Wesco Aircraft Holdings' CEO Discusses F1Q2014 Results - Earnings Call Transcript

Feb. 6.14 | About: Wesco Aircraft (WAIR)

Wesco Aircraft Holdings, Inc. (NYSE:WAIR)

F1Q2014 Earnings Call

February 5, 2014 04:30 PM ET

Executives

Mark Davidson – Investor Relations

Randy Snyder – Chairman and CEO

Hal Weinstein – EVP of Sales and Marketing

Greg Hann – EVP and CFO

Analysts

Carter Cook – Barclays

Joe Nadol – JP Morgan

Edward Marshall – Sidoti & Company

John D. Godyn – Morgan Stanley

Sheila Kahyaoglu – Jefferies

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Wesco Aircraft 2014 First Quarter Earnings Conference Call and Webcast. At this time, I’d like to turn the call over to Mark Davidson, Wesco Aircraft Investor Relations. Please go ahead.

Mark Davidson

Thank you, Adrian. Good afternoon and thank you for participating in Wesco Aircraft 2014 First Quarter Earnings Call and Webcast. Presenting today would be Randy Snyder, Chairman and CEO; Hal Weinstein, Executive Vice President of Sales and Marketing; and Greg Hann, Executive Vice President and CFO.

Following our preparatory remarks, we will open the lines across from this room and will be joined by Alex Murray, Vice President of Global Operations. During today’s call, management will review and discuss Wesco Aircraft’s First Quarter Fiscal 2014 results. Additionally, management will provide commentary and background on the recently announced acquisition of Haas Group which speaks about the tone of the end of the first calendar quarter of 2014 subject to customary clause and conditions. We remind all our call participants in order to access the transcript of this call that while management is please provide the strategic rationality acquisition and background information of Haas. More detailed financial information on the target will not be available until after the closing of the application. We appreciate your understanding and look forward to discuss on the acquisition in greater detail after this is over.

As for manager, today’s conference call includes forward-looking statements within the meaning of the Federal Security Regulations. Also, the company believes that such forward-looking statements are reasonable. We cannot assure you that any forward-looking statements will prove to be correct. Forward-looking statements not guarantees the future performance on involved known and unknown risks and certainties of other factors which may cause the actual result to differ materially from those anticipated at the time of the forward-looking statements are made.

Additional information with factors that may cause actual results to differ from our forward-looking statements can be found in the company’s plans [pf] with a securities of exchange permission including the company’s annual report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Wesco Aircraft undertakes no obligation to update or revise forward-looking statements except as required by law.

Now to begin the call, I would like to introduce Randy Snyder who will deliver the opening remarks. Randy.

Randy Snyder

Thank you, Mark. Good afternoon. I was speaking not only about Wesco Aircraft First Quarter 2014 results but also briefly about our acquisition of Haas where we had done last week. We’re presently excited about the potential we’ve seen in the combination of our two companies but first let’s talk about the quarter. Please turn this slide forward.

I’m proud to announce Wesco Aircraft First Quarter results. Our first quarter revenue was $2.25 million up 6.4% than a year ago. Our Adjusted Diluted EPS for the quarter was 27 cents, up 2 cents from the year ago. We continue to build our business nicely despite one less selling during this quarter as compared to last year. In addition, there were unexpected extended shutdowns that we had not seen before quarter on some of our largest customers primarily due to the harvest drought during December. We estimate that fiscal debt to the quarter was approximately 2 cents of EPS and there are sells growth which has otherwise been approximately 10%. I continue to be excited about the opportunistic listening, the contracting real winning and the work we are doing internally to become more efficient for our sales and our customers. I will talk more specifically about what are seeing in the market with some of our customers. In the way, we’ll talk about the quarter from a financial statement in more detail in a moment.

As you are now aware we signed an agreement last week to acquire Haas Group Inc. This is a company that is very similar to Wesco in a number of ways. The company was started by the father of [indiscernible] The value proposition is very similar to ours and that they save their customer money by effectively managing the supply chain for certain categories of products. These products would be extremely difficult for the persons to handle on their own because of environmental regulations and the sheer number of use. They’re also the leader in their summit of the industry and then majority of their revenue comes from the airspace and defence industries.

