Form 8-K Wesco Aircraft Holdings, For: May 03
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 3, 2018
Wesco Aircraft Holdings, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE | 001-35253 | 20-5441563 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
24911 Avenue Stanford
Valencia, California 91355
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (661) 775-7200
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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Item 2.02 Results of Operations and Financial Condition.
On May 3, 2018, Wesco Aircraft Holdings, Inc. (the “Company”) announced its financial results for the fiscal quarter ended March 31, 2018. The full text of the press release issued by the Company in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K. Following the publication of this earnings release, the Company is scheduled to host an earnings call at 2:00 pm (PST) or 5:00 pm (EST) on May 3, 2018 to discuss its financial results for the fiscal quarter ended March 31, 2018. The investor presentation materials used for the call are attached as Exhibit 99.2 hereto.
On May 3, 2018, the Company posted the materials attached as Exhibits 99.1 and 99.2 on its website (www.wescoair.com).
Item 7.01 Regulation FD Disclosure.
On May 3, 2018, the Company issued a press release announcing the launch of Wesco 2020 - Building the Future. A copy of the press release is furnished as Exhibit 99.3 to this Current Report on Form 8-K.
The information in this Current Report on Form 8-K (including Exhibits 99.1, 99.2 and 99.3) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
WESCO AIRCRAFT HOLDINGS, INC. | |||
Date: | May 3, 2018 | By: | /s/ Kerry A. Shiba |
Kerry A. Shiba Executive Vice President and Chief Financial Officer | |||
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Exhibit 99.1
Wesco Aircraft Holdings Reports
Fiscal 2018 Second Quarter Results
-- Separately Announced Wesco 2020, Building the Future;
Wesco 2020 Expected to Deliver Significant Benefits --
VALENCIA, Calif., May 3, 2018 - Wesco Aircraft Holdings, Inc. (NYSE: WAIR), one of the world's leading distributors and providers of comprehensive supply chain management services to the global aerospace industry, today announced results for its fiscal 2018 second quarter ended March 31, 2018.
Fiscal 2018 Second Quarter Highlights
• | Net sales of $390.2 million, up 7.0 percent |
• | Net income of $15.0 million, or $0.15 per diluted share |
• | Adjusted net income(1) of $22.2 million, or $0.22 per diluted share |
• | Adjusted earnings before interest, taxes, depreciation and amortization(1) (EBITDA) of $45.0 million, or 11.5 percent of net sales |
Todd Renehan, chief executive officer, said, “Progress on Wesco’s improvement initiatives has driven better operating and financial performance for the second quarter in a row, a testament to the hard work of our people and ongoing support of our customers. We reported solid sales growth in the quarter, with increases in both ad-hoc sales and long-term contracts. We also continued to win new business and renew long-term contracts, reflecting our robust value proposition. We maintained our focus on selling, general and administrative expenses in the quarter; apart from consulting costs incurred to support Wesco 2020, expenses were consistent with the previous quarter.
“While I’m pleased with the progress made in our performance so far this year, we still have gaps in our execution. We launched Wesco 2020 in the fiscal 2018 second quarter to address these
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gaps and deliver stronger results. In addition, the significant financial benefits expected through Wesco 2020 will allow us to invest in the capabilities we need to continue supporting our customers and deliver long-term value to shareholders. Ultimately, we believe Wesco 2020 will enable the company to maintain high levels of service excellence, manage inventory more effectively and leverage our infrastructure to support profitable growth.”
Wesco 2020 Launch
In a separate press release issued today, the company announced the launch of Wesco 2020, Building the Future, focused on service excellence, inventory management and profitable growth. Wesco 2020 is expected to deliver significant operational and financial benefits through footprint alignment, organizational refinement, productivity gains and investment in critical capabilities to serve customers better.
Wesco 2020 is expected to deliver annualized pre-tax benefits of at least $30 million; benefits realization is expected to start in the first quarter of fiscal 2019, with the run-rate improving steadily as the year progresses. The company expects to incur non-recurring costs associated with Wesco 2020 approximately equal to the run-rate benefit over the implementation period.
Fiscal 2018 Second Quarter Results
Net sales of $390.2 million in the fiscal 2018 second quarter were 7.0 percent higher than the same period last year, primarily due to an increase in long-term contracts and growth in ad-hoc sales. The increase in contract sales primarily reflects new business revenue and higher hardware and chemical volume with existing customers. Ad-hoc sales growth was primarily due to increases at key customers.
Gross profit was $105.7 million in the second quarter of fiscal 2018, compared with $94.8 million in the fiscal 2017 second quarter. The increase in gross profit compared to the same period last year was primarily due to higher sales volume and the impact from lower provisions for excess and obsolete inventory and inventory adjustments.
Selling, general and administrative (SG&A) expenses totaled $72.5 million in the fiscal 2018 second quarter compared with $62.6 million in the same period last year. The increase in SG&A expenses was primarily due to staff additions in the second half of fiscal 2017 to stabilize the business and support growth, as well as consulting costs of $4 million in the fiscal 2018 second quarter associated with the launch of Wesco 2020.
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SG&A expenses as a percentage of net sales were 18.6 percent in the fiscal 2018 second quarter, compared with 17.2 percent in the same period last year.
Income from operations totaled $33.2 million, or 8.5 percent of net sales, in the fiscal 2018 second quarter, compared with $32.2 million, or 8.8 percent of net sales, in the same period last year. The increase in income from operations reflects higher gross profit, partially offset by an increase in SG&A expenses.
