Evans & Sutherland Computer Cor (OTC:ESCC)

Evans & Sutherland (PINK:ESCC) ($1.04, MC $11.8M market cap), a full dome video projection company, announced its Q4 2017 results:

• Sales of $7.6 million vs $9.4 million

• Non-GAAP EPS of $0.07 vs non-GAAP EPS of $0.17 in the prior year

Results were via 10-k, so commentary is limited. We are reading through the 10-K to see if there are any new insights on product developments and overall outlook.

While results were down on a year over year basis, last year’s Q4 was an unusually strong quarter.  The company was able to maintain profitability and the 10-K maintains its outlook for continued growth and product development initiatives.

Evans & Sutherland (PINK:ESCC) ($1.07, MC $12.1m) reported Q3 2017 results:

• Sales of $8.0 million vs. $10.3 million in the prior year

• EPS of $0.06 vs. $0.05 in the prior year

Quotes from 10-Q (no press issued)

“The current sales backlog and prospects with our current cost structure provide an encouraging outlook for profitable annual results which are slowly improving our financial position. As our recovery progresses from a large stockholders’ deficit eliminated mainly by the 2014 Pension Settlement, we will continue to improve our products and explore new opportunities to increase our sales and profits in an effort to grow shareholder value.”

We feel ESCC has now become more appealing to long term investors who are willing to wait for the next catalyst to drive growth.

ESCC ($1.05) reported Q2 2017 results:

• Sales of $6.7 million vs $5.3 million in the prior year

• Loss per share of $0.02 vs loss per share of $0.09 in the prior year

Quotes from management via 10-Q

“While the results of operations are disappointing, new sales orders improved the sales backlog to $28,021 as of June 30, 2017. This strong sales backlog along with promising sales prospects provide an encouraging outlook for higher sales levels and profitable results for the second half of 2017.”

ESCC ($1.29) - Billionaire investor Peter Kellogg continues to add to his stake.  A Form 4 filed yesterday after hours shows he added another 40,000 shares through his limited partnership “Bermuda Partners”.  As of the most recent filing, Mr. Kellogg owns ~3.75 million shares (directly & indirectly).

ESCC ($0.89) - Reported Q4 results yesterday.

• Q4 sales of $7.7 million vs $6.5 million in the prior year

• Q4 EPS of $0.04 vs a loss of $0.05 in the prior year

Quotes from management:

“On April 21, 2015, the Company executed agreements ('Pension Settlement Agreements') to terminate its Pension Plan and to settle the underlying pension liabilities.

The charge for the settlement of the pension liabilities is not a recurring expense item. Absent this charge, results would have been profitable for 2015. The 2015 results illustrate the profit potential of our business without the burden of the Pension Plan. With the healthy backlog and sales prospects, we anticipate sales at levels that should continue to yield profitable results in 2016.

With the settlement of the Pension Plan liabilities, we expect our improved financial position to present opportunities for better results through the availability of credit and stronger qualification for customer projects.”

Third Quarter 2015 Results

• Sales for the third quarter were $9.4 million, compared to sales of $7.7 million for the third quarter 2014.
• Net income for the quarter was $0.9 million or $0.08 per share compared to a net income for the third quarter 2014 of $0.6 million or $0.06 per share.

“The third quarter of 2015 reported improved sales volume and $921 of net income compared to the third quarter of 2014, which reported a net income of $639. Although sales volume improved, the gross profit contribution was comparable to the third quarter of 2014 due to unfavorable margins on some large unrelated projects in 2015. Reduced operating expenses, primarily pension related, contributed to the higher net income in the third quarter of 2015 compared to 2014. The first nine months of 2015 reported improved sales volume and $9,710 of gross profit as compared to the first nine months of 2014, which reported gross profit of $7,371. The stronger sales and improved gross profit in 2015 was attributable to stronger sales bookings over the prior year. The sales backlog remained healthy at the end of the third quarter of 2015 which supports an encouraging outlook for the remainder of 2015 and into 2016. Operating expenses, except for a $3,620 charge for the settlement of the pension liabilities, were lower for the periods presented primarily due to decreased pension expense in the period. The charge for the settlement of the pension liabilities is not a recurring expense item. Absent this charge, results would have been profitable for both the three- and nine-month periods ended October 2, 2015. Also, we were profitable in each of the first three quarters of 2015 before the non-recurring pension related charges. With the healthy backlog and sales prospects, we anticipate sales at levels that should continue to yield profitable results for the remainder of 2015.

