Q4 2021 HEICO Corp Earnings Call
[music].
Yeah.
Welcome to the HEICO Corporation fourth quarter and full year fiscal 2021 financial results call. My name is rents and I'll be your operator for today's call.
Certain statements in today's call will constitute forward looking statements, which are subject to risks uncertainties and contingencies.
Heico's actual results may differ materially from those expressed in or implied by those forward looking statements as a result of factors including.
The severity magnitude and duration of the COVID-19 pandemic.
Heico's liquidity and the amount and timing of cash generation.
Lower commercial Eric shovel caused by the COVID-19 pandemic and its aftermath.
Airline fleet changes or airline purchasing decisions.
Which could cause lower demand for our goods and services.
Product specification costs and requirements, which could cause an increase our costs to complete contracts.
Mental and regulatory demands export policies and restrictions.
Reductions in defense space or homeland security spending by U S and our foreign customers or competition from existing and new competitors.
Which could reduce our sales our ability to introduce new products and services profitable pricing levels, which could.
Could reduce our sales or sales script.
Product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales our ability to make acquisitions and achieve operating synergies from acquired businesses.
Customer credit risk interest.
Foreign currency exchange and income tax rates.
Economic conditions, including the effects of inflation within and outside of the E V Xing defense space Medical Telecommunications and electronics industries.
Which could negatively impact our costs and revenues and defense spending or budget cuts, which could reduce our defense related revenue.
Parties listening to this call are encouraged to review all of Heico's filings with the Securities and Exchange Commission, including but not limited to filings on Form 10-K.
10-Q, and form 8-K, we undertake no obligation to publicly update or revise any forward looking statement.
Whether as a result of new information future events or otherwise.
Except to the extent required by applicable law.
So it began to call now I turn the call over to Lawrence Mendelsohn, Heico's, Chairman and Chief Executive Officer.
Thank you Randy and good morning to everybody on this call. We thank you for joining us and we welcome you to heico's fourth quarter and full year fiscal 'twenty, one earnings announcement teleconference, I'm, Larry Mendelson, Chairman and CEO of HEICO Corporation, and I'm joined here this morning by Eric.
Olson Heico's co president and President of Heico's flight support group Victor.
Victor Mendelson Heico's co President and President of Heico's, Electronic technologies group, and Carlos Macau, Our executive Vice President and CFO.
Before reviewing operating results in detail I'd like to take a moment to thank all of heico's talented team members for delivering another outstanding year.
Our continued focus on exceeding customer expectations and operational excellence has translated into another year of outstanding results for shareholders. I am encouraged that our success will continue into the next fiscal year and that will be driven by the confidence and respect that I.
All of Heico's exceptional team members now summarizing the highlights of our fourth quarter and full year fiscal results. We are pleased to report much improved quarterly operating results.
Within both flight support and electronic technologies consolidated operating income and net sales in the fourth quarter of fiscal 'twenty, one improved 29, and 20% respectively as compared to the fourth quarter of fiscal 'twenty one.
Our performance principally reflects quarterly consolidated organic net sales growth of 16% and the favorable impact from our fiscal 'twenty, one and 'twenty acquisitions.
The flight support group reported quarterly increases of 126% and 34% in operating income and net sales, respectively as compared to the fourth quarter of fiscal 'twenty.
These substantial increases principally reflect increased demand for the majority of our commercial aerospace products and services.
<unk> from some recovery in global commercial air travel as compared with the prior year.
This marks the fifth consecutive quarter of sequential growth in net sales and operating income at the flight support group.
E T G reported quarterly increases of 7% and 4% in net sales and operating income respectively.
Compared to the fourth quarter of fiscal 'twenty.
These record results principally reflect the impact from our profitable fiscal 'twenty, one and 'twenty acquisitions as well as strong organic net sales growth for the majority of our products.
Our total debt to shareholders' equity improved to 10, 3% as of October 31, 21, and that compared to 36, 8% as of October 31 'twenty.
Our net debt, which is total debt less cash and cash equivalents of $128 2 million as of October 31, 'twenty, one compared to shareholders' equity ratio improved to a very low 5.6% as of October 30.
121, and that was down from 16, 6% as of October 31 'twenty.
Our net debt to EBITDA ratio improve 2.26 times as of October 31, 21, and that was down from 0.71 times as of October 31, 20 <unk>.
During fiscal 'twenty, one we successfully completed six acquisitions and we have no significant debt maturities until fiscal 'twenty four.
We plan to use utilize our financial strength and flexibility to aggressively pursue high quality acquisitions of various sizes to accelerate growth and to maximize shareholder returns.
Cash flow provided by operating activities remain strong totaling about $110 million in both the fourth quarter of fiscal 'twenty, one and 'twenty.
Cash flow provided by operating activities increased 9% to $444 1 million in fiscal 'twenty, one and that was up from $409 1 million in fiscal 'twenty.
I'd like to now discuss acquisition recent acquisition activity.
In October 21, we acquired all of the outstanding stock of passive wave.
Which is a designer and manufacturer of radio frequency and microwave components and integrated assemblies specializing particularly in pin diode switches pin attenuators pin limiters switching assemblies and integrated sub systems.
Found in defense and other complex electronic applications patchy wave as part of the Atg group and we expect this acquisition to be accretive to our earnings per share within the first 12 months following closing.
In September 21, we acquired 81% of the stock of our H labs, which designs and manufactures state of the art radio frequency and microwave integrated assemblies sub assemblies and components used in a broad range of demanding.
Defense applications operating in harsh environments, including space.
The remaining 19, 9% interest continues to be owned by certain members of our H Labs management team.
Our H is part of the T. G group and we expect this acquisition to be accretive to our earnings per share within the first 12 months following closing.
As I discussed during the third quarter earnings teleconference, and August 21, we acquired 89% of the equity interest of ridge, holding Holdco, which owns all of ridge engineering and victim company.
They performed tight tolerance machining and raising of large sized parts in mission critical defense and aerospace applications.
<unk> provides machining fabricating and welding services for aerospace defense and other industrial applications.
The remaining 11% interest continued to be owned by certain members of bridges and excellent management teams. These companies are part of flight support group and we expect the acquisitions of these companies to be accretive to our earnings per share within the first 12 months following closing.
Later on we will comment on the pipeline for acquisitions, which at this moment I can tell you is very strong and we're optimistic on that score and the outlook for additional acquisitions, we cannot predict with certainty when they will be close because we are in.
Substantial do due diligence.
At this time I'd like to introduce Eric Mendelson co President of HEICO, and President of Heico's flight support group and he will discuss the results of the flight support group. Thank you.
The flight support group's net sales increased 34% to $264 million in the fourth quarter of fiscal 'twenty, one up from $193 6 million in the fourth quarter of fiscal 'twenty.
The net sales increase in the fourth quarter of fiscal 'twenty, one is principally from organic growth of 28% as well as the impact from our profitable fiscal 'twenty one acquisitions.
The organic growth is mainly attributable to increased demand for our commercial aerospace products across all of our product lines. The.
The flight support group's net sales increased to $927 1 million in fiscal year 'twenty, one up from nine.
<unk> hundred $24 8 million in fiscal year 'twenty.
The net sales increase in fiscal year 'twenty, one principally reflects the impact from our profitable fiscal 'twenty, one and 'twenty acquisition.
