HEICO (HEI) - 2021 Q3 - Quarterly Report

Part I. Financial Information Financial Statements Presents HEICO Corporation's unaudited condensed consolidated financial statements, reflecting significant Q3 2021 operating improvements driven by aerospace recovery - The company's results in the first nine months of fiscal 2021 continue to be impacted by the COVID-19 pandemic, with demand for commercial aviation products moderated compared to pre-pandemic levels However, Q3 2021 showed significant improvement over Q3 2020, with the Flight Support Group reporting four consecutive quarters of improving net sales and operating income[21] Condensed Consolidated Balance Sheets Balance sheet shows total assets at $3.46 billion, liabilities reduced to $1.02 billion from debt repayment, and equity increased to $2.22 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 31, 2021 | October 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $269,816 | $406,852 | | Total current assets | $1,031,015 | $1,165,625 | | Goodwill | $1,402,876 | $1,383,167 | | Total assets | $3,461,635 | $3,547,711 | | Liabilities & Equity | | | | Long-term debt, net | $385,380 | $738,786 | | Total liabilities | $1,016,865 | $1,315,896 | | Total shareholders' equity | $2,220,086 | $2,010,607 | Condensed Consolidated Statements of Operations Q3 2021 net sales increased 22% to $471.7 million, net income rose 42% to $76.9 million, though nine-month net income declined due to a higher tax rate Key Operating Results (in thousands, except per share data) | Metric | Nine Months Ended July 31, 2021 | Nine Months Ended July 31, 2020 | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,356,260 | $1,360,831 | $471,707 | $386,410 | | Operating income | $277,871 | $287,585 | $100,838 | $68,434 | | Net income attributable to HEICO | $218,158 | $251,657 | $76,889 | $54,316 | | Diluted EPS | $1.58 | $1.83 | $0.56 | $0.40 | Condensed Consolidated Statements of Cash Flows Operating cash flow increased to $334.1 million, but $355.0 million in debt payments resulted in a $137.0 million net decrease in cash Cash Flow Summary (in thousands) | Activity | Nine months ended July 31, 2021 | Nine months ended July 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $334,103 | $298,971 | | Net cash used in investing activities | ($68,890) | ($98,007) | | Net cash (used in) provided by financing activities | ($403,223) | $134,625 | | Net (decrease) increase in cash | ($137,036) | $338,277 | Notes to Condensed Consolidated Financial Statements Notes detail recent acquisitions, revenue by segment, goodwill changes, tax rate variance, and a grand jury subpoena - In June 2021, the Flight Support Group acquired an 80.1% interest in Camtronics, LLC, an FAA-certified repair station In March 2021, the Electronic Technologies Group acquired Pyramid Semiconductor LLC, a specialty semiconductor designer[24][25] Net Sales by Operating Segment (Nine Months Ended July 31, in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Flight Support Group | $666,732 | $731,189 | | Electronic Technologies Group | $706,182 | $638,285 | - The effective tax rate for the first nine months of fiscal 2021 was 13.3%, compared to 3.5% in the same period of 2020 The lower rate in 2020 was due to a significantly larger discrete tax benefit from stock option exercises ($47.6 million in 2020 vs $13.5 million in 2021)[50] - An indirect subsidiary received a grand jury subpoena in April 2021 related to its employment of an individual and work on Navy vessels from Dec 2017 to Feb 2019 The company is cooperating with the investigation and cannot predict the outcome or potential loss[66] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, noting Q3 2021 improvements, strong balance sheet, and no FY2021 guidance due to ongoing pandemic uncertainties Results of Operations Q3 2021 consolidated net sales grew 22% and operating income surged 47% to $100.8 million, driven by strong performance in both FSG and ETG Q3 2021 vs Q3 2020 Performance | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $471.7M | $386.4M | +22% | | FSG Net Sales | $237.1M | $178.2M | +33% | | ETG Net Sales | $239.5M | $210.9M | +14% | | Consolidated Operating Income | $100.8M | $68.4M | +47% | | Consolidated Operating Margin | 21.4% | 17.7% | +370 bps | - For the first nine months of FY2021, FSG net sales decreased 9% organically due to the pandemic's impact on commercial air travel In contrast, ETG net sales grew 11%, reflecting contributions from acquisitions ($45.0M) and 2% organic growth driven by defense and other electronic products[80] Liquidity and Capital Resources Strong operating cash flow of $334.1 million and $355.0 million in debt reduction highlight robust liquidity and capital resources - Net cash from operating activities increased to $334.1 million in the first nine months of FY2021, up from $299.0 million in the prior year period, mainly due to favorable changes in working capital[110][111] - The company made net payments of $355.0 million on its revolving credit facility during the first nine months of fiscal 2021[114] - Fiscal 2021 capital expenditures are anticipated to be approximately $35-$38 million[108] Outlook Management is cautiously optimistic about market recovery but withholds FY2021 guidance due to pandemic uncertainties, emphasizing a strong balance sheet - The company is cautiously optimistic about the recovery of commercial air travel but feels it would not be responsible to provide fiscal 2021 net sales and earnings guidance due to ongoing pandemic-related uncertainties[106] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk sensitivity have occurred since the October 31, 2020, Annual Report on Form 10-K - There have been no material changes in the company's market risk profile since its last annual report[121] Controls and Procedures Disclosure controls and procedures were effective as of July 31, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that HEICO's disclosure controls and procedures are effective as of the end of the reporting period[122] - No material changes to internal control over financial reporting were identified during the third quarter of fiscal 2021[123] Part II. Other Information Exhibits Lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL data files - The report includes standard exhibits, such as CEO/CFO certifications and XBRL data files[126] Signatures - The report was duly signed on August 26, 2021, by Carlos L. Macau, Jr. (CFO) and Steven M. Walker (Chief Accounting Officer)[132]