"We continue to expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses. Although we reported net income for the third quarter, we had a net loss for the first nine months of 2015 due to the pension settlement charge of $3,620. However, the pension settlement contributed largely to total comprehensive income which amounted to $30,295 for the first nine months of 2015. This nearly eliminated our stockholders deficit, which was reduced from $30,703 as of December 31, 2014 to $308 as of October 2, 2015. With the settlement of the Pension Plan liabilities, we expect an improved financial position that may present opportunities for better results through the availability of credit and stronger qualification for customer projects. We remain positive for the success of the business.”

ESCC ($0.83) reported strong Q2 2015 results:

• Sales of $10.3 million vs $5.7 million in the prior year

• Non-GAAP EPS of $0.10 vs a loss of $0.05 in the prior year

Quotes from management:

“On April 21, 2015 the Company executed an agreement with the Pension Benefit Guaranty Corporation (PBGC) to terminate its pension plan and settle the underlying pension liabilities. This is a major milestone and completes a process that began over two years ago. The Company’s goal in seeking a distress termination of the pension plan is to ensure that pension benefits of all pension plan participants are paid up to the federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from bankruptcy reorganization. We believe the settlement agreement has achieved that goal.

The first half of 2015 reported improved sales volume and $6.4 million of gross profit as compared to the first six months ended June 27, 2014, which reported gross profit of $4.1 million. The stronger sales and improved gross profit in 2015 was attributable to stronger sales bookings over the past year. The sales backlog remained healthy despite decreasing in the first half of 2015 which supports a continuing encouraging outlook for the remainder of 2015. Operating expenses except for a $3.6 million charge for the settlement of the pension liabilities were comparable for the periods presented. The charge for the settlement of the pension liabilities is not a recurring expense item. Absent this charge, results would have been profitable for both periods presented. With the healthy backlog and strong sales prospects, we anticipate that sales and overall results for the remainder of 2015 will exceed the results from 2014.

We continue to expect variable but reasonable consistent future sales and gross profits from our current product lines at annual levels sufficient to cover or exceed operating expenses. We had a net loss for the three and six months ended July 3, 2015 due to the pension settlement charge of $3.6 million. However, the pension settlement contributed largely to total comprehensive income which amounted to $29.1 million and $29.4 million for the three and six months ended July 3, 2015 respectively. This nearly eliminated our stockholders deficit, which was reduced from $30.7 million as of December 31, 2014 to $1.2 million as of July 3, 2015. With the settlement of the Pension Plan liabilities, we expect an improved financial position that may present opportunities for better results through the availability of credit and stronger qualification for customer projects. We remain positive for the success of the business. ”

First Quarter 2015 Results

• Q1 2015 revenues of $8.0 million vs $6.6 million in the prior year
• Q1 2015 non-GAAP EPS of $0.03 vs a loss of $0.03 in the prior year

Quotes on backlog from 10-Q:

"Revenue backlog continued to improve totaling $34,324 as of April 3, 2015, compared to $28,173 as of December 31, 2014. We expect sales for the remainder of 2015 to result in total annual sales in excess of 2014 based on delivery schedules from the improved revenue backlog and strong sales prospects."

From Third Quarter 10-Q

Liquidity

The Company has experienced recurring annual losses since 2007. Furthermore, as of September 26, 2014, the unfunded obligation of the Company’s qualified defined benefit pension plan (“Pension Plan”), as measured for accounting purposes, amounted to $19,001, contributing to a total stockholders’ deficit of $13,861 as of September 26, 2014. Aided by prior cost reduction efforts and improved 2013 sales volume, the Company reported annual net income for 2013 but incurred a net loss of $780 for the first three quarters of 2014. The Company does not believe it can sustain and improve annual profitability at sufficient levels to fund its existing Pension Plan obligation. In order to preserve the liquid resources required to operate the business, the Company stopped making cash payments due to the Pension Plan trust beginning in October 2012. The Company initiated an application process for the distress termination of the Pension Plan in accordance with provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) which it believes will result in a settlement of its Pension Plan liabilities on terms that are feasible for the Company to continue in business as a going concern through 2014 and beyond. Because of the payments due to the Pension Trust, a lien in favor of the Pension Plan has arisen against the assets of the Company. On October 3, 2014, the lender for the Company’s Spitz Inc. (“Spitz”) subsidiary’s mortgage notes, a commercial bank, notified the Company that the liens placed on the Company assets by the Pension Plan constituted an event of default under the mortgage notes’ credit agreements. Citing cross default terms, the bank suspended borrowings on the Spitz $1,100 working capital line of credit. The bank has not elected to accelerate the payment of the loan balance or exercise any other remedies available upon an event of default. The bank expressed interest in a continuing credit relationship upon satisfactory settlement of the pension liabilities and agreed to forbear from exercising any further remedies until January 15, 2015. The mortgage balances totaled $2,408 as of September 26, 2014. The Company has not used the Spitz $1,100 working capital line of credit since 2011 and, if necessary, the Company believes that it will have sufficient funds to satisfy the Spitz mortgage note balances if the bank were to accelerate the maturity under its default remedy. However, the Company further believes that it will conclude a satisfactory settlement with the PBGC by January 15, 2015 or within a time frame acceptable to the bank. The Company continues to progress through the termination process toward a settlement; however, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome and it cannot provide assurance that its expectations set forth above will occur in a timely manner or at all.

