Form 8-K Wesco Aircraft Holdings, For: May 02

May 2, 2019 4:29 PM


 
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 2, 2019
 
 
 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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share
 
WAIR
 
New York Stock Exchange

 

1



Item 2.02            Results of Operations and Financial Condition.
 
On May 2, 2019, Wesco Aircraft Holdings, Inc. (the “Company”) announced its financial results for the fiscal quarter ended March 31, 2019. 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 (PDT) or 5:00 pm (EDT) on May 2, 2019 to discuss its financial results for the fiscal quarter ended March 31, 2019. The investor presentation materials used for the call are attached as Exhibit 99.2 hereto.
 
On May 2, 2019, the Company posted the materials attached as Exhibits 99.1 and 99.2 on its website (www.wescoair.com).

The information in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) 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.
 
Exhibit
Number
 
Description
 
 
 
99.1
 
 
 
 
99.2
 



2



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 2, 2019
By:
/s/ Kerry A. Shiba
 
 
 
Kerry A. Shiba
Executive Vice President and Chief Financial Officer


3



                                                                                                                                                                                                                                                                                                                    
Exhibit 99.1

wescologoa09.jpg

Wesco Aircraft Holdings Reports
Fiscal 2019 Second Quarter Results

VALENCIA, Calif., May 2, 2019 - Wesco Aircraft Holdings, Inc. (NYSE: WAIR), the world's leading independent distributor and provider of comprehensive supply chain management services to the global aerospace industry, today announced results for its fiscal 2019 second quarter ended March 31, 2019.
Fiscal 2019 Second Quarter Highlights
Net sales of $426.5 million, up 9.3 percent
Net income of $12.0 million, or $0.12 per diluted share
Adjusted net income(1) of $23.2 million, or $0.23 per diluted share
Adjusted earnings before interest, taxes, depreciation and amortization(1) (EBITDA) of $46.3 million, or 10.9 percent of net sales
Net cash provided by operating activities of $26.0 million
Todd Renehan, chief executive officer, commented, “Financial results in the fiscal 2019 second quarter reflect continued improvement in most areas of the business. Sales were robust across all major product categories, as we took advantage of a growing market. Consistent with the previous quarter, we had execution challenges in EMEA; we launched a series of key initiatives in the region and remain confident in our ability to improve EMEA’s performance. Net income declined in the second quarter, primarily due to temporary costs related to Wesco 2020 and EMEA challenges; adjusted EBITDA increased year-over-year, reflecting strong sales gains in the Americas. In addition, our continued focus on inventory management led to a significant increase in cash generation in the second quarter.”

1


Renehan continued, “We realized additional cost savings related to Wesco 2020; through the second quarter, these savings primarily have offset investments to support our growth. Cost savings are expected to increase during the year as we move closer to our annualized pre-tax benefit target of at least $30 million during fiscal 2020. As previously mentioned, we believe fiscal 2019 will be a year of heavy investment and that the temporary costs associated with Wesco 2020 execution will decline significantly by the end of the year. While we still have a lot of work ahead of us, I’m pleased with our progress to-date.”
Fiscal 2019 Second Quarter Consolidated Results
Net sales of $426.5 million in the fiscal 2019 second quarter were $36.3 million, or 9.3 percent higher than the same period last year, reflecting continued focus and execution in a strong market. Sales under long-term contracts increased, led by higher chemical revenue and, to a lesser degree, by hardware. Strong growth in ad-hoc sales reflected higher ordering by key customers.
Gross profit was $108.7 million in the second quarter of fiscal 2019, compared with $105.7 million in the fiscal 2018 second quarter. The increase in gross profit compared to the same period last year was principally due to higher sales volume, partially offset by a decline in gross margin. Gross margin primarily reflects a decline in EMEA, and to a lesser extent, product mix impacts in the Americas.
Selling, general and administrative (SG&A) expenses totaled $78.9 million in the fiscal 2019 second quarter, compared with $72.5 million in the same period last year. The increase in SG&A expenses was primarily due to temporary costs of $9.4 million related to the company’s Wesco 2020 initiatives, compared with $4.2 million in the same period last year. Excluding temporary costs, SG&A expenses were slightly higher, reflecting costs to support the company’s growth, partially offset by benefits realized through Wesco 2020 initiatives.
SG&A expenses were 18.5 percent of net sales in the fiscal 2019 second quarter, compared with 18.6 percent in the same period last year. Excluding temporary Wesco 2020 costs noted above, SG&A expenses as a percent of net sales declined by approximately 120 basis points year-over-year.
Income from operations totaled $29.8 million, or 7.0 percent of net sales, in the fiscal 2019 second quarter, compared with $33.2 million, or 8.5 percent of net sales, in the same period last year. The decline in income from operations primarily reflects the increase in SG&A expenses, partially offset by higher gross profit.

