Wesco Aircraft Holdings, Inc. (NYSE: WAIR), the world's
leading independent distributor and provider of comprehensive
supply chain management services to the global aerospace industry,
today announced results for its fiscal 2019 first quarter ended
December 31, 2018.
Fiscal 2019 First Quarter Highlights
- Net sales of $395.3 million, up 8.9 percent
- Net income of $6.3 million, or $0.06 per diluted share
- Adjusted net income(1) of $16.6 million, or $0.17 per diluted
share
- Adjusted earnings before interest, taxes, depreciation and
amortization(1) (EBITDA) of $37.4 million, or 9.5 percent of net
sales
Todd Renehan, chief executive officer,
commented, “Fiscal 2019 first quarter results reflect solid
top-line growth in all products and services and ongoing execution
of our Wesco 2020 initiatives. Our Americas business, which
represented 81 percent of total net sales, performed very well in
the first quarter, with strong sales growth and improved operating
margin. This was partially offset by one-time costs of $8 million
supporting Wesco 2020 execution and weaker results in our EMEA
business. Based upon our strong execution in the Americas, I’m
confident in our ability to address the challenges in EMEA and
improve its profit generation by the end of the year.”
The company’s Americas segment reported net
sales growth of 11 percent. Operating income in the Americas
increased 15 percent, reflecting higher gross profit, partially
offset by an increase in expenses to support growth and Wesco 2020
execution. The EMEA segment reported a net sales decline of 4
percent. Operating income in EMEA decreased $2.7 million, or 52
percent, due to a decline in sales and gross profit, which reflects
lower pricing on certain contract renewals, volume discounts earned
and less volume at some customers.
Renehan continued, “As anticipated, we consumed
cash from operating activities in the fiscal 2019 first quarter to
support our growing business, which included direct support of a
large multiyear customer contract renewal that was completed at the
end of the first quarter. Excluding this investment, inventory
growth was lower than in the first quarter of last year. We
continue to expect that improvements in inventory management will
drive an increase in cash from operations in fiscal 2019 compared
to fiscal 2018.”
Renehan added, “We’re executing Wesco 2020
initiatives at an aggressive pace, consolidating single-use
warehouse facilities into multi-commodity distribution centers,
closing sales offices and reducing headcount further. As expected,
Wesco 2020 benefits to the bottom line were minimal in the first
quarter as execution timing for key elements of our initiatives are
scheduled for later in the year. We expect benefits to increase as
we progress through the year. We continue to believe Wesco 2020
will generate annualized pre-tax benefits of at least $30 million,
with full realization during fiscal 2020. Although temporary
operating cost support for the execution of Wesco 2020 will
continue to precede benefits, we are confident that these temporary
costs will decline significantly by the end of the year.”
Fiscal 2019 First Quarter Consolidated
Results
Net sales of $395.3 million in the fiscal 2019
first quarter were $32.2 million, or 8.9 percent higher than the
same period last year, reflecting continued focus and execution.
Long-term contracts were higher, primarily due to higher chemical
pass-through revenue and related service fees, while hardware
volume increased at a lesser pace. Ad-hoc sales increased,
primarily due to higher ordering by key customers.
Gross profit was $98.3 million in the first
quarter of fiscal 2019, compared with $94.4 million in the fiscal
2018 first quarter. The increase in gross profit compared to the
same period last year was primarily due to higher sales volume,
partially offset by a decline in gross margin. The lower gross
margin primarily reflects the dilutive effect of chemical
pass-through revenue, as well as higher freight costs, volume
discounts earned and excess and obsolete inventory related
charges.
Selling, general and administrative (SG&A)
expenses totaled $76.3 million in the fiscal 2019 first quarter,
compared with $69.9 million in the same period last year. Higher
SG&A expenses primarily reflect one-time costs associated with
the company’s Wesco 2020 initiatives totaling $8 million, compared
with $2 million in the same period last year.
SG&A expenses were 19.3 percent of net sales
in the fiscal 2019 first quarter, compared with 19.2 percent in the
same period last year. Excluding special items, SG&A expenses
as a percent of net sales declined by approximately 130 basis
points year-over-year.
