HEICO Corporation Reports Record Operating Income and Net Sales for the Fourth Quarter and Full Fiscal Year
- Record net sales and operating income in the fourth quarter and fiscal year of 2023
- Thirteen consecutive quarters of sequential growth in net sales at the Flight Support Group
- EBITDA increased by 36% in the fourth quarter of fiscal 2023
- Successful acquisition of Wencor and Exxelia International
- Consolidated operating margin decreased from 24.0% to 20.2% in the fourth quarter of fiscal 2023
- Net debt to EBITDA ratio increased from .25x to 3.04x in the fiscal year ended October 31, 2023
- Higher costs from the impact of the Exxelia acquisition led to lower operating margins in the Electronic Technologies Group
Insights
The reported financial results for HEICO Corporation, showing a significant increase in net sales and operating income, are indicative of robust financial health and growth. The 54% surge in net sales and 29% increase in operating income for Q4 of fiscal 2023, along with record-setting annual figures, suggest a strong market position and successful expansion strategies, notably through acquisitions.
However, the reported decline in operating margins from 24.0% to 20.2% in Q4 and from 22.5% to 21.1% annually raises questions about increasing costs or potential inefficiencies that may have accompanied the growth. Investors should consider the sustainability of HEICO's profit margins in light of these figures. The acquisition-related costs have also impacted net income, which is critical to assess the long-term value generation from these acquisitions.
Moreover, the significant increase in debt ratios, with the total debt to net income ratio jumping from 0.83x to 6.14x and net debt to EBITDA from 0.25x to 3.04x, indicates a more aggressive leveraging strategy. While this can be justifiable for growth, it also exposes the company to higher financial risk, especially if the commercial aerospace market faces headwinds.
The consecutive quarterly growth in the Flight Support Group, fueled by the commercial aerospace market, is a positive indicator for the sector's recovery and HEICO's strategic positioning within it. The company's 13 consecutive quarters of sequential growth underscore the demand for aerospace products and services, which is a promising sign for investors looking at the aerospace industry.
The acquisition of Wencor and its described 'highly complementary fit' with HEICO's operations could lead to synergies that enhance the company's competitive edge. However, it's essential to monitor the integration process for any potential disruptions or cost overruns that could affect future profitability.
HEICO's dividend declaration reflects confidence in its financial stability and commitment to shareholder returns, which is often seen favorably by the market. However, the increased working capital needs and inventory levels to support a growing backlog may require careful management to avoid tying up too much capital in inventory, which could affect liquidity and return on capital.
HEICO's performance in the aerospace sector, with its Flight Support Group and Electronic Technologies Group posting record net sales, suggests a strong recovery and growth trajectory in the aerospace industry. The company's ability to achieve organic growth alongside growth from acquisitions indicates a robust demand for aftermarket replacement parts and repair services, as well as commercial aviation products.
The increase in defense product net sales reflects a broader trend of rising defense spending, which could have long-term implications for companies like HEICO that serve this market segment. The Electronic Technologies Group's growth in commercial aviation, space and other electronics products aligns with the overall industry's expansion into new technologies and markets.
Investors should note the potential for continued inflationary pressures leading to higher material and labor costs, which could affect HEICO's margins if not managed effectively. The company's proactive approach to developing new products and services, market penetration and maintaining financial strength will be critical in sustaining its growth momentum in a competitive industry.
4th Quarter of Fiscal 2023 Operating Income Increased
HOLLYWOOD, FL and MIAMI, FL / ACCESSWIRE / December 18, 2023 / HEICO CORPORATION (NYSE:HEI.A)(NYSE:HEI) today reported net sales increased
The Company incurred acquisition costs during the fourth quarter of fiscal 2023 related to the Wencor Group ("Wencor") acquisition, which decreased net income attributable to HEICO by approximately
Net sales increased
The Company incurred acquisition costs during the fiscal year ended October 31, 2023 related to the Wencor and Exxelia International ("Exxelia") acquisitions, which decreased net income attributable to HEICO by approximately
Improvement in the commercial aerospace market has resulted in thirteen consecutive quarters of sequential growth in net sales at the Flight Support Group.