What is most exciting about this business combination are the enormous opportunities we have going forward. By crossing each other’s businesses products between our respective customers and experiencing the harsh business geographically, we can drive significant growth together. In addition, this combination will make us a more important partner to our customers by providing a more comprehensive supply chain management solution. We believe this will re-enforce our strong value proposition as no else in the industry will be able to offer the same range of mechanical, electrical and chemical products through the customers. This will save our customer’s money, drive productivity savings in the world therefore lower their main hours required to deal their products and allow them to focus on what they do best in designing and building products for the airspace and defence industry.

Including these, both the Techlan [ph] and Wesco will be able to grow and deliver values to our shareholders. I knew this combination of two great businesses more as collaboration than integration. Of course, we’re going to look at areas where we can be more efficient on a quarterly basis, but our prominent focus for value creation is to rate in the marketplace and using both companies credit workforce to become more efficient for our customers. I look forward to talking to more about our plans for the future after we close the acquisitions.

Now I would like to turn the call over to Hal, Hal.

Hal Weinstein

Thanks, Randy. Good afternoon, everyone. As Randy mentioned, we experience meaningful growth in the quarter despite the unexpected length of holiday shutdowns and vacations at many of our customers. Our global sale team continues to aggressively in our apartment plant trees, meaning we established ourselves within our customer and brain-shop with new commodities and services that’s growing over time. It’s that we are controlling our very focus growth plans whether it’d be geographically, new markets such as MRO or product line such as electronic sparings and more. We continue to have many customers engaged with our team around new opportunities as the value of our service becomes a clear path for deficiency gains. Our MRO is working hard to develop relationships and win business and it’s growing at an exceptional rate. Our international business is also well above the plan whether it be Europe, Mexico, China, India or the Middle East. We are working to staff and train our new office in Singapore and we expect that office to be operating at full capacity within the next quarter.

We anticipate significant growth in that region. As you likely know how does we – how we measured success – is constantly pulling our customers to make sure we’re performing at world class levels. If that happens, everything else tends to fall in the place in terms of new opportunities and growth. With that said, we’d recently been awarded a Supplier of Excellence Award from Boeing and Shenzhen, China. Considering China is a relatively new office for us, we consider this to be a major accomplishment.

Our military business, although challenging, continues to provide a variety of new opportunities for both service and additional products. As we’ve mentioned in the past we feel comfortable maintaining 2013 revenue levels at a minimum with some potential growth as the customers utilize more and more of our products and services. In the commercial market, an increase in build rates, continuing market share gains globally as well as with additional market penetration from newer products will lead us to our goal of double-digit growth in that segment. This quarter was another strong one in terms of contracts signed, contracts extended and new line items that add to existing agreements. Our few examples of contract wins in North America during the quarter which includes both new and extension with existing agreements were Bell Helicopter which is an extension of our existing agreement covering all sides and all programs, precision machine works and other extension in existing agreement which encompensate good rich contract work and Korea Aerospace which is a new contract for a number of programs. Our international team has done their usual exceptional job by signing a contract with SAP for significant Airbus contract work. We’re finding that our newer contracts are tending to be a more diverse product mix as we’re gaining traction within our new alliance whether it be electronics, sparings, machine parts or others.

So to summarize, the business continues to move in an upward direction and we feel very confident that our aggressive sales and marketing efforts will allow us to meet our goals for this year. And before I hand things over to Greg, I’d like to add a bit of additional color on our pending acquisition of plans. If you please turn your slide size.

Let me start by reiterating Randy’s excitement about this combination. Haas is a leading global provider of chemical supply chain management solutions primarily to the aerospace and defence markets. Haas, like Wesco, offers customers the compelling value proposition which includes lowering chemical purchasing, business cost and overhead cost by managing chemical inventory through an advanced proprietary IT system that is truly differentiated in the market. We estimated that the adjustable market for CFCM is over $2 billion today and could conceivably recede the $10 billion in the next several years as customers increasingly realize the immediate financial and operational benefits of outsourcing the services to an expert such as Haas. Our guest is really excited about this combination are the significant opportunities we see to grow combined business together. For example, several of Wesco’s largest customers today are accounts that Haas has not yet penetrated. Conversely, Haas has some very large and strong customer relationships where Wesco is currently underrepresented. In addition, Wesco’s footprint relationship in Mexico and India, in particular, should facilitate significant growth of CFCM business in the coming years. I’m confident that in partnership with the demonstrated leadership of the Haas management team, we’ll able to drive significant growth going forward.

Now let me turn the call over to Greg to continue the discussion on Haas, Greg.

