HEICO CORP [HEI] Filings

10-Q 1 hei-20230731.htm 10-Q hei-20230731

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

						For the quarterly period ended July 31, 2023

						OR

☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

						For the transition period from ______ to _______

Commission File Number: 001-04604

HEICO CORPORATION

(Exact name of registrant as specified in its charter)


Florida						65-0341002
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

3000 Taft Street, Hollywood, Florida						33021
(Address of principal executive offices)						(Zip Code)

(954) 987-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value per share

HEI

New York Stock Exchange

Class A Common Stock, $.01 par value per share

HEI.A

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of each of the registrant’s classes of common stock as of August 28, 2023 is as follows:


Common Stock, $.01 par value	54,712,699	shares
Class A Common Stock, $.01 par value	83,474,773	shares

Index

HEICO CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q


			Page
Part I.	Financial Information

	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheets (unaudited) as of July 31, 202 3 and October 31, 202 2	2

		Condensed Consolidated Statements of Operations (unaudited) for the nine and three months ended July 31, 202 3 and 202 2	3

		Condensed Consolidated Statements of Comprehensive Income (unaudited) for the nine and three months ended July 31, 202 3 and 202 2	4

		Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the nine and three months ended July 31, 202 3 and 202 2	5

		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended July 31, 202 3 and 202 2	7

		Notes to Condensed Consolidated Financial Statements (unaudited)	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

	Item 4.	Controls and Procedures	44

Part II.	Other Information

	Item 1A.	Risk Factors	45

	Item 5.	Other Events	45

	Item 6.	Exhibits	46

Signatures			47

Index

PART I. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except per share data)


	July 31, 2023	October 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$694,263	$139,504
Accounts receivable, net	355,491	294,848
Contract assets	102,832	93,978
Inventories, net	731,966	582,471
Prepaid expenses and other current assets	47,372	41,929
Total current assets	1,931,924	1,152,730

Property, plant and equipment, net	285,033	225,879
Goodwill	2,026,279	1,672,425
Intangible assets, net	822,545	733,327
Other assets	387,521	311,135
Total assets	$5,453,302	$4,095,496

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt	$16,777	$1,654
Trade accounts payable	139,515	116,551
Accrued expenses and other current liabilities	315,606	290,199
Income taxes payable	7,149	12,455
Total current liabilities	479,047	420,859

Long-term debt, net of current maturities	1,198,484	288,620
Deferred income taxes	83,357	71,162
Other long-term liabilities	389,335	338,948
Total liabilities	2,150,223	1,119,589

Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 3)	343,883	327,601

Shareholders’ equity:
Preferred Stock, $.01 par value per share; 10,000 shares authorized; none issued	—	—
Common Stock, $.01 par value per share; 150,000 shares authorized; 54,706 and 54,519 shares issued and outstanding	547	545
Class A Common Stock, $.01 par value per share; 150,000 shares authorized; 82,316 and 82,093 shares issued and outstanding	823	821
Capital in excess of par value	406,442	397,337
Deferred compensation obligation	6,318	5,297
HEICO stock held by irrevocable trust	(6,318)	(5,297)
Accumulated other comprehensive loss	(16,657)	(46,499)
Retained earnings	2,523,212	2,253,932
Total HEICO shareholders’ equity	2,914,367	2,606,136
Noncontrolling interests	44,829	42,170
Total shareholders’ equity	2,959,196	2,648,306
Total liabilities and equity	$5,453,302	$4,095,496

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED

(in thousands, except per share data)


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022

Net sales	$2,031,658	$1,598,684	$722,902	$569,528

Operating costs and expenses:
Cost of sales	1,242,613	976,308	444,168	348,591
Selling, general and administrative expenses	353,154	272,030	129,367	92,190

Total operating costs and expenses	1,595,767	1,248,338	573,535	440,781

Operating income	435,891	350,346	149,367	128,747

Interest expense	(29,561)	(3,181)	(12,120)	(1,406)
Other income	1,888	685	906	145

Income before income taxes and noncontrolling interests	408,218	347,850	138,153	127,486

Income tax expense	77,400	67,400	25,400	34,400

Net income from consolidated operations	330,818	280,450	112,753	93,086

Less: Net income attributable to noncontrolling interests	30,648	25,979	10,730	10,546

Net income attributable to HEICO	$300,170	$254,471	$102,023	$82,540

Net income per share attributable to HEICO shareholders:
Basic	$2.19	$1.87	$.74	$.61
Diluted	$2.17	$1.85	$.74	$.60

Weighted average number of common shares outstanding:
Basic	136,859	135,835	137,006	135,978
Diluted	138,616	137,890	138,668	137,837

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME – UNAUDITED

(in thousands)


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022

Net income from consolidated operations	$330,818	$280,450	$112,753	$93,086
Other comprehensive income (loss):
Foreign currency translation adjustments	31,264	(30,772)	885	(7,744)
Amortization of unrealized loss on defined benefit pension plan, net of tax	43	49	15	16
Total other comprehensive income (loss)	31,307	(30,723)	900	(7,728)
Comprehensive income from consolidated operations	362,125	249,727	113,653	85,358
Net income attributable to noncontrolling interests	30,648	25,979	10,730	10,546
Foreign currency translation adjustments attributable to noncontrolling interests	1,465	(1,348)	(69)	(355)
Comprehensive income attributable to noncontrolling interests	32,113	24,631	10,661	10,191
Comprehensive income attributable to HEICO	$330,012	$225,096	$102,992	$75,167