EBITDA increased
Consolidated Results
Laurans A. Mendelson, HEICO's Chairman and CEO, commented on the Company's fourth quarter results stating, "We are very pleased to report record quarterly results in consolidated net sales and operating income driven by record net sales at both of our operating segments. These results reflect
On August 4, 2023, we completed the acquisition of Wencor, which is HEICO's largest ever in terms of purchase price, as well as revenues and income acquired. As I have stated before, Wencor is a perfect and highly complementary fit with HEICO.
Our total debt to net income attributable to HEICO ratio was 6.14x as of October 31, 2023, as compared to .83x as of October 31, 2022. Our net debt to EBITDA ratio was 3.04x and .25x as of October 31, 2023 and October 31, 2022, respectively. The net debt to EBITDA ratio increase in the fiscal year ended October 31, 2023 principally reflects our successful offering of
Cash flow provided by operating activities improved to
Earlier this month, HEICO's Board of Directors declared a semi-annual cash dividend of $.10 per share payable in January 2024. This cash dividend will be HEICO's 91st consecutive semi-annual cash dividend since 1979. The semi-annual cash dividend confirms our Board of Director's confidence in HEICO's future while continuing to reward our shareholders and retaining sufficient capital to fund our internal growth and acquisitions.
As we look ahead to fiscal 2024, we anticipate net sales growth in both the Flight Support Group and Electronic Technologies Group, principally driven by contributions from our fiscal 2023 acquisitions and demand for the majority of our products. Additionally, continued inflationary pressures may lead to higher material and labor costs. Further, we plan to actively work on Wencor's ongoing integration into our business and operations, continue our commitment to developing new products and services and further market penetration, while maintaining our financial strength and flexibility."
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 record fourth quarter results stating, "Continued strong demand and the net sales contribution from the recent Wencor acquisition allowed us to achieve quarterly increases of
The Flight Support Group's net sales increased
The Flight Support Group's net sales increased
The Flight Support Group's operating income increased
The Flight Support Group's operating income increased
The Flight Support Group's operating margin was
The Flight Support Group's operating margin improved to
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 fourth quarter results stating, "Increased demand for the majority of our products and the net sales contribution from the fiscal 2023 acquisition of Exxelia drove record quarterly results in net sales and operating income. We are pleased to see
The Electronic Technologies Group's net sales increased
The Electronic Technologies Group's net sales increased
The Electronic Technologies Group's operating income increased
The Electronic Technologies Group's operating income increased
partially offset by a lower gross profit margin, higher costs from the impact of the Exxelia acquisition including
The Electronic Technologies Group's operating margin was
The Electronic Technologies Group's operating margin was
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), 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 investor's 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 83.5 million shares of HEICO's Class A Common Stock (HEI.A) outstanding and 54.7 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, December 19, 2023 at 9:00 a.m. Eastern Standard Time to discuss its fourth quarter results. Individuals wishing to participate in the conference call should dial: US and Canada (888) 254-3590, International (646) 828-8193, wait for the conference operator and provide the operator with the Conference ID 8270622. A digital replay will be available two hours after the completion of the conference for 14 days. To access the replay, please visit our website at www.heico.com under the Investors section for details.
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 will 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. Factors that could cause such differences include, among others: the severity, magnitude and duration of public health threats, such as the COVID-19 pandemic; our liquidity and the amount and timing of cash generation; lower commercial air travel, 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, including obtaining any applicable domestic and/or foreign governmental approvals, and achieve operating synergies from acquired businesses; customer credit risk; interest, foreign currency exchange and income tax rates; and economic conditions, including the effects of inflation, within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues. 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.
