Q1 2024 HEICO Corporation Earnings Call

Operator: Welcome to the Heico Corporation first quarter 2024 financial results call. My name is Samara, and I'll be today's operator.

Welcome to the HEICO Corporation first quarter 'twenty 'twenty four financial results call.

Tamara: My name is Tamara and I'll be today as the operator.

Speaker: Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies. Heico's actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include the severity, magnitude, and duration of public health threats, such as the COVID-19 pandemic, Heico's liquidity and the amount and timing of cash generation, lower commercial air travel, airline fleet changes, or airline purchasing decisions, which could cause lower demand for our goods and services, product specification costs and requirements, which could cause an increase to our costs to complete contracts, governmental and regulatory demands, export policies and restrictions, 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 governmental approvals and achieve operating synergies from acquired businesses.

Tamara: Certain statements in this conference call will constitute forward looking statements, which are subject to risks uncertainties and contingencies heico's actual results may differ materially from those expressed in or implied by those forward looking statements.

Tamara: <unk> that could cause such differences include the severity magnitude and duration of public health threats, such as the COVID-19 pandemic.

Tamara: It goes liquidity and the amount and timing of cash generation lower commercial air travel airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services.

Tamara: 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 U S and or foreign customers or competition from existing.

Listing and new competitors, which could reduce our sales.

Tamara: 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 our ability to make acquisitions, including obtaining any.

Tamara: Applicable with domestic and foreign governmental approvals and achieve operating synergies from acquired businesses.

Laurans A. Mendelson: 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 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. I now turn the call over to Laurans Mendelson, Heico's Chairman and Chief Executive Officer. Thank you, Samara, and welcome to everybody on this call.

Tamara: 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 <unk>.

Tamara: Costs and revenues.

Tamara: 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.

Tamara: Of new information future events, or otherwise except to the extent required by applicable law.

Tamara: And now I'll turn the call over to Laurens, Mendelson, Heico's, Chairman and Chief Executive Officer.

Laurans A. Mendelson: Thank you Tamara and welcome to everybody on this call.

Laurans A. Mendelson: Thank you for joining us, and we welcome you to the Heico First Quarter Fiscal 24 Earnings Announcement Teleconference. I am Larry Mendelson, chairman and CEO of Heico Corporation. I'm joined here this morning by Eric Mendelson, Heico's co-president and president of Heico's flight support group; Victor Mendelson, Heico's vice-president and president of Heico's Electronic Technologies Group; and Carlos Macau, our executive vice president and CFO.

Laurans A. Mendelson: We thank you for joining us and we welcome you to the HEICO first quarter fiscal 'twenty four earnings announcement teleconference.

Laurans A. Mendelson: I am Larry Mendelson, Chairman and CEO of HEICO Corporation, and I'm joined here. This morning by Eric Mendelson, Heico's co President and President of Heico's flight support group.

Laurans A. Mendelson: Victor Mendelson Heico's co president and President of Heico's Electronic technologies group.

Laurans A. Mendelson: Carlos Macau.

Carlos Macau: <unk> executive Vice President and CFO.

Laurans A. Mendelson: Before reviewing our operating results in detail, I would like to take a moment and thank all of Heico's talented team members for delivering another very, very strong quarter. Your continued focus on exceeding customer expectations and operating at peak performance levels continues to fuel our excellent financial results. I personally have never been more optimistic about the future of Heico.

Before reviewing our operating results in detail I would like to take a moment and thank all of heico's talented team members for delivering another very very strong quarter.

Carlos Macau: Your continued focus on exceeding customer expectations and operating at peak performance level continued to fuel our excellent financial results.

CFO: Personally have never been more optimistic about the future of HEICO.

Laurans A. Mendelson: I would now like to summarize the highlights of our first quarter fiscal 24 record results. Consolidated operating income and net sales in the first quarter of fiscal 24 improved by 39% and 44%, respectively, as compared to the first quarter of fiscal 23. These results reflect mainly a 12% organic net sales growth in flight support, commercial aerospace products, and services, as well as the impact from our profitable fiscal 23 and 24 acquisitions. Consolidated net income increased 23% to $114.7 million, or $0.82 per diluted share in the first quarter of fiscal 24, and that was up from $93 million, or $0.67 per diluted share in the first quarter of fiscal 23. Net income attributable to Heico in the first quarter of fiscal twenty-four and twenty-three were both favorably impacted by a discrete income tax benefit from stock option exercise. The benefit in the first quarter of fiscal 24, net of controlling interest, was $13.3 million, and that was up from $6.1 million in the first quarter of fiscal 24. Consolidated EBITDA increased 43% to $224.4 million in the first quarter of fiscal 24.

CFO: I would now like to summarize the highlights of our first quarter fiscal 'twenty four record results.

CFO: Consolidated operating income and net sales in the first quarter of fiscal 'twenty, four improved by 39% and 44% respectively as compared to the first quarter of fiscal 'twenty three.

CFO: These results.

CFO: Slick, mainly a 12% organic net sales growth in flight support.

CFO: Port commercial aerospace products and services as well as the impact from our profitable fiscal 'twenty, three and 'twenty four acquisitions.

CFO: Consolidated net income increased 23% to $114 $7 million or 82 cents per diluted share in the first quarter of fiscal 'twenty, four and that was up from $93 million or 67 cents per <unk>.

CFO: Diluted share in the first quarter of fiscal 'twenty three.

CFO: Net income attributable to HEICO in the first quarter of fiscal 'twenty, four and 'twenty three were both favorably impacted by a discrete income tax benefit from stock option exercises.

Yeah.

CFO: The benefit in the first quarter of fiscal 'twenty four net of controlling interest was $13 3 million and that was up from $6 1 million in the first quarter of fiscal 'twenty three.

CFO: Consolidated EBITDA increased 43% to $224.4 million in the first quarter of fiscal 'twenty four and that was up from 157 1 million in the first quarter of fiscal 'twenty.

Laurans A. Mendelson: And that was up from $157.1 million in the first quarter of fiscal 23. I mean, that is an enormous increase, if I say so myself. The flight support group set an all-time quarterly net sales and operating income record in the first quarter of fiscal 24, improving 67% and 63%, respectively, over the first quarter of fiscal 23. The increases principally reflect the impact of our fiscal 23 acquisition of Wencor and 12% organic growth, mainly attributable to increased demand within our aftermarket replacement parts and repair and overhaul parts and services. Our net debt to EBITDA was 2.79 times as of January 31, 24, and that was down from 3.04 times as of October 31, 23.

Speaker Change: Three I mean that is an enormous increase if I say so myself.

Speaker Change: The flight support group set an all time quarterly net sales and operating income record in the first quarter of fiscal 'twenty, four improving 67% and 63% respectively over the first quarter of fiscal 'twenty three.

Speaker Change: The increases principally reflect the impact from our fiscal 'twenty three acquisition of <unk> core and.

Speaker Change: And 12% organic growth, mainly attributable to increased demand within our aftermarket replacement parts and repair and overhaul parts and services.

Speaker Change: Our net debt to EBITDA was $2 seven nine times as of January 31, 'twenty four and that was down from 3.04 times as of October 31, 2003 when.

Laurans A. Mendelson: When we acquired Wencor, our pro-forma leverage ratio was slightly above three times, and we had projected pro-forma leverage to be two times within 12 to 18 months post-acquisition. At this time, I am pleased to report that we continue to remain on track to achieve this target. Cash flow provided by operating activities increased 46% to $111.7 million in the first quarter of fiscal 24, and that was up from $76.7 million in the first quarter of fiscal 23. We continue to forecast strong cash flow from operations for fiscal 24. On January 24, we paid our regular semiannual cash dividend of $0.10 per share, and this represented our 91st consecutive semiannual cash dividend since 1979. Additionally, on January 24, we were honored to announce that I received the Ken Rickey Lifetime Aviation Entrepreneur Award from the Living Legends of Aviation organization. The living legends of aviation recognition is given to remarkable people of extraordinary accomplishment in aviation, including entrepreneurs, innovators, industry leaders, astronauts, record breakers, pilots who've become celebrities, and celebrities who have become pilots.

Speaker Change: When we acquired when core our pro forma leverage ratio was slightly above three times and we had projected pro forma leverage.

Speaker Change: To be two times within 12 to 18 months post acquisition.

Speaker Change: At this time I am pleased to report that we continued to remain on track to achieve this target.

Speaker Change: Cash flow provided by operating activities increased 46% to $111 $7 million in the first quarter of fiscal 'twenty, four and that was up from $76 $7 million in the first quarter of fiscal 'twenty three.

Speaker Change: We continue to forecast strong cash flow from operations for fiscal 'twenty four.

Speaker Change: In January 24, we paid our regular semiannual cash dividend of <unk> 10 per share and this represented our 91 consecutive semiannual.

Speaker Change: Semiannual cash dividend since 1979.

Speaker Change: In January 24, we were honored to announce that I received the Ken Ricky Lifetime Aviation Entrepreneur award from the living legends of Aviation organization.

Speaker Change: The living legends of aviation recognition is given to remarkable people are extraordinary accomplishment in aviation, including entrepreneurs innovators industry leaders astronauts record breakers pilot to become celebrities and celebrities who have become pilots.

Laurans A. Mendelson: I was profoundly humbled and honored that this storied and unique organization would include me with such aviation and space pioneers for this special honor. However, in my opinion, the honor really belongs to Heico's 10,000 plus team members, who are the ones that make Heico the great company that it is. Now let me discuss our recent acquisition activity. On December 23, we entered into an exclusive license and acquired certain assets for the capability to support Boeing 737NG-777 cockpit display and legacy display products line from Honeywell International. We do expect the exclusive license and asset acquisition to be accretive to our earnings in the year following close. The acquisition broadens our avionics capability and is another example of ways that Heico has grown into adjacent markets to increase our overall value proposition to customers and the industry. At this time, I would now like to introduce Eric Mendelson, who is co-president of Heico and president of Heico's Flight Support Group. He will discuss the first quarter results of the Flight Support Group. Eric.

Speaker Change: I was profoundly humbled and honored that this story in a unique organization would include me with such aviation and space pioneers for this special honor.

Speaker Change: However in my opinion the on a really belongs to Heico's 10000, plus team members, who are the ones that make HEICO the great company that it is.

Speaker Change: Now, let me discuss our recent acquisition activity.

Speaker Change: In December 'twenty, three we entered into an exclusive license and acquired certain assets for the capability to support Boeing 737, Mg Slash Triple seven.

Speaker Change: Pit display and legacy display products line from Honeywell International we.

We do expect the exclusive license and asset acquisition to be accretive to our earnings in the year. Following closing the acquisition broadens our avionics capability and it's another example of ways that HEICO has grown into adjacent markets to increase our <unk>.

Speaker Change: Overall value proposition to customers and the industry.

Speaker Change: At this time I would now like to introduce Eric Mendelson, who is co president of HEICO and President of Heico's flight support group and.

Laurans A. Mendelson: He will discuss the first quarter results of the flight support group Eric Thank you very much.

Laurans A. Mendelson: Thank you very much. The Flight Support Group's net sales increased 67% to a record $618.7 million in the first quarter of fiscal 24, up from $371.3 million in the first quarter of fiscal 23. The net sales increase in the first quarter of Fiscal 24 reflects the impact of our profitable Fiscal 23 acquisition of OneCorp, which continues to perform above our expectations, as well as strong 12% organic growth. The organic growth mainly reflects high teens.

Laurans A. Mendelson: Right support group's net sales increased 67% to a record $618 7 million in the first quarter of fiscal 'twenty four.

