as of February 25, 2022, which represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer, at $19.3 million compared to $16.0 million as of February 26, 2021. We expect to recognize as revenue approximately 86% of the total sales backlog as of February 25, 2022 over the next twelve (12) months and approximately 94% over the next twenty-four (24) months, with the remainder to be recognized thereafter. Of the February 25, 2022 sales backlog, $8.7 million, or 45.1%, pertains to International contracts within the Aerospace segment.
Net Earnings Attributable to ETC
Net earnings attributable to ETC was $1.8 million, or $0.08 diluted earnings per share, in fiscal 2022, compared to net loss of 7.5 million during fiscal 2021, equating to $0.51 diluted loss per share. The $9.3 million favorable variance is due to the combined effect of a $3.1 million increase in gross profit on sales growth, in addition to favorable $1.2 million decrease in operating expenses. The remaining favorability in 2022 was a result of the Paycheck Protection Program (PPP) loan forgiveness of $2.45 million along with the US Government’s Employee Retention Credit (ERC) of $2.78 million.
Net Sales
Net sales for fiscal 2022 were $19.1 million, an increase of $2.8 million, or 17.7%, compared to fiscal 2021 net sales of $16.3 million. The increase is a result of higher International sales of $2.1 million, within the Aircrew Training Systems (ATS) business unit, which were offset in part by lower U.S. Government sales within ATS. Further, revenues in 2022 increased within the Sterilizer Systems business unit, accounting for $2.7 million of the overall increase of $2.8 million.
Gross Profit
Gross profit for fiscal 2022 was $4.3 million compared to $1.3 million in fiscal 2021 an increase of $3.0 million, or 241.6%. The increase in gross profit was due to higher net sales along with a more favorable mix and overhead absorption. Gross profit margin as a percentage of net sales increased to 22.6% in fiscal 2022 compared to 7.8% in fiscal 2021.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for fiscal 2022 were $7.3 million, a decrease of $1.2 million, or 13.8%, compared to $8.5 million for fiscal 2021. The decrease in operating expenses was due to headcount and fringe benefits reductions, along with a concentrated focus on reducing Research and Development expenses short term.
Interest Expense, Net
Interest expense, net, for fiscal 2022 was $0.5 million compared to $0.7 million in fiscal 2021, a decrease of $0.1 million, or 19.0%, due primarily to lower interest rates.
Other Income, Net
Other income, net, for fiscal 2022 was $5.2 million compared to other expense, net, of $19 thousand in fiscal 2021, an increase of $5.2 million. This was a result of income related to forgiveness of the (PPP) loan of $2.4 million as well as income from the (ERC) of $2.8 million.
Income Taxes
As of February 25, 2022, the Company reviewed the components of its deferred tax assets and determined, based upon all available information, that it is more likely than not that deferred tax assets relating to its federal and state Net Operating Loss (“NOL”) carryforwards and research and development tax credits will not be realized primarily due to uncertainties related to our ability to utilize them before they expire. Accordingly, we have established a $7.9 million valuation allowance for such deferred tax assets that we do not expect to realize. If there is a change in our ability to realize our deferred tax assets for which a valuation allowance has been established, then our tax valuation allowance may decrease in the period in which we determine that realization is more likely than not.
An income tax benefit of $0.1 million was recorded in fiscal 2022 compared to income tax benefit of $0.3 million recorded in fiscal 2021. Effective tax rates were -7.9% and 3.5% for fiscal 2022 and fiscal 2021, respectively. The decrease in the effective tax rate for fiscal 2022 as compared to fiscal 2021 was driven primarily by the operating loss incurred in fiscal 2022 and the offsetting valuation allowance that was recorded against the increase in deferred tax assets relating primarily to federal NOL carryforwards.
Fiscal 2022 Fourth Quarter Results of Operations
Net Income Attributable to ETC
Net income to ETC was $1.9 million, or $0.12 diluted earnings per share, in the 2022 fourth quarter, compared to $2.4 million loss during the 2021 fourth quarter, equating to $0.16 diluted loss per share. The $4.3 million variance is led by the combined effect of a $1.3 million improvement in gross profit, along with of $2.7 million related to the (ERC).
Net Sales
Net sales for the 2022 fourth quarter were $4.2 million, an increase of $0.6 million, or 15.3%, compared to net sales of $3.7 million for the 2021 fourth quarter. The increase reflects higher overall sales within ATS and increased Domestic sales within Sterilizers.
