ETC Announces Fiscal 2021 Full Year and Fourth Quarter Results
SOUTHAMPTON, Pa., Sept. 01, 2021 (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 26, 2021 (“fiscal 2021”) and the thirteen week period ended February 26, 2021 (the “2021 fourth quarter”).
Robert L. Laurent, Jr., ETC’s Chief Executive Officer and President, stated, “Fiscal 2021 was another challenging year as future projects continued to be delayed as ETC entered fiscal 2021 in the early stages of the global COVID-19 pandemic; the effects of which are still ongoing. Now that we have entered fiscal 2022, we are beginning to see these effects diminish as fiscal 2022 first quarter bookings were in excess of $10 million.”
Fiscal 2021 Results of Operations
Bookings / Sales Backlog
Bookings in fiscal 2021 were $15.2 million, leaving our sales backlog as of February 26, 2021, which represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer, at $16.0 million compared to $17.1 million as of February 28, 2020. We expect to recognize approximately 88% of the total sales backlog as of February 26, 2021 over the next twelve (12) months and approximately 91% over the next twenty-four (24) months as revenue, with the remainder recognized thereafter. Of the February 26, 2021 sales backlog, $10.4 million, or 64.7%, pertains to International contracts within the Aerospace segment.
Net Loss Attributable to ETC
Net loss attributable to ETC was $7.5 million, or $0.51 diluted loss per share, in fiscal 2021, compared to $4.0 million during fiscal 2020, equating to $0.29 diluted loss per share. The $3.5 million variance is due to the combined effect of a $7.7 million decrease in gross profit, offset, in part, by a $3.2 million decrease in operating expenses, a $0.5 million decrease in other expense, a $0.3 million increase in income tax benefit, a $0.1 million decrease in interest expense, and a $0.1 million increase in loss attributable to non-controlling interest.
Net Sales
Net sales for fiscal 2021 were $16.3 million, a decrease of $24.3 million, or 60.0%, compared to fiscal 2020 net sales of $40.6 million. The decrease reflects lower International sales, especially within Aeromedical Training Solutions, lower overall ETSS and Sterilizers sales, and lower monoplace chambers sales as a result of the asset sale on November 27, 2019, offset, in part, by an increase in U.S. Government sales within Aeromedical Training Solutions in conjunction with the United States Air Force’s (“USAF”) final acceptance of the 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”). Lower net sales were generated due to the combination of a lower backlog entering fiscal 2021 compounded with the 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 located in Southampton, Pennsylvania (“ETC-SH”) for about one-third of the 2021 first quarter in accordance with Pennsylvania state mandates.
Gross Profit
Gross profit for fiscal 2021 was $1.3 million compared to $9.0 million in fiscal 2020, a decrease of $7.7 million, or 85.9%. The decrease in gross profit was due to lower net sales not being able to support fixed overhead expenses. Gross profit margin as a percentage of net sales decreased to 7.8% in fiscal 2021 compared to 22.1% in fiscal 2020.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for fiscal 2021 were $8.5 million, a decrease of $3.2 million, or 27.4%, compared to $11.7 million for fiscal 2020. The decrease in operating expenses was due primarily to a reduction in selling and marketing expenses related to a decrease in commission expense based on a lower concentration of International sales related to ATS products, and a reduction in headcount, and a decrease in travel caused by the COVID-19 global pandemic.
Interest Expense, Net
Interest expense, net, for fiscal 2021 was $0.7 million compared to $0.8 million in fiscal 2020, a decrease of $0.1 million, or 16.6%, due primarily to lower interest rates.
Other Expense, Net
Other expense, net, for fiscal 2021 was $19 thousand compared to $0.5 million in fiscal 2020, a decrease of $0.5 million, or 96.2%, due primarily to lower letter of credit fees and realized exchange gains on foreign currency.
Income Taxes
As of February 26, 2021, 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. Accordingly, we have established a $7.8 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 $0.3 million was recorded in fiscal 2021 compared to income tax expense of $12 thousand recorded in fiscal 2020. Effective tax rates were 3.5% and -0.3% for fiscal 2021 and fiscal 2020, respectively. The increase in the effective tax rate for fiscal 2021 as compared to fiscal 2021 was driven primarily by the recording of a U.S. federal current tax benefit in fiscal 2021 in conjunction with the receipt of the alternative minimum tax (“AMT”) credit refund.
Fiscal 2021 Fourth Quarter Results of Operations
Net Loss Attributable to ETC
Net loss to ETC was $2.4 million, or $0.16 diluted loss per share, in the 2021 fourth quarter, compared to $1.5 million during the 2020 fourth quarter, equating to $0.10 diluted loss per share. The $0.9 million variance is due to the combined effect of a $2.3 million decrease in gross profit, offset, in part, by a $0.9 million decrease in operating expenses, a $0.3 million increase in income tax benefit, a $0.1 million decrease in other expense, and a $0.1 million decrease in interest expense.
