Q4 2023 Heico Corporation Earnings Call
Welcome to the HICO Corporation fourth quarter year end 2023 financial results call. My name is Samara and I'll be today's operator.
Welcome to the HEICO Corporation fourth quarter year end 2023 financial results call. My name is Tamara and I'll be today's operator.
Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies.
Certain statements in this conference call will constitute forward looking statements, which are subject to risks uncertainties and contingencies.
HICO's actual results may differ materially from those expressed in or implied by those forward-looking states.
It goes actual results may differ materially from those expressed in or implied by those forward looking statements.
Factors that could cause such differences include the severity, magnitude, and duration of public health threats, such as the COVID-19 pandemic or health emergency.
Factors that could cause such differences include the severity magnitude and duration of public health threats, such as the COVID-19 pandemic or health emergencies.
high coast liquidity and the amount and timing of cash generation, lower commercial air travel caused by health emergencies and their aftermath, airline fleet changes or airline purchasing decisions which could cause lower demand for goods and services.
It goes liquidity and the amount and timing of cash generation.
Lower commercial air travel caused by health emergencies, and their aftermath airline fleet changes or airline purchasing decisions, which could cause lower demand for goods and services.
product specification costs and requirements, which could cause an increase to our costs to complete contracts.
Product specification costs and requirements, which could cause an increase to our costs to complete contracts.
governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by US and or foreign customers or competition from existing and new competitors which could reduce our sales.
Governmental and regulatory demands export policies and restrictions reductions in defense space or homeland security spending by U S and or foreign customers or competition from existing and new competitors, which could reduce our sales.
Our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth.
Our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth.
product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales.
Product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales.
our ability to make acquisitions, including obtaining any applicable domestic and or foreign government approvals, and achieve operating synergies from acquired businesses.
Our ability to make acquisitions, including obtaining any applicable domestic and foreign governmental approvals and achieve operating synergies from acquired businesses.
customer credit risk, interest, foreign currency exchange and income tax rates, and economic conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries, which could negatively impact our costs and rep.
Customer credit risk interest foreign currency exchange and income tax rates and economic conditions, including the effects of inflation within and outside of the aviation defense space Medical telecommunications, and electronics industries, which could negatively impact our costs and revenues.
Parties listening to this call are encouraged to review all of HICO's filings with the Securities and Exchange Commission, including but not limited to filings on Form 10K, Form 10Q, and Form 8K.
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 Form 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.
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.
I now turn the call over to Lawrence Mendelson, HICO's Chairman and Chief Executive Officer.
I now turn the call over to Warren's Mendelson, Heico's, Chairman and Chief Executive Officer.
Warren Mendelson: Thank you is tomorrow.
Good morning to everyone on this call, and we thank you very much for joining us, and we welcome you to the HIKO Fourth Quarter Fiscal 23 Earnings Announcement Telecom.
Warren Mendelson: Good morning to everyone on this call and we thank you very much for joining us and we welcome you to the HEICO fourth quarter fiscal 'twenty three earnings announcement teleconference, I'm, Larry Mendelson, Chairman and CEO of HEICO Corporation, and I'm joined here this morning by Eric Mendelson.
I'm Larry Mendelson, Chairman and CEO of Heiko Corporation, and I am joined here this morning by Eric Mendelson, Heiko's Co-President and President of Heiko's Flight Support Group.
Eric Mendelson: Heico's co president and President of Heico's flight support group.
Victor Mendelson, HICO's Co-President and President of HICO's Electronic Technologies Group and Carlos Macau, our Executive Vice President and CFO .
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 our operating results in detail, I would like to take a moment to thank all of HIKO's talented team members for delivering another strong quarter and strong year. Your continued focus on exceeding customer expectations and operational excellence has translated into superb results for the shareholders.
Victor Mendelson: Before reviewing our operating results in detail I would like to take a moment to thank all of heico's talented team members who are there.
Victor Mendelson: Delivering another strong quarter and strong year. Your continued focus on exceeding customer expectations and operational excellence has translated into superb results for the shareholders.
I would also like to congratulate and thank the WNCOR team for a terrific quarter within the Heiko family.
Victor Mendelson: I'd also like to congratulate and thank the wind core team for a terrific quarter within the HEICO family.
We could not be more pleased with their performance and their results.
We could not be more pleased with their performance and their results.
I personally continue to be very optimistic about the future for HIKO and as a matter of fact,
Victor Mendelson: I personally continue to be very optimistic about the future for HEICO and as a matter of fact.
I have never been more optimistic about Heiko's future than I am today.
Victor Mendelson: I've never been more optimistic about iqos future than I am today.
I will now summarize the highlights of our fourth quarter fiscal 23 record results.
Victor Mendelson: I will now summarize the highlights of our fourth quarter fiscal 'twenty three record results consolidated fourth quarter fiscal 'twenty three operating income and net sales represent record results for HEICO driven principally by record net sales.
Consolidated fourth quarter fiscal 23 operating income and net sales represent record results for HICO.
driven principally by record net sales within the flight support group.
Victor Mendelson: Within the flight support group.
and Electronic Technologies Group, mainly arising from continued strong demand for our commercial aerospace products and services, and the contributions from our fiscal 23 and 22 acquisitions.
Victor Mendelson: The electronic technologies group, mainly arising from continued strong demand for our commercial aerospace products and services and the contributions from our fiscal 'twenty three and 'twenty two acquisition.
Consolidated operating income and net sales in the fourth quarter of fiscal 23 improved by 29 and 54 percent respectively as compared to the fourth quarter of fiscal 22.
Victor Mendelson: Consolidated operating income and net sales in the fourth quarter of fiscal 'twenty, three improved by 29, and 54% respectively as compared to the fourth quarter of fiscal 'twenty two.
These results mainly reflect 14% quarterly consolidated organic net sales growth as well as the impact from the acquisition.
Victor Mendelson: These results, mainly reflect 14% quarterly consolidated organic net sales growth as well as the impact from the acquisitions.
Consolidated net income increased 6% to $103.4 million or $0.74 per diluted share in the fourth quarter of fiscal 23, and that was up from $0.97.2 million or $0.70 per diluted share in the fourth quarter of fiscal 22. In connection with the
Victor Mendelson: Consolidated net income increased 6% to $103.4 million or 74 cents per diluted share in the fourth quarter of fiscal 'twenty three and that was up from 97 2 million or 70 cents per diluted share in the fourth quarter of <unk>.
Victor Mendelson: Fiscal 'twenty two.
Victor Mendelson: In connection with the <unk> acquisition.
HICO incurred acquisition costs during the fourth quarter of fiscal 23, and they decreased net income attributable to HICO by approximately $13.6 million, or 10 cents per diluted share.
Victor Mendelson: HEICO incurred acquisition cost during the fourth quarter of fiscal 'twenty three.
Victor Mendelson: And they decreased net income attributable to HEICO by approximately $13 6 million or 10 cents per diluted share.
Our consolidated operating margins before the WINCOR related non-recurring deal expenses remain strong and are consistent with the expectations we have previously communicated. These margins are extremely healthy, even though our product mix this year has meant lower overall margins than in prior year.
Victor Mendelson: Our consolidated operating margins before the wind core related nonrecurring deal expenses remain strong and are consistent with the expectations. We have previously communicated these margins are extremely healthy even though our product mix.
Victor Mendelson: This year has meant lower overall margins than in prior year.
In the fourth quarter of fiscal 23, excluding the WENCOR acquisition cost, consolidated net income increased 20% to 117 million or 84 cents per diluted share.
Victor Mendelson: In the fourth quarter of fiscal 'twenty three excluding the wind core acquisition cost consolidated net income increased 20% to $117 million or 84 cents per diluted share.
Our net debt to EBITDA ratio was 3.04 times as of October 31, 2023, and that compared to 0.25 times as of October 31, 2022.
Victor Mendelson: Our net debt to EBITDA ratio was 3.04 times as of October 31, 23, and that compared to <unk>.
Victor Mendelson: Two five times as of October 31, 22.
The net debt to EBITDA ratio increase in the fiscal year ending October 31, 23 principally reflects our successful offering of $1.2 billion in senior unsecured notes and increased borrowings on our revolving credit facility.
Victor Mendelson: The net debt to EBITDA ratio increase in the fiscal year ending October 31, 23, principally reflects our successful offering of $1 $2 billion in senior unsecured notes and increased borrowings on.
Victor Mendelson: Our revolving credit facility.
We use the net proceeds from the sale of the notes and additional borrowings on our revolving credit facility to fund the acquisition of WEN.
Victor Mendelson: We used the net proceeds from the sale of the notes and additional borrowings on our revolving credit facility to fund the acquisition of when core <unk>.
Cash flow provided by operating activities improved to $148.4 million in the fourth quarter of fiscal 23 and that was up from $143.9 million in the fourth quarter of fiscal 22.
Victor Mendelson: Cash flow provided by operating activities improved to $148 $4 million in the fourth quarter of fiscal 'twenty, three and that was up from $143 9 million in the fourth quarter of fiscal 'twenty two.
cash flow provided by operating activities in the fourth quarter of fiscal 23.
Victor Mendelson: Cash flow provided by operating activities in the fourth quarter of fiscal 2003.
reflects an increase in working capital, principally driven by an increase in inventories, to support our increased consolidated backlog.
Victor Mendelson: <unk> reflects an increase in working capital principally driven by an increase in inventories to support our increased consolidated backlog.
The continued excellent cash flow generation by HICO permitted our Board of Directors to recently declare a $0.10 per share semiannual dividend, which represents our 91st consecutive dividend payment.
The continued excellent cash flow generation by HEICO permitted our board of directors to recently declare a 10 cent per share semi annual dividend, which represents our 90 <unk> consecutive dividend payment.
At this time, I would like to introduce Eric Mendelssohn, Co-President of HIKO, and President of HIKO's Flight Support Group. And he will discuss the fourth quarter results of the Flight Support Group. Thank you very much. I would like to take a moment to recognize and welcome the WEMCOR team members to the HIKO family.
At this time I would like to introduce Eric Mendelson co President of HEICO and President of Heico's flight support group and he will discuss the fourth quarter results of the flight support group.
Eric Mendelson: Thank you very much.
Eric Mendelson: I would like to take a moment to recognize and welcome the <unk> team members to the HEICO family the.
The Wincorps team is a perfect and highly complementary fit with the HICO culture, and I'm extremely optimistic about the future of Wincorps' contributions to the fight support group's future.
Eric Mendelson: The <unk> team is a perfect and highly complementary fit with the HEICO culture, and I am extremely optimistic about the future of linked quarters contributions to the flight support group's future.
I must say that over the last number of months, I've gotten the chance to visit most of the liquid and cort facility.
Eric Mendelson: I must say that over the last number of months I've gotten the chance to visit most of the <unk> facilities and I've been incredibly impressed with the caliber of team members that when core has we had very high expectations for them prior to closing the acquisition, but they continue.
And I've been incredibly impressed with the caliber of team members that Wincor has. We had very high expectations for them prior to closing the acquisition, but they continue to amaze everyone and really perform outstandingly well. It really is a privilege and an honor to have gotten to know these people. And also, I'd like to thank the HIKO team members.
Eric Mendelson: To amaze, everyone and really perform outstandingly well it really is a privilege and an honor to have gotten to know these people and also I'd like to thank the HEICO team members for being so welcoming to their new <unk> brothers and sisters and bringing them.
for being so welcoming to their new WENCOR brothers and sisters and bringing them into the fold. Because as a team we can accomplish so much more than we can individually. The HICO team members have been phenomenally excited about the WENCOR acquisitions. We've done about 100 acquisitions but I can say that this one really has generated incredible enthusiasm and excitement.
Eric Mendelson: <unk> into the fold because as a team we can accomplish so much more than we can individually. The HEICO team members have been phenomenally excited about the <unk> acquisitions, we've done about 100 acquisitions, but I can say that this one really has generated incredible enthusiasm.
Eric Mendelson: An excitement and I am just absolutely honored to work with both the HEICO and the one core team members, we've got a phenomenal group and I think the.
And I am just absolutely honored to work with both the HICO and the WINCOR team members. We've got a phenomenal group and I think the results really speak for themselves with a lot more to come. So again, thank you very much to all of our HICO flight support team members for an incredible performance in the fourth quarter and full 2023.
The results really speak for themselves with a lot more to come. So again. Thank you very much to all of our HEICO flight support team members for an incredible performance in the fourth quarter and.
2023.
On to the results. The flights of our groups net sales increased 74% to a record 601.7 million in the fourth quarter of fiscal 23 up from 346 million in the fourth quarter of fiscal 22.
On to the results of the flight support group's net sales increased 74% to a record $601 7 million in the fourth quarter of fiscal 'twenty three.
Eric Mendelson: Up from $346 million in the fourth quarter of fiscal 2002.
The net sales increase in the fourth quarter of fiscal 23 reflects 185.7 million from Wincor and strong organic growth of 20%.
Eric Mendelson: The net sales increase in the fourth quarter of fiscal 2003 reflects $185 7 million from one core and strong organic growth of 20%.
The fight support group's operating income increased 47% to a record $114.6 million in the fourth quarter of fiscal 23, up from $77.8 million in the fourth quarter of fiscal 22.
The flight support group's operating income increased 47% to a record $114 6 million in the fourth quarter of fiscal 2003 up from $77 8 million in the fourth quarter of fiscal 'twenty two.