Contact:
Victor H. Mendelson (305) 374-1745 ext. 7590
Carlos L. Macau, Jr. (954) 987-4000 ext. 7570
HEICO CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
| Three Months Ended October 31, | |||||||||
| 2023 | 2022 | ||||||||
Net sales | $ | 936,447 | $ | 609,638 | |||||
Cost of sales | 572,004 | 369,255 | |||||||
Selling, general and administrative expenses | 174,995 | 93,885 | |||||||
Operating income | 189,448 | 146,498 | |||||||
Interest expense | (43,423 | ) | (3,205 | ) | |||||
Other income (expense) | 1,040 | (120 | ) | ||||||
Income before income taxes and noncontrolling interests | 147,065 | 143,173 | |||||||
Income tax expense | 33,500 | 33,000 | |||||||
Net income from consolidated operations | 113,565 | 110,173 | |||||||
Less: Net income attributable to noncontrolling interests | 10,139 | 12,969 | |||||||
Net income attributable to HEICO | $ | 103,426 | (a) | $ | 97,204 | ||||
Basic | $ | .75 | (a) | $ | .71 | ||||
Diluted | $ | .74 | (a) | $ | .70 | ||||
Basic | 138,162 | 136,536 | |||||||
Diluted | 139,774 | 138,478 | |||||||
| Three Months Ended October 31, | |||||||||
| 2023 | 2022 | ||||||||
Operating segment information: | |||||||||
Net sales: | |||||||||
Flight Support Group | $ | 601,665 | $ | 345,959 | |||||
Electronic Technologies Group | 342,537 | 268,543 | |||||||
Intersegment sales | (7,755 | ) | (4,864 | ) | |||||
| $ | 936,447 | $ | 609,638 | ||||||
Operating income: | |||||||||
Flight Support Group | $ | 114,604 | $ | 77,838 | |||||
Electronic Technologies Group | 86,380 | 79,868 | |||||||
Other, primarily corporate | (11,536 | ) | (11,208 | ) | |||||
| $ | 189,448 | $ | 146,498 | ||||||
Depreciation and amortization: | |||||||||
Flight Support Group | $ | 24,003 | $ | 10,888 | |||||
Electronic Technologies Group | 19,032 | 14,389 | |||||||
Corporate | 693 | 530 | |||||||
| $ | 43,728 | $ | 25,807 | ||||||
HEICO CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Fiscal Year Ended October 31, | ||||
2023 | 2022 | |||
Net sales | ||||
Cost of sales | 1,814,617 | 1,345,563 | ||
Selling, general and administrative expenses | 528,149 | 365,915 | ||
Operating income | 625,339 | 496,844 | ||
Interest expense | (72,984) | (6,386) | ||
Other income | 2,928 | 565 | ||
Income before income taxes and noncontrolling interests | 555,283 | 491,023 | ||
Income tax expense | 110,900 | (b) | 100,400 | (c) |
Net income from consolidated operations | 444,383 | 390,623 | ||
Less: Net income attributable to noncontrolling interests | 40,787 | 38,948 | ||
Net income attributable to HEICO | (b) (d) | (c) | ||
Net income per share attributable to HEICO shareholders: | ||||
Basic | (b) (d) | (c) | ||
Diluted | (b) (d) | (c) | ||
Weighted average number of common shares outstanding: | ||||
Basic | 137,185 | 136,010 | ||
Diluted | 138,905 | 138,037 | ||
Fiscal Year Ended October 31, | ||||
2023 | 2022 | |||
Operating segment information: | ||||
Net sales: | ||||
Flight Support Group | ||||
Electronic Technologies Group | 1,225,222 | 972,475 | ||
Intersegment sales | (27,302) | (19,365) | ||
Operating income: | ||||
Flight Support Group | ||||
Electronic Technologies Group | 285,053 | 269,473 | ||
Other, primarily corporate | (47,011) | (39,796) | ||
Depreciation and amortization: | ||||
Flight Support Group | ||||
Electronic Technologies Group | 71,774 | 54,292 | ||
Corporate | 2,613 | 2,117 | ||
HEICO CORPORATION
Footnotes to Condensed Consolidated Statements of Operations (Unaudited)
- During the fourth quarter of fiscal 2023, the Company incurred acquisition costs related to the Wencor acquisition, which decreased net income attributable to HEICO by approximately
$13.6 million , or $.10 per basic and diluted share. - During the first quarter of fiscal 2023, the Company recognized a
$6.2 million discrete tax benefit from stock option exercises, which, net of noncontrolling interests, increased net income attributable to HEICO by$6.1 million , or $.04 per basic and diluted share. - During the first quarter of fiscal 2022, the Company recognized a
$17.8 million discrete tax benefit from stock option exercises, which, net of noncontrolling interests, increased net income attributable to HEICO by$17.5 million , or $.13 per basic and diluted share. - During the fiscal year ended October 31, 2023, the Company incurred acquisition costs related to the Wencor and Exxelia acquisitions, which decreased net income attributable to HEICO by approximately
$21.5 million , or $.16 per basic share and $.15 per diluted share.
