HEI HEICO Corp

First Quarter of Fiscal 2019 Net Income up 22% on Operating Income Increase of 23% and Net Sales Increase of 15%

HEICO CORPORATION (NYSE: HEI.A) (NYSE: HEI) today reported that net income increased 22% to a record $79.3 million, or 58 cents per diluted share, in the first quarter of fiscal 2019, up from $65.2 million, or 48 cents per diluted share, in the first quarter of fiscal 2018.

Operating income increased 23% to $97.9 million in the first quarter of fiscal 2019, up from $79.6 million in the first quarter of fiscal 2018. The Company's consolidated operating margin improved to 21.0% in the first quarter of fiscal 2019, up from 19.7% in the first quarter of fiscal 2018.

Net sales increased 15% to $466.1 million in the first quarter of fiscal 2019, up from $404.4 million in the first quarter of fiscal 2018.

EBITDA increased 19% to $117.7 million in the first quarter of fiscal 2019, up from $98.9 million in the first quarter of fiscal 2018. See our reconciliation of net income attributable to HEICO to EBITDA at the end of this press release.

Net income in the first quarter of fiscal 2019 and fiscal 2018 were both favorably impacted by 9 cents per diluted share as a result of discrete tax benefits. In the first quarter of fiscal 2019, the benefit was $13.0 million, net of noncontrolling interests, from stock option exercises recognized in the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. During the first quarter of fiscal 2018, the Company recognized an $11.9 million discrete tax benefit as a result of a provisional one-time tax benefit stemming from the enactment of the Tax Cuts and Jobs Act.

All applicable fiscal 2018 share and per share information has been adjusted retrospectively to reflect a 5-for-4 stock split effected in June 2018.

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 Electronic Technologies Group and Flight Support Group. These results principally reflect strong double-digit organic growth within both of our operating segments as well as the excellent performance of our well-managed fiscal 2019 and 2018 acquisitions.

Our total debt to shareholders' equity ratio was 38.0% as of January 31, 2019, as compared to 35.4% as of October 31, 2018. Our net debt (total debt less cash and cash equivalents) of $550.7 million as of January 31, 2019 to shareholders’ equity ratio was 34.4% as of January 31, 2019, as compared to 31.5% as of October 31, 2018. Our net debt to EBITDA ratio was 1.17x as of January 31, 2019, as compared to 1.04x as of October 31, 2018. During fiscal 2019, we successfully completed three acquisitions and we completed six 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 to accelerate growth and maximize shareholder returns.

Cash flow provided by operating activities was $49.6 million in the first quarter of fiscal 2019 compared to $51.9 million in the first quarter of fiscal 2018. We continue to forecast strong cash flow from operations for fiscal 2019.

As we look ahead to the remainder of fiscal 2019, 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 2019, 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 are increasing our estimated consolidated fiscal 2019 year-over-year growth in net sales to 9% - 11% and in net income to be 11% - 13%, up from our prior growth estimates in net sales of 8% - 10% and in net income of approximately 10%. Additionally, we continue to anticipate our consolidated operating margin to approximate 21.0% to 21.5% and depreciation and amortization expense to approximate $84 million. Further, we now anticipate cash flow from operations to approximate $370 million, up from the prior estimate of $360 million, and capital expenditures to approximate $43 million, down slightly from the prior estimate of $48 million. These estimates exclude additional acquired businesses, if any."

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 very strong organic growth within the majority of our product lines.

The Flight Support Group's net sales increased 13% to $287.2 million in the first quarter of fiscal 2019, up from $254.7 million in the first quarter of fiscal 2018. The increase reflects organic growth of 13%. The Flight Support Group's organic growth is mainly attributable to increased demand and new product offerings within our aftermarket replacement parts and specialty products product lines.

The Flight Support Group's operating income increased 15% to $52.9 million in the first quarter of fiscal 2019, up from $45.9 million in the first quarter of fiscal 2018. The increase principally reflects the previously mentioned net sales growth and an improved gross profit margin mainly attributable to a more favorable product mix within our specialty products product line.

The Flight Support Group's operating margin increased to 18.4% in the first quarter of fiscal 2019, up from 18.0% in the first quarter of fiscal 2018. The increase principally reflects the previously mentioned improved gross profit margin.