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED

For the Nine Months Ended July 31, 2023 and 2022

(in thousands, except per share data)


		HEICO Shareholders' Equity
	Redeemable Noncontrolling Interests	Common Stock	Class A Common Stock	Capital in Excess of Par Value	Deferred Compensation Obligation	HEICO Stock Held by Irrevocable Trust	Accumulated Other Comprehensive Loss	Retained Earnings	Noncontrolling Interests	Total Shareholders' Equity
Balances as of October 31, 2022	$327,601	$545	$821	$397,337	$5,297	($5,297)	($46,499)	$2,253,932	$42,170	$2,648,306
Comprehensive income	22,745	—	—	—	—	—	29,842	300,170	9,368	339,380
Cash dividends ($.20 per share)	—	—	—	—	—	—	—	(27,370)	—	(27,370)
Issuance of common stock to HEICO Savings and Investment Plan	—	—	—	9,222	—	—	—	—	—	9,222
Share-based compensation expense	—	—	—	10,412	—	—	—	—	—	10,412
Proceeds from stock option exercises	—	2	2	5,480	—	—	—	—	—	5,484
Redemptions of common stock related to stock option exercises	—	—	—	(14,847)	—	—	—	—	—	(14,847)
Noncontrolling interests assumed related to acquisitions	12,137	—	—	—	—	—	—	—	—	—
Distributions to noncontrolling interests	(23,226)	—	—	—	—	—	—	—	(6,708)	(6,708)
Acquisitions of noncontrolling interests	(1,059)	—	—	(1,674)	—	—	—	—	—	(1,674)
Adjustments to redemption amount of redeemable noncontrolling interests	3,334	—	—	—	—	—	—	(3,334)	—	(3,334)

Deferred compensation obligation	—	—	—	—	1,021	(1,021)	—	—	—	—
Other	2,351	—	—	512	—	—	—	(186)	(1)	325
Balances as of July 31, 2023	$343,883	$547	$823	$406,442	$6,318	($6,318)	($16,657)	$2,523,212	$44,829	$2,959,196


		HEICO Shareholders' Equity
	Redeemable Noncontrolling Interests	Common Stock	Class A Common Stock	Capital in Excess of Par Value	Deferred Compensation Obligation	HEICO Stock Held by Irrevocable Trust	Accumulated Other Comprehensive Loss	Retained Earnings	Noncontrolling Interests	Total Shareholders' Equity
Balances as of October 31, 2021	$252,587	$543	$812	$320,747	$5,297	($5,297)	($8,552)	$1,949,521	$33,868	$2,296,939
Comprehensive income (loss)	17,639	—	—	—	—	—	(29,375)	254,471	6,992	232,088
Cash dividends ($.18 per share)	—	—	—	—	—	—	—	(24,466)	—	(24,466)
Issuance of common stock to HEICO Savings and Investment Plan	—	—	1	9,497	—	—	—	—	—	9,498
Share-based compensation expense	—	—	—	9,815	—	—	—	—	—	9,815
Proceeds from stock option exercises	—	3	3	1,864	—	—	—	—	—	1,870
Redemptions of common stock related to stock option exercises	—	(1)	(1)	(25,824)	—	—	—	—	—	(25,826)
Distributions to noncontrolling interests	(15,759)	—	—	—	—	—	—	—	(1,007)	(1,007)
Acquisitions of noncontrolling interests	(12,150)	—	—	3,415	—	—	—	—	—	3,415
Noncontrolling interests assumed related to acquisitions	42,719	—	—	—	—	—	—	—	—	—
Adjustments to redemption amount of redeemable noncontrolling interests	8,194	—	—	—	—	—	—	(8,194)	—	(8,194)

Other	3,764	—	—	(2,149)	—	—	—	1	—	(2,148)
Balances as of July 31, 2022	$296,994	$545	$815	$317,365	$5,297	($5,297)	($37,927)	$2,171,333	$39,853	$2,491,984

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - UNAUDITED

For the Three Months Ended July 31, 2023 and 2022

(in thousands, except per share data)


