Heroux-Devtek Reports Fiscal 2019 Third Quarter Results
-- Sales increased 49.0% to $144.5 million compared to last year, driven by the CESA and Beaver acquisitions and strong internal growth
-- Operating income increased 79.6% to $11.9 million, or 8.2% of sales, compared with $6.6 million, or 6.8%
-- Adjusted EBITDA also improved reaching $22.9 million, or 15.8% of sales, compared to $13.6 million or 14.0%
-- Cash flows generated from operating activities at $12.7 million, compared with $19.3 million
Operational and Commercial Highlights
-- Integration of Beaver and CESA progressing well
-- Boeing's customer certification for final surface treatment process received
-- Funded backlog at $629 million, up from $466 million as at March 31, 2018
Heroux-Devtek Inc. (TSX:HRX.TO), ("Heroux-Devtek" or the "Corporation"), a leading international manufacturer of aerospace products, today reported its results for the third quarter of fiscal 2019 ended December 31, 2018. Unless otherwise indicated, all amounts are in Canadian dollars.
"We are very pleased with our third quarter financial and operational performance. The results from Beaver and CESA exceeded our expectations and all our major business units performed well, contributing 8% organic revenue growth. Operating income also improved significantly due to this higher throughput, which led to better absorption of manufacturing costs," said Gilles Labbe, President and CEO of Heroux-Devtek. "We reached a significant milestone by receiving customer approval for the final surface treatment process for the Boeing 777/777X contract; this will enable us to realize our full margin potential."
"We are entering the last quarter of fiscal 2019 with a strong pipeline of potential business and a solid backlog. We are continuing to dedicate significant resources to ensure the successful integration of Beaver and CESA, both of which are advancing well. We are clearly embarking on our next expansion phase and we remain dedicated to improving shareholder value by focusing on creating cross-selling opportunities, extracting operational leverage, maintaining strong cash flows and reimbursing debt," concluded Mr. Labbe.
FINANCIAL HIGHLIGHTS Quarters ended Dec. 31, Nine months ended Dec. 31, (in thousands of dollars, except per share data) 2018 2017 2018 2017 Sales 144,528 97,006 325,963 273,540 Operating income 11,904 6,629 22,050 16,681 Adjusted EBITDA 22,883 13,563 48,303 37,535 Net income 7,390 626 14,236 7,816 Per share - diluted ($) 0.20 0.02 0.39 0.22 Adjusted net income 9,367 5,690 17,558 13,774 Per share ($) 0.26 0.16 0.48 0.38
This is a non-IFRS measure. Please refer to the "Non-IFRS Measures" section at the end of this press release.
THIRD QUARTER RESULTS
Consolidated sales increased 49.0% to $144.5 million, compared with $97.0 million last year, driven by CESA and Beaver which together have contributed $39.6 million, as well as 8% organic growth. We achieved higher sales in both defence and commercial aerospace markets and have a net positive impact on third-quarter sales of $1.6 million, resulting from year-over-year fluctuations in the value of the Canadian currency versus foreign currencies.
Commercial sales increased 25.7% to $65.5 million, compared with $52.1 million last year. This was mainly driven by Beaver and CESA's sales, increased deliveries to Boeing for the 777 and 777X programs, as well as higher business jet sales, mostly related to the ramp-up of deliveries for the Embraer 450/500 program and higher sales of spares.
Defence sales increased 76.0% to $79.0 million, from $44.9 million. This was essentially due to Beaver and CESA's sales, higher spares requirements from the U.S. Government and higher manufacturing sales to certain civil customers. These factors were partially offset by the ramp-down of repair and overhaul ("R&O") activities for the United States Air Force following completion of the contract.
Gross profit increased to $24.9 million, or 17.2% of sales, versus $15.8 million, or 16.3% of sales, last year. The increase was mainly driven by the impact of the Beaver and CESA acquisitions and higher throughput which led to better absorption of manufacturing costs, partially offset by exchange rate fluctuations which had a negative impact of 0.6% of sales during the quarter.
Operating income increased to $11.9 million, or 8.2% of sales, compared with $6.6 million, or 6.8% of sales, last year, reflecting mainly the Beaver and CESA contributions. This year and last year's operating income included acquisition-related costs of $2.1 million and $0.6 million, respectively, in connection with the acquisitions of CESA and Beaver. Adjusted EBITDA, which excludes non-recurring items, also grew, reaching $22.9 million, or 15.8% of sales, compared with $13.6 million, or 14.0% of sales, a year ago.
Financial expenses increased to $2.8 million, compared with $0.4 million last year. This variation mainly reflects the interest charge on new debt incurred to finance the CESA acquisition and higher interest rates. Last year's financial expenses also included a $0.6 million net gain on certain derivative financial instruments.
Net income for the third quarter of fiscal 2019 was $7.4 million, or $0.20 per diluted share, compared with $0.6 million, or $0.02 per diluted share, a year ago. Excluding non-recurring items net of taxes, adjusted net income reached $9.4 million, or $0.26 per share, versus $5.7 million, or $0.16 per share, last year.
As at December 31, 2018, Heroux-Devtek's funded (firm orders) backlog stood at $629 million or $515 million excluding Beaver and CESA, versus $466 million as at March 31, 2018.
For the first nine months of fiscal 2019, consolidated sales reached $326.0 million, versus $273.5 million last year. Year-over-year fluctuations in the value of the Canadian currency versus foreign currencies increased sales by $0.9 million. Commercial sales reached $158.3 million, versus $137.6 million a year ago, while defence sales totalled $167.7 million compared with $135.9 million last year.