Income from operations totaled $22.1 million, or
5.6 percent of net sales, in the fiscal 2019 first quarter. This
compares with income from operations of $24.6 million, or 6.8
percent of net sales, in the same period last year. The decrease in
income from operations reflects the increase in SG&A expenses,
partially offset by higher gross profit.
Net income was $6.3 million, or $0.06 per
diluted share, in the fiscal 2019 first quarter. This compares with
a net loss of $0.4 million, or essentially break-even on a
per-share basis, in the same period last year. The net loss in last
year’s first quarter primarily reflects additional tax expense of
$9.1 million associated with the enactment of the Tax Cuts and Jobs
Act in the period.
Adjusted net income(1) in the fiscal 2019 first
quarter was $16.6 million, or $0.17 per diluted share, compared
with $14.5 million, or $0.15 per diluted share, in the same period
last year.
Adjusted EBITDA(1) in the fiscal 2019 first
quarter was $37.4 million, compared with $35.0 million in the same
period last year. Adjusted EBITDA margin(1) was 9.5 percent,
compared with 9.6 percent in the same period last year.
Adjustments to arrive at adjusted net income(1)
and adjusted EBITDA(1) include special items, among other things.
In the first quarter of fiscal 2019, special items consisted
primarily of consulting fees of $4.4 million and other costs of
$3.9 million associated with the company’s Wesco 2020 initiative.
In the first quarter of fiscal 2018, special items consisted
primarily of consulting fees of $1.6 million associated with Wesco
2020, as well as litigation and related fees of $1.1 million.
Net cash used in operating activities totaled
$32.4 million in the fiscal 2019 first quarter, compared with $29.9
million in the same period last year. This decrease reflects
year-over-year differences in accounts receivable and accounts
payable that were primarily due to the timing of collections and
payments, respectively.
Free cash flow(1) was a negative $34.7 million
in the fiscal 2019 first quarter, compared with a negative $31.2
million in the same period last year.
Fiscal 2019 Outlook
The company continues to expect net sales in
fiscal 2019 to increase at a mid-single-digit percentage pace
compared to fiscal 2018. In addition, higher sales volume, Wesco
2020 benefits and expense leverage are expected to drive a
high-single-digit percentage increase in adjusted EBITDA .
Conference Call Information
Wesco Aircraft will hold a conference call to
discuss its fiscal 2019 first quarter results at 2:00 p.m. PST
(5:00 p.m. EST) today, January 31, 2019. The conference
call can be accessed by dialing 866-763-0010 (domestic) or
703-871-3797 (international) and entering passcode 7261786.
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 855-859-2056
(domestic) or 404-537-3406 (international) and entering passcode
7261786. The telephonic replay will be available until
February 7, 2019 at 11:59 p.m. EST.
About Wesco Aircraft
Wesco Aircraft is the world’s leading
independent distributor and provider of comprehensive supply chain
management services to the global aerospace industry. The company’s
services range from traditional distribution to the management of
supplier relationships, quality assurance, kitting, just-in-time
delivery, chemical management services, third-party logistics or
fourth-party logistics and point-of-use inventory management. The
company believes it offers one of the world’s broadest portfolios
of aerospace products, including C-class hardware, chemicals and
electronic components and comprised of more than 563,000 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 the tables
following this press release for reconciliations of GAAP to
non-GAAP results.
Non-GAAP Financial
Information
Adjusted net income represents net income (loss)
before: (i) amortization of intangible assets,
(ii) amortization or write-off of deferred issuance costs,
(iii) special items and (iv) the tax effect of items
(i) through (iii) above calculated using an estimated
effective tax rate.
Adjusted basic earnings per share represents
basic earnings per share calculated using adjusted net income as
opposed to net income (loss).
Adjusted diluted earnings per share represents
diluted earnings per share calculated using adjusted net income as
opposed to net income (loss).
