ETC Announces Fiscal 2022 Third 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 November 26, 2021, and the thirty-nine-week period ended November 26, 2021.

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 2022 third quarter increasing our sales backlog to over $21 million to close the quarter.”

Fiscal 2022 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 2022 third quarter, compared to $1.8 million during the 2021 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 2022 third quarter were $4.4 million, an increase of $1.1 million, or 33.9%, compared to 2021 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 2022 third quarter and the 2021 third 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 third quarter was $0.7 million compared to $5 thousand in the 2021 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 2022 third quarter compared to 0.2% for the 2021 third quarter.

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Operating Expenses

Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2022 third quarter were $1.7 million, an increase of $0.1 million, or 4.6%, compared to $1.6 million for the 2021 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 2022 third quarter was $142 thousand compared to other expense, net of $52 thousand for the 2021 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 2022 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 2022 first three quarters, compared to $5.1 million during the 2021 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 2022 first three quarters were $14.9 million, an increase of $2.3 million, or 18.5%, compared to 2021 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 2022 first three quarters and the 2021 first three quarters 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 three quarters was $3.1 million compared to $1.3 million in the 2021 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 2022 first three quarters compared to 10.3% for the 2021 first three quarters primarily due to higher International sales within the Aerospace segment, which traditionally produce the Company’s highest margins. The lower gross profit margin in the 2021 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 2022 first three quarters were $5.2 million, a decrease of $0.7 million, or 11.1%, compared to $5.9 million for the 2021 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.

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Other (Income) Expense, Net

Other income, net for the 2022 first three quarters was $2.5 million compared to other expense, net of $40 thousand for the 2021 first three quarters, an increase of $2.5 million due almost entirely from accounting for the forgiveness of Paycheck Protection Program loan.

Cash Flows from Operating, Investing, and Financing Activities

During the 2022 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 2021 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 2022 first three quarters compared to $78 thousand during the 2021 first three quarters.

The Company’s financing activities used $2.6 million of cash during the 2022 first three quarters for repayments under the Company’s credit facilities compared to providing $20 thousand of cash during the 2021 first three quarters with proceeds from the PPP loan, offset by repayments under the Company’s credit facilities.

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