HEICO CORP
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
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For the quarterly period ended
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| OR | ||||||||
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the transition period from ______ to _______ | ||||||||
Commission File Number:
001-04604
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer Identification No.) | |||||||
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| (Address of principal executive offices) | (Zip Code) | |||||||
(
954
)
987-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
The number of shares outstanding of each of the registrant’s classes of common stock as of May 28, 2024 is as follows:
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Common Stock, $
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shares | ||||||
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Class A Common Stock, $
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shares | ||||||
HEICO CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
| Page | |||||||||||
| Part I. | Financial Information | ||||||||||
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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| Part II. | Other Information | ||||||||||
| Item 5. | Other Events | ||||||||||
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Item 6.
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1
PART I. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(in thousands, except per share data)
| April 30, 2024 | October 31, 2023 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents |
$
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$
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||||||||||||
| Accounts receivable, net |
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| Contract assets |
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||||||||||||
| Inventories, net |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property, plant and equipment, net |
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| Goodwill |
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| Intangible assets, net |
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| Other assets |
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| Total assets |
$
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$
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||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Short-term debt and current maturities of long-term debt |
$
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$
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||||||||||||
| Trade accounts payable |
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||||||||||||
| Accrued expenses and other current liabilities |
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| Income taxes payable |
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| Total current liabilities |
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| Long-term debt, net of current maturities |
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| Deferred income taxes |
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| Other long-term liabilities |
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| Total liabilities |
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| Commitments and contingencies (Note 11) |
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| Redeemable noncontrolling interests (Note 3) |
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| Shareholders’ equity: | ||||||||||||||
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Preferred Stock, $
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Common Stock, $
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Class A Common Stock, $
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| Capital in excess of par value |
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||||||||||||
| Deferred compensation obligation |
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| HEICO stock held by irrevocable trust |
(
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(
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||||||||||||
| Accumulated other comprehensive loss |
(
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(
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||||||||||||
| Retained earnings |
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||||||||||||
| Total HEICO shareholders’ equity |
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||||||||||||
| Noncontrolling interests |
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||||||||||||
| Total shareholders’ equity |
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||||||||||||
| Total liabilities and equity |
$
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$
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||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
(in thousands, except per share data)
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales |
$
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$
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$
|
$
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|||||||||||||||||||
| Operating costs and expenses: | |||||||||||||||||||||||
| Cost of sales |
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| Selling, general and administrative expenses |
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| Total operating costs and expenses |
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Operating income
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| Interest expense |
(
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(
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(
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(
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|||||||||||||||||||
| Other income |
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Income before income taxes and noncontrolling interests
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| Income tax expense |
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| Net income from consolidated operations |
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|||||||||||||||||||
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Less: Net income attributable to noncontrolling interests
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|||||||||||||||||||
| Net income attributable to HEICO |
$
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$
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$
|
$
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|||||||||||||||||||
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Net income per share attributable to HEICO shareholders:
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|||||||||||||||||||||||
| Basic |
$
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$
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$
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$
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|||||||||||||||||||
| Diluted |
$
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$
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$
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$
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|||||||||||||||||||
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Weighted average number of common shares outstanding:
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|||||||||||||||||||||||
| Basic |
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|||||||||||||||||||
| Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME – UNAUDITED
(in thousands)
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income from consolidated operations |
$
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$
|
$
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$
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|||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments |
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(
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|||||||||||||||||||
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Amortization of unrealized loss on defined benefit pension plan, net of tax
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| Total other comprehensive income (loss) |
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(
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|||||||||||||||||||
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Comprehensive income from consolidated operations
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Net income attributable to noncontrolling interests
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Foreign currency translation adjustments attributable to noncontrolling interests
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(
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Comprehensive income attributable to noncontrolling interests
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|||||||||||||||||||
| Comprehensive income attributable to HEICO |
$
|
$
|
$
|
$
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|||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED
For the Six Months Ended April 30, 2024 and 2023
(in thousands, except per share data)
| HEICO Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Common Stock | Class A Common Stock | Capital in Excess of Par Value | Deferred Compensation Obligation | HEICO Stock Held by Irrevocable Trust | Accumulated Other Comprehensive Loss | Retained Earnings | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of October 31, 2023 |
$
|
$
|
$
|
$
|
$
|
($
|
($
|
$
|
$
|
$
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income |
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— | — | — | — | — |
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|||||||||||||||||||||||||||||||||||||||||||||||||
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Cash dividends ($
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— | — | — | — | — | — | — |
(
|
— |
(
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|||||||||||||||||||||||||||||||||||||||||||||||||
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Issuance of common stock to HEICO Savings and Investment Plan
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— | — | — |
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— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Share-based compensation expense
|
— | — | — |
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— | — | — | — | — |
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|||||||||||||||||||||||||||||||||||||||||||||||||
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Proceeds from stock option exercises
|
— |
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— | — | — | — | — |
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|||||||||||||||||||||||||||||||||||||||||||||||||
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Redemptions of common stock related to stock option exercises
|
— | — | — |
(
|
— | — | — | — | — |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
(
|
— | — | — | — | — | — | — |
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions of noncontrolling interests |
(
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjustments to redemption amount of redeemable noncontrolling interests
|
|
— | — | — | — | — | — |
(
|
— |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Other
|
|
— | — |
(
|
— | — | — |
(
|
— |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of April 30, 2024 |
$
|
$
|
$
|
$
|
$
|
($
|
($
|
$
|
$
|
$
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| HEICO Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Common Stock | Class A Common Stock | Capital in Excess of Par Value | Deferred Compensation Obligation | HEICO Stock Held by Irrevocable Trust | Accumulated Other Comprehensive Loss | Retained Earnings | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of October 31, 2022 |
$
|
$
|
$
|
$
|
$
|
($
|
($
|
$
|
$
|
$
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income |
|
— | — | — | — | — |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Cash dividends ($
|
— | — | — | — | — | — | — |
(
|
— |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of common stock to HEICO Savings and Investment Plan
|
