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ETC Announces Fiscal 2019 Third Quarter Results

Financial Statement Highlights from the Fiscal 2019 Third Quarter:

• Net sales of $11.9 million
• Operating margins increased 32.5%
• Net income attributable to ETC increased 44.5% to $0.9 million

SOUTHAMPTON, PA, USA, January 7, 2019 – Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended November 23, 2018 (the “2019 third quarter”) and the thirty-nine week period ended November 23, 2018 (the “2019 first three quarters”).

Fiscal 2019 Third Quarter Results of Operations

Net Income Attributable to ETC

Net income attributable to ETC was $0.9 million, or $0.05 diluted earnings per share, in the 2019 third quarter, compared to $0.6 million during the 2018 third quarter, equating to $0.03 diluted earnings per share.  The $0.3 million increase is due to the combined effect of a $0.2 million decrease in operating expenses and a $0.1 million increase in gross profit.

Net Sales

Net sales in the 2019 third quarter were $11.9 million, a decrease of $0.1 million, or 0.5%, compared to 2018 third quarter net sales of $12.0 million.  The decrease is due to the combined effect of a $0.2 million decrease in both Domestic and U.S. Government sales, offset, in part, by a $0.3 million increase in International sales.  The variances in U.S. Government and International sales occurred primarily within the Aerospace segment.  The variance in Domestic sales was due to a $0.4 million decrease in Domestic sales of our ADMS line of products, offset, in part, by a $0.2 million increase in Domestic sales within our CIS segment, which was primarily due to the combined effect of a $0.7 million increase in sales of sterilizers offset by a $0.5 million decrease in sales of environmental testing and simulation systems (“ETSS”).

Gross Profit

Gross profit for the 2019 third quarter was $4.1 million compared to $4.0 million in the 2018 third quarter, an increase of $0.1 million, or 3.3%.  The increase in gross profit was due to a higher blended gross profit margin as a percentage of net sales, which increased to 34.9% for the 2019 third quarter compared to 33.6% for the 2018 third quarter.  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 third quarter were $2.9 million, a decrease of $0.2 million, or 5.7%, compared to $3.1 million for the 2018 third quarter.  The decrease in operating expenses was due primarily to a decrease in commission expense.

Fiscal 2019 First Three Quarters Results of Operations

Net Income Attributable to ETC

Net income attributable to ETC was $2.0 million, or $0.10 diluted earnings per share, in the 2019 first three quarters, compared to $1.2 million during the 2018 first three quarters, equating to $0.05 diluted earnings per share.  The $0.8 million increase is due to the combined effect of a $0.5 million increase in gross profit and a $0.4 million decrease in operating expenses, offset, in part, by and a $0.1 million increase in interest expense.

Net Sales

Net sales in the 2019 first three quarters were $32.8 million, a decrease of $0.7 million, or 2.1%, compared to 2018 first three quarters net sales of $33.5 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 three quarters was $11.8 million compared to $11.3 million in the 2018 first three quarters, an increase of $0.5 million, or 4.3%.  The increase in gross profit was due to a higher blended gross profit margin as a percentage of net sales, which increased to 35.9% for the 2019 first three quarters compared to 33.7% for the 2018 first three quarters.  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 three quarters were $8.7 million, a decrease of $0.4 million, or 4.4%, compared to $9.1 million for the 2018 first three quarters.  The decrease in operating expenses was due primarily to a reduction in expenses related to the Company’s process to explore strategic alternatives, the conclusion of a consulting agreement with the Company’s former Chief Executive Officer, a decrease in commission and research and development expenses, offset, in part, by an increase in the allowance for doubtful accounts.

Interest Expense, Net

Interest expense, net for the 2019 first three quarters was $0.7 million compared to $0.6 million in the 2018 first three quarters, an increase of $0.1 million due to the combination of a higher level of bank borrowing and an increase in interest rates.

Cash Flows from Operating, Investing, and Financing Activities

During the 2019 first three quarters, as a result of an increase in contract assets and inventories, offset, in part by an increase in contract liabilities and other accrued liabilities, the Company used $1.7 million of cash for operating activities compared to $2.1 million during the 2018 first three quarters.  Under ASC 606, contract assets and contract liabilities 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 three quarters compared to $0.3 million in the 2018 first three quarters.

The Company’s financing activities provided $1.7 million of cash in the 2019 first three quarters from borrowings under the Company’s various lines of credit compared to $2.7 million during the 2018 first three quarters.

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/.

– Financial Tables Follow –

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.