2


Net income was $12.0 million, or $0.12 per diluted share, in the fiscal 2019 second quarter. This compares with net income of $15.0 million, or $0.15 per diluted share, in the same period last year.
Adjusted net income(1) in the fiscal 2019 second quarter was $23.2 million, or $0.23 per diluted share, compared with $22.2 million, or $0.22 per diluted share, in the same period last year.
Adjusted EBITDA(1) in the fiscal 2019 second quarter was $46.3 million, compared with $45.0 million in the same period last year. Adjusted EBITDA margin(1) was 10.9 percent, compared with 11.5 percent in the same period last year.
Adjustments to arrive at adjusted net income(1) and adjusted EBITDA(1) include special items, among other things. In the second quarter of fiscal 2019, special items consisted primarily of consulting fees of $3.3 million and other costs of $6.3 million associated with Wesco 2020. In the second quarter of fiscal 2018, special items consisted primarily of consulting fees of $4.2 million associated with Wesco 2020.
Net cash provided by operating activities totaled $26.0 million in the fiscal 2019 second quarter, an increase of $32.0 million compared with net cash used in operating activities of $6.0 million in the same period last year. The increase primarily reflects lower inventory resulting from more efficient management and net changes in accounts receivable and accounts payable balances that primarily were timing related.
Free cash flow(1) was $20.3 million in the fiscal 2019 second quarter, compared with negative free cash flow(1) of $7.6 million in the same period last year.
Fiscal 2019 Outlook
Based on sales performance in the first half of the year, the company now expects net sales in fiscal 2019 to increase at a mid-to-high single-digit percentage rate compared to fiscal 2018. The company continues to expect higher sales volume, Wesco 2020 benefits and expense leverage to drive a high-single-digit percentage increase in adjusted EBITDA in fiscal 2019.
Conference Call Information
Wesco Aircraft will hold a conference call to discuss its fiscal 2019 second quarter results at 2:00 p.m. PDT (5:00 p.m. EDT) today, May 2, 2019. The conference call can be accessed by dialing 866-763-0010 (domestic) or 703-871-3797 (international) and entering passcode 1299416.

3


The conference call will be broadcast simultaneously 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 1299416. The telephonic replay will be available until May 9, 2019 at 11:59 p.m. EDT.
About Wesco Aircraft
Wesco Aircraft is the world’s leading independent distributor and provider 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, chemicals and electronic components and comprised of more than 560,000 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.
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 debt 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.

4


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 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 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 “ability,” “believe,” “continue,” “drive,” “expect,” “grow,” “improve,” “increase,” “initiative,” “outlook,” “still,” “target,” “will” or similar words, phrases or expressions. These forward-looking

5


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 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; risks associated with the company’s long-term, fixed-price agreements that have no guarantee of future sales volumes; 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, while also meeting the company’s customers’ quality standards; the company’s ability to maintain effective information technology systems and effectively implement its new warehouse management system; the company’s ability to successfully execute and realize the expected financial benefits from its “Wesco 2020” initiative; the company’s ability to retain key personnel; risks associated with the company’s international operations, including exposure to foreign currency movements; changes in trade policies; 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. income tax law; 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.