Wincourt's operating income in the fourth quarter of fiscal 23 was $29.3 million.
<unk> operating income in the fourth quarter of fiscal 2003 was $29 3 million.
The operating income increase principally reflects the previously mentioned net sales growth and an improved gross profit margin partially offset by $12.7 million of WENCOR acquisition costs and $11.8 million of WENCOR's intangible asset amortization expense and higher performance-based compensation costs.
The operating income increase principally reflects the previously mentioned net sales growth.
Eric Mendelson: The improved gross profit margin, partially offset by $12 7 million of linked core acquisition cost.
Eric Mendelson: And $11 8 million of <unk> intangible asset amortization expense.
Eric Mendelson: And higher performance based compensation expense.
The improved gross profit margin principally reflects higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product line.
Eric Mendelson: The improved gross profit margin principally reflects higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product lines.
The fight support groups operating margin was 19% in the fourth quarter of fiscal 23 as compared to 22.5% in the fourth quarter of fiscal 22.
Eric Mendelson: The flight support group's operating margin was 19% in the fourth quarter of fiscal 2003 as compared to 22, 5% in the fourth quarter of fiscal 2000 to.
The operating margin decrease in the fourth quarter of fiscal 23 principally reflects the previously mentioned Wincourt acquisition costs and intangible asset amortization expense.
The operating margin decrease in the fourth quarter of fiscal 'twenty three principally reflects the previously mentioned <unk> acquisition costs and intangible asset amortization expense.
Excluding the WENCOR acquisition cost and intangible asset amortization expense the flight support group's operating income increased 79% to 139.1 million in the fourth quarter of fiscal 23 and the operating margin was 23.1% Now I would like to
Excluding the <unk> acquisition costs and intangible asset amortization expense.
Eric Mendelson: Support groups operating income increased 79% to $139 1 million in the fourth quarter of fiscal 'twenty, three and the operating margin was 23, 1%.
Eric Mendelson: Now I would like to introduce Victor Mendelson co president of HEICO and President of Heico's Electronic technologies group to discuss the fourth quarter results of the electronic technologies group. Thank you Eric the electronic technologies group's net sales increased 28% to a record $342 5 million.
co-president of HICO and president of HICO's electronic technologies group to discuss the fourth quarter results of the electronic technologies group.
Thank you, Eric. The electronic technologies groups net sales increased 28% to a record $342.5 million in the fourth quarter of fiscal 23, up from $268.5 million in the fourth quarter of fiscal 22. The net sales increase principally reflects the impact from our fiscal 23 and 22 acquisitions, as well as 6% organic growth.
Victor Mendelson: In the fourth quarter of fiscal 'twenty, three up from $268 5 million in the fourth quarter of fiscal 'twenty to the net sales increase principally reflects the impact from our fiscal 'twenty, three and 'twenty, two acquisitions as well as 6% organic growth.
The organic net sales increase in the fourth quarter, fiscal 23, mainly resulted from increased net sales of defense, space, and commercial aviation products, partially offset by lower net sales of other electronics products.
Victor Mendelson: The organic net sales increase in the fourth quarter of fiscal 'twenty three mainly resulted from increased net sales of defense space and commercial aviation products, partially offset by lower net sales of other electronics products.
We're pleased to see 26% sequential growth in defense product net sales in the fourth quarter of fiscal 23 over the prior quarter, which now marks our third consecutive quarter of defense-related net sales growth.
Victor Mendelson: We're pleased to see 26% sequential growth in defense product net sales in the fourth quarter of fiscal 'twenty three over the prior quarter, which now marks our third consecutive quarter of defense related net sales growth.
The Electronic Technologies Group's operating income increased 8% to a record $86.4 million in the fourth quarter Fiscal 23, up from $79.9 million in the fourth quarter Fiscal 22.
Victor Mendelson: The electronic technologies group's operating income increased 8% to a record $86 4 million in the fourth quarter of fiscal 'twenty three.
Victor Mendelson: Up from $79 9 million in the fourth quarter fiscal 'twenty two.
The operating income increase in the fourth quarter of fiscal 23 principally reflects the previously mentioned higher net sales volume, partially offset by higher costs from the Accelia acquisition, higher performance-based compensation expense, and unfavorable changes in the estimated fair value of accrued contingent compensation.
The operating income increase in the fourth quarter of fiscal 'twenty three principally reflects the previously mentioned higher net sales volume, partially offset by higher costs from the <unk> acquisition higher performance based compensation expense and unfavorable changes in the estimated fair.
Victor Mendelson: Fair value of accrued.
Victor Mendelson: Changing compensation.
The Electronic Technologies Group's operating margin was 25.2% in the fourth quarter Fiscal 23 as compared to 29.7% in the fourth quarter of Fiscal 22.
The electronic technologies groups operating margin was 25, 2% in the fourth quarter fiscal 'twenty three as.
Victor Mendelson: As compared to 29, 7% in the fourth quarter of fiscal 'twenty two.
as acquisitions and tangible amortization is equal to approximately 400 basis points from our sales.
Victor Mendelson: As acquisitions intangible amortization is equal to approximately 400 basis points from our sales.
We view that our ETG businesses achieved a roughly 29% margin from their, what we consider to be their true operational activity.
Victor Mendelson: We view that our <unk> business has achieved a roughly 29% margin from there what we consider to be their true operational activities.
which is excellent by any measure, and we're very happy with it, even if it is not as high as it was before.
<unk> is excellent by any measure and we're very happy with it even if it is not as high as it was before.
I also note that in last year's fourth quarter, we recorded a $3 million gain from contingent consideration reversal. So last year's fourth quarter operating income included that gain, while this year we had the opposite effect, which reduced the operating margin in total between the two years by around 140 basis points from last year's fourth quarter.
Victor Mendelson: I also note that in last year's fourth quarter, we recorded a $3 million gain from contingent consideration reversal. So last years fourth quarter operating income included that game. While this year, we had the opposite effect, which reduced the operating margin in total between the two years by around.
Victor Mendelson: 140 basis points from last year's fourth quarter.
All of this is why I look at what we consider to be the business's actual performance before non-cash acquisition accounting. And that, as I said before, is excellent in absolute terms.
All of this is why I look at what we consider to be the business as actual performance before noncash acquisition accounting.
And that as I said before is excellent in absolute terms.
The lower operating margin in the fourth quarter of fiscal 23, as we said, principally reflects that previously mentioned higher costs from the Xeli acquisition, the unfavorable changes in the estimated fair value of contingent compensation and higher performance-based compensation. I turn the call back over to Larry Mendelsohn. Thank you, Victor.
The lower operating margin in the fourth quarter of fiscal 'twenty three as we said principally reflects the previously mentioned higher costs from <unk> acquisition and the unfavorable changes in the estimated fair value of contingent compensation and higher performance based compensation.
I turn the call back over to Larry Mendelson.
Larry Mendelson: Thank you Victor.
Larry Mendelson: Now for the outlook.
As we look ahead to fiscal 24, we anticipate net sales growth in both the flight support group and the electronic technologies group. And that will be driven by contributions from our fiscal 23 acquisitions, as well as a demand for the majority of our products.
Larry Mendelson: As we look ahead to fiscal 'twenty four we anticipate net sales growth in both the flight support group and electronic technologies group.
Larry Mendelson: And that will be driven by contributions from our fiscal 'twenty three acquisitions.
Larry Mendelson: As excuse me as well as the demand for the majority of our product.
Additionally, continued inflationary pressures may lead to higher material and labor costs.
Larry Mendelson: Additionally, continued inflationary pressures may lead to higher material and labor costs, we plan to actively work on wind cores ongoing integration into our business and operations.
We plan to actively work on WNCOR's ongoing integration into our business and operations.
Continue our commitment to developing new products and services and further market penetration while maintaining our financial strength and flexibility.
Larry Mendelson: Continue our commitment to developing new products and services.
Larry Mendelson: Further market penetration, while maintaining our financial strength and flexibility.
Our operating margins, especially before non-recurring acquisition expenses, remain extremely healthy and reflect our strong business operation.
Larry Mendelson: Our operating margins, especially before nonrecurring acquisition expenses remain extremely healthy and reflect our strong business operations.
We believe that our ongoing conservative policies and strong cash flow enable us to continuously invest in new research and development and to take advantage of strategic acquisition opportunities which collectively position HIKO for success in the markets that we serve.
Larry Mendelson: We believe that our ongoing conservative policies and strong cash flow enable us to continuously invest in new research and development.
Larry Mendelson: And to take advantage of strategic acquisition opportunities, which collectively position HEICO for success in the markets that we serve.
In closing, I would like to again thank our incredible team members for their continued support and commitment to HIKO. Their persistent drive and determination to win in the marketplace has resulted in another quarter of outstanding results.
Larry Mendelson: In closing.
Larry Mendelson: I would like to again, thank our incredible team members for their continued support and commitment to HEICO.
Larry Mendelson: Their persistent drive and determination to win in the marketplace has resulted in another quarter of outstanding results.
Thank you, all team members, for everything you do to make Heiko a great company. And now, Samantha, I'd like to open the floor for questions.
Speaker Change: Thank you all team members for everything you do to make HEICO a great company.
Speaker Change: And now Samantha I'd like to open the floor for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Speaker Change: Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll take our first question from Robert Spingard with Mellia's research. Please go ahead. Hi, good morning.
Speaker Change: And we will take our first question from Robert Spingarn with Melius Research. Please go ahead.
Hi, good morning, everybody.
Robert Spingarn: Good morning, Rob.
You know, you put up a terrific quarter. You're so far ahead of 2019, where everybody else is trying to get, even on an organic basis. I'd like to start there with Victor and just talk about this 26 percent sequential growth, Victor, if you could, and characterize what's behind that. Is that across defense? Is it a few specific programs that have started to, you know, to move forward?
Robert Spingarn: You've put up a terrific quarter youre, so far ahead of.
Speaker Change: Of 2019, where everybody else is trying to get even on an organic basis I'd like to start there with Victor.
Speaker Change: Just talk about this 26% sequential growth Victor if you could and characterize what's behind that is that across defense is it a few specific programs that that have started to.
Speaker Change: To move forward.
Hey Rob, it's good to talk with you and it's a good question as always.
Victor Mendelson: Yeah, Hey, Rob it's good to talk with you.
Victor Mendelson: And it's a good question as always.
So I think our strongest market right now, and what's the biggest driver, has been commercial aviation. And we have a few business.
Victor Mendelson: So I think our strongest market right now and what's the biggest driver has been commercial aviation.
Victor Mendelson: And we have a few businesses.
in the ETG that have been particularly strong as a result of multiple factors, some of it's the recovery in air travel, some of it's new products that we've introduced.
In the atg that had been particularly strong.
Victor Mendelson: As a result of multiple factors some of it's the recovery in air travel some of its new products that we've introduced.
Some of it is also some efficiency initiatives and some of it's acquisition related. So it's a broad mix there. Defense is definitely moving in the right direction for us.
Victor Mendelson: Some of it is also some efficiency initiatives and <unk>.
Some of its acquisition related so it's it's a broad mix of their defense is definitely moving in the right direction for us.
The, uh, and, and commercial space is, is holding him pretty nicely overall for us. Uh, there are pockets of weakness here and there, but, but overall, it's, it's pretty good for us, I would say the.
Victor Mendelson: As well the.
Victor Mendelson: And commercial spaces.
Holding in pretty nicely overall for us there are pockets of weakness here and there, but overall, it's pretty good for us I would say the <unk>.
Headwind for us and I mentioned this before I think over the last year I signaled this probably a year or more ago that I thought some of our high-end non aerospace and defense markets would start to turn down this year and Those have been more difficult. So those markets that serve some high-end electric
Victor Mendelson: Headwind for Us and I've mentioned this before I think over the last year I signaled this probably a year or more ago that I thought some of our high end non aerospace and defense markets would start to turn down this year and those have been more difficult. So those markets that serve.
Victor Mendelson: Some high end electronics medical.
medical and markets like those are definitely trending in the opposite direction and I would expect
Victor Mendelson: And <unk>.
Victor Mendelson: Markets like those are definitely trending in the opposite direction and I would expect that will continue for some time and I think we'll see the effects of that over the next few quarters actually first quarter in particular.
that will continue for some time. And I think we'll see the effects of that over the next few quarters, actually, first quarter in particular, and as we go on into the year before that starts to reverse. And that's principally a result of probably overly aggressive ordering by customers during the supply chain crunch, dealing with the same kinds of things that we were dealing with.
Victor Mendelson: And as we go on into the year before that starts to reverse and that's principally a result of <unk>.
Victor Mendelson: Probably overly aggressive ordering by customers during the supply chain crunch dealing with the same kinds of things that we were dealing with.
They wanted to get out ahead of it and now the deliveries are coming in and some of their orders may be slower so they have to correct their inventory level.
Victor Mendelson: They wanted to get out ahead of it and now the deliveries are coming in and some of their orders may be slower so they have to correct their inventory levels.
Okay, understood. Thank you for that color. And then the next one moves over to FSG. So, Eric, this is either for you. It could be for Carlos.
Speaker Change: Okay understood. Thank you for that color and then the next one moves over to <unk>. So Eric This is either for you it could be for Carlos.
But if we look at the 8K that you filed back in mid-October, it looks like when-core sales.
Speaker Change: But if we look at the 8-K that you filed back in mid October it looks like when core sales.
