Financial Statement Highlights from the Fiscal 2020 Second Quarter:
- Net sales increased 17.2% to $12.0 million
- Diluted earnings per share of $0.02
SOUTHAMPTON, Pa., Oct. 07, 2019 (GLOBE NEWSWIRE) — Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended August 30, 2019 (the “2020 second quarter”) and the twenty-seven week period ended August 30, 2019 (the “2020 first half”).
Fiscal 2020 Second Quarter Results of Operations
Net Income Attributable to ETC
Net income attributable to ETC was $0.4 million, or $0.02 diluted earnings per share, in both the 2020 second quarter and the 2019 second quarter. Although net income attributable to ETC remained flat quarter over quarter, there was a $0.3 million decrease in gross profit that was offset by a $0.2 million decrease in operating expenses and a $0.1 million decrease in interest expense.
Net Sales
Net sales in the 2020 second quarter were $12.0 million, an increase of $1.7 million, or 17.2%, compared to 2019 second quarter net sales of $10.3 million. The increase reflects higher International sales, especially within the Environmental and Sterilizers business units of our CIS segment, offset, in part, by a decrease in International sales of Aeromedical Training Solutions.
Gross Profit
Gross profit for the 2020 second quarter was $3.4 million compared to $3.7 million in the 2019 second quarter, a decrease of $0.3 million, or 7.6%. The decrease in gross profit was due to a lower blended gross profit margin as a percentage of net sales, which decreased to 28.7% for the 2020 second quarter compared to 36.4% for the 2019 second quarter. The decrease in gross profit margin as a percentage of net sales was due primarily to the completion and delivery of two (2) significant International ATS contracts during fiscal 2019, which resulted in the Company entering fiscal 2020 with a lower backlog comprised of contracts with comparably lower estimated profit booking rates.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2020 second quarter were $2.7 million, a decrease of $0.2 million, or 5.8%, compared to $2.9 million for the 2019 second quarter. The decrease in operating expenses was due primarily to a decrease in bad debt expense and Board of Directors fees now that it is comprised of five (5) members as compared to seven (7) members.
Interest Expense, Net
Interest expense, net for the 2020 second quarter was $0.2 million compared to $0.3 million in the 2019 second quarter, a decrease of $0.1 million due to a lower level of bank borrowing.
Fiscal 2020 First Half Results of Operations
Net (Loss) Income Attributable to ETC
Net loss attributable to ETC was $0.1 million, or $0.02 diluted loss per share, in the 2020 first half, compared to net income attributable to ETC of $1.1 million during the 2019 first half, equating to $0.05 diluted earnings per share. The $1.2 million variance is due to the combined effect of a $1.7 million decrease in gross profit and a $0.1 million increase in other expense, net, offset, in part, by a $0.5 million decrease in operating expenses and a $0.1 million decrease in interest expense.
Net Sales
Net sales in the 2020 first half were $22.8 million, an increase of $1.9 million, or 9.0%, compared to 2019 first half net sales of $20.9 million. The increase reflects higher International sales, especially within the Environmental and Sterilizers business units of our CIS segment, offset, in part, by a decrease in International and U.S. Government sales of Aeromedical Training Solutions and an overall decrease in Domestic sales within the CIS segment.
Gross Profit
Gross profit for the 2020 first half was $5.9 million compared to $7.6 million in the 2019 first half, a decrease of $1.7 million, or 22.3%. The decrease in gross profit was due to a lower blended gross profit margin as a percentage of net sales, which decreased to 26.0% for the 2020 first half compared to 36.4% for the 2019 first half. The decrease in gross profit margin as a percentage of net sales was due primarily to the completion and delivery of two (2) significant International ATS contracts during fiscal 2019, which resulted in the Company entering fiscal 2020 with a lower backlog comprised of contracts with comparably lower estimated profit booking rates.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2020 first half were $5.3 million, a decrease of $0.5 million, or 8.6%, compared to $5.8 million for the 2019 first half. The decrease in operating expenses was due primarily to a decrease in bad debt expense, a decrease in Board of Directors fees now that it is comprised of five (5) members as compared to seven (7) members, and the receipt of payments received for research grants, which are recorded as a reduction to research and development costs.