6


###
Contact Information:
Jeff Misakian
Vice President, Investor Relations
661-362-6847
Jeff.Misakian@wescoair.com




7


Wesco Aircraft Holdings, Inc.
Consolidated Statements of Income
(UNAUDITED)
(In thousands, except share data)
 
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2019
 
2018
 
2019
 
2018
Net sales
$
426,474

 
$
390,183

 
$
821,785

 
$
753,274

Cost of sales
317,727

 
284,448

 
614,696

 
553,115

Gross profit
108,747

 
105,735

 
207,089

 
200,159

Selling, general and administrative expenses
78,908

 
72,539

 
155,171

 
142,391

Income from operations
29,839

 
33,196

 
51,918

 
57,768

Interest expense, net
(12,388
)
 
(11,965
)
 
(25,302
)
 
(23,803
)
Other (expense) income, net
(314
)
 
(108
)
 
(531
)
 
152

Income before income taxes
17,137

 
21,123

 
26,085

 
34,117

Provision for income taxes
(5,127
)
 
(6,123
)
 
(7,782
)
 
(19,491
)
Net income
$
12,010

 
$
15,000

 
$
18,303

 
$
14,626

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.12

 
$
0.15

 
$
0.18

 
$
0.15

Diluted
$
0.12

 
$
0.15

 
$
0.18

 
$
0.15

Weighted average shares outstanding:
 

 
 

 
 
 
 
Basic
99,626,736

 
99,136,015

 
99,555,589

 
99,116,250

Diluted
99,950,811

 
99,519,925

 
99,930,999

 
99,441,385

 


 

8


Wesco Aircraft Holdings, Inc.
Condensed Consolidated Balance Sheets (UNAUDITED)
(In thousands)
 
 
March 31,
2019
 
September 30,
2018
Assets
 

 
 

Cash and cash equivalents
$
32,726

 
$
46,222

Accounts receivable, net
316,747

 
283,775

Inventories
890,051

 
884,212

Prepaid expenses and other current assets
18,591

 
15,291

Income taxes receivable
3,380

 
2,017

Total current assets
1,261,495

 
1,231,517

Long-term assets
556,020

 
557,959

Total assets
$
1,817,515

 
$
1,789,476

Liabilities and Stockholders’ Equity
 

 
 

Accounts payable
$
180,699

 
$
180,494

Accrued expenses and other current liabilities
40,937

 
42,767

Income taxes payable
7,227

 
2,295

Capital lease obligations, current portion
2,109

 
2,205

Short-term borrowings and current portion of long-term debt
87,000

 
74,000

Total current liabilities
317,972

 
301,761

Capital lease obligations, less current portion
1,564

 
2,329

Long-term debt, less current portion
763,734

 
771,777

Deferred income taxes
3,505

 
2,803

Other liabilities
19,557

 
18,337

Total liabilities
1,106,332

 
1,097,007

Total stockholders’ equity
711,183

 
692,469

Total liabilities and stockholders’ equity
$
1,817,515

 
$
1,789,476


9


 Wesco Aircraft Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (UNAUDITED)
(In thousands)

 
Six Months Ended 
 March 31,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
18,303

 
$
14,626

Adjustments to reconcile net income to net cash used in operating activities
 
 
 
Depreciation and amortization
14,165

 
14,541

Amortization of deferred debt issuance costs
2,610

 
2,911

Stock-based compensation expense
5,058

 
3,688

Net inventory provision
2,521

 
4,820

Deferred income taxes
(14
)
 
581

Other non-cash items
497

 
886

Subtotal
43,140

 
42,053

Changes in assets and liabilities
 
 
 
Accounts receivable
(34,129
)
 
(30,962
)
Inventories
(8,788
)
 
(66,582
)
Other current and long-term assets
(7,968
)
 
(1,409
)
Accounts payable
(187
)
 
9,682

Other current and long-term liabilities
1,531

 
11,309

Net cash used in operating activities
(6,401
)
 
(35,909
)
Cash flows from investing activities
 

 
 

Purchase of property and equipment
(7,996
)
 
(2,909
)
Net cash used in investing activities
(7,996
)
 