Outgrew overall organic sales for FSG. I mean, the numbers look like they could be 40% or more.
Speaker Change: Outgrew overall organic sales for F. S. G. I mean, the numbers it looks like there could be 40% or more.
It's not an exact comparison because it's an October quarter versus a December quarter. But I wanted to ask if that math is correct, and if so, what's driving that strong performance and can it continue for when core?
Speaker Change: It's not an exact comparison, because it's an October quarter versus the December quarter, but I wanted to ask if that math is correct and if so whats driving that.
Speaker Change: Strong performance in Canada continue for one quarter.
Hi, good morning, Rob. This is Eric. So I'll start out answering that question, and then Carlos will fill in with some of the details. WENCOR has performed exceptionally well, as have, frankly, all of the HICO flight support businesses. They're ahead of plan. They're doing very well, working incredibly hard.
Hi, Good morning, Rob This is Eric so I'll start out answering that question and then carloads. So fill in with some of the details <unk> has performed exceptionally well as have frankly, all of the HEICO flight support businesses.
Eric Mendelson: They are ahead of plan Theyre doing very well working incredibly hard.
And, you know, very similar in culture to the Heiko group in terms of being conservative in what they predict.
Eric Mendelson: And.
Very similar in culture to the HEICO group in terms of being conservative in what they predict.
and, frankly, outperforming. I'm not sure that the numbers that you state are... Let's see what Carlos has to say about it. You know, my sense is their Wincourt is growing at a similar rate.
Eric Mendelson: And frankly outperforming.
Eric Mendelson: I'm not sure that the numbers that you state are.
Eric Mendelson: Let's see what Carlos has to say about it my sense is there one quarter is growing at a similar rate to the HEICO flight support aftermarket businesses.
to the HICO flight support aftermarket businesses. But I'll let Carlos fill in on that.
But I'll, let Carlos fill in on that yes, Rob This is Carlos I would say that.
Yeah, I would, Rob, this is Carlos, I would say that you have to remember that when we put the 8K out, we had pro forma sales in there, which is, you know, one quads and acquisitions early in 23 and looking.
You have to remember that when we put the 8-K out we had pro forma sales in there, which as you know one for asset acquisitions early in 'twenty three okay.
So that's probably why you're seeing that sort of exponential growth. I really, to be honest, I haven't gone back and calculated the organic because we just bought them. I will tell you that we were counting on about 724 million in pro forma sales. Maybe just divide that before we expect that 181 million they'd be delivered to 186 million. So we're pleased with the sales growth. I would say the Q-Force typically a little bit.
So thats, probably why youre seeing ex sort of exponential growth I really to be honest I haven't gone back and calculated the organic is we just bought them I will tell you that we were counting on about $724 million in pro forma sales.
Divide that before we would expect that $181 million they delivered almost $186 million. So we're pleased with the sales growth I would say that Q4 is typically a little bit.
richer than some of the other quarters when it comes to aerospace sales. So none of this is unexpected, but no, they had a great year into Eric's point. They're performing at the same rate that the overall FSG is, particularly in the parts business.
Eric Mendelson: Although richer than some of the other quarters when it comes to aerospace sales. So none of this is unexpected but.
Eric Mendelson: They had a great year and to Eric's point Theyre performing at the same rate that the overall SSG is particularly in the parts business.
Okay, that's super helpful and just on all of this growth and on the complementary nature of the two groups. Eric, how are you doing with the cross-selling effort? Has that started to get traction and what might we expect from that?
Speaker Change: Okay. That's super helpful. And then just on all of this growth and on the complementary nature of the two groups Eric.
Eric Mendelson: Are you doing with the cross selling effort has that started to get traction and what might we expect from that.
Speaker Change: Yes, I would say that we have started the effort and it's borne fruit there are a number of projects that the companies are cooperating on the HEICO style is very much to let our new acquisitions to continue to run as they have so we can really make sure that we fully understand.
to continue to run as they have, so we can really make sure that we fully understand. I can tell you that a lot of the businesses are cooperating, figuring out product rationalization, how to maximize sales opportunities. There are a number of projects that are moving forward, but I would say that that's something that we're going to be getting into more heavily in 2024. Great.
Speaker Change: And I can tell you that a lot of the businesses are cooperating figuring out product rationalization, how to maximize sales opportunities. There are a number of projects that are moving forward.
Speaker Change: But I would say that.
Speaker Change: Nothing that we're going to be getting into more heavily in 2024.
Great. Thank you so much.
Thank you Rob.
And our next question comes from Pete Skibiski with Alembic Global. Please go ahead. Hey, good morning, everyone. Happy holidays.
Speaker Change: And our next question comes from Pete <unk> Kubicki with Alembic Global. Please go ahead.
Hey, good morning, everyone happy holidays.
Pete Kubicki: Good morning.
Maybe another one for Eric or Carlos, but Eric, I think what you've called out for kind of the adjusted FST margin was over 23%.
Pete Kubicki: Maybe another one for Eric or Carlos.
Eric I think what you've called out for kind of the adjusted SSG margin was over 23%, which is really strong.
which is really strong and, you know, I don't know how much seasonally factored in there, but I would also think you'd have some pricing power in 24 because some of the...
Now I don't know how much seasonality factored in there, but I would also think you'd have some pricing power in 'twenty four because some of the some of the bigger suppliers I think you've called out high single digit pricing increases for 24. So it seems like you've got some wiggle room, there, even though I know you guys I would like to be too aggressive but.
Some of the bigger suppliers I think have called out high single digit pricing increases for 24, so it seems like you've got some wiggle room there, even though I know you guys don't like to be too aggressive.
So, is something approaching 23 percent, you know, reasonable all in for 2024 at FFG or, you know, are there other factors that we should, I know Lawrence called out, you know, inflation and that sort of thing. So, how do you think it nets out next year?
Pete Kubicki: So.
Speaker Change: Something approaching 23% reasonable all in for 2024 and up ISG or are there other factors that we should I know.
Laurence called out inflate.
Speaker Change: Inflation and that sort of thing so how do you think it nets out next year.
Let me take that one, Eric. So, hey, Pete, this is Carlos. You have to remember that we have a pretty big amortization slug coming in from the WENCOR acquisition. So that's going to temper some of the gap margin a little bit. I think that it's going to be a little lumpy throughout the quarters, but I wouldn't get too far out over yourself.
Speaker Change: Let me, let me take that one Eric So hey, Pete. This is Carlos you have to remember that we have a pretty big amortization slug covenant from the <unk> acquisition. So that's going to temper some of the tougher the GAAP margin a little bit I think that it is.
Carlos: Going to be a little lumpy throughout the quarters, but I wouldn't get too far out over your skis I've been talking about the segment doing around 21% margins when things settle when we sort of settle and of our footprint and I think as we're looking forward that might be a good barometer.
Carlos: Haven't given guidance, but that's kind of what I'm thinking that 24 is going to look like right now.
Speaker Change: Okay, and then just curious.
I'm sorry, and Pete, this is Eric to add, you know, you had asked about pricing. Yes, there's no question that we've got pricing upside potential. However, it's really been our philosophy to pass along our cost increases. And so that's what we've been focused on doing, to be able to maintain our margins and to continue to provide a lot of opportunities for our customers.
Right.
Speaker Change: I'm sorry, Pete this is Eric to add you had asked about pricing.
Yes, there's no question that we've got pricing upside potential. However, it's really been our philosophy to pass along our cost increases.
Speaker Change: And so that's what we've been focused on doing to be able to maintain our margins.
Speaker Change: Continue to provide a lot of opportunities for our customers. So I think that there is.
So, I think that there is a very large potential there, you know, one of the things is as, you know, if someone's not buying a part and the OEM has raised the price on the part, then as new customers come in and start buying that part, they pay higher price.
Speaker Change: A very large potential there one of the things is as someone's not buying apart and the OEM has raised the price on the part then adds new customers come in and start buying that part they pay higher prices. So.
So in a sense, we do get some pricing that way, but we are being very good to our existing customers and we're looking very much at our cost increases. And cost increases have been significant.
Speaker Change: Since we do get some pricing that way, but we are being very good to our existing customers and we're looking very much at our cost increases and cost increases have been significant in a number of areas.
In a number of areas and you know, I don't need to tell you about labor and material and we have been successful In passing along those cost increases because it's something that we've got to do in order to maintain our margins as far as the overall operating margin, you know before intangible amortization I think that will continue to perform as we have in the past that you know, i'm quite pleased with our performance in the past
Speaker Change: I need to tell you about labor and material and we have been successful in passing along those cost increases because it's something that we've got to do in order to maintain our margins.
As far as the overall operating margin before intangible amortization I think that will continue to perform as we have in the past.
Speaker Change: <unk> pleased with our performance in the past and we.
And, you know, we've got a lot of very, very good things. And the Hopper, a lot of projects where Heiko and Wincourt can work together on a number of things. So I'm very optimistic about this.
<unk> got a lot of very very good things in the Hopper a lot of.
Speaker Change: Projects, whereas HEICO linked quarter can work together on a number of things so I am very optimistic about the future.
I appreciate it guys. And just so we're all clear on the amortization, I think you called out 11.8 million in the fourth quarter. What's kind of the run rate you're expecting in 24 that flows through FSG?
Speaker Change: Alright, I appreciate it guys and just so we're all clear on the amortization I think you'd called out $11 8 million in the fourth quarter, what's kind of the run rate you are expecting in 'twenty four that flows through revenues.
That would be the quarterly round. Are you talking about for just one court or for the whole segment?
Speaker Change: So that would be the quarterly right you're talking about for just one quarter for that segment.
Well, I think the $11.8 million you referred to was WENCOR purchased intangibles amortization. So I'm just wondering that number, how that runs through 24.
Speaker Change: Well I think the $1 $8 million, we referred to.
Speaker Change: When core purchased intangibles amortization and so I'm just wondering if that number how that runs through 'twenty four.
So it should be about that much each quarter. I will caution you that we, you know, we're in the middle of purchase accounting evaluations and all that kind of stuff. So it could move a few texts to the right or left. But that's what we don't count on for next year each quarter, about 11.8 million. Okay. Appreciate it. Thanks, guys.
Speaker Change: So it should be about that much each quarter I will caution you that we were in the middle of purchase accounting and valuations and all that kind of stuff. So it could move a few texts to the right or left but thats. What we are counting on for next year each quarter about 11 8 million.
Speaker Change: Okay I appreciate it thanks guys.
Yes.
We'll take our next question from Bert Hoopin with Siebel. Please go ahead. Hey, good morning.
And we'll take our next question from Bert <unk> with Stifel. Please go ahead.
Bert: Hey, good morning, and thanks for the question.
Bert: Good morning.
Uh, maybe just to follow up on that margin question, um, if we look at the margins being diluted to height, though, you know, just given where each margins are. And, you know, the last quarter when core was in line with excluding the amortization piece, which, which seems to be the case based on your prepared comments, Eric, when you put that together with the synergy opportunity and the broader parts, pricing opportunity that we've seen on the side.
Bert: Maybe just to follow up on that margin question.
Bert: If we look at the.
Bert: The margins being dilutive to HEICO, just given where <unk> margins are.
Bert: I noted last quarter when <unk> was in line with FSD, excluding the amortization piece, which seems to be the case based on your prepared comments, Eric when you put that together with the synergy opportunity in the broader parts pricing opportunity that we've seen on the OEM side.
Do you think there's a path to overall operating margins getting back to or above FY22 levels in the next, let's say, three years?
Speaker Change: Do you think there's a path to overall operating margins getting back to or above FY 'twenty two levels. The next let's say three years.
Well, so when we look at this past year for the Flights of Bore Group, in 23-hour operating margin, even after the one-time expenses, was about roughly $22 billion.
Speaker Change: Well so when we look at this past year for the flight support group in 'twenty three our operating margin.
Speaker Change: Even after the onetime expenses was about <unk>.
Roughly 22%.
So, we are going to have some additional headwinds as a result of the intangible amortization, but I think that, you know, we are going to have some additional headwinds as a result of the intangible amortization,
Speaker Change: So we are going to have some additional headwinds as a result of the intangible amortization, but I think that.
you know, when you add back the intangible amortization, you get into around the 23% area within the fight support group. So I do think that,
Speaker Change: When you add back the intangible amortization.
Speaker Change: Get into around the 23% area within the flight support group. So I do think that we.
Yeah, when you add back the intentional amortization and M&A expense, you get back to the 23%.
Speaker Change: When you add back the intangible amortization in M&A expense, you get back to that 23%. So I do think that there is additional opportunity for us, but again as I said, we want to be very protective and make sure we take care of our existing customers who have been buying the existing.
So I do think that there is additional opportunity for us. But again, as I said, we want to be very protective and make sure we take care of our existing customers who have been buying the existing parts. But there is no question that there is pricing opportunity. I mean, if somebody has not purchased a part from us,
Parts, but there is no question that there is pricing opportunity I mean, if somebody has not purchased a part from us.
our list price would escalate.
Speaker Change: Our list price would escalate.
And they would not be able to pay the same price for that part as somebody who had been buying it for a long time. So, yes, I think that we do have pricing opportunity on the upside. I want to be careful not to get too far over my fees here because, again, we are very customer friendly, but I do think there is pricing.
Speaker Change: And they would not be able to pay the same price for that part as somebody who had been buying it for a long time.
So yes, I think that we do have pricing opportunity on the upside I want to be careful not to get too far over my skis here because again, we are very.
