15% Increase in Net Cash Provided by
Operating Activities for First Half of Fiscal 2020
HEICO CORPORATION (NYSE: HEI.A) (NYSE: HEI) today reported that
net income increased 22% to a record $197.3 million, or $1.44 per
diluted share, in the first six months of fiscal 2020, up from
$161.1 million, or $1.18 per diluted share, in the first six months
of fiscal 2019. In the second quarter of fiscal 2020, net income
decreased 8% to $75.5 million, or 55 cents per diluted share, as
compared to $81.8 million, or 60 cents per diluted share, in the
second quarter of fiscal 2019.
Operating income increased 1% to a record $219.2 million in the
first six months of fiscal 2020, up from $217.1 million in the
first six months of fiscal 2019. In the second quarter of fiscal
2020, operating income decreased 9% to $108.2 million, as compared
to $119.2 million in the second quarter of fiscal 2019.
The Company's consolidated operating margin improved to 22.5% in
the first six months of fiscal 2020, up from 22.1% in the first six
months of fiscal 2019. The Company's consolidated operating margin
was 23.1% in both the second quarter of fiscal 2020 and 2019.
Net sales decreased 1% to $974.4 million in the first six months
of fiscal 2020, as compared to $981.8 million in the first six
months of fiscal 2019. In the second quarter of fiscal 2020, net
sales decreased 9% to $468.1 million, as compared to $515.6 million
in the second quarter of fiscal 2019.
EBITDA increased 1% to $262.7 million in the first six months of
fiscal 2020, up from $259.8 million in the first six months of
fiscal 2019. In the second quarter of fiscal 2020, EBITDA decreased
9% to $130.0 million, as compared to $142.2 million in the second
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 second quarter results stating, "The COVID-19 outbreak,
classified by the World Health Organization as a global pandemic
(the "Outbreak") has caused significant volatility and a
substantial decline in value across global economic markets. Most
notably, the commercial aerospace industry has experienced an
ongoing substantial decline in demand. As such, our businesses that
operate within the commercial aerospace industry have been
materially impacted 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 39.2% and 33.2%
as of April 30, 2020 and October 31, 2019, respectively. Our net
debt (total debt less cash and cash equivalents) of $393.4 million
as of April 30, 2020 to shareholders’ equity ratio decreased to
20.8% as of April 30, 2020, down from 29.8% as of October 31, 2019.
Our net debt to EBITDA ratio decreased to .72x as of April 30,
2020, down from .93x as of October 31, 2019. During fiscal 2020, we
successfully completed two acquisitions and we completed five
acquisitions over the past year. 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 strong,
increasing 15% to $205.9 million in the first six months of fiscal
2020, up from $178.3 million in the first six months of fiscal
2019. Cash flow provided by operating activities was consistently
strong at $124.7 million and $128.7 million in the second quarter
of fiscal 2020 and 2019, respectively.
In our Quarterly Report on Form 10-Q for the three months ended
January 31, 2020, we provided net sales and net income estimates
for fiscal 2020, but noted that it excluded any impact from the
coronavirus outbreak as it was at such an early stage. As noted
within our Form 8-K, filed on April 15, 2020, we withdrew our
fiscal 2020 financial guidance due to recent developments
pertaining to the impact from the Outbreak.
We entered the Outbreak with a healthy balance sheet that
included a strong cash position and nominal debt. We cannot
estimate the duration and magnitude of the Outbreak and cannot
confidently predict when demand for our commercial aerospace
products will return to pre-Outbreak levels. However, 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 industrial markets including electronics
and medical, puts us in a good financial position to weather this
period of economic uncertainty. Accordingly, we continue to
forecast positive cash flow from operations for the remainder of
fiscal 2020."
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
second quarter results stating, "The Outbreak had an adverse effect
on the Flight Support Group’s operating results in the first six
months and second quarter of fiscal 2020. Beginning in late March
2020, a significant global decline in commercial air travel
resulted in lower demand for our aftermarket replacement parts and
repair and overhaul parts and services. 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 this
market.