Laurans A. Mendelson: From 371 3 million in the first quarter of fiscal 2003.

Laurans A. Mendelson: The net sales increase in the first quarter of fiscal 'twenty four reflects the impact from our profitable fiscal 'twenty three acquisition of one quarter, which continues to perform above our expectations as well as a strong 12% organic growth.

Laurans A. Mendelson: Organic net sales growth, mainly reflects high teens organic net sales growth from both our aftermarket replacement parts and repair and overhaul parts and services product lines.

Laurans A. Mendelson: Organic Net Sales Growth from both our aftermarket replacement parts and repair and overhaul parts and services product line. The Flight Support Group's operating income increased 63% to a record $136.1 million in the first quarter of fiscal 24, up from $83.6 million in the first quarter of fiscal 23. The operating income increase in the first quarter of fiscal 24 principally reflects the previously mentioned net sales growth, partially offset by higher, as expected, intangible asset amortization expenses due to the Wencore acquisition, as well as increased inventory obsolescence expense. The Flight Support Group's operating margin was 22% in the first quarter of Fiscal 24, as compared to 22.5% in the first quarter of Fiscal 23.

Laurans A. Mendelson: The flight support group's operating income increased 63% to a record $136 1 million in the first quarter of fiscal 'twenty four up from $83 6 million in the first quarter of fiscal 2003.

Laurans A. Mendelson: The operating income increase in the first quarter of fiscal 'twenty four principally reflects the previously mentioned net sales growth, partially offset by higher as expected intangible asset amortization expenses due to the <unk> acquisition as well as increased inventory up.

Laurans A. Mendelson: <unk> expense.

Laurans A. Mendelson: The flight support group's operating margin was 22% in the first quarter of fiscal 'twenty four as compared to 22, 5% in the first quarter of fiscal 'twenty three.

Laurans A. Mendelson: The Flight Support Group's operating margin before intangible amortization expense was 24.8% in the first quarter of fiscal 24, versus 24.3% in the first quarter of fiscal 23. The Small Decrease in Operating Margin principally reflects a slightly lower gross profit margin due to the previously mentioned higher expected intangible asset amortization expense due to the Wincore acquisition, partially offset by lower performance-based compensation expense. Now I would like to introduce Victor Mendelson, co-president of Heico and president of Heico's Electronic Technologies Group, to discuss the first quarter results of the Electronic Technologies Group. Thank you, Eric. The Electronic Technologies Group's operating income was $55.3 million in the first quarter of fiscal 24.

Laurans A. Mendelson: The flight support group's operating margin before intangible amortization expense was 24, 8% in the first quarter of.

Laurans A. Mendelson: Fiscal 'twenty four versus 24, 3% in the first quarter of fiscal 2003.

Laurans A. Mendelson: The small decrease in operating margin.

Laurans A. Mendelson: Principally reflects a slightly lower gross profit margin and the previously mentioned higher expected intangible asset amortization expense due to the <unk> acquisition, partially offset by lower performance based compensation expense.

Laurans A. Mendelson: Now I would like to introduce Victor Mendelson co president of HEICO and President of Heico's Electronic technologies group to discuss the first quarter results of the electronic technologies group. Thank.

Victor Hesq Mendelson: Thank you Eric the electronic technologies group's operating income was $55 $3 million in the first quarter fiscal 'twenty four.

Speaker Change: Excuse me.

Victor Hesq Mendelson: The Electronic Technologies Group's net sales increased 12% to $285.9 million in the first quarter of Fiscal 24, up from $255.1 million in the first quarter of Fiscal 23. The net sales increase is mainly attributable to the impact of our Fiscal 23 acquisitions and a double-digit increase in organic net sales of our aerospace products, partially offset by lower organic net sales of our other electronics, medical, and space products. We continue to forecast strong net sales and earnings growth for the remainder of fiscal 24. The Electronic Technologies Group's operating income was $55.3 million in the first quarter of Fiscal 24, as compared to $56.5 million in the first quarter of Fiscal 23.

Speaker Change: Jumped ahead of the.

Victor Hesq Mendelson: The electronic technologies group's net sales increased 12% to $285 9 million in the first quarter of fiscal 'twenty four up from $255 1 million in the first quarter fiscal 'twenty three the net sales increase is mainly attributable to the impact from our fiscal 'twenty three acquisitions.

Victor Hesq Mendelson: And a double digit increase in organic net sales of our aerospace products, partially offset by lower organic net sales of our other electronics medical and space products. We continue to forecast strong net sales and earnings growth for the remainder of fiscal 'twenty for.

Victor Hesq Mendelson: The electronic technologies group's operating income was $55 $3 million in the first quarter of fiscal 2004 as compared to $56 5 million in the first quarter of fiscal 'twenty three.

Victor Hesq Mendelson: We expect higher net sales and profit margins in the quarters ahead and over the long term. This is due to our shipment schedule, supported by our near-record backlog, combined with the revenues we expect because of our new product research and development activities. The slight operating income decrease principally resulted from our subsidiary shipment schedules of our record backlogs, with fewer shipments in the first quarter than scheduled in future quarters, something that was scheduled prior to the quarter's start and is in line with our internal plan. For those familiar with our last earnings call and our public interaction since then, you will remember that we said to expect high results variability quarter to quarter this year, with the first quarter being our weakest quarter So this proceeded just as expected. However, naturally, the less favorable product-sales mix resulted in lower SG&A efficiency.

Victor Hesq Mendelson: We expect higher net sales and profit margins in the quarters ahead and over the long term. This is due to our shipment schedule all supported by our near record backlog combined with the revenues, we expect because of our new product research and development activities.

Victor Hesq Mendelson: The slight operating income decreased principally resulted from our subsidiary shipment schedules of our record backlogs with fewer shipments in the first quarter than scheduled in future quarters, something that was scheduled prior to the quarter start and is in line with our internal plan for those.

Victor Hesq Mendelson: Familiar with our last earnings call and our public interactions. Since then you will remember that we said to expect high results variability quarter to quarter. This year with the first quarter being our weakest quarter. So this preceded just as expected.

Victor Hesq Mendelson: Naturally the less favorable product sales mix resulted in lower SG&A efficiencies also recognizing our large record backlogs in our forward growth potential we increased new product research and development investment, which increased expenses in the quarter. So that we can gain revenue.

Victor Hesq Mendelson: Also, recognizing our large record backlogs and our forward growth potential, we increased new product research and development investment, which increased expenses in the quarter so that we can gain revenue in future quarters. As I sit here today, I am very pleased that we made those investments and that we continue to fully fund these activities, which provide important forward growth. Importantly, our net sales increase in acquisition costs in the first quarter of Fiscal 23, related to the closing of an acquisition, was beneficial to our results. The ETG's operating margin was 19.3% in the first quarter of Fiscal 24 as compared to 22.2% in the first quarter of Fiscal 23.

Victor Hesq Mendelson: In future quarters as I sit here today I am very pleased that we made those investments and that we continue to fully fund these activities, which provide important forward growth importantly, our net sales increase in acquisition costs in the first quarter of fiscal 'twenty three related to the closing of an acquisition.

Victor Hesq Mendelson: Were beneficial to our results.

Victor Hesq Mendelson: <unk> operating margin was 19, 3% in the first quarter of fiscal 'twenty four as compared to 22, 2% in the first quarter of fiscal 'twenty. Three is acquisition related amortization was around 400 basis points, what we and others to be consider to be our true margin was closer to 23.

Victor Hesq Mendelson: As acquisition-related amortization was around 400 basis points, what we and others consider to be our true margin was closer to 23.5%. Again, we expect the margin, both before and after amortization, to improve materially in the quarters ahead. The lower margin principally reflects what I just discussed, namely the product sales mix due to the shipment schedule, higher new product research and development expenses, as well as increased selling, general, and administrative expenses as a percent of net sales, which supports our forecasted strong net sales and earnings growth for the remainder of fiscal 24, partially offset by the previously mentioned lower acquisition costs. For the full year, we expect SG&A expenses to decrease as a percentage of net sales I now turn the call back over to Larry Mendelson.

Victor Hesq Mendelson: 5%.

Victor Hesq Mendelson: Again, we expect the margin both before and after amortization to improve materially in the quarters ahead, the lower margin principally reflects what I just discussed, namely the product sales mix due to the shipment schedule higher new product research and development expenses as well as increased selling general.

Victor Hesq Mendelson: And administrative expenses as a percent of net sales, which supports our forecasted strong net sales and earnings growth for the remainder of fiscal 'twenty four partially offset by the previously mentioned lower acquisition costs for the full year, we expect SG&A expenses to decrease as a percentage of net sales.

Victor Hesq Mendelson: As our net sales increase.

Victor Hesq Mendelson: Now turn the call back over to Larry Mendelson.

Laurans A. Mendelson: Thank you, Victor. I think it should be clear to everyone on this call that Victor and I are expecting a quite different result from ETG from the second quarter through the end of the year. And in the first quarter, some people, I think, misunderstood, and they said, oh, ETG is not doing well. And I think Victor explained it very well.

Laurans A. Mendelson: Thank you Victor.

Laurans A. Mendelson: I think it should be clear to everyone on this call.

Laurans A. Mendelson: Victor and we are expecting a quite different result from atg four.

Laurans A. Mendelson: From the second quarter through the end of the year and in the first quarter. Some people I think misunderstood and they said Oh atg is not doing well and I think Victor explained it very well.

Laurans A. Mendelson: So you understand that it is a lumpy business, and the sales and earnings should come through from the second to the fourth quarter. As we look ahead to the remainder of fiscal 24, We continue to anticipate net sales growth in both the flight support and ETG, principally driven by contributions from our fiscal 23 and 24 acquisitions, as well as demand for the majority of our products. Notably, we fully expect future ETG quarters to be materially stronger than the first quarter. In addition, we plan to continue our commitment to developing new products and services with further market penetration, as well as maintaining our financial strength and our flexibility. In closing, I would again like to thank our incredible team members for their continued support and commitment to Heico.

Laurans A. Mendelson: So you understand that it is a lumpy business and the sales and earnings should come through from the second to the fourth quarter.

Laurans A. Mendelson: As we look ahead to the remainder of fiscal 2004, we.

Laurans A. Mendelson: We continue to anticipate net sales growth in both the flight support in Atg, principally driven by contributions from our fiscal 'twenty, three and 'twenty four acquisitions as well as demand for the majority of our products, notably we fully expect future E G.

Laurans A. Mendelson: Quarters to be materially stronger than the first quarter. In addition, we plan to continue our commitment to developing new products and services with further market penetration as well as maintaining our financial strength and our flexibility.

Speaker Change: In closing I would again like to thank our incredible team members for their continued support and commitment to HEICO our strategy of growing a highly diversified portfolio of excellent businesses continues to produce favorable results for all shareholders.

Laurans A. Mendelson: Our strategy of growing a highly diversified portfolio of excellent businesses continues to produce favorable results for all shareholders. Our end markets are very healthy, and fiscal 24 is looking to be another great year. Thank you for your continued confidence, and as I said before, I have never been more bullish about Heico's future. One other comment: we do not now give any guidance. Any guidance? Some analysts have asked us to give guidance, but we prefer not to.

Speaker Change: Our end markets are very healthy and fiscal 'twenty four is looking to be another great year. Thank you for your continued confidence and as I said before.

Speaker Change: I have never been more bullish.

Speaker Change: About heico's future.

Speaker Change: One other comment we do not know give.

Speaker Change: Any guidance.

