ETC Announces Fiscal 2018 Second Quarter Results

For Immediate Release

Financial Statement Highlights from the Fiscal 2018 Second Quarter:

• Net sales increased 35.2% to $10.1 million
• Gross profit increased 56.3% to $3.7 million
• Net income attributable to ETC increased $1.2 million

SOUTHAMPTON, PA, USA, September 21, 2017 - Environmental Tectonics Corporation ETCC ("ETC" or the "Company") today reported its financial results for the thirteen week period ended August 25, 2017 (the "2018 second quarter") and the twenty-six week period ended August 25, 2017 (the "2018 first half").

Robert L. Laurent, Jr., ETC's Chief Executive Officer and President stated, "We are pleased that the strong backlog we have worked hard to build and maintain over the last several years is beginning to materialize nicely into increased sales together with higher gross profit margins."

Fiscal 2018 Second Quarter Results of Operations

Bookings / Sales Backlog

Bookings in the 2018 second quarter were $8.1 million, leaving our sales backlog as of August 25, 2017, for work to be performed and revenue to be recognized under written agreements after such date, at $57.6 million compared to $64.4 million as of February 24, 2017.  The combined bookings by ETC-PZL and the Sterilization Systems business unit represented nearly 80.0% of 2018 second quarter bookings.

Net Income (Loss) Attributable to ETC

Net income attributable to ETC was $0.4 million, or $0.02 diluted earnings per share, in the 2018 second quarter, compared to a net loss attributable to ETC of $0.8 million during the 2017 second quarter, equating to $0.06 diluted loss per share.  The $1.2 million variance is due to the combined effect of a $1.3 million increase in gross profit and a $0.1 million decrease in operating expenses, offset, in part, by a $0.1 million increase in other expense and slight increases in both interest expense and income attributable to non-controlling interest.

Net Sales

Net sales in the 2018 second quarter were $10.1 million, an increase of $2.6 million, or 35.2%, compared to 2017 second quarter net sales of $7.5 million.  The increase reflects higher sales of Environmental Testing and Simulation Systems to Domestic customers within our CIS segment, and higher overall sales of our ADMS line of products and higher sales of simulator upgrade services and training devices provided by ETC-PZL within our Aerospace segment, offset, in part, by an overall decrease in sales of monoplace chambers within the Hyperbaric Chambers business unit of our CIS segment.

Gross Profit

Gross profit for the 2018 second quarter was $3.7 million compared to $2.4 million in the 2017 second quarter, an increase of $1.3 million, or 56.3%.  The increase in gross profit was due to both higher net sales and a higher blended gross profit margin as a percentage of net sales, which increased to 36.5% for the 2018 second quarter compared to 31.6% for the 2017 second quarter.  The increase in gross profit margin as a percentage of net sales was due to the combination of a reduction in the amount of additional work required on three contracts and a higher concentration of net sales from more off-the-shelf type products requiring less design and engineering work.

Operating Expenses

Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2018 second quarter were $2.7 million, a decrease of $0.1 million, or 2.7%, compared to $2.8 million for the 2017 second quarter.  This decrease was due primarily to a reduction in expenses associated with maintaining ETC-Europe, which was officially dissolved on August 15, 2017.

Other Expense, Net

Other expense, net for the 2018 second quarter was $0.2 million compared to $0.1 million in the 2017 second quarter, an increase of $0.1 million due primarily to the recognition of a realized foreign currency exchange loss during the 2018 second quarter.

Fiscal 2018 First Half Results of Operations

Bookings / Sales Backlog

Bookings in the 2018 first half were $14.8 million, leaving our sales backlog as of August 25, 2017, for work to be performed and revenue to be recognized under written agreements after such date, at $57.6 million compared to $64.4 million as of February 24, 2017.  The combined bookings by ETC-PZL, ETC Simulation, and the Sterilization Systems business unit represented approximately 67.0% of 2018 first half bookings.

Net Income (Loss) Attributable to ETC

Net income attributable to ETC was $0.5 million, or $0.02 diluted earnings per share, in the 2018 first half, compared to a net loss attributable to ETC of $1.3 million during the 2017 first half, equating to $0.10 diluted loss per share.  The $1.8 million variance is due to the combined effect of a $2.0 million increase in gross profit and a $0.1 million decrease in other expense, offset, in part, by a $0.3 million increase in operating expenses.

Net Sales

Net sales in the 2018 first half were $21.6 million, an increase of $3.4 million, or 18.7%, compared to 2017 first half net sales of $18.2 million.  The increase reflects higher sales of Environmental Testing and Simulation Systems to both Domestic and International customers within our CIS segment, and higher overall sales of our ADMS line of products and higher sales of simulator upgrade services and training devices provided by ETC-PZL within our Aerospace segment, offset, in part, by an overall decrease in sales of monoplace chambers within the Hyperbaric Chambers business unit of our CIS segment.

Gross Profit

Gross profit for the 2018 first half was $7.3 million compared to $5.3 million in the 2017 first half, an increase of $2.0 million, or 37.5%.  The increase in gross profit was due to both higher net sales and a higher blended gross profit margin as a percentage of net sales, which increased to 33.7% for the 2018 first half compared to 29.1% for the 2017 first half.  The increase in gross profit margin as a percentage of net sales was due to the combination of a reduction in the amount of additional work required on three contracts and a higher concentration of net sales from more off-the-shelf type products requiring less design and engineering work.

Operating Expenses

Operating expenses, including sales and marketing, general and administrative, and research and development, for the 2018 first half were $6.0 million, an increase of $0.3 million, or 4.8%, compared to $5.7 million for the 2017 first half.  The most significant component of this increase was the non-cash expense associated with the issuance of Common Stock awards.

Other Expense, Net

Other expense, net for the 2018 first half was $0.2 million compared to $0.3 million in the 2017 first half, a decrease of $0.1 million due primarily to a decrease in letter of credit fees.

Cash Flows from Operating, Investing, and Financing Activities

During the 2018 first half, as a result of an increase in costs and estimated earnings in excess of billings on uncompleted long-term contracts, offset, in part by a decrease in accounts receivable, the Company used $0.6 million of cash for operating activities compared to $0.4 million of cash provided by operating activities during the 2017 first half.  Under percentage-of-completion ("POC") revenue recognition, 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 $0.3 million in the 2018 first half compared to $0.4 million in the 2017 first half.

The Company's financing activities provided $1.3 million of cash in the 2018 first half from borrowings under the Company's various lines of credit.  In the 2017 first half, the Company's financing activities used $0.2 million of cash on payments towards the Term Loan, offset, in part, by borrowings under the Company's various lines of credit and a decrease in restricted cash.

About ETC

ETC was incorporated in 1969 in Pennsylvania.  For over four 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 devices; 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) environmental testing and simulation devices; 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.

We presently have one operating subsidiary, ETC-PZL Aerospace Industries Sp. z o.o. ("ETC-PZL"), our 95%-owned subsidiary in Warsaw, Poland that 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 words 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.

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- Financial Tables Follow -

Table C

* In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), we also disclose Earnings Before Income Taxes, Depreciation, and Amortization ("EBITDA").  The presentation of a non-U.S. GAAP financial measure such as EBITDA is intended to enhance the usefulness of financial information by providing a measure that management uses internally to evaluate our expenses and operating performance and factors into several of our financial covenant calculations.

A reader may find this item important in evaluating our performance.  Management compensates for the limitations of using non-U.S. GAAP financial measures by using them only to supplement our U.S. GAAP results to provide a more complete understanding of the factors and trends affecting our business.