01—Abstract
Summary
Summary of the 10-K filed December 23, 2020. Cited figures are marked; the original filing is the authoritative source.
HEICO Corporation (HEI) reported fiscal 2020 (year ended October 31, 2020) results significantly affected by the COVID-19 pandemic.
Net sales decreased 13% to $1,787.0 milliona from $2,055.6 million, driven by a 25% decline in the Flight Support Group (FSG) to $924.8 million, partially offset by a 5% increase in the Electronic Technologies Group (ETG) to a record $875.0 million. Operating income fell 18% to $376.6 million, and net income attributable to HEICO declined to $314.0 million, or $2.29 per diluted share, from $327.9 million, or $2.39 per diluted share. The effective tax rate fell to 7.9% from 17.8%, largely due to a $31.8 million larger tax benefit from stock option exercises.
The filing describes a commercial aerospace business under pressure, with commercial aerospace sales decreasing approximately 32% during fiscal 2020 and FSG backlog falling to $285 millionb from $325 million. Management cannot provide fiscal 2021 net sales or earnings guidance, but states it is cautiously optimistic that vaccine progress may lead to a gradual recovery in commercial aerospace demand beginning in fiscal 2021. The ETG's defense, space and other industrial markets, which represented about 59% of net sales, were not materially impacted by the Pandemic.
Balance sheet and liquidity: cash and cash equivalents rose to $406.9 millionc from $57.0 million, while total debt increased to $739.8 million from $562.0 million, and total debt to total capitalization was 27% versus 25%. Operating cash flow was $409.1 million, and as of December 22, 2020, approximately $755 million of unused committed availability remained under the revolving credit facility. Goodwill and intangible assets represented 55% of total assets at October 31, 2020, versus 61% a year earlier.
02—Key points
Key Highlights
- Net sales fell 13% to $1,787.0 million; FSG sales declined 25% to $924.8 million while ETG sales rose 5% to a record $875.0 million.
- Operating income decreased 18% to $376.6 million; FSG operating income fell 41% to $143.1 million while ETG operating income rose 5% to a record $258.8 million.
- Net income attributable to HEICO was $314.0 million, or $2.29 per diluted share, versus $327.9 million, or $2.39 per diluted share, in fiscal 2019.
- The effective tax rate dropped to 7.9% from 17.8%, mainly due to a $31.8 million larger tax benefit from stock option exercises.
- Cash and cash equivalents increased to $406.9 million and operating cash flow was $409.1 million; total debt rose to $739.8 million, with a debt-to-total-capitalization ratio of 27%.
- Total backlog was $844 million at October 31, 2020, down from $900 million; FSG backlog declined to $285 million from $325 million.
- Management cannot provide fiscal 2021 net sales or earnings guidance but is cautiously optimistic about a gradual commercial aerospace recovery beginning in fiscal 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Heico kept $0.18.
- Revenue$1.79B100.0%
- Cost of revenue−$1.10B61.8%
- Gross profit$682.1M38.2%
- Operating costs−$305.5M17.1%
- Operating income$376.6M21.1%
- Interest, other & tax−$62.7M3.5%
- Net income$314.0M17.6%
04—Financials
Financial Highlights
Figures from 10-KFY2020filed December 23, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $1.79B$2.06B | −13.1% |
| Cost of Revenue | $1.10B$1.24B | −11.0% |
| Gross Profit | $682.13M$813.84M | −16.2% |
| R&D Expenses | $65.56M$66.63M | −1.6% |
| SG&A Expenses | $305.48M$356.74M | −14.4% |
| Operating Expenses | $1.41B$1.60B | −11.8% |
| Operating Income | $376.65M$457.10M | −17.6% |
| Interest Expense | $13.16M$21.70M | −39.3% |
| Net Income | $313.98M$327.90M | −4.2% |
| EPS (Basic) | $2.33$2.45 | −4.9% |
| EPS (Diluted) | $2.29$2.39 | −4.2% |
| Shares Outstanding (Basic) | 134.75M133.64M | +0.8% |
| Shares Outstanding (Diluted) | 137.30M137.35M | 0.0% |
05—Questions
Frequently Asked Questions
How did the COVID-19 pandemic affect HEICO's fiscal 2020 results?
The Pandemic caused a significant decline in global commercial air travel beginning in March 2020, which reduced demand for commercial aviation products. Consolidated net sales for businesses in the commercial aerospace industry decreased approximately 32% during fiscal 2020, and FSG net sales fell 25%. The ETG's defense, space and other industrial markets, about 59% of net sales, were not materially impacted, although the company experienced periodic operational disruptions.
Why did the effective tax rate decline so sharply in fiscal 2020?
The effective tax rate was 7.9% in fiscal 2020 compared with 17.8% in fiscal 2019. The decrease is mainly attributable to a $31.8 million larger tax benefit recognized from stock option exercises, driven by more options exercised and strong appreciation in HEICO's stock price during the optionees' holding periods.
What is HEICO's liquidity position and borrowing capacity?
Cash and cash equivalents were $406.9 million as of October 31, 2020. Total debt was $739.8 million, including $730.0 million under the revolving credit facility. As of December 22, 2020, approximately $755 million of unused committed availability remained. In December 2020, the credit facility was amended to extend maturity to November 2023 and increase capacity to $1.5 billion.
Does HEICO expect a recovery in fiscal 2021?
HEICO cannot provide fiscal 2021 net sales and earnings guidance at this time due to Pandemic uncertainty. However, management is cautiously optimistic that recent vaccine progress may increase commercial air travel and result in a gradual recovery in demand for its commercial aerospace parts and services commencing in fiscal 2021.
What is the company's acquisition strategy and how much goodwill does it carry?
HEICO has completed approximately 82 acquisitions since 1990 and targets businesses that will continue to grow, offer strong cash flow and earnings potential, and are available at fair prices. Goodwill was $1,383.2 million at October 31, 2020, and goodwill and intangible assets together represented 55% of total assets, which the filing notes exposes the company to potential impairment risk.
06—Continue