		HEICO Shareholders' Equity
	Redeemable Noncontrolling Interests	Common Stock	Class A Common Stock	Capital in Excess of Par Value	Deferred Compensation Obligation	HEICO Stock Held by Irrevocable Trust	Accumulated Other Comprehensive Loss	Retained Earnings	Noncontrolling Interests	Total Shareholders' Equity
Balances as of April 30, 2023	$345,833	$547	$823	$398,991	$6,171	($6,171)	($17,626)	$2,435,155	$41,777	$2,859,667
Comprehensive income	7,389	—	—	—	—	—	969	102,023	3,272	106,264
Cash dividends ($.10 per share)	—	—	—	—	—	—	—	(13,702)	—	(13,702)
Issuance of common stock to HEICO Savings and Investment Plan	—	—	—	1,462	—	—	—	—	—	1,462
Share-based compensation expense	—	—	—	4,357	—	—	—	—	—	4,357
Proceeds from stock option exercises	—	—	—	1,410	—	—	—	—	—	1,410
Redemptions of common stock related to stock option exercises	—	—	—	(36)	—	—	—	—	—	(36)
Noncontrolling interests assumed related to acquisitions	(2,505)	—	—	—	—	—	—	—	—	—
Distributions to noncontrolling interests	(7,065)	—	—	—	—	—	—	—	(219)	(219)
Adjustments to redemption amount of redeemable noncontrolling interests	231	—	—	—	—	—	—	(231)	—	(231)
Deferred compensation obligation	—	—	—	—	147	(147)	—	—	—	—
Other	—	—	—	258	—	—	—	(33)	(1)	224
Balances as of July 31, 2023	$343,883	$547	$823	$406,442	$6,318	($6,318)	($16,657)	$2,523,212	$44,829	$2,959,196


		HEICO Shareholders' Equity
	Redeemable Noncontrolling Interests	Common Stock	Class A Common Stock	Capital in Excess of Par Value	Deferred Compensation Obligation	HEICO Stock Held by Irrevocable Trust	Accumulated Other Comprehensive Loss	Retained Earnings	Noncontrolling Interests	Total Shareholders' Equity
Balances as of April 30, 2022	$303,927	$545	$814	$311,053	$5,297	($5,297)	($30,554)	$2,100,178	$38,438	$2,420,474
Comprehensive income (loss)	8,377	—	—	—	—	—	(7,373)	82,540	1,814	76,981
Cash dividends ($.09 per share)	—	—	—	—	—	—	—	(12,239)	—	(12,239)
Issuance of common stock to HEICO Savings and Investment Plan	—	—	1	1,758	—	—	—	—	—	1,759
Share-based compensation expense	—	—	—	2,960	—	—	—	—	—	2,960
Proceeds from stock option exercises	—	—	—	260	—	—	—	—	—	260
Redemptions of common stock related to stock option exercises	—	—	—	(2,134)	—	—	—	—	—	(2,134)
Distributions to noncontrolling interests	(5,791)	—	—	—	—	—	—	—	(399)	(399)
Acquisitions of noncontrolling interests	(12,150)	—	—	3,415	—	—	—	—	—	3,415
Noncontrolling interests assumed related to acquisitions	3,484	—	—	—	—	—	—	—	—	—
Adjustments to redemption amount of redeemable noncontrolling interests	(853)	—	—	—	—	—	—	853	—	853
Other	—	—	—	53	—	—	—	1	—	54
Balances as of July 31, 2022	$296,994	$545	$815	$317,365	$5,297	($5,297)	($37,927)	$2,171,333	$39,853	$2,491,984

The accompanying notes are an integral part of these condensed consolidated financial statements.

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)


	Nine months ended July 31,
	2023	2022
Operating Activities:
Net income from consolidated operations	$330,818	$280,450
Adjustments to reconcile net income from consolidated operations to net cash provided by operating activities:
Depreciation and amortization	86,315	70,526
Employer contributions to HEICO Savings and Investment Plan	10,647	8,884
Share-based compensation expense	10,412	9,815
Increase (decrease) in accrued contingent consideration, net	1,218	(4,253)
Amendment and termination of contingent consideration agreement	(9,057)	—
Payment of contingent consideration	(6,299)	—
Deferred income tax (benefit) provision	(22,974)	7,858
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable	(15,615)	(18,445)
Increase in contract assets	(7,863)	(4,022)
Increase in inventories	(86,681)	(61,190)
Decrease (increase) in prepaid expenses and other current assets	1,302	(11,701)
(Decrease) increase in trade accounts payable	(1,685)	18,959
Increase in accrued expenses and other current liabilities	12,164	12,963
Decrease in income taxes payable	(4,967)	(2,405)
Net changes in other long-term liabilities and assets related to HEICO Leadership Compensation Plan	11,734	13,735
Other	(9,112)	2,736
Net cash provided by operating activities	300,357	323,910

Investing Activities:
Acquisitions, net of cash acquired	(526,702)	(175,298)
Capital expenditures	(34,176)	(24,357)
Investments related to HEICO Leadership Compensation Plan	(14,000)	(13,400)
Other	689	(10,296)
Net cash used in investing activities	(574,189)	(223,351)

Financing Activities:
Proceeds from issuance of senior unsecured notes	1,189,452	—
Borrowings on revolving credit facility	564,000	162,000
Payments on revolving credit facility	(839,000)	(157,000)
Distributions to noncontrolling interests	(29,934)	(16,766)
Cash dividends paid	(27,370)	(24,466)
Redemptions of common stock related to stock option exercises	(14,847)	(25,826)
Payment of contingent consideration	(12,610)	—
Debt issuance costs	(9,055)	(1,010)
Acquisitions of noncontrolling interests	(2,733)	(8,735)
Proceeds from stock option exercises	5,484	1,870
Other	694	(157)
Net cash provided by (used in) financing activities	824,081	(70,090)

Effect of exchange rate changes on cash	4,510	(5,162)

Net increase in cash and cash equivalents	554,759	25,307
Cash and cash equivalents at beginning of year	139,504	108,298
Cash and cash equivalents at end of period	$694,263	$133,605

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index

HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of HEICO Corporation and its subsidiaries (collectively, “HEICO,” or the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Therefore, the condensed consolidated financial statements do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2022. The October 31, 2022 Condensed Consolidated Balance Sheet has been derived from the Company’s audited consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statements of shareholders' equity and statements of cash flows for such interim periods presented. The results of operations for the nine months ended July 31, 2023 are not necessarily indicative of the results which may be expected for the entire fiscal year.

