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ETC Announces Fiscal 2024 Full Year and Fourth Quarter Results

SOUTHAMPTON, PA, USA, June 7, 2024 – Environmental Tectonics Corporation (OTC Pink: ETCC) (“ETC” or the “Company”) today reported its financial results for the thirteen week period ended February 23, 2024 (the “2024 fiscal fourth quarter”) and the fifty-two week period ended February 23, 2024 (“fiscal 2024”).

Robert L. Laurent, Jr., ETC’s Chief Executive Officer and President stated, “Our strong backlog and pipeline of opportunities has translated into solid results with sales increasing to $43.3 million, gross profit increasing to $12.5 million, and net income attributable to ETC increasing to $1.8 million or $0.09 earnings per diluted share in fiscal 2024 as compared to a net loss attributable to ETC of ($1.6) million or ($0.13) loss per diluted share in fiscal 2023.  We believe we remain well positioned for the future with a backlog of $109 million compared to $104 million at prior year-end.”

Fiscal 2024 Results of Operations

Net Income (Loss) Attributable to ETC

Net income attributable to ETC was $1.8 million, or $0.09 earnings per diluted share, in fiscal 2024, compared to net loss attributable to ETC of ($1.6) million during fiscal 2023, equating to ($0.13) loss per diluted share.  The $3.4 million favorable variance is a direct result of $17.0 million increase in sales as well as a 3.8% increase in gross profit margin percentage; slightly offset by $2.2 million unfavorable variance in other expense (income) primarily attributable to the gain on the sale of its Southampton, Pennsylvania facility in fiscal 2023.

Net Sales

Net sales for fiscal 2024 were $43.3 million, an increase of $17.0 million, or 64.4%, compared to fiscal 2023 net sales of $26.3 million.  The increase is a result of higher International sales of $23.8 million, of which $13.5 million are within the ATS business unit and $10.4 million within the CIS segment, partially offset by lower Domestic sales of $6.7 million, $6.0 million of which are within the CIS segment.  As the majority of the CIS segment sales are to large multinational medical device manufacturers, there can be significant variability between their domestic and international location requirements, which occurred in fiscal 2024 as compared to fiscal 2023.  We continue to see a strong pipeline of opportunities in our CIS segment, both domestic and international.

Gross Profit

Gross profit for fiscal 2024 was $12.5 million compared to $6.6 million in fiscal 2023, an increase of $5.9 million, or 89.7%.  The increase in gross profit was due to higher net sales within the ATS and Sterilizer Systems business units, along with a more favorable mix and better absorption of overhead costs. Gross profit margin as a percentage of net sales increased to 28.8% in fiscal 2024 compared to 24.9% in fiscal 2023.

Operating Expenses

Operating expenses, including sales and marketing, general and administrative, and research and development, for fiscal 2024 and 2023 were consistent at $9.5 million, as an increase in selling and marketing expense, primarily driven by higher sales, was offset by a decrease in research and development

Interest Expense, Net

Interest expense, net, for fiscal 2024 was $0.9 million compared to $0.4 million in fiscal 2023, an increase of $0.5 million, or 104.7%, due primarily to increased borrowing and higher interest rates throughout the current fiscal year.

Other Expense (Income), Net

Other expense, net, for fiscal 2024 was $0.3 million, compared to other income, net, of ($1.9) million in fiscal 2023, realized from the sale of its Southampton, Pennsylvania facility, a decrease of $2.2 million, or 115.4% in fiscal 2024 compared to fiscal 2023.

Income Taxes

As of February 23, 2024, 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 a $7.9 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 benefit of $0.1 million was recorded in fiscal 2024 compared to income tax provision of $0.2 million recorded in fiscal 2023.  Effective tax rates were -2.8% and -14.9% for fiscal 2024 and fiscal 2023, respectively. The decrease in the effective tax rate for fiscal 2024 as compared to fiscal 2023 was driven primarily by the change in the full valuation allowance amount as it relates to all deferred tax assets, largely attributable to the change in net operating loss carryforward amounts, as well as the net effect of the current year state and foreign income tax expense (benefit) created.

