Mr. Gilles Labbe reports

HEROUX-DEVTEK REPORTS SOLID FISCAL 2016 THIRD QUARTER RESULTS

Heroux-Devtek Inc. has released its results for the third quarter of fiscal 2016 ended Dec. 31, 2015.

"Heroux-Devtek achieved a strong profitability increase in the third quarter driven by higher commercial volume, efficient cost management and favourable currency variations. Commercial sales remained robust reflecting our greater reach in the large aircraft market and the production ramp-up of certain programs for which we designed landing gear systems, while certain delayed deliveries and lower requirements led to a reduction in defence sales," said Gilles Labbe, president and chief executive officer of Heroux-Devtek.

"During the quarter, Heroux-Devtek continued to progress towards meeting production requirements and delivery schedules in regards to the B-777 and B-777X contract. We also renewed three important contracts that attest to our solid reputation and long-standing relationships. In December, we extended a preferred supplier agreement with a leading systems manufacturer for a five-year period through the end of calendar 2023 to manufacture major, complex landing gear components for three large commercial aircraft programs. We also renewed through September, 2021, a contract with the U.S. Air Force for landing gear repair and overhaul services, as well as for manufacturing certain aftermarket components, for the C-130, E-3 and KC-135R aircraft. Finally, we extended a global strategic maintenance agreement with Saab AB, support and services, regional aircraft, to support operators of all variants of the Saab 340 and Saab 2000 aircraft."

 
                             FINANCIAL HIGHLIGHTS  
                       (In thousands, except per share)
  
                                            Quarter              Nine months
                                      ended Dec. 31,           ended Dec. 31,
                                   2015        2014         2015        2014

Sales                           $96,561     $88,368     $289,316    $258,862
Adjusted EBITDA                  15,666      11,544       43,357      31,882
Net income                        7,010      (1,909)      17,550       4,864
Per share -- diluted               0.19       (0.05)        0.49        0.14
Adjusted net income               7,010       4,361       18,559      11,956
Per share -- diluted               0.19        0.12         0.52        0.34

Third quarter results

Consolidated sales reached $96.6-million, compared with $88.4-million in the third quarter of fiscal 2015. This 9.3-per-cent increase reflects the strength of the commercial aerospace market, while year-over-year fluctuations in the value of the Canadian currency versus foreign currencies increased third quarter sales by $11.7-million.

Commercial sales were $50.8-million, up 27.3 per cent from $39.9-million last year. This increase reflects greater content and higher production rates for certain large commercial programs, mainly the B-787 aircraft, and higher sales of landing gear systems designed by Heroux-Devtek resulting from the production ramp-up of the Embraer Legacy 450/500 business jet and Airbus Helicopters EC-175 programs. Year-over-year currency fluctuations had a $6.1-million favourable effect on commercial sales.

Defence sales decreased 5.6 per cent to $45.8-million. The variation was due to lower spare parts requirements and certain delayed deliveries with the U.S. government, a reduction in manufacturing sales to civil customers, as well as lower throughput in the United Kingdom. These factors were partially offset by a $5.5-million favourable foreign exchange impact, higher repair and overhaul sales to the U.S. Air Force, and higher engineering sales.

Gross profit reached $18.1-million, or 18.7 per cent of sales, compared with $14.6-million, or 16.5 per cent of sales, last year. The increase reflects favourable year-over-year currency fluctuations equivalent to 2.0 per cent of sales and the lower underabsorption of costs. Adjusted earnings before interest, taxes, depreciation and amortization stood at $15.7-million, or 16.2 per cent of sales, versus $11.5-million, or 13.1 per cent of sales, a year ago. Last year's adjusted EBITDA excluded non-recurring charges of $7.9-million for the impairment of capitalized development costs on the Learjet 85 program and $600,000 for restructuring measures.

Adjusted net income was $7.0-million, or 19 cents per diluted share, in the third quarter of fiscal 2016, up from $4.4-million, or 12 cents per diluted share, in the third quarter of fiscal 2015, excluding non-recurring charges of $6.3-million, net of taxes.