The Flight Support Group's net sales decreased 7% to $553.0
million in the first six months of fiscal 2020, as compared to
$595.5 million in the first six months of fiscal 2019. The Flight
Support Group's net sales decreased 18% to $252.0 million in the
second quarter of fiscal 2020, as compared to $308.3 million in the
second quarter of fiscal 2019. The net sales decrease in the first
six months and second 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.
The Flight Support Group's operating income decreased 5% to
$109.6 million in the first six months of fiscal 2020, as compared
to $115.0 million in the first six months of fiscal 2019. The
Flight Support Group's operating income decreased 24% to $47.5
million in the second quarter of fiscal 2020, as compared to $62.2
million in the second quarter of fiscal 2019. The operating income
decrease in the first six months and second quarter of fiscal 2020
principally reflects the previously mentioned decrease in net sales
and a lower gross profit margin mainly within our aftermarket
replacement parts and repair and overhaul parts and services
product lines, partially offset by a decrease in performance-based
compensation expense.
The Flight Support Group's operating margin increased to 19.8%
in the first six months of fiscal 2020, up from 19.3% in the first
six months 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, partially offset
by the previously mentioned lower gross profit margin.
The Flight Support Group's operating margin decreased to 18.9%
in the second quarter of fiscal 2020, as compared to 20.2% in the
second quarter 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 the previously mentioned lower performance-based
compensation 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 second quarter results stating, "Demand for
our Electronic Technologies Group's products has not been
fundamentally impacted by the Outbreak. However, we have
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 or
increase costs. While these issues have not yet been material, it
is impossible to predict their future impact and our current
experience indicates the likely effect will be to delay some orders
and shipments measured in weeks and months, and to temporarily
increase some costs, as opposed to profoundly changing our business
overall.
The Electronic Technologies Group's net sales increased 7% to a
record $427.4 million in the first six months of fiscal 2020, up
from $398.9 million in the first six months of fiscal 2019. The
increase is attributable to the favorable impact from our fiscal
2019 and 2020 acquisitions as well as 2% 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 net sales increased 2% to
$219.0 million in the second quarter of fiscal 2020, up from $214.5
million in the second quarter 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
2%. The organic net sales decrease is mainly attributable to lower
shipments of our space products partially offset by increased
demand for our defense products.
The Electronic Technologies Group's operating income increased
3% to a record $123.0 million in the first six months of fiscal
2020, up from $119.0 million in the first six months of fiscal
2019. The increase principally reflects the previously mentioned
net sales growth and lower performance-based compensation expense,
partially offset by a lower gross profit margin mainly due to a
decrease in net sales of our space and commercial aerospace
products, partially offset by increased net sales of our defense
products.
The Electronic Technologies Group's operating income decreased
3% to $65.5 million in the second quarter of fiscal 2020, as
compared to $67.4 million in the second quarter of fiscal 2019. The
decrease principally reflects a lower gross profit margin mainly
due to a decrease in net sales of our space and commercial
aerospace products partially offset by increased net sales of our
defense products, as well as the previously mentioned net sales
growth and lower performance-based compensation expense.
The Electronic Technologies Group's operating margin was 28.8%
in the first six months of fiscal 2020, as compared to 29.8% in the
first six months of fiscal 2019. The Electronic Technologies
Group's operating margin was 29.9% in the second quarter of fiscal
2020, as compared to 31.4% in the second quarter of fiscal 2019.
The decrease in the first six months and second quarter of fiscal
2020 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."
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 80.6 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, May 27, 2020 at 9:00 a.m. Eastern Daylight Time to
discuss its second 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
5381666. A digital replay will be available two hours after the
completion of the conference for 14 days. To access, dial: (855)
859-2056 or (404) 537-3406, and enter the Conference ID
5381666.
