Héroux-Devtek Reports Fiscal 2019 Second Quarter Results

Financial Highlights

• Sales increased 6.7% to $95.7 million
• Operating income increased 13.9% to $5.3 million and adjusted EBITDA¹ increased 9.5% to $13.2 million
• Cash flows generated by operating activities stood at $11.7 million, compared with $15.7 million last year and healthy free cash flow¹ of $8.2 million, compared with $13.3 million last year

Operational and Commercial Highlights

• Completed the acquisitions of Beaver Aerospace & Defense Inc. (“Beaver”) on July 2, 2018 and Compañia Española de Sistemas Aeronáuticos, S.A. (“CESA”) subsequent to quarter-end
• Funded backlog grew to $479 million, up from $454 million sequentially from Q1 2019
• Delivered the first 777X landing gear to Boeing

LONGUEUIL, Quebec, Nov. 12, 2018 (GLOBE NEWSWIRE) — Héroux-Devtek Inc. (TSX:HRX), (“Héroux-Devtek” or the “Corporation”), a leading international manufacturer of aerospace products, today reported its results for the second quarter of fiscal 2019 ended September 30, 2018. Unless otherwise indicated, all amounts are in Canadian dollars.

“The second quarter represents a key milestone in the international expansion of Heroux-Devtek. Not only did our long-standing commercial partners Boeing and Lockheed Martin award us important long-term contracts, we also closed two transformational acquisitions. Beaver and CESA will broaden our existing product offering into complementary state-of-the-art actuation and hydraulic systems and provide significant cross-selling opportunities with the world’s leading aircraft manufacturers,” said Gilles Labbé, President and CEO of Héroux-Devtek.

“These important developments are positioning us as leading suppliers in an industry with strong fundamentals and positive long-term growth outlook. After solid financial results in the second quarter, we are confident in our ability to deliver approximately 20% of revenue growth for fiscal 2019 and anticipate 60% revenue growth by 2022 as compared to our fiscal 2018 revenues. With strong financial flexibility, we have all the elements in place to enter our next expansion phase with renewed enthusiasm,” 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.

SECOND QUARTER RESULTS
Consolidated sales increased 6.7% to $95.7 million, compared with $89.7 million last year, reflecting Beaver’s contribution. This reflects higher sales in both defence and commercial aerospace markets and a net positive impact on second-quarter sales of $1.7 million, resulting from year-over-year fluctuations in the value of the Canadian currency versus foreign currencies.

Commercial sales increased 11.5% to $47.0 million, compared with $42.2 million last year. This was mainly driven by increased deliveries to Boeing for the 777 and 777X programs, Beaver’s sales as well as higher business jet sales, mostly related to increased deliveries for the Embraer 450/500 program.

Defence sales increased 2.4% to $48.6 million, from $47.5 million. This is essentially due to Beaver’s sales and higher spares requirements from the U.S. Government. These factors were largely offset by the timing of manufacturing sales to certain civil customers and the ramp-down of repair and overhaul (“R&O”) activities for the United States Air Force.

Gross profit increased to $15.5 million, or 16.2% of sales, versus $13.6 million, or 15.1% of sales, last year. The increase was mainly driven by the impact of Beaver’s acquisition, higher absorption of costs related to the Boeing 777 due to higher volume and improved production efficiencies. These factors included favourable exchange rate fluctuations representing 0.4% of sales.

Operating income increased to $5.3 million, or 5.5% of sales, compared with $4.6 million, or 5.2% of sales, last year, reflecting mainly Beaver’s contribution. This year and last year’s operating income included acquisition-related costs of $0.9 million in connection with the acquisitions of CESA and Beaver. Adjusted EBITDA, which excludes non-recurring items, was $13.2 million, or 13.8% of sales, compared with $12.0 million, or 13.4% of sales, a year ago.

Financial expenses increased to $1.6 million, compared with $1.2 million last year. This variation mainly reflects net losses on derivative financial instruments related to CESA’s acquisition, partly offset by higher interest income on cash and cash equivalents.