HEICO CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
| October 31, 2023 | October 31, 2022 | |||||||
Cash and cash equivalents | $ | 171,048 | $ | 139,504 | ||||
Accounts receivable, net | 509,075 | 294,848 | ||||||
Contract assets | 111,702 | 93,978 | ||||||
Inventories, net | 1,013,680 | 582,471 | ||||||
Prepaid expenses and other current assets | 49,837 | 41,929 | ||||||
Total current assets | 1,855,342 | 1,152,730 | ||||||
Property, plant and equipment, net | 321,848 | 225,879 | ||||||
Goodwill | 3,274,327 | 1,672,425 | ||||||
Intangible assets, net | 1,357,281 | 733,327 | ||||||
Other assets | 386,265 | 311,135 | ||||||
Total assets | $ | 7,195,063 | $ | 4,095,496 | ||||
Short-term and current maturities of long-term debt | $ | 17,801 | $ | 1,654 | ||||
Other current liabilities | 647,541 | 419,205 | ||||||
Total current liabilities | 665,342 | 420,859 | ||||||
Long-term debt, net of current maturities | 2,460,277 | 288,620 | ||||||
Deferred income taxes | 131,846 | 71,162 | ||||||
Other long-term liabilities | 379,640 | 338,948 | ||||||
Total liabilities | 3,637,105 | 1,119,589 | ||||||
Redeemable noncontrolling interests | 364,807 | 327,601 | ||||||
Shareholders' equity | 3,193,151 | 2,648,306 | ||||||
Total liabilities and equity | $ | 7,195,063 | $ | 4,095,496 | ||||
HEICO CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Fiscal Year Ended October 31, | ||||||||
| 2023 | 2022 | |||||||
Operating Activities: | ||||||||
Net income from consolidated operations | $ | 444,383 | $ | 390,623 | ||||
Depreciation and amortization | 130,043 | 96,333 | ||||||
Share-based compensation expense | 15,475 | 12,646 | ||||||
Employer contributions to HEICO Savings and Investment Plan | 15,276 | 12,180 | ||||||
Amendment and termination of contingent consideration agreement | (9,057 | ) | - | |||||
Payment of contingent consideration | (6,299 | ) | - | |||||
Decrease in accrued contingent consideration, net | (686 | ) | (7,631 | ) | ||||
Deferred income tax (benefit) provision | (26,531 | ) | 8,876 | |||||
Increase in accounts receivable | (65,595 | ) | (29,272 | ) | ||||
Increase in contract assets | (11,642 | ) | (4,148 | ) | ||||
Increase in inventories | (124,782 | ) | (89,186 | ) | ||||
Increase in current liabilities, net | 79,059 | 71,286 | ||||||
Other | 9,091 | 6,149 | ||||||
Net cash provided by operating activities | 448,735 | 467,856 | ||||||
Investing Activities: | ||||||||
Acquisitions, net of cash acquired | (2,421,788 | ) | (347,308 | ) | ||||
Capital expenditures | (49,434 | ) | (31,982 | ) | ||||
Investments related to HEICO Leadership Compensation Plan | (18,892 | ) | (15,300 | ) | ||||
Other | 5,647 | (1,239 | ) | |||||
Net cash used in investing activities | (2,484,467 | ) | (395,829 | ) | ||||