Speaker Change: Customer friendly, but I do think there is pricing opportunity.
Okay, great. And then just as a, I guess, a higher level follow up, he's called out commercial aviation in that end market as being strong, a Boeing and Airbus clearly talking about driving toward target production rates, you know, that are much higher than today's rates over the next couple of years, you know, assuming that plays out based on sort of what you know today, how would you expect your commercial arrow and markets to change? Do you think they remain fairly similar over that?
Speaker Change: Okay, Great and then just as a I guess a higher level follow up.
Called out commercial aviation in that end market as being strong Boeing.
Speaker Change: Boeing and Airbus clearly talking about driving towards target production rates that are much higher than today's rates over the next couple of years.
Speaker Change: Assuming that plays out based on sort of what you know today, how would you expect your commercial aero and markets to change.
Speaker Change: They remain fairly similar over that period.
Yeah, I think I think they remain fairly similar. You know, one of the things that happened for us, you know, during the COVID crisis is we got rid of a lot of old aircraft at one time.
Speaker Change: Yes, I think they remain fairly similar.
Speaker Change: One of the things that happened for us.
Speaker Change: During the Covid crisis is we got rid of a lot of old aircraft.
So instead of having those headwinds, those headwinds as those older aircraft would have been retired over time, we got rid of them all. So if you look at our sales today, there's been a significant upgrade in the,
Speaker Change: At one time, so instead of having those headwinds those headwinds as those older aircraft would've been retired over.
Speaker Change: Over time, we got rid of them all so if you look at our sales today, there's been a significant upgrade in the.
improvement in our fleet age and distribution, so I think that the aircraft that we're servicing today are going to be out there for a long time. They continue to age one year per year, and their price points are, you know, very positive for HICO. So I think that we're going to have the wind to our backs for many years.
Speaker Change: In improvement in our fleet age in distribution, so I think that the.
Speaker Change: Aircrafts that were servicing today are going to be out there for a long time.
They continue to age one year per year.
Speaker Change: And their price points are.
Very positive for HEICO, So I think that we're going to have the wind to our backs.
For many years.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
We'll take our next question from Ken Herbert with RVC. Please go ahead.
We will take our next question from Mackenzie Herbert with RBC. Please go ahead.
Mackenzie Herbert: Hi, good morning, everybody.
Good morning Kim.
Hey, maybe a question, Eric, for you to start off. If you look at ICONOW with Glencore and the combined business, can you talk organically, perhaps, how much you'd expect your PMA portfolio, for instance, to grow into 24 or 25? I guess I'm just serious about what kind of share gain or opportunities you're seeing in PMA in particular and how you're investing to support that.
Mackenzie Herbert: Alright.
Mackenzie Herbert: Good question, Eric for you to start off if you look at it.
Now with Glencore and the combined business.
Mackenzie Herbert: Also on <unk>, perhaps how much you would expect your portfolio.
Mackenzie Herbert: Portfolio for instance to grow in the 20.
Mackenzie Herbert: 24 quantifiable.
Thank you.
What kind of share gain or opportunity.
Mackenzie Herbert: Quick one on how you are investing to support that.
Yeah, we both HICO and Wincourt performed very well in terms of new PMA generation. We're continuing to invest, continuing to find new opportunities.
Mackenzie Herbert: Yes.
Mackenzie Herbert: <unk>.
Mackenzie Herbert: Heiko linked quarter performed very well in terms of new PMA generation, we're continuing to invest continuing to find new opportunities.
So, I mean, without doubt, this is going to be a record year in terms of PMA generation and the number of parts that we can come out with, I can tell you that I've met with a number of customers since one core has closed.
Speaker Change: So I mean without a doubt this is going to be a record year.
Speaker Change: In terms of PMA generation and the number of parts that we can come out with.
Speaker Change: Can tell you that I have met with a number of customers.
Speaker Change: Since <unk> has closed and they are really excited and enthusiastic unlike I've ever seen.
and they are really excited and enthusiastic, unlike I've ever seen.
concerning our product line.
Speaker Change: Concerning our product.
They want us to do more, you know, again, there's going to be plenty of business for the OEMs. You know, there's more than enough business to go around, but they clearly have seen after going through a supply chain constraint like we've seen over the last couple of years not only does Heiko bring car savings, but we also bring availability.
Speaker Change: Product line.
They want us to do more.
Speaker Change: <unk>.
Speaker Change: Again, theres going to be plenty of business for the Oems.
Speaker Change: Theres more than enough business to go around but they clearly have seen after going through a.
Speaker Change: <unk>.
Speaker Change: Supply chain constraint like we've seen over the last couple of years not only this HEICO bring.
Speaker Change: Cost savings, but we also bring availability and that is a very very key part of our value proposition. So that is driving them to want to continue to develop more parts with us and why I'm so bullish on it.
And that is a very, very key part of our value proposition, so that is driving them to want to continue to develop more parts with us and why I'm so bullish on it. I mean, obviously we're not going
Speaker Change: Obviously, we're not going to.
HICO OneCore won't develop the same parts, and we can have each of the business units focus in areas where they have a competitive advantage, and that is our plan to be able to broaden the amount of product that we can bring to us.
Speaker Change: Hydro one quarter won't develop contained parts and.
Speaker Change: And we can have each each of the business units focused in areas, where they have a competitive advantage and that is our plan to be able to.
Speaker Change: Broaden the amount of product that we can bring to our customers.
Okay, that's very helpful. Thanks, Eric. And maybe Carlos, if you look at the Wengkor business, to the extent to which it's still sort of standalone or for independence somewhat, how is the cash generation profile with that business relative to like if you hike though, and is there an opportunity to maybe see some better cash generation out of the Wengkor business?
Speaker Change: Okay. That's definitely helpful. Thanks, Eric or maybe karla.
The one for Bruce.
Speaker Change: Well for the long haul more impairment somewhat.
Speaker Change: Cash generation profile relative to <unk>.
Speaker Change: Is there opportunity there.
Speaker Change: Or maybe.
Speaker Change: And better cash generation out of the wine corporate.
Ken, it was a little hard to hear that, but it sounds like you're wondering how we might be able to squeeze more money out of WENCOR. Is that essentially your question? Exactly. Yeah. Sort of the cash profile and the outlook there. Thank you. Sure. So I think that on a cash flow profile basis, from an EBITDA perspective.
Canada was a little hard to hear that but it sounds like you are wondering how we might be able to squeeze more money out of land core is that essentially your question.
Speaker Change: Exactly yes.
Speaker Change: Cash profile and the outlook there. Thank you.
Speaker Change: Sure. So I think that on a cash flow basis from an EBIT perspective.
You know, they're doing quite nicely. They're ahead of our expectations. I think that as we coordinate operations and coordinate
Speaker Change: Doing quite nicely there ahead of our expectations.
Speaker Change: I think that as we coordinate operations and coordinate.
Our sort of consolidations and back office things there may be some savings there. You know as I mentioned you before we're not going to
Speaker Change: Our sort of consolidations some back office things there may be some savings there.
Speaker Change: As I mentioned to you before we're not going to we're not going to disrupt operations right now with any consolidation moves because our end markets are too high and candidly they're doing great.
We're not going to disrupt operations right now with any consolidation moves because our end markets are too hot and candidly, they're doing great. And I think that, you know, if they continue to do what they did this quarter, we'll be very happy. They're not consuming a lot of working capital at the moment. So that's, you know, that's all a positive going forward in 24. Great. Well, thank you very much. You're welcome.
Speaker Change: And I think that.
Speaker Change: They continue to do what they did this quarter will be very happy they're not consuming a lot of working capital at the moment. So that's that's all a positive going forward in 'twenty four.
Speaker Change: Great well, thank you very much.
Speaker Change: Youre welcome.
Speaker Change: Yes.
Speaker Change: We will take our next question from Scott.
Scott: With Deutsche Bank.
Scott: Please go ahead.
Scott: Hey, good morning.
Scott: Good morning, Scott.
Eric, can you talk a little bit about the munitions growth at FSG, maybe kind of what the growth has looked like over the last year, than what the outlook is going forward into 2024?
Scott: Eric can you talk a little bit about the munitions growth at SSG, maybe kind of what the growth has looked like over the last year then what the outlook is going forward into 2024.
Oh, I'm sorry, can you just sort of the growth of which product line?
Eric Mendelson: Oh I am sorry can you just sort of the growth of which product line.
the munitions product line, I think, and specialty products. I think it was a big driver of growth in the first half of this year. I'm just curious a little more granularity there. Thank you. Got it. Yeah. I think what you're speaking about is the missile defense.
Eric Mendelson: The munitions product line I think in specialty products I think it was a big driver of growth in the first half of this year you got it.
Speaker Change: A little more granularity there. Thank you got it yes, I think what you are speaking about is the missile defense.
Product that we're doing and there's a lot of There's been a tremendous amount of growth as you can imagine in that area Everybody's been significantly under under invested in it And for that reason where we're very optimistic on it within our specialty products business We are at
That we're doing and there is a lot of there's been a tremendous amount of growth as you can imagine in that area.
Speaker Change: Everybody has been significantly under under invested in it and for that reason, we're very optimistic on it within our specialty products business.
Speaker Change: We are at.
adding capabilities and space and people to a number of those businesses so there's there's a fair amount of I would say one-time costs that we're anticipating in 2024 but it we're going to be able to cover it within our normal margin
Adding a.
Speaker Change: Capabilities and space and people to a number of those businesses. So there is a fair amount of.
I would say onetime costs that we're anticipating in 2024, but.
Speaker Change: We're going to be able to cover it within our normal margins, but the business is very strong.
But the business is very strong, and I think that we've really carved out a niche for ourselves in many areas in the defense product.
Speaker Change: And I think that we've really carved out a niche for ourselves in many areas.
Speaker Change: In the defense products.
Okay. And then Eric, you talked earlier about price and availability being two of the differentiators for what allows you to get the sale on a PMA part. But it seems like another one is that the PMA part is often just a better part. So I'm curious if you could talk a bit about that and how frequently the product itself and the capabilities of the product are what drives the sale as opposed to just the price and availability piece that you mentioned earlier.
Okay, and then Eric you talked earlier about price and availability being two of the Differentiators for what allows you to get the sale on the PMA part.
Speaker Change: But it seems like another one is that the PMA part is often just a better part.
Speaker Change: So I am curious if you could talk a bit about that and how frequently the product itself and the capabilities of the product are what drives the sale.
Speaker Change: As opposed to just the price and availability piece that you mentioned earlier.
Sure, Scott, I'd be happy to. So in order to get PMA, the part has got to be the same in terms of form, fit, and function.
Speaker Change: Sure Scott I'd be happy to do so in order to get a PMA. Its got the part is got to be the same in terms of form fit and function. So therefore, yes, we are.
So therefore, yes, the way that we are able to differentiate ourselves with respect to quality is we typically have tighter tolerances, so we produce more consistent parts. And we also have an extremely robust.
Speaker Change: The way that we are able to differentiate ourselves with respect to quality is we typically have tighter tolerances. So we produce more consistent parts and we also have an extremely robust.
quality inspection programs. So when parts come in from vendors, whether they are HEICO vendors or outside vendors, there's a very robust
Quality inspection program, so when parts come in from vendors, whether they are HEICO vendors or outside vendors, there's a very robust material analysis, whether the parts met or not met all to confirm grain size microstructure hardness code.
material analysis, you know, whether the part's metal or not metal, to confirm grain size, microstructure, hardness, coating.
all of those various constituents to ensure that the part that we ship out is exactly what was designed. Likewise, we have a very robust inspection process to review the
Speaker Change: <unk> all of those various constituents to ensure that the part that we ship out is exactly what was designed likewise, we have a very robust inspection process to review the dimensions. So I would say that with regard to basically shipping the part according to.
So I would say that with regard to.
basically shipping the part according to the design intent, Heiko scores incredibly high in that area.
Speaker Change: Two the design intent HEICO scores incredibly high in that area. So the parts are more consistent airlines are able to.
So the parts are more consistent. Airlines are able to.
Speaker Change: Basically use them and install them right away and the fallout or rejection rate with HEICO parts, we believe is significantly lower than with.
Other companies parts. So they are improved in that regard we do offer some parts that are improvements where material or dimensions can be changed.
they are improved in that regard. We do offer some parts that are improvements where material or dimensions can be changed, but that is a smaller part of our business, but that's also an area of opportunity for us. Okay, great. And last question, Carlos, can you give any kind of framework for how to best think about ETT margins for next year? Is something in the range of 24 to 25 percent?
Speaker Change: But that is a smaller part of our business, but that's also an area of opportunity for us.
Okay, great. And last question, Carlos, can you give any kind of framework for how to best think about ETG margins for next year? Is something in the range of 24 to 25 percent, you know, a good kind of base case framework to think about 24? Thank you.
Speaker Change: Okay, Great and then last question Carlos can you give any kind of framework for how to best think about atg margins for next year.
Carlos: Something in the range of 24% to 25%.
Carlos: Good kind of base case framework to think about 24. Thank you.
Well, I can tell you this for the ETG, I think it's going to be lumpy. I think the defense sales look like they have turned to our benefit. But we have, as Victor mentioned earlier, we have a lot of high-end...
Carlos: Well.
Carlos: I can I can tell you this for the Atg I think it's going to be lumpy.
Carlos: I think the defense sales looked like they have turned to our benefit.