Adjusted EBITDA represents net income (loss)
before: (i) income tax provision, (ii) net interest expense, (iii)
depreciation and amortization and (iv) special items.
Adjusted EBITDA margin represents adjusted
EBITDA divided by net sales.
Free cash flow represents net cash used in
operating activities less purchases of property and equipment.
Wesco Aircraft utilizes and discusses adjusted
net income, adjusted basic earnings per share, adjusted diluted
earnings per share, adjusted EBITDA, adjusted EBITDA margin and
free cash flow, 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
the company’s 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 (loss),
determined in accordance with GAAP, as an indicator of operating
performance. Adjusted net income, adjusted basic earnings per
share, adjusted diluted earnings per share, adjusted EBITDA,
adjusted EBITDA margin and free cash flow are not measurements of
financial performance under GAAP, and these metrics may not be
comparable to similarly titled measures of other companies. See the
tables following this press release for reconciliations of adjusted
net income, adjusted basic earnings per share, adjusted diluted
earnings per share, adjusted EBITDA, adjusted EBITDA margin and
free cash flow 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 “address,” “ability,”
“anticipate,” “believe,” “continue,” “drive,” “execute,” “expect,”
“grow,” “improve,” “increase,” “initiative,” “lead,” “outlook,”
“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 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; risks associated
with the company’s long-term, fixed-price agreements that have no
guarantee of future sales volumes; 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, while
also meeting the company’s customers’ quality standards; the
company’s ability to maintain effective information technology
systems and effectively implement its new warehouse management
system; the company’s ability to successfully execute and realize
the expected financial benefits from its “Wesco 2020” initiative;
the company’s ability to retain key personnel; risks associated
with the company’s international operations, including exposure to
foreign currency movements; changes in trade policies; risks
associated with assumptions the company makes in connection with
its critical accounting estimates (including goodwill, excess and
obsolete inventory and valuation allowance of the company’s
deferred tax assets) and legal proceedings; changes in U.S. income
tax law; 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.Contact Information:Jeff MisakianVice
President, Investor
Relations661-362-6847Jeff.Misakian@wescoair.com
Wesco Aircraft
Holdings, Inc.Consolidated Statements of
Income (Loss)
(UNAUDITED)(In thousands, except share
data)
|
Three Months Ended December
31, |
|
2018 |
|
2017 |
Net sales |
$ |
395,311 |
|
|
$ |
363,091 |
|
Cost of sales |
296,969 |
|
|
268,667 |
|
Gross
profit |
98,342 |
|
|
94,424 |
|
Selling, general and
administrative expenses |
76,263 |
|
|
69,852 |
|
Income
from operations |
22,079 |
|
|
24,572 |
|
Interest expense,
net |
(12,914 |
) |
|
(11,838 |
) |
Other (expense) income,
net |
(217 |
) |
|
260 |
|
Income
before income taxes |
8,948 |
|
|
12,994 |
|
Provision for income
taxes |
(2,655 |
) |
|
(13,368 |
) |
Net
income (loss) |
$ |
6,293 |
|
|
$ |
(374 |
) |
|
|
|
|
Net income (loss) per
share: |
|
|
|
Basic |
$ |
0.06 |
|
|
$ |
— |
|
Diluted |
$ |
0.06 |