Greg Hann

Thanks, Hal and good afternoon, everyone. Now if you please turn to slide 6. Office sales in 2012 were $573.5 million. So it’ll clearly become a very meaningful part of our company after closing. Gross margins for Haas were fairly similarly to our EPG business. This margin profile was largely due to the fact that we need times shorter and therefore did not require the same level of inventory investment as our core hardware business, but we don’t expect the gross margin profile to change significantly going forward. We do believe that the Haas business will continue to experience meaningful EBITDA margin improvement through the operating leverage and current business model.

As Randy and Hal discussed, we’re incredibly excited about the opportunities we envisioned in the combination with Haas particularly regarding revenue synergies. Our initial view was that we expected acquisition to be a credit to our Adjusted Diluted EPS by approximately 8% to 10% in our first full fiscal year. Upon closing, which we expect to be later on this quarter, we’ll have more information this year including an update of our 2014 guidance.

Financing for the acquisition would be provided by a group of lenders like by Bank of America in Norwich. Most specifically, we expect to raise the new $525 million term loan with the remainder of the funds provided from our cash and balance sheet and burrowing under our existing $200 million revolving credit facility. Based on the terms of our financing commitment, we believe that the rates on the new term loan will be very attractive which will contribute to the accretion we expect from this transaction. Performa for the acquisition of Haas, our net leverage ratio should end up in the 4-4.5 times even in that range.

Wesco operates with the leverage ratio of approximately six times in the past. So we’re very comfortable that the cash flows generated by the combined business will allow us to de-lever quickly.

Now if you please turn to slide 7. As Randy noticed, our sales during the quarter were $224.7 million. This is up 6.4% year over year for the quarter. This was a unique quarter not only due to the fact that there was one less day of sale during this quarter but primarily due to the unusual circumstances that we had where many of our major customers, especially in US – I don’t expect extended shutdowns in part due to the timing of when the holidays fell. We estimate that this has an impact of approximately $7 million in sale which would have resulted in sales growth to approximately 10% and 2 cents of EPS which would put us to 29 cents for the quarter. During the quarter, our North America segment grew by 4.7% driven primarily from increases in our contract business. Our rest of world segment continue to perform very well during the quarter with sales growing by 19.6% year over year primarily due to growth across most of our largest customers as well as new contract wins. For the quarter, adhoc sales made up 39% of our total sales and contract sales made up 61% of our total sales and this has been relatively consistent over the last 18 months.

Adjusted EBITDA as a percentage sales was 19.8% as compared to 20.6% in Q1 2013, but they declined margin was primarily due to the holiday related impacts we have already mentioned as well as the additional costs we’ve incurred to support new contract win and increases in our customer’s growing requirements where we needed the infrastructure in place prior to the recognition of meaningful revenue growth.

As you know, a majority of our costs are headcount related and we have increased our headcount primarily in all contract area which support the forward stalking rotations at service to contract customers. We spoke in the past about how we can have quarter to quarter shifts in our operating margins. We believe our margins will continue to improve as we recognize our revenue on these new and extended contracts. Adjusted Net Income for the first quarter was $25.9 million, an increase of 7.3% resulting in Adjusted Diluted EPS of 27 cents as compared to Adjusted Net Income of $24.1 million and Adjusted Diluted EPS of 25 cents in Q1 2013. Our second tax rate for the quarter was 34.4%.

Moving on a cash flow, we used $27.9 million of free cash flow during the quarter as compared to $3.5 million of positive free cash flow in Q1 2013. Due to the time in the holidays there were some delays in cash receive on our accounts receivable at quarter end. Our inventory receipts were also more related to the first quarter of this year including the impact of some attractive buys we’re able to make this kind of prices toward the end of the quarter. With all that being said, we fully expect to meet our guidance for free cash flow conversion of approximately 60% to 70% of net income. Our balance sheet continues to be strong with ample flexibility support of business growth including the pending acquisition of Haas.

Please turn to slide 8. Now let’s discuss our outlook for fiscal 2014 pre to Haas impact. We are confirming our guidance of revenues to be in the range of $975 million to $1 billion to $10 billion, an increase of 8.1% to 12% as compared to 2013 and Adjusted Diluted EPS in the range for a $31 to a $37 per share or an increase of 7.4% to 12.3% as compared to fiscal 2013.

For some closing comments, I would like to hand the call back over to Randy. Randy.