— | — | — |
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Share-based compensation expense
|
— | — | — |
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Proceeds from stock option exercises
|
— |
|
|
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Redemptions of common stock related to stock option exercises
|
— | — | — |
(
|
— | — | — | — | — |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests assumed related to acquisitions |
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
(
|
— | — | — | — | — | — | — |
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions of noncontrolling interests |
(
|
— | — |
(
|
— | — | — | — | — |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjustments to redemption amount of redeemable noncontrolling interests
|
|
— | — | — | — | — | — |
(
|
— |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation obligation | — | — | — | — |
|
(
|
— | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Other
|
|
— | — |
|
— | — | — |
(
|
— |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of April 30, 2023 |
$
|
$
|
$
|
$
|
$
|
($
|
($
|
$
|
$
|
$
|
|||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED
For the Three Months Ended April 30, 2024 and 2023
(in thousands, except per share data)
| HEICO Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Common Stock | Class A Common Stock | Capital in Excess of Par Value | Deferred Compensation Obligation | HEICO Stock Held by Irrevocable Trust | Accumulated Other Comprehensive Loss | Retained Earnings | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 31, 2024 |
$
|
$
|
$
|
$
|
$
|
($
|
($
|
$
|
$
|
$
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income |
|
— | — | — | — | — |
(
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of common stock to HEICO Savings and Investment Plan
|
— | — | — |
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Share-based compensation expense
|
— | — | — |
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Proceeds from stock option exercises
|
— | — | — |
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Redemptions of common stock related to stock option exercises
|
— | — | — |
(
|
— | — | — | — | — |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
(
|
— | — | — | — | — | — | — |
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions of noncontrolling interests |
(
|
— | — |
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjustments to redemption amount of redeemable noncontrolling interests
|
|
— | — | — | — | — | — |
(
|
— |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Other
|
(
|
— | — |
|
— | — | — |
(
|
— |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of April 30, 2024 |
$
|
$
|
$
|
$
|
$
|
($
|
($
|
$
|
$
|
$
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| HEICO Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Noncontrolling Interests | Common Stock | Class A Common Stock | Capital in Excess of Par Value | Deferred Compensation Obligation | HEICO Stock Held by Irrevocable Trust | Accumulated Other Comprehensive Loss | Retained Earnings | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of January 31, 2023 |
$
|
$
|
$
|
$
|
$
|
($
|
($
|
$
|
$
|
$
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income |
|
— | — | — | — | — |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of common stock to HEICO Savings and Investment Plan
|
— | — | — |
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Share-based compensation expense
|
— | — | — |
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Proceeds from stock option exercises
|
— | — |
|
|
— | — | — | — | — |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Redemptions of common stock related to stock option exercises
|
— | — | — |
(
|
— | — | — | — | — |
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests assumed related to acquisitions |
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
(
|
— | — | — | — | — | — | — |
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjustments to redemption amount of redeemable noncontrolling interests
|
(
|
— | — | — | — | — | — |
|
— |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
Other
|
|
— | — |
|
— | — | — |
(
|
— |
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of April 30, 2023 |
$
|
$
|
$
|
$
|
$
|
($
|
($
|
$
|
$
|
$
|
|||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)
| Six months ended April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating Activities: | |||||||||||
| Net income from consolidated operations |
$
|
$
|
|||||||||
|
Adjustments to reconcile net income from consolidated operations to net cash provided by operating activities:
|
|||||||||||
| Depreciation and amortization |
|
|
|||||||||
| Share-based compensation expense |
|
|
|||||||||
| Employer contributions to HEICO Savings and Investment Plan |
|
|
|||||||||
| Deferred income tax benefit |
(
|
(
|
|||||||||
| Amendment and termination of contingent consideration agreement |
|
(
|
|||||||||
| Payment of contingent consideration |
(
|
(
|
|||||||||
| (Decrease) increase in accrued contingent consideration, net |
(
|
|
|||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Decrease (increase) in accounts receivable |
|
(
|
|||||||||
| Decrease (increase) in contract assets |
|
(
|
|||||||||
| Increase in inventories |
(
|
(
|
|||||||||
| (Increase) decrease in prepaid expenses and other current assets |
(
|
|
|||||||||
| (Decrease) increase in trade accounts payable |
(
|
|
|||||||||
| Decrease in accrued expenses and other current liabilities |
(
|
(
|
|||||||||
| Decrease in income taxes payable |
(
|
(
|
|||||||||
|
Net changes in other long-term liabilities and assets related to
HEICO Leadership Compensation Plan |
|
|
|||||||||
| Other |
|
(
|
|||||||||
| Net cash provided by operating activities |
|
|
|||||||||
| Investing Activities: | |||||||||||
| Acquisitions, net of cash acquired |
(
|
(
|
|||||||||
| Capital expenditures |
(
|
(
|
|||||||||
| Investments related to HEICO Leadership Compensation Plan |
(
|
(
|
|||||||||
| Other |
|
|
|||||||||
| Net cash used in investing activities |
(
|
(
|
|||||||||
| Financing Activities: | |||||||||||
| Payments on revolving credit facility |
(
|
(
|
|||||||||
| Borrowings on revolving credit facility |
|
|
|||||||||
| Distributions to noncontrolling interests |
(
|
(
|
|||||||||
| (Payments) borrowings on short-term debt, net |
(
|
|
|||||||||
| Cash dividends paid |
(
|
(
|
|||||||||
| Payment of contingent consideration |
(
|
(
|
|||||||||
| Acquisitions of noncontrolling interests |
(
|
(
|
|||||||||
| Redemptions of common stock related to stock option exercises |
(
|
(
|
|||||||||
| Proceeds from stock option exercises |
|
|
|||||||||
| Other |
(
|
|
|||||||||
| Net cash (used in) provided by financing activities |
(
|
|
|||||||||
| Effect of exchange rate changes on cash |
|
|
|||||||||
| Net increase (decrease) in cash and cash equivalents |
|
(
|
|||||||||
| Cash and cash equivalents at beginning of year |
|
|
|||||||||
| Cash and cash equivalents at end of period |
$
|
$
|
|||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of HEICO Corporation and its subsidiaries (collectively, “HEICO,” or the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Therefore, the condensed consolidated financial statements do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2023. The October 31, 2023 Condensed Consolidated Balance Sheet has been derived from the Company’s audited consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statements of shareholders' equity and statements of cash flows for such interim periods presented. The results of operations for the six months ended
April 30, 2024 are not necessarily indicative of the results which may be expected for the entire
fiscal year.
The Company has two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. ("HFSC") and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. and its subsidiaries.
New Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. The ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment's profit or loss in assessing segment performance and deciding how to allocate resources. Additionally, ASU 2023-07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, or in fiscal 2025 for HEICO, and interim periods within fiscal years beginning one year later. Early adoption is permitted and the amendments must be applied retrospectively to all prior periods presented. The adoption of this
8
guidance will not affect the Company's consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires disclosure of specific categories in the annual effective tax rate reconciliation table and further disaggregation for reconciling items that meet a quantitative threshold. The ASU also requires the disaggregation of income taxes paid by jurisdiction. ASU 2023-09 may be applied either prospectively or retrospectively and is effective for fiscal years beginning after December 15, 2024, or in fiscal 2026 for HEICO. Early adoption is permitted. The adoption of this guidance will not affect the Company's consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures.
2.
ACQUISITION
In December 2023, the Company, through a subsidiary of HFSC, entered into an exclusive license and acquired certain assets for the capability to support the Boeing 737NG/777 Cockpit Display and Legacy Displays product lines from Honeywell International. The transaction provides the HFSC subsidiary with the exclusive capability to produce, sell, and repair Boeing 737NG/777 Cockpit Displays as well as other Legacy Displays for Boeing 717, ATR, and select business and general aviation aircraft. The purchase price of this acquisition was paid in cash using proceeds from the Company's revolving credit facility and is not material or significant to the Company's condensed consolidated financial statements.
The allocation of the total consideration for this acquisition to the tangible and identifiable intangible assets acquired is preliminary until the Company obtains final information regarding their fair values. However, the Company does not expect any adjustment to such allocation to be material to the Company's consolidated financial statements. This acquisition’s operating results were included in the Company’s results of operations from the effective acquisition date. The amount of net sales and earnings of this acquisition included in the Condensed Consolidated Statements of Operations for the six and three months ended April 30, 2024 is not material. Had this acquisition occurred as of November 1, 2022, net sales, net income from consolidated operations, net income attributable to HEICO, and basic and diluted net income per share attributable to HEICO shareholders on a pro forma basis for the six and three months ended April 30, 2024 and 2023 would not have been materially different than the reported amounts.
9
3.
SELECTED FINANCIAL STATEMENT INFORMATION
Accounts Receivable
| (in thousands) | April 30, 2024 | October 31, 2023 | ||||||||||||
| Accounts receivable |
$
|
$
|
||||||||||||
| Less: Allowance for doubtful accounts |
(
|
(
|
||||||||||||
| Accounts receivable, net |
$
|
$
|
||||||||||||
Inventories
| (in thousands) | April 30, 2024 | October 31, 2023 | ||||||||||||
| Finished products |
$
|
$
|
||||||||||||
| Work in process |
|
|
||||||||||||
| Materials, parts, assemblies and supplies |
|
|
||||||||||||
| Inventories, net of valuation reserves |
$
|
$
|
||||||||||||
Property, Plant and Equipment
| (in thousands) | April 30, 2024 | October 31, 2023 | ||||||||||||
| Land |
$
|
$
|
||||||||||||
| Buildings and improvements |
|
|
||||||||||||
| Machinery, equipment and tooling |
|
|
||||||||||||
| Construction in progress |
|
|
||||||||||||
|
|
|
|||||||||||||
| Less: Accumulated depreciation and amortization |
(
|
(
|
||||||||||||
| Property, plant and equipment, net |
$
|
$
|
||||||||||||
Accrued Customer Rebates and Credits
The aggregate amount of accrued customer rebates and credits included within accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets was $
25.5
million as of April 30, 2024 and $
24.5
million as of October 31, 2023. The total customer rebates and credits deducted within net sales for the six months ended April 30, 2024 and 2023 was $
5.8
million and $
4.2
million, respectively. The total customer rebates and credits deducted within net sales for the three months ended April 30, 2024 and 2023 was $
2.3
million and $
2.0
million, respectively.