Net income was $15.0 million, or $0.15 per diluted share, in the fiscal 2018 second quarter. This compares with net income of $17.4 million, or $0.18 per diluted share, in the same period last year. Adjusted net income(1) was $22.2 million, or $0.22 per diluted share, compared with $21.1 million, or $0.21 per diluted share, in the same period last year.
Adjusted EBITDA(1) in the fiscal 2018 second quarter was $45.0 million, compared with $39.0 million in the same period last year. Adjusted EBITDA margin(1) was 11.5 percent, compared with 10.7 percent in the same period last year.
Fiscal 2018 Year-to-Date Results
Net sales were $753.3 million in the first six months of fiscal 2018, an increase of 7.0 percent compared with the same period last year, primarily due to higher long-term contracts and ad-hoc sales.
Income from operations totaled $57.8 million, or 7.7 percent of net sales, in the first six months of fiscal 2018. This compares with $58.5 million, or 8.3 percent of net sales, in the same period last year. The decline in income from operations primarily reflects an increase in SG&A expenses, partially offset by higher gross profit.
Net income was $14.6 million, or $0.15 per diluted share, in the first six months of fiscal 2018, compared with $30.5 million, or $0.31 per diluted share, in the same period last year. Net income in the fiscal 2018 year-to-date period includes income tax expense of $9.1 million, or $0.09 per diluted share, associated with the adoption of the Tax Cuts and Jobs Act in the first quarter of the fiscal year. Adjusted net income(1) was $36.7 million, or $0.37 per diluted share in the fiscal 2018 year-to-date period, compared with $39.6 million, or $0.40 per diluted share, in the same period last year.
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Adjusted EBITDA(1) in the fiscal 2018 year-to-date period was $80.0 million, or 10.6 percent of net sales, compared with $73.3 million, or 10.4 percent of net sales, in the fiscal 2017 year-to-date period.
Net cash used in operating activities totaled $35.9 million in the fiscal 2018 year-to-date period, compared with $33.8 million in fiscal 2017 year-to-date. Free cash flow(1) was negative $38.8 million in the first six months of fiscal 2018, compared with negative free cash flow(1) of $38.0 million in the same period last year.
Conference Call Information
Wesco Aircraft will hold a conference call to discuss its fiscal 2018 second quarter results at 2:00 p.m. PDT (5:00 p.m. EDT) today, May 3, 2018. The conference call can be accessed by dialing 866-763-0010 (domestic) or 703-871-3797 (international) and entering passcode 4295064.
The conference call will be simultaneously broadcast on Wesco Aircraft’s Investor Relations website (http://ir.wescoair.com).
Following the live webcast, a replay will be available on the company’s website for one year. A telephonic replay also will be available approximately two hours after the conference call and may be accessed by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and entering passcode 4295064. The telephonic replay will be available until May 10, 2018 at 11:59 p.m. EDT.
About Wesco Aircraft
Wesco Aircraft is one of the world’s leading distributors and providers of comprehensive supply chain management services to the global aerospace industry. The company’s services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time delivery, chemical management services, third-party logistics or fourth-party logistics and point-of-use inventory management. The company believes it offers one of the world’s broadest portfolios of aerospace products, including C-class hardware, chemical and electrical and comprised of more than 565,000 active SKUs.
To learn more about Wesco Aircraft, visit our website at www.wescoair.com. Follow Wesco Aircraft on LinkedIn at https://www.linkedin.com/company/wesco-aircraft-corp.
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Footnotes
(1) Non-GAAP financial measure - see the tables following this press release for reconciliations of GAAP to non-GAAP results.
Non-GAAP Financial Information
Adjusted net income represents net income before: (i) amortization of intangible assets, (ii) amortization or write-off of deferred issuance costs, (iii) special items and (iv) the tax effect of items (i) through (iii) above calculated using an estimated effective tax rate.
Adjusted basic earnings per share represents basic earnings per share calculated using adjusted net income as opposed to net income.
Adjusted diluted earnings per share represents diluted earnings per share calculated using adjusted net income as opposed to net income.
Adjusted EBITDA represents net income before: (i) income tax provision, (ii) net interest expense, (iii) depreciation and amortization and (iv) special items.
Adjusted EBITDA margin represents adjusted EBITDA divided by net sales.
Free cash flow represents net cash (used in) provided by operating activities less purchases of property and equipment.
Wesco Aircraft utilizes and discusses adjusted net income, adjusted basic earnings per share, adjusted diluted earnings per share, adjusted EBITDA, adjusted EBITDA margin and free cash flow, which are non-GAAP measures management uses to evaluate the company’s business, because it believes these measures assist investors and analysts in comparing the company’s performance across reporting periods on a consistent basis by excluding items that management does not believe are indicative of the company’s core operating performance. Wesco Aircraft believes these metrics are used in the financial community, and the company presents these metrics to enhance understanding of its operating performance. Readers should not consider adjusted EBITDA and adjusted net income as alternatives to net income, determined in accordance with GAAP, as an indicator of operating performance. Adjusted net income, adjusted basic earnings per share, adjusted diluted earnings per share, adjusted EBITDA, adjusted EBITDA margin and free cash flow are not measurements of financial performance under GAAP, and these metrics may not be comparable to similarly titled measures of other companies. See the tables following
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this press release for reconciliations of adjusted net income, adjusted basic earnings per share, adjusted diluted earnings per share, adjusted EBITDA, adjusted EBITDA margin and free cash flow to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Forward Looking Statements
This press release contains forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning Wesco Aircraft Holdings, Inc. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of management, as well as assumptions made by, and information currently available to, management. In some cases, readers can identify forward-looking statements by the use of forward-looking terms such as “believe,” “continue,” “deliver,” “enable,” “expect,” “focus,” “future,” “grow,” “improve,” “initiative,” “maintain,” “will” or similar words, phrases or expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the company’s control. Therefore, the reader should not place undue reliance on such statements.
