HEI HEICO Corp

3rd Quarter of Fiscal 2018 Net Income up 47% on Operating Income Increase of 33% and Net Sales Increase of 19%

HEICO CORPORATION (NYSE: HEI.A) (NYSE: HEI) today reported that net income increased 47% to a record $67.1 million, or 49 cents per diluted share, in the third quarter of fiscal 2018, up from $45.7 million, or 34 cents per diluted share, in the third quarter of fiscal 2017. In the first nine months of fiscal 2018, net income increased 45% to a record $191.9 million, or $1.40 per diluted share, up from $132.3 million, or 98 cents per diluted share, in the first nine months of fiscal 2017.

All share and per share information has been adjusted retrospectively to reflect 5-for-4 stock splits distributed by the Company in January 2018 and June 2018.

Operating income increased 33% to a record $101.4 million in the third quarter of fiscal 2018, up from $76.1 million in the third quarter of fiscal 2017. In the first nine months of fiscal 2018, operating income increased 25% to a record $272.5 million, up from $217.2 million in the first nine months of fiscal 2017.

The Company's consolidated operating margin improved to 21.8% in the third quarter of fiscal 2018, up from 19.4% in the third quarter of fiscal 2017. The Company's consolidated operating margin improved to 21.0% in the first nine months of fiscal 2018, up from 19.7% in the first nine months of fiscal 2017.

Net sales increased 19% to a record $465.8 million in the third quarter of fiscal 2018, up from $391.5 million in the third quarter of fiscal 2017. Net sales increased 18% to a record $1,300.8 million in the first nine months of fiscal 2018, up from $1,103.6 million in the first nine months of fiscal 2017.

In the first quarter of fiscal 2018, the United States (U.S.) government enacted significant changes to existing tax law, including a reduction in the U.S. corporate tax rate. The Company’s effective tax rate for the first nine months of fiscal 2018 was 17.9%, down from 29.8% for the first nine months of fiscal 2017. Net income in the first nine months of fiscal 2018 was favorably impacted by approximately $30.7 million, or 22 cents per diluted share, including approximately $11.9 million, or 9 cents per diluted share, which resulted from one-time tax benefits principally due to the remeasurement of the Company’s net deferred tax liabilities in the first quarter of fiscal 2018.

Consolidated Results

Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company's third quarter results stating, "We are very pleased to report record quarterly highs in consolidated net sales, operating income and net income on the strength of record net sales and operating income at both the Flight Support Group and the Electronic Technologies Group. Our outstanding quarterly performance principally reflects double-digit organic revenue growth at both operating segments, strong cash flow and the profitable contributions to earnings from our well-managed fiscal 2017 and 2018 acquisitions.

Our total debt to shareholders' equity ratio decreased to 43.6% as of July 31, 2018, down from 54.0% as of October 31, 2017. Our net debt (total debt less cash and cash equivalents) of $556.8 million to shareholders’ equity ratio decreased to 38.9% as of July 31, 2018, down from 49.8% as of October 31, 2017. Our net debt to EBITDA ratio improved to 1.27x as of July 31, 2018 compared to 1.67x as of October 31, 2017. During fiscal 2018, we have successfully completed three acquisitions and have completed four 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 increased 14% to $204.7 million in the first nine months of fiscal 2018, up from $179.3 million in the first nine months of fiscal 2017. Cash flow provided by operating activities increased 34% to $109.7 million in the third quarter of fiscal 2018, up from $81.6 million in the third quarter of fiscal 2017. We continue to forecast record cash flow from operations for fiscal 2018.

As we look ahead to the remainder of fiscal 2018, we anticipate net sales growth within the Flight Support Group and the Electronic Technologies Group resulting from increased demand across the majority of our product lines. Also, we will 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 our consolidated fiscal 2018 year-over-year growth in net sales to be 15% - 16% and in net income to be 35% - 37%, up from our prior growth estimates in net sales of 13% - 14% and in net income of 33% - 35%. Additionally, we continue to anticipate our consolidated operating margin to approximate 21%, cash flow from operations to approximate $310 million, depreciation and amortization expense to approximate $77 million and capital expenditures to now approximate $45 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 third quarter results stating, "Our record quarterly results in net sales and operating income principally reflects strong organic growth within all of the Flight Support Group's product lines.

The Flight Support Group's net sales increased 11% to a record $285.1 million in the third quarter of fiscal 2018, up from $258.0 million in the third quarter of fiscal 2017. The Flight Support Group's net sales increased 14% to a record $807.7 million in the first nine months of fiscal 2018, up from $710.7 million in the first nine months of fiscal 2017. The increase in the third quarter and first nine months of fiscal 2018 is attributable to organic growth of 10% and 6%, respectively, as well as the impact from our fiscal 2017 profitable acquisitions. The organic growth in the third quarter and first nine months of fiscal 2018 reflects increased demand and new product offerings within our aftermarket replacement parts, specialty products, and repair and overhaul parts and services product lines.