Speaker Change: Some analysts have asked us to give guidance, we prefer not to however, I have said publicly that our goal is to grow net income 15% to 20% annually compounded over the last 30 to 33 years I think we have done that.

Laurans A. Mendelson: However, I have said publicly that our goal is to grow net income 15 to 20 percent annually compounded. Over the last 30 to 33 years, I think we have achieved that, and the actual growth has been somewhere around 18 or 19 percent. I can tell you that based on everything that I know at this moment... And based upon what we expect for the future of this year, I'm clearly and highly confident that we will attain that 15 to 20 percent growth in the current year, and that without any future acquisitions which we might make. So with that, I would like to turn the call back to our operator, Samara, and open the call to questions from listeners. I will thank you again very much tomorrow.

Speaker Change: And the actual growth has been somewhere around 18 or 19%.

Speaker Change: Can tell you that based on everything that I know at this moment.

Speaker Change: Based upon what we.

Speaker Change: Expect for the future of this year.

Speaker Change: Clearly and highly confident that we will obtain that 15% to 20% growth in the current year and that without any future acquisitions, which we might make.

Speaker Change: So with that I would like to turn the call back to our operators tomorrow.

Speaker Change: And open.

Speaker Change: Call for questions from listeners.

Speaker Change: Thank you again very much.

Speaker Change: <unk>. Thank you.

Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 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.

Speaker Change: If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker Change: You are using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Operator: Again, press star 1 to ask a question. And we'll take our first question from Robert Spingarn with Mellius Research. Please go ahead. Good morning. This is Scott Mikason on behalf of Rob Spingarn.

Speaker Change: Press Star one to ask a question.

Speaker Change: And we will take our first question from Robert Spingarn with Melius research.

Robert Spingarn: Please go ahead good morning.

Robert Spingarn: Good morning. This is Scott, Mike <unk> on for Rob Spingarn.

Laurans A. Mendelson: Good morning. Eric, I wanted to ask you some of the US airlines whether they've readjusted their capacity growth plans for the year. Some of that's due to aircraft delivery delays or GTF issues. But some of it's just concerns related to the US domestic market being overcapacitized. So are you seeing any change in order patterns from customers where maybe the low-cost carriers are slowing down their orders, but the large network carriers like United and Delta are accelerating their orders? So, good morning, and thanks for your question, Scott. With regard to what we see in the market, the market continues to be extremely strong across the board. I think, yes, the large commercial carriers are particularly strong. There has been a little bit of weakness with, you know, some of the lower cost carriers, but nothing really pronounced at this point. You know, there are natural order patterns where things can get a little lumpy and shift around, so I don't want to, I wouldn't want to predict, you know, any weakness there.

Scott: Good morning.

Scott: Eric I wanted to ask you some of the U S Airlines save readjusted their capacity growth plans for the year. Some of that is due to aircraft delivery delays or the GTS issues, but some of it's just over concerns related to the U S domestic market being over capacity.

Scott: So are you seeing any change in order patterns from customers.

Laurans A. Mendelson: There may be in the low cost carriers are slowing down their orders, but the large network carriers like United and Delta are accelerating their orders.

Laurans A. Mendelson: So we see a good morning, and thanks for your question Scott.

Laurans A. Mendelson: With regard to what we see in the market the market continues to be extremely strong across the board.

Laurans A. Mendelson: I think yes, the large commercial carriers are particularly strong there has been a little bit of weakness.

Laurans A. Mendelson: In with it.

Laurans A. Mendelson: Kind of the lower cost carriers, but nothing really pronounced at this point there are natural order patterns, where things can get a little lumpy you've shipped around so I don't want to I wouldn't want to predict.

Laurans A. Mendelson: Any weakness there right now there continues to be a shortage of parts airlines are still.

Laurans A. Mendelson: Right now, there continues to be a shortage of parts. Airlines are still, you know, in need of parts, and are still trying to grow their inventory, so we see the market as very strong. Okay, got it. And then I wanted to ask you have owned Wencor for about a little more than half a year. So I was just wondering if you could share some of the best practices that Wencor has learned from Heico, and what are some of the best practices that Heico has learned from Wencor so far? Yeah, that's a good question.

Laurans A. Mendelson: In need of parts are still trying to grow their inventories. So we see the market is very strong.

Speaker Change: Okay got it and then I wanted to ask you've owned <unk> for about a little more than half a year. So I was just wondering if you could share some of the best practices that <unk> learned from hike out and what are some of the best practices that HEICO has learned from <unk> so far.

Speaker Change: Yes, that's a good question.

Laurans A. Mendelson: The OneCore Acquisition has exceeded expectations in every single area. The business, the people, the strategy, it's incredibly strong, and we had very high expectations for it, and they're even beating those numbers, specifically looking at areas of best practices. I would say that Heico is particularly strong in the technical arena.

The <unk> acquisition has been exceeding expectations in every single area.

Speaker Change: The business the people the strategy.

Speaker Change: <unk> been incredibly strong and we had very high expectations for it.

Speaker Change: They're even beating those numbers.

Speaker Change: Specifically.

Speaker Change: We're looking at areas of best practices.

Speaker Change: I would say that HEICO is particularly strong in the technical arena wastewater is also strong and the technical arena, but I think there are some things where <unk> been able to benefit from that as well as HEICO benefiting from one quarter in other areas.

Laurans A. Mendelson: Wincore is also strong in the technical arena, but I think there are some things where Wincore has been able to benefit from that, as well as Heico benefiting from it in other areas. And then, in particular, in the e-commerce area, I think Wincore has been able to benefit Heico in that area. So we see continued synergies without integration. So, our plan is to continue to operate WENCOR for the time being, or, you know, for the foreseeable future as an independent business. And, you know, that's the DNA of Heico.

Speaker Change: And then in particular in the ecommerce area I think.

Speaker Change: <unk> has been able to benefit heiko.

Speaker Change: In that area.

Speaker Change: So we see continued synergies without integration.

Speaker Change: So we our plan is to continue to operate when core for the time being.

Speaker Change: The foreseeable future.

Speaker Change: As an independent.

Speaker Change: Business and.

Speaker Change: That's the DNA of HEICO, that's how we operate all of the <unk> businesses.

Laurans A. Mendelson: That's how we operate all of the Heico businesses. And we want WENCOR to continue, obviously, to have its own P&L, its own strategy, its own team members. And Heico is strongest when each of the individual business units takes care of itself and coordinates with the other ones.

Speaker Change: <unk> core to continue obviously to have its own P&L done strategy its own team members and.

Speaker Change: HEICO is strongest when each of the individual business unit to take care of themselves and coordinate with the other ones. So I would say that I look at the cooperation between.

Laurans A. Mendelson: So I would say that, you know, I look at the cooperation between Heico and Wing Corp. It's somewhat analogous to that cooperation if you look at a number of European airline groups. You look at Lufthansa in Switzerland or Air France in KLM or British Airways in Iberia, and they maintain their independence, their separate touch and feel and relationships with the customers, separate people, but they coordinate some of the activities behind the scenes, making sure that they're...

Speaker Change: <unk> is somewhat analogous between the cooperation if you look at the number of the European airline group, you look at Lufthansa and Swiss or Air, France, and KLM are British Airways, and Iberia and they maintain their independence. They are separate <unk> and relationships with the customers separate <unk>.

Paul: Paul but they coordinate.

Paul: Some of the activities behind the scenes, making sure that their schedules and the product offerings are supportive of each other and that's what we've been able to do very successfully.

Laurans A. Mendelson: The schedules and the product offerings are supportive of each other, and that's what we've been able to do very successfully. So WENCOR continues as an individual autonomous business; there is no plan to change that. And we are making sure that we provide tremendous value to our customers as a result of making sure we don't have, for example, a product development overlap where we rationalize some of the repair offerings in various centers of excellence focused on different products and technologies. So our customers have been very happy as a result of the acquisition and are really excited about where we're headed. And I think they really want to reward us with a significant addition to the business. They view Heico in a very different light as a result of the WENCOR merger. I'll stop there.

Paul: So when core continues as an individual.

Paul: Economists business no plans to change that.

Paul: And we are making sure that we provide tremendous value to our customers as a result of making sure. We don't have for example, a product development overlap.

Paul: We rationalized some of the repair offerings in various centers of excellence at centers of excellence focused on different products and technology. So our customers have been very happy as a result of the acquisition and are really excited about where we are where we're headed there and I think they are.

Paul: <unk>.

Paul: They really want to reward us with significant additional new business. They view HEICO in a very different light as a result of the.

Paul: One quarter merger.

Operator: Thanks for taking the question. Thanks, Scott. Thank you. And we'll take our next question from Noah Papadok with Goldman Sachs. Please go ahead. Hey, good morning, everyone.

Speaker Change: I'll stop there thanks for taking the questions.

Speaker Change: Thanks, Scott Thank you.

Speaker Change: And we will take our next question from Noah <unk> with Goldman Sachs. Please go ahead.

Noah: Hey, good morning, everyone.

Operator: Good morning. In the last quarter, you talked about the ETG margin for the full year being around 24%, that segment operating margin. Does that stand such that you'd have one or two quarters above that? And I know you don't give quarterly guidance, but, you know, given the variability here, I don't know if it makes sense to just speak to the shape of that over the remaining three quarters of the year. Sure. Noah, this is Victor.

Noah: Good morning Noah.

Noah: So last quarter, you had talked about the <unk> margin for the full year being around 24%.

Noah: <unk> operating margin.

Noah: So does that stand such that you would have one or two quarters above that.

Noah: I know you don't give quarterly guidance, but.

Noah: Given the variability here I don't know if it makes sense to just speak to the.

Noah: Shape of that over the remaining three quarters of the year.

Noah: Sure Noah this is Victor the answer to your question is yes.

Victor Hesq Mendelson: The answer to your question is yes. And as to the shape of it over the remaining quarters, I think the year should build. I'm not sure yet that the fourth quarter is a little far out, whether the fourth quarter finishes above or a little less than the third quarter, and, you know, the third is our high point, or our fourth is our high point. I'm not sure about that.

Victor Hesq Mendelson: And as to the shape of it over the remaining quarters.

Victor Hesq Mendelson: I I think that the year should build.

Speaker Change: I'm not sure yet the fourth quarter is a little far out whether the fourth quarter finishes above or a little less than the third quarter and the third is our high point of our fourth is our high point not sure about that but at this point based on the shipment schedules.

Victor Hesq Mendelson: But at this point, based on the shipment schedules, that's how we think it'll play out. OK. And, Eric, on the FSG margin, you know, the full-year look was around 21 on the gap segment operating margin, and I think you guys also said you expected the first quarter to be the low point of the year. So, I don't know, maybe you could update us on how you see that playing out through the rest of the year or if there's a new number for the full year, given what you did in the first quarter. Well, the first quarter was very strong at 22%, and when you add back the intangible amortization, we get to about 24.8%, so it's extremely strong. We anticipate continued strength. I think I want to be a little bit more conservative going forward.

Speaker Change: We think it will play out.

Okay.

Speaker Change: And Eric on the FSD margin.

Speaker Change: <unk> full year look was around 21 on the GAAP segment operating margin and I think you guys had also said you expected the first quarter to be the low point of the year.

Laurans A. Mendelson: So I don't know maybe you could update us on how you see that playing out through the rest of the year. There is a new number for the full year given what you did in the first quarter.

Speaker Change: Well the first quarter.

Speaker Change: It was very strong at 22%.

Speaker Change: And when you add back the intangible amortization, we get to about 24, 8% so extremely strong.

Speaker Change: We anticipate continued strength I think I want to be a little bit conservative going forward.