Carlos: But we have as Victor mentioned earlier, we have a lot of.
Carlos: High end.
Carlos: <unk>.
Parts that are going to non aerospace defense and space areas that business we believe will calm down a little bit So the Mars is going to go all over the place
Carlos: Reliability parts that are going to non aerospace defense and space areas that business, we believe will calm down a little bit. So the margin is going to go all over the place.
You know, I would say if you're at 24%, you're probably in the right ballpark for the year. But I wouldn't, I would let us get a couple quarters underneath this before we before we commit to a margin because again, I think based on backlog and what we see right now, it's going to be a little lumpy going into next year.
Speaker Change: I would say if youre at 24% Youre, probably in the right ballpark for the year.
Speaker Change: But I wouldn't.
Speaker Change: I would let us get a couple of quarters underneath us before we.
Speaker Change: Before we commit to a margin because again I think based on backlog and what we see right now it's going to be a little lumpy going into next year.
Speaker Change: Great. Thank you.
Speaker Change: Youre welcome.
And we'll take our next question from Sheila Kayalu with Jeffries. Please go ahead.
Speaker Change: And we'll take our next question from Sheila <unk>.
Sheila: With Jefferies. Please go ahead.
Maybe just continuing on that line of questioning with ETG profitability, Victor, can you talk about Excelia? Just provide us with an update there, the performance of what you're seeing in terms of the underlying profitability profile of the business and kind of how that tempers into your fiscal 24 expectations, as what Harlis just said, as well as beyond that period.
Sheila: Good morning, guys and thank you maybe just continuing on that line of questioning the UGG profitability.
Sheila: Can you talk about <unk> just to provide us with an update the performance of what Youre seeing in terms of the underlying profitability profile of business and kind of how that tempers into your fiscal 'twenty four expectations that pilot.
Speaker Change: <unk> looked at that as well as yes in that period.
Sure, Sheila. So Excelia has been doing pretty much exactly what we expected it to do, more or less right on plan. The business has been growing. And I, as we've said before, that it
Speaker Change: Sure Sheila so.
Speaker Change: <unk> has been doing pretty much exactly what we expected it to do.
More or less right on plan.
Speaker Change: The business has been growing.
Speaker Change: And I as we've said before that.
penalizes our operating margin by about 200 basis points.
Speaker Change: Penalizes, our operating margin by about 200 basis points.
And I would expect that to probably continue to be the case. I would expect their margins will march up a bit over time, but not to the level of the rest of the ETG.
Speaker Change: We'd expect that to probably continue to be the case I would expect their margins will march up a bit over time.
Speaker Change: But not to the level of the rest of the ETE.
So we're very happy to have the business. They have mined out a lot of new opportunities. They're working on other opportunities beyond that Continuing good product development producing out their backlog, which has been very strong
Speaker Change: So we're very happy to have the business. They have mined out a lot of new opportunities. They are working on other opportunities beyond that continuing good product development producing out their backlog, which has been very strong. So overall very happy and very happy with the people there.
So overall, very happy and very happy with the people there.
Okay, thanks for that color. And maybe Eric, one for you. I know you got lots of questions on price. Any way you could quantify cumulative price over the last, since 2019 for us, and also any thoughts on the GTF issues and how you think that'll potentially benefit HICO's PMA portfolio?
Speaker Change: Okay. Thanks for that color.
And maybe Eric one for you I know you've got lots of questions I'm, sorry, any way you could quantify cumulative price over the last since 2019, perhaps any.
Speaker Change: So.
Eric Mendelson: Our thoughts on the GTS. She is and how you think that will potentially benefit hi, guys P&A portfolio.
Hi. Good morning, Shio. Great question. With regard to price, actually, I don't have that information in front of me, and due to HICO's decentralized nature, it would be very difficult to pull all of that together. But I would say that in general, we have not, you know, as I said before, we have not pushed price beyond our cost increases. So, therefore,
Hi, Good morning show.
Speaker Change: Great question with regard to price actually I don't have that information in front of me and due to heico's decentralized nature. It would be very difficult to pull all of that together, but I would say that in general we have not as I said before we have not pushed price beyond.
Speaker Change: Our cost increases.
Speaker Change: So therefore.
Customers who have been purchasing the parts for a long time have been Treated very well, and it's our plan to continue doing that But of course new people buy the parts and they haven't purchased the parts in the past They pay the newer price and that would reflect Increased prices as our you know, labor and material costs have gone up. So
Speaker Change: Customers, who have been purchasing the parts for a long time have been.
Speaker Change: Treated very well and its our plan to continue doing that but new people buy the parts and they haven't purchased the parts in the past they paid the newer price and that would reflect.
Speaker Change: Increased prices as our labor and material costs have gone up so.
And then with regard to the GTF, I assume that will keep the existing fleet in great demand for a long time. You know, it's going to take a while to work through the GTF problems.
Speaker Change: And then with regard to the GTS I assume that will keep the existing fleet in great demand for a long time.
Speaker Change: It's going to take a while to work through the GTS problems.
And I have no question that they'll ultimately get through them, but in the meantime, that should be really a very strong indicator, I would say, for the aftermarket. And, you know, fortunately, these aircraft are, you know, able to pick up the slack. So I think that that's working out quite
And I have no question that they will ultimately get through them, but in the meantime that should be really a very strong indicator I would say for the aftermarket.
Speaker Change: Fortunately these aircraft are.
Speaker Change: Sure.
Speaker Change: <unk> to pick up the slack so.
Speaker Change: I think that that's working out quite nicely.
You know, originally, you know, we always said that whenever you've got a recovery, there's always a little bit of an overshoot. Well, it looks like perhaps as a result of the GTF issue, that overshoot may either be delayed or won't happen because there's just increased demand. Our backlogs are tremendous. Our suppliers are challenged to keep up.
Speaker Change: Originally we always said that whenever you've got a recovery there is always a little bit of an overshoot.
Speaker Change: It looks like perhaps as a result of the GTS issue that overshoot may either be delayed or wont happen.
Because there is just increased demand our backlogs are tremendous our suppliers are challenged to keep up.
I think we're doing better than most in that regard, but there continues to be tremendous demand for our products and services.
Speaker Change: I think we're doing better than most in that regard, but there is tremendous there continues to be tremendous demand for our products and services.
Speaker Change: Great. Thank you.
Thank you thanks, Joe.
We'll take our next question from Michael Tremoli with Truist Securities. Please go ahead.
Speaker Change: We will take our next question from Michael Melby with Truth Securities. Please go ahead.
Hey, good morning guys. Nice results and thanks for taking the question here.
Michael Melby: Hey, good morning, guys nice results and thanks for taking the question here.
Speaker Change: Hey, Carlos just can you give us any any more maybe clarity or direction on the revenue growth outlook for 2004, I mean, I know you called out in the press release do you expect growth.
Can you give us any, any more maybe clarity or direction on the revenue growth outlook for, for 24? I mean, you know, I know you called out in the press release, you expect growth in, in FSC and ETG, assuming, you know, FSC, you know, we'll be lapping a tough comp on the 20% organic. So, you know, maybe, maybe unlikely to see acceleration there, but I would think with ETG and defense.
Speaker Change: The SG in Atg assuming.
Speaker Change: SSG will be lapping a tough comp on the 20% organic so maybe maybe unlikely to see acceleration there, but I would think with ETE G in defense.
Kind of showing that sequential improvement. We get some acceleration off this 1%. Can you maybe give us a little bit more more detail on kind of the top line growth expectation?
Speaker Change: And that sequential improvement, we get some acceleration off this 1% can you maybe give us a little bit more more detail on kind of the top line growth expectations.
Well, I mean, as we're sitting here today, you know, our growth is our growth is going to be solid next year from acquisition revenue, if you're referring to organic.
Well I mean, as we're sitting here today.
Speaker Change: Our growth is our growth is going to be solid next year from acquisition revenue, if youre referring to organic.
You know, you are right, we're lapping 20 plus percent growth quarters for two years now, so I think what in the FSD, so I think that that'll be.
Speaker Change: You are right. We are lapping 20 plus percent growth quarters for two years now so I think what in the FSC, So I think that.
I don't think it'll continue at that rate, Michael. I mean, it could, but I'm not anticipating that. I do think it peels back a little bit, not a ton, but it will peel back. I think the ETG's growth is going to be quite lumpy based on what we see in backlog right now. And I think with the ETG, if you're counting on the organic side, look to the low to mid-single digits.
Speaker Change: That will be I don't think it will continue at that rate Michael I mean it could.
Michael Melby: Not anticipating that as you think it peels back a little bit not a ton, but it will peel back I think the atg's growth is going to be quite lumpy based on what we see in backlog right now and.
Michael Melby: With the Atg, if youre counting on the organic side look to the low to mid single digits.
Michael Melby: Okay.
FSG should be, you know, high single to double digit, something like that. It should continue a nice growth pattern.
Michael Melby: FSD should the ABL.
Michael Melby: High single high single to double digits, something like that it to continue the nice growth next year.
Okay, that's helpful. And then just back to the fsg margins, I guess, um, you know, as you guys think about, you know, kind of the integration plans when core had been running at at 15.8% give or take, but where do you think you can take those margins and I know Carlos, you called out a couple of times the amortization.
Speaker Change: Okay. That's helpful. And then just back to the SSG margins I guess.
Speaker Change: As you guys think about kind of the integration plans when core had been running at 58% give or take.
Speaker Change: Where do you think you can take those margins and I know Carlos you called out a.
Speaker Change: A couple of times the amortization from one core at 11 8 million flowing through but what was the other amortization as well that flows through there to kind of get you to that.
From when court 11.8M flowing through, but what was the other amortization as well that flows through there to to kind of get you to that that 23% just just want to make sure we've got all the math. Correct.
3%, just just want to make sure we've got all the math correct.
Speaker Change: Okay.
Speaker Change: Michael are you talking about just one quarter in this segment.
Uh, the 1st question was just on when core the 2nd was was this segment in total at that 23%. So, I, I think that, um.
The first question was just on one core the second was the segment in total at that 23%.
So I think that.
Speaker Change: Percent of sales youre going to run.
Two, two and a half percent, I believe, is the number for amortization in the segment. And one core, you know, one core is part of that. And like I said, you know, you're close to 12 million a quarter for one core in amortization. So that's what we're looking at next year.
Speaker Change: Two 5% I believe is the number for amortization in this segment.
Speaker Change: One.
Speaker Change: One course part of that and like I said, you know you're close to $12 million a quarter for one corn amortization. So thats what were looking at next year.
Okay, got it. And then any thoughts on on where you could take those those when core margins like just, you know, that from that that 15.8% level as you guys integrate and, you know, kind of go through the process.
Speaker Change: Okay got it and then.
Speaker Change: Any thoughts on where you could take those when core margins like just.
Speaker Change: From that that 15, 8% level or as you guys integrate in.
Speaker Change: Kind of go through the process.
So Michael, this is Eric, let me see if I can help you out with that a little bit. If you take the Wincorps operating income for the quarter of $29.3 million and then you add back the $11.8 million of intangible amortization, then you get to a number of about $41 million for the quarter.
So Michael this is Eric let me see if I can help you out with that a little bit.
Eric Mendelson: If you take the wind core operating income for the quarter of $29.3 million and then you add back the $11 $8 billion of intangible amortization, then get to a number of about $41 million for the quarter. So when you divide that $41 million by the.
So when you divide that $41 million by the $186 million, approximately, of one-quarter sales, you get to about a 22%.
Eric Mendelson: $186 million approximately of linked quarter sales get to about 22%.
margin, adding back the intangible amortization. So if we're saying that HICO is, you know, fight support group is going to be in the 23% area for this coming year, you know, one core based on the fourth quarter was just a tick below that.
Eric Mendelson: Margin, adding back the intangible amortization, so if we're saying that HEICO.
Eric Mendelson: Fight support group is going to be in the 23% area for this coming year.
Eric Mendelson: When core based on the fourth quarter was just.
Eric Mendelson: A tick below that.
But I would say it's very similar to HICO.
Eric Mendelson: Okay.
Eric Mendelson: But it's.
Eric Mendelson: So I would say, it's very similar to very similar to HEICO. Okay.
Okay, that's helpful. Perfect. Thanks guys. I'll jump back in the queue.
Speaker Change: Okay. That's helpful.
Speaker Change: Perfect. Thanks, guys I'll jump back in the queue.
Thank you.
And we'll take our next question from Gautam Khanna with TD Cowan. Please go ahead.
And we will take our next question from Gautam Khanna with Cowen. Please go ahead.
Gautam Khanna: Hey, good morning, guys.
Gautam Khanna: Good morning, good morning, guys.
I had a couple questions. First, Eric, I was wondering if you've seen any differences in demand by channel, you know, when core, I think you guys said so, so more to the MROs.
Gautam Khanna: I had a couple of questions first.
Gautam Khanna: Eric I was wondering if you've seen any differences in demand by channel when core I think you guys said sales more to the MRO.
whereas Hykel on the PMA side directly to the airline.
Gautam Khanna: Whereas HEICO on the PMA side directly to the airlines.
Was there any discernible differences or changes in customer behavior between the two channels?
Gautam Khanna: Was there any discernible differences or changes in customer behavior between the two channels.
No, I would say that there really hasn't been thus far. I think that that is an opportunity for us to mine as we go forward.
Speaker Change: No I would say there really hasnt been thus far I think that that is an opportunity for us to mine as we go forward.
