Wesco Aircraft Holdings Reports Fiscal 2019 Fourth Quarter and Full Year Results (2024)

Wesco Aircraft Holdings,Inc. (NYSE: WAIR), one of the world'sleading distributors and providers of comprehensive supply chainmanagement services to the global aerospace industry, todayannounced results for its fiscal 2019 fourth quarter and year endedSeptember 30, 2019.

Fiscal 2019 Fourth Quarter Highlights

• Net sales of $432.3 million, up 6.3 percent
• Net loss of $11.0 million, or $0.11 per diluted share
• Adjusted net income⁽¹⁾ of $10.7 million, or $0.11per diluted share
• Adjusted earnings before interest, taxes, depreciation andamortization⁽¹⁾ (EBITDA) of $36.2 million, or 8.4percent of net sales
• Net cash provided by operating activities of $37.1 million

Fiscal 2019 Fourth Quarter ConsolidatedResults

Net sales were $432.3 million in the fiscal 2019fourth quarter, an increase of 6.3 percent compared with $406.8million in the same period last year. Sales under long-termcontracts increased, primarily due to higher chemical pass-throughrevenue and related service fees. Ad-hoc sales were higheryear-over-year, primarily reflecting increased orders from majorcustomers.

Gross profit was $90.1 million in the fourthquarter of fiscal 2019, compared with $98.8 million in the fiscal2018 fourth quarter. The decrease in gross profit was primarily dueto a decline in gross margin, partially offset by higher salesvolume.

Selling, general and administrative (SG&A)expenses totaled $86.0 million in the fiscal 2019 fourth quarter,compared with $76.4 million in the same period last year,reflecting expenses associated with the company’s previouslyannounced merger agreement with an affiliate of Platinum EquityAdvisors, LLC, a U.S.-based private equity firm, as well as costsrelated to Wesco 2020 execution.

Income from operations totaled $4.1 million, or0.9 percent of net sales, in the fiscal 2019 fourth quarter,compared with $22.4 million, or 5.5 percent of net sales, in thesame period last year. The decline in income from operationsreflects higher SG&A expenses and lower gross profit.

Net loss was $11.0 million, or $0.11 per dilutedshare, in the fiscal 2019 fourth quarter. Net income in the fiscal2018 fourth quarter was $7.3 million, or $0.07 per dilutedshare.

Adjusted net income⁽¹⁾ in the fiscal2019 fourth quarter was $10.7 million, or $0.11 per diluted share,compared with $18.2 million, or $0.18 per diluted share, in thesame period last year.

Adjusted EBITDA⁽¹⁾ was $36.2 millionin the fourth quarter of fiscal 2019, compared with $36.7 millionin the same period last year. Adjusted EBITDA margin⁽¹⁾was 8.4 percent, compared with 9.0 percent in the same period lastyear.

Net cash provided by operating activitiestotaled $37.1 million in the fiscal 2019 fourth quarter, comparedwith $36.9 million in the same period last year. The change in netcash provided by operating activities primarily reflects loweroverall net working capital usage, partially offset by the declinein net income.

Free cash flow⁽¹⁾ was $32.4 millionin the fiscal 2019 fourth quarter, compared with $35.3 million inthe same period last year. The decline in free cash flow primarilyreflects higher purchases of property and equipment associated withWesco 2020.

Fiscal 2019 ConsolidatedResults

Net sales were $1,696.5 million in fiscal 2019,an increase of 8.0 percent compared with $1,570.5 million in fiscal2018. The increase in net sales was primarily due to higherlong-term contracts and ad-hoc sales.

Income from operations totaled $78.5 million, or4.6 percent of net sales, in fiscal 2019. This compares with incomefrom operations of $109.5 million, or 7.0 percent of net sales infiscal 2018. The decrease in income from operations was primarilydue to higher SG&A expenses associated with Wesco 2020execution, merger-related activities and higher sales volumes.

Net income was $21.4 million, or $0.21 perdiluted share, in fiscal 2019, compared with $32.7 million, or$0.33 per diluted share, in fiscal 2018. Adjusted netincome⁽¹⁾ was $73.2 million, or $0.73 per diluted share,in fiscal 2019, compared with $75.0 million, or $0.75 per dilutedshare, in fiscal 2018.

Adjusted EBITDA⁽¹⁾ was $165.2 millionin fiscal 2019, compared with $161.2 million in fiscal 2018.Adjusted EBITDA margin⁽¹⁾ was 9.7 percent in fiscal2019, compared with 10.3 percent in fiscal 2018.