Laurans A. Mendelson: We often go ahead and, you know, we come up with our budgets and our numbers, and our folks end up beating those numbers, but maybe Carlos wants to shed some light specifically on that. Sure. Hey, Noah, it's Carlos.

Speaker Change: Often go ahead and.

Speaker Change: As we come out with our budget and our numbers and our folks end up beating those numbers, but maybe Carlos wants shed some light specifically on that sure.

Speaker Change: Carlos I don't think my view on this segments can you hear me Okay now.

Carlos Macau: I don't think my view on this segment has changed on what the segment should produce this year. Back in December, when we were sort of looking out, and I got the margin question, I felt like the FSG was probably between 21 and 22% OI margin. That's what I felt the company would do for the year. We could always do better than that, but that's what we planned, and we did plan on having a strong first quarter in the FSG. So I think that that thesis continues to hold up, of course, as we get into the second quarter and get to the next call. I'll see if I can tighten that range for you.

Carlos Macau: Yes, yes, okay, sorry, so I was going to say I don't think my mind has changed on what the segment should produce this year back in December when we were sort of looking out and I got the margin question.

Carlos Macau: Felt like the SSG was probably between 21 and 22% Oi margin that that's what I felt the company would do for the year.

Carlos Macau: We could always do better than that but thats, what we plan to itself and we did plan on having a strong first quarter and the SSG. So I think that that thesis continues to hold up but of course is because we get into the second quarter and we get to the next call we'll I'll.

Carlos Macau: See if I could tighten that range up for you.

Carlos Macau: Okay, appreciate that. One other thing I wanted to ask, I guess it's kind of for everyone, but you're in this, you know, unique position now vis-a-vis PMA and pricing in the aftermarket. That's maybe more unique than we've seen in a long time because your peers that build and sell spare parts have had such strong pricing for two plus years now. We don't really know exactly how you've priced PMA. Presumably, that gap has widened. Maybe it's widened a lot.

Speaker Change: Okay I appreciate that.

Speaker Change: One other thing I wanted to ask I guess, it's kind of for everyone but.

Speaker Change: Youre in this.

Speaker Change: Unique position now visa the PMA in pricing in the aftermarket.

Speaker Change: That's maybe more unique than we've seen in a long time, because your peers in the.

Speaker Change: Build and sell spare parts have had such strong pricing.

Speaker Change: For two plus years now.

Speaker Change: We don't really know exactly how you price.

Speaker Change: Presumably that gap has widened maybe its widened a lot.

Speaker Change:

Operator: And so you have the opportunity to take more price than you normally do, or take more share than you normally do, or both. And I'm curious to hear you talk about how you will strategically manage which of those you want to go after and how you will look to triangulate that over the medium term. Noah, that's a great and insightful question.

Speaker Change: And so you have the opportunity to take more price than you normally do or take more share than you normally do or both.

Speaker Change: I'm curious to hear you talk about how you will strategically manage which of those you want to go after and how you will look to triangulate that over the medium term here.

Speaker Change: No.

Speaker Change: Greg and insightful question.

Laurans A. Mendelson: The short answer is I think we need to do both. We need to adjust pricing to reflect our increased costs, and we also need to grow market share. So that is the strategy. We have a number of customers who have been purchasing parts at, you know, fairly low prices before there was cost inflation. So we need to make sure that we pass along our cost increases, and I think our customers are very understanding of that. Some customers get it and are just fine and go ahead and incorporate the new pricing. Other customers want to have a discussion about it, and obviously, we don't show them what our costs are, but we explain what's happened to our costs, and, you know, this is only reasonable.

Speaker Change: Short answer is I think we need to do both we need to adjust pricing to reflect our increased costs and we also need to grow market share. So that is the strategy. We have a number of customers who have been purchasing parts at.

Speaker Change: Fairly old prices.

Speaker Change: Before there was.

Speaker Change: Cost inflation, so we need to make sure that we pass along our cost increases and I think our customers are very understanding of that sub customers get it and.

Speaker Change: Are just fine and go ahead and incorporate the other the new pricing other customers want to have a discussion over it and we obviously, we don't show them, what our costs are but we explain what's happened to our costs and this is only reasonable so.

Laurans A. Mendelson: So I honestly think that our pricing has been a lot more conservative and gentle than it could be, while our competitors are substantially raising prices. I just received an email last night from a, I don't want to call out the OEM, but it's an OEM that everybody knows, and they increased the price twice last year, once 10 and another time 18 percent. And by the way, I will mention it was not trans time. I know people are very interested in the trans time story, but it was not trans time.

Speaker Change: Honestly I think that.

Speaker Change: Our pricing has been a lot more conservative and gentle then.

Speaker Change: It could be our competitors are substantially raising price I just received an E mail at night.

Speaker Change: I don't want to call out the OEM, but it's an OEM that everybody knows.

Speaker Change: And they increased price twice last year, once 10, and another time, 18%.

Speaker Change: And.

Speaker Change: And by the way I will mention it was not transcon.

Speaker Change: No.

Speaker Change: I know people are very interested in the transcon story, but it was not transact so it shows how pervasive.

Laurans A. Mendelson: So it shows how pervasive, you know, the price increases are. So I think that, You know, we've been very mild, and I think, frankly, with costs going up and the need to spend additional dollars on new product development, that it would be reasonable to have additional increases. And I think we'll be able to capture market share at the same time. So I don't think those two are mutually exclusive. We've, you know, if you talk to the airlines, I think nobody wants a price increase, obviously. But the airlines all recognize that Heico has been extremely gentle with regard to price increases.

Speaker Change: The price increases are so I think that.

Speaker Change: We've been very mild.

Speaker Change: I think frankly with costs going up and the need to spend additional dollars on new product development that it would be reasonable to have additional increases and I think we'll be able to capture market share at the same time so.

I don't think those two are mutually exclusive.

Speaker Change: <unk>.

Speaker Change: Can you talk to the airlines I think.

Speaker Change: Nobody wants to price increase obviously, but.

Speaker Change: The airlines all recognize that HEICO has been extremely gentle.

Speaker Change: With regard to price increase and frankly in areas, where we have been more restrictive on price increase we anticipate significant share gains as well.

Laurans A. Mendelson: And frankly, in areas where we have been more restrictive on price increases, we anticipate significant share gains as well. Okay. Super interesting, and I appreciate all the detail. Thank you. Thanks, Noah.

Speaker Change: Okay.

Speaker Change: Super interesting and I appreciate all the detail. Thank you.

Speaker Change: Thanks Noah.

Operator: And we'll take our next question from Scott Disholtz with Deutsche Bank. Please go ahead. Hey, good morning. Good morning.

Speaker Change: And well take our next question from Scott Vishal.

Scott Vishal: Which bank. Please go ahead.

Scott Vishal: Hey, good morning.

Scott Vishal: Good morning.

Laurans A. Mendelson: Hey Eric, did Boeing's challenges in January have any impact on FSG specialty products growth in the quarter? Yes, I would say they did, but Boeing has had some challenges, and as a result, you know, the new build has been impaired. So that definitely had an impact on specialty products. I would also like to point out that while specialty product sales were a little soft, they caused the reported organic growth rate to be, if you will, understated because the aftermarket growth rate was very high in the teens. A lot of the, you know, we're very bullish on the future, and a lot of what specialty products do is on the defense side, and as you know, in a lot of missile defense and space programs, rocket motor programs, these are very long lead time items. So our order book is extremely strong. We're very, very bullish on the future. We feel that we're well positioned.

Scott Vishal: Hey, Eric did boeing's challenges in January have any impact to FSC specialty products growth in the quarter.

Scott Vishal: Yes, I would say they did Boeing.

Scott Vishal: <unk> had some challenges and as a result, the new bill it has been.

Scott Vishal: Impaired.

Scott Vishal: So that.

Scott Vishal: Definitely had an impact on specialty products.

Scott Vishal: I'd also like to point out that while specialty product sales were a little softening cause the reported organic growth rate to be if you will understated.

Scott Vishal: Because the aftermarket growth rate was very high teens.

Scott Vishal: <unk>.

Scott Vishal: A lot of the we're very bullish on the future and a lot of our specialty products does is on the defense side and as you know in a lot of missile defense and <unk>.

Scott Vishal: Space programs rocket motor programs. These are very long lead time items.

Scott Vishal: Our order book is extremely strong we're very very bullish on the future. We feel that we're well embedded we've got some great secular trends, where the low cost high quality sole source producer on most of this stuff and we think that the future will be very good so I'm not at all.

Laurans A. Mendelson: We've got some great secular trends. We're the low cost, high quality, sole source producer for most of this stuff, and we think that the future will be very good. So I'm not at all concerned about the specialty products being down, and I think Boeing will also get their act together. I mean, obviously, they've got some challenges that we've all read about, but Boeing is still a great company.

Scott Vishal: <unk> about the.

Scott Vishal: Specialty products being down and I think Boeing also will get their act together I mean, obviously, they've got some challenges that we've all read about but.

Boeing is still a great company and I think that they will get that all figured out and.

Laurans A. Mendelson: And I think that they'll get that all figured out, and it will permit our specialty products to grow at sort of more historic rates. Okay, so it would be fair to think that maybe some of that Boeing-related weakness probably lingered in February, but the growth in the space and descent side allows you to return to growth overall, especially products, next quarter. I need to look at specifically with regard to next quarter, but what you're saying sounds logical. Okay.

Scott Vishal: It will permit our specialty products to grow at sort of more historic rates.

Speaker Change: Okay. So it would be fair to think that maybe some of that Boeing related weakness, it's probably lingered into February but the growth in the space and defense side allows you to return to growth overall in specialty products next quarter.

Speaker Change: I need to look at.

Speaker Change: Typically with regard to next quarter, but what youre, saying sounds logical.

Victor Hesq Mendelson: And then Victor, are you able to quantify how much R&D was up at ETG in the quarter? And then if there's any specific areas of investment you can talk about, I think that'd be pretty interesting to hear. Thank you.

Speaker Change: Okay.

Speaker Change: And then Victor are you able to quantify how much R&D was up at <unk> in the quarter. Then if there is any specific areas of investment you can talk about I think that'd be a pretty interesting to hear thank you.

Speaker Change: Okay.

Victor Hesq Mendelson: It was pretty broad-based. There were places I think where I know that we invested more than in the past, but I would say it's a pretty broad-based scenario, which is good because I'd like to see, and we would like to see, that all of our companies are investing in R&D. R&D was up by about, I believe, in the quarter, about 25%, 24%, something like that. So it was a, you know, a significant increase for us. Okay, and then last question, Victor. Were there any changes in your F-35 content with the shift to TR-3?

Victor Hesq Mendelson: It was pretty broad based.

Victor Hesq Mendelson: There were places I think we're somewhere I know that that we invested more than in the past, but I would say, it's a pretty broad based.

Victor Hesq Mendelson: The scenario, which is good because I'd like to see and we like to see that all of our companies are investing in R&D R&D was up by about I believe.

Victor Hesq Mendelson: In the quarter about 25%, 24% something like that so it was a.

Victor Hesq Mendelson: It's significant.

Victor Hesq Mendelson: Increase for us.

Victor Hesq Mendelson: Okay and then last question Victor were there any changes in your F 35 content with the shift to tier three thank you by the way it's closer to 22% I think was the net increase for <unk> alone in accordingly.

Victor Hesq Mendelson: Thank you. By the way, it's closer to 22%, I think, was the net increase for ETG alone in the quarter. Yeah, about that, for ETG in the quarter.

For the <unk> in the quarter I'm sorry. The question you just asked could you repeat that please yes. It was whether there are any changes in F 35 content with the shift to tier three.