Gross (Loss) Profit
ETC incurred a gross profit of $1.2 million in the 2022 fourth quarter, an increase of $1.2 million compared to the gross loss of $36 thousand for the 2021 fourth quarter. This was due to the increase in net sales, combined with a more favorable product mix. Gross margin as a percentage of net sales increased to 28.7% in the 2022 fourth quarter compared to -1.0% in the 2021 fourth quarter.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the fiscal 2022 fourth quarter were $2.1 million, a decrease of $0.5 million, or 19.8%, compared to $2.6 million for the fiscal 2021 fourth quarter. The decrease in operating expenses was due primarily to a reduction in selling and marketing expenses related to commission expense, along with reductions in headcount and fringe costs.
Interest Expense, Net
Interest expense, net, for the 2022 fourth quarter was $0.1 million compared to $0.1 million in the 2021 fourth quarter, reflecting no change from prior year.
Other (Income) Expense, Net
Other income, net, for the fiscal 2022 fourth quarter was 2.7 million compared to other expense, net of $21 thousand in the 2021 fourth quarter, a variance of $2.7 million due primarily due to the income related to the (ERC) of $2.7 million.
Income Taxes
An income tax benefit of $0.2 million was recorded in the fiscal 2022 fourth quarter compared to $0.4 million in the 2021 fourth quarter. Effective tax rates were -7.9% and 12.1% for the 2022 fourth quarter and the 2021 fourth quarter, respectively.
Liquidity and Capital Resources
As of February 25, 2022, the Company’s availability under the Revolving Line of Credit was $3.7 million. This reflected cash borrowings of $13.4 million and net outstanding standby letters of credit of approximately $3.0 million. As of June 9, 2022, the Company’s availability under the Revolving Line of Credit was approximately $2.8 million. The Company had working capital of $6.6 million as of February 25, 2022 compared to working capital of $10.0 million as of February 26, 2021.
The decrease in working capital was primarily the result of a decrease in contract assets. With unused availability under the Company’s various current lines of credit, the further conversion of contract assets into cash, the collection of milestone payments associated with several International contracts, and expected deposits on fiscal 2023 bookings, the Company anticipates its sources of liquidity will be sufficient to fund its operating activities, anticipated capital expenditures, and debt repayment obligations throughout fiscal 2023.
Cash flows from operating activities
During fiscal 2022, cash flows provided by operating activities were $2.3 million, an increase over fiscal 2021, when the Company broke even with respect to cash flows from operating activities. Cash flows in fiscal 2022 increased as a result of increase in net income along with contract assets converting into cash.
Cash flows from investing activities
Cash used for investing activities primarily relates to funds used for capital expenditures in property, plant, and equipment and software development. The Company’s fiscal 2022 and fiscal 2021 investing activities used $0.2 million and $0.1 million, respectively, which consisted primarily of equipment and software enhancements for our Aerospace technologies, and costs to upgrade existing information technology systems and enhance our manufacturing and testing capabilities for our Environmental business unit.
Cash flows from financing activities
During fiscal 2022, the Company’s financing activities used $3.6 million of cash for repayments under the Company’s credit facility.
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. Sales of our CIS products are made principally to the healthcare, pharmaceutical, and automotive industries.
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 Chambers and the simulators manufactured and sold through ETC-PZL, collectively, ATS. 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’s headquarters is located 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: | Joseph F. Verbitski, Jr., Chief Financial Officer |
| Phone: | (215) 355-9100 x1531 |
| E-mail: | jverbitski@etcusa.com |
– Financial Tables Follow –
| Table A | |||||||||||||
| ENVIRONMENTAL TECTONICS CORPORATION | |||||||||||||
| SUMMARY TABLE OF RESULTS NEED VARIANCES | |||||||||||||
| (in thousands, except per share information) | |||||||||||||