Net cash provided by operating activities was$86.4 million in fiscal 2019, compared with $17.9 million in fiscal2018. The increase was primarily due to improvements in workingcapital, which principally reflect lower inventory purchases.

Free cash flow⁽¹⁾ was $65.3 millionin fiscal 2019, compared with $12.2 million in fiscal 2018,reflecting the increase in net cash provided by operatingactivities, partially offset by higher purchases of property andequipment associated with Wesco 2020.

Recent Developments

On August 8, 2019, the company entered into anAgreement and Plan of Merger (the “Merger Agreement”) withWolverine Intermediate Holding II Corporation, a Delawarecorporation (“Parent”), and Wolverine Merger Corporation, aDelaware corporation and a direct wholly owned subsidiary of Parent(“Merger Sub”), pursuant to which Parent will acquire the companyfor $11.05 per share through the merger of Merger Sub with and intothe company, with the company surviving as a wholly ownedsubsidiary of Parent (the “Merger”). Parent and Merger Sub areaffiliates of Platinum Equity Advisors, LLC, a U.S.-based privateequity firm. The closing of the Merger is subject to customaryclosing conditions, including regulatory approvals in the U.K.,Germany, Poland and Canada.

On October 14, 2019, the Federal Cartel Office(Bundeskartellamt) of Germany confirmed that the Merger does notrestrict competition in Germany, satisfying the applicable closingcondition under the Merger Agreement for receipt of competition andmerger controls approval in Germany.

On October 18, 2019, the President of the Officeof Competition and Consumer Protection of Poland granted itsconsent allowing the Merger, satisfying the applicable closingcondition under the Merger Agreement for receipt of competition andmerger controls approval in Poland.

On October 30, 2019, the Commissioner ofCompetition of Canada issued a no-action letter, satisfying theapplicable closing condition under the Merger Agreement for receiptof competition and merger controls approval in Canada.

On November 8, 2019, Wesco and Parent made theformal filing to the U.K. Competition and Markets Authority (the“CMA”). The CMA has until January 9, 2020, which is 40 working daysfrom the start of its investigation, to make a decision (“CMA Phase1”). The 40-day limit can also be extended up to 50 working daysunder certain circ*mstances.If the CMA is of the view thatthe Merger could result in a substantial lessening of competition,the CMA could refer the transaction for an in-depth second phaseinvestigation ("CMA Phase 2"). The CMA has 24 weeks (extendable upto an additional eight weeks) from the date of referral to CMAPhase 2 to make its final decision.

As a result, the Merger may close early in thefirst calendar quarter of 2020, as opposed to the previouslyanticipated December 2019 closing date.

Conference Call

In light of the Merger, the company will nothost an earnings call to discuss its fiscal 2019 fourth quarter andfull year results.

About Wesco Aircraft

Wesco Aircraft is one of the world’s leadingdistributors and providers of comprehensive supply chain managementservices to the global aerospace industry. The company’s servicesrange from traditional distribution to the management of supplierrelationships, quality assurance, kitting, just-in-time delivery,chemical management services, third-party logistics or fourth-partylogistics and point-of-use inventory management. The companybelieves it offers one of the world’s broadest portfolios ofaerospace products, including C-class hardware, chemicals andelectronic components and comprised of more than 550,000 activeSKUs.

To learn more about Wesco Aircraft, visit ourwebsite at www.wescoair.com. Follow Wesco Aircraft on LinkedIn athttps://www.linkedin.com/company/wesco-aircraft-corp.

Footnotes

⁽¹⁾ Non-GAAP financial measure – seethe tables following this press release for reconciliations of GAAPto non-GAAP results.

Non-GAAP FinancialInformation

Adjusted net income represents net (loss) incomebefore: (i)amortization of intangible assets,(ii)amortization or write-off of deferred debt issuancecosts, (iii)special items and (iv)the tax effect ofitems (i)through (iii)above calculated using anestimated effective tax rate.

Adjusted basic earnings per share representsbasic earnings per share calculated using adjusted net income asopposed to net (loss) income.

Adjusted diluted earnings per share representsdiluted earnings per share calculated using adjusted net income asopposed to net (loss) income.

Adjusted EBITDA represents net (loss) incomebefore: (i) income tax provision, (ii) net interest expense, (iii)depreciation and amortization and (iv) special items.