Victor Hesq Mendelson: I'm sorry, the question you just asked, could you repeat that, please? Yeah, it was whether there were any changes in F-35 content with the shift to TR-3. But I don't think it's material to us.

Victor Hesq Mendelson: I don't think it's material to us we do have in a few of our business is F 35 content, but overall, it's not a material change.

Operator: We do have F-35 content in a few of our businesses, but overall, it's not material. All right. Thanks, guys. Thank you. And we'll take our next question from Larry Solow with CJS Securities. Please go ahead.

Speaker Change: Alright, thanks, guys.

Speaker Change: Thank you.

Speaker Change: And we'll take our next question from Larry Solow with CJS Securities. Please go ahead.

Laurans A. Mendelson: Great, good morning, everybody. Eric, thanks for the color on OneCore and also just the segment. Just a couple of follow-ups on that. So the high-teens growth you're experiencing, I think it's relative or compared to mid-20s growth last year. So pretty remarkable, congrats on that.

Larry Solow: Great Good morning, everybody.

Larry Solow: Alright, thanks for the color on one Cola and also just.

Larry Solow: And then just on just a couple of follow ups on that.

Larry Solow: <unk> growth Youre experiencing.

Larry Solow: Relatives are comping mid twenty's growth last year so.

Larry Solow: Pretty pretty remarkable congrats to that is.

Laurans A. Mendelson: Yeah, obviously, and market demand sounds like it's still growing, but can you help us give us a little more color on where else those gains are coming from? Just kind of bucketing market share gains, obviously, some of that's still occurring. The inventory levels, you mentioned, are still low, but are they building back up?

Larry Solow: Is it obviously in the end market demand it sounds like it's still growing but could you help us give us a little more color.

Larry Solow: Where else those gains are coming from.

Larry Solow: Kind of bucket any market share gains are there obviously some of that still calling the inventory levels. You mentioned still low but are they building backup if some of that so.

Laurans A. Mendelson: Is some of that still creating some of the difference between 2M market demand and the growth you're reporting? Catch-up and maintenance, maybe. I'm just trying to figure out the why, trying to bridge the gap.

Larry Solow: Creating some of the difference between two end market demand and the growth you're reporting.

Larry Solow: You can catch up on maintenance, maybe I'm, just trying to figure out the trying to gap or the difference there.

Larry Solow: Yes.

Laurans A. Mendelson: Yeah, Larry, I'd be happy to answer that. The strength within flight support on the aftermarket side has really been across the board. I would say, in general, a little more strength on the parts side as compared to the repair side. You know, airlines are flying the equipment hard; it's more difficult to get things repaired. But in general, I would say the parts side is a little bit stronger, but the repair side is also doing very well as well.

Speaker Change: We'd be happy to answer that.

Speaker Change: The strength within flight support on the aftermarket side has really been across the board I would say in general a little more strength in the parts side as compared with the repair side.

Speaker Change: Yes.

Speaker Change: Airlines are buying the equipment hard.

Speaker Change: More difficult to get things repaired, but in general I would say the part side is a little bit stronger, but the repair side is also doing very well.

Speaker Change: As well.

Laurans A. Mendelson: As far as market share gains go, we continue to grow market share. Our customers are really happy with us, and speaking with our sales heads yesterday, I have specific information from a number of customers that they really are very, very happy as a result of the Wincor acquisition. While Heico was always a significant player in the space, and so was Wincor, the fact that we've come together and we can offer a broader product line, a broader suite of products, is really significant.

Speaker Change: As far as market share gains, we continue to grow market share.

Speaker Change: Our customers are really happy with us and in speaking with our.

Speaker Change: Sales heads yesterday.

Speaker Change: Specific.

Speaker Change: Formation from a number of customers that they really are very very happy as a result of the <unk> acquisition.

Speaker Change: While HEICO was always a significant player in the space and so it was linked quarter. The fact that we've come together and we can offer a broader product line a broader suite of products is really significant.

Laurans A. Mendelson: And a fair amount of energy was, you know, spent on each business focusing on capturing as much as it could. And now, creating more of these centers of excellence where each business focuses on where it has a true competitive advantage and doesn't need to, if you will, reinvent the wheel makes a lot of sense. And our customers are really happy about that because we're able to provide a much fuller suite of offerings to the customers. And they recognize that this is a true structural advantage that they can benefit from as opposed to a more niche-oriented strategy. So market share gains, we have had some pricing gains. I don't have a breakout between the two, but I would say that market share is definitely the leading number there. I got it.

Speaker Change: And a fair amount of energy was.

Speaker Change: Yes.

Speaker Change: Spend in.

Speaker Change: Each business focusing on capturing as much has occurred and now by creating more of these centers of excellence, where each business focus is on where it has a true competitive advantage and doesn't need to if you will reinvent the wheel makes a lot of sense and our customers are really.

Happy about that because we're able to provide a much fuller suite of offering to the customers and they recognize that this is true structural advantage that they can benefit from as opposed to more niche oriented strategy so market share gains.

Speaker Change: We have had some pricing gains I don't have a breakout between the two but I wouldn't say that market share is definitely the leading.

Speaker Change: The meeting.

Speaker Change: Number there.

Victor Hesq Mendelson: Now, I appreciate that. And then, just switching gears to each of your questions, Victor, just on the quarter and the outlook, it sounds like aerospace had some good follow-through, and I know it was a little slow last year, at least on deliveries, but that obviously sounds like it's continuing to return to growth mode. Just in terms of the other categories, I know it sounds like you mentioned a few that were just slower due to timing, electronics, medical, and consumer space. Those sound like they're all higher-margin categories. I think on the last call, you guys had mentioned that there would be some of those. I think maybe the electronics piece would be slower. Is that still the case?

Speaker Change: Got it I appreciate that and then just switching gears.

Speaker Change: Taking your question Victor just on the quarter and the outlook it sounds like aerospace.

Speaker Change: <unk> had some good follow through.

Speaker Change: It was a little slow last year at least on deliveries, but that obviously sounds like that's continuing to return to growth mode.

Speaker Change: Just in terms of the other categories I know it sounds like you mentioned a few of them. There was just slower Dupont electronics medical consumer space.

Speaker Change: It sounds like they're all higher margin category I think on the last call. You guys had mentioned that there would be some of those I think maybe electronics piece would be slower.

Speaker Change: Is that still the case has anything changed in terms of your sort of full year outlook for <unk> in terms of revenue.

Victor Hesq Mendelson: Has anything changed in terms of your full-year outlook for ETG in terms of revenue composition and growth? So overall, all in for the year right now, I think our expectations are pretty much what they were during our last call. It is the general markets that gave up ground in the quarter as we expected they would.

Speaker Change: Competition and growth.

Overall all in four.

Speaker Change: The year right now I think.

Speaker Change: Our expectations are pretty much what they were at the during our last call.

Speaker Change: It is the general markets that all in.

Speaker Change: Dave up ground in the quarter as we expected they would.

Victor Hesq Mendelson: We're beginning to see some, what I'd call, you know, the proverbial green shoots in a few of the businesses, but we're still not running at order levels higher than last year. And I, as I kind of talked about before, I expect that sometime over the next couple of quarters, orders will start to reverse overall. And then, and then,

Speaker Change: We are beginning to see some what I'd call the proverbial green shoots.

Speaker Change: In a few of the businesses.

Speaker Change: But were still not running at order levels higher than prior year.

Speaker Change: <unk>.

Speaker Change: <unk> talked about before I expect that sometime over the next couple of quarters orders to start.

Speaker Change: To reverse overall and then.

Speaker Change: And then.

Victor Hesq Mendelson: Excuse me for one second. Thank you. The computer went off here in the room.

Speaker Change: Excuse me one second.

Speaker Change: Thank you Peter went off here in the room.

Victor Hesq Mendelson: And then I would expect that if you factor in lead times onto the backlog, onto the orders, and so on, as we get later in the year, that starts to turn overall in the right direction in terms of revenue. Gotcha. Okay, great.

Speaker Change: <unk>.

Speaker Change: And then I would expect that.

Speaker Change: If you factor in lead times onto the backlog onto the orders and so on as we get later in the year that starts to turn overall in the right direction in terms of revenue.

Speaker Change: Gotcha, Okay, Great and then just lastly, Carlos I think the tax rate a little lower this quarter I know you usually get those.

Carlos Macau: And just lastly, Carlos, lower the tax rate a little lower this quarter, and I'll usually get those stock benefits in Q1. And any change to the four-year outlook? No, for the full year, I continue to think we'll run between 20% and 21%.

Speaker Change: The benefits in Q1.

Speaker Change: Change to the full year outlook.

Speaker Change: No.

Carlos Macau: For the full year I continue to think will run between 20 and 21% Larry I think the.

Carlos Macau: Larry, I think the effective tax rate we have in the first quarter here is about what I expected. I thought we'd catch about half our effective rate for the year this quarter, and then we'd make it up, you know, a more normalized rate in Qs 2, 3, and 4. But no real surprises. It played out the way I thought it would.

Carlos Macau: <unk> tax rate, we have in the first quarter here is about what I expected I would catch about half our effective rate for the year. This quarter and then we can make it up more normalized rate in Qs two three and four but no real surprises as it played out the way I thought it was slightly better than last year's benefit, but still aligned with history and what we've seen in the <unk>.

Laurans A. Mendelson: Slightly better than last year's benefit, but still in line with history and what we've seen in the past. God, I thank God, I appreciate all the calls. We'll take our next question from Peter Arment with Baird. Please go ahead.

Carlos Macau: Pass.

Speaker Change: Got it thanks, guys I appreciate all the color.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: We will take our next question from Peter Arment with Baird. Please go ahead.

Victor Hesq Mendelson: Yeah, good morning, everyone. Thanks for all the details. Hey, Victor, maybe just a quick one on, you know, if you're still seeing lingering impacts from the supply chain, and that's also a factor that's kind of impacting you on the top line. Thanks for asking. It's a good question. We're not seeing much of it. It has really improved. Whether it's exactly back to normal, I'm not sure because I'm not sure what the new normal will be, in fact.

Peter J. Arment: Yes, good morning, everyone. Thanks for all the details.

Peter J. Arment: Victor maybe just a quick one on.

Peter J. Arment: If you are still seeing lingering impacts from the supply chain and that's also a factor that's kind of impacting you on the on the top line.

Peter J. Arment: Thanks for asking it's a good question, we're not seeing much of it has really improved whether it's exactly back to normal I'm not sure because I'm not sure what the new normal will be in fact.

Victor Hesq Mendelson: But I would say that at this point, the supply chain is almost back to where it was, and the labor market has been challenging for a while and continues to be. And so I would say that that impacts us as much, if not more probably these days than supply chain, just getting good qualified people into the business. And maybe if you could just update us on how you're, you know, how Xfili is doing after owning the business now for, I guess, almost a year, right? Yes, thank you.

Speaker Change: But I wouldn't I would say that at this point.

Speaker Change: Supply chain is.

Speaker Change: Almost back to where it was.

Speaker Change: And.

Speaker Change: The labor market is has been challenging for a while and continues to be.

And so I would say that that impacts us as much if not more probably these days than the.

Speaker Change: Supply chain, just getting good qualified people.

Speaker Change: Into the businesses.

Speaker Change: And maybe if you could just update us on how your how <unk> is doing.

Speaker Change: After owning the business now for I guess, almost a year right.

Speaker Change: Yes. Thank you, yes, we're very happy we own it it's doing essentially as we expected.