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: general economic and industry conditions; conditions in the credit markets; changes in military spending; risks unique to suppliers of equipment and services to the U.S. government; risks associated with the company’s long-term, fixed-price agreements that have no guarantee of future sales volumes; risks associated with the loss of significant customers, a material reduction in purchase orders by significant customers, or the delay, scaling back or elimination of significant programs on which the company relies; the company’s ability to effectively compete in its industry; the company’s ability to effectively manage its inventory; the company’s suppliers’ ability to provide it with the products the company sells in a timely manner, in adequate quantities and/or at a reasonable cost; the company’s ability to maintain effective information technology systems; the company’s ability to retain key personnel; risks associated with the company’s international operations, including exposure to foreign currency movements; risks associated with assumptions the company makes in connection with its critical accounting estimates (including goodwill, excess and obsolete inventory and valuation allowance of the company’s deferred tax assets) and legal proceedings; changes in U.S. tax law; changes in trade policies; the company’s dependence on third-party package delivery companies; fuel price risks; fluctuations in the company’s financial results from period-to-period; environmental risks;
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risks related to the handling, transportation and storage of chemical products; risks related to the aerospace industry and the regulation thereof; risks related to the company’s indebtedness; and other risks and uncertainties.
The foregoing list of factors is not exhaustive. The reader should carefully consider the foregoing factors and the other risks and uncertainties that affect the company’s business, including those described in Wesco Aircraft’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed from time to time with the Securities and Exchange Commission. All forward-looking statements included in this news release (including information included or incorporated by reference herein) are based upon information available to the company as of the date hereof, and the company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
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Contact Information:
Jeff Misakian
Vice President, Investor Relations
661-362-6847
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Wesco Aircraft Holdings, Inc.
Consolidated Statements of Income (UNAUDITED)
(In thousands, except share data)
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net sales | $ | 390,183 | $ | 364,599 | $ | 753,274 | $ | 703,970 | |||||||
Cost of sales | 284,448 | 269,844 | 553,115 | 519,758 | |||||||||||
Gross profit | 105,735 | 94,755 | 200,159 | 184,212 | |||||||||||
Selling, general and administrative expenses | 72,539 | 62,557 | 142,391 | 125,758 | |||||||||||
Income from operations | 33,196 | 32,198 | 57,768 | 58,454 | |||||||||||
Interest expense, net | (11,965 | ) | (8,842 | ) | (23,803 | ) | (19,915 | ) | |||||||
Other (expense) income, net | (108 | ) | (255 | ) | 152 | 33 | |||||||||
Income before income taxes | 21,123 | 23,101 | 34,117 | 38,572 | |||||||||||
Provision for income taxes | (6,123 | ) | (5,659 | ) | (19,491 | ) | (8,023 | ) | |||||||
Net income | $ | 15,000 | $ | 17,442 | $ | 14,626 | $ | 30,549 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.15 | $ | 0.18 | $ | 0.15 | $ | 0.31 | |||||||
Diluted | $ | 0.15 | $ | 0.18 | $ | 0.15 | $ | 0.31 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 99,136,015 | 98,709,557 | 99,116,250 | 98,512,601 | |||||||||||
Diluted | 99,519,925 | 99,017,986 | 99,441,385 | 98,900,437 | |||||||||||
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Wesco Aircraft Holdings, Inc.
Condensed Consolidated Balance Sheets (UNAUDITED)
(In thousands)
March 31, 2018 | September 30, 2017 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 35,923 | $ | 61,625 | |||
Accounts receivable, net | 287,099 | 256,301 | |||||
Inventories | 889,335 | 827,870 | |||||
Prepaid expenses and other current assets | 16,014 | 13,733 | |||||
Income taxes receivable | 2,572 | 3,617 | |||||
Total current assets | 1,230,943 | 1,163,146 | |||||
Long-term assets | 581,369 | 590,961 | |||||
Total assets | $ | 1,812,312 | $ | 1,754,107 | |||
Liabilities and Stockholders’ Equity | |||||||
Accounts payable | $ | 194,112 | $ | 184,273 | |||
Accrued expenses and other current liabilities | 30,304 | 35,329 | |||||
Income taxes payable | 8,498 | 3,290 | |||||
Capital lease obligations, current portion | 2,487 | 2,952 | |||||
Short-term borrowings and current portion of long-term debt | 101,000 | 75,000 | |||||
Total current liabilities | 336,401 | 300,844 | |||||
Capital lease obligations, less current portion | 2,825 | 2,013 | |||||
Long-term debt, less current portion | 779,708 | 788,838 | |||||
Deferred income taxes | 3,761 | 3,197 | |||||
Other liabilities | 17,525 | 9,484 | |||||
Total liabilities | 1,140,220 | 1,104,376 | |||||
Total stockholders’ equity | 672,092 | 649,731 | |||||
Total liabilities and stockholders’ equity | $ | 1,812,312 | $ | 1,754,107 | |||
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Wesco Aircraft Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (UNAUDITED)
(In thousands)
Six Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 14,626 | $ | 30,549 | |||
Adjustments to reconcile net income to net cash used in operating activities | |||||||