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)
Six Months Ended April
30,
2020
2019
Net sales
$974,421
$981,794
Cost of sales
597,484
590,170
Selling, general and administrative
expenses
157,786
174,494
Operating income
219,151
217,130
Interest expense
(8,042
)
(10,973
)
Other income
302
2,152
Income before income taxes and
noncontrolling interests
211,411
208,309
Income tax expense
700
(a)
30,200
(b)
Net income from consolidated
operations
210,711
178,109
Less: Net income attributable to
noncontrolling interests
13,370
16,995
Net income attributable to HEICO
$197,341
(a)
$161,114
(b)
Net income per share attributable to HEICO
shareholders:
Basic
$1.47
(a)
$1.21
(b)
Diluted
$1.44
(a)
$1.18
(b)
Weighted average number of common shares
outstanding:
Basic
134,596
133,123
Diluted
137,269
137,092
Six Months Ended April
30,
2020
2019
Operating segment information:
Net sales:
Flight Support Group
$553,031
$595,464
Electronic Technologies Group
427,366
398,880
Intersegment sales
(5,976
)
(12,550
)
$974,421
$981,794
Operating income:
Flight Support Group
$109,576
$115,046
Electronic Technologies Group
123,017
118,954
Other, primarily corporate
(13,442
)
(16,870
)
$219,151
$217,130
HEICO CORPORATION
Condensed Consolidated Statements of
Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended April
30,
2020
2019
Net sales
$468,146
$515,648
Cost of sales
289,256
306,261
Selling, general and administrative
expenses
70,729
90,204
Operating income
108,161
119,183
Interest expense
(3,759
)
(5,484
)
Other income
107
2,484
Income before income taxes and
noncontrolling interests
104,509
116,183
Income tax expense
23,600
26,100
Net income from consolidated
operations
80,909
90,083
Less: Net income attributable to
noncontrolling interests
5,456
8,301
Net income attributable to HEICO
$75,453
$81,782
Net income per share attributable to HEICO
shareholders:
Basic
$.56
$.61
Diluted
$.55
$.60
Weighted average number of common shares
outstanding:
Basic
134,669
133,313
Diluted
137,117
137,206
Three Months Ended April
30,
2020
2019
Operating segment information:
Net sales:
Flight Support Group
$251,964
$308,251
Electronic Technologies Group
218,955
214,451
Intersegment sales
(2,773
)
(7,054
)
$468,146
$515,648
Operating income:
Flight Support Group
$47,531
$62,166
Electronic Technologies Group
65,526
67,352
Other, primarily corporate
(4,896
)
(10,335
)
$108,161
$119,183
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)
April 30, 2020
October 31, 2019
Cash and cash equivalents
$346,786
$57,001
Accounts receivable, net
230,884
274,326
Contract assets
56,033
43,132
Inventories, net
457,819
420,319
Prepaid expenses and other current
assets
33,991
18,953
Total current assets
1,125,513
813,731
Property, plant and equipment, net
171,399
173,345
Goodwill
1,300,187
1,268,703
Intangible assets, net
540,623
550,693
Other assets
227,113
162,739
Total assets
$3,364,835
$2,969,211
Current maturities of long-term debt
$1,025
$906
Other current liabilities
255,328
288,232
Total current liabilities
256,353
289,138
Long-term debt, net of current
maturities
739,188
561,049
Deferred income taxes
49,749
51,496
Other long-term liabilities
233,518
184,604
Total liabilities
1,278,808
1,086,287
Redeemable noncontrolling interests
196,507
188,264
Shareholders’ equity
1,889,520
1,694,660
Total liabilities and equity
$3,364,835
$2,969,211
HEICO CORPORATION
Condensed Consolidated Statements of
Cash Flows (Unaudited)
(in thousands)
Six Months Ended April