The Flight Support Group's operating income increased 17% to a record $54.7 million in the third quarter of fiscal 2018, up from $46.7 million in the third quarter of fiscal 2017. The Flight Support Group's operating income increased 15% to a record $152.1 million in the first nine months of fiscal 2018, up from $132.8 million in the first nine months of fiscal 2017. The increase in the third quarter of fiscal 2018 and first nine months of fiscal 2018 is mainly attributable to the previously mentioned net sales growth. The operating income increase in the third quarter of fiscal 2018 also reflects a favorable impact from efficiencies realized from the benefit of our growth in net sales on relatively consistent period-over-period SG&A expenses and changes in the estimated fair value of accrued contingent consideration associated with a prior year acquisition, partially offset by a slightly lower gross profit margin mainly due to a less favorable product mix within our aftermarket replacement parts product line.

The Flight Support Group's operating margin increased to 19.2% in the third quarter of fiscal 2018, up from 18.1% in the third quarter of fiscal 2017. The Flight Support Group's operating margin increased to 18.8% in the first nine months of fiscal 2018, up slightly from 18.7% in the first nine months of fiscal 2017. The increase in the third quarter of fiscal 2018 principally reflects the previously mentioned SG&A efficiencies and changes in the estimated fair value of accrued contingent consideration, partially offset by the previously mentioned lower gross profit margin.

With respect to the remainder of fiscal 2018, we now estimate full year net sales growth of approximately 11% - 12% over the prior year, up from the prior estimate of 10% and the full year Flight Support Group's operating margin to approximate 19.0%, up from the prior estimate of 18.5% - 19.0%. Further, we now estimate the Flight Support Group's full year organic net sales growth rate to be in the mid- to high-single digits. These estimates exclude additional 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 third quarter results stating, "Our record quarterly results mainly reflect strong organic growth stemming from increased demand for our defense products and continued contributions from our well-managed and profitable fiscal 2017 and 2018 acquisitions.

The Electronic Technologies Group's net sales increased 35% to a record $186.4 million in the third quarter of fiscal 2018, up from $137.9 million in the third quarter of fiscal 2017. The Electronic Technologies Group's net sales increased 26% to a record $510.8 million in the first nine months of fiscal 2018, up from $405.2 million in the first nine months of fiscal 2017. The increase in the third quarter and first nine months of fiscal 2018 reflects organic growth of 16% and 8%, respectively, as well as the favorable impact from our fiscal 2017 and 2018 acquisitions. The organic growth in the third quarter and first nine months of fiscal 2018 principally reflects increased demand for certain defense products. Further, the organic growth in the third quarter was partially moderated by lower demand for certain space products.

The Electronic Technologies Group's operating income increased 45% to a record $56.0 million in the third quarter of fiscal 2018, up from $38.5 million in the third quarter of fiscal 2017. The Electronic Technologies Group's operating income increased 38% to a record $147.4 million in the first nine months of fiscal 2018, up from $106.5 million in the first nine months of fiscal 2017. The increase in the third quarter and first nine months of fiscal 2018 is principally attributable to the previously mentioned net sales growth and an improved gross profit margin mainly reflecting increased net sales and a more favorable product mix for certain defense products partially offset by a less favorable product mix for certain space and other electronics products. Further, the increase in the third quarter and first nine months of fiscal 2018 reflects efficiencies realized from the benefit of our growth in net sales on relatively consistent period-over-period SG&A expenses.

The Electronic Technologies Group's operating margin improved to 30.1% in the third quarter of fiscal 2018, up from 28.0% in the third quarter of fiscal 2017. The Electronic Technologies Group's operating margin improved to 28.9% in the first nine months of fiscal 2018, up from 26.3% in the first nine months of fiscal 2017. The increase in the third quarter and first nine months of fiscal 2018 principally reflects the previously mentioned improved gross profit margin and SG&A efficiencies.

With respect to the remainder of fiscal 2018, we now estimate full year net sales growth of approximately 20% - 21% over the prior year, up from the prior estimate of 18% - 20%, and the full year Electronic Technologies Group's operating margin to approximate 28.5% - 29.0%, up from the prior estimate of 28.0% - 29.0%. Further, we continue to 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.”

(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 79.5 million shares of HEICO's Class A Common Stock (HEI.A) outstanding and 53.3 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 Tuesday, August 28, 2018 at 9:00 a.m. Eastern Daylight Time to discuss its third 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 1796867. 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 1796867.

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 July 31, 2018   2017 Net sales $465,825 $391,500 Cost of sales 284,216 242,603 Selling, general and administrative expenses 80,186   72,775   Operating income 101,423 76,122 Interest expense (5,212 ) (2,447 ) Other (expense) income (112 ) 200   Income before income taxes and noncontrolling interests 96,099 73,875 Income tax expense 22,200   22,400   Net income from consolidated operations 73,899 51,475 Less: Net income attributable to noncontrolling interests 6,813   5,777   Net income attributable to HEICO $67,086   $45,698     Net income per share attributable to HEICO shareholders: (a) Basic $.51 $.35 Diluted $.49 $.34   Weighted average number of common shares outstanding: (a) Basic 132,794 131,786 Diluted 136,733 135,771   Three Months Ended July 31, 2018 2017 Operating segment information: Net sales: Flight Support Group $285,126 $257,966 Electronic Technologies Group 186,370 137,860 Intersegment sales (5,671 ) (4,326 ) $465,825   $391,500     Operating income: Flight Support Group $54,712 $46,664 Electronic Technologies Group 56,021 38,543 Other, primarily corporate (9,310 ) (9,085 ) $101,423   $76,122      

