Heroux-Devtek Reports Fiscal 2015 Third Quarter Results

LONGUEUIL, QUÉBEC--(Marketwired - Feb. 5, 2015) - Héroux-Devtek Inc. (TSX:HRX), ("Héroux-Devtek" or the "Corporation"), a leading international manufacturer of aerospace products, today reported its results for the third quarter of fiscal 2015 ended December 31, 2014. Results include the contribution of APPH Limited and APPH Wichita Inc. (collectively "APPH"), acquired on February 3, 2014. Unless otherwise indicated, all amounts are in Canadian dollars.

As mentioned by press release on January 27, 2015, the Corporation recorded a non-cash and non-recurring charge of $7.9 million before taxes, equivalent to $5.8 million or $0.16 per diluted share after taxes, representing the impairment of capitalized development costs on the Learjet 85 business aircraft program and follows the announcement by Bombardier Inc. (TSX: BBD.B) on January 15, 2015 to pause the program. Héroux-Devtek is the developer and supplier of the complete landing gear system for the aircraft.

"The third quarter of fiscal 2015 produced healthy operating results driven by robust sales and gross profit contributions from APPH. As anticipated, existing operations benefitted from higher sales to the commercial aerospace market, while military sales remained affected by lower customer requirements in the United States. During the quarter, we continued to execute our capital investment plan in preparation for the multi-year contract to supply The Boeing Company ("Boeing") with complete landing gear systems for the B-777 and B-777X aircraft. We are pleased that all major initiatives are progressing according to plan, including the start of component machining," said Gilles Labbé, President and CEO of Héroux-Devtek.

FINANCIAL HIGHLIGHTS		Quarters ended December 31,			Nine months ended December 31,
(in thousands of dollars, except per share data)		2014		2013	2014	2013
Sales		88,368		61,448	258,862	180,822
Adjusted1 EBITDA		11,544		8,286	31,882	22,551
Adjusted2 net income		4,361		3,697	11,956	9,306
	Per share - diluted ($)	0.12		0.12	0.34	0.29
Non-recurring charges3 and acquisition-related costs, net of taxes		6,270		1,089	7,092	1,300
Net income (loss)		(1,909	)	2,608	4,864	8,006
	Per share - diluted ($)	(0.05	)	0.08	0.14	0.25
Weighted-average shares outstanding (diluted, in '000s)		36,078		31,707	34,676	31,691

1	Excluding restructuring charges and acquisition-related costs.
2	Excluding non-recurring charges and acquisition-related costs.
3	Includes impairment of finite-life intangible assets and restructuring charges.

Consolidated sales rose 43.8% to $88.4 million, up from $61.4 million in the third quarter of fiscal 2014. This increase is mainly attributable to a $24.5 million contribution from APPH, while year-over-year fluctuations in the value of the Canadian currency versus the US currency increased third-quarter sales by $3.2 million.

Sales to the commercial aerospace market increased 40.2% to $39.9 million reflecting commercial sales of $8.4 million from APPH. Excluding the latter, commercial sales rose $3.1 million, or 10.9%, due to higher production rates for certain large commercial aircraft programs, mainly the B-777 and B-787 aircraft, higher sales to the business jet market reflecting the entry into production of the Embraer Legacy 450/500 program and a $1.8 million favourable currency effect. These factors were partially offset by lower aftermarket sales on the CL-415 program with Bombardier.

Military sales reached $48.4 million, up 46.9% from a year ago driven by a $16.1 million contribution from APPH. Excluding this factor, military sales decreased $0.6 million, or 1.9%, reflecting lower spare part requirements, mainly with the US Government, partially offset by increased sales volume on the F-35 program and on the CH-47 helicopter program, as well as a $1.4 million favourable foreign exchange impact.

Gross profit reached $14.6 million, or 16.5% of sales, up from $10.0 million, or 16.3% of sales, last year. The increase in dollars and as a percentage of sales reflects the acquisition of APPH, including its more favourable product mix during the period. Excluding APPH, gross profit as a percentage of sales decreased by 2.3%, reflecting a less favourable product mix compared with last year mainly due to lower aftermarket sales. Currency variation had a positive effect equivalent to 0.9% of sales on gross profit compared with last year's third quarter.

Adjusted EBITDA was $11.5 million, or 13.1% of sales, up from $8.3 million, or 13.5% of sales, a year ago. This year's adjusted EBITDA excludes restructuring charges of $0.6 million related to the integration of APPH's operations manufacturing, as well as capacity optimization and consolidation initiatives announced in January 2014, while last year's adjusted EBITDA excluded acquisition-related costs of $1.1 million. The year-over-year decline in adjusted EBITDA as a percentage of sales stems from an increase in SG&A expenses due to higher stock-based compensation expense and professional fees.

Adjusted net income, which excludes the combined after-tax effect of $6.3 million from the impairment charge and restructuring charges, stood at $4.4 million, or $0.12 per diluted share, in the third quarter of fiscal 2015, up 18.0% from $3.7 million, or $0.12 per diluted share, in the third quarter of fiscal 2014, excluding acquisition-related costs of $1.1 million, net of taxes.

NINE MONTHS RESULTS

For the first nine months of fiscal 2015, consolidated sales amounted to $258.9 million, up from $180.8 million a year earlier. This variation reflects a $72.1 million contribution from APPH and a $6.7 million increase resulting from year-over-year currency fluctuations. Reflecting the acquisition of APPH and its more favourable product mix during the period, gross profit reached $41.9 million, or 16.2% of sales, compared with $27.0 million, or 15.0% of sales, last year. Adjusted EBITDA totalled $31.9 million, or 12.3% of sales, up from $22.6 million, or 12.5% of sales, in the prior year. Finally, adjusted net income was $12.0 million, or $0.34 per diluted share, versus $9.3 million, or $0.29 per diluted share, a year ago. Last year, the Corporation recorded a favourable adjustment of deferred income tax liabilities amounting to $1.1 million, or $0.04 per diluted share.