Randy Snyder

Thank you, Greg. As you can tell we are pleased with our first quarter results despite the challenges resulting from timings of holidays. We are very excited about the Haas’s acquisition and look forward to giving you further details after closing. We will be working to achieve our sales synergies in line with our businesses from day 1 after closing. 2014 is an exciting year for growth for Wesco as we look to refine our products and strive to continue to add value our customers and shareholders. We will now open the line for questions.

Question-and-Answer Session

Operator

Thank you. We’ll now begin the question-and-answer session. In the interest of time please limit yourself to one question and one follow-up. [Operator Instructions] And we have Carter Cook with Barclays in line with questions. Please ago ahead.

Carter Cook – Barclays

Just a couple of quick one on Haas, first off, do you have a sense within that aerospace defence portion of the business, how that breaks between commercial and military at this point and how are you thinking about the non-aerospace defence part of that business? Are they in your agencies or Haas’s review with that portion of business looks like?

Randy Snyder

Yes. This is right correct, Carter. From our commercial versus military standpoint philosophy, we go through that about once a year because it’s so difficult. We have customers that ply in those spaces, Haas is the same way. So we really can’t give you an idea right now what that split is between commercial and military but we’ll certainly be looking, guys we’ll go forward.

Carter Cook – Barclays

Okay. In general terms when you go to the EPG transaction and obviously this now moves further away from class C – does this signal anything about how you’re thinking about M&A in the space we should think about? The growth profile with the company – organic versus inorganic going forward – this is obviously another big step. How can you kind of provide some color about how we should think about M&A going forward versus where it had been in the past?

Randy Snyder

Well. This is Randy. For us to especially on the logistic side of the business it allows us to have more space on the manufacturing floor. So it really – even though it’s not a mechanical or electrical, it is accepting it’s used quite often in that area where our parts are being used. So it just will give us a much more – obstruct you [indiscernible] to go into the customers’ discipline.

Hal Weinstein

Yeah. I would add that to Carter that this does tie to the strategy that we have communicated in the past that we were looking for what could we do have additional product line for us to become more ingrained in our customers’ processes. So we believe when we brought this opportunity that it absolutely fit in virtually everything we were looking for in acquisition.

Carter Cook – Barclays

So it’s fair to say that you’ve been open to more that’s continued to fit that strategy. Correct?

Hal Weinstein

Yeah. We’re getting – as we talk about we’re getting leverage 4% to 4.5%. So it’s hard for us to look forward beyond the closing as this right now going through.

Operator

And we have Joe Nadol from JP Morgan in line with questions. Please go ahead.

Joe Nadol – JP Morgan

Thanks. Good afternoon. Last couple of year on the quarter before Haas, for the $7 million of sales, Greg, is that something that we should think about as basically adding to our Q2 estimate? Is it slid in and therefore your growth rate these coming quarters be pretty high?

Greg Hann

No. Joe, I would say more and obviously we don’t give guidance on quality basis. I would say more that we will get the sales will may come up over the coming months. It depends on how quickly the customer offset the time that they were down to all. I would not say that it would at all happen this quarter but it will happen over the coming month.

Yeah. That does actually always the same. They just won’t bear to use the products. So…

Joe Nadol – JP Morgan

Right. So along the same lines, inventories were up $40 million and usually they grow about every quarter. This was a little more and it was much more than the $7 million of sales. Is there something else going on there or is this just part of that are normal?

Greg Hann

This is really the result of views that we have of the market. Six, eight, nine months ago we were looking to make sure that we were well positioned going forward. So these are just recedings that we knew we’re going to be rated more on the front end of the quarter based on some purchasing decisions that we’ve made last year.

Joe Nadol – JP Morgan

Okay. And then just one on Haas – I’ll turn it over. It sounds like the $2 billion of addressable markets does not include what you would consider to be a broader addressable market for customers to do themselves and I think you said $8 billion to $10 billion is where you think it could go if – understanding that right and is that really the push here is or the opportunity here is for you guys to get your existing customers that consider outsourcing something they hadn’t consider outsourcing before?

Greg Hann

Right. Yeah I think that’s exactly why as we said it’s more than $2 billion and our view when we look at it is that the opportunity is in that’s $8 billion to $10 billion range. So it almost feels like this market maybe similar to where our business was going on in the 90s as it was starting to become understood if something that could add value to the customers.

Joe Nadol – JP Morgan

Okay. Had the customers given you indication that – if you can give us any more color as to why you think that market could grow that much as customers told you that they would only consider outsourcing? Is it you guys involved or how you come into that conclusion?