Partially offset by lower demand for the majority of our commercial aerospace products and services, resulting from a decline in global commercial air travel attributable to the pandemic.
The flight support group's operating income increased 126% to $48 6 million in the fourth quarter of fiscal 'twenty, one up from $21 5 million in the fourth quarter of fiscal 'twenty. The.
The operating income increase in the fourth quarter of fiscal 'twenty. One principally reflects the previously mentioned net sales growth and an improved gross profit margin.
The improved gross profit margin principally reflects the higher net sales a more favorable product mix across all of our product lines and a decrease in inventory obsolescence expense the flight.
Support group recognized higher inventory obsolescence expense in the fourth and third quarters of fiscal 2020, following the announced retirement of certain aircraft types and engine platforms by our commercial aerospace customers due to the pandemic financial impact.
The flight support group's operating income increased 6% to $151 9 million in fiscal year 'twenty, one up from $143 1 million in fiscal year 'twenty.
The operating income increase in fiscal year 'twenty, one principally reflects lower bad debt expense due to certain commercial aviation customers filing for bankruptcy protection in fiscal 'twenty as a result of the pandemic financial impact. The previously mentioned decrease in inventory obsolescence.
Since expense and an improved gross profit margin, partially offset by higher performance based compensation expense.
The flight support group's operating margin.
Improved to 18, 7% in the fourth quarter of fiscal 'twenty, one up from 11, 1% in the fourth quarter of fiscal 'twenty. The operating margin increase in the fourth quarter of fiscal 'twenty. One principally reflects the previously mentioned higher net sales improved gross profit margin.
Lower inventory obsolescence expense.
The flight support group's operating margin improved to 16, 4% in fiscal year 'twenty one.
From 15, 5% in fiscal year 'twenty.
The operating margin increase in fiscal year 'twenty, one principally reflects the previously mentioned lower bad debt expense and inventory obsolescence expense, partially offset by higher performance based compensation expense.
Now I would like to introduce Victor Mendelson co president of HEICO and President of Heico's Electronic technologies group to discuss the results of the electronic technologies group.
Thank you the electronic technologies group's net sales increased 7% to a record $253 million in the fourth quarter of fiscal 'twenty, one up from $236 $7 million in the fourth quarter of fiscal 'twenty. The net sales increase in the fourth quarter of fiscal 'twenty, one principally <unk>.
<unk> from organic growth of 5% as well as the impact from our fiscal 'twenty, one and 'twenty acquisitions, the organic growth principally reflects increased demand for our other specialized electronic medical and commercial aerospace products, partially offset by lower defense products net.
Sales in some subsidiaries.
The electronic technologies group's net sales increased 10% to a record $959 $2 million in fiscal 'twenty, one up from $875 million in fiscal 'twenty.
The net sales increase in fiscal 'twenty, one principally reflects our fiscal 2020, one acquisitions as well as organic growth of 3% organic growth was mostly driven by increased demand for our other specialized electronic and medical products, partially offset by decrease.
<unk> commercial aerospace and space products net sales.
The electronic technologies group's operating income increased 4% to a record $76 9 million in the fourth quarter of fiscal 'twenty, one up from $73 9 million in the fourth quarter of fiscal 'twenty. The operating income increase in the fourth quarter of fiscal 'twenty, one principally reflects the previous.
We mentioned net sales growth, partially offset by a lower gross profit margin mainly from lower net sales of defense products.
Shelley offset by an increase in net sales of other specialized electronic commercial aerospace and medical products. The electronic technologies group's operating income increased 7% to a record $277 $3 million in fiscal year 'twenty, one up from $258 eight.
In fiscal 'twenty.
Operating income increase in fiscal year 'twenty, one principally reflects the previously mentioned net sales growth.
Can we offset by a lower gross profit margin, mainly from a decrease in defense and space products net sales, partially offset by the increase in other specialized electronic products net sales.
The electronic technologies group's operating margin was a very strong 34% in the fourth quarter of fiscal 'twenty, one as compared to 31, 2% in the fourth quarter fiscal 'twenty.
The operating margin decrease in the fourth quarter of fiscal 'twenty. One principally reflects the previously mentioned lower gross profit as well as higher performance based compensation expense.
The electronic technologies group's operating margin was 28, 9% in fiscal year 'twenty, one as compared to 29, 6% in fiscal 'twenty. The operating margin decrease in fiscal 'twenty, one full year principally reflects the previously mentioned lower gross profit margin.
Turn the call back over to Larry Mendelson.
Thank you Victor.
Moving on to earnings per share.
Consolidated net income per diluted share increased 38% to $62 <unk> in the fourth quarter of fiscal 'twenty, one and that was up nicely from 45 in the fourth quarter of fiscal 'twenty. The increase in the fourth quarter of fiscal 'twenty, one principally reflects previously.
Mentioned higher operating income at both operating segments.
Consolidated net income per diluted share was $2 21, and fiscal 'twenty, one and that compared to $2 29 in fiscal 'twenty. The.
The decrease in fiscal 'twenty, one principally reflects higher income tax expense, partially offset by previously mentioned increase in the operating income of atg in flight support and lower interest expense.
Depreciation and amortization expense totaled $24 2 million in the fourth quarter of fiscal 'twenty. One that was up slightly from $23 3 million in the fourth quarter of fiscal 'twenty and totaled $93 million in fiscal 'twenty, one which was up slightly from $88 6 million in fiscal.
20.
The increase in fourth quarter and fiscal 'twenty, one principally reflects incremental impact from our fiscal 'twenty and fiscal 'twenty one acquisition.
Yeah.
Research and development expense increased to $16 7 million or three 3% of net sales in the fourth quarter of fiscal 'twenty, one and that was up slightly from $16 6 million or three 9% of net sales in the fourth quarter of fiscal 'twenty.
R&D expense increased to $68 9 million or three 7% of net sales in fiscal 'twenty, one and that was up from $65 6 million.
Again, three 7% of net sales in fiscal 'twenty.
Has traditionally has been the case significant ongoing new product development efforts are continuing at both electronic technologies in the flight support groups.
SG&A expense.
Was $89 5 million in the fourth quarter of fiscal 'twenty, one and that compared to $72 6 million in the fourth quarter of fiscal 'twenty.
The increase in consolidated as COO.
G&A expense in the fourth quarter of fiscal 'twenty, one principally reflects higher performance based compensation higher other SG&A expenses high.
Higher selling expenses as well as the impact from our fiscal 2020, one acquisitions, partially offset by lower bad debt expense. Our consolidated SG&A expenses were $334 5 million in fiscal 'twenty, one and that compared to $305 5 million.
In fiscal 'twenty.
The increase in consolidated SG&A expense in fiscal 'twenty, one principally reflects higher performance based compensation expense as well as the impact from our fiscal 2020, one acquisitions again, partially offset by a reduction in bad debt expense.
The company recognized higher bad debt expense in fiscal 'twenty due to potential collection difficulties from certain commercial aviation customers that filed bankruptcy protection during fiscal 'twenty and that was the result of the pandemic financial impact on those airlines.
Consolidated SG&A expense as a percentage of net sales was 16 17, 6% in the fourth quarter of fiscal 'twenty, one that was up slightly from 17% in the fourth quarter of fiscal 'twenty again consolidated SG&A expense as a percentage of net sales was <unk>.
17, 9% in fiscal 'twenty, one compared to $17 one in fiscal 'twenty.
