Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Wesco Aircraft Holdings, Inc | wair-12312017xex991.htm |
| 8-K - 8-K - Wesco Aircraft Holdings, Inc | wair-12312017x8kcover.htm |
Q1 2018 EARNINGS CALL PRESENTATION
February 8, 2018
Todd Renehan
Chief Executive Officer
Kerry Shiba
Executive Vice President and Chief Financial Officer
Information in this presentation should be read in conjunction
with Wesco Aircraft’s earnings press release and tables for the
fiscal 2018 first quarter.
Wesco Aircraft Proprietary
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Disclaimer
2
Wesco Aircraft – Investor Relations
This presentation contains forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning Wesco Aircraft Holdings, Inc. (“Wesco Aircraft” or the “Company”). These
statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of management, as well as assumptions made by,
and information currently available to, management. In some cases, you can identify forward-looking statements by the use of forward-looking terms such as “achieve,” “address,” “assess,” “assume,” “believe,” “broaden,”
“continue,” “design,” “develop,” “deliver,” “drive,” “enhance,” “estimate,” “expand,” “execute,” “expect,” “focus,” “future,” “goal,” “grow,” “impact,” “improve,” “increase,” “initiate,” “opportunity,” “optimize,” “outlook,”
“plan,” “proceed,” “reduce,” “sustain,” “target,” “to be,” “trend,” “will” or similar words, phrases or expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the
Company’s control. Therefore, you should not place undue reliance on such statements.
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: general economic and industry conditions; conditions in the credit markets;
changes in military spending; risks unique to suppliers of equipment and services to the U.S. government; risks associated with the Company’s long-term, fixed-price agreements that have no guarantee of future sales volumes;
risks associated with the loss of significant customers, a material reduction in purchase orders by significant customers, or the delay, scaling back or elimination of significant programs on which the Company relies; the
Company’s ability to effectively compete in its industry; the Company’s ability to effectively manage its inventory; the Company’s suppliers’ ability to provide it with the products the Company sells in a timely manner, in
adequate quantities and/or at a reasonable cost; the Company’s ability to maintain effective information technology systems; the Company’s ability to retain key personnel; risks associated with the Company’s international
operations, including exposure to foreign currency movements; risks associated with assumptions the Company makes in connection with its critical accounting estimates (including goodwill, excess and obsolete inventory and
valuation allowance of the company’s deferred tax assets) and legal proceedings; changes in U.S. tax law; the Company’s dependence on third-party package delivery companies; fuel price risks; fluctuations in the Company’s
financial results from period-to-period; environmental risks; risks related to the handling, transportation and storage of chemical products; risks related to the aerospace industry and the regulation thereof; risks related to the
Company’s indebtedness; and other risks and uncertainties.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the Company’s business, including those described in the Company’s Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed from time to time with the Securities and Exchange Commission. All forward-looking statements included in this
presentation (including information included or incorporated by reference herein) are based upon information available to the Company as of the date hereof, and the Company undertakes no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
The Company utilizes and discusses Adjusted Net Income, Adjusted Basic Earnings Per Share (EPS), Adjusted Diluted EPS, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Adjusted EBITDA
Margin and Free Cash Flow, which are non-GAAP measures its management uses to evaluate its business, because the Company believes these measures assist investors and analysts in comparing its performance across
reporting periods on a consistent basis by excluding items that management does not believe are indicative of the Company’s core operating performance. The Company believes these metrics are used in the financial
community, and the Company presents these metrics to enhance understanding of its operating performance. You should not consider Adjusted EBITDA and Adjusted Net Income as alternatives to Net (Loss) Income,
determined in accordance with GAAP, as an indicator of operating performance. Adjusted Net Income, Adjusted Basic EPS, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are not
measurements of financial performance under GAAP, and these metrics may not be comparable to similarly titled measures of other companies. See the Appendix for reconciliations of Adjusted Net Income, Adjusted Basic EPS,
Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA Margin to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Wesco Aircraft Proprietary
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Overview
3
Wesco Aircraft – Investor Relations
Encouraging Q1 results – net sales and income from operations improved from Q4 2017
Net loss due to new tax legislation; adjusted net income* improved sequentially
Improvement plan initiatives leading to better operating and financial performance
Progress is encouraging, but more work is needed to sustain improved performance
Business assessment validating scope, impact and timing of plan initiatives in key areas
* See appendix for reconciliation and information regarding non-GAAP measures.