| Fifty-two weeks ended |
Fifty-two weeks ended |
Variance | |||||||||||
| 25-Feb-22 | 26-Feb-21 | $ | % | ||||||||||
| Net sales | $ | 19,132 | $ | 16,250 | $ | 2,882 | 17.7 | ||||||
| Cost of goods sold | 14,814 | 14,986 | 172 | 1.1 | |||||||||
| Gross profit | 4,318 | 1,264 | 3,054 | 241.6 | |||||||||
| Gross profit margin % | 22.6 | % | 7.8 | % | 14.8 | % | |||||||
| Operating expenses | 7,315 | 8,483 | 1,168 | 13.8 | |||||||||
| Operating loss | (2,997 | ) | (7,219 | ) | 4,222 | 58.5 | |||||||
| Operating margin % | -15.7 | % | -44.4 | % | 28.7 | % | |||||||
| Interest expense, net | 527 | 650 | 123 | 18.9 | |||||||||
| Other expense, net | (5,196 | ) | 19 | (5,215 | ) | ||||||||
| Income (Loss) before income taxes | 1,672 | (7,888 | ) | 9,560 | |||||||||
| Pre-tax margin % | 8.7 | % | -48.5 | % | 57.2 | % | |||||||
| Income tax (benefit) provision | (131 | ) | (272 | ) | 141 | ||||||||
| Net income (loss) | 1,803 | (7,616 | ) | 9,208 | |||||||||
| Loss (income) attributable to non-controlling interest | 4 | 124 | 120 | ||||||||||
| Net income (loss) attributable to ETC | 1,807 | (7,492 | ) | 9,299 | |||||||||
| Preferred Stock dividends | (484 | ) | (484 | ) | |||||||||
| Income (loss) attributable to common and participating shareholders | $ | 1,323 | $ | (7,976 | ) | $ | 9,299 | ||||||
| Per share information: | |||||||||||||
| Basic earnings (loss) per common and participating share: | |||||||||||||
| Distributed earnings per share: | |||||||||||||
| Common | $ | – | $ | – | $ | – | |||||||
| Preferred | $ | 0.08 | $ | 0.08 | $ | – | |||||||
| Undistributed earnings (loss) per share: | |||||||||||||
| Common | $ | 0.08 | $ | (0.51 | ) | $ | 0.59 | ||||||
| Preferred | $ | 0.08 | $ | (0.51 | ) | $ | 0.59 | ||||||
| Diluted earnings (loss) per share | $ | 0.08 | $ | (0.51 | ) | $ | 0.59 | ||||||
| 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 NEED VARIANCES | |||||||||||||
| (in thousands, except per share information) | |||||||||||||
| Thirteen weeks ended | Variance | ||||||||||||
| 25-Feb-22 | 26-Feb-21 | $ | % | ||||||||||
| Net sales | $ | 4,238 | $ | 3,677 | $ | 561 | 15.3 | ||||||
| Cost of goods sold | 3,023 | 3,713 | 690 | 18.6 | |||||||||
| Gross (loss) profit | 1,215 | (36 | ) | 1,251 | |||||||||
| Gross margin % | 28.7 | % | -1.0 | % | 29.7 | % | |||||||
| Operating expenses | 2,072 | 2,584 | 512 | 19.8 | |||||||||
| Operating loss | (857 | ) | (2,620 | ) | 1,763 | 67.3 | |||||||
| Operating margin % | -20.2 | % | -71.3 | % | 51.1 | % | |||||||
| Interest expense, net | 111 | 143 | 32 | 22.4 | |||||||||
| Other (income) expense, net | (2,724 | ) | (21 | ) | (2,703 | ) | |||||||
| Income (loss) before income taxes | 1,756 | (2,742 | ) | 4,498 | |||||||||
| Pre-tax margin % | 41.4 | % | -74.6 | % | 116.0 | % | |||||||
| Income tax benefit | (191 | ) | (332 | ) | 141 | 42.5 | |||||||
| Net income (loss) | 1,947 | (2,410 | ) | 4,357 | |||||||||
| (Income) loss attributable to non-controlling interest | (8 | ) | 61 | (69 | ) | ||||||||
| Net income (loss) attributable to ETC | 1,939 | (2,349 | ) | 4,288 | |||||||||
| Preferred Stock dividends | (121 | ) | (121 | ) | – | ||||||||
| Income (loss) attributable to common and participating shareholders | $ | 1,818 | $ | (2,470 | ) | $ | 4,288 | ||||||
| Per share information: | |||||||||||||
| Basic earnings (loss) per common and participating share: | |||||||||||||
| Distributed earnings per share: | |||||||||||||
| Common | $ | – | $ | – | $ | – | |||||||
| Preferred | $ | 0.02 | $ | 0.02 | $ | – | |||||||
| Undistributed earnings (loss) per share: | |||||||||||||
| Common | $ | 0.12 | $ | (0.16 | ) | $ | 0.28 | ||||||
| Preferred | $ | 0.12 | $ | (0.16 | ) | $ | 0.28 | ||||||
| Diluted earnings (loss) per share | $ | 0.12 | $ | (0.16 | ) | $ | 0.28 | ||||||
| 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) | |||||||||||||
| Fifty-two weeks ended |
Fifty-two weeks ended |
Thirteen weeks ended | |||||||||||
| 25-Feb-22 | 26-Feb-21 | 25-Feb-22 | 26-Feb-21 | ||||||||||
| EBITDA * | $ | 3,474 | $ | (5,925 | ) | $ | 2,187 | $ | (2,199 | ) | |||
| As of | |||||||||||||
| 25-Feb-22 | 26-Feb-21 | ||||||||||||
| Working capital | $ | 6,589 | $ | 10,032 | |||||||||
| Total shareholders’ equity (deficit) | $ | 1,595 | $ | (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 Interest, 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.