10
Research and Development Expenses
The amount of new product research and development ("R&D") expenses included in cost of sales for the six and three months ended April 30, 2024 and 2023 is as follows (in thousands):
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| R&D expenses |
$
|
$
|
$
|
$
|
|||||||||||||||||||
Redeemable Noncontrolling Interests
The holders of equity interests in certain of the Company's subsidiaries have rights ("Put Rights") that may be exercised on varying dates causing the Company to purchase their equity interests through fiscal 2032. The Put Rights, all of which relate either to common shares or membership interests in limited liability companies, provide that the cash consideration to be paid for their equity interests (the "Redemption Amount") be at fair value or a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period.
Management's estimate of the aggregate Redemption Amount of all Put Rights that the Company could be required to pay is as follows (in thousands):
| April 30, 2024 | October 31, 2023 | ||||||||||
| Redeemable at fair value |
$
|
$
|
|||||||||
| Redeemable based on a multiple of future earnings |
|
|
|||||||||
| Redeemable noncontrolling interests |
$
|
$
|
|||||||||
During fiscal 2024, the holders of a
15
% noncontrolling equity interest in a subsidiary of the ETG that was acquired in fiscal 2019 exercised their option to cause the Company to purchase their noncontrolling interest over a four-year period ending in fiscal 2027. Accordingly, the Company acquired one-fourth of such interest in March 2024, which increased the Company's ownership interest in the subsidiary to
88.75
%.
During fiscal 2022, the holder of a
19.9
% noncontrolling equity interest in a subsidiary of the FSG that was acquired in fiscal 2015 exercised their option to cause the Company to purchase their noncontrolling interest over a four-year period ending in fiscal 2026. In December 2023, the Company acquired an additional one-fourth of such interest, which increased the Company's ownership interest in the subsidiary to
90.05
%.
11
Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss for the six months ended April 30, 2024 are as follows (in thousands):
| Foreign Currency Translation | Defined Benefit Pension Plan |
Accumulated
Other Comprehensive Loss |
|||||||||||||||
| Balances as of October 31, 2023 |
($
|
($
|
($
|
||||||||||||||
| Unrealized gain |
|
— |
|
||||||||||||||
| Amortization of unrealized loss | — |
|
|
||||||||||||||
| Balances as of April 30, 2024 |
($
|
($
|
($
|
||||||||||||||
4.
GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill by operating segment for the six months ended April 30, 2024 are as follows (in thousands):
| Segment | Consolidated Totals | ||||||||||||||||
| FSG | ETG | ||||||||||||||||
| Balances as of October 31, 2023 |
$
|
$
|
$
|
||||||||||||||
| Goodwill acquired |
|
|
|
||||||||||||||
| Foreign currency translation adjustments |
|
|
|
||||||||||||||
| Adjustments to goodwill |
(
|
|
|
||||||||||||||
| Balances as of April 30, 2024 |
$
|
$
|
$
|
||||||||||||||
The goodwill acquired pertains to the fiscal 2024 acquisition described in Note 2, Acquisition, and represents the residual value after the allocation of the total consideration to the tangible and identifiable intangible assets acquired. The Company estimates that $
7
million of the goodwill acquired in fiscal 2024 will be deductible for income tax purposes. Foreign currency translation adjustments are included in other comprehensive income (loss) in the Company's Condensed Consolidated Statements of Comprehensive Income. The adjustments to goodwill represent immaterial measurement period adjustments to the allocation of the purchase consideration of certain fiscal 2023 acquisitions.
12
Identifiable intangible assets consist of the following (in thousands):
| As of April 30, 2024 | As of October 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||
| Amortizing Assets: | ||||||||||||||||||||||||||||||||||||||
| Customer relationships |
$
|
($
|
$
|
$
|
($
|
$
|
||||||||||||||||||||||||||||||||
| Intellectual property |
|
(
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Other |
|
(
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
|
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||
| Non-Amortizing Assets: | ||||||||||||||||||||||||||||||||||||||
| Trade names |
|
— |
|
|
— |
|
||||||||||||||||||||||||||||||||
|
$
|
($
|
$
|
$
|
($
|
$
|
|||||||||||||||||||||||||||||||||
Amortization expense related to intangible assets for the six months ended April 30, 2024 and 2023 was $
60.8
million and $
36.9
million, respectively. Amortization expense related to intangible assets for the three months ended April 30, 2024 and 2023 was $
30.6
million and $
19.1
million, respectively. Amortization expense related to intangible assets for the remainder of fiscal 2024 is estimated to be $
60.4
million. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $
116.2
million in fiscal 2025, $
110.5
million in fiscal 2026, $
106.1
million in fiscal 2027, $
100.6
million in fiscal 2028, $
95.1
million in fiscal 2029, and $
455.0
million thereafter.
5.
SHORT-TERM AND LONG-TERM DEBT
A subsidiary of the Company acquired in the first quarter of fiscal 2023 ended its short-term borrowing arrangement in the first quarter of fiscal 2024 during which it made net payments of $
13.9
million.
Long-term debt consists of the following (in thousands):
| April 30, 2024 | October 31, 2023 | |||||||||||||
| Borrowings under revolving credit facility |
$
|
$
|
||||||||||||
| 2028 senior unsecured notes |
|
|
||||||||||||
| 2033 senior unsecured notes |
|
|
||||||||||||
| Finance leases and notes payable |
|
|
||||||||||||
| Less: Debt discount and debt issuance costs |
(
|
(
|
||||||||||||
|
|
|
|||||||||||||
| Less: Current maturities of long-term debt |
(
|
(
|
||||||||||||
|
$
|
$
|
|||||||||||||
13
Revolving Credit Facility
The Company's borrowings under its revolving credit facility mature in fiscal 2028. As of April 30, 2024 and October 31 2023, the weighted average interest rate on borrowings under the Company's revolving credit facility ("Credit Facility") was
6.9
% and
6.7
%, respectively. The Credit Facility contains both financial and non-financial covenants. As of April 30, 2024, the Company was in compliance with all such covenants.
Senior Unsecured Notes
The Company's senior unsecured notes consist of $
600
million principal amount of
5.25
% Senior Notes due
August 1, 2028
(the "2028 Notes") and $
600
million principal amount of
5.35
% Senior Notes due
August 1, 2033
(the "2033 Notes" and, collectively with the 2028 Notes, the "Notes").
Interest on the Notes is payable semi-annually in arrears on February 1 and August 1 of each year
, and commenced on
February 1, 2024
. The 2028 Notes and 2033 Notes each have an effective interest rate of
5.5
%. The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of the Company's existing and future subsidiaries that guarantee the Company's obligations under the Credit Facility (the "Guarantor Group"). As of April 30, 2024, the Company was in compliance with all covenants related to the Notes.
The following table sets forth the carrying value and estimated fair value of the Company’s Notes, which are classified as Level 1 financial instruments in the fair value hierarchy (in thousands). The Company estimated the fair value of the Notes by taking the weighted average of market quotes for the exact security that was actively traded on April 30, 2024 and October 31, 2023.
| April 30, 2024 | October 31, 2023 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| 2028 Notes |
$
|
$
|
$
|
$
|
|||||||||||||||||||
| 2033 Notes |
|
|
|
|
|||||||||||||||||||
| Total |
$
|
$
|
$
|
$
|
|||||||||||||||||||
14
6.
REVENUE
Contract Balances
Contract assets (unbilled receivables) represent revenue recognized on contracts using an over-time recognition model in excess of amounts invoiced to the customer. Contract liabilities (deferred revenue) represent customer advances and billings in excess of revenue recognized and are included within accrued expenses and other current liabilities and other long-term liabilities in the Company’s Condensed Consolidated Balance Sheets.
| April 30, 2024 | October 31, 2023 | Change | |||||||||||||||
| Contract assets, current |
$
|
$
|
($
|
||||||||||||||
| Contract liabilities, current |
|
|
(
|
||||||||||||||
| Contract liabilities, long-term |
|
|
|
||||||||||||||
| Total contract liabilities |
|
|
|
||||||||||||||
| Net contract (liabilities) assets |
($
|
$
|
($
|
||||||||||||||
The increase in the Company's total contract liabilities during the first six months of fiscal 2024 principally reflects the receipt of advance deposits on certain customer contracts, mainly at the FSG.
