First Quarter of Fiscal 2020 Net Income up
54% on Operating Income Increase of 13% and Net Sales Increase of
9%
HEICO CORPORATION (NYSE: HEI.A) (NYSE: HEI) today reported that
net income increased 54% to a record $121.9 million, or 89 cents
per diluted share, in the first quarter of fiscal 2020, up from
$79.3 million, or 58 cents per diluted share, in the first quarter
of fiscal 2019.
Net income attributable to HEICO in the first quarter of fiscal
2020 and 2019 were both favorably impacted by a discrete income tax
benefit from stock option exercises. The benefit in the first
quarter of fiscal 2020, net of noncontrolling interests, was $46.3
million, or 34 cents per diluted share. The benefit in the first
quarter of fiscal 2019, net of noncontrolling interests, was $15.1
million, or 11 cents per diluted share. These tax benefits were
mainly driven by more stock options being exercised as they
approached expiration and the strong appreciation in HEICO’s stock
price during the optionees’ holding periods.
Excluding the impact of the tax benefit in both periods, net
income and diluted earnings per share increased 18% and 17%,
respectively, in the first quarter of fiscal 2020.
Operating income increased 13% to $111.0 million in the first
quarter of fiscal 2020, up from $97.9 million in the first quarter
of fiscal 2019. The Company's consolidated operating margin
improved to 21.9% in the first quarter of fiscal 2020, up from
21.0% in the first quarter of fiscal 2019.
Net sales increased 9% to $506.3 million in the first quarter of
fiscal 2020, up from $466.1 million in the first quarter of fiscal
2019.
EBITDA increased 13% to $132.8 million in the first quarter of
fiscal 2020, up from $117.7 million in the first 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 first quarter results stating, "We are pleased to report
strong first quarter year-over-year increases in net sales and
operating income within both our Flight Support Group and
Electronic Technologies Group. These results principally reflect
mid-single-digit organic growth within both of our operating
segments as well as the excellent operating performance of our
fiscal 2019 and 2020 acquisitions.
Our total debt to shareholders' equity ratio decreased to 31.4%
as of January 31, 2020, down from 33.2% as of October 31, 2019. Our
net debt (total debt less cash and cash equivalents) of $504.8
million as of January 31, 2020 to shareholders’ equity ratio
decreased to 27.9% as of January 31, 2020, down from 29.8% as of
October 31, 2019. Our net debt to EBITDA ratio improved to .90x as
of January 31, 2020, down from .93x as of October 31, 2019. During
fiscal 2020, we have successfully completed two acquisitions and we
have completed seven acquisitions over the past year. We have no
significant debt maturities until fiscal 2023 and plan to utilize
our financial flexibility to aggressively pursue high quality
acquisitions of various sizes to accelerate growth and maximize
shareholder returns.
Cash flow provided by operating activities was very strong,
increasing 64% to $81.1 million in the first quarter of fiscal
2020, up from $49.6 million in the first quarter of fiscal 2019. We
continue to forecast strong cash flow from operations for fiscal
2020.
As we look ahead to the remainder of fiscal 2020, we anticipate
continued net sales growth within the Flight Support Group's
commercial aviation and defense product lines. We also anticipate
growth within the Electronic Technologies Group, principally driven
by demand for the majority of our products. During fiscal 2020, we
plan to continue our commitments to developing new products and
services, further market penetration, and an aggressive acquisition
strategy, while maintaining our financial strength and
flexibility.
Based on our current economic visibility, we now estimate
approximately 14% - 15% growth in full year net income, up from our
prior growth estimate of 13% - 14% and continue to estimate
approximately 6% - 8% growth in full year net sales over fiscal
2019 levels. Additionally, we continue to anticipate our fiscal
year 2020 consolidated operating margin to approximate 21.5% -
22.0%, depreciation and amortization expense of approximately $89
million, capital expenditures to approximate $42 million and cash
flow from operations to approximate $475 million. These estimates
exclude additional acquired businesses, if any. Further, these
estimates exclude any potential impact from the recent coronavirus
outbreak as the impact to our businesses is uncertain and difficult
to predict."
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 first
quarter results stating, "We are pleased to report year-over-year
increases in net sales and operating income driven principally by
organic growth within all of our product lines and improved gross
profit margins.
The Flight Support Group's net sales increased 5% to $301.1
million in the first quarter of fiscal 2020, up from $287.2 million
in the first quarter of fiscal 2019. The increase is attributable
to 4% organic growth mainly due to increased demand and new product
offerings across all of our product lines.
