Heico Corp 10-Q for FY2023 Q3

Heico Corp (HEI)

10-Q 2023-08-30 For: 2023-07-31

Added on April 07, 2026

About this 10-Q

Heico Corp filed this 10-Q on August 30, 2023, covering the quarter ended July 31, 2023 (FY2023 Q3).

Headline figures

Quarter ended July 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $722.9M; up 26.9% from $569.53M a year earlier
Net income: $102.02M; up 23.6% from net income of $82.54M a year earlier
Diluted EPS: $0.74; up 23.3% from $0.60 a year earlier

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☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

						For the quarterly period ended July 31, 2023

						OR

☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

						For the transition period from ______ to _______


Florida						65-0341002
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3000 Taft Street, Hollywood, Florida						33021
(Address of principal executive offices)						(Zip Code)


Common Stock, $.01 par value	54,712,699	shares
Class A Common Stock, $.01 par value	83,474,773	shares


			Page
Part I.	Financial Information

	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheets (unaudited) as of July 31, 202 3 and October 31, 202 2	2

		Condensed Consolidated Statements of Operations (unaudited) for the nine and three months ended July 31, 202 3 and 202 2	3

		Condensed Consolidated Statements of Comprehensive Income (unaudited) for the nine and three months ended July 31, 202 3 and 202 2	4

		Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the nine and three months ended July 31, 202 3 and 202 2	5

		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended July 31, 202 3 and 202 2	7

		Notes to Condensed Consolidated Financial Statements (unaudited)	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

	Item 4.	Controls and Procedures	44

Part II.	Other Information

	Item 1A.	Risk Factors	45

	Item 5.	Other Events	45

	Item 6.	Exhibits	46

Signatures			47


	July 31, 2023	October 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$694,263	$139,504
Accounts receivable, net	355,491	294,848
Contract assets	102,832	93,978
Inventories, net	731,966	582,471
Prepaid expenses and other current assets	47,372	41,929
Total current assets	1,931,924	1,152,730

Property, plant and equipment, net	285,033	225,879
Goodwill	2,026,279	1,672,425
Intangible assets, net	822,545	733,327
Other assets	387,521	311,135
Total assets	$5,453,302	$4,095,496

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt	$16,777	$1,654
Trade accounts payable	139,515	116,551
Accrued expenses and other current liabilities	315,606	290,199
Income taxes payable	7,149	12,455
Total current liabilities	479,047	420,859

Long-term debt, net of current maturities	1,198,484	288,620
Deferred income taxes	83,357	71,162
Other long-term liabilities	389,335	338,948
Total liabilities	2,150,223	1,119,589

Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 3)	343,883	327,601

Shareholders’ equity:
Preferred Stock, $.01 par value per share; 10,000 shares authorized; none issued	—	—
Common Stock, $.01 par value per share; 150,000 shares authorized; 54,706 and 54,519 shares issued and outstanding	547	545
Class A Common Stock, $.01 par value per share; 150,000 shares authorized; 82,316 and 82,093 shares issued and outstanding	823	821
Capital in excess of par value	406,442	397,337
Deferred compensation obligation	6,318	5,297
HEICO stock held by irrevocable trust	(6,318)	(5,297)
Accumulated other comprehensive loss	(16,657)	(46,499)
Retained earnings	2,523,212	2,253,932
Total HEICO shareholders’ equity	2,914,367	2,606,136
Noncontrolling interests	44,829	42,170
Total shareholders’ equity	2,959,196	2,648,306
Total liabilities and equity	$5,453,302	$4,095,496


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022

Net sales	$2,031,658	$1,598,684	$722,902	$569,528

Operating costs and expenses:
Cost of sales	1,242,613	976,308	444,168	348,591
Selling, general and administrative expenses	353,154	272,030	129,367	92,190

Total operating costs and expenses	1,595,767	1,248,338	573,535	440,781

Operating income	435,891	350,346	149,367	128,747

Interest expense	(29,561)	(3,181)	(12,120)	(1,406)
Other income	1,888	685	906	145

Income before income taxes and noncontrolling interests	408,218	347,850	138,153	127,486

Income tax expense	77,400	67,400	25,400	34,400

Net income from consolidated operations	330,818	280,450	112,753	93,086

Less: Net income attributable to noncontrolling interests	30,648	25,979	10,730	10,546

Net income attributable to HEICO	$300,170	$254,471	$102,023	$82,540

Net income per share attributable to HEICO shareholders:
Basic	$2.19	$1.87	$.74	$.61
Diluted	$2.17	$1.85	$.74	$.60

Weighted average number of common shares outstanding:
Basic	136,859	135,835	137,006	135,978
Diluted	138,616	137,890	138,668	137,837