Depreciation and amortization | 14,541 | 13,472 | |||||
Amortization of deferred debt issuance costs | 2,911 | 4,123 | |||||
Stock-based compensation expense | 3,688 | 5,287 | |||||
Inventory provision | 4,820 | 5,345 | |||||
Deferred income taxes | 581 | 562 | |||||
Other non-cash items | 886 | (346 | ) | ||||
Subtotal | 42,053 | 58,992 | |||||
Changes in assets and liabilities | |||||||
Accounts receivable | (30,962 | ) | (19,601 | ) | |||
Inventories | (66,582 | ) | (68,068 | ) | |||
Other current and long-term assets | (1,409 | ) | (8,813 | ) | |||
Accounts payable | 9,682 | (780 | ) | ||||
Other current and long-term liabilities | 11,309 | 4,507 | |||||
Net cash used in operating activities | (35,909 | ) | (33,763 | ) | |||
Cash flows from investing activities | |||||||
Purchase of property and equipment | (2,909 | ) | (4,209 | ) | |||
Net cash used in investing activities | (2,909 | ) | (4,209 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from short-term borrowings | 60,000 | 50,000 | |||||
Repayment of short-term borrowings | (34,000 | ) | (12,000 | ) | |||
Repayment of borrowings and capital lease obligations | (11,346 | ) | (12,020 | ) | |||
Debt issuance costs | (1,900 | ) | (12,739 | ) | |||
Net cash (used for) from activities related to stock-based incentive plans | (66 | ) | 2,965 | ||||
Net cash provided by financing activities | 12,688 | 16,206 | |||||
Effect of foreign currency exchange rate on cash and cash equivalents | 428 | (1,325 | ) | ||||
Net decrease in cash and cash equivalents | (25,702 | ) | (23,091 | ) | |||
Cash and cash equivalents, beginning of period | 61,625 | 77,061 | |||||
Cash and cash equivalents, end of period | $ | 35,923 | $ | 53,970 | |||
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Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - Adjusted Net Income and
Adjusted Earnings Per Share (UNAUDITED)
(Dollars in thousands, except share data)
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net Sales | $ | 390,183 | $ | 364,599 | $ | 753,274 | $ | 703,970 | |||||||
Adjusted Net Income | |||||||||||||||
Net income | $ | 15,000 | $ | 17,442 | $ | 14,626 | $ | 30,549 | |||||||
Amortization of intangible assets | 3,713 | 3,719 | 7,427 | 7,440 | |||||||||||
Amortization of deferred debt issuance costs | 1,403 | 921 | 2,911 | 4,123 | |||||||||||
Special items (1) | 4,591 | 294 | 7,505 | 1,309 | |||||||||||
Adjustments for tax effect (2) | (2,495 | ) | (1,316 | ) | 4,201 | (3,863 | ) | ||||||||
Adjusted net income | $ | 22,212 | $ | 21,060 | $ | 36,670 | $ | 39,558 | |||||||
Adjusted Earnings Per Share | |||||||||||||||
Weighted-average number of basic shares outstanding | 99,136,015 | 98,709,557 | 99,116,250 | 98,512,601 | |||||||||||
Adjusted net income per basic share | $ | 0.22 | $ | 0.21 | $ | 0.37 | $ | 0.40 | |||||||
Adjusted Diluted Earnings Per Share | |||||||||||||||
Weighted-average number of diluted shares outstanding | 99,519,925 | 99,017,986 | 99,441,385 | 98,900,437 | |||||||||||
Adjusted net income per diluted share | $ | 0.22 | $ | 0.21 | $ | 0.37 | $ | 0.40 | |||||||
(1) | Special items in the second quarter of fiscal 2018 consisted of consulting fees associated with the company’s improvement activities of $4.2 million, settlement of litigation and related fees of $0.1 million and other expenses of $0.3 million. Special items in the second quarter of fiscal 2017 consisted of business realignment and other expenses of $0.3 million. |
Special items in the year-to-date period of fiscal 2018 consisted of consulting fees associated with the company’s improvement activities of $5.8 million, settlement of litigation and related fees of $1.2 million and other expenses of $0.5 million. Special items in the year-to-date period of fiscal 2017 consisted of business realignment and other expenses of $1.3 million.
(2) The adjustments for tax effect in the year-to-date period of fiscal 2018 included an estimated $9.1 million tax provision on foreign earnings as a transition tax under the Tax Cuts and Jobs Act.
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Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - EBITDA and Adjusted EBITDA (UNAUDITED)
(Dollars in thousands)
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
EBITDA & Adjusted EBITDA | |||||||||||||||
Net income | $ | 15,000 | $ | 17,442 | $ | 14,626 | $ | 30,549 | |||||||
Provision for income taxes | 6,123 | 5,659 | 19,491 | 8,023 | |||||||||||
Interest expense, net | 11,965 | 8,842 | 23,803 | 19,915 | |||||||||||
Depreciation and amortization | 7,285 | 6,743 | 14,541 | 13,472 | |||||||||||
EBITDA | 40,373 | 38,686 | 72,461 | 71,959 | |||||||||||
Special items (1) | 4,591 | 294 | 7,505 | 1,309 | |||||||||||
Adjusted EBITDA | $ | 44,964 | $ | 38,980 | $ | 79,966 | $ | 73,268 | |||||||
Adjusted EBITDA margin | 11.5 | % | 10.7 | % | 10.6 | % | 10.4 | % | |||||||
(1) | Special items in the second quarter of fiscal 2018 consisted of consulting fees associated with the company’s improvement activities of $4.2 million, settlement of litigation and related fees of $0.1 million and other expenses of $0.3 million. Special items in the second quarter of fiscal 2017 consisted of business realignment and other expenses of $0.3 million. |
Special items in the year-to-date period of fiscal 2018 consisted of consulting fees associated with the company’s improvement activities of $5.8 million, settlement of litigation and related fees of $1.2 million and other expenses of $0.5 million. Special items in the year-to-date period of fiscal 2017 consisted of business realignment and other expenses of $1.3 million.
