Market Overview

HEICO CORPORATION Reports Record Net Sales, Operating Income and Net Income for the Third Quarter of Fiscal 2018; Full Fiscal Year 2018 Net Sales and Net Income Growth Estimates Raised

Share:

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) (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)

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

(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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