Gross profit for the first nine months of fiscal 2019 amounted to $53.5 million, equivalent to 16.4% of sales, compared with $42.3 million, or 15.5% of sales last year. Operating income was $22.1 million, or 6.8% of sales, versus $16.7 million, or 6.1% of sales a year ago. Yearâ?'over-year fluctuations in the value of the Canadian currency versus foreign currencies increased operating income by $1.6 million. Adjusted EBITDA reached $48.3 million, or 14.8% of sales, versus $37.5 million, or 13.7% of sales, a year earlier.
Net income was $14.2 million, or $0.39 per diluted share, compared with $7.8 million, or $0.22 per diluted share last year. Adjusted net income stood at $17.6 million, or $0.48 per share, versus $13.8 million, or $0.38 per share, last year.
SOLID CASH FLOWS AND HEALTHY FINANCIAL POSITION
Cash flows related to operating activities amounted to $12.7 million in the third quarter of fiscal 2019, versus $19.3 million in the third quarter of fiscal 2018. This mainly reflects a net unfavourable variation in non-cash working capital items. As a result, Heroux-Devtek generated free cash flow of $11.9 million in the third quarter of fiscal 2019, down from $17.1 million last year. For the first nine months of fiscal 2019, cash flows related to operating activities were $32.8 million, compared with $37.6 million a year earlier, while free cash flow amounted to $26.4 million, versus $30.8 million last year.
As at December 31, 2018, cash and cash equivalents stood at $28.6 million, while total long-term debt was $285.9 million, including the current portion, but excluding net deferred financing costs. Long-term debt includes $118.7 million drawn against the Corporation's authorized credit facility of $250.0 million. As a result, the net debt position was $257.3 million at the end of the third quarter, up from $38.8 million as at March 31, 2018, mainly reflecting the Beaver and CESA acquisitions.
For fiscal 2019 management reiterates its annual guidance provided on October 1, 2018 with the closing of the CESA acquisition. For fiscal 2019 sales are expected to be between $460 to $470 million. Capital expenditures are expected to be approximately $20 million. Long-term sales for fiscal 2022 are expected to be in the range of $620 to $650 million.
Please see "Forward-Looking Statements" below and the Guidance section in the Corporation's MD&A for the quarter ended December 31, 2018, for further details regarding the material assumptions underlying the foregoing guidance.
Heroux-Devtek Inc. will hold a conference call to discuss these results on Thursday, February 7, 2019 at 10:00 AM Eastern Time. Interested parties can join the call by dialling 1-877-223-4471 (North America) or 1-647-788-4922 (overseas). The conference call can also be accessed via live webcast at Heroux-Devtek's website, www.herouxdevtek.com/investor-relations/events or http://www.gowebcasting.com/9858
An accompanying presentation will also be available on Heroux-Devtek's website, www.herouxdevtek.com/investor-relations/events.
If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-800-585-8367 and entering the passcode 1498853 on your phone. This tape recording will be available on Thursday, February 7, 2019 as of 3:00 PM Eastern Time until 11:59 PM Eastern Time on Thursday, February 14, 2019.
Heroux-Devtek Inc. (TSX:HRX.TO) is an international company specializing in the design, development, manufacture, repair and overhaul of aircraft landing gear, hydraulic and electromechanical flight control actuators, custom ball screws and fracture-critical components for the Aerospace market. The Corporation is the third largest landing gear company worldwide, supplying both the commercial and defence sectors. Approximately 90% of the Corporation's sales are outside of Canada, including about 50% in the United States. The Corporation's head office is located in Longueuil, Quebec with facilities in the Greater Montreal area (Longueuil, Laval and St-Hubert); Kitchener, Cambridge and Toronto, Ontario; Springfield and Strongsville, Ohio; Wichita, Kansas; Everett, Washington; Livonia, Michigan; Runcorn, Nottingham and Bolton, United Kingdom; and Madrid and Seville, Spain.
Except for historical information provided herein, this press release contains information and statements of a forward-looking nature concerning the future performance of the Corporation. Forward looking statements are based on assumptions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Corporation's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results. Please see the Guidance section in the Corporation's MD&A for the quarter ended December 31, 2018, for further details regarding the material assumptions underlying the forecasts and guidance. Such forecasts and guidance are provided for the purpose of assisting the reader in understanding the Corporation's financial performance and prospects and to present management's assessment of future plans and operations, and the reader is cautioned that such statements may not be appropriate for other purposes.
Earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, adjusted net income, adjusted earnings per share and free cash flow are financial measures not prescribed by International Financial Reporting Standards ("IFRS") and are not likely to be comparable to similar measures presented by other issuers. Management considers these to be useful information to assist investors in evaluating the Corporation's profitability, liquidity and ability to generate funds to finance its operations. Refer to Non-IFRS financial measures under Operating Results in the Corporation's MD&A for definitions of these measures and reconciliations to the most comparable IFRS measures.
Note to readers: Complete unaudited interim condensed consolidated financial statements and Management's Discussion & Analysis are available on Heroux-Devtek's website at www.herouxdevtek.com.
From: Heroux-Devtek Inc. Gilles Labbe President and Chief Executive Officer Tel.: (450) 679-3330 Contact: Heroux-Devtek Inc. Stephane Arsenault MaisonBrison Chief Financial Officer Pierre Boucher Tel.: (450) 679-3330 Tel.: (514) 731-0000