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Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - Free Cash Flow (UNAUDITED)
(Dollars in thousands)
Three Months Ended March 31, | Increase (Decrease) | Percent Change | ||||||||||||
2018 | 2017 | |||||||||||||
Net cash used in operating activities | $ | (6,029 | ) | $ | (5,677 | ) | $ | (352 | ) | (6.2 | )% | |||
Purchase of property and equipment | (1,574 | ) | (2,893 | ) | 1,319 | |||||||||
Free cash flow | $ | (7,603 | ) | $ | (8,570 | ) | $ | 967 | 11.3 | % | ||||
Six Months Ended March 31, | Increase (Decrease) | Percent Change | ||||||||||||
2018 | 2017 | |||||||||||||
Net cash used in operating activities | $ | (35,909 | ) | $ | (33,763 | ) | $ | (2,146 | ) | (6.4 | )% | |||
Purchase of property and equipment | (2,909 | ) | (4,209 | ) | 1,300 | |||||||||
Free cash flow | $ | (38,818 | ) | $ | (37,972 | ) | $ | (846 | ) | (2.2 | )% | |||
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Q2 2018 EARNINGS CALL PRESENTATION
May 3, 2018
Todd Renehan
Chief Executive Officer
Kerry Shiba
Executive Vice President and Chief Financial Officer
Information in this presentation should be read in conjunction
with Wesco Aircraft’s earnings press release and tables for the
fiscal 2018 second quarter.
Disclaimer
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Wesco Aircraft Proprietary
Visit www.wescoair.com
This presentation contains forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning Wesco Aircraft Holdings, Inc. (“Wesco Aircraft” or the “Company”). These
statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of management, as well as assumptions made by,
and information currently available to, management. In some cases, you can identify forward-looking statements by the use of forward-looking terms such as “achieve,” “address,” “believe,” “broaden,” “can,” “continue,”
“could,” “deliver,” “drive,” “enable,” “enhance,” “estimate,” “expect,” “focus,” “future,” “grow,” “implement,” “improve,” “increase,” “initiative,” “opportunity,” “optimistic,” “plan,” “potential,” “still,” “sustain,” “target,”
“timeline,” “trend,” “will” or similar words, phrases or expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control. Therefore, you should not
place undue reliance on such statements.
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: general economic and industry conditions; conditions in the credit markets;
changes in military spending; risks unique to suppliers of equipment and services to the U.S. government; risks associated with the Company’s long-term, fixed-price agreements that have no guarantee of future sales volumes;
risks associated with the loss of significant customers, a material reduction in purchase orders by significant customers, or the delay, scaling back or elimination of significant programs on which the Company relies; the
Company’s ability to effectively compete in its industry; the Company’s ability to effectively manage its inventory; the Company’s suppliers’ ability to provide it with the products the Company sells in a timely manner, in
adequate quantities and/or at a reasonable cost; the Company’s ability to maintain effective information technology systems; the Company’s ability to retain key personnel; risks associated with the Company’s international
operations, including exposure to foreign currency movements; risks associated with assumptions the Company makes in connection with its critical accounting estimates (including goodwill, excess and obsolete inventory and
valuation allowance of the company’s deferred tax assets) and legal proceedings; changes in U.S. tax law; changes in trade policies; the Company’s dependence on third-party package delivery companies; fuel price risks;
fluctuations in the Company’s financial results from period-to-period; environmental risks; risks related to the handling, transportation and storage of chemical products; risks related to the aerospace industry and the regulation
thereof; risks related to the Company’s indebtedness; and other risks and uncertainties.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the Company’s business, including those described in the Company’s Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed from time to time with the Securities and Exchange Commission. All forward-looking statements included in this
presentation (including information included or incorporated by reference herein) are based upon information available to the Company as of the date hereof, and the Company undertakes no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
The Company utilizes and discusses Adjusted Net Income, Adjusted Basic Earnings Per Share (EPS), Adjusted Diluted EPS, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Adjusted EBITDA
Margin and Free Cash Flow, which are non-GAAP measures its management uses to evaluate its business, because the Company believes these measures assist investors and analysts in comparing its performance across
reporting periods on a consistent basis by excluding items that management does not believe are indicative of the Company’s core operating performance. The Company believes these metrics are used in the financial
community, and the Company presents these metrics to enhance understanding of its operating performance. You should not consider Adjusted EBITDA and Adjusted Net Income as alternatives to Net (Loss) Income,
determined in accordance with GAAP, as an indicator of operating performance. Adjusted Net Income, Adjusted Basic EPS, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are not
measurements of financial performance under GAAP, and these metrics may not be comparable to similarly titled measures of other companies. See the Appendix for reconciliations of Adjusted Net Income, Adjusted Basic EPS,
Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA Margin to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Wesco Aircraft Proprietary
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Overview
3
Another quarter of continued business improvement
Improvement initiatives driving better operating and financial performance
Customers continue to recognize Wesco’s value proposition