Reported Third Quarter 2014 Results

• Sales for the third quarter were $7.7 million, compared to sales of $8.5 million for the third quarter 2013.
• Net profit for the quarter was $0.6 million or $0.06 per share compared to a net profit for the third quarter 2013 of $1.0 million or $0.09 per share.

Comments from David H. Bateman, President and Chief Executive Officer: “Sales volume and net income for the third quarter of 2014 were slightly lower than the comparable periods of 2013. For the nine month period, sales and gross profit contributions improved in 2014; however, the net loss was comparable due to higher operating expenses in 2014. The higher 2014 operating expenses were due largely to a credit from a settlement of a dispute which reduced expenses in the second quarter of 2013. Also, sales and marketing expenses in 2014 were higher due to a bi-annual tradeshow and the redirection of production and engineering resources to sales and marketing activities. The third quarter compares favorably to the first two quarters of 2014. The improvement was attributable to the timing of work and deliveries on customer projects. The sales backlog and prospects remain strong which supports an encouraging outlook for the remainder of 2014 and into 2015. Cash balances are expected to continue to be variable as a result of the timing of progress payments on customer orders. We continue to believe that sales and overall results for 2014 will be comparable to 2013.”

Reported Second Quarter 2014 Results

• Sales for the second quarter were $5.7 million, compared to sales of $5.2 million for the second quarter 2013.
• Net loss for the quarter was $0.9 million or $0.08 per share compared to a net loss for the second quarter 2013 of $0.4 million or $0.04 per share.

Comments from David H. Bateman, President and Chief Executive Officer: “Although sales volume showed improvement, the net loss for the second quarter of 2014 was larger than the comparable period of 2013. The higher net loss was attributable to higher operating expenses in the second quarter of 2014 due largely to a credit from a settlement of a dispute which reduced 2013 expenses in the second quarter of 2013. Also, sales and marketing expenses in 2014 were higher due to a bi-annual tradeshow and the redirection of production and engineering resources to sales and marketing activities. Despite the higher 2014 operating expenses and increased loss in the second quarter, higher sales helped the first half of 2014 show improvement from the comparable period of 2013, with a net loss of $1.4 million for the first half of 2014 compared to $1.8 million for the first half of 2013. Neither of the first two quarters of 2014 compares favorably to the two consecutive profitable quarters in the last half of 2013; however, the weaker sales and resulting net loss in the first half of 2014 was primarily the result of the timing of work and deliveries on customer projects rather than a negative trend in the overall business. New bookings and the sales backlog continued to improve which creates a more encouraging outlook for the remainder of 2014. Also, cash balances continued to improve from progress payments received on new customer orders. With the improved backlog and strong sales prospects we still believe that sales and overall results for 2014 will be comparable to 2013.

“For the longer term we expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses, excluding the pension expense.”

First Quarter 2014 Financial Results

• Sales for the first quarter of 2014 were $6.7 million, compared to sales of $4.7 million for the first quarter 2013.
• Adjusted Net loss per share for the quarter was $-0.01 compared to a net loss for the first quarter 2013 of $-0.08.

Comments from David H. Bateman, President and Chief Executive Officer:

“Although sales volume and the $551 net loss in the first quarter of 2014 showed improvement to the comparable period of 2013, which reported a loss of $1,357, it did not compare favorably to the most recent two consecutive profitable quarters in the last half of 2013. The weaker sales and resulting net loss for the first quarter of 2014 was primarily the result of the timing of work and deliveries on customer projects rather than a negative trend in the overall business. New bookings were strong and the sales backlog improved which creates a more encouraging outlook for the remainder of 2014. Also cash balances improved as a result of progress payments received on new customer orders. With the improved backlog and strong sales prospects, we believe that sales and results for the remainder of 2014 will improve resulting in annual levels comparable to 2013.

