ETC Announces Fiscal 2017 First Quarter Results
Financial Statement Highlights from the Fiscal 2017 First Quarter:
- Net sales increased 12.4% to $10.7 million
- Operating expenses decreased $0.3 million, or 8.2%
SOUTHAMPTON, PA, USA, September 15, 2016 – Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended May 27, 2016 (the “2017 first quarter”).
Fiscal 2017 First Quarter Results of Operations
Net Loss Attributable to ETC
Net loss attributable to ETC was $478 thousand, or $0.04 diluted loss per share, in the 2017 first quarter, compared to a net loss attributable to ETC of $240 thousand during the 2016 first quarter, equating to $0.02 diluted loss per share. The $238 thousand variance is comprised of a $110 thousand decrease in gross profit, an $18 thousand increase in interest expense, a $191 thousand increase in other expense, and a $184 thousand variance between the $24 thousand income tax provision recorded in the 2017 first quarter compared to the $160 thousand income tax benefit recorded in the 2016 first quarter, offset in part, by a $263 thousand decrease in operating expenses and a $2 thousand variance between the $1 thousand loss attributable to non-controlling interest recorded in the 2017 first quarter compared to the $1 thousand income attributable to non-controlling interest recorded in the 2016 first quarter.
Net sales in the 2017 first quarter were $10.7 million, an increase of $1.2 million, or 12.4%, compared to 2016 first quarter net sales of $9.5 million. The increase reflects increased sales related to ATS products including Chambers and ETC-PZL, as well as our ADMS line of products, within our Aerospace segment to International customers and overall increased sales of monoplace chambers, offset in part, by decreased sales related to ATS products including Chambers, as well as our ADMS line of products, within our Aerospace segment to the U.S. Government and decreased sales of Sterilization Systems to Domestic customers. Given the current progress made on U.S. Government contracts in the Company’s sales backlog, coupled with significant fiscal 2016 International bookings, the Company anticipates that the concentration of sales to the U.S. Government will decrease in fiscal 2017 as International sales increase.
Gross profit for the 2017 first quarter was $2.9 million compared to $3.0 million in the 2016 first quarter, a decrease of $0.1 million, or 3.6%. The decrease in gross profit was a combination of a significant portion of revenue being recognized on several low margin contracts as a significant portion of costs related to these contracts were incurred in the 2017 first quarter and additional work required to advance through the testing phase of a another contract. Gross profit margin as a percentage of net sales decreased to 27.4% for the 2017 first quarter compared to 32.0% for the 2016 first quarter.
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2017 first quarter were $2.9 million, a decrease of $0.3 million, or 8.2%, compared to $3.2 million for the 2016 first quarter. The decrease is due primarily to the on-going effort to reduce non-revenue generating general and administrative expenses.
Other Expense, Net
Other expense, net, for the 2017 first quarter was $222 thousand compared to $31 thousand in the fiscal 2016 first quarter, an increase of $191 thousand, or 616.1%, due to the combination of an increase in realized foreign currency exchange net losses coupled with the absence of a one-time other expense reduction related to ETC-PZL that occurred in the fiscal 2016 first quarter.
Cash Flows from Operating, Investing, and Financing Activities
During the 2017 first quarter, as a result of an increase in billings in excess of costs and estimated earnings on uncompleted long-term contracts and an increase in accounts payable, offset in part, by an increase in accounts receivable, the Company generated $0.2 million of cash from operating activities similar to the $0.2 million of cash provided by operating activities during the 2016 first quarter. Under percentage-of-completion (“POC”) revenue recognition, 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 $0.2 million in the 2017 first quarter compared to $0.4 million in the 2016 first quarter.
The Company’s financing activities used $0.3 million of cash in the 2017 first quarter on repayments under the Company’s various lines of credit, offset in part, by a decrease in restricted cash. In the 2016 first quarter, the Company’s financing activities used $0.1 million of cash on repayments under the Company’s various lines of credit.
ETC was incorporated in 1969 in Pennsylvania. For over four decades, we have provided our customers with products, service, 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 devices; 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) environmental testing and simulation devices; 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.
We presently have two operating subsidiaries. ETC-PZL Aerospace Industries Sp. z o.o. (“ETC-PZL”), our 95%-owned subsidiary in Warsaw, Poland, manufactures certain simulators and provides software to support products manufactured domestically within our Aerospace segment. Environmental Tectonics Corporation (Europe) Limited (“ETC-Europe”), our 99%-owned subsidiary, functions 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/.
Financial Tables Follow
* 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.
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 terminology 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.