Speaker Change: And.
I think that that will be very much an opportunity. Again, WENCOR has operated basically as a standalone business, yes, we're coordinating some activities, but it continues to operate with its own leadership and its own P&L, but I think there will be opportunities such as the ones you're alluding to.
Speaker Change: I think that that would be very much an opportunity again.
Speaker Change: <unk>.
Speaker Change: As operated basically as a stand alone business, yes, we are.
Speaker Change: Coordinating some activities but.
It continues to operate with its own leadership in its own.
Speaker Change: <unk>.
Speaker Change: But I think there will be opportunities such as the ones you're alluding to.
Speaker Change: Okay.
Speaker Change: Yes.
You know, airlines appear to be in some financial stress incrementally, you know.
Speaker Change: Airlines appear to be in some financial distress incrementally.
I'm just curious, has that, have you seen any?
I'm just curious has that have you seen any.
increase in the number of inquiries from non-PMA buying customers that are now
Speaker Change: Increase in the number of inquiries from non PMA buying customers that are now.
Looking to switch over or just your seeing more volume among certain customers than you would expect at the airlines given some of the challenges.
Speaker Change: Looking to switch over or Youre seeing more volume among certain customers then you would expect.
At the Orleans, given some of the challenges.
Yeah, it's a great question and there, I mean, pretty much everybody uses PMAs, but there has been an increase in using parts that, you know, using Hyco parts that they haven't purchased in the past.
Speaker Change: Yes, it's a great question and there are I mean pretty much everybody uses PMA, but there has been an increase in using parts that using HEICO parts that they haven't purchased in the past.
And, you know, what is it that, you know, the old saying necessity is the motherhood of invention and sometimes if people can't get apart from the OEM, then they'll go ahead and then they'll buy it from Heiko. And we certainly have seen that happen and as a matter of fact, it's particularly gratifying when you see OEMs.
Speaker Change: And.
Speaker Change: What does it.
Say necessity is in motherhood of invention.
And sometimes that people can't get apart from the OEM then they'll go ahead and.
Speaker Change: And then they'll buy it from HEICO and we certainly have seen that happen and.
Speaker Change: And as a matter of fact, it's particularly gratifying when you see.
Speaker Change: Oems do that so.
So, and that's been, you know, I'm not going to get into specifics, obviously, but it's very nice when we see OEMs purchasing, you know, the HYCO and the OneCore alternative parts in order to meet their demand, because we know the quality is outstanding.
And thats been.
Speaker Change: Im not going to get into specifics obviously, but.
It's very nice when we see Oems purchasing.
Speaker Change: The haikou in the one core alternative parts in order to meet their demand.
Speaker Change: The quality is outstanding.
Appreciate it. And then, Victor, just quickly on some of the earlier questions related to the defense improvements that you saw.
Speaker Change: I appreciate it and then Victor just quickly on some of the earlier questions related to the defense improvement.
You saw sequentially.
What is this a let up of past due backlog, or is there is that not really a driver and, you know, what can you say about maybe book to bill or.
What is this a letup of past due backlog or is that not really a driver in.
Speaker Change: What can you say about maybe book to bill or.
you know, any sort of discernible change in order trends among those customers.
Any sort of discernible change in order trends among those customers.
Yeah, on defense, I think our book to bill is positive on defense and moving in the right direction. For our defense businesses, I would say very little of it, if any, would be supply chain catch up. In fact, quarter, in the whole quarter.
Speaker Change: Yes on defense I think our book to Bill is positive on defense and.
Speaker Change: And moving in the right direction.
Speaker Change: For our defense business is I would say.
Very little of it if any would be supply chain catch up in fact.
Speaker Change: Quarter.
Speaker Change: In the whole quarter.
We, our custom companies estimate that maybe approximately $10 million worth of shipments moved to the right, right? So compare that to where we were, I don't know, roughly a year ago, I think we'd reached up in the $40 million range or even higher. So that's definitely trended in the right direction for us and overall optimistic on our defense business.
Speaker Change: Our custom companies estimate that may be approximately $10 million worth of shipping.
Speaker Change: Shipments moved to the right right.
Speaker Change: No.
Speaker Change: Compare that to where we were I don't know roughly a year ago I think we'd reached up in the $40 million range or even higher.
Speaker Change: No.
Speaker Change: It's definitely trending in the right direction for us and overall optimistic on our defense business throughout the year again as Carlos emphasize it will be lumpy and the mixed sensitivities.
throughout the year. Again, as Carlos emphasized, it will be lumpy and the mixed sensitivity is important because we have some products, some subsidiaries which have a much higher margin than others and how that backlog falls out is very important. So I would expect, for example, the first quarter on margin side to be tougher for us than the following quarters.
Speaker Change: Is important because we have some products some subsidiaries, which have much higher margin than others and how that backlog falls out is very important. So I would expect for example, the first quarter.
Speaker Change: Our margin side to be tougher for us than the following quarters.
And the last one, if I may, just back to Eric, on the number of TMA parts you expect to introduce between the two entities, Legacy HIKO and WEMCOR, if you could just update us on that.
Speaker Change: Last one if I may just back to Eric on the number of PMA parts, we expect to introduce between the two entities legacy HEICO in one quarter.
Eric Mendelson: Can you just update us on that.
Eric Mendelson: Over the next year.
Yeah, I think, you know, Heiko has been running in that three to five hundred area or, you know, roughly four hundred parts a year and Wincor has been running in about the 150 area So I I would anticipate those numbers continuing that way Great, thanks a lot guys. Happy holidays
Speaker Change: Yes, I think that HEICO has been running in that three.
Speaker Change: Three to 500 area roughly 400 parts of the year.
Speaker Change: <unk> been running in about.
Speaker Change: 150 area, So I would anticipate those numbers continuing that way.
Speaker Change: Great. Thanks, a lot guys happy holidays.
Speaker Change: Very good JV holidays detail.
Speaker Change: <unk>.
And we'll take our next question from Louie DeBalma with William Blair, please go ahead.
Speaker Change: And we will take our next question from Louie Dipalma with William Blair. Please go ahead.
Speaker Change: Yes.
Larry, Eric, Victor, and Carlos, good morning. Good morning.
Louie Dipalma: Larry Eric Victor and Carlos Good morning.
Carlos: Good morning morning Lily.
When discussing the WENCORE deal, WENCORE's e-commerce platform was touted as one of the unique assets with potential synergies. Has HIKO started the process of selling any of the HIKO parts on the WENCORE online marketplace?
Carlos: When discussing the one core deal one course ecommerce platform was powered at all as one of the unique assets.
Potential synergies.
<unk> started the process of selling any of the HEICO parts on the one core online marketplace and our.
Are there many revenue and cost energy projects planned for 2024? Or is that more of a 2025 event? Thanks.
Carlos: Are there many revenue and cost synergy.
Carlos: <unk> planned for 2024 or is that more of a <unk>.
Carlos: 25 of that thanks.
Yeah, this is Eric. I'd be happy, Lily, to answer that. As I mentioned, the Heiko philosophy when we acquire a business is just to leave it alone and observe what's going on. We've got our initial view, and then we want to make sure we confirm that first before making substantial changes. So, yes, the...
Carlos: Yes. This is Eric I'd be happy to answer that.
Eric Mendelson: As I mentioned, the hydro <unk> when we acquire a business is just to leave it alone and observe what's going on and we've got our initial view and then we want to make sure we confirm that first before making substantial changes so yes the.
ownership period at Wencore has gone extremely well and we are working on a number of projects in terms of product rationalization, you know, sharing resources between the businesses, sending business to, you know, Heiko Wencore, which used to go outside. So all of that is going well.
Eric Mendelson: Yes.
Eric Mendelson: The ownership period of <unk> has gone extremely well.
Eric Mendelson: And we are working on a number of projects in terms of product rationalization.
Eric Mendelson: Sharing resources between the businesses.
Eric Mendelson: Sending business too.
Eric Mendelson: Heiko went quarter, which used to go outside so all of that is going well specifically with regard to the.
specifically with regard to the
e-commerce platform, we think that that's going to be an opportunity for 2024. It's something that we're looking at right now. We continue to believe very much that that's going to be a huge asset. They are studying the best way to go ahead and do that. But no, we have not done it to date. Not because we don't want to do it, but because, frankly, both businesses are running at such a high percentage of utilization that we don't have.
Eric Mendelson: E Commerce platform, we think that thats going to be an opportunity for 2024.
Eric Mendelson: <unk> that we're looking at right now we continue to believe very much that's going to be a huge asset.
Eric Mendelson: They are studying the best way to go ahead, and do that but no. We have not done it to date not because we don't want to do it but because frankly, both businesses are running at such a high percentage of utilization that we don't have people to be able to focus.
people to be able to focus on all of the projects that we're just sort of taking them as we can handle them. But we believe that that's going to be a tremendous benefit for us in 2024.
Eric Mendelson: On all of the projects that we're just sort of taking them as we can handle them but.
Eric Mendelson: We believe that thats going to be.
Eric Mendelson: Tremendous benefit for us in 2024.
Eric Mendelson: Sure.
Great. And following up on that, in terms of the cost synergies, then you said that you plan to let when core operate in a standalone mode, should we think of synergies more as a 2025 event then? Like how, how long would you generally plan to let it operate in a standalone mode?
Eric Mendelson: Great.
Eric Mendelson: Following up on that in terms of.
The cost synergies.
Eric Mendelson: You said that you.
Eric Mendelson: Plan to lap when core operating as Standalone mode should we think of.
Eric Mendelson: Synergies March of 2025 event, then how long would you generally plant.
Eric Mendelson: Let it operate in a standalone model.
Well, I think the revenue synergies are going to start accruing quickly.
Speaker Change: Well I think the revenue synergies are going to.
Speaker Change: Start accruing.
Speaker Change: <unk>.
And then, as far as some of the cost synergies,
Speaker Change: And then as far as some of the cost synergies the business units are taking it upon themselves to work together in defined areas where.
The business units are taking it upon themselves to work together and to find areas
where they can rationalize product lines, you know, if one business does more of a particular product than another, they're looking at swapping, so this way, you know, we can maintain the workforces, we've got, you know, tremendous volumes and all the businesses are running at a high
Speaker Change: They can rationalize product lines, one business, there's more of a particular product in another theyre looking at swapping. So this way we can maintain their workforces, we've got tremendous volumes in all the businesses are running at a high.
Utilization factor so but if we can redirect people to More efficient activities we want to do that. So we are taking advantage of the revenue synergies and of some of the cost synergies
Speaker Change: Utilization factor, so, but if we can redirect people to more efficient activities. We want to do that so we are taking advantage of the revenue synergies and of some of the cost synergies.
But I would say that that's going to be something that benefits us in both 24 and 25.
Speaker Change: But I would say that's going to be something that.
Speaker Change: Benefits us in both 'twenty, four and 'twenty five.
Speaker Change: Excellent thanks, Derek and thanks, everyone.
Speaker Change: Thank you.
And we'll take our next question from Larry Zala with CJS Securities. Please go ahead. Thank you. Thank you.
Speaker Change: And we'll take our next question from Larry Solow with CJS Securities. Please go ahead.
Larry Solow: Great. Thanks, Good morning, guys.
Thanks, everybody. Most of my questions have been answered, just one, I guess, on free cash flow, a couple there.
Larry Solow: At Hollister, everybody most of my questions have been answered.
Larry Solow: One I guess just on free cash flow a couple there sort of.
without getting specific guidance or your general outlook on free cash flow.
Larry Solow: Without getting into specific guidance or the general outlook on free cash flow.
In terms of, you know, working capital needs, you expect maybe to have to build a little more inventory. How do you think that's going to shake out? And then part two, that question would be kind of priorities for free cash for a little more leverage than you guys are used to. So I'm just curious with that number one priority be sort of that pay down maybe in front of even strategic acquisition.
Larry Solow: In terms of working capital needs do you expect maybe to build more inventory how do you think thats going to shakeout.
Larry Solow: Part two of that question would be kind of priorities for free cash flow a little bit.
Larry Solow: More leverage than you guys are used to so I'm just curious would that number one priority b sort of debt pay downs, maybe in front of even continued acquisitions.
So let me let me take a stab at that Larry. It's Carlos. I think that on the as you mentioned the inventory side we did we did have a significant investment 23 in inventory. And I suspect that for a few quarters into 24 we might have a little bit more inventory bill. Part of that is due to firm commitment orders we place.
Larry Solow: So let me let me take a stab at that Larry its Carlos.
Carlos: I think that on the as you mentioned the inventory side, we did have.
Carlos: Our significant investment in 'twenty, three and inventory and I suspect it for a few quarters into 'twenty four we might have a little bit more inventory build part of that is due to a firm commitment orders we place sometimes.
Sometimes as much as two years ago to deal with the supply chain challenges to make sure we had product on the shelf for our customers, but I do think that.
Carlos: Sometimes as much as two years ago to deal with the supply chain challenges to make sure we had product on the shelf for our customers.
Carlos: But I do think that.
You know, caring costs and inventory isn't free anymore, right? Grades are up, so we're very cognizant of that. And I do think as we get into 24, my hope is, is that towards the back half of the year, we get a little bit more rationalization on the working capital usage.
Carrying costs and inventory isn't for anymore right rates are up so we're very cognizant of that and I do think because we get into 'twenty for my hope is.
Carlos: Is that towards the back half of the year, we get a little bit more rationalization on the working capital usage.
