HEICO CORPORATION (NYSE: HEI.A) (NYSE: HEI) today reported that
net income increased 4% to a record $251.7 million, or $1.83 per
diluted share in the nine months of fiscal 2020, up from $242.2
million, or $1.76 per diluted share, in the first nine months of
fiscal 2019. In the third quarter of fiscal 2020, net income was
$54.3 million, or 40 cents per diluted share, as compared to $81.1
million, or 59 cents per diluted share, in the third quarter of
fiscal 2019.
Net income, operating income and net sales for the first nine
months and third quarter of fiscal 2020 were adversely affected by
the COVID-19 outbreak as discussed below.
Operating income was $287.6 million in the first nine months of
fiscal 2020, as compared to $336.5 million in the first nine months
of fiscal 2019. In the third quarter of fiscal 2020, operating
income was $68.4 million, as compared to $119.4 million in the
third quarter of fiscal 2019.
The Company's consolidated operating margin was 21.1% in the
first nine months of fiscal 2020, as compared to 22.2% in the first
nine months of fiscal 2019. The Company's consolidated operating
margin was 17.7% in the third quarter of fiscal 2020, as compared
to 22.4% in the third quarter of fiscal 2019.
Net sales were $1,360.8 million in the first nine months of
fiscal 2020, as compared to $1,514.1 million in the first nine
months of fiscal 2019. In the third quarter of fiscal 2020, net
sales were $386.4 million, as compared to $532.3 million in the
third quarter of fiscal 2019.
EBITDA was $353.7 million in the first nine months of fiscal
2020, as compared to $400.7 million in the first nine months of
fiscal 2019. In the third quarter of fiscal 2020, EBITDA was $91.0
million, as compared to $140.8 million in the third quarter of
fiscal 2019. See our reconciliation of net income attributable to
HEICO to EBITDA at the end of this press release.
Consolidated Results
Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the
Company's third quarter results stating, "The COVID-19 outbreak,
which is classified as a global pandemic (the "Outbreak"), caused
significant volatility and a substantial decline in value across
global markets. Most notably, the commercial aerospace industry
experienced an ongoing substantial decline in demand resulting from
a significant number of aircraft in the global fleet being grounded
during our third quarter. As such, our commercial aerospace
businesses were materially impacted in the third quarter of fiscal
2020 by the significant decline in global commercial air travel
that began in March 2020. Once commercial air travel resumes, cost
savings will most likely be a priority for our commercial aviation
customers and we anticipate recovery in demand for our commercial
aviation products, which frequently provide aircraft operators with
significant savings.
Our total debt to shareholders' equity ratio was 37.9% and 33.2%
as of July 31, 2020 and October 31, 2019, respectively. Our net
debt (total debt less cash and cash equivalents) of $344.8 million
as of July 31, 2020 to shareholders’ equity ratio improved to 17.7%
as of July 31, 2020, down from 29.8% as of October 31, 2019. Our
net debt to EBITDA ratio improved to .70x as of July 31, 2020, down
from .93x as of October 31, 2019. During fiscal 2020, we
successfully completed six acquisitions, four of which were
completed since the Outbreak’s start. We have no significant debt
maturities until fiscal 2023 and plan to utilize our financial
strength and flexibility to aggressively pursue high quality
acquisitions of various sizes to accelerate growth and maximize
shareholder returns.
Cash flow provided by operating activities was consistently
strong at $299.0 million and $313.4 million in the first nine
months of fiscal 2020 and 2019, respectively. Cash flow provided by
operating activities totaled $93.1 million, or 171% of net income
in the third quarter of fiscal 2020, as compared to $135.1 million
in the third quarter of fiscal 2019.