“We continue to expect variable but reasonable consistent future sales and gross profits from our current product lines at annual levels sufficient to cover or exceed operating expenses excluding the current expense of the Pension Plan. The success of our efforts to settle our pension liabilities for an amount that the business can satisfy remains critical to the long term viability of the Company. We believe an improved financial position that would result from relief of the Pension Plan burden may present opportunities for better results through the availability of credit and stronger qualification for customer projects. We remain positive for the success of the business.”

On 2/28/2014, we provided the reasons for tracking Evans & Sutherland (OTCQB:ESCC) to our GeoInvesting premium members when the stock was trading around $0.14. On 3/7/2013, we disclosed our long position when the stock was trading around $0.24.

Today's Special Situation Update

Yesterday, the company released year-end 2013 results. In the company's 3Q 2013 press release management mentioned that it expected breakeven result for 2013. The company easily surpassed expectations.

Please see our full report here.

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Fourth Quarter 2013 Financial Results

• Sales for 2013 were $29.6 million, compared to sales of $24.9 million for 2012.
• The net income for 2013 was $1.2 million or $0.11 per share, compared to a net loss of $2.3 million or $0.21 per share for 2012.

Comments from David H. Bateman, President and Chief Executive Officer:

"Stronger sales for all of our products in 2013 resulted in a larger operating profit for the year as compared to an operating loss for 2012. The net income for 2013 marks the first annual profit reported in several years. The total comprehensive income is primarily attributable to a $10 million decrease in the accounting measurement of our pension and retirement obligations, which was caused by an increase in the discount rate used to measure the pension obligation along with investment gains in pension plan assets.

"We have made significant progress toward the settlement of our Pension Plan liabilities through the distress termination application process. Recent correspondence with the Pension Benefit Guaranty Corporation indicates that the application process will result in a settlement of the Pension Plan liabilities on terms that will enable the Company to continue to operate as a going concern. However, the Company is uncertain of the timing or the ultimate outcome as of the date of our 10-K filing.

"Customer interest in all of our products remains strong and we intend to continue to aggressively pursue opportunities in the digital theater and other markets served by our products, as well as development and improvement of new and innovative products. We expect variable but consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses, not including the expense of the Pension Plan. With relief from the burden of the Pension Plan, we believe an improved financial position may present opportunities for better results through the availability of credit and stronger qualification for customer projects.

"Our outlook for the business remains positive."

Third Quarter 2013 Resutls (results released on 11/8/2013)

• Sales for the third quarter were $8.5 million, compared to sales of $5.4 million for the third quarter 2012.
• Net profit for the quarter was $1.0 million or $0.09 per share compared to a net loss for the third quarter 2012 of $1.1 million or $0.10 per share.
• Backlog as of September 27, 2013 was $22.1 million compared to backlog of $15.5 million as of December 31, 2012.

Comments from David H. Bateman, President and Chief Executive Officer: "Sales for the third quarter and first nine months of 2013 were better than the comparable periods of 2012, and the gross profit percentage also improved in 2013 compared to the comparable period in 2012. Customer bookings and the sales backlog remain strong. As a result, we expect 2013 annual results to be close to breakeven. For the longer term we continue to expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses, excluding the pension expense."

Q3 2013 Filing

Sales for the third quarter of 2013 were significantly higher than the comparable period of 2012 as result of increased sales bookings and the timing of customer deliveries. The higher third quarter sales were expected and resulted in sales for the first nine months of 2013 that were slightly higher than the comparable period of 2012. The improved customer bookings increased the sales backlog to $22,123 as of September 27, 2013 compared to $15,511 as of December 31, 2012. The forecasted bookings and customer deliveries indicate that sales levels for the remainder of the year will also be strong. The gross profit percentage for the third quarter of 2013 also improved compared to the third quarter 2012 and contributed to gross margins for the first nine months of 2013 comparable to 2012. We expect the gross profit percentage and results for the remainder of 2013 to be similar to the results of the third quarter of 2013. We do not believe the third quarter sales volume is an indication of any long-term trend, but rather a typical fluctuation that can be expected occasionally from the timing of orders and deliveries. For the long term, we believe the existing markets we serve will yield annual sales at various levels comparable to the sales reported from 2009 through 2012. We have found it challenging to find opportunities for significant sales growth from new markets due to our current resource limitations and the worldwide economic environment.