The amount of revenue that the Company recognized during the six and three months ended April 30, 2024 that was included in contract liabilities as of the beginning of fiscal 2024 was $
42.9
million and $
16.2
million, respectively.
Remaining Performance Obligations
Backlog, which the Company believes to be the equivalent of its remaining performance obligations, represents contractually committed or firm customer orders. As of April 30, 2024, the Company had $
1,846.2
million of remaining performance obligations associated with firm contracts pertaining to the majority of the products offered by the ETG and FSG. The Company will recognize net sales as these obligations are satisfied. The Company expects to recognize $
820.5
million of this amount during the remainder of fiscal 2024 and $
1,025.7
million thereafter, of which approximately half is expected to occur in fiscal 2025.
15
Disaggregation of Revenue
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Flight Support Group: | |||||||||||||||||||||||
|
Aftermarket replacement parts
(1)
|
$
|
$
|
$
|
$
|
|||||||||||||||||||
|
Repair and overhaul parts and services
(2)
|
|
|
|
|
|||||||||||||||||||
|
Specialty products
(3)
|
|
|
|
|
|||||||||||||||||||
| Total net sales |
|
|
|
|
|||||||||||||||||||
| Electronic Technologies Group: | |||||||||||||||||||||||
|
Electronic component parts primarily for
defense, space and aerospace equipment
(4)
|
|
|
|
|
|||||||||||||||||||
|
Electronic component parts for equipment
in various other industries
(5)
|
|
|
|
|
|||||||||||||||||||
| Total net sales |
|
|
|
|
|||||||||||||||||||
| Intersegment sales |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total consolidated net sales |
$
|
$
|
$
|
$
|
|||||||||||||||||||
(1)
Includes various jet engine and aircraft component replacement parts.
(2)
Includes primarily the sale of parts consumed in various repair and overhaul services on selected jet engine and aircraft components, avionics, instruments, composites and flight surfaces of commercial and military aircraft.
(3)
Includes primarily the sale of specialty components such as thermal insulation blankets, renewable/reusable insulation systems, advanced niche components, complex composite assemblies, and expanded foil mesh as well as machining, brazing, fabricating and welding services generally to original equipment manufacturers.
(4)
Includes various component parts such as electro-optical infrared simulation and test equipment, electro-optical laser products, electro-optical, microwave and other power equipment, high-speed interface products, power conversion products, underwater locator beacons, emergency locator transmission beacons, traveling wave tube amplifiers, microwave power modules, a wide variety of memory products and radio frequency (RF) and microwave products, crashworthy and ballistically self-sealing auxiliary fuel systems, high performance communications and electronic intercept receivers and tuners, high performance active antenna systems and airborne antennas, technical surveillance countermeasures (TSCM) equipment, custom high power filters and filter assemblies, radiation assurance services and products, and high-reliability, complex, passive electronic components and rotary joint assemblies.
(5)
Includes various component parts such as electromagnetic and radio frequency interference shielding, high voltage interconnection devices, high voltage advanced power electronics, harsh environment
16
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Flight Support Group: | |||||||||||||||||||||||
| Aerospace |
$
|
$
|
$
|
$
|
|||||||||||||||||||
| Defense and Space |
|
|
|
|
|||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|||||||||||||||||||
| Total net sales |
|
|
|
|
|||||||||||||||||||
| Electronic Technologies Group: | |||||||||||||||||||||||
| Defense and Space |
|
|
|
|
|||||||||||||||||||
|
Other
(2)
|
|
|
|
|
|||||||||||||||||||
| Aerospace |
|
|
|
|
|||||||||||||||||||
| Total net sales |
|
|
|
|
|||||||||||||||||||
| Intersegment sales |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total consolidated net sales |
$
|
$
|
$
|
$
|
|||||||||||||||||||
(1)
Principally industrial products.
7.
INCOME TAXES
The Company's effective tax rate decreased to
16.9
% in the first six months of fiscal 2024, down from
19.3
% in the first six months of fiscal 2023. The decrease in the Company's effective tax rate principally reflects a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2024. The Company recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2024 and 2023 of $
13.6
million and $
6.2
million, respectively.
The Company's effective tax rate was
21.2
% in both the second quarter of fiscal 2024 and 2023.
17
8.
FAIR VALUE MEASUREMENTS
The Company's assets and liabilities that were measured at fair value on a recurring basis are set forth by level within the fair value hierarchy in the following tables (in thousands):
| As of April 30, 2024 | ||||||||||||||||||||||||||
|
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant Unobservable Inputs
(Level 3) |
Total | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Deferred compensation plan: | ||||||||||||||||||||||||||
| Corporate-owned life insurance |
$
|
$
|
$
|
$
|
||||||||||||||||||||||
| Money market fund |
|
|
|
|
||||||||||||||||||||||
| Total assets |
$
|
$
|
$
|
$
|
||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Contingent consideration |
$
|
$
|
$
|
$
|
||||||||||||||||||||||
| As of October 31, 2023 | ||||||||||||||||||||||||||
|
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant Unobservable Inputs
(Level 3) |
Total | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Deferred compensation plan: | ||||||||||||||||||||||||||
| Corporate-owned life insurance |
$
|
$
|
$
|
$
|
||||||||||||||||||||||
| Money market fund |
|
|
|
|
||||||||||||||||||||||
| Total assets |
$
|
$
|
$
|
$
|
||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Contingent consideration |
$
|
$
|
$
|
$
|
||||||||||||||||||||||
The Company maintains the HEICO Corporation Leadership Compensation Plan (the "LCP"), which is a non-qualified deferred compensation plan. The assets of the LCP principally represent cash surrender values of life insurance policies, which derive their fair values from investments in mutual funds that are managed by an insurance company, and are classified within Level 2 and valued using a market approach. Certain other assets of the LCP represent an investment in a money market fund that is classified within Level 1. The assets of the LCP are held within an irrevocable trust and classified within other assets in the Company’s Condensed Consolidated Balance Sheets. The related liabilities of the LCP are included within other long-term liabilities and accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheets and have an aggregate value of $
284.0
million as of April 30, 2024 and $
226.2
million as of October 31, 2023.
18
In connection with a fiscal 2023 acquisition that is part of the FSG, the Company assumed an agreement which may have obligated it to pay contingent consideration of $
17.5
million if certain operating entities of the acquired company met a calendar year 2023 earnings objective and obtained a certain level of new orders with deliveries scheduled in calendar year 2024, of which both targets were tied to a specific customer contract. Both requirements were met as of October 31,2023. However, payment of the earnout is also predicated on no indication of a significant change with respect to the underlying customer agreement. In the second quarter of fiscal 2024, the customer notified the Company that it intends to reduce its future orders. As a result, the parties to this agreement agreed to settle on a specific contingent consideration amount of $
11.0
million, which is expected to be paid in the third quarter of fiscal 2024. Accordingly, the $
17.3
million estimated fair value of contingent consideration as of October 31, 2023 was reduced to $
11.0
million as of April 30, 2024.
As part of the agreement to acquire
80.36
% of the stock of a subsidiary by the ETG in fiscal 2022, the Company may be obligated to pay contingent consideration of up to $
12.1
million in fiscal 2027 based on the earnings of the acquired entity during fiscal years 2025 and 2026 provided the entity meets a certain earnings objective during each of fiscal years 2024 to 2026. As of April 30, 2024, the estimated fair value of the contingent consideration was $
5.6
million.
As part of the agreement to acquire
96
% of the stock of a subsidiary by the FSG in fiscal 2022, the Company may be obligated to pay contingent consideration of up to $
27.4
million in fiscal 2027 based on the earnings of the acquired entity during fiscal years 2025 and 2026 provided the entity meets certain earnings objectives during each of fiscal years 2022 to 2024. As of April 30, 2024, the estimated fair value of the contingent consideration was $
20.4
million.