HEICO CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

  Nine Months Ended July 31, 2018 2017 Net sales $1,300,837 $1,103,589 Cost of sales 796,580 688,893 Selling, general and administrative expenses 231,709   197,482   Operating income 272,548 217,214 Interest expense (14,841 ) (6,376 ) Other (expense) income (2 ) 835   Income before income taxes and noncontrolling interests 257,705 211,673 Income tax expense 46,100   (b) 63,100   Net income from consolidated operations 211,605 148,573 Less: Net income attributable to noncontrolling interests 19,749   16,262   Net income attributable to HEICO $191,856   (b) $132,311     Net income per share attributable to HEICO shareholders: (a) Basic $1.45 (b) $1.01 Diluted $1.40 (b) $.98   Weighted average number of common shares outstanding: (a) Basic 132,422 131,618 Diluted 136,570 135,382   Nine Months Ended July 31, 2018 2017 Operating segment information: Net sales: Flight Support Group $807,683 $710,676 Electronic Technologies Group 510,750 405,194 Intersegment sales (17,596 ) (12,281 ) $1,300,837   $1,103,589     Operating income: Flight Support Group $152,069 $132,771 Electronic Technologies Group 147,371 106,453 Other, primarily corporate (26,892 ) (22,010 ) $272,548   $217,214     HEICO CORPORATION Footnotes to Condensed Consolidated Statements of Operations (Unaudited)

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(a)  

All share and per share information has been adjusted retrospectively to reflect 5-for-4 stock splits effected in January 2018 and June 2018.

(b)

In 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 transition tax on the unremitted earnings of the Company's foreign subsidiaries. The net impact of these provisional amounts increased net income attributable to HEICO by $11.9 million, or $.09 per basic and diluted share, in the first nine months of fiscal 2018.

     

HEICO CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands)

  July 31, 2018 October 31, 2017 Cash and cash equivalents $66,981 $52,066 Accounts receivable, net 249,326 222,456 Inventories, net 391,788 343,628 Prepaid expenses and other current assets 20,063 13,742 Total current assets 728,158 631,892 Property, plant and equipment, net 154,614 129,883 Goodwill 1,102,352 1,081,306 Intangible assets, net 516,454 538,081 Other assets 153,261 131,269 Total assets $2,654,839 $2,512,431   Current maturities of long-term debt $929 $451 Other current liabilities 253,828 248,986 Total current liabilities 254,757 249,437 Long-term debt, net of current maturities 622,889 673,528 Deferred income taxes 46,469 59,026 Other long-term liabilities 166,803 151,025 Total liabilities 1,090,918 1,133,016 Redeemable noncontrolling interests 133,599 131,123 Shareholders’ equity 1,430,322 1,248,292 Total liabilities and equity $2,654,839 $2,512,431    

HEICO CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

  Nine Months Ended July 31, 2018   2017 Operating Activities: Net income from consolidated operations $211,605 $148,573 Depreciation and amortization 57,523 46,912 Share-based compensation expense 6,933 5,207 Employer contributions to HEICO Savings and Investment Plan 6,015 5,732 Foreign currency transaction adjustments, net 183 3,316 (Decrease) increase in accrued contingent consideration, net (3,789 ) 1,227 Deferred income tax benefit (13,485 ) (6,998 ) (Increase) decrease in accounts receivable (26,315 ) 13,343 Increase in inventories (40,965 ) (22,415 ) Increase (decrease) in current liabilities, net 4,647 (10,460 ) Other 2,351   (5,134 ) Net cash provided by operating activities 204,703   179,303     Investing Activities: Acquisitions, net of cash acquired (40,599 ) (95,759 ) Capital expenditures (35,898 ) (20,445 ) Other (2,736 ) (685 ) Net cash used in investing activities (79,233 ) (116,889 )   Financing Activities: Payments on revolving credit facility, net (57,000 ) (26,000 ) Redemptions of common stock related to stock option exercises (24,941 ) — Cash dividends paid (15,363 ) (12,807 ) Distributions to noncontrolling interests (7,129 ) (12,924 ) Payment of contingent consideration (5,425 ) (7,039 ) Revolving credit facility issuance costs (4,067 ) (270 ) Acquisitions of noncontrolling interests — (3,848 ) Proceeds from stock option exercises 3,036 4,171 Other (376 ) (241 ) Net cash used in financing activities (111,265 ) (58,958 )   Effect of exchange rate changes on cash 710   3,078     Net increase in cash and cash equivalents 14,915 6,534 Cash and cash equivalents at beginning of year 52,066   42,955   Cash and cash equivalents at end of period $66,981   $49,489    

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HEICO CORPORATIONVictor H. Mendelson, 305-374-1745 ext. 7590Carlos L. Macau, Jr., 954-987-4000 ext. 7570