Héroux-Devtek Reports Fourth Quarter and Fiscal 2020 Year-End Financial Results

Q4 Highlights

• Sales of $166.8 million, up 5.6% from $157.9 million last year
• Operating loss of $64.4 million resulting from non-cash impairment charges of $85.8 million
• Adjusted operating income¹ of $17.6 million, up from $16.2 million last year
• Adjusted EBITDA¹ of 28.6 million, or 17.2% of sales, up from $25.9 million or 16.4% last year
• Solid cash flows related to operating activities of $26.7 million
• Funded backlog of $810 million, two thirds of which is comprised of defence orders
• All facilities remain open, and Héroux-Devtek has available liquidity of $193 million

LONGUEUIL, QC, May 21, 2020 /CNW Telbec/ - Héroux-Devtek Inc. (TSX: HRX) ("Héroux-Devtek" or the "Corporation"), a leading international manufacturer of aerospace products and the world's third-largest landing gear manufacturer, today reported its financial results for the fourth quarter and fiscal year ended March 31, 2020. Unless otherwise indicated, all amounts are in Canadian dollars.

"I am pleased with our strong operational and financial performance this year and I want to thank our teams around the world for these great results. Today, our industry is facing a high degree of uncertainty as to the length and severity of the ongoing pandemic and its impact on the commercial aerospace industry. Given these unprecedented circumstances, we took swift action at various levels to ensure our ability to carry on safely with our production activities across all Héroux-Devtek sites. We made adjustments to our capacity to meet the new production rates in the commercial market and secured enhanced financial flexibility to support our activities for the long term," said Martin Brassard, President and CEO of Héroux-Devtek.

"We believe we are in good position to weather the storm and eventually emerge as a well-positioned organization. First, we can count on a strong backlog of $810 million, two thirds of which is comprised of orders for the defence sector. Second, Héroux-Devtek is in a solid financial position, with $193 million of available liquidity at yearend and no significant capital repayments due on our debt until the end of 2024. Last but not least, we can count on a highly dedicated team of employees in Canada, Europe and the USA, who have already demonstrated their impressive resilience under these challenging circumstances," concluded Mr. Brassard.

1	These are non-IFRS measures. Please refer to the "Non-IFRS Measures" section at the end of this press release.

	Three months ended				Twelve months ended
FINANCIAL HIGHLIGHTS	March 31,				March 31,
(in thousands, except per share data)	2020		2019		2020		2019
Sales	$	166,800	$	157,914	$	612,996	$	483,877
Operating income (loss)		(64,426)		15,190		(30,070)		37,240
Adjusted operating income^1		17,577		16,208		52,548		41,563
Adjusted EBITDA^1		28,609		25,657		96,191		74,213
Net income (loss)		(72,113)		11,958		(50,658)		26,194
Adjusted net income^1		13,695		12,794		35,666		30,352
Cash flows related to operating activities		26,710		37,181		52,573		69,969
Free cash flow^1		16,731		32,545		30,330		58,642
in dollars per share
(Loss) Earnings per share	$	(1.98)	$	0.34	$	(1.38)	$	0.73
Adjusted EPS^1		0.38		0.36		1.00		0.84
						March		March 31,
As at						31, 2020		2019
Funded backlog^2					$	810,000	$	624,000

^1	This is a non-IFRS measure. Please refer to the "Non-IFRS Measures" section at the end of this press release.
^2	Represents firm orders.

FOURTH QUARTER RESULTS

Consolidated sales grew 5.6% to $166.8 million, up from $157.9 million last year, including a 0.4% organic growth and a contribution of $8.1 million by the Corporation's recent acquisitions. Commercial sales decreased 7.8% from $78.0 million to $72.0 million, while defence sales were up 18.7%, from $79.9 million to $94.8 million. The net impact of foreign exchange fluctuations was negligible for the quarter ended March 31, 2020.

The decrease in gross profit from 18.8% to 17.9% for the quarter compared to the same period last fiscal year was mainly driven by inefficiencies and delayed deliveries brought on by the impact of COVID-19.

We recorded an operating loss of $64.4 million, mainly due to a $79.7 million non-cash goodwill impairment charge accounted for in the fourth quarter resulting from the significant reduction in expected demand for commercial aerospace products caused by the ongoing COVID-19 pandemic. Excluding non-recurring items, operating income would have been $17.6 million, representing 10.5% percent of sales, an increase of 0.2% when compared to the fourth quarter of Fiscal 2019.

Adjusted EBITDA, which excludes non-recurring items, stood at $28.6 million, or 17.2% of sales, compared with $25.9 million, or 16.4% of sales, a year ago.

Results per share decreased from earnings of $0.34 last year to a loss of $1.98, mainly due to the non-cash impairment charges of $85.8 million recorded in Q4. Adjusted EPS grew 5.6% in the fourth quarter, from $0.36 last year to $0.38.

YEAR-END RESULTS

Consolidated sales grew 26.7% to $613.0 million, up from $483.9 million for the corresponding period last year. Commercial sales grew 20.1% in Fiscal 2020, from $236.3 million to $283.7 million, while defence sales were up 33.0% in Fiscal 2020, from $247.6 million to $329.3 million, driven mainly by acquisitions and a 12.2% organic growth.

Gross profit as a percentage of sales decreased from 17.2% to 16.8% over the twelve-month period due to inefficiencies and delayed deliveries resulting from COVID-19, as well as by higher manufacturing costs at our Longueuil facility in the first six months of the year. The net impact of foreign exchange fluctuations was negligible for the twelve-month period ended March 31, 2020.

In Fiscal 2020, the Company recorded an operating loss of $30.1 million, due to a $79.7 million non-cash goodwill impairment charge recorded in Q4 as a result of the significant reduction in expected demand for commercial aerospace products driven by the ongoing COVID-19 pandemic. Excluding non-recurring items, the operating income as a percentage of sales remained stable at 8.6% compared to the prior year.

