For Immediate Release
Financial Statement Highlights from Fiscal 2018:
- Net sales increased 20.7% to $48.1 million
- Gross profit increased 21.4% to $16.1 million
- Net income of $2.4 million, a $3.3 million increase over prior year's net loss of $0.9 million
SOUTHAMPTON, PA, USA, June 26, 2018 - Environmental Tectonics Corporation (OTC Pink: ETCC) ("ETC" or the "Company") today reported its financial results for the fifty-two week period ended February 23, 2018 ("fiscal 2018") and the thirteen week period ended February 23, 2018 (the "2018 fourth quarter") and also announced that the Company's Annual Meeting of Shareholders (the "Annual Meeting") will be held at Sofitel Philadelphia located at 120 South 17th Street, Philadelphia, PA 19103, USA on Tuesday, July 17, 2018, at 10:00 a.m.
Robert L. Laurent, Jr., ETC's Chief Executive Officer and President stated, "We are pleased with the increase in revenues and profits in fiscal 2018, and with a closing backlog at its highest in six years, we are well-positioned entering fiscal 2019."
Fiscal 2018 Results of Operations
Bookings / Sales Backlog
Bookings in fiscal 2018 were $51.2 million, leaving our sales backlog as of February 23, 2018, for work to be performed and revenue to be recognized under written agreements after such date, at $67.5 million compared to $64.4 million as of February 24, 2017. Of the February 23, 2018 sales backlog, $50.3 million, or 74.5%, pertains to International contracts within the Aerospace segment.
Net Income (Loss) Attributable to ETC
Net income attributable to ETC was $2.4 million, or $0.12 diluted earnings per share, in fiscal 2018, compared to a net loss attributable to ETC of $0.9 million during fiscal 2017, equating to $0.09 diluted loss per share. The $3.3 million variance is due to the combined effect of a $2.8 million increase in gross profit, a $0.8 million variance between the $0.6 million income tax benefit recorded in fiscal 2018 compared to the $0.2 million income tax provision recorded in fiscal 2017, and a $0.3 million decrease in other expense, offset, in part, by a $0.3 million increase in operating expenses and a $0.3 million increase in interest expense.
Net Sales
Net sales for fiscal 2018 were $48.1 million, an increase of $8.3 million, or 20.7%, from fiscal 2017. The increase reflects higher sales within our CIS segment of ethylene oxide sterilizers and control systems upgrades to Domestic customers within the Sterilizers business unit and Environmental Testing and Simulation Systems ("ETSS") within the Environmental business unit to both Domestic and International customers, and higher overall sales of our ADMS line of products and higher sales of simulator upgrade services and training devices provided by ETC-PZL within our Aerospace segment, offset, in part, by an overall decrease in sales of monoplace chambers within the Hyperbaric Chambers business unit of our CIS segment.
Gross Profit
Gross profit for fiscal 2018 was $16.1 million compared to $13.3 million in fiscal 2017, an increase of $2.8 million, or 21.4%. The increase in gross profit was due primarily to higher net sales as the gross profit margin as a percentage of net sales increased slightly to 33.5% in fiscal 2018 compared to 33.3% in fiscal 2017.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for fiscal 2018 were $13.0 million, an increase of $0.3 million, or 2.5%, compared to $12.7 million for fiscal 2017, which included a $0.3 million reduction in the allowance for doubtful accounts related to the recovery of a long overdue International receivable. Absent of this reduction in the allowance for doubtful accounts, operating expenses would have remained flat. General and administrative expenses were higher due primarily to an increase in expenses related to the Company's process to explore strategic alternatives, offset, in part, by the conclusion of a consulting agreement with the Company's former Chief Executive Officer and the dissolution of ETC-Europe. The increase in general and administrative expenses was offset by a decrease in sales and marketing expenses, due primarily to a decrease in commission expense based on a lower concentration of International sales related to ATS products, as well as a decrease in research and development expenses.
Interest Expense, Net
Interest expense, net, for fiscal 2018 was $0.9 million compared to $0.6 million in fiscal 2017, an increase of $0.3 million, or 53.3%, due primarily to the interest income associated with the recovery of a two decade old International receivable during fiscal 2017.
Other Expense, Net
Other expense, net, for fiscal 2018 was $0.4 million compared to $0.7 million in fiscal 2017, a decrease of $0.3 million, or 36.2%, due primarily to a decrease in letter of credit fees and a decrease in realized foreign currency exchange net losses.