Procurement
Inventory Management
Greater Efficiency
Reduce Costs
Customer Service
On-Time Delivery
Profitable Growth
Improve Margins
FOCUS
Improvement Plan Update
4
Wesco Aircraft – Investor Relations
Wesco Aircraft Proprietary
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Wesco Aircraft Proprietary
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Improvement Plan Update
5
Wesco Aircraft – Investor Relations
Solid growth in Q1 sales – increases in hardware and chemicals
Average daily sales continued to improve – both contract and ad-hoc sales higher
Continued awards for new business and renewal of long-term contracts
Invested in inventory to provide more parts for ad-hoc sales and support contracts
More SKUs on long-term agreements; developing more sophisticated inventory management tools
Maintained on-time delivery and efficiency metrics at high rates
Process improvements expanded to additional sites; increased commodities at certain sites
Managed expenses tightly; more work needed to drive greater efficiencies
Focused on optimizing cost structure through initiatives
Improvement Process Timeline
Information is Wesco Aircraft Proprietary and Confidential 6
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q2 2017 Q4 2018
VALIDATING SCOPE, IMPACT AND TIMING OF
KEY INITIATIVES; PROJECT EXECUTION
LEADERSHIP CHANGE
NEW FOUNDATION
EXECUTE NEAR-TERM ACTIONS;
DEVELOP MEDIUM-TERM INITIATIVES
BROADER
BUSINESS REVIEW
NEW ORGANIZATIONAL
DESIGN
EXECUTE IMPROVEMENT PLAN
DEVELOP
IMPROVEMENT PLAN
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Business Assessment Update
7
Wesco Aircraft – Investor Relations
Comprehensive review of business designed to identify areas of further improvement
Findings reinforce belief that significant opportunities exist to reduce costs and enhance margins
Taking action to streamline, improve process, optimize footprint, enhance pricing and sourcing
Approach consistent with desire to be closer to customers and empower employees
Execution of near-term actions underway; continuing to assess more complex initiatives
More information to be provided with Q2 2018 results
Wesco Aircraft Proprietary
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Net Sales Summary
8
Wesco Aircraft – Investor Relations
$339.4
$361.6 $363.1
Q1 2017 Q4 2017 Q1 2018
Net Sales
($M) Net sales increase of $24M (+7%) year/year
Long-term contract sales increase of $22M (+8%) due to:
High-single-digit growth in chemical products
Mid-single-digit growth in hardware contracts
Chemical and hardware contract growth reflects new
business and higher volume on existing contracts
Ad-hoc sales increase of $2M – improved performance and
growth at key customers driving higher ordering
(Dollars in Millions, Except Per Share Data) Q1 2017 Q4 2017 Q1 2018
Net sales $339.4 $361.6 $363.1
Income from operations $26.3 $20.0 $24.6
Operating margin 7.7% 5.5% 6.8%
Net income (loss) $13.1 $(38.3) $(0.4)
Diluted earnings (loss) per share $0.13 $(0.39) $ (0.00)
Adjusted net income* $18.5 $8.4 $14.5
Adjusted diluted earnings per share* $0.19 $0.08 $0.15
Adjusted EBITDA* $34.3 $30.4 $35.0
Adjusted EBITDA margin* 10.1% 8.4% 9.6%
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Financial Summary
9
Wesco Aircraft – Investor Relations
First Quarter Commentary
Operating margin lower year/year due to higher SG&A and lower gross
margin; sequential improvement from higher gross margin
Gross margin lower year/year primarily due to sales mix changes and
shifts within chemical portfolio; hardware margins stable
Sequential increase in gross margin primarily due to claims provision
and inventory adjustments in Q4 2017; product margins stable
SG&A higher year/year reflecting investments made in 2H 2017 to
stabilize business and support growth, consulting costs in Q1 2018
associated with improvement initiatives
Higher sequential SG&A primarily due to consulting costs
Income tax expense includes estimated impact of $9.1M from Tax Cuts
and Jobs Act
Effective tax rate for fiscal 2018 estimated to be 28-29%
* See appendix for reconciliation and information regarding non-GAAP measures.
