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ETC Announces Fiscal 2019 Second Quarter Results

Financial Statement Highlights from the Fiscal 2019 Second Quarter:

• Net sales of $10.3 million
• Net income attributable to ETC increased 7.7% to $0.4 million

 
SOUTHAMPTON, PA, USA, October 8, 2018 – Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended August 24, 2018 (the “2019 second quarter”) and the twenty-six week period ended August 24, 2018 (the “2019 first half”).
 
Robert L. Laurent, Jr., ETC’s Chief Executive Officer and President stated, “Our strong backlog entering fiscal 2019 and our lowered operating expenses are translating into solid results as our net income attributable to ETC for the 2019 first half has doubled compared to prior year’s first half.”
 
Fiscal 2019 Second Quarter Results of Operations
 
Net Income Attributable to ETC
Net income attributable to ETC was $0.4 million, or $0.02 diluted earnings per share, in both the 2019 second quarter and the 2018 second quarter. Although most items contributing to net income attributable to ETC remained flat quarter over quarter, there was a $0.1 million increase in operating expenses that was offset by a $0.1 million decrease in other expense, net.
 
Net Sales
Net sales in the 2019 second quarter were $10.3 million, an increase of $0.2 million, or 1.6%, compared to 2018 second quarter net sales of $10.1 million. The increase reflects higher International sales, especially within our Aerospace segment, offset, in part, by a decrease in Domestic sales, especially within our CIS segment.
 
Gross Profit
Gross profit for both the 2019 second quarter and the 2018 second quarter was $3.7 million. Gross profit margin as a percentage of net sales also remained relatively flat quarter over quarter at 36.4% for the 2019 second quarter compared to 36.5% for the 2018 second quarter.
 
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2019 second quarter were $2.9 million, an increase of $0.1 million, or 5.0%, compared to $2.8 million for the 2018 second quarter. The slight increase in operating expenses was due primarily to an increase in commission expense based on a higher concentration of International sales related to ATS products, offset, in part, by the conclusion of a consulting agreement with the Company’s former Chief Executive Officer.
 
Other Expense, Net
Other expense, net for the 2019 second quarter was $0.1 million compared to $0.2 million in the 2018 second quarter, a decrease of $0.1 million due to the combination of a decrease in net realized foreign currency exchange losses and a decrease in letter of credit fees.

Fiscal 2019 First Half Results of Operations

Net Income Attributable to ETC
Net income attributable to ETC was $1.0 million, or $0.05 diluted earnings per share, in the 2019 first half, compared to $0.5 million during the 2018 first half, equating to $0.02 diluted earnings per share. The $0.5 million increase is due to the combined effect of a $0.3 million increase in gross profit, a $0.2 million decrease in operating expenses, and a $0.1 million decrease in other expense, net, offset, in part, by and a $0.1 million increase in interest expense.
 
Net Sales
Net sales in the 2019 first half were $20.9 million, a decrease of $0.6 million, or 2.9%, compared to 2018 first half net sales of $21.6 million. The decrease reflects a reduction in Domestic sales, especially within our Environmental and ATS business units, offset, in part, by an increase in International sales, especially within our ATS and Hyperbaric Chambers business units, and an increase in sales of ethylene oxide sterilizers within the Sterilizers business unit to Domestic customers.
 
Gross Profit
Gross profit for the 2019 first half was $7.6 million compared to $7.3 million in the 2018 first half, an increase of $0.3 million, or 4.8%. The increase in gross profit was due to a higher blended gross profit margin as a percentage of net sales, which increased to 36.4% for the 2019 first half compared to 33.7% for the 2018 first half. The increase in gross profit margin as a percentage of net sales was due primarily to a higher concentration of net sales from more off-the-shelf type products requiring less initial design and engineering work.
 
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2019 first half were $5.8 million, a decrease of $0.2 million, or 3.8%, compared to $6.0 million for the 2018 first half. The decrease in operating expenses was due primarily to the conclusion of a consulting agreement with the Company’s former Chief Executive Officer.
 
Interest Expense, Net
Interest expense, net for the 2019 first half was $0.5 million compared to $0.4 million in the 2018 first half, an increase of $0.1 million due to the combination of a higher level of bank borrowing and an increase in interest rates.
 
Other Expense, Net
Other expense, net for the 2019 first half was $0.2 million compared to $0.3 million in the 2018 first half, a decrease of $0.1 million due to the combination of a decrease in net realized foreign currency exchange losses and a decrease in letter of credit fees.
 
Cash Flows from Operating, Investing, and Financing Activities
During the 2019 first half, as a result of an increase in contract assets and accounts receivable, offset, in part by an increase in contract liabilities, the Company used $2.6 million of cash for operating activities compared to $0.6 million during the 2018 first half. Under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), commonly referred to as Accounting Standards Codification (“ASC”) 606, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers, 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 $0.1 million in the 2019 first half compared to $0.3 million in the 2018 first half.
 
The Company’s financing activities provided $2.8 million of cash in the 2019 first half from borrowings under the Company’s various lines of credit compared to $1.3 million during the 2018 first half.
 
About ETC
ETC was incorporated in 1969 in Pennsylvania. For nearly 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, 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/.
 
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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 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.