Nine-month results

For the first nine months of fiscal 2016, consolidated sales totalled $289.3-million, versus $258.9-million in the first nine months of fiscal 2015. Year-over-year fluctuations in the value of the Canadian currency versus foreign currencies increased sales by $31.0-million. Commercial sales rose 26.1 per cent to $152.2-million, while defence sales decreased 0.7 per cent to $137.1-million.

Gross profit for the first nine months of fiscal 2016 amounted to $52.1-million, equivalent to 18.0 per cent of sales, compared with $41.9-million, or 16.2 per cent of sales, in the first nine months of fiscal 2015. Adjusted EBITDA reached $43.4-million, representing 15.0 per cent of sales, up from $31.9-million, or 12.3 per cent of sales, in the previous year. Finally, adjusted net income was $18.6-million, or 52 cents per diluted share, versus $12.0-million, or 34 cents per diluted share, last year.

Financial position

As at Dec. 31, 2015, Heroux-Devtek's balance sheet remained healthy with cash and cash equivalents of $21.4-million, while total long-term debt was $149.7-million, including the current portion, but excluding net deferred financing costs. Long-term debt includes $74.3-million drawn against the corporation's authorized credit facility of $200.0-million. As a result, the corporation's net debt position stood at $128.3-million as at Dec. 31, 2015, while the net-debt-to-equity ratio was 0.39 to 1, down from 0.41 to 1 three months earlier.

Update on the B-777 and B-777X contract

Heroux-Devtek is making further progress toward meeting the requirements of the long-term contract to supply The Boeing Company with complete landing gear systems for the B-777 and B-777X aircraft. During the quarter, the corporation made progress on the customer qualification and approval process of its new plating equipment at the finishing subassembly centre in Strongsville, Ohio. While this process is taking more time than planned, management now expects it to be completed in the first quarter of next fiscal year. Heroux-Devtek has received almost all components necessary to deliver the first complete landing gear system and management expects that all manufactured components will be substantially completed in the fourth quarter. Subassembly work has started in Strongsville, Ohio, and the corporation is completing the installation of all tooling and equipment at the final assembly facility in Everett, Wash.

Management remains confident that delivery of the preproduction shipset to Boeing will occur as planned in mid-calendar 2016 and that production requirements associated to deliveries scheduled to begin in early calendar 2017 will be met. As at Dec. 31, 2015, the corporation had made capital investments of $105-million, representing more than 90 per cent of the total investment associated to this contract.

Outlook

Conditions remain mostly favourable in the commercial aerospace market. In the large commercial aircraft segment, Boeing and Airbus are proceeding with production rate adjustments ahead of introducing certain more fuel-efficient aircraft variants, on several leading programs through calendar 2019. Their backlogs remain strong, representing approximately eight and 10 years of production at current rates, respectively. In the business jet market, the current and future production ramp-up of business jet models for which Heroux-Devtek has designed the landing gear should provide sustained growth for the corporation for several years. In the defence aerospace market, the recent budget agreement provides additional financing for the U.S. government's next two fiscal years, but uncertainty remains beyond that period given the need to address the deficit. The corporation's U.K. operations provide Heroux-Devtek with a more geographically diversified defence portfolio, which reduces its relative exposure to the U.S. market. The balance between new component manufacturing and aftermarket products and services in the corporation's defence portfolio and its leading program content also promote stability.

As at Dec. 31, 2015, Heroux-Devtek's financed (firm orders) backlog stood at $442-million, versus $427-million three months earlier.

"Looking ahead, the fourth quarter has historically been our strongest period and this fiscal year should be no exception. Given forces driving our main markets, as well as favourable currency variations, we expect to conclude fiscal 2016 with sales growth of approximately 10 per cent, including a solid increase in commercial sales and relatively stable defence sales. Beyond this horizon, we are focused on executing our strategic plan to further enhance Heroux-Devtek's reach in the global landing gear market. Our proven ability to carry out large-scale mandates, combined with our fully integrated world-class capabilities, provide a solid foundation to capture additional business opportunities and to create sustainable value for shareholders," concluded Mr. Labbe.

We seek Safe Harbor.