ETC Announces Fiscal 2022 Second Quarter Results

Environmental Tectonics Corporation (ETC)

SOUTHAMPTON, PA — Environmental Tectonics Corporation (OTC Pink: ETCC) recently reported its financial results for the thirteen week period ended August 27, 2021 and the twenty-six week period ended August 27, 2021.

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.

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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.

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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 the Company’s 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.

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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.

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