We continue to forecast positive cash flow from operations for
the remainder of fiscal 2020. We entered the Outbreak with a
healthy balance sheet that included a strong cash position and
nominal debt. While, we cannot estimate the Outbreak’s duration and
magnitude and cannot confidently predict when demand for our
commercial aerospace products will return to pre-Outbreak levels,
we believe HEICO is favorably positioned for long-term success
despite the short-term challenges created by the Outbreak in the
global economy. Our time-tested strategy of maintaining low debt
and acquiring and operating high cash generating businesses across
a diverse base of industries beyond commercial aerospace, such as
defense, space and other high-end markets including electronics and
medical, puts us in a good financial position to weather this
uncertain economic period."
Flight Support Group
Eric A. Mendelson, HEICO's Co-President and President of HEICO's
Flight Support Group, commented on the Flight Support Group's third
quarter results stating, "The Outbreak had an adverse effect on the
Flight Support Group’s operating results in the first nine months
and third quarter of fiscal 2020. Beginning in late March 2020, a
significant global decline in commercial air travel resulted in
lower demand for the majority of the parts and services offered by
our Flight Support Group. As previously mentioned, once commercial
air travel resumes, cost savings will most likely be a priority for
our commercial aviation customers. We believe demand for our
favorably priced commercial aviation products and services will
return in advance of the overall market recovery. Furthermore, we
believe our cost-saving solutions and robust product development
programs will enable us to potentially increase market share and
emerge with a stronger presence within the commercial aviation
market.
The Flight Support Group's net sales were $731.2 million in the
first nine months of fiscal 2020, as compared to $915.5 million in
the first nine months of fiscal 2019. The Flight Support Group's
net sales were $178.2 million in the third quarter of fiscal 2020,
as compared to $320.0 million in the third quarter of fiscal 2019.
The net sales decrease in the first nine months and third quarter
of fiscal 2020 is principally organic and reflects lower demand
across all of our product lines resulting from the significant
decline in global commercial air travel beginning in March 2020 due
to the Outbreak. Net sales in fiscal 2020 follows the 12% and 13%
organic growth reported in the third quarter and full year of
fiscal 2019, respectively.
The Flight Support Group's operating income was $121.6 million
in the first nine months of fiscal 2020, as compared to $179.8
million in the first nine months of fiscal 2019. The Flight Support
Group's operating income was $12.0 million in the third quarter of
fiscal 2020, as compared to $64.8 million in the third quarter of
fiscal 2019. The operating income decrease in the first nine months
and third quarter of fiscal 2020 principally reflects the
previously mentioned decrease in net sales, a lower gross profit
margin mainly within our aftermarket replacement parts and repair
and overhaul parts and services product lines and an increase in
bad debt expense due to potential collection difficulties from
certain commercial aviation customers that filed for bankruptcy
protection during the third quarter of fiscal 2020 as a result of
the financial impact of the Outbreak, partially offset by a
decrease in performance-based compensation expense.
The Flight Support Group's operating margin was 16.6% in the
first nine months of fiscal 2020, as compared to 19.6% in the first
nine months of fiscal 2019. The Flight Support Group's operating
margin was 6.7% in the third quarter of fiscal 2020, as compared to
20.2% in the third quarter of fiscal 2019. The decrease in the
first nine months and third quarter of fiscal 2020 principally
reflects the previously mentioned lower gross profit margin and an
increase in SG&A expenses as a percentage of net sales mainly
reflecting the impact of the Outbreak and the previously mentioned
higher bad debt expense."
Electronic Technologies Group
Victor H. Mendelson, HEICO's Co-President and President of
HEICO’s Electronic Technologies Group, commented on the Electronic
Technologies Group's third quarter results stating, "Demand for our
Electronic Technologies Group's products remained healthy overall
during this fiscal year’s first nine months and the third quarter,
despite some pockets of weaker demand in some markets. However, we
experienced, and expect to continue experiencing, periodic
operational disruptions resulting from supply chain disturbances,
staffing challenges, temporary facility closures, transportation
interruptions and other conditions which slow production, orders or
increase costs. While these issues have not yet been material
overall, we experienced disruptions in some orders and shipments
during the third quarter of fiscal 2020.
