-- Company Confirms Sales and EPS Outlook for
Fiscal 2017; Revises Free Cash Flow Conversion Outlook on
Significant New Business Investment --
Wesco Aircraft Holdings, Inc. (NYSE:WAIR), the world's leading
provider of comprehensive supply chain management services to the
global aerospace industry, today announced results for its fiscal
2017 first quarter ended December 31, 2016.
Fiscal 2017 First Quarter Highlights
- Net sales of $339.4 million, down 5.7 percent
- Constant-currency sales(1) of $353.0 million, down 1.9
percent
- Net income of $13.1 million, or $0.13 per diluted share
- Adjusted net income(1) of $18.5 million, or $0.19 per diluted
share
- Adjusted earnings before interest, taxes, depreciation and
amortization(1) (EBITDA) of $34.3 million, or 10.1 percent of net
sales
Dave Castagnola, president and chief executive
officer, said, “We continue to book significant wins and renewals
in fiscal 2017, building on the value proposition Wesco provides to
major aerospace and defense customers. Sales wins with strategic
customers in fiscal 2016 and the first quarter of fiscal 2017
totaled approximately $130 million on an annualized basis,
approximately half of which is expected to be realized in fiscal
2017. We also have renewed long-term agreements with existing
customers totaling $400 million on an annualized basis over the
same period of time. New business strength continues to give us
confidence in our outlook for constant-currency sales growth of
three to five percent for the year.
“Our fiscal 2017 first-quarter results were
negatively impacted by foreign currency translation, temporary
disruptions to certain customers’ consumption patterns due to
operational changes and extended site closures, and late production
schedule revisions made by a major commercial OE customer. The
challenges created by these events were partially offset by sales
realized from recent new business wins.
“The slippage of some sales out of the quarter,
along with higher planned selling, general and administrative
expenses to support the significant ramp in new business, reduced
net income and adjusted EBITDA margins(1) in the fiscal 2017 first
quarter. As sales increase in the remainder of fiscal 2017, we
expect to improve operating leverage and margins, supporting our
earnings per share outlook for the year. We also increased our
investment in inventory in the first quarter to support the
substantial level of new business wins and to assure the excellent
service levels our customers expect. We plan to continue this
investment to support our growth, particularly in the first half of
the year. We expect this investment to reduce cash provided by
operating activities and free cash flow(1) in fiscal 2017 from our
previous outlook.”
Fiscal 2017 First Quarter
Results
Net sales in the fiscal 2017 first quarter were
$339.4 million, compared with $359.8 million in the prior-year
first quarter. Constant-currency sales(1) decreased 1.9 percent
year-over-year in the first quarter of fiscal 2017.
Gross profit was $89.5 million in the first
quarter of fiscal 2017, compared with $96.6 million in the fiscal
2016 first quarter. Gross margin was 26.4 percent in the fiscal
2017 first quarter, compared with 26.9 percent in the same period
last year. The decrease in margin primarily reflects changes in
mix.
Selling, general and administrative (SG&A)
expenses in the fiscal 2017 first quarter increased 6.1 percent
compared with the same period last year, primarily due to higher
planned people-related and systems costs, which included
approximately $2.0 million to support new business. SG&A
expense as a percentage of net sales was 18.6 percent in the fiscal
2017 first quarter, compared with 16.5 percent in the same period
last year.
Income from operations totaled $26.3 million, or
7.7 percent of net sales, in the fiscal 2017 first quarter. This
compares with $37.1 million, or 10.3 percent of net sales, in the
same period last year. The decline in operating margin was
primarily due to the factors described above.
The company's effective tax rate was 15.3
percent in the first quarter of fiscal 2017, compared with 28.9
percent in the year-ago quarter, primarily due to discrete tax
items.
Net income was $13.1 million, or $0.13 per
diluted share, in the fiscal 2017 first quarter, compared with
$20.6 million, or $0.21 per diluted share, in the same period last
year. Adjusted net income(1) was $18.5 million, or $0.19 per
diluted share, compared with $24.2 million, or $0.25 per diluted
share, in the same period last year.
