HEICO CORP

Previous wording

Our critical accounting policies, which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended October 31, 2023. There have been no material changes to our critical accounting policies during the three months ended January 31, 2024.

Current wording

Our critical accounting estimates, which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended October 31, 2023. Based on our recent assessment, we no longer deem revenue recognition to be a critical accounting estimate. Historically, the majority of our revenue was recognized at a point-in-time and involved minimal estimates to determine when control had transferred. We now recognize an even greater portion of our revenue at a point-in-time as a result of the acquisitions of Wencor Group and Exxelia International SAS in fiscal 2023. Additionally, we do not believe that the factors involving estimation uncertainty that are used when we recognize revenue using an over-time recognition model for certain contracts are reasonably likely to have a material impact on our financial position or results of operations. Other than the removal of revenue recognition, there have been no material changes to our critical accounting estimates during the six months ended April 30, 2024.

Previous wording

Our results of operations for the three months ended January 31, 2024 have been affected by the fiscal 2023 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2023.

Current wording

Our results of operations for the six and three months ended April 30, 2024 have been affected by the fiscal 2023 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2023.

Previous wording

Comparison of First Quarter of Fiscal 2024 to First Quarter of Fiscal 2023

Current wording

Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023

Previous wording

Our consolidated selling, general and administrative ("SG&A") expenses were $166.6 million in the first quarter of fiscal 2024, as compared to $114.4 million in the first quarter of fiscal 2023. The increase in consolidated SG&A expenses principally reflects $49.1 million attributable to our fiscal 2023 acquisitions and costs incurred to support the previously mentioned net sales growth resulting in increases of $5.5 million and $2.6 million in other general and administrative expenses and other selling expenses, respectively, partially offset by a $5.0 million reduction in acquisition costs.

Current wording

Our consolidated selling, general and administrative ("SG&A") expenses were $329.2 million in the first six months of fiscal 2024, as compared to $223.8 million in the first six months of fiscal 2023. The increase in consolidated SG&A expenses principally reflects $79.9 million attributable to our fiscal 2023 and 2024 acquisitions, costs incurred to support the previously mentioned net sales growth resulting in increases of $16.2 million and $5.6 million in other general and administrative expenses and other selling expenses, respectively, and a $9.1 million prior year impact from the amendment and termination of a contingent consideration agreement pertaining to a fiscal 2021 acquisition, partially offset by a $5.3 million decrease in acquisition costs.

Previous wording

Our consolidated operating income as a percentage of net sales was 20.1% in the first quarter of fiscal 2024, as compared to 20.8% in the first quarter of fiscal 2023. The decrease principally reflects a decrease in the ETG's operating income as a percentage of net sales to 19.3% in the first quarter of fiscal 2024, as compared to 22.2% in the first quarter of fiscal 2023 and a decrease in the FSG’s operating income as a percentage of net sales to 22.0% in the first quarter of fiscal 2024, as compared to 22.5% in the first quarter of fiscal 2023. The decrease in the ETG's operating income as a percentage of net sales principally reflects a 2.7% impact from an increase in SG&A expenses as a percentage of net sales as well as the previously mentioned decrease in gross profit margin. The increase in the ETG's SG&A expenses as a percentage of net sales mainly reflects the previously mentioned lower level of efficiencies, partially offset by a 2.0% impact from the previously mentioned lower acquisition costs. The decrease in the FSG’s operating income as a percentage of net sales principally reflects the previously mentioned lower gross profit margin and a .9% impact from the previously mentioned higher intangible asset amortization expense, partially offset by a .9% impact from lower performance-based compensation expense.

Current wording

Our consolidated operating income as a percentage of net sales was 21.0% in the first six months of fiscal 2024, as compared to 21.9% in the first six months of fiscal 2023. The decrease in consolidated operating income as a percentage of net sales principally reflects a decrease in the FSG’s operating income as a percentage of net sales to 22.5% in the first six months of fiscal 2024, as compared to 24.0% in the first six months of fiscal 2023 and a decrease in the ETG's operating income as a percentage of net sales to 21.6% in the first six months of fiscal 2024, as compared to 22.4% in the first six months of fiscal 2023. The decrease in the FSG’s operating income as a percentage of net sales principally reflects a 1.2% prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement and a 1.2% impact from the previously mentioned higher intangible asset amortization expense, partially offset by a .9% impact from lower performance-based compensation expense as a percentage of net sales. The decrease in the ETG's operating income as a percentage of net sales principally reflects a 1.6% impact from an increase in SG&A expenses as a percentage of net sales, partially offset by the previously mentioned increase in gross profit margin. The increase in the ETG's SG&A expenses as a percentage of net sales mainly reflects the previously mentioned lower level of efficiencies, partially offset by a .9% impact from the previously mentioned lower acquisition costs.