Gaps in execution remain; results short of company’s potential
Assessment confirmed opportunities for improvement in profitability and need to invest
Wesco 2020 developed to address performance gaps and opportunities
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Business Update
4
Profitable Growth
Improve Margins
Procurement
Inventory
Management
Customer Service
On-Time Delivery
Greater Efficiency
Reduce Costs
Solid growth in Q2 sales – increases in hardware and chemicals
Continued awards for new business and contract renewals
Greater inventory investment; more work needed on inventory management
More SKUs on LTAs; broadening initiative further
Maintained on-time delivery and efficiency metrics at high rates
Continued to expand commodities at certain sites to serve customers better
Control of discretionary costs; stable sequential SG&A excluding consultant costs
Focus on optimizing cost structure through Wesco 2020 initiatives
Wesco 2020 Initiatives
5
Establish full-service distribution centers with multiple commodities to enhance service
Deploy new technologies; improve efficiency; reduce costs
Leverage best practices; lead continuous improvement; enhance capabilities
Increase accountability; eliminate duplication; improve processes; reduce costs
Enhance WMS1; implement data robotics; improve e-commerce, customer portals
Improve procurement processes, more effectively manage inventory
D
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AT
ER
EF
FI
CI
EN
CI
ES
A
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EF
IN
E
IN
V
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GLOBAL CENTERS
OF EXCELLENCE
ORGANIZATIONAL
STRUCTURE
AUTOMATION
BUSINESS TOOLS
FOOTPRINT
OPTIMIZATION
FACILITY
INVESTMENT
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1. Warehouse Management System
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Wesco 2020 Timeline, Expected Benefits and Costs
6
Execution already underway – current timeline estimated to span 18-24 months
Multifaceted approach; controlling pace of implementation
Enhances customer service; supports ability to provide high levels of on-time delivery
Enables more effective inventory management; achieves productivity gains, stronger profitability
Annualized pre-tax benefits of at least $30M through cost savings, margin enhancements
Benefits realization to start in Q1 2019, with run-rate improving steadily as year progresses
Non-recurring costs approximately equal to run-rate benefit over implementation period
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Net Sales Summary
7
$364.6 $363.1
$390.2
Q2 2017 Q1 2018 Q2 2018
Net Sales
($M)
Net sales increase of $26M (+7%) year/year
Long-term contract increase of $14M (+5%) due to:
Growth in chemical and hardware volumes
Ramp-up of new business wins
Ad-hoc increase of $12M (+14%) due to:
Growth at key customers driving higher ordering
(Dollars in Millions, Except Per Share Data) Q2 2017 Q1 2018 Q2 2018
Net sales $364.6 $363.1 $390.2
Income from operations $32.2 $24.6 $33.2
Operating margin 8.8% 6.8% 8.5%
Net income (loss) $17.4 $(0.4) $15.0
Diluted earnings (loss) per share $0.18 $(0.00) $0.15
Adjusted net income* $21.1 $14.5 $22.2
Adjusted diluted earnings per share* $0.21 $0.15 $0.22
Adjusted EBITDA* $39.0 $35.0 $45.0
Adjusted EBITDA margin* 10.7% 9.6% 11.5%
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Income Statement Summary
8
Second Quarter Commentary
Income from operations improved due to increase in gross profit, offset
by higher SG&A
Gross profit reflects higher sales volume and less impact from inventory
E&O provision and adjustments; product margins essentially stable
Gross margin stable sequentially excluding provision and adjustments
SG&A reflects additions to staff in 2H 2017 and consulting costs in fiscal
2018 associated with Wesco 2020
SG&A stable sequentially excluding consulting costs
Increase in interest expense primarily reflects higher LIBOR rates
Income tax expense in Q1 2018 includes estimated unfavorable impact
of $9.1M from Tax Cuts and Jobs Act
Effective tax rate for fiscal 2018 estimated to be 28-29% (excluding
$9.1M impact in Q1 2018)
* See appendix for reconciliation and information regarding non-GAAP measures.
At Period End
March 31,
2017
June 30,
2017
Sept 30,
2017
Dec 31,
2017
March 31,
2018
Cash and cash equivalents $54.0 $57.1 $61.6 $41.9 $35.9
Accounts receivable, net 266.7 264.0 256.3 253.6 287.1
Net inventory 774.4 802.7 827.9 856.3 889.3
Accounts payable 181.2 175.8 184.3 161.7 194.1
Total debt 855.3 861.1 863.8 877.7 880.7
Stockholders’ equity
916.0 687.8 649.7 652.4 672.1
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Balance Sheet Summary
9
($ in millions)
Quarter Ended
March 31,
2017
June 30,
2017
Sept 30,
2017
Dec 31,
2017
March 31,
2018
Net income (loss) $17.4 $(229.6) $(38.3) $(0.4) $15.0
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities 13.8 261.8 56.3 15.7 11.8
Changes in assets and liabilities (36.9) (31.3) (12.1) (45.2) (32.8)
Net cash (used in) provided by operating activities (5.7) 0.9 5.9 (29.9) (6.0)
Purchase of property and equipment (2.9) (2.6) (2.1) (1.3) (1.6)
Free cash flow (8.6) (1.7) 3.8 (31.2) (7.6)
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Cash Flow Summary
10
($ in millions)
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Closing Remarks
11
Continued focus on execution across most areas of the business
Better fiscal 2018 first-half performance; early progress through improvement initiatives
More work to do; cautiously optimistic about second half of fiscal 2018
Wesco 2020 expected to drive step-change in performance – significant improvement opportunities
Investing in the future – better positioned to meet evolving customer needs
Wesco 2020 expected to deliver long-term value to shareholders
APPENDIX
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Non-GAAP Financial Information
13
‘‘Adjusted Net Income’’ represents Net (Loss) Income before: (i) amortization of intangible assets, (ii) amortization or write-off of deferred issuance costs, (iii) special items and (iv) the
tax effect of items (i) through (iii) above calculated using an estimated effective tax rate.