Adjusted EBITDA(1) in the fiscal 2017 first
quarter was $34.3 million, compared with $45.6 million in the same
period last year. Adjusted EBITDA margin(1) was 10.1 percent,
compared with 12.7 percent in the same period last year.
Fiscal 2017 Outlook
Castagnola concluded, “We continue to expect
constant-currency(2) sales to increase in the range of three
percent to five percent in fiscal 2017, based primarily on new
business wins which we have already signed. We expect sales to
increase sequentially in each quarter of the fiscal year, subject
to the timing of new business implementation. Higher sales, along
with strategic sourcing initiatives and SG&A leverage, are
expected to deliver adjusted net income in the range of $1.15 to
$1.20 per diluted share.
“We now expect free cash flow conversion to be
approximately 50 percent of net income, based on the increased
level of inventory investments we are making to support these
substantial new business wins and changes to the timing of
receivable collections to reflect the re-phasing of new business
implementations to later in fiscal 2017.”
Conference Call Information
Wesco Aircraft will hold a conference call to
discuss its fiscal 2017 first quarter results at 2:00 p.m. PST
(5:00 p.m. EST) today, February 7, 2017. The conference
call can be accessed by dialing 888-771-4371 (domestic) or
847-585-4405 (international) and entering passcode 44184486.
The conference call will be simultaneously
broadcast on Wesco Aircraft’s Investor Relations website
(http://ir.wescoair.com).
Following the live webcast, a replay will be
available on the company’s website for one year. A telephonic
replay also will be available approximately two hours after the
conference call and may be accessed by dialing 888-843-7419
(domestic) or 630-652-3042 (international) and entering passcode
44184486. The telephonic replay will be available until
February 14, 2017 at 11:59 p.m. EST.
About Wesco Aircraft
Wesco Aircraft is the world’s leading
distributor and provider of comprehensive supply chain management
services to the global aerospace industry, based on annual sales.
The company’s services range from traditional distribution to the
management of supplier relationships, quality assurance, kitting,
just-in-time delivery and point-of-use inventory management. The
company believes it offers one of the world’s broadest portfolios
of aerospace products, including chemical, electrical and C-class
hardware and comprised of more than 565,000 active SKUs.
To learn more about Wesco Aircraft, visit our
website at www.wescoair.com. Follow Wesco Aircraft on LinkedIn at
https://www.linkedin.com/company/wesco-aircraft-corp.
Footnotes
(1) Non-GAAP financial measure – see Exhibits
for reconciliations of GAAP to non-GAAP results.
(2) Constant-currency results are determined by
translating current-period results at prior-period exchange
rates.
Non-GAAP Financial
Information
Adjusted EBITDA represents net income (loss)
before: (i) income tax provision (benefit), (ii) net
interest expense, (iii) depreciation and amortization and
(iv) unusual or non-recurring items.
Adjusted EBITDA margin represents adjusted
EBITDA divided by net sales.
Adjusted net income represents net income (loss)
before: (i) amortization of intangible assets,
(ii) amortization or write-off of deferred financing costs,
(iii) unusual or non-recurring items and (iv) the tax
effect of items (i) through (iii) above calculated using
an estimated effective tax rate.
Adjusted basic earnings per share represent
basic earnings per share calculated using adjusted net income as
opposed to net income.
Adjusted diluted earnings per share represent
diluted earnings per share calculated using adjusted net income as
opposed to net income.
Constant-currency sales represent net sales for
the fiscal 2017 first quarter translated at the corresponding
fiscal 2016 periodical average exchange rates. For the fiscal 2017
outlook, constant-currency results are determined by translating
current-period results at prior-period exchange rates.
Free cash flow represents net cash (used in)
provided by operating activities less purchases of property and
equipment; free cash flow conversion represents free cash flow
divided by net income.