Previous wording

Our effective tax rate decreased to 11.8% in the first quarter of fiscal 2024, down from 16.9% in the first quarter of fiscal 2023. The decrease in our effective tax rate principally reflects a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2024. We recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2024 and 2023 of $13.6 million and $6.2 million, respectively.

Current wording

Our effective tax rate decreased to 16.9% in the first six months of fiscal 2024, down from 19.3% in the first six months of fiscal 2023. The decrease in our effective tax rate principally reflects a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2024. We recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2024 and 2023 of $13.6 million and $6.2 million, respectively.

Previous wording

Our consolidated net sales in the first quarter of fiscal 2024 increased by 44% to $896.4 million, up from net sales of $620.9 million in the first quarter of fiscal 2023. The increase in consolidated net sales principally reflects an increase of $247.4 million (a 67% increase) to a record $618.7 million within the FSG and an increase of $30.9 million (a 12% increase) to $285.9 million within the ETG. The net sales increase in the FSG reflects $202.0 million contributed by a fiscal 2023 acquisition as well as strong organic growth of 12%. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts and repair and overhaul parts and services product lines resulting in net sales increases of $37.9 million and $11.0 million, respectively. The net sales increase in the ETG reflects net sales of $39.4 million contributed by a fiscal 2023 acquisition, partially offset by a 5% organic net sales decline. The ETG's organic net sales decline is mainly attributable to decreased demand for its other electronics, medical and space products resulting in net sales decreases of $7.3 million, $4.7 million and $2.8 million, respectively, partially offset by increased demand for its aerospace products resulting in a net sales increase of $3.3 million. Although sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the first quarter of fiscal 2024, continued cost inflation may lead to higher sales prices during the remainder of fiscal 2024.

Current wording

Our consolidated net sales in the second quarter of fiscal 2024 increased by 39% to a record $955.4 million, up from net sales of $687.8 million in the second quarter of fiscal 2023. The increase in consolidated net sales principally reflects an increase of $255.0 million (a 65% increase) to a record $647.2 million in net sales of the FSG and an increase of $17.6 million (a 6% increase) to $319.3 million in net sales of the ETG. The net sales increase in the FSG reflects $206.6 million contributed by fiscal 2023 and 2024 acquisitions as well as strong organic growth of 12%. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts and repair and overhaul parts and services product lines resulting in net sales increases of $45.0 million and $4.1 million, respectively. The net sales increase in the ETG principally reflects organic growth of 4%. The ETG's organic net sales growth is mainly attributable to increased demand for its defense and aerospace products resulting in net sales increases of $26.4 million and $6.8 million, respectively, partially offset by decreased demand for its other electronics and medical products resulting in net sales decreases of $12.4 million and $4.3 million, respectively. Although sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the second quarter of fiscal 2024, continued cost inflation may lead to higher sales prices during the remainder of fiscal 2024.

Previous wording

Our consolidated gross profit margin was 38.7% in the first quarter of fiscal 2024, as compared to 39.3% in the first quarter of fiscal 2023 principally reflecting decreases of .3% and .2% in the FSG's and ETG's gross profit margin, respectively. The decrease in the FSG's gross profit margin principally reflects a .9% impact from higher inventory obsolescence expense, partially offset by the previously mentioned higher net sales. The reduction in the ETG's gross profit margin principally reflects a .5% impact from an increase in new product research and development expenses as well as the previously mentioned decreases in net sales for its other electronics, space and medical products, partially offset by increased demand for its aerospace products. Total new product research and development expenses included within our consolidated cost of sales were $25.1 million in the first quarter of fiscal 2024, up from $20.2 million in the first quarter of fiscal 2023.

Current wording

Our consolidated gross profit margin improved to 38.9% in the second quarter of fiscal 2024, up from 38.7% in the second quarter of fiscal 2023, principally reflecting increases of 1.7% and .3% in the ETG's and FSG's gross profit margin, respectively. The increase in the ETG's gross profit margin principally reflects the previously mentioned increase in net sales of defense products, partially offset by the previously mentioned decrease in net sales of other electronics products. The increase in the FSG's gross profit margin principally reflects the previously mentioned higher net sales, partially offset by a .5% impact from higher inventory obsolescence expense. Total new product research and development expenses included within our consolidated cost of sales were $27.9 million in the second quarter of fiscal 2024, up from $22.9 million in the second quarter of fiscal 2023.