The Company has two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. ("HFSC") and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. ("HEICO Electronic") and its subsidiaries.

Although the Company has largely emerged from the COVID-19 pandemic, HEICO’s results of operations in fiscal 2023 continue to reflect some of the pandemic’s lingering effects, including its impact on the Company's supply chain. Despite the aforementioned, the Company experienced continued improvement in operating results in the first nine months and third quarter of fiscal 2023 as compared to the first nine months and third quarter of fiscal 2022 principally reflecting improved demand for its commercial aerospace products and services. The FSG has reported twelve consecutive quarters of sequential growth in net sales resulting from commercial air travel recovery in certain domestic travel markets, moderated by a slower recovery in international travel markets.

Index

New Accounting Pronouncement

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as if the acquirer had originated the contracts. The Company adopted ASU 2021-08 in the first quarter of fiscal 2023, resulting in no material effect on the Company's consolidated results of operations, financial position or cash flows.

2. ACQUISITIONS

In March 2023, the Company, through a subsidiary of HEICO Electronic, entered into an exclusive license and acquired certain assets for the Aircraft Emergency Locator Transmitter (“ELT”) product line from Honeywell International. ELTs provide critical emergency transmission signals in the event of aircraft impact on land or water to enable first responders to locate the aircraft. The transaction provides the HEICO Electronic subsidiary with all rights to produce, sell and repair both fixed and portable Honeywell ELTs, as well as various support equipment. The purchase price of this acquisition was paid in cash using cash provided by operating activities and is not material or significant to the Company's condensed consolidated financial statements.

On January 5, 2023, the Company, through HEICO Electronic, acquired 93.69% of the outstanding common stock and all of the preferred stock of Exxelia International SAS (“Exxelia”). Exxelia designs, manufactures and sells high reliability (“Hi-Rel”), complex, passive electronic components and rotary joint assemblies for mostly aerospace and defense applications, in addition to other high-end applications, such as medical and energy uses, including emerging “clean energy” and electrification applications. The Company believes that this acquisition will further HEICO's strategy of expanding its already wide range of mission-critical and Hi-Rel components for the most demanding applications, as well as provide HEICO with added broad geographic and product diversity, including in the important European market. The majority of the remaining 6.31% interest is owned by certain members of Exxelia's management team. See Note 3, Selected Financial Statement Information - Redeemable Noncontrolling Interests, for additional information. Additionally, as a result of this acquisition, the Company also obtained a 90% ownership interest in Alcon Electronics Pvt. Ltd. (“Alcon”), which is an existing subsidiary of Exxelia. The remaining 10% interest continues to be owned by a certain member of Alcon’s management team. See Note 3, Selected Financial Statement Information – Redeemable Noncontrolling Interests, for additional information. The purchase price of this acquisition was paid in cash, using proceeds from the Company's revolving credit facility.

Index

The following table summarizes the total consideration for the acquisition of Exxelia (in thousands):


Cash paid						$515,785
Less: cash acquired						(11,763)
Total consideration paid, net						$504,022

As noted above, the Company acquired all of the preferred stock of Exxelia. Pursuant to the terms of the acquisition, Exxelia’s preferred stock accrues dividends at 5.18% per annum. Additionally, in connection with the acquisition, HEICO issued Exxelia a ten-year, €150 million note, which accrues interest at 4.7% per annum on the principal outstanding. The Company records foreign currency transaction adjustments on the note receivable within selling, general and administrative ("SG&A") expenses in its Condensed Consolidated Statements of Operations.

The following table summarizes the allocation of the total consideration for the acquisition of Exxelia to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed (in thousands):


Assets acquired:
Goodwill						$327,178
Customer relationships						61,943
Intellectual property						44,044
Trade name						21,703
Inventories						54,688
Property, plant and equipment						50,896
Accounts receivable						41,670
Other assets						13,509
Total assets acquired, excluding cash						615,631

Liabilities assumed:
Deferred income taxes						34,691
Accounts payable						22,585
Accrued expenses						18,366
Short-term debt						15,082
Other liabilities						8,730
Total liabilities assumed						99,454

Noncontrolling interests in consolidated subsidiaries						12,155

Net assets acquired, excluding cash						$504,022

Index

The allocation of the total consideration to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed is preliminary until the Company obtains final information regarding their fair values. The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings potential of Exxelia and the value of its assembled workforce that do not qualify for separate recognition, however, benefit both the Company and the noncontrolling interest holders. The fair value of the noncontrolling interests were determined based on the consideration paid by the Company for its controlling ownership interest adjusted for a lack of control that a market participant would consider when estimating the fair value of the noncontrolling interest. The weighted-average amortization periods of the customer relationships, intellectual property and trade names acquired are 15 years, 15 years and indefinite, respectively. Acquisition costs associated with the purchase of Exxelia totaled $5.1 million for the nine months ended July 31, 2023 and were recorded as a component of SG&A expenses in the Company's Condensed Consolidated Statement of Operations. The operating results of Exxelia were included in the Company’s results of operations from the effective acquisition date. The Company's consolidated net sales for the nine and three months ended July 31, 2023 includes approximately $128.0 million and $58.4 million, respectively, from the acquisition of Exxelia. Net income attributable to HEICO for the nine and three months ended July 31, 2023 was not materially impacted by the acquisition of Exxelia.

