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EX-99.3 - EXHIBIT 99.3 - Wesco Aircraft Holdings, Inc | exhibit993.htm |
EX-99.1 - EXHIBIT 99.1 - Wesco Aircraft Holdings, Inc | wair-03312018xex991.htm |
8-K - 8-K - Wesco Aircraft Holdings, Inc | wair-03312018x8kcover.htm |
Q2 2018 EARNINGS CALL PRESENTATION
May 3, 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 second quarter.
Disclaimer
2
Wesco Aircraft Proprietary
Visit www.wescoair.com
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,” “believe,” “broaden,” “can,” “continue,”
“could,” “deliver,” “drive,” “enable,” “enhance,” “estimate,” “expect,” “focus,” “future,” “grow,” “implement,” “improve,” “increase,” “initiative,” “opportunity,” “optimistic,” “plan,” “potential,” “still,” “sustain,” “target,”
“timeline,” “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; changes in trade policies; 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
Another quarter of continued business improvement
Improvement initiatives driving better operating and financial performance
Customers continue to recognize Wesco’s value proposition
Gaps in execution remain; results short of company’s potential
Assessment confirmed opportunities for improvement in profitability and need to invest
Wesco 2020 developed to address performance gaps and opportunities
Wesco Aircraft Proprietary
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Business Update
4
Profitable Growth
Improve Margins
Procurement
Inventory
Management
Customer Service
On-Time Delivery
Greater Efficiency
Reduce Costs
Solid growth in Q2 sales – increases in hardware and chemicals
Continued awards for new business and contract renewals
Greater inventory investment; more work needed on inventory management
More SKUs on LTAs; broadening initiative further
Maintained on-time delivery and efficiency metrics at high rates
Continued to expand commodities at certain sites to serve customers better
Control of discretionary costs; stable sequential SG&A excluding consultant costs
Focus on optimizing cost structure through Wesco 2020 initiatives
Wesco 2020 Initiatives
5
Establish full-service distribution centers with multiple commodities to enhance service
Deploy new technologies; improve efficiency; reduce costs
Leverage best practices; lead continuous improvement; enhance capabilities
Increase accountability; eliminate duplication; improve processes; reduce costs
Enhance WMS1; implement data robotics; improve e-commerce, customer portals
Improve procurement processes, more effectively manage inventory
D
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EF
FI
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IN
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IN
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GLOBAL CENTERS
OF EXCELLENCE
ORGANIZATIONAL
STRUCTURE
AUTOMATION
BUSINESS TOOLS
FOOTPRINT
OPTIMIZATION
FACILITY
INVESTMENT
Wesco Aircraft Proprietary
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1. Warehouse Management System
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Wesco 2020 Timeline, Expected Benefits and Costs
6
Execution already underway – current timeline estimated to span 18-24 months
Multifaceted approach; controlling pace of implementation
Enhances customer service; supports ability to provide high levels of on-time delivery
Enables more effective inventory management; achieves productivity gains, stronger profitability
Annualized pre-tax benefits of at least $30M through cost savings, margin enhancements
Benefits realization to start in Q1 2019, with run-rate improving steadily as year progresses
Non-recurring costs approximately equal to run-rate benefit over implementation period
Wesco Aircraft Proprietary
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Net Sales Summary
7
$364.6 $363.1
$390.2
Q2 2017 Q1 2018 Q2 2018
Net Sales
($M)
Net sales increase of $26M (+7%) year/year
Long-term contract increase of $14M (+5%) due to:
Growth in chemical and hardware volumes
Ramp-up of new business wins
Ad-hoc increase of $12M (+14%) due to:
Growth at key customers driving higher ordering
(Dollars in Millions, Except Per Share Data) Q2 2017 Q1 2018 Q2 2018
Net sales $364.6 $363.1 $390.2
Income from operations $32.2 $24.6 $33.2
Operating margin 8.8% 6.8% 8.5%
Net income (loss) $17.4 $(0.4) $15.0
Diluted earnings (loss) per share $0.18 $(0.00) $0.15
Adjusted net income* $21.1 $14.5 $22.2
Adjusted diluted earnings per share* $0.21 $0.15 $0.22
Adjusted EBITDA* $39.0 $35.0 $45.0
Adjusted EBITDA margin* 10.7% 9.6% 11.5%
Wesco Aircraft Proprietary
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Income Statement Summary
8
Second Quarter Commentary
Income from operations improved due to increase in gross profit, offset
by higher SG&A
Gross profit reflects higher sales volume and less impact from inventory
E&O provision and adjustments; product margins essentially stable
Gross margin stable sequentially excluding provision and adjustments
SG&A reflects additions to staff in 2H 2017 and consulting costs in fiscal
2018 associated with Wesco 2020
SG&A stable sequentially excluding consulting costs
Increase in interest expense primarily reflects higher LIBOR rates
Income tax expense in Q1 2018 includes estimated unfavorable impact
of $9.1M from Tax Cuts and Jobs Act
Effective tax rate for fiscal 2018 estimated to be 28-29% (excluding
$9.1M impact in Q1 2018)
* See appendix for reconciliation and information regarding non-GAAP measures.