As part of the agreement to acquire
74
% of the membership interests of a subsidiary by the FSG in fiscal 2022, the Company would be obligated to pay contingent consideration of $
14.1
million in fiscal 2027 only if the acquired entity met a certain earnings objective during the five-year period following the acquisition. Based on the actual earnings of the acquired entity subsequent to the acquisition and forecasted earnings over the remainder of the earnout period, the Company does not expect that the required earnings objective will be met. Accordingly, as of April 30, 2024 and October 31, 2023, the Company did not accrue any contingent consideration for this agreement.
As part of the agreement to acquire
89.99
% of the equity interests of a subsidiary by the ETG in fiscal 2020, the Company may be obligated to pay contingent consideration of up to CAD $
13.5
million, or $
9.9
million, in fiscal 2025 should the acquired entity meet certain earnings objectives during fiscal 2023 and 2024. As of April 30, 2024, the estimated fair value of the contingent consideration was CAD $
12.3
million, or $
9.0
million.
As part of the agreement to acquire a subsidiary by the ETG in fiscal 2017, the Company paid contingent consideration of $
20.0
million in December 2023 as the acquired entity met a certain earnings objective during the first six years following the acquisition.
19
The following unobservable inputs were used to derive the estimated fair value of the Company's Level 3 contingent consideration liabilities as of April 30, 2024 ($ in thousands):
| Unobservable | Weighted | |||||||||||||||||||||||||
| Acquisition Date | Fair Value | Input | Range |
Average
(1)
|
||||||||||||||||||||||
| 8-4-2023 |
$
|
— | — | — | ||||||||||||||||||||||
| 9-1-2022 |
$
|
Compound annual revenue growth rate |
|
|
||||||||||||||||||||||
| Discount rate |
|
|
||||||||||||||||||||||||
| 7-18-2022 |
|
Compound annual revenue growth rate |
|
|
||||||||||||||||||||||
| Discount rate |
|
|
||||||||||||||||||||||||
| 8-18-2020 |
|
Compound annual revenue growth rate |
|
|
||||||||||||||||||||||
| Discount rate |
|
|
||||||||||||||||||||||||
Changes in the Company’s contingent consideration liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) for the six months ended April 30, 2024 are as follows (in thousands):
| Liabilities | ||||||||
| Balance as of October 31, 2023 |
$
|
|||||||
| Payment of contingent consideration |
(
|
|||||||
| Decrease in accrued contingent consideration, net |
(
|
|||||||
| Foreign currency transaction adjustments |
|
|||||||
|
$
|
||||||||
|
Included in the accompanying Condensed Consolidated Balance Sheet
under the following captions:
|
||||||||
| Accrued expenses and other current liabilities |
$
|
|||||||
| Other long-term liabilities |
|
|||||||
|
$
|
||||||||
The Company records changes in accrued contingent consideration and foreign currency transaction adjustments within
in its Condensed Consolidated Statements of Operations.
20
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, trade accounts payable and accrued expenses and other current liabilities approximate fair value as of April 30, 2024 due to the relatively short maturity of the respective instruments. The carrying amount of borrowings under the Company's credit facility approximates fair value due to its variable interest rate. See Note 5, Short-Term and Long-Term Debt, for the estimated fair value of the Company’s senior unsecured notes.
9.
NET INCOME PER SHARE ATTRIBUTABLE TO HEICO SHAREHOLDERS
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
|
Net income attributable to HEICO
|
$
|
$
|
$
|
$
|
|||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
|
Weighted average common shares outstanding - basic
|
|
|
|
|
|||||||||||||||||||
| Effect of dilutive stock options |
|
|
|
|
|||||||||||||||||||
|
Weighted average common shares outstanding - diluted
|
|
|
|
|
|||||||||||||||||||
|
Net income per share attributable to HEICO shareholders:
|
|||||||||||||||||||||||
| Basic |
$
|
$
|
$
|
$
|
|||||||||||||||||||
| Diluted |
$
|
$
|
$
|
$
|
|||||||||||||||||||
|
Anti-dilutive stock options excluded
|
|
|
|
|
|||||||||||||||||||
21
10.
OPERATING SEGMENTS
Information on the Company’s two operating segments, the FSG and the ETG, for the six and three months ended April 30, 2024 and 2023, respectively, is as follows (in thousands):
|
Other,
Primarily Corporate and Intersegment (1) |
Consolidated
Totals |
|||||||||||||||||||||||||
| Segment | ||||||||||||||||||||||||||
| FSG | ETG | |||||||||||||||||||||||||
| Six months ended April 30, 2024: | ||||||||||||||||||||||||||
| Net sales |
$
|
$
|
($
|
$
|
||||||||||||||||||||||
| Depreciation |
|
|
|
|
||||||||||||||||||||||
| Amortization |
|
|
|
|
||||||||||||||||||||||
| Operating income |
|
|
(
|
|
||||||||||||||||||||||
| Capital expenditures |
|
|
|
|
||||||||||||||||||||||
| Six months ended April 30, 2023: | ||||||||||||||||||||||||||
| Net sales |
$
|
$
|
($
|
$
|
||||||||||||||||||||||
| Depreciation |
|
|
|
|
||||||||||||||||||||||
| Amortization |
|
|
|
|
||||||||||||||||||||||
| Operating income |
|
|
(
|
|
||||||||||||||||||||||
| Capital expenditures |
|
|
|
|
||||||||||||||||||||||
| Three months ended April 30, 2024: | ||||||||||||||||||||||||||
| Net sales |
$
|
$
|
($
|
$
|
||||||||||||||||||||||
| Depreciation |
|
|
|
|
||||||||||||||||||||||
| Amortization |
|
|
|
|
||||||||||||||||||||||
| Operating income |
|
|
(
|
|
||||||||||||||||||||||
| Capital expenditures |
|
|
|
|
||||||||||||||||||||||
| Three months ended April 30, 2023: | ||||||||||||||||||||||||||
| Net sales |
$
|
$
|
($
|
$
|
||||||||||||||||||||||
| Depreciation |
|
|
|
|
||||||||||||||||||||||
| Amortization |
|
|
|
|
||||||||||||||||||||||
| Operating income |
|
|
(
|
|
||||||||||||||||||||||
| Capital expenditures |
|
|
|
|
||||||||||||||||||||||
(1)
Intersegment activity principally consists of net sales from the ETG to the FSG
.
22
Total assets by operating segment are as follows (in thousands):
|
Other,
Primarily Corporate |
Consolidated
Totals |
|||||||||||||||||||||||||
| Segment | ||||||||||||||||||||||||||
| FSG | ETG | |||||||||||||||||||||||||
| Total assets as of April 30, 2024 |
$
|
$
|
$
|
$
|
||||||||||||||||||||||
| Total assets as of October 31, 2023 |
|
|
|
|
||||||||||||||||||||||
11.
COMMITMENTS AND CONTINGENCIES
Guarantees
As of April 30, 2024, the Company has arranged for standby letters of credit aggregating $
11.2
million, which are supported by its revolving credit facility and principally pertain to performance guarantees related to customer contracts entered into by certain of the Company's subsidiaries as well as payment guarantees related to potential workers' compensation claims.
Product Warranty
Changes in the Company’s product warranty liability for the six months ended April 30, 2024 and 2023, respectively, are as follows (in thousands):
| Six months ended April 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Balances as of beginning of fiscal year |
$
|
$
|
||||||||||||
| Accruals for warranties |
|
|
||||||||||||
| Warranty claims settled |
(
|
(
|
||||||||||||
| Balances as of April 30 |
$
|
$
|
||||||||||||
Litigation
The Company is involved in various legal actions arising in the normal course of business. Based upon the Company’s and its legal counsel’s evaluations of any claims or assessments, management is of the opinion that the outcome of these matters will not have a material adverse effect on the Company’s results of operations, financial position or cash flows.
23
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
This discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates if different assumptions were used or different events ultimately transpire.
Our critical accounting estimates, which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended October 31, 2023. Based on our recent assessment, we no longer deem revenue recognition to be a critical accounting estimate. Historically, the majority of our revenue was recognized at a point-in-time and involved minimal estimates to determine when control had transferred. We now recognize an even greater portion of our revenue at a point-in-time as a result of the acquisitions of Wencor Group and Exxelia International SAS in fiscal 2023. Additionally, we do not believe that the factors involving estimation uncertainty that are used when we recognize revenue using an over-time recognition model for certain contracts are reasonably likely to have a material impact on our financial position or results of operations. Other than the removal of revenue recognition, there have been no material changes to our critical accounting estimates during the six months ended April 30, 2024.