Previous wording

Our consolidated operating income increased by 39% to $180.2 million in the first quarter of fiscal 2024, up from $129.4 million in the first quarter of fiscal 2023. The increase in consolidated operating income principally reflects a $52.5 million increase (a 63% increase) to a record $136.1 million in operating income of the FSG, partially offset by a $1.2 million decrease (a 2% decrease) to $55.3 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, partially offset by an $11.1 million increase in intangible asset amortization expense and a $5.0 million increase in inventory obsolescence expense. The decrease in operating income of the ETG principally reflects a lower level of SG&A efficiencies, partially offset by the previously mentioned net sales increase and a $5.0 million decrease in acquisition costs.

Current wording

Our consolidated operating income increased by 33% to a record $209.2 million in the second quarter of fiscal 2024, up from $157.1 million in the second quarter of fiscal 2023. The increase in consolidated operating income principally reflects a $49.0 million increase (a 49% increase) to a record $148.9 million in operating income of the FSG and a $7.3 million increase (an 11% increase) to $75.3 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, partially offset by an $11.9 million increase in intangible asset amortization expense, a $9.1 million prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement, and a $4.8 million increase in inventory obsolescence expense. The increase in operating income of the ETG principally reflects the previously mentioned improved gross profit margin and net sales growth, partially offset by a lower level of SG&A efficiencies.

Previous wording

Interest expense increased to $38.6 million in the first quarter of fiscal 2024, up from $6.1 million in the first quarter of fiscal 2023. The increase in interest expense was principally due to an increase in the amount of outstanding debt related to fiscal 2023 acquisitions.

Current wording

Interest expense increased to $38.5 million in the second quarter of fiscal 2024, as compared to $11.4 million in the second quarter of fiscal 2023. The increase in interest expense was principally due to an increase in the amount of outstanding debt related to fiscal 2023 acquisitions.

Previous wording

Other income in the first quarter of fiscal 2024 and 2023 was not material.

Current wording

Other income in the second quarter of fiscal 2024 and 2023 was not material.

Previous wording

Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace Holdings Corp. and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $10.8 million in the first quarter of fiscal 2024, as compared to $10.0 million in the first quarter of fiscal 2023. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries of the FSG and ETG in which noncontrolling interests are held.

Current wording

Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace Holdings Corp. and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $11.8 million in the second quarter of fiscal 2024, as compared to $9.9 million in the second quarter of fiscal 2023. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries of the FSG and ETG in which noncontrolling interests are held.

Previous wording

Net income attributable to HEICO increased by 23% to $114.7 million, or $.82 per diluted share, in the first quarter of fiscal 2024, up from $93.0 million, or $.67 per diluted share, in the first quarter of fiscal 2023 principally reflecting the previously mentioned higher consolidated operating income and lower effective tax rate, partially offset by the previously mentioned higher interest expense.

Current wording

Net income attributable to HEICO increased by 17% to $123.1 million, or $.88 per diluted share, in the second quarter of fiscal 2024, up from $105.1 million, or $.76 per diluted share, in the second quarter of fiscal 2023 principally reflecting the previously mentioned higher consolidated operating income, partially offset by the previously mentioned higher interest expense.

Previous wording

Our principal uses of cash include acquisitions, capital expenditures, interest payments, cash dividends, distributions to noncontrolling interests and working capital needs. We continue to anticipate fiscal 2024 capital expenditures to be approximately $65 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolving credit facility. The revolving credit facility and senior unsecured notes contain both financial and non-financial covenants. As of January 31, 2024, we were in compliance with all such covenants and our total debt to shareholders’ equity ratio was 75.4%.

Current wording

Our principal uses of cash include acquisitions, capital expenditures, interest payments, cash dividends, distributions to noncontrolling interests and working capital needs. We now anticipate fiscal 2024 capital expenditures to be approximately $60 to $65 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolving credit facility. The revolving credit facility and senior unsecured notes contain both financial and non-financial covenants. As of April 30, 2024, we were in compliance with all such covenants and our total debt to shareholders’ equity ratio was 69.4%.

Previous wording

Net cash provided by operating activities was $111.7 million in the first quarter of fiscal 2024 and consisted primarily of net income from consolidated operations of $125.5 million, depreciation and amortization expense of $43.5 million (a non-cash item), and net changes in other long-term liabilities and assets related to the LCP of $14.8 million (principally participant deferrals and employer contributions), partially offset by a $71.8 million increase in net working capital. The increase in net working capital is inclusive of a $50.5 million decrease in accrued expenses and other current liabilities mainly reflecting the payment of fiscal 2023 accrued performance-based compensation, a $49.8 million increase in inventories to support an increase in consolidated backlog, and a $15.8 million increase in prepaid expenses and other current assets, partially offset by a $38.9 million decrease in accounts receivable resulting from the timing of collections.