At Period End (Dollars in Millions)
Dec 31,
2016
March 31,
2017
June 30,
2017
Sept 30,
2017
Dec 31,
2017
Cash and cash equivalents $51.2 $54.0 $57.1 $61.6 $41.9
Accounts receivable, net 247.3 266.7 264.0 256.3 253.6
Net inventory 751.7 774.4 802.7 827.9 856.3
Accounts payable 173.1 181.2 175.8 184.3 161.7
Total debt 843.2 855.3 861.1 863.8 877.7
Stockholders’ equity 889.7 916.0 687.8 649.7 652.4
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Balance Sheet Summary
10
Wesco Aircraft – Investor Relations
Quarter Ended (Dollars in Millions)
Dec 31,
2016
March 31,
2017
June 30,
2017
Sept 30,
2017
Dec 31,
2017
Net income (loss) $13.1 $17.4 $(229.6) $(38.3) $(0.4)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities
14.6
13.8
261.8
56.3
15.7
Changes in assets and liabilities (55.8) (36.9) (31.3) (12.1) (45.2)
Net cash (used in) provided by operating activities (28.1) (5.7) 0.9 5.9 (29.9)
Purchase of property and equipment (1.3) (2.9) (2.6) (2.1) (1.3)
Free cash flow (29.4) (8.6) (1.7) 3.8 (31.2)
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Cash Flow Summary
11
Wesco Aircraft – Investor Relations
Wesco Aircraft Proprietary
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Fiscal 2018 Outlook
12
Wesco Aircraft – Investor Relations
Better execution – operational improvements delivering better financial results
More work needed to sustain and broaden improvement
Maintaining fiscal 2018 outlook – targeting year-over-year percentage increases in:
Net sales: low single-digit – primarily through new business ramp up and ad-hoc sales growth
Adjusted EBITDA: low double-digit – higher sales and gross margin, stable SG&A as a percent of sales
Still expect to end fiscal year at adjusted EBITDA margin run-rate of more than 10%
APPENDIX
Wesco Aircraft Proprietary
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Non-GAAP Financial Information
14
Wesco Aircraft – Investor Relations
‘‘Adjusted Net Income’’ represents Net (Loss) Income before: (i) amortization of intangible assets, (ii) amortization or write-off of deferred issuance costs, (iii) special items and (iv) the
tax effect of items (i) through (iii) above calculated using an estimated effective tax rate.
“Adjusted Basic EPS” represents Basic EPS calculated using Adjusted Net Income as opposed to Net Income.
“Adjusted Diluted EPS” represents Diluted EPS calculated using Adjusted Net Income as opposed to Net Income.
‘‘Adjusted EBITDA’’ represents Net (Loss) Income before: (i) income tax (benefit) provision, (ii) net interest expense, (iii) depreciation and amortization and (iv) special items; “Adjusted
EBITDA Margin” represents Adjusted EBITDA divided by Net Sales.
“Free Cash Flow” represents net cash (used in) provided by operating activities less purchases of property and equipment.