Greg Hann

Part of it, Joe, like everything else we do is kind of look at the overall market. If you were just to focus on US team, you are certainly lot more limited than the $8 billion to $10 billion that we’re talking potentially, but we are looking worldwide and worldwide based on the customers that we are talking to at this point in time, they haven’t even know about to tackle at this point yet. So I think they are doing the same thing required with the same basic materials, but they haven’t really thought about this type of service. That’s some tremendous opportunities out there. So it kind of goes beyond this workroom?

Joe Nadol – JP Morgan

Okay. Interesting. Thank you.

Operator

And we have Jason [ph] from Citi in line with the questions. Please go ahead.

Unidentified Analyst

Yeah. I had two questions. One little bit more on near term in nature and the other one on Haas. First one on near term, you talked a little bit about the trends that you’re seeing in market and organically how things are going there and deals in near and past acquisition. And then on the Haas, you and Randy mentioned that this would be operated as kind of a parallel company kind of limiting in an integration that was going to happen here. Can you talk a little bit more about your vision there and whether that will limit your abilities for some cost synergies on this? Describe your thinking about cost synergies overall?

Greg Hann

Yeah on the Asian market side, Jason, we are seeing fluctuation as you go upward, from our perspective, keeping in mind that Wesco is although not a new player certainly a smaller player in that segment of the market. So we are seeing tremendous opportunities. Now the overall after market in general based on what I gathered seems to be heading in the right direction, but we are thinking of kind of market share little by little by little. So that’s the way we are moving this right now. So the Wesco trend is about this. We’ll put it that way.

Unidentified Analyst

I’m sorry with cost synergy. We like to identify opportunities taken that certainly we can discuss at a later date, but this acquisition is really about revenue synergies and kind of our vision as Randy described for this business going forward. So this isn’t really a cost synergy play even though we identified some opportunity..

Greg Hann

Jason, there is so much more value in looking at the market sales plans going together in that market than the synergies? But it’s for sure what’s been getting there and there is opportunity for synergies, we will definitely grab those synergies. But the real value is going after the market as a joint venture between our two companies and start catching more with the market deals because I think it’ll be better for our customers and a lot more value than looking how much we have to strive at.

Unidentified Analyst

Okay. That’s all for that you guys.

Operator

And we have Ryan [ph] of William Blair in line with the questions. Please go ahead.

Unidentified Analyst

Thanks. Just one question on the guidance. I’m just looking at the midpoint area and it looks as though it implies that inventory SG&A could be flat in dollars from here for the rest of the year but revenues could be up each in the next couple of quarters. Am I thinking about that right or is there a gross margin opportunity?

Greg Hann

I think, Ryan, the gross margin will be relatively flat. I think what you’re going to see it is from the sales perspective and the operating leverage that we’re going to get.

Unidentified Analyst

So I had that right that you expect cash it in in dollars to kind of remain flat from here.

Greg Hann

Why? I would say that we’ll get operating leverage as the sales increase. I’m not going to say whether the SGA dollars will be flat. I think – quarter to quarter we typically see a little bit of gross but that will be offset by what we’ll see on the cell phone.

Unidentified Analyst

Got you. And then a question on Haas. What’s the customer overlap? Is it mostly existing customers or is it the lot new customers?

Randy Snyder

Yeah. Kind of a combination of both. We see a tremendous amount of overlap in existing customers on the A&D side of the business at least domestically. Now keeping in mind as I talked about that earlier, there are kind of groups within the customer base where they have specific strength and then there are those in different groups that other customers where we have specific strength and we think we will be able to kind of use each other if we will to get overall greater market share. So there is opportunity as good with site-sharing and locking sites were there very strong, etc., etc.

Unidentified Analyst

It may be negative. Greg, one more on Haas. What is the historical growth rate been for the business and are there any big investment required to get the sale synergy you are hoping for?

Randy Snyder

We’re not going to talk about any of the additional financials, but as far as investment for group opportunities we are virtually not as you know that for us we are serving not _____ incentive and neither of that.

Operator

And we have Sheila in line with the questions. Please go ahead.

Sheila Kahyaoglu – Jefferies

Thanks guys for taking my question. Can we elaborate on the gross margin compression during the quarter and if there was more timing or product mix maybe or was it pricing? And going back to the earlier question, is it the right way about to think about that gross margins are flattish from this current rate or did they move up from here?