Income Taxes
On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, we wrote down approximately $2.2 million of our net deferred tax assets as of February 23, 2018 to reflect the re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate; however, due to the previously established valuation allowance for such deferred tax assets, the impact was minimal. As of February 23, 2018, 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 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 $5.9 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 $0.6 million was recorded in fiscal 2018 compared to an income tax provision of $0.2 million recorded in fiscal 2017. Effective tax rates were 37.5% and 22.0% for fiscal 2018 and fiscal 2017, respectively. The resulting income tax benefit and change in effective tax rate were driven primarily by a net one-time benefit of $0.4 million to reflect the estimated impact of the Tax Act. This net one-time benefit of $0.4 million was comprised of a reduction in the valuation allowance related to our alternative minimum tax credit (approximately $0.6 million), offset, in part, by a deemed repatriation tax (approximately $0.2 million, for which we were allowed to net against our federal net operating loss carryforwards).
Fiscal 2018 Fourth Quarter Results of Operations
Net Income Attributable to ETC
Net income attributable to ETC was $1.2 million, or $0.07 diluted earnings per share, in the 2018 fourth quarter, compared to $36 thousand during the 2017 fourth quarter, or $0.01 diluted loss per share. The $1.2 million increase is due to the combined effect of a $0.8 million variance between the $0.6 million income tax benefit recorded in fiscal 2018 compared to the $0.2 million income tax provision recorded in fiscal 2017, a $0.3 million increase in gross profit, and a slight decrease in both operating and other expenses, offset, in part, by a slight increase in interest expense.
Net Sales
Net sales for the 2018 fourth quarter were $14.6 million, an increase of $3.2 million, or 27.6%, compared to net sales of $11.4 million for the 2017 fourth quarter. The increase reflects higher sales to Domestic customers within the Sterilizers business unit of our CIS segment and higher sales of our ADMS line of products to International customers within our Aerospace segment.
Gross Profit
Gross profit for the 2018 fourth quarter increased by $0.3 million, or 6.4%, compared to the 2017 fourth quarter. The increase in gross profit was due to higher net sales, offset, in part, by a $1.5 million reserve established in the 2018 fourth quarter based on the anticipated sum of the final contract values now that the acceptance milestone was achieved on the second of three contracts requiring additional work. As a result of this reserve, gross profit margin as a percentage of net sales decreased to 33.2% in the 2018 fourth quarter compared to 39.8% in the 2017 fourth quarter.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, were $4.0 million for both the 2018 fourth quarter and the 2017 fourth quarter. General and administrative expenses were higher due primarily to an increase in expenses related to the Company's process to explore strategic alternatives, but were offset by a decrease in sales and marketing expenses due primarily to a decrease in commission expense based on a lower concentration of International sales related to ATS products.
Interest Expense, Net
Interest expense, net, for both the 2018 fourth quarter and the 2017 fourth quarter was $0.2 million.
Other Expense, Net
Other expense, net, which is comprised of primarily realized foreign currency exchange gains and losses and letter of credit fees, was $0.2 million for both the 2018 fourth quarter and the 2017 fourth quarter.
Income Taxes
An income tax benefit of $0.7 million was recorded in the 2018 fourth quarter compared to an income tax provision of $0.1 million recorded in the 2017 fourth quarter. Effective tax rates were 148.5% and 56.6% for the fiscal 2018 fourth quarter and the fiscal 2017 fourth quarter, respectively. The resulting income tax benefit and change in effective tax rate were driven primarily by a net one-time benefit of $0.4 million to reflect the estimated impact of the Tax Act. This net one-time benefit of $0.4 million was comprised of a reduction in the valuation allowance related to our alternative minimum tax credit (approximately $0.6 million), offset, in part, by a deemed repatriation tax (approximately $0.2 million, for which we were allowed to net against our federal net operating loss carryforwards).
Liquidity and Capital Resources
As of February 23, 2018, the Company's availability under the Revolving Line of Credit was $0.9 million. This reflected cash borrowings of $18.8 million and net outstanding standby letters of credit not covered by the Committed Line of Credit of approximately $1.3 million. As of June 2, 2018, the date of our most current Revolving Line of Credit statement, the Company's availability under the Revolving Line of Credit was approximately $1.2 million. The Company had working capital of $18.3 million as of February 23, 2018 compared to working capital of $13.2 million as of February 24, 2017. The increase in working capital was primarily the result of a transition from billings in excess of costs and estimated earnings on uncompleted long-term contracts to costs and estimated earnings in excess of billings on uncompleted long-term contracts. Under percentage-of-completion revenue recognition, these accounts represent the timing differences of spending on production activities versus the billing and collecting of customer payments. With unused availability under the Company's various current lines of credit, the conversion of costs and estimated earnings in excess of billings on uncompleted long-term contracts into cash, the collection of milestone payments associated with several International contracts, and expected deposits on fiscal 2019 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 2019.