Current wording

Net cash provided by operating activities was $252.8 million in the first six months of fiscal 2024 and consisted primarily of net income from consolidated operations of $260.4 million, depreciation and amortization expense of $86.3 million (a non-cash item), net changes of $41.8 million included in the "Other" caption (principally the receipt of advance deposits on certain long-term customer contracts), and net changes in other long-term liabilities and assets related to the HEICO LCP of $17.3 million (principally participant deferrals and employer contributions), partially offset by a $148.2 million increase in net working capital. The increase in net working capital is inclusive of a $71.1 million increase in inventories to support an increase in consolidated backlog and a $58.1 million decrease in accrued expenses and other current liabilities mainly reflecting the payment of fiscal 2023 accrued performance-based compensation, partially offset by accrued fiscal 2024 performance-based compensation, as well as an $11.4 million decrease in trade accounts payable and a $9.2 million increase in prepaid expenses and other current assets.

Previous wording

Net cash provided by operating activities increased by $35.0 million in the first quarter of fiscal 2024, up from $76.7 million in the first quarter of fiscal 2023. The increase is principally attributable to a $22.5 million increase in net income from consolidated operations and a $16.4 million increase in depreciation and amortization expense.

Current wording

Net cash provided by operating activities increased by $98.4 million in the first six months of fiscal 2024, up from $154.4 million in the first six months of fiscal 2023. The increase is principally attributable to a $42.3 million increase in net income from consolidated operations, a $48.5 million increase in the "Other" caption mainly from the previously mentioned receipt of advance long-term customer deposits in fiscal 2024, a $29.6 million increase in depreciation and amortization expense, and a $9.1 million prior year impact from the amendment and termination of a contingent consideration agreement, partially offset by a $34.5 million increase in net working capital mainly reflecting a $55.4 million decrease in accrued expenses and other current liabilities partially offset by a $26.5 million decrease in accounts receivable.

Previous wording

Net cash used in investing activities totaled $71.1 million in the first quarter of fiscal 2024 and related primarily to acquisitions of $46.2 million, capital expenditures of $13.4 million and investments related to the LCP of $12.7 million. Further details regarding our fiscal 2024 acquisition may be found in Note 2, Acquisition, of the Notes to Condensed Consolidated Financial Statements.

Current wording

Net cash used in investing activities totaled $85.3 million in the first six months of fiscal 2024 and related primarily to acquisitions of $46.2 million, capital expenditures of $26.3 million and investments related to the HEICO LCP of $14.4 million. Further details regarding our fiscal 2024 acquisition may be found in Note 2, Acquisition, of the Notes to Condensed Consolidated Financial Statements.

Previous wording

Net cash used in financing activities in the first quarter of fiscal 2024 totaled $16.7 million. During the first quarter of fiscal 2024, we borrowed $50.0 million under our revolving credit facility, which was partially offset by $15.0 million in payments made on our revolving credit facility, $13.9 million of net payments on short-term debt, $13.8 million of cash dividends paid on our common stock, $13.8 million of contingent consideration payments and $8.8 million of distributions to noncontrolling interests.

Current wording

Net cash used in financing activities in the first six months of fiscal 2024 totaled $135.2 million. During the first six months of fiscal 2024, we made $125.0 million of payments on our revolving credit facility, $15.4 million of distributions to noncontrolling interests, $13.9 million of net payments on short-term debt, $13.8 million of cash dividends paid on our common stock, and $13.8 million of contingent consideration payments, partially offset by $50.0 million of borrowings on our revolving credit facility and $4.2 million of proceeds from stock option exercises.

Previous wording

Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature may be forward-looking and the words “anticipate,” “believe,” “expect,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to risks, uncertainties and contingencies. We have based these forward-looking statements on our current expectations and projections about future events. All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also,

Current wording

Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature may be forward-looking and the words “anticipate,” “believe,” “expect,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to risks, uncertainties and contingencies. We have based these forward-looking statements on our current expectations and projections about future events. All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information. Therefore, actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include:

Previous wording

•Product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales; and

Current wording

•Product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales;

Previous wording

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.

Current wording

For further information on these and other factors that potentially could materially affect our financial results, see Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended October 31, 2023. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.