HEICO (HEI) - 2022 Q3 - Quarterly Report

Part I. Financial Information Financial Statements This section presents HEICO Corporation's unaudited condensed consolidated financial statements for periods ended July 31, 2022, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets As of July 31, 2022, total assets increased to $3.79 billion, liabilities to $998.4 million, and shareholders' equity to $2.49 billion Condensed Consolidated Balance Sheets (unaudited, in thousands) | | July 31, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,081,773 | $937,385 | | Total assets | $3,787,351 | $3,498,407 | | Total current liabilities | $346,445 | $294,880 | | Total liabilities | $998,373 | $948,881 | | Total shareholders' equity | $2,491,984 | $2,296,939 | | Total liabilities and equity | $3,787,351 | $3,498,407 | Condensed Consolidated Statements of Operations For the nine months ended July 31, 2022, net sales grew 18% to $1.60 billion, operating income 26% to $350.3 million, and net income 17% to $254.5 million Key Operating Results (unaudited, in thousands, except per share data) | | Nine months ended July 31, 2022 | Nine months ended July 31, 2021 | Three months ended July 31, 2022 | Three months ended July 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,598,684 | $1,356,260 | $569,528 | $471,707 | | Operating income | $350,346 | $277,871 | $128,747 | $100,838 | | Net income attributable to HEICO | $254,471 | $218,158 | $82,540 | $76,889 | | Diluted EPS | $1.85 | $1.58 | $0.60 | $0.56 | Condensed Consolidated Statements of Cash Flows For the nine months ended July 31, 2022, operating cash flow was $323.9 million, investing activities used $223.4 million, and financing activities used $70.1 million Cash Flow Summary (unaudited, in thousands) | | Nine months ended July 31, 2022 | Nine months ended July 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $323,910 | $334,103 | | Net cash used in investing activities | ($223,351) | ($68,890) | | Net cash used in financing activities | ($70,090) | ($403,223) | | Net increase (decrease) in cash | $25,307 | ($137,036) | | Cash and cash equivalents at end of period | $133,605 | $269,816 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, recent acquisitions, and financial statement components, highlighting segment performance and the impact of the COVID-19 recovery - The company operates through two segments: the Flight Support Group (FSG) and the Electronic Technologies Group (ETG)[20] - Operating results in the first nine months of fiscal 2022 improved compared to the prior year, reflecting better demand for commercial aerospace products as air travel recovers[21] - During fiscal 2022, the company acquired Accurate Metal Machining, Inc., Pioneer Industries, LLC, and Flight Microwave Corporation; these acquisitions were not individually material[24][25][26] - The company has committed to acquire Exxelia International for approximately €453 million in cash plus assumption of debt, with the transaction expected to close in the first quarter of fiscal 2023[30][32] Disaggregation of Revenue - Nine Months Ended July 31 (in thousands) | Segment/Product Line | 2022 | 2021 | | :--- | :--- | :--- | | Flight Support Group | | | | Aftermarket replacement parts | $512,335 | $390,685 | | Repair and overhaul parts and services | $193,973 | $147,709 | | Specialty products | $202,945 | $128,338 | | Total FSG | $909,253 | $666,732 | | Electronic Technologies Group | | | | Defense, space and aerospace | $485,780 | $521,586 | | Various other industries | $218,152 | $184,596 | | Total ETG | $703,932 | $706,182 | | Total Consolidated Net Sales | $1,598,684 | $1,356,260 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting strong FSG recovery, record consolidated sales and operating income, and a robust balance sheet for future investments Comparison of First Nine Months of Fiscal 2022 to First Nine Months of Fiscal 2021 Consolidated net sales grew 18% to $1.6 billion, driven by 36% FSG growth, while operating income rose 26% to $350.3 million - Consolidated net sales increased 18% to a record $1,598.7 million[92] - FSG net sales increased 36% ($242.5 million), reflecting strong organic growth of 26% from increased demand for commercial aerospace products[92] - ETG net sales decreased slightly ($2.3 million), mainly due to a 2% decrease in organic sales from lower demand for defense products[92] - Consolidated operating income increased 26% to a record $350.3 million, with the operating margin improving to 21.9% from 20.5%[97][98] - Net income attributable to HEICO increased 17% to a record $254.5 million, or $1.85 per diluted share[103] Comparison of Third Quarter of Fiscal 2022 to Third Quarter of Fiscal 2021 Q3 2022 consolidated net sales rose 21% to $569.5 million, operating income grew 28% to $128.7 million, and net income increased 7% to $82.5 million - Q3 consolidated net sales increased 21% to a record $569.5 million[105] - FSG's Q3 net sales grew 39% to a record $330.3 million, reflecting 25% organic growth[105] - ETG's Q3 net sales increased 2% to $244.2 million, with 1% organic growth driven by other electronics, space, and medical products, partially offset by a decline in defense products[105] - Q3 consolidated operating income increased 28% to a record $128.7 million, with operating margin rising to 22.6% from 21.4%[110][111] - The effective tax rate for Q3 increased to 27.0% from 15.7% in the prior year, primarily due to unrealized losses on life insurance policies and lower R&D tax credits[115] Outlook Management expects continued commercial air travel growth but withholds fiscal 2022 guidance due to pandemic, supply chain, and inflation uncertainties - Management is cautiously optimistic about continued growth in global commercial air travel[118] - Due to uncertainties related to the pandemic, supply chain, and inflation, the company will not provide fiscal 2022 sales and earnings guidance[118] - The company believes its strong balance sheet and liquidity will allow for continuous investment in R&D, strategic inventory purchases, and acquisitions[118] Liquidity and Capital Resources HEICO maintains strong liquidity with $323.9 million in operating cash flow and a 9.9% debt-to-equity ratio, sufficient to fund future requirements - Net cash provided by operating activities was $323.9 million in the first nine months of fiscal 2022[123] - Net cash used in investing activities was $223.4 million, primarily for acquisitions ($175.3 million) and capital expenditures ($24.4 million)[126] - The total debt to shareholders' equity ratio was 9.9% as of July 31, 2022, and the company was in compliance with all debt covenants[120] - The maturity date of the Revolving Credit Facility was extended by one year to November 2024[121] Quantitative and Qualitative Disclosures About Market Risk No material changes in the company's market risk sensitivity assessment have occurred since the last Annual Report on Form 10-K - There have not been any material changes in the company's assessment of its sensitivity to market risk from what was disclosed in the last Annual Report on Form 10-K[134] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 31, 2022, with no material changes in internal control over financial reporting - Management concluded that HEICO's disclosure controls and procedures are effective as of the end of the reporting period (July 31, 2022)[135] - No changes in internal control over financial reporting occurred during the third quarter that have materially affected or are reasonably likely to materially affect the company's internal controls[136] Part II. Other Information Exhibits This section lists exhibits filed with Form 10-Q, including the Exxelia acquisition agreement, CEO/CFO certifications, and Inline XBRL data files - Exhibits filed include the Put Option Agreement for the acquisition of Exxelia International, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and Inline XBRL documents[139] Signatures - The report is duly signed on August 31, 2022, by Carlos L. Macau, Jr. (EVP - Chief Financial Officer) and Steven M. Walker (Chief Accounting Officer)[142][144]