With respect to the remainder of fiscal 2019, we now estimate full year net sales growth of approximately 7% to 9% over the prior year, up from the prior estimate of 7% - 8%, and the full year Flight Support Group operating margin to approximate 19.0%. These estimates exclude acquired businesses, 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 very strong first quarter year-over-year growth in net sales and operating income reflects double-digit organic growth and the favorable impact from our profitable fiscal 2019 and 2018 acquisitions.

The Electronic Technologies Group's net sales increased 18% to $184.4 million in the first quarter of fiscal 2019, up from $155.7 million in the first quarter of fiscal 2018. The increase reflects organic growth of 12% and the impact from our profitable fiscal 2019 and 2018 acquisitions. The organic growth is mainly attributable to increased demand for certain defense, aerospace, and space products.

The Electronic Technologies Group's operating income increased 19% to $51.6 million in the first quarter of fiscal 2019, up from $43.2 million in the first quarter of fiscal 2018. The increase principally reflects the previously mentioned net sales growth. The Electronic Technologies Group's operating margin improved to 28.0% in the first quarter of fiscal 2019, up from 27.8% in the first quarter of fiscal 2018.

With respect to the remainder of fiscal 2019, we now estimate full year net sales growth of approximately 11% - 13% over the prior year, up from the prior estimate of 10% - 11%, and continue to anticipate the full year Electronic Technologies Group's operating margin to approximate 28.0% - 29.0%. Further, we now estimate the Electronic Technologies Group’s organic net sales growth rate to be in the mid-single digits. These estimates exclude additional acquired businesses, 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 net income attributable to noncontrolling interests, income tax expense, interest expense and depreciation and amortization expense), its net debt (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 79.6 million shares of HEICO's Class A Common Stock (HEI.A) outstanding and 53.4 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 27, 2019 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 2678269. 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 2678269.

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; 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)   Three Months Ended January 31,

2019

   

2018

Net sales $466,146 $404,410 Cost of sales 283,909 249,619 Selling, general and administrative expenses 84,290 75,231 Operating income 97,947 79,560 Interest expense (5,489) (4,725) Other (expense) income (332) 360 Income before income taxes and noncontrolling interests 92,126 75,195 Income tax expense 4,100

(b)

 

3,500

(c)

Net income from consolidated operations 88,026 71,695 Less: Net income attributable to noncontrolling interests 8,694 6,543 Net income attributable to HEICO $79,332

(b)

 

$65,152

(c)

  Net income per share attributable to HEICO shareholders: (a) Basic $.60

(b)

 

$.49

(c)

Diluted $.58

(b)

 

$.48

(c)

  Weighted average number of common shares outstanding: (a) Basic 132,933 132,048 Diluted 136,978 136,390   Three Months Ended January 31, 2019   2018 Operating segment information: Net sales: Flight Support Group $287,213 $254,721 Electronic Technologies Group 184,429 155,658 Intersegment sales (5,496) (5,969) $466,146 $404,410   Operating income: Flight Support Group $52,880 $45,869 Electronic Technologies Group 51,602 43,220 Other, primarily corporate (6,535) (9,529) $97,947 $79,560

HEICO CORPORATION

Footnotes to Condensed Consolidated Statements of Operations (Unaudited)

----------------------------

(a) All applicable fiscal 2018 share and per share information has been adjusted retrospectively to reflect a 5-for-4 stock split effected in June 2018.   (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. During the first quarter of fiscal 2018, the Company recognized a net benefit from stock option exercises that increased net income attributable to HEICO by $2.1 million, or $.02 per basic and diluted share.  

(c)

During the first quarter of fiscal 2018, the United States (U.S.) government enacted significant changes to existing tax law resulting in the Company recording a provisional discrete tax benefit from remeasuring its U.S. federal net deferred tax liabilities that was partially offset by a provisional discrete tax expense related to a one-time provisional transition tax on the unremitted earnings of the Company's foreign subsidiaries. The net impact of these amounts increased net income attributable to HEICO by $11.9 million, or $.09 per basic and diluted share.