Net Sales
Net sales for the 2021 fourth quarter were $3.7 million, a decrease of $6.3 million, or 63.4%, compared to net sales of $10.0 million for the 2020 fourth quarter. The decrease reflects lower International sales within Aeromedical Training Solutions, lower Domestic sales within Service and Spares, and lower overall sales of ETSS. Lower net sales were generated due to the combination of a lower backlog entering fiscal 2021 compounded with the effects of the COVID-19 global pandemic, which impacted the Company’s ability to generate bookings, especially internationally.
Gross (Loss) Profit
ETC incurred a gross loss of $36 thousand in the 2021 fourth quarter, a decrease of $2.3 million compared to the gross profit for the 2020 fourth quarter due to lower net sales not being able to support fixed overhead expenses. Gross margin as a percentage of net sales decreased to -1.0% in the 2021 fourth quarter compared to 23.0% in the 2020 fourth quarter.
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2021 fourth quarter were $2.6 million, a decrease of $0.9 million, or 26.4%, compared to $3.5 million for the 2020 fourth quarter. The decrease in operating expenses was due primarily to a reduction in selling and marketing expenses related to a decrease in commission expense based on a lower concentration of International sales related to ATS products, and a reduction in headcount, and a decrease in travel caused by the COVID-19 global pandemic.
Interest Expense, Net
Interest expense, net, for the 2021 fourth quarter was $0.1 million compared to $0.2 million in the 2020 fourth quarter, a decrease of $0.1 million, or 35.0%, due primarily to lower interest rates.
Other (Income) Expense, Net
Other income, net, for the 2021 fourth quarter was $21 thousand compared to other expense, net of $127 thousand in the 2020 fourth quarter, a variance of $148 thousand, due primarily to lower letter of credit fees and realized exchange gains on foreign currency.
Income Taxes
An income tax benefit of $0.3 million was recorded in the 2021 fourth quarter compared to $48 thousand in the 2020 fourth quarter. Effective tax rates were 12.1% and 3.1% for the 2021 fourth quarter and the 2020 fourth quarter, respectively. The increase in the effective tax rate for fiscal 2021 as compared to fiscal 2021 was driven primarily by the recording of a U.S. federal current tax benefit in fiscal 2021 in conjunction with the receipt of the AMT credit refund.
Liquidity and Capital Resources
As of February 26, 2021, the Company’s availability under the Revolving Line of Credit was $5.3 million. This reflected cash borrowings of $17.0 million and net outstanding standby letters of credit of approximately $2.7 million. As of August 2, 2021, the date of our most current Revolving Line of Credit statement, the Company’s availability under the Revolving Line of Credit was also approximately $2.7 million. The Company had working capital of $10.0 million as of February 26, 2021 compared to working capital of $18.0 million as of February 28, 2020. 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 2022 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 2022.
Cash flows from operating activities
During fiscal 2021, due primarily from the conversion of contract assets into cash, the Company broke even with respect to cash flows from operating activities compared to using $9.3 million in fiscal 2020.
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 2021 and fiscal 2020 investing activities used $0.1 million and $0.3 million, respectively, 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 manufacturing and ETSS testing capabilities.
Cash flows from financing activities
During fiscal 2021, the Company’s financing activities used $0.6 million of cash for repayments under the Company’s credit facility, offset, in part, by proceeds from the Paycheck Protection Program loan. During fiscal 2020, the Company’s financing activities provided $7.7 million of cash from borrowings under the Company’s credit facility.
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.
On November 27, 2019, the Company entered into an asset purchase agreement to sell substantially all of its rights, title, and interest in and to the assets related to monoplace chambers.
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.