The Electronic Technologies Group's net sales increased 4% to a
record $638.3 million in the first nine months of fiscal 2020, up
from $615.0 million in the first nine months of fiscal 2019. The
increase is attributable to the favorable impact from our fiscal
2019 and 2020 acquisitions partially offset by an organic net sales
decrease of 1%. The organic net sales decrease is principally due
to lower sales of our space, aerospace and other electronics
products, largely attributable to the Outbreak, partially offset by
increased sales of our defense products.
The Electronic Technologies Group's net sales decreased 2% to
$210.9 million in the third quarter of fiscal 2020, from $216.1
million in the third quarter of fiscal 2019. The decrease is
attributable to an organic net sales decrease of 6% partially
offset by the favorable impact from our fiscal 2019 and 2020
acquisitions. The organic net sales decrease is principally due to
lower shipments of our defense and commercial aerospace products,
mainly attributable to the Outbreak, partially offset by increased
sales of our space products.
The Electronic Technologies Group's operating income increased
2% to a record $184.9 million in the first nine months of fiscal
2020, up from $181.2 million in the first nine months of fiscal
2019. The Electronic Technologies Group's operating income was
$61.9 million and $62.2 million in the third quarter of fiscal 2020
and 2019, respectively. The increase in the first nine months of
fiscal 2020 principally reflects the previously mentioned net sales
growth, lower performance-based compensation expense and a decrease
in acquisition-related expenses, partially offset by a lower gross
profit margin. The lower gross profit margin is mainly due to a
decrease in net sales of certain space products and a less
favorable product mix of certain aerospace products, partially
offset by increased net sales of certain defense products.
The Electronic Technologies Group's operating margin was 29.0%
in the first nine months of fiscal 2020, as compared to 29.5% in
the first nine months of fiscal 2019. The decrease principally
reflects the previously mentioned lower gross profit margin
partially offset by a decrease in SG&A expenses as a percentage
of net sales mainly from lower performance-based compensation
expense and lower acquisition-related expenses.
The Electronic Technologies Group's operating margin improved to
29.4% in the third quarter of fiscal 2020, up from 28.8% in the
third quarter of fiscal 2019. The increase principally reflects a
decrease in SG&A expenses as a percentage of net sales mainly
from lower performance-based compensation expense and a decrease in
acquisition-related expenses partially offset by a lower gross
profit margin. The lower gross profit margin is mainly due to a
decrease in net sales and less favorable product mix of certain
commercial aerospace and defense products partially offset by
increased net sales and a more favorable product mix of certain
space products."
Non-GAAP Financial Measures
To provide additional information about the Company's results,
HEICO has discussed in this press release its EBITDA (calculated as
net income attributable to HEICO adjusted for depreciation and
amortization expense, net income attributable to noncontrolling
interests, interest expense and income tax expense), its net debt
(calculated as total debt less cash and cash equivalents), its net
debt to shareholders' equity ratio (calculated as net debt divided
by shareholders' equity) and its net debt to EBITDA ratio
(calculated as net debt divided by EBITDA) which are not prepared
in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). These non-GAAP measures are
included to supplement the Company’s financial information
presented in accordance with GAAP and because the Company uses such
measures to monitor and evaluate the performance of its business
and believes the presentation of these measures enhance an
investors’ ability to analyze trends in the Company’s business and
to evaluate the Company’s performance relative to other companies
in its industry. However, these non-GAAP measures have limitations
and should not be considered in isolation or as a substitute for
analysis of the Company's financial results as reported under
GAAP.
These non-GAAP measures are not in accordance with, or an
alternative to, measures prepared in accordance with GAAP and may
be different from non-GAAP measures used by other companies. In
addition, these non-GAAP measures are not based on any
comprehensive set of accounting rules or principles. These measures
should only be used to evaluate the Company's results of operations
in conjunction with their corresponding GAAP measures. Pursuant to
the requirements of Regulation G of the Securities and Exchange Act
of 1934, the Company has provided a reconciliation of these
non-GAAP measures in the last table included in this press
release.