(2,909
)
Cash flows from financing activities
 

 
 

Proceeds from short-term borrowings
47,000

 
60,000

Repayment of short-term borrowings
(34,000
)
 
(34,000
)
Repayment of borrowings and capital lease obligations
(11,444
)
 
(11,346
)
Debt issuance costs

 
(1,900
)
Net cash paid for activities related to stock-based incentive plans
(416
)
 
(66
)
Net cash provided by financing activities
1,140

 
12,688

Effect of foreign currency exchange rate on cash and cash equivalents
(239
)
 
428

Net decrease in cash and cash equivalents
(13,496
)
 
(25,702
)
Cash and cash equivalents, beginning of period
46,222

 
61,625

Cash and cash equivalents, end of period
$
32,726

 
$
35,923





10


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,
 
2019
 
2018
 
2019
 
2018
Adjusted Net Income
 
 
 
 
 
 
 
Net income
$
12,010

 
$
15,000

 
$
18,303

 
$
14,626

Amortization of intangible assets
3,732

 
3,713

 
7,465

 
7,427

Amortization of deferred debt issuance costs
1,305

 
1,403

 
2,609

 
2,911

Special items (1)
9,730

 
4,591

 
18,215

 
7,505

Adjustments for tax effect (2)
(3,554
)
 
(2,495
)
 
(6,818
)
 
4,201

Adjusted net income
$
23,223

 
$
22,212

 
$
39,774

 
$
36,670

 
 
 
 
 
 
 
 
Adjusted Earnings Per Share
 

 
 

 
 

 
 

Weighted-average number of basic shares outstanding
99,626,736

 
99,136,015

 
99,555,589

 
99,116,250

Adjusted net income per basic share
$
0.23

 
$
0.22

 
$
0.40

 
$
0.37

 
 
 
 
 
 
 
 
Adjusted Diluted Earnings Per Share
 

 
 

 
 

 
 

Weighted-average number of diluted shares outstanding
99,950,811

 
99,519,925

 
99,930,999

 
99,441,385

Adjusted net income per diluted share
$
0.23

 
$
0.22

 
$
0.40

 
$
0.37


(1)
Special items in the second quarter of fiscal 2019 consisted primarily of consulting fees of $3.3 million and other costs of $6.3 million associated with the company’s Wesco 2020 initiative. 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 year-to-date period of fiscal 2019 consisted primarily of consulting fees of $7.8 million, other costs of $10.2 million associated with the company’s Wesco 2020 initiative, and settlement of litigation of $0.1 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.

(2)
The adjustment for tax effect in the year-to-date period of fiscal 2018 included an estimated $9.1 million tax provision on foreign earnings as transition tax under the Tax Cuts and Jobs Act.

 

11


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,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
EBITDA and Adjusted EBITDA
 

 
 

 
 
 
 
Net income
$
12,010

 
$
15,000

 
$
18,303

 
$
14,626

Provision for income taxes
5,127

 
6,123

 
7,782

 
19,491

Interest expense, net
12,388

 
11,965

 
25,302

 
23,803

Depreciation and amortization
7,067

 
7,285

 
14,165

 
14,541

EBITDA
36,592

 
40,373

 
65,552

 
72,461

Special items (1)
9,730

 
4,591

 
18,215

 
7,505

Adjusted EBITDA
$
46,322

 
$
44,964

 
$
83,767

 
$
79,966

 
 
 
 
 
 
 
 
Adjusted EBITDA margin
10.9
%
 
11.5
%
 
10.2
%
 
10.6
%

(1)
Special items in the second quarter of fiscal 2019 consisted primarily of consulting fees of $3.3 million and other costs of $6.3 million associated with the company’s Wesco 2020 initiative. 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 year-to-date period of fiscal 2019 consisted primarily of consulting fees of $7.8 million, other costs of $10.2 million associated with the company’s Wesco 2020 initiative, and settlement of litigation of $0.1 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.
    



