HEICO (HEI) - 2022 Q1 - Quarterly Report

Part I. Financial Information HEICO Corporation's unaudited condensed consolidated financial statements for the three months ended January 31, 2022, include balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, with detailed accompanying notes Financial Statements HEICO Corporation's unaudited condensed consolidated financial statements for the three months ended January 31, 2022, include balance sheets, statements of operations, and cash flows with accompanying notes Condensed Consolidated Balance Sheets As of January 31, 2022, total assets increased slightly to $3.51 billion from $3.50 billion, while total liabilities decreased to $913.6 million from $948.9 million, leading to an increase in total shareholders' equity to $2.34 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 31, 2022 | Oct 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,513,895 | $3,498,407 | | Total Current Assets | $974,562 | $937,385 | | Goodwill | $1,446,250 | $1,450,395 | | Total Liabilities | $913,550 | $948,881 | | Total Current Liabilities | $273,880 | $294,880 | | Long-term debt, net | $235,650 | $234,983 | | Total Shareholders' Equity | $2,342,056 | $2,296,939 | Condensed Consolidated Statements of Operations For the three months ended January 31, 2022, HEICO reported a 17.3% increase in net sales to $490.3 million and a 23.1% rise in operating income to $98.8 million, with net income attributable to HEICO increasing 23.1% to $86.9 million and diluted EPS reaching $0.63 Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $490,343 | $417,902 | 17.3% | | Operating Income | $98,822 | $80,285 | 23.1% | | Net Income Attributable to HEICO | $86,921 | $70,596 | 23.1% | | Diluted EPS | $0.63 | $0.51 | 23.5% | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $78.0 million in Q1 FY22 from $107.2 million in the prior year, primarily due to increased working capital, while investing activities used $20.0 million and financing activities used $39.9 million Cash Flow Summary (in thousands) | Activity | Three months ended Jan 31, 2022 | Three months ended Jan 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $77,980 | $107,199 | | Net cash used in investing activities | ($19,959) | ($25,271) | | Net cash used in financing activities | ($39,920) | ($91,407) | | Net increase (decrease) in cash | $16,520 | ($7,449) | Notes to Condensed Consolidated Financial Statements These notes detail HEICO's accounting policies and financial statement components, including COVID-19 impacts, revenue recognition, segment reporting for its Flight Support Group and Electronic Technologies Group, and asset details - The company's results continue to be adversely impacted by the COVID-19 pandemic, although Q1 FY2022 showed significant improvement in demand for commercial aerospace products compared to Q1 FY2021[20] - The company operates through two segments: the Flight Support Group (FSG) and the Electronic Technologies Group (ETG)[19] Revenue by Segment (in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Flight Support Group | $272,681 | $199,334 | | Electronic Technologies Group | $222,336 | $223,550 | | Intersegment sales | ($4,674) | ($4,982) | | Total consolidated net sales | $490,343 | $417,902 | - As of January 31, 2022, the company had $474.4 million of remaining performance obligations, with $273.9 million expected to be recognized as revenue during the remainder of fiscal 2022[38] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the first quarter fiscal 2022 financial results, highlighting a 17% increase in consolidated net sales and 23% rise in operating income, primarily driven by the Flight Support Group's recovery, while maintaining strong liquidity despite refraining from full-year guidance Results of Operations Consolidated net sales increased 17% to $490.3 million in Q1 FY22, primarily from a 37% sales increase in the Flight Support Group, leading to a 23% rise in operating income to $98.8 million and an improved operating margin of 20.2% - The FSG's net sales increased by 37% ($73.3 million), reflecting strong organic growth of 30% from the recovery in global commercial air travel[66] - The ETG's net sales decreased by 1% ($1.2 million), mainly due to a 3% decline in organic net sales from decreased demand for defense and space products[66] Operating Income by Segment (in thousands) | Segment | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Flight Support Group | $52,376 | $25,822 | 102.8% | | Electronic Technologies Group | $55,588 | $60,128 | -7.5% | | Other, primarily corporate | ($9,142) | ($5,665) | 61.4% | | Total Operating Income | $98,822 | $80,285 | 23.1% | - The consolidated operating margin increased to 20.2% in Q1 FY22 from 19.2% in Q1 FY21, driven by the FSG's operating margin expansion to 19.2% from 13.0%[71] Liquidity and Capital Resources The company's primary cash uses include acquisitions and capital expenditures, with net cash from operations at $78.0 million in Q1 FY22, and it maintains adequate liquidity for the next twelve months with a 10.1% total debt to shareholders' equity ratio - Net cash provided by operating activities was $78.0 million in Q1 FY22, down from $107.2 million in Q1 FY21, mainly due to a $57.9 million increase in net working capital[79][80] - The company anticipates fiscal 2022 capital expenditures to be approximately $45 million[77] - As of January 31, 2022, the company was in compliance with all debt covenants and had a total debt to shareholders' equity ratio of 10.1%[77] Outlook Management anticipates continued recovery in global commercial air travel for fiscal 2022 but refrains from providing specific guidance due to uncertainties from COVID-19 variants, supply chain disruptions, and inflation - The company is cautiously optimistic about the continued recovery of global commercial air travel but acknowledges risks from new COVID-19 variants, supply chain issues, and inflation[76] - Due to market uncertainties, the company has decided it would not be responsible to provide fiscal 2022 net sales and earnings guidance at this time[76] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its assessment of market risk sensitivity from what was disclosed in its Annual Report on Form 10-K for the fiscal year ended October 31, 2021 - There have been no material changes in the company's assessment of its sensitivity to market risk since the last annual report[89] Controls and Procedures The CEO and CFO concluded that HEICO's disclosure controls and procedures were effective as of January 31, 2022, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that HEICO's disclosure controls and procedures were effective as of January 31, 2022[90] - No changes in internal control over financial reporting occurred during the first quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[91] Part II. Other Information Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and Interactive Data Files (Inline XBRL) - Exhibits filed with this report include CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and Section 1350, as well as Inline XBRL documents[94] Signatures Signatures The report is duly signed on February 25, 2022, by Carlos L. Macau, Jr., Executive Vice President - Chief Financial Officer, and Steven M. Walker, Chief Accounting Officer, on behalf of HEICO Corporation - The Form 10-Q was signed on February 25, 2022, by the company's Principal Financial Officer and Principal Accounting Officer[100]