Our business is comprised of two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. and its subsidiaries.
Our results of operations for the six and three months ended April 30, 2024 have been affected by the fiscal 2023 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2023.
24
Results of Operations
The following table sets forth the results of our operations, net sales and operating income by segment and the percentage of net sales represented by the respective items in our Condensed Consolidated Statements of Operations (in thousands):
| Six months ended April 30, | Three months ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales | $1,851,758 | $1,308,756 | $955,395 | $687,841 | |||||||||||||||||||
| Cost of sales | 1,133,194 | 798,445 | 583,600 | 421,329 | |||||||||||||||||||
|
Selling, general and administrative expenses
|
329,201 | 223,787 | 162,642 | 109,422 | |||||||||||||||||||
| Total operating costs and expenses | 1,462,395 | 1,022,232 | 746,242 | 530,751 | |||||||||||||||||||
| Operating income | $389,363 | $286,524 | $209,153 | $157,090 | |||||||||||||||||||
| Net sales by segment: | |||||||||||||||||||||||
| Flight Support Group | $1,265,948 | $763,480 | $647,232 | $392,202 | |||||||||||||||||||
| Electronic Technologies Group | 605,264 | 556,818 | 319,322 | 301,759 | |||||||||||||||||||
| Intersegment sales | (19,454) | (11,542) | (11,159) | (6,120) | |||||||||||||||||||
| $1,851,758 | $1,308,756 | $955,395 | $687,841 | ||||||||||||||||||||
| Operating income by segment: | |||||||||||||||||||||||
| Flight Support Group | $284,967 | $183,521 | $148,876 | $99,912 | |||||||||||||||||||
| Electronic Technologies Group | 130,591 | 124,516 | 75,263 | 67,979 | |||||||||||||||||||
| Other, primarily corporate | (26,195) | (21,513) | (14,986) | (10,801) | |||||||||||||||||||
| $389,363 | $286,524 | $209,153 | $157,090 | ||||||||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Gross profit | 38.8 | % | 39.0 | % | 38.9 | % | 38.7 | % | |||||||||||||||
|
Selling, general and administrative expenses
|
17.8 | % | 17.1 | % | 17.0 | % | 15.9 | % | |||||||||||||||
| Operating income | 21.0 | % | 21.9 | % | 21.9 | % | 22.8 | % | |||||||||||||||
| Interest expense | (4.2 | %) | (1.3 | %) | (4.0 | %) | (1.7 | %) | |||||||||||||||
| Other income | .1 | % | .1 | % | — | % | — | % | |||||||||||||||
| Income tax expense | 2.9 | % | 4.0 | % | 3.8 | % | 4.5 | % | |||||||||||||||
|
Net income attributable to noncontrolling interests
|
1.2 | % | 1.5 | % | 1.2 | % | 1.4 | % | |||||||||||||||
| Net income attributable to HEICO | 12.8 | % | 15.1 | % | 12.9 | % | 15.3 | % | |||||||||||||||
25
Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023
Net Sales
Our consolidated net sales in the first six months of fiscal 2024 increased by 41% to a record $1,851.8 million, up from net sales of $1,308.8 million in the first six months of fiscal 2023. The increase in consolidated net sales principally reflects an increase of $502.5 million (a 66% increase) to a record $1,265.9 million in net sales of the FSG and an increase of $48.4 million (a 9% increase) to a record $605.3 million in net sales of the ETG. The net sales increase in the FSG reflects $408.7 million contributed by fiscal 2023 and 2024 acquisitions as well as strong organic growth of 12%. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts and repair and overhaul parts and services product lines resulting in net sales increases of $82.9 million and $15.1 million, respectively. The net sales increase in the ETG includes $39.4 million contributed by a fiscal 2023 acquisition. The ETG's net sales increase also includes organic net sales growth of $26.6 million and $10.1 million for its defense and aerospace products, respectively, partially offset by organic net sales decreases of $19.7 million and $9.1 million for its other electronics and medical products, respectively. Although sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the first six months of fiscal 2024, continued cost inflation may lead to higher sales prices during the remainder of fiscal 2024.
Gross Profit and Operating Expenses
Our consolidated gross profit margin was 38.8% in the first six months of fiscal 2024, as compared to 39.0% in the first six months of fiscal 2023 and is inclusive of a .8% increase in the ETG's gross profit margin and no change in the FSG's gross profit margin. The increase in the ETG's gross profit margin principally reflects the previously mentioned higher net sales of defense products, partially offset by the previously mentioned decrease in net sales of other electronics products. Total new product research and development expenses included within our consolidated cost of sales were $53.0 million in the first six months of fiscal 2024, up from $43.1 million in the first six months of fiscal 2023.
Our consolidated selling, general and administrative ("SG&A") expenses were $329.2 million in the first six months of fiscal 2024, as compared to $223.8 million in the first six months of fiscal 2023. The increase in consolidated SG&A expenses principally reflects $79.9 million attributable to our fiscal 2023 and 2024 acquisitions, costs incurred to support the previously mentioned net sales growth resulting in increases of $16.2 million and $5.6 million in other general and administrative expenses and other selling expenses, respectively, and a $9.1 million prior year impact from the amendment and termination of a contingent consideration agreement pertaining to a fiscal 2021 acquisition, partially offset by a $5.3 million decrease in acquisition costs.
Our consolidated SG&A expenses as a percentage of net sales were 17.8% in the first six months of fiscal 2024, as compared to 17.1% in the first six months of fiscal 2023. The increase in consolidated SG&A expenses as a percentage of net sales principally reflects a .7% impact
26
from the previously mentioned amendment and termination of a contingent consideration agreement and a .5% impact from higher intangible asset amortization expense, partially offset by a .4% impact from the previously mentioned lower acquisition costs.
Operating Income
Our consolidated operating income increased by 36% to a record $389.4 million in the first six months of fiscal 2024, up from $286.5 million in the first six months of fiscal 2023. The increase in consolidated operating income principally reflects a $101.4 million increase (a 55% increase) to a record $285.0 million in operating income of the FSG and a $6.1 million increase (a 5% increase) to $130.6 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, partially offset by a $23.0 million increase in intangible asset amortization expense, a $9.8 million increase in inventory obsolescence expense, and a $9.1 million prior year impact from the previously mentioned termination of a contingent consideration agreement. The increase in operating income of the ETG principally reflects the previously mentioned net sales increase, a $5.1 million decrease in acquisition costs and the previously mentioned favorable gross profit margin, partially offset by a lower level of SG&A efficiencies.
Our consolidated operating income as a percentage of net sales was 21.0% in the first six months of fiscal 2024, as compared to 21.9% in the first six months of fiscal 2023. The decrease in consolidated operating income as a percentage of net sales principally reflects a decrease in the FSG’s operating income as a percentage of net sales to 22.5% in the first six months of fiscal 2024, as compared to 24.0% in the first six months of fiscal 2023 and a decrease in the ETG's operating income as a percentage of net sales to 21.6% in the first six months of fiscal 2024, as compared to 22.4% in the first six months of fiscal 2023. The decrease in the FSG’s operating income as a percentage of net sales principally reflects a 1.2% prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement and a 1.2% impact from the previously mentioned higher intangible asset amortization expense, partially offset by a .9% impact from lower performance-based compensation expense as a percentage of net sales. The decrease in the ETG's operating income as a percentage of net sales principally reflects a 1.6% impact from an increase in SG&A expenses as a percentage of net sales, partially offset by the previously mentioned increase in gross profit margin. The increase in the ETG's SG&A expenses as a percentage of net sales mainly reflects the previously mentioned lower level of efficiencies, partially offset by a .9% impact from the previously mentioned lower acquisition costs.
Interest Expense
Interest expense increased to $77.1 million in the first six months of fiscal 2024, as compared to $17.4 million in the first six months of fiscal 2023. The increase in interest expense was principally due to an increase in the amount of outstanding debt related to fiscal 2023 acquisitions.