Interest Expense, Net
Interest expense, net for the 2020 first half was $0.4 million compared to $0.5 million in the 2019 first half, a decrease of $0.1 million due to a lower level of bank borrowing.
Other Expense, Net
Other expense, net for the 2020 first half was $0.3 million compared to $0.2 million in the 2019 first half, an increase of $0.1 million due to higher letter of credit fees.
Cash Flows from Operating, Investing, and Financing Activities
During the 2020 first half, as a result of an increase in accounts receivable and contract assets and a decrease in contract liabilities and accrued taxes, the Company used $9.1 million of cash for operating activities compared to $2.6 million during the 2019 first half. Under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), commonly referred to as Accounting Standards Codification (“ASC”) 606, these accounts, other than accrued taxes, 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 $0.2 million in the 2020 first half compared to $0.1 million in the 2019 first half.
The Company’s financing activities provided $6.4 million of cash in the 2020 first half from borrowings under the Company’s various lines of credit compared to $2.8 million during the 2019 first half.
About ETC
ETC was incorporated in 1969 in Pennsylvania. For 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 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; (vi) environmental testing and simulation systems (“ETSS”); and (vii) hyperbaric (100% oxygen) chambers for one person (monoplace chambers).
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; (ii) ETSS; and (iii) hyperbaric (100% oxygen) chambers for one person (monoplace chambers), 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 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 and monoplace chambers 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.
– Financial Tables Follow –
| Table A | ||||||||||||||
| ENVIRONMENTAL TECTONICS CORPORATION | ||||||||||||||
| SUMMARY TABLE OF RESULTS | ||||||||||||||
| (in thousands, except per share information) | ||||||||||||||
| Thirteen weeks ended | Variance | |||||||||||||
| 30-Aug-19 | 24-Aug-18 | $ | % | |||||||||||
| Net sales | $ | 12,012 | $ | 10,250 | $ | 1,762 | 17.2 | |||||||
| Cost of goods sold | 8,565 | 6,518 | 2,047 | 31.4 | ||||||||||
| Gross profit | 3,447 | 3,732 | (285 | ) | -7.6 | |||||||||
| Gross profit margin % | 28.7 | % | 36.4 | % | -7.7 | % | -21.2 | % | ||||||
| Operating expenses | 2,710 | 2,876 | (166 | ) | -5.8 | |||||||||
| Operating income | 737 | 856 | (119 | ) | -13.9 | |||||||||
| Operating margin % | 6.1 | % | 8.4 | % | -2.3 | % | -27.4 | % | ||||||
| Interest expense, net | 185 | 267 | (82 | ) | -30.7 | |||||||||
| Other expense, net | 110 | 111 | (1 | ) | -0.9 | |||||||||
| Income before income taxes | 442 | 478 | (36 | ) | -7.5 | |||||||||
| Pre-tax margin % | 3.7 | % | 4.7 | % | -1.0 | % | -21.3 | % | ||||||
| Income tax provision | 20 | 20 | – | 0.0 | ||||||||||
| Net income | 422 | 458 | (36 | ) | -7.9 | |||||||||
| Income attributable to non-controlling interest | (19 | ) | (10 | ) | (9 | ) | 90.0 | |||||||
| Net income attributable to ETC | 403 | 448 | (45 | ) | -10.0 | |||||||||
| Preferred Stock dividends | (121 | ) | (121 | ) | – | 0.0 | ||||||||
| Income attributable to common and participating shareholders |
$ | 282 | $ | 327 | $ | (45 | ) | -13.8 | ||||||
| Per share information: | ||||||||||||||
| Basic earnings per common and participating share: | ||||||||||||||