30,
2020
2019
Operating Activities:
Net income from consolidated
operations
$210,711
$178,109
Depreciation and amortization
43,276
40,548
Share-based compensation expense
5,275
4,987
Employer contributions to HEICO Savings
and Investment Plan
4,811
4,601
Increase in accrued contingent
consideration
1,167
3,104
Deferred income tax (benefit)
provision
(5,137
)
648
Payment of contingent consideration
(175
)
(67
)
Decrease (increase) in accounts
receivable
44,419
(15,784
)
(Increase) decrease in contract assets
(12,985
)
5,699
Increase in inventories
(37,790
)
(26,724
)
Decrease in current liabilities, net
(47,064
)
(25,435
)
Other
(626
)
8,567
Net cash provided by operating
activities
205,882
178,253
Investing Activities:
Acquisitions, net of cash acquired
(45,343
)
(134,940
)
Investments related to HEICO Leadership
Compensation Plan
(13,600
)
(10,800
)
Capital expenditures
(12,435
)
(12,596
)
Other
473
636
Net cash used in investing activities
(70,905
)
(157,700
)
Financing Activities:
Borrowings on revolving credit facility,
net
177,000
24,000
Proceeds from stock option exercises
2,392
5,528
Cash dividends paid
(10,762
)
(9,305
)
Distributions to noncontrolling
interests
(9,742
)
(8,190
)
Redemptions of common stock related to
stock option exercises
(2,567
)
(27,744
)
Payment of contingent consideration
(325
)
(283
)
Other
(444
)
(176
)
Net cash provided by (used in) financing
activities
155,552
(16,170
)
Effect of exchange rate changes on
cash
(744
)
109
Net increase in cash and cash
equivalents
289,785
4,492
Cash and cash equivalents at beginning of
year
57,001
59,599
Cash and cash equivalents at end of
period
$346,786
$64,091
HEICO CORPORATION
Non-GAAP Financial Measures
(Unaudited)
(in thousands, except ratios)
Six Months Ended April
30,
EBITDA Calculation
2020
2019
Net income attributable to HEICO
$197,341
$161,114
Plus: Depreciation and amortization
43,276
40,548
Plus: Net income attributable to
noncontrolling interests
13,370
16,995
Plus: Interest expense
8,042
10,973
Plus: Income tax expense
700
30,200
EBITDA (a)
$262,729
$259,830
Three Months Ended April
30,
EBITDA Calculation
2020
2019
Net income attributable to HEICO
$75,453
$81,782
Plus: Depreciation and amortization
21,693
20,511
Plus: Net income attributable to
noncontrolling interests
5,456
8,301
Plus: Interest expense
3,759
5,484
Plus: Income tax expense
23,600
26,100
EBITDA (a)
$129,961
$142,178
Trailing Twelve Months
Ended
EBITDA Calculation
April 30, 2020
October 31, 2019
Net income attributable to HEICO
$364,123
$327,896
Plus: Depreciation and amortization
86,225
83,497
Plus: Net income attributable to
noncontrolling interests
28,220
31,845
Plus: Interest expense
18,764
21,695
Plus: Income tax expense
48,600
78,100
EBITDA (a)
$545,932
$543,033
Net Debt Calculation
April 30, 2020
October 31, 2019
Total debt
$740,213
$561,955
Less: Cash and cash equivalents
(346,786
)
(57,001
)
Net debt (a)
$393,427
$504,954
Net debt
$393,427
$504,954
Shareholders' equity
$1,889,520
$1,694,660
Net debt to shareholders' equity ratio
(a)
20.8
%
29.8
%
Net debt
$393,427
$504,954
EBITDA (trailing twelve months)
$545,932
$543,033
Net debt to EBITDA ratio (a)
.72
.93
(a) See the "Non-GAAP Financial Measures"
section of this press release.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200526005811/en/
Victor H. Mendelson (305) 374-1745 ext. 7590 Carlos L.
Macau, Jr. (954) 987-4000 ext. 7570
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