Randy Snyder

I’m sorry. I’m not getting, Sheila. Could you say that again? I am sorry. I didn’t listen much.

Sheila Kahyaoglu – Jefferies

Sure. In terms of the gross margin compression in the quarter, I just wanted to get an idea of maybe was it mostly timing driven or was there product mix EPG growth rate that you followed in the quarter or was it having to do with pricing up during contracts? And then just going back to the earlier question on the guidance of the full year, do you seem gross margins are flat from Q1 full year from the Q1 rate?

Greg Hann

Yes. The gross margins for the quarter down a little bit and it was mix. There was EPG product and there was also inside of the hardware itself and as you know we kind of have movements quarter to quarter. As far as looking forward, we think it would be relatively stable to what we have been experiencing. So I would say it would bounce around a little bit probably to stay air higher than what we experienced in Q1.

Sheila Kahyaoglu – Jefferies

Okay. Yeah. That’s what I got. And in terms of Haas, can you maybe comment on how fragmented this market is versus the aerospace distribution market?

Greg Hann

Yeah. It seems to be that when we look at the bigger picture of who is involved in that market, Haas is by far at least seems to us the biggest player out there as similar to the Wesco being in this situation I guess seems a Wesco -- similarly large players fall off the cliff with a variety of things as believing as similar scenario, but there are less little debt. This is a very, very specialized negative market place.

Sheila Kahyaoglu – Jefferies

Okay. And then just one last one on Haas if you don’t mind, in terms of the integration process, I guess, just given the environmental risks are little bit higher say with the chemical distributor, is there more opportunity for pricing in this market? But that’s something you guys will have to care about?

Greg Hann

I absolutely don’t know.

Sheila

Okay. That’s it. Thank you very much.

Operator

And we have Myles Walton from Deutsch Bank in line with questions. Please go ahead.

Myles Walton – Deutsch Bank

Could you start up maybe by talking about some of the lead time for seeing faster markets where they are trending, where they are at and how quickly they may or may not be expanding?

Randy Snyder

Margins remain just stable. We are just stable.

Myles Walton – Deutsch Bank

Somewhere in the middle?

Randy Snyder

Yeah. Exactly. We haven’t moved.

Myles Walton – Deutsch Bank

Is that surprising anyway that they haven’t moved for this longer period despite the production rates going up. Is it just a better managed supply chain we have today than we had 7-8 years ago?

Randy Snyder

Well. I don’t think it’s better managed but I say that it just hasn’t grown as fast as everything thinks it has. Okay. So – and there’s a possibility some other players had overstocked in their requirements. So we just _7:40____ just moving. Do we think it’s going to move? It seems to be yes and again I don’t what, when but I really hope this comes sooner than longer.

Myles Walton – Deutsch Bank

Okay. One question – again maybe Randy on the defence and you talked about this a little bit in the past that as the contract [indiscernible] in the defence side, it looks that your own cost structure and tries to maintain affordability, they are looking to you and I’m curious is there – can you put any fine line on which we might see that drop through in larger contract words or outsourcing initiatives by the defence contractors?

Randy Snyder

Let me just leave it to Hal as I want to very much involve with the process.

Hal Weinstein

Yeah. We are. As we mentioned, we are in constant discussion with a variety of customers and it is a long process, there is no question, it doesn’t happen overnight but tonight phase can happen next week or the month or the week after, hard to say, but certainly we believe during this fiscal year we’re going to see what we believe as some substantial wins based on investments we’ve been having over the past six months. And if that…

Randy Snyder

Of course, they are just a longer sale. You’re talking about really integrating the sales into their two other operations and it’s been good -- discuss the forward things that they have been doing themselves for many, many years and it’s hard to get people the change. They know they have to and it’s sometimes getting for the right level of person that could make those kind of decisions.

Myles Walton – Deutsch Bank

Okay. And then maybe can you, Greg, on the pro forma or adjusted accretion, just I understand that which are being performing out, your pro forma on any background which is probably minimal pro forma and all tangibles and then acquisition and integration thoughts, give...number of…

Randy Snyder

That’s correct.

Myles Walton – Deutsch Bank

And do you have a number for that –

Randy Snyder

Not at this time.

Operator

And we have Michael Semoi [ph] from KeyBanc Capital Markets is online with the question.