Adjusted EBITDA margin represents adjustedEBITDA divided by net sales.

Free cash flow represents net cash provided byoperating activities less purchases of property and equipment.

Wesco Aircraft utilizes and discusses adjustednet income, adjusted basic earnings per share, adjusted dilutedearnings per share, adjusted EBITDA, adjusted EBITDA margin andfree cash flow, which are non-GAAP measures management uses toevaluate the company’s business, because it believes these measuresassist investors and analysts in comparing the company’sperformance across reporting periods on a consistent basis byexcluding items that management does not believe are indicative ofthe company’s core operating performance. Wesco Aircraft believesthese metrics are used in the financial community, and the companypresents these metrics to enhance understanding of its operatingperformance. Readers should not consider adjusted EBITDA andadjusted net income as alternatives to net (loss) income,determined in accordance with GAAP, as an indicator of operatingperformance. Adjusted net income, adjusted basic earnings pershare, adjusted diluted earnings per share, adjusted EBITDA,adjusted EBITDA margin and free cash flow are not measurements offinancial performance under GAAP, and these metrics may not becomparable to similarly titled measures of other companies. See thetables following this press release for reconciliations of adjustednet income, adjusted basic earnings per share, adjusted dilutedearnings per share, adjusted EBITDA, adjusted EBITDA margin andfree cash flow to the most directly comparable financial measurescalculated and presented in accordance with GAAP.

Forward-Looking Statements

This press release contains forward-lookingstatements (including within the meaning of the Private SecuritiesLitigation Reform Act of 1995) concerning Wesco AircraftHoldings,Inc.These statements may discuss goals,intentions and expectations as to future plans, trends, events,results of operations or financial condition, or otherwise, basedon current beliefs of management, as well as assumptions made by,and information currently available to, management.In somecases, readers can identify forward-looking statements by the useof forward-looking terms such as “anticipate,” “believe,” “can,”“could,” “execute,” “may,” “will” or similar words, phrases orexpressions.These forward-looking statements are subject tovarious risks and uncertainties, many of which are outside thecompany’s control.Therefore, the reader should not placeundue reliance on such statements.

Factors that could cause actual results todiffer materially from these forward-looking statements include,but are not limited to, the following: the company’s inability toconsummate the Merger within the anticipated time period, or atall, due to any reason, including the failure to obtain requiredregulatory approvals or the failure to satisfy the other conditionsto the consummation of the Merger; the risk that the MergerAgreement may be terminated in circ*mstances requiring the companyto pay a termination fee of approximately $39 million; the riskthat the Merger disrupts the company’s current plans and operationsor diverts management’s attention from its ongoing business; theeffect of the announcement of the Merger on the company’s abilityto retain and hire key personnel and maintain relationships withits customers, suppliers and others with whom it does business; theeffect of the announcement of the Merger on the company’s operatingresults and business generally; the amount of costs, fees andexpenses related to the Merger; the risk that the company’s stockprice may decline significantly if the Merger is not consummated;the nature, cost and outcome of any litigation and other legalproceedings, including any such proceedings related to the Mergerand instituted against the company and others; general economic andindustry conditions; conditions in the credit markets; changes inmilitary spending; risks unique to suppliers of equipment andservices to the U.S. government; risks associated with the loss ofsignificant customers, a material reduction in purchase orders bysignificant customers, or the delay, scaling back or elimination ofsignificant programs on which the company relies; the company’sability to effectively compete in its industry; risks associatedwith the company’s long-term, fixed-price agreements that have noguarantee of future sales volumes; the company’s ability toeffectively manage its inventory; the company’s suppliers’ abilityto provide it with the products the company sells in a timelymanner, in adequate quantities and/or at a reasonable cost, whilealso meeting the company’s customers’ quality standards; thecompany’s ability to maintain effective information technologysystems and effectively implement its new warehouse managementsystem; the company’s ability to successfully execute and realizethe expected financial benefits from its “Wesco 2020” initiative;the company’s ability to retain key personnel; risks associatedwith the company’s international operations, including exposure toforeign currency movements; changes in trade policies; risksassociated with assumptions the company makes in connection withits critical accounting estimates (including goodwill, excess andobsolete inventory and valuation allowance of the company’sdeferred tax assets) and legal proceedings; changes in U.S. incometax law; the company’s dependence on third-party package deliverycompanies; fuel price risks; fluctuations in the company’sfinancial results from period-to-period; environmental risks; risksrelated to the handling, transportation and storage of chemicalproducts; risks related to the aerospace industry and theregulation thereof; risks related to the company’s indebtedness;and other risks and uncertainties.