The following table presents unaudited pro forma financial information for the nine and three months ended July 31, 2023 and July 31, 2022 as if the acquisition of Exxelia had occurred as of November 1, 2021 (in thousands, except per share data):


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022
Net sales	$2,071,061	$1,747,124	$722,902	$622,071
Net income from consolidated operations	$347,466	$264,754	$113,185	$91,016
Net income attributable to HEICO	$316,424	$239,022	$102,367	$80,461
Net income per share attributable to HEICO shareholders:
Basic	$2.31	$1.76	$.75	$.59
Diluted	$2.28	$1.73	$.74	$.58

The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place as of November 1, 2021. The unaudited pro forma financial information includes adjustments to historical amounts such as increased interest expense associated with borrowings to finance the acquisition, foreign currency transaction adjustments on the note receivable from Exxelia, the reclassification of acquisition costs associated with the purchase of Exxelia from fiscal 2023 to fiscal 2022, additional amortization expense related to the intangible assets acquired, and inventory purchase accounting adjustments charged to cost of sales as the inventory is sold. Additionally, the pro forma information presented above reflects HEICO's initial ownership interest of 93.69% of Exxelia's common stock as of the date of

Index

acquisition. During the second quarter of fiscal 2023, the Company sold an additional 2.72% of the common stock of Exxelia to its existing noncontrolling interest holders and certain members of Exxelia's management team, which decreased the Company's ownership interest in the subsidiary to 90.97%. See Note 3, Selected Financial Statement Information - Redeemable Noncontrolling Interests, for additional information.

3. SELECTED FINANCIAL STATEMENT INFORMATION

Accounts Receivable


(in thousands)	July 31, 2023	October 31, 2022
Accounts receivable	$364,496	$303,181
Less: Allowance for doubtful accounts	(9,005)	(8,333)
Accounts receivable, net	$355,491	$294,848

Inventories


(in thousands)	July 31, 2023	October 31, 2022
Finished products	$352,174	$285,024
Work in process	72,040	59,739
Materials, parts, assemblies and supplies	307,752	237,708
Inventories, net of valuation reserves	$731,966	$582,471

Property, Plant and Equipment


(in thousands)	July 31, 2023	October 31, 2022
Land	$19,928	$17,579
Buildings and improvements	182,613	148,598
Machinery, equipment and tooling	366,736	322,252
Construction in progress	23,788	14,533
	593,065	502,962
Less: Accumulated depreciation and amortization	(308,032)	(277,083)
Property, plant and equipment, net	$285,033	$225,879

Accrued Customer Rebates and Credits

The aggregate amount of accrued customer rebates and credits included within accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets was $19.6 million as of July 31, 2023 and $17.9 million as of October 31, 2022. The total customer rebates and credits deducted within net sales in the accompanying Condensed Consolidated Statements of Operations for the nine months ended July 31, 2023 and 2022 was $6.1 million and $5.9 million, respectively. The total customer rebates and credits deducted within net sales in the Company's Condensed Consolidated Statements of Operations for the three months ended July 31, 2023 and 2022 was $1.9 million and $2.2 million, respectively.

Index

Research and Development Expenses

The amount of new product research and development ("R&D") expenses included in cost of sales in the Company's Condensed Consolidated Statements of Operations for the nine and three months ended July 31, 2023 and 2022 is as follows (in thousands):


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022
R&D expenses	$68,499	$55,804	$25,365	$18,657

Redeemable Noncontrolling Interests

The holders of equity interests in certain of the Company's subsidiaries have rights ("Put Rights") that may be exercised on varying dates causing the Company to purchase their equity interests through fiscal 2032. The Put Rights, all of which relate either to common shares or membership interests in limited liability companies, provide that the cash consideration to be paid for their equity interests (the "Redemption Amount") be at fair value or a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period. Management's estimate of the aggregate Redemption Amount of all Put Rights that the Company could be required to pay is as follows (in thousands):


	July 31, 2023	October 31, 2022
Redeemable at fair value	$300,966	$300,693
Redeemable based on a multiple of future earnings	42,917	26,908
Redeemable noncontrolling interests	$343,883	$327,601

As discussed in Note 2, Acquisitions, the Company, through HEICO Electronic,

acquired 93.69% of the common stock of Exxelia in January 2023. During the second quarter of fiscal 2023, the Company sold an additional 2.72% of the common stock of Exxelia to its existing noncontrolling interest holders and certain members of Exxelia's management team, which decreased the Company's ownership interest in the common stock of the subsidiary to 90.97%. As part of the liquidity agreement, the noncontrolling interest holders have the right to cause the Company to purchase their equity interest beginning in fiscal 2028, or sooner under certain conditions, and the Company has the right to purchase the same equity interest beginning in the same period.

