LONGUEUIL, QUÉBEC–(Marketwired – Feb. 7, 2018) – Héroux-Devtek Inc. (TSX:HRX)

• Sales of .0 million, versus .5 million in the previous year
• Operating income of .6 million and net income of {$content}.6 million, or {$content}.02 per share
• Adjusted EBITDA¹ of .6 million and adjusted net income¹ of .7 million, or {$content}.16 per share
• Cash flows related to operating activities of .3 million, up from .5 million last year
• Significant increase in free cash flow¹ to .1 million, versus .7 million last year

Héroux-Devtek Inc. (TSX:HRX), (“Héroux-Devtek” or the “Corporation”), a leading international manufacturer of aerospace products, today reported its results for the third quarter of fiscal 2018 ended December 31, 2017. Unless otherwise indicated, all amounts are in Canadian dollars.

“During the third quarter, we continued to generate solid free cash flow, a trend which has enabled us to reduce our net debt position significantly since the beginning of the fiscal year. On a year-to-date basis, free cash flow stood at over million versus million for the same period last year. In addition, our backlog remained solid at 5 million, up from 5 million at March 31, 2017,” said Gilles Labbé, President and CEO of Héroux-Devtek.

“As we enter our strongest quarter of the year, we are maintaining our annual guidance of a low single-digit sales decrease and stable adjusted EBITDA margin, as compared to last year. We are excited about our future, given the game-changing acquisition of CESA, many new opportunities, the positive long-term growth outlook on commercial aerospace and increased defence spending commitments worldwide,” added Mr. Labbé.

¹ 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 reached .0 million, compared with .5 million last year. This 1.5% variation reflects lower sales in the defence aerospace market and a net negative impact on third-quarter sales of .5 million resulting from year-over-year fluctuations in the value of the Canadian currency versus foreign currencies. These factors were partially offset by an increase in sales in the commercial aerospace market.

Commercial sales increased 2.7% to .1 million, compared with .7 million last year. The increase was mainly driven by the increased deliveries to Boeing for the 777 program and higher engineering sales. These factors were partially offset by the scheduled ending of a Tier-2 contract and lower aftermarket sales in support of the Saab 340 program.

Defence sales decreased 6.0% to .9 million from .7 million. This variation is essentially due to decreased sales to civil customers resulting from lower spare parts sales, as well as lower repair and overhaul (“R&O”) sales on the P-3 program. These factors were partially offset by higher manufacturing sales from a catch-up in deliveries to civil customers and higher R&O sales to European customers as a result of better throughput.

Gross profit increased to .8 million, or 16.3% of sales, versus .0 million, or 15.3% of sales, last year. The increase was largely attributable to favourable exchange rate fluctuations mostly related to the U.S. dollar, representing 1.5% of sales, partially offset by higher under-absorption of manufacturing costs due to excess capacity and processing and finishing costs related to the Boeing 777 program. These processing and finishing costs are expected to normalize upon completion of the customer qualification and approval of Héroux-Devtek’s surface treatment processes.

Operating income stood at .6 million, or 6.8% of sales, compared with .7 million, or 7.8% of sales, last year. This year’s operating income included acquisition-related costs of {$content}.6 million in connection with the agreement to acquire CESA. Adjusted EBITDA, which excludes non-recurring items, was .6 million, or 14.0% of sales, compared with .9 million, or 14.1% of sales, a year ago.

Financial expenses stood at {$content}.4 million, compared with financial income of .9 million last year. The .3 million increase in financial expenses was mainly driven by a .9 million non-cash gain recorded last year following the revision of governmental authorities loans repayment schedules, partially offset by net gains of {$content}.6 million during the current quarter related to certain derivative financial instruments.

Income tax expense stood at .6 million for the third quarter of fiscal 2018, compared with .4 million last year. This significant increase is mainly driven by a one-time tax expense of .9 million associated to the devaluation of the Corporation’s net deferred tax assets in relation to the recent US tax reform.

Net income for the third quarter of fiscal 2018 was {$content}.6 million, or {$content}.02 per diluted share, compared with .2 million, or {$content}.23 per diluted share, a year ago. Excluding non-recurring items net of taxes, adjusted net income reached .7 million, or {$content}.16 per share, versus .0 million, or {$content}.17 per share, last year.

As at December 31, 2017, Héroux-Devtek’s funded (firm orders) backlog stood at 5 million, versus 5 million as at March 31, 2017. This increase mainly reflects the confirmation of additional orders as part of the Boeing 777 and 777X contract.