 
 
 
 
 
 
 
 
 








12



 Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - Free Cash Flow (UNAUDITED)
(Dollars in thousands)
 
 
Three Months Ended 
 March 31,
 
Increase 
(Decrease)
 
 
2019
 
2018
 
 
 
 

 
 

 
 

 
Net cash provided by (used in) operating activities
$
26,046

 
$
(6,029
)
 
$
32,075

 
Purchase of property and equipment
(5,756
)
 
(1,574
)
 
(4,182
)
 
Free cash flow
$
20,290

 
$
(7,603
)
 
$
27,893

 
 
 
 
 
 
 
 
 
Six Months Ended 
 March 31,
 
Increase 
(Decrease)
 
 
2019
 
2018
 
 
 
 

 
 

 
 

 
Net cash used in operating activities
$
(6,401
)
 
$
(35,909
)
 
$
29,508

 
Purchase of property and equipment
(7,996
)
 
(2,909
)
 
(5,087
)
 
Free cash flow
$
(14,397
)
 
$
(38,818
)
 
$
24,421

 
 
 
 
 
 
 
 


     






















13
Q2 2019 EARNINGS CALL PRESENTATION May 2, 2019 Todd Renehan Chief Executive Officer Kerry Shiba Executive Vice President and Chief Financial Officer Informationinthispresentationshouldbereadinconjunction with Wesco Aircraft’s earnings press release and tables for the fiscal 2019 second quarter.


 
Disclaimer 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 madeby, and information currently available to, management. In some cases, you can identify forward‐looking statements by the use of forward‐looking terms such as “ability,” “accelerate,” “address,” “anticipate,” “assumption,” “begin,” “believe,” “continue,” “deliver,” “drive,” “enhance,” “establish,” “execute,” “expand,” “expect,” “forecast,” “future,” “grow,” “implement,” “improve,” “increase,” “initiative,” “lead,” “maintain,” “on track,” “opportunity,” “outlook,” “still,” “target,” “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 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; risks associated with the Company’s long‐term, fixed‐price agreements that have no guarantee of future sales volumes; 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, while also meeting the Company’s customers’ quality standards; the Company’s ability to maintain effective information technology systems and effectively implement its new warehouse management system; the Company’s ability to successfully execute and realize the expected financial benefits from its “Wesco 2020” initiative; the Company’s ability to retain key personnel; risks associated with the Company’s international operations, including exposure to foreign currency movements; changes in trade policies; 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. income tax law; 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 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       Visit www.wescoair.com   2


 
Overview Q2 2019 Operating and Financial Results Q2 2019 Results Robust sales growth driven by solid performance in all product categories $426M Net Sales Wesco 2020 initiatives accelerated; addressing EMEA challenges 25.5% Gross Margin  Reported net income lower primarily due to temporary costs and EMEA $0.12 / $0.23 Diluted EPS /  Adjusted Diluted EPS* Key initiatives in EMEA expected to drive stronger performance 10.9% Adjusted EBITDA  Adjusted EBITDA higher, primarily due to continued improvement in Americas Margin* $26M Strengthening inventory management, resulting in significant cash generation  Net Cash Provided by  Operating Activities * See appendix for reconciliation and information regarding non‐GAAP measures Wesco Aircraft Proprietary       Visit www.wescoair.com   3


 
Business Update Double‐digit ad‐hoc sales growth – capturing more business with largest customers Long‐term contracts increased at solid pace – higher volumes and new business Robust pace of new and expanded business and long‐term contract renewals Temporary costs and investments partially offset by Wesco 2020 cost savings and expense control SG&A as percent of sales significantly lower, excluding temporary costs Greater efficiency in inventory management while still supporting customers Wesco Aircraft Proprietary       Visit www.wescoair.com   4


 
Segment Update Strong performance in Americas – top‐line growth achieved in all major products Operating income in Americas stable; higher gross profit offset by $5.4 million in temporary costs  Adjusted EBITDA and adjusted EBITDA margin in Americas gained momentum EMEA business underperformed – lower sales and operating income Implementing key initiatives to drive better performance in EMEA Confident in ability to improve EMEA operations based on success in Americas Wesco Aircraft Proprietary       Visit www.wescoair.com   5