The foregoing list of factors is notexhaustive.The reader should carefully consider the foregoingfactors and the other risks and uncertainties that affect thecompany’s business, including those described in Wesco Aircraft’sAnnual Report on Form10-K, Quarterly Reports onForm10-Q, Current Reports on Form8-K and otherdocuments filed from time to time with the Securities and ExchangeCommission.All forward-looking statements included in thisnews release (including information included or incorporated byreference herein) are based upon information available to thecompany as of the date hereof, and the company undertakes noobligation to update or revise publicly any forward-lookingstatements, whether as a result of new information, future eventsor otherwise.

Contact Information:

Jeff Misakian
Vice President,Investor Relations
661-362-6847
Jeff.Misakian@wescoair.com

Wesco AircraftHoldings,Inc.
Consolidated Statements of (Loss) Income(UNAUDITED)
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Wesco AircraftHoldings,Inc.
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Wesco AircraftHoldings,Inc.
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Wesco Aircraft Holdings,Inc.
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Adjusted Earnings Per Share (UNAUDITED)
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⁽¹⁾ Special items in thefourth quarter of fiscal 2019 consisted primarily of consultingfees of $4.4 million, inventory adjustments of $7.8 million forshrinkage recorded as a result of warehouse consolidation, andother costs of $4.3 million associated with the company’s Wesco2020 initiative, as well as merger-related costs of $6.9 million.Special items in the fourth quarter of fiscal 2018 consistedprimarily of consulting fees of $4.7 million and other costs of$2.3 million associated with Wesco 2020.

Special items in fiscal 2019 consisted primarilyof consulting fees of $16.7 million, inventory adjustments of $13.0million for shrinkage recorded as a result of warehouseconsolidation, and other costs of $19.6 million associated withWesco 2020, as well as merger-related costs of $8.2 million and anequity method investment impairment charge of $3.0 million. Specialitems in fiscal 2018 consisted primarily of consulting fees of$16.1 million and other costs of $4.3 million associated with Wesco2020, and the settlement of litigation and related fees of $1.3million.

⁽²⁾ The adjustment for taxeffect in fiscal 2019 included a reversal of $9.2 million to thetransition tax on unremitted foreign earnings recorded in fiscal2018 under the Tax Cuts and Jobs Act. The tax provision for thetransition tax previously recorded is included in the adjustmentfor tax effect in fiscal 2018.

The adjustment for tax effect in the fourthquarter of fiscal 2018 included a $1.9 million tax provisionrelated to the adjustment of deferred tax assets and liabilities toreflect the reduction of the U.S. federal tax rate, a $0.8 milliontax provision on foreign earnings as a transition tax and a $0.9million tax benefit related to the release of a previously recordeddeferred tax liability on unremitted foreign earnings, all of whichwere related to the Tax Cuts and Jobs Act.

Wesco AircraftHoldings,Inc.
Non-GAAP Financial Information - EBITDA and Adjusted EBITDA(UNAUDITED)
(Dollars in thousands)

⁽¹⁾ Special items in thefourth quarter of fiscal 2019 consistedprimarily ofconsulting fees of $4.4 million, inventory adjustments of $7.8million for shrinkage recorded as a result of warehouseconsolidation, and other costs of $4.3 million associated with thecompany’s Wesco 2020 initiative, as well as merger-related costs of$6.9 million. Special items in the fourth quarter of fiscal 2018consisted primarily of consulting fees of $4.7 million and othercosts of $2.3 million associated with Wesco 2020.

Special items in fiscal 2019 consisted primarilyof consulting fees of $16.7 million, inventory adjustments of $13.0million for shrinkage recorded as a result of warehouseconsolidation, and other costs of $19.6 million associated withWesco 2020, as well as merger-related costs of $8.2 million and anequity method investment impairment charge of $3.0 million. Specialitems in fiscal 2018 consisted primarily of consulting fees of$16.1 million and other costs of $4.3 million associated with Wesco2020, and the settlement of litigation and related fees of $1.3million.

Wesco AircraftHoldings,Inc.
Non-GAAP Financial Information - Free Cash Flow(UNAUDITED)
(Dollars in thousands)