Unidentified Analyst

Maybe just to stay on that line of questioning that Miles started with regarding the order flow – we have been hearing several suppliers talk about that as rates have been – maybe for both perhaps more on the defense anything in commercial, that the tier 1s just have predictable ordering patterns. And you guys suggest that this 7 million that you lost in the quarter doesn’t come like that, are you seeing that, I mean is this just a need by the tier 1s OEMs just not to stockpile any more inventory, I think that’s factoring if anything that you guys are seeing?

Greg Hann

The $7 million, some of that will be shipped over now but the idea – our business is to give the customers what they need at the time they need it. If they are not open, just speed up their production line, some have seen the raise in their production rate but it’s just a matter that would flow through the rest of the year.

Unidentified Analyst

With lead times not expanding with the rates rising would suggest that there is a lot more predictability and maybe it’s a tired to manage, they are working pattern. So any additional color, do you think you are in a state where growth perhaps decelerates or we don’t get that kind of continued uptick that you have been waiting for?

Hal Weinstein

Well I think the other thing – one of the things that we have been able to demonstrate is that we have been able to grow quicker than the market. So it’s not just the market movement, it is the fact that we are able to win some contracts and get new parts for the existing customer. So our growth isn’t just contingent on that.

Randy Snyder

And also you got to realize in 2010, 2011 lead times were 12 weeks, 14 weeks, now that’s between 13 and 14 weeks. So there has been a great move. Now if the build rates go up even further, they have the capacity to get to that surely. So that’s the key and we feel that there is a possibility that will happen, we don’t know when.

Unidentified Analyst

And then maybe shifting gears on the MRO side, you talked about the growth rate, can you give us some more tangible details in terms of – are you picking up more carriers, or are they giving you more business, can you talk about maybe the performance of your e-commerce site that they are using, I mean is that meeting all of your internal goals and just give us a little more color to kind of maybe customer adoption there?

Randy Snyder

From a marketing perspective we do know if it did. We are seeing literally daily mail, contacts from carriers that we have left those – as they are winning more share, we are doing it what I believe intelligently, we are taking relatively small pieces of business and the customers are giving us the opportunity to perform. As we perform we are getting more and more opportunity for those contracts, we have the opportunity to grow them. That’s the way it’s actually been looking over the past month, we are doing very, very well. I will let Hal talk about the ecommerce.

Hal Weinstein

Ecommerce solutions continues to be received very well by the customer base, the customers – brand new customers as we went them and also existing customers – for expanding the ecommerce space. The feedback is very positive. We have been talking with our customer about enhancements and taking their suggestions as well. And we will be moving forward with our phase 2 element of the ecommerce. So overall we consider the ecommerce – which needs to be definite one.

Randy Snyder

People aren’t current in the MRO business, so they don’t know it quite well. So just one customer – contracts for about quarter of a million dollars, about a year and half ago, right after we bought Insat. It has grown to $1.5 million because now they realize our services so well good. That’s how it will progress. As time goes on and they see that we can perform as the way we did perform and then we get more confidence.

Operator

We have John Godyn from Morgan Stanley online for question.

John D. Godyn – Morgan Stanley

I was hoping we could take a step back on integration and Randy and the team perhaps, you could talk about sort of some of the puts and takes that you envision or maybe reasons why this integration might be easier or harder than past ones that you experienced?

Hal Weinstein

In terms of with previous acquisitions, we have replaced those organizations ERP system with Wesco ERP system. We have seen only to do that what Haas has a fantastic ERP solution and their customer facing technology, we can say that to be best in class. So that said, we are going to make the integration easier, not that huge IT turmoil that we need to go through. In terms of the positive side, if we are looking at BIT type contracts, where both organizations might have a group of people on the floor, those are potential for architects and consolidations there and so that made a lot easier equally.

And then in terms of both organizations are using warehouse space as well and there might be some opportunity there. The next thing we are going to get into over the 30, 60, 90 days and identify a fair lot more color and detail to those opportunities. But the big one by far is that we are not wrapping out their IT platform and replacing it by ours and we see that, that’s going to make the best integration in that sense.

John D. Godyn – Morgan Stanley

Is there any customer response to the announcement of the deal yet that you will be willing to share?

Randy Snyder

The response has been kind of staggering actually from the customer base. I will give you an example, I won’t mention the customer but we got a call, we have been working with the customer, pretty large customer for quite a number of years to actually become integrated within their facility and [indiscernible] we are good at, running into some issues, the technical products we handle and how we fill it, and it’s been dragging but I got a call from the tough guy and because it’s already in that facility and apparently that alone is going to facilitate a move forward on something we have been working on for many, many years. So that’s just one example, and I get the examples I am hearing are not just the rest of the international. So we are really excited –it’s the same thing happening in Europe but we are there. It’s a huge customer there. So we are excited that as well. We’ve got – our own community within the mechanical world and our customers, we heard nothing to positive.

