HEICO Corporation 2021 Form 10-K Summary
Reporting period: Fiscal year ended October 31, 2021. This is an annual report, not a standalone fourth-quarter report. Amounts are in U.S. dollars.
Business context
HEICO designs, manufactures, repairs and distributes aerospace, defense, space and electronic products through two groups: Flight Support Group (FSG) and Electronic Technologies Group (ETG). Fiscal 2021 results continued to reflect COVID-19’s effect on commercial aviation, alongside recovery in some travel markets and contributions from acquisitions.
Financial performance
| Metric | FY2021 | FY2020 | Change or context |
|---|---|---|---|
| Net sales | $1,865.7 million | $1,787.0 million | Up 4% |
| FSG net sales | $927.1 million | $924.8 million | Nearly flat; acquisitions offset lower organic sales |
| ETG net sales | $959.2 million | $875.0 million | Up 10%; organic growth was 3% |
| Gross margin | 39.0% | 38.2% | Improved, mainly from FSG |
| SG&A as a percentage of sales | 17.9% | 17.1% | Higher performance-based compensation contributed |
| Operating income | $392.9 million | $376.6 million | Up 4%; operating margin was 21.1% in both years |
| Net income attributable to HEICO | $304.2 million | $314.0 million | Down 3% |
| Diluted earnings per share | $2.21 | $2.29 | Down 3% |
| Operating cash flow | $444.1 million | $409.1 million | Up $35.0 million |
| Cash and cash equivalents | $108.3 million | $406.9 million | Cash used substantially to repay revolving-credit borrowings |
| Total debt | $236.5 million | $739.8 million | Debt to total capitalization fell to 9% from 27% |
Net income attributable to HEICO declined despite higher operating income, primarily because income tax expense rose to $57.3 million from $29.0 million. The effective tax rate increased to 14.8% from 7.9%; the prior year included a larger tax benefit from stock-option exercises.
Cash, debt and capital
Investing activities used $183.5 million, including $136.5 million for acquisitions and $36.2 million for capital expenditures. Financing activities used $559.0 million, primarily reflecting $505.0 million of revolving-credit repayments. At October 31, 2021, revolving-credit borrowings were $225.0 million; the company reported approximately $1.259 billion of unused committed availability as of December 20, 2021. Management said operating cash flow and available borrowings should cover requirements for at least the next 12 months. Fiscal 2022 capital expenditures were expected to be approximately $45 million.
HEICO paid $23.0 million in cash dividends during fiscal 2021. In December 2021, the board declared a $0.09-per-share semiannual dividend, payable in January 2022.
Changes, outlook and notable items
- ETG growth reflected acquisitions and organic demand for other electronic and medical products. FSG sales included acquisition contributions, while organic sales declined, particularly in specialty products. FSG reported five consecutive quarters of improvement in sales and operating income through fiscal 2021, supported by some recovery in commercial air travel.
- Backlog increased to $977 million at October 31, 2021, from $844 million a year earlier. Most was expected to be filled in fiscal 2022. FSG backlog rose to $397 million from $285 million; ETG backlog was $580 million, compared with $559 million.
- Fiscal 2022 sales and earnings guidance was not provided. Management expected commercial travel recovery to continue, especially in some domestic markets, but cautioned that international recovery timing was uncertain and the pandemic’s course remained difficult to predict. Inflation and supply-chain disruption could raise material and labor costs.
- Fiscal 2021 acquisitions included Paciwave, RH Laboratories, Ridge Engineering and Bechdon, Camtronics, and Pyramid Semiconductor. Acquisition consideration totaled $154.7 million, including contingent consideration.
- Estimated redemption obligations for put rights held by subsidiary noncontrolling-interest holders totaled $252.6 million. Approximately $68.0 million could be payable in fiscal 2022 if all eligible holders exercised their rights that year.
- A subsidiary acquired in 2020 received a U.S. grand jury subpoena concerning its employment of an individual and work on Navy vessels. HEICO said it was cooperating; the company could not predict the outcome or estimate a possible loss.
- Goodwill and intangible assets represented 58% of total assets. No impairment was recorded in fiscal 2021. The auditor identified inventory valuation, including estimates of future demand and sales patterns, as a critical audit matter.
Key facts for investors to verify
- Whether commercial aviation recovery, particularly international travel, supports sustained FSG organic growth.
- Whether backlog converts to sales on the expected schedule and whether higher input costs affect margins.
- How much future earnings growth is acquisition-driven, and how acquired businesses integrate operationally and financially.
- The timing and potential cash impact of noncontrolling-interest put rights and contingent consideration.
- Developments in the Navy-related investigation and any eventual financial or operational consequences.
- Whether inventory demand assumptions and goodwill and intangible-asset valuations remain supportable as markets change.