Net income for the second quarter of fiscal 2019 was $3.3 million, or $0.09 per diluted share, compared with $3.2 million, or $0.09 per diluted share, a year ago. Excluding non-recurring items net of taxes, adjusted net income reached $4.4 million, or $0.12 per share, versus $4.1 million, or $0.11 per share, last year.

As at September 30, 2018, Héroux-Devtek’s funded (firm orders) backlog stood at $479 million, versus $454 million as at June 30, 2018. This backlog includes Beaver but does not include CESA as the transaction closed, subsequent to quarter-end, on October 1, 2018.  

SIX-MONTH RESULTS
For the first six months of fiscal 2019, consolidated sales reached $181.4 million, versus $176.5 million last year. Year-over-year fluctuations in the value of the Canadian currency versus foreign currencies decreased sales by $0.7 million. Commercial sales reached $92.8 million, versus $85.5 million a year ago, while defence sales totalled $88.6 million compared with $91.0 million last year.

Gross profit for the first six months of fiscal 2019 amounted to $28.5 million, equivalent to 15.7% of sales, compared with $26.5 million, or 15.0% of sales last year. Operating income was $10.1 million, or 5.6% of sales, in line with last year. Year‑over-year fluctuations in the value of the Canadian currency versus foreign currencies increased operating income by  $0.9 million. Adjusted EBITDA reached $25.4 million, or 14.0% of sales, versus $24.0 million, or 13.6% of sales, a year earlier.

Net income was $6.8 million, or $0.19 per diluted share, compared with $7.2 million, or $0.20 per diluted share last year. Adjusted net income stood at $8.2 million, or $0.22 per share, versus $8.1 million, or $0.22 per share, last year.

SOLID CASH FLOWS AND HEALTHY FINANCIAL POSITION           
Cash flows related to operating activities amounted to $11.7 million in the second quarter of fiscal 2019, versus $15.7 million in the second quarter of fiscal 2018. This mainly reflects a net unfavourable variation in non-cash working capital items. As a result, Héroux-Devtek generated free cash flow of $8.2 million in the second quarter of fiscal 2019, down from $13.3 million last year. For the first six months of fiscal 2019, cash flows related to operating activities were $20.1 million, compared with $18.3 million a year earlier, while free cash flow amounted to $14.5 million, versus $13.7 million last year.

In preparation of closing the CESA acquisition which occurred after the end of the quarter, on October 1, 2018, Héroux-Devtek’s balance sheet reflected both an increase in cash and debt as at September 30, 2018. Therefore, cash and cash equivalents amounted to $196.7 million, while total long-term debt was $251.7 million, including the current portion, but excluding net deferred financing costs. Long-term debt includes $119.1 million drawn against the Corporation’s authorized credit facility of $250.0 million. As a result, the net debt position was $55.0 million at the end of the second quarter, up from $38.8 million as at March 31, 2018, mainly reflecting the Beaver acquisition and free cash flow generated in the second quarter. The net debt to adjusted EBITDA ratio stood at 0.9x versus 0.7x six months earlier.

On a pro forma basis, as at October 1, 2018, Héroux-Devtek had $25.8 million of cash and cash equivalents, while long-term debt was $286.2 million, including the current portion, but excluding net deferred financing costs. As a result, the net debt position was $260.4 million. Please refer to the second quarter MD&A and forward looking statements at the end of this press release for further details on this pro forma calculation.

GUIDANCE REITEREATED
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 in the range of $460 to $470 million with capital expenditures of 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 September 30, 2018, 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 Monday, November 12, 2018 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 Héroux-Devtek’s website, www.herouxdevtek.com/investor-relations/events or http://www.gowebcasting.com/9784

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 3390868 on your phone. This tape recording will be available on Monday, November 12, 2018 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Monday, November 19, 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 of Canada, including about 50% 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; Livonia, Michigan; Runcorn, Nottingham and Bolton, United Kingdom; and Madrid and Seville, Spain.

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 September 30, 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.

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.