| 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 | Fifty-three weeks ended | Variance | ||||||||||||
| 26-Feb-21 | 28-Feb-20 | $ | % | |||||||||||
| Net sales | $ | 16,250 | $ | 40,580 | $ | (24,330 | ) | -60.0 | ||||||
| Cost of goods sold | 14,986 | 31,623 | (16,637 | ) | -52.6 | |||||||||
| Gross profit | 1,264 | 8,957 | (7,693 | ) | -85.9 | |||||||||
| Gross profit margin % | 7.8 | % | 22.1 | % | -14.3 | % | -64.7 | % | ||||||
| Operating expenses | 8,483 | 11,678 | (3,195 | ) | -27.4 | |||||||||
| Operating loss | (7,219 | ) | (2,721 | ) | (4,498 | ) | 165.3 | |||||||
| Operating margin % | -44.4 | % | -6.7 | % | -37.7 | % | 562.7 | % | ||||||
| Interest expense, net | 650 | 779 | (129 | ) | -16.6 | |||||||||
| Other expense, net | 19 | 497 | (478 | ) | -96.2 | |||||||||
| Loss before income taxes | (7,888 | ) | (3,997 | ) | (3,891 | ) | 97.3 | |||||||
| Pre-tax margin % | -48.5 | % | -9.8 | % | -38.7 | % | 394.9 | % | ||||||
| Income tax (benefit) provision | (272 | ) | 12 | (284 | ) | |||||||||
| Net loss | (7,616 | ) | (4,009 | ) | (3,607 | ) | 90.0 | |||||||
| Loss (income) attributable to non-controlling interest | 124 | (9 | ) | 133 | ||||||||||
| Net loss attributable to ETC | (7,492 | ) | (4,018 | ) | (3,474 | ) | 86.5 | |||||||
| Preferred Stock dividends | (484 | ) | (493 | ) | 9 | -1.8 | ||||||||
| Loss attributable to common and participating shareholders | $ | (7,976 | ) | $ | (4,511 | ) | $ | (3,465 | ) | 76.8 | ||||
| Per share information: | ||||||||||||||
| Basic earnings (loss) per common and participating share: | ||||||||||||||
| Distributed earnings per share: | ||||||||||||||
| Common | $ | – | $ | – | $ | – | ||||||||
| Preferred | $ | 0.08 | $ | 0.08 | $ | – | 0.0 | |||||||
| Undistributed loss per share: | ||||||||||||||
| Common | $ | (0.51 | ) | $ | (0.29 | ) | $ | (0.22 | ) | 75.9 | ||||
| Preferred | $ | (0.51 | ) | $ | (0.29 | ) | $ | (0.22 | ) | 75.9 | ||||
| Diluted loss per share | $ | (0.51 | ) | $ | (0.29 | ) | $ | (0.22 | ) | 75.9 | ||||
| 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 | ||||||||||||||
| (in thousands, except per share information) | ||||||||||||||
| Thirteen weeks ended | Variance | |||||||||||||
| 26-Feb-21 | 28-Feb-20 | $ | % | |||||||||||
| Net sales | $ | 3,677 | $ | 10,046 | $ | (6,369 | ) | -63.4 | ||||||
| Cost of goods sold | 3,713 | 7,735 | (4,022 | ) | -52.0 | |||||||||
| Gross (loss) profit | (36 | ) | 2,311 | (2,347 | ) | |||||||||
| Gross margin % | -1.0 | % | 23.0 | % | -24.0 | % | ||||||||
| Operating expenses | 2,584 | 3,513 | (929 | ) | -26.4 | |||||||||
| Operating loss | (2,620 | ) | (1,202 | ) | (1,418 | ) | 118.0 | |||||||
| Operating margin % | -71.3 | % | -12.0 | % | -59.3 | % | 494.2 | % | ||||||
| Interest expense, net | 143 | 220 | (77 | ) | -35.0 | |||||||||
| Other (income) expense, net | (21 | ) | 127 | (148 | ) | |||||||||
| Loss before income taxes | (2,742 | ) | (1,549 | ) | (1,193 | ) | 77.0 | |||||||
| Pre-tax margin % | -74.6 | % | -15.4 | % | -59.2 | % | 384.4 | % | ||||||
| Income tax benefit | (332 | ) | (48 | ) | (284 | ) | 591.7 | |||||||
| Net loss | (2,410 | ) | (1,501 | ) | (909 | ) | 60.6 | |||||||
| Loss attributable to non-controlling interest | 61 | 33 | 28 | 84.8 | ||||||||||
| Net loss attributable to ETC | (2,349 | ) | (1,468 | ) | (881 | ) | 60.0 | |||||||
| Preferred Stock dividends | (121 | ) | (121 | ) | – | 0.0 | ||||||||
| Loss attributable to common and participating shareholders | $ | (2,470 | ) | $ | (1,589 | ) | $ | (881 | ) | 55.4 | ||||
| Per share information: | ||||||||||||||
| Basic earnings (loss) per common and participating share: | ||||||||||||||
| Distributed earnings per share: | ||||||||||||||
| Common | $ | – | $ | – | $ | – | ||||||||
| Preferred | $ | 0.02 | $ | 0.02 | $ | – | 0.0 | |||||||
| Undistributed loss per share: | ||||||||||||||
| Common | $ | (0.16 | ) | $ | (0.10 | ) | $ | (0.06 | ) | 60.0 | ||||
| Preferred | $ | (0.16 | ) | $ | (0.10 | ) | $ | (0.06 | ) | 60.0 | ||||
| Diluted loss per share | $ | (0.16 | ) | $ | (0.10 | ) | $ | (0.06 | ) | 60.0 | ||||
| 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-three weeks ended | Thirteen weeks ended | |||||||||||||
| 26-Feb-21 | 28-Feb-20 | 26-Feb-21 | 28-Feb-20 | ||||||||||||
| EBITDA * | $ | (5,925 | ) | $ | (2,011 | ) | $ | (2,199 | ) | $ | (1,014 | ) | |||
| As of | |||||||||||||||
| 26-Feb-21 | 28-Feb-20 | ||||||||||||||
| Working capital | $ | 10,032 | $ | 17,979 | |||||||||||
| Total shareholders’ (deficit) equity | $ | (76 | ) | $ | 8,023 | ||||||||||
* 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.