		HEICO Shareholders' Equity
	Redeemable Noncontrolling Interests	Common Stock	Class A Common Stock	Capital in Excess of Par Value	Deferred Compensation Obligation	HEICO Stock Held by Irrevocable Trust	Accumulated Other Comprehensive Loss	Retained Earnings	Noncontrolling Interests	Total Shareholders' Equity
Balances as of October 31, 2022	$327,601	$545	$821	$397,337	$5,297	($5,297)	($46,499)	$2,253,932	$42,170	$2,648,306
Comprehensive income	22,745	—	—	—	—	—	29,842	300,170	9,368	339,380
Cash dividends ($.20 per share)	—	—	—	—	—	—	—	(27,370)	—	(27,370)
Issuance of common stock to HEICO Savings and Investment Plan	—	—	—	9,222	—	—	—	—	—	9,222
Share-based compensation expense	—	—	—	10,412	—	—	—	—	—	10,412
Proceeds from stock option exercises	—	2	2	5,480	—	—	—	—	—	5,484
Redemptions of common stock related to stock option exercises	—	—	—	(14,847)	—	—	—	—	—	(14,847)
Noncontrolling interests assumed related to acquisitions	12,137	—	—	—	—	—	—	—	—	—
Distributions to noncontrolling interests	(23,226)	—	—	—	—	—	—	—	(6,708)	(6,708)
Acquisitions of noncontrolling interests	(1,059)	—	—	(1,674)	—	—	—	—	—	(1,674)
Adjustments to redemption amount of redeemable noncontrolling interests	3,334	—	—	—	—	—	—	(3,334)	—	(3,334)

Deferred compensation obligation	—	—	—	—	1,021	(1,021)	—	—	—	—
Other	2,351	—	—	512	—	—	—	(186)	(1)	325
Balances as of July 31, 2023	$343,883	$547	$823	$406,442	$6,318	($6,318)	($16,657)	$2,523,212	$44,829	$2,959,196


Cash paid						$515,785
Less: cash acquired						(11,763)
Total consideration paid, net						$504,022


Assets acquired:
Goodwill						$327,178
Customer relationships						61,943
Intellectual property						44,044
Trade name						21,703
Inventories						54,688
Property, plant and equipment						50,896
Accounts receivable						41,670
Other assets						13,509
Total assets acquired, excluding cash						615,631

Liabilities assumed:
Deferred income taxes						34,691
Accounts payable						22,585
Accrued expenses						18,366
Short-term debt						15,082
Other liabilities						8,730
Total liabilities assumed						99,454

Noncontrolling interests in consolidated subsidiaries						12,155

Net assets acquired, excluding cash						$504,022


(in thousands)	July 31, 2023	October 31, 2022
Accounts receivable	$364,496	$303,181
Less: Allowance for doubtful accounts	(9,005)	(8,333)
Accounts receivable, net	$355,491	$294,848


	July 31, 2023	October 31, 2022
Redeemable at fair value	$300,966	$300,693
Redeemable based on a multiple of future earnings	42,917	26,908
Redeemable noncontrolling interests	$343,883	$327,601


	Foreign Currency Translation	Defined Benefit Pension Plan	Accumulated Other Comprehensive Loss
Balances as of October 31, 2022	($45,369)	($1,130)	($46,499)
Unrealized gain	29,799	—	29,799
Amortization of unrealized loss	—	43	43
Balances as of July 31, 2023	($15,570)	($1,087)	($16,657)


	Segment		Consolidated Totals
	FSG	ETG
Balances as of October 31, 2022	$561,961	$1,110,464	$1,672,425
Goodwill acquired	—	335,318	335,318
Foreign currency translation adjustments	4,267	12,972	17,239
Adjustments to goodwill	(956)	2,253	1,297
Balances as of July 31, 2023	$565,272	$1,461,007	$2,026,279


	As of July 31, 2023			As of October 31, 2022
	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Amortizing Assets:
Customer relationships	$572,071	($205,964)	$366,107	$539,529	($208,127)	$331,402
Intellectual property	330,103	(114,218)	215,885	284,171	(98,983)	185,188
Other	8,703	(7,308)	1,395	8,700	(7,017)	1,683
	910,877	(327,490)	583,387	832,400	(314,127)	518,273
Non-Amortizing Assets:
Trade names	239,158	—	239,158	215,054	—	215,054
	$1,150,035	($327,490)	$822,545	$1,047,454	($314,127)	$733,327


	July 31, 2023	October 31, 2022
2028 senior unsecured notes	$600,000	$—
2033 senior unsecured notes	600,000	—
Borrowings under revolving credit facility	—	275,000
Finance leases and note payable	14,004	15,274
Less: Debt discount and debt issuance costs	(13,896)	—
	1,200,108	290,274
Less: Current maturities of long-term debt	(1,624)	(1,654)
	$1,198,484	$288,620