The Company utilizes and discusses Adjusted Net Income, Adjusted Basic EPS, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow, which are non-GAAP
measures its management uses to evaluate its business, because the Company believes these measures assist investors and analysts in comparing its performance across reporting
periods on a consistent basis by excluding items that management does not believe are indicative of the Company’s core operating performance. The Company believes these metrics
are used in the financial community, and the Company presents these metrics to enhance understanding of its operating performance. You should not consider Adjusted EBITDA and
Adjusted Net Income as alternatives to Net (Loss) Income, determined in accordance with GAAP, as an indicator of operating performance. Adjusted Net Income, Adjusted Basic EPS,
Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are not measurements of financial performance under GAAP, and these metrics may not be
comparable to similarly titled measures of other companies. See the following slides for reconciliations of Adjusted Net Income, Adjusted Basic EPS, Adjusted Diluted EPS, Adjusted
EBITDA and Adjusted EBITDA Margin to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Non-GAAP Financial Information
15 Wesco Aircraft Proprietary Visit www.wescoair.com
Wesco Aircraft – Investor Relations
December 31, September 30, December 31,
2016 2017 2017
Net Sales 339,371$ 361,552$ 363,091$
Adjusted Net Income
Net income (loss) 13,107$ (38,287)$ (374)$
Amortization of intangible assets 3,721 3,753 3,714
Amortization of deferred financing costs 3,202 1,007 1,508
Special items (1) 1,015 2,788 2,914
Adjustments for tax effect (2) (2,547) 39,128 6,696
Adjusted net income 18,498$ 8,389$ 14,458$
Adjusted Basic Earnings Per Share
Weight-average number of basic share outstanding 98,319,926 98,906,379 99,096,914
Adjusted net incomer per basic share 0.19$ 0.08$ 0.15$
Adjusted Diluted Earnings Per Share
Weight-average number of diluted shares outstanding 98,821,794 98,906,379 99,096,914
Adjusted net income per diluted shares 0.19$ 0.08$ 0.15$
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
(2) The adjustments for tax effect in the fourth quarter of f iscal 2017 included $37.5 million tax provision for accumulated foreign
earnings and a $4.3 million tax provision for other discrete tax items. The adjustments for tax effect in the first quarter of f iscal 2018
included an estimated $9.1 million tax provision on foreign earnings as a transition tax under the Tax Cuts and Jobs Act.
(1) Special items in the first quarter of f iscal 2017 consisted of business realignment and other expenses of $1.0 million. Special items in
the fourth quarter of f iscal 2017 consisted of severance, business realignment and other expenses of $2.8 million. Special items in the
f irst quarter of f iscal 2018 consisted of consulting fees associated w ith the company’s improvement initiatives of $1.6 million,
settlement of litigation and related fees of $1.1 million and other expenses of $0.2 million.
Non-GAAP Financial Information
16 Wesco Aircraft Proprietary
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Wesco Aircraft – Investor Relations
December 31, September 30, December 31,
2016 2017 2017
EBITDA and Adjusted EBITDA
Net income (loss) 13,107$ (38,287)$ (374)$
Provision for Income taxes 2,364 48,045 13,368
Interest expense, net 11,073 10,292 11,838
Depreciation and amortization 6,729 7,540 7,256
EBITDA 33,273 27,590 32,088
Special items (1) 1,015 2,788 2,914
Adjusted EBITDA 34,288$ 30,378$ 35,002$
Adjusted EBITDA margin 10.1% 8.4% 9.6%
(1)
Special items in the first quarter of fiscal 2017 consisted of business realignment and other expenses of $1.0
million. Special items in the fourth quarter of fiscal 2017 consisted of severance, business realignment and other
expenses of $2.8 million. Special items in the first quarter of fiscal 2018 consisted of consulting fees associated with
the company’s improvement initiatives of $1.6 million, settlement of litigation and related fees of $1.1 million and
other expenses of $0.2 million.
Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - EBITDA and Adjusted EBITDA (UNAUDITED)
(Dollars In thousands)
Three Months Ended
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IN WESCO AIRCRAFT