HEICO Corporation — Q1 FY2021 10-Q
Reporting period: Three months ended January 31, 2021; compared with the three months ended January 31, 2020. Amounts below are in U.S. dollars.
Business context and results
HEICO operates through the Flight Support Group (FSG) and Electronic Technologies Group (ETG). Results continued to reflect COVID-19’s impact, particularly reduced commercial air travel and demand for commercial aerospace products and services.
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $417.9 million | $506.3 million | Down 17% |
| Gross margin | 37.9% | 39.1% | Down 1.2 percentage points |
| Operating income / margin | $80.3 million / 19.2% | $111.0 million / 21.9% | Income down 28% |
| Net income attributable to HEICO | $70.6 million | $121.9 million | Down 42% |
| Diluted EPS | $0.51 | $0.89 | Down 43% |
| Operating cash flow | $107.2 million | $81.1 million | Up $26.1 million |
Segments and material changes
- FSG: Sales fell 34% to $199.3 million; operating income declined 58% to $25.8 million. Commercial aerospace weakness drove lower sales across aftermarket replacement parts, repair and overhaul, and specialty products, alongside reduced fixed-cost efficiency.
- ETG: Sales rose 7% to $223.6 million and operating income increased 5% to $60.1 million. Fiscal 2020 acquisitions contributed $14.6 million to the sales increase.
- Consolidated SG&A declined 10% to $78.1 million, but increased as a share of sales to 18.7% from 17.2%. Interest expense decreased to $2.4 million from $4.3 million.
- Income tax expense was $2.3 million, versus a $22.9 million benefit in the prior-year quarter. Both periods included tax benefits from stock option exercises: $13.5 million in 2021 and $47.6 million in 2020, making the comparison of net income notably affected by the prior period’s larger benefit.
Cash, debt, and liquidity
- Cash and equivalents were $399.4 million at January 31, 2021, down from $406.9 million at October 31, 2020. Operating activities generated $107.2 million; investing used $25.3 million and financing used $91.4 million.
- Total debt, including current maturities, was $669.7 million, down from $739.8 million at October 31, 2020; revolving-credit borrowings were $660.0 million. The facility matures in fiscal 2024, and its weighted-average borrowing rate was 1.2%. HEICO reported covenant compliance and a debt-to-shareholders’ equity ratio of 32.2%.
- Management stated that operating cash flow and available revolving-credit borrowings should meet cash needs for at least the next 12 months. Fiscal 2021 capital expenditures were expected to be approximately $40 million.
Outlook, risks, and contingencies
- HEICO did not provide fiscal 2021 sales or earnings guidance, citing pandemic uncertainty. Management was cautiously optimistic that vaccine progress could support a gradual recovery in commercial aerospace demand, primarily in the second half of fiscal 2021.
- Management identified pandemic duration and severity, new variants, vaccine effectiveness, government responses, and the timing of a return to normal activity as uncertainties. Other stated risks include commercial air travel and airline purchasing, defense and space spending, competition, product development and manufacturing, acquisitions, customer credit, and currency, interest-rate, and tax changes.
- Put rights for subsidiary noncontrolling interests had an estimated aggregate redemption amount of $222.2 million, with potential exercise dates through fiscal 2030. The filing also reports $42.8 million of contingent consideration liabilities tied to acquired businesses’ future earnings.
- Standby letters of credit totaled $15.6 million. HEICO said pending legal matters were not expected to have a material adverse effect. No material changes to contractual obligations or market-risk assessments were reported.
Important facts for investors to verify
- Whether commercial aviation demand and FSG sales and margins recover as management anticipated.
- Whether ETG growth and profitability continue, including the contribution from acquisitions.
- Whether operating cash flow, capital spending, and debt repayments support liquidity through the uncertain recovery.
- How future exercise of subsidiary put rights and achievement of acquisition earn-out targets affect cash requirements.
- Whether subsequent filings provide guidance or disclose material changes in pandemic-related risks.