(NOTE: HEICO has two classes of common stock traded on the
NYSE. Both classes, the Class A Common Stock (HEI.A) and the Common
Stock (HEI), are virtually identical in all economic respects. The
only difference between the share classes is the voting rights. The
Class A Common Stock (HEI.A) carries 1/10 vote per share and the
Common Stock (HEI) carries one vote per share.)
There are currently approximately 80.8 million shares of HEICO's
Class A Common Stock (HEI.A) outstanding and 54.2 million shares of
HEICO's Common Stock (HEI) outstanding. The stock symbols for
HEICO’s two classes of common stock on most websites are HEI.A and
HEI. However, some websites change HEICO's Class A Common Stock
trading symbol (HEI.A) to HEI/A or HEIa.
As previously announced, HEICO will hold a conference call on
Wednesday, August 26, 2020 at 9:00 a.m. Eastern Daylight Time to
discuss its third quarter results. Individuals wishing to
participate in the conference call should dial: U.S. and Canada
(877) 586-4323, International (706) 679-0934, wait for the
conference operator and provide the operator with the Conference ID
4939567. A digital replay will be available two hours after the
completion of the conference for 14 days. To access, dial: (404)
537-3406, and enter the Conference ID 4939567.
HEICO Corporation is engaged primarily in the design,
production, servicing and distribution of products and services to
certain niche segments of the aviation, defense, space, medical,
telecommunications and electronics industries through its
Hollywood, Florida-based Flight Support Group and its Miami,
Florida-based Electronic Technologies Group. HEICO’s customers
include a majority of the world’s airlines and overhaul shops, as
well as numerous defense and space contractors and military
agencies worldwide, in addition to medical, telecommunications and
electronics equipment manufacturers. For more information about
HEICO, please visit our website at www.heico.com.
Certain statements in this press release constitute
forward-looking statements, which are subject to risks,
uncertainties and contingencies. HEICO's actual results may differ
materially from those expressed in or implied by those
forward-looking statements as a result of factors including: the
severity, magnitude and duration of the Outbreak; HEICO’s liquidity
and the amount and timing of cash generation; the continued decline
in commercial air travel caused by the Outbreak, airline fleet
changes or airline purchasing decisions, which could cause lower
demand for our goods and services; product specification costs and
requirements, which could cause an increase to our costs to
complete contracts; governmental and regulatory demands, export
policies and restrictions, reductions in defense, space or homeland
security spending by U.S. and/or foreign customers or competition
from existing and new competitors, which could reduce our sales;
our ability to introduce new products and services at profitable
pricing levels, which could reduce our sales or sales growth;
product development or manufacturing difficulties, which could
increase our product development and manufacturing costs and delay
sales; our ability to make acquisitions and achieve operating
synergies from acquired businesses; customer credit risk; interest,
foreign currency exchange and income tax rates; economic conditions
within and outside of the aviation, defense, space, medical,
telecommunications and electronics industries, which could
negatively impact our costs and revenues; and defense spending or
budget cuts, which could reduce our defense-related revenue.
Parties receiving this material are encouraged to review all of
HEICO's filings with the Securities and Exchange Commission,
including, but not limited to filings on Form 10-K, Form 10-Q and
Form 8-K. We undertake no obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, future events or otherwise, except to the extent
required by applicable law.