HEICO CORPORATION Condensed Consolidated Balance Sheets (Unaudited) (in thousands)     January 31, 2019 October 31, 2018 Cash and cash equivalents $57,856 $59,599 Accounts receivable, net 237,800 237,286 Contract assets 47,093 14,183 Inventories, net 406,348 401,553 Prepaid expenses and other current assets 30,328 21,187 Total current assets 779,425 733,808 Property, plant and equipment, net 169,279 154,739 Goodwill 1,170,401 1,114,832 Intangible assets, net 529,191 506,360 Other assets 148,718 143,657 Total assets $2,797,014 $2,653,396   Current maturities of long-term debt $865 $859 Other current liabilities 223,250 281,570 Total current liabilities 224,115 282,429 Long-term debt, net of current maturities 607,656 531,611 Deferred income taxes 59,133 46,644 Other long-term liabilities 165,360 157,658 Total liabilities 1,056,264 1,018,342 Redeemable noncontrolling interests 138,995 132,046 Shareholders’ equity 1,601,755 1,503,008 Total liabilities and equity $2,797,014 $2,653,396 HEICO CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)   Three Months Ended January 31, 2019   2018 Operating Activities: Net income from consolidated operations $88,026 $71,695 Depreciation and amortization 20,037 19,024 Share-based compensation expense 2,439 2,168 Employer contributions to HEICO Savings and Investment Plan 2,153 1,860 Increase (decrease) in accrued contingent consideration 1,862 (3,195) Deferred income tax provision (benefit) 3,798 (17,292) Payment of contingent consideration (67) — Decrease in accounts receivable 4,982 18,272 Decrease (increase) in contract assets 7,270 (3,809) Increase in inventories (24,284) (18,301) Decrease in current liabilities, net (58,005) (20,581) Other 1,355 2,064 Net cash provided by operating activities 49,566 51,905   Investing Activities: Acquisitions, net of cash acquired (101,039) (6,126) Investments related to HEICO Leadership Compensation Plan (8,700) (6,900) Capital expenditures (5,907) (7,577) Other 72 (2,790) Net cash used in investing activities (115,574) (23,393)   Financing Activities: Borrowings (payments) on revolving credit facility, net 76,000 (5,000) Cash dividends paid (9,305) (7,395) Revolving credit facility issuance costs — (4,067) Distributions to noncontrolling interests (2,795) (1,882) Payment of contingent consideration (283) (300) Redemptions of common stock related to stock option exercises (150) — Proceeds from stock option exercises 66 1,425 Other 29 (114) Net cash provided by (used in) financing activities 63,562 (17,333)   Effect of exchange rate changes on cash 703 2,443   Net (decrease) increase in cash and cash equivalents (1,743) 13,622 Cash and cash equivalents at beginning of year 59,599 52,066 Cash and cash equivalents at end of period $57,856 $65,688 HEICO CORPORATION Non-GAAP Financial Measures (Unaudited) (in thousands)   Three Months Ended January 31, EBITDA Calculation   2019   2018 Net income attributable to HEICO $79,332 $65,152 Plus: Depreciation and amortization 20,037 19,024 Plus: Net income attributable to noncontrolling interests 8,694 6,543 Plus: Interest expense 5,489 4,725 Plus: Income tax expense 4,100 3,500 EBITDA (a) $117,652 $98,944     Trailing Twelve Months Ended EBITDA Calculation   January 31, 2019 October 31, 2018 Net income attributable to HEICO $273,413 $259,233 Plus: Depreciation and amortization 78,204 77,191 Plus: Income tax expense 71,200 70,600 Plus: Net income attributable to noncontrolling interests 28,604 26,453 Plus: Interest expense 20,665 19,901 EBITDA (a) $472,086 $453,378     Net Debt Calculation   January 31, 2019 October 31, 2018 Total debt $608,521 $532,470 Less: Cash and cash equivalents 57,856 59,599 Net debt (a) $550,665 $472,871   Net debt $550,665 $472,871 Shareholders' equity $1,601,755 $1,503,008 Net debt to shareholders' equity ratio (a) 34.4% 31.5%   Net debt $550,665 $472,871 EBITDA $472,086 $453,378 Net debt to EBITDA ratio (a) 1.17 1.04   (a) See the "Non-GAAP Financial Measures" section of this press release.

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Victor H. Mendelson (305) 374-1745 ext. 7590Carlos L. Macau, Jr. (954) 987-4000 ext. 7570