27
Other Income
Other income in the first six months of fiscal 2024 and 2023 was not material.
Income Tax Expense
Our effective tax rate decreased to 16.9% in the first six months of fiscal 2024, down from 19.3% in the first six months of fiscal 2023. The decrease in our effective tax rate principally reflects a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2024. We recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2024 and 2023 of $13.6 million and $6.2 million, respectively.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace Holdings Corp. and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $22.5 million in the first six months of fiscal 2024, as compared to $19.9 million in the first six months of fiscal 2023. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries of the FSG and ETG in which noncontrolling interests are held.
Net Income Attributable to HEICO
Net income attributable to HEICO increased by 20% to a record $237.8 million, or $1.70 per diluted share, in the first six months of fiscal 2024, up from $198.1 million, or $1.43 per diluted share, in the first six months of fiscal 2023 principally reflecting the previously mentioned higher consolidated operating income, partially offset by the previously mentioned higher interest expense.
28
Comparison of Second Quarter of Fiscal 2024 to Second Quarter of Fiscal 2023
Net Sales
Our consolidated net sales in the second quarter of fiscal 2024 increased by 39% to a record $955.4 million, up from net sales of $687.8 million in the second quarter of fiscal 2023. The increase in consolidated net sales principally reflects an increase of $255.0 million (a 65% increase) to a record $647.2 million in net sales of the FSG and an increase of $17.6 million (a 6% increase) to $319.3 million in net sales of the ETG. The net sales increase in the FSG reflects $206.6 million contributed by fiscal 2023 and 2024 acquisitions as well as strong organic growth of 12%. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts and repair and overhaul parts and services product lines resulting in net sales increases of $45.0 million and $4.1 million, respectively. The net sales increase in the ETG principally reflects organic growth of 4%. The ETG's organic net sales growth is mainly attributable to increased demand for its defense and aerospace products resulting in net sales increases of $26.4 million and $6.8 million, respectively, partially offset by decreased demand for its other electronics and medical products resulting in net sales decreases of $12.4 million and $4.3 million, respectively. Although sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the second quarter of fiscal 2024, continued cost inflation may lead to higher sales prices during the remainder of fiscal 2024.
Gross Profit and Operating Expenses
Our consolidated gross profit margin improved to 38.9% in the second quarter of fiscal 2024, up from 38.7% in the second quarter of fiscal 2023, principally reflecting increases of 1.7% and .3% in the ETG's and FSG's gross profit margin, respectively. The increase in the ETG's gross profit margin principally reflects the previously mentioned increase in net sales of defense products, partially offset by the previously mentioned decrease in net sales of other electronics products. The increase in the FSG's gross profit margin principally reflects the previously mentioned higher net sales, partially offset by a .5% impact from higher inventory obsolescence expense. Total new product research and development expenses included within our consolidated cost of sales were $27.9 million in the second quarter of fiscal 2024, up from $22.9 million in the second quarter of fiscal 2023.
Our consolidated SG&A expenses were $162.6 million in the second quarter of fiscal 2024, as compared to $109.4 million in the second quarter of fiscal 2023. The increase in consolidated SG&A expenses principally reflects $30.8 million attributable to our fiscal 2023 and 2024 acquisitions, costs incurred to support the previously mentioned net sales growth resulting in increases of $10.4 million and $2.9 million in other general and administrative expenses and other selling expenses, respectively, and a $9.1 million prior year impact from the amendment and termination of a contingent consideration agreement pertaining to a fiscal 2021 acquisition.
29
Our consolidated SG&A expenses as a percentage of net sales were 17.0% in the second quarter of fiscal 2024, as compared to 15.9% in the second quarter of fiscal 2023. The increase in consolidated SG&A expenses as a percentage of net sales principally reflects a 1.3% impact from the previously mentioned amendment and termination of a contingent consideration agreement.
Operating Income
Our consolidated operating income increased by 33% to a record $209.2 million in the second quarter of fiscal 2024, up from $157.1 million in the second quarter of fiscal 2023. The increase in consolidated operating income principally reflects a $49.0 million increase (a 49% increase) to a record $148.9 million in operating income of the FSG and a $7.3 million increase (an 11% increase) to $75.3 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, partially offset by an $11.9 million increase in intangible asset amortization expense, a $9.1 million prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement, and a $4.8 million increase in inventory obsolescence expense. The increase in operating income of the ETG principally reflects the previously mentioned improved gross profit margin and net sales growth, partially offset by a lower level of SG&A efficiencies.
Our consolidated operating income as a percentage of net sales was 21.9% in the second quarter of fiscal 2024, as compared to 22.8% in the second quarter of fiscal 2023. The decrease in consolidated operating income as a percentage of net sales principally reflects a decrease in the FSG’s operating income as a percentage of net sales to 23.0% in the second quarter of fiscal 2024, as compared to 25.5% in the second quarter of fiscal 2023, partially offset by an increase in the ETG's operating income as a percentage of net sales to 23.6% in the second quarter of fiscal 2024, up from 22.5% in the second quarter of fiscal 2023. The decrease in the FSG’s operating income as a percentage of net sales principally reflects a 2.3% prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement and a 1.2% impact from the previously mentioned increase in intangible asset amortization expense, partially offset by a .9% impact from lower performance-based compensation expense as a percentage of net sales. The increase in the ETG's operating income as a percentage of net sales principally reflects the previously mentioned improved gross profit margin and net sales growth, partially offset by a lower level of SG&A efficiencies.
Interest Expense
Interest expense increased to $38.5 million in the second quarter of fiscal 2024, as compared to $11.4 million in the second quarter of fiscal 2023. The increase in interest expense was principally due to an increase in the amount of outstanding debt related to fiscal 2023 acquisitions.
Other Income
Other income in the second quarter of fiscal 2024 and 2023 was not material.
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Income Tax Expense
Our effective tax rate in both the second quarter of fiscal 2024 and 2023 was 21.2%.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace Holdings Corp. and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $11.8 million in the second quarter of fiscal 2024, as compared to $9.9 million in the second quarter of fiscal 2023. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries of the FSG and ETG in which noncontrolling interests are held.
Net Income Attributable to HEICO
Net income attributable to HEICO increased by 17% to $123.1 million, or $.88 per diluted share, in the second quarter of fiscal 2024, up from $105.1 million, or $.76 per diluted share, in the second quarter of fiscal 2023 principally reflecting the previously mentioned higher consolidated operating income, partially offset by the previously mentioned higher interest expense.
Outlook
As we look ahead to the remainder of fiscal 2024, we continue to anticipate net sales growth in both the FSG and ETG, principally driven by contributions from our fiscal 2023 acquisitions and demand for the majority of our products. Additionally, we plan to continue our commitment to developing new products and services and further market penetration, while maintaining our financial strength and flexibility.
Liquidity and Capital Resources
Our principal uses of cash include acquisitions, capital expenditures, interest payments, cash dividends, distributions to noncontrolling interests and working capital needs. We now anticipate fiscal 2024 capital expenditures to be approximately $60 to $65 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolving credit facility. The revolving credit facility and senior unsecured notes contain both financial and non-financial covenants. As of April 30, 2024, we were in compliance with all such covenants and our total debt to shareholders’ equity ratio was 69.4%.
Based on our current outlook, we believe that net cash provided by operating activities and available borrowings under our revolving credit facility will be sufficient to fund our cash requirements for at least the next twelve months.
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Operating Activities
Net cash provided by operating activities was $252.8 million in the first six months of fiscal 2024 and consisted primarily of net income from consolidated operations of $260.4 million, depreciation and amortization expense of $86.3 million (a non-cash item), net changes of $41.8 million included in the "Other" caption (principally the receipt of advance deposits on certain long-term customer contracts), and net changes in other long-term liabilities and assets related to the HEICO LCP of $17.3 million (principally participant deferrals and employer contributions), partially offset by a $148.2 million increase in net working capital. The increase in net working capital is inclusive of a $71.1 million increase in inventories to support an increase in consolidated backlog and a $58.1 million decrease in accrued expenses and other current liabilities mainly reflecting the payment of fiscal 2023 accrued performance-based compensation, partially offset by accrued fiscal 2024 performance-based compensation, as well as an $11.4 million decrease in trade accounts payable and a $9.2 million increase in prepaid expenses and other current assets.