As discussed in Note 2, Acquisitions, the Company, as a result of its acquisition of Exxelia, acquired 90% of the stock of Alcon in January 2023. As part of the shareholders' agreement, the noncontrolling interest holder has the right to cause the Company to purchase their equity interest beginning in fiscal 2025, or sooner under certain conditions, and the Company has the right to purchase the same equity interest beginning in the same period.

Index

During fiscal 2022, the holder of a 19.9% noncontrolling equity interest in a subsidiary of the FSG that was acquired in fiscal 2015 exercised their option to cause the Company to purchase their noncontrolling interest over a four-year period ending in fiscal 2026. Accordingly, the Company acquired one-fourth of such interest in December 2022, which increased the Company's ownership interest in the subsidiary to 85.1%.

Accumulated Other Comprehensive Loss

Changes in the components of accumulated other comprehensive loss for the nine months ended July 31, 2023 are as follows (in thousands):


	Foreign Currency Translation	Defined Benefit Pension Plan	Accumulated Other Comprehensive Loss
Balances as of October 31, 2022	($45,369)	($1,130)	($46,499)
Unrealized gain	29,799	—	29,799
Amortization of unrealized loss	—	43	43
Balances as of July 31, 2023	($15,570)	($1,087)	($16,657)

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill by operating segment for the nine months ended July 31, 2023 are as follows (in thousands):


	Segment		Consolidated Totals
	FSG	ETG
Balances as of October 31, 2022	$561,961	$1,110,464	$1,672,425
Goodwill acquired	—	335,318	335,318
Foreign currency translation adjustments	4,267	12,972	17,239
Adjustments to goodwill	(956)	2,253	1,297
Balances as of July 31, 2023	$565,272	$1,461,007	$2,026,279

The goodwill acquired pertains to the fiscal 2023 acquisitions described in Note 2, Acquisitions, and represents the residual value after the allocation of the total consideration to the tangible and identifiable intangible assets acquired and liabilities and noncontrolling interests assumed. The Company estimates that $21 million of the goodwill acquired in fiscal 2023 will be deductible for income tax purposes. Foreign currency translation adjustments are included in other comprehensive income (loss) in the Company's Condensed Consolidated Statements of Comprehensive Income. The adjustments to goodwill represent immaterial measurement period adjustments to the purchase consideration allocation of certain fiscal 2022 acquisitions.

Index

Identifiable intangible assets consist of the following (in thousands):


	As of July 31, 2023			As of October 31, 2022
	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Amortizing Assets:
Customer relationships	$572,071	($205,964)	$366,107	$539,529	($208,127)	$331,402
Intellectual property	330,103	(114,218)	215,885	284,171	(98,983)	185,188
Other	8,703	(7,308)	1,395	8,700	(7,017)	1,683
	910,877	(327,490)	583,387	832,400	(314,127)	518,273
Non-Amortizing Assets:
Trade names	239,158	—	239,158	215,054	—	215,054
	$1,150,035	($327,490)	$822,545	$1,047,454	($314,127)	$733,327

The increase in the gross carrying amount of customer relationships, intellectual property and trade names as of July 31, 2023 compared to October 31, 2022 principally relates to such intangible assets recognized in connection with the fiscal 2023 acquisitions (see Note 2, Acquisitions), net of the write-off of fully amortized customer relationship intangible assets previously recognized in connection with certain historical acquisitions.

Amortization expense related to intangible assets for the nine months ended July 31, 2023 and 2022 was $55.5 million and $45.4 million, respectively. Amortization expense for the three months ended July 31, 2023 and 2022 was $18.6 million and $15.2 million, respectively. Amortization expense for the remainder of fiscal 2023 is estimated to be $18.7 million. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $71.2 million in fiscal 2024, $66.4 million in fiscal 2025, $61.7 million in fiscal 2026, $58.3 million in fiscal 2027, $53.8 million in fiscal 2028, and $253.3 million thereafter.

Index

5. SHORT-TERM AND LONG-TERM DEBT

A subsidiary of the Company acquired in the first quarter of fiscal 2023 has a short-term borrowing arrangement with a balance of $15.1 million as of the acquisition date and $15.2 million as of July 31, 2023.

Long-term debt consists of the following (in thousands):


	July 31, 2023	October 31, 2022
2028 senior unsecured notes	$600,000	$—
2033 senior unsecured notes	600,000	—
Borrowings under revolving credit facility	—	275,000
Finance leases and note payable	14,004	15,274
Less: Debt discount and debt issuance costs	(13,896)	—
	1,200,108	290,274
Less: Current maturities of long-term debt	(1,624)	(1,654)
	$1,198,484	$288,620

Revolving Credit Facility

As of July 31, 2023, the Company had no borrowings outstanding under its revolving credit facility ("Credit Facility"). As of October 31 2022, the weighted average interest rate on borrowings under the Credit Facility was 4.6%. The Credit Facility contains both financial and non-financial covenants. As of July 31, 2023, the Company was in compliance with all such covenants.