Victor Hesq Mendelson: Yeah, we're very happy. We own it. It's doing essentially as we expected, and it has a lot of good potential ahead. Also, they're looking at a number of acquisitions we've been able to bring to them. They already have some.

And a lot of good potential ahead.

Speaker Change: Also they are looking at a number of <unk>.

Speaker Change: Acquisitions.

Speaker Change: We've been able to bring to them neighborhood, some we'll see whether they transpire, but a lot of good things happening there and so far so good.

Victor Hesq Mendelson: We'll see whether they transpire, but a lot of good things are happening there, and so far, so good. Great. And a quick one for Carlos.

Speaker Change: Great and quick one for Carlos Carlos just rough expectations or how youre thinking about interest expense for the year I know the goal is obviously to continue to delever.

Carlos Macau: Carlos, just rough expectations of how you're thinking about interest expense for the year. I know the goal is obviously to continue to de-lever. Yeah, I mean, right now, if everything plays out, I'm expecting our interest expense quarterly to run about 38 million. If we catch a break on a few rate cuts, you never know. I have it sort of tailing off a little bit. But that also is a function, Peter, of how quickly I can pay the debt down. And depending on how many businesses Eric, Victor, and Larry want to buy will certainly influence that during the year. Got it. I appreciate all the details. And Larry, congrats on the award.

Speaker Change: Yes.

Carlos Macau: So right now.

Carlos Macau: Everything plays out I am expecting our interest expense quarterly to run.

Carlos Macau: 35% to Sept $37 million Thats pretty much what we booked this quarter about $38 million. So I think as we pay some debt down.

Carlos Macau: If we catch a break on a few rate cuts you never know.

Carlos Macau: I haven't sort of tailing off a little bit but.

Carlos Macau: Dallas is a function theater of how quickly that can pay that debt down depending how many businesses, Eric Victor and Larry I want to buy will certainly influence that during the year.

Speaker Change: Got it I appreciate all the details and Larry Congrats on the award.

Laurans A. Mendelson: Thanks. Thank you. I just might add something to what Victor and Carlos had to say. We continue to look at acquisitions. Most are overwhelmingly in our historical size, and we have an excellent acquisition pipeline, very strong. Again, whether we do them remains to be seen, but we will continue to pursue those acquisitions that would fit the right way, while being mindful of the importance of reducing debt in the capital structure. Just to further expand on what Victor says, which is completely correct, it's a balancing act.

Speaker Change: Thank you.

Speaker Change: Just might add something to what this is Victor what Carlos had to say we continue to look at acquisitions.

Speaker Change: Most are in our historic overwhelmingly in our historical size.

Speaker Change: And.

Speaker Change: We have an excellent pipeline acquisition pipeline very strong again, whether we do that remains to be seen.

Speaker Change: But we will continue to pursue those acquisitions that would fit the right way, while being mindful of the importance of reducing debt and capital structure.

Speaker Change: It's really just to further expand on what Victor said is completely correct.

Speaker Change: It's a balancing act.

Laurans A. Mendelson: We are in the business of expanding, creating cash flow, and bottom-line income. And if we see an outstanding acquisition, we will make it. At the same time, we have to watch our debt level, and we're trying to reduce it. So, as you saw, we made a Honeywell acquisition recently because we believe it will be very accretive and very positive cash flow. So we made the decision to acquire it by using debt, which reduced our ability to reduce our debt to overall.

Speaker Change: We are in the business of expanding creating cash flow bottom line income.

Speaker Change: And if we see an outstanding acquisition, we will make it.

Speaker Change: At the same time, we have to watch our debt level and we're trying to reduce it. So as you saw we made our Honeywell acquisition recently.

Speaker Change: We believe it will be very accretive and very positive cash flow. So we made the decision to.

Speaker Change: Quire, it by using debt, which reduced our ability to reduce our debt to overall debt, but on the bottom line.

Laurans A. Mendelson: But on the bottom line, it was helpful to Heico and actually where you get more income and debt. So the balance actually benefits the ratio of debt to EBITDA. But anyway, this is all a balancing act.

Speaker Change: It was helpful to HEICO and actually where you get more income and debt. So the balance actually benefits the ratio of debt to EBITDA, but anyway. This is all a balancing act and we watch it very very carefully because as you know we are focused on bottom line cash flow.

Laurans A. Mendelson: And we watch it very, very carefully because, as you know, we are focused on bottom-line cash flow. So we will make these acquisitions when they are very, very desirable. And we might have to use some debt, but we'll take each one as it comes.

Speaker Change: So we will make these acquisitions when they are very very desirable and we might have to use some debt, but we will take each one as it comes.

Sheila Kahyaoglu: We're here to grow Heico's bottom line cash flow. Again, it's a balancing act, and we're very careful with it. And we'll take our next question from Sheila Kahyaoglu with Jeffreys. Please go ahead. Good morning.

Speaker Change: We are here I appreciate it.

Speaker Change: We're here to grow HEICO bottom line cash flow again, it's a balancing act and we're very careful with it.

Speaker Change: And we will take our next question from Sheila <unk> with Jefferies. Please go ahead.

Speaker Change: Okay.

Victor Hesq Mendelson: Thanks, guys. Victor, I'm going to start with you, if it's okay, given the ETG margin spotlight. You gave us some color on R&D up 20%, so it implies about 100 basis points of margin pressure. Can you maybe talk about the less favorable sales mix, how much it was, maybe even pricing into the mix as well, just on the bridge and how we think about that improvement. As you said, Q3 and Q4 are headed to be better. And should we expect a similar sub 20% rate in Q2? Sure. Sheila, a couple of things.

Sheila: Good morning, Thanks, guys Victor I mean, let's start with you if that's okay, given that you're hopeful Martin spotlight.

Sheila: Give us some color on R&D up 20%. So it implies about 100 basis points of margin pressure can you maybe talk about.

Sheila: The less favorable sales mix, how much it was maybe even pricing into the mix as well.

Sheila: On the branch and how we think about that improvement as you said Q3 and Q4.

Sheila: Are headed to be better and should we expect a similar about 20% right. Thank you Ken.

Sheila: Sure.

Ken: Sheila couple of things, one I would be surprised to see a sub 20% rate in Q2.

Victor Hesq Mendelson: One, I would be surprised to see a sub-20% rate in Q2. Number two, the sales difference was not based on pricing; it was based on the shipment schedule.

Ken: Number two.

Ken: The sales difference was not based on pricing.

Ken: It was based on the shipment schedules so we.

Victor Hesq Mendelson: So I would call it a fairly normal pricing environment, which means that in some instances, customers can accept prices that recognize our costs that may be higher. And in other instances, we have longer-term contracts where pricing is locked in. So it's kind of a normal scenario on the pricing side. So really, on the revenue side, it was all about the shipment schedule and when things were supposed to ship. It's not necessarily, by the way, the production rate. So we try to keep the facilities level-loaded.

Ken: I would call it a fairly normal pricing environment, which means.

Ken: That in some instances the customers can.

Ken: Can accept.

Ken: Prices that recognize our cost.

Ken: And then may be higher than in other instances, we have longer term contracts, where pricing is locked in so it's kind of a normal scenario on the pricing side. So really on the revenue side. It was all about the shipping schedule.

Ken: And when things were supposed to ship it is not necessarily by the way the production rate.

So we try to keep the facilities level loaded our business is try to stay level loaded in production.

Victor Hesq Mendelson: Our businesses try to stay level-loaded in production, but it depends upon when the order is due for delivery or acceptance and testing by the customer. That dictates a lot of how it works for us. So again, just to emphasize, I would expect north of 20% gap margin, operating margin for the quarter, which would, of course, be north of 24%, the true margin, excluding intangibles amortization.

Ken: But it depends upon when the order is due for delivery or acceptance and test by the customer that dictates a lot of a lot of how it works for us.

Ken: So again just to emphasize I would expect north of 20%.

Ken: <unk>.

Ken: GAAP margin operating margin on the quarter, which of course would be north of 24% the true margin exclude.

Ken: Excluding intangibles amortization.

Victor Hesq Mendelson: Any sort of color on the mix impact in the quarter in terms of margin headwinds? You know, not really, other than the shipment schedules in our higher margin businesses were lower than they had been in the prior period, and that brings down the margin. But I don't want to break out, you know, which business is which at what margin, but publicly, I think our business is. No, no, no, no.

Speaker Change: Got it.

Speaker Change: A lot of color on the mix impact in the quarter in terms of margin headwind.

Speaker Change: Not really other than the shipment schedules in our higher margin businesses were lower than they had been in the prior period and.

Speaker Change: That.

Speaker Change: And that brings down the margin.

Speaker Change: But I don't want to go out which businesses what margins.

Speaker Change: Because I think our business.

Speaker Change: Hi, Bob.

Speaker Change: Yeah.

Laurans A. Mendelson: Well, hopefully not. Eric, one for you, if it's OK. You know, when core, how do we think about this revenue synergy is the best way to look at it based on the number of PMA parts. And the sales per part are about four times greater at Heico than it is at one core. So if you have that marketing channel, is that a potential way to think about the sales opportunity, or how are you thinking about it? You know, that's one way to think about it. But I'm also really looking at it as, you know, how the product sets are very complementary. No. 1.

Bob: Well hopefully not.

Bob: Eric one for you if it's okay.

Bob:

Eric: When core how do we think about.

Eric: Revenue synergies, but that is the best way to look at it.

On number of PMA parts and the <unk>.

Sales per part is about four times greater at HEICO than it is that when cornerstones. If you have that marketing channel is that a potential way to think about the sales opportunity or how are you thinking about it.

Speaker Change: That is that's one way to think about it.

Speaker Change: I'm also really looking at it as how the product sets are very complementary.

Laurans A. Mendelson: No. 2, without getting into specific customers, I would say there are a number of extremely strong relationships, sales relationships on the OneCore side as well as on the Heico side, and I think that we can help each other. The businesses can help each other by sharing those relationships and just basically, one hand helping the other. If you look historically, you know, we've taken up our margins over the last decade that you've covered us quite significantly and, frankly, have even beat where I thought they would be, and I think that there's more potential in that regard.

Speaker Change: Number one number two.

Speaker Change: Without getting into specific customers I would say there are a number of extremely strong relationships.

Speaker Change: Sales relationships on the <unk> side as well as the <unk> side and I think that we can help each other.

Speaker Change: The businesses can help each other with sharing those relationships and you're just basically one hand, helping the other.

Speaker Change: If you look historically, we've taken up our margins over the last decade that you've covered us.

Speaker Change: Quite significantly and frankly have even be where I thought they would be.

Speaker Change: And I think that there is more potential in that regard.

Laurans A. Mendelson: There's some, There's a lot of sharing that can occur on the repair side in terms of DER repairs as well as them already using the PMA parts, so I think that that's an advantage. On the defense side, we're already cooperating and working together, whereas orders used to go out to third-party companies, they're now being placed internally, and that's very strong. Likewise, in our specialty manufacturing, there's a lot of products that our specialty manufacturing group can build for our other businesses, including OneCore, and we're really pushing that as well, so I think it's just a very broad base of cooperation, as I said, without integration. When you've got really talented people who are running these businesses, who have really mastered their businesses, we find that by giving them autonomy, that's a very intrinsically motivating feature, and that's not something that exists in many companies.

Speaker Change: There is some.

Speaker Change: There is a lot of sharing that also can occur over on the repair side in terms of the ER repairs as well.

Speaker Change: They're already using the PMA parts, so I think that that's an advantage.

In the defense side, we're already cooperating and working together, whereas.