The increase in consolidated SG&A expense as a percentage of net sales in the fourth quarter and fiscal 'twenty. One principally reflects the previously mentioned higher performance based compensation expense, partially offset by lower bad debt expenses.
Interest.
Expense.
Kris to $1 million in the fourth quarter of fiscal 'twenty, one that was down from $2 5 million in the fourth quarter of fiscal 'twenty that decrease was principally due to a lower weighted average balance of borrowings outstanding under our revolving credit facility.
Interest expense decreased to $7 3 million in the fiscal year 'twenty, one down from $13 2 million in fiscal 'twenty that decrease was principally due to lower weighted average interest rate as well as a lower weighted average balance of borrowings outstanding under.
Our revolving credit facility.
Other income in the fourth quarter of fiscal 'twenty, one and fiscal year 'twenty, one was not significant.
Moving onto comments about income taxes, our effective rate in fiscal 'twenty, one was 14, 8% as compared to seven 9% in fiscal 'twenty.
As previously discussed in prior quarterly teleconference is HEICO recognized a larger discrete tax benefit from stock option exercises in the first quarter of fiscal 'twenty compared to 21 in.
And that accounted for a majority of the increase in the effective tax rate.
Furthermore, our effective tax rate in fiscal 'twenty, one reflects the favorable impact of higher tax exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Corporation leadership compensation plan.
Our effective tax rate was 18, 3% in the fourth quarter of fiscal 'twenty, one down from 22, 3% in the fourth quarter of fiscal 'twenty and the decrease principally reflects the favorable impact of higher tax exempt unrealized gains in cash surrender values of life insurance policies.
Again related to the HEICO Corporation leadership compensation plan.
Income attributable to Noncontrolling interest was $7 3 million in the fourth quarter of fiscal 'twenty, one and that compared to $5 3 million in the fourth quarter of fiscal 'twenty.
The increase in net income attributable to Noncontrolling interest in the fourth quarter of fiscal 'twenty one.
Simply reflects an increase in the operating results of certain subsidiaries of the flight support group in which Noncontrolling interests are held net income attributable to Noncontrolling interest was $25 5 million in fiscal 'twenty, one that compared to 21 9 million and fish.
2020.
That increase in net income attributable to Noncontrolling interest in fiscal 'twenty, one principally reflects higher allocations of net income to Noncontrolling interest as a result of certain fiscal 2020, one acquisitions as well as an increase in the operating results of certain.
Areas of flight support and <unk> in which Noncontrolling interests are held.
For the full fiscal year 'twenty, two we anticipate a combined tax and noncontrolling interest rate as a percentage of net income to be approximately 25% to 27%.
Yes.
Moving onto our balance sheet and cash flow as we previously mentioned cash flow provided by operating activities remained strong.
At $110 million in both the fourth quarter of fiscal 'twenty, one as well as 'twenty cash flow provided by operating activities increased 9% to $444 1 million in fiscal 'twenty, one and that was up from $409 1 million in fiscal 'twenty.
Our working capital ratio current assets divided by current liabilities was three two.
October 31, 'twenty, one compared to four eight as of October 31, 2000 feet.
Dsos of receivables improved to 44 days as of October $31 21, compared to 45 days October 31 'twenty we.
We continue to closely monitor receivable collection efforts in order to limit our credit exposure.
No one customer accounted for more than 10% of net sales and our five customers represented approximately 22 and 24% of consolidated net sales in fiscal 'twenty, one 'twenty respectively.
Inventory turnover rate was 153 days for the year ended October 31, 'twenty, one as well as October 31 'twenty.
The outlook.
As we look ahead to fiscal 'twenty, two we expect the commercial air travel recovery to continue particularly in certain domestic travel markets, well, perhaps slightly less so than international markets.
Even though the pandemic will likely continue to adversely affect commercial aerospace industry as well as heiko.
International markets have not recovered to the extent of domestic markets and while we are very confident of their future recovery and the potential sales increase timing at this moment is uncertain.
We said basically the same thing last year, and we were proven correct and we're predicting the same thing this year.
We remain cautiously optimistic that the ongoing worldwide COVID-19 vaccine rollouts, including boosters will continue to positively influence commercial air travel and benefit the markets we serve.
As we have all continued to see and learn its difficult to predict the pandemic path in effect, including factors new factors, such as new variance vaccination rates, which can all impact our key markets, where also government activities government shutdowns and travel restrictions.
And everything under the Sun.
Therefore, we feel it would not be responsible to provide fiscal 'twenty two net sales and earnings guidance at this time.
But our ongoing conservative policies extremely strong balance sheet high degree of liquidity enable us to invest in new research and development.
And to execute on our successful acquisition program and position HEICO for market share gains.
I would like to end my remarks by again thanking our team members for their continued support and commitment to HEICO. During these professionally and personally challenging times. Our executive team continues to be focused on your safety in Europe professional success.
Collectively we believe we've had great success in 'twenty, one and we look forward to all the opportunities ahead in fiscal 'twenty. Two so that's the extent of our prepared remarks and I'd like to open the floor for questions.
Thank you at this time I would like to take any questions you might have for us today.
I would like to ask a question simply press star one on your telephone keypad.
That would be star one on your telephone keypad.
We have our first question from the line of beat Kubicki with Alembic.
Your line is now open.
Hey, good morning, everyone.
Good morning.
Guys I wanted to ask about supply chain issues you seem to be.
Avoiding some of the worst case issues that some of your peers are having.
With regard to things like sourcing semiconductors, and even sourcing labor.
Are you guys seeing any issues like that at all.
So how have you been able to kind of mitigate the impact.
Hey.
Pete.
Eric speaking thanks for your question.
With regard to that we've been able to handle it I think that heico's model of decentralized approach to business, where we've got entrepreneurial people running these businesses running all the functions within the businesses. It's their responsibility to figure out how to get it done and you can see from the fourth quarter numbers they've done that now.
Obviously, its becoming a bigger challenge we all read about that in the newspaper and there definitely will be bumps in the road. We've seen prices go up we've seen shortages in various areas, but we are just dealing with it and.
Frankly, the numbers would have been the sales and the earnings would have been even better had we not had some of this but I think we're over overall, we are optimistic that we're going to be able to manage it but and then Victor can.
Update on the electronic technologies group overall.
Overall the situation as you know we've talked about in prior calls it's been manageable.
With very limited shipping delays for us out to our customers and so I'm very proud of how our customers were prepared for this and have responded to it.
Some subsidiaries are seeing minimal to no impact, while it's more pronounced than others. So it really varies across the business.
Companies generally.
<unk> generally entered this shortage with sufficient stock.
And were ordering ahead.
Which is really as Eric pointed out a benefit of our decentralized model, where our subsidiaries decide what to do is as you have heard say on this call before these calls.
Not a big believer in just in time inventory management, and we let our companies decide what they need to have and to project and that's worked out very well.
I would expect maybe it becomes a little more pronounced as we get into 'twenty two but we've found that we have a lot of ways to deal with it some of our companies have been able to design around with replacement components as well.
And the lead times vary by subsidiaries, but overall, we've been able to manage those pretty well I'll just make a comment too because the natural follow on to that as well are you seeing price increases on your components and on your material.
The answer to that of course is yes, we're like everybody else you read.
In the newspapers.
Where I think we've managed those pretty well somehow.
Sometimes those price increases are fairly low sometimes they're much more again, depending on the product and the subsidiary.
