ETC Announces Fiscal 2023 Full Year and Fourth Quarter Results
SOUTHAMPTON, PA, USA, June 9, 2023 – Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended February 24, 2023 (the “2023 fourth quarter”) and the fifty-two week period ended February 24, 2023 (“fiscal 2023”).
Robert L. Laurent, Jr., ETC’s Chief Executive Officer and President stated, “We are pleased with sales increasing 37.7% to $26.3 million and gross profit increasing 52.1% to $6.6 million. A better indication of future sales comes from the $110 million in orders received, representing an $88 million increase from the prior year and bringing our backlog to $104 million compared to $19 million at prior year-end.”
Fiscal 2023 Results of Operations
Bookings / Sales Backlog
Bookings in fiscal 2023 were $110.1 million, leaving our sales backlog as of February 24, 2023, which represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer, at $103.6 million compared to $19.3 million as of February 25, 2022. We expect to recognize as revenue approximately 54% of the total sales backlog as of February 23, 2024 over the next twelve (12) months and approximately 90% over the next twenty-four (24) months, with the remainder to be recognized thereafter. Of the February 24, 2023 sales backlog, $83.7 million, or 80.8%, pertains to one International contract within the Aerospace segment.
Net (Loss) Attributable to ETC
Net (loss) attributable to ETC was $1.6 million, or $0.13 diluted (loss) per share, in fiscal 2023, compared to net earnings of $1.8 million during fiscal 2022, equating to $0.08 diluted earnings per share. The $3.4 million unfavorable variance is a direct result of Other Income from fiscal 2022 not reoccurring in 2023, in addition to negative results from the company’s subsidiary. The prior year, 2022, had one time favorable event of the Employee Retention Credit of $2.78 million, which 2023 did not.
Net sales for fiscal 2023 were $26.3 million, an increase of $7.2 million, or 37.7%, compared to fiscal 2022 net sales of $19.1 million. The increase is a result of higher Domestic sales of $5.4 million, all of which are within CIS, along with higher International sales of $1.6 million, all of which are within ATS. Further, sales in fiscal 2023 increased the greatest within the Sterilizers business unit, accounting for $3.5 million of the overall increase of $7.2 million.
Gross profit for fiscal 2023 was $6.6 million compared to $4.3 million in fiscal 2022, an increase of $2.2 million, or 52.1%. The increase in gross profit was due to higher net sales within the Sterilizers System business unit, along with a more favorable mix and overhead absorption. Gross profit margin as a percentage of net sales increased to 24.9% in fiscal 2023 compared to 22.6% in fiscal 2022.
Operating expenses, including sales and marketing, general and administrative, and research and development, for fiscal 2022 were $9.5 million, an increase of $2.2 million, or 29.2%, compared to $7.3 million for fiscal 2022. The increase in operating expenses was due to headcount increases, along with unplanned increases in expenses related to ETC-PZL.
Interest Expense, Net
Interest Expense, Net Interest expense, net, for fiscal 2023 was $0.4 million compared to $0.5 million in fiscal 2022, a decrease of $0.1 million, or 16.7%, due primarily to reduced borrowing throughout the fiscal year.
Other Income, Net
Other income, net, for fiscal 2023 was $1.9 million, realized from the sales of its Southampton facility, compared to other income, net, of $5.2 million in fiscal 2022, gained by the forgiveness of the Paycheck Protection Program (PPP) loan and the US Government’s Employee Retention Credit (ERC) program.
As of February 24, 2023, 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 NOL 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 an $8.4 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 provision of $0.2 million was recorded in fiscal 2023 compared to income tax benefit of $0.1 million recorded in fiscal 2022. Effective tax rates were -14.9% and -7.9% for fiscal 2023 and fiscal 2022, respectively. The increase in the effective tax rate for fiscal 2023 as compared to fiscal 2022 was driven primarily by taking full valuation in fiscal 2023 on deferred tax assets relating primarily to federal NOL carryforwards.
Fiscal 2023 Fourth Quarter Results of Operations
Net Income (Loss) Attributable to ETC
Net (loss) attributable to ETC was $1.4 million, or $0.10 diluted (loss) per share, in the 2023 fourth quarter, compared to net earnings of $1.9 million during the 2022 fourth quarter, equating to $0.12 diluted earnings per share. The $3.3 million variance is a result of $2.78 million of earnings gained related to the Employee Retention Credit program.
Net sales for the 2023 fourth quarter were $8.8 million, an increase of $4.6 million, or 107.2%, compared to net sales of $4.2 million for the 2022 fourth quarter. The increase reflects higher overall sales within ATS and increased Domestic sales within Sterilizers.
Gross (Loss) Profit
ETC incurred a gross profit of $1.9 million in the 2023 fourth quarter, an increase of $0.7 million compared to the gross profit of $1.2 million for the 2022 fourth quarter. This was a direct result of increase in net sales. Gross margin as a percentage of net sales decreased to 21.8% in the 2023 fourth quarter compared to 28.7% in the 2022 fourth quarter, a result of the product mix.
Operating expenses, including sales and marketing, general and administrative, and research and development, for the fiscal 2023 fourth quarter were $2.9 million, an increase of $0.8 million, or 41.1%, compared to $2.1 million for the fiscal 2022 fourth quarter. The increase in operating expenses was due primarily to an increase in commission expenses, along with research and development costs related to ETC-PZL.
Interest Expense, Net
Interest expense, net, for the 2023 fourth quarter was $0.1 million compared to $0.1 million in the 2022 fourth quarter, reflecting no change from prior year.
Other (Income) Expense, Net
Other expenses, net, for the fiscal 2023 fourth quarter was $0.2 million compared to other income, net of $2.7 million in the 2022 fourth quarter, a variance of $2.9 million due primarily to the income related to the (ERC) of $2.8 million.
An income tax provision of $0.1 million was recorded in the fiscal 2023 fourth quarter compared to benefit of $0.2 million in the 2022 fourth quarter.
Liquidity and Capital Resources
As of February 24, 2023, the Company’s availability under the Revolving Line of Credit was $7.5 million. This reflected cash borrowings of $9.3 million and net outstanding standby letters of credit of approximately $3.2 million. As of June 9, 2023, the Company’s availability under the Revolving Line of Credit was approximately $1.4 million. The Company had working capital of $3.5 million as of February 24, 2023 compared to working capital of $6.6 million as of February 25, 2022.
The decrease in working capital was primarily the result of a significant decrease in accounts receivable and inventory, in addition to an increase in contract liabilities. 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 2023 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 2023.
Cash flows from operating activities
During fiscal 2023, cash flows provided by operating activities were $1.4 million, a decrease of $.09 million compared to fiscal 2022 cash flows of $2.3 million. Cash flows in fiscal 2023 decreased as a result of a net loss for the fiscal year.
Cash flows from investing activities
During fiscal 2023, cash provided by investing activities included $4.5 million as a result of a sale leaseback offset in part by $0.2 million investment in property, plant and equipment. This compares to $0.2 million in investment in property, plant and equipment in fiscal 2022.
Cash flows from financing activities
During fiscal 2023, the Company’s financing activities used $3.2 million of cash for repayments under the Company’s credit facility, compared to $3.6 million being used in fiscal 2022.
Financial Tables Follow
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.