(in thousands)	July 31, 2023	October 31, 2022
Finished products	$352,174	$285,024
Work in process	72,040	59,739
Materials, parts, assemblies and supplies	307,752	237,708
Inventories, net of valuation reserves	$731,966	$582,471


(in thousands)	July 31, 2023	October 31, 2022
Land	$19,928	$17,579
Buildings and improvements	182,613	148,598
Machinery, equipment and tooling	366,736	322,252
Construction in progress	23,788	14,533
	593,065	502,962
Less: Accumulated depreciation and amortization	(308,032)	(277,083)
Property, plant and equipment, net	$285,033	$225,879


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022
Flight Support Group:
Aftermarket replacement parts (1)	$665,936	$512,335	$238,950	$187,453
Specialty products (2)	272,659	202,945	85,166	76,366
Repair and overhaul parts and services (3)	229,925	193,973	80,924	66,440
Total net sales	1,168,520	909,253	405,040	330,259

Electronic Technologies Group:
Electronic component parts primarily for defense, space and aerospace equipment (4)	644,239	485,780	248,919	165,871
Electronic component parts for equipment in various other industries (5)	238,446	218,152	76,948	78,332
Total net sales	882,685	703,932	325,867	244,203

Intersegment sales	(19,547)	(14,501)	(8,005)	(4,934)

Total consolidated net sales	$2,031,658	$1,598,684	$722,902	$569,528


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022
Flight Support Group:
Aerospace	$811,962	$637,282	$288,069	$219,558
Defense and Space	295,686	231,014	98,777	94,756
Other (1)	60,872	40,957	18,194	15,945
Total net sales	1,168,520	909,253	405,040	330,259

Electronic Technologies Group:
Defense and Space	413,761	402,639	153,190	136,778
Other (2)	335,786	243,238	119,992	87,103
Aerospace	133,138	58,055	52,685	20,322
Total net sales	882,685	703,932	325,867	244,203

Intersegment sales	(19,547)	(14,501)	(8,005)	(4,934)

Total consolidated net sales	$2,031,658	$1,598,684	$722,902	$569,528


	July 31, 2023
	Carrying Value	Fair Value
2028 Notes	$593,889	$598,296
2033 Notes	592,215	597,198
Total	$1,186,104	$1,195,494


	July 31, 2023	October 31, 2022	Change
Contract assets	$102,832	$93,978	$8,854
Contract liabilities	80,295	58,757	21,538
Net contract assets	$22,537	$35,221	($12,684)


	As of July 31, 2023
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets:
Deferred compensation plan:
Corporate-owned life insurance	$—	$246,911	$—	$246,911
Money market fund	7,778	—	—	7,778
Total assets	$7,778	$246,911	$—	$254,689

Liabilities:
Contingent consideration	$—	$—	$56,426	$56,426


		Unobservable		Weighted
Acquisition Date	Fair Value	Input	Range	Average (1)
9-1-2022	$5,120	Compound annual revenue growth rate	0% - 17%	11%
		Discount rate	8.7% - 8.7%	8.7%

7-18-2022	16,407	Compound annual revenue growth rate	2% - 9%	6%
		Discount rate	8.7% - 8.7%	8.7%

3-17-2022	6,407	Compound annual revenue growth rate	(3%) - 5%	0%
		Discount rate	7.5% - 7.5%	7.5%

8-18-2020	8,715	Compound annual revenue growth rate	12% - 21%	18%
		Discount rate	9.7% - 9.7%	9.7%

9-15-2017	19,777	Compound annual revenue growth rate	4% - 5%	5%
		Discount rate	6.7% - 6.7%	6.7%


						Liabilities
Balance as of October 31, 2022						$82,803
Payment of contingent consideration						(18,909)
Amendment and termination of contingent consideration agreement						(9,057)
Increase in accrued contingent consideration, net						1,218
Foreign currency transaction adjustments						371
Balance as of July 31, 2023						$56,426

Included in the accompanying Condensed Consolidated Balance Sheet under the following captions:
Accrued expenses and other current liabilities						$19,777
Other long-term liabilities						36,649
						$56,426


			Other, Primarily Corporate and Intersegment (1)	Consolidated Totals
	Segment
	FSG	ETG
Nine months ended July 31, 2023:
Net sales	$1,168,520	$882,685	($19,547)	$2,031,658
Depreciation	12,293	14,856	800	27,949
Amortization	19,360	37,886	1,120	58,366
Operating income	272,693	198,673	(35,475)	435,891
Capital expenditures	15,434	18,575	167	34,176