But generally speaking our customers understand that they are seeing this across their supply chains and they are dealing with it in their own pricing. So they've accepted where we've adjusted prices and I expect that we'll have to continue to do that.
And that of course.
We will continue over the year ahead of course as an aside it is very important for us to keep offering this great value proposition.
That we offer and so we're not doing is taking advantage of our customers for it we're making sure that we continue to offer an excellent value, but we do expect to be compensated for our cost increases as well as to sustain our margins.
On those increases and also peak just to close this is Eric again.
We have a number of our team members on the call and I want to call them out specifically for their outstanding effort and results and dedication in making this happen.
HEICO, while we're not afraid to invest in inventory we have.
Got very acceptable inventory turns and I think unlike our many other peers and competitors in the industry HEICO did not take a big onetime inventory reserve in 2020, especially inventory reserve like so many other companies did.
And we are able to support our customers by having proper and I would say lean inventories because we buy the right stuff.
And I think that is very very rare in industry. Today are people working extraordinarily hard to make sure. They buy the right stuff and if you look across the industry. There are plenty of companies who take the big one time charges in a blame it on all sorts of one February.
10 year event like a financial crisis, or Covid or 911 are all sorts of things that happen and if you look back at Heico's history over the last 32 years never have we taken such a charge. We had yes, we do have inventory obsolescence and we handle that within our normal results. So again.
Really Jane I get very.
<unk> and passionate about this because our people really do a phenomenal job by focusing on the details making sure. We got the right parts on the shelf and we don't take these big onetime charges, whereas it seems to be standard in the industry outside of HEICO.
Yes, that's fair.
Very helpful guys I really appreciate it maybe one last quick one for me, maybe maybe just one more for Eric.
This omicron variant is just seem so recent almost surely after the quarter closed just because you can you give us a sense if you've gotten any feedback from your customers yet about how that could impact kind of kind of near term demand is it having any impact at all or it's really kind of a black box right now I think so we'd love to get your fee.
Back.
Yeah, I did it's a great question and I am sure people.
It's a burning question people want to know what's going on with that I did.
Quarterly reviews with our sales heads last week and as of last week, we did not see an impact.
However, I don't think you have the.
Really be a genius to figure out that this is going to impact the industry in some way I think it's reasonable to assume that it will.
And.
We are prepared for it.
But I think things were still very very optimistic there is a lot of growth potential because not all of our markets have recovered. So we still have a very big potential in the international markets in particular in Asia and to a lesser extent in Europe, and South America to see recovery.
So I think that we've got plenty of.
If you will green shoots ahead of us, but theres no question that the omicron.
Hi.
We'll hold back the industry will have to see really what happens over the coming.
Days and weeks due to the severity and.
<unk> of the variant.
But again, we think that with heico's structure.
Strong capital structure as well as really focusing on the customer focusing on the details that we're going to be fine and we're just going to get right through this and this is really just going to be business as usual I mean, theres no reason to think that.
This virus is going to disappear anytime soon and we just got to be ready in heico's resilient and we'll handle it and our people are very resilient. So.
It's not going to hold us back.
Great great. Thanks, so much for the context guys. Thanks.
Thanks.
Thank you. Our next question comes from the lineup.
There are men with Baird. Your line is now open.
Yeah. Thanks, Good morning, Larry Victor Carlos Good morning.
Yeah happy holidays to everyone I hate Carlos I guess I made me Wonder I wanted to start with you really just.
If we could talk a little bit just about incremental margins I know.
But if you look at <unk> I think we finished the year in the kind of the mid <unk> percentage wise CTG in the low twenties do you expect how should we think about kind of.
What would a good normalization rate is for for both segments did they both trend back to the low thirty's or any puts and takes we should be thinking about.
Well I think that is.
As far as 21 wins.
Not really surprised with with how the segments performed.
As we've talked about in the past the SSG is on a glide path, we're not expecting huge incremental bumps in their oi percentage of revenues, we're expecting more of a glide path back up to <unk>.
Pre pandemic levels.
Pre pandemic levels, we expected the ssg's operating margin to approach, 20% and I think that that's our target that's where we're heading back to and then from that point forward, we ought to see what history has told us that the segment has.
Growth leverage if you would on their on their cost base and you Eke out a little improvements in the margin as you go along and pile up more sales so.
In my opinion, I think thats the direction, we're heading with the SSG.
<unk> is a very mix sensitive.
<unk> and.
The margin can bounce around this year, we posted 30% margins and I'm tickled to death with our fourth quarter performance, but we could easily have posted lesser more is that mix sensitive and it's very acquisition sensitive so.
On an annual basis, it's really hard to predict with great degree of certainty where that margin could be I would tell you that.
If it's.
It's been 27% to 30% for a long time I expect it to stay within that bandwidth.
But during quarters, it could vacillate and it could be due to two things such as acquisitions. For example, if we bought a company with a 22% operating margin assume as an investor you would be very happy with us, but that would be dilutive to the overall segment margin.
As long as it is still a ton of cash would be indifferent to that but we'd get questions about the margin right. So that's how we're approaching it and by the way the alternative could have like a back of a 40% margin and it can pull it up so so that that is what I believe the future holds for the atg.
We principally look at it as a cash return segment, the EBIT margin and EBITDA margin in that segment is fantastic. It's in the low thirties and I believe that will continue.
Does that help.
That's very helpful. I appreciate that and then maybe just as a quick follow up Eric.
Maybe you could just talk about maybe any or what youre seeing out of your larger customers I know that.
<unk> I think.
Kind of a handful of customers representing at least a quarter or a 30 year sales. So maybe what youre seeing there and the opportunities for you guys to continue to grow share.
It's a great question and so I met with our folks last week, and we're doing extraordinarily well with our top customers that actually as a matter of fact, I think we're doing extremely well with all of our customers.
They seem to be the pandemic to be more committed than ever to her.
Heiko I think we've supported them extraordinarily well, we maintained our new product development.
We maintained our workforce we maintained.
Our standard development rates, so we're satisfying them with all sorts of new end.
Product adjacency products.
So there.
They are extremely supportive of us so I feel I feel very good and I think that we are growing market share with them and with everybody.
I don't know if thats sort of the color that you were looking for I don't know anything else you'd like to know please let me know.
No that's helpful. Eric I appreciate it thanks for all the details guys.
Thank you.
Thank you. The next one we have the line of Larry Solow with CJS Securities. Please go ahead.
Great. Good morning, guys and thanks for a good quarter and thanks for taking the questions.
Just a couple of sort of follow ups, obviously, the macros still some crosswinds there, but it does look like passenger traffic as you mentioned continues to to recover a fairly consistent basis, just trying to gauge the pace of recovery within HEICO. Obviously, it seems like you guys are.
Certainly a little bit ahead of you still behind 2019 levels pre pandemic, but your recovery seems to be a little bit ahead of.
The general market, so just trying to.
<unk>.
What you're seeing from customers.
Market share gains and your expectations going forward, particularly on the on the PMA side.
Yes, a great question, Larry we do continue to see market share gains I can tell you that our people are extremely bullish in 32 years of doing this I've never seen a group more pumped up about the future.
Ben.
Folks I met with last week, we went over things in great detail.
They are extraordinarily bullish.
They are also bullish because there is plenty of opportunity out there there are areas that haven't recovered yet.
And we're optimistic that we're going to see recovery in some of those areas in 2022.