|
|
$ |
— |
|
Weighted average shares
outstanding: |
|
|
|
Basic |
99,485,989 |
|
|
99,096,914 |
|
Diluted |
99,904,111 |
|
|
99,096,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wesco Aircraft
Holdings, Inc.Condensed Consolidated Balance
Sheets (UNAUDITED)(In thousands)
|
December 31, 2018 |
|
September 30, 2018 |
Assets |
|
|
|
Cash and cash
equivalents |
$ |
25,181 |
|
|
$ |
46,222 |
|
Accounts
receivable, net |
296,756 |
|
|
283,775 |
|
Inventories |
912,679 |
|
|
884,212 |
|
Prepaid
expenses and other current assets |
19,322 |
|
|
15,291 |
|
Income
taxes receivable |
2,798 |
|
|
2,017 |
|
Total
current assets |
1,256,736 |
|
|
1,231,517 |
|
Long-term
assets |
556,340 |
|
|
557,959 |
|
Total
assets |
$ |
1,813,076 |
|
|
$ |
1,789,476 |
|
Liabilities and
Stockholders’ Equity |
|
|
|
Accounts
payable |
$ |
184,852 |
|
|
$ |
180,494 |
|
Accrued
expenses and other current liabilities |
37,465 |
|
|
42,767 |
|
Income
taxes payable |
3,719 |
|
|
2,295 |
|
Capital
lease obligations, current portion |
2,235 |
|
|
2,205 |
|
Short-term borrowings and current portion of long-term debt |
94,000 |
|
|
74,000 |
|
Total
current liabilities |
322,271 |
|
|
301,761 |
|
Capital
lease obligations, less current portion |
2,050 |
|
|
2,329 |
|
Long-term
debt, less current portion |
767,755 |
|
|
771,777 |
|
Deferred
income taxes |
3,504 |
|
|
2,803 |
|
Other
liabilities |
19,174 |
|
|
18,337 |
|
Total
liabilities |
1,114,754 |
|
|
1,097,007 |
|
Total
stockholders’ equity |
698,322 |
|
|
692,469 |
|
Total
liabilities and stockholders’ equity |
$ |
1,813,076 |
|
|
$ |
1,789,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wesco Aircraft
Holdings, Inc.Condensed Consolidated
Statements of Cash Flows (UNAUDITED)(In
thousands)
|
Three Months Ended December
31, |
|
2018 |
|
2017 |
Cash flows from
operating activities |
|
|
|
Net income (loss) |
$ |
6,293 |
|
|
$ |
(374 |
) |
Adjustments to reconcile net income (loss) to net cash used in
operating activities |
|
|
|
Depreciation and amortization |
7,098 |
|
|
7,256 |
|
Amortization of deferred debt issuance costs |
1,304 |
|
|
1,508 |
|
Stock-based compensation expense |
2,944 |
|
|
1,815 |
|
Inventory
provision |
5,045 |
|
|
4,443 |
|
Deferred
income taxes |
(12 |
) |
|
593 |
|
Other
non-cash items |
(232 |
) |
|
59 |
|
Subtotal |
22,440 |
|
|
15,300 |
|
Changes
in assets and liabilities |
|
|
|
Accounts
receivable |
(13,858 |
) |
|
2,020 |
|
Inventories |
(33,575 |
) |
|
(32,960 |
) |
Other
current and long-term assets |
(7,365 |
) |
|
(2,492 |
) |
Accounts
payable |
4,348 |
|
|
(22,315 |
) |
Other
current and long-term liabilities |
(4,437 |
) |
|
10,567 |
|
Net cash
used in operating activities |
(32,447 |
) |
|
(29,880 |
) |
Cash flows from
investing activities |
|
|
|
Purchase
of property and equipment |
(2,240 |
) |
|
(1,335 |
) |
Net cash
used in investing activities |
(2,240 |
) |
|
(1,335 |
) |
Cash flows from
financing activities |
|
|
|
Proceeds
from short-term borrowings |
30,000 |
|
|
46,000 |
|
Repayment
of short-term borrowings |
(10,000 |
) |
|
(27,000 |
) |
Repayment
of borrowings and capital lease obligations |
(5,755 |
) |
|
(5,547 |
) |
Debt
issuance costs |
— |
|
|
(1,900 |
) |
Net cash
paid for activities related to stock-based incentive plans |
(416 |
) |
|
(26 |
) |
Net cash
provided by financing activities |
13,829 |
|
|
11,527 |
|
Effect of
foreign currency exchange rate on cash and cash equivalents |
(183 |
) |
|
11 |
|
Net
decrease in cash and cash equivalents |