| Distributed earnings per share: | ||||||||||||||
| Common | $ | – | $ | – | $ | – | ||||||||
| Preferred | $ | 0.02 | $ | 0.02 | $ | – | 0.0 | |||||||
| Undistributed earnings per share: | ||||||||||||||
| Common | $ | 0.02 | $ | 0.02 | $ | – | 0.0 | |||||||
| Preferred | $ | 0.02 | $ | 0.02 | $ | – | 0.0 | |||||||
| Diluted earnings per share | $ | 0.02 | $ | 0.02 | $ | – | 0.0 | |||||||
| Total basic weighted average common and participating shares |
15,569 | 15,553 | ||||||||||||
| Total diluted weighted average shares | 15,571 | 15,556 | ||||||||||||
| Table B | |||||||||||||||
| ENVIRONMENTAL TECTONICS CORPORATION | |||||||||||||||
| SUMMARY TABLE OF RESULTS | |||||||||||||||
| (in thousands, except per share information) | |||||||||||||||
| Twenty-seven weeks ended |
Twenty-six weeks ended | Variance | |||||||||||||
| 30-Aug-19 |
24-Aug-18 | $ | % | ||||||||||||
| Net sales | $ | 22,828 | $ | 20,941 | $ | 1,887 | 9.0 | ||||||||
| Cost of goods sold | 16,901 | 13,313 | 3,588 | 27.0 | |||||||||||
| Gross profit | 5,927 | 7,628 | (1,701 | ) | -22.3 | ||||||||||
| Gross profit margin % | 26.0 | % | 36.4 | % | -10.4 | % | -28.6 | % | |||||||
| Operating expenses | 5,296 | 5,794 | (498 | ) | -8.6 | ||||||||||
| Operating income | 631 | 1,834 | (1,203 | ) | -65.6 | ||||||||||
| Operating margin % | 2.8 | % | 8.8 | % | -6.0 | % | -68.2 | % | |||||||
| Interest expense, net | 363 | 517 | (154 | ) | -29.8 | ||||||||||
| Other expense, net | 260 | 187 | 73 | 39.0 | |||||||||||
| Income before income taxes | 8 | 1,130 | (1,122 | ) | -99.3 | ||||||||||
| Pre-tax margin % | 0.0 | % | 5.4 | % | -5.4 | % | -100.0 | % | |||||||
| Income tax provision | 40 | 48 | (8 | ) | -16.7 | ||||||||||
| Net (loss) income | (32 | ) | 1,082 | (1,114 | ) | ||||||||||
| Income attributable to non-controlling interest | (45 | ) | (8 | ) | (37 | ) | 462.5 | ||||||||
| Net (loss) income attributable to ETC | (77 | ) | 1,074 | (1,151 | ) | ||||||||||
| Preferred Stock dividends | (251 | ) | (242 | ) | (9 | ) | 3.7 | ||||||||
| (Loss) income attributable to common and participating shareholders |
$ | (328 | ) | $ | 832 | $ | (1,160 | ) | |||||||
| Per share information: | |||||||||||||||
| Basic earnings (loss) per common and participating share: | |||||||||||||||
| Distributed earnings per share: | |||||||||||||||
| Common | $ | – | $ | – | $ | – | |||||||||
| Preferred | $ | 0.04 | $ | 0.04 | $ | – | 0.0 | ||||||||
| Undistributed (loss) earnings per share: | |||||||||||||||
| Common | $ | (0.02 | ) | $ | 0.05 | $ | (0.07 | ) | |||||||
| Preferred | $ | (0.02 | ) | $ | 0.05 | $ | (0.07 | ) | |||||||
| Diluted (loss) earnings per share | $ | (0.02 | ) | $ | 0.05 | $ | (0.07 | ) | |||||||
| Total basic weighted average common and participating shares |
15,569 | 15,553 | |||||||||||||
| Total diluted weighted average shares | 15,571 | 15,556 | |||||||||||||
Table C
| ENVIRONMENTAL TECTONICS CORPORATION | ||||||||||||
| OTHER SELECTED FINANCIAL HIGHLIGHTS | ||||||||||||
| (amounts in thousands) | ||||||||||||
| Thirteen weeks ended | Twenty-seven weeks ended | Twenty-six weeks ended | ||||||||||
| 30-Aug-19 | 24-Aug-18 | 30-Aug-19 | 24-Aug-18 | |||||||||
| EBITDA * | $ | 915 | $ | 1,044 | $ | 954 | $ | 2,259 | ||||
| As of | ||||||||||||
| 30-Aug-19 | 22-Feb-19 | |||||||||||
| Working capital | $ | 1,185 | $ | 13,673 | ||||||||
| Total shareholders’ equity | $ | 12,155 | $ | 12,537 | ||||||||
* 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.