The Flight Support Group's operating income increased 17% to
$62.0 million in the first quarter of fiscal 2020, up from $52.9
million in the first quarter of fiscal 2019. The increase
principally reflects an improved gross profit margin, mainly
attributable to a more favorable product mix within all of our
product lines, the previously mentioned net sales growth and a
favorable impact from lower expenses related to changes in the
estimated fair value of accrued contingent consideration.
The Flight Support Group's operating margin increased to 20.6%
in the first quarter of fiscal 2020, up from 18.4% in the first
quarter of fiscal 2019. The increase principally reflects the
previously mentioned improved gross profit margin and a decrease in
SG&A expenses as a percentage of net sales mainly driven by
efficiencies realized from the net sales growth as well as the
previously mentioned lower expense related to changes in the
estimated fair value of accrued contingent consideration.
With respect to the remainder of fiscal 2020, we continue to
estimate approximately 7% - 8% net sales growth over the prior year
and now estimate the full year Flight Support Group operating
margin to approximate 20%, up from the prior operating margin
estimate of 19.5% - 20.0%. Further, we continue to estimate mid- to
high single-digit organic growth in fiscal 2020. These estimates
exclude additional acquired businesses and the impact from the
recent coronavirus outbreak, if any.”
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 first quarter results stating, "Our first
quarter year-over-year growth in net sales and operating income
reflects strong double-digit organic growth for our defense
products and the impact from our well-managed and profitable fiscal
2019 and 2020 acquisitions.
The Electronic Technologies Group's net sales increased 13% to
$208.4 million in the first quarter of fiscal 2020, up from $184.4
million in the first quarter of fiscal 2019. The increase is
attributable to the favorable impact from our fiscal 2019 and 2020
acquisitions as well as 6% organic growth mainly due to increased
demand for our defense products partially offset by lower demand
for our space products.
The Electronic Technologies Group's operating income increased
11% to $57.5 million in the first quarter of fiscal 2020, up from
$51.6 million in the first quarter of fiscal 2019. The increase
principally reflects the previously mentioned net sales growth
partially offset by a lower gross profit margin mainly due to a
decrease in net sales of our space products partially offset by
increased net sales of our defense products.
The Electronic Technologies Group's operating margin was 27.6%
in the first quarter of fiscal 2020 as compared to 28.0% in the
first quarter of fiscal 2019. The decrease is mainly due to the
previously mentioned lower gross profit margin partially offset by
a decrease in SG&A expenses as a percentage of net sales mainly
due to a decrease in performance-based compensation expense as well
as efficiencies realized from the net sales growth.
With respect to the remainder of fiscal 2020, we now estimate
approximately 6% - 7% net sales growth over the prior year, up from
the prior estimate of 5% - 6% and continue to anticipate the full
year Electronic Technologies Group's operating margin to
approximate 28.0% - 29.0%. Further, we continue to estimate low to
mid-single-digit organic growth in fiscal 2020. These estimates
exclude additional acquired businesses and the impact from the
recent coronavirus outbreak, if any.”
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) has 1/10 vote per share and the Common
Stock (HEI) has one vote per share.)
There are currently approximately 80.5 million shares of HEICO's
Class A Common Stock (HEI.A) outstanding and 54.1 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, February 26, 2020 at 9:00 a.m. Eastern Standard Time to
discuss its first 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
1646305. 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 1646305.
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 http://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: lower
demand for commercial air travel or 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 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; defense spending or
budget cuts, which could reduce our defense-related revenue; and
any impact from the recent coronavirus. 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)
Three Months Ended January
31,
2020
2019
Net sales
$506,275
$466,146
Cost of sales
308,228
283,909
Selling, general and administrative
expenses
87,057
84,290
Operating income
110,990
97,947
Interest expense
(4,283)
(5,489)
Other income (expense)
195
(332)
Income before income taxes and
noncontrolling interests
106,902
92,126
Income tax (benefit) expense
(22,900)
(a)
4,100
(b)