Cash flows from operating activities
During fiscal 2018, due primarily from the decrease in billings in excess of costs and estimated earnings on uncompleted long-term contracts and an increase in costs and estimated earnings in excess of billings on uncompleted long-term contracts, offset, in part, by the increase in net income, the increase in accounts payable, and the decrease in accounts receivable, the Company used $2.1 million of cash in operating activities compared to generating $1.4 million of cash from operating activities in fiscal 2017.
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 2018 investing activities used $0.5 million, which consisted primarily of equipment and software enhancements for our ATFS and ADMS technologies, and costs to upgrade existing information technology systems and enhance our ETSS testing capabilities. This is a decrease of $0.2 million from cash used in investing activities in fiscal 2017.
Cash flows from financing activities
During fiscal 2018, the Company's financing activities provided $3.0 million of cash from borrowings under the Company's various lines of credit. During fiscal 2017, the Company's financing activities used $1.3 million of cash on payments on the Term Loan, offset, in part, by borrowings under the Company's various lines of credit and a decrease in restricted cash.
Notice of Annual Meeting of Shareholders
The Annual Meeting will be held at Sofitel Philadelphia located at 120 South 17th Street, Philadelphia, PA 19103, USA on Tuesday, July 17, 2018, at 10:00 a.m. for the following purposes:
I. To elect seven (7) Directors to serve on the Board of Directors until ETC's 2019 Annual Meeting of Shareholders and until their successors are elected.
II. To ratify the appointment of RSM US LLP as the independent registered public accounting firm for ETC for the fiscal year ending February 22, 2019.
III. To transact such other business as may properly come before the meeting and any adjournment of the meeting.
The Board of Directors has fixed the close of business on June 8, 2018 as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting.
To vote your shares at the Annual Meeting, you or your designated proxy must be present at the Annual Meeting.
A copy of the Company's 2018 Annual Report is available within the Investors section of ETC's website at https://www.etcusa.com/investors/shareholder-information/annual-meetingshareholders-materials/ (https://www.etcusa.com/investors/shareholder-information/annual-meetingshareholders-materials/).
About ETC
ETC was incorporated in 1969 in Pennsylvania. For over four 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, 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. Environmental Tectonics Corporation (Europe) Limited ("ETC-Europe"), our formerly 99%-owned subsidiary, which was officially dissolved on August 15, 2017, functioned as a sales office in the United Kingdom.
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/ (http://www.etcusa.com/).
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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: | Mark Prudenti, CFO |
| Phone: | (215) 355-9100 x1531 |
| E-mail: | mprudenti@etcusa.com |
###
- Financial Tables Follow -
| Table A | |||||||
| ENVIRONMENTAL TECTONICS CORPORATION | |||||||
| SUMMARY TABLE OF RESULTS | |||||||
| (in thousands, except per share information) | |||||||
| Fifty-two weeks ended | Variance | ||||||
| 23-Feb-18 | 24-Feb-17 | $ | % | ||||
| Net sales | $ 48,086 | $ 39,834 | $ 8,252 | 20.7 | |||
| Cost of goods sold | 31,959 | 26,555 | 5,404 | 20.4 | |||
| Gross profit | 16,127 | 13,279 | 2,848 | 21.4 | |||
| Gross profit margin % | 33.5% | 33.3% | 0.2% | 0.6% | |||
| Operating expenses | 13,040 | 12,724 | 316 | 2.5 | |||