NINE-MONTH RESULTS

For the first nine months of fiscal 2018, consolidated sales reached 3.5 million, versus 5.7 million in the first nine months of fiscal 2017. Year-over-year fluctuations in the value of the Canadian currency versus foreign currencies decreased sales by .0 million. Commercial sales reached 7.6 million versus 0.0 million a year ago, while defence sales totalled 6.0 million compared with 5.6 million last year.

Gross profit for the first nine months of fiscal 2018 amounted to .3 million, equivalent to 15.5% of sales, compared with .2 million, or 16.5% of sales, in the first nine months of fiscal 2017. Operating income was .7 million, or 6.1% of sales, versus .9 million, or 9.4% of sales, a year ago. Year-over-year fluctuations in the value of the Canadian currency versus foreign currencies decreased operating income by .4 million. Adjusted EBITDA reached .5 million, or 13.7% of sales, versus .3 million, or 14.8% of sales, a year earlier.

Net income was .8 million, or {$content}.22 per diluted share, in the first nine months of fiscal 2018, compared with .9 million, or {$content}.63 per diluted share, in the first nine months of fiscal 2017. Adjusted net income stood at .8 million, or {$content}.38 per share, versus .3 million, or {$content}.48 per share, last year.

SOLID CASH FLOWS AND HEALTHY FINANCIAL POSITION

Cash flows related to operating activities amounted to .3 million in the third quarter of fiscal 2018, versus .5 million in the third quarter of fiscal 2017. This improvement mainly reflects a net favourable variation in non-cash working capital items. As a result, Héroux-Devtek generated a solid free cash flow of .1 million in the third quarter of fiscal 2018, up significantly from .7 million last year. For the first nine months of fiscal 2018, cash flows related to operating activities were .6 million, compared with .0 million a year earlier, while free cash flow amounted to .8 million, versus .2 million last year.

Given this free cash flow generation, Héroux-Devtek’s financial position remained healthy as at December 31, 2017, with cash and cash equivalents of .6 million, while total long-term debt was 1.4 million, including the current portion, but excluding net deferred financing costs. Long-term debt includes .7 million drawn against the Corporation’s authorized credit facility of 0.0 million. As a result, the net debt position was .8 million at the end of the third quarter, down from .3 million as at March 31, 2017. The net-debt-to equity ratio was 0.17:1 as at December 31, 2017, versus 0.26:1 as at March 31, 2017.

UPDATE ON FALCON 5X PROGRAM FROM DASSAULT

Dassault Aviation (“Dassault”) announced, on December 13, 2017, the cancellation process of the Silvercrest contract leading to the termination of the Falcon 5X business jet program and announced the launch of a new Falcon program with an entry into service in 2022. The Corporation is in discussions with Dassault and expects to supply this new aircraft within the framework of the existing Falcon 5X contract.

GUIDANCE

For fiscal 2018 management reiterates its annual guidance of a low single-digit decrease for sales and stable adjusted EBITDA as compared to last year, while it decreased its capital expenditure guidance from approximately million to million due to lower expected investments related to a customer contract.

Please see “Forward-Looking Statements” below and the Guidance section in the Corporation’s MD&A for the quarter ended December 31, 2017, for further details regarding the material assumptions underlying the foregoing guidance.

CONFERENCE CALL

Héroux-Devtek Inc. will hold a conference call to discuss these results on Wednesday, February 7, 2018 at 8:30 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 Héroux-Devtek’s website, www.herouxdevtek.com/investor-relations/events or www.gowebcasting.com/9115.

An accompanying presentation will also be available on Héroux-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 7297916 on your phone. This tape recording will be available on Wednesday, February 7, 2018 as of 11:30 AM Eastern Time until 11:59 PM Eastern Time on Wednesday, February 14, 2018.

PROFILE

Héroux-Devtek Inc. (TSX:HRX) is an international company specializing in the design, development, manufacture and repair and overhaul of landing gear and actuation systems and components for the Aerospace market. The Corporation is the third largest landing gear company worldwide, supplying both the commercial and defence sectors of the Aerospace market with new landing gear systems and components, as well as aftermarket products and services. The Corporation also manufactures hydraulic systems, fluid filtration systems and electronic enclosures. Approximately 90% of the Corporation’s sales are outside Canada, including about 65% in the United States. The Corporation’s head office is located in Longueuil, Québec 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; and Runcorn, Nottingham and Bolton, United Kingdom.

FORWARD-LOOKING STATEMENTS

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, 2017, 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.

NON-IFRS MEASURES

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 Héroux-Devtek’s website at www.herouxdevtek.com.