And our customers are really encouraging us to produce more and to do more and develop more so.
I would say the.
The future outlook is very very good when you go through a crisis like this.
There is no logical reason why people should buy more from US I mean, where we have the best customer service and we've got the most competitive prices and it's from a company with $18 billion market cap, so you're not dealing with a little startup youre dealing with somebody who can go ahead and invest to put the right inventory on the <unk>.
<unk> and pay people and develop product stand behind that product. So I think frankly, the windows to heico's background.
And I would anticipate that that's going to continue.
Im very bullish about <unk>.
Very bullish for the future.
That's with specifically with the aftermarket with the with our businesses that are more exposed to the OEM build cycle we.
We have not seen as much of a recovery in those areas and frankly that provides also a great optimism and potential for the future because those markets have not recovered. If you look narrow body market has an expected on the newbuild side to recover until pick a year 2020 for say and on the wide body.
Until maybe 2028.
And of course, the wide body peaked.
The Newbuild production I think peaked back into 2015 area. So I think we've got plenty of upside in those markets as well our people have worked extraordinarily hard.
Of course across all of our businesses.
And the ones that are more OEM exposed have not seen the success that the ones that had been more aftermarket exposed FC.
So I know that they are working extremely hard they're pumped up they see it's coming down the road, but.
We got to hang in there and.
Of course with HEICO at our <unk>.
Strong.
Strong levels.
Long levels of sales and customer relationships and customer service and basically no debt.
I think we're in a <unk>.
Very good position to take advantage of all this.
Alright, I appreciate that color how about just Eric what why you got the Mike just on the sort of I know, you're not giving guidance, but near term I know usually sort of your Q1, you get the seasonal slowdowns.
It's a peak season, obviously most plans are.
Getting out in the air.
Only the real need of maintenance.
So we see that slowdown do you expect that this quarter or is it.
Seasonality, a little bit skewed because of you know.
The overall ramp in spending and whatnot.
Yes, Thats a good question.
I'm not trying to not answer it but right.
I really don't know I mean I think.
My sense is it's going to be fine, but yes, youll see that traditional seasonality and of course, the omicron isn't going to help things.
So my guess is that you would see it but that truly is.
Our guests and not based on sales through 45 days into that into the quarter, but instead just based on having done. This for so many years, yes, I think youll see the seasonality.
It should be standard in that regard.
Got you and then just one quickly for Victor it sounds like just.
At least this quarter, maybe the last couple of quarters.
Defense and space sort of flattish and a lot of your growth has been coming from the medical and the other electronics and industrial piece, which I know it's been really strong is that sort of where you think sort of without really giving guidance, but from a high level 22, what kind of shape out with some more trends.
Yes.
Gary So.
You may recall in a couple of the last calls I had mentioned that in our specialized electronic high end electronic and other markets were strong for us and I expected that to continue.
And I would expect that to continue into.
<unk> 22 based on the comments that we.
The budgets around it.
Received from our subsidiaries.
In terms of defense is I've also talked about in the number of the calls we kind of expected that to flatten out may be turned down a little bit and I I would.
Spec to see that trend continue.
Continue.
At least in the near term.
And I think commercial space.
Probably it's a little early to say for sure but.
I would say that that trend is more flattening in after we've had a lot of strength there.
Okay got you great. Thanks, so much guys I appreciate it.
Okay.
Are there any other questions.
The next one we have the line of Kristine <unk> with Morgan Stanley. Your line is now open.
Hey, guys. Thank you for the question here.
I guess looking at the M&A pipeline.
Hello, Mccahon affected the opportunities you're seeing are you seeing more opportunities or less opportunities as we kind of see this uncertain period for long.
So the answer is I don't think umber Crown has affected this at all we have a very strong pipeline in a matter of fact, we would have to say, it's almost too strong because we are wrapped up and doing due diligence constantly we have a number of transactions that are in the pipeline as you know we can't predict.
If there is going to close and I mean, historically, if we go by past experience. We know most of them probably will close but we.
We can't guarantee it but I think the ones. We are looking at are all well within heico's normal pricing.
The fact that we would expect them to be accretive in the first year and so forth if they close.
And there are plenty of opportunities out there. So I don't think we've seen any change because of <unk>.
This situation.
Great. Thanks, and then maybe a question for Victor Victor on space can you speak to any trends that Youre seeing and then also we've seen more space company successfully raised capital and then you have this back in the past few months does that increase the addressable market for you, especially now you've got this new pool of <unk>.
Customers that could potentially pay their suppliers.
Kristine its a very good question, we think it does increase our potential.
Potential market.
And we are dealing with.
Some of these companies the key of course is to be able to do it profitably and to do it in a production rate that that makes sense for our businesses and that's in space that is always a challenge and so.
So at this point I would say in terms of the your question on trends then.
Trends overall I would expect to see more of these smaller or start up businesses addressing newer parts of the market.
And hopefully that gives us some some more opportunity on some of our higher end products in particular, where we're not interested really in going.
Is down to the lower end.
The market just to capture sales.
Great. Thank you very much and I hope you guys have a great holiday.
You too thank you.
Thank you. The next the next one we have the line of Robert Pollard with vertical research. Please go ahead. Thanks.
Thanks, so much good morning.
Good morning, Robert.
Maybe if you could go back to the share market share situation and I was wondering if there was any particular product areas or aircraft types, where you're seeing more success than others.
Yes, I would say that it really is pretty much across the board Rob.
It.
We're seeing it in all of our traditional and historic markets.
I would I would just say that it's very broad based as you know.
To go into specifics with regard to customers geography product types.
As we've got competitors on the call.
And I'm sure you and our investors recognize and appreciate that but it is it is very broad based I would say it's across all of our all of our product types and really in all geographies.
And then the.
M&A pipeline it sounds like at the moment, but I was wondering if there's any way.
Waiting.
On the flight support group versus the electronics are they both seeing a lot of interest.
I think they are both very strong both both businesses are very strong we're very busy in each area and <unk>.
Fortunately HEICO has got the firepower, we can afford to.
Deploy capital in both so it's not mutually exclusive.
It's really more opportunistic.
Okay. That's great. Thank you very much.
Thank you.
Thank you. The next one we have Ken Herbert thing with RBC capital markets. Please go ahead.
Sure.
Yes, hi, good morning, everybody.
Good morning.
Hey, Eric I wanted to just start with you first I wanted to follow up on the comments and everything we're seeing regarding the faster recovery for domestic travel versus international travel is it fair to say that when you look at your airline customers here in the United States or North America and Europe.
Their maintenance spending with you for their domestic fleet in 2020 to your fiscal 'twenty two can be back to sort of pre COVID-19 levels. I mean, how do we think about the business recovery for you and the timing for you know predominantly the narrow body versus wide body or domestic versus international fleets.
Yes, great Great question Ken.
I would say.
I don't think it's likely that the domestic.
Narrow body will be back to 19 levels in 'twenty two if it is I think it's more towards the end of 'twenty two we're doing extremely well.
But I want to be really careful.
Not to get ahead of ourselves here.
There are certain fleets that have been retired so that's going to be a bit of a headwind.
So maybe if it happens it's by the end of the year, but it certainly.
Okay.
At this point not anticipating that the domestic narrow body and be back.
The levels that it was at in 19.
I think 2023 is probably a more reasonable guests and you know I think we've got to be a conservative I mean with regard to omicron.