Speaker Change: Orders used to go out to third party companies. They are now being placed internally and thats very strong.

Speaker Change: Wise over in our specialty manufacturing there is a lot of <unk>.

Speaker Change: Products that are specialty manufacturing group can build for our other businesses, including <unk> and we're really pushing that as well. So I think it's just a very broad base level of cooperation as I said without integration.

Speaker Change: When you've got really talented people, who are running these businesses, who have really mastered their businesses, we find that by giving them autonomy.

Speaker Change: That's very intrinsically motivating.

Speaker Change: Feature and Thats not something that exists in many companies.

Laurans A. Mendelson: If you look at Heico overall, across all of Heico, we've got roughly 100 business heads. For a company of our size to have 100 people of this talent and skill set, where they perform so well, and they really enjoy what they do because of the way that they're treated, I think that's the real synergy here. It won't be from knocking out little costs here and there.

Speaker Change: Look at HEICO overall across all of HEICO, We've got roughly 100 business heads and for a company of our size to have 100 people.

Speaker Change: Talent and skill set where they perform so well and they really enjoy what they do because of the way that they're treated I think that that's the real synergy here.

Speaker Change: It's not going to be from.

Laurans A. Mendelson: I mean, yes, there's an opportunity to do that. For example, at trade shows. At a number of trade shows, Paris, Farnborough, and others will have booths together, so Heico and Lincor will be together. There'll be certain other trade shows where they can be separate. We want the businesses to each have their own strategy and to really take responsibility for their results, so I think that's why we're getting these benefits. Great, thank you. Thank you, Shoa.

Speaker Change: Knocking out little costs here and there I mean, yes, there is an opportunity to do that in for example in Tradeshows.

Speaker Change: And a number of the Tradeshows, Paris, Farnborough and others will have.

Speaker Change: Booths together, so <unk> linked quarter, we'll be together there'll be certain other trade shows where they can be separate and we want the businesses to each had their own strategy and to really take responsibility for their results. So I think thats why were getting these benefits.

Speaker Change: Great. Thank you.

Speaker Change: Thank you sure.

Operator: And we'll take our next question from Mariana Peruzza with Bank of America. Please go ahead. Thank you so much.

Speaker Change: And we will take our next question from Mariana for Rosemont.

Mariana: With Bank of America. Please go ahead.

Mariana: Thank you so much so first of all congratulations Larry on the award.

Victor Hesq Mendelson: So first of all, congratulations, Larry, on the award. Thank you very much. My first question is about R&D, a follow-up to ETG R&D. What are the main trends? Because you said it's pretty much across the board, I think, Chris, but what are the main trends that are driving this increase in R&D? What are the opportunities that you guys are seeing that actually are calling for this increase in R&D? Is this a particular technology? Or is it a trend?

Mariana: Thank you my first question.

Mariana: My first question is about <unk>.

Mariana: Follow up on Atg R&D.

Speaker Change: The main trends because you said, it's pretty much across the board. Thank Chris but what are the main trends that are driving this increase in R&D. What are the opportunities that you guys are seeing that actually are calling for this increase R&D is this particular technology.

Victor Hesq Mendelson: Is this, I don't know, an end market? Could you please discuss that? Sure, this is Victor.

Speaker Change: Trend is this I don't know.

Speaker Change: And end market could you please discuss that.

Speaker Change: Sure. This is Victor it's a very good question.

Victor Hesq Mendelson: It's a very good question. And by the way, when I say across the board, it doesn't mean in every business, but it's kind of what I should clarify what I mean by that is the majority of the businesses or, you know, sort of a super majority of the businesses. It is what I would call the trend. There's a tremendous amount of opportunity for our businesses to focus on newer and evolved products. Sometimes it's not just what you would consider revolutionary. Change, right? It's not necessarily developing something that's wholly new. In our case, it is more typically evolutionary.

Victor Hesq Mendelson: And by the way when I say across the board doesn't mean in every business, but its kind of what I should clarify what I mean by that is the majority of the businesses or sort of a super majority of the businesses.

Victor Hesq Mendelson: It is what I would call the trend there is a tremendous amount of opportunity.

Victor Hesq Mendelson: For our businesses on newer and evolved products, sometimes it's not just what you would consider a revolutionary change right, it's not necessarily developing something thats wholly new in our case. It is more typically evolutionary and it is an improvement on.

Victor Hesq Mendelson: And it is an improvement on an earlier version or iteration of a product. And so what we're seeing with a high number of our customers is demand for what you would consider sort of our next generation of products. So it's not just technology-based. It's not, for example, as though there is a new design that has been developed, you know, like Bluetooth came around many years ago, and everybody was implementing Bluetooth. It's not like that.

Victor Hesq Mendelson: An earlier version of iteration.

Victor Hesq Mendelson: Of a product and so what we're seeing in a high number of our customers is demand for what you would consider sort of our next generation of products. So it's not just technology base that is not for example.

Victor Hesq Mendelson: As though.

Victor Hesq Mendelson: There is a new design that has been developed like Bluetooth Kmart.

Victor Hesq Mendelson: Many years ago, and everybody was implementing Bluetooth.

Victor Hesq Mendelson: It's not like that it's more responsive to the individual needs of <unk>.

Victor Hesq Mendelson: It's more responsive to the individual needs of our customers. And are usually customers calling for this improvement? How does R&D, how do you pick what's in it, what specific products you'll do R&D on?

Victor Hesq Mendelson: Our customers.

Victor Hesq Mendelson: And are usually customers, calling for this improvement how does like.

Victor Hesq Mendelson: R&D how you.

Victor Hesq Mendelson: What are you what specific products.

Victor Hesq Mendelson: R&D auction, so we leave it to each one of our businesses to make those choices and <unk>.

Victor Hesq Mendelson: So we leave it to each one of our businesses to make those choices. In some cases, it's customer initiated. In other cases, it's initiated by our subsidiaries or somewhere in between. I mean, our businesses have regular meetings and visits and calls with customers. And so they're aware of new programs the customer may be on, new designs that they might need. And that's probably the most typical.

Victor Hesq Mendelson: Some cases its customer initiated in other cases, it's initiated by our subsidiaries or somewhere in between I mean, our businesses have regular meetings and visits and calls with customers.

Victor Hesq Mendelson: Customers and so there they are aware of new programs the customer may beyond new designs that they might need.

Victor Hesq Mendelson: And that's probably the most typical but it runs the gamut depend upon depending on the architecture of the that particular business as well as the products, but the key to it is one and willingness to always invest in respond to the customer needs depending upon the history.

Victor Hesq Mendelson: But it runs the gamut depending on the architecture of the particular business, as well as the products. But the key to it is one, a willingness to always invest in and respond to customer needs, depending upon the history and relationship with the customer, and the likelihood that they will, in fact, turn into orders. I mean, let's be honest, there are companies who will always ask their suppliers, their vendors, partners to develop something on their dime, and then they may not buy it. So that is a factor that we consider: what is the history with the customer? Are they likely to, in fact, convert to orders? Is there a PO standing behind it? Are they on a program of record, for example, if it's defense?

Victor Hesq Mendelson: <unk> and relationship with the customer the likelihood that they will in fact turn into orders I mean, let's be honest there are companies.

Victor Hesq Mendelson: Who will always ask their suppliers their vendors partners to develop something.

Victor Hesq Mendelson: On their dime and then.

Victor Hesq Mendelson: They may not buy it so that that is a factor that we consider is what is the history with the customer are they likely to in fact convert to orders is there a po standing behind it are they on a program of record for example, if its defense and where do they.

Victor Hesq Mendelson: And where do they stand with that program? What intel are we getting from the broader community? What do we hear from our other partners, customers, even trade shows, government people, things like that? So each business, though, is responsible for that. And to be honest, the beauty, I think, of our company is that it's not from on high. It is experts talking with experts. We believe in delegating those decisions down at the lowest level to be able to understand the customer best. Thank you.

Victor Hesq Mendelson: And with that program, what Intel are we getting in the broader community what do we hear from our other partners customers.

Victor Hesq Mendelson: Even tradeshows government people things like that so each business, though is responsible for that and thats to be honest. The beauty I think of our company is that it's not from on high.

Victor Hesq Mendelson: It is experts talking with experts, we believe and devolving those decisions down at the lowest level.

Victor Hesq Mendelson: To be able to understand the customer best.

Speaker Change: Thank you and my last one is on M&A.

Laurans A. Mendelson: And my last one is on M&A. Could you please discuss when you do acquisitions like the recent Honeywell licenses on Navionics, and there are adjacent opportunities for you, but I could imagine that a company like this or a license could be able to unlock more upside opportunities in terms of revenues under the Heico ecosystem compared to if this license ends up in another third-party MRO shop. Like, can you please discuss how you think about those upside opportunities and how long it could take to actually see them? Sure. Mariana, this is Eric.

Speaker Change: Please discuss when you do acquisitions like the recent Honeywell licenses beyond there are adjacent opportunities for you, but I could imagine that a company like days already license good be able to a lot more upside opportunity in terms of revenues under the high call ecosystem compared to if this.

Speaker Change: License and other.

Speaker Change: Third party MRO shop like can you. Please discuss how you think about those upside opportunities and how long it could take to actually see them.

Speaker Change: Sure Mary Anna This is Eric I'd be happy to answer about that so HEICO has done a number of licensing deals over the last decade. So we're very well experienced on doing those licensing deals and in particular when you look at the component repair footprint HEICO has.

Laurans A. Mendelson: I'd be happy to answer questions about that. So Heico has done a number of licensing deals over the last decade. So we're very well experienced in doing those licensing deals. And in particular, when you look at the component repair folks, Heico has got 19 individual MRO businesses just within flight support. And then over in ETG, there are another number of them there as well. So we've been able to buy these licenses and basically take the technology and put it into a business that's already incredibly experienced in that market niche and really understands the technology. So when we buy a life, we're able then to go out to the customer with people who can hit the ground running, and in many cases, are already working with the customer on other items, and it's really a seamless experience.

Speaker Change: Got 19.

Speaker Change: Individual.

Speaker Change: MRO businesses, just within flight support and then over in Atg there. Another a number of them there as well so we've been able to buy these licenses and basically take that technology and put it into a business that's already.

Speaker Change: <unk> experienced in that market niche really understands the technology. So when we buy a license. We're able then to go out to the customer with people who can hit the ground running in many.

Speaker Change: <unk> are already working with the customer on other items and it's really a seamless.

Speaker Change: Experience.

So I think that there is plenty of opportunity for HEICO in this area to continue to grow in adjacent white spaces I can tell you that our reception at the customers.

Speaker Change: The Honeywell product has been extremely strong and they've been very happy about that.

Speaker Change: Stu.

Speaker Change: Our experience with regard to quality turn time in price. So the reception has been very strong. So I think that it was a great move for both Honeywell.

Speaker Change: As well as for HEICO as well as for our customers. There is just a net benefit and an increase to the industry here. So I think that there is.

Speaker Change: Additional opportunity for us.

Speaker Change: Great. Thank you so much.

Speaker Change: Thank you.

Speaker Change: And we'll take our next question from Gautam Khanna with TD Cowen. Please go ahead.

Gautam Khanna: Hey, good morning, Congrats on the award.

Gautam Khanna: Thank you very much.

Gautam Khanna: Of course.

Gautam Khanna: A lot of questions have been asked and answered I was wondering if you guys are seeing any difference in.

Gautam Khanna: Activity level.

Gautam Khanna: The direct channel versus the indirect.

Gautam Khanna: And maybe you could just talk by market, whether it be aftermarket with their poa.

Gautam Khanna: If youre seeing anything.