John D. Godyn – Morgan Stanley

We’ve heard about various partners for success deals going through, given whatever you might have heard about these deals, I was just hoping, Randy, that, you could maybe revisit your thoughts on this intermediation risk and anything you would be willing to share there?

Randy Snyder

It’s still a risk but it’s not keeping me up at night, I will tell you that. What we do is more complex than people realize. So – but our balance sheet, it has not affected our balance sheet. It’s always a risk but we feel very comfortable that we – our value proposition by far is better for our customers than anything out there today.

John D. Godyn – Morgan Stanley

So there was no sense that some of the incremental deal making and partner for success is excluding you guys or trying to change the supply chain in that way?

Randy Snyder

So we are not experiencing that.

Operator

We have Edward of Sidoti & Company online with the question.

Edward Marshall – Sidoti & Company

I was wondering if there was any due diligence expense related to the acquisition reported in December quarter.

Randy Snyder

Well there was pretty minimal, it’s like $100,000, it was pretty minimal on, in that quarter.

Edward Marshall – Sidoti & Company

Secondly a strategic question I was thinking with lead times, your stable and the suppliers – for the flattening build rate. I am wondering if there is opportunity to improve your sourcing going back to your suppliers and potentially working on some brakes on inventory and so forth as you look. Is there any opportunity there as you consider –

Randy Snyder

That’s a daily occurrence. That’s what our job is – to that value for our dollars. But it’s still – it hasn’t switched from a buyer market to a sellers’ market because it’s stable. And so it’s competitor for us, it’s competitive for our vendor and we work from day to day to make sure we both win.

Edward Marshall – Sidoti & Company

Finally on the Haas, just curious if you have the breakout on the A&D side for OEM versus aftermarket split?

Greg Hann

Versus the aftermarket, it’s relatively small.

Operator

And we have Stephen Kahow from Robank [ph].

Unidentified Analyst

First, I was just wondering if you could discuss the difference in the growth rate between the rest of the world and the US. Is that primarily down to what we saw with the holidays or is that also possibly similar market, some of the MRO being in the rest of the world segment?

Randy Snyder

Yes, there is certainly some of that but if you look at kind of the bigger picture, [indiscernible] he ran that division for the many years, but if you look at the way that customers in Europe dealt with distribution for many years, as opposed to the way it happens in US, it appears as if they are catching up to what we have been doing for many, many years. So the distribution model, value proposition is resonating now with the customer base in the way that it’s never been before. And indeed that is the way it seems to be, they were behind us in terms of the value proposition with JIC [ph] and the things we bring to the table and they are catching up.

Hal Weinstein

I answered the question before also, talking about the maturity of the Wesco, our rest of the world business continues to enjoy the best the Wesco a bigger player in a more risk asset market.

Randy Snyder

And lot of programs [indiscernible] moving to, the second part of – all the queries, but we just followed it. So that’s going to grow too as world gets flatter, and we are getting some more of global economy. That’s going to naturally happen and we are in a position to take full advantage.

Unidentified Analyst

The double digit commercial growth has been in large part driven by what’s going on with that rest of the world dynamic as there is systemic change for distribution?

Randy Snyder

It’s a combination of that and just generally speaking build rate increasing, demand being higher, and yes, combination of those things.

Unidentified Analyst

Just one on Haas, I was wondering does that have MRO relationship as well, is it a business that has a lot of penetration to MRO or do you see yourself opening doors for Haas or more vice versa?

Randy Snyder

On the MRO side, we will be opening the door for Hass. But by the way it’s just – also they do have – they do have some customers on either on the MRO side that we don’t have bigger presentation in it yet. So it’s still even at that low end of the market place, low in terms of size of business, there is some opportunity for both.

Operator

We would like to thank our participants for attending. I will now turn the call over to Greg Hann for closing remarks.

Greg Hann

Well, thank you everybody for your participation in today’s call and we look forward to speaking with you again next quarter. Thanks a lot.

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Wesco Aircraft Holdings (WAIR): FQ1 EPS of $0.27 misses by $0.02. Revenue of $224.7M (+6.4% Y/Y) misses by $8.15M.