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ETC Announces Fiscal 2020 First Quarter Results

SOUTHAMPTON, PA, USA, August 16, 2019 – Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the fourteen week period ended May 31, 2019 (the “2020 first quarter”).
 
Fiscal 2020 First Quarter Results of Operations
 
Net (Loss) Income Attributable to ETC
Net loss attributable to ETC was $0.5 million, or $0.04 diluted loss per share, in the 2020 first quarter, compared to net income attributable to ETC of $0.6 million during the 2019 first quarter, equating to $0.03 diluted earnings per share. The $1.1 million variance is due to the combined effect of a $1.4 million decrease in gross profit and a $0.1 million increase in other expense, net, offset, in part, by a $0.3 million decrease in operating expenses and a $0.1 million decrease in interest expense.
 
Net Sales
Net sales in the 2020 first quarter were $10.8 million, an increase of $0.1 million, or 1.2%, compared to 2019 first quarter net sales of $10.7 million. The increase reflects higher International sales of ethylene oxide sterilizers, offset, in part, by a decrease in Domestic sales within our CIS segment.
 
Gross Profit
Gross profit for the 2020 first quarter was $2.5 million compared to $3.9 million in the 2019 first quarter, a decrease of $1.4 million, or 36.3%. The decrease in gross profit was due to a lower blended gross profit margin as a percentage of net sales, which decreased to 22.9% for the 2020 first quarter compared to 36.4% for the 2019 first quarter. The decrease in gross profit margin as a percentage of net sales was due primarily to the completion and delivery of two (2) significant International ATS contracts during fiscal 2019, which resulted in the Company entering fiscal 2020 with a lower backlog comprised of contracts with comparably lower estimated profit booking rates.
 
Operating Expenses
Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2020 first quarter were $2.6 million, a decrease of $0.3 million, or 11.4%, compared to $2.9 million for the 2019 first quarter. The decrease in operating expenses was due primarily to the receipt of payments received for research grants, which are recorded as a reduction to research and development costs.
 
Interest Expense, Net
Interest expense, net for the 2020 first quarter was $0.2 million compared to $0.3 million in the 2019 first quarter, a decrease of $0.1 million due to a lower level of bank borrowing.
 
Other Expense, Net
Other expense, net for the 2020 first quarter was $0.2 million compared to $0.1 million in the 2019 first quarter, an increase of $0.1 million due to higher letter of credit fees.
 
Cash Flows from Operating, Investing, and Financing Activities
During the 2020 first quarter, as a result of an increase in accounts receivable and a decrease in contract liabilities and accrued taxes, offset, in part by a decrease in contract assets, the Company used $6.7 million of cash for operating activities compared to $2.1 million during the 2019 first quarter. Under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), commonly referred to as Accounting Standards Codification (“ASC”) 606, these accounts, other than accrued taxes, 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 both the 2020 first quarter and the 2019 first quarter.
 
The Company’s financing activities provided $5.6 million of cash in the 2020 first quarter from borrowings under the Company’s credit facility compared to $2.6 million during the 2019 first quarter.
 

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.