Financing Activities: | ||||||||
Proceeds from issuance of senior unsecured notes | 1,189,452 | - | ||||||
Borrowings on revolving credit facility, net | 975,000 | 50,000 | ||||||
Distributions to noncontrolling interests | (36,591 | ) | (25,092 | ) | ||||
Cash dividends paid | (27,370 | ) | (24,466 | ) | ||||
Redemptions of common stock related to stock option exercises | (14,847 | ) | (25,946 | ) | ||||
Payment of contingent consideration | (12,610 | ) | (320 | ) | ||||
Debt issuance costs | (10,060 | ) | (1,010 | ) | ||||
Acquisitions of noncontrolling interests | (2,733 | ) | (8,735 | ) | ||||
Proceeds from stock option exercises | 6,713 | 2,352 | ||||||
Other | (1,905 | ) | (616 | ) | ||||
Net cash provided by (used in) financing activities | 2,065,049 | (33,833 | ) | |||||
Effect of exchange rate changes on cash | 2,227 | (6,988 | ) | |||||
Net increase in cash and cash equivalents | 31,544 | 31,206 | ||||||
Cash and cash equivalents at beginning of year | 139,504 | 108,298 | ||||||
Cash and cash equivalents at end of year | $ | 171,048 | $ | 139,504 | ||||
HEICO CORPORATION
Non-GAAP Financial Measures (Unaudited)
(in thousands, except ratios)
| Three Months Ended October 31, | ||||||||
EBITDA Calculation | 2023 | 2022 | ||||||
Net income attributable to HEICO | $ | 103,426 | $ | 97,204 | ||||
Plus: Depreciation and amortization | 43,728 | 25,807 | ||||||
Plus: Net income attributable to noncontrolling interests | 10,139 | 12,969 | ||||||
Plus: Interest expense | 43,423 | 3,205 | ||||||
Plus: Income tax expense | 33,500 | 33,000 | ||||||
EBITDA (a) | $ | 234,216 | $ | 172,185 | ||||
| Fiscal Year Ended October 31, | ||||||||
EBITDA Calculation | 2023 | 2022 | ||||||
Net income attributable to HEICO | $ | 403,596 | $ | 351,675 | ||||
Plus: Depreciation and amortization | 130,043 | 96,333 | ||||||
Plus: Net income attributable to noncontrolling interests | 40,787 | 38,948 | ||||||
Plus: Interest expense | 72,984 | 6,386 | ||||||
Plus: Income tax expense | 110,900 | 100,400 | ||||||
EBITDA (a) | $ | 758,310 | $ | 593,742 | ||||
Net Debt Calculation | October 31, 2023 | October 31, 2022 | ||||||
Total debt | $ | 2,478,078 | $ | 290,274 | ||||
Less: Cash and cash equivalents | (171,048 | ) | (139,504 | ) | ||||
Net debt (a) | $ | 2,307,030 | $ | 150,770 | ||||
Total debt | $ | 2,478,078 | $ | 290,274 | ||||
Net income attributable to HEICO | $ | 403,596 | $ | 351,675 | ||||
Total debt to net income attributable to HEICO ratio | 6.14 | .83 | ||||||
Net debt | $ | 2,307,030 | $ | 150,770 | ||||
EBITDA | $ | 758,310 | $ | 593,742 | ||||
Net debt to EBITDA ratio (a) | 3.04 | .25 | ||||||
SOURCE: HEICO Corporation
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