Wesco Aircraft utilizes and discusses adjusted
EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic
earnings per share, adjusted diluted earnings per share,
constant-currency sales, free cash flow and free cash flow
conversion, which are non-GAAP measures management uses to evaluate
the company’s business, because it believes these measures assist
investors and analysts in comparing the company’s performance
across reporting periods on a consistent basis by excluding items
that management does not believe are indicative of core operating
performance. Wesco Aircraft believes these metrics are used in the
financial community, and the company presents these metrics to
enhance understanding of its operating performance. Readers should
not consider adjusted EBITDA and adjusted net income as
alternatives to net income, determined in accordance with GAAP, as
an indicator of operating performance. Adjusted EBITDA, adjusted
EBITDA margin, adjusted net income, adjusted basic earnings per
share, adjusted diluted earnings per share, constant-currency
sales, free cash flow and free cash flow conversion are not
measurements of financial performance under GAAP, and these metrics
may not be comparable to similarly titled measures of other
companies. See Exhibits 4, 5, 6 and 7 for reconciliations of
adjusted EBITDA, adjusted EBITDA margin, adjusted net income,
adjusted basic earnings per share, adjusted diluted earnings per
share, constant-currency sales, free cash flow and free cash flow
conversion to the most directly comparable financial measures
calculated and presented in accordance with GAAP.
Forward Looking Statements
This press release contains forward-looking
statements (including within the meaning of the Private Securities
Litigation Reform Act of 1995) concerning Wesco Aircraft
Holdings, Inc. These statements may discuss goals,
intentions and expectations as to future plans, trends, events,
results of operations or financial condition, or otherwise, based
on current beliefs of management, as well as assumptions made by,
and information currently available to, management. In some
cases, readers can identify forward-looking statements by the use
of forward-looking terms such as “believe,” “continue,” “expect,”
“grow,” “improve,” “increase,” “outlook,” “plan,” “will” or similar
words, phrases or expressions. These forward-looking
statements are subject to various risks and uncertainties, many of
which are outside the company’s control. Therefore, the reader
should not place undue reliance on such statements.
Factors that could cause actual results to
differ materially from these forward-looking statements include,
but are not limited to, the following: general economic and
industry conditions; conditions in the credit markets; changes in
military spending; risks unique to suppliers of equipment and
services to the U.S. government; risks associated with the
company’s long-term, fixed-price agreements that have no guarantee
of future sales volumes; risks associated with the loss of
significant customers, a material reduction in purchase orders by
significant customers, or the delay, scaling back or elimination of
significant programs on which the company relies; the company’s
ability to effectively compete in its industry; the company’s
ability to effectively manage its inventory; the company’s
suppliers’ ability to provide it with the products the company
sells in a timely manner, in adequate quantities and/or at a
reasonable cost; the company’s ability to maintain effective
information technology systems; the company’s ability to retain key
personnel; risks associated with the company’s international
operations, including exposure to foreign currency movements; risks
associated with assumptions the company makes in connection with
its critical accounting estimates (including goodwill) and legal
proceedings; the company’s dependence on third-party package
delivery companies; fuel price risks; fluctuations in the company’s
financial results from period-to-period; environmental risks; risks
related to the handling, transportation and storage of chemical
products; risks related to the aerospace industry and the
regulation thereof; risks related to the company’s indebtedness;
and other risks and uncertainties.