Nine months ended July 31, 2022:
Net sales	$909,253	$703,932	($14,501)	$1,598,684
Depreciation	11,493	10,153	743	22,389
Amortization	17,543	29,750	844	48,137
Operating income	189,329	189,605	(28,588)	350,346
Capital expenditures	12,084	11,874	399	24,357

Three months ended July 31, 2023:
Net sales	$405,040	$325,867	($8,005)	$722,902
Depreciation	4,141	5,395	265	9,801
Amortization	6,074	13,084	572	19,730
Operating income	89,172	74,157	(13,962)	149,367
Capital expenditures	4,791	7,517	(53)	12,255

Three months ended July 31, 2022:
Net sales	$330,259	$244,203	($4,934)	$569,528
Depreciation	4,082	3,361	250	7,693
Amortization	6,281	9,571	274	16,126
Operating income	70,756	68,029	(10,038)	128,747
Capital expenditures	3,971	3,879	296	8,146


			Other, Primarily Corporate	Consolidated Totals
	Segment
	FSG	ETG
Total assets as of July 31, 2023	$1,690,971	$2,913,437	$848,894	$5,453,302
Total assets as of October 31, 2022	1,635,229	2,230,744	229,523	4,095,496


	As of	As of
	July 31, 2023	October 31, 2022
Current assets (excluding net intercompany receivable from non-guarantor subsidiaries)	$1,524,929	$898,522
Noncurrent assets	2,654,288	2,612,503
Net intercompany receivable from/ (payable to) non-guarantor subsidiaries	170,219	(10,836)
Current liabilities (excluding net intercompany payable to non-guarantor subsidiaries)	346,560	327,700
Noncurrent liabilities	1,590,962	662,948
Redeemable noncontrolling interests	251,320	254,348
Noncontrolling interests	35,497	33,993


			Nine months ended
			July 31, 2023
Net sales			$1,591,258
Gross profit			596,251
Operating income			348,233
Net income from consolidated operations			264,456
Net income attributable to HEICO			242,760


			Nine months ended
			July 31, 2023
Intercompany net sales			$1,381
Intercompany management fee			1,853
Intercompany interest income			5,015
Intercompany dividends			41,080


Exhibit						Description

4.1						Indenture, dated July 27, 2023, between HEICO Corporation and certain of its subsidiaries and Truist Bank, as trustee, is incorporated by reference to Exhibit 4.1 to the Form 8-K filed on July 27, 2023. ***

4.2						First Supplemental Indenture, dated July 27, 2023, between HEICO Corporation and certain of its subsidiaries and Truist Bank, as trustee, is incorporated by reference to Exhibit 4.2 to the Form 8-K filed on July 27, 2023. ***

4.3						Form of 5.250% Notes due 2028 (form included as Exhibit A to the First Supplemental Indenture incorporated by reference as Exhibit 4.2 to the Form 8-K filed on July 27, 2023.) ***

4.4						Form of 5.350% Notes due 2033 (form included as Exhibit B to the First Supplemental Indenture incorporated by reference as Exhibit 4.2 to the Form 8-K filed on July 27, 2023.) ***
10.1						Third Amendment to Revolving Credit Agreement, effective as of July 14, 2023, among HEICO Corporation, as Borrower, the Lenders from time to time party thereto and Truist Bank (as successor by merger to SunTrust Bank), as Administrative Agent, is incorporated by reference to Exhibit 10.1 to the Form 8-K filed on July 1 7 , 2023. ***

10.2						Registration Rights Agreement, dated August 4, 2023, between HEICO Corporation and the selling stockholders, is incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-3ASR filed on August 4, 2023. ***

22.1						Subsidiary Guarantors and Issuers of Guaranteed Securities. *

31.1						Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. *

31.2						Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. *

32.1						Section 1350 Certification of Chief Executive Officer. **

32.2						Section 1350 Certification of Chief Financial Officer. **

101.INS						Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document. *

101.SCH						Inline XBRL Taxonomy Extension Schema Document. *

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document. *

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document. *

101.LAB						Inline XBRL Taxonomy Extension Labels Linkbase Document. *

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document. *

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). *


		HEICO CORPORATION

Date:	August 30, 2023	By:	/s/ CARLOS L. MACAU, JR.
			Carlos L. Macau, Jr. Executive Vice President - Chief Financial Officer and Treasurer (Principal Financial Officer)

		By:	/s/ STEVEN M. WALKER
			Steven M. Walker Chief Accounting Officer and Assistant Treasurer (Principal Accounting Officer)


Date:	August 30, 2023	/s/ LAURANS A. MENDELSON
		Laurans A. Mendelson
		Chief Executive Officer
		(Principal Executive Officer)