Net income from consolidated
operations
129,802
88,026
Less: Net income attributable to
noncontrolling interests
7,914
8,694
Net income attributable to HEICO
$121,888
(a)
$79,332
(b)
Net income per share attributable to HEICO
shareholders:
Basic
$.91
(a)
$.60
(b)
Diluted
$.89
(a)
$.58
(b)
Weighted average number of common shares
outstanding:
Basic
134,523
132,933
Diluted
137,421
136,978
Three Months Ended January
31,
2020
2019
Operating segment information:
Net sales:
Flight Support Group
$301,067
$287,213
Electronic Technologies Group
208,411
184,429
Intersegment sales
(3,203)
(5,496)
$506,275
$466,146
Operating income:
Flight Support Group
$62,045
$52,880
Electronic Technologies Group
57,491
51,602
Other, primarily corporate
(8,546)
(6,535)
$110,990
$97,947
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)
January 31, 2020
October 31, 2019
Cash and cash equivalents
$63,971
$57,001
Accounts receivable, net
252,050
274,326
Contract assets
44,823
43,132
Inventories, net
441,250
420,319
Prepaid expenses and other current
assets
22,616
18,953
Total current assets
824,710
813,731
Property, plant and equipment, net
172,299
173,345
Goodwill
1,301,316
1,268,703
Intangible assets, net
556,718
550,693
Other assets
242,078
162,739
Total assets
$3,097,121
$2,969,211
Current maturities of long-term debt
$932
$906
Other current liabilities
242,599
288,232
Total current liabilities
243,531
289,138
Long-term debt, net of current
maturities
567,864
561,049
Deferred income taxes
29,835
51,496
Other long-term liabilities
250,751
184,604
Total liabilities
1,091,981
1,086,287
Redeemable noncontrolling interests
195,893
188,264
Shareholders’ equity
1,809,247
1,694,660
Total liabilities and equity
$3,097,121
$2,969,211
HEICO CORPORATION
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended January
31,
2020
2019
Operating Activities:
Net income from consolidated
operations
$129,802
$88,026
Depreciation and amortization
21,583
20,037
Share-based compensation expense
2,646
2,439
Employer contributions to HEICO Savings
and Investment Plan
2,613
2,153
Increase in accrued contingent
consideration
408
1,862
Deferred income tax (benefit)
provision
(25,718
)
3,798
Payment of contingent consideration
(175
)
(67
)
Decrease in accounts receivable
23,734
4,982
(Increase) decrease in contract assets
(1,719
)
7,270
Increase in inventories
(20,449
)
(24,284
)
Decrease in current liabilities
(60,331
)
(58,005
)
Other
8,742
1,355
Net cash provided by operating
activities
81,136
49,566
Investing Activities:
Acquisitions, net of cash acquired
(45,343
)
(101,039
)
Investments related to HEICO Leadership
Compensation Plan
(11,800
)
(8,700
)
Capital expenditures
(6,850
)
(5,907
)
Other
439
72
Net cash used in investing activities
(63,554
)
(115,574
)
Financing Activities:
Borrowings on revolving credit facility,
net
7,000
76,000
Cash dividends paid
(10,762
)
(9,305
)
Distributions to noncontrolling
interests
(4,881
)
(2,795
)
Redemptions of common stock related to
stock option exercises
(2,562
)
(150
)
Payment of contingent consideration
(325
)
(283
)
Proceeds from stock option exercises
1,528
66
Other
(213
)
29
Net cash (used in) provided by financing
activities
(10,215
)
63,562
Effect of exchange rate changes on
cash
(397
)
703
Net increase (decrease) in cash and cash
equivalents
6,970
(1,743
)
Cash and cash equivalents at beginning of
year
57,001
59,599
Cash and cash equivalents at end of
period
$63,971
$57,856
HEICO CORPORATION
Non-GAAP Financial Measures
(Unaudited)
(in thousands, except ratios)
Three Months Ended January
31,
EBITDA Calculation
2020
2019
Net income attributable to HEICO
$121,888
$79,332
Plus: Depreciation and amortization
21,583
20,037
Plus: Net income attributable to
noncontrolling interests
7,914
8,694
Plus: Interest expense
4,283
5,489
Plus: Income tax (benefit) expense
(22,900)
4,100
EBITDA (a)
$132,768
$117,652
Trailing Twelve Months
Ended
EBITDA Calculation
January 31, 2020
October 31, 2019
Net income attributable to HEICO
$370,452
$327,896
Plus: Depreciation and amortization
85,043
83,497
Plus: Net income attributable to
noncontrolling interests
31,065
31,845
Plus: Interest expense
20,489
21,695
Plus: Income tax expense
51,100
78,100
EBITDA (a)
$558,149
$543,033
Net Debt Calculation
January 31, 2020
October 31, 2019
Total debt
$568,796
$561,955
Less: Cash and cash equivalents
(63,971)
(57,001)
Net debt (a)
$504,825
$504,954
Net debt
$504,825
$504,954
Shareholders' equity
$1,809,247
$1,694,660
Net debt to shareholders' equity ratio
(a)
27.9%
29.8%
Net debt
$504,825
$504,954
EBITDA (trailing twelve months)
$558,149
$543,033
Net debt to EBITDA ratio (a)
.90
.93
(a) See the "Non-GAAP Financial Measures"
section of this press release.
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Victor H. Mendelson (305) 374-1745 ext. 7590 Carlos L.
Macau, Jr. (954) 987-4000 ext. 7570
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