Who knows what comes next.
But.
We're assuming that this virus is going to be here for a while and we're going to have to everybody who is going to have to live with it. So.
Think that Thats, probably a more prudent thing in terms of the international.
Asia is still <unk>.
Very low.
And Europe is.
Likewise also stir.
Struggling more so than the.
North American market. So I do think that we've got.
Good upside potential in those markets.
Okay. Thanks for the detail there as you look at I wanted to ask you about your cargo exposure I mean cargo has clearly been on air cargo very strong obviously through this downturn.
The cargo fleet tends to be older tends to represent roughly sort of 10% of the total fleet for the larger aircrafts.
Or was your cargo exposure and can you comment about that.
If that's maybe a nice opportunity, where you're seeing greater growth or how do we think about you relative to the cargo markets.
Yes, another great question, we're doing very well in the cargo market.
Very strong.
For all of the obvious reasons, we anticipate that that is going to continue the cargo market should continue to stay strong as a result of that.
The question's going on out there we've got very good relationships with those customers.
We offer a very broad product line. So I have to say IPO I feel really good about the.
The cargo markets.
So if you have any okay and if I can.
Do you have any friends that are running this cargo.
Companies make sure they know that they can save a lot of money with HEICO and that if you want to still get free delivery with your purchases. They should come look to HEICO for some solutions.
Absolutely definitely pass pass it on if I could just one final question for you Eric.
Obviously, the trend line would imply that you sort of get back to 20%.
EBIT margins at some point in fiscal 'twenty, two just looking at the strong performance of the business is there any reason at some point. This year you don't hit that level or are there other maybe headwinds we should keep in mind as we think about sort of modeling out our segment margins for you.
Kenneth Carlos let me take out one.
As we're sitting here today.
Other than time, Theres, no real headwind that I see I mean, both of the all three of the product divisions, if you would within flight support.
Are doing quite nicely as Eric said, you know the specialty products group is lagging a bit for the OEM cycle I do think that.
That once we get back to the 19 levels and then the key the key is back to the 19 levels. Once we get to that point, we ought to start approaching that 20% margin as Eric just mentioned.
We want we're not real sure if we're going to see that in 'twenty two.
But once we do I feel very strongly that we ought to be at those levels. So it's a timing issue cannot.
Not an impediment to getting there is just time.
Perfect. Thanks, Carlos nice quarter, Thanks, guys.
Thanks, Ken Thanks, Ken.
Thank you. The next one we have the line Michael <unk> with <unk> Securities. Please go ahead.
Hey, good morning, guys nice results and thanks for taking the questions.
Maybe.
Eric or Carlos just to stay on Ken's line of questioning there on the domestic versus international.
I think Carlos you May have mentioned or maybe it has come up that possibly you could exit.
Fiscal 'twenty two here in SSG, yet at somewhere close to that quarterly run rate, but if we think about international where I think we're still down 30% and takeoffs and landings.
Omicron is going to have an impact do you need that international in that wide body activity.
Your customers to start spending on our wide body fleet to get back to that that quarterly run rate in 19 and SSG.
Yes.
That that would be a reasonable expectation, we anticipate the wide body and the international markets are going to come back and they're going to come back with a vengeance.
So I think we're going to do very well.
It sort of to be honest with you we have not modeled.
<unk>.
Bifurcated recovery and figuring out all of the combinations and permutations of the recovery. We feel strongly we know that it is going to come back.
It is an important market for us.
And but.
I think we're going to do we're going to do very well, we continue to develop product for it. So that gives you any.
Feeling of our confidence in it we are still very confident in it.
First I would say.
Yes, I would just add to that that I am feeling very good about our market share gains in the <unk>.
But I think that our sales folks have done a good job of of.
Of going out and being accessible to our customers finding new products, helping them find new product that will help them do more successful. So that's a bit of a wildcard because I can't quantify for you, but it's something that we're seeing and that could be additive which.
Could get us there.
Could get us there a little sooner.
Got it and Eric are you hearing anything from your customers I mean sure as we sit here today, our kron, but obviously these airlines are thinking 678 months ahead. I mean do you think there is a scenario where they start to really prep the wide body fleet for a heavier summer travel season in international market.
And could that be a significant tailwind maybe sooner.
As soon as late <unk>, and then into the second quarter, where you really see a lot of that prep work being done.
Yes, I think I think that's entirely possible.
My feeling is people are going to travel next summer regardless of omicron and.
Yes, I think that that is that is reasonable too.
They definitely are going to prepare in advance.
Got it and then I'll just try one on some of the new product development, we're going to start seeing some of the leap engines GTS start to come in for shop visits.
Do you guys have.
Content on those platforms should you should we expect that that could be sort of accretive business to you as those those engine start coming in.
Normally as you know we don't develop products.
Don't have significant sales of products. This soon in the lifecycle. So we.
We don't like to comment on specific products.
Products.
But normally.
This is sooner in the lifecycle of that would not be something broke area.
Got it alright, guys. Thanks, a lot I'll jump back in the queue. Thank.
Thank you.
Yes.
Thank you.
Have the lineup Goldbaum, Ghana with Cowen Your line is now open.
Hey, good morning, guys how are you doing.
Jorge how are you doing.
Doing well, thanks happy holidays and advanced.
Wanted to.
Thank you just wanted to follow up on a couple of questions that have been asked any sense for.
Well first of all within the sub segments at SSG.
I don't know if you covered this but kind of a relative sequential growth.
So by aftermarket parts versus <unk>.
Under repair versus specialized products, how do those differ if at all and what are you seeing kind of.
Where do you have better visibility of.
Of how trends are moving into the next quarter or two.
Because R&R picking up or what can you say.
So I guess, if you're talking about the recent quarter sort of trends are where things are pointing.
It's coming off a pretty weak Q4, 'twenty, but the growth has been very strong in and our parts of our distribution and our repair they have grown.
In tandem.
One quarter one's a little more strongly in the next quarter the tides flips, but the trend in those two businesses are very similar and it's very strong they are coming back.
Eric mentioned earlier that.
Specialty products, which houses some defense and a lot of our OEM business within the flight support group.
That business is doing quite nicely, we had a nice.
A nice organic growth in Q4, I'd say for the year, it's lagged a little for the reasons that Eric gave you know I think that that business.
Generally is tied to the newbuild activity and how those tier ones are purchasing to go into the big guys, the Boeing and Airbus and that has been softer.
And to Eric's point earlier that that is the part of the FSC that I think we'll see some improvement in in 'twenty two.
On top of all of the continued growth and strength within the parts and repair business.
Does that does that help.
Yes. It does so just to be a finer point on it sequentially that component repair kind of track that of the.
Aftermarket parts.
The sequential okay, yes, yes, let's get you say alright.
Alright.
Just switching to M&A.
You mentioned the pipeline is pretty pretty busy these days.
Anything promising that might be more consequential from a size perspective, or do you kind of anticipate that's going to be so kind.
Like last year, where the last two years, where it's been more.
Smaller tuck ins.
Or are you seeing bigger opportunities.
We look at opportunities of all sizes.
And so we are looking at a variety of sizes now and.
It really remains to be seen which ones and of course, we have to be careful frankly at this point because.
Who were talking with we don't want.
Anything anybody on this call to start figuring out that kind of thing but.