HEICO CORPORATION
Condensed Consolidated Statements of
Operations (Unaudited)
(in thousands, except per share data)
Nine Months Ended July
31,
2020
2019
Net sales
$1,360,831
$1,514,118
Cost of sales
840,411
909,663
Selling, general and administrative
expenses
232,835
267,911
Operating income
287,585
336,544
Interest expense
(10,644
)
(16,496
)
Other income
934
2,420
Income before income taxes and
noncontrolling interests
277,875
322,468
Income tax expense
9,600
(a)
55,300
(b)
Net income from consolidated
operations
268,275
267,168
Less: Net income attributable to
noncontrolling interests
16,618
24,956
Net income attributable to HEICO
$251,657
(a)
$242,212
(b)
Net income per share attributable to HEICO
shareholders:
Basic
$1.87
(a)
$1.82
(b)
Diluted
$1.83
(a)
$1.76
(b)
Weighted average number of common shares
outstanding:
Basic
134,676
133,405
Diluted
137,257
137,273
Nine Months Ended July
31,
2020
2019
Operating segment information:
Net sales:
Flight Support Group
$731,189
$915,480
Electronic Technologies Group
638,285
615,009
Intersegment sales
(8,643
)
(16,371
)
$1,360,831
$1,514,118
Operating income:
Flight Support Group
$121,597
$179,843
Electronic Technologies Group
184,948
181,160
Other, primarily corporate
(18,960
)
(24,459
)
$287,585
$336,544
HEICO CORPORATION
Condensed Consolidated Statements of
Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended July
31,
2020
2019
Net sales
$386,410
$532,324
Cost of sales
242,927
319,493
Selling, general and administrative
expenses
75,049
93,417
Operating income
68,434
119,414
Interest expense
(2,602
)
(5,523
)
Other income
632
268
Income before income taxes and
noncontrolling interests
66,464
114,159
Income tax expense
8,900
25,100
Net income from consolidated
operations
57,564
89,059
Less: Net income attributable to
noncontrolling interests
3,248
7,961
Net income attributable to HEICO
$54,316
$81,098
Net income per share attributable to HEICO
shareholders:
Basic
$.40
$.61
Diluted
$.40
$.59
Weighted average number of common shares
outstanding:
Basic
134,837
133,970
Diluted
137,234
137,634
Three Months Ended July
31,
2020
2019
Operating segment information:
Net sales:
Flight Support Group
$178,158
$320,016
Electronic Technologies Group
210,919
216,129
Intersegment sales
(2,667
)
(3,821
)
$386,410
$532,324
Operating income:
Flight Support Group
$12,021
$64,797
Electronic Technologies Group
61,931
62,206
Other, primarily corporate
(5,518
)
(7,589
)
$68,434
$119,414
HEICO CORPORATION
Footnotes to Condensed Consolidated
Statements of Operations (Unaudited)
(a)
During the first quarter of fiscal 2020,
the Company recognized a $47.6 million discrete tax benefit from
stock option exercises, which, net of noncontrolling interests,
increased net income attributable to HEICO by $46.3 million, or
$.34 per basic and diluted share.
(b)
During the first quarter of fiscal 2019,
the Company recognized a $16.6 million discrete tax benefit from
stock option exercises, which, net of noncontrolling interests,
increased net income attributable to HEICO by $15.1 million, or
$.11 per basic and diluted share.
HEICO CORPORATION
Condensed Consolidated Balance
Sheets (Unaudited)
(in thousands)
July 31, 2020
October 31, 2019
Cash and cash equivalents
$395,278
$57,001
Accounts receivable, net
181,134
274,326
Contract assets
59,113
43,132
Inventories, net
473,104
420,319
Prepaid expenses and other current
assets
32,115
18,953
Total current assets
1,140,744
813,731
Property, plant and equipment, net
170,340
173,345
Goodwill
1,320,047
1,268,703
Intangible assets, net
542,674
550,693
Other assets
249,445
162,739
Total assets
$3,423,250
$2,969,211
Current maturities of long-term debt
$1,073
$906
Other current liabilities
228,569
288,232
Total current liabilities
229,642
289,138
Long-term debt, net of current
maturities
739,016
561,049
Deferred income taxes
45,869
51,496
Other long-term liabilities
252,372