“Adjusted Basic EPS” represents Basic EPS calculated using Adjusted Net Income as opposed to Net Income.
“Adjusted Diluted EPS” represents Diluted EPS calculated using Adjusted Net Income as opposed to Net Income.
‘‘Adjusted EBITDA’’ represents Net (Loss) Income before: (i) income tax provision, (ii) net interest expense, (iii) depreciation and amortization and (iv) special items; “Adjusted EBITDA
Margin” represents Adjusted EBITDA divided by Net Sales.
“Free Cash Flow” represents net cash (used in) provided by operating activities less purchases of property and equipment.
The Company utilizes and discusses Adjusted Net Income, Adjusted Basic EPS, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow, which are non-GAAP
measures its management uses to evaluate its business, because the Company believes these measures assist investors and analysts in comparing its performance across reporting
periods on a consistent basis by excluding items that management does not believe are indicative of the Company’s core operating performance. The Company believes these metrics
are used in the financial community, and the Company presents these metrics to enhance understanding of its operating performance. You should not consider Adjusted EBITDA and
Adjusted Net Income as alternatives to Net (Loss) Income, determined in accordance with GAAP, as an indicator of operating performance. Adjusted Net Income, Adjusted Basic EPS,
Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are not measurements of financial performance under GAAP, and these metrics may not be
comparable to similarly titled measures of other companies. See the following slides for reconciliations of Adjusted Net Income, Adjusted Basic EPS, Adjusted Diluted EPS, Adjusted
EBITDA and Adjusted EBITDA Margin to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Non-GAAP Financial Information
14Wesco Aircraft Proprietary Visit www.wescoair.com
March 31, December 31, March 31,
2017 2017 2018
Net Sales 364,599$ 363,091$ 390,183$
Adjusted Net Income
Net income (loss) 17,442 (374)$ 15,000$
Amortization of intangible assets 3,719 3,714 3,713
Amortization of deferred financing costs 921 1,508 1,403
Special items (1) 294 2,914 4,591
Adjustments for tax effect (2) (1,316) 6,696 (2,495)
Adjusted net income 21,060$ 14,458$ 22,212$
Adjusted Basic Earnings Per Share
Weight-average number of basic share outstanding 98,709,557 99,096,914 99,136,015
Adjusted net incomer per basic share 0.21$ 0.15$ 0.22$
Adjusted Diluted Earnings Per Share
Weight-average number of diluted shares outstanding 99,017,986 99,096,914 99,519,925
Adjusted net income per diluted shares 0.21$ 0.15$ 0.22$
(1)
(2)
Special items in the second quarter of fiscal 2017 consisted of business realignment and other expenses of $0.3
million. Special items in the first quarter of fiscal 2018 consisted of consulting fees associated with the company's
improvement activities of $1.6 million, settlement of litigation and related fees of $1.1 million and other expenses of
$0.2 million. Special items in the second quarter of fiscal 2018 consisted of consulting fees associated with the
company's improvement activities of $4.2 million, settlement of litigation and related fees of $0.1 million and other
expenses of $0.3 million.
The adjustments for tax effect in the first quarter of fiscal 2018 included an estimated $9.1 million tax provision on
foreign earnings as a transition tax under the U.S. Tax Cuts and Jobs Act.
Three Months Ended
Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - Adjusted Net Income and
Adjusted Earnings Per Share (UNAUDITED)
(Dollars in thousands, except share data)
Non-GAAP Financial Information
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March 31, December 31, March 31,
2017 2017 2018
EBITDA & Adjusted EBITDA
Net income (loss) 17,442$ (374)$ 15,000$
Provision for Income taxes 5,659 13,368 6,123
Interest expense, net 8,842 11,838 11,965
Depreciation and amortization 6,743 7,256 7,285
EBITDA 38,686 32,088 40,373
Special items (1) 294 2,914 4,591
Adjusted EBITDA 38,980$ 35,002$ 44,964$
Adjusted EBITDA margin 10.7% 9.6% 11.5%
(1) Special items in the second quarter of fiscal 2017 consisted of business realignment and other expenses of
$0.3 million. Special items in the first quarter of fiscal 2018 consisted of consulting fees associated with the
company's improvement activities of $1.6 million, settlement of litigation and related fees of $1.1 million and other
expenses of $0.2 million. Special items in the second quarter of fiscal 2018 consisted of consulting fees
associated with the company's improvement activities of $4.2 million, settlement of litigation and related fees of
$0.1 million and other expenses of $0.3 million.