(21,041 |
) |
|
(19,677 |
) |
Cash and
cash equivalents, beginning of period |
46,222 |
|
|
61,625 |
|
Cash and
cash equivalents, end of period |
$ |
25,181 |
|
|
$ |
41,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wesco Aircraft Holdings,
Inc.Non-GAAP Financial Information - Adjusted Net
Income andAdjusted Earnings Per Share
(UNAUDITED)(Dollars in thousands, except share
data)
|
Three Months Ended December
31, |
|
2018 |
|
2017 |
Adjusted Net
Income |
|
|
|
Net income (loss) |
$ |
6,293 |
|
|
$ |
(374 |
) |
Amortization of
intangible assets |
3,733 |
|
|
3,714 |
|
Amortization of
deferred debt issuance costs |
1,304 |
|
|
1,508 |
|
Special items (1) |
8,485 |
|
|
2,914 |
|
Adjustments for tax
effect (2) |
(3,264 |
) |
|
6,696 |
|
Adjusted net
income |
$ |
16,551 |
|
|
$ |
14,458 |
|
|
|
|
|
Adjusted
Earnings Per Share |
|
|
|
Weighted-average number
of basic shares outstanding |
99,485,989 |
|
|
99,096,914 |
|
Adjusted net income per
basic share |
$ |
0.17 |
|
|
$ |
0.15 |
|
|
|
|
|
Adjusted
Diluted Earnings Per Share |
|
|
|
Weighted-average number
of diluted shares outstanding |
99,904,111 |
|
|
99,096,914 |
|
Adjusted net income per
diluted share |
$ |
0.17 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
(1) Special items in the first quarter of
fiscal 2019 consisted primarily of consulting fees of $4.4 million
and other costs of $3.9 million associated with the company’s Wesco
2020 initiative. Special items in the first quarter of fiscal 2018
consisted of consulting fees associated with the company’s
improvement activities of $1.6 million, settlement of litigation
and related fees of $1.1 million and other expenses of $0.2
million.
(2) The adjustment for tax effect in the
first quarter of fiscal 2018 included an estimated $9.1 million tax
provision on foreign earnings as transition tax under the Tax Cuts
and Jobs Act.
Wesco Aircraft
Holdings, Inc.Non-GAAP Financial Information
- EBITDA and Adjusted EBITDA (UNAUDITED)(Dollars
in thousands)
|
Three Months Ended December
31, |
|
2018 |
|
2017 |
|
|
|
|
EBITDA and
Adjusted EBITDA |
|
|
|
Net income (loss) |
$ |
6,293 |
|
|
$ |
(374 |
) |
Provision for income
taxes |
2,655 |
|
|
13,368 |
|
Interest expense,
net |
12,914 |
|
|
11,838 |
|
Depreciation and
amortization |
7,098 |
|
|
7,256 |
|
EBITDA |
28,960 |
|
|
32,088 |
|
Special items (1) |
8,485 |
|
|
2,914 |
|
Adjusted EBITDA |
$ |
37,445 |
|
|
$ |
35,002 |
|
|
|
|
|
Adjusted EBITDA
margin |
9.5 |
% |
|
9.6 |
% |
|
|
|
|
|
|
(1) Special items in the first quarter of
fiscal 2019 consisted primarily of consulting fees of $4.4 million
and other costs of $3.9 million associated with the company’s Wesco
2020 initiative. Special items in the first quarter of fiscal 2018
consisted of consulting fee associated with the company's
improvement activities of $1.6 million, settlement of litigation
and related fees of $1.1 million and other expenses of $0.2
million.
Wesco Aircraft
Holdings, Inc.Non-GAAP Financial Information
- Free Cash Flow (UNAUDITED)(Dollars in
thousands)
|
|
|
|
|
|
|
Three Months Ended December
31, |
|
Increase(Decrease) |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
Net cash used in
operating activities |
$ |
(32,447 |
) |
|
$ |
(29,880 |
) |
|
$ |
(2,567 |
) |
Purchase of property
and equipment |
(2,240 |
) |
|
(1,335 |
) |
|
(905 |
) |
Free cash flow |
$ |
(34,687 |
) |
|
$ |
(31,215 |
) |
|
$ |
(3,472 |
) |
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