On July 14, 2023, the Company entered into a third amendment to its Credit Facility, to, among other things, (i) increase the capacity by $500 million to $2.0 billion, (ii) extend the maturity date to July 14, 2028, and (iii) increase the applicable rate with respect to certain total leverage ratio tiers in the pricing grid. The Credit Facility includes a feature that will allow the Company to increase the capacity by $750 million to become a $2.75 billion facility through increased commitments from existing lenders.

Borrowings under the Credit Facility accrue interest at the Company’s election of the Base Rate or Adjusted Term SOFR, plus in each case, the Applicable Rate (based on the Company’s Total Leverage Ratio) (each as defined in the Credit Facility). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (i) the Prime Rate; (ii) the Federal Funds Rate plus .50%; and (iii) Adjusted Term SOFR for an Interest Period of one month plus 100 basis points. Adjusted Term SOFR is the rate per annum equal to Term SOFR plus a Term SOFR Adjustment of .10%; provided that Adjusted Term SOFR as so determined shall never be less than 0%, as such capitalized terms are defined in the Credit Facility. The Applicable Rate for SOFR Loans ranges from 1.125% to 2.00%. The Applicable Rate for Base Rate Loans ranges from .125% to 1.00%. A fee is charged on the amount of the unused commitment ranging from .15% to .35% (depending on the Company’s Total Leverage Ratio). The Credit Facility also includes a $100 million sublimit for borrowings made in foreign currencies, a $200 million

Index

sublimit for swingline borrowings, and a $100 million sublimit for letters of credit. Outstanding principal, accrued and unpaid interest and other amounts payable under the Credit Facility may be accelerated upon an event of default, as such events are described in the Credit Facility. The Credit Facility is unsecured and contains covenants that require, among other things, the maintenance of a Total Leverage Ratio and an Interest Coverage Ratio (each as defined in the Credit Facility).

The Company incurred $6.7 million of debt issuance costs related to the third amendment of the Credit Facility, which were classified as other assets in the Company's Condensed Consolidated Balance Sheet and are being amortized to SG&A expenses in the Company's Condensed Consolidated Statement of Operations over the remaining term of the Credit Facility.

Senior Unsecured Notes

On July 27, 2023, the Company completed the public offer and sale of senior unsecured notes, which consisted of $600 million principal amount of 5.25% Senior Notes due August 1, 2028 (the "2028 Notes") and $600 million principal amount of 5.35% Senior Notes due August 1, 2033 (the "2033 Notes" and, collectively with the 2028 Notes, the "Notes"). The Company used the net proceeds from the sale of the Notes to repay the outstanding borrowings under its Credit Facility and to fund a portion of the purchase price of the Wencor Group acquisition ("Wencor Acquisition"). See Note 12, Subsequent Events, for additional information. Interest on the Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing February 1, 2024. The 2028 Notes and 2033 Notes each have an effective interest rate of 5.5%.

The Notes were issued pursuant to an Indenture, dated as of July 27, 2023 (the “Base Indenture”), between the Company and certain of its subsidiaries (collectively, the "Subsidiary Guarantors") and Truist Bank, as trustee (the “Trustee”), as supplemented by a First Supplemental Indenture, dated as of July 27, 2023 (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), between the Company, Subsidiary Guarantors and the Trustee. The Notes are direct, unsecured senior obligations of the Company and rank equally in right of payment with all of the Company's existing and future senior unsecured indebtedness.

The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of the Company's existing and future subsidiaries (including any member of Wencor Group following consummation of the Wencor Acquisition) that guarantee the Company's obligations under the Credit Facility (the "Guarantor Group"). The Company may redeem the Notes at any time in whole, or from time to time in part, prior to the applicable par call date at the applicable redemption price described in the Indenture. On or after the applicable par call date, the Notes will be redeemable, at the Company’s option, at any time in whole, or from time to time in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest on the Notes to be redeemed to, but excluding, the date of redemption. The Company may be required to make an offer to purchase the Notes upon the occurrence of a “change of control triggering event” as described in the Indenture.

Index

The Indenture includes certain customary covenants that, among other things, limit the Company’s and its restricted subsidiaries’ ability to grant liens to secure indebtedness or engage in sale and leaseback transactions and the Company’s ability to merge or consolidate with, or convey, transfer or lease all or substantially all of its assets to, a third party, as further described in the Indenture. Each of these limitations is subject to certain important qualifications and exceptions. The Indenture also includes certain customary events of default. The occurrence of an event of default will either automatically, in certain instances, or upon declaration by the Trustee or the holders of at least 25% in aggregate principal amount of the Notes at the time outstanding, in other instances, cause the acceleration of the amounts due under the Notes. As of July 31, 2023, the Company was in compliance with all such covenants.

The Company received net proceeds of $1,189.5 million from the issuance of the Notes, which was net of a debt discount and underwriting fees. The Company also incurred an additional $3.4 million of debt issuance fees related to the Notes. The aggregate debt discount and debt issuance costs of $13.9 million are classified as a contra liability within long-term debt in the Company's Condensed Consolidated Balance Sheet and are being amortized to interest expense in the Company's Condensed Consolidated Statement of Operations over the respective term of each senior note using the effective interest method.