FINANCIAL POSITION

As at December 31, 2014, Héroux-Devtek's balance sheet remained healthy with cash and cash equivalents of $40.6 million, or $1.13 per share, while total long-term debt was $107.5 million, including the current portion, but excluding net deferred financing costs. Long-term debt includes $53.3 million drawn against the Corporation's authorized Credit Facility of $200.0 million. As a result, the Corporation's net debt position stood at $66.9 million as at December 31, 2014, while the net-debt-to equity ratio was 0.23:1.

RECENT EVENT

On February 5, 2015, the Corporation provided an update on its comprehensive capital investment plan (the "Plan") aimed at carrying out an important long-term contract to supply Boeing with complete landing gear systems for the B-777 and B-777X aircraft. All major initiatives of the Plan are progressing on schedule, including the construction of a new facility and the expansion of the existing facility network as well as investments in machinery and equipment for critical, complex component manufacturing and system assembly. Component machining began at the Springfield, Ohio facility in December 2014.

As of December 31, 2014, Héroux-Devtek has invested approximately $48 million directly related to the Boeing contract and it currently anticipates to proceed with additional investments of about $57 million before the end of the fiscal year ending on March 31, 2016. The total investment of $105 million under the Plan is above the initial guidance of $90 million mainly due to a higher foreign exchange conversion rate applied to machinery and equipment purchases, which are mainly carried out in US dollars. The Corporation has also committed supplementary amounts to acquire more land and to have additional finishing capacity available to support growth beyond the Plan's horizon. These investments are in addition to planned regular maintenance capital investments totalling approximately $30 million for the two-year period ending March 31, 2016.

OUTLOOK

Conditions remain favourable in the commercial aerospace market. Large commercial aircraft manufacturers are increasing production rates on certain leading programs through calendar 2018 and order backlogs represent eight years of production at current rates. The overall business jet market continues to improve with higher aircraft shipments and growth should be sustained over several years driven by a better economy and new aircraft introduction, including certain models for which Héroux-Devtek developed the landing gear. The military aerospace market should remain difficult and although sequestration cuts were eliminated through the U.S. government's 2015 fiscal year, current funding requests beyond that horizon exceed planned budget limits, which could affect the Corporation over its ensuing fiscal years. However, as APPH reduces Héroux-Devtek's relative exposure to the U.S. military market, a more geographically diversified military portfolio, mainly composed of leading programs, and also balanced between new component manufacturing and aftermarket products and services, should lessen this impact.

As at December 31, 2014, Héroux-Devtek's funded (firm orders) backlog stood at $459 million, versus $450 million at the end of the previous quarter.

"Looking ahead, the fourth quarter has historically been our strongest period and this year should be no exception. We expect to conclude fiscal 2015 with a solid contribution from APPH, while sales from existing operations should remain relatively stable compared with last fiscal year, as higher commercial sales should be offset by a decrease in military sales. In the next few quarters, we will continue to diligently execute our Plan for the B-777 and B-777X contract, as we move progressively closer to entering the production phase. For the long-term, we remain committed to our objective of achieving annual sales of approximately $500 million by fiscal 2019, based on existing contracts and assuming no other acquisitions. Our Plan will also provide Héroux-Devtek with sufficient capacity to capture other business opportunities to demonstrate its world-class capabilities as a supplier of complete landing gear systems," concluded Mr. Labbé.

CONFERENCE CALL

Héroux-Devtek Inc. will hold a conference call to discuss these results on Thursday, February 5, 2015 at 10:00 AM Eastern Time. Interested parties can join the call by dialling 1-877-223-4471 (North America) or 1-647-788-4922 (overseas). The conference call can also be accessed via live webcast at Héroux-Devtek's website, www.herouxdevtek.com or www.gowebcasting.com/6238.

If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-800-585-8367 and entering the passcode 66101656 on your phone. This tape recording will be available on Thursday, February 5, 2015 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Thursday. February 12, 2015.

PROFILE

Héroux-Devtek Inc. (TSX:HRX) is a Canadian company specializing in the design, development, manufacture and repair and overhaul of landing gear systems and components for the Aerospace market. The Corporation is the third largest landing gear company worldwide, supplying both the commercial and military sectors of the Aerospace market with new landing gear systems and components, as well as aftermarket products and services. The Corporation also manufactures electronic enclosures, heat exchangers and cabinets for suppliers of airborne radar, electro-optic systems and aircraft controls through its Magtron operations. On a pro forma basis, approximately 75% of the Corporation's sales are outside Canada, including 50% in the United States. The Corporation's head office is located in Longueuil, Québec with facilities in the Greater Montreal area (Longueuil, Laval and St-Hubert); Kitchener and Toronto, Ontario; Springfield and Cleveland, Ohio; Wichita, Kansas; and Runcorn, Nottingham and Bolton, United Kingdom.

FORWARD-LOOKING STATEMENTS

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Corporation. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Corporation's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.

NON-IFRS MEASURES

Earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, adjusted net income and adjusted earnings per share are financial measures not prescribed by International Financial Reporting Standards ("IFRS") and are not likely to be comparable to similar measures presented by other issuers. Management considers these to be useful information to assist investors in evaluating the Corporation's profitability, liquidity and ability to generate funds to finance its operations.

Note to readers: Complete unaudited interim condensed consolidated financial statements and Management's Discussion & Analysis are available on Héroux-Devtek's website at www.herouxdevtek.com.