Suffice it to say that we will continue to look at transactions that are small ones in the one hundreds of millions and frankly, even in the billions. Although again our criteria remains the same for the acquisition. So we're not going to go buy something just for the sake of putting up revenue.
That's not accretive as you know to us it's all about the cash generation and the net income.
Okay and then that's helpful and then.
Maybe one for Eric just on.
Over the next 12 to 18 months, how many new PMA parts do you anticipate adding to the.
To the portfolio.
Yes, it would be consistent with what we've done in the past.
We're typically in that 4% to 500 area per year, and so I think.
It's going to be consistent with that.
Thank you very much Greg.
The number of <unk>.
<unk>.
The numbers can go up and down a little bit depending on complexity and the type of product and all of that.
Obviously more complex products could take.
Take longer so there would be fewer of them, but it moves around in that area.
Terrific. Thanks, a lot thanks Scott.
Thank you. The next one we have the line of Noah Carpenter with Goldman Sachs.
Hey, good morning, everyone.
Good morning Noah.
Nice to hear from you.
Where would you pin the likelihood that the cash.
Cash spent on acquisitions line item on the cash flow statement.
Fiscal 'twenty two is the highest number that the company deployed in a given year.
In its history.
I'm not sure I understand the question I think I think.
<unk> is asking is are we going to spend more on <unk>. We never know we never knows so I mean, we're open to making acquisitions.
Low and we want to make very large acquisitions.
So it all depends on the opportunities we are an opportunistic acquirer.
We will spend in the billions with spend in the $100 million. So, but we don't know really don't know the answer.
I can tell you we are working very hard and we we would love nothing more than to be able to deploy more capital in 2022 than we've ever done in any single year, so but.
As David said.
Estimate on what's going to happen, we've got to do our homework and we're very careful with heico's money because.
It.
It belongs to the shareholders of course Ware.
Some of the larger shareholders.
And we want to make sure that we're spending people's money correctly, so, but where we're very much focused and we would love for it to be the biggest year in our history.
We are I'd say I've mentioned before we are looking at a number of transactions.
And the problem is we never know until we get to the closing table, whether they are really going to close we run into due diligence glitches data glitches, where we asked for material and since we do a very very thorough due diligence.
Because again in my mind, we're spending our money and the shareholders our partners and we're spending our money, which is their money and we don't want to make a mistake. So.
<unk>.
On the surface.
I would say that we've earmarked obviously, we have a billion five.
Revolver unsecured revolver that we could draw on and of course, the banks have said to us they will give us many multiples of that should we want it. So it's just very hard to tell but we would like to do it.
If the deals that are presented to us fit in our wheelhouse.
<unk> meet the standards and the you know the standards, we look at our cash payback in seven to 10 years, and we don't want to pay 14 times EBITDA with pie in the sky in the future and so forth. So that strategy has served us very well and we're going to continue that strategy.
So it's really impossible to give you the answer I know you'd want I'd love to know the answer myself, but we're trying to spend as much as we will possibly be effective for.
For the HEICO program.
No and I'm looking for that commentary along the spectrum of possible outcomes. So that everything that you guys provided there is super helpful and I appreciate that.
Just one other one for me is back to this.
Conversation around international and corporate travel since that's kind of the million dollar question here for us for the industry in.
In terms of when that kicks in I mean, it seems to be very much up to government restrictions and policies.
On cross border and I, just wondered if you're hearing any.
You can help me out here from your teams or your customers on how that plays out like what has to happen is it Asia going to.
Going away from zero Covid or is it are there cross border discussions that are taking place with the airlines right now or is it just cases or can you just never know I mean, just given how obviously close you guys are to the industry I wondered if there was any incremental detail you can prove.
Further on how that can actually play out logistically.
I think the airlines are very much focused obviously on on this matter they want to do everything they possibly can in order to encourage.
Travel.
And encourage.
Vaccination in testing and all that stuff. So I think theyre going to be very flexible and as different government come out with different requirements that are going to.
They need to be resilient and figure out how to handle it.
So I think that.
The industry is maturing to a point where.
We're all prepared for Covid to hang around for a while and we've just got to do the best we can to.
Really get through this.
But yes.
Keep everybody traveling so there.
They are very resilient.
Our resilient and creative when it comes to that.
So it sounds like we're still without.
A lot of specifics on.
Our cross border kind of evolve from here and you just have to manage the business across a range of possible outcomes.
You got it.
Yes, alright.
Alright, thanks, so much guys I appreciate the merger.
Thank you. The next question we have the line of Colin the garbage Sterling capital management.
Hi, Good morning, Thanks for taking the question I got a couple for Carlos Carlos maybe I'd just start quickly on kind of some of the cash flow Delta is what I'm trying to do here is just linked through the windshield demand environment to what you're hearing at the subsidiary level and then.
Kind of link that to the three kind of Delta is on the cash flow statement, a are being one inventory being two and then your change in current liabilities being three and can.
Can you, maybe just anecdotally tell us what youre hearing from the subsidiary level on the increase in <unk> I'm, assuming that's just increased.
Improved demand environment.
Specifically on the SSG side, and then linking that to your change in current liabilities is that.
<unk> revenue builds.
Mapping to that same trend and then I've got a quick follow up for you alright.
Alright so.
Well Theres a lot of time pack there let me let me start with receivables. So as you pointed out during the fourth quarter, which receivables for US generally is a function of quarters sales in the SSG were up 34% over 20, so what youre seeing is youre seeing a little bit of a build in receivables to deal or the growth in receivables to deal with that.
Growth in sales, which in my judgment is a good thing when we look at the quality of those receivables.
They are in real good shape.
And nothing from the subsidiaries is Bubbling up saying, there's any problems or im very very pleased with the quality of the receivables and I think the growth is attenuated compared to our to our revenue growth.
Look the inventory build with.
With sales increasing again inventory to a great extent is also correlate function right it ebbs and flows.
And then three month increments and with 20% growth in the overall business occurring in Q4 on the sales side.
Hi.
The build in inventory of $10 million or whatever it was is not is not so bad year over year I was actually quite pleased with that and.
If you heard earlier on the call we have encouraged our subsidiaries if they need to go long on inventory to deal with any potential lead time issues or shortages. So.
So I'm actually the working capital management in that regard I'm very pleased with.
The liabilities that you are pointing out the current liability trend remember.
In fiscal 'twenty.
The company did not have.
And the SSG any discernible performance based compensation there may have been pockets of it but for the most part it was it was it was not much to zero and so this year. What you have on top of the what I consider to be outstanding performance for this segment you have bonuses performance based pay plus.
You have commissions.
That may not have been around last year for sales growth and you have a lot of that selling activity that gets jammed in accruals at year end until you pay it out and so.
Lot of the movement in that caption is performance based comp related.
Does that answer yes, that's very helpful. I appreciate the detail.
So I guess, a little bit different than what I had.
And what I was kind of expecting in mapping out here, maybe I'll just leave you with a quick follow up higher level here cap structure and just you know.
Conservative posture here you guys are you have a lot of dry powder arguably more than you've had in many many years.
About a healthy M&A pipeline is that an either or meaning the healthy M&A pipeline and the ability to put the balance sheet to work there versus getting more aggressive with perhaps a share repurchase program something along those lines you're in an EBITA growth scenario you are going to naturally delever in the medium term.
Why not put the balance sheet.
Eight.