The foregoing list of factors is not
exhaustive. The reader should carefully consider the foregoing
factors and the other risks and uncertainties that affect the
company’s business, including those described in Wesco Aircraft’s
Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and other
documents filed from time to time with the Securities and Exchange
Commission. All forward-looking statements included in this
news release (including information included or incorporated by
reference herein) are based upon information available to the
company as of the date hereof, and the company undertakes no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Exhibits:
Exhibit 1: Consolidated Statements of Income (Unaudited)Exhibit
2: Condensed Consolidated Balance Sheets (Unaudited)Exhibit 3:
Condensed Consolidated Statements of Cash Flows (Unaudited)Exhibit
4: Non-GAAP Financial Information (Unaudited)Exhibit 5: Non-GAAP
Financial Information – Constant-Currency Sales (Unaudited)Exhibit
6: Non-GAAP Financial Information – Free Cash Flow
(Unaudited)Exhibit 7: Non-GAAP Financial Information – Fiscal 2017
Outlook (Unaudited)
|
Exhibit 1 |
|
Wesco Aircraft
Holdings, Inc. |
Consolidated Statements of Income
(UNAUDITED) |
(In thousands, except share data) |
|
|
|
Three Months Ended December
31, |
|
2016 |
|
2015 |
Net sales |
$ |
339,371 |
|
|
$ |
359,843 |
|
Cost of sales |
249,914 |
|
|
263,214 |
|
Gross
profit |
89,457 |
|
|
96,629 |
|
Selling, general and
administrative expenses |
63,201 |
|
|
59,545 |
|
Income
from operations |
26,256 |
|
|
37,084 |
|
Interest expense,
net |
(11,073 |
) |
|
(8,997 |
) |
Other income, net |
288 |
|
|
901 |
|
Income
before income taxes |
15,471 |
|
|
28,988 |
|
Provision for income
taxes |
(2,364 |
) |
|
(8,379 |
) |
Net
income |
$ |
13,107 |
|
|
$ |
20,609 |
|
|
|
|
|
Net income per
share: |
|
|
|
Basic |
$ |
0.13 |
|
|
$ |
0.21 |
|
Diluted |
$ |
0.13 |
|
|
$ |
0.21 |
|
Weighted average shares
outstanding: |
|
|
|
Basic |
98,319,926 |
|
|
97,217,924 |
|
Diluted |
98,821,794 |
|
|
97,939,423 |
|
|
|
|
|
|
|
Exhibit 2 |
|
Wesco Aircraft
Holdings, Inc. |
Condensed Consolidated Balance Sheets
(UNAUDITED) |
(In thousands) |
|
|
|
|
|
December 31, 2016 |
|
September 30, 2016 |
Assets |
|
|
|
Cash and
cash equivalents |
$ |
51,192 |
|
|
$ |
77,061 |
|
Accounts
receivable, net |
247,288 |
|
|
249,195 |
|
Inventories |
751,703 |
|
|
713,470 |
|
Prepaid
expenses and other current assets |
12,806 |
|
|
10,203 |
|
Income
taxes receivable |
7,132 |
|
|
1,460 |
|
Total
current assets |
1,070,121 |
|
|
1,051,389 |
|
Long-term
assets |
887,924 |
|
|
897,189 |
|
Total
assets |
$ |
1,958,045 |
|
|
$ |
1,948,578 |
|
|
|
|
|
Liabilities and
Stockholders’ Equity |
|
|
|
Accounts
payable |
$ |
173,116 |
|
|
$ |
181,700 |
|
Accrued
expenses and other current liabilities |
32,287 |
|
|
26,424 |
|
Income
taxes payable |
7,358 |
|
|
6,782 |
|
Capital
lease obligations, current portion |
1,319 |
|
|
1,471 |
|
Short-term borrowings and current portion of long-term debt |
40,000 |
|
|
— |
|
Total
current liabilities |
254,080 |
|
|
216,377 |
|
Capital
lease obligations, less current portion |
1,531 |
|
|
1,710 |
|
Long-term
debt, less current portion |
803,179 |
|
|
834,279 |
|
Deferred
tax liabilities, non-current |
4,011 |
|
|
4,092 |
|
Other
liabilities |
5,512 |
|
|
9,205 |
|
Total
liabilities |
1,068,313 |
|
|
1,065,663 |
|
Total
stockholders’ equity |
889,732 |
|
|
882,915 |
|
Total
liabilities and stockholders’ equity |
$ |
1,958,045 |
|
|
$ |
1,948,578 |
|
|
|
|
|
|
|
|
|
Exhibit 3 |
|
Wesco Aircraft
Holdings, Inc. |
Condensed Consolidated Statements of Cash Flows
(UNAUDITED) |
(In thousands) |
|
|
|
Three Months Ended December
31, |
|
2016 |
|
2015 |
Cash flows from
operating activities |
|