 
Wesco 2020 Update Aggressive Pace of Execution; More Cost Savings Realized FOOTPRINT  Deeper into facility consolidations; inventory transfers accelerating OPTIMIZATION ALIGN FACILITY  Opening previously announced multi‐commodity distribution centers INVESTMENT ORGANIZATIONAL  Completed consolidation of sales offices in Americas and EMEA STRUCTURE REFINE GLOBAL CENTERS  Continued focus on sales performance initiatives; expanding supplier LTAs OF EXCELLENCE New warehouse management system initiative remains on track AUTOMATION INVEST Implementing new demand‐planning system, supporting SIOP improvements BUSINESS TOOLS Wesco Aircraft Proprietary       Visit www.wescoair.com   6


 
Net Sales Summary Net Sales Net sales increase of 9% year/year – solid performance across the  ($ in millions) board, particularly in chemicals and ad‐hoc hardware in Americas $426.5  Sales under long‐term contracts increase of 7% due to: $395.3  . Chemical products/services +9%; hardware +4% $390.2  . Chemicals primarily reflect pass‐through revenue . Participation in military and business jet demand Ad‐hoc sales 14% higher – particularly strong increase in Americas  benefiting from top customer relationships Net sales 8% higher sequentially, reflecting strong increase in ad‐ Q2 2018 Q1 2019 Q2 2019 hoc sales Wesco Aircraft Proprietary       Visit www.wescoair.com   7


 
Income Statement Summary (Dollars in Millions, Except Per Share Data) Q2 2018 Q1 2019 Q2 2019 Second Quarter Commentary Net sales $390.2 $395.3 $426.5 Gross profit increase year‐over‐year – higher sales volume, partially  Income from operations $33.2 $22.1 $29.8 offset by lower gross margin Significantly lower EMEA gross margin driven by the same issues in the  Operating margin 8.5% 5.6% 7.0% first quarter of fiscal 2019 Net income $15.0 $6.3 $12.0 Smaller decline in Americas gross margin – ad‐hoc margins and dilutive  effect of significant chemical pass‐through revenue growth Diluted earnings per share $0.15 $0.06 $0.12 Higher SG&A – increase in Wesco 2020 temporary costs and investment  in growth, partially offset by Wesco 2020 benefits Adjusted net income* $22.2 $16.6 $23.2 Sequential increase in operating and net income – higher sales volume  Adjusted diluted earnings per share* $0.22 $0.17 $0.23 and gross margin, partially offset by SG&A increase Adjusted EBITDA sequential increase of 24%  Adjusted EBITDA* $45.0 $37.4 $46.3 Sequential expansion in adjusted EBITDA margin of 140 bps Adjusted EBITDA margin* 11.5% 9.5% 10.9% * See appendix for reconciliation and information regarding non‐GAAP measures Wesco Aircraft Proprietary       Visit www.wescoair.com   8


 
Balance Sheet Summary March 31,  June 30,  Sept 30,  Dec 31,  March 31,  At Period End 2018 2018 2018 2018 2019 ($ in millions) Cash and cash equivalents  $35.9 $45.6 $46.2 $25.2 $32.7 Accounts receivable, net 287.1 302.1 283.8 296.8 316.7 Inventories 889.3 893.5 884.2 912.7 890.1 Accounts payable 194.1 192.9 180.5 184.9 180.7 Total debt 880.7 877.2 845.8 861.8 850.7 Stockholders’ equity  672.1 682.3 692.5 698.3 711.2 Wesco Aircraft Proprietary       Visit www.wescoair.com   9


 
Cash Flow Summary March 31,  June 30,  Sept 30,  Dec 31,  March 31,  Quarter Ended 2018 2018 2018 2018 2019 ($ in millions) Net income $15.0 $10.8 $7.3 $6.3 $12.0 Adjustments to reconcile net income to net cash (used  in) provided by operating activities 11.8 16.3 25.9 16.1 8.7 Changes in assets and liabilities (32.8) (10.3) 3.7 (54.8) 5.3 Net cash (used in) provided by operating activities (6.0) 16.8 36.9 (32.4) 26.0 Purchase of property and equipment (1.6) (1.1) (1.6) (2.3) (5.7) Free cash flow (7.6) 15.7 35.3 (34.7) 20.3 Wesco Aircraft Proprietary       Visit www.wescoair.com   10