Gautam Khanna: Considerably different any restocking destocking in the distributor channel and alike.

Gautam Khanna: Yes.

Gautam Khanna: And this is Eric you want to know how we're doing with regard to aftermarket and OE on order pattern or.

Gautam Khanna: What.

Gautam Khanna: <unk>.

Eric: Yes, so maybe maybe just distributors defense and Aero like is it or are you.

Eric: Are you seeing any differences in those order patterns versus selling direct.

Eric: Outside of the distribution channel.

Eric: Well so our.

Eric: Sure.

Eric: Our distribution businesses are doing extremely well.

Eric: They are continuing to gain market share they have the right inventories I think our customers are very happy as a result of working with them.

Eric: Likewise over in the PMA area, where we in the repair area, where we sell direct.

Eric: Likewise, the same thing so I would say a very good strength in both with regard to product availability on the flight support side.

Speaker Change: Things are tough.

Speaker Change: Frankly, our vendors are quite behind and.

Speaker Change: I think our results could be even better if.

Speaker Change: They were able to ship the overdue backlog and this is really across the board in the parts area I would say, both the PMA as well as the distributions.

Speaker Change: I think there have been some raw material challenges as a result of the sanctions.

Speaker Change: And then of course as Victor alluded to with regard to labor that continues to be a challenge.

Speaker Change: But definitely the supply chain is tight.

There really isn't.

Speaker Change: There is no excess capacity.

Speaker Change: Things are very tight.

Speaker Change: And we're hoping that by the end of 'twenty four things normalize frankly, I would've thought by now.

Speaker Change: Things would have normalized more but unfortunately, our vendors are they are really struggling things will get better after November.

Speaker Change: And a lot of ways.

Speaker Change: Yes.

Speaker Change: Carlos you've mentioned you've talked about the 21% to 22% flight support margins as sort of the right ballpark.

Carlos Macau: And I think previously you said the cycle would be somewhere in that range as well I mean is there any like what is the.

Carlos Macau: It sounds like one quarters going better there is some pricing opportunity as you've mentioned in response to <unk> question.

Carlos Macau: I'm just curious like what is it.

Carlos Macau: Youre confidence longer term that maybe doing better than that forget fiscal 'twenty four but just sure looking out.

Carlos Macau: Highly confident.

Carlos Macau: I think if you look back over the last decade, just just if you wanted to do a history lesson.

Carlos Macau: Back from pre Covid, and just look back 10 years, and you'll see a pattern of where the SSG continually X out.

Carlos Macau: 2030, 40 basis points, a year, you know what I mean.

Sometimes it's a little flatter, but if you look at that trend.

Carlos Macau: Think we're returning to that I think that's on an annual basis by the way I think we're heading in that direction, we can't continue.

Carlos Macau: To grow at a breakneck pace I think we're at a pretty high growth level right now and at some point, we get back to what I'll call a normal business cycle and Thats when youll see our margin take those nice incremental jumps up until then.

Carlos Macau: With our end markets being as hard as they are you know the margin can fluctuate a little bit based on volumes, what we're selling but I do think at some point when this hyper growth scenario, we're in softens and gets back to I don't want to say business as usual more customary demand in the market I would say that that incremental eke out.

Carlos Macau: Of growth North small increments as what we would expect to see.

Carlos Macau: And as far as very much guys.

Carlos Macau: By the way as far as the 21, 2%.

Carlos Macau: We feel very confident that we're going to wind up in there, we always could do better but.

For modeling and thinking about the business, that's where I'd say keep your focus on that in that area.

Speaker Change: Appreciate it guys. Thank you so much.

Speaker Change: Thank you.

Speaker Change: And as a reminder, its star one if you'd like to ask a question and we will take our next question from Bert <unk> with Stifel. Please go ahead.

Bert: Hey, good morning, Thank you for the questions.

Bert: Good morning.

Bert: Maybe Eric first question for you you talked about pricing being the primary growth driver when it comes to new customers just relative to existing customers.

Bert: More of a function of inflation pass through can you just talk about what your new customer strategy is and maybe what percent of sales come from new customers in a given year.

Bert: And just also as the new customer increasingly internationally based customer.

Eric: Yes, it's a good question Bert.

Speaker Change: We don't have that many new customers and thats pretty much because we deal with everybody.

Speaker Change: So occasionally when an airline gets farm there can be a new one.

Speaker Change: I would say that our biggest opportunity is to continue to increase our market penetration with our existing customers. So that really is where the.

Speaker Change: Where the big opportunity is.

Speaker Change: As opposed to new ones I mean, we do get new ones, but we're pretty much dealing with everybody in the world So unless a new airline gets created.

Speaker Change: It wouldn't be that type of opportunity.

Speaker Change: And just a clarification there just in terms of the pricing. If you are having sort of greater market share gains or market penetration is there.

A different sort of function like if you're selling an existing product to an existing customer you are pricing that I.

Speaker Change: I guess more generally in terms of just passing through inflation instead of marking to market, but if you're selling them a new product is that an opportunity when you think about margins.

Speaker Change: Yes. The answer is yes, so if a customer is buying.

Speaker Change: Our product and its under contract then obviously they would have price protection for the terms of the contract.

Speaker Change: <unk> of the contract.

Speaker Change: If thats what it provided for.

Speaker Change: And of course, there are different things, which matter to different customers. So were very accommodating there.

Speaker Change: However, if a customer if that customer wants to start buying a part that they haven't purchased then they would get a price based on the new list price as opposed to what the oil price was so there's definitely a big incentive to get started and get locked in with us.

Speaker Change: As early as possible.

Speaker Change: Okay got it Super helpful. Eric just one follow up Larry you.

Speaker Change: Reaffirmed your view toward 15% to 20% earnings growth that you sort of highlighted last quarter for FY 'twenty for at least based on what Youre seeing today if.

Speaker Change: If we were to get to the end of the year and you were to outpace I guess on the positive side the 20% Mark.

Speaker Change: I'm just curious when you think that'd be more a function of MSG atg or faster debt paydown.

Speaker Change: Well it could be the result of all three.

Speaker Change: And however.

Speaker Change: We try to control earnings growth, we really do and <unk>.

Speaker Change: Hi, Cole I think investors like consistency I know.

Speaker Change: We're probably the largest single investor in our company to get 401, K and Carlos.

Speaker Change: So we like consistency, we don't like to go up one year down the other.

Speaker Change: Order to do that and to generate cash flow. So we don't get over leverage.

Speaker Change: We'd like to continue to be within 15% to 20% so.

Speaker Change: It is possible we could go over 20% at this point.

Speaker Change: Everything I know and my our own thought projections.

Speaker Change: We'll be within 15% 20%.

Speaker Change: Would we go over it it's possible but.

Speaker Change: At this moment I wouldn't predict that again.

Am Conservative and however, I do say that my own guesstimate is that we will be within 15% to 20%. So.

Speaker Change: I don't know if that answers your question, but the other thing is.

I see that both of our businesses are really very strong you've heard the whole story and Victor has described the first quarter of BTG is really a weak quarter, because we couldnt ship in these various things the backlog supports a huge increase in from the second to the fourth quarter.

Speaker Change: So we should see the atg definitely level out and return to what I would call reasonably normal profitability.

Speaker Change: Flight support similarly is very strong too and with the <unk> acquisition and the <unk>.

Speaker Change: <unk> abilities of gaining some of the synergies which were doing very slowly.

Speaker Change: And we want to build it in but.

Speaker Change: It's a long answer to your question, but.

Speaker Change: I really think at this point, we will be within 15% to 20% growth and.

Speaker Change: If we go over.

Speaker Change: Can't predict who might do it.

Speaker Change: Fair enough. Thank you for the comments I appreciate it.

Speaker Change: Okay.

Speaker Change: And we'll take our next question is from Luis Rosado with Wolfe Research. Please go ahead.

Luis Rosado: Hey, Thank you good morning, guys.

Luis Rosado: Good morning.

Luis Rosado: Carlos you talked about expecting I guess.

Luis Rosado: Should it be pretty strong in <unk> was there anything specific there on mix I'm, just trying to bridge sort of the 100 basis point clean margin sequential improvement with sales that weren't sort of too dissimilar from last quarter.

Luis Rosado: There was I would say that the.

Luis Rosado: We had strong performance in parts is kind of leading the pack.

Luis Rosado: Repair was closed second specialty products was soft and went behind I think that.

Luis Rosado: Based on shipments that business is a little more predictable believe it or not then than the parts and repair business are so we had anticipated that the specialty products was slow down slightly in Q1, and it did and we have expectations that it's going to be fine for the rest of the year, but I don't there is if your question is is there any one offer strange mix.

Luis Rosado: Now this is pretty much played out the way I thought it would.

Speaker Change: Alright, great. Thank you and then Victor just one for you you laid out strong aerospace in the quarter and then some of those other markets I didn't hear anything on defense. So I know, it's a big part of the business just wasn't sure how that did in the quarter you've seen I know you've kind of had seen some sequential improvement does that continue this quarter do we step back at all.

Victor Hesq Mendelson: Yes. Louis it's continued overall all in to grow and.

Victor Hesq Mendelson: So what I was segmenting out was the areas that were weak as before but defenses as we expected moving in the right direction.

Victor Hesq Mendelson: Alright, great. Thank you and then just one for you.

Victor Hesq Mendelson: You've kind of talked about balancing M&A and leverage I guess as we think about the rest of the year as well.

Speaker Change: Would you be willing to go above three times leverage that you saw a deal that would put you there or is that kind of a hard limit.

Speaker Change: The answer is if it was super sensational and it really added to the bottom line and we looked at it and the payback is a result of it would drop us below.

Speaker Change: <unk> three times it back into the two times area we.

Speaker Change: We might consider it.

Speaker Change: Very careful with that and also interest rates are very very high so to make these acquisitions now because of interest rates.

Speaker Change: It's a little bit harder.

Speaker Change: So to answer your question it would have to be something sensational.

Speaker Change: To make us go above three times.

Speaker Change: And so far I have not seen something so sensational so I think it's highly unlikely.

Speaker Change: But as we get from <unk>.

Speaker Change: Just under three times as we head to two times, which we estimate in the press release, we said 12 to 18 months from the time, we incurred a debt and Thats, we believe thats accurate, but along the way we might find as we did with Honeywell vary.

Speaker Change: Accretive cash flow in.

Speaker Change: EPS acquisition, which would actually make the ratio if you do the arithmetic you make the ratio of debt to EBITDA.

Speaker Change: Go down because of the earnings that we produce we would do that.

Speaker Change: So again, that's why I say it takes a lot of thought process. We just don't make acquisitions Willy Nilly and remember one thing.

Speaker Change: That the medicines.

Speaker Change: Family and our 401K, we are there to protect that next day, and we're going to be very careful and incurring any kind of debt and we don't want to get into any kind of financial problem.

Speaker Change: Have great cash flow, we have a great business, it's growing nicely.

Speaker Change: So we'll be very careful with that debt.

Speaker Change: I don't know if that answers I appreciate it no that's perfect. Thank you.

Speaker Change: Thank you.

Speaker Change: And there are no additional questions.

Speaker Change: Well I would like to again, thank everyone on this call for their interest in HEICO were.

Speaker Change: We are available if you have other questions you can contact Carlos Eric Victor and myself and if you don't we look forward to speaking to you on the second quarter earnings teleconference, and Thats. The end of this teleconference and again. Thank you have a wonderful day.

Speaker Change: Yes.

Speaker Change: And this concludes today's call. Thank you for your participation you may now disconnect.

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