Fiscal 2024 Fourth Quarter Results of Operations

Net Income (Loss) Attributable to ETC

Net income attributable to ETC was $2.8 million, or $0.17 earnings per diluted share, in the 2024 fiscal fourth quarter, compared to net loss of ($1.4) million during the 2023 fiscal fourth quarter, equating to ($0.10) loss per diluted share. The $4.2 million variance is a result of $7.6 million of increased sales and 11.7% increase in gross profit margin percentage.   

Net Sales

Net sales for the 2024 fiscal fourth quarter were $16.4 million, an increase of $7.6 million, or 86.8%, compared to net sales of $8.8 million for the 2023 fiscal fourth quarter. The increase reflects higher overall sales within the ATS and Sterilizer Systems business units. 

Gross Profit

Gross profit was $5.5 million in the 2024 fiscal fourth quarter, an increase of $3.6 million, or 186.9% compared to gross profit of $1.9 million for the 2023 fiscal fourth quarter. This was a direct result of increase in net sales as well as gross margin as a percentage of net sales, which increased to 33.5% in the 2024 fiscal fourth quarter compared to 21.8% in the 2023 fiscal fourth quarter, a result of the product mix and better leverage of our semi-variable overhead cost base.

Operating Expenses

Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2024 fiscal fourth quarter were $2.5 million, a decrease of $0.4 million, or 14.0%, compared to $2.9 million for the 2023 fiscal fourth  quarter.  The decrease in operating expenses was due primarily to lower research and development costs of $0.4 million in the 2024 fiscal fourth quarter compared to the 2023 fiscal fourth quarter.

Interest Expense, Net

Interest expense, net, for the 2024 fiscal fourth quarter was $0.2 million compared to $0.1 million in the 2023 fiscal fourth quarter, reflecting increased borrowing and higher interest rates during the 2024 fiscal fourth quarter.

Other (Income) Expense, Net

Other expenses, net, for the fiscal 2024 fourth quarter was $0.1 million compared to other expense, net of $0.2 million in the 2023 fourth quarter, a variance of $0.1 million. 

Income (Benefit) Taxes 

An income tax benefit of $0.2 million was recorded in the fiscal 2024 fourth quarter compared to provision of $0.1 million in the 2023 fiscal fourth quarter.

Liquidity and Capital Resources

As of February 23, 2024, the Company’s availability under the Revolving Line of Credit was $4.0 million.  This reflected cash borrowings of $11.7 million and net outstanding standby letters of credit of approximately $4.3 million.  As of June 7, 2024, the date of our most current Revolving Line of Credit statement, the Company’s availability under the Revolving Line of Credit was approximately $6.5 million.  The Company had working capital of $8.7 million as of February 23, 2024 compared to working capital of $5.1 million as of February 24, 2023.

The increase in working capital was primarily the result of a significant increase in accounts receivable, net and contract assets partially offset by an increase in accounts payable, trade and 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 2025 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 2025.

Cash flows from operating activities

During fiscal 2024, cash flows used by operating activities were $3.7 million, a decrease of $5.1 million compared to fiscal 2023 cash flows provided of $1.4 million. Cash flows in fiscal 2024 decreased as a result of the increase in accounts receivable and contract assets partially offset by net income for the fiscal year.  

Cash flows from investing activities

During fiscal 2024, the Company invested $0.3 million towards property, plant and equipment. This compares to fiscal 2023 cash provided by investing activities of $4.5 million, including $4.7 million as a result of a sale leaseback of the facility in Southampton, PA. in fiscal 2023. 

Cash flows from financing activities

During fiscal 2024, the Company’s financing activities included $2.7 million borrowings under the Company’s credit facility to support the significant increase in manufacturing, compared to fiscal 2023 repayments of $3.2 million.

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.