Speaker Change: That's my expectation.
As far as free cash flow, I expect the company to continue to have strong free cash flows. And I do think you've hit the nail on the head once the working capital investment to support the growth and some of these firm commitment orders has tempered, I think our conversion will be slightly.
Speaker Change: As far as free cash flow I expect I expect the company to continue to have strong free cash flows and I do think you've hit the nail on the headwinds once the working capital investment to support the growth in some of these firm commitment orders.
Speaker Change: Has tempered.
Speaker Change: Our conversion will be slightly.
Speaker Change: Does that answer your question Larry.
Yeah, no, absolutely. And I guess just priority. Is that pay down? Is that, you know, probably priority or?
Larry: Yeah, absolutely and I guess, just priority debt pay down you've got probably yes.
Yeah, look, I mean, our objective right now, as we stated before, is is to is to try and deliver as quick as possible, you know, our plan.
Speaker Change: Yes, yes.
Speaker Change: Our objective right now as we stated before is to is to try and Delever as quick as possible. Our plan. After completing the <unk> acquisition within 12 to 18 months, we set out on a plan to.
After completing the winter core acquisition, you know, within 12 to 18 months, we set out on a plan to get our debt leverage ratio something close to normal around the two range roughly.
Speaker Change: Our debt leverage ratio something close to normal around the two range roughly.
That's the goal of 12 to 18 months. I would say that that is not a goal that prohibits us from doing acquisitions. I would say that, you know, for smaller acquisitions, we will draw on a line to do what we need to do to complete those if they're good for our shareholders. I think if they're larger deals, we might have to get creative, but I don't expect that, you know, over the next 12 to 18 months.
Speaker Change: That's the goal of 12 to 18 months I would say that that is not that is not a goal that prohibits us from doing acquisitions.
Speaker Change: I would say that for smaller acquisitions, we will draw on our line to do what we need to do to complete those if they are good for our shareholders.
Speaker Change: I think if they are larger deals we might have to get creative but I don't expect it over the next 12 to 18 months.
something as large as one core probably would be very unique. I don't know that we've got something on the horizon right now. And I do think to your point that deleveraging is sort of our highest and best use of free cash right now.
Speaker Change: Something is largest one core probably would be very unique I don't know that we've got something on the horizon right now and I do think to your point that deleveraging is sort of our.
Highest and best use of free cash right now.
Speaker Change: Okay, great. Thanks, guys I appreciate it.
Speaker Change: Yes.
Speaker Change: We will take our next question from Ron Epstein with Bank of America. Please go ahead.
Good morning, everyone. This is Mariana Perez-Moran for RUN Today.
Speaker Change: Good morning, everyone. This is Mariana Perez Mora on for Ron today.
Speaker Change: Okay.
I'm going to ask a big picture question, Larry, in your prepare remarks you highlighted, you have never been more optimistic about high cost future than you are today. When you think about the year ahead, what are you most excited about? Is the industry, is a particular end market, is high cost competitive position?
Speaker Change: Hello, I'm going to ask it.
Speaker Change: Big Picture question, Larry in your prepared remarks, you highlighted you have never been more optimistic about high cost you chart today. When do you think about the year ahead, where are you. Most excited about is the industry is it particular end market is highly competitive position.
I think all of the above and other areas too. I think that the Wencor acquisition puts us in a very unique spot. As we've told you today, it's actually working out better than we anticipated. To Heiko, the culture of a company is critical.
Okay.
I think all of the above in other areas too.
Speaker Change: I think that the.
Speaker Change: When core acquisition puts us in a very unique spot.
Speaker Change: As we've told you today.
Speaker Change: It's actually working out better than we anticipated.
Speaker Change: To HEICO the culture of the company is critical and I can tell you as a large acquisition like wind core having that excellent culture is really a wonderful thing.
And I can tell you, as a large acquisition like WinCorp, having that excellent culture is really a wonderful thing. We have learned, I'm a financial person originally, started as a CPA long ago, and finance is very important. And we key on that, of course, in cash.
Speaker Change: We have learned I'm a financial person originally started as a CPA you long ago and finance is very important and we key on that of course in cash, but when I look at our cash flow and I look at our culture. The culture is what ultimately drives the bottom line.
but when I look at our cash flow and I look at our culture, the culture is what ultimately drives the bottom line. So this is very, very good. On the other hand, the Accelia acquisition is come off almost exactly what we expected.
So this is very very good on the other hand, the Excelsior acquisition is.
Speaker Change: Come off almost exactly what we expected so we expected it to be good and it is good so when I look at all these things and the size of the company.
So, and we expected it to be good, and it is good. So when I look at all these things and the size of the company, I also believe that, as a matter of fact, I've said many times that we have a goal of growing 15 to 20% bottom line.
Speaker Change: I also.
Speaker Change: Believe.
Speaker Change: As a matter of fact, I've said many times that we have a goal of growing 15% to 20% bottom line.
And in 23, if you add back non-recurring expenses that we incurred, the legal investment banking and so forth for the acquisition, we grew about 20% over the prior year, 22.
Speaker Change: And in 'twenty three if you add back some of those nonrecurring expenses that we incurred the legal investment banking and so forth for the acquisition, we grew about 20% over the prior year 'twenty two.
I feel very confident that in the current year, we will be able to grow 15% or 20%. We don't give guidance.
I feel very confident that in the current year, we will be able to grow 15% or 20%, we don't give guidance, but clearly we focus on our budgets and where we think we will wind up but I feel knowing everything I know now that we will be.
but clearly we focus on our budgets and where we think we will wind up. But I feel knowing everything I know now that we will be able to repeat a 15, 20% growth. So, and then that's after making these sizable acquisitions and digesting them. So, HICO is a much stronger, bigger company.
Speaker Change: Able to repeat a 15% 20% growth so.
Speaker Change: And then that's after making the sizable acquisitions and digesting them. So.
Speaker Change: HEICO is a much stronger bigger company then.
than it has ever been. I mean, it's a major factor today in the industries we operate. So for all those reasons, I would say Heiko has become a powerhouse.
Speaker Change: It has ever been I mean, it's a major factor today.
Speaker Change: This and the industries, we operate so for all those reasons I would say HEICO has become.
Speaker Change: Powerhouse and for those reasons I feel extremely confident of the future for HEICO.
And for those reasons, I feel extremely confident of the future for HIKO.
Speaker Change: Does that answer your question.
Yes, thanks so much. And then when you think about potential challenges, what gives you up at night? What are you paying close attention to?
Speaker Change: Yes. Thanks, so much and then when you think about potential challenges what keeps you up at night gets.
Speaker Change: It gets you up at night like where are you like paying close attention to.
Well, the only thing that I worry about is exogenous events, which we can't control, war, strange things like this. But as far as the operation of HICO, I am highly confident because we have great depth in management. In other words, since we're a
Speaker Change: Well the only thing that I worry about is exogenous events, which we can't control more strange things like this but as far as the operation of HEICO.
Speaker Change: I am highly confident because we have great depth in management in other words since we're a.
a company that's not consolidated. We're diversified and we leave the decision-making down at the level where we believe it belongs. So corporate doesn't tell the operating entities what they have to do.
A company that has not consolidated we're diversified and we leave the decision making down at the level, where we believe it belongs corporate doesn't tell the operating entities what they have to do we say to them. What do you think we should do.
We say to them, what do you think we should do and how will you accomplish it in your budget? And to that extent, I have great,
Speaker Change: And how will you accomplish it in your budget.
Speaker Change: And to that extent I have great confidence. These are people who have been running these businesses for many years nobody in my opinion nobody knows their market there.
uh... these are people who've been running these businesses for many years
Nobody, in my opinion, nobody knows their market, their...
labor market, their customer market, better than the people operating the businesses.
Speaker Change: Labor market there.
Or market better than the people operating the businesses so.
And they've done it over and over and over again. So it's not as though. Well, this is something new Can they do it? Can they accomplish it? No, they've been doing this for many years. I mean HIKO has a record of growing
Speaker Change: And they've done it over and over and over again, so its not as though well. This is something new can they do it can they accomplish it no they've been doing this for many years I mean, HEICO has a record of growing.
uh... over thirty some years uh... the bottom line close to twenty percent compounded growth
Speaker Change: Over 30, some years the bottom line close to 20% compounded growth so because of that I have great great confidence in what they're doing I mean, Eric and Victor run those companies and they go out and they meet with the business unit leaders constantly they speak to them.
So because of that, I have great, great confidence
in what they're doing. I mean, Eric and Victor run those companies and they go out and they meet with the business unit leaders constantly. They speak to them by phone. Carlos has an extremely detailed financial report weekly, so we keep track of the receivables, the growth, the backlog, cash flows, everything.
Speaker Change: My phone.
Carlos has an extremely detailed financial report weekly so we keep track of the receivables have grown the backlog cash flows everything so for all those reasons I really don't worry about the operation of our company I just worry about.
So for all those reasons, I really don't worry about the operation of our company. I just worry about the, well, I don't worry about it because I can't control it. The things like COVID, wars, and things like that, which might impact us. But I can't change that.
Well I don't worry about it because I can't control the things like Covid wars, and things like that which might impact us, but I can't change that.
Speaker Change: Yeah.
I think we've done as well. Eric Victor and our team members have done as well as can be done with the company in terms of operations and control, so none of those things worry me.
Speaker Change: I think we've done as well, Eric Victor and team members have done as well as can be done.
Speaker Change: With the company in terms of operations and control so none of those things where we make.
Perfect. Thanks so much. And then if I may, one last question for Carlos. Could we please dig deeper on M&A? I'm curious if you could discuss the two sides of it, like number one, like pipeline of opportunities and like how at any color and pricing there. But also, you mentioned the leveraging. What is the targeted leverage? And I'm curious how and if the an easy interest rate environment influences that target.
Speaker Change: Perfect. Thanks, so much and then if I may one last question for Carlos could we please dig deeper on M&A I'm curious if you could discuss the two sides of it like number one like pipeline of opportunities on like how any color on pricing there, but also you mentioned deleveraging what is the target.
With leverage and I'm curious, how and if anything.
Speaker Change: <unk> interest rate environment influences that target.
Well, clearly, higher interest rates causes me to want to pay down debt quicker, right? I mean, that's kind of our mode of operation here. You know, within the next 12 to 18 months, I'm targeting somewhere in the low two times.
Speaker Change: Well clearly higher interest rates causes me to want to pay down debt quicker right. I mean, that's that's kind of our motor operation here.
Speaker Change: Within the next 12 to 18 months, some targeting somewhere in the low two times.
And that gets us, you know, close to historic norms, which have been somewhere slightly lower than two. You know, that was the goal when we set out, and that's what our objectives are. As far as our M&A backlog goes, we have a very active process. Both segments have teams that are focused on markets and opportunities. It's very opportunistic. And as I mentioned earlier, you know, there'll be those handful of deals that we see every year, which I would probably...
Speaker Change: And that gets us close to historic norms, which have been somewhat slightly lower than two that was the goal we set out and thats, what our objectives are as far as our as far as M&A backlog goes we have a very active process. Both segments have teams that are focused on markets and opportunities it's very opportunistic.
Speaker Change: And as I mentioned earlier.
Speaker Change: B there'll be those handful of deals that we see every year, which I will which I would probably.
Categorize is smaller, you know 100 million dollars spend and less and things like that We'll find deals like that all day long and if it makes sense for our shareholders We'll pull the trigger that won't damage our plan to do lever But as far as larger deals such as a wine corp where we spent over two billion You know, I would think over the next 12 to 18 months that that would be Unlikely that we would pursue something like that until we do levered a bit
Speaker Change: Categorize a smaller one.
$100 million spend and less and things like that we'll find deals like that all day long and if it makes sense for our shareholders.
Speaker Change: We'll pull the trigger that won't damage our plan to de lever, but as far as larger deals such as <unk>, where we spent over $2 billion I would take over the next 12 to 18 months that that would be unlikely that we would pursue something like that until we've de levered a bit.
Thank you so much and yeah, that's perfect. Thanks so much and happy holidays to everyone.
Speaker Change: Does that answer your question yes.
Speaker Change: Perfect. Thanks, so much and happy holidays to everyone.
Speaker Change: Thank you you too.
And we'll take our next question from Ian Franz Engelbrecht with Baird. Please go ahead.
Speaker Change: And we'll take our next question from Ian from Engelbrecht with Baird. Please go ahead.
Good morning, Larry, Victor and Carlos. Thanks for taking the question.
Hey, Good morning, Larry Hey, Victor and Carlos Thanks for taking my question.
Speaker Change: Good morning, good morning.
Eric, if I can just sort of a high-level question, just over the next 12 months, in terms of flight activity across narrow-body, wide-body, and then sort of North America, Europe , and China, if you can just let us know how you're thinking about sort of potential areas of strength and potential regions where there's a watch item for your business, for the aftermarket.
Speaker Change: Eric if I can just add.
Eric: Sort of a high level question.
Eric: Just over the next 12 months in terms of flight activity across narrow body wide body, and then sort of North America, Europe, and China. You can just let US know how are you thinking about sort of potential areas of strength.
Eric: Central regions.
Eric: There will be a watch item.
Eric: For your business.
Eric: Aftermarket.
Yeah, we're seeing strength, frankly, across the board. So we dive down into the part number level. So it's just very, very broad-based strength straight across the board. So I wouldn't want to call out one area or another. It's really just very strong across the board.