|
|
Net
income |
$ |
13,107 |
|
|
$ |
20,609 |
|
Adjustments to reconcile net income to net cash provided by
operating activities |
|
|
|
Depreciation and amortization |
6,729 |
|
|
6,997 |
|
Deferred
financing costs |
3,202 |
|
|
828 |
|
Bad debt
and sales return reserve |
458 |
|
|
374 |
|
Stock-based compensation expense |
2,690 |
|
|
2,194 |
|
Deferred
income taxes |
491 |
|
|
1,731 |
|
Other |
(1,139 |
) |
|
(1,063 |
) |
Changes
in assets and liabilities |
|
|
|
Accounts
receivable |
(2,159 |
) |
|
14,205 |
|
Inventories |
(42,169 |
) |
|
(24,500 |
) |
Other
current and long-term assets |
(7,667 |
) |
|
(8,065 |
) |
Accounts
payable |
(8,334 |
) |
|
16,311 |
|
Other
current and long-term liabilities |
6,705 |
|
|
(18,957 |
) |
Net cash
(used in) provided by operating activities |
(28,086 |
) |
|
10,664 |
|
Cash flows from
investing activities |
|
|
|
Purchase
of property and equipment |
(1,316 |
) |
|
(1,162 |
) |
Net cash
used in investing activities |
(1,316 |
) |
|
(1,162 |
) |
Cash flows from
financing activities |
|
|
|
Proceeds
from short-term borrowings |
25,000 |
|
|
— |
|
Repayment
of short-term borrowings |
(5,000 |
) |
|
— |
|
Repayment
of long-term debt |
(6,344 |
) |
|
(5,000 |
) |
Financing
fees |
(10,462 |
) |
|
— |
|
Repayment
of capital lease obligations |
(330 |
) |
|
(722 |
) |
Excess
tax benefit related to stock-based incentive plans |
— |
|
|
84 |
|
Proceeds
from issuance of common stock |
2,277 |
|
|
150 |
|
Net cash
provided by (used in) financing activities |
5,141 |
|
|
(5,488 |
) |
Effect of
foreign currency exchange rate on cash and cash equivalents |
(1,608 |
) |
|
(1,225 |
) |
Net
(decrease) increase in cash and cash equivalents |
(25,869 |
) |
|
2,789 |
|
Cash and
cash equivalents, beginning of period |
77,061 |
|
|
82,866 |
|
Cash and
cash equivalents, end of period |
$ |
51,192 |
|
|
$ |
85,655 |
|
|
|
|
|
|
|
|
|
Exhibit 4 |
|
Wesco Aircraft Holdings, Inc. |
Non-GAAP Financial Information
(UNAUDITED) |
(In thousands, except share data) |
|
|
|
|
|
Three Months Ended December
31, |
|
|
2016 |
|
2015 |
Net
Sales |
|
$ |
339,371 |
|
|
$ |
359,843 |
|
|
|
|
|
|
EBITDA &
Adjusted EBITDA |
|
|
|
|
Net income |
|
$ |
13,107 |
|
|
$ |
20,609 |
|
Provision for income
taxes |
|
2,364 |
|
|
8,379 |
|
Interest expense,
net |
|
11,073 |
|
|
8,997 |
|
Depreciation and
amortization |
|
6,729 |
|
|
6,997 |
|
EBITDA |
|
33,273 |
|
|
44,982 |
|
Unusual or
non-recurring items (3) |
|
1,015 |
|
|
629 |
|
Adjusted EBITDA |
|
$ |
34,288 |
|
|
$ |
45,611 |
|
Adjusted EBITDA
margin |
|
10.1 |
% |
|
12.7 |
% |
|
|
|
|
|
Adjusted Net
Income |
|
|
|
|
Net income |
|
$ |
13,107 |
|
|
$ |
20,609 |
|
Amortization of
intangible assets |
|
3,721 |
|
|
3,963 |
|
Amortization of
deferred financing costs |
|
3,202 |
|
|
828 |
|
Unusual or
non-recurring items (3) |
|
1,015 |
|
|
629 |
|
Adjustments for tax
effect |
|
(2,547 |
) |
|
(1,856 |
) |
Adjusted net
income |
|
$ |
18,498 |
|
|
$ |
24,173 |
|
|
|
|
|
|
Adjusted Basic
Earnings Per Share |
|
|
|
|
Weighted-average number
of basic shares outstanding |
|
98,319,926 |
|
|
97,217,924 |
|
Adjusted net income per
basic share |
|
$ |
0.19 |
|
|
$ |
0.25 |
|
|
|
|
|
|
Adjusted
Diluted Earnings Per Share |
|
|
|
|
Weighted-average number
of diluted shares outstanding |
|
98,821,794 |
|
|
97,939,423 |
|
Adjusted net income per
diluted share |
|
$ |
0.19 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
(3) Unusual and non-recurring items in the first
quarter of fiscal 2017 consisted of business realignment and other
expenses of $1.0 million. Unusual and non-recurring items in
the first quarter of fiscal 2016 consisted of integration and other
related expenses of $0.4 million, as well as business realignment
and other expenses of $0.2 million.