184,604
Total liabilities
1,266,899
1,086,287
Redeemable noncontrolling interests
204,139
188,264
Shareholders’ equity
1,952,212
1,694,660
Total liabilities and equity
$3,423,250
$2,969,211
HEICO CORPORATION
Condensed Consolidated Statements of
Cash Flows (Unaudited)
(in thousands)
Nine Months Ended July
31,
2020
2019
Operating Activities:
Net income from consolidated
operations
$268,275
$267,168
Depreciation and amortization
65,218
61,686
Share-based compensation expense
7,775
7,674
Employer contributions to HEICO Savings
and Investment Plan
7,452
7,128
Increase in accrued contingent
consideration
189
3,734
Deferred income tax benefit provision
(9,345
)
(3,293
)
Payment of contingent consideration
(175
)
(3,105
)
Decrease (increase) in accounts
receivable
96,258
(14,820
)
(Increase) decrease in contract assets
(15,968
)
7,429
Increase in inventories
(48,077
)
(27,019
)
Decrease in current liabilities, net
(73,893
)
(2,214
)
Other
1,262
9,031
Net cash provided by operating
activities
298,971
313,399
Investing Activities:
Acquisitions, net of cash acquired
(66,320
)
(235,174
)
Capital expenditures
(17,472
)
(21,671
)
Investments related to HEICO Leadership
Compensation Plan
(14,600
)
(10,800
)
Other
385
628
Net cash used in investing activities
(98,007
)
(267,017
)
Financing Activities:
Borrowings on revolving credit facility,
net
177,000
108,000
Proceeds from stock option exercises
5,345
8,270
Cash dividends paid
(21,552
)
(18,691
)
Distributions to noncontrolling
interests
(12,187
)
(104,699
)
Redemptions of common stock related to
stock option exercises
(5,330
)
(35,600
)
Acquisitions of noncontrolling
interests
(7,475
)
—
Payment of contingent consideration
(325
)
(4,073
)
Other
(851
)
(387
)
Net cash provided by (used in) financing
activities
134,625
(47,180
)
Effect of exchange rate changes on
cash
2,688
222
Net increase in cash and cash
equivalents
338,277
(576
)
Cash and cash equivalents at beginning of
year
57,001
59,599
Cash and cash equivalents at end of
period
$395,278
$59,023
HEICO CORPORATION
Non-GAAP Financial Measures
(Unaudited)
(in thousands, except ratios)
Nine Months Ended July
31,
EBITDA Calculation
2020
2019
Net income attributable to HEICO
$251,657
$242,212
Plus: Depreciation and amortization
65,218
61,686
Plus: Net income attributable to
noncontrolling interests
16,618
24,956
Plus: Interest expense
10,644
16,496
Plus: Income tax expense
9,600
55,300
EBITDA (a)
$353,737
$400,650
Three Months Ended July
31,
EBITDA Calculation
2020
2019
Net income attributable to HEICO
$54,316
$81,098
Plus: Depreciation and amortization
21,942
21,138
Plus: Net income attributable to
noncontrolling interests
3,248
7,961
Plus: Interest expense
2,602
5,523
Plus: Income tax expense
8,900
25,100
EBITDA (a)
$91,008
$140,820
Trailing Twelve Months
Ended
EBITDA Calculation
July 31, 2020
October 31, 2019
Net income attributable to HEICO
$337,341
$327,896
Plus: Depreciation and amortization
87,029
83,497
Plus: Net income attributable to
noncontrolling interests
23,507
31,845
Plus: Interest expense
15,843
21,695
Plus: Income tax expense
32,400
78,100
EBITDA (a)
$496,120
$543,033
Net Debt Calculation
July 31, 2020
October 31, 2019
Total debt
$740,089
$561,955
Less: Cash and cash equivalents
(395,278
)
(57,001
)
Net debt (a)
$344,811
$504,954
Net debt
$344,811
$504,954
Shareholders' equity
$1,952,212
$1,694,660
Net debt to shareholders' equity ratio
(a)
17.7
%
29.8
%
Net debt
$344,811
$504,954
EBITDA (trailing twelve months)
$496,120
$543,033
Net debt to EBITDA ratio (a)
.70
.93
(a) See the "Non-GAAP Financial Measures"
section of this press release.
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version on businesswire.com: https://www.businesswire.com/news/home/20200825005877/en/
Victor H. Mendelson (305) 374-1745 ext. 7590 Carlos L.
Macau, Jr. (954) 987-4000 ext. 7570
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