| Operating income | 3,087 | 555 | 2,532 | 456.2 | |||
| Operating margin % | 6.4% | 1.4% | 5.0% | 357.1% | |||
| Interest expense, net | 857 | 559 | 298 | 53.3 | |||
| Other expense, net | 464 | 727 | (263) | -36.2 | |||
| Income (loss) before income taxes | 1,766 | (731) | 2,497 | ||||
| Pre-tax margin % | 3.7% | -1.8% | 5.5% | ||||
| Income tax (benefit) provision | (662) | 161 | (823) | ||||
| Net income (loss) | 2,428 | (892) | 3,320 | ||||
| Income attributable to non-controlling interest | (51) | (31) | (20) | 64.5 | |||
| Net income (loss) attributable to ETC | 2,377 | (923) | 3,300 | ||||
| Preferred Stock dividends | (484) | (484) | - | 0.0 | |||
| Income (loss) attributable to common and participating shareholders | $ 1,893 | $ (1,407) | $ 3,300 | ||||
| Per share information: | |||||||
| Basic earnings (loss) per common and participating share: | |||||||
| Distributed earnings per share: | |||||||
| Common | $ - | $ - | $ - | ||||
| Preferred | $ 0.08 | $ 0.08 | $ - | 0.0 | |||
| Undistributed earnings (loss) per share: | |||||||
| Common | $ 0.12 | $ (0.09) | $ 0.21 | ||||
| Preferred | $ 0.12 | $ (0.09) | $ 0.21 | ||||
| Diluted earnings (loss) per share | $ 0.12 | $ (0.09) | $ 0.21 | ||||
| Total basic weighted average common and participating shares | 15,533 | 15,248 | |||||
| Total diluted weighted average shares | 15,536 | 15,250 | |||||
| Table B | |||||||
| ENVIRONMENTAL TECTONICS CORPORATION | |||||||
| SUMMARY TABLE OF RESULTS | |||||||
| (in thousands, except per share information) | |||||||
| Thirteen weeks ended | Variance | ||||||
| 23-Feb-18 | 24-Feb-17 | $ | % | ||||
| Net sales | $ 14,559 | $ 11,408 | $ 3,151 | 27.6 | |||
| Cost of goods sold | 9,726 | 6,864 | 2,862 | 41.7 | |||
| Gross profit | 4,833 | 4,544 | 289 | 6.4 | |||
| Gross profit margin % | 33.2% | 39.8% | -6.6% | -16.6% | |||
| Operating expenses | 3,955 | 4,011 | (56) | -1.4 | |||
| Operating income | 878 | 533 | 345 | 64.7 | |||
| Operating margin % | 6.0% | 4.7% | 1.3% | 27.7% | |||
| Interest expense, net | 228 | 176 | 52 | 29.5 | |||
| Other expense, net | 157 | 205 | (48) | -23.4 | |||
| Income before income taxes | 493 | 152 | 341 | 224.3 | |||
| Pre-tax margin % | 3.4% | 1.3% | 2.1% | 161.5% | |||
| Income tax (benefit) provision | (730) | 86 | (816) | ||||
| Net income | 1,223 | 66 | 1,157 | 1753.0 | |||
| Income attributable to non-controlling interest | (1) | (30) | 29 | -96.7 | |||
| Net income attributable to ETC | 1,222 | 36 | 1,186 | 3294.4 | |||
| Preferred Stock dividends | (121) | (121) | - | 0.0 | |||
| Income (loss) attributable to common and participating shareholders | $ 1,101 | $ (85) | $ 1,186 | ||||
| Per share information: | |||||||
| Basic earnings (loss) per common and participating share: | |||||||
| Distributed earnings per share: | |||||||
| Common | $ - | $ - | $ - | ||||
| Preferred | $ 0.02 | $ 0.02 | $ - | 0.0 | |||
| Undistributed earnings (loss) per share: | |||||||
| Common | $ 0.07 | $ (0.01) | $ 0.08 | ||||
| Preferred | $ 0.07 | $ (0.01) | $ 0.08 | ||||
| Diluted earnings (loss) per share | $ 0.07 | $ (0.01) | $ 0.08 | ||||
| Total basic weighted average common and participating shares | 15,553 | 15,248 | |||||
| Total diluted weighted average shares | 15,558 | 15,248 | |||||
Table C
| ENVIRONMENTAL TECTONICS CORPORATION | |||||||
| OTHER SELECTED FINANCIAL HIGHLIGHTS | |||||||
| (amounts in thousands) | |||||||
| Fifty-two weeks ended | Thirteen weeks ended | ||||||
| 23-Feb-18 | 24-Feb-17 | 23-Feb-18 | 24-Feb-17 | ||||
| EBITDA | $ 4,149 | $ 1,301 | $ 1,120 | $ 684 | |||
| As of | |||||||
| 23-Feb-18 | 24-Feb-17 | ||||||
| Working capital | $ 18,306 | $ 13,242 | |||||
| Total shareholders' equity | $ 9,629 | $ 7,976 | |||||
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: ETC via Globenewswire