At Period End
March 31,
2017
June 30,
2017
Sept 30,
2017
Dec 31,
2017
March 31,
2018
Cash and cash equivalents $54.0 $57.1 $61.6 $41.9 $35.9
Accounts receivable, net 266.7 264.0 256.3 253.6 287.1
Net inventory 774.4 802.7 827.9 856.3 889.3
Accounts payable 181.2 175.8 184.3 161.7 194.1
Total debt 855.3 861.1 863.8 877.7 880.7
Stockholders’ equity
916.0 687.8 649.7 652.4 672.1
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Balance Sheet Summary
9
($ in millions)
Quarter Ended
March 31,
2017
June 30,
2017
Sept 30,
2017
Dec 31,
2017
March 31,
2018
Net income (loss) $17.4 $(229.6) $(38.3) $(0.4) $15.0
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities 13.8 261.8 56.3 15.7 11.8
Changes in assets and liabilities (36.9) (31.3) (12.1) (45.2) (32.8)
Net cash (used in) provided by operating activities (5.7) 0.9 5.9 (29.9) (6.0)
Purchase of property and equipment (2.9) (2.6) (2.1) (1.3) (1.6)
Free cash flow (8.6) (1.7) 3.8 (31.2) (7.6)
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Cash Flow Summary
10
($ in millions)
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Closing Remarks
11
Continued focus on execution across most areas of the business
Better fiscal 2018 first-half performance; early progress through improvement initiatives
More work to do; cautiously optimistic about second half of fiscal 2018
Wesco 2020 expected to drive step-change in performance – significant improvement opportunities
Investing in the future – better positioned to meet evolving customer needs
Wesco 2020 expected to deliver long-term value to shareholders
APPENDIX
Wesco Aircraft Proprietary
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Non-GAAP Financial Information
13
‘‘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 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
14Wesco Aircraft Proprietary Visit www.wescoair.com
March 31, December 31, March 31,
2017 2017 2018
Net Sales 364,599$ 363,091$ 390,183$
Adjusted Net Income
Net income (loss) 17,442 (374)$ 15,000$
Amortization of intangible assets 3,719 3,714 3,713
Amortization of deferred financing costs 921 1,508 1,403
Special items (1) 294 2,914 4,591
Adjustments for tax effect (2) (1,316) 6,696 (2,495)
Adjusted net income 21,060$ 14,458$ 22,212$
Adjusted Basic Earnings Per Share
Weight-average number of basic share outstanding 98,709,557 99,096,914 99,136,015
Adjusted net incomer per basic share 0.21$ 0.15$ 0.22$
Adjusted Diluted Earnings Per Share
Weight-average number of diluted shares outstanding 99,017,986 99,096,914 99,519,925
Adjusted net income per diluted shares 0.21$ 0.15$ 0.22$
(1)
(2)
Special items in the second quarter of fiscal 2017 consisted of business realignment and other expenses of $0.3
million. Special items in the first quarter of fiscal 2018 consisted of consulting fees associated with the company's
improvement activities of $1.6 million, settlement of litigation and related fees of $1.1 million and other expenses of
$0.2 million. Special items in the second quarter of fiscal 2018 consisted of consulting fees associated with the
company's improvement activities of $4.2 million, settlement of litigation and related fees of $0.1 million and other
expenses of $0.3 million.
The adjustments for tax effect in the first quarter of fiscal 2018 included an estimated $9.1 million tax provision on
foreign earnings as a transition tax under the U.S. Tax Cuts and Jobs Act.
Three Months Ended
Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - Adjusted Net Income and
Adjusted Earnings Per Share (UNAUDITED)
(Dollars in thousands, except share data)
Non-GAAP Financial Information
15Wesco Aircraft Proprietary
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March 31, December 31, March 31,
2017 2017 2018
EBITDA & Adjusted EBITDA
Net income (loss) 17,442$ (374)$ 15,000$
Provision for Income taxes 5,659 13,368 6,123
Interest expense, net 8,842 11,838 11,965
Depreciation and amortization 6,743 7,256 7,285
EBITDA 38,686 32,088 40,373
Special items (1) 294 2,914 4,591
Adjusted EBITDA 38,980$ 35,002$ 44,964$
Adjusted EBITDA margin 10.7% 9.6% 11.5%
(1) Special items in the second quarter of fiscal 2017 consisted of business realignment and other expenses of
$0.3 million. Special items in the first quarter of fiscal 2018 consisted of consulting fees associated with the
company's improvement activities of $1.6 million, settlement of litigation and related fees of $1.1 million and other
expenses of $0.2 million. Special items in the second quarter of fiscal 2018 consisted of consulting fees
associated with the company's improvement activities of $4.2 million, settlement of litigation and related fees of
$0.1 million and other expenses of $0.3 million.
Three Months Ended
Wesco Aircraft Holdings, Inc.
Non-GAAP Financial Information - EBITDA and Adjusted EBITDA ( UNAUDITED)
(Dollars In thousands)
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