<unk> towards a more aggressive posture, yet still overall stepping back be situated very very conservatively. If you could just speak to cap structure and view on glide path over the medium term you guys are just very very under Levered.
At the at the moment today here. Thank you.
So the answer is we do not work in the short term HEICO is a long term medium and long term investment you are correct. We are under Levered and we understand that earlier in the call I mentioned that there are many acquisitions that are in the pipeline. We're looking at many.
We do not hope and we do not intend to stay under Levered. This way. So we don't have any thoughts about share purchase repurchase to shrink the company. We always believe in growing the company and that's the strategy that we have followed for 31 years, which has resulted in extraordinary growth for the <unk>.
Our holders so we're not going to change the basic policy the discipline that we use and we're not going to occur.
Shrink the company shrink the capitalization.
Please speculators and traders and everything else, we're going to grow this company for long term shareholders.
We're probably the largest one and all the shareholders are our partners. So we feel that it's in the best interest. The other thing is the response.
The shareholder community to our shares at the multiple that it sells at apparently I believe and after we speak to many of these institutional shareholders. They are very pleased with that policy. So again, we're going to stick to it we're not going to shrink it and hopefully we're going to grow it.
<unk> I hope that answers your question.
Yes, that's very helpful and I totally respect that posture in the history and all the value you guys have generated but if I in all due respect my press on your Larry we're long term shareholders as well.
And while we.
I.
Totally respect that history in the view of not an either or but putting our balance sheet to work without kind of shrinking the company, but thinking and the and the guys are per share ownership and that's essentially what we're talking about in terms of shrinking the denominator COO.
Creating value on a per share basis over time, so that would just be a.
The.
A quick press and again I say that with all due respect of all the strategy and value that you've created thank you.
Okay.
We hear you.
We're always.
Running all sorts of scenarios, we look at everything I can promise you were very very thorough in our analysis, but very optimistic on acquisitions at the moment.
Thank you again as a reminder, if you would like to ask a question simply press star one on your telephone keypad.
We have our next question from the line of Louise Raffetto with UBS. Your line is open.
Hey, good morning, guys.
Good morning.
I want to sort of come back to this M&A from from two points first can I just confirm it looks like for 2021 acquired sales is about $70 million and as we looked at 'twenty two based on what's already closed.
Is it going to be sort of about that maybe a little bit less.
Youre asking what the acquired sales are for the year Lewis, Yes. So I think 'twenty, one was about $70 million and I think based on what you've already completed not what you might or might not complete just given it looks like maybe it'll be a little bit less than that already for 22.
Youre right Youre right on the number and I think that if things go according to plan.
We would hope to have more again, what we've been saying is we plan on deploying capital.
So hopefully we can do that and have larger acquired sales next year.
I mean.
I'm just looking for what's what's done because to your Larry's point, you don't know when youll be able to close things, but if we sort of do.
Step to that side of the M&A.
Syed.
So the deals that you haven't been able to sort of complete what has been at the end of the day is it just that due diligence comes back is it somebody else outbid you and any color you can provide there.
There are all kinds of reasons for this Louis we can't give you one single reason lots of different things happen things you discover and due diligence terms all kinds of reasons business can change you are going to change there some spring their projections all kinds of things that happen, we don't have I can see.
Say this we don't have many.
That is very few that we get to serious due diligence and contract negotiations that don't close that's pretty rare for us not unheard of.
But once we usually get to a certain point.
The deals tend to close.
Okay, Great. That's that's awesome Erik Thank you.
Carlos just one for you around cashless, obviously cash flow in fiscal 'twenty, one was actually the highest its ever been.
Understanding you're not giving guidance for 'twenty, two but any reason that it wouldn't necessarily grow in 'twenty two and then any idea around the capex I know you've given you tend to give them that in the past.
So we.
We like to grow the company.
Every year, 15% to 20% in normal times and so.
Next to that would be growth in operating cash flow.
We really don't want to have.
Earnings and no cash flow right, so that growth, we like to see work in tandem.
As a function of good management on the working capital side right. So that all of that net income, earning false to cash in the in the in the cash provided by operating activities. So I would expect that to continue.
There is no in my judgment right now Theres no impediments to that occurring next year.
Great.
Oh, just around Capex next year I know you know in the past you have at least I mean are we already share was up a little bit but.
Yeah. We just we just finished our capex budgets at a while ago I think we could be somewhere around $45 million next year is kind of my guess right now.
But.
That could ebb and flow, but that's kind of the peg we have in the ground at the moment.
Alright, great. Thank you very much.
Youre welcome.
Yes.
Thank you. The next one we have the line of Sheila.
I agree with Jefferies. Please go ahead.
Hey, guys. Thank you for real time, so maybe two for Eric if that's okay.
Alright.
Okay.
We talked about atg pricing a little bit.
And the beginning of the call, but I was wondering about epilepsy.
And to keep appointed Jeff.
Discount and just given.
Yes.
Nothing suppliers and Oems are raising their prices how are you thinking about right now.
How are you gauging that.
Hmm.
I'm sure you're seeing cost headwinds and labor headwinds as allowed so if you could just talk about the pricing environment.
Great question.
Yes, we are seeing.
Cost pressures.
And we are very focused to make sure we maintain our margins. So I think we're going to move along with the street and we're going to do what the industry does.
And.
But clearly its our intention to pass along those increases as long as they exist. We don't want to take advantage of our customers, but we need to make sure that we get our whatever cost increases we've had passed on.
Sometimes there can be a little lag if there is a contract.
However.
Fully our intention to move along with the industry.
Okay, and then maybe just one on Omnicom and Mike Best last Gary you guys have been through two variants now how do you guys think about like the peak.
You know what our case, David Bernstein's your revenue do you guys see any changes in airline behavior.
How does that work for you guys.
Yes.
We haven't thus far there's natural variation so.
Hi.
In the day to day ordering pattern. So it's hard to see I mean look our.
Sales and bookings have been extraordinarily strong.
But I think it is reasonable to assume that <unk> is going to impact us and it really depends on.
The severity of the cases as well as the trends messiness of the variant so we're watching it closely.
Not changing any of our business practices as a result of it we're making sure that we've got the parts on the shelf.
Oh.
We assume that it will hit different regions at different times, and it will sort of spread around the world. It's nice to see that there had been a number of therapeutics.
That have been developed to be able to assist.
Complement the vaccines.
No I don't think anybody anticipates that this is going to be a showstopper or as dramatic.
As delta or other variance work.
It's just something that we're going to have to live with and.
We're just going to have to run the business accordingly so.
We're working through it and it's not it's not really changing any of our behavior and Fortunately since we have a very strong balance sheet.
And.
Even more importantly, a phenomenal group of people, we're going to get breakthrough. This so it doesn't it's not causing us to lose any sleep whatsoever, and frankly, the more strained the airlines have I think the better position heico's in to pick up share.
Okay, great. Thanks for that color. Thank you thanks Giovanni Sheila.
Thank you we don't have any further questions at this time presenters. Please continue.
This is Larry Mendelson again, I want to thank everybody on this call for your interest in HEICO and we appreciate it.
Available to answer questions, you can call Victor Eric Carlos myself, and we look forward to the next call which will be.
I guess.
End of February for the first quarter of 'twenty to fiscal 'twenty, two and I wish everybody a very happy in the holiday happy and healthy holiday season goods.
Good health and stay healthy stay away from Covid, and we will speak to you in late February thanks very much.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
Yes.
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