Net cash provided by operating activities increased by $98.4 million in the first six months of fiscal 2024, up from $154.4 million in the first six months of fiscal 2023. The increase is principally attributable to a $42.3 million increase in net income from consolidated operations, a $48.5 million increase in the "Other" caption mainly from the previously mentioned receipt of advance long-term customer deposits in fiscal 2024, a $29.6 million increase in depreciation and amortization expense, and a $9.1 million prior year impact from the amendment and termination of a contingent consideration agreement, partially offset by a $34.5 million increase in net working capital mainly reflecting a $55.4 million decrease in accrued expenses and other current liabilities partially offset by a $26.5 million decrease in accounts receivable.
Investing Activities
Net cash used in investing activities totaled $85.3 million in the first six months of fiscal 2024 and related primarily to acquisitions of $46.2 million, capital expenditures of $26.3 million and investments related to the HEICO LCP of $14.4 million. Further details regarding our fiscal 2024 acquisition may be found in Note 2, Acquisition, of the Notes to Condensed Consolidated Financial Statements.
Financing Activities
Net cash used in financing activities in the first six months of fiscal 2024 totaled $135.2 million. During the first six months of fiscal 2024, we made $125.0 million of payments on our revolving credit facility, $15.4 million of distributions to noncontrolling interests, $13.9 million of net payments on short-term debt, $13.8 million of cash dividends paid on our common stock, and $13.8 million of contingent consideration payments, partially offset by $50.0 million of borrowings on our revolving credit facility and $4.2 million of proceeds from stock option exercises.
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Other Obligations and Commitments
There have not been any material changes to our other obligations and commitments that were included in our Annual Report on Form 10-K for the year ended October 31, 2023.
New Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements for additional information.
Guarantor Group Summarized Financial Information
On July 27, 2023, we completed the public offer and sale of senior unsecured notes, which consisted of $600 million principal amount of 5.25% Senior Notes due August 1, 2028 (the "2028 Notes") and $600 million principal amount of 5.35% Senior Notes due August 1, 2033 (the "2033 Notes" and, collectively with the 2028 Notes, the "Notes"). The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of our existing and future subsidiaries that guarantee our obligations under our revolving credit facility ("Credit Facility") (the “Guarantor Group”).
The Notes were issued pursuant to an Indenture, dated as of July 27, 2023 (the “Base Indenture”), between HEICO and certain of its subsidiaries (collectively, the "Subsidiary Guarantors") and Truist Bank, as trustee (the “Trustee”), as supplemented by a First Supplemental Indenture, dated as of July 27, 2023 (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), between us, the Subsidiary Guarantors and the Trustee. The Notes are direct, unsecured senior obligations of HEICO and rank equally in right of payment with all of our existing and future senior unsecured indebtedness. Each Subsidiary Guarantor is owned either directly or indirectly by the Company and jointly and severally guarantee our obligations under the Notes. None of the Subsidiary Guarantors are organized outside of the U.S.
Under the Indenture, holders of the Notes will be deemed to have consented to the release of a subsidiary guarantee provided by a subsidiary guarantor, without any action required on the part of the Trustee or any holder of the Notes, upon such subsidiary guarantor ceasing to guarantee or to be an obligor with respect to the Credit Facility. Accordingly, if the lenders under the Credit Facility release a subsidiary guarantor from its guarantee of, or obligations as a borrower under, the Credit Facility, the obligations of the subsidiary guarantors to guarantee the Notes will immediately terminate. If any of our future subsidiaries incur obligations under the Credit Facility while the Notes are outstanding, then such subsidiary will be required to guarantee the Notes.
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In addition, a subsidiary guarantor will be released and relieved from all its obligations under its subsidiary guarantee in the following circumstances, each of which is permitted by the indenture:
•
upon the sale or other disposition (including by way of consolidation or merger), in one transaction or a series of related transactions, of a majority of the total voting stock of such subsidiary guarantor (other than to us or any of our affiliates); or
•
upon the sale or disposition of all or substantially all the property of such subsidiary guarantor (other than to any of our affiliates or another subsidiary guarantor);
provided, however, that, in each case, such transaction is permitted by the Credit Facility and after giving effect to such transaction, such subsidiary guarantor is no longer liable for any subsidiary guarantee or other obligations in respect of the Credit Facility. The subsidiary guarantee of a subsidiary guarantor also will be released if we exercise our legal defeasance, covenant defeasance option or discharge the Indenture.
We conduct our operations almost entirely through our subsidiaries. Accordingly, the Guarantor Group’s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Guarantor Group, including the earnings of the non-guarantor subsidiaries, whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities will have a direct claim only against the Guarantor Group.
The following tables include summarized financial information for the Guarantor Group (in thousands). The information for the Guarantor Group is presented on a combined basis, excluding intercompany balances and transactions between us and the Guarantor Group and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Guarantor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items. The consolidating schedules are provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries.
| As of | As of | ||||||||||
| April 30, 2024 | October 31, 2023 | ||||||||||
| Current assets (excluding net intercompany receivable from non-guarantor subsidiaries) | $1,551,209 | $1,440,062 | |||||||||
| Noncurrent assets | 4,536,099 | 4,490,490 | |||||||||
| Net intercompany receivable from/ (payable to) non-guarantor subsidiaries | 211,323 | 182,795 | |||||||||
| Current liabilities (excluding net intercompany payable to non-guarantor subsidiaries) | 451,187 | 531,466 | |||||||||
| Noncurrent liabilities | 2,921,281 | 2,895,592 | |||||||||
| Redeemable noncontrolling interests | 253,342 | 252,013 | |||||||||
| Noncontrolling interests | 43,417 | 37,786 | |||||||||
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| Six months ended | |||||
| April 30, 2024 | |||||
| Net sales | $1,519,035 | ||||
| Gross profit | 574,891 | ||||
| Operating income | 325,100 | ||||
| Net income from consolidated operations | 234,932 | ||||
| Net income attributable to HEICO | 219,165 | ||||
| Six months ended | |||||
| April 30, 2024 | |||||
| Intercompany net sales | $1,249 | ||||
| Intercompany management fee | 1,290 | ||||
| Intercompany interest income | 4,329 | ||||
| Intercompany dividends | 21,945 | ||||
Forward-Looking Statements
Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature may be forward-looking and the words “anticipate,” “believe,” “expect,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to risks, uncertainties and contingencies. We have based these forward-looking statements on our current expectations and projections about future events. All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information. Therefore, actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include:
•
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;
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•
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;
•
Cyber security events or other disruptions of our information technology systems could adversely affect our business; and
•
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.
For further information on these and other factors that potentially could materially affect our financial results, see Item 1A,
Risk Factors,
of our Annual Report on Form 10-K for the year ended October 31, 2023. 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.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have not been any material changes in our assessment of HEICO’s sensitivity to market risk that was disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended October 31, 2023.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that HEICO’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the second quarter ended April 30, 2024 that have materially affected, or are reasonably likely to materially affect, HEICO's internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 5. Other Events.
None of our directors or officers adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K, during the second quarter ended April 30, 2024.
Item 6. EXHIBITS
| Exhibit | Description | |||||||
| 10.1 | ||||||||
| 22.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101.INS | Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document. * | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. * | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. * | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. * | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. * | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. * | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * | |||||||
* Filed herewith.
** Furnished herewith.
*** Previously filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HEICO CORPORATION | |||||||||||
| Date: | May 30, 2024 | By: | /s/ CARLOS L. MACAU, JR. | ||||||||
|
Carlos L. Macau, Jr.
Executive Vice President - Chief Financial Officer and Treasurer (Principal Financial Officer) |
|||||||||||
| By: | /s/ STEVEN M. WALKER | ||||||||||
|
Steven M. Walker
Chief Accounting Officer and Assistant Treasurer (Principal Accounting Officer) |
|||||||||||
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TABLE OF CONTENTS
Part I. Financial Information; Item 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 5. Other EventsprintItem 6. Exhibitsprint