Exhibit 5 |
|
Wesco Aircraft
Holdings, Inc. |
Non-GAAP Financial Information –
Constant-Currency Sales (UNAUDITED) |
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
31, |
|
Increase |
|
Percent |
|
2016 |
|
2015 |
|
(Decrease) |
|
Change |
Net sales |
$ |
339,371 |
|
|
$ |
359,843 |
|
|
$ |
(20,472 |
) |
|
(5.7 |
)% |
Currency translation
impact |
13,606 |
|
|
— |
|
|
13,606 |
|
|
|
Constant-currency
sales |
$ |
352,977 |
|
|
$ |
359,843 |
|
|
$ |
(6,866 |
) |
|
(1.9 |
)% |
|
|
|
|
|
|
|
|
Exhibit 6 |
|
Wesco Aircraft
Holdings, Inc. |
Non-GAAP Financial Information – Free Cash
Flow (UNAUDITED) |
(Dollars in thousands) |
|
|
|
|
|
Three Months Ended December
31, |
|
Increase |
|
2016 |
|
2015 |
|
(Decrease) |
Free Cash
Flow |
|
|
|
|
|
Net cash (used in)
provided by operating activities |
$ |
(28,086 |
) |
|
$ |
10,664 |
|
|
$ |
(38,750 |
) |
Purchase of property
and equipment |
(1,316 |
) |
|
(1,162 |
) |
|
(154 |
) |
Free cash flow |
$ |
(29,402 |
) |
|
$ |
9,502 |
|
|
$ |
(38,904 |
) |
|
|
|
|
|
|
Free cash flow
conversion ratio (4) |
NM |
|
46.1 |
% |
|
|
|
|
|
|
|
|
|
(4) "NM" stands for not meaningful.
|
Exhibit 7 |
|
Wesco Aircraft
Holdings, Inc. |
Non-GAAP Financial Information – Fiscal 2017
Outlook (UNAUDITED) |
(In thousands, except share data) |
|
|
|
Fiscal 2017 |
|
Outlook |
Diluted earnings per
share |
$1.00 - $1.05 |
|
|
Amortization of
intangible assets |
0.15 |
|
Amortization of
deferred financing costs |
0.05 |
|
Unusual or
non-recurring items (5) |
0.02 |
|
Adjustments for tax
effect |
(0.07 |
) |
|
|
Adjusted diluted
earnings per share |
$1.15 - $1.20 |
|
|
|
|
Net cash provided by
operating activities |
~$62,000 |
|
|
Purchase of property
and equipment |
~(12,000) |
|
|
Free cash flow |
~$50,000 |
|
|
Free cash flow
conversion |
~50% |
|
|
(5)
Primarily facility network realignment costs. |
|
|
Contact Information:
Jeff Misakian
Vice President, Investor Relations
661-362-6847
Jeff.Misakian@wescoair.com
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