01—Abstract
Summary
Summary of the 10-K filed December 21, 2017. Cited figures are marked; the original filing is the authoritative source.
HEICO Corporation (HEI) reported record fiscal 2017 results for the year ended October 31, 2017.
Net sales rose to $1,524.8 milliona from $1,376.3 million in fiscal 2016, and operating income increased to $306.7 million from $265.3 million. Net income attributable to HEICO was a record $186.0 million, or $2.14 per diluted share, compared with $156.2 million, or $1.83 per diluted share, in fiscal 2016. Net sales growth was driven by organic growth in both segments and contributions from fiscal 2017 acquisitions, including AeroAntenna Technology, Inc., Carbon by Design and Air Cost Control.
The Flight Support Group accounted for 63% of net sales and the Electronic Technologies Group for 37%. Cash flow from operations was $274.9 millionb, and cash paid for acquisitions totaled $418.3 million in fiscal 2017. Total debt rose to $674.0 million from $458.2 million as of October 31, 2016, almost entirely under the revolving credit facility, and the company entered a new $1.3 billion revolving credit facility in November 2017 that matures in November 2022.
Total backlog increased to $654 millionc from $497 million. Management targets growth in fiscal 2018 full-year net sales and net income over fiscal 2017 levels, excluding additional acquisitions.
The Board declared a 5-for-4 stock split and a semi-annual cash dividend of $.0875 per share, a 9%d increase over the prior $.08 payment, both expected to be paid in January 2018. Goodwill and intangible assets represented approximately 64% of total assets as of October 31, 2017, which the filing identifies as a key risk alongside dependence on the aviation industry and exposure to defense and space spending.
02—Key points
Key Highlights
- Record fiscal 2017 net sales of $1,524.8 million, up from $1,376.3 million in fiscal 2016; the Electronic Technologies Group grew to $574.3 million and the Flight Support Group to $967.5 million.
- Operating income rose to $306.7 million (20.1% of net sales) from $265.3 million (19.3%); net income attributable to HEICO reached $186.0 million, or $2.14 per diluted share.
- Total backlog of unshipped orders was $654 million at October 31, 2017, compared with $497 million a year earlier.
- Cash paid for acquisitions was $418.3 million in fiscal 2017, and net cash provided by operating activities was $274.9 million.
- Total debt increased to $674.0 million from $458.2 million, and a new $1.3 billion revolving credit facility maturing in November 2022 was entered in November 2017.
- A 5-for-4 stock split and a semi-annual cash dividend of $.0875 per share, up 9% from $.08, were declared in December 2017.
- Goodwill and intangible assets accounted for approximately 64% of total assets at October 31, 2017, and the company identified the risk of future impairment charges.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Heico kept $0.12.
- Revenue$1.52B100.0%
- Cost of revenue−$950.1M62.3%
- Gross profit$574.7M37.7%
- Operating costs−$268.1M17.6%
- Operating income$306.7M20.1%
- Interest, other & tax−$120.7M7.9%
- Net income$186.0M12.2%
04—Financials
Financial Highlights
Figures from 10-KFY2017filed December 21, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $1.52B$1.38B | +10.8% |
| Cost of Revenue | $950.09M$860.77M | +10.4% |
| Gross Profit | $574.73M$515.49M | +11.5% |
| R&D Expenses | $46.47M$44.73M | +3.9% |
| SG&A Expenses | $268.07M$250.15M | +7.2% |
| Operating Expenses | $1.22B$1.11B | +9.7% |
| Operating Income | $306.66M$265.35M | +15.6% |
| Interest Expense | $9.79M$8.27M | +18.4% |
| Net Income | $185.99M$156.19M | +19.1% |
| EPS (Basic) | $1.41$1.19 | +18.5% |
| EPS (Diluted) | $1.37$1.17 | +17.1% |
| Shares Outstanding (Basic) | 131.70M130.95M | +0.6% |
| Shares Outstanding (Diluted) | 135.59M133.15M | +1.8% |
05—Questions
Frequently Asked Questions
What drove HEICO's revenue growth in fiscal 2017?
Net sales increased 11% to a record $1,524.8 million. The Electronic Technologies Group rose $63.0 million to $574.3 million, with organic growth of 7% and $23.3 million from acquisitions. The Flight Support Group rose $91.7 million to $967.5 million, with organic growth of 5% and $49.0 million from fiscal 2017 acquisitions.
How much did HEICO spend on acquisitions and how was it funded?
Cash paid for acquisitions was $418.3 million in fiscal 2017. Most purchases were paid in cash principally from revolving credit facility proceeds, while the Carbon by Design purchase was funded with cash from operating activities.
What does the company expect for fiscal 2018?
Management is targeting growth in fiscal 2018 full-year net sales and net income over fiscal 2017 levels, excluding the impact of additional acquired businesses. It anticipates net sales growth in the commercial aviation and defense product lines of the Flight Support Group and growth in the Electronic Technologies Group. Capital expenditures are expected to be approximately $50 million.
What are the main risks to investors identified in the filing?
Key risks include dependence on the aviation industry and its cyclical downturns, reductions in defense, space or homeland security spending, risks from foreign sales (about 34% of fiscal 2017 net sales), intense competition, and the possibility of impairment of goodwill and intangible assets, which represented about 64% of total assets. Executive officers and directors beneficially owned approximately 22% of Common Stock and 6% of Class A Common Stock, giving them significant influence over the company.
What is the company's dividend and capital return policy?
HEICO has historically paid semi-annual cash dividends. In July 2017 it paid $.08 per share, and in December 2017 it declared a $.0875 per share dividend payable in January 2018. The company repurchased no shares under its repurchase program during fiscal 2015, 2016 or 2017, and 3,127,266 shares remained authorized as of October 31, 2017.
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