 
Closing Remarks Robust top‐line growth; winning new business and renewing contracts at solid rate Americas business gaining momentum; addressing challenges in EMEA Wesco 2020 benefits expected to increase in second half of fiscal 2019 and into fiscal 2020 Expecting Wesco 2020 run‐rate benefits of at least $30M, with full realization during fiscal 2020 Fiscal 2019 sales outlook increased to mid‐to‐high single‐digit percentage growth Fiscal 2019 adjusted EBITDA growth target of high‐single‐digit percentage growth unchanged Expect significant increase in net cash provided by operating activities in fiscal 2019 Wesco Aircraft Proprietary       Visit www.wescoair.com   11


 
APPENDIX


 
Non‐GAAP Financial Information ‘‘Adjusted Net Income’’ represents Net Income before: (i) amortization of intangible assets, (ii) amortization or write‐off of deferred debt 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 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 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. Wesco Aircraft Proprietary      Visit www.wescoair.com   13


 
Non‐GAAP Financial Information 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, December 31, March 31, 2018 2018 2019 Adjusted Net Income Net income $ 15,000 $ 6,293 $ 12,010 Amortization of intangible assets 3,713 3,733 3,732 Amortization of deferred debt issuance costs 1,403 1,304 1,305 Special items (1) 4,591 8,485 9,730 Adjustments for tax effect (2,495) (3,264) (3,554) Adjusted net income$ 22,212 $ 16,551 $ 23,223 Adjusted Basic Earnings Per Share Weight-average number of basic shares outstanding 99,136,015 99,485,989 99,626,736 Adjusted net income per basic share$ 0.22 $ 0.17 $ 0.23 Adjusted Diluted Earnings Per Share Weight-average number of diluted shares outstanding 99,519,925 99,904,111 99,950,811 Adjusted net income per diluted share$ 0.22 $ 0.17 $ 0.23 (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 first quarter of fiscal 2019 consisted primarily of consulting fees of $4.4 million and other costs of $3.9 million associated with the company's Wesco 2020 initiative. Special items in the second quarter of fiscal 2019 consisted primarily of consulting fees of $3.3 million and other costs of $6.3 million associated with the company’s Wesco 2020 initiative. Wesco Aircraft Proprietary        Visit www.wescoair.com   14


 
Non‐GAAP Financial Information Wesco Aircraft Holdings, Inc. Non-GAAP Financial Information - EBITDA and Adjusted EBITDA (UNAUDITED) (Dollars In thousands) Three Months Ended March 31, December 31, March 31, 2018 2018 2019 Net Sales $ 390,183 $ 395,311 $ 426,474 EBITDA and Adjusted EBITDA Net income $ 15,000 $ 6,293 $ 12,010 Provision for income taxes 6,123 2,655 5,127 Interest expense, net 11,965 12,914 12,388 Depreciation and amortization 7,285 7,098 7,067 EBITDA 40,373 28,960 36,592 Special items (1) 4,591 8,485 9,730 Adjusted EBITDA$ 44,964 $ 37,445 $ 46,322 Adjusted EBITDA margin 11.5% 9.5% 10.9% (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 first quarter of fiscal 2019 consisted primarily of consulting fees of $4.4 million and other costs of $3.9 million associated with the company's Wesco 2020 initiative. Special items in the second quarter of fiscal 2019 consisted primarily of consulting fees of $3.3 million and other costs of $6.3 million associated with the company’s Wesco 2020 initiative. Wesco Aircraft Proprietary       15 Visit www.wescoair.com  


 
THANK YOU FOR YOUR INTEREST IN WESCO AIRCRAFT For more information, please visit www.wescoair.com


 

Categories

SEC Filings