Yes.
Eric: We're seeing strength frankly across the board.
So.
Eric: We dive down into the part number level.
Eric: So.
Eric: It's just very very broad based strength straight across the board so I wouldn't want to call out.
Eric: One area or another it's it's really just very strong across the board.
No, that makes sense. Thank you. And if I could just have a quick follow-up, Victor, I think you may have answered this with ETG. But if you just talk about sort of the supply chain outlook in 2024 and beyond. So there's less of an impact. I think you guys mentioned $10 billion. Does that keep on improving for the remainder of 2024?
Speaker Change: Okay that makes sense. Thank you and then if I could just have a quick follow up.
Speaker Change: Victor I think you may have answered this with BTG.
But if you could just talk about the supply chain outlook in 2024 and beyond.
Speaker Change: So there is less of an impact yes. Thank.
I think you guys mentioned $10 billion.
Does that does that keep on improving for the remainder of 2004.
Speaker Change: Okay.
I would expect that to be the case. I think it's improved dramatically, but there's still room to go. Lead times have improved. Of course, there are some products, there are some components.
Speaker Change: I would expect that to be the case I think it's improved dramatically, but theres still room to go lead times have improved.
Speaker Change: Of course, there are some.
Speaker Change: Products there are some components.
particularly in the realm one would think of as, quote, chips. That's still elevated and a little complicated. And I would say, even in ordinary times, as I reflect on it, I would expect that there will always be products and vendors that are delayed, but we wouldn't categorize it as a supply chain crunch like the world experienced before. So I think it will return to normal.
Speaker Change: Particularly.
The realm, one would think of as quote chips.
Speaker Change: That's still elevated and a little complicated.
Speaker Change: And I would say even in ordinary times as I reflect on it.
Speaker Change: I would expect that there will always be products and vendors that are delayed, but we wouldn't categorize it as supply chain crunch like the world experienced before and so I think it will return to normal.
Speaker Change: Sometimes I would expect.
Speaker Change: Within calendar 2024.
Perfect. Thank you. Thanks and happy holidays and congrats in a good quarter. I'll jump back a minute. Thank you. Thank you.
Speaker Change: Perfect. Thank you.
Happy holidays, and congrats on a good quarter I'll jump back in thank you.
Speaker Change: Yes.
We'll take our next question from Lewis Raffetto with Wolf Research. Please go ahead.
And we will take our next question from Louis Raffetto with Wolfe Research. Please go ahead.
Louis Raffetto: Thank you and good morning, guys.
Louis Raffetto: Good morning.
Victor, so it's great to see defense up again. I guess, have we lapped year-over-year growth yet? I know it was down high single digits last year or last quarter for defense. I guess, was it up this quarter?
Victor.
Louis Raffetto: To see defense up again I guess.
Louis Raffetto: Year over year growth, yet I know it was down high single digits last year or last quarter for defence I guess was it up this quarter.
Speaker Change #100: Yes, it was up this quarter.
Okay, great. Thank you. And then, um, Eric, just, can you help a baseline? The 186Million of sales for 1 core between sort of the sub segments within. Anyway, you could help us out there.
Speaker Change #100: Okay.
Speaker Change #100: And then.
Speaker Change #100: Eric just can you help baseline of $186 million of sales for one core between sort of the sub segments within SSG.
Eric: Any way you could help us out there.
I can't, I don't have that actually in front of me right now, but it would fall, you know, broadly into parts and into MRO in terms of the disaggregation of revenue. But I don't have that information in front of me at the moment. But I would say that we're doing very well in both of those areas.
Hi.
Eric: I don't have that actually in front of me right now, but it would fall.
Broadly into parts and.
Eric: MRO.
Eric: In terms of the disaggregation of revenue.
Speaker Change #101: But I don't have that information in front of me at the moment, but I would say that we are doing very well in in both of those areas.
All right, great. Appreciate it. And then Carlos, just to make sure we're all based on, I guess, on the interest cost in the quarter, was there anything one time or should we think of this $40 million level was sort of going into fiscal year 24 as the right level.
Speaker Change #102: Alright, I appreciate it and then Carlos just to make sure. We're all based on I guess on the interest cost in the quarter. It was there anything.
Carlos: One time or should we think of this $40 million level was sort of going into fiscal year 'twenty four is the right level.
Speaker Change #103: That's a good question so within the within the interest line. This quarter, we had $3 $8 million worth of one time costs in there related to the commitment letter to fund the one core deal going into there, we basically add to pay about $3 $8 million to get a bank to write a letter to say that we were.
Speaker Change #103: Good for the purchase price.
You know, that's the one timer. That won't repeat. So as you're looking forward next year, if you pull that out, you're looking at roughly 38 million and then, you know, decreasing as we deliver.
Speaker Change #103: Hi.
Speaker Change #103: Thats the one timer that won't repeat so as you're looking forward next year, if you pull that out you're looking at roughly $38 million and then decreasing as we delever.
Okay. And then I guess just taxes. Any way to think about taxes for next year?
Speaker Change #103: Okay.
And then I guess just taxes any way to think about taxes for next year.
Yeah, I hope they remain I'm planning on him to remain similar to what they were this year. You know, I always kind of count on a 20 to 21% rate this year. We did a little better. It's because frankly, the.
Speaker Change #104: Yes, I hope they remain I am planning on them to remain similar to what they were this year.
Speaker Change #104: I always kind of count on a 20% to 21% rate. This year, we did a little better it's because frankly the.
We have that leadership compensation plan where we have some tax deferred earnings that has a positive impact on our rate. And because the market was generally up through 23 for our fiscal year, that that did help us as opposed to hurting us last year. So I think if you're in the 20 to 21 percent range, you're going to be in good shape.
Speaker Change #104: We have that leadership compensation plan, where we have some tax deferred earnings that has a positive impact on our rate and because the market was generally up through 'twenty three for our fiscal year that did help us as opposed to hurting us last year. So I think if you are in the 20% to 21% range youre going to be in good shape.
Okay, and then just last cleanup on the intangible amortization, there's no sort of one-time step-ups or anything like that, that $11.8 million was to your point sort of the go-forward rate.
Speaker Change #105: Okay, and then just last cleanup on the intangible amortization.
Speaker Change #105: There are no sort of onetime step ups or anything like that that $11 8 million was to your point sort of the go forward rate.
Speaker Change #106: Yes, it was.
The one thing about, you know, OneCore doesn't have what I'll call a manufacturing base like we do. They outsource a lot of their manufacturing, so there wasn't any manufacturing profit to pull out of the, purchase accounting to pull out of the numbers. I mean, maybe a little bit in the repair side, but it wasn't anything notable, Louis. So I would say that 11.8 is a pretty good run rate number.
The one thing about one quarter doesn't have one.
Ill call manufacturing base like we do they outsource a lot of their manufacturing. So there wasn't any manufacturing profit to pull out of the purchase accounting to pull out of the numbers I mean, maybe a little bit in the repair side, but it wasn't there wasn't anything notable lowest so I would say that eliminates a pretty good run rate number.
Speaker Change #106: Alright.
Thank you very much.
Speaker Change #106: Beth.
We'll take our next question from Colin Neuscharm with Sterling Capital. Please go ahead.
Speaker Change #106: We will take our next question from Colin.
With Sterling capital. Please go ahead.
Hi, good morning, and thanks for taking my question. I had actually one clarification for Eric, and then one question for Carlos, if I may. Eric, on the GTF question earlier, could you just please clarify your impression of the materiality of that potential demand driver?
Colin: Hi, good morning, and thanks for taking my question I had actually one clarification for Eric and then one question for Carlos If I may Eric on the GTS question earlier could you just please clarify them.
Eric: Your impression of the materiality of that potential demand driver for 2024, do you view that as an incremental needle mover for you all and then do you have any additional certifications et cetera that youre subsidiaries.
Do you view that as an incremental needle mover for you all, and then do you have any additional certifications, et cetera, that your subsidiaries perhaps need to attain to win that work?
Eric: Perhaps need to attain to to win that work and then.
you have the capacity to kind of take that on. And then for Carlos, just stepping back and thinking of the post-Wencore and Axalia balance sheet that you're sitting on now, you're facing one of the most significant de-levering processes in recent memory for Heiko. And we've just witnessed a significant and favorable change to financial market conditions in the last month or so. And while I'm no macro economist,
Eric: Do you have the capacity to kind of take that on and then for Carlos just stepping back and thinking of the post when core next daily a balance sheet that youre sitting on now youre facing one of the most significant delevering processes.
Eric: In recent memory for HEICO and we've just witnessed.
Eric: A significant and favorable change to financial market conditions in the last month, or so and while I'm no macro.
Eric: Economist things could continue to favorably develop here in 2024, so I just wanted to.
things could continue to favorably develop here in 2024. So I just wanted to, you know, ask about your thinking and has it changed at all regarding the cost or pace of this delivering journey that you're on?
Ask about your thinking and has it changed at all regarding the cost or pace of this delevering journey that you're on.
uh... any change to your thinking and or steps as you kind of prosecute that playbook
Eric: Any change to your thinking and or steps as you've kind of prosecute that playbook. Thanks again.
Yeah, Colin, so I'll start out. What I was referring to in response to the prior question concerning the GTF was that as a result of the GTF powered aircraft being taken out of service in order to have their engines overhauled, that would create additional demand for legacy aircraft. So I don't want to call that out.
Eric: Colin So I'll start out.
Colin: What I was referring to.
Colin: Response to the prior question concerning the GTS was that as a result of the GTS powered aircraft being taken out of service in order to have their engine overhaul.
Colin: That would create additional demand for legacy aircraft.
Colin: So I don't want to call that out as anything more than a tailwind.
you know, anything more than a talent, but, you know, clearly is going to be good.
Colin: But clearly is going to be good for the use of the utilization of non GTS powered aircraft with regard to heico's involvement in the GTS REIT campaign I would say that it is it is not material we are.
for the use of the utilization of non-GTF-powered aircraft. With regard to HIKO's involvement in the GTF fleet campaign, I would say that it is not material. We are not supplying.
Colin: Not supplying.
PMAs on the GTF in any material quantity.
Colin: Sure.
Colin: PMA is on the GTS in any material quantity.
frankly the the service that's being done now is being paid by the manufacturer so that would not be a Revenue opportunity for us if we've got businesses that are supplying parts into The OEM then there could be a little bit of increased demand for that. But no, I would not call it out as a you know a special special one-time item
Colin: And frankly the.
The service that's being done now is being paid by the manufacturer so that would not be a revenue opportunity for us. If we've got businesses that are supplying parts into.
Colin: The OEM then there could be a little bit of increased demand for that but no I would not call it out.
Colin: A.
Colin: A special.
Colin: A special one time item.
Colin: Collyn. This is this is carlos.
I don't know that, you know, anything on the horizon is going to change my view on the delevering. You know, in my mind, we've got almost 10,000 team members and, you know, an uncountly number of family members that are attached to those people. And we want to make sure we have a battle-hardened company that has a lot of staying power. And so my objective with that in mind is to try and delever as quick as possible so we could de-risk the balance sheet. I will tell you this. I mean...
I don't know that anything on the horizon is going to change my view on the Delevering in my mind, we've got almost 10000 team members in an.
Colin: Countless number of family members that are attached to those people and we want to make sure. We have a battle hardened company that has a lot of staying power and so my objective with that in mind as to try and Delever as quick as possible. So we can derisk the balance sheet I will tell you. This I mean.
At net leverage at three times, it's not like we're highly levered, but for me, I'd prefer to be back down to historical norms. So that's kind of the marching orders into the next couple years, and we'll see how it plays out. I can tell you, we will not miss opportunities that are good for our shareholders as a result of that plan, but the state of goals right now are to continue the thoughts of de-levering.
Colin: At net leverage of three times its not like were highly levered, but for me I prefer to be back down to historical norms. So thats kind of the marching orders into the next couple of years and we'll see how it plays out I can tell you we will not miss opportunities that are good for our shareholders. As a result of that plan, but the stated goals right now are to continue the thoughts are there.
Colin: Delevering.
Speaker Change #108: Does that answer your question.
Speaker Change #109: Yes. Thank you.
Speaker Change #109: Youre welcome.
And we'll take our next question from Jordan Lyonnaise with Bank of America. Please go ahead.
We will take our next question from Jordan <unk> with Bank of America. Please go ahead.
Jordan: Hello Hello.
It appears they disconnected and we have no additional questions at this time.
Jordan: It appears we're disconnected and we have no additional questions at this time.
Okay, well thank you very much. I want to thank everybody who has been listening to this call. I hope we've satisfied you and give you information that you would like. If not, we are available as you know. Give us a call. Eric, Victor, Carlos, myself.
Speaker Change #111: Okay, well. Thank you very much I wanted to thank everybody who has been listening to this call I hope we've satisfied you and give you. The information that you would like if not we are available as you know give us a call Eric Victor Carlos myself.
And we look forward to speaking to you in the first quarter call, which will be in a few months from now. And we wish all of you a very happy, healthy holiday season and New Year. And that's the end of this.
Speaker Change #111: And we look forward to speaking to you in.
Speaker Change #111: In the first quarter call, which will be.
A few months from now and we wish all of you a very happy healthy holiday season, and new year and Thats. The end of this call.
Thank you. And this concludes today's call. Thank you for your participation. You may now disconnect.
Speaker Change #112: Thank you and this concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change #112: [music].