Three Months Ended
Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - EBITDA and Adjusted EBITDA ( UNAUDITED)
(Dollars In thousands)
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THANK YOU FOR YOUR INTEREST
IN WESCO AIRCRAFT
Exhibit 99.3
Wesco Aircraft Launches Wesco 2020 – Building the Future
-- Wesco 2020 Expected to Deliver Significant Operational and Financial Benefits --
VALENCIA, Calif., May 3, 2018 – Wesco Aircraft Holdings, Inc. (NYSE: WAIR), one of the world’s leading distributors and providers of comprehensive supply chain management services to the global aerospace industry, today announced the launch of Wesco 2020 – Building the Future, focused on service excellence, inventory management and profitable growth.
As previously announced, the company initiated a comprehensive business assessment to determine the steps necessary to improve its operational and financial performance. The assessment process confirmed that opportunities exist for a significant uplift in profitability through footprint alignment, organizational refinement and broader productivity gains, as well as a need to invest in upgrading critical capabilities to serve customers and manage inventory better.
The assessment led to the development of Wesco 2020, with the following key initiatives:
▪ | Align the company’s footprint with its customer and supplier base to enhance service, improve operating efficiency and reduce costs. The company plans to establish full-service distribution centers with multiple commodities that better serve customers. |
▪ | Refine the organizational structure to drive greater accountability, enhance capabilities, reduce management layers, eliminate duplication and lower costs. The company’s new organizational structure further empowers business segments and establishes centers of excellence to leverage best practices and lead continuous improvement efforts. |
▪ | Invest strategically in people and capabilities, including automation and business tools to drive more effective inventory management and greater efficiency. The company plans to enhance warehouse management systems, implement technology to automate administrative tasks and improve ecommerce and customer portals. |
Todd Renehan, chief executive officer, said, “We have made considerable progress improving our business, achieving better operating and financial results in the first half of fiscal 2018. While this progress is encouraging, we still have gaps in our execution. Wesco 2020 is expected to accelerate these improvements, leading to a step-change in operational performance and financial results.”
1
Renehan continued, “It’s clear that in today’s market, customers demand a broad service offering with flawless execution; as the market evolves, we must provide best-in-class service to meet their needs. The significant benefits expected through Wesco 2020 will allow us to invest in our capabilities to continue supporting our customers and deliver long-term value to shareholders. At the same time, we will remain vigilant in controlling the pace of implementation, balancing the sense of urgency necessary to achieve improvement with the need to continue providing our customers with outstanding service.”
Wesco 2020 is expected to deliver annualized pre-tax benefits of at least $30 million; benefits realization is expected to start in the first quarter of fiscal 2019, with the run-rate improving steadily as the year progresses. The company expects to incur non-recurring costs associated with Wesco 2020 approximately equal to the run-rate benefit over the implementation period.
Additional information is provided with the company’s fiscal 2018 second quarter financial results, which are discussed in a separate press release issued today.
About Wesco Aircraft
Wesco Aircraft is one of the world’s leading distributors and providers of comprehensive supply chain management services to the global aerospace industry. The company’s services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time delivery, chemical management services, third-party logistics or fourth-party logistics and point-of-use inventory management. The company believes it offers one of the world’s broadest portfolios of aerospace products, including C-class hardware, chemical and electrical and comprised of more than 565,000 active SKUs.
To learn more about Wesco Aircraft, visit our website at www.wescoair.com. Follow Wesco Aircraft on LinkedIn at https://www.linkedin.com/company/wesco-aircraft-corp.
Forward-Looking Statements
This press release contains forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning Wesco Aircraft Holdings, Inc. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of management, as well as assumptions made by, and information currently available to, management. In some cases, readers can identify forward-looking statements by the use of forward-looking terms such as “achieve,” “believe,” “continue,” “deliver,” “drive,” “enhance,” “expect,” “future,” “grow,” “improve,” “initiative,” “opportunity,” “plan,” “will” or similar words, phrases or expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the company’s control. Therefore, the reader should not place undue reliance on such statements.
2
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: general economic and industry conditions; conditions in the credit markets; changes in military spending; risks unique to suppliers of equipment and services to the U.S. government; risks associated with the company’s long-term, fixed-price agreements that have no guarantee of future sales volumes; risks associated with the loss of significant customers, a material reduction in purchase orders by significant customers, or the delay, scaling back or elimination of significant programs on which the company relies; the company’s ability to effectively compete in its industry; the company’s ability to effectively manage its inventory; the company’s suppliers’ ability to provide it with the products the company sells in a timely manner, in adequate quantities and/or at a reasonable cost; the company’s ability to maintain effective information technology systems; the company’s ability to retain key personnel; risks associated with the company’s international operations, including exposure to foreign currency movements; risks associated with assumptions the company makes in connection with its critical accounting estimates (including goodwill, excess and obsolete inventory and valuation allowance of the company’s deferred tax assets) and legal proceedings; changes in U.S. tax law; changes in trade policies; the company’s dependence on third-party package delivery companies; fuel price risks; fluctuations in the company’s financial results from period-to-period; environmental risks; risks related to the handling, transportation and storage of chemical products; risks related to the aerospace industry and the regulation thereof; risks related to the company’s indebtedness; and other risks and uncertainties.
The foregoing list of factors is not exhaustive. The reader should carefully consider the foregoing factors and the other risks and uncertainties that affect the company’s business, including those described in Wesco Aircraft’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed from time to time with the Securities and Exchange Commission. All forward-looking statements included in this news release (including information included or incorporated by reference herein) are based upon information available to the company as of the date hereof, and the company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
###
Contact Information:
Jeff Misakian
Vice President, Investor Relations
661-362-6847
3