Adjusted EBITDA, which excludes non-recurring items, stood at $96.2 million, or 15.7% of sales, compared with $74.2 million, or 15.3% of sales last year.

In Fiscal 2020, results per share decreased from earnings of $0.73 last year to a loss of $1.38 due to the same factors as for the operating income, while adjusted EPS grew to $1.00, up 19.0% from the $0.84 recorded last year.

GUIDANCE UPDATE

On April 7, 2020, management announced its decision to withdraw Fiscal 2022 sales guidance given the uncertainty related to the duration and extent of the impact of the ongoing COVID-19 pandemic on the aerospace industry and on the Corporation's activities.

Due to the unprecedented uncertainty brought by the pandemic, management is not providing any financial guidance for Fiscal 2021.

FINANCIAL POSITION

Cash flows related to operating activities reached $26.7 million in the fourth quarter, down from $36.9 million last year. For the twelve-month period, cash flows related to operating activities amounted to $52.6 million, down from $70.0 million for the prior year. Both decreases result from investments in inventory related to organic growth in defence programs, as well as from the impact of foreign exchange fluctuations.

As at March 31, 2020, net debt stood at $246.9 million, up from $243.0 million as at April 1, 2019¹. The increase in long-term debt during the twelve-month period is mainly related to the Alta acquisition partially offset by the fiscal year's cash flow generation.

In April 2020, subsequently to the end of the fourth quarter, the Corporation drew $60 million on its credit facilities, comprised of $45 million on the Revolving Facility and $15 million on the Term Loan Facility. These drawings were made as a precaution for potential liquidity requirements related to the COVID-19 pandemic.

1	Pro forma net debt as at April 1, 2019 reflects the impact of the adoption of IFRS 16 – Leases. See the Corporation's financial statements for further details.

SUBSEQUENT EVENTS

Subsequent to the end of the fourth quarter, on May 5, 2020, the Corporation announced a restructuring initiative leading to a 10% reduction in its workforce, or approximately 225 employees, and resulted in the closure of the business unit formerly known as Alta Precision. These initiatives, which will be completed over the remainder of the fiscal year, will result in a non-recurring charge totalling up to $12.0 million before taxes accounted for in Fiscal 2021.

CONFERENCE CALL

Héroux-Devtek Inc. will hold a conference call to discuss these results on Thursday, May 21, 2020 at 8:30 AM Eastern Time. Interested parties can join the call by dialing 1-888-231-8191 (North America) or 1-647-427-7450 (overseas). The conference call can also be accessed via live webcast on Héroux-Devtek's website, www.herouxdevtek.com/en/news-events/events or at https://bit.ly/HRXQ4F2020. An accompanying presentation is also available on Héroux-Devtek's website at https://www.herouxdevtek.com/en/investors/financial-documents

If you are unable to call in at this time, you may access a recording of the meeting by calling 1-855-859-2056 and entering the passcode 2155803 on your phone. This recording will be available from Thursday, May 21, 2020 as of 11:30 AM Eastern Time until 11:59 PM Eastern Time on Thursday, May 28, 2020.

FORWARD-LOOKING STATEMENTS

Except for historical information provided herein, this press release contains information and statements of a forward-looking nature concerning the future performance of the Corporation.

Forward-looking statements are based on assumptions and uncertainties as well as on management's best possible evaluation of future events. Such factors include, but are not limited to: the effect of the ongoing COVID-19 pandemic on Héroux-Devtek's operations, customers, supply chain, the aerospace industry and the economy in general; the impact of other worldwide general economic conditions; industry conditions including changes in laws and regulations; increased competition; the lack of availability of qualified personnel or management; availability of commodities and fluctuations in commodity prices; financial and operational performance of suppliers and customers; foreign exchange or interest rate fluctuations; and the impact of accounting policies issued by international standard setters. Readers are cautioned that the foregoing list of factors that may affect future growth, results and performance is not exhaustive and undue reliance should not be placed on forward-looking statements.

As a result, readers are advised that actual results may differ from expected results. Please see the Impact of COVID-19 section under Overview and the Risk Management section under Additional Information, as well as the Guidance section in the Corporation's MD&A for the fourth quarter ended March 31, 2020 for further details regarding the material assumptions underlying the forecasts and guidance. Such forecasts and guidance are provided for the purpose of assisting the reader in understanding the Corporation's financial performance and prospects and to present management's assessment of future plans and operations, and the reader is cautioned that such statements may not be appropriate for other purposes.

NON-IFRS MEASURES

Earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, adjusted net income, adjusted earnings per share and free cash flow 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. Refer to Non-IFRS financial measures under Operating Results in the Corporation's MD&A for definitions of these measures and reconciliations to the most comparable IFRS measures.

ABOUT HÉROUX-DEVTEK

Héroux-Devtek Inc. (TSX: HRX) is an international company specializing in the design, development, manufacture, repair and overhaul of aircraft landing gear, hydraulic and electromechanical actuators, custom ball screws and fracture-critical components for the Aerospace market. The Corporation is the third-largest landing gear company worldwide, supplying both the defence and commercial sectors. Approximately 90% of the Corporation's sales are outside of Canada, including about 53% in the United States. The Corporation's head office is located in Longueuil, Québec with facilities in Canada, the United States, the United Kingdom and Spain.

SOURCE Héroux-Devtek Inc.

Héroux-Devtek Inc., Stéphane Arsenault, Vice President and Chief Financial Officer Tel.: [phone], [email protected]; Investor Relations, Hugo Delorme, Tel.: [phone], ext. 555, [email protected]

Related Links

www.herouxdevtek.com