The following table sets forth the carrying value and estimated fair value of the Company’s Notes, which are classified as Level 2 financial instruments in the fair value hierarchy (in thousands). The Company estimated the fair value of the Notes by taking the weighted average of market quotes for the exact security that was actively traded on July 31, 2023.


	July 31, 2023
	Carrying Value	Fair Value
2028 Notes	$593,889	$598,296
2033 Notes	592,215	597,198
Total	$1,186,104	$1,195,494

Index

6. REVENUE

Contract Balances

Contract assets (unbilled receivables) represent revenue recognized on contracts using an over-time recognition model in excess of amounts invoiced to the customer. Contract liabilities (deferred revenue) represent customer advances and billings in excess of revenue recognized and are included within accrued expenses and other current liabilities in the Company’s Condensed Consolidated Balance Sheets.

Changes in the Company’s contract assets and liabilities for the nine months ended July 31, 2023 are as follows (in thousands):


	July 31, 2023	October 31, 2022	Change
Contract assets	$102,832	$93,978	$8,854
Contract liabilities	80,295	58,757	21,538
Net contract assets	$22,537	$35,221	($12,684)

The increase in the Company's contract assets during the first nine months of fiscal 2023 mainly reflects additional unbilled receivables on certain customer contracts using an over-time recognition model in excess of billings on certain customer contracts at both the FSG and ETG. The increase in the Company's contract liabilities during the first nine months of fiscal 2023 principally reflects the receipt and billings of advance deposits on certain customer contracts mainly at the FSG.

The amount of revenue that the Company recognized during the nine and three months ended July 31, 2023 that was included in contract liabilities as of the beginning of fiscal 2023 was $38.2 million and $8.1 million, respectively.

Remaining Performance Obligations

As of July 31, 2023, the Company had $609.3 million of remaining performance obligations associated with contracts with an original duration of greater than one year pertaining to the majority of the products offered by the ETG as well as certain products of the FSG's specialty products and aftermarket replacement parts product lines. The Company will recognize net sales as these obligations are satisfied. The Company expects to recognize $146.8 million of this amount during the remainder of fiscal 2023 and $462.5 million thereafter, of which more than half is expected to occur in fiscal 2024.

Index

Disaggregation of Revenue

The following table summarizes the Company’s net sales by product line for each operating segment (in thousands):


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022
Flight Support Group:
Aftermarket replacement parts (1)	$665,936	$512,335	$238,950	$187,453
Specialty products (2)	272,659	202,945	85,166	76,366
Repair and overhaul parts and services (3)	229,925	193,973	80,924	66,440
Total net sales	1,168,520	909,253	405,040	330,259

Electronic Technologies Group:
Electronic component parts primarily for defense, space and aerospace equipment (4)	644,239	485,780	248,919	165,871
Electronic component parts for equipment in various other industries (5)	238,446	218,152	76,948	78,332
Total net sales	882,685	703,932	325,867	244,203

Intersegment sales	(19,547)	(14,501)	(8,005)	(4,934)

Total consolidated net sales	$2,031,658	$1,598,684	$722,902	$569,528

(1) Includes various jet engine and aircraft component replacement parts.

(2) Includes primarily the sale of specialty components such as thermal insulation blankets, renewable/reusable insulation systems, advanced niche components, complex composite assemblies, and expanded foil mesh as well as machining, brazing, fabricating and welding services generally to original equipment manufacturers.

(3) Includes primarily the sale of parts consumed in various repair and overhaul services on selected jet engine and aircraft components, avionics, instruments, composites and flight surfaces of commercial and military aircraft.

(4) Includes various component parts such as electro-optical infrared simulation and test equipment, electro-optical laser products, electro-optical, microwave and other power equipment, high-speed interface products, power conversion products, underwater locator beacons, emergency locator transmission beacons, traveling wave tube amplifiers, microwave power modules, a wide variety of memory products and radio frequency (RF) and microwave products, crashworthy and ballistically self-sealing auxiliary fuel systems, high performance communications and electronic intercept receivers and tuners, high performance active antenna systems and airborne antennas, technical surveillance countermeasures (TSCM) equipment, custom high power filters and filter assemblies, radiation assurance services and products, and high-reliability, complex, passive electronic components and rotary joint assemblies.

(5) Includes various component parts such as electromagnetic and radio frequency interference shielding, high voltage interconnection devices, high voltage advanced power electronics, harsh environment

Index

connectivity products, custom molded cable assemblies, silicone material for a variety of demanding applications, and rugged small form-factor embedded computing solutions, and high performance test sockets and adaptors.

The following table summarizes the Company’s net sales by industry for each operating segment (in thousands):


	Nine months ended July 31,		Three months ended July 31,
	2023	2022	2023	2022
Flight Support Group:
Aerospace	$811,962	$637,282	$288,069	$219,558
Defense and Space	295,686	231,014	98,777	94,756
Other (1)	60,872	40,957	18,194	15,945
Total net sales	1,168,520	909,253	405,040	330,259

Electronic Technologies Group:
Defense and Space	413,761	402,639	153,190	